Don’t Lose Money On a House Again!

This article is by Adam from Money Relationship. He recently paid off some more of his $150,000+ debt.

Well, this post should be very brief as I want it to be more of a discussion. Today, I came across an article that talks about how you can guarantee yourself against the devaluation of your home. Basically, there is a product out there called Sirius Value Protection. The product is like a put option on stocks. It gives you the right to exercise the option to sell your home back to Sirius after eight years for the same price you bought it.

Most people are very weary of buying homes in depressed housing markets such as Las Vegas and Florida. This product supposedly will help ease the minds of weary buyers. For example, if you buy a house in Las Vegas tomorrow for $300,000, you don’t really have to worry if the price of the house falls. If the price 8 years down the road is $200,000, you can force Sirius to buy back your house for $300,000.

All of this comes at a fee though. Apparently the company wants to charge a 20% fee to homebuilders who are looking to get rid of their inventory. That’s quite a big chunk of change for homebuilders who are already so close to losing money on a home after they build it.

As many of you already know, my wife and I are in no position to buy. It is still going to be a few more years until we even think about a down payment or picking paint colors. However, I imagine some of you out there are shopping for a home right now buy are a little weary about the market.

Would you buy now knowing that you could recoup your money if things went even further south?

If you bought a home several years ago and are now upside down, would you exercise your option (if you had one) and sell your house?

Find guides and informative reviews on San Diego Foreclosure Services online.

Comments

  1. It’s amazing what programs people put out. The article mentions that if the homeowner couldn’t keep the house for 8 years (foreclosure) then they can exercise the option.

    I would recommend saving that 20% for yourself. That’s quite a bit of money and can help you get back on your feet.

  2. So let me see if I understand this – Sirius buys the properties for 80% of their value from the home builder. Then, one can purchase a Sirius home at FMV. 8 years later, there is the option to sell back @ full purchase price, vs FMV.

    For that entire 8 years, Sirius can invest the initial 20% difference. Sounds like a great plan for them – I wonder if others will get into this kind of plan as well (those looking to invest in real-estate).

    There is really no way for Sirius to lose – they get the full use of the entire home value for 8 years (including 20% more than what they bought it for, so instant profit). Even if they have to give it back, you can earn some serious interest on $200,000 in 8 years.

    Does Sirius have the right to take the house back at 8 years without your consent? If the homeowner loses the house before the 8 years is up (foreclose in yr 5, lets say), then would this option not be valid & follow normal foreclosure proceedings?

  3. So, am I understanding this right? If you build a $200,000 house, you pay them $40,000, thus taking out a loan for $240,000, to be able to sell it back to them in year 8 for $200,000? Isn’t that a $40,000 loss?

    Even if you have the $40,000 in cash. You take out a $200,000 loan, paying them $40,000, so that you can sell it back to them for $200,000 in year. You still lose $40,000.

    Instead, if you put the $40,000 down on the house, your loan would only be $160,000. The market would have to drop another 20% from where it is today for you to lose the $40,000.

    So you’re betting 20% that the market will fall MORE than 20% in an 8 year period. How many 8 year periods have actullay seen a decline in housing prices?

    Based on inflation-adjusted US median house prices it looks like 6. 1986-1994 -2%; 1987-1995 -7%; 1988-1996 -11%; 1989-1997 -10%; 1990-1998 -2%; 2001-2009 Q1 -2%.

    None of them lost more than 11% over an 8 year period. Obviously it will be different for different markets, but on average it seems unlikely that a house would lose 20% of its value in an 8 year period.

    They will make a killing on this if people bite.

    Oh yeah – and those are Inflation-Adjusted figures. If you use actual median home prices, there are ZERO (0) 8 year periods that have less than a 10% INcrease in median home prices. ZERO.

    If you bought the median house in 2001 it cost $148,000. Median house in 2009 is around $170,000.

  4. I find it interesting that Sirius is tipping their hand by making this product available. It makes me think of those car dealerships that were offering deals several summers ago for one year of $2.99 per gallon gas with a new car purchase. That product’s vendor saw that gas prices would come down hard from their highs and that dealerships could offer something to the customer that seemed like it had a lot of value, but in the end wouldn’t cost a lot as prices came down and people stopped exercising their option. I imagine Sirius has run the numbers, and in very, very few situations will they have to pay out.

  5. This is ridiculous as other commentors have already identified.
    I hope noone takes this bait. This could lead into a long debate about buying a home as a place to live vs. an investment, so we won’t get that one started.

