Kathleen Wolf never dreamed of spending her retirement in Iowa.
The 68-year-old Californian had a change of heart after filing for Chapter 13 bankruptcy. Ms. Wolf was a millionaire whose fortune, built on buying and selling homes, collapsed in the financial crisis. Her bank balance fell to $15.
Ms. Wolf said her debt-repayment plan, which eventually left her with about $1,000 a month to live on, made clear she had to leave Monterey, Calif., the central-coast city where she lived. She looked online, as long as 15 hours a day, for places with a low cost of living. In August, she landed in an Iowa town of around 700.
For all I know, I see positive things coming. Dodd-Frank regulations will be weakened/ reversed/ removed and loans will be more affordable.
Let me tell you an example.
4 months ago, I was in contract to buy a property with 3 houses and 2 aux structures on it, an acre of land. Since I buy as an LLC, and due to my personal DTI, I cannot buy such a property with a regular Fannie Mae loan. Since it was less than 5 units, I could not get a commercial loan either.
I remembered that I had a blanket loan secured by 3 other properties (one of them being a 4plex… 4 buildings).
My proposal: refinance the existing 3 properties plus the new one which combined have 9 detached livable buildings… should qualify for a commercial loan.
Bank agreed. Combined value $2.85M, loan amount $1.5M, interest rate 5% fixed for 5 years, amortized 25 years, balloon after 10 years, 1 point.
In the very last minute, some senior underwriter figured that there were SFR in the mix, we would be subject to Dodd-Frank.
Terms changed
from 5 year fixed to floating
from balloon after 10 years to balloon after 1 year (but with the offer of an extension for a 2nd year)
from 5.0% to 5.25%
from 25yr amortized to interest-only
All that, because of the consumer protecting “Dodd-Frank”.
I heard Dodd-Frank also limits seller-financing (I think it is still OK if you stay under a certain threshold)
I hate the last Minute findings, esp last few days before closing ! I was forced to withdraw an offer during 2010. Till date, I have never closed a deal without last minute tense !
During 2008, I was hosting my first rental open house and met a person who wants to rent a home.
With the way he was talking, I see the difference. When I inquired further, he was dot.com company owner who had 6M worth of real estate pre dot.com crash. Whatever he was given reference, about his back ground, owned 6M real estate was matching no doubt. His company went bankrupt, he went bankrupt and never recovered financially as his family was in disarray with health and financial issues after the bankruptcy. He was staying with his 80 year old mom-house.
With poor financials, and me being first timer for rental home, never took any chance but declined his request.
I had seen many such things after 2000 dot.com crash. Compared to that, 2008 downturn for bay area is not wild, except real estate related people !
What would it be for the next downturn?
2000 - dotcom’s cocky founders + pompous employees bankrupt.
2008 - unscrupulous financial industry and over-extended RE purchasers bankrupt.
2xxx - what would it be? unlikely to repeat so we landlord owners are safe?
It may look like a risky transaction to you, but the purchase of 1 acre with 3 detached SFR on it… I can simply split the land, pay for some new utilities and make a couple of hundred-thousand $ on it. The 1 acre cost me $1385k. SFR in that neighborhood sell between $600k to $850k. The 3 houses without remodel work would sell for $650k, $700k and $750k, assuming that each gets about 6000 sqft land. If I sell them, I collect roughly $2m after selling expenses, and am already $600k up. The cost of the lot split would be very, very little in comparison. 2 new water meters, 1 more gas meter, 1 more sewer line. Less than $100k including soft cost.
After the sale (when I’m maybe 500k up), I would still have over 20,000 flat, usable land left for free.
Do you think I need a lot of luck for this?
How about this: I’m collecting $18k rent by these properties and the mortgage is under $7000/mo.
1530k * 5.25% / 12 = $6690, to be precise.
I really need luck?
How if I increase rents to market level… let’s say $20k? Should be good for the Fed to increase from 0.25% to 3.25%. Of those $18k or $20k, I have maybe 4k monthly expenses, so, net income is ~15k. When the FED reaches ~5%, I would be cash flow neutral.
If you doubt that I could raise the rent… just 1 detail… of those 11 units, nobody (except 1 unit) got a rent increase since 2012, some contracts are unchanged for ~10 years. The exception was an increase from $900 to $920 (market rate: $1200+).
Tell me, how much luck will I need? What do you think I should be afraid of?
All my tenants getting deported? Market rent would sink, but my rents are way below market. I probably would collect more rent due to signing new contracts, if there were mass deportations.
As long as it is tough to get loans, prices will go up…When it gets easy to get loans again then I will be worried…that is when a bubble will form and pop…
I’m sure you’ve heard it before… “be careful what you wish for”
In the last recession, many people did not dare to buy. And some people lost their income.
Between 2008 and early 2010, I made every ~100 days as much money as I used to earn as a senior software engineer in an entire year. I was flipping properties that I bought for cash at courthouse auctions in San Jose. Had I had more cash in 2008, I could have made 6 figures every week. Or maybe every other week in 2009. Every month in 2010. I know a few guys who did that. In 2009, they would not even buy a property that had less than $200k profit. They laughed at me for buying something for $204k (sold $315k), bought $289k (sold $420k) etc. And yes, these guys bought more than 1 property a week (in 2009).
I do have more cash now than in 2008. Much more cash.
But, guess what, I am not wishing those years to return, because it was a misfortune for a lot of people.
2009 was the best time in history to buy…Too bad a lot of flipped them…should have kept the all…Where are those Redfin bears…I miss Crazyman the most…wonder if he still is sitting on the same bar stool yelling at the world…
I always figured Boulder Creek was full of crazies like him…Knew a girl who was a waitress in the famous bar there…Scary place…Methhead biker hippy wankers…of I haven’t been there in 20 years…hopefully things have improved. …40 years ago we found a squatter in my friends cabin…wild times in them thar hills…lol
