August 07, 2007

A Special HousingPANIC Message to the Homedebtors of America

We don't care what you think your home is worth.

We don't care what you owe on your home.

We don't care what homes sold for last year, or the year before, or the year before.

We simply don't care.

All we, and the market, care about is what we think your home is worth today.

Hint: You might want to check what your home would rent out for per month, and multiply that by 120. And if you price it for more than that, you're smoking crack.

117 comments:

Anonymous said...

See for yourself the latest idiots in the housing bubble ponzi scheme!

http://tinyurl.com/2rgeya

Agent #777 said...

May I have the FIRST, please !!

Agent #777 said...

Hmmm...I thought it was 100, not 120.

Even by this benchmark, it appears I made at least an extra 43.5% when I sold. And if I had sold the year before, it would have been 69%!

I hope the FDIC holds those gains properly :(

Anonymous said...

funny I said the same thing to someone who was selling a car on craigslist. he was asking $17K. I offered $12K. He replied that he owes $16K and has to sell it for that. I told him KBB says $13K is the value and it doesn't matter what he owes, that is the market value of his car. Dude then emails me back a profanity filled diatribe about how I am trying to hurt him and how dare I even offer such a low number, blah blah.

So many people are going to have reality checks soon enough.

FWIW I think 120 times rent is as useful as listening to a realtor. I rent a home for $1700 a month. 120 times that That would make this house worth $204K. It was last sold in 1997 for $300K. No way it is ever going back to $204K.

You boys have to be realistic.

keith said...

Homes have historically been priced 100 to 120 times rent and they will be again

REAL real estate investors demand positive cash flow on their properties, and don't buy betting on appreciation

Columbo said...

Keith,

If my previous post was the impetus for this new forum topic, thank you!

Cate said...

What will it take to make the masses get it that no one is going to pay 2005 prices for houses anymore?

I don't think the MSM is helping. I keep seeing all these reports about how prices have leveled off and will turn around by 3rd quarter 2008. These aren't reports by the NAR either.

I don't wear a foil hat but I am wondering if there isn't some sort of conspiracy between the MSM and the NAR. I caught an episode of Property Ladder the other day. First, I didn't even know the show was still on the air. Second, I think the episode I watched was completely fake. Some woman in Houston bought a house for 350,000 she spent like 30,000 fixing it up and she did a fairly cheap, shabby job of it. Then she sold it in 2 weeks for over 500,000! I call B.S. It was not a half million dollar house especially in a city where the median price is 160,000. Not to mention, how did she sell it so fast in this sluggish market. Houston is cheap but it's not a hot market. I say the whole show was staged so that gullible viewers still think you can make big bucks flipping houses. So the show is perpetuating the myth to homeowners that they can still get fat prices for their homes.

Anonymous said...

Say what you will about mortgage meltdowns. Homes are selling around me in Georgia. Just down the road home sold for $462K. Asking was $479K.

4675 Newell zip code 30062...look it up if you doubt me.

You people live in a fantasy world if you think mortgages aren't available anymore and all of a sudden this home will be worth 1/2 as much.

I wish a Ferrari will be 75% off next week. Doesn't mean it will happen.

Anonymous said...

r/e has never been priced at 100 times rent you're pulling random numbers out of your ass. what you are saying is that a $100K home will rent for $1000 a month. Yeah good luck with that.

Anonymous said...

anon said,

See for yourself the latest idiots in the housing bubble ponzi scheme!

http://tinyurl.com/2rgeya

August 07, 2007 2:48 PM

------


KEITH, THAT ABOVE URL IS A MUST READ... IT EVEN QUOTES CASEY SERIN.

THERE IS NOUVEAU RICHE UNIV STARTED BY SOME BUM NAMED PICCOLO WHO WAS ONCE IN A 650K BANKRUPTCY.

WHAT LOSER IDIOTS LEADING GOOD PEOPLE TO DOOM

THIS NEEDS A FULLL SPLASH ON YOUR FRONT PAGE.

INSANE WHAT IS GOING ON TODAY.

THEY ARE BUILDING A UNIV BLDNG IN NORTH PHX...

NOUVEAU RICHE UNIV.

Anonymous said...

"You boys have to be realistic."

I own 2 commercial properties, debt free, and I AM realistic.

So realistic, in fact, that I expect them to produce a positive return on my investment EVERY MONTH!

Not just when they "go up" and I sell them 3 years from now, but right now!

Why should a house be any different?
(to an Investor, not to a speculator)

Value of a house:

Owner Occupant: 2-3 X yearly income
Trader: 65-70% of what I can sell it for now
Investor: 100 - 140 X monthly rent (depending on the area and ratio of rents / monthly costs)

Regardless of what the Seller thinks it's worth, that's the deal.

My 9 year old can use a $ 4 calculator and value almost any small commercial or residential propety in the country... if you take OUT future price speculations and go with an income based approach to value.

Anonymous said...

LOOK AT THE CAR FALLOUT IN SCOTTSDALE AND PHX... ALL OF THE 'TYPICAL' A$$HOLE GUY VEHICLES ARE IN FULL LIQIDATION MODE:

http://phoenix.craigslist.org/car/391270561.html

http://phoenix.craigslist.org/car/389962308.html

http://phoenix.craigslist.org/car/391277939.html

http://phoenix.craigslist.org/car/388569436.html

DOPES said...

120 x RENT!?!?!?!
.
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YEAH, OK!
.
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LET'S SEE RENT IN NEW YORK IS 2,000.00 X 120 = 240,000.00
.
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HAHAHAHAHA!!!
.
.
MAYBE WHERE NOBODY LIVES IT IS LIKE THAT!
.
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DOPES!

Anonymous said...

"No way it is ever going back to $204K."

Give it some time, it'll happen.

Anonymous said...

The question I have is, what is the general basis for home appreciation? That is, is it largely driven by supply and demand driven resulting from population growth?

The reason that I ask, is because when all these boomers finally take their not soon enough dirt naps, what is the likelihood that there will not be a sufficient populace with the financial ability to purchase all their overpriced POS homes?

And seeing this in the future, why would anyone Gen X/Y buy an overpriced POS and/or not consider this fact when they purchase?

SmokingCrack said...

Anon said:"It was last sold in 1997 for $300K. No way it is ever going back to $204K.

You boys have to be realistic".

-----

Never say never.

Vandal said...

More good news...it looks like the exurbs of Washington DC are finally starting to crack. The "immunity" myth here will soon be shattered. Still seeing tons of denial pricing though.

There are new listings for homes around 3000sq ft. for under $500K in central Loudoun county. Still WAAAAYYY overpriced, but that kind of pricing for single family has been unheard of for some time. Prince William, VA and Frederick, MD counties are really starting to plummet.

Agent #777 said...

@ANON 306 PM and Keith

The funny thing is, when that house gets to 204k or below, he will be too afraid to consider buying it! And it is possible that it will be rightly so...

Mammoth said...

This thread hits a little bit too close to home, as I am currently cleaning up my rental house in preparation fo putting it on the market next month.

Per the 120x rent formula, this house should sell for $144,000 which means that it appreciated a whopping $17,500 in ten years. Sorry, but even starter houses still sell for over twice that amount in the suburbs just north of Seattle.

Yes, the timing sucks – the local market is cooling off and yes, the mortgage mess may throw a wrench into these plans for selling the house.

So what’s the worst that could possibly happen? It sits on the market for 2 months without selling, so I rent it out again. The cost is 3 month’s mortgage payments plus the ~$4,000 that I will have put into the house making it look pretty.

Then the new tenants resume making my house payments on the remaining $75,000 still owed. The rent money covers my monthly payment, plus there’s a little extra to add to the kitty.

Yes, this homedebtor is so fvcked! Not!

-Mammoth

Agent #777 said...

Well, in pondering any possible price adjustments, the chance that we could go all Weimar on the $ must be considered.

That house could be 15 Million in 10 years :)
But then again, gold might be a million $s an ounce too...

Dope-a-mean said...

