patrick.net

Bigsby says

What are you talking about? If prices rise 10% a year for two years, he'll walk away with that increase minus expenses AND his down payment.

Expenses can be a pig! Maintanence, Insurance, Property tax, easements (if you are a condo), interest on the over-inflated price, necessary renovation that don't increase the house value at all, lawyer fees when your financial distress leads to a divorce, huge university costs because your kids see their parents indebted for life and they want something better, etc. etc.

Rent= problems are just a phone call to the landlord saying "Fix it"! ;)

RentingForHalfTheCost says

Expenses can be a pig! Maintanence, Insurance, Property tax, easements (if you are a condo), interest on the over-inflated price, necessary renovation that don't increase the house value at all, lawyer fees when your financial distress leads to a divorce, huge university costs because your kids see their parents indebted for life and they want something better, etc. etc.

Rent= problems are just a phone call to the landlord saying "Fix it"! ;)

And how much of that is relevant to the original poster, who is looking at a relatively quick turn around? if the price rises continue for another year or two, then he can sell and will be well ahead. That's the risk he's taking. And total expenses, including property tax etc... would still come out less than if he was paying 4k rent. That was one of the main points of his original post, was it not?

Part of total expenses is closing costs from the initial purchase plus later the selling commissions. A lot of money--especially on a $1mill purchase--flushed down the crapper for only a couple years' tenancy.

Makes you wonder why you need a $1mill house if you know you are only living in it for that short of a term.

Philistine says

Part of total expenses is closing costs from the initial purchase plus later the selling commissions. A lot of money--especially on a $1mill purchase--flushed down the crapper for only a couple years' tenancy.

Makes you wonder why you need a $1mill house if you know you are only living in it for that short of a term.

Hardly flushed down the crapper if his purchase sees a substantial short-term increase in value. That's what he's hoping for, and he may well be in luck.

Bigsby says

And how much of that is relevant to the original poster, who is looking at a relatively quick turn around? if the price rises continue for another year or two, then he can sell and will be well ahead. That's the risk he's taking. And total expenses, including property tax etc... would still come out less than if he was paying 4k rent. That was one of the main points of his original post, was it not?

No way it comes out less than the cost of a 1M dollar home. 4K a month is a steal for such a home. The OP is not doing the math properly. He is ignoring the opportunity cost on the downpayment, under-estimating maintance, insurance, realtor fees, closing costs, etc. The real math looks pretty ugly. Don't fall into the hype of this market, it can bite you in the ass. It really is a game of musical chairs. Don't believe me, then look at the prices of homes in Tahoe at this time. You can pick up a 3/2 right at the ski hill for 200K. First time I can ever remember that this can be done. People are broke. Credit is all they have, and relying on that for your income is more than just being risky. It is downright foolish IMHO.

Bigsby says

That's what he's hoping for, and he may well be in luck.

Hope doesn't pay the bills. It is a good way to bankruptcy. Work pays the bills.

RentingForHalfTheCost says

Bigsby says

That's what he's hoping for, and he may well be in luck.

Hope doesn't pay the bills. It is a good way to bankruptcy. Work pays the bills.

It sounds like he's perfectly capable of paying his bills, so what is your point?

RentingForHalfTheCost says

No way it comes out less than the cost of a 1M dollar home. 4K a month is a steal for such a home.

?

RentingForHalfTheCost says

The OP is not doing the math properly. He is ignoring the opportunity cost on the downpayment, under-estimating maintance, insurance, realtor fees, closing costs, etc. The real math looks pretty ugly. Don't fall into the hype of this market, it can bite you in the ass. It really is a game of musical chairs. Don't believe me, then look at the prices of homes in Tahoe at this time. You can pick up a 3/2 right at the ski hill for 200K. First time I can ever remember that this can be done. People are broke. Credit is all they have, and relying on that for your income is more than just being risky. It is downright foolish IMHO.

