Good “Bones” Reduced Again: 522 W. Briar in East Lakeview
Last May we had quite the discussion about this 3-bedroom vintage unit at 522 W. Briar in East Lakeview that was renovated and seemed to have “everything” except parking.
I had asked a simple question: Why isn’t this selling?
Six months later, it still hasn’t sold and has been reduced another $30,000.
Here’s the listing:
Light abounds in top floor vintage renovation. Sought after East Lakeview. Refinished floors, high ceilings with molding, all new lighting and custom shades. New eat-in kitchen with custom cabinets Wolf and Viking appliances, and granite tops with butler’s pantry and wine fridge.
Separate dining room with Juliet balcony, living room wood-burning fireplace and built-in window seat. Generous sized beds and both baths completely renovated. In-unit washer/dryer. Covered rental parking.
Randy McGhee at Koenig & Strey has the listing. See more pictures here.
Unit #3: 3 bedrooms, 2 baths, no square footage given
- Sold in August 2003 for $276,000
- Sold in May 2005 for $385,000
- Originally listed in April 2007 for $599,000
- Canceled in June 2007
- Re-listed in June 2007 for $624,900
- Canceled in December 2007
- Re-listed in February 2008 for $599,999
- Was still listed in May 2008 for $599,999 (no parking)
- Reduced again
- Currently listed for $569,000
- Assessments of $501 a month
- Taxes of $3569
Beautiful place in a great location. I remember when this place converted. But the parking is non-existent, as it is for most places in this area. Also, the building has no amenities.
It is NOT worth more than it was in 2003, and that’s the price I’d give. The seller needn’t expect to even get back the cost of improvements, let alone make a profit from them. Historically, you get back, at best, 80% of what you spent on renovations- OK, I’d give$300K, for at least the renovations here are nice enough that you’d want to keep them.
Nice place, but is it really worth more than double its 2003 price?
I agree, going back to the ’03 price
I think they’ll get more than 2003 price, due to extensive renovation, including central air in addition to kitchens and baths. I agree with Laura that they probably won’t get back full amount spent.
As long as we’re guessing, i’d say they get $475,000.
Laura, every comment you make is “It is NOT worth more than it was in 2003”. Seriously?! These properties might not be worth the asking price, but they are more than likely worth more than 2003 or at least they will sell for something more than 2003.
425-440k.
G posted the listing history in comments for the original and they tried raising prices. HD posted how they used 100% financing.
This is another ‘living the dream’ wannabe Trump mini mogul, folks. And I love how they are chasing the market down but at a rate so slow that this will never sell.
Luckily for them as they used 100% financing they’re not going to take the hit, their bank is, which is ultimately us taxpayers.
Three bedrooms with Wolf and Viking appliances sell for $300,000 in someone’s fantasy, not in East Lakeview. According to the listing, this place has central A/C, which isn’t that common in vintage, even in a rehab. I sold a similar vintage three bedroom in Lincoln Park for about $400,000 back in 1999 so this was likely a wreck back in 2003. This place likely needs to be in the low 5s, upper 4s with perhaps one-year of pre-paid parking thrown in.
I have a few questions…..
1) If they got 100% financing (as I showed back in May) and the mortgage is only $400k, where did they get the money to renovate??? (probably store credit cards!)
2) What exactly is a renovation….it’s not a rehab, it’s not gutted. Looking at the pictures I think by ‘renovation’ they mean ‘updated’ – which is really just bringing the unit from the 1970’s into the 2000’s. (oh new sink, freshly painted walls, new stove! oooooooooooh.)
3) These people are living in fantasy world. They’re living the dream in the LP on borrowed money and borrowed time. They wanted to sell to an even greater FB so they could pay off their own debts. Unfortunately, like most FBs, they have no foresight, and hence, they’re a day late and a few dollars short. They’ve been chasing the market down (and up) for over a year and a half now. That’s because they can’t just GIVE it away. They have home depot cards to pay off you know.
I’m not going to pick a selling price on this one….for a unit like this there’s always a greater fool, a greater FB, who will come along and overpay. I’ve seen it too many times. People think they’re getting a deal because they save a few grand.
