Housing Insanity

[LivingAlmostLarge]

So another friend where I lived asked for my opinion, we met blogging and in person, and totally ignored it. That being said I also suggested not buying their current property but she did and she said it was the greatest risk ever.

They bought a house financed by CC and home equity from their last place before selling. They put down 5% and now it's appreciated so much she said they are almost able to get rid of PMI in 2 years so it was a wise more. They have also paid down $20k in CC debt to $30k and have $10k car loan. They are on the slow paydown of debt.

Well last week she asked me if I wanted to go in helping to finance a second home purchase as an investment. It's a rural property she plans on renting out to other "off grid" people and one day wants to retire. I told her nice plan (they are very much off the grid people), but I didn't think it wise for her to buy. She was trying to gather friends to invest together as well because they had trouble scraping up any money down and might not get approved. The problem is most of their friends don't have regular jobs or credit. So they were pretty much the only ones. I said no way and while I did mention before DH and I had considered investing in real estate I said not like this.

She told me they thought they could possibly finangle maybe another 5% DP on the property from cashing out equity on their primary residence. Then have their friends rent out from them a room in this "vacation" home.

Explain to me how a bank thinks a couple making $100k, $385k mortgage, $30k CC debt, $10k car debt, and no cash for DP without cash out refi is a good bet to buy another home? How are they qualifying for all of this? It's insanity.

I am having trouble believing that this housing boom is different from the last. It feels like it's still bad lending practices.

[disneysteve]

I am having trouble believing that this housing boom is different from the last. It feels like it's still bad lending practices.

Absolutely. Very little has changed based on stories like this. They are still giving insane loans to people who don't have the income to support them. They are still allowing little more than token down payments. The industry really didn't learn a thing from the last housing bust. I'm sure we'll be there again soon enough.

[97guns]

Rule #1 - a partnership in any kind of venture dealing with money is a BAD move

[sv2007]

I'll offer you the following that I hold to be truths:

1. there's no free lunch, the market, for us little people, is fairly efficient. What this means is that for a level of reward there is a directly proportional level of risk.

2. for us little people, it is best not to predict the market because you cannot. Anybody saying or thinking whether something is going to burst soon is making a prediction. What this means is to play the market for the long term. Even people who bought a house in 2007 are mostly in the black now (and that's an extreme example); in general, you invest by looking at the long-term return and not your bunch that it's going to burst or not.

3. nobody looks out for you except yourself. You must learn how to protect your investments by balancing risk and return. What this means is that even if you invest in , say, a managed fund like the SP500, you're still not free to ignore it. Imagine you retired and needed money in 2008; you'd be liquidating at a low and never recover.

[TexasHusker]

Rule #1 - a partnership in any kind of venture dealing with money is a BAD move

I've had several successful partnerships. Why is it so Cuba bad move ?

[Captain Save]

it's a cycle.. remember those first few years of payments is mostly interest so the banks are tyring to make most of their profits up front