Not at all creative - am I crazy? - Posted by Diane (Bay Area)

Posted by Laure on May 10, 2000 at 22:18:41:

I am not up on the current period of time on that. I know, 11 years ago, I missed getting my deduction by 1 month. It sucked.

Laure :slight_smile:

Not at all creative - am I crazy? - Posted by Diane (Bay Area)

Posted by Diane (Bay Area) on May 10, 2000 at 01:32:31:

I love the idea of good bargain, especially when it comes to real estate. So what happened here? Hubby and I are offering full price on an older home in the ‘cute’ part of town. Full price! It’s like fingernails on a black board! The thing is, I feel lucky because the market is so tight here (Tri-Valley, downtown Pleasanton, for those in the know). Most properties are getting multiple offers tens of thousands of dollars over asking.

I’m just looking for some validation that in this hot market, paying full price will probably be ok when you consider the likely appreciation. I don’t suppose I’ll get much pity from the CRE crowd. The only solace for me is that we will keep our current primary residence as a rental and refi it into a neg am, resulting in a net monthly profit. Oh, and the new place has a studio out-building that could bring in a nice rent as well.

The last little detail is that we bought our current place for nearly asking price over 2 years ago and the appreciation has been about 40%. C’mon economy - keep cookin’!

Re: Not at all creative - am I crazy? - Posted by Kim K–AZ

Posted by Kim K–AZ on May 12, 2000 at 18:32:26:

Even though this will be your personal residence (I think), since you are talking about appreciation you are also considering potentials profits on the eventual sale. Having said this, please remember–We Make Our Money on RE When We Buy. This insures profits in an up or down market and gives us the freedom to be a bit flexible when we sell (not a motivated [panicky] seller).
It also allows us many nights of restful sleep.Be good to yourself. Best wishes.

Re: Not at all creative - am I crazy? - Posted by JD

Posted by JD on May 11, 2000 at 23:03:45:

The first property I ever owned was a Duplex in Livermore. Sold it about a year ago. You are indeed crazy if you think that props in your area will continue to increase at 20% per year. I will even go as far as to say that I think that property values in the Bay area have peaked (tailing a few months behind the Nasdaq) and will begin to drop very soon.

I am crazy, and thank you for your responses… - Posted by Diane(Bay Area)

Posted by Diane(Bay Area) on May 10, 2000 at 12:49:23:

So the phone rings this morning and it’s the realtor. “Things just got complicated”, he says. The complication is that his commission isn’t built into the purchase price he gave us last night. This house is not yet listed. He tells me he won’t perform dual representation and must build in more commission for the seller’s agent. So far, I don’t feel as if anyone is representing ME!

Thank you so much for your advice - you’re the only ones being honest.

Re: Not at all creative - am I crazy? - Posted by Ed Garcia

Posted by Ed Garcia on May 10, 2000 at 11:52:43:


I’m a native Californian. The appreciation that you’re experiencing is what it dropped
10 years ago. Don’t tell me about appreciation in California. I was born in Glendale
California 55 years ago, and was raised on appreciation.

My house has raised in value in the last year $50,000. Big deal, it dropped 10 years ago
$100,000, right after I bought it. Yes, it’s true that you might have come to the area at
the right time. Then I would say sell your place and get your 40% appreciation or lose it.

The Bay area has always been a good market relatively taking all things into consideration.
However, I doubt the rents will support the cost of the debt service of the property.

Diane, I can’t tell you how blinded I was on appreciation. We’ve always enjoyed it here
In sunny California. In 1990 when appreciation went into the tank, I wasn’t even concerned
knowing how it always bounces back. Diane that was 10 years ago, YES in your area as well.

The cycle that I was accustomed to was every 2 years. It didn’t happen.

Diane, when you do a deal, it’s like playing chess. You have to have alternant moves, worse
case scenario’s. Buying off of appreciation only, is defiantly not a GENIUS move.

Diane, what were talking about here, is not Creative Real-estate, but sound buying practices,
and a solvent deal.

Diane, you knew when you made this post that you were going to get some flack from the real
Investors, and I didn’t want to disappoint you.

Good luck on your decision Diane, because that’s what you’ve based it on is LUCK.

Ed Garcia

Ever eat at Claude & Dominiques? (LONG) - Posted by Greg

Posted by Greg on May 10, 2000 at 11:04:39:

For those “in the know” it’s a great little French restaurant in downtown Pleasanton.

First the disclaimer. I’m verrrrry new at this creative realestate “stuff”. So, take everything I say with the TON of salt it deserves. :slight_smile:

Having said that, I have to admit, you had me Thinking first thing this morning. I have not looked at the “comps” on my home in a while. My wife and I bought down by the Fairgrounds 18 months ago. By comps, it’s only gone up 28% not quite as nice as yours, but, nothing to sneeze at.

I think Laure said you have to be careful and not count on appreciation. She is absolutely correct. Even though we live in an area that people just HAVE to live in, that will eventually change. So far, it has never lasted more than a couple of years, but realestate does and will go down.

The last house we purchased, started its downward spiral right after we bought it. Five years later the recovery started in that area. Since we purchased our new home in Pleasanton, that old house has gone up 40% above our original purchase price. During that first 5 years, it had dropped 20 - 25% (I did not have access to comps at the time so I’m not real sure exactly how much)to get to the FMV of today, that would be somewhere around a 72% increse from those “bad ol days”.

To make a long story a little longer, have you thought of using Bill Gatten’s PACTrust?? I just received his program last weekend, so I do not know much about it myself, but it looks like something you might want to consider. (Higher rents, no maintenance worries, Even Higher sales price, keep more of your equity etc…)

Good Luck on your new home.