3)
Homedelete – I’m not the owner of this unit, but I did purchase my current residence with 100% financing. I did this to retain capital as it made no appreciable difference in 2005 to my mortgage rates to put up a down payment. I chose to invest the money elsewhere rather than put into the home.
I mention this as it is possible that the owners of this unit used outside funds to renovate/update their home rather than using credit cards.
You’re an FB and you don’t even know it. Thanks for doing your part and driving up the price of homes for everyone with your funny money 100% financing. I hope you made more than 8% after taxes on your ‘retained capital’ because that’s probably what your ARM interest rate is on your second mortgage.
“Wicker on November 4th, 2008 at 9:48 am
Homedelete – I’m not the owner of this unit, but I did purchase my current residence with 100% financing. I did this to retain capital as it made no appreciable difference in 2005 to my mortgage rates to put up a down payment. I chose to invest the money elsewhere rather than put into the home.
I mention this as it is possible that the owners of this unit used outside funds to renovate/update their home rather than using credit cards.”
ARM interest rates are tied to LIBOR and those resets are going to be uuuuuuugly. Helicopter Benny boy and Hanky can’t change LIBOR, but they can throw a trillion of taxpayer dollars at the problem in a futile attempt to. If it wasn’t our taxpayer dollars the futility would be of great humor, akin to a midget attempting the pole vault. Unfortunately this is no comedy folks its a full blown tragedy. US economy RIP..
Actually the LIBOR isn’t too bad today. I watch the 3 month LIBOR like a hawk for personal reasons but it’s returned to the high 2’s from the low threes and fours during the meltdown. If the world economy is truly staring directly into the face of extended deflationary forces, the LIBOR should remain low for some time. The thing that would destroy the economy would be if inflation crept back up then the LIBOR would also rise and we’d all be f’ked.
I think its great our government alone spent a trillion to stabilize libor and probably another trillion or more were spent my foreign governments in an effort to do the same when probably every bank that participates in setting LIBOR could be purchased outright for probably under a trillion, certainly under two. What a joke.
I agree. It’s a joke. It’s a huge golden parachute for the banking industry before we descend into the next GD. at least we know who has money; I’ll stab them with pitchfork if you use the latern to start the mcmansion on fire.
It’s a nice place in a nice neighborhood, but there are a number of things holding it back.
They don’t give out low-interest jumbo loans to anybody with a pulse anymore. There is a lot of inventory in this price range; competition really forces you to stand out if you want to sell. I used to live in this neighborhood and really enjoyed it, but there’s no way I would move back until the new Dominick’s is built. If it is built (it’s a tough construction market out there). Heck, I would wait until the store is open for business before considering this neighborhood again. Traffic is a nightmare, if you can’t get your basic necessities within a couple blocks it’s a non-starter. If the above poster is right and this building has no amenities, where does that $501 assessment go? This isn’t a massive building like many of the others that have crazy assessments.
I’m sure the list could go on.
Tipster, how dare you say bad things about Lincoln Park. It’s the center of the universe (OK maybe the midwest) and EVERYONE wants to live there. It’s the most desirable place to live within a 1,000 mile radius and housing prices per square foot clearly reflect that. Clearly you must be an ignoramus for not wanting to live in the LP.
isn’t it in Lakeview?
It’s 3.5 blocks north of the LP, sorry guys. It’s like when I’m in the suburbs and I say that some location is in Arlington Heights and then my suburban friends correct me and say, no, it’s palatine, even though the demarcation is pretty much imaginary
“It is NOT worth more than it was in 2003”
and
“you get back, at best, 80% of what you spent on renovations”
Since the reno appears to have been done after the ’05 sale, you’re actually pricing the reno return at something like -80%; that is, the reno decreased the value of the unit substantially.
So, let’s say that $100k on the reno–seems in keeping with the pricing and people’s insane expectations for returns on flips–and give them 60% credit (which I think is more reasonable right now)–you’re right around $450k. Deduct 10% for an ’05 last purchase and the high-ish assessments, and right around $400k should be a good price, even using Laura’s calculus.
I’d think the max is around $465 (conforming max with a 10% dp), which would get them 80% of their (assumed) $100k back out.
