Last night, on the eve of my fourth wedding anniversary, my wife told me "I think we will have an argument soon."
I asked "Are you mad about something?"
She said "No, I just think it has been along time since we have really argued. Most couples argue periodically."
I told her "I don't believe we have to have an argument just because we haven't had one for a while."
She retorted "Statistically people argue, it is human nature."
I replied "I believe if people keep their values and goals in alignment, they can live together in peace and harmony."
She told me "People who come from such different backgrounds as we do can never be completely in alignment."
I said "Well, not if they are both as stubborn as you!"
She said "Look who's stubborn, You are still saying we won't argue while we are in the middle of an argument!"
I guess I lost that one, but at least we can enjoy our anniversary in peace, knowing that we aren't due for another argument for a while. :D
Thursday, April 17, 2008
Wednesday, April 16, 2008
Birth of a Real Estate Investor
In 1968 my father bought the house that I grew up in. At that time it sold for $25,000.00. This was new construction on the biggest lot in the new subdivision. Eight years later my father expanded the house adding another master bedroom and bathroom and a game room. The construction of the addition cost $40,000.00. The house sold in December 2005 for $759,000.00.
During the 60's and 70's my uncle bought 6 different houses. To me it seemed crazy at the time that they should move so often. But I noticed that the houses kept getting better and better. In the late 70's my uncle had a private boat dock in his back yard on the marina. I thought my uncle must make alot more than my father to afford the nice homes and the boat.
I grew up believing that debt was bad and I wanted to pay cash for everything. With that perspective, I never really considered buying a house because I didn't have the money to pay cash for a house.
When I got married and was making a decent salary I finally decided to buy a home. So I went to a first time home buyer's workshop to learn something about buying a house. At the workshop they started talking about homeownership as being one of the first steps towards building wealth, and how a married couple could realize $500,000.00 in tax free capital gains on the sale of their property. At that moment I realized that my uncle wasn't moving from house to house because he was making enough money to afford something better. He was able to afford something better because he kept moving from house to house.
From that moment, I realized that I had been a fool and should have bought a house long ago. I bought my first property soon after that. Then I started learning everything I could about real estate and real estate investing. I went to seminars and bought books and home study courses. I joined Real Estate Investing clubs and downloaded everything I could find on the internet. My wife caught the real estate fever from me and she became a real estate agent so we would have access to the MLS and a network of real estate professionals.
When my wife started working with real estate agents on a day to day basis, she came to realize how narrow minded many of them are. They would always check box A on a contract because the example contract they used had box A checked. They didn't take the time to understand what box A meant or when you would check box B instead. When she talked about investment strategies that we had been working in her office other realtors had no idea what she was talking about. The others are still trying to use methods that worked a few years ago, when a house was only listed for days before multiple offers above the list price were received.
Now I have much more experience and knowledge of real estate and I want to share that with people just starting out buying their first property. I know there are alot of sites out there to help homebuyers, but they are mostly real estate agents trying to get clients, or mortgage companies trying to sell mortgages. I want to show people how to buy their home the way a professional investor buys property rather than have them led by an agent or a mortgage broker. This is the biggest investment most people make in their lives and they should learn how to do it right. It can make the difference in whether they become wealthy or stay in the same place they are in for the rest of their lives.
I have started a forum where home buyers can come to ask questions and get answers that don't always fit into the box where most real estate professionals live. You can visit here at First Time Home Buyer Forum
Also, if you are looking for a home or information about the Orange County, California area, please visit my wife's site at Orange County Home.net
During the 60's and 70's my uncle bought 6 different houses. To me it seemed crazy at the time that they should move so often. But I noticed that the houses kept getting better and better. In the late 70's my uncle had a private boat dock in his back yard on the marina. I thought my uncle must make alot more than my father to afford the nice homes and the boat.
I grew up believing that debt was bad and I wanted to pay cash for everything. With that perspective, I never really considered buying a house because I didn't have the money to pay cash for a house.
When I got married and was making a decent salary I finally decided to buy a home. So I went to a first time home buyer's workshop to learn something about buying a house. At the workshop they started talking about homeownership as being one of the first steps towards building wealth, and how a married couple could realize $500,000.00 in tax free capital gains on the sale of their property. At that moment I realized that my uncle wasn't moving from house to house because he was making enough money to afford something better. He was able to afford something better because he kept moving from house to house.
From that moment, I realized that I had been a fool and should have bought a house long ago. I bought my first property soon after that. Then I started learning everything I could about real estate and real estate investing. I went to seminars and bought books and home study courses. I joined Real Estate Investing clubs and downloaded everything I could find on the internet. My wife caught the real estate fever from me and she became a real estate agent so we would have access to the MLS and a network of real estate professionals.
