Holding The Wrong Cards In The Casino
A report from the Washington Post. “In the casino of the housing market, Tom Walters is holding the wrong cards. He’s a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 — too much to handle. Instead of gambling on a sale, Walters and his wife decided to let others take a chance. So for just $50, people can buy a raffle ticket for his six-bedroom, 4 1/2 -bath, 6,000-square-foot home on a two-acre parcel just outside of Annapolis. Estimated value? One million clams.”
“This is the 10th house raffle attempted this year, according to the Maryland secretary of state’s office. But only one, in Hagerstown, has been successful so far. In the Walterses’ raffle, the winner (to be picked Dec. 31) gets the home, free and clear. No closing costs. No mortgage payments. No broker fees. The Walterses get to walk away.”
“‘It’s kind of bittersweet,’ Walters said. ‘We’ve put so much into this that it’ll be tough moving, but at the same time you have to do what’s right for the family.’”
“The Walters had big plans for the house when they bought it for $425,000 in 2006. It was in foreclosure. Tom Walters had grown up nearby, and he and his wife fell for the log cabin originally built in 1840. Sure, it needed a bit of work. No problem, they thought. By the time they were done, they’d sunk about $750,000 into renovations. That includes the $450,000 construction loan they took out.”
“The Walterses found they couldn’t pull any of the equity out and their payments had grown. ‘That’s when it became necessary to sell,’ Walterses said. ‘Rather than stick it on market and take our chances, we wanted to be proactive.’”
The Wall Street Journal. “Despite all the gloom, some people believe it isn’t too early to pick up bargains. One key, they say, is a deep understanding of the local demand for rental housing.”
“Dinesh and Rima Kumar, who live in Ashburn, Va., last month bought a town house in Sterling, Va., a suburb of Washington, D.C., for $154,000. The same home sold in June 2005 for $375,000 to a buyer who used subprime loans to finance 100% of the price. It went into foreclosure late last year. Mr. Kumar says he has found a renter at $1,500 a month. The Kumars, who paid cash for the home, calculate their monthly expenses — including taxes, insurance, maintenance and fees — at $491 a month.”
“The couple made the plunge partly because Ms. Kumar, a real-estate agent, noticed that homes in the area priced at $250,000 or less were attracting multiple offers. Home sales in the northern Virginia suburbs of Washington totaled 3,360 in September, up 92% from a year earlier, according to the Northern Virginia Association of Realtors. The average price: about $333,000, down 32% from a year earlier.”
“‘This could be the bottom,’ Mr. Kumar says, and even if it isn’t, ‘the down side on a $150,000 property is pretty low.’”
“Moreover, he has been burned in the past by stock-market investments and thinks rental income will far exceed the meager interest rates offered on bank deposits.”
The New York Times. “An exiting army of Republican foot soldiers is faced with the prospect of selling its Washington-area homes in the worst housing bust since the Great Depression. Many Republican-appointed officials in Washington are nested in northern Virginia. And for those who arrived near the height of the housing bubble, particularly those who came after George W. Bush was re-elected in 2004, what a time to buy in northern Virginia it was.’
“Like Miami and Las Vegas, northern Virginia was frantically built up during the housing bubble. Prices of single-family homes and condos skyrocketed. When I first lived in the area a couple of years ago, I remember hearing the curious term ‘Fairfaxed.’ It referred to Fairfax County, Va., an overbuilt Washington suburb. Builders continued to plant residential high-rises around the county and beyond in anticipation that housing prices would climb ever higher.”
“Fast-forward to today. Also like Miami and Las Vegas, northern Virginia’s housing market has cratered. The average housing price in the greater northern Virginia area in September declined 32.11 percent from the previous year, according to the Northern Virginia Association of Realtors.”
The Virginian Pilot. “The number of foreclosure-related notices in Hampton Roads was 1,155 in October, up 25 percent from September and 191 percent from year-ago levels, according to RealtyTrac. The spikes were most dramatic in Hampton, Portsmouth and Suffolk, all of which had an increase in foreclosure activity of more than 400 percent.”
“‘I think we’re just looking at the tip of the iceberg,’ said James Koch, an economist and president emeritus at Old Dominion University. ‘If housing prices continue to deteriorate, and I expect they will, we’re likely to see the foreclosure rate go up substantially.’”
“He predicts that homeowners in increasing numbers will walk away from homes for which they owe more than the property’s value. The new foreclosure data are being released two days after the federal government announced a plan to help more homeowners avoid foreclosure. But the program may be a little too late, said Kevin Harris, a housing counselor and lending consultant for Community Housing Partners in Virginia Beach.”
“‘A lot of people are upside down. It’s pretty bad,’ Harris said. ‘We get a lot of people calling due to loss of income, possibly having been laid off from a job. I definitely think it’s a reflection of the economy.’”
“Things got harder and harder in the past year for small-business owner Beverly Turner. Fewer customers came in each month. Revenue kept falling. She fell behind on her rent. She decided to close the corporate office of Weight Loss Forever, as well as two of the seven stores throughout Virginia Beach and Chesapeake. She thought that would be enough to keep her business afloat.”
“Then two weeks ago she got a letter from her creditor informing her that, as of Nov. 30, it no longer would finance her customers’ weight-loss plans, she said.”
“Tidewater Sports & Collecti bles shut down its locations in Chesapeake and Newport News in August and September, respectively. Its store at Norfolk’s MacArthur Center is scheduled to close today , said Raelee Everett, the chief operating officer. She and her husband started the business in 1999, selling sports and novelty beanies at a flea market in Virginia Beach. Business had been pretty good until the economy turned, she said.”
“The company filed for Chapter 11 bankruptcy reorganization last month. The store’s sales totaled $1.6 million in 2007, according to the tax return included with its bankruptcy filing. But the business still lost $19,673 last year. ‘We grew too fast, took on too much debt and didn’t pay attention to the trends in the economy,’ Everett said. ‘Part of it was poor business management, part of it was the poor economy.”
“The hardest part is letting down her employees, which totaled 27 in July, she said. By the end of December, she plans to close the last store in Virginia Beach. ‘It’s a very bitter end,’ Everett said.”
