A friend I used to work with lives in the Midwest.
She paid $500k for a 1BR back in 2005...
(At the time, I thought it was the most idiotic thing ever)

It is totally underwater today, and they are moving to NJ.

1) They bought another house in NJ. (How they got a 2nd mortgage for a total of almost $1m on a $150k salary is beyond me)

2) They just sold the 1BR short for $300k.
So, the bank eats the $200k!

3) Bad credit lower for 2 years?
Moot point, b/c they already have new house and car...

Owning real estate is genius...
Heads I win, tails you lose

Not so fast, the amount "forgiven" by the bank is taxable income.

dumboy, how about the downpayment they put on that condo? the lost 100% of that.

amount forgiven may not be taxable if primary residence

benjamin button, they probably put the bare minimum 5%. And they got to live in it for years.

It's not that they didn't lose. It's that they didn't lose as much as they should have.

And I don't understand how these morons are blaming the banks. These banks are the ones writing off the losses and the buyers are the ones with new homes and new cars afterwards. LOL, "predatory lending. " Al Capone's probably rising out of his grave saying "I'll show you what predatory lending is. "

@ jbutton - they probably put zero down...so what do they lose??

jwl - there is something called "predatory borrowing" too...that's what these people are...

even if they put 5% down they lost all of that which may have been a big chunk of their savings who knows. but i agree they should have lost more. dumboy is implying RE is riskless as you can't lose, which clearly is not the case. but system is screwed allowing people to control such a high cost asset w/ very little skin in the game.

regardless this is a NYC board. try to buy anything with less than 30% down in NYC and you will not be able to.

Just being underwater isnt reason enough for the bank to allow you to short sell. You have to present a hardship package basically showing you'll go bankrupt if you continue to own the property. If the hardship is bad enough and no loan modification is available, then the bank will allow you to short. The process isn't very pleasant and I'm sure there are more details than the OP presented in regard to post-closing ramifications for the short seller. The only people who win in a short sale is the buyer, and even for them its not so easy getting to the closing table. The discount they get is paid in their time, aggravation, and many times wasted energy. I've read nationwide that only 1 out of 4 short sales that enter into contract close, so it's really not as simple as it sounds.

> She paid $500k for a 1BR back in 2005...

why do you take for granted that the carrying costs and transaction costs are for sure higher than the cost of just renting a 1 BR?

> The only people who win in a short sale is the buyer, and even for them its not so easy getting to the closing table. The discount they get is paid in their time, aggravation, and many times wasted energy. I've read nationwide that only 1 out of 4 short sales that enter into contract close, so it's really not as simple as it sounds.

+1 the first sign that the government changed policies towards allowing price discovery imho is when the process of buying a short-sale is streamlined and easy to do online, at least for the GSEs. till then, it's a strong sign that the gov wants to keep home prices up. hence, DO NOT BUY!

I believe they put 0% down.
They might have even gotten cash back at the closing!

I do not know if their monthly nut was less than renting the same property.
But, in almost all cases (outside of NYC) owning is vastly cheaper than renting.

In my experience, renters rent b/c they are too stupid (or undisciplined) to save up a downpayment.
So, they lose.

I think they paid $450k, but today had a mortgage of $490k
They also may have taken out a $40,000 HELOC loan to help her quit working after her baby.

Their monthly cost was also fixed for 7 years.

Sucker renters would realize none of these benefits.

Oh, if the bank doesn't allow a short sale, STOP paying.
Oh, do I have your attention NOW?
Right, that reminds me, they also lived rent free for a good year. (FREE $50,000 )
Where do you think they saved up that downpayment for the next house so quickly?

When buyers win this fucking big, even when a property gets CRUSHED,
you just have to laugh at the imbeciles who say renting is better b/c the landlord pays for the paint.

Talk about low IQ shortsightedness.

dumboy, i'll break this down to your level. imagine you have $1m and you can investin RE or Apple. You invest in RE and make 7% per year. Great job you made money. But imagine isteaad you invested in Apple and made 25% per year. That is even better no? Which one would you pick, rent and buy apple or buy RE?
is this example simple enough?

> do not know if their monthly nut was less than renting the same property.
But, in almost all cases (outside of NYC) owning is vastly cheaper than renting.