That $501 goes faster than you’d think — heating and maintaining the building (perhaps there’s a management company?)– not much left over after that. You either love vintage and are willing to put up with higher assessments/low amenities equation or need to look elsewhere.
When you factor in all the new construction, there’s alot of 3 bedrooms with fancy kitchens that come with parking and lower assessments in Lakeview, particularly if you’re willing to go a few blocks west.
Agree, traffic is a nightmare in that immediate area.
Well – it’s a beautiful apartment that I would purchase in a hearbeat if I wasn’t an old person who doesn’t want to climb to the top of that building.
This is a really nice unit – but at this price point, the lack of parking is holding is back. I always like to compare units – this is pretty comparable (in price, size, etc) to the place on Burling just north of Wrightwood and not quite as nice as the place on Belden.
I could easily see this selling for $500,000. They were never going to get $600k.
Jason, I believe that prices are going back to 2001 levels across the board.
We’ll see a slight dip in foreclosures for 90 days or so because the major banks are committing to a loan modification program. But credit will remain very tight, incomes are dropping, and many of the high-paying jobs in the financial sector on which Chicago is so dependent will disappear, probably forever.
Additionally, lending standards have returned. No more 4X, 5X, or more your income. You have to have a downpayment. These requirements are steeply reducing the pool of buyers.
A look at http://www.zipskinny.com shows a median household income of appx. $55,000 per year in zip code 60657, Lakeview. Only 10% of the household make enough money, $150,000 or more, to afford a place costing $400K or more. That select demographic has A LOT of really nice properties around there to choose from, some of which have parking and other amenities. In fact, the area is overweight in places in the $400K-$600K a year range, so I expect a lot more giveback in their prices than those of the few moderate-priced units available in this desirable area.
And of those 10% of households in Lakeview making 150k or more how much have 40-80k cash for a downpayment on a property? Even less.
The perverse thing is that during the bubble the FHA and other government programs even allowed people making 150k to get into low downpayment loans. What a disaster.
I’m totally entertained about the paranoia about no parking, I’d be happy to live in Lakeview and get rid of my car to live in a lovely unit like this one. I know tons of people who’ve chosen to get rid of their cars (or never had one) who live near here.
The way lending standards have changed the current owners wouldn’t be able purchase to their own property today. Goodbye 100% financing and hopefully forever!
Laura:
What a preposterous lump of doom and gloom you have offered up. And said with such certainty! One could be excused for thinking you were a right wing radio host “telling it like it is.”
While further reduction in market prices is basically a given no matter who you ask, very few observers would predict the conditions you are predicting. While lending standards are certainly on the rise, people with good credit and a decent down payment can indeed secure loans in gross excess of their yearly incomes. For qualified individuals willing to front their own money, this isn’t a bad thing. I’ve even heard anecdotal evidence that 0%-5% down payment loans are still available, depending on your credit. Those loans may dry up (which is probably for the best), but unless we see a total collapse in the world economy, mortgages with payments far in excess of 35% take-home will continue to be made to qualified buyers.
If this is correct, your 10% figure in regard to those who can afford 400k+ homes in Lakeview is wildly off. To be frank: it’s all about lifestyle. Many households would have very little problem being within the statistical definition of “house poor.” Those households live within their means and value their residence more than extravagant goodies. The market–and banks–continue to understand this and treat generalities like “3x your yearly wage” as exactly what they are: relics from a bygone era.
“I’m totally entertained about the paranoia about no parking, I’d be happy to live in Lakeview and get rid of my car to live in a lovely unit like this one. ”
That’s fine, but what happens when you need to sell it? Many buyers won’t even look at the place without parking.
nd,
You are a hilarious subset. Most people who can afford places with this price range have a real job. That is a job with high enough income to afford it. Many, many, many of these jobs require frequent travel to areas around Chicagoland, if not most.
Just because your world ends a few blocks from the closest El or Metra stop doesn’t mean the wider world does. Chicagoland is a huge area with a lot of opportunity scattered about it. Urbane hipsters with your mindset towards parking aren’t frequently found in possession of properties with this price level, almost never in fact.
‘Urbane hipsters with your mindset towards parking aren’t frequently found in possession of properties with this price level, almost never in fact.”
