General residential real estate question

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Rojelio's picture
Rojelio
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Posts: 38
General residential real estate question

I think that I represent a fairly average middle class American who still has his head above water with a decent job + wife, 2 kids and a dog. I'm living the American dream in a small western town, but things are going down around me. My house was appraised at about $315K before 2008 and at $275K in 2009 (maybe a bit high, but let's say $250K).  Since then I've done some upgrades including a 2,000 watt PV system, new furnace, argon windows etc.... I owe $172K on the house and pay about $1,200 / month, so presumably I am not upended.

General Questions: Should I be working harder to pay extra on the mortgage even though the dollar or me may not even exist anymore by the final payment? Since I'm not really upended, but rather in the middle somewhere, would the banks even be that much more eager to foreclose on me should I have difficulties down the road? Assuming property values will continue dropping to the point that the house is only worth what I owe, then maybe it would be more wise to sell right now and just rent?

I also wonder if my ginormous pole-tracking PV system, which stands out as the only one in a town of about 8,000 will make me a target when people are running around in a Mad Max scenario, stealing food and what not.

Thanks, I know that I left a lot of details out, I'm just wondering if there are people in a similar situation.

ranch's picture
ranch
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Re: General residential real estate question

Classic dilemma of what to do--pay off the mortgage or do something else with your money.  I wouldn't be concerned about being the envy of others because you have a PV system.  Nice work on that by the way.

I have a rental property, a duplex, that pays about $2000 per month in rents.  I owe about $175k on the mortgage.  A year ago I had $175k to pay it off but I decided to divert the money into PM.  I bought weekly for a full year, put in about $140k on PM (gold and silver).  At this point I can already sell this PM and get $175k to pay that mortgage back.  But I'd rather not.  So I will continue buying PM until I've actually invested $175k.  Then I will sit and wait for next move.

I'd suggest you buy gold in the form of 1/2 oz eagles or 1 oz eagles rather than pay off your mortgage.  Very little downside if the balance on your mortgage is under $200k.

docmims's picture
docmims
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Re: General residential real estate question

If you have a fixed low interest rate you should just make the minimums.  If you have exposure to an ajdustible rate the calculation becomes more problematic, because they can jack your rate up faster than your property appreciates.  I don't forsee a mad max kind of breakdown, although there will be a rise in crime and you will probably need to be personally invoved in the protection of your property because the police are reactive and not proactive.

Rojelio's picture
Rojelio
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Posts: 38
Re: General residential real estate question

Thanks for the replies. Another fuzzy area that I have is regarding the currency itself. If the dollar does collapse, what are the implications? Would that hypothetically mean that debts get wiped away? Or if we do experience hyperinflation, shouldn't I be maxing out my credit right now with low-interest refinancing and use that money to buy food, gold, medicines, etc..... Then I would theoretically just pay off my debt later with all those million dollar bills that would get printed or digitally created at that future time?

Johnny Oxygen's picture
Johnny Oxygen
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Re: General residential real estate question

Get rid of the dog.

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jpetr
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Re: General residential real estate question

Rojello

I appreciate your concern and your being proactive. The responses above answer your concerns fairly well.

I would not sell your house and rent unless you have a second vacation home- then by all means get rid of it. Higher interest rates will increase inventory and further depress pricing. On to the emotional intelligence side 

I live in Southern California and have no mortgage on our only home. It is often tempting to sell and rent and invest the rest, but I have to measure this action relative to the intangible value of being situated in one of the best neighborhoods and having great neighbors. Money can not replace peace of mind. Also, you may lose part of your mind if you move as most women place a high priority on their home whereas guys can hang their hat anywhere.

What I have learned is take a measured response to what you see and will likely anticipate. Besides precious metals, consider buying good freeze dried food for at least 3 months for one person, store water and keep 3 months living expenses on hand. I have considered getting a gun but that is a ways off in my view - as the responsibility and the probability of civil unrest are too difficult for my finite brain to understand.

Plan for tomorrow and make the most of each day,

Joe

Rojelio's picture
Rojelio
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Posts: 38
Re: General residential real estate question

The dog is pretty good protection with a food bill of about $12/month. He stays pretty lean on our scraps and even stuff one would otherwise compost.

Rojelio's picture
Rojelio
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Joined: Dec 27 2010
Posts: 38
Re: General residential real estate question

Thanks for all of the good advice. I've got some feedback suggesting that if inflation rises then I shouldn't worry about the mortgage debt. However, I don't really understand that unless our paychecks start to rise accordingly and we all start getting access to million dollar bills like you see on the pictures of Zimbabwe or the Weimar republic.

bluestone's picture
bluestone
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Posts: 263
Re: General residential real estate question

Rojelio. 

Yes.  you're right.  Inflation/stagflation is a possibility.  meaning your cost of living ends up rising, but your income does not.  This will end up making your mortgage more burdensome.  So I think you should be worried about your mortgage.   

I don't know the right answer for you.  My wife and I have the ability to pay off our mortgage.  We have food stored, supplies, etc.  It is tempting to put the rest of our wealth into investments such as commodities.  Some how worrying about investments really makes me crazy.  I think that being debt free would give me a lot of piece of mind, even if I end up missing out on some good investments. 

I still recommend that you follow Robert Prechter and Nicole Foss who are some prominent deflationists.  I believe that deflation is a possibility.

Brian

kennyq's picture
kennyq
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Posts: 82
Re: General residential real estate question

First of all, a house is like a used car these day. It is very different than last thirty years as a wealth storing tool. I bet we (PeakProsperity.com readers) are better off than 50% average mortgage holders. In other words, if we are going down, the rest of mortgage holder go down first. In that situation, there is no one paying mortgage at that moment. Even your house is for foreclosure, it will take year(s) to complete the process due to too many foreclosure case ahead. The government will try "rent control" type measure to .....etc  since mortgage delinquent _ers are voters in majority. So you are in a favorable side of the game if you're holding mortgages. (sorry to those mortgage pay off people who would be punished). And the money you saved instead of pay off the mortgages will be a jump start asset for the future.

In a mild deflation and inflation time, paying a fix rate mortgage is pretty much like paying a rent. Or in a SHTF or hyperinflation scenario Investing and storing your wealth in a house (used car) is a bad idea.

BTW, during post Baby Boomer era, population will not grow like in the past. Housing demand will slow down. Price of house will come off like the Japenese housing market.

Most people do not recognise that a house will be a "used car" in our near future.

ranch's picture
ranch
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Re: General residential real estate question
kennyq wrote:

Most people do not recognise that a house will be a "used car" in our near future.

I am getting about $1800 each month in rental revenue from a "used car" duplex that I own and rent out to tenants.  Nice rate of return, far more than 0.4% banks pay.  

Rojelio's picture
Rojelio
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Joined: Dec 27 2010
Posts: 38
Re: General residential real estate question

Kenny "Even your house is for foreclosure, it will take year(s) to complete the process due to too many foreclosure case ahead."

Since  I'm not upended, wouldn't I be a tastier target for the bank if I do get into trouble? I could get put to the front of the line since they could actually recoup some losses for them?

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