The Times Dispatch from Virginia. “The U.S. economy is not likely to recover until the housing market stabilizes, according to experts from the Federal Reserve Bank of Richmond. The supply of houses for sale across the nation is too high. Prices nationwide and in Virginia are falling. And the quality of mortgages — even those for people considered good credit risks — has declined.”
“Housing prices in Virginia began to fall in March and depreciation accelerated through June, the latest figures available, said Michael L. Riddle, a senior financial analyst at the Federal Reserve Bank of Richmond. ‘Negative housing prices have been driven by Northern Virginia, areas along the coast and Richmond to a lesser extent,’ Riddle said.”
“‘”It all boils down to a deterioration in underwriting,’ said Riddle…referring to loose credit standards for funding mortgage loans that led to the housing bubble.”
“Troubling new trends are emerging that show the number of borrowers with prime mortgages — traditionally considered among the most stable loans — is rising in Virginia and the nation. ‘We’re starting to see a notable deterioration in bedrock prime-rate loans,’ Riddle said.”
The Free Lance Star from Virginia. “There were 1,067 homes sold in the Fredericksburg area during the third quarter, a 15.7 percent jump from the year-ago period. Median sales prices dropped 19.5 percent; they were $230,000 in September for the Fredericksburg area–which comprises the city and Spotsylvania, Stafford, King George and Caroline counties.”
“The trend of rising sales and falling prices has been most extreme in Prince William County, which has been hit hard by home foreclosures. Third-quarter sales there rose 144.6 percent from the same period in 2007, while median sales prices dropped 42.4 percent.”
“Realtors on the call yesterday said the trend should continue in the fourth quarter and predicted that a leveling off of foreclosures and continued declines in new-home construction should stabilize the market. Christine Todd, CEO of the Northern Virginia Association of Realtors, called 2008 ‘the year of the cleanup,’ as investors and bargain-seekers sweep foreclosures off the market.”
The News & Advance from Virginia. “You wouldn’t expect a $1 million home on Easy Street on Smith Mountain Lake to end up in the same situation as a $20,000 house from inner-city Lynchburg. One was built as a lakeside mini-mansion in 2006. It has 5,200 square feet, granite countertops, cathedral ceilings and geothermal heat. The other was built in 1892 with a wood frame and siding. Its 1,500 square feet are warmed with electric baseboard heaters.”
“Both met the same fate this year. Foreclosure. So did more than 200 other homes in the Lynchburg area. An examination by The News & Advance of land records in Lynchburg and the counties of Amherst, Appomattox, Bedford and Campbell show that more people have lost their homes this year than last year, up 33 percent overall.”
“Many of the mortgages that went to foreclosure this year in the Lynchburg area bore the signs of subprime borrowing. The average interest rate, when listed in land records, was 7.9 percent. Nearly 10 percent of the foreclosed properties had interest rates that started at 10 percent or higher. At least 68 of the properties had mortgages financed with adjustable-rate loans. The top lenders whose local loans ended in foreclosure were big players in the subprime industry: Decision One Mortgage Company, New Century Mortgage and Option One Mortgage Company.”
“Subprime lending was mortgage companies’ bread and butter for a while. But it became their downfall, said Billy Woolridge, a local mortgage originator who worked for American Home for six months before the company went bankrupt last year.”
“‘It wasn’t because of any wrongdoing. We weren’t doing anything that dozens of other companies were not doing,’ he said.”
“Clark Jefferson, (a) counselor for Lynchburg Community Action Group (said) their clients had missed mortgage payments for a variety of reasons. Jefferson said some had lost jobs. Some had taken on extra debt for cars or furniture.”
“Melissa Yuille, senior housing counselor for the nonprofit agency, said she has seen some clients’ payments go from $800 to $1,200 a month after the interest rate changed. ‘And who has an extra $400 lying around?’ Jefferson said.”
“‘I’ve had a surprising amount in the upper-price ranges around (Smith Mountain) lake and the Forest area, some of the nicer homes,’ said Bonnie Hall, a Roanoke-based real estate agent who deals only with foreclosures.”
“One of those was the home on Easy Street in Moneta. With a backyard facing Smith Mountain Lake, the home was appraised by the county at $1.2 million. Cameron Jordan, the real estate agent who now owns that house, said the former owner was the contractor who built the home, then refinanced it in 2006.”
“After the owners defaulted, a foreclosure auction was held in April. M&T Bank took the house. The home went on the market on July 4. Jordan immediately made an offer, and bought the house for $765,000.”
“‘I bought it with the hope that I can get my own house sold and move into it,’ Jordan said. That has not happened yet. His second child was born this summer, and Jordan and his wife Angie were looking for a home with more bedrooms. The idea of living in a house that someone else lost doesn’t bother Jordan. He said that the default and foreclosure happened months before he got involved.”
“Also, getting a foreclosure off the market could help other homes to sell by decreasing competition, he said. For now, though, he thinks his children will enjoy growing up in this home. ‘I know that, number one, it’s a real good deal and it’s a really nice house,’ Jordan said. ‘I’m looking forward to living there. It’s nice enough that we’d be happy living in it forever.’”
We are a nation of confessed degenerate gamblers that have no solution to our addiction, other than to keep gambling…
=====================================================
“In the casino of the housing market, Tom Walters is holding the wrong cards. He’s a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 — too much to handle. Instead of gambling on a sale, Walters and his wife decided to let others take a chance. So for just $50, people can buy a raffle ticket for his six-bedroom, 4 1/2 -bath, 6,000-square-foot home on a two-acre parcel just outside of Annapolis. Estimated value? One million clams.”
There is some kind of disconnect here. They bought a log cabin home for 450K and put 750K into renovations? Smells like fraud to me. I wonder if they funneled money out through the renovation contracts? Stinks to high heaven.
“The Walters had big plans for the house when they bought it for $425,000 in 2006. It was in foreclosure. Tom Walters had grown up nearby, and he and his wife fell for the log cabin originally built in 1840. Sure, it needed a bit of work. No problem, they thought. By the time they were done, they’d sunk about $750,000 into renovations. That includes the $450,000 construction loan they took out.”
