patrick.net

Great graphic! Is that Manila or Miami? Any time I see corrugated sheet metal roofing I automatically think Manila.

As FAB notes just b/c you're willing to throw borrowed $'s around is no assurance you won't be rubbing elbows with the wrong crowd anyway. The difference is the renter can pull up his/her tent stakes at the first sign of lawlessness, can the loan-owner?

Since any discussion of RE is in ways a discussion about life or lifestyle in general, it can be hard to seperate the two. I find when posters include some of their personal insights and preferences it gives me a better understanding of what motivates people. Not boring at all.

@DinOR,

Good guess, but that would be Thailand.

I remember seeing on Ben's blog that some folks post their "renter's resume" on Craiglist to good effect. They ended up getting replies from landlords offering them places for LESS than they were posted in the "For Rent" section of Craiglists. This, of course, is predicated on the poster being a "desirable tenant".

MonkeyInChief... Nice price to rent ratio rant. Thankfully, there are folks like FABs parents to help keep the market honest (and mess with the FBs trying to rent out their places).

I stand corrected. Lovely view!

About six months ago a poster brought to our attention that one of the great sources for rentals in the BA are open houses. Simply enjoy the free wine, get the realtor on the side and ask them, "Do you think they would consider renting it out?"

I can't remember who, but they said they had never heard an out and out NO! Just a thought.

You did not mention if you were single or had a family

Good point - this is for 2.

Monkey In Chief,

I have had the same idea of moving out of bay area. Brought up the idea of Austin, Texas with Mrs a few times. At the beginning I was always shut down with "You are crazy". Then after I put down the real hard math that we easily pay off a brand new 3000 sq ft home and have only one of us work, I can slowly see how she's also seeing the real craziness of owning here.

Anthony

"I was going to guess Soweto"

The lack of Marlboro billboards should have told me it wasn't Manila? What I've found on Craigslist is that often FSBO listings that are "for sale" can also be found in the "homes for rent" section as well. Apparently hopeful sellers were trying not to tip their hand that the market isn't as white hot as their potential GF might believe.

Of late I've seen a lot of fluff that's available for sale, for rent or lease w/ option to buy all in the same posting. Take my wife.... please! Ta-dump.

What I’ve found on Craigslist is that often FSBO listings that are “for sale” can also be found in the “homes for rent” section as well.

Here I think it's not as obvious. The for sale/for rent house I linked to in the original post at the top was only caught because I had seen it previously, and in real life as well.

eburbed,

I agree. Although I will add that 2 years ago, it wasn't that obvious in Las Vegas either. You really had to be a "student of the market" to have caught it then, now? No thing at all. It'll get there.

OT, another crappy spring in OR. My neighbor went to Mexico and asked if I wouldn't mind watering. I assured him... no problem (and it hasn't been). :(

Speaking of Craigslist, the Bay Area ReduceOMeter hit an all time high of 198 "reduced" listings for May 18-19. So the tsunami is growing in the outer burbs.... will be interesting to see how big (or small) it is when it hits the "fortress".

Hi folks. It's been a while. I've been through two surgeries to try to slow down my heartbeat. Both failed but they've found medicine to keep my heart rate under control.

Anyway, my Mother came to take care of me through it all. I got out of the hospital on the first anniversary of my Father's death. My Mother's been wanting me to move back to the Chicago area for years. I've been here about five years. The thing is after visiting here with me she sees that I actually have a life here, while spartan.

She has recently suggested that she and my Brother (who lives on disability) might want to move out here to Oakland with me. My Mother asked me to research 3 bedroom houses to rent in the Oakland Area. My research revealed some really interesting possibilities. The decent neighborhoods offer places in the $2000-$3000 range. We have to rent a place that would allow us to keep cats. My Brother and I have a cat each. We all know that makes renting more difficult.

Anyway, I've tried to advise her to stay put. She's paid off her house and pays property taxes and association fees of around $375 per month. She's not well off but she does have a decent retirement income from Dad's state pension plus negligible investments from his life insurance policy and IRAs. She could afford to split rent with my Brother and I.

Eesh! I can't believe I'm even considering living with my Mother and Brother. My Mom's a widow and my Brother and I have never been married. I'm 37, my Brother's 35, and my Mom's 63. She's got a lot of life left, so I would think. Dad died unexpectedly last year at only 64 so who knows. (His Dad is living in Southern California and is 88 years old. We're usually long-lived.)

Beyond the concern of all of us living under one roof again, I'm concerned that my Mother isn't considering what's best for her finances. She's thinking with her heart and her loneliness and concern for me. I've tried to explain to her that this is the last place a retired person should move to because of the cost of living.

One consideration though, as she ages she'll need care. It's bound to happen, it happens to all of us. I would rather live close to her whenever this time comes because I know I'd want to participate in her care. I don't want her shipped off to some nursing home unless her care became way too complicated for me or my Brother.

