patrick.net

HZ is again dead on. Mortgage interest deduction only benefits marginal earners in a narrow band, which is increasingly elusive in CA. AMT kicks in pretty quickly for CA earners, although I read somewhere that a significant portion of folks just ignore AMT even when they owe it (probably out of ignorance). They may gain from mort-int, but they are unwittingly cheating on their taxes.

The biggest tragedy is that mortgage interest, like everything else, benefits the very rich more than anyone, since they can utilize it for earnings over .5M and usually they have the wherewithall to structure specifically to maximize tax benefit. Personal wealth managers make quite a business financing rich folks' RE so they can reinvest in higher returning portoflios (like PE funds), and effectively arbitrage the low interest rates plus taxpayer subsidized deduction.

"We were still keeping a good eye on the South Bay and Peninsula market (mainly the Peninsula) and the market has definitely gone down. "

Interesting anecdotes, Gabby, and I hope you're right about the peninsula. I check listings there periodically, mainly San Mateo area, and the prices still make me want to puke. But I'm not seeing the what's-sold side of it. I'll have to start keeping a closer watch.

The realtor does no selling or buying; he simply negotiates the deal.

I have to agree.

Don't worry too much about for whom the agent works. The fact is that one does not have to buy if the terms are not right.

Meanwhile a buyer can’t rely on the selling agent to tell her what is the “right” price. No selling agent will tell you that you are over-paying. But that is what this board is for.

Very true. The buyer can only rely on herself to find out the "right" price. She can. however, "rely" on the agents to negotiate towards that price or there will be no deal.

ScottC, are "exclusive buyer's agents" popular in Texas?

Everyone wants someone else to look out for them, but no one wants to sign an agreement with an agent to represent them.

I cannot imagine buying without representation. Why don't people want to sign the agreement?

Because it will limit thier buying options possibly.

How so?

Anyone can look up an article on the web, but how many have actually lived and worked in the business? I rest my case.

So you have no data, just anecdotal supposition. That's fine. It will sure comfort those in the middle class who were seperated from approximately 27% of their real wealth during the period.

And for reference, I didn't look up any articles on the web. I have been studying econometrics for the past 12 years, and have personally contributed to two such macroeconomic studies. Even so, I don't require that to argue my points.

Being an Asian myself, I resent the fact that Bay Area has become a big Asia magnet. Excuse me, if I want to live among my people, I would have stayed in Asia. The fact that I fled that place is because there are something very undesirable that I recognize of my culture, and my own people that I don't want to be associated with. The flocking of Asian population into Bay Area is exactly what makes me think twice about whether I want to put down my roots here. I know quite a few Asians who share the same sentiment as mine. We purposefully avoid high-Asian-concentration neighborhoods.

Randy H,

I am curious as to the specific reasons for your preference for the S-Corp over the LLC.

I am curious as to the specific reasons for your preference for the S-Corp over the LLC.

Ditto.

"But then they don’t teach that in econometrics or macroeconomics, do they?"

No they don't. You have to work in the business or go to real estate trade school for that kind of specific information.

Economists are generally more interested in how and why the world works the way it does, rather than the specifics of a given job or its pay structure.

BTW, I have also "wasted" many years studying and applying that "useless" economic theory.

Funny thing though, I negotiate several hundred million dollars of business/investments each year. I wonder how that can be possible with all the time I wasted studying economic theory and investment finance.

As for Randy, nobody cares one wit about econometrics or macroeconomics, meaningless classroom hypotheses that have no bearing on the real world. Exactly what does either have to do with real estate law or, much less, the practice of real estate? Nothing. And so you have no point. Have all of the twelve years you’ve wasted studying textbook nonsense prepared you to negotiate one deal? No.

ScottC, economics is an art. Is it useful? I think so, it is a good tool. Can it replace real world experience? Probably not. However, it is quite far from meaningless.

