Is 2003 pricing realistic for making offers? Or am I just wasting my time?

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code7700_IHB

code7700_IHB

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Hopefully this isn’t too long. Sometimes I talk (write) too much. :)

About 9-months ago we tried to sell our condo with no success (we were asking way too much [imagine that]). So we decided to hang on to the condo. Maybe we’ll keep it until we buy a home (assuming we can even sell it at that point) or keep it as an income property.

The good news is that when we bought our condo in 2004, we only purchased what we could easily afford. And today, we can comfortably afford about 50% more.

Having said that, we still want to get into a single family home sooner than later (within the next 18 months) assuming we can find a “reasonable” deal. Of course, reasonable means different things to different people. To us, it means a 4 bedroom home with 2000-2500 square feet for ~$250 per square foot ($500,000 to $625,000). A lower price would be nice, but I’m not willing to wait until 2013 for that to happen (if it ever does).

So my question is this: Is it even worth our time to make offers at 2003 prices ($200-$250 per square foot) or should we just sit back and watch the market fall?

My goal is to “target” homes that last sold in 2002-2004 for about the same price ($200-$250 per square foot) and hopefully come across someone that just wants to get out at break-even or with a few dollars in their pocket. For the next few years, we see little value in targeting the people that bought 10-15 years ago. We also see little value in targeting the people that bought after 2004 because they purchased it at $300-$400 per square foot and would be better off giving their keys to the bank. Of course, this is our opinion: If you feel different, please speak up!

Assuming we find a single family home, I’ve got two more issues. The first issue is that I put 20% on my condo, so that money is obviously not available to use for a down payment. This means I need to sell the condo (which might be impossible given future market conditions) or try and get a 5% or 10% down loan. Do these 5% and 10% down loans exist any more? Especially for a jumbo loan (unless the jumbo maximum gets raised, but even then, 5% and 10% down isn't nearly as pretty for banks as the 20% people).

The second issue is that if we keep the condo for a few years (or more), the condo payment is (PITI + HOA) is about $2,650. But from what I can gather, the going rental price for similar condos in our area is $2,000 per month. Needless to say, this leaves us with a $650 hole in my pocket every month (or $7,800 per year). One possible suggestion is to refinance the condo with a 10/1 interest only loan. That would reduce the monthly payment to near break-even. And assuming the market recovers within 10 years, we can sell it for a reasonable profit. Does this sound like a good idea? Or a dumb idea. Or both. :)

Thanks for your feedback.
 
I like the 10 year interest only, but virtually nobody else on this board does. you may not be able to qualify having 2 properties. You need to check that out. Back in the age of the dinosaurs, which we are rapidly evolving back to, you would have to show that the condo was rented (and they actually checked), or you had enough income to pay BOTH loans with whatever debt to income ratio was being used. Remember, you have to pay the mtg, even if the unit was vacant for a couple of months, or the renter trashed it etc, etc. Then nobody cared about anyting, and now we are going to a phase where people who could pay are being rejected for any reason or no reason.

We tried to be landlords once and were totally abysmal at picking tenants. I've posted about it. Others have had the same experience. Finally we rented with an option to buy and that renter bought, paid the rent, and didn't trash the joint. So we owned 2 properties at once, but the mtg payment on the rental was teensy. It was still annoying on those months it was vacant and we had to make 2 payments.

So, I think you should just stay there until you can sell, or sell at a really low price to get out quickly and then buy your dream house.

I doubt whether they are any 5% down loans; except FHA, and I now forget what the loan limit is on those; there might be some 10%s, lendingmaestro could tell you.

I also think that you should save until you have 15% plus closing costs at least.
 
Thanks for sharing your thoughts.

I agree with you about good renters being a challenge. My two options in that realm are having someone we know rent (friend or friend of a friend, which might be a real option for us) or making use of the interrogation skills I learned in a past life. <grin>

Our biggest concern, as you said, is how much leverage we’ll have with only 5% or 10% down. With 20% down we’ll be much more appealing to bank.
 
Are you talking about buying in Irvine code? Selling in Irvine as well?

Selling is not impossible as long as you are realistic with regards to market value... Actually, of late, if you are willing to rollback to mid to early 2004 price, selling hasn't been that difficult. One caveat though, I am only talking about Irvine.
 
Code, I own a home out of state, and am lucky to be one of those landlords that scored a perfect tenant. I did a pretty thorough background check on her and her credit/financial situation prior to renting to her. So it's possible to find a good one. Police Officers tend to be good renters b/c if they don't pay, you can just call the station and talk to their boss! We have standards that have to be met both on AND off the job....so throw up a flier in several of the local PD's.

If you are going to keep the condo, I'd suggest getting that 10/1 now. LL is right that you probably won't get approved until your place has been leased for at least one year, and even then the lender will only consider 75% of the rent payment as "income".
 
"And assuming the market recovers within 10 years, we can sell it for a reasonable profit."