That’s fricken hilarious!
Hey HD – How is your guy doing tonight? See you in Grant Park?
70% of Americans wanted out of Iraq and the government ignored them. 90% of Americans were against the bailout plan and the government ignored them. The majority of Americans are against wire tapping and Guantanamo and the government ignores them. Tonight is not about taxes being raised on 5 or 10 or even 50 percent of the population. Tonight is about the end of Fascism and the restoration of a great country and the principles of democracy.
Jesus would be happy. Reagan would be happy. Washington would be happy. Jefferson would be happy. Churchill would be happy. Lincoln would be happy.
Fascists and Racists will be very unhappy.
I hope every congressman and senator who voted for the bailout plan gets voted out. It really was the final straw that showed that our elected officials are really more serving lobbyists and special interests than themselves. In fact I will post statistics of those who voted ‘Yea’ on the internet repeatedly on future elections (current ones are already available from multiple sources).
If they couldn’t tell by October that W’s Modus Operandi is to wait until the last minute, attempt to induce panic then ramrod through sweeping legislation at the last minute at enormous cost to American’s both financially as well as libertywise and without proper review, they will never be able to.
Wow that was a long sentence.
W trying to hold Americans hostage by their 401k balance. I don’t have a big one but my father does and wrote his reps in favor of the bailout (I wrote mine against the bailout). I lost a lot of respect for pops then. It was his dumb fault he was in equities. Exactly the kind of special interests W was trying to sway.
Elizabeth Dole voted for the bailout and ignored my letters against it. HAHAHAHA! Have fun drinking Mint Julips back home Ms. Daisey you’re toast.
I would also believe an Obama victory will help a Chicago Olympic bid in a big way.
Olympics in Chicago will help real estate!
aren’t you supposed to be at the Rally???? are you posting from an iphone????
Yeah, in 2016 long after the alt-a/option arm implosion!!!!
“Olympics in Chicago will help real estate!”
I will never understand how some people think the Olympics would help the real estate market. Sure there are a lot of people who will need housing for a few weeks, but what happens after that?
The idiotic Olympics won’t help anything in Chicago, but the back pockets of a few crony businessmen.
This event will be disruptive and come at a great net cost to the taxpayers, for something that will end in a few weeks and completely disrupt the lives of thousands of people living in the Washington Park area. It will also be a huge security risk.
We can see that the event was really no help to China, especially since rural provinces saw their scarce water supplies diverted to Bejing for the event.
I hope that one day our politicians get some frickin’ sense and cut out the bread & circuses and monument-building in favor of fiscal reatraint AND spending our scarce money on badly needed updating and expansion of water, sewer& transportation infrastructure, and other critical public needs.
Laura,
I think it depends on the city. China is not open so I don’t think it could help. Athens and Atlanta are both awful so same there. But Barcelona and Sydney are great cities and moved up the ladder in a big way predominately because of the Olympics. I think Chicago fits in with those cities rather than the former ones.
IMHO
I hope we get SOMETHING out of the Olympics but big costs and major disruption. However, it seems to me that Chicago is already top tier and really doesn’t need the boost, but DOES need lots of critical infrastructure repair and expansion, with considerable updating to meet new needs in an era of dwindling energy.
I honestly think city authorities would do better to focus on making this city attractive to the types of new industries that will be relevant, and to legitimate business in general. That would mean removing the layers of obstruction and bureaucracy that make this area unattractive to major manufacturing- it sickened me to see Toyota build a new plant with line jobs paying $45K a year, knowing that they would have in no case considered our city because of all the bureaucratic obstruction and high commercial taxes. Chicago was built by manufacturing!
Back to this unit and the matter of debt:income ratios and their relevancy to the price of the place- I don’t think I am a “gloomer and doomer” by believing that from here going forward, lenders will revert to pre-1980 lending standards, and that will cause prices to drop further. Residential real estate is still overpriced by traditional metrics, and, now that the risks entailed in loose lending and “wealth creation” by expansion of debt, are known, that we will henceforth be a lot more conservative as either lenders or borrowers. 2.5X your income will be the rule going forward, and down payments will be 10% or more. We should never have departed from this standard to begin with. We would have spared ourselves this incredible asset inflation that has only made housing much more expensive for everyone, and we would most of all have been spared the destruction of our financial system.