If you mulitply $50 times that stated value of 31,500 tickets “needed” to pay off the mortgages, you get $1,575,000. So are they underwater about 50%?
Letting a charity get 10% isn’t much better than paying a realtor 6%. At least the 10% may be tax-deductable.
Is there a minimum number of tickets needed to be sold before the raffle proceeds?
My first thought was if this scheme is even legal. It’s still my thought.
I’ve noticed the governments like to hang onto their monopoly on lotteries.
Charities/charitable causes and casinos (really just licensees who pay franchise fees through taxes) are okay - but a private person for their own gain??
‘The couple made the plunge partly because Ms. Kumar, a real-estate agent, noticed that homes in the area priced at $250,000 or less were attracting multiple offers. ‘This could be the bottom,’ Mr. Kumar says, and even if it isn’t, ‘the down side on a $150,000 property is pretty low.’
This person is simply gambling. Take note Washington; this is what you are encouraging.
‘Moreover, he has been burned in the past by stock-market investments and thinks rental income will far exceed the meager interest rates offered on bank deposits.’
Ah yes, another unintended consequence of the Federal Reserve distoring markets (straight out of 2001-2005). These fools haven’t learned a darn thing.
Ben Jones,
Precisely Ben. In that period ( with the stock market in a meltdown ) skittish and yield starved investors ( due to ridiculously low interest rates ) flocked to GSE’s -further- driving up prices and of course driving yields down.
It made the cost of borrowing oh-so-cheap and the HB was able to basically feed off itself. It also assured that the stock market would languish long after fundamentals improved. Reminds me of the guy that lost his wife, job and home to drinking ( but is willing to give drinking a second chance! )
Good ways of explaining why the stability of the housing market still will not create a good economy .
Why , just why ,do we keep getting this spin that house price stabilization is the factor that will save the economy ? They aren’t going to allow people to take out equity loans . Homes used for the purpose of ATM’s or enhancement of life style is not going to happen
now . While its good for Banks and lenders and investment banks to not have further losses ,its not going to be a economy saver . We need new jobs in new industries because real estate is just oh so
dead and past tense . Investors that get good foreclosure deals could make a better yield by rental income ,but they take the risk of rental income dropping more .
The banks can’t make faulty loans anymore that are just based on real estate going up ,so why all the BS about the Real Estate Market saving the economy ? Certainly Hank Paulson saying this
doesn’t make it true . The real estate market doesn’t deserve to be saved in terms of prices because they were fake ,simple as that . If prices are stable than maybe more buyers will buy up the over-supply , and that is good in that vacant houses are not good and people getting affordable housing is good .
Housing Wizard,
At this stage of the game I don’t think anyone in the country is dumb enough to believe they can re-start the MEW/ATM scam. It’s about doing the damage control.
I agree, without actual j-o-b-s there can be no meaningful recovery. Playing “musical houses” won’t be getting an encore, no matter how much the REIC wishes it so.
At this point we need to import a lot of people with dollars to fill up the houses.
Not the most appealing scenario for many of us but that would fix a lot of problems.
Anyone actually have housing shortages and $$?
“Sure, it needed a bit of work. No problem, they thought. By the time they were done, they’d sunk about $750,000 into renovations.”
I can hear this gambler now: “Oh, c’mon honey! We can do this. The work to spruce it up is just a wafer thin mint.”
And now they need a bucket.
Sorry guy. I’d sure love to sit in that big front yard and watch the leaves blow around but I’m afraid I’d be working 30 hr days just to pay the mortgage.
I mean if there’s a job available that is.
I’ve heard about enough of these “raffles” and if the -are- legal ( in your state ) they certainly shouldn’t be accessible for “professionals” IN… in the industry fer’ chrissakes!
This no way for any individual in finance to conduct themsleves. At the same time I don’t know what they could possibly do that could diminsh their reputations any more than they already have?
“about $750,000 into renovations”
on a log cabin?
Idiots or liars.
“Rather than stick it on the market and take our chances, we decided to be proactive”
No… that’s called d-e-s-p-e-r-a-t-e. This clown is simply trying to keep a short sale/foreclosure off his credit report so he’ll be “at the ready” when the bell for the elusive bottom is rung. For so many of these people they just won’t live long enough to garner ‘any’ benefit from “the recovery”.
When my dad bought the house we grew up in (1970’s), he barely could afford it. He’s been through many recessions but managed to pay the mortgage, put food on the table, and raised 5 kids that went to college and got a degree. NEVER one time he took out equity from the house. Upgrades were done when my brothers and I were smart enough to learn a little construction here and there. Every 5 years, we would paint the house. Even when the times were tough.
Oh yeah, he sold the house to my sister who is the only one still living in the area for the same amount he bought it for back in the 70’s. She’s kind of the gatekeeper of the house now. (actually, she’s more the responisble one)
Now these people buy a way overpriced house and they took out half a million out on their equity right off the bat. Were they making enough to pay that gigantic mortgage? This was an investment and they lost. This was something they wanted to flip. I hate it when they say, they fell in love with the house when they first saw it. If they fell in love with the house, why do they need to pluck in more money to spruce it up.
“Upgrades were done when my brothers and I were smart enough to learn a little construction here and there.”
Whatever happened to pay-as-you-go remodeling? All the sob stories seem to assume that MEW is mandatory if you want to upgrade (and pay a few bills etc). This is another myth that needs to be blown away for good.
In Montana,
Also remember, back in the day “re-model” primarily pertained to 2 by 4’s, sheetrock, tape and mud. As families changed and needs changed, additions were done and in many cases it was simply a change within the existing footprint of the home ( without all the “upgrades” )
I don’t recall seeing a number of drastic “extreme makeovers”. There was also a sense of not wanting to dramtically change the overall character of the neighborhood as well.
I remember when someone got a pool in my neighborhood, it was because they had saved the money for it, or gotten a raise or a dead Uncle Harry.
I’m 45 YOA and grew up in the 70s, before MEW/HELOCs.
And I was talking to a chronological contemporary of mine this am and asked her if she remembered what the 70s were like. Her parents worked odd jobs to pay the mortgage, keep clothes on their backs and food on the table and take modest family vacations. And nothing else — nothing! No cable, cellphones, designer duds, hot tubs, investment properties and so on. Nothing!