For Dopes,

"In March of 2000 the S&P stood at 1539. Last week, it was barely 1450. Plus, consumer price inflation has steadily eaten away at dollar values. While you might have cashed in $200,000 worth of S&P shares to buy a decent house in 2000; today, you'd need $400,000 worth. And while you might have gotten a gallon of gasoline for $1 in 2000…now, you'll pay $3. Just taking the government's CPI at its word, the dollar has lost about 20% of its value since 2000…which means, your S&P portfolio is down about 25% in real terms.

You would have been much better off in gold; it's up 150% over the same period."

http://tinyurl.com/28rmrg

Mark in San Diego said...

Luminent Mortgage just bit the big one. . .another day another mortgage company goes belly up. . .EMAIL to homeowners - it is not what you ask, but what the banks will loan!!!. . .now that sanity is returning to the mortgage markets (20% down and 30 year fixed). . .housing prices will either drop, or stay flat for 10 years to let salaries catch up. . .or a little of both - but a 20% drop in most areas is in the bag. . it happened in California in the 1989-1995 period and it is happening now. . .

DOPES said...

JUST HEARD ON THE NEWS HILLARY IS PRESENTING LEGISLATION TO BAIL OUT THOSE FACING FORCLOSURE!
.
.
HOW DOES IT FEEL TO BE RENTING SUCKERS!
.
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THE GOVERNMENT WILL NEVER LET THIS HAPPEN!
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YOU JUST MISSED OUT!
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SUCKERS!!!!!
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NOW GIVE ME YOUR TAXES TO PAY FOR MY HOUSE!
.
.
HAHAHAHAHAHAHAHAHA!!!!!

Anonymous said...

I won't buy a house that isn't subject to the 120 rule. I'd rather rent the rest of my life and invest the extra monthly income, than to break my back to pay for an overpriced dump.

The Thinker said...

I know the 100 to 120 times rental calculation was historically true, and it makes a great deal of sense that rental prices should, for the most part, remain in lock-step with purchase prices. However, there are now certain tax advantages to owning a house that simply cannot be achieved by renting. These tax advantages may have tipped the 100 to 120 times figure to something like 200 times rental. After all, these tax breaks for home owners didn't always exist.

The only was we will return to the 100 to 120 times rental valuation is if the tax advantages to home ownership are repealed. These advantages include the ability to deduct mortgage interest (and now PMI payments), the ability to deduct property taxes, and the ability to not have to pay capital gains tax on appreciated homes.

borkafatty said...

I have said it before and ill say it again, a home is a place to park your ass and a place to store your shit.

The only investment involved is what the other guy is willing to offer you for it when you decide to sell.

Anonymous said...

BWA HA HA HA HA

The Democraps are bailing out the homeowners.

HPERS lose again.

Next time don't vote for communists, you fucking morons.

Anonymous said...

read it and weep renters, the bailout is coming. Hope you are all comfy in the 1 bed shithole, you are never leaving.

suckers.

Mike Perry, chief executive of mortgage lender IndyMac Bancorp (IMB) said on Thursday that he got a phone call this week from U.S. Sen. Christopher Dodd, D- Conn., who asked whether Congress can help the U.S. mortgage industry in any way.

At a hearing in Washington D.C. on Thursday, Dodd said that he'd spoken this week with several mortgage bankers "to solicit their opinions as to what they thought was happening and what solutions may lay out there to try to deal with this seizing up of credit that is really getting rather dramatic."

Indymac's Perry said he'd also talked to the chairman of Fannie Mae on Thursday and had traded calls with the chairman of Freddie Mac.

"Fannie Mae's Chairman (is) telling me that they are 'prepared to step up and help the industry'," Perry wrote on the company's blog.

Anonymous said...

FWIW I think 120 times rent is as useful as listening to a realtor. I rent a home for $1700 a month. 120 times that That would make this house worth $204K. It was last sold in 1997 for $300K. No way it is ever going back to $204K.
---------------------------------

I agree. It would take total economic collapse to drive prices down that low. If the economy was still viable, true investors will be snapping homes up to rent at those prices

Anonymous said...

borkafatty said...

I have said it before and ill say it again, a home is a place to park your ass and a place to store your shit.

And I have said over and over that you are a moron.

Gary said...

For the ill-informed:

The 120xRent rule is a fundamental rule that has gone by the wayside at different times for different areas. No, it currently doesn't apply in many areas, but most will return to this. In my area, that rule was spot on up until about 2004, which is when the bubble started to spread into this area. It will return to that. Besides that, the incomes absolutely cannot support the outrageous prices in the supposed non-bubble area.

CrashisaComin! said...

Anon said:"if you take OUT future price speculations and go with an income based approach to value".


Exactly. How can anyone think this historic housing boom is any different from the dot.com bubble?

kilgore said...

Another thing about 120x rent is that it obviously depends where you are. Right now in Houston you can buy a condo in River Oaks (nicest part of city/close to downtown/old money ect) for about 110x monthly rent. That said, real estate taxes in Texas are roughly 3% of the value of the home, so the numbers are a bit skewed.

And while I think that prices are probably coming down a bit in Houston, as long as interest rates stay within a couple hundred basis points of where they are now, I don't think prices will collapse. Today in Houston it's still about exactly the same price to rent as it is to own.

Texas, in general, ain't gonna have the same kind of bloodbath that California, Florida, or Phoenix is having. At least I hope not!

bearmaster said...

I think current rents are very high. This year, new household formation has slowed dramatically.

Sure, when somebody in a family loses a house, mom and pop might may in with their adult kids. Or, adult kids may live at home with mom and pop.

Rents have collapsed before, even when they "should" have stayed up.

RedShoes said...

The think said:"However, there are now certain tax advantages to owning a house that simply cannot be achieved by renting".

I dont think the tax advantage is that good when it's compared to paying cash outright for a house.

That interest really adds up and one ends up paying double for a house by the time they are finished with 30 year payments.

Oh, but I guess one can get ahead by flipping the house??

Anonymous said...

Mammoth, it sounds like you're in good shape with your house.

But.....

You're using the previous purchase price and the current rent to do your math!

This topic was obviously not a personal attack on you, but using your situation, let me ask you this:

Would you buy your house at current "market value" with the intentions of renting it out?


If so, what is the monthly rent, and what is the current purchase price?

REAL investors will not intentonally lose money every month.

You benefit from a current rent to previous price formula.

borkafatty said...

And I have said over and over that you are a moron.

-------------
Homo says what?

Mark in San Diego said...

The amount of hostility on this blog is in direct response to the collapse of the housing market for all to see. . .(ok, Canton OH and Houston TX are not crashing because they had no bubble). . .but the 120 x rent is still true in many parts of the country - like Canton Ohio (my home town). . .here in SD, we likely will return to 200 times, because there is a "sunshine" factor that Canton doesn't have. . .my friends own a small one bedroom condo that is valued at 200K - they rent it for $995 a month, so they are already back to the 200 times rent. . .not the 500 times that was common two years ago.

Anonymous said...

OK, so some people don't like the quick & easy 120X formula. Not enough "data" for them, I guess.

Here's how my 9 year old has been taught to do the math, and find the VALUE (not the price) of an income property:


Monthly Rental Income PLUS
Other income sources
====================
Total Potential Gross Income

minus Vacancy
minus Collection Losses estimated
===================
Effective Gross Income

minus Property Mgmt. (your time or hired)
minus Prop Taxes
minus Insurance
minus est. Maintenance, Home Warranty, Service Calls
minus Advertising, Marketing, Commissions
minus Accounting & Legal expenses
minus Utilities & Water
minus Service & Cleaning (usually between tenants)
minus HOA & other fees
minus misc. expenses specific to that property, if any

====================

NET OPERATION INCOME

divided by __% (Your Return on Investment)
(The ROI that makes this worth doing in the first place)

