You are projecting extremely high appreciation. However, the recent data suggests that the silicon valley home prices are declining, I believe. The price increases in the immediate San Fran Bay Area seem to be slowing down.
I suggest that you do more research on projections of price trends for the area before you commit to a large mortgage payment for a property that may be declining in value. Do a google search on the topic. One of the first places to look is the www.dataquick.com website. The Sunday S. F. Chronicle real estate section has lists of properties that have sold in different zip codes around the bay area. They also have some comparisons of sales prices with prior year’s sales prices. Look some of them up, perhaps in your local public library.
If you want to live in such an expensive house, you probably will find that financially you will be better off renting. The monthly payment will be less. There are some issues that you have to resolve before doing so, such as having pets, decorating as you like, and perhaps being dispossessed should the property owner wake up and realize that renting such a high-priced property is not a good idea. Get as long a lease as you can.
Then take the money that you would have paid for owning a house and invest in rental property that will provide you with a better return. If you want appreciation, I recommend buying in the central valley of CA or in the “rim” which is about 2500-4000 elevation in the foothills from Paradise down to Mariposa. You will get both appreciation and positive cash flow, plus, if you can use it now, tax benefits.
I think a bridge loan is not feasible. The idea of a bridge loan is to provide money to buy until your old home is sold, then the bridge loan is paid off with the money from the sale of your old home.
Posted by Maria on September 23, 2003 at 19:34:50:
Hello, I’m new to REI. In fact, I just ordered Carleton’s course and I can’t wait for it to arrive! Anyway, my husband and I have an opportunity to purchase my aunt & uncle’s 30 year old 1400 sq. ft, 3bd, 2ba condo with some repairs to the bathrooms & kitchen. They had the condo re-mortgaged last year with a current balance of $155K and it was appraised last year at about $350K. The last condo in their complex sold for about that with renovations though. Anyway, they are willing to be flexible on the price with us to help us in securing our first home purchase. My husband and I thought that perhaps a way to alleviate our lack of a down-payment and poor credit rating would be to assume the mortgage (hopefully, it is assumable) and take a second in order to fulfill their cash requirement and maybe have some cash at closing for home improvements and consolidate some of our debts. We currently rent an apartment about an hour away from the condo. This would of course add to our commute as well. I would like to take this as a primary residence with the hopes of renting or selling it in 2 yrs when the market is better. My husband wants to continue renting and wants to use the property as a rental for investment. Can anyone please help recommend the best solution? How do we handle the paperwork to assume the mortgage without going through a realtor? What would be the best way to finance this, a 7yr ARM, 15yr fixed,etc.? What do you think about securing a bridge loan given the facts above. Thanks so much!
Probably this property is too expensive to use as a rental. The best rentals are the lowest priced properties. The ratio of rents to the purchase price is much worst for properties of this value. High purchase price equals high mortgage payments. Poor rent levels equals negative cash flow each month.
Can you afford the cost of owning this property as your own residence? It often is cheaper to be a renter when you want to live in high-priced properties or high-priced neighborhoods.
It is nice that your relatives want to help you out. However, I don’t really see this property as being a good one for you. If this is their own home, they will be better off financially to sell it outright to somebody who pays them all cash, perhaps with the help of a new loan. Assuming they have lived there over 24 months in the last 60 months, they will have no federal capital gains tax to pay.
Perhaps later they could loan you money to buy properties that are better suited to you, either for long-term rentals or for quick turn-over for a profit. Or they perhaps could partner with you in doing quick turn-over properties. Loans are better than partners usually.
Good Investing*************Ron Starr**************
Posted by Maria on September 24, 2003 at 10:05:57:
Thanks Ron for the advice. I realize the price may be high but in the Silicon Valley, CA, it’s hard to find properties at that price that are not completely run down. The fact that we could virtually get in with no down payment with our poor credit rating is motivating for us. At the rate the real estate is going up in CA, we figured it will take us a very long time to even own a home. I realize with REI, one would have to go out of the state to find sound investments. Also, I know that the property value will double in two years because of its location and amenities. What do you think of a bridge loan? Thank you kindly for your time and wisdom.