Back to the 70s my friends.
Otherwise known as pay as you go.
Frank,
Not long ago an astute poster pointed out that if you watch any re-runs of TV shows from the 70’s, what really jumps out at you is the sparse decor! I mean the sets look basically vacant.
After they mentioned that, every time I’ve seen a movie from that era I began making note. Even the portrayal of wealthier people ( at the time ) wouldn’t get chicks through the door nowa’days. What!? No Big Screen? No jacuzzi? We’re out of here girls!
Pay-as-you-go is the only type of remodeling that’s happening at the Arizona Slim Ranch.
no she is the owner of the house now. reading between the lines you and the other siblings expect a share of the profits when the house is sold. oh yeah, she kind of looks after the parents day to day while you and the other siblings make a couple of obligatory visits and fill your faces every year. my bet is that she won’t share the profits.
Oh, good grief. I spent a good chunk of yesterday morning on a household renovation. I have this big ole drafty picture window, and, baby, does it need some tightening up.
So far, I have a grand total of 20 bucks into this project, and, by the end of this week, the window should stop leaking so much air into the house.
I built a new shelf, for what else, books. I used some salvaged wood I got down by POO (That’s the Port of Olympia, and I always enjoy that acronym). Lessee, some salvage wood I hauled home, wood screws with my Mikita drill and then I primed it and painted it white with paints I got at Hazo-house over at Thurston county waste management. Thurston co. has a very good attitude towards recycling and waste reduction.
Anyway, the whole thing cost me…nothing! And it is a horribly adorable shelf. I let some of the wood show through, the knotty parts, and some interesting nails with rusty stains. It looks super. I might apply a light wash of yellow, I haven’t decided yet.
Those kind are some of my favorite stories! But you’re missing the best part? That’s one someone comes over and says, “Oh that must have cost a fortune!” LOL.
You know, bigger projects… ‘can’ take up more in terms of both time AND money but what I question is why so many people all had so many projects all at the same time?
My dad had (1) project going on from my 8th grade -thru- HS graduation. In fact I ’still’ remember every knot and grain in the exposed 2 by 4’s? So it can work against you too. ( Personally I think he’d drag them out to bilk drinking money out of mom? “Got to head to town for some boards!” ) I just don’t buy into this BS about needing 50k to re-do a bathroom for crying out loud?
- one
+ when
I’ve been mulching the plants and the veggie garden before it gets cold. (Yes, we do have that frosty temperature stuff here in Tucson.) Been getting free mulch that’s left over from a nearby neighborhood’s tree planting party.
I just pedal the bike-with-trailer over there, then I fill the recycled City of Tucson recycling bin that fits so perfectly into the back of said trailer. Then it’s another ride back to the Arizona Slim Ranch, where I distribute said mulch to the eagerly awaiting green things.
‘where I distribute said mulch to the eagerly awaiting green things.’
What kind of green things? What do you garden, slim? I been digging up my Jerusalem artichokes over the weekend, wow, bushels of them out of one little garden box. They evidently like it here where I live, because they grew 12′ tall. Yes, 12 feet. They didn’t flower this year, though, I think because the summer here was unusally cool and cloudy. They managed to squirt out a few feeble attempts at blooms in late September.
Also, I harvested all my mint, fennel seeds, parsley seeds, and tried to shoot at a raccoon*. That’s gardening at Chez Olympiagal.
*It was a light, playful, warning shot. Not a real shot. The days is lonnnng gone when I liked raccoons and felt like David Attenborough when I beheld them messing up my tulips.
Ha! I only spent $4 glazing and caulking my windows. I borrowed the caulk gun.
I did spend almost $20 on an improvement the other week. I bought an azalea to throw shade on my A/C outside air exchange unit. It’s already grown 6 inches and blooms like hell. It should be well established by next April when it will count.
He jumped in a little early. But probably will sleep nights as long as the tenant looks good.
Dinish & Rima Kumar buy a White Castle…
“The couple made the plunge partly because Ms. Kumar, a real-estate agent, noticed that homes in the area priced at $250,000 or less were attracting multiple offers. Home sales in the northern Virginia suburbs of Washington totaled 3,360 in September, up 92% from a year earlier, according to the Northern Virginia Association of Realtors. The average price: about $333,000, down 32% from a year earlier.”
LOL. Nice riff…I was thinking of the same, but yours is funnier.
“Christine Todd, CEO of the Northern Virginia Association of Realtors, called 2008 ‘the year of the cleanup,’ as investors and bargain-seekers sweep foreclosures off the market.”
Yup. That’s right asswipe. A 10 year, global, multi-trillion dollar misallocation of capital is all cleaned up in a matter of 12 months?
You need a %$#%ing psychiatrist lady.
What these clowns are trying to hide is how the Foreclosure pricing immediatly becomes the neighborhood comp.
A sold foreclosure becomes the new starting price for all the resales in that ‘hood, even if they are traditional re-sales or not.
Look at Lake Manassas in Gainsville, VA.
Homes that sold for 1 + million in 2005 are now going for 450K
The foreclosures have literally killed that neighborhood.
This is happening all over NoVA & the Realtors are trying like heck to hide it
DON”T BE FOOLED!!!! LOWBALL !!
I thought foreclosure prices really didn’t make it into the comp system?
Prices from foreclosure auctions are not arms-length transaction and shouldn’t make it into the comps. Prices for REOS and short sales, however, should be included in the comps, especially when they are more than a third of the market.
2008 was the cleanup?
These people can think up literally thousands of ways to hide their desperation and try to imply that a recovery is imminent.
Right this minute, what percentage of the population is absolutely pinning all their hopes on a quick 2009 recovery?
Well, in Jim the realtors website; he had multiple posts on how the number of REO properties not on the book yet, exceed the number on the MLS. So, like the great tsunami this is just going to keep flowing in for a while.
Also as the recession bites harder and time goes by; all those people without equity will lose their houses as well.
Its going to be so many years.
The Neo-Cons conned themselves, in the end.