When my wife started working with real estate agents on a day to day basis, she came to realize how narrow minded many of them are. They would always check box A on a contract because the example contract they used had box A checked. They didn't take the time to understand what box A meant or when you would check box B instead. When she talked about investment strategies that we had been working in her office other realtors had no idea what she was talking about. The others are still trying to use methods that worked a few years ago, when a house was only listed for days before multiple offers above the list price were received.
Now I have much more experience and knowledge of real estate and I want to share that with people just starting out buying their first property. I know there are alot of sites out there to help homebuyers, but they are mostly real estate agents trying to get clients, or mortgage companies trying to sell mortgages. I want to show people how to buy their home the way a professional investor buys property rather than have them led by an agent or a mortgage broker. This is the biggest investment most people make in their lives and they should learn how to do it right. It can make the difference in whether they become wealthy or stay in the same place they are in for the rest of their lives.
I have started a forum where home buyers can come to ask questions and get answers that don't always fit into the box where most real estate professionals live. You can visit here at First Time Home Buyer Forum
Also, if you are looking for a home or information about the Orange County, California area, please visit my wife's site at Orange County Home.net
Friday, April 4, 2008
Market Trends and Timing Your Purchase - Part II - (Interest Rates)
Interests rates are another important factor to consider when deciding if you can afford to buy a home. Many people who have never bought a home before don't realize the difference a point (1%) of interest can have over the life of an amortized loan. For example, on a $500,000 home with a 30-year fixed rate mortgage at 6.52% (today's average rate according to hsh associates) you will pay over $640,000 in interest by the end of 30 years. For the same home, the interest on a 30-year fixed at 7.52% will add up to more than $761,000. That's a difference of $121,ooo if you stay in the same loan for 30 years.
The difference in monthly payment between the two situations above is $336.00 ($3502.92 -$3166.92). So if you can get a loan today for 6.52% you will be able to afford more home than if you wait a year and the interest rate has increased to 7.52%. I am not saying that the interest rate will increase that much by next year, I have no idea what it will be. If you can find someone who does know, please introduce me!
There are many factors influencing interest rates. Most banks will base an interest rate on an index such as the Prime rate or LIBOR (London Inter Bank Offer Rate). These indexes are especially important in Adjustable Rate Mortgages as they will determine what the rate will adjust to when adjustments are made. The Federal Reserve tries to control the interest rate by changing the cost of federal funds, but in the long run the rate you can get is controlled by the current market conditions. Banks will lower rates to compete with other banks. They can afford to lower rates more when the cost of federal funds is lower, but they don't always follow the fed closely.
Interest rates are also affected by your credit score, also known as your FICO (Fair Isaac and Company) score. I will write a separate post about credit scores later this week.
So what is the interest rate market like today, and what is it likely to do? The Fed has been reducing rates to boost the economy for the past several sessions. For more information see Lucy's post Fed Cuts Rates by 3/4 of a Point. Rates are falling, but how much further can they possibly go? I think they will bottom out very soon.
Many lenders will allow a borrower to lock a rate while they are searching for a home for a period of 30 days to 6 months depending on the lender. This is a great way to make sure you get a good rate, but you have to act while the rates are low. The lock only affects the maximum rate; it can still decrease if market rates go down.
If you are considering buying a home, don't let the interest rates stop you now. I doubt you will get much better rates than what is available now.
The difference in monthly payment between the two situations above is $336.00 ($3502.92 -$3166.92). So if you can get a loan today for 6.52% you will be able to afford more home than if you wait a year and the interest rate has increased to 7.52%. I am not saying that the interest rate will increase that much by next year, I have no idea what it will be. If you can find someone who does know, please introduce me!
There are many factors influencing interest rates. Most banks will base an interest rate on an index such as the Prime rate or LIBOR (London Inter Bank Offer Rate). These indexes are especially important in Adjustable Rate Mortgages as they will determine what the rate will adjust to when adjustments are made. The Federal Reserve tries to control the interest rate by changing the cost of federal funds, but in the long run the rate you can get is controlled by the current market conditions. Banks will lower rates to compete with other banks. They can afford to lower rates more when the cost of federal funds is lower, but they don't always follow the fed closely.
Interest rates are also affected by your credit score, also known as your FICO (Fair Isaac and Company) score. I will write a separate post about credit scores later this week.
So what is the interest rate market like today, and what is it likely to do? The Fed has been reducing rates to boost the economy for the past several sessions. For more information see Lucy's post Fed Cuts Rates by 3/4 of a Point. Rates are falling, but how much further can they possibly go? I think they will bottom out very soon.
