A loan that'll get ugly fast (LA Times)

LA Times ^ | Dec 11 2006 | David Streitfeld

[Doghouse Riley]

EVERY day, Will Hertzberg owns a little less of his three-bedroom house in Corona. Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month. Like many of them, he always chooses to pay as little as possible.....But his debt is swelling, and his mortgage company controls his fate.

"I am rather screwed," he said.

....

Hertzberg bought his house 11 years ago for $129,995..... Comparable homes in his neighborhood fetch more than $400,000...... Over the years he has taken out $190,000 in cash through refinancings......Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. "Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."

[RockinRight]

You mean combined, or each?

[Doghouse Riley]

In the long run, I'll take the house over the stock.

You could well be right. But I hope you are not telling your buyers to expect short-term appreciation (see your comment above about beach property going up 20-40% in five years). The possible advantage of RE versus stocks is somewhat offset by the high transaction costs and the great difficulty of liquidating in a down market.

Now if you are buying properties and renting them for enough to completely cover PITI, then I will agree you've got a hell of an investment!

[panuke]

EACH!

[RobRoy]

>>I'm a little slow, cuz I ain't quite figered how they're gonna dig themselves out of that hole.<<

It's easy. They just go to their parents. ;)

[carolinalivin]

You have some image of condos. His condo is upstairs, so he's the heavy walker. It's two blocks from a hospital and many professionals in the complex. It's 2 bedrooms AND two baths, so the renter and he have some privacy and that makes it a better resale than a 1 bdr. It's better to buy than to keep renting year after year.

Actually, he used $10,000 cash reserve, tax reduction, and the rent record as part of the qualifying. Various lenders have differing qualifications. One advantage of a loan broker.

[RobRoy]

>>I'm having trouble figuring out why the Times is still printing these articles now that we have a new congress and all this will be fixed in short order<<

Maybe because this was never really a political vendetta in the first place. Maybe, just maybe, they were sincere.

[RobRoy]

>>However a good time for buyers and investors.<<

But not as good as it's gonna be! There is virtually no risk in waiting this out, but LOTS to gain. There is LOTS of risk jumping in now.

After all, a home that was worth $500k and is now at $450k looks like a good deal, until it's worth $350K a year later.

I used to sell CD players for $1,299. They looked like a steal when they went down to $799. They weren't.

[RobRoy]

I know a couple who bought their house for $35k DECADES ago. It is now worth over $300K.

They currently owe more than the house is worth.

[carolinalivin]

Don't have to cover principal.

If the stock market goes up 25% on 50,000 then you have $12,500. If the house goes up 5% you make $25,000. Does that help you.

And you're selling in a down market because..................

I'm glad you're worried about what I tell my buyers. As I said before, I'm a buy and hold guy. My houses are in a trust and will probably go to the trustees when the second one of us dies. I'm not doing anything for short-term appreiation. I know how to flip, but I prefer the buy and hold market. I'm too lazy to follow the flip market. I have a friend who makes over 750,000 a year doing that and forelosures.

[RockinRight]

So you're doing well.

In San Diego that's barely getting by and living in a 700 square foot cardboard box.

;-)

[carolinalivin]

I agree there's almost no risk to wait, unless you're paying $20,000 in taxes this year.

The market may continue down. As I said, pay attention every month and go for.

Another variable, where do you want to buy and what's happening in that particular local market?

Earlier I said Fallbrook is up 4%. However, nice resort area Cabnyon Lake, if you wait you may get another 5% drop. So it's your particular interest.

If you're flipping in Bullhead City, Utah or Fla and they're at the end of the 1st of ten phases, write the check this week.

[panuke]

Why yes, I hate neighbors. I lived in a townhouse last and that was enough to convince me that neighbors SUCK! Every time we'd have people over the old lady next door would call the cops. The laughable part was that they would get there and the music would be barely audible with about 5-7 people over, I'm talking people over, not parties, and the cops would laugh! I think she was just jealous that we could stay up past 11:00. A co-worker constantly has his neighbor calling the cops on him for "walking too loud." And a different co-worker gets letter's from his neighbor about being too noisy quite often. I've come to the conclusion that neighbors are irrational and won't you actually live in your home. So we bought a lovely $264K 4br 3.5 bath, 5 year old house, on 2 acres of land. Enough for our dogs to have space and privacy as well as us. With the population boom in this county due to the city raising taxes the house will go up but that's not or main concern. We're just happy that we can eat, furnish the house, and pay more in mortgage payments than asked and STILL save money. Plus we can have kid's before we're 40 here, that wasn't an option when we were in Cali.