It's not something I would do, but then I don't invest in RE. But anyway, I rather doubt he has ignored all the additional costs, and I suspect that as long as the house was in a decent enough state when purchased, that maintenance costs could well be pretty minimal in the short-term, which is, after all, what he is looking at. It's his risk, and like I said, it doesn't look too bad for him so far.
And some people are broke, but broke people don't tend to buy $1m homes.

I was perfectly happy renting an apartment when house prices went down yearly from 06 to 2009 or 10.

If you are renting and watching prices rise in the double digits for years on end that will make you crazy and poorer than if you rode the home equity train up the hill.

Its all risky. Ben is inflating both stocks and RE with all this printing/mbs buying so I guess both are good bets at the moment. I fuking hate stocks and all publicly traded companies with their overpaid CEO's and mega bonuses - so I choose to live in a big house as my speculative investment instead. If prices tank I'm ok, if they go up im more than OK.

Buying a house is a pretty good move to keep up with inflation mostly.(and by inflation i mean house price inflation!)

PockyClipsNow says

Its all risky. Ben is inflating both stocks and RE with all this printing/mbs
buying so I guess both are good bets at the moment. I fuking hate stocks and all
publicly traded companies with their overpaid CEO's and mega bonuses - so I
choose to live in a big house as my speculative investment instead. If prices
tank I'm ok, if they go up im more than OK.

Buying a house is a pretty good move to keep up with inflation mostly.(and by
inflation i mean house price inflation!)

I think your strategy is alright. I don't hate stock but pretty sure I am not good at trading it.

I would definitely do it similarly if I were in CA except less down payment.

David Losh says

This is another example of how you contradict yourself. I've seen you post this kind of comment before, and then in the same breath state how the bottom will drop out of the market and he'll be screwed.

You seem like a nice person, and thank you for taking the time to engage me in this way.

I'm an old time investor in Real Estate. I did see prices climbing after the tax credit, and continued to think they would until interest rates dropped by 1% in one year. That was a red flag that things won't last.

My thinking about holding Real Estate, or even short term investment, which I have done, changed over time.

I don't predict a crash of Real Estate pricing, but I think it can decline substantially.

The example Roberto keeps throwing at me is that we, a trust, sold a condo in Atlanta that was purchased in 1986 for $60K. We were only able to get $30K when we sold it in 2011?

I have never seen anything like that before. Purchased in 1986, and sold 25 years later for half the price?

The point of that is that the Real Estate market place is volatile right now, but I think it will equalize. I think prices of property will go down.

I think we will see deflation.

OK, the term deflation was never on my radar before I started reading blogs like this. However I met a guy who made a compelling argument for deflation, and it sure looks like he is right.

I come here to learn. What bothers me is having this one note noise about a specific Real Estate system. It interferes with what I consider constructive discussion.

David Losh says

I come here to learn. What bothers me is having this one note noise about a
specific Real Estate system. It interferes with what I consider constructive
discussion.

I do too and have learned a lot !

Call my paranoid if you want, I think there is the possibility of paid internet shills infilterating this site, using persuasive techniques to try and alter viewpoints. I don't think the NAR is broke, other monied interests would be happy to pay some dumb shill to post comments.

Adding to this, think about how off the wall some of the comments are, like a 4 page fact filled acticle from the New York Times and a response comes up: "100 Percent Wrong"

Golly, if the New York Times is 100% wrong, I don't even know what to say.

If anyone wants to pay me to post please PM me! lol

I have a degree in Dumbshillery with an emphasis on Oververbosity.

David Losh says

The point of that is that the Real Estate market place is volatile right now, but I think it will equalize. I think prices of property will go down.

I think we will see deflation.

If it didnt go down, it would be the first time in recent history going back a couple decades which diverged beyond inflation and incomes. We had not had that happen since 1945, and there is no comparison to then vs now. Especially in SFBA. A further correction downwards is necessary.

Bigsby says

RentingForHalfTheCost says

Bigsby says

That's what he's hoping for, and he may well be in luck.

Hope doesn't pay the bills. It is a good way to bankruptcy. Work pays the bills.

It sounds like he's perfectly capable of paying his bills, so what is your point?

