A fellow real estate investor is in a bit of a pickle:
http://www.realestatejournal.com/columnists_com/investorprofiles/20060727-hodges.html
Select quotes:
"...took out an adjustable-rate mortgage (ARM) with an initial 10.3% interest rate that will increase after two years... believed would be just over 7% but was actually 10.3%."
"Home appreciation could save him eventually, he says, if potential development of a year-round resort at Malans Peak and a generally strong market continue to boost Ogden housing prices."
"[H]e is marketing the home as for sale by owner."
And my favorite:
"in Ogden [Utah], there is little room left to build new housing near the mountains, where the home is located."
Happy Trails Mr. Klein.
5 comments:
"...took out an adjustable-rate mortgage (ARM) with an initial 10.3% interest rate that will increase after two years... believed would be just over 7% but was actually 10.3%."
robert, that's got to be a typo.
Original article explains:
"With this property, he and his mortgage broker had a miscommunication, he says, about the initial interest rate on his ARM, which Mr. Klein believed would be just over 7% but was actually 10.3%. The high interest rate means that the rental income is $45 less than the monthly expenses. He is putting the property up for sale to see what he can get, but if he doesn't receive an offer he feels is fair (he has rejected one $139,000 offer already) he may hang on to the residence for appreciation and raise the rents."
Awesome. Brings up the "aint makin' mo' land" argument. Let's get this straight, it's a "1961 brick rambler in Ogden, Utah," which means that they haven't been building more homes there for a long time. What exactly changed to make his situation nonlinear? to beat 10% interest (OK, we'll call it 7% after a deduction), he needs some appreciation that is quite in excess of historical rates.
It also says that the previous owner had to sell below market. Cool-instant equity. Except that by buying low, he screwed up his own comp. I'm guessing the market rate for rentals is also not skyrocketing, so he's probably going to get a month or two of zero rent to go along with his rent increase.
with that kind of a rate,either the mortgage broker made a lot of points,or this turkey had a credit score below 620.i'm sure beginning to hear about a lot of future darwin award finalists in the housing blogs.
I also liked that "local college students offer plenty of tenant prospects, he says", as though it would be a good idea to pay an extra 28.4% above what he paid, and the rent won't even cover his payments.
I'm too lazy to work the numbers to guess what he's charging for rent, but I wouldn't be surprised to find that if he tries to go much higher, his tenants will leave. Who really wants to rent some place that can have prospective buyers tromping through at any time without warning?
(Off topic - I was stuck in a rental like that before, and the stories I could tell about what a P.I.T.A. that was would go on longer than the on-topic section.)
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