NOI / ROI = Wholesale Purchase Price (or VALUE)

minus any rehab needed to get it into the condition you need


VALUE - Rehab = Top Purchase Price

Top Purchase Price - 10% = Opening Offer (room to negotiate)

~~~~~~~~~~~~~~~~~~~~~~~~~

There it is. RE Investing 101.
No "universities" needed.

By the way, when you do this and come up with a dismally low value to the property, the first impulse is to raise the rent or lower the estimated expenses.... fight that urge with all you have in you.
It doesn't come out well if you "fudge" to be able to offer more.

It's worth what it's worth. Period.

If you run this formula on your house, it will be shocking, and you'll think I'm an idiot for coming up with this formula.

If you think about it logically, you'll see that THIS is how real businesses have always run.

Income - Expenses = NOI
NOI / ROI = Value

Steel, steers or stucco... the formula doesn't really change a lot for an investor.

For a trader, it's easier: buy low, sell high

For a speculator, it's even simpler: buy at retail (because it's easy to buy at retail)... and hope!


I hope this helps, even if it scares you to what the "wholesale" or investment value to your own home would be.

~ Asset Hunter

Anonymous said...

once thought the bankster would not finance unless it paid itself off in seven years, while your 120 m0nth is ten years

burn baby burn said...

If if's and butt's were candy and nut’s we would have a merry Christmas.

Anonymous said...

tho then unless it was funded on other peoples money in retrospect to govt insured repayment repayments

Anonymous said...

Dems / Hillary cares!!

She wants to take renter tax money and use it to subsidize sub prime, reckless people w/ no or little common sense!!!

Way to prop up bubbles Hitlery!
Hitlery to renters w/ personal fiscal responsibility, "I HATE YOUR GUTS!!!"

http://tinyurl.com/2xykfx

Anonymous said...

Sophmore year in college, 1995 I paid $765 rent for a 2 bedroom condo. Those condos were were being sold for $100K and up new, meaning in reality with add-ons it was $110K or 140 to 145 times rent. I remember well because I told my parents they should buy one as an investment. They said no. Bad move on their part. Condos are worth double now, and so is rent.

But as far as the rent/price ratio goes, even 15 years ago, long before the boom 120X rent was not a reality.

Anonymous said...

I was just looking again at how painfully simple that formula is, and chuckling to myself that people have been able to fill up stadiums and hours of infomercials over basically the same info.

Like "stuffing" 100 pennies into a Brinks armored car :-)

Seminars, bootcamps, mentoring, meetings, and now NR University... all to work on one of the three principles.... Invest, Trade, Speculate.

We Americans really must have too much free time! :-)

~ Asset Hunter

Mammoth said...

Anon 5:25 PM said:
“…using your situation, let me ask you this:
Would you buy your house at current "market value" with the intentions of renting it out?
If so, what is the monthly rent, and what is the current purchase price?
------------
O.K., here are the numbers:

(Purchased as a residence, not an investment)
- Paid $126,500 in ’97.
Lived there 4 yrs.

Moved out in 2001
Rented @ $1080/mo for 6 years.

Approx. value in 2001: $150,000
$150,000/120 = $1,250 >$1,080
The 120x ratio didn’t work then.

Approx. value in 2007: $300,000
$300,000/120 = $2,500

Just for HP fun, let’s assume a 20% haircut:
$260,000/120 = $2,167


The house could rent for $1,200 tops, today.
The 120x ratio doesn’t work today, either.


No way would any investor in his/her right mind would buy this house for an investment today.

Cheers,
Mammoth

Anonymous said...

DOPES said...
JUST HEARD ON THE NEWS HILLARY IS PRESENTING LEGISLATION TO BAIL OUT THOSE FACING FORCLOSURE!

If you actually read the legislation and you actually knew what was going on you would know that the bill will have little or no effect. The bill just allows certain people to REFI out of an ARM into a fixed loan. They still have to make payments which most of them can't afford anyway. That's why they took out ARM's with low teaser rates in the first place.

Anonymous said...

Well, debating whether it's 100 or 120 times rent is interesting, and I've enjoyed reading the comments. Both pro and con. One thing I DO KNOW is that homes probably never should have sold for uh... 700 times rent!

Look, much of the debate is moot. Most of these McMansions were built to flip (*not rent!) The fact that some upside down dillrod is trying to off-set his totally out of control finances in no way should be construed as "the norm".

In practically any part of the country I've lived in, once a home (typically 2bd/1ba) went rental, IT STAYED a rental! Since when did 3,200 s/f "homes" become r-e-n-t-a-l-s?

It's just another facet of the whacked world flippers live in that has stood conventional wisdom on it's ear! I for one am quite tired of it!

DinOR

Anonymous said...

Hey DOPES

Presidential hopeful Hillary Rodham Clinton is calling for penalties on unscrupulous mortgage brokers who engage in predatory lending and a $1 billion federal fund to help homeowners avoid foreclosure.

Yeah, one billion dollars will do the trick! That should solve everything!

Now do another line of cocaine and tell me how everything is GREAT!!!!!!!!!!

Jymkata

Anonymous said...

http://www.tiny.cc/QTGcn

Agreed until price comes down everyone who's gotten fat on housing appreciation is going to have to go through an attitude adjustment.

The link is to a WashPost article where Fairfax County in NOVA has gotten use to all the tax revenue kicked off by the RE transaction activity. What did they do before the bubble for revenue!!! Where did all the RE bubble revenue go. How is it that in just 5 short years they went from budget X to budget X+REJP5 (JP5 is a jet fuel designation) which exceeded inflation by leaps and bounds. Now, that we are coming back down to earth they cannot stay w/in the confines of a budget of X+STD inflation because they instituted new pet projects and programs they would never have started but for the excess revenue. Now they do not want to cut back, so homeowners are going to get a double whammy, housing price depreciation combined with increasing property tax RATES (not assessments) to compensate not only for the drops in revenue due to downward reassements but also to make up for the drop in RE transfer revenue which was huge and greatly relied upon by many local gov'ts. Its happening everywhere!!!

Anonymous said...

DOPES said:

JUST HEARD ON THE NEWS HILLARY IS PRESENTING LEGISLATION TO BAIL OUT THOSE FACING FORCLOSURE!

I just read that her bailout is for $1 billion dollars. Yup, that should do the trick - problem solved!

Now do another line of cocaine and tell me how everything is GREAT!!!!!!!!!!!!!!!!!

Jymkata

SPECTRE of Deflation said...

Keith can we do one for the poor SOB's that are gonna take it in the shorts, and Bear now says no KY allowed. The be-atches are filing in the Caymens to screw their creditors and investors. BOO-YAH!


Bear Stearns Caymans Filing May Hurt Funds' Creditors (Update2)

By Jeff St.Onge and Bill Rochelle


Bear Stearns Cos. headquarters Aug. 7 (Bloomberg) -- Bear Stearns Cos.' decision to liquidate two bankrupt hedge funds in the Cayman Islands instead of New York may limit creditors' and investors' ability to get their money back.

While most of their assets are in New York, the funds filed for bankruptcy protection July 31 in a court in the Caymans, where they are incorporated. The bank also used a 2005 bankruptcy law to ask a U.S. judge in Manhattan to block all lawsuits against the funds and protect their U.S. assets during the Caymans proceedings.

The Bear Stearns cases may establish a precedent that would let other failed hedge funds liquidate in the Caymans, where judges have a track record of favoring management. The local monetary authority estimates that three out of four hedge funds globally are incorporated in the islands.

``This is definitely going to be closely watched,'' said Evan Flaschen, a lawyer with Bracewell & Giuliani in New York, who has represented companies and creditors in international bankruptcy cases. ``Other hedge funds might do the same thing.''

The funds, which invested in securities tied to home mortgages, collapsed amid rising defaults on subprime loans, made to people with weak credit. Bear Stearns, the fifth-largest U.S. investment firm by market value, on Aug. 5 ousted Co-President Warren Spector, who headed the mortgage and fixed-income business.

Shares History

Bear Stearns shares rose $1.19 or 1% to $115.00 at 10:32 a.m. in New York Stock Exchange composite trading. Yesterday they fell to their lowest level since 2005 before rallying on speculation the government may limit losses in mortgage lending.

Creditors and investors in the two funds are likely to get back ``a pittance on the dollar'' and will attack Bear Stearns's bankruptcy tactics in court, said Bill Brandt, president of Chicago-based Development Specialists Inc. His firm advises hedge fund Ritchie Capital Management Ltd. in the bankruptcies of its two life insurance funds in New York.

Bear Stearns hasn't said how much the two funds owe creditors.

Hedge funds are lightly regulated, high-risk investment pools favored by institutional investors and wealthy individuals.

Filing the funds' bankruptcy in the Caymans ``is a nice little stunt, and it may work for a while,'' Brandt said. ``Bear Stearns is trying to put a wall between themselves and these so- called rogue funds.''

`Attractive to Management'

The Caymans courts make it ``difficult to take legal action there'' and are ``much less transparent than American courts,'' said Jay Westbrook, a professor at University of Texas Law School in Austin who helped author the 2005 law. The British- administered islands are ``attractive to management,'' he said.

Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd. asked for an ``orderly liquidation'' in a petition filed in Cayman Islands Grand Court, citing volatility in the subprime mortgage market.