I don't think you could sell for a reasonable profit in 10 years if you bought in 2004. You are at B/E with purchase price now and mostly likely and headed down at least 20-25% from here. If that is the case, you'd probably be back to B/E in 10 years.
 
You can sell your property now if you price it low enough. The price might seem low, but the price you'll get in 2009 or 2010 will be even lower. At the time, 2004 prices were at all-time highs by most historical standards. As of last month, the state as a whole is already back to 2004 and falling fast.

2003 offers could make it at this point for REOs/short sales. Not in Irvine or on the coast but certainly in other places. There have been properties meeting your requirements posted to the rollback threads in cities like Orange and Aliso Viejo.

In terms of waiting, there are options other than buying now and waiting until 2013! Given the rapid price drops, ongoing credit crunch, and likely recession, waiting until 2009 is almost certainly a big winner.
 
Code7700....I wish some properties would drop back down to 2003 prices at $250 per sq ft...but I don't think it will happen :/

I started a topic on Westpark (specifically Paseo Westpark) one of my fav areas and the one I'm looking to buy in. Prices are still at $400 per sq ft!!!! Most of the homes are around 1,850-2,100 sq ft
 
Thanks for your collective feedback. Personally, I don’t think prices will go too much lower than 2003 prices (but I am hoping they do).

Good advice (trooper) on doing the 10/1 while we’re still living there. That thought had crossed my mind, but it was good to see someone think the same. Also, to answer your other question: Ex-LEO. :)

On the other side of the coin, if we are able to sell now (and get break-even or slightly better) we’ll get our 20% down-payment back (which would be a nice feeling) and most likely rent in the area for 1-year until the market further softens.

Our place is a 3 bedroom (in a mostly 2 bedroom condo complex) which helps. There is 1x other 3 bedroom (100 SF smaller) listed at $320/SF and it is not an end-unit like ours. There are about 6x of the 2 bedroom units for sale (they are 200 SF to 300 SF smaller) ranging from $250/SF to $375/SF.

Thought I must admit that it doesn’t help that a unit identical to ours ($307/SF list price) just went into escrow. The funny thing is the description of that place seems to be counterintuitive. It says, “granite counter-tops”, “new tile”, and “upgraded interior” – but then it says, “home only requires new paint and detailing” – huh?

We’re listed at $355/SF which is quite a bit more than $307/SF. And our breakeven (after realtor fees, etc.) is about $340/SF. Fun!
 
Sell now code, take what you can, and rent if your significant other is willing. I would do that in a heartbeat if I could convince the wife...

I assume you have seen recent closing price info for Irvine right? http://www.ipoplaya.com/iposhiller.htm The average home in Irvine is selling for around July 2004 prices. Unless you want to burn your equity and be a market chaser, figure out what your real current market value is and list perhaps 5% higher than that. Psychologically eating any loss is tough, but personally I'd rather eat a smaller loss today than a larger loss tomorrow...
 
"Thought I must admit that it doesn’t help that a unit identical to ours ($307/SF list price) just went into escrow. The funny thing is the description of that place seems to be counterintuitive. It says, “granite counter-tops”, “new tile”, and “upgraded interior” – but then it says, “home only requires new paint and detailing” – huh?"

Is there anything about your place that would make it worth $50-75K more?
 
>Is there anything about your place that would make it worth $50-75K more?

A really nice view (but not a $50K view). A few of the "real estate professionals" that have come to show it said it might be worth an extra $20K or so, but what the heck do they know? I may as well be asking my toaster oven for its opinion.
 
Okay. So you're bored of your condo already? You really should live in at least five years to spread out the transaction costs. Ignore your situation now and come back to it a year later. There's no point in trying to figure something today when the market could change a year from now.

If I were you, I would sell the condo and buy a house in 2010. And yes, banks still do 90% financing.

And if you're way too anxious to live in a house now, just rent one today and rent out your condo tomorrow. The difference in cost will be the rental equivalents of your condo and the house.
 
Actually, forget the RE profs. How much more would you pay for your place vs. the other that went for $307/sf and why? If you'd pay $20K more, another buyer might. If there was no way in hell you'd pay $50-75K more, its likely no other buyer will either...
 
hs_teacher>So you're bored of your condo already?

Hah hah. Very funny. Not bored, but we want a bigger place with a nice yard. 4-years ago we were not in a position to afford a single family home, but a few promotions later (plus the fact that prices are falling) it is now an option. Per your comments, we'll probably look at renting a single family home for a while and the buy, but I'd still feel better having gotten out of the condo sooner than later.

ipoplaya> Actually, forget the RE profs.

Yea, until the MLS goes open-source, I'm stuck with paying those guys. The good news is that my brother (broker) is our listing agent, so it won't cost me a dime on his side. I even listed the place at 4.1%, which will hopefully give me a leg up over the competition.
 
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