[100-Fold_Return]

Missed the point. The place you plop your bottom when coming back from work is, has-been, and will ALWAYS be a liability, plain and simple, end of story.[Dont pay the taxes makes it thus./syn]

A house is only an asset when someone else plops down it after coming home and WRITES YOU A CHECK to pay off the mortgage while that little baby appreciates.

[panuke]

"So you're doing well.

In San Diego that's barely getting by and living in a 700 square foot cardboard box.

;-)"

LOL, we know. Two engineers? We have spreadsheets out the wazoo to verify that too. LOL!

[passionfruit]

When my in-laws passed away my hubby and I bought his sister's share of the family home in Orange County. Even inheriting half the property, we still had a difficult time paying the mortgage on his civil service salary, and due to back problems I haven't been able to work lately. We did have a small rental house that we were just breaking even on. The rent covered our costs, barely. We found a beautiful old ranch near Big Bear that we fell in love with. The pioneer cabin is still standing and there is a three bedroom house on it that was built in the 30's or 40's. The place had sat vacant for a decade and was heavily vandalized. The main house had the windows and doors busted our and the electrical and plumbing components had been stolen or vandalized. But the roof-line is straight, and the place has great bones! We pestered the owners to sell it to us for two years, and finally we sold the rental property and called the owners of the ranch to say we had cash.

We bought the place for a song and have refused to go into debt on it. We have been making repairs ourselves and by the grace of God, total strangers have sought us out to give us things for the ranch! We were given an entire houseful of furniture by a lady that was marrying later in life. We only had to agree to accept the stuff sight unseen! We have been given building materials by a man who worked for a builder of tract homes. He pulled leftover supplies from the dumpster after construction was complete.

We promised our son that we wouldn't pull him out of his high school, that we won't move to the ranch until after his graduation in June. In preparation for the move my husband has gotten a transfer from Los Angeles to a position near the ranch. Because the Real Estate market is depressed in Orange County, we will most likely keep the house there, and rent it out. I've been checking and comparable houses in the area rent for about $1,000 more than our fixed rate mortgage payment, and the attached mother in law apartment could bring in another $800-1000 per month. I don't think we will have any problem finding renters. The folks who have the mortgages that are described in the article, and have managed them as poorly at this man will be needing a place to live after their homes are foreclosed on.

We are turning our real estate liability, the house into an income producing asset, and moving to the ranch where we can live in beauty and quiet. Meanwhile, the ranch has an apple orchard that produces income, and we can deduct our expenses for that. We won't be getting dirty filthy rich off this, but we will be comfortable financially while living the lifestyle we have always dreamed about. We will be able to help out our kids if need be.

The rental home that we sold had been a short sale from a bank that we bought as an investment the last time the real estate market took a dive. These things happen from time to time. California will always be a desirable place to live.

Even with changes in the demographics, the real estate values will continue to increase in the long run.

The man who's the subject of this article has made some very irresponsible decisions. I expect he will be pondering them while living in a rental in the near future.

[RockinRight]

In those kind of markets though, you cannot get enough rent to cover PITI in most cases.

[RockinRight]

I guess the question is HOW is he making it on a take-home pay of about $3500 a month when his PITI is close to that?

I work in the mortgage biz too, but still don't know how he makes that payment. Even WITH the $1000 from the roommate.

My own non-housing expenses are over $1000 a month.

[carolinalivin]

enjoy

[carolinalivin]

Best wishes!

[carolinalivin]

His payment with association and tax, no principal is $2,300. He bought in April of 2005. High credit score, cash reserve and renter. His savings on mortgage was about $22,000, property tax 4,800, and he takes home 300 a month more because he doesn't get a big tax refund at the beginning of the year. At 25% tax rate he saved about 500 a month in taxes and took the 300 a month home from the refund. Gets a 1,000 or so from rent. How much money does he need?