Our old house officially sold a few days ago. We toyed with the idea of buying it ourselves, but once I found out how much the owners were asking my jaw dropped. When I found out they got an offer for full price my jaw hit the floor. Craziness… The mortgage-to-rent ratio for our place would be 180%!! Definitely not a good time to try and find a cashflow-positive rental around here…
Of course, this also makes us sad that we didn’t buy a place ourselves when we first moved here. By now, we probably would have gained about $60-80,000 in home equity. But of course, hindsight is perfect. When we moved here we had never seen the area, both of us were fresh out of school, none of our friends had houses, and we certainly had no idea what to look for in a house. We also knew that we’d be moving within 3 years, so I was afraid the transaction costs would wipe out any potential gains. Boy was I wrong!
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What goes up can go down. You could have bought and then needed to sell and be down $60-80,000 in equity. I have seen my own house go up $50,000 in 1991 from where I bought it in ’89 (a hot market then in CA like today) to then down $100,000 from the peak in ’91 to the market bottom in ’95. Now it’s up about $350,000 from where I bought it. My gain per year over 17 years is about 3% per year. Whoopee.
I wouldn’t dwell on it. Right now you’re doing what a lot of former home owners are doing. Since there is such a premium in owning real estate now many are selling their homes, pocketing the gains and renting places to live. It will be interesting to see if they are able to get back into a house for less than they sold their old one for a year or two down the road…
Yeah, hind-sight is 20/20, but there’s always a good real estate deal to be found, it just takes a little more effort to find it.
If you want to find a house, wait a month or two to see how these increasing interest rates affect the market in your area. It’ll turn into a buyers market (if it hasn’t already) and you’ll be able to be a little picky. Also, keep an eye out for foreclosures, as there are a ton of people that took advantage of variable rate mortgages (at rock bottom rates, none the less) who now can’t afford the payments.
-Grant
mc – I agree, my parents’ real estate experiences through the 80s also made me wary. But sometime I feel I should have known since interest rates were so low and lending requirements are now so loose, that prices would definitely go up. Whaddya gonna do? 🙂
You write a money blog but yet you were renting? UGhhh Live and learn…
In Texas, throw in high property taxes in, and it makes it really hard to know when to buy and sell. We had a developed lot we sold for $75,000 down in Port Aransas, a year and a half later, it’s going for $300,000. It just boomed after we sold, but the property taxes at the point we sold had wiped out almost all the profits we had.
buy a house that you can afford, enjoy it with your family, invite more friends over, you will forget it is an investment to worry about all the time very very soon. we got ours in the bay area 3 yrs ago…during the gloom and doom of silicon valley’s recession and the iraq war, now we are sitting on 200K of market gains on top of the 240K that we paid down, great but in the same 3 years , we got a host of relatives to stay with us for the holidays, got our retired parents to stay and enjoy the garden and the fantastic california weather, I love my home ( my wife’s choice ..I was thinking of going for something 2/3 of its size and 80K cheaper …my investment brain told me to do that, thankfully did not listen to it)