I am not exactly a fan of economics but I do find it amazing at times. Randy is doing a very good job explaining the stuff as well.

As for Randy, nobody cares one wit about econometrics or macroeconomics, meaningless classroom hypotheses that have no bearing on the real world. Exactly what does either have to do with real estate law or, much less, the practice of real estate? Nothing. And so you have no point. Have all of the twelve years you’ve wasted studying textbook nonsense prepared you to negotiate one deal? No.

I am sorry you do not care about economics; it is of course your right to believe anything you wish. I do resent the personal affronts, however, as I've done nothing to directly attack you, and I shall not. If you don't wish to have a spirited debate and instead rely on proclaiming yourself right and alternate opinions invalid, then I guess there is no point to the discussion. Just for reference, economics, among many other topics both textbook and real-world, have prepared me well for negotiating in many circumstances, RE being one where I have fared quite well (with the use of agents, I might add). I find having a broad, open mind beneficial.

Randy,

so with the big picture in mind, what will this inflation do to the US? Will there be further polarization of income and wealth so that the US is only comprised of two classes: the rich and the poor? Will that make this country rather unattactive to live in?

Whether from a book or on the street, the more you know, the better off you will be. Economics is powerful knowledge when combined with some practical experience.

I have found it to be the edge that has enabled me better understand what I experience and see. This has helped me to out perform nearly all of my peers for 30 years.

Zephyr & Peter P

I am curious as to the specific reasons for your preference for the S-Corp over the LLC.

Back when I had an LLC (CA, circa 1997) it was essentially an S-Corp. where the member-managers (the partners) had limited liability vis-a-vis the others' actions. The primary concern was taxes. In both, the taxes pass through to partners--the firm cannot retain earnings. This allows for usually better tax treatment than a C-Corp. However, in 1999/2000 the value of the LLC was seriously reduced by court rulings, and they found that the partners could still be held severably liable in most cases. Further, because they effectively removed some big-ticket deductions from partnership-style companies (mainly car leases), and forced a lot of other perks into taxable income status, the C-Corp became again a bit more attractive (which is what I formed the next time round).

The final consideration for me was the "single-member" penalties incurred by a LLC that aren't by a S-Corp. Remember that now, both are effectively of equally limited liability.

Assuming a 1-member manager LLC, LLC's are taxed self-employment on distributions whereas S-Corps aren't (they're just taxed as income). The LLC demands you to include any debt you carry for the corporation in the basis, which can help in accounting if you need to show a lower valuation, but can hurt your credit score if it's just you. The LLC does let you add new members later without a tax hit, so if you plan to grow you may want the LLC.

***not legal advice, and information is dated as of 2000. LLC law was still evolving at the time I last was informed on the subject fully***

Randy is the best thing to happen to this blog since Surfer-X. Delightful, measured, intelligent and eminently civilized posts.

Have a beer, Scott. It'll be OK.

Cheers,
prat

Randy is the best thing to happen to this blog since Surfer-X. Delightful, measured, intelligent and eminently civilized posts.

Here here.

Or would that be "Hear hear?" ;)

In other, non-defending-the-only-person-making-anything-resembling-sense, news:

http://tinyurl.com/cfoqy

Down 13% in NY?

Cheers,
prat

Thanks, I was not aware of the single member penalty for . I also thought the LLC would provide the limited liability even with one member.

"However, in 1999/2000 the value of the LLC was seriously reduced by court rulings, and they found that the partners could still be held severably liable in most cases."

What jurisdiction/state was this in?

Or would that be “Hear hear?”

To quote the philosopher: "A little bit from column A, a little bit from column B."

Also: "My Homer is not a communist. He may be a liar, a pig, an idiot, a communist, but he is not a porn star."

cheers,
prat

Randy, thanks for the insight on LLC.

SactoQt, how is your new home?

Also: “My Homer is not a communist. He may be a liar, a pig, an idiot, a communist, but he is not a porn star.”