Not crazy, but maybe buying at the wrong time. - Posted by Robert(CA)

Posted by Robert(CA) on May 10, 2000 at 10:34:10:

If you can possibly avoid buying in the hottest seller’s market in the Bay Area in 12 years, you should. I expect prices will be 10% lower in 6-12 months when Greenspan’s rate hikes fully impact the market. This December will almost certainly be a better time to buy.

On the other hand if you can sell the house you have now…go for it! I think Laure’s advice of putting your 40% gain into rental property is spot on. However, you won’t find properties that can give you positive cash flow in most of northern Calif. unless you put more than 50% down. You may want to try Fresno or Bakersfield.

I wish you success.

Re: Not at all creative - am I crazy? - Posted by JPiper

Posted by JPiper on May 10, 2000 at 09:39:49:

There’s nothing like appreciation…when it happens. Personally though, I don’t think it’s consisently or accurately predictable.

One of the problems in California is that properties don’t cash flow typically in a rental situation unless you have huge equity. But if I were you, I’d check into Bill Gatten’s PacTrust. I think this is an effective way to get increased cashflow in a market where rents are under mortgage payments…a typical situation in California.

In other words, there is a way to get your cash flow up. But I wouldn’t do that by creating a negative amortization situation. It wasn’t so many years ago that California was doing the exact opposite…combine that with negative amortization and it’s a recipe for disaster.


Re: Not at all creative - am I crazy? - Posted by Eric

Posted by Eric on May 10, 2000 at 08:55:29:

I am doing a similar thing, and have the same bad feelings that you do. A house being newly built, so the sellers have no equity or flexibility. So we’re cashing them out, at full price, with a conventional loan (UGHH!). I am also in an appreciating, bay area, (Tampa Bay, not San Francisco), and am hoping that appreciation will bail me out. In my case, however, I am confident there will be demographic appreciation, in addition to economic; it’s on the north side of the area, where more and more people are moving to relieve the burdens of congestion and taxation. Plus, the neighborhood has the amenities I want - namely, exclusive access to three ski lakes that I can drive down to the end of the street and put my boat in, without having to fight traffic or wait in lines at boat ramps. How much is that worth? It’s Florida, after all, so I figure, if you’re not on the water, then why are you here? I view it as buying not just a house, but a lifestyle - I know it sounds like a builder’s brochure, but in this case, it’s pretty accurate.

As for your negative amortization loan, I once read something by some guru, I forget which - “Borrowed money is not profit - you have to pay it back!”. Could you not rent the property high enough to cash flow, or sell it on favorable terms with a land contract at a higher than market interest rate to get the same spread? I’m not sure if that would retain the tax advantages or not.

Re: Not at all creative - am I crazy? - Posted by Brian_CA

Posted by Brian_CA on May 10, 2000 at 08:40:16:


I also am in the bay area ( San Francisco ) and I completely understand your plight. People in this area seem more motivated by $$$ then an offer that suits their needs. However, in the last year and half the market has seemed to soften. I have seem to been talking to more and more sellers that are willing to entertain Creative offers rather then all cash. Most have bought way over what the should have and have no equity. Perfect Lease/Option candidates. I will admit that I have had no deals lately, but I think that is due to my own inexperience as a negociator. I keep getting closer. Also it helps to not go throught the traditional method for deals in this area. By the time a good deals hits the MLS or the newspaper, the pros have already been there and gotten a contract signed. Check out Joe Kaiser’s Lease/Option course, I have found that most my qualifed leads have come from his methods. It is easy the understand and fairly easy to use. Hope this helps some. Good Luck!


Re: Not at all creative - am I crazy? - Posted by Laure

Posted by Laure on May 10, 2000 at 08:04:37:

Not crazy… If you are purchasing the home for your personal residence. That is a judgement call for you and your family. And you don’t “have” to be creative.

I would caution you, however. Negative amortization is a very risky business. You are playing russian roulette with your life. We are in the longest upward cycle since WWII. I don’t doubt that the Bay area is incredible and will continue to increase into the future. HOWEVER, the only thing that is for sure is TODAY. Counting on tomorrow’s appreciation to fix today’s mistakes is dangerous, at best, and has destroyed many an investor. Also, don’t forget the rising interest rates, and that this is an election year. Things will certainly change next year. I’m not saying they will go in the toilet, but they WILL change, this is a fact. They will not be the same as today, tomorrow never is.

Instead of a re-fi, why don’t you sell this house and take the profit NOW ! It’s tax free gain right now, because it is your personal home. The day you convert it to a rental you lose your tax advantage and when you sell it, there will be tax on it, and you will watch your equity flow through your hands and into Uncle Sam’s. I would sell it, take the cash and buy something that has a POSITIVE cash flow and POSITIVE amortization.

Hope I helped.

Laure :slight_smile:

Re: I am crazy, and thank you for your responses… - Posted by Sean Sullivan

Posted by Sean Sullivan on May 10, 2000 at 15:06:31:

It looks like you need to find a buyer rep as soon as possible if you don’t feel comfortable with the agency laws in your state.

I am a broker in Texas and this sounds like a very odd situation. The agent you are dealing with may just be trying to up the price of the house due to the “HOT” market. Furthermore, he might have realized that the price he suggested is way too low and he is trying to do some “damage control” before his client gets very upset.

Just remember a seller who lists his house is putting it on the market for buyers to make an offer. He is not obligated to accept anything even if it is an excellent offer. (compared to LISTING price).

Again, go find yourself a very good buyer rep. They will take care of you.

Don’t you have three years before you lose your tax advantage? - Posted by Stew (NE)

Posted by Stew (NE) on May 10, 2000 at 11:40:09:

If you?ve owned your home and have lived in it for two of the previous five years, then you can make a profit of up to $250,000 if you?re single or $500,000 if you?re married, with no tax bill. Just trying to help people make decisions off of good info.