Chapter 15 of the U.S. bankruptcy code, a new international law passed by Congress in 2005, lets U.S. bankruptcy judges assist courts in other countries with liquidations. The measure shields the company in bankruptcy and its assets in the U.S. from lawsuits and other collection attempts. Distributions to creditors are handled by the foreign court.

Not Tested

Creditors may argue that the main case should proceed in the U.S. To do so they must show the U.S. bankruptcy judge that the hedge funds had their ``center of main interests'' in the U.S, said Robin Phelan, of Haynes & Boone, who represented hedge fund InverWorld Inc. in its 1999 liquidation in the Caymans.

Because the two hedge funds were incorporated in the Cayman Islands, that's presumed to be the center of main interests, according to Phelan.

``That's going to be an issue,'' he said, noting that the new bankruptcy law ``hasn't really been tested.''

The Caymans ``ought to be irrelevant'' because the funds' assets are in the U.S., according to their bankruptcy filings, Westbrook said. ``If a company is basically managed out of New York, then the case should be in New York,'' he said.

``This was a properly commenced Cayman Islands proceeding, commenced in accordance with the governing provisions of the funds and with Cayman law,'' said Fred Hodara, a lawyer for the bankrupt funds with Akin Gump Strauss Hauer & Feld in New York, ``These are Caymans-formed entities.''

Knows Issue

Russell Sherman, a Bear Stearns spokesman, didn't return a message left with an assistant or a voice-mail message.

In the U.S., the Bear Stearns hedge-fund cases were assigned to Burton Lifland, the most senior bankruptcy judge in New York. Lifland scheduled a hearing for Aug. 9 on the funds' request for an order blocking legal actions against the U.S. assets.

Lifland ``is as familiar with these types of issues as anyone,'' Flaschen said. ``He focuses on the equities of the situation -- what's fair and practical.''

The Chapter 15 cases are Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd., 07-12383, and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd., 07-12384, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Anonymous said...

This thread hits a little bit too close to home, as I am currently cleaning up my rental house in preparation fo putting it on the market next month.

Per the 120x rent formula, this house should sell for $144,000 which means that it appreciated a whopping $17,500 in ten years. Sorry, but even starter houses still sell for over twice that amount in the suburbs just north of Seattle.

Yes, the timing sucks – the local market is cooling off and yes, the mortgage mess may throw a wrench into these plans for selling the house.

So what’s the worst that could possibly happen? It sits on the market for 2 months without selling, so I rent it out again. The cost is 3 month’s mortgage payments plus the ~$4,000 that I will have put into the house making it look pretty.

Then the new tenants resume making my house payments on the remaining $75,000 still owed. The rent money covers my monthly payment, plus there’s a little extra to add to the kitty.

Yes, this homedebtor is so fvcked! Not!

-Mammoth

Wow, you are really stupid! This is exactly the point, you CAN'T get 1/120th of the houses price in rent, you estimate you can get 1/60th. Therefore, using a simple P/E ratio calculation the value of your "asset" is, in fact, the 145,000 figure you quoted, Econ 101 dude. If you rent that house out you are losing 1/60th of the value of your house, every month, as I bet you the rent is nowhere near enough to cover the mortgage payment on an equivalent house, therefore you have NEGATIVE cashflow, i.e. a bad investment.

Anonymous said...

I haven't heard anything from anyone regarding the good parts of homeownership...

1. Having your kids in the same school district from K-12 (not moving around from rental to rental)
2. Having life long friendships with your neighbors
3. Owning a home will help you with your retirement. (Do you want to rent your whole retirement or would you want to pay for that condo outright?)
4. Taking ownership and feeling good about fixing / cleaning your house.
5. Being proud of your community.
6. Being able to set your own rules about your house instead of letting someone else do that for you.

Maybe all of you live in areas like California and Florida where these don't mean anything to you.

Up here in Pittsburgh, they mean a lot to us. While you guys can rent all you want, we will be here enjoying our great schools, low cost housing, and watching the Steelers win their 6th Super Bowl (because there is nothing else to do)

The Thinker said...

RedShoes,

I am not saying it is better to buy than to rent, far from it. I agree that even with the tax advantages it is currently better to rent that to buy.

My point is that the 120x rule used to apply and then the government created tax incentives to sweeten the buying pot. This in turn upset the 120x rule.

Thats all I'm saying.

Max said...

I can't believe none of you have mentioned interest rates. Interest rates have a lot to do with the price of homes. In the current low interest rate environment, its no surprise that home prices have gone above the 120x rule. I think interest rates will have to rise (thus inflating the mortgage payment) to drive prices back down to use the 120x rule.

Agent #777 said...

Here ya go...

DISCLAIMER: The info listed below is from a separate EMail advertisement, and has not been independently verified by this poster. Please base any decision to purchase or lease on your own due diligence!

Just south of Disney and other attractions:

Highlights
• 3 Car Garage
• Water in Rear
• Playground Front View
• Paver Drive
• Corian Counters
• Tile Wet Areas
• 2633 Sq Ft!!!
• Washer/Dryer
• Alarm System
• Formal Living
• Formal Dining

Kissimmee, FL 34746
List Price: $320,000
MLS # oXXXXXXX
Area CE23 Home with lots of upgrades. Intelligent network, Corian counters, Tiled wet areas, Wired for Theater & Outdoor speakers. Front on conservation area playground and rear faces pond. Paver Drive.

Let me know and I can hook you up!!

Oh, it is available to rent too - but why throw your money away on rent when you can buy!!

How much to rent?
Well, ummmm...it was $1500 a month ago...

ummm...

yeah, now, ummmm...

Listing REALTOR is advertising 1200/month to rent. But what a BUY this is...lock it in now before the market rebounds! There is NO WAY this could go to 144k, like that bear at HousingPanic claims!

Let me know!

This REALTOR notes: In all seriousness, this house looks like it is less than 7 years old, and is a great deal at 1200/rent. I would consider it myself if we had not just got into a new lease.

Anonymous said...

The 120X rule holds pretty true regardless of where you're investing. I've done it in North America, UK & Asia and with some slight tweaks for tax it remains a good rule of thumb. And that's over 25 years.

EVERY business has fundamentals any intelligent person can work out on the back of a napkin - if you're a perfectionist you can even use a calculator. And the fundamentals of property look Pets.com look quite realistic...

Who'll survive?

1. Long term homeowners who've got the traditional P+I mortgage and have oddly enough eschewed their desire to own a hummer, ski boat and other crap.

2. Landlords who've premised their business (as in real business not 'I'm an investor but what's a P+L' statement again?) on yields and realistic business plans. Including, rents might go down if things head to recession.

3. People who read. Yup. Book learning can learn ya something that Paris Hiltons latest shenanigans can't. Where Are All the Customers Yachts? The Intelligent Investor. Reminscences of a Stock Operator. Etc....

Who won't survive!

1. HELOC / MEW'ed up homeowners who've sucked out equity to live it up. Or the ARMed bandits who've bought more than they can afford on the premise 'property only goes up'.....

2. Specuvestors / Fliptards / Infestors. Or whatever you wish to call them. The type that trolls around online and offline - we've all heard these retards pontificating at coffee shops, parties, you name it.

3. Most recent landlords. They just ain't done the maths. And the maths will ultimately rule regardless of what your mate, Inside Track, or such other lightweight 'advisor' has advised.

Been there done that - 25 years in the game and it's the same bloody drama every time. Idiots talking it up whilst the walls come tumbling down.

Cheers, Haggis

Mark in San Diego said...

YEA for the FED!!! People didn't cry to the government when their house doubled in price, so SCREW them if their house went down 10% in value. . .don't go crying for a bailout!!!

charles ponzi said...

Dopes,

U funny. U such a tard.

DOPES said...

65 + AND CLIMBING!!!!!
.
.
NO RATE INCREASE!
.
.
ECONOMY GOING STRONG!
.
.
GIVE ME MY RENT!
.
.
SUCKERS!

Anonymous said...

BWA HA HA HA HA

DOPES

DOLTS

LOSERS

IDIOTS

HPERS

Home builders up HUGE

Some crash.

Out at the peak said...

I think 120x will apply to No Where, USA.

In California, I expect prices to hold at 200x rent in decent neighborhoods. It's still a big drop from the 375x place I'm at now.

Anonymous said...

Asset Hunter - You can get an "amen" here brother...

I have two rental properties...they are my part-time job. I applied this exact formula in '99 and '00 on the two properties, and I'm just barely making the 10% that makes it worthwhile to tie up the money (no mortgages). During the boom, rents have remained flat, but I expect them to even up a bit now. Nevertheless, both properties are "worth" 250% at 2006 pricing in their respective neighborhoods. I expect this to pull back significantly...but there is no way in the world I'd get close to the rent levels needed to justify buying them today. It has been difficult to increase rents to cover Real Estate tax increases during the bubble. I lost a set of tenants over an annual increase.

Either we get hyperinflation (and wage inflation to match it) or these prices have to come down...

Anonymous said...

