New to Real Estate · Member since 2019 · 120 posts · 26 votes
Signed a purchase (600k, 1650sqft single family home in Folsom ranch)contract last year, plan is to get the down payment from heloc(2.5% apr until next year jan, after that it's variable). I also lock the interest of 4.2% for 10/1arm. Based on the current stock market and recession forecasts and job market, and potential correction in home prices in 2023, i am planning to drop now and wait and see. What do you all think?. Please share your thoughts
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Ramki D., you never mentioned what this home purchase was for or why you thought it was a good deal when you signed the contract?
I'm not sure why you feel like the stock market and recession forecasts change your thinking so much? If you were planning to flip, the idea is to do it FAST before conditions change. So, "forecasts" mean less.
If you were planning to rent the property for a long time, a correction in home prices means less because you may choose to hold until prices go back up (making cash flow all the while).
Without more information about what your plan was, its hard to give any detailed feedback.
You posted this in Mid-May, 2022, regarding a purchase contract you signed in December, 2021, at the latest. How did you manage to stall for over four months?
Investor · Dallas, TX · Member since 2016 · 887 posts · 1k+ votes
4y
++ on what kind of deal you are in that would allow you to stall for 4 months?
On to the topic you're asking about. Obviously none of us have a crystal ball, but I don't think it would be a foolish decision to sit this one out until next year. This is pretty much the worst time to buy, prices and rates are both at an incredibly bad/ high place. I purchased in Jan and was about to purchase again in the next 30-60 days, but just recently I'm starting to strongly lean toward waiting until late 2022 at the earliest. I want to wait for some more inventory to hit the market before buying (whether it's voluntary or foreclosure).
Seems that real estate investors are alone in recommending to buy when markets are at a peak. Stock, crypto, and other investors pretty much universally agree that's it not wise to buy when prices are at a peak.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Kevin Sobilo main reason for my decision to back out now is because of rate hikes. I am worried that my heloc rate will go up with regular rate hikes + 4.25% 10/1 arm rate.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Greg R. I signed this contract last year with an estimated completion date as feb, 2022. It was delayed multiple times and scheduled to deliver by the end of july. Now the market situation is completely different interest rates are increased, and the rental market is on a down trend. So I'm thinking of backing out and waiting.
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Ramki D., who cares about rate hikes if you can make good money!
I guess this is a rental and not a flip since you are worried about interest rates.
Despite what @Greg R. said interest rates are still good and below historical norms. If you can't find a fixed rate loan, can you find an adjustable rate loan that only adjusts every 3 or 5 years. That way you would be locked in with a good rate until you have paid down some principal. Then at that point if rates are high, you could refinance to stretch payments out again. In this way you can manage the payment and make sure the property keeps cash-flowing.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Kevin Sobilo thanks for the quick reply. I locked 10/1 arm for 4.25%. my only concern is on adjustable heloc rate hike. Right now it's 2.5% heloc +4.25% 10/1 almost 7% with 2 rate hikes and worried about future rates which will increase my heloc rate and may end up nearly 10% in next 1 and half year
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Ramki D., yes I understand if you are in a loan product that adjusts every year that is more of a concern. So, why not look for a product that adjusts every 3 or 5 years? I have 15 year loans that adjust every 3 or 5 years and I'm not concerned about them because I will have options if rates are high.
Also, if your interest rate is 10% will you make positive cash-flow? Making a little money is better than making NO money. Plus you are always "making money" by paying down the loan principle.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Kevin Sobilo No. Even with current rates(2.5+ 4.25) 200$ -ve cash flow per month thinking of rents will increase in the next few years which makes the break even first and +ve cash flow. Now with market conditions everything changed.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Kevin Sobilo property appreciation was the ultimate goal from the beginning for this home. Now property appreciation is also in doubt.( May take longern than expected and until then taking -ve flow may not be a good idea)
@Ramki D., who cares about rate hikes if you can make good money!
I guess this is a rental and not a flip since you are worried about interest rates.
Despite what @Greg R. said interest rates are still good and below historical norms. If you can't find a fixed rate loan, can you find an adjustable rate loan that only adjusts every 3 or 5 years. That way you would be locked in with a good rate until you have paid down some principal. Then at that point if rates are high, you could refinance to stretch payments out again. In this way you can manage the payment and make sure the property keeps cash-flowing.