Well, I'm kind of off subject, but I really wanted to let people know that there are decent rentals at decent prices out there, even if you have pets. I know that my building is close to full occupancy though. I've noticed that we have fewer and fewer vacancies, so perhaps that is changing.

It seems that my part of the East Bay is a good place to rent still. It's a much better fincancial proposition than owning in Oakland, that's for sure....

Sorry about the double post. IT didn't post so I tried again. Please delete the first post above.

For those of you who are curious about the whole Nigel/Casey/RobDawg thing, check out: http://www.caseypedia.com/wiki/Main_Page.

And remember, itsallgood™...

We went open-housing on Sunday in Mill Valley & surrounds. DAQU/TOS may continually skirt the issue in her usual, cathartic manner, but here's the facts:

* Too many homes, not enough time to see but a handful of them.
* All afternoon we ran into only 1 other couple looking.
* The agents were bored, passive, unmotivated.
* Not a single agent, no exaggeration, asked "are you working with anyone".
* None bothered to try for follow-on lead or contact info. They assumed we were just looking. This even as we walked through obviously serious about buying (folder, clipboard, taking notes, asking practical questions, etc.)
* Agents were annoyed to answer more than a couple easy questions.
* One gal chatted on her cell phone the entire time about an upcoming friend's wedding. Not a good sign for someone supposedly selling a $2.5m house (which maybe she isn't, since no one will pay $2.5m for it).

--I called today to inform one agent that we were going to bring an offer in. I was prepared to come in at about 62% of asking, which is a hard lowball. The conversation was weird. Very weird. Roughly:

Me: "Hi, I saw XXX yesterday. We'd like to come by and see it again today midday and tonight after sundown, after which I'll be prepared to make an offer depending upo....."

Him: "Thanks, I'm glad you guys liked the home." (note, at this point he has no idea who I am unless we were the only people who walked through).

"Unless you're calling to tell me you're ready to pay asking price the owner has already decided to not sell right now. I assume you weren't going to offer asking price..."

Me: "Uh no. I was prepared to make a fair offer".

Him: "Yes, I certainly understand. It is a beautiful home, and I'm sure it would sell fast if priced to sell. I've got your number (no, he didn't. I was calling from my unlisted cell phone)."

--

DAQU can keep telling me all about these bidding wars and over asking price auctions all she wants. Perhaps that's the case in the fringe neighborhoods, but not in dead-on prime Marin.

And btw, this home was _not_ a McMansion. Very elegantly done early 1990s home, with recent upgrading and spectacular views. Nothing wrong with it. Just priced way to f-ing high.

Wow, so SF proper is appreciating at a 37%/yr rate --thanks for the info, DAQU! And thanks also for reminding us that the plural of "unsubstantiated anecdote" is "data".

Randy H,

Funny how the second thing out of said agent's mouth was "no bids below asking". As in, s/he has been asked that question so many times, it's now boilerplate.

Monkey In Chief Says:

> Renting on the Peninsula is miserable. It’s hard to find
> a decent place to live. I moved last year and the search
> was just awful. You do get a better place if you buy but
> the premium is ridiculous.
> The rental stock is really poor because except for luxury
> apartments it’s a financially irrational decision for the
> landlord to rent property.

It is irrational to own rental homes on the Peninsula if you just look at the “cash on cash” return, but (as my Dad often reminds me) if he sold the homes he bought for $30-$50K in the early ‘70’s for $300-$500K in the early 90’s he would not have a bunch of homes worth $1.3mm to $1.5mm today…

but (as my Dad often reminds me) if he sold the homes he bought for $30-$50K in the early ‘70’s for $300-$500K in the early 90’s he would not have a bunch of homes worth $1.3mm to $1.5mm today…

True, but suppose he had sold them instead in late 80's (last market peak) for $600K-$1mm, invested the dough, and then bought them all back for $300-$500K in the mid 90’s (last trough). Hindsight is always 20-20 and timing (and luck) is everything. If I only had a time machine...

I wrote:

> but (as my Dad often reminds me) if he sold the homes
> he bought for $30-$50K in the early ‘70’s for $300-$500K
> in the early 90’s he would not have a bunch of homes
> worth $1.3mm to $1.5mm today…

Then HARM Says:

> True, but suppose he had sold them instead in late 80’s (last
> market peak) for $600K-$1mm, invested the dough, and then
> bought them all back for $300-$500K in the mid 90’s (last
> trough). Hindsight is always 20-20 and timing (and luck) is
> everything. If I only had a time machine…

Market timing with real estate is usually a bad idea unless the plan going in was to buy, add value and sell due to taxes (both income and property) and the high transaction costs.