You guys are kidding yourselves if you think the government is going to let the housing market totally crater, with the requisite forclosures and evictions, when there's a presidential election 15 months away.

Anonymous said...

game set match it's over HPers.

Hitlery has announced a $1B assistance fund for homeowners. That $1B will soon enough turn into $10B then $100B.

No mass foreclosures coming. No rock bottom prices.

You lose once again.

This piggy goes to market said...

"Update, 3:03 PM Eastern The Fed statement that has been released is not going to please Jim Cramer. “The Fed sees the current situation less urgently than many on Wall Street do,” writes Jeremy Peters of The Times."

http://tinyurl.com/2n3je9

Anonymous said...

dow up 300 yesterday, up 150 today

how's the 5% CD tinfoilhatters? how about those shorts and puts?

OK enough of this, you sub-humans have had your fun. Now back to the caves you go. Come back out in another 10 years for the next so called "crash".

Ta ta losers.

borkafatty said...

Hey Keith take a peek: The China men say screw us and we will screw you:

http://www.telegraph.co.uk/ money...cnchina107a.xml

Mike Mosieur said...

Anonymous said..

Value of a house:

Owner Occupant: 2-3 X yearly income
Trader: 65-70% of what I can sell it for now
Investor: 100 - 140 X monthly rent (depending on the area and ratio of rents / monthly costs)

As a long time real estate investor (since 1970), these numbers are definitely in the ball park, rule of thumb.

To Another Anonymous in Georgia;

My advice is to look at the whole picture. I'm not sure you're seeing it. I don't know anything about your market but you are correct, mortgage money is available, just not AS available and the terms are tightening. I'm still getting stuff financed in Florida. Actually, you sound like a speculator whistling in the dark.

Latest deal. Bought a house in central Florida for 24,800. The comps for the area and the house were 95K to 105K. Low end residential. Not a dump, but needed some work. Prices are coming down.

Incidentally, not all foreclosures are good deals. But I think most on this blog know that.

Did you guys see Jim Kramer’s meltdown? Wasn’t he bullish on housing mere months ago? Didn’t he allude to people in the know Bull$hitting the public?
Funny, most of us here knew in 2003/2004.

RealWhore Troll Alert said...

Sorry the mortgage interest deduction has always been there.... PMI deduction is at best a few hundred dollars a year you troll....

The Thinker said...

I know the 100 to 120 times rental calculation was historically true, and it makes a great deal of sense that rental prices should, for the most part, remain in lock-step with purchase prices. However, there are now certain tax advantages to owning a house that simply cannot be achieved by renting. These tax advantages may have tipped the 100 to 120 times figure to something like 200 times rental. After all, these tax breaks for home owners didn't always exist.

The only was we will return to the 100 to 120 times rental valuation is if the tax advantages to home ownership are repealed. These advantages include the ability to deduct mortgage interest (and now PMI payments), the ability to deduct property taxes, and the ability to not have to pay capital gains tax on appreciated homes.

Anonymous said...

"FWIW I think 120 times rent is as useful as listening to a realtor. I rent a home for $1700 a month. 120 times that That would make this house worth $204K. It was last sold in 1997 for $300K. No way it is ever going back to $204K."

Any place worth $300K in 1997 has to be worth over $1MM today, and I highly doubt it would rent for $1700 today, unless you rent from your parents.

Anonymous said...

Hi Dopey,
"LET'S SEE RENT IN NEW YORK IS 2,000.00 X 120 = 240,000.00"

I used to live in NYC, around 2000-2001 people were buying pretty nice condos (in Manhattan, upper west side) for $250K.

Bye Dopey.

Anonymous said...

"my friends own a small one bedroom condo that is valued at 200K - they rent it for $995 a month, so they are already back to the 200 times rent. . .not the 500 times that was common two years ago."

That condo'll be worth $100K before too long, and voila back to 100X rent. It was cheaper to own than to rent in SD around 1996, it'll happen again.

Tom said...

Texas, in general, ain't gonna have the same kind of bloodbath that California, Florida, or Phoenix is having. At least I hope not!

This housing bubble did not affect the vast majority of Texas. Most cities have had their home prices stay in check with inflation. A lot of that has to do with the higher property tax rate in Texas which puts a nice cap on accelerated growth.

Florida was really a victim of circumstance. Not unlike Las Vegas and Phoenix. All those areas become a flipper's paradise and the majority of the home appreciation was completely unjustified, with property simply changing hands to and fro. Much of Florida has already experienced some sharp price drops (as much as 50% in Fort Meyers). And this will go on for some time since new construction is still ongoing. Miami is building 20000 new condos in the next two years, into an already inflated market.

California on the other hand is a somewhat different animal. Since it was the nexus of the dot com explosion and subsequent bust, the rationale here rapidly changed. Where once it was stocks and stock options as the holy grails of investing, suddenly it became housing. I've lived in this area for almost ten years and have watched housing go from high, to very high, to ridiculous, to ludicrous to WTF?! What makes things interesting in California is that the vast majority of these homes purchases were not flipping, per se. It was individuals buying their primary residence. Some of that was spill over from the dot com bubblemania. The rest was just another form of irrational exuberance.

I remember vividly the situation after the dot com bust. Rents dropped for a period of several years. (By as much as 50% in some areas) But housing went in the completely opposite direction. I was at a loss to understand where this money was coming from. And the mania set in for many of my friends and colleagues. Suddenly, they HAD to buy a house. It wasn't until I began reading about the creative financing they were using when things finally dawned on me. But what struck me as the most fascinating was the fact that the very same "lingo" that was used during the dot com era was being recycled into the housing situation. Terms like "new paradigm" were prevalent. That set off major alarm bells for me.

My personal opinion: this housing bubble started in California. And it will end there. Like any explosion, as the vacuum effect pulls things back in, the center will be the last effected.

Incidentally, that "120" value doesn't even come close to functioning here. In fact, neither does the 200 value postulated by a previous poster.

One of the best examples I have is a friend of mine who rents a 2100 sqr.ft, 4 bed. 2 bath with a pool in the San Jose area. He told me his rent is $2400/month. So if one even took the 200 multiple as viable, that would make the "fair value" of the house around $480k.

The "appraised value" is around $750k. That is a multiple of 312.5. A tad "high", no? ;-)

By my estimations, housing here will likely retract approximately 35% by the end of the bubble. (more in some areas)
And what's curious is that the naysayers who continuously state this can "never happen" have no concept of historical precendence. It can and already HAS happened in California. Between 1991 and 1994, housing in the Los Angeles area dropped by almost 25%. And that was at a time when no one was talking about housing bubbles.

One other point to address: the imbecile who posts anonymously and calls everyone "dopes" (very mature by the way) brought up one point worth addressing: the possibility of a government bailout.

Folks, a government bailout on the housing bubble is like trying to stop a freight train with a BB gun. It will have marginal effect, if any. Hillary was on CNBS this morning talking about a $1 billion "trust fund". That's it folks. $1 billion. To cover defaulted mortgages that will likely total in the hundreds of billions, if not, trillions? That will have no effect. None whatsoever except waste additional tax-payer money.

Anonymous said...

In most markets across the country, rents are going to rise in the next few years as taxes increase and more renters enter the market. When home values go down, rents go up since people have to live somewhere. Supply and demand and all that. Those who own income producing properties in urban areas will then seem like financial geniuses.

Anonymous said...

Asset Hunter... thanks for the tips.

Just curious though - what is a decent ROI for a rental property?

Using the math you provided (not real values), if I'm renting for $1000 a month, and monthly costs are $500, then:

NOI = 1000 - 500 = $500

If I now assume an ROI of 2%, then Value = NOI/ROI = $500/0.02 = $25,000

What would that $25,000 represent? The cost of the house?

If you could provide some realistic numbers for renting realestate and go through the math - that would be great.

Thanks

DrNo said...

Anonymous said...

Say what you will about mortgage meltdowns. Homes are selling around me in Georgia. Just down the road home sold for $462K. Asking was $479K.

4675 Newell zip code 30062...look it up if you doubt me.

You people live in a fantasy world if you think mortgages aren't available anymore and all of a sudden this home will be worth 1/2 as much.


What do you mean by "you people"?

The deal you describe above is pointless. First the loan had been in the pipeline for at least 2 weeks pre-meltdown. Second, so what if your neighbor found a greater fool, that's how the scheme works.

I wouldn't dislocate anything patting myself on the back just yet.
I'm sure one of "us people" will post the demos on this neighborhood of swamp boxes in 6 mos. or so and piss ourselves laughing.

FORECLOSUREBOY said...

DOPES is having a nice day.

His mood tracks the up and down of the stock market closely.

