Re: Meg Munn chunters on...

In article <wR3Ze.546645$s54.221737@pd7tw2no>,
"Heidi Graw" <heidigraw@xxxxxxx> wrote:

> >"Mark Sobolewski" <mark_sobolewski@xxxxxxxxx> wrote in message
> >news:mark_sobolewski-98984E.22070523092005@xxxxxxxxxxxxxxxxxxxxxxx
> (snip)
>
> > Hello Heidi,
> >
> > Tell you what: If you're so sure that there is no real estate
> > bubble,
>
> I said earlier that much depends on the area in which you buy....location,
> location. If you buy into a growing area, you'll find property values
> increase. Information about neighbourhood historial trends and future
> development plans can be found at city hall. This is public information
> that should be readily available to you.

Indeed! And home _building_ is growing as well. So even though
there are many new homes being built in record number in my area,
why are the prices still skyrocketing?

Did you ever hear of the book: "The madness of crowds"?
http://tinyurl.com/9t5et

A few things: Many home investors are buying interest only
loans in the hopes of turning around the property later
at a profit. This has given Greenspan some concern because
all of those are coming due, SOON and they'll have to dump
those homes ASAP or take a hit.

Next, there's something known as investors. You know, the
landlords you claim are making a killing by "paying
their mortgage" at my expense (I'll explain this below)

In both cases, these are investors who are not as committed
to holding onto their home through dips in the market as you
would be. These speculators have helped to both push
prices up through the roof and create instability.

> >put up some of your own money on this proposition:
> > If I buy a home and if the bubble doesn't burst in 4 years,
>
> If you buy in a town that only has one major employer, such as a milltown,
> and if that employer goes bankrupt, then yes, in that small town the bubble
> could and most likely would burst. Real estate values would drop
> significantly. But, if you're buying in a town that has diverse industries
> or more than one major employer and there's been demonstrated steady growth,
> there's no bubble that would burst in such a town.
>
> Greenspan and other "experts" are more concerned about general overall
> trends. If they paint a gloomy picture for the USA, there will still be
> pockets of vibrant economies is all sorts of locations.
>
> For example: My town in BC. BC's overall economy is booming. My property
> assessment increased by 120% over the last two years and there is no sign of
> a slowdown 'cause an influx of people and the demands for development are
> indeed phenomenal, longrange and long term. Yet, in other areas of BC *one*
> industry towns in remote locations are turning into ghost towns. These are
> pockets in an otherwise booming economy which are simply not booming. They
> are dying.
>
>
> > I'll give you a cool 2 grand (USA). All just for following your
> > savvy investment knowledge and experience.
>
> Save your two grand to pay down your mortgage. ;-)

I'm not a doctor, but I play one on TV. -- Tylenol advertisement, 1980's

> > If you're wrong, however, you give me whatever the difference in
> > price is between when I bought the property and when I call you
> > on your claim taking into account costs/losses from
> > property taxes, interest rate changes, and that super
> > tax break.
>
> ...as opposed to what? Paying down your landlord's mortgage? Why increase
> his equity, when you can be building your own? Nothing irked me more than
> to be paying rent! I begrudged my landlord every penny! ;-)

Actually, I'm not paying her mortgage.

In my particular building, the landlord is trying to make money
by renovating and turning that property around, for a profit
by selling it to the next buyer. I did the math and
to buy my particular unit, it would cost me close to what I pay
in rent for an _interest only_ mortgage. She's pushed
millions in investment capital into this property but NOT
raised my rent. Why is that?

Do you know what "interest only" means? A significant fraction
of people have them today and don't increase their equity whatsoever
except in terms of hoping that the market continues to rise
(along with their property taxes.) Even if they do
earn a "profit", they only earn money in paper equity
and theoretically have to make the same payments forever except
when the balloon payment comes due.

No thanks. I would rather be at the beginning of a trend
than the end.

> > Yes, that's right: In the states, the government giveth
> > those tax breaks but takes away in property taxes and
> > the loss of the standard deductable (not a lot, but
> > a person burns the first 6 or so grand per year before those
> > much heralded deductions take any effect.)
>
> So? I have to pay property taxes, too! I don't get a tax-break on any
> interest I pay. Even if that worked out to be a small benefit, it's a
> benefit I could have used to pay off the mortgage much quicker.

Typican woman: You haven't run the math. :-)

I checked the standard deductable (this is the amount
the government automatically gives a married couple
that they would have to declare otherwise.) For last
tax year, it was a cool 16 G's.

This means we would need to have deductions in that amount
before we could take off a single penny. In the case
of buying a condo similar to what we have now ($150K or so),
this would come out to a grand a month to pay off the
loan in 30 years.

So. Do I currently pay my landlady's mortgage when that's
EXACTLY what I give her now and I also get FREE utilities
(about $150 or so), maintenance, and no property tax
liability?

Hmmm?

Oh, and I forgot: Even if that's ALL interest (and for the first
year, it almost is), that comes out to $12,000 which means
we would still pay the same amount for that tax year anyway.

But you are right that is is possible for a landlord to
make a killing off of a rental BUT at the same time,
so can I: That 16 grand deductable is individual while
the corporation that owns this property can aggregate
all their interest payments together in their deduction
far more desirable than my wife and I could alone.

There is NO, repeat, NO 1:1 interest rate tax deduction.
The government does _not_ pay people's interest.

> > If you're interested, I'll be willing to work with an
> > attorney to draft up an agreement where you reserve a share
> > in your own home as collateral.
>
> Save the legal fees.

Translation: Cluck cluck cluck!

Dragging yourself even deeping into the nice cool water
isn't as desirable to you, apparently, as just inviting
another morsel, er, swimmer in.

> You know I'm making entirely too much sense. Take
> that leap, Mark. You've got nothing to lose.

Apparently, so do you. Free, unsupported advice is
like that. Care to try skydiving?

> Buy in a growing area. Buy
> something you can afford...a starter home. Look for the lowest interest
> rate possible, lock it in just in case interest rates zoom upwards for a
> brief time. This will protect you against unexpected higher payments. And
> if you find yourself caught at a time of high interest rates, make that term
> shorter so you can once again seize the opportunities when interest rates
> are low again. That starter home will increase in value so that you can
> eventually move on up to a bigger house and one you actually want.>
>
> It's not scary or risky what I'm proposing.

Sure it is. If I buy in close to the top of a market,
I risk losing thousands of dollars that I could have
invested in other things.

If I stand pat, I pay LESS today than I would to buy
my unit (even with an interest only mortgage) AND
I put $300 bucks in the bank _EVERY MONTH_ to save
for a down payment when I do decide to hop in.

> I'm giving you advice that I
> followed myself.

"Baa-ram-ewe, baa-ram-ewe. To your breed, your fleece,
your clan be true. Sheep be true. Baa-ram-ewe"

> My initial bungalow at the end of the airport runway is
> now a lovely sprawling rancher on acreage. My initial investment 25 years
> ago is now worth 10 times as much. Yes, TEN TIMES! I think I did rather
> well, don't you? ;-)
>
> Heidi

Good for you! Really. So if someone told you that they
made a similar killing on a particular stock that had
risen for that period of time, would you buy it just
as it's peaking out?

regards,
Mark Sobolewski
.

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