“An exiting army of Republican foot soldiers is faced with the prospect of selling its Washington-area homes in the worst housing bust since the Great Depression. Many Republican-appointed officials in Washington are nested in northern Virginia. And for those who arrived near the height of the housing bubble, particularly those who came after George W. Bush was re-elected in 2004, what a time to buy in northern Virginia it was.’
This aspect of the housing bubble makes me smile
Finally, some justice…
Just deserts taste mighty fine…
I can easily imagine that ThESE were the folks who did the most bragging too.
So how’s that wealth effect going, eh?
Yeah! They should have had Rezko help them buy and Dodd help with the financing.
So much for fiscal conservatism. Fiscal conservatism for us, reckless cronyism and crooked profit for them. So now they get burned…. eat it bish….
I always suspected that’s why so many of ‘em wanted to shore up housing prices. No free market for them!
Unfortunately, whether Rep. or Dem., most of them never seem to leave, they just become lobbyists. All the while, the monster just gets larger and more bloated.
And they’ll make way more money in their new found careers as parasites to the big parasite, so if they’re selling it’s only to move up…
I laugh the most at the 150 or so uniquely unqualified evangs from Regent University in the employ of the Federal Government @ the highest levels, despite coming from a 4th tier school…
I hope they suffer more than most, come January 20th
Yeah, we need more Harvard and Yalie types, that’s worked out so well.
Your paranoid hatred of people who in their cartoonish fringe extremes are no more than carbon copies of your own self, is fascinating.
Intelligence walks all over dogma, eventually.
And dogma fails, always. Do we need anymore evidence of that failure?
Harvard and Yale are amongst the easiest of schools. The average grade is an “A”.
1/2 the students are legacy, so I guess you can’t make it too difficult.
IKE
“‘‘the down side on a $150,000 property is pretty low.’”
Hmmm, really? Maybe but then again maybe not.
Not to worry. I’m sure that any renters he gets will not stop paying rent or trash the place, nor will he have to pay to evict them! Gotta lov um.
Well, the thing is, these investors have finally got the ratio right for rent vs. price. He’s getting about 1% per year of the house price, in rent and that’s a decent spot where you can, as a discerning landlord, actually make money.
The rent/buy ratio has been so skewed for these last few years that it was literally impossible to make money on rentals once you take into account the expenses, cost of money, and opportunity costs (because he could always stick that $150k in a CD at 4% instead).
It’s actually good to see at least one instance where things look like they could be back to normal. Now all the Kumar’s need to hope is that rents actually stay up there at $1500/mo.
2009 in northern va is gonna make 2008 look like 2006.
northern va was going gangbusters while ca, az, and fl were peaking. 32% is nothing. call me when it’s 60%.
foreclosures are moving fast
very few remaining in my hood 22151
Foreclosures are the ONLY THING that is selling in NoVA at the Moment!
Thanks for the NoVA / DC insight
It’s dropping daily here
Can’t wait for the 200 prices in Loudoun & PW Counties
Sorry “2000″ prices in Loudoun / PWC
ummmm…i just checked 22151 on ziprealty.
23 short sales/foreclosures out of 69 for sale.
SFH price range from zero to $ 1.25 million.
one word…WOW!!!
Don’t worry, Flat. This is only the first wave of foreclosures, depending on the length of those I/O grace periods. The current buyers are catching falling knives. They are butter knives instead of steak knives, but knives nonetheless.
And let’s don’t forget that not all transactions involved Realtors(tm) and For Sale signs. Every single cash-out MEW was a sale too, many with time-bomb loans. I estimate 2 more waves of readjustments to come.
I’m thinking Chainsaw to meat cleaver but I’m a bit sensitive to 30% drops in price.
We shouldn’t hit butter knife level for another couple years.
22151 = Springfield, VA? I once lived near the corner of Edsall and Braddock Road.
Didn’t care for the mixing bowl traffic
Cinch
That’s around the corner from my office. You should see all of the foreclosures and “improvements” in that neighborhood. Some of the cheapest and ugliest McMansions you’ve ever seen. There’s even a house that’s literally falling down on Edsall road. For months now the front door has been missing and the vinyl siding has been hanging off in large pieces from every exterior wall. I can’t believe it hasn’t been scavenged yet.
Yeah, before the boom 150k was what nice townhomes in Fairfax were going for - its still overpriced if its in sterling me thinks.
Fairfax County public schools are starting layoffs - they think they can handle it through attrition. I don’t know folks, I don’t think this area has seen the bottom yet - things are just getting started…
yikes.
{“Dinesh and Rima Kumar, who live in Ashburn, Va., last month bought a town house in Sterling, Va., a suburb of Washington, D.C., for $154,000. The same home sold in June 2005 for $375,000 to a buyer who used subprime loans to finance 100% of the price. It went into foreclosure late last year. Mr. Kumar says he has found a renter at $1,500 a month. The Kumars, who paid cash for the home, calculate their monthly expenses — including taxes, insurance, maintenance and fees — at $491 a month.”}
If he calculated that, he calculated wrong. He needs to offset the value of his investment, not just the monthly expenses. Even if he just uses the lost value of the 154,000 put in an ultrasafe CD at 3%, he’s losing $4500 a year. That’s $375. a month in lost interest. And that’s without compounding year over year.
Also, I’m in the Bay Area of California and I don’t pay $1500 a month rent for my apartment. I wonder how long he will be able to keep a renter at that rent.
$1200 is the price of a cheapie 1-bed apt near the DC/MD line. Luxury was more, but not by much. Ashburn is an outer sub — it would have to be close to the job to justify $1500.
Also, I checked Craigslist for NoVa DC area and the 1 bedrooms were going for 700-1000 .
I live in Ashburn and pay $1425 in rent for a two bedroom with a garage. I haven’t checked rental rates for a year or more but when I last checked the price was not out of line (although I hate paying that much). My neighbor pays more, by the way.
Also, the place Harold and Kumar bought is in Sterling, not Ashburn. There is a world of difference between these towns even though they are right next to each other. Most of Ashburn is clean and safe whereas most of Sterling….not so much.
And yes, I know, Ashburn is full of cookie cutter neighborhoods, mini vans, and soccer moms. I consider that a plus, not a bad thing.
I live in Herndon, in Northern VA.
