how to know when to purchase a house

[knabe]

http://patrick.net/housing/crash.html

The simple fact is that the renter - if willing and able to save his money - can buy a house outright in half the time that a conventional buyer can pay off a mortgage. Interest generally accounts for more than half of the cost of a house. The saver/renter not only pays no interest, he also gets interest on his savings, even if just a little. Leveraged housing appreciation, usually presented as the "secret" to wealth, cannot be counted on, and can just as easily work against the buyer. In fact, that leverage is the danger that got current buyers into trouble.

citizens and the government ignored the above advice over and over.  in fact, they are still ignoring it.

more.

The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you'll know it's safe to buy for yourself because then rent could cover the mortgage and all expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:

annual rent / purchase price = 3% means do not buy
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy
So for example, it's borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a 6% mortgage, that's $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by the eternal debts of repairs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling house prices.

 

[GoWyo]

I imagine this works for purchasing farms and ranches too.

 

[husker1]

However, with mortgage rates as low as 4% or even less, you can lock in an awesome long term rate...if you want to own.

 

[gatorbait]

Absolute it applies to farms we rent a place pennies on the dollar of what the interest to buy alone would cost. Besides with eminent domain and property tax do you really *own* land anymore in this country.... my definition of own would mean I wouldn't have to pay the government anything nor would they have any say in what I do with my land. p.s. I have a problem with the government owning 1/3 of the land and buying more in a *free* nation.

 

[knabe]

However, with mortgage rates as low as 4% or even less, you can lock in an awesome long term rate...if you want to own.

the key is to buy when interest rates are high and refinance when low.  most people are scared to purchase when rates are high.  when rates are high, house values are lower, as are the property tax on them as the price must be adjusted for someone to purchase.  the sad part is when the government steps in and screws everything up and artificially raises the price of the house with the liar loans etc.  also inflating the price of the house are exemptions on taxes for property taxes, points, interest, all given to "lower" the price of the house for entry buyers, but all it does is put more people out of reach of "owning" a home and in fact stimulates "renting" a home with a future default on the loan.  most people would have been better off by renting a lower quality home, saving money and entering markets where equilibrium is more in line.  for some reason, saving money is just not encouraged anymore by parents or the government as they tax the living heck out of it compared to leveraging money, ie giving tax breaks to people that borrow it rather than save it, totally counterintuitive and counterproductive.  

but then buying votes is temporarily more important to those who have control over your money, ie the next election.  ever notice how the government "gives" away stuff around elections?  voters must resist this bribery.

 

[knabe]

I have a problem with the government owning 1/3 of the land and buying more in a *free* nation.

hint, think of electing representatives who would sell that land and generate tax from it.  instead, it's idle, forcing more taxes from less land driving up the cost of everything.

 

[chambero]

How many of you wish you could go back in time and buy land for the prices your parents or grandparents could have - or wish your parents had bought more? 

30-50 years from now your kids will be thinking the same thing about you and this time period.

The best time to buy land is anytime you can get it done.  Same thing applies to houses in most parts of the country - especially the parts of the country most of us live in.  I suppose California and very touristy areas would be exceptions, but otherwise periodic fluctuations in purchase prices and interest rates are just background noise.

 

[jason]

How many of you wish you could go back in time and buy land for the prices your parents or grandparents could have - or wish your parents had bought more? 

30-50 years from now your kids will be thinking the same thing about you and this time period.

The best time to buy land is anytime you can get it done.  Same thing applies to houses in most parts of the country - especially the parts of the country most of us live in.  I suppose California and very touristy areas would be exceptions, but otherwise periodic fluctuations in purchase prices and interest rates are just background noise.

Exactly.

Mark Twain, “Buy land, they're not making it anymore”

 

[husker1]

How many of you wish you could go back in time and buy land for the prices your parents or grandparents could have - or wish your parents had bought more? 

30-50 years from now your kids will be thinking the same thing about you and this time period.

