Re: Meg Munn chunters on...

In article <PYiZe.545787$5V4.18981@pd7tw3no>,
"Heidi Graw" <heidigraw@xxxxxxx> wrote:

> >"Mark Sobolewski" <mark_sobolewski@xxxxxxxxx> wrote in message
> >news:mark_sobolewski-74F89F.14100824092005@xxxxxxxxxxxxxxxxxxxxxxx
> (snip)
>
> >>Heidi wrote:
> >> 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.
>
> >Mark wrote:
> > 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?
>
> Because there are city *limits*...boundaries. There is only so much *land*
> available for development within each city, town, district, etc. The more
> people move in, the more land is needed. The scarcer land becomes, the more
> valuable it becomes. Real estate prices rise as the demand grows.

Yet, new homes are being built even there are city *limits*.
See, just because you put *limits* in astericks doesn't mean new
homes aren't built. Strange.

> Or let's take the number of high-rise condos. Only so many buildings exist.

Did you ever hear of something known as construction?
They that this substance known as cement. Check it out!

> As more and more people demand condos, being available only in limited
> amounts, those condo prices rise. Sometimes the rate of building new condos
> is slower than can meet the demand of an influx of people. Sometimes
> availability is calculated specisely in such a way that the prices remain
> high on purpose, especially where demand is steady, ongoing and regular.
>
> > 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.
>
> And you're counting on massive numbers dumping their homes, rather than take
> that hit and carry on?

People get interest-only mortgages usually because they
cannot afford to pay down the principle from the start.

> What if that doesn't happen? Or, what if the
> dumping happens, but the prices remain high anyways because enough other
> people are still buying that will allow those prices to remain high?

THEN, by definition, there is no dumping since those people
with the interest only mortgages would replaced by others
doing the same thing: buying a property only to turn it around
later.

> Even
> if bankruptsies occur and the banks repossess the houses, the bank will
> still want to see a return on *their* investments.

Absolutely. HOWEVER, banks are not going to be patient such
as homeowners who are willing to eat a 50 grand loss because
they're going to live in the home anyway and wait for
the price to come back up.

I'll address this below when I discuss my situation as a renter.

> If the bank handed out
> interest only mortgages then they're *not* going sell those homes for 30%
> less! They'll hang onto the real estate until they get back what they
> invested.

Yes, investment banks and institutions are well known to
hold onto capital and ride losses to the bottom rather
than liquidate and buy into a different market where they
can make money IMMEDIATELY! :-)

> (snip)
>
> >> >Mark wrote:
> >> > 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.
>
> >> Heidi wrote:
> >> ...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! ;-)
>
> > Mark wrote:
> > Actually, I'm not paying her mortgage.
>
> That doesn't matter. Any money you pay a landlord is *not* money you're
> using to building something of value for yourself.

So you emphasized I was paying her mortgage and now it doesn't
matter that I'm not.

And you're mistaken: I AM building something of value: I sock
away about 300 bucks a month.

> > 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.
>
> Mark...just because "interest only" loans are available doesn't mean *you*
> have to get into such a scheme.

No. I can work my ass off to maybe pay off the property in 30 years.
Wow! Why wouldn't I want to get in on that? Why wouldn't
I want to rent a property rather than own it when I'm paying
out less. What an idiot I am!

In the meantime, I think I'll buy a plane. It's so foolish
of me to pay $300 per seat when planes go for the low low price
of just 20 grand or so.

> You can still buy something with a
> down-payment and make large enough monthly payments to gradually reduce the
> mortgage. You can still build up equity.

Unless the market goes down. In which case, I don't build
up equity. So other than the fact that there are risks
and I would pay out more per month than I do on a rental,
it's a PERFECT idea!

> (snip)
>
> >Mark wrote:
> > 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.
>
> Let's take an example of a current popular trend in my area.

Let's take an example of a stock I own...

