Buying property with debt

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littleoldme
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Buying property with debt

This thread is somewhat related to the "BUYING RURAL LAND" thread (THANK YOU Katie Rose!!!), as that is what my family would like to do, but I think this warrants its own thread.  I have been thinking about doing exactly what that thread is talking about for the last year or so.  Since "awakening", my family and I have been preparing the best we can with the assets we have.  We have a silver stack (reasonable for a middle class family recently "awakened"), a couple months worth of food, appropriate self and home defense weapons, CCW permits and training.  One major preparation step has been to completely get out of debt: we sold our old house (which was in a neighborhood we did not want to stay in), paid off car loans, school loans, credit cards, and we've resolved to never again buy anything in debt - with "perhaps" an exception for property.  Currently renting a house within the city limits and itching to get out into the country.  This leaves us completely liquid and mobile, but without much of a nest-egg beyond the silver stack (which is being held "long").

Debt, in general, is a huge part of the problem we're in nationally, and as a family we are resolved to avoid it at all costs.  I hate the idea of being owned by the bank - having the possibility of someone coming and forcibly taking my property/assets if I fall on hard times.  Having that said, we're itching to "move to the country", and get off grid as much as reasonably possible.  In our current situation, it would not be possible without a mortgage.

I would like everyone's opinions here as to how you would proceed in a situation like this.  The sheeple in the real estate industry scream "it's time to buy, interest rates are low and property is on the rise!!!", which on it's own causes me to doubt.  My personal gut is that the real estate market is nowhere near the bottom: I think when the impending "financial event" occurs, it won't bode well for real estate values when a substantial portion of the working force loses their jobs and cannot pay their bills.

However, if an impending "economic event" occurs and we wait to move out into a rural area until after that happens, it may be "too late" - i.e. that will be the time when it will be better to be as far out of town and as much off the grid as possible.

I've heard people speculate that when the dollar collapses, your debt value will also collapse with it so therefore you should not worry about debt because it will be worth so much less.  However, my gut says that whatever the resolution will be, it will not bode well for the common man.  I just can't wrap my head around the idea that the end result will be positive for all the typical Americans who can barely service their monthly debt payments.  I obviously don't know everything will play out, but if I've learned anything, its that the elite bankers and corrupt government officials will not lose out to the common man.

So the discussion point is, how would you proceed?  Finance a home out in the middle of nowhere in an attempt to take the next step to self sufficiency at the risk of becoming a slave to the debt/being owned by the bank?  Continue to save and stack with excess funds with the hope that after SHTF, it will actually be valuable enough to trade for property?  Or some middle ground; perhaps purchase a small bit of land as it can be afforded and attempt to build as you go without incurring debt (which could very well take more time than is available before a currency event occurs, also has specific issues like expiring building permits, etc.)
 

Edited by admin on 11/08/2014 - 06:06
donpaulo
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Nicole Foss

talks about this situation.

obviously a lot depends on our individual tolerance for risk, but I would summarize her position as you are either suited for life within city limits in which case you have access to services but must deal with a density of population issue OR you go rural with no services and go it alone.

The suburbs offer very little in that they will be the first to receive the cuts in service and also have the population density issue.

While nobody knows what will happen tomorrow I am operating under the assumption that prices for needed goods and services will increase, while those things that are not necessary will experience significant price drops. I fully expect energy costs to surge. As it is North Americans have little concept about how high prices can become. Here in Japan a gallon of gas is more than 7 bucks, and in Norway its 9. Now factor in that the 5% of the earths population living in North America are consuming 25% of the energy... its not sustainable. At least in my opinion.

Owning land will expose you to possible tax issues so from where I sit, I would only own land that provides some sort of income such as an orchard or rental. Having idle land doesn't seem like a prudent strategy for my situation. Then again perhaps people want to establish a base and slowly work there way by improving the house, the garden and whatnot. I can understand people who make this decision.

I decided to take advantage of absurdly low fixed mortgage rates and use the extra cash flow to buy more metals and paper leverage plays. However I completely understand why people want to get out of the system. As I said I believe it boils down to our individual tolerance for risk, age, income and a variety of other factors.

Debt is an issue surely, but if I can lock in my debt payments that simultaneously allows me to prepare for what may come that is the best solution for me. I have earthquakes, tsunami and nuclear issues to deal with on top of national debt levels that dwarf that in the USA. On the flip side, social unrest is not part of the equation so we made an urban decision. We began a diligent search that included a variety of factors, didn't compromise on any property that failed to meet those criteria. We found a nice property and made an aggressively low bid and didn't move from it. 2 months later the seller agreed to our offer.