Point is that RE investing in the SFBA right now is more than risky. You could lose all your investment and then have to listen to thousands of people in mainstream media say they saw it coming. If people have the money to lose, then good for them. I am more of a capital preservationist I guess.

Bigsby says

No way it comes out less than the cost of a 1M dollar home. 4K a month is a steal for such a home.

?

4K/mth is way cheaper than owning a 1million dollar home in the SFBA. No confusion needed. Run the math. 11K just in property taxes, these goes 3 months rent right there. Oh, and then the interest on 1Million. Let me write it out so you see what that value is 1,000,000. Even at 3% that runs you 30K/yr. There is another 8 months. We haven't even factored in the good stuff like the realtor thievery, closing costs, upkeep, insurance, etc. etc. Not even close.

It only makes sense to own when prices are going up, the 300k I expect to make is giving me koolaid eyes (red punch flavor the best one!).

No one can refute the fact that if prices are going up double digit, you want to be sitting on that asset.

PockyClipsNow says

It only makes sense to own when prices are going up, the 300k I expect to make is giving me koolaid eyes (red punch flavor the best one!).

No one can refute the fact that if prices are going up double digit, you want to be sitting on that asset.

You also want to make sure to unload said "asset" before it turns into a liability. What are your triggers for deciding to sell?

Well I got two triggers:
#1 fat profit = sell
#2 fat profit + tax free sale after owning it 2 years = sell

I've been lucky with this 'sell when you get a fat profit' strategy. I learned it watching many many people get burned on stock options during the dot com bubble who had a few mill, then not so much a year later....

coastal cali is easily 60 to 90% land value. the value sure isnt in the 1962 crap shack.

RentingForHalfTheCost says

Bigsby says

No way it comes out less than the cost of a 1M dollar home. 4K a month is a steal for such a home.

?

4K/mth is way cheaper than owning a 1million dollar home in the SFBA. No confusion needed. Run the math. 11K just in property taxes, these goes 3 months rent right there. Oh, and then the interest on 1Million. Let me write it out so you see what that value is 1,000,000. Even at 3% that runs you 30K/yr. There is another 8 months. We haven't even factored in the good stuff like the realtor thievery, closing costs, upkeep, insurance, etc. etc. Not even close.

And that's not what he's doing, so why is your point relevant to this example? What he is doing is cheaper than paying 4k a month.

chanakya4773 says

This is true in most places in US except some areas where the value of the house is land value and not build value. If your home value is primarily the building itself, there is no way you can sell it to someone for more than what a builder is able it build and sell it for.

If house prices go well over cost of build plus land, builders immediately adjust new house prices accordingly. Instead of taking a typical 15% profit, don’t mind to take a 100% or more. Builder will never disclose to you how much his break-even price is.

We are one if the few outliers in our friends that haven't bought considering our age and income. But, maybe, it is bcos we can't resonate with your so-called net worth idea, we evaluate our living standard by how freely we could enjoy ourselves with *liquid* money, not so much on checking the zen estimate how much your net worth is ..... And, making money is just a means to an end, not the end.

And, we rent not because we can't afford, but because when we buy Lexus, we expect Lexus, not Toyota corolla in disguise. Our rent is only $2400. Buying a house of equivalent mortgage is probably a 800k house at San Jose, for those types of houses, we rather rent, we can treat rents as money spent at hotel during vacation except much better deal. At house that would make us move probably cost twice as much. We even consider 500k down for those houses, but then, why?! We might be able to have early retirement elsewhere.

PockyClipsNow says

Somehow I have met a very large number of people with net worth > 1m from real estate.

At the same time, almost no one who rents and has a stock portfolio over 1m. I'm sure they are out there.

Clearly the fed inflates everything, although unequally and haphazard, timing is tough.

chanakya4773 says

If your logic was right, our entire world of capitalism is a myth.

Welcome home. You are pretty close to reality.

chanakya4773 says

The builders are not able to bring down prices yet because they are not able to produce enough units yet because its a slow process. once the machine goes full throttle, you will see capitalism at work.