Not too far from Ashburn, but closer to DC/MD line. Rents for townhouses in my neighborhood on 22year old townhouses were running about 1300-1800 per month a couple of years ago.
Now there are 3 foreclosed houses right near me. One is bank owned and has been vacant for over a year,
the other two are put up for rent, but then the sign is taken down every 3 months for a while.
The rent “prices” can be expensive but if no one rents them then you will never find out what the market is here.
Ashburn VA is in Loudoun, one of the fastest growing counties in the whole US. A friend and her husband bought a single family house nearby in Leesburg. they were in for $770K and now it is worth in the $560 range. (zillow.com) I believe they are happy with it.
I am currently renting and saving for the next couple of years because I could never afford the house I am living in. (at one time it was $375K now it is closer to $295K. Glad I didn’t let the landlord talk me into buying it for $340K!
Yes, but isn’t he gaining $12,000 net per year in rental income that offsets your CD? ($1500-$491)
So, he’s net positive $7500 per year. ($12K-$4.5K) Not to mention, he’s not paying interest on a loan.
However, if the value of the house loses 5% per year ($7500), then he’s immediately at break-even. I’d say that’s the wild-card.
If he keeps the place rented at $1500 why is this a bad investment?
(I’m willing to admit my math might be missing something. Is it?)
Cap rate = Purchase price / Annual rent = 8.6
Anything under 10 is considered good.
154,000 cash purchase
Interest on loan = 0
154,000 x .04 = $6,160 annual estimated maintenance costs
Rent = $1,500 x 12 = $18,000
Vacancy = 15% x 18,000 = $2,700
Revenue = 18,000 - 2,700 = $15,300 / year
Income = Revenue - Cost = 15,300 - $6,160 = $9,140
9,140 / 154,000 = 5.9% ROI
Not a bad investment as long as he can get 1,500 / mo and no less than 15% vacancy rate.
Sorry, that should be no MORE than 15% vacancy.
Good work. Too bad so many other wanna-be landlords haven’t run similar calcs for themselves. I know the guy in the cubicle next to me should have done that with his money-losing rental.
And don’t forget the depreciation they can use on their income taxes, which bumps up another $1k or more per year in pocket.
‘Tom Walters had grown up nearby, and he and his wife fell for the log cabin originally built in 1840. … By the time they were done, they’d sunk about $750,000 into renovations. That includes the $450,000 construction loan they took out.”’
Wow. That must be some log cabin.
Here’s a bit of trivia HBBers: I, Olygal grew up mostly in a log cabin. In the Utarr wilderness. Not yer mild candy-*ss version of wilderness either, mind, this was SERIOUS wilderness. My uncles, grumpa, and evil dad made it from lodgepole pines from elsewhere in the Utarr wilderness, was it Kanaab? We had a house-raising like in 7 Brides for 7 Brothers. It wasn’t like ‘Laura Ingalls Wilder time’, we had plumbing and sinks and such. Log cabins are pretty neat.
I’m experiencing a very odd combination of nostalgia, overwhelming memories, and delight that I have the life I have now…maybe I’d better go throw up somewhere, or something.
Reminds me of these morons on “This Old House” a few years back. They were going to refurb some old 1800’s built barn into a house. The boys show up, and after careful evaluation, decide that the place needed:
-a new foundation
-the main structure completely rebuilt
-A new roof
-the list went on….
Basically, almost nothing was salvageable. As I recall, the guestimate to redo everything was close to $800,000. The owners decided that, although it was more than they had planned to spend, but to go ahead, because it was a good investment.
This confirmed, in my mind, the existence of parallel universes, access to them being obtained by watching home improvement show.
800K. That’s the first time I’ve seen mention of money on This Old House. I still wonder where that modern “artist” in New Orleans got the money to triple the size of the her shotgun house.
And that 1840 cabin with $750K of renovations — sorry to say, unless the log cabin was built by Daniel Boone himself, it’s not worth much unless you’re a ‘coon. For that kind of money, you could rip out the cabin, reclaim the wood for a floor or decorative rafters, and build yourself a stone manor straight out of a Kinkaid painting.
This place was somewhere in Massachusetts (as I recall).
I’m literally yelling at the TV, “Don’t do it, you f##ing idiots!!! What the h#ll is wrong with you people? Salvage what you can, then bring in the D-8 and start from scratch!!!!”
And this was back in 2004-2005 (once again, as I recall). The place looked awesome when they were done. It was about then that i realized it wasn’t about the house, but bragging rights about how much they spent.
2004-2005. That may have been the Carlyle project, but I didn’t see that one in full.
As for yelling at the TV, I was watching House Hunters on HGTV and some single woman was considering a condo. She was VERY tight with the price, arguing over $2K here and there (on a $250K condo). The Realtor (TM) was getting very impatient, but then started smooth-talking about some I/O loan. My friend and I started screaming the exact same thing. Don’t do it you fool! You’ll never re coup that cost! You don’t make that kinds of money! It’s not even worth $150K…And the single woman bought the thing anyway.
Gulfy, oxide, I too like to scream at the teevee. Those little colorful people can hear you, is my theory, if only you scream loud enough.
I grew up a subburan track home, built new when my parents moved in.
The luxury of that home went completely unappreciated until we moved to fixer upper in rural VT, built 1900. Not a log home, but one built well by someone who was going to live in it with local lumber. However, every modern convenience was an afterthought and in poor condition. Most of the essential building parts were also in poor condition.
Over the course of seven years of living there, we end up:
a)replaced the roof (contractors did that thankfully)
There was a little tree going on it when bought it and almost every angle had leaky place.
b) replaced icy cold single pane windows
c) brought about 1/2 of the electrical system up to current code.