Many lenders will allow a borrower to lock a rate while they are searching for a home for a period of 30 days to 6 months depending on the lender. This is a great way to make sure you get a good rate, but you have to act while the rates are low. The lock only affects the maximum rate; it can still decrease if market rates go down.
If you are considering buying a home, don't let the interest rates stop you now. I doubt you will get much better rates than what is available now.
Tuesday, April 1, 2008
Market Trends and Timing Your Purchase
In my last post I promised to discuss current market trends and whether they make it a good time to buy. This is a difficult question to answer, but I will try my best.
One of the reasons this is difficult to answer is due to market variations in different areas. In some areas this might be the best time in years to buy, while in other markets it may be the worst. To say what is best in your area involves analysis of the local market cycle.
The market usually follows a cyclical behavior over an 8 to 1o year period. This cycle goes from being a Seller's market (characterized by short time on the market, low inventory levels, multiple offers, sales prices higher than the listing price...) to a Buyer's Market (long time on the market, expired listings, lots of inventory, sellers take huge discounts and offer creative financing). Many analysts break the market cycle down even further to different phases of a buyer's market or seller's market. For purposes of this post I will limit my discussion to the more general cycle.
The best time to buy would be just before the trend changes from being a buyer's market to a seller's market. This would be the bottom of the cycle when prices are lowest. At this time you can find some really great deals where seller's are desperate to get rid of their homes.
The market cycles are affected by many things, but a major factor is employment. Areas in economic decline offer incentives to businesses. Operating expenses become too high in areas where economic conditions are thriving. This motivates large businesses to set up facilities in "emerging markets". When the business moves in it brings alot of employees. These employees need some place to live. Then they also need someplace to buy things for their houses so Home Depot and Wal-Mart open new stores. They also need someplace to eat, so McDonalds, Benihana's and Olive Garden (to name a few) open restaurants. They need medical care, insurance, legal services, and each doctor/lawyer/insurance salesman needs goods and services as well. When the existing housing is not enough to hold the influx of employees, developers and contractors move in.
When the businesses just start to move in is when the market has hit bottom and then the influx of homebuyers/renters causes prices to increase. This is when it starts to become a seller's market.
Then housing prices increase and the economy begins to thrive. The city and county start increasing taxes on business, and other areas become more attractive to businesses. The market then takes a downturn as businesses move out. Unemployment increases and people can't afford to go out to eat as much. Benihana's and Olive Garden close their doors... you see where this is going.
When you see businesses move out and unemployment increase it usually signals the beginning of a buyer's market.
Now that I have given a brief explanation of the market cycles, I have to tell you that right now there are other economic factors that are distorting the normal market cycle. In the past decade, due to low interest rates and low affordablity of housing, lenders were having trouble making loans. So they started creating new loan programs that enabled anyone with a pulse to buy a home. No down-payment, interest-only, Adjustable Rate Mortgages, negative amortization, option ARMs... all were offered to less than qualified homebuyers. This is what is called sub-prime lending.
Sub-prime lending was a quick fix when appreciation was in the double digits. Lenders figured there would be equity soon enough. People were able to refinance out of the riskier products once they had some equity (if they realized they should). But then the market peaked in many of the hot areas because salaries were not keeping up with the cost of housing. Prices had only reached this high level due to the lending practices, but the market couldn't sustain the phenomenal rate of growth. Eventually it brought on a market slowdown and prices stopped increasing.
Most homeowners had little or no equity at this time. Then adjustable mortgages started adjusting from low teaser rates to something more in line with the borrowers credit score and the current market rates. Some peoples mortgage payments doubled or tripled overnight. This caused a wave of foreclosures. Foreclosures today are at an all-time high. Now the availability of foreclosures and bank owned property is driving the prices way down. It is very difficult for a seller to compete when the foreclosures are so readily available and buyers are sitting on the fence waiting to see what will happen next.
Now the Federal Reserve is taking pity on the banks and loosening the lender's reserve requirements to keep the banks from going under. Banks are able to hold onto more REOs and wait for the market to pick up rather than having to dump all the non-performing assets at bargain basement prices. This is helping to prevent the bottom from falling out of the market, but it also means it will be a long time before the market can pick up again.
Another factor to consider in making your decision to buy is the current interest rate. I will discuss interest rates in another post to keep this post from getting too long.
