Real Estate question

[shaman1204]

I am looking to purchase a condo in the city of Chicago in the very near future and I am in the 250K range. What does everyone think of the current market? I know it is all localized but I have heard that it would be best to sit on the sidelines for a little while. I rent right now and I have been pre-approved so I am definitely in the drivers seat. The reason for wanting to buy soon is I estimated I'll be paying Uncle Sam about $16K this year in taxes, and my Gov't retirement plan (Thrift Savings) is almost maxed out. I have looked at a couple of recent condo rehabs but I heard that some of the developers are reluctant to come down in price because it devalues the other units sold. But, I don't want to buy now and have to stay in the place for 10 years if the market continues to take a poop. Sorry for the long post. Any advice?

[bmussatti]

Shaman, I am no expert here, but I offer the following advice:

1) Yes, you are definitely in the drivers seat! Especially if you have nothing to sell.
2) While it is always better to owe Uncle Sam at year-end, owing $16K is too much. You need to have more withheld.
3) I don't think we have reached bottom, but we are pretty close. 6-18 months away? Maybe. 10 years, I don't think so! If it is 10 years, we all have much bigger problems than the real estate market to worry about.
4) Put enough down to avoid PMI
5) I think money is pretty cheap right now to borrow, so that has to figure into your time-table too

Good job...and good luck.

[shaman1204]

Yeah, the 16k was just a high rough estimate, depending how much overtime I have between now and years end, hopefully more like high 14k (fingers crossed). And 10 years was stretching it, but I have read many different opinions. One of them being the housing market has to fall 30% to catch up with the rental market. I know that might not be true for all areas, but I think I read it in a Fortune article. There are just so many different takes on the whole thing it'll make your head spin.

[MikeinLA]

Hi Shaman. I actually am an expert in this, I'm a real estate appraiser in Los Angeles. Although I don't know Chicago real estate (great town, by the way) I can tell you some things in general. First, understand that only about 1/4 of the Option ARM adjustable mortgages issued have adjusted to their new levels. The other 3/4 have yet to adjust, so many many more people are going to be up against it in the next 12 months. This is one reason why Moody's predicts that real estate will continue to go down through 2008, find it's bottom in 2009 and begin a slow crawl back starting in 2010. I concur with their timetable. Secondly, as homes become more affordable, people generally buy homes rather than condos. This equals more downward pressure on condos. My short answer is to buy yourself a condo for Christmas ......NEXT Christmas. If you buy a condo today, I can just about guarantee that you will lose money by next year. Be on the lookout for foreclosure deals (you won't have to look very hard) and beware of buying into an unfinished new development as many of these will go back to the bank unfinished and will cause you alot of headaches. Good Luck and be patient.

Mike

[Perfectlap]

I've been in the driver's seat for what seems forever. First I saw the bubble and said no way am I getting in. That turned into four years. Totally missed the boat. But Sure enough the legions of hair dressers turned mortgage brokers artificially inflated the market with reckless lending...foreclosures are through the roof.
My folks have a vacant rental property in Florida, I tried posting an ad on Craig's list and within an hour of posting it my ad was on page three. :confused:

This is not a short term problem. People used the spike in home equity to take out loans and now those loans are worthless. That's got nothing to do with sub prime yet still has Big implications which will affect the credit markets. These people will now have to pay two mortgages and higher interest rates on those unsecured credit lines they racked since the bubble burst and pay more for gas and groceries which are up 50%-100% over a year ago.

But those are the middle class blokes. The wealthy who live in large metropolitan areas like Chicago, New York, LA, etc. are doing very well and their need for housing has only caused further increases in real estate in those areas. Real estate in NYC and immediate burbs continues to increase. a little farther the way and the trend is negative. So yeah, try to buy where big dollar professionals are moving into, not out of.