The first week were there, my husband attempted to fix an overhead light in the kitchen, which caused problems with the light in the oven. (really) When we left, there were still outlets not working.
d) landscaped
The previous owner’s daughter kept a horse. The next year, with a tenant, the yard was not mowed - at all. I spent the spring (2 months) raking the yard to the point where you could mow it. I was still battling thistles in the spring we left.
e) got rid of the mouse problem
Well, our cat did. This wasn’t a run of the mill, oh look there’s a mouse or two problem. This was a “oh look, there’s more mouse poop again today in our pantry” problems. It was only solved by a cat who survived for 6 months without being fed by the time we got him.
f) remodeled the bathroom
Our remodel plan had this saved last. (Heh, heh, heh…) We ended up doing this over a Christmas season when we discovered that the plumber’s putty on the drain had given way. It was clearly a long standing problem as someone had put a little child’s plastic dish to deal with minor leaks. The bathtub was built in, which meant ripping down 3 walls to replace it.
Not a single bathroom fixture had a shut off. (We installed those, too.) The steel drain system on the sink was so non-standard that my husband took a reciprocating saw to it and replaced it with PVC. (Thank the maker for those rubber “boots” that connect old and new plumbing.)
I am now throughly and completely excited by standard plumbing and working electrical outlets, an infatuation which may even outrank good look men. Newish suburban track homes are now the height of civilization as far as I am concerned.
Side note: The plumber’s putty on the tub was covering the giant, unrepairable rust hole around the drain. We didn’t replace the tub for want of a $5 jar of putty.
“An exiting army of Republican foot soldiers is faced with the prospect of selling its Washington-area homes in the worst housing bust since the Great Depression.”
Cheney-Shrub Legacy List Item # 69: Keeping on message.
“At least we still have Rash Limpbaughs, Ann Coulter, Dawn Isanhannity, Karl (I can’t Dance) Rove and the Army of “young repubicans” to remember us with terms of endearment, right “Dickey Boy”…right?
“‘This could be the bottom,’ Mr. Kumar says, and even if it isn’t, ‘the down side on a $150,000 property is pretty low.’”
Okay, Mr. Kumar, what were pre-bubble prices for a townhome? And what’s the local median household income? Inflated is still inflated, and it’s all relative, whether it’s $150K in the D.C. suburbs or $600K somewhere in the Bay Area.
Way out where he is, his house probably sits on what once was a cow patty. What was the price of manure in 1996?
The article didn’t say enough about the townhouse to know for sure, but my guess, since I was here pre-bubble, is somewhere between $90,000 and $135,000. Income in the western DC suburbs is pretty high compared to the rest of the country. So he could perhaps enjoy a bit more downside than he expects, but it won’t kill him.
“‘This could be the bottom,’ Mr. Kumar says, and even if it isn’t, ‘the down side on a $150,000 property is pretty low.’”
“Moreover, he has been burned in the past by stock-market investments and thinks rental income will far exceed the meager interest rates offered on bank deposits.”
It might not be a bad idea to see how rents shape up as this recession unfolds, before deciding on how well rental income will do going forward.
Particularly given the absurd overhang of inventory.
She and her husband started the business in 1999, selling sports and novelty beanies at a flea market in Virginia Beach. Business had been pretty good until the economy turned, she said.”
“The company filed for Chapter 11 bankruptcy reorganization last month. The store’s sales totaled $1.6 million in 2007, according to the tax return included with its bankruptcy filing.
That they managed to sell $1.6 million dollars in sports and novelty beanies in 1 year says a lot about society.
What, I am not sure.
The peeps are lonely and/or bored?
So they buy loads of cr@p? What a totally enviable life.
ByeFL must have stopped in.
It just goes to show that it didn’t pay to live in the cubicle farm.
I never lived in one of those. But, if I did, I’d be so tempted to start a beachball party. As in, I toss the ball over to your cube, then you whack it on its way to someone else’s.
“The U.S. economy is not likely to recover until the housing market stabilizes, according to experts from the Federal Reserve Bank of Richmond.”
Oh wow, what stunning and insightful analysis!
“EXPERTS”???!!! These are the same ignorant CHUMPS who have been DEAD WRONG so far.
In 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, and so far through 2008, the nation would have had better results substituting middle school kids on a sugar high for the actions of the Fed, the so-called “experts”.
How about this:
“Despite the morons and thieves at the Fed, the economy might recover; when, as and IF the the housing market stabilizes, which could take a LONG TIME”.
Hooray for the Virginia Pilot mention! It’s still as crazy here as ever. The paper reported that when adjusted for inflation the incomes in the region have actually gone down (on average) since 2001. Home prices have doubled, of course. I think we were late to the party so we’re late to the pain. Realtors and others simply say it’s different here and that the huge number of gov’t jobs will keep things roaring. Housing is still way out of line with salaries.
I’m seeing large numbers of for rent signs, but at the same time landlords seem to be trying to raise rents. I suspect it will fail.
Tom is holding a 4 of Clovers, and 6 other cards that are of no help to his poker hand, including a busted straight and near flush…
========================
“In the casino of the housing market, Tom Walters is holding the wrong cards. He’s a mortgage broker, so business has been slow, and on his own house, payments have risen to about $6,200 — too much to handle.
Jeebus! People actually pay that much monthly for a house?
Does it have solid gold toilets or some such?
We sold out house in the summer of ‘05′ and the broadsheet showed that the new owner would only have to pay $8600 a month on the basis of a 30 year fixed loan, for our abode.
Didn’t discourage somebody from taking it off our hands, fortunately…
ric is a little confused here about a number of things.
purchase price / annual rent = gross yearly rent multiple
Anything under 10 is good for gross yearly rent multiple for single family houses/townshouse, as ric correctly notes. Kumar is getting 8.6.