> In my experience, renters rent b/c they are too stupid (or undisciplined) to save up a downpayment.
So, they lose.

this is true in fly-over country. in cities worth living renting has been cheaper than buying for a long time. where are you from?

> They also may have taken out a $40,000 HELOC loan to help her quit working after her baby.

why do people get in debt to become 1 income households? most households that rent around me succeed at being 1 income households once kids are born and i doubt they did it with debt. the ideal is the opposite imho, becoming debt-free it's at the core of being able to be a 1-income household. keeping fixed costs low, like housing costs, is key too. if you are good investor you are better off saving on monthly housing costs as much as possible. at least till your liquid investable war-chest is as big as you want it to be. most of us, GenX and GenY, are just starting building it.

i'd say in the tri-state area, with a 70 year long foreclosure pipeline, the winners are those that buy without intending to make a single mortgage payment. just to live free and clear for at least 4 years and save the entire house payment, those savings make for a not-negligible portfolio on itself. those guys are the real winners with the current gov policy. not the renters nor the buyers that pay their mortgage. this more numerous group pays for the cost of "extend and pretend".

dealboy, please show me this $500k 1BR that short sold for $300k.

NYC10007, it was in a luxury building with full amenities and a "brand name"

notadmin, the HELOC is just a hypothesis. I am 99% certain they paid $450k. Maybe they took out the HELOC knowing they would going to strategically default.

Jbutton, hindsight is 20/20. The majority of investors would have bought AAPL at $630. And the ones that bought early, would have sold. Can you find me 1 person you know who bought at $200, and still has it? They are few and far between. You have a lot to learn about trading. And this is apples to oranges. We are talking rent vs. buy. You might as well talk about buying AAPL vs. spending money on vacations. One's housing costs are what we're talking about. Piss it on rent, or score a jackpot REGARDLESS of market direction, via owning.

> why do people get in debt to become 1 income households?

Because they can. Owning is free money growing on trees. They're giving it away like it's going out of style. You would be wise to take a $2 million student loan HELOC and retire early, and not pay a dime back. Working is for fools!

>i'd say in the tri-state area, with a 70 year long foreclosure pipeline
> You think this will go on until 2082?

you know, for estimating what shape the pipeline will have, we need to know exactly why is it so clogged in our area. notice that there are other judiciary states without such a bloated pipeline. also, when the foreclosures are in jamaica, queens they go fast to auction. it's not only NY state measures, as CT and NJ also have bloated pipelines when it comes to areas close to Manhattan.

so there i go: my skeptical nature indicates there's a "not in my backyard" component that's not negligible regarding bankers decision of sending the property to auction. these bankers consider poor neighborhoods like those in queens, brooklyn and bronx that face the brunt of the not-slow foreclosure process as not-in-my-backyard. but it's obviously also access to lawyers that are very helpful when it comes to slowing the process as much as possible.

in my block, it took at least 4 years for a property that fell into foreclosure (even BEFORE the crash!) to be listed. we'll see when it finds a new owner. this is painfully slow even when the pipeline was short. price discovery is not being allowed to happen so the naive that jump in will get hurt.

when will all the distress from 2008 on be allowed to make it to auction? that's the $64k question imho. avoiding price discovery is the current policy.

"dumboy, i'll break this down to your level. imagine you have $1m and you can investin RE or Apple. You invest in RE and make 7% per year. Great job you made money. But imagine isteaad you invested in Apple and made 25% per year. That is even better no? Which one would you pick, rent and buy apple or buy RE?
is this example simple enough?"

God forbids Apple will never be the next Blackberry. What will be the right time to sell? or would you double down on its decline until...

that is Obailout for you my friend, socializing the losses. another 4 years of that and dumboy will be right. no way to lose on RE. obailout will help.

dumboy, you picked the best RE investment i picked the best stock investment. no contest. if you're dumb enough to sell at the wrong time that is your problem.

vic, god forbid Las vegas happens to RE.

> that is Obailout for you my friend, socializing the losses. another 4 years of that and dumboy will be right. no way to lose on RE. obailout will help.

hey, i don't mind one bit that youngster figure the system out and buy without intending to pay the mortgage. afterall, this orchestrated housing bubble was a non-meritocratic wealth transfer from them to older households. if playing the game right reverses that transfer, i'm all for it! i'm all for cheap housing on behalf of the young that start from (it used to be 0) very negative thanks to the new mortgage: student loans.

the $64k question is till when will creditors finance the $1T deficit needed to keep this game of "extend and pretend" going. interesting times ahead!!!

