I am working on another startup project and we are being entirely open about the process. I recently did some customer discovery and the video was awesome! So if you get time, please go check it out.
What this really means is “I am going to totally guess”
Here is the truth of the matter.
“The hopes were that this IMF/German bailout would be the rescue for Greece and the euro currency. But if you look at credit spreads, that’s clearly not the case,” said Michael Pento, senior market strategist at Delta Global Advisors. “I think this reminds me too much of the summer of 2007 when we first saw the Bear Stearns hedge funds collapse. I think this is the first salvo of a metastasizing sovereign debt crisis that will spread,” also saying the contagion could go beyond Europe and into Asia and the U.S.
“It’s a very real crisis,” he said. “I’m afraid over the next few years here it’s going to come to America. And I guarantee you this — there is no IMF bailout coming to the U.S.”
Overseas, Hong Kong’s Hang Seng lost 1% while Japan’s Nikkei shed 3.3%. The FTSE in London fell 1.5% and the DAX in Frankfurt was lost 0.8%.
DOW FALLS ALMOST 1,000, THEN REBOUNDS
So as the world starts its rapid plunge into the reality that does exist, all I can say is “Good luck!”
I posted a hypothetical question over on the Bend Economy Bulletin Board. It was the direct result of a conversation with a buddy. I am always of the opinion that the more voices I listen to, the better my decision will be. And would encourage anyone who is interested in their financial future to think about using the forum to ask questions. Plus, there are several smart people who frequent it, so that helps.
Keep in mind, no one is saying you have to actually use the advice. So ask yourself “what can it hurt?”
Now for a long while (over 6 years) I have been bearish on RE. For those who may not understand the term bearish, it pretty much means that I think that purchasing a property has NOT been a good move. But things are changing.
Take these homes for example.
Some things I know after researching the homes using DIAL and the CLERKS records are.
- They are both short sales
- They are right next to each other
- They were built for $106k in 1996.
- Annual tax is around $2k
Now how can we distinguish if this is a good deal? Well lets lay some ground work.
I currently rent a crappier home than either of these for $775 a month. So if my net monthly cost is less than $775 a month, this tells me that I should consider “buying” a home. So I go to bankrate.com and open up their mortgage calculator.
The homes are asking $89k, and I would put down roughly $20k in cash. Making the loan amount $69k. And with a 15 year fixed and good credit, you should be able to pull close to 4.5% on the interest. You can see that the monthly payment is then $527.85. This may lead you to think “Jared, you would be saving $250 dollars a month, what is stopping you?” and that is a reasonable question.
If you look up the properties in DIAL, you will see that the annual taxes due on the homes is roughly $2k. Dividing that by 12 gives you your monthly tax rate at $166 a month.
$527.85 + $166 = $693.85
Monthly Mortgage Payment + Monthly Tax Rate = $693.85
Which doesn’t look quite as attractive, but is still interesting. Finally you should calculate maintenance costs. Which most people say the bare minimum is 1% of the purchase price. Realistically, I think we probably should go with 2-3% of the purchase price for these older homes, but for the sake of this post, we will just use 1%. 1% of $89k is…$890 which we will divide by 12 to get our monthly maintenance cost. $74.16.
$527.85 + $166 + $71.16 = 765.01
Monthly Mortgage Payment + Monthly Tax Rate + Monthly Maintenance Cost = $765.01
Yes, this looks really attractive, but I also want to add the transaction cost (The amount you pay in fees to the RE agent, Mortgage broker). I will have to guess a little bit here, if a real estate agent can shed some light I would appreciate it. So lets say that the total fees paid, is roughly 7% of the purchase price.
$89k x .07 = $6230
Now divide $6230 by how many months you will have the mortgage loan for. In our case, it is 180 months.
$6230 / 180 months = $34.61
Keep in mind that if you roll any of the fees into the loan, then you will pay interest on them.
$527.85 + $166 + $71.16 + $34.61 = $799.62
Monthly Mortgage Payment + Monthly Tax Rate + Monthly Maintenance Cost + Monthly Transaction Cost = $799.62
This is the basic math I use to figure out if I really am getting a deal or not. The interesting thing here, is that an investor could potentially buy this place. I mean they could maybe rent it for $850. So they would make ($577.85 x 12) $6934.12 annually on a $89k purchase. Roughly 7% +/-. Not a terrible investment using this math.
I did call about these homes, supposedly they have several offers. Thing is, with over 400 Notice of Defaults in January, we all know that there is plenty of inventory. Meaning that there is absolutely no freakin rush to “buy” a home.
Anyway, just some thoughts for people to consider before they purchase and please comment if I missed something.