Indeed this works but only in markets were number of units to be build have no limits. However in many areas e.g. SFBA, municipalities have limits per year, banks also control situation with builders credits to avoid get burst when suddenly prices go south.

SparrowBell says

And, we rent not because we can't afford, but because when we buy Lexus, we expect Lexus, not Toyota corolla in disguise. Our rent is only $2400. Buying a house of equivalent mortgage is probably a 800k house at San Jose, for those types of houses, we rather rent, we can treat rents as money spent at hotel during vacation except much better deal. At house that would make us move probably cost twice as much. We even consider 500k down for those houses, but then, why?! We might be able to have early retirement elsewhere.

I am a 100% with you.
Additionally, while waiting for retirement, I am buying properties outside of CA where rent/price ratio works great and enjoy by avg. 25% ROI today.

I see some misunderstanding in land value.
Developer usually do not start to build until can achieve land value to construction costs ratio 20/80. How it is done? In country side we have single family houses siting on very large plots of land. When we go to more dense area, building plot is subdivided on tiny lots and two or three story townhouses are building. Same is true for Manhattan, where lots cost in 10s of millions, so the only way to achieve this ratio is to build condos as high as can be permitted.
You can find this relation on county tax assessment; land plus improvement of new houses. As time elapse, land portion of your assessment balloons, while improvements not so fast. Obviously in desirable areas land portion appreciate much faster than in rural areas.

The construction cost portion is a perfect example of inflation tracker. Wood, plywood, sheetrock, screws, paint, are all staples plus labor wages, all goes with inflation.

Theoretically; if High Tech comp. move to TX, Cupertino houses will drop 80%.

chanakya4773 says

Yes, theoretically ! practically for the companies to move to TX - NO.

companies are here because they still make more money compared to other places by using the local tech ecosystem/labor pool

thats not what most management will say. those are not the facts. you will only find 5-10% of the workforce located in other states/nations. you can be assured that the many Apple/Intel/HP/Symantec/Seagate non-Silicon Valley employees are very happy not being here. Drive by Symantec building one day.. barely fits 1500 people.. so how could they house over 20,000 of the global employees.

Oh how many times, have they told me.. you are freaking crazy paying that much for a crap shack... they are so right!

PockyClipsNow says

Home prices still 50% too low in Bay Area - rent STILL cost twice the mortgage.

too bad people didnt see what rental was back in the 80s.. better economy, incredible growth, and yet far far more sane than this...

Post 2000 as we saw a "contraction" in SV workforce, just crazy why so many are just spiking rentals for no real reason. Landlords are some 25-30 years too late to the party.
No reason higher rentals will last.

Employees have very little to say; will go where company will go.

chanakya4773 says

So why the F**K do they not move out ? why have they not done that in last 10 years ? if they have not done that in so many years what will force them in future ?

They have.. you had to be here to witness how much we changed / shrunk.. the vacant Business Parks are the obvious indicator.. 20-25% R&D commercial vacancies in Santa Clara.. frankly its much higher around 40%... i seen former Tech building go as Govt, Retail, Medical and some converted to Churches / Places of worship...wow a Church which was a former HP/Agilent building off Bowers and Central Express way.

chanakya4773 says

BECAUSE THEY GET PAID MORE HERE. San jose is the highest median income city ($77,000) in the whole country !! maybe that has something to do with why people don't want to move out !

On average... yes !

first get rid of lower paid wage mfg workers.. result your avg pay goes up
2nd move out services and later most of your R&D ...avg salary moves higher.

whats left ? much fewer top management and support compliance staff and fractional workforce.. and other states have been pulling jobs to their states without any problems.

so yes.. on average the pay is higher! its highly skewed!

The best pay is actually outside the state anyway... Tech sales people do far better than Engineers...Commissions and Quarterly Bonus is far sweeter ! Live anywhere you want.

chanakya4773 says

The population has been increasing for the past 10 years !

median salary of san jose is now the highest in the damn country.