Rates are not good... claiming that current rates are good tells a lot about your opinions on these matters. Who cares what rates were 20-30 years ago? Rates are at a 14-15 year high and climbing. Prices are also at an all time high. This market and economy are completely different from markets of the past - totally foolish to compare market variables from 90's or 2000's to now.
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Ramki D., appreciation is ALWAYS in doubt because you can speculate about it but have no control over market appreciation.
Cash-flow is better because you have more control over it AND because you get the money NOW.
Making $2k per year for 20 years is MUCH better than making $40k on appreciation 20 years from now because of the time value of money and also because inflation makes future money worth less than present day money.
Market appreciation looks sexy and sometimes it is when the market is hot but a lot of the time it's eyewash and not as good as it looks like on the surface.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Kevin Sobilo totally agree. I am expecting a +ve cash flow in 2-3 years because of a new medical campus coming up in the next 1 or 2 years and expecting rental demand because of traveling nurses.
New to Real Estate · Member since 2019 · 120 posts · 26 votes
4y
@Joe Bertolino since you are in this area for a very long time, in your opinion if the market corrects, how much % home values will go down in Folsom? I am sure they will follow the market trend. 10 - 15% or more? As you are aware this is a kb home in front of the up coming dignity health campus.
@Joe Bertolino since you are in this area for a very long time, in your opinion if the market corrects, how much % home values will go down in Folsom? I am sure they will follow the market trend. 10 - 15% or more? As you are aware this is a kb home in front of the up coming dignity health campus.
There is a roughly zero percent chance of a 10-15% price correction on a $600k home in Folsom Ranch in my opinion. The shacks over off of School Street and Duchow are approaching that number.
I can certainly see 10-15% on the $1.5-1.8m houses in Lakeview Oaks but not within FHA loan levels. 3 bedroom apartments in Folsom are renting for $3k and they are full.
@Ramki D., appreciation is ALWAYS in doubt because you can speculate about it but have no control over market appreciation.
Cash-flow is better because you have more control over it AND because you get the money NOW.
Making $2k per year for 20 years is MUCH better than making $40k on appreciation 20 years from now because of the time value of money and also because inflation makes future money worth less than present day money.
Market appreciation looks sexy and sometimes it is when the market is hot but a lot of the time it's eyewash and not as good as it looks like on the surface.
CA is a different beast. NYC is a different beast as well. You cannot count on appreciation in the short term but over any ten year period CA has never failed to hit average appreciation gains of 6%+. Dips, crashes, etc… through it all the annual appreciation is 6.8% over the past 100 years.
@Joe Bertolino, I'm sure 20+ years ago many people felt the same way about investing in Sears. Long term patterns do end. Nothing is forever.
Whether that happens soon or a long time from now who knows, but that pattern will change. So, an investor should be looking at more than that.
You are comparing the 5th largest economy on the planet with the best weather, most resources and largest population of highly educated and wealthy people with elite universities to Sears, a great company destroyed by a Goldman Sachs bean counter who overthought everything. Very few people outside of CA understand how things work here. As the kids are saying “if you get it, you get it.” It’s not for everybody but there are 40m people that want to be here.
I live here, in the exact area where this home is and I could sell that house for $600k ten times over in the next 30 days. That’s why I said the builder is thrilled. They will sell it for $650k+.
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Joe Bertolino, so what you are saying is that eventually someone will end up in charge that will run it into the ground.
And of course there are definitely not 40 million people in CA that "want to be there".
Also, CA isn't even a top 10 state in terms of highly educated people. You stated "highest population" because its a big state, but on a percentage basis they aren't one of the most educated and of course that is more meaningful.
Or would you prefer to say that CA has the largest population of uneducated people?!? Since that would be equally as accurate I believe! lmao
@Joe Bertolino, so what you are saying is that eventually someone will end up in charge that will run it into the ground.
And of course there are definitely not 40 million people in CA that "want to be there".
Also, CA isn't even a top 10 state in terms of highly educated people. You stated "highest population" because its a big state, but on a percentage basis they aren't one of the most educated and of course that is more meaningful.
Or would you prefer to say that CA has the largest population of uneducated people?!? Since that would be equally as accurate I believe! lmao
We have the most of everything, good and bad. Per capita means little when we are discussing economic drivers and innovation. We have the most PHD’s, Millionaires, Billionaires, top 20 universities, VC Funding, F500 companies (tied), GDP, etc. I think we have proven that even the most incompetent leadership cannot drive the state into the ground… seeing that Gavin just posted a $97B budget surplus.
People are free to bet against CA real estate but history and math is not on their side.