The best time to buy land is anytime you can get it done.  Same thing applies to houses in most parts of the country - especially the parts of the country most of us live in.  I suppose California and very touristy areas would be exceptions, but otherwise periodic fluctuations in purchase prices and interest rates are just background noise.

do you really think so?  I'm certainly unsure now is time.  We are seeing record prices for Ag. real estate in Nebraska that can not even come close to cashflowing itself.  Ultimately, you'd think that at least a majority of the production type land would need to be able to support itself, or the price might be coming down....? 

the thing around here keeping the price up is outside/investor money....an amazing percentage of the ground changing hands is selling to the non farmer/rancher that made money in corporate america...

 

[chambero]

do you really think so?  I'm certainly unsure now is time.  We are seeing record prices for Ag. real estate in Nebraska that can not even come close to cashflowing itself.  Ultimately, you'd think that at least a majority of the production type land would need to be able to support itself, or the price might be coming down....? 

the thing around here keeping the price up is outside/investor money....an amazing percentage of the ground changing hands is selling to the non farmer/rancher that made money in corporate america...

The problem is its always been that way if you really examine it.  Remember the cattle baron wars in the late 1800s when they were chasing homesteaders off - where was that money coming from?  How many people had to leave their land during the Great Depression for the cities because ag couldn't make their payments?  Most people get their land two ways - via inheritance or with money made doing something else. 

We are in the same situation in Texas with our true, cheap (relatively speaking) ranchland.  You are lucky if cattle can generate enough income to make half of your land payments.  Hunting has really driven up the price of ag land in our part of the world.

This is the reason land is a long-term investment.  It doesn't make sense now - otherwise there wouldn't be any land for sale.  It makes sense for the long term if you can scratch and scrape enough money to keep things going.

 

[ploughshare]

Damn the 1031 exchange, well, if you are wanting to buy land, but as a retirement vehicle it makes sense.  In my parts land is so high that it won't support a mortgage so the rent scenario is what is working here.  However, with the implement dealers seeing sagging sales, gas prices lower decreasing the price of EtOH  and  an aging rural population, I smell opportunity around the corner.

 

[trevorgreycattleco]

I have thought about buying the farm I now rent. I live 25 minutes from Columbus, Ohio. The family I rent from bought the farm in 1984 for 62,000. it's 168 acres. I was told buy the owner who is also the biggest realtor in our area that it would sell for 750,000 now! He rents to me for 875 a month for the whole farm. I think I will just keep renting and saving after reading knabe. Someday, someday I will finally get a farm. Keep the faith!

 

[shortyjock89]

You ever get tired of paying that rent, just let me know.  Sounds like a heck of a gig.

 

[AAOK]

http://patrick.net/housing/crash.html

The simple fact is that the renter - if willing and able to save his money - can buy a house outright in half the time that a conventional buyer can pay off a mortgage. Interest generally accounts for more than half of the cost of a house. The saver/renter not only pays no interest, he also gets interest on his savings, even if just a little. Leveraged housing appreciation, usually presented as the "secret" to wealth, cannot be counted on, and can just as easily work against the buyer. In fact, that leverage is the danger that got current buyers into trouble.

citizens and the government ignored the above advice over and over.  in fact, they are still ignoring it.

more.

The only true sign of a bottom is a price low enough so that you could rent out the house and make a profit. Then you'll know it's safe to buy for yourself because then rent could cover the mortgage and all expenses if necessary, eliminating most of your risk. The basic buying safety rule is to divide annual rent by the purchase price for the house:

annual rent / purchase price = 3% means do not buy
annual rent / purchase price = 6% means borderline
annual rent / purchase price = 9% means ok to buy
So for example, it's borderline to pay $200,000 for a house that would cost you $1,000 per month to rent. That's $12,000 per year in rent. If you buy it with a 6% mortgage, that's $12,000 per year in interest instead, so it works out about the same. Owners can pay interest with pre-tax money, but that benefit gets wiped out by the eternal debts of repairs and property tax, equalizing things. It is foolish to pay $400,000 for that same house, because renting it would cost only half as much per year, and renters are completely safe from falling house prices.

Come on, Mark......just get out of California!!  Stay about 1000 miles from the coasts, and you'll be OK.

 

[knabe]

Come on, Mark......just get out of California!!  Stay about 1000 miles from the coasts, and you'll be OK.

i made out ok.  i do agree east of I35 is where i would be, flint hills and south to dfw.  i'm probably to stubborn to actually do it.  i will probably retire there though.