SIIK2NR

I bought a town home for $285K in 2004 San Diego area. It went up to $380K in 2005. It has since dropped to $199K. I have renters who pay about 90% of the mortgage so I'm fine.

This is my plan.......There are identical town homes in my area (same complex) that are selling for $190K-$199K. I watch for them to bottom out, lets say to $185K then buy another one. Continue renting the $285K one and live in the $185K one.

Essentially I will own TWO identical town homes in the same complex. One I paid $285K and the other $185K. Once the market goes back up in a couple of years and the town homes are worth $285K, I bump the renters, sell the one for $285K, move out of the $185K (now worth $100K) in equity and then rent it out.

Mean while, I look for the home I actually want to live in.

Is there a flaw to my plan? What do you all think? Money is not really an issue, although nobody can afford losing equity. I'm looking at how I can make a profit from a bear market and still come out ahead and not get stuck with an upside down home. Since neither of the homes are on the "outside" of the bubble, both townhomes will always be "affordable" to the middle class citizen wanting to fullfill the american dream of owning a home.

What I don't want is to make the same mistake twice.... thoughts?

Tim

vtec9

The flaw to your plan is the belief that houses always appreciate. As you've seen from 05 to 07, your home's value took a massive hit -- Almost 50% depreciation. As I'm sure you're aware, SD is one of the areas where the housing bubble was the most inflated, and therefore, the bust will be as well.

There is no guarantee that your two condos would appreciate $100k in a few years. In fact, I'd bet that they do not. The purchase price of your condo was artificial -- it probably wasn't worth $285k in 04, and it certainly wasn't worth $380k in 05. The value was only seen at such because everyone had massive amounts of very cheap credit at their finger tips.. that's what fueled the bubble. Those days are limited, and soon could be gone.

Now, not to be too negative here, I imagine breaking even in the deal would be a much more realistic goal.. Buying the second condo as bottom price, sitting on both for a few years, and hoping for ~$50k appreciation on both which will allow you recoup the entire $285k

NFRs2000NYC

Yup. You are banking that the house will come back to 285. This might not happen for quite some time.

Scot

all speculative.

If it was a slam dunk getting a 25% return annually there would be no places for sale. The "real estate investors" would be there to buy everything...

Good luck either way... hopefully you get some appreciation....

SIIK2NR

I'm not trying to recoupe the whole $285K. I'm trying to recoupe the $85-$95K if I sold the home at the price it's listed for right now.

I plan on buying another home regardless. My intention was to by my dream home around $500K in the San Diego area. Which when they peaked were worth about $750K.

Instead, I see this as an investment. Wouldn't it be better to buy the second town home at the $185K price then to just keep the one I have and buy my dream home?

As long as I can afford the extra $800 a month for a second mortgage. I look at it as dollar cost averaging.

If I'm renting my home right now for $1500 which is $100 less than the mortgage, why not buy another IDENTICAL home and rent it out for $1500 also. The mortgage on the second home is only $800 so in essence, I would profit $700 minus the $100 from the first home deficent of rent/mortgage which would be $600 a month.

Bottom line, I'm buying another home. Just don't want to miss out on an potential opportunity.

Thanks for your inputs.

vtec9

[QUOTE=SIIK2NR,Feb 25 2008, 11:05 AM] I'm not trying to recoupe the whole $285K.

8_ball

Here are some of my random thoughts. Unlike some of the others, I think that you may have a shot at seeing a market value back at $285k. However, how long will that take? 2 years, 5 years, 10 years? A wise old timer once told me that any real estate deal is a good one, it's just a question of how long you are willing to wait. If you are locked up for 5 or 10 years, what alternatives could you be using that money for? What does your lending picture look like? Lenders are requiring more equity for their good loans, so don't overlook that. Also, what is your lending profile on the existing property that you own? With value dropping almost $100k, sounds like the loan balance exceeds market value, I'll bet that lender isn't real happy. Also, don't overlook true cost of ownership, ie carry and improvements for the rental unit if tenant vacates, captial gains tax on sale, capital costs (ie roof repairs, HVAC repairs, etc) during the hold period. Finally, you will have all your eggs in one basket. This could be good or bad, depends on your perspective and how confident you are in this development.

SIIK2NR

I bought the town home knowing I was going to sell it eventually. My strategy was to not buy above my means in the event of a market crash. I can afford a $3500 mortgage, so I'm not concerned with this initial home.

The lenders don't have a problem with me, because I still pay my money to them and don't borrow equity. Taxes are around $3200 a year which I can easily afford.

One additional thing I should add is that I'm a 20year active duty military and my current housing allowance is over $2300 a month. I'm actually banking $700 a month. When I live there....and close to $1600 a month when I have a renter live there.

You have good points on cost of ownership. I'm actually a very handy man. And can remodel an entire home from plumbing, tiles, masonry carpet, bathrooms and kitchen cabinets. I also have my own tools.

I still have some time to stew on it.... I'm stationed in Japan right now, renting out my property. I'll be back around 2010, so somewhere between now and then, I should have a good feel for where the housing market is going to go.

Chris Stack

Transactional costs. You going to live in a townhome long enough for it to appreciate enough to eat the $12k a real estate agent is going to charge you to sell it? To pay the closing costs back? To cover the front-loaded interest you paid for 6-12 months?

If you buy it for $185k, and sell it for $200k, you've essentially broken even ($12k realtor fees, $3k closing costs/moving/etc.) Do you think it's going to appreciate the 8% you need just to break even? In this market? Fungible housing like a townhome?

I say,



RUN AWAY!!!

J3ffro

The fact that you are overseas and seem very patient, I'd go for it. Yes the market took a hit, but it is cyclical, eventually it'll go back up (and in turn go back down, by very definition) it's just a matter of how long you'd like to wait. I guess the biggest question, what's your other options instead of buying the other town house?