Perhaps in future I might even make a lower offer on a second rental property with some added metal to soften the asking price and sweeten the pot. After all why pay the extra tax on the sale price when you can negotiate a lower one off the books ? We continue to stay on the positive side of the balance sheet thanks to a fixed mortgage rate of 2%, thank you evil empire.

I am also prepared to cut if we start approaching a break even point. For example, TV and a landline are optional from where I sit so out the window they go if push comes to shove. TV is pretty much a time sink anyway... so we already know what is needed and what isn't. Being emotionally prepared to go without is as important as cutting stuff. The car is the next thing to get rid of. Honestly cars truly are evil and not relying on one is the best decisions I ever made. Its not for everyone, but it fits our lifestyle like a glove. Good riddance Honda, glad to see you go.

We started planting a garden that yields food rather than eye candy. This year we got both Lemons and Limes, plus oregano, parsley, lavender and basil. I also started a few avocado trees which I gift to friends once I get them rooted out.

As always results will vary but I am fairly confident that our plan will yield a decent quality of life. With our skillset and 3 businesses we will pretty much ensure a regular income as well.

Finally for the past 4 years we have traveled across much of Eastern Asia in search of good places to live once we are ready to retire. Slowly we are reducing the list and focusing on issues such as cost of living, visas and quality of life. I already know at least 2 places where I could easily live for very little money and continue to refine the search. So if we ever did have to leave dodge city it won't be blind and on a prayer.

Personally I found the emotional decision far tougher to make than the actual physical/mental work, but perhaps thats me.

thanks for starting the thread.

Mike7.62
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debt for land

littleoldme,

I can't tell you what to do, but I can give you my opinion. We had the same questions at one point,  and after renting for a few years, finally came to realize that even though renting gives you the "freedom" to walk away at any time, it also restricts what you may do with and to the property. There is utility cost of shelter, and in my area, the cost to rent a house with land is essentially the same as buying, with the downside that any improvements that you make, including gardens, aren't yours, and your time and labor are wasted effort. You can go into debt for a house/land and in essence "rent" from the bank, or you can rent from the owner and take the chance that rent will increase as his costs do, or that he may decide that he wants you off of the property when your lease expires. Not only that, but should the property owner default on the mortgage that he owes, the bank or the new owner can remove you from the property as your lease was with the original owner.

Buying the property/house will incur a debt, but if you do it at a fixed rate and term, the service of that debt will be paid in inflated FRN$'s. If you believe-as I do-that a deflationary collapse is not in the cards, but inflation and possibly hyperinflation is-then having a fixed rate/term debt should be no burden, especially if the payment is near the cost of rent. If you're able to service the debt, or have the ability to pay it off at some point, either through cashing in metals or from a retirement account that is locked up such as a 401k, then that's even better.

Find the place that you want to live in the country, then start looking for finance options. We used Farm Credit for initial purchase, then when we sold our house we paid off the note. Building on that property was not in the cards due to the credibility and "honesty" of contractors, and we finally purchased a house on acreage, very near to where our other property is. They are both in rural areas, some 50+ miles from Nashville, and I am in the process of putting a cabin on the larger property. I will keep the house and smaller acreage as a primary residence, and will likely pay it off within 7 years, but I also have the larger acreage for hunting, larger scale farming, and timber.

Debt can be a bad thing, but if used correctly and with respect, it can be used to fulfill goals. I wouldn't hesitate to use a fixed coupon/term loan to purchase a rural residence, especially as in my opinion, time is getting short before supply chains are compromised and having the ability to grow food is critical.

Eternal Student
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One fundamental flaw in the hyperinflation argument

@littleoldme:
"However, my gut says that whatever the resolution will be, it will not bode well for the common man."

It seems to me that your gut is remarkable right on target, and you should listen to it.

I understand very well where you are coming from. I'm in a similar boat. For myself, I look back to what has happened before, along with an understanding of how the game is played now.

For example, there are a lot of Hyperinflationists salivating at the thought of paying off big loans with cheap dollars. Along with many ordinary people who are buying houses now with Credit, thinking that just even regular inflation will be their saviour.

Many in the HI camp base this mistaken thought upon having read the book "When Money Dies", about Weimar Germany's experience with hyperinflation.