I prefer the following measure:
gross monthly rent multiple = price / monthly rent
Anything under 100 is excellent for single family houses/townhouses and Kumar is close to that. The reason 100 is excellent for single-family houses/townhouses but only mediocre for multi-family is that the market for single-family is dominated by owner-occupants, and they are willing to pay higher multiples (because they don’t have the overhead of landlords, especially large landlords). So if the townhouse rents for $1500/month, it will easily sell for $200K or more in a few years once the market has recovered.
cap rate is what professionals use, and requires some knowledge of expenses, whereas the gross multiples just require knowing the purchase price and rent.
cap rate = net cash income / purchase price
net cash income does not account for interest charges, depreciation or tax deductions. It does account for property and other tax payments, insurance, vacancy expense, maintenance, HOA fees, management fees. Big time professionals in multi-family housing look for 9% or more, due to all their overhead. Small landlords like Kumar can make a profit will a lower cap rate, because of lower overhead. Kumar is estimating his expenses, for everything except vacancy allowance and management fees, at $491/month, or about 33% of gross rent. This sounds pretty ballpark to me. Ric is going way overboard on the vacancy allowance at 15%. 5% is more realistic, or $75/month. I assume Kumar will do his own management. Saving management fees is one of the big reasons small-time landlording can be so lucrative. Paying someone else to do the management is a great way to destroy the profitability of an otherwise good rental property. So adding the vacancy allowance, we get expenses at about $566/month versus gross rent of $1500/month.
cap rate = (1500 - 566) * 12 / 154,000 = 7%
Cap rate is roughly equivalent to inflation adjusted interest or dividends, since rents tend to keep up with inflation. So this property is the equivalent of a stock paying a 7% dividend. If he wants, Kumar should be able to easily sell the property in 5 years for at least 20% inflation-adjusted capital gain, since it seems underpriced to me at $154K but renting at $1500/month. Finally, Kumar should be able to buy with 20% down, in which case he can leverage his investment, thus boosting his returns, and also shelter much of the income by deducting interest and depreciation. All in all, he should be making something like 10%/year after taxes and inflation, which is quite good, considering that the stock market has historically paid maybe 3% after taxes and inflation (9% nominal return, 33% taxes, 3% inflation). This is typical, because small-time landlording involves work, whereas the stock market does not, and also there is more risk with landlording (though there is also the possibility of eliminatingn the risk by really knowing the market, and a real-estate agent is in a perfect position to know the RE market).
There’s a time to be negative about real-estate, and there’s a time to be buying hand over fist. Kumar seems to know a lot more about what’s he’s doing that most of the people on this board.
ric is a little confused here about a number of things.
purchase price / annual rent = gross yearly rent multiple
Anything under 10 is good for gross yearly rent multiple for single family houses/townshouse, as ric correctly notes. Kumar is getting 8.6.
I prefer the following measure:
price / monthly rent = gross monthly rent multiple
Anything under 100 for gross monthly rent multiple is excellent for single family houses/townhouses and Kumar is close to that. The reason 100 is excellent for single-family houses/townhouses but only mediocre for multi-family is that the market for single-family is dominated by owner-occupants, and they are willing to pay higher multiples (because they don’t have the overhead of landlords, especially large landlords). So if the townhouse rents for $1500/month, it will easily sell for $200K or more in a few years once the market has recovered.
cap rate is what professionals use, and requires some knowledge of expenses, whereas the gross multiples just require knowing the purchase price and rent.
cap rate = net cash income / purchase price
net cash income does not account for interest charges, depreciation or tax deductions. It does account for property and other tax payments, insurance, vacancy expense, maintenance, HOA fees, management fees. Big time professionals in multi-family housing look for 9% or more, due to all their overhead. Small landlords like Kumar can make a profit will a lower cap rate, because of lower overhead. Kumar is estimating his expenses, for everything except vacancy allowance and management fees, at $491/month, or about 33% of gross rent. This sounds pretty ballpark to me. Ric is going way overboard on the vacancy allowance at 15%. 5% is more realistic, or $75/month. I assume Kumar will do his own management. Saving management fees is one of the big reasons small-time landlording can be so lucrative. Paying someone else to do the management is a great way to destroy the profitability of an otherwise good rental property. So adding the vacancy allowance, we get expenses at about $566/month versus gross rent of $1500/month.
cap rate = (1500 - 566) * 12 / 154,000 = 7%
Cap rate is roughly equivalent to inflation adjusted interest or dividends, since rents tend to keep up with inflation. So this property is the equivalent of a stock paying a 7% dividend. If he wants, Kumar should be able to easily sell the property in 5 years for at least 20% inflation-adjusted capital gain, since it seems underpriced to me at $154K but renting at $1500/month. Finally, Kumar should be able to buy with 20% down, in which case he can leverage his investment, thus boosting his returns, and also shelter much of the income by deducting interest and depreciation. All in all, he should be making something like 10%/year after taxes and inflation, which is quite good, considering that the stock market has historically paid maybe 3% after taxes and inflation (9% nominal return, 33% taxes, 3% inflation). This is typical, because small-time landlording involves work, whereas the stock market does not, and also there is more risk with landlording (though there is also the possibility of eliminatingn the risk by really knowing the market, and a real-estate agent is in a perfect position to know the RE market).
There’s a time to be negative about real-estate, and there’s a time to be buying hand over fist. Kumar seems to know a lot more about what’s he’s doing that most of the people on this board.
Agreed, the Kumars’ investment may actually turn out to be a good one. $1500 rent for a townhouse in Sterling is not out of line with the market. I paid $1200 for a one-bedroom apartment in Ashburn from 2006 to 2007 (yes, Ashburn is generally nicer than Sterling- but there are parts of Sterling, such as Cascades, that are just as nice as anything in Ashburn). And the median family income in Loudoun County was $107,207 last year, according to Wikipedia, so a $150,000 townhouse isn’t out of line with local incomes.
Those of you who think this is some kind of insane bubble price- do you actually live in the area? Townhouses in Sterling were selling for over $400k at the peak of the bubble, so it looks like they got a good deal to me (depending, of course, on the exact location of the townhouse).
Also, to the poster (Dani W) who said that 1 bedrooms on Craigslist in Nova/DC are $700 to $1000, I don’t know anyone in the DC area who rents a 1 bedroom for that price. Maybe if you’re willing to live in the ghetto, but that is not a realistic price for most people in the DC area.
1 bedrooms on Craigslist in Nova/DC are $700 to $1000, I don’t know anyone in the DC area who rents a 1 bedroom for that price.
Wow, down to $700? I know a girl just out of school who would dearly love to rent a *safe* 1-bdrm in DC in that price range. So far she has been quite unsuccessful.
Oh yeah, and some of those $700 ads, once you check them out, are fakes. Some route you to rentals in the suburbs, and others are just outright fake properties , like this one, if it’s still posted:
http://washingtondc.craigslist.org/doc/apa/925734709.html
(What are the scammers angling for here?)