All Forum Posts by: Tom NA

I agree with tiredout. Have your realtor friend buy your unit at current market value and stomach the loss month after month. I'll bet his opinion changes when it's his money on the line. Remember, the title "realtor" doesn't necessarily make him any smarter than you or I regarding investment real estate...

A couple thoughts here:

o Paying off your car, when possible, is almost always a good thing unless you have a super low interest rate.
o If you recently put in an extra $10-11k into your house and now have the balance down to $107k on a $122k purchase, this was a good thing to do. You are still leveraged too highly on your personal home in my opinion (88%) and should pay down even more - I'm not sure you could ever refinance if necessary in today's environment. I suspect you're throwing away money on mortgage insurance as well and also putting yourself into a situation where if your home loses any value at all, you'll be upside down on your loan.
o *Once you have a solid equity position in your personal home*, then I would look toward other avenues for investing your free cash. Even though this is a Real Estate investing board, I would always recommend that someone first max out potential investments in (a) 401k plans, (b) IRA's, (c) ESPP if your employer offers one - before considering a rental property. Too many tax advantages and other benefits to these to let them pass you by, especially when RE is not an easy game. In fact, my personal recommendation, knowing that most people are really not as suited for RE as they think they may be, is to consider mutual funds and stocks before ever venturing into RE. Personally, I had a very strong portfolio prior to ever purchasing a rental property which provided me with diversification as well as something to fall back on if I was a total failure and needed some cash. I'll bet 9 out of 10 people do better in the market than in RE (certainly the case for me).

Nice explanation Tim. Makes sense and I respect your desire to protect your information as it is an asset for you.

I would have a strategy *before* you purchase this property, not *after*. Sounds like you're really not sure what you might do with it. If you're going to wholesale or resell, I would just pay cash since you should have it back soon enough and it just makes things simpler. If you're going to hold as a rental, I'd be more inclined to finance though some people like to pay cash for all their properties and in fact I did so for my last one. Good luck.

Sorry, but I'm with all_cash on this one creedog. No offense but you have no cash, no credit, and are on the verge of being unwilling to hold down a job - that's about the same status as my 3-year old. How in the world are you going to build any credibility or expect to make it in RE with that track record? There's nothing to suggest that you know how to manage money nor do you have any experience in Investing - why would someone risk their hard-earned money on you? I know people make Real Estate Investing seem like it's magic but money isn't just going to fall into your pockets because you want it to.

If you really feel that this is your path (and I would challenge you to answer *why* you believe that is the case), given that you have no resources, I would go to your local REI meetings and hook up with others. Offer to do the legwork for them for a small cut of a deal, learn from them, network with them. Perhaps if you prove yourself capable, someone will eventually take a chance on you.

And don't forget to get a judgment against her so that she is on the hook not only for back rent but for all the legal fees as well. Collecting may be difficult but it sure will wreak havoc with her credit if she cares.

Letting your tenants intimidate you is a sure path to financial ruin and non-stop headaches. You're property - you call the shots. Period.

First, it's great to see that you're trying to take control of your finances now, Ram, while you're young. Too many people wait until near retirement when it's too late. You're asking the right questions and just taking in the information with a great attitude and I applaud you for that.

As for the assessment from the county - totally separate from any appraisal performed by the bank. You made an agreement to borrow from and pay back to the bank $410k - there is no stipulation on how that relates to true home value. If they had to *reduce* your loan value to $250k if your assessment came in that low wouldn't it also make sense that they *increase* your loan value to $600k if the assessment came in at that high number? This is purely a play to save you between $1k-$2k on your property tax bill this year - depending on how much you can get knocked off plus assuming your property taxes are around 1.1% (pretty standard around here). By the way, you will need to contest the assessment each year if you are unhappy with the assessed amount - they don't just keep the new value if you win the reassessment this year. It will most likely go back up to $360k again next year.

I guess I've given my opinion on 'stay or move' but I will note that plenty of people working with me here in Mountain View come from further than Concord on a daily basis. That kind of commute is not for me and it sounds like it's not for you but then again, a financial bind can make us all do lots of things that aren't ideal. I'm not knowledgeable on how a short sale may affect your credit or anything like that so no advice there.

One thing I can't advise you on is what to do with the loan that will balloon in 2010. I'm actually assuming that it can only jump by 2% in the first year (pretty standard) with the 10.5% being the max rate that you wouldn't hit until at least a couple years later. You should check your documentation to be certain. It's a big difference jumping to 7.5% vs. 10.5%. Seems to me that you need to save like there's no tomorrow so that when your payments start going up, you are in a position to either suck it up and make the higher payments or refinance (or sell) using a bunch of cash that you have saved up to put toward equity. You have the benefit of having at least 2 years to plan for this day of reckoning - use the time wisely!