There are still markets out there where prices are increasing and there are places where prices are dropping. Nobody wants to buy a house today and find out a year later that it is worth less than what they owe on it. But history shows that the general trend of real estate prices will outpace inflation by far in the long run. If you are planning to live in your home for 10 years or more it is likely that the value will double over that period. You can wait until you are sure that the market has bottomed out before you buy, but there's a good chance that you will miss it and prices will rise again before you can act.
In my market (Southern California) we are well into a buyer's market that came very abruptly (caused mostly by sub-prime lending practices). I don't think we have hit bottom yet, but the bottom may be drawn out and bumpy due to the government attempts to keep the economy on its feet. In the end, everyone must make their own decision when to buy based on what is going on in their own life as much as on the current market. You have to live somewhere, and you have to pay for it now or later. Many successful people attribute their success to taking action rather than suffering from paralysis of analysis.
One of the reasons this is difficult to answer is due to market variations in different areas. In some areas this might be the best time in years to buy, while in other markets it may be the worst. To say what is best in your area involves analysis of the local market cycle.
The market usually follows a cyclical behavior over an 8 to 1o year period. This cycle goes from being a Seller's market (characterized by short time on the market, low inventory levels, multiple offers, sales prices higher than the listing price...) to a Buyer's Market (long time on the market, expired listings, lots of inventory, sellers take huge discounts and offer creative financing). Many analysts break the market cycle down even further to different phases of a buyer's market or seller's market. For purposes of this post I will limit my discussion to the more general cycle.
The best time to buy would be just before the trend changes from being a buyer's market to a seller's market. This would be the bottom of the cycle when prices are lowest. At this time you can find some really great deals where seller's are desperate to get rid of their homes.
The market cycles are affected by many things, but a major factor is employment. Areas in economic decline offer incentives to businesses. Operating expenses become too high in areas where economic conditions are thriving. This motivates large businesses to set up facilities in "emerging markets". When the business moves in it brings alot of employees. These employees need some place to live. Then they also need someplace to buy things for their houses so Home Depot and Wal-Mart open new stores. They also need someplace to eat, so McDonalds, Benihana's and Olive Garden (to name a few) open restaurants. They need medical care, insurance, legal services, and each doctor/lawyer/insurance salesman needs goods and services as well. When the existing housing is not enough to hold the influx of employees, developers and contractors move in.
When the businesses just start to move in is when the market has hit bottom and then the influx of homebuyers/renters causes prices to increase. This is when it starts to become a seller's market.
Then housing prices increase and the economy begins to thrive. The city and county start increasing taxes on business, and other areas become more attractive to businesses. The market then takes a downturn as businesses move out. Unemployment increases and people can't afford to go out to eat as much. Benihana's and Olive Garden close their doors... you see where this is going.
When you see businesses move out and unemployment increase it usually signals the beginning of a buyer's market.
Now that I have given a brief explanation of the market cycles, I have to tell you that right now there are other economic factors that are distorting the normal market cycle. In the past decade, due to low interest rates and low affordablity of housing, lenders were having trouble making loans. So they started creating new loan programs that enabled anyone with a pulse to buy a home. No down-payment, interest-only, Adjustable Rate Mortgages, negative amortization, option ARMs... all were offered to less than qualified homebuyers. This is what is called sub-prime lending.
Sub-prime lending was a quick fix when appreciation was in the double digits. Lenders figured there would be equity soon enough. People were able to refinance out of the riskier products once they had some equity (if they realized they should). But then the market peaked in many of the hot areas because salaries were not keeping up with the cost of housing. Prices had only reached this high level due to the lending practices, but the market couldn't sustain the phenomenal rate of growth. Eventually it brought on a market slowdown and prices stopped increasing.
Most homeowners had little or no equity at this time. Then adjustable mortgages started adjusting from low teaser rates to something more in line with the borrowers credit score and the current market rates. Some peoples mortgage payments doubled or tripled overnight. This caused a wave of foreclosures. Foreclosures today are at an all-time high. Now the availability of foreclosures and bank owned property is driving the prices way down. It is very difficult for a seller to compete when the foreclosures are so readily available and buyers are sitting on the fence waiting to see what will happen next.
Now the Federal Reserve is taking pity on the banks and loosening the lender's reserve requirements to keep the banks from going under. Banks are able to hold onto more REOs and wait for the market to pick up rather than having to dump all the non-performing assets at bargain basement prices. This is helping to prevent the bottom from falling out of the market, but it also means it will be a long time before the market can pick up again.
Another factor to consider in making your decision to buy is the current interest rate. I will discuss interest rates in another post to keep this post from getting too long.