Alas, such folks seems to overlook what actually happened back then. You see, they missed one very key page. Take a look at page 226 of the book.

Basically, what happened after the Retenmark was created, and the currency finally stabilized, is that previous debts were brought back! If you had paid off your mortgage (or other debts) completely, boom, you were put back into debt!  This applied not only to people who paid it off during the period of hyperinflation, but it covered all debts going back to 1920 (three years before HI started).

The value of the original debts were valued in gold, and at first you were hit with owing 15% of the original debt. Later, it went to 25%. There was no "Get out of debt free" card.

People at this site should recognize the name of the game here. Bankers have considerable political power, and it's all about keeping the average person in debt. It was true back then, and it is still true now.

So while it's hard, I would strongly recommend that you get out, and stay out, of debt. It is unlikely that Bankers will allow the average person an easy way out.
 

Katie Rose
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Some early morning thoughts...

It is 4 AM here and I promised myself that I would not post in the "wee hours" as the posts usually do not make any sense once I am wide awake.

I will be posting again in the buying rural land thread about my friend who stayed with me this last week while she was looking for rural land. As I watched her struggle, I realized that she had really put herself in a financial bind due to the large rent payments she is making. She had sold a home and moved to a small city,  away from the urban west side of WA.  She has been paying rent while deciding what to do. Her outflow is greater than her inflow, and after two years she really needs to buy before her money is all gone.

I think you bring up a good argument when it comes to rent. Presently you are paying rent that is just going down a rat hole. You are paying off your landlord's home. No matter where you live, there will be monetary outflow.

After a week of looking at nearly everything on the market it was my conclusion that for her the best option was a triplex or four-plex in our small town. She needs income. She needs to stop her outflow. She needs a "free" roof over her head.

We are at historically low interest rates. When I began selling real estate the rates were between 10.9% - 11.5%. Today they are half that. Yes, I believe that prices are going to come down significantly. I also believe that interest rates are going to rise significantly, so it will all be a "wash" for most people.

You may want to consider purchasing something where you are able to have a small rental, RV hook-up, anything to produce some additional income to pay your mortgage with. During the last inflationary period when mortgage rates soared to 16%, people with assumable mortgages with lower interest rates found that selling their homes was easy. The only two assumable loans I know of are FHA and VA. That may be the way to go.

My intent is to use my stack to purchase small rentals to provide income for me as I age. The question I have for you is how are you going to produce income once you have moved? That is a really important question.

I would suggest that you start the process of looking now. I showed my friend an utter "steal", but because she had not been looking in our area, she did not recognize what she was looking at. When she turned it down, I contacted another friend who had been looking for four years, and he bought it immediately. You need to know the market where you are moving to. You need to know a good deal when it looks you in the face.

I personally would not hesitate to purchase with a loan if the loan was assumable and the payments less that my current rent, and I had help with servicing my loan. I think urban areas are going to be very dangerous places to live in the coming economic crash. Just don't bring your urban mindset to your rural area. Rural homes generally need lots of work when viewed from an urban perspective.

In my last life I headed up an affordable housing committee for my area. We concluded that: www.firstdaycottage.com was the best bang for the buck. You may want to check them out.

I am rambling, so tomorrow I may add/correct this post.

Start looking and go from there. And don't forget to pray. Our Creator knows far better what is best for you than you do. HIS wisdom far exceeds any earthly wisdom...

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Debt traps won't help

Katie-Rose:

I have to respectfully disagree about Rent being money that's thrown away. Far from it. What you're doing is paying someone else to take the risk of losing equity, as well as being underwater. For the past few years, that's been a very good bet. Nationwide, housing has been going down 3-5% per year, with no end in sight.

Getting an FHA low-down loan is the absolute worst thing one could do right now. You are immediately underwater the day you sign, due to the closing costs required to get out.  If something came up which forced one to sell (E.g. job move, job loss, health emergency), you are stuck unless you can bring 6-8% for the closing costs to the table in order to get out. And that's IF housing prices stabilize. If they keep going down, like they are doing, the mortgage owner is in even worse shape.

For such people, it's only a matter of time before they are out on the street, with a bad credit rating to boot. Now THAT is throwing money away!

I have to wonder what is wrong about the simple concept of living within one's means? Your friend isn't doing that now, clearly. And once her money is gone, what exactly is she going to do? She'll be forced to live within her means then, so why not start now and start saving?