> New houses are
> popping up like crazy ...huge subdivisions consisting of hundreds of new
> houses. They are being filled up with families just as soon as another
> house is finished. Going rate: $325,000 to $350,000. Minimum downpayment
> required anywhere from 5% to 10%....either $16,000 to $35,000. If you save
> up $300 per month you'd be able to buy one of these houses in about 4 to 10
> or so years. Real estate values have been creeping up steadily. They are
> predicted to continue to rise.

Wow! If they're PREDICTED to continue to rise, that clearly
cannot be wrong. We all know how economists NEVER make
mistakes.

There's a fundamental difference between you and I: I acknowledge
that it is possible that there is no real estate bubble
and that I'm taking risks whenever I make a major financial
decision.

You, on the other hand, appear to have drunk some kind of cool
aid. You've made money in the past (at least on paper) and
you feel good about it. Good for you. But this by
no means is a predictor of future results.

In fact, the louder you proclaim what a great idea it is the
more likely I am to be proud of my decision to stay out of
the whole mess. I'll wait for the next rocket to the
comet, thank you Minister.

> So, let's assume 10% increase annually...

Assume makes an ass out of you and me. :-)

> a
> conservative estimate:

Indeed!

CONSERVATIVE investors don't hold onto failing and dropping
property once they detect a downturn. They love it when
the market is clearly going up, but if they see a slight
downturn, they bail. FAST! They jump in slowly
(helping to make prices rise slowly) and when they sell,
they're out of there faster than an SUV owner in East Texas.

> That would be $32,000 to $35,000 per year.

The problem with this "conservative" investment is that it's
not terribly conservative.

When you probably bought your home originally, owning
a home may have been about or even cheaper than renting.
This is why you resented paying your landlord's mortgage.

However, today, I pay less in rent than I would to own. Why?

Answer: Because the cost of BUYING a home has outstripped
renting. This simply cannot continue forever because
other people (chuckle chuckle) eventually will realize
that it makes more sense to get out of a market while
it's high and join me as a renter than it would
to hope th starship lollypop flies to Venus.

WHEN the market collapses, as it must to match what
homeowners can REALISTICALLY afford to pay rather than
interest only loans, then those people will be sittin'
pretty with me.

The key is that I'm already here. I'm just keeping
the light on for 'em.

> You're
> only saving $3,600 anually for that downpayment. In 4 years that house
> would be worth at minimum $453,000. You'd need minimum downpayment 5% =
> $22,650. But, you've only saved $14,400 pluse 4 years interest on those
> savings.

Indeed! You're saying if I don't buy now then I won't
be able to afford to buy one later, right?

Er, that's why bubbles burst! It's not just ME! When too
many people need to get interest-only loans just to turn
around properties, that's a sign that the bubble has
risen to the top and it's time to get off.

Even better, get this: When a bubble does burst,
it's often because there are few buyers willing to
prop up the rest of the pyramid. So the sellers have
to dump, FAST, and take a huge hit. Either in bankruptcy
(and no, a bank won't be kind to let their money rot
for 20 years just to keep your property values from
falling. Sorry) This prompts more people to dump
and that's why investment curves tend to look like
ski slopes: Real slow going up and REAL fast going down.
(Or is that the other way around? :-)

> You're currently paying $1,000 per month rent. You say you can save $300.00
> per month for a downpayment. You've got $1,300 per month to spend. Go to
> the bank and find out how much money they will loan you for $1,300 per
> month. Buy that tiny old little bungalow *now*....that's something you can
> afford to buy *now.* Move in and start paying yourself! ;-)

OR.... I could put that money in with Janus and watch it grow
about the same rate AND buy in later, when the market is low,
and enjoy paying $700 a month instead.

Hmmm, $700 per month or $1,300.... I'll take $700.

regards,
Mark Sobolewski

PS: Do you Canadians believe EVERYTHING that's predicted?
Do you really think the weather reports are fact?
.

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