If my Dad sold a home he bought in the 70’s for $30K for $500K in 1990 (when most people called the last peak) he would take a huge tax hit paying 28% (the Capital Gains Tax at the Time) of the gain to the feds + state income taxes. He would also lose the low Prop 13 property tax basis. Since values of mid priced homes west of El Camino only dropped about 20%-25% 1990-1995 anyone that sold and bought back in would be way behind…

Simcha,

Sorry to hear that the surgeries for tachycardia did not fix things. I will give two items of advice from my mind-published book "Secrets of Bay Area Real Estate".
1. Atchison Village near Pt. Richmond. These are co-ops, so you need a fair amount to put down, but it does have owner occupancy restrictions (which mean that "people who care"(TM) live there). And check out the prices. Get this $109000 for a Two bedroom one bath two story townhome. Monthly dues are low ($250) and cover just about everything.
2. Rent in Berkeley. Find a rental listing on Craigslist or from some other source. Check with the Rent Control Board to see if an illegal eviction has occurred (ie - LL evicted tenant and said daughter was moving in, yet, no daughter in unit, as the LL is seeking a tenant). Live in the unit at full rent for a year, then petition the Rent Board to lower your rent to the ceiling of the previous tenant. Any additional rent you paid during the previous year (over ceiling) will be credited towards your current rent. Oh, and after five years of living there, your mother will be part of a protected class ( Subsection 13.76.130A.9i) that has protections from eviction.

FormerAptBroker: Comparing your Dad's investment returns with the average real estate investor's returns is like comparing the performance of Microsoft with the average stock.

The Bay Area has outperformed all other regions in the U.S. includings New York City over the last 30 years. If your Dad lived in Texas and bought homes in the 1970s he would not have done as well. He has been luckier than the average investor.

If you plan to buy and hold for the next 30 years, which region would have better returns, the Bay Area or say Dallas, Texas? The returns should include both capital gains and rental income.

We finally arrived at Sedona, AZ. It is *really* nice out here. We may count the open house signs here and see how this part of America is doing. :)

FAB,

Good point --forgot about Prop. 13, the Great Unequalizer. Even assuming RE capital gains had been exempt to $250/500K back then, and the remainder taxed at today's rate, the 1970s tax basis alone is worth a serious chunk of change. (Note to self: (a) choose parents and birth generation more wisely next time, (b) keep working on that time machine.)

Perhaps that’s the case in the fringe neighborhoods, but not in dead-on prime Marin.

Fringe as in "geologically fringe" areas in San Francisco by the waterfront near the GG bridge? ;)

Besides the fact that a neighbor on my block sold for 10% more than the ‘peak’ last yr, and another neighbor sold for a record $3.7 million for a row house last month (previous record was $2.7 million), you’re right.. 6.6% is understating the actual price appreciaiton in SF!

DAQU,

It seems I've underestimated just how stupid you really are. Not only do you not understand the concept of a median, but you also think that two examples of oversold means your fake 6.6% appreciation is understating it? Give me a break. You are too dumb to realize that the more outlandish the example you cite, the more it means that the true MEAN (not median) appreciation for the vast majority of homes is well below the published numbers.

Well, it's official - there is now more inventory on the market than at any time in the past year in both San Jose and SF:

http://www.housingtracker.net/

I can't say for sure but considering last year was a record year for inventory in recent memory, I'd assume this year is a new record.

Good point –forgot about Prop. 13, the Great Unequalizer. Even assuming RE capital gains had been exempt to $250/500K back then, and the remainder taxed at today’s rate, the 1970s tax basis alone is worth a serious chunk of change. (Note to self: (a) choose parents and birth generation more wisely next time, (b) keep working on that time machine.)

Maybe you could pay some senior citizens to adopt you. After all, they can transfer the home to kin without a reset in tax base.

Which is retarded.

The world is coming to an end, and we all have declining incomes, and are losing money in our retirement savings too

DAQU,
Nice Chewbacca argument. Did I ever say the "world is coming to an end, etc."??? Maybe YOURS is, as you haven't seen a Realtor commission in god knows how long, and you're struggling to make payments on your neg-am mortgage that's about to reset, but nice try.

Hi_there,

True, but nowadays don't RE "investors" claim every property they own as a "primary" residence? I mean, Congress even allows you to define ANY property you've lived in for 2 (non-consecutive) years of the last 5 as a "primary", and I seriously doubt the IRS bothers to verify. Plenty of fudge factor there. A certain Uzbekistani flopper who used to have 8 "primary" homes comes to mind...

FormerAptBroker,

Prior appreciation says nothing about whether homes are overpriced today. Gains from the 70's till today were tied to strong regional real income growth due to the boom in Silicon Valley. It's impossible that the real price of real estate in the Bay Area can appreciate at the same rate unless real income rises at the same pace which is inconceivable.