Excuse me, incomplete sentence in that post.
It sickened me to see that Toyota plant built in Princeton, IN. WE should have gotten that plant.
Laura I read this today and it couldn’t be more simply stated. This whole bubble was permitted by two pieces of legislation both passed by executive fiat.
These were:
1. The decision to file suit to overturn state regulation of mortgage issuers, specifically targeting New York among other states, where state regulations required that “ability to pay” (and other anti-abusive lending provisions) be part of the underwriting decision. These suits barred states from clamping down on lenders who made loans to people who could not pay.
2. The decision by the SEC to lift broker/dealer leverage limits in 2004.
#2 Was requested in 2000 by of all people Henry Paulson, who asked the SEC to lift those limits and was told “no” – The SEC at the time said that it believed that removing those limits was unsafe.
Now the funny/sad part is much like the movie “No Way Out” We have put Yuri in charge of looking for Yuri.
And the Olympics would very expensively rebuild infrastructure. think what the Clinton convention did for the west loop.
And Laura I agree until we hit 3 times earnings…. this ain’t over!
Oh, and earnings aren’t going to be going up!
I’ve said it all along: putting Hank Paulson in charge of the United States Treasury is like putting a fox in charge of guarding the henhouse.
He did accomplish his underlying mission during this credit crisis: save Goldman. Anyone who ever thought he was ever in it for the benefit of broader America is delusional.
Its just another one of W’s ploys to benefit big biz at the expense of the rest of America. I honestly don’t think W cares about his legacy at this point because he is not terribly bright nor terribly old.
But one day I hope he does, I hope he takes despair in the fact, years from now, that he was the worst president perhaps in the history of the Republic and his legacy will forever be remembered as terrible.
I looked at this unit about six months ago, and the seller forever had it priced at $599 (as mentioned), where there’s an 1800 sf vintage unit around the corner (on Cambridge last I checked) listing at $409. It shows well but it is a bit cramped and this is on the fourth, not third, floor. It also feels a bit dark. Seller put in a SpacePack(central A/c for vintage units), nice kitchen. It’s a nice, charming unit, but by far overpriced. Seller wants to make money and cover renovation cost, but quite frankly it’s not worth it. Not much closet space I would guess it’s around 2000 sf.
I just bought a 2400 sf vintage duplex down with shared back yard (no parking), 3br/2ba, much larger kitchen (12×17), separate dining and sunroom, good amount of upstairs space for $443 just north of Belmont.
Look, the mantra of 3x earnings is fair, but it’s a rule of thumb rather than an actual guideline–the guideline is based on the DTI of the actual payment. Because interest rates were so low, steady DTI at 28% supported prices that were much closer to 4x income. Was that a good idea? Only if you were using a fixed rate mortgage and intending to stay a long time and could tolerate a capital loss (at least in real terms) if rates were higher when you wanted to sell. Absolute bedrock solid underwriting would have allowed higher-than-“traditional” leverage in 2003-2007 because rates were historically low; unfortunately, the environment let everyone get crazy and through underwriting out the window.
ps–Bob, even when I agree, I think that this isn’t the forum for politics; Paulson is relevant, “Bush’s legacy” steps into the territory John was trolling.
4X your income is too much for a mortgage even with low rates, especially once you add monthly assessments and/or utilities, taxes, and insurance, plus PMI for those with less than 20% down (practically everybody).
Additionally, people these days are carrying much larger consumer debt loads as a % of their incomes than they did prior to 1980. We ran crazy with consumer debt, as well. Never mind the college loans so many people are carrying, and that they commonly don’t pay off till they’re in their 40s.
The upshot is that, even with a mortgage 2.5X income, your common buyer of a home priced from $250K-$500K is, after paying mortgage, utilities, assessments, insurance, consumer debt service, car loan(s),car insurance & repairs, college loans, is left with perhaps $300 a month for food, clothing, UNFORSEEN EMERGENCIES, and whatever else. And I’m speaking of relatively well-paid people.
