My new favorite pastime is searching MLS listings for houses. Who needs baseball when you can drool over houses you can’t afford? Or can I?

I’m also reading Automatic Millionaire Homeowner by David Bach (free review copy, will give it away when I’m done). Inside it refers to the FHA guidelines for how much of your income should go towards your house payments. Specifically, lenders use a term called PITI – the sum of your mortgage principal, interest, (property) taxes, and insurance payments. To get an FHA-insured mortgage, your monthly PITI should be between 29% and 41% of your gross monthly income, depending on your other recurring debt such as credit cards or student loans. Let’s take a look at what that means:

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I realized just now that there is only about one year left in my wife’s training program, after which she will be geographically mobile again and we plan on moving back close to family. This also means that we have only one year left before we plan on buying a house. Scary! I haven’t been keeping a particularly close eye on the real estate market, just kind of reading the newspaper and talking with friends.

What will housing prices be like in a year? Who knows for sure, but here are my thoughts on housing prices, from a late-20s guy who’s never owned a house. I think that housing prices are set by supply and demand like everything else, and people buy what they can afford. I think that four major things have made the prices rise to fast in recent memory: low interest rates, dual-income families, relaxed mortgage lending policies, and parental support.
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Our old house officially sold a few days ago. We toyed with the idea of buying it ourselves, but once I found out how much the owners were asking my jaw dropped. When I found out they got an offer for full price my jaw hit the floor. Craziness… The mortgage-to-rent ratio for our place would be 180%!! Definitely not a good time to try and find a cashflow-positive rental around here…

Of course, this also makes us sad that we didn’t buy a place ourselves when we first moved here. By now, we probably would have gained about $60-80,000 in home equity. But of course, hindsight is perfect. When we moved here we had never seen the area, both of us were fresh out of school, none of our friends had houses, and we certainly had no idea what to look for in a house. We also knew that we’d be moving within 3 years, so I was afraid the transaction costs would wipe out any potential gains. Boy was I wrong!

Well, after enduring what felt like a decade of yanking us around, we found another rental we like in the same neighborhood and put in our 30-day notice instead of waiting to be kicked out. The new house and rent are very similar. We made sure to make the new lease long enough so we won’t have to move again until we leave this area permanently in a little over a year. We’ll be hiring hourly movers for the big stuff and moving the small stuff ourselves.

Hopefully, this will be a blessing in disguise if we can get rid of some of our accumulated junk! Off to the grocery store to get some free boxes…

It appears that housing prices are starting to flatten out in my area, while rents are rising. So my interest in learning how to find, buy, and manage a rental property of my own is back, but I’m getting tired of plodding through my Modern Real Estate Practice textbook. By chance, I noticed that my local community college also offers some short non-credit courses in Real Estate Investing. Here are some sample listings that caught my eye:

Elements of Small Property Investment
Learn easy-to-use rules to analyze income property for sale or purchase. Includes terms, evaluation forumulas, and analysis sheets used to recognize a profitable venture.
(3 hour class, $45)

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The real estate world is abuzz about Zillow.com, which provides free, instant valuations of any house just by giving it an address. No e-mail required, no Realtor bugging you. It uses data from tax records and historical prices of homes selling in the neighborhood. You know every single homeowner that hears about this is going to type their address in. Thus, the site crashed promptly after its launch. But it’s back up for now.

Be aware that it is still in Beta, which means it doesn’t quite have all the data it needs to be accurate in all areas of the country. Read this Businessweek post ‘Zillow Goes Live–Too Soon?’ for more details. I did my place and my parents’. Prices seemed on the low side to me.

I’m still a bit in shock over getting kicked out, with countless thoughts zipping around in my head. Here’s my attempt to put them on virtual paper.

Buying. Just not going to work. With 20/20 hindsight, yes, we should have bought a place when we moved here initially a bit over a year ago. House values have have increased 30-50% and we wouldn’t be faced with being kicked out. But now, we have less than 2 years left in this city, not enough time to even make the 2 years needed to make any capital gains tax-free. Also, with only one income now getting a loan would be very difficult. I’d probably have to go back to work again, at least long enough to get the loan.
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So I get a call from my landlord saying she just put up a bid for some beachfront property and may have to sell the house I’m renting to pay for it. Another “heads up” that we may have to move again in less than 9 months. I’m getting really. tired. of this crap. I almost want to buy a house just to not have to worry about it. Back to Craigslist I go, there are a lot of comparable houses that rent in the same price range. Maybe we can even save some money…

Back in May I blogged about Pac Equities, a ‘Private Equity Funding’ establishment who supposedly did high interest loans to non-traditional real estate transactions and offered 10% interest on your money. Every commenter told me to stay far, far away – and they were right. Someone who actually worked for the company left a comment today and led me to search for and find two newspaper articles detailing how they are currently under investigation for selling unregistered securities and not properly documenting their activities – ‘Pac Equities lays off staffers, stops ads, cancels new office’, and Bend-based company facing state investigation.

Also, their once fancy website has been taken down and is now “under construction”. Under DE-struction is more like it. Looks like this is another ABFS story. I’m happy to report that although I did request an information packet, it was so vague that I didn’t pursue it any further. So many money traps to avoid out there.

I’m burned out on personal finance books, so I’m excited that I finally got my copy of Modern Real Estate Practice. I bought it for $5 including shipping from Half.com, but it is the older 1999 edition. (Is it me, or is Media Mail getting slower by the week?) This book “has trained more real estate professionals than any other book”. Every real estate agent has heard of this book, and every person I’ve spoke to recommends it as a reference. I suppose I’m giving up some updated information going with an older version, but I’m sure most things haven’t changed.

My goals with this are to prepare for getting a house in the next couple of years, and also to use it to analyze potential investment rental houses now. The books includes sections on real estate law, how agents work, and many of the little things involved in buying property. I’ll post more once I actually start reading it.

Here are some Anti-Bubble articles to form a counterpoint to the Pro-Bubble articles I posted yesterday:

– Jim Jubak of MSN Money writes an article title “Why there is no housing bubble”, where he argues that high housing prices are a direct result of cheap money and low interest rates, and that even a modest rise in those interest rates will not cause a drop in housing prices. What about all that consumer debt? He suggests a full recession would be needed to put the squeeze on consumers such that housing prices would drop significantly. In addition, it would be unlikely that a raises would rise significantly if such a recession were to occur, keeping monthly payments stable.
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I’ve already expounded a bit on my thoughts on the real estate market, but here are some interesting sites that I view as Pro-Bubble:

– An opinion article in the Economist Magazine takes a wider, world view. This article is a bit long, but a good read in comparing real estate markets in Britain, Australia, Japan, and the U.S. over time. Verdict: History says prices can go down, so watch out.

– Even Kiyosaki warns of a bubble (of Rich Dad, Poor Dad fame). As much as I think Kiyosaki is more of a salesman that real-estate investment genius, I do take this point well – If you can’t get positive cash-flow out of your investment or rental house, don’t buy it. It’s as simple as that. There are still opportunities to do this, but more on the lower end. (Article credit to Fatwallet).
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