Another way to look at it is that investing in Intel in the 70s would have generated spectacular returns. Investing in Intel today is highly unlikely to yield comparable returns over the next 30 years. I think the Intel comparison is apt since the same forces that made Intel so valuable are the same forces that drove Bay Area real estate price appreciation.

As other people have objected, claims about past appreciation need to look at average data not a particular investor. If you father did better than average, he may be especially skillful or just lucky but that performance has no bearing on what an investor can expect to earn. I don't expect to earn Warren Buffet's historical returns (which crush real estate by the way).

It's also impossible for any asset class to indefinitely outperform other asset classes on a risk adjusted basis. If the expected returns for real estate are really better on a risk adjusted basis, capital would flee other asset classes and all move to real estate driving up the price till the expected return declined to other assets with the same risk. Analysis of many asset classes show that ones that have had superior performance tend have low future returns because the previous gains drive up prices in that asset classes beyond the point intrinsic value.

My claim that low expected future returns on rental real estate leads to rental stock in a sorry state is more solid that anecdotes about previous gains. It's not possible to buy any rental estate in Bay Area today using a full amortized fixed rate mortgage for 80% or greater of the purchase price and not have strong negative cash flow. Thus new landlords have to pay monthly for the privilege of owning property. The future gains would have to be spectacular to over overcome the opportunity cost this negative cash flow.

Perhaps you disagree me about future real income can growth. Or perhaps you believe housing will continue to appreciate without real income growth. Just looking at the past doesn't show us anything about future.

MiC

DAQU

Don't skirt the issue. C'mon. Don't skirt it. Don't skirt it. Don't skirt it.

We wouldn't want to have to declare you cathartic, would we? Are you just content with Trolling, or do you have any comment on what I wrote above?

To FAB, OO, etc:

Any of you old-timer RE investment pros ever sell an investment property that managed to qualify under the new guidelines as a "primary" residence (and $250/500k capital gains exemption)? It looks to me like a loophole large enough to fly a 747 through, but then again I have zero personal experience in the matter. Just wondering...

Monkey In Chief

One minor point:

It is not similarly unreasonable to strive to achieve equal or greater returns than Buffett. Buffett's success was not industry dependent, but methodology dependent. Someday another value investor with a slightly improved approach will outperform his results, although his record could stand for a while.

And let's not forget about the RE investor's other best friend: Mr. 1031 exchange.

Overrated

I decided to check out the historical data.

HUD has nice set of historical data:
http://www.huduser.org/intercept.asp?loc=/periodicals/ushmc/winter06/Q406_historical.pdf

The change in the nationwide median home price between 1973-2006 was 7.68x (see table 9). FormerAptBroker says his father did between 30x and 43x which is a startling difference and far far beyond average.

For comparison the Dow Jones Industrial Index was 12.86x over the same period. I would have preferred to use the S&P over the same period but couldn't numbers going back that far.

The other interesting nugget from the HUD report is that afford-ability is at its worst point since the mid-80s and this is with historically low interest rates (table 11)

On the topic of Buffet, even Buffet can not generate the same percentage returns he used to. The amount of capital he needs to invest makes it difficult. He's methodology is also difficult to apply since it requires accurate predictions of potential investments future cash flow. His methodology is well known and any of the parts easy to apply have probably already been so widely as to dissipate any premium from them.

OMG, I just stopped the DVR to read this. You know the cashcall commercials with Gary Coleman? Read the fine print. The APR for a typical loan of $2600 is 99.25% with 42 monthly payments of $216.55.

Basically every 12 months your total of payments is $2599. The total of payments to borrow $2600 is $9072.

That's just wrong.

@Malcolm,

No kidding. Casey could tell you all about that, I'm sure. I guess it's better than the old style hard-money lending, though. At least you don't get your legs broken by 'Knuckles' when you don't pay.

100% APR? Even Knuckles would just bruise em real bad and tell the guy to tell all his friends he actually broke em. That's ONE HUNDRED PERCENT A P R.

M - I - C:

Incomes of local residents don't have to keep going up to prop up and continue to push up median house prices.

Only the "nominal" incomes of BUYERS need to keep going up.

Like, the nominally rising wealth of Asians. About half the people on the planet are in a couple of the fastest growing economies the world has ever since, India and China. Even if those countries have a very small percentage of wealthy people, there's still a couple of billion of them, more if you include the overseas Chinese.

Vancouver, Seattle, Bay Area, LA. These wealthy buyers covet the communities in our congested coastal urban areas that have public schools with the highest standardized test scores. It's the reason the median house prices keep going up, even though the rest of us are getting immersed in distressed homes for sale.

M-I-C

Another thing your comparison with stocks is overlooking is the leverage in real estate is usually higher than in stocks.