Its so nice sitting on CD's i dont have mood swings.

turdly said...

p/e is fine for investing but the formula for a HOME is 3.6 times income for a mortgage. We're talking about owners here, not investors. If you want more house than a 3.6x mortgage will allow, THEN PUT MORE DOWN.
Anything other than 3.6x will result in dispair.
Go ahead make the arguement for the wealthy and such. I'm writing about the 90 percentile.

Any specific neighborhood will have 3.6x max for that neighborhood. Move up, put more down. Try to figure any other number and you'll fail.

DrNo said...

mammoth said:

Then the new tenants resume making my house payments on the remaining $75,000 still owed. The rent money covers my monthly payment, plus there’s a little extra to add to the kitty.

Yes, this homedebtor is so fvcked! Not!

Ok, try to focus. The target of this blog has always been the greater fool buying at the top. You know, the guy who couldn't qualify for a 200k house in 02' but all of a sudden in 06'he thought he could afford a 500k house, even though he makes less income in 06' adjusted for inflation. Obviously you didn't buy your house in 06' with a no doc no down IO. Gee, good for you. You and all of the other trolls who come on here to brag about your Donald Trump like skills are freaking retarded. Keith was trying to help a few people from making the worst mistake of their lives. Guess what Donald. He was right. I'm sure narcissistic bugs like you caused some poor fools to make the wrong choice. Way to go. Normally when one stabs another in the back, they get something more out of the deal than the opportunity to brag on a blog. No wonder you trolls post anon.

Anonymous said...

Memo to all wingnuts here:

IT
IS
OVER
YOU
LOSE
WE (humans)
WIN

EXCITED IN THE OC!!!! said...

120 x rent in Orange County, California? Holy Moses....Hello, 1985!

The house across the way is a 3 bed SFR that just rented for 1850. 222k for an SFR in the OC! WOOHOOOO!!!! That is going to be fantastic!

banshee said...

Some anon said:

r/e has never been priced at 100 times rent you're pulling random numbers out of your ass. what you are saying is that a $100K home will rent for $1000 a month. Yeah good luck with that.
-----
Well, here's my story. Bought a house in Ann Arbor, MI in 1992 for 105k, wife left grad school in 1994 but we kept the house and started renting it. For $900/month. Which is right between the 100-120 Keef is talking about. It's appreciation has outstripped what we can rent it for. But that's where we started.

james dean said...

Value of a house:
Owner Occupant: 2-3 X yearly income
Trader: 65-70% of what I can sell it for now
Investor: 100 - 140 X monthly rent (depending on the area and ratio of rents / monthly costs)

Regardless of what the Seller thinks it's worth, that's the deal.


I like your post and wonder how you factor in interest rates.

Shouldn't they have some impact on the 2-3x income rule? Then again, buying with low rates seems to be subjecting your investment to inflated prices (like during the Greenspanic years) and near term depreciation.

Just to verify, in DC area, until about 2001/2, 120x rent was about where we were at.

Anonymous said...

"Texas, in general, ain't gonna have the same kind of bloodbath that California, Florida, or Phoenix is having. At least I hope not!"

Supply has increased in Texas more than in California, Nevada, or Arizona over the last 10 years.

From today's Houston newspaper:

http://www.chron.com/disp/story.mpl/business/5034881.html

Mike F said...

Again, most of what I read here is good value.

Then, occasionally, you guys start going off the deep end again.

Any talk of analyzing the value of an investment which takes no account of the growth, in addition to the yield, is insane. Investing in gold (directly) doesn't produce any yield at all, only growth, so why do all of you insist on such a simplistic view of (real estate) investing?

You're simply wrong when you say that RE investors demand positive yield from day one. I know several who are happy to eat the difference for the first few years until rental increases even up the balance. To a large extent it depends on a)the investor's age and b) their salary (and tax bracket).


Before you blow a gasket, I understand that (at least) large chunks of the USA will see no growth or negative growth in RE prices for the next couple of years at least. It's the principle of the thing.

You'll have less credibility holding the RE and finance industry to account as regards integrity if you fail to provide a balanced and honest view.

Mike F

Also, as regards the car sale. I had a similar thing happen to me.
My comment to them was simple:
"So if you didn't owe anything on the car, you'd give it to me for free?"

Anonymous said...

In socal it will never be 120. Maybe in utah,texas,az etc. But socal will never be there and i'm willing to make a wager of any amount

Anonymous said...

120x rent. You are crazy. That is a 10% return p.a., higher than the stock markets long term average.
Expect a 5% return on a rental property and you will be doing well.

Agent #777 said...

Let me try to clarify this by adding a basic economic term not yet used in this thread:

"Opportunity Cost"

Lets use the townhouse I live in as a prime example.
The people own this unit free and clear - good for them!! However, they are making a choice. Last year, I could have sold this unit for about 240K, and this year they MIGHT get 210K, but hard to say. Lets just use 200k. This number is the relevant number, not the 180k they paid 2 years ago.

If they sold this unit, they could have around 200k, after costs. In the simplest of scenarios, you invest that at 5% in a CD. So this 200k makes you another 10k.

OK, now they are renting to me at 1275/mo. However, out of that number comes $225 Taxes, $140 HOA, and likely $100 for insurance. SO they are really making about $810 a month for their investment, or $9720 year. Pretty close to the same, aside from the month of vacancy, so they are already backed down to $8500.

But now consider - is there going to be maintenance costs? Is there really any chance for appreciation? This adds to the weighting against holding the units.

But now really consider - this is one of the larger units with a garage. They have two others they only paid around 140K for, and could have got 180K for, but instead are renting at $900, with nearly the same costs! So instead of $8500 from the CD, they are making maybe $6000 from those, with the rest of the downside.

Yeah, sure - they are paying taxes on the interest, but perhaps not the other - until it comes time to cash in. The 1031's will end at some point. You really think that Dems don't have plans for those capital gains?

Anonymous said...

Anon 10:16 - calculating values
(I should have mentioned to use yearly numbers for NOI, not monthly... in otherwords, multiply by 12)

Here's a basic.

$ 1000 / month income
$ 500 / month expenses
========
$ 500 / month NOI
x 12
======
$ 6000 / year NOI
divided by 10% / year ROI (example)
========
$ 60,000 Wholesale Investment Value

Kinda ugly, huh?

We have no problem thinking of a small rental car company buying a car, renting it out, deducting the real expenses, earning a return and that's what the car is worth.

We can't arbitrarily set the rents.
They are set by what people can and will and need to pay. In other words, with real income dollars.

We can't do a lot about expenses, but all that we can do multiply the value and add to the profit.

We need some sort of Return on Investment, or why do it?

We could figure up what a rental car might be worth fairly easily and accept general principles to price it.... but when it comes to a house, our mental flares go off because the WHOLESALE value of it as an investment (not a residence) is pretty darn low.

It's shocking and scary to most.

~ Asset Hunter

Anonymous said...

James Dean asked about Interest Rates:
"Shouldn't they have some impact on the 2-3x income rule?"

Yeah, for owner occupant residence, we should actually figure monthly income of the buyer and total obligations against that income to determine a monthly payment that they might be able to afford.

Then we can determine the total amount that can go to a house payment, principal, interest, taxes & insurance.
(or just P&I if you want to keep it simpler for this discussion)

Of course here the higher the interest rates, the lower the principal amount can be, to add up to the same monthly payment.

(Down payment amount being equal)

With cycles in both prices and interest, it would seem to me that buying when the interest is high, and the price is low would be better.

Why? Because when the interest cycles back down, you can refinance (the balance, not cash out type) your principal due, and thereby lower your payment OR pay it off faster with the same payment... more to principal.

If you buy when interest is low, the only thing you've "locked in to" is a high principal price for a L O N G time!

That principal amount owed will not be going down rapidly, so when interest does go up (and it always seems to cycle eventually) you still owe a LOT on the house... and are actually "underwater" if you need to sell at that time.

The 2-3X income was just the first refinement level up from the 120X rent, and was more applicable to "retail" value in general than to "investment" value to an investor buying the place.

Also, for a general neighborhood in many areas, it's easy to look at the demographics and if the average wage is $ 50,000... then the average house should sell for approx. $ 100,000 - $ 200,000.

Kind of a quick guess-timate.

The fact that that formula is such a foreign concept in the housing market right now is simply another testimony to the whacked out prices people have been willing to (at least promise to) pay.

Hope this helps.

~ Asset Hunter

Anonymous said...

Anonymous said...
120x rent. You are crazy. That is a 10% return p.a., higher than the stock markets long term average.
Expect a 5% return on a rental property and you will be doing well.

August 08, 2007 6:46 AM
~~~~~~~~~~~~~~~~~~~~~~~~~~~