Personally, I expect housing to go down at least another 20-30%. That's just based upon normal bubble behavior. If you understood what's going on in the Shadow Banking System, as well as what historically happens to unregulated Banks, you'd be even more pessimistic. And after what's happened these past few years, there's absolutely no reason not to understand what's going on.

So I would urge you to reconsider how you are helping your friend. I don't know about the Real Estate in your area, but I do know that putting a person into a debt trap isn't helping them.
 

Katie Rose
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In my area there are NO rentals available.

In my area there are NO rentals available. The economy has declined to such an extent that we are seeing jobs decrease at a very rapid rate. Mills are shutting down and the unemployment rate in our area is far above the national norm. The rental laws in WA State really favor the renter, and believe me, renters know "their rights."

So moving to the country and renting is not an option here. There simply are no rentals. There is a vacant mobile home on the road leading to our property. The owner of the mobile is not willing to rent it out. He does not want it destroyed. In our state renters can live "rent free" for six months before exhausting all their "rights" and trash the rental as they walk out the door. There are no repercussions to their doing so. The county is out of money, so they are saving their jail space and prosecution budgets for the really violent offenders.

I am not advocating a low down VA, FHA loan. With these loans come PPI insurance which really adds to the payment.

Every area is different. Every situation is different. My friend is ill. She needs medical care. Most of her money goes towards her health issues. She is a very responsible individual.

Once again, I would not make any decision without lots of prayer.

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My sympathies, and wishes for

My sympathies, and wishes for the best of luck, Katie.

And I agree. Every place is different, and people's situations are different. I know what you mean about Washington, as I have a lot of friends, and some family there.

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Be your own bank

I am debt free, kind of. I owe on my rentals, my business and my primary residence. The rentals pay for themselves and a little extra, the business will have itself paid off this year, fully 7 years early. The house is an inheritance and in spite of the downdraft in real estate prices, we are still holding substantial equity.

When we decided to get out of debt, we had a "yard sale", but not in the typical sense. We decided anything that was not going to increase or preserve our sustainability would get sold, and the proceeds used to pay off everything else. We managed to pay off three cars, three motorcycles, two credit cards and a hospital bill in 14 months.

The next step was to get our food storage and sustainability preps done. Canning equipment, vacuum sealer, freezers, garden, meat cutting tools, extra clothing, bedding, energy reductions in the house, generator, stabilized fuel, wood gasification project built as a power source for a second generator etc.

Now we have some serious breathing room and the debt is what was keeping us up at night.

So we took our budget and put everything we could into precious metals. With the metals going up in relative value as the dollar deflates, we have extra breathing room if we need cash for an emergency. We also decided to use a ration of 500:1 for our metal stockpile. Basically we became our own bank by purchasing silver at a ration of one ounce for every $500 in debt we have. At the end of a hyperinflation the value will be the same, and we will be able to deal with it. If there is a total collapse we have material to pay off the majority of the debt with.

Now that we have our basic ration of 500:1, we trade silver for gold and vice versa as the silver to gold ratios change. As the gold:silver ration (GSR) becomes more favorable for one metal over the other, we trade. So for example, gold is worth 54 ounces of silver. That makes gold expensive and silver cheap. We trade our gold for silver. When 30 ounces of silver will buy and ounce of gold, we start trading back into gold.

In this way we are able to grow our stack of metals to the point where, if nothing happens we can sell the metals and pay off the debt. If things go bad, we have been prudently increasing our stack to help stabilize the value of our savings going through monetary turmoil.

If I were in your shoes right now, I would get my stack together along with a down payment for a good piece of property. Preferably 5 or more acres with a well and some sort of surface water, like a spring or stream. Buy the property and continue to trade the stack into a bigger pile using the ratios as you improve your prep position.

Like they say on the Automatic Earth, it is better to be a year too early than a day too late, and dig your well before your thirsty.

Best Wishes,

Jager06

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Owner Finance

Don't forget to look for an owner finance deal. I recently purchased a small rural acreage that was relatively inexpensive and had been listed almost a year. I had a Realtor that was watching for a deal for me like that. I paid 1/3 of the negotiated price as down payment, and a promise to pay another 1/3 the first year and the remainder paid off at the end of three years.

I am betting that this modest property will mostly support me by then with chickens and organic vegetables via aquaponics. It's a risk. I moved in Christmas Day and have 100 6-week-old rooster chickens to sell in a couple of months. I paid $37 for those day old chicks and am pumping feed and sweat equity into them. Mind you I only paid $45,000 for 1 1/2 acres, all fenced, with a 350 sq.ft. chicken house, fruit and walnut trees, two wells and a 1000sq.ft. remodeled house. My major expense is medical, and that is my highest need in the hierarchy of needs. 