Ram,

Typically, there is info on how to contest your assessment that comes with your bill or your pre-bill statement. For your case, look here:

http://www.co.contra-costa.ca.us/

Go to Departments --> Assessor's Office

All the info you need is there. Note that I'm just an average guy like you so you don't need to be a lawyer or anything else to do this. Just find a handful of comps that tell the story you want to tell and include them with your submission. Usually, using a price per square foot for other townhomes within close proximity to yours should be a pretty good way to sell your story. Ignore the ones that sold for $600k, focus on the ones that sold for $250k so you're providing data that supports the message you are trying to deliver.

Now for the tough love part - the stuff I usually leave to others... If I were you, I would do a couple things:

1. Keep living in your current home. Your reason for moving (not even work related if I can tell correctly) does not seem compelling enough to put your life in financial jeopardy. I would stay put since you seem to be able to afford your place as is today. Not moving = no problem to solve. You continue to drive for your charity and other activities in the south bay - you can buy a lot of gas for the $150k you will have to pay out of pocket selling your house.
2. Put the RE investing idea on hold! Out of one side of your mouth, you're talking about doing a short sale on your house and not being able to come up with the money to unload your property because you leveraged it to the hilt and out the other side of your mouth you're asking people in TN and other locations how you can get into a rental property that cash flows? You don't see the irony here at all? Now granted I'm conservative but believe me, I didn't consider buying a 2nd house until I had hundreds of thousands of equity in my first home + a very nice amount of money set aside in stock, mutual funds, 401(k), etc. All things I've never had to tap but *could* if some catastrophe struck. Bottom line - you need to manage money well on a personal level or you won't do any better on a business level.

Good luck.

Ram,

I agree that I have always had success using Craig's List to get an idea of the market rent rates. I've also had good success with it in getting potential tenants. Other advertising avenues are indeed a sign out front and if you're having a hard time finding someone, you could have it placed on the MLS (will cost you a little money).

As for some of your other ideas:

o I think your hope of getting $1850/month is a bit ambitious. It's pretty easy to find a SFR in the East Bay for that or cheaper so why would I go for a small townhouse if I'm a renter?
o I would consider offering a lease/option possibility to anyone interested. This may or may not help generate interest but is a good way to potentially get some money down as well as a higher rent.
o I don't think the wholesaling idea makes any sense. If I were a wholesaler and I buy this thing from you at what is probably above market price, who in the world am I going to sell it to? I can buy properties in Concord for much less that are probably at least equivalent so I don't think there's any chance of this at $410k. You're going to have to move away from what *you* paid for the house and ground yourself on what someone else will pay for it *today*. These can be radically different!
o Apply to lower your assessment even more. I have done this successfully many times. Find about 3-5 comps that are around your square footage, in your location, same dwelling type, with low selling prices and write a letter to the assessor (they have a form and you can supplement it with your data). Find any 5 properties that sold for $250k in the past year and argue that's the value of your property. I've only had my request for reassessment rejected one time in about 4 attempts and I've had up to 20% stripped off the assessed value.

Finally, in your first post, you noted that

I don't think you should say that you are "unable" to sell the house but rather "unwilling" to sell the house. You have grounded yourself in the price you paid and don't want to sell below that. It's either a mental block or you don't have the money to bring to the table to complete such a transaction - I don't know your financial situation so I can't say which it is. However, it is very obvious without even running any numbers that you can expect to lose at least $1k/month if you keep this property and rent it out (I'm too lazy to do the real math).

My questions to you would be what your long-term plans are. Are you going to move back to the East Bay someday? If so, it may make sense to hold on but otherwise I would sell at or below today's market value. Otherwise, I have to think you would be throwing away at least $10k+ per year on this property. Putting it into numbers, let's say it will take 5 years for this property to be worth $410k again, at which time you would consider selling. Taking out any time value of money, that means that you will have put in another $50k at least over that period while you're renting it out. Thus, you'd be just as well off selling today for $360k if you can get it.

My other question, which unfortunately I think I know the answer to, is can you get an apartment in the South Bay for let's say $1k less than what you can rent your townhouse for? If so, you could basically move where you are living (you would be located in the South Bay) with your net out of pocket being roughly the same as it is now. Unfortunately, I'm sure you know as well as I that rents in the South Bay are typically higher than the East Bay, not lower.

I don't know if any of this is valuable and it sounds like you may have had another thread on your situation which I'm sorry I didn't read. You need to take the emotion of a bad financial decision (we've all made them) in your past out of this and determine what the best financial and personal path is for you *today*. Good luck!

If you didn't already own this house, would you make this purchase as an investment? I think the answer is a resounding "no" and that should give you your answer. The fact that you already own this property is mostly immaterial. Sell now or prepare to throw hundred dollar bills out your window every month.