Do you really rent single family homes and go through all that work and risk of damage, vacancy, rental losses, surprise expenses, etc... for only 5% ROI?

Wow! I truly admire your work ethic and willingness to lay it out there for your tenants.

I don't think I could do that, when I could just park the money in another investment and save the work.

~ Asset Hunter

Anonymous said...

Anon 10:16 also asked:
"Just curious though - what is a decent ROI for a rental property?"

If you are in an area that you expect NO significant appreciation over and above inflation for several years, I'd say 10 - 12% for ROI.

If you DO expect appreciation, I'd guess that you could take that appreciation rate, subtract inflation, divide that by two and subtract it from 10-12%.

ie: Inflation 4%
Expected Appreciation 8%
....(please be extremely conservative with this... especially in the next few years)

8-4=4 4/2 = 2%

10 to 12% ROI - 2% real appreciation === 8 - 10% acceptable ROI

Again, please be very careful. Most on this blog would estimate a severe NEGATIVE appreciation in value over the next couple years.

Where did the 10% come from?
It was kind of the "standard" in small commercial RE investment before sub-prime infection and REITs hit that market as well.

10% is NOT sky high hopes... it used to be normal baseline

Residential has always been more "touchy feely," localized, and volatile than commercial, so I start with commercial returns for a baseline.

Hope this helps as well.

~ Asset Hunter

Anonymous said...

I feel that I should clarify something for those reading my blatherings about "investing."

The basic formula that I shared, and my comments on it are designed to calculate: Net Income Before Debt Service

NIBDS

In other words, since everyone's position is different, taking financing out of the equation allows everyone to calculate the value with a standardized formula.

If you pay all cash, looking for a return on your investment, you would look at a property one way.

If I wanted to put nothing down, leverage my credit to the max, and just try to pay the interest costs while I waited for the property to appreciate or pay down some of the principal so I could resell or re-finance it...

you can see that we have two completely different strategies.

In order to come up with a Value, we usually leave the debt out of it.

HOWEVER... when you or I actually buy a commercial or residential property, we'd better make dang sure to factor interest & financing into our personal strategies, because a great deal for a cash buyer may be a cash sucking alligator with 100% financing.

On the other hand, higher financing will free more capital to invest in more buildings that are barely breaking even while waiting for either: rents to rise, interest rates to drop & refinance, properties to appreciate, changes in use / zoning / etc changes the value, re-tenanting, splitting the building up to a TIC or condo project, etc.


(Again, please be extremely careful over the next few years... even if you're trying to implement old principles & proven strategies. This is going to be choppy, and the next thing you'll read about are CMBS 'commercial mbs" defaults. yeah, there's 'subprime' there, too!)

Hope this helps, too.

~ Asset Hunter

Anonymous said...

Agent #777 makes good points.

Not only are they likely to salivate over the 1031s and see all those capital gains as "lost income opportunity" for the government...

But do we believe that after the next XX years of tax free growth that the gov't will leave their hands off the ROTH IRAs either?

Maybe not a direct tax, but a "means test."
AKA: hidden tax

Of course, if you can just print it, maybe it's too much work to take it?!!?!? ;-)

~ Asset Hunter

Anonymous said...

Asset Hunter:

May I suggest you get a life?

Anonymous said...

Any place worth $300K in 1997 has to be worth over $1MM today, and I highly doubt it would rent for $1700 today, unless you rent from your parents.

August 07, 2007 9:11 PM

==================================

In California that is probably true. The US is not just California you dumb fuck.

Anonymous said...

Wow. When I sold my old home back in 2003, I ripped those people off for 33%. OUCH!!!!! I always thought I was ripping them off but the real estate agent said I will get that price with all the boneheads from Tampa lining up behind the buyer (hoping they would not buy).

Anonymous said...


Memo to all wingnuts here:

IT
IS
OVER
YOU
LOSE
WE (humans)
WIN


Over??? Nothing's over. Was it over when the Germans bombed Pearl Harbor???

Crashisacomin! said...

mamoth said:"So what’s the worst that could possibly happen? It sits on the market for 2 months without selling, so I rent it out again. The cost is 3 month’s mortgage payments plus the ~$4,000 that I will have put into the house making it look pretty".


If I were you...I would get it on the market ASAP, priced lower than all other comps. Otherwise, a 30 day close brings it into October... not a good month at all, and will be much worse this year... more likely another round of mortgage restrictions AND a falling stock market=lower prices for real estate...

Anonymous said...

DrNo said...
Anonymous said...

Say what you will about mortgage meltdowns. Homes are selling around me in Georgia. Just down the road home sold for $462K. Asking was $479K.

4675 Newell zip code 30062...look it up if you doubt me.

You people live in a fantasy world if you think mortgages aren't available anymore and all of a sudden this home will be worth 1/2 as much.


What do you mean by "you people"?

The deal you describe above is pointless. First the loan had been in the pipeline for at least 2 weeks pre-meltdown. Second, so what if your neighbor found a greater fool, that's how the scheme works.

I wouldn't dislocate anything patting myself on the back just yet.
I'm sure one of "us people" will post the demos on this neighborhood of swamp boxes in 6 mos. or so and piss ourselves laughing.

August 07, 2007 10:17 PM


---------------------------------

You people have been saying this for months and months. The meltdown as you describe it has been happening since last year. Yeah mortgages are harder to get today....for people with 500 FICO scores. They were never going to buy that house to begin with. They were going to buy a shithole downtown. Now they will rent that shithole downtown instead. It makes no difference to what happens in East Cobb.

Take a breath and think for a second.

Oh and SwampBox...WTF? Dude you need some xanax or something.

HappyRenter said...

Spectre posted:Because the two hedge funds were incorporated in the Cayman Islands, that's presumed to be the center of main interests, according to Phelan.

``That's going to be an issue,'' he said, noting that the new bankruptcy law ``hasn't really been tested.''


If Hedge Funds can file for bk in the CI's, whats stopping any US Mutual Fund that would be in trouble?