Moreover, any sensible buyer will figure in things like future utility hikes and/or hikes in costs of “inelastic” items like gasoline and/or transit fare, food, health insurance, kid’s school tuitions.
Given the kind of debt loads most Americans are carrying, I wonder how we don’t have more defaults and bankruptcies than we already have.
In such a context, 3X your income should be the hard, fast limit, available only to a really qualified buyer with little or no other debt and a savings cushion. Very few buyers in any income bracket have this, except for people who are positively wealth, and those people usually don’t even get loans. They pay cash for places far below their means.
“Given the kind of debt loads most Americans are carrying, I wonder how we don’t have more defaults and bankruptcies than we already have. ”
We do; they’re walking corpses. They deposit the credit card checks into their bank account for cash; they buy items on credit to pawn for half the value; they’re perpetually betwen two and three payments behind on the mortgage, car and credit cards, and like Steven Heitman, they go around telling the world that they make lots of money; they brag about investment properties on the verge of foreclosure; they brag about the leased BMW that doesn’t carrying any liability insurance.
Laura:
So, you think, even if 0% mortgages were available, no one should spend more than 3x income on a house? And that 3x income would also be okay with 10% interest? So, with 20% down, a family with $100k income shouldn’t spend more than $666/month in a (fantastical) zero interest environment, but in a (reasonably possible) high interest (10%) environment, that same family would be okay paying $2,100/month? Don’t you see the absurdity of that? Talk about 28% DTI and 35% (or 32% or 30%, even) Total DTI, but rules of thumb cannot become “hard, fast limits” w/o causing unintended problems.
PS, most people who are “really qualified buyer with little or no other debt and a savings cushion” still don’t “pay cash for places far below their means”. We would fit your standard (didn’t when we bought), but would not consider paying cash for a house–why would I want to tie up that much of my net worth in an illiquid, depreciating asset?
“why would I want to tie up that much of my net worth in an illiquid, depreciating asset?”
Cash flow issues; not paying interest to the bank; not enough mortgage interest deduction to make it worthwhile. There are a lot of reasons actually. It becomes difficult to make money if you’re paying 6.0% interest on your mortgage balance. Unless you can find a way to beat 6.0% (which I cannot think of one – even conversative hedge funds are losing money) each and every money, often the money is better put towards your mortgage.
“why would I want to tie up that much of my net worth in an illiquid, depreciating asset?”
But that’s not exactly correct. You’re not tying up money in your house, you’re repaying your contractual obligation to the bank. It’s not the bank’s problem the asset is depreciating – it’s yours. and it’s in your best interset to pay as little interest on your contractual obligation as possible, especially because the value of what you purchased is depreciating. WHy pay $500k with interset for a $350k asset when you can pay $400k for paying it off early??
Don’t worry Laura. The fascade of the “American Dream” of living beyond one’s means is coming to a quick end. A much quicker end than even I anticipated. Americans obsession with debt and living beyond their means to fuel their lifestyle is just about over. The coming economic collapse will show that the GDP growth caused by this credit bubble over the last decade must be given back–it was never real economic growth but rather a ponzi scheme. Even cutting rates to zero will not stop this. We can’t dig our way out of this hole like we did in the 2001 recession by digging a deeper hole–we’re too far down for that.
Look out below.
“Given the kind of debt loads most Americans are carrying, I wonder how we don’t have more defaults and bankruptcies than we already have. “
“why would I want to tie up that much of my net worth in an illiquid, depreciating asset?”
You missed the point HD–why would I pay cash for a house I could finance? It’s longterm, non-cashflow asset that makes sense to pay for with debt that isn’t available for other investing activities. It’s a lot like education debt–provided that you intend to (and it’a a realistic intention) live in the house for 10+ years, why is it bad to spread the capital cost over a period of time.
“difficult to make money if you’re paying 6.0% interest ”
Yeah, but until the tax law changes, it’s more like sub-4% for me (and lots of other buy-to-live-in home owners).
“You missed the point HD–why would I pay cash for a house I could finance? ”
By repaying your contractual obligation you pay less interest over time, and often, signficantly less interest. Prepaying a mortgage in 15 years instead of 30 years saves tens and often hundreds of thousands of dollars.