[MikeinLA]

No arguments with that PerfectLap, the wealthy have many ways out. However, I'll say that values in the LA higher end are, in fact, dropping and the pace of sales have slowed WAY down. One of the other shoes that has yet to drop, and may soon in California, is the dubious deductibility of these home equity loans. As has been explained to me, home loan interest is deductible for loans not exceeding your basis (purchase price + improvements). A guy who bought a $ 400,000 home that increased to a million borrows $ 800,000 on a refi or home equity loan because it's tax deductible. Wrong. About half of that interest is not deductible and the California Franchise Tax Board is getting wise to this. I also read where the IRS is looking into setting up an entire division to deal with these deductions. Notice that the loan companies always state that the interest MAY be tax deductible. More fun and games yet to come.

Mike

[xxxalexxxx]

I say buy a condo now, you can find really good deals right now. Look for foreclosures and developers wanting to get rid of the apartments that have been sitting around for a while. I bought a condo downtown Chicago have renovated it and appraised it at about 40k more then what i paid for it with just spending about 10k on the remodeling. Also, in June I bought another condo in Chicago, did a little work to it and made about 25k on it after all the expenses were paid off. Just had a closing for it last Thursday. Now is definitely a time to buy if you're in the Chicagoland area, im not sure about the rest of the country.
Also, as someone mentioned about the PMI, you can actually get away without paying PMI without putting down a big down payment. That is, if you take out two separate loans and are able to raise the value of your condo (thought remodeling) that way if say your second mortgage is 20k and after you remodel the price of the condo goes up 20k you can wipe that mortgage out after you refinance. Otherwise, you can just pay a good down payment and not have to worry about the PMI's at all.
Get a good broker who has experience and you'll see all of your options.
As far as the market going down the drains I really haven't been affected by it, except I have able to get good deals. just make sure you're looking to get an apartment somewhere where people will want to buy it later on once the market returns to normal, basically you have to know where to look.

[shaman1204]

Yeah, xxxalexxxx, I know what you mean about finding the right neighborhood. I currently rent in Bucktown and I found a few condos that have already been rehabbed that I really like. I was considering waiting a few months to see what happens. Know any good brokers?

[xxxalexxxx]

I'll PM you a name and number of the broker I think is great when i get home from work and find the card

good luck with the purchase

[IowaS]

Hi Shaman. I actually am an expert in this, I'm a real estate appraiser in Los Angeles. Although I don't know Chicago real estate (great town, by the way) I can tell you some things in general. First, understand that only about 1/4 of the Option ARM adjustable mortgages issued have adjusted to their new levels. The other 3/4 have yet to adjust, so many many more people are going to be up against it in the next 12 months. This is one reason why Moody's predicts that real estate will continue to go down through 2008, find it's bottom in 2009 and begin a slow crawl back starting in 2010. I concur with their timetable. Secondly, as homes become more affordable, people generally buy homes rather than condos. This equals more downward pressure on condos. My short answer is to buy yourself a condo for Christmas ......NEXT Christmas. If you buy a condo today, I can just about guarantee that you will lose money by next year. Be on the lookout for foreclosure deals (you won't have to look very hard) and beware of buying into an unfinished new development as many of these will go back to the bank unfinished and will cause you alot of headaches. Good Luck and be patient.

Mike

I am a real estate developer mainly in the midwest....
Everything Mike said is correct, most industry experts say that the bottom is next summer 2008. Every market is different however I would wait..Every market I am in right now, Des Moines, Omaha, Milwaukee the condo market really sucks. DO NOT be one of the first to buy into a condo development as I am seeing major drop in prices. Some people who bought first in a couple of condos are seeing similar units selling for 40-50k less...OUCH! I can tell you one thing, I would be pissed. Personally I would look for a development that is just about full, basically a developer that is waiting to convert from a construction loan to perm financing with your sale putting them over the top (most times the magic number is 85% leased)....be patient and get a good motivated deal...

[shaman1204]

Thanks for the replies, everyone. I might wait until the condo building I have had my eye on sells one or two more. Right now it there are only 3 of the 6 condos occupied, so I see what you mean Iowa, they might be more willing to deal having only one more to offload. I just don't want to wait too long, I really like the place, they are in the neighborhood I want to be in and it is just six doors down from my favorite 'hood watering hole.