As housing market slump, it is easier to calculate "Rent vs. Buy" scenario. Because "appreciation" is no longer a factor.
Mortgage payment consists of two parts: interests and principal. Interests are like rent, which doesn't add to the equity to your house. It simply disappear as your pay it.
If interests portion of the mortgage payment is roughly equal to rent of equivalent property, then it is a decent buy.
For example, let's buy a $500,000 condo with 0% down and apply interests only loan (just like renting a place). Mortgage payment would be $3250/month. It is a bad buy, because you can enjoy same property for $2000/month.
Please note that I assume the tax benefits from home cancel out fees from home association and property tax. For more accurate calculation, consult with your CPA or accountant. But NOT your realtor, whom will say anything to get the deal to go through.
And again, if you like a particular property, then paying more may be reasonable. You are the only person who can decide how much more premium you are willing to pay.
Thursday, August 31, 2006
Monday, August 28, 2006
Real estates agents, time to learn new tricks!
In the past few years, real estate agents learned and accumulated a bag of tricks, coercing buyers to shell out extra cash to fulfill hungry appetites of builders and home owners. It is interesting to note that even as marketing is undergoing a slump, they continue to play these hands one by one.
The following conversation is real and took place on Auguest 27th of 2006. It is a conversation between two friends, one a potential buyer, another is a real estate agent.
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"I can't buy, because monthly mortgage payment is too high.", said the buyer.
"Apply for adjustable loans", replied the agent without thinking.
"But, that would only save me 0.25% after fee. Short term rates raised siganificantly in the past 2 years", buyer said.
"Then don't put 20% down, you can get loans with 10% or nothing down", suggested the agent with a big smile.
"That would increase monthly payment which I already can't afford", the buyer reminded the agent.
"Then cash out your 401K, that is the best option", said the agent.
"Why? I don't want IRS knocking on my door for tax and panalties for early termination of 401K", said the buyer. He is annoyed, "And if I borrow against my 401K, I would be paying back pre-tax dollar with after tax money. It doesn't make any sense".
The agent insisted, "401K is the only option".
"What about asking seller to lower their asking price?", asked the buyer.
A pause, "...... hmmm...., that would work too. 5% is common these days", the agent said proudly.
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Similar conversation took place at least two other times for me. This is simply annonying. Real estate agents are so stuck on the past that they can't think differently. Time to wake up! Time to learn new sales tricks.
The following conversation is real and took place on Auguest 27th of 2006. It is a conversation between two friends, one a potential buyer, another is a real estate agent.
-------------------------------------------
"I can't buy, because monthly mortgage payment is too high.", said the buyer.
"Apply for adjustable loans", replied the agent without thinking.
"But, that would only save me 0.25% after fee. Short term rates raised siganificantly in the past 2 years", buyer said.
"Then don't put 20% down, you can get loans with 10% or nothing down", suggested the agent with a big smile.
"That would increase monthly payment which I already can't afford", the buyer reminded the agent.
"Then cash out your 401K, that is the best option", said the agent.
"Why? I don't want IRS knocking on my door for tax and panalties for early termination of 401K", said the buyer. He is annoyed, "And if I borrow against my 401K, I would be paying back pre-tax dollar with after tax money. It doesn't make any sense".
The agent insisted, "401K is the only option".
"What about asking seller to lower their asking price?", asked the buyer.
A pause, "...... hmmm...., that would work too. 5% is common these days", the agent said proudly.
----------------------------------
Similar conversation took place at least two other times for me. This is simply annonying. Real estate agents are so stuck on the past that they can't think differently. Time to wake up! Time to learn new sales tricks.
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