JButton,

Using a particular stock performance for comparison is JUST unfair. Everying thing would be on hindsight. Each investment has its own risk, reward and hedges. For primary homes, you can hedge your position by living there with your family, which is a benefit. To hedge your Apple position, you need to pay to do so.(pay in the form of limiting your upside potential or buying a put option)

> For primary homes, you can hedge your position by living there with your family, which is a benefit. To hedge your Apple position, you need to pay to do so.(pay in the form of limiting your upside potential or buying a put option)

what about renting, saving in transaction costs and monthly thanks to lower cost of carry. then investing those savings in Apple. how can you possibly lose? if you lose it all in Apple, it's fine. cause at least, you are not underwater thanks to not buying a home and renting instead. our experience in Manhattan is that renting is cheaper than buying monthly.

at this prices, even a little -2% annual price decline is enough to make us happy renters. that small decline fully pays for our annual "net rent", which is what matters, as maintenance costs and property taxes you always have even when the house is fully paid for.

also remember that when prices move downwards like now, transaction costs are paid by you, not the next buyer.

I picked the WORST real estate investment. Down 40% in a few years. Yet, the OWNERS still came out ahead than the sucker renters. They lives free for a year before short selling, AND cashed out $40k in HELOC, and just bought a new house. That's the DOWNSIDE. For most other renters, they simply buy for $100k, and sell for $1,000,000 when they retire. All the while living at a FRACTION of market rent. AND living for FREE from age 60 to 85.

HEADS I WIN, TAILS YOU LOSE

imaginary story dumboy. what else you made up today? banks pay you interest to take mortgage from them?

remember this one true story from dumboy?

dealboy
A friend bought into some new construction around 4 years ago. It's been an unadulterated disaster that is still playing out.

The building was never finished.

He was never able to move in, yet he closed, so he's been paying 2 mortgages for YEARS. I have no idea if he's tapped equity from apartment #1 to pay for this nightmare. Can you imagine paying a mortgage for years, and never even moving in? It must have also delayed up his sale of primary apt, causing him to miss the peak...(if there ever was one since 2008)

I'm not even sure of the various legal stages it's been through, as my friend now refuses to talk about it.

I have no further details. I know it's way uptown (out of prime NYC), so my guess was 110th. I'm not sure if it's a highrise, or a small brownstone sort of vibe. Does anyone know the story here? Or any stories like this?

"nobody ever dies young in dealboy's world.
they live for free after age 60, until the age of eighty.
Does that mean that everybody dies at 80 years old?"

Truth, so true! We were talking just about this yesterday night with hubby, while reading about Nora Ephron. Imagine if she hadn't been as lucky and worked instead in a 9-5 all her life till 65. She would only had 6 years of retirement, who knows for how much of that fighting cancer at 71. Kind of sucks.

The more i read about people dying young, the more i'm convinced that it's optimal to reverse retirement. Let's enjoy life while young, traveling, having new experiences, taking our kids to the playground while our knees don't hurt. When that comes, let's retreat to that tiny office or even cubicle, what's the difference when moving hurts anyway? The system right now doesn't take into account that many jobs are sedentary, it seems to be designed as if we were all working in a coal mine.

worry not, dealboy will come up with a story about a friend who did just that and lived for free his whole life.

as long as you own RE, you can live for free whenever you choose.

The best way to reverse retirement is to own.
That way you can live CHEAPER than paying rent.
AND you can take HELOCs out whenever you want.
And never pay them back. Rinse and repeat.
Free money from the sucker taxpayers and Fed printing press!

dumboy i am lookin fwd to your next fairytale

> The best way to reverse retirement is to own.
That way you can live CHEAPER than paying rent.

I'd say, with the amount of vacant property in the country, the young can reverse retirement even easier just by squatting. Wouldn't be surprised if it becomes fashionable again, as it was in the 70s and 80s in Manhattan. Squatting solves "the rent is too damn high" issue from the root. Obviously another way to solve housing is to receive it free and clear from inheritances or to stay at parent's basement rent-free while traveling the world.