There are still markets out there where prices are increasing and there are places where prices are dropping. Nobody wants to buy a house today and find out a year later that it is worth less than what they owe on it. But history shows that the general trend of real estate prices will outpace inflation by far in the long run. If you are planning to live in your home for 10 years or more it is likely that the value will double over that period. You can wait until you are sure that the market has bottomed out before you buy, but there's a good chance that you will miss it and prices will rise again before you can act.
In my market (Southern California) we are well into a buyer's market that came very abruptly (caused mostly by sub-prime lending practices). I don't think we have hit bottom yet, but the bottom may be drawn out and bumpy due to the government attempts to keep the economy on its feet. In the end, everyone must make their own decision when to buy based on what is going on in their own life as much as on the current market. You have to live somewhere, and you have to pay for it now or later. Many successful people attribute their success to taking action rather than suffering from paralysis of analysis.
Monday, March 31, 2008
Buying my first home
I bought my first home in March 2005. I made some mistakes and I have some regrets. Now I am actively involved in the real estate market and I would like to share my experience to help others have a better experience in their quest to become homeowners.
I guess the first topic is the decision to buy a home. I live in Orange County California and the real estate market was booming for many years when I came to the decision to buy. I hadn't really considered buying before because I had put my life on auto-pilot.
Then I met a girl in China and after some time I asked her to marry me. Then I began to re-evaluate my lifestyle. I realized that it is better to pay towards building equity in my own home rather than pay down my landlords mortgage. But my fiancee asked me to wait until she was able to come to the US and help me with the payments. So I postponed pulling the trigger for a couple of years.
I also had a friend who was living in the same apartments who moved out. She was cheated by the property management company when she got her security deposit back. After some research we found out that owner of the apartment complex and also the owner of the property managment company was the most sued person in Orange County. He also made himself a boatload of cash from all the renters. In fact, he made such a large contribution to George W. Bush's campaign against Al Gore that when Bush won, he appointed him as ambassador to Spain.
This left a bad impression with me whenever I thought of the management company.
Still, I was newly married and adjusting to married life so I didn't think much about buying a home again until my lease was almost up. When I got the notice that they were increasing my rent $100/month if I signed a year lease and $125 if I went month to month I decided I would buy a house before my lease expired. I became a very motivated buyer and this is never a good thing. I had little more than a month from the time I seriously started looking until the time I wanted to be in my new home.
The level of motivation is one of the things that led to my making some bad choices along the way. So my first piece of advice is to plan well, and don't be in too much of a hurry to buy a house. The process can take months to make sure you do the best deal for your situation and your needs. This will be one of the biggest decisions in most peoples lives. Take the time to make the right choices and seek out advice from others with more experience. Come to http://www.firsttimehomebuyerforum.com to ask questions and share your experiences with other people making the journey to the American Dream of homeownership.
I will discuss market trends and whether now is the best time to buy in another post. I will be posting here with tips and stories about homebuying regularly.
I guess the first topic is the decision to buy a home. I live in Orange County California and the real estate market was booming for many years when I came to the decision to buy. I hadn't really considered buying before because I had put my life on auto-pilot.
Then I met a girl in China and after some time I asked her to marry me. Then I began to re-evaluate my lifestyle. I realized that it is better to pay towards building equity in my own home rather than pay down my landlords mortgage. But my fiancee asked me to wait until she was able to come to the US and help me with the payments. So I postponed pulling the trigger for a couple of years.
I also had a friend who was living in the same apartments who moved out. She was cheated by the property management company when she got her security deposit back. After some research we found out that owner of the apartment complex and also the owner of the property managment company was the most sued person in Orange County. He also made himself a boatload of cash from all the renters. In fact, he made such a large contribution to George W. Bush's campaign against Al Gore that when Bush won, he appointed him as ambassador to Spain.
This left a bad impression with me whenever I thought of the management company.
Still, I was newly married and adjusting to married life so I didn't think much about buying a home again until my lease was almost up. When I got the notice that they were increasing my rent $100/month if I signed a year lease and $125 if I went month to month I decided I would buy a house before my lease expired. I became a very motivated buyer and this is never a good thing. I had little more than a month from the time I seriously started looking until the time I wanted to be in my new home.
The level of motivation is one of the things that led to my making some bad choices along the way. So my first piece of advice is to plan well, and don't be in too much of a hurry to buy a house. The process can take months to make sure you do the best deal for your situation and your needs. This will be one of the biggest decisions in most peoples lives. Take the time to make the right choices and seek out advice from others with more experience. Come to http://www.firsttimehomebuyerforum.com to ask questions and share your experiences with other people making the journey to the American Dream of homeownership.
I will discuss market trends and whether now is the best time to buy in another post. I will be posting here with tips and stories about homebuying regularly.
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