Keep looking and have faith that your deal is out there. Ask the desperate seller to help you. If you get ahead of the game, be sure to help someone else out.

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blackhawk, re: organic

i've been on a "hobby farm" of four acres in the florida panhandle since the '80s.  i started out with the "organic ethic."  but over the years, i have become less than doctrinaire about it.  case in point, pecan trees do not do well without a zinc supplement.  as far as i can tell, there is no "organic" source of zinc that i can blend in to the latest batch of compost.  the local feed store has 50 pound bags of 20% zinc (mixed oxide and sulfate).

my neighbor had a vegetable garden across the fence from mine that consistently out-performed mine.  he uses commercial fertilizers and pesticides.  i used compost and manure.  after a while, i started using the store-bought stuff AND the home-grown stuff.  now my garden out-performs his.    ...and, he's started mulching and bought one of those big black barrel type "composters."

all this is to say that the organic/chemical question doesn't have to be an either/or proposition.  both sides have their virtues.  a combination has worked out quite well for me.

btw, i use a lot of chicken manure.  i have a friend (25 miles away) who operates a pretty big chicken operation (12 barns) selling to gold-kist.  he has all his feed and water gear suspended from the ceiling.  when the chicken droppings and sawdust litter build up to a certain point, he swings the feeders and waterers up out of the way and cleans out the barn with a front end loader.  he has megatons of it.  he uses it for fertilizer on his pastures (he's in the cattle biz too).  whenever i get low on chicken manure (maybe twice a year), i get him to put a ton or so on my utility trailer with his loader.  there's also a miniature horse breeder nearby who gives away horse manure.   there's lots of stuff available free or cheap if you just look.

compost recipe:

one ton chicken poop (with sawdust)

one ton horse poop (with hay/straw/sawdust)

three tons vegetable matter (leaves/grass clippings/spoiled hay/pecan shells/garden culls/whatever)

50 pounds commercial 8-8-8 fertilizer

50 to 100 pounds powdered limestone (to counteract acidity)

stack it in layers (a wire cage helps)

wet it down.  wet it down again every few weeks. 

it's in pretty good shape in three to six months.  if you want it quicker, re-stack (turn over) after two and four weeks, done in six.

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Owner-financing would be attractive, but I doubt many will offer

Owner-financing would be attractive, but I doubt many will offer that option.  If I could find decent rural land owner-financed within an acceptable monthly payment and reasonable commuting distance to my job (i.e. less than a 1 hour commute each way), I would jump immediately.

Problem is finding someone to take the other side of that deal.

I read through my mortgage agreement the other week.  It basically says in no uncertain terms that the bank owns my house and can take full ownership anytime they feel like it, either by selling it out from under me or calling in the full value of the loan.  They don't need me to miss payments in order to do this, they can do it whenever.

Lindsey Williams has been saying for a long time that the plan of the elite is to take possession of private property and then rent it back, so they will be the owners and we will be the serfs.  I think the mortgage agreement makes it pretty clear they can make good on that threat regardless of whether I'm current on payments or not.

Problem is, the only way I could afford to buy land outright is to cash out my 401K, and the only way I can cash out my 401K is to quit my job.  My PM stack isn't too bad for a middle class guy, but it's not worth enough to buy any significant rural land with a worthwhile house just yet.  If I had half a million, (or maybe even a quarter million), I'd probably be eagerly looking right now.  That's sadly just not the case.

So here's hoping my PM's mature in value dramatically before the bank decides they want to own my house... I fear that may not be the case...

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@pourty

"Lindsey Williams has been saying for a long time that the plan of the elite is to take possession of private property and then rent it back, so they will be the owners and we will be the serfs."

BofA made the news the past week, with a new program that they are doing a trial run on. In a few select States, they are offering to let people rent the houses that they "own", instead of foreclosing on them and throwing them out into the street.

I guess the recent Federal program to sell houses that are on the books of the FHA to Equity firms and other large investors has gotten them thinking. Why would they let some third party make all the big bucks when they can do a rental, or even a rent-to-own scam?

I suspect this would only be advantageous this year. Next year, the underwater owners are going to be taxed on any "forgiven" principle.

Having to pay a bunch of money just for the privledge of being able to rent your own home really has to bite.

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