Anonymous said...

more likely another round of mortgage restrictions AND a falling stock market=lower prices for real estate...

August 08, 2007 3:13 PM


========

Oh so now real estate prices are correlated with stock prices? The stupidity exhibited on this blog is breathtaking.

Anonymous said...

Anonymous 11:49 said...
Asset Hunter:

May I suggest you get a life?
~~~~~~~~~~~~~~~~~~~~~~~
No.
You may not.
Thank you.

I shared some info with people who had questions, and I hope it was of value to them and perhaps others.

I'm not sure why you would even feel compelled to ask something like that, but I imagine that it made you feel better to ask.

~ Asset Hunter

BTW: When you go to the zoo, do you endeavor to learn & enjoy... or are you content just to watch the primates throw crap at each other?

I can't figure out why so many of these threads start with data & research... and then so quickly devolve into fits of crap throwing and name calling.

Perhaps because of people like you?

Anonymous said...

"In California that is probably true. The US is not just California you dumb fuck."

Oh, you live in one of those states? I'm sorry for wasting my time.

Redshoes said...

Someone said:"The only way we will return to the 100 to 120 times rental valuation is if the tax advantages to home ownership are repealed. These advantages include the ability to deduct mortgage interest (and now PMI payments), the ability to deduct property taxes, and the ability to not have to pay capital gains tax on appreciated homes".


I disagree. PMI is nothing new, it has never been deductable, as far as I know. Property taxes and interest always have been deductable. It's the capital gains LIMITS that have changed, (upwards by Clinton in 1997) this could change by reduction by this president, but I dont think it will matter when prices are dropping. But hey, who knows for sure...we are in uncharter territory here.

The rule of thumb (100/120) will return as the standard, so will 2x incomes...its only unrealistic now because this country has been in an "expanded credit economy"...one not based on prices to incomes and the ability to repay principal and interest payments on a fixed rate.

But just like a rubber band snapping back...business standards will return to the norm, but a lot of people will get hurt in the process.

Sellin @ Da Drop said...

"But socal will never be there"

At least you douches acknowledge that prices ARE dropping in CA. Last year you were all saying NO WAY PRICES WILL DROP IN CA. Now it's PRICES WILL NOT DROP FAR. lol!! Very simple ...Don't kid yourself - there is no safe haven in this crash. If the same home costs twice as much in NY as it would in CA and the home in NY declines, the CA home isn't going to stay the same just because CA is "special".

Anonymous said...

Cali docuhe:

I lived in that cesspool of a state for 5 years. Anyone who still lives there is truly one who needs pity. 2 happiest days of my life:
1. my son was born
2. I left CA

Anonymous said...

Here's a basic.

$ 1000 / month income
$ 500 / month expenses
========
$ 500 / month NOI
x 12
======
$ 6000 / year NOI
divided by 10% / year ROI (example)
========
$ 60,000 Wholesale Investment Value

Kinda ugly, huh?


Thanks asset hunter - this makes more sense to me and is a great help.

Been there lived that said...

Over??? Nothing's over. Was it over when the Germans bombed Pearl Harbor???

August 08, 2007 3:02 PM


So whadda ya get when you cross a japanese person with a kkk memeber?

I don't know, but every December 7th they try to bomb Pearl Bailey!

Lighten up! we're getting way off the basic.

2x or 3x sticks no matter the rate. 4 times does not. Are there exceptions for wealth? sure! shut up! Are there exceptions for ignorantly low rates? Yes! shut up!

Use as a rule. It works. 3.6 is the top that'll work for the 95 percentile. Higher rates bring it DOWN from there.

Doktaire said...

The Germans didn't bomb Pearl Harbor, that was the Japanese. You were kidding right, noone could be that ignorant?

Anonymous said...

Anonymous said...
FWIW I think 120 times rent is as useful as listening to a realtor. I rent a home for $1700 a month. 120 times that That would make this house worth $204K. It was last sold in 1997 for $300K. No way it is ever going back to $204K.
---------------------------------

I agree. It would take total economic collapse to drive prices down that low. If the economy was still viable, true investors will be snapping homes up to rent at those prices

August 07, 2007 4:59 PM

When I first starting investing in real estate 10 years ago in some boroughs in the philly suburbs, our pricing formula was monthly gross income x 50. 10 years later I look at net operating income, cap rates, and debt service coverage ratios. After all the proper analysis all my purchases seem to be gross income x 50,which have great cash flows. We had some great appreciation runs from 2001 to 2005,in which some properties doubled in value or better. That give us a great net worth on paper 20% of which I have written off due to declining home prices. The nice thing is I have an 80k a year positive cash flow. The dollar is tanking, and the demand for rental housing is increasing drastically in our area. We actually have 100% occupancy at this moment. I should be able to get rental increases over the next few years to increase cash flow so it's a great inflation hedge. All my financing is low fixed rates, another great inflation hedge. I should also mention the depreciation, and tax breaks you recieve on investment real estate. Last year I only paid 7% taxes on my cash flow. Being a landlord is shitty work especially in low income areas, but it pays the bills. It is nice to know I don't have to sell into a declining market. I can't wait until 2010 when you should be able to buy distressed properety for 50% of today's pricing, and once again have positive cash flow. We won't see any appreciations for 10 years or more if our market mimics Japans run then painful crash. If it doesn't cash flow I see no reason to own investment real estate for the next 10 years.

Anonymous said...

I would like to add to my previous post here. My 80k positive cash flow, and 1.5 mil net worth have been acheived by buying 90 rental units in some low income emerging markets. All were acquired without using any of my own cash, making my return on investment an infinite number. Finding cash flow has been hard the last few years. I bought 13 properties in 2000-2001, and only 1 since then. The times of no money down, positive cash flow deals are 2 to 3 years away. Here is to hoping that long term rates hit 10% plus so we can get real good deals. Some of my old head mentors bought their portfolio's in the times of 15% interest rates. If you can cash flow at 15% interest imagine how rich you get when rates return to the norm of about 8%. If China starts selling off their Trillion dollars of US bonds the long term rates may hit 9 or 10% by 2010. What do you think will happen to home prices then. Here's to buying 10million dollars of really cheap housing at 75 times monthly income.(I doubt I'll ever see monthly income x 50 ever again, thank God I bought those boarded up houses when I had the chance)

The basic formula that I shared, and my comments on it are designed to calculate: Net Income Before Debt Service

NIBDS

In other words, since everyone's position is different, taking financing out of the equation allows everyone to calculate the value with a standardized formula.

If you pay all cash, looking for a return on your investment, you would look at a property one way.

If I wanted to put nothing down, leverage my credit to the max, and just try to pay the interest costs while I waited for the property to appreciate or pay down some of the principal so I could resell or re-finance it...

you can see that we have two completely different strategies.

In order to come up with a Value, we usually leave the debt out of it.

HOWEVER... when you or I actually buy a commercial or residential property, we'd better make dang sure to factor interest & financing into our personal strategies, because a great deal for a cash buyer may be a cash sucking alligator with 100% financing.

On the other hand, higher financing will free more capital to invest in more buildings that are barely breaking even while waiting for either: rents to rise, interest rates to drop & refinance, properties to appreciate, changes in use / zoning / etc changes the value, re-tenanting, splitting the building up to a TIC or condo project, etc.


(Again, please be extremely careful over the next few years... even if you're trying to implement old principles & proven strategies. This is going to be choppy, and the next thing you'll read about are CMBS 'commercial mbs" defaults. yeah, there's 'subprime' there, too!)

Hope this helps, too.

~ Asset Hunter

August 08, 2007

John Belushi said...

The Germans didn't bomb Pearl Harbor, that was the Japanese. You were kidding right, noone could be that ignorant?

That was a famous line from the movie "Animal House".

Anonymous said...

Doktaire said...

The Germans didn't bomb Pearl Harbor, that was the Japanese. You were kidding right, noone could be that ignorant?

August 09, 2007 7:54 AM

===================================

Animal House reference doofus.

Anonymous said...

So whadda ya get when you cross a japanese person with a kkk memeber?

I don't know, but every December 7th they try to bomb Pearl Bailey!


Childish yes,but i laughed. Thank you.