  6. This type of post just makes me ask how stupid the American people really are. Hasn’t anyone learned from their grandma that when something sounds too good to be true, it is too good to be true?

    Home prices may continue to hover, perhaps dip a little more. But the major drop in pricing has already hit the market. So now company A steps in to save the day with a product that is a gold mine for them. And I say great for them…if anyone is ignorant enough to enter into a plan like this, then they deserve to lose their money.

  7. Unfortunately, I suspect there will be many takers because we are a fear-driven society. The media is filled with stories on homes losing value and upside homeowners forced to walk away, etc.

    This product reminds me of private mortgage insurance for the homeowner, but costs much, much more than the typical PMI rates lenders require to cover gap between home values and mortgage balances.

  8. This is beyond the pale! The only purpose of this article should be as a disclaimer to anyone that would possibly consider such a ridiculous “deal”….lol

  9. What happened to good ol’ fashion values? What happened to buy within your means, raise your children in one home and work at paying that home off? Maybe if we stopped thinking about the next roll-over and started seeing our lives as a little more long-term than a 5-8 year period we wouldn’t have so much fear.

  10. What are the odds that:

    A. The FMV of your house will be MORE THAN 20% below the price you purchased it exactly 8 years from the time you purchase it.

    AND

    B. The time you want or need to sell your house is also in exactly 8 years?

    I fail to see how this helps buyers that want to sell before/after those 8 years.

    I actually find this offer offensive. Somebody should buy a house at 5X FMV and then sell it back at a huge loss to this company.

  11. There is another risk in addition to what’s been covered here. If you do the deal with Sirius you’re depending on the fact that they will be around and financially solvent in 8 years. My bet is that if things get bad enough that home prices fall more than 20% more in the next 8 years then all of Sirius’ customers for this product will line up for their payout at once and Sirius will default just like the holders of the CMO’s did in the recent round of real estate devaluations.

  12. The word “weary” means tired. It does not mean “wary” or “leery,” despite the apparent temptation of so many people to combine those two words into one.

  13. This is a little like an OTC derivative — betting with someone else on the value of something in the future (8 years, wow!) As Wayne notes, above, a key piece people always forget to consider with such bets is counter-party risk.
    It’s bad enough when you pay upfront for an extended warranty on a TV from some shaky company (you didn’t think Best Buy actually stood behind those warranties, did you?)… All you are out if they fold up shop or refuse to pay is the $50 or $100 you ponied up. It’s a whole different thing when you consider a single company “insuring” (taking bets on) housing values for hundreds of homeowners with values that correlate strongly with each other. They’ll never be able to pay if things go south. Heads they win, tails you lose.

  14. A bit like an annuity…
    worthless to most of us. A scare tactic for a select group who messed up buying last time.

  15. Another product for “sophisticated” investors. Aren’t they the ones who thought sub-prime mortgages were a good deal.
    In 5 – 10 years, the government will be bailing this company (and the fools who bought their product) with our tax dollars. All hail the United Socialists of America!

  16. I would not touch this thing with a ten foot pole. We need to accept things may go up or down. Right now home prices are low. If you are thinking about buying you will be rewarded handsomely.

  17. These gentlemen are not the creators of the product. Kenneth Herzberg was introduced to the product when still employed by Carlton Advisory Group. The two brothers stole the idea from a Canadian Entrepeneur who is now taking legal action. The product is a good start to making positive changes although the two gentlemen “The Herzbergs” are in my opinion being very untruthful in their statement they created the product. In fact in July 2008 Kennedth Herzberg boasted to one of his failed funding clients in Costa Rica that the Canadian was the creator. So watch out for the fine print, it appears these two fellas like to rewrite history.

  18. The problem with this type of forum is that once the initial writer gets it wrong than everyone follows. This program was designed to help buyer preserve the long term value of their home while offering them a significant cash payment should the market recover. What almost everyone failed to understand is the the consumer is not paying for the program. It is the developer or bank that provided the construction loan that is taking a price reduction in order to offer this innovative product to the buyer. The idea is that we are finally doing something positive and addressing the issues that plauge this market.

    Yes………..as one of he founding partners of Sirius I am always available to discuss the pros and cons. Please visit our website at http://www.siriusvpi.com

  19. This is more or less like those very risky derivatives that caused the whole house of cards to come tumbling down. I wouldn’t touch this with a ten foot pole. It’s nutty to promote this as a good idea for anyone but suckers.

    And frankly I don’t care if my house value goes up or down in the short term, as I bought it to live in, not as an investment. It’s not liquid, and I will not be selling it for many many years.

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