Did you see that guy that traveled the world without a penny on this name? That type of hippy adventurous lifestyle will make a come back. After all, it's not that the young have a lot to lose by not being chained at a desk, so why not enjoy life instead?

Welcome to 2012: Just buy a mansion at 23, but never pay a dime.
Now, you're living like a rock star! For free!
Forget travelling the world on some shoestring budget and crashing on couches.
Those days are gone!

Interesting times, my friends...

"I believe they put 0% down.
They might have even gotten cash back at the closing!

I do not know if their monthly nut was less than renting the same property.
But, in almost all cases (outside of NYC) owning is vastly cheaper than renting.

In my experience, renters rent b/c they are too stupid (or undisciplined) to save up a downpayment.
So, they lose.

I think they paid $450k, but today had a mortgage of $490k
They also may have taken out a $40,000 HELOC loan to help her quit working after her baby.

Their monthly cost was also fixed for 7 years.

Sucker renters would realize none of these benefits.

Oh, if the bank doesn't allow a short sale, STOP paying.
Oh, do I have your attention NOW?
Right, that reminds me, they also lived rent free for a good year. (FREE $50,000 )
Where do you think they saved up that downpayment for the next house so quickly?

When buyers win this fucking big, even when a property gets CRUSHED,
you just have to laugh at the imbeciles who say renting is better b/c the landlord pays for the paint.

Talk about low IQ shortsightedness. "

****

Dealboy, I'm curious, how do you know the specifics of this "friend's" financial picture?

matt, dumboy made it all up. not his first time.

This is quite entertaining...great toilet reading to avoid going back to my office right away.

"AND you can take HELOCs out whenever you want.
And never pay them back. Rinse and repeat. "

This part makes me laugh. You must be living in 2005 all over again, because there isn't a single bank that will lend someone money without legitimate equity in their home and a 750+ credit score. Neither of those exist in your scenario. Now 'break your knees' hard money lender types, maybe.

None of this exists today...pick up the newspaper and that's exactly what you see and read, the only people that can actually borrow money and take advantage of obscenely cheap money are those that already have money and have stellar credit. "Wash and repeat?" Sure, cause your "friend's" credit is still intact after being washed?

Sorry, time to put the phone down to wipe...

I've closed 3 short sales in Manhattan and have another 2 in contract, so I know a little bit about the subject. I'm by no means an expert, but I will say its a very tough deal and exceptionally hard on the sellers. Like I said earlier in the thread, you basically have to prove to your lender that you'll go bankrupt if you continue to own the property before they even consider letting you do so. Being underwater is not enough. I'll also tell you as fact that the sellers I represented in no way, shape, form, or fashion came away whole and their credit report was badly affected post-closing. 1st, the shortfall for these sellers is assumed as debt income and taxable. I've spoken with brokers and attorneys in other parts of the country who specialize in short sales that this debt income can be forgiven, but only in the case of primary residences and this is no guarantee. 2nd, the mortgage which is satisfied in order to close, shows up as a settlement on the sellers credit. Ask anyone who is familiar with credit reports what a $200 60-day late payment does to a risk score. Now imagine a 200k settlement. 3rd, the liens that are almost always in place with a property being short sold are settled to clear title, but they too will also remain on the sellers credit report post-closing. Simply put, the ramifications for a seller in a short sale are very serious and to think anything otherwise is misinformation.

Matt,
This is actually a co-worker. She tells me details about many things. She is a "work spouse"

10007,
You're right. I bet they can only pull this trick off once every few years. They did it. Bought the house #2 then mailed the keys for #1. They played it perfectly, but I agree, you can't repeat this.

E_Fleming,
For the last time, their credit score doesn't matter.
They bought a new house while credit was perfect.
It was a primary residence, so the tax issue seems moot.

We'll just have to admit that they snaked the system and are WINNING.

The real question is how the hell the got approved for house #2 while still living in #1.

Ok dealboy, if your people truly got out with no tax penalty and were able to buy another place while short selling the 1st, kudos to them I guess. I'll give them credit for finding the loophole, but if your definition of winning is living in NJ, leveraged to the teeth, with a re on your own with that pal. : )

cheers and have a great weekend.

* with a <600 risk score.... pardon the typo. too damn hot today!