Irony! on average... leave the top 10% best paid and move everyone else...
it practically skyrocketed... think about it when you drive by Seagate, HP, Intel
HQ... only a few headcount locally..

chanakya4773 says

look at this chart whenever you have an urge to jump with your usual - people are leaving bay area crap.

http://www.bayareacensus.ca.gov/historical/copop18602000.htm

so let me get this straight :

1) number of people increased in bay area.

2) median salary increased in bay area.

so what am i missing ?

we dont employ everyone here, and frankly there is no need to employ in Santa Clara County.. Colorado, New Mex, Ariz, Texas and countless others have been courting local companies to move into their state.. tax incentives and lower cost of living.

chanakya4773 says

so if you move everybody went out ..who came in ? how did the # of people move up ? d

a lot of people form the East Coast.. and yes a lot from overseas... but this is NOT the booming 70s and 80s where we had actual economic boom and real headcount increases and new building going up. ...there is a big difference...

chanakya4773 says

Hey Moron : How is the bay area population consistently increasing ?

http://www.bayareacensus.ca.gov/historical/copop18602000.htm

thats fine.. you can add another MILLION or TWO.. it wont matter since the majority is hired in other states... Local geographic locations have nothing to do with jobs any longer... we are way way way past that...

chanakya4773 says

so , number of people went up consistently and median salary went up, what else do you want ...something roaring ? LOL

you can read any SEC doc regarding headcount and property leased by local employers.
better yet.. use LinkedIn and check the locations. its the same. just because you see a dinky Silicon valley tech HQ of a large company... doesnt mean you will find everyone there.. its all global and jobs are scarce here compared to decades past.

why do people come here... like 1848 Gold Rush.. trying to hit it big... but they are too late! Better luck had you been here 30-40 years ago.

chanakya4773 says

am attaching the chart for bay area population, do you need a more steep curve than this ?
even a third grader can tell that population is healthy growing and other areas are accommodating the over flow.

lots of kids.when was the last time you talked to a Native Californian.. many are long gone.
actual net migration has been flat from 2000 to 2010

California's population flat-lining
http://www.ocregister.com/articles/california-377207-population-migration.html

California has almost achieved zero population growth. According to the California Department of Finance, state population has stagnated at sub-1-percent rates for an unprecedented seven consecutive years. The slow growth was a result of negative domestic migration, declining international migration and declining births. Unless we fix our education system and create opportunities for everyone, California is entering a death spiral.

Negative domestic migration results when more people move from California to other states than move to California from other states. Like the dying canary in the coal mine, it's the first sign of trouble, and it's a clear indication of limited opportunity in California. It's not a new phenomenon. The U.S. Census shows that California has seen negative domestic migration in each of the past 20 years, while the state Department of Finance shows negative domestic migration in 18 of the past 20 years.

chanakya4773 says

jobs are scarce for a moron like you who does not know how to analyse data. I know that you are an old timer who probably worked for some old now irrelevant company and got fired. now you are extrapolating the situation to the entire bay area.Just because the dells, HP's..etc are gone done not mean , bay area is dead.

Accounting/Finance transfers industry to industry.. Big 8 firm, Software, Hardware, Networking, Semis, Biotech and B2B ECommerce and others... so what irrelevant company are you talking about.. BTW.. I am a current VP Finance/Controller... private software company with a 300+ global workforce. Only a 20% presence in Santa Clara County... 80% overseas... Doubt me! just talk to your own VP Finance/Controller in your company and get a dash of reality. Yes! its different this time!

chanakya4773 says

Hey Asshole, we are talking about bay area not California ! take your head out of your ASS. No wonder all the rational people on this board ignore you.

population growth.. not as booming as in prior decades...

1960........3,638,939 .......35.7%
1970.......4,628,199 .......27.2%
1980 .......5,179,784 .......11.9%
1990 .......6,023,577 .......16.3%
2000 .......6,783,760 .......12.6%
2010 .......7,150,739 .......5.4%

not much to crow about...

https://en.wikipedia.org/wiki/San_Francisco_Bay_Area#Demographics