If you had a 6.0% or an 8% mortgage like some of these jumbos do, then you should have definitely prepay the mortgage. If you have sub-4% – combined with the mortgage interest deduction, it’s not as useful to prepay a mortgage, it’s a question of how tolerant you are of carrying long term debt. For some people it’s all about cash flow, I personally enjoy keeping my fixed expenditures to the bare minimum because it frees up my cash. My mindset is that the good times could always end at any moment and i don’t want to be holding the bag on a $5,000 monthly mortgage and a leased BMW.
“It’s a lot like education debt–” My long term student loans are sub 3% but I’m phased out of the student loan interest deduction. Personally I try to find a medium between paying the minimum and carrying it for 30 years and prepaying a lot but tying up my cash flow. Maybe if interest rates shoot up into the double digits I’ll pay the minimum and put the cash into the bank but the ZIRP is gonna force americans to start depositing cash in Iclandic banks.
HD–Still talking past my point, which was in response to Laura saying that:
“In such a context, 3X your income should be the hard, fast limit, available only to a really qualified buyer with little or no other debt and a savings cushion. Very few buyers in any income bracket have this, except for people who are positively wealth, and those people usually don’t even get loans. They pay cash for places far below their means.”
That’s just not reality. My family is not what I think of as “rich” (certainly not like our friend John on the beach), but we are “wealthy” (so long as we don’t lose our jobs–“working wealthy” I call it) and otherwise satisfy Laura’s criteria. Even if I were buying a house for $100k, I still wouldn’t pay cash, b/c it ties up too much cash–get the loan and you retain flexibility (which you note is important to you, too).
If you have the liquid assets to pay for your house in cash, but it’s more than (maybe) 25 percent of your assets, it’s sort of silly (imo) to tie up that much cash in a single, illiquid asset when you have reasonably cheap alternatives.
Serious question, hd: If you had family income of $150k, all other debt paid off, and $500k in cash and (non-retirement) securities, would you buy a $400k house with CASH, or would you finance it? How cheap would the house have to be to pay cash, for you, in something like my scenario? For me, it would have to be well under $150k, and probably not more than $100k.
anon (tfo)
Your comment above of ‘reasonably cheap alternatives’ is the key to financing a property vs. buying it with cash. Use cash if money is expensive but if money is cheap then finance away.
I would probably pay up to $200k towards a downpayment for a house with a maximum value of $350k to $400k, which is not at all an unreasonable price for a fairly decent place at or near the bottom of the real estate depressions. The value of the home is 3x my household income give or take in any given year with a mortgage at 1x to 1.5x my income (as of today). That’s just me, like I said, life could turn on a dime. I could get ill, get cancer, lose my job, the laws could change virtually destroying my line of business, who knows, but my cash flow will be reduced. and having a stable place to live at a minimal expense is key to survival. I would probably prepay the mortgage on a 15 year amortization. Its always good to have some cash lying around, I don’t think I need to explain why.
Further, I don’t really invest in the stock market becaues it’s gotten to the point of pure gambling. the government steps into the private market all the time and numbers are fudged. It’s gotten extraordinarily difficult to find and invest in good companies with solid earnings that pay dividends. But that’s just, and with the down down 1000 in the last two days I feel good being in a cash position.
So, basically, you agree that “those people usually don’t even get loans. They pay cash for places far below their means.” is an overstatement.
HD – I am being serious when I say this. Having a long term cash position is the dumbest thing you can possibly do. Sure it looks good over th past 2 years but in the long run it is a losing position. There are assets all over the place where you can receive a safe return beyond the 3% you can get in treasuries. Unless you eventually find this return, your cash will be deflated to nothing. The average CPI may be reported at 2.5% over the past 10 years but in reality your monry is losing value at a 5 – 9% clip per year.
Leverage is the key to building wealth. It obviously has gotten way out of hand in the past 8 years, but once this all clears, it will again be the only way to riches.
Steve is right. The problem now after this financial market meltdown is how can we determine when we’re back to ‘normal’ times? It could take a couple years, I sure hope not much longer than that.
It’s now been lowered 19K to $550,000 — not much of a reduction.