Actually, you do save in this scenario. For the purchase price of $170k and
5.5% interest your total payment is $347,486.87.
If the price drops 30% to $119k and the interest goes up 4 points to 9.5%
your total payment would be $360,221.94. The equity would be higher in the
first scenario, but you may find a better investment than 4 percent points
over 30 years to make up the difference.

EJ

"Koert" wrote in message
...
Hi AJ,

As an appraiser in California, these are my thoughts:

If the home is worth more than $150,000 - $200,000 or so, $3,000 to have
the
roof properly repaired is almost insignificant.

I think the more important decision is the timing of your purchase.

The market in California (assuming you're near Lake Elsinore) has been on
a
rampage for the last five years and the state of the current market has
been
described by some as "irrational exuberance". (Does this bring to mind the
stock market of a few years ago?) Real estate values are now based as much
on their speculative value as on the value of shelter.

Real estate values could go anywhere from here. It seems impossible that
it
could continue upwards, but I was saying the same thing two years ago and
it
hasn't missed a beat. (Similar to when the stock market was going crazy in
spite of what analysts were saying.)

But, you are buying during a period of historical high values, at the peak
(?) of a strong run in value, and at the time of year when prices are
typically at their highest. (The market is usually strongest in June-July,
settles a bit in August, and then has a final strong push in September. If
I
owned the property that you're buying, I'd be anxious to sell exactly
now.)

Also, the effects of the market are compounded by the type of property you
are buying. When the market is strong, most buyers ignore atypical
construction, location problems, etc. but when the market softens, buyers
could demand huge discounts for manufactured homes compared to
conventional
construction. This would translate to a faster drop in value than you
would
experience with a conventional home.

So, either way is a gamble. You can buy now and hope we don't see a 30-40%
decline in value over the next three years, or you can wait and try to
pick
up the same type of property at a huge discount when the foreclosures
start
showing on the market. Today's interest rates are attractive, but it
doesn't
make sense to pay an extra 30% for a property because you're saving 4% on
the interest rate.

Anyway, over the last three years all my forecasts (the sky is falling!)
have been wrong and the market has continued to remain strong. However,
you'll want to go into this deal with your eyes open and aware of the
possibilities.

In spite of your friend's good intentions, agents are usually encouraged
to
remain optimistic about the market. Ask almost any agent, any time, if
right
now is a good time to buy or sell, and the answer is almost always "yes".