Huh? What? Doh!

Loooooooooooooooove the new home. I'd buy it if I could. :)
The move was grueling though......

First of all, Asians and Asians are different. There are quite a bit of cultural difference between the Koreans, Japanese, Chinese, Vietnamese, Indians, so I was making more of a generalising comment, which is probably a bit unappropriate. Second, these Asians all come from different economic backgrounds, and as we all know, our behavior is more driven by economic differences than anything else, regardless of the race.

Asians who are more acclimatised to the mainstream Christian, WASP culture, educated and grew up here act no different from any other native citizens. What I try to avoid are neighborhoods comprising a high density of the FOB (fresh-off-the-boat) types. They are less hygiene conscious, don't speak English at all (and don't try to), sharing single homes among 5-6 families, and run shops that only cater to their own people with no respect to non-Asians in the community. They watch no American TV, watch satellite TVs broadcast in their own languages only, make no attempts to understand the local culture, history, social norms or laws.

In a nutshell, some of the FOBs don't melt, they try to create a little China or little Vietname in a country called USA. I am fine with little China or little Vietnam for tourism, or for eateries, we all love that. But I don't want to live a Chinese lifestyle or a Vietnamese lifestyle, or have my kids grow up speaking English with a thick unrecognizable accent. No, that is not why I came to this country.

So when I say I want to avoid neighborhoods with high Asian density, I mean I want to avoid Asians-at-heart, I am Asian by heritage but definitely not at heart.

so with the big picture in mind, what will this inflation do to the US? Will there be further polarization of income and wealth so that the US is only comprised of two classes: the rich and the poor? Will that make this country rather unattactive to live in?

Disclaimer: I am in the camp of those who thinks inflation can be severely damaging, both economically and socially. Others disagree, often on sound theoretical grounds, but nearly all agree that inflation is not "good".

In general inflation reduces purchasing power, especially for items which aren't price sticky like food, commomdities, and energy. Durables like cars, and real estate move much slower, RE being probably the slowest and really not well correlated to inflationary movements. But the big problem is wages. Wages tend to not inflate until very late in an inflationary cycle, and there is loss-lag when they do. There is an entire area of study devoted to personal income inflation behavior, with the current thinking being that people just don't understand inflation that well because it's kind of invisible and hard to measure at a personal, real-world level. What is observed is that each inflationary cycle tends to reduce wages in real terms by a small amount, permanently.

What happens in companies is a kind of wage-efficiency, that is those who can hold onto their jobs fare significantly better than those who are recyled into the eonomy. This is because it is (in theory) better for companies to avoid higher turnover and pay the demanded increased wages for known-workers. But entrants earn the market-clearing wage, which has been depressed by higher unemployment (which lags inflation cycles by about 1-2 years), so they lose not only nominal wages but exagerratedly lower real wages.

Inflation itself probably doesn't cause all too much transfer of wealth IMO, but stagflation--a cycle of persistent high unemployment, slow growth, and inflation--destroys wealth quite effectively. This is measurable and pretty certain. Of course, the wealth isn't destroyed, it is redistributed mainly to one of two places: (1) the wealthy, (2) the government. In the 70s stagflation, much of the wealth went to the gov't due to the tax structure and regulatory structure; during the early 80s cycle much more went directly to the wealthy, mainly as real-asset appreciation and corporate equity.

Broad wealth distribution seems to only occur during periods of (1) steady, healthy GDP growth, (2) low unemployment, (3) low inflation; some add (4) good productivity, but I think this is redundant and not always necessary. We have just gone through an incredible period of broad wealth distribution, which is probably doomed to slow/stop at some point since these things are cyclical. Note, that wealth rarely ever reaches the _true poor_ class; those at the bottom with no education or skills and no likelihood of obtaining either. They are only enriched by the government directly...which leads to a much bigger discussion that is best left to socio-economic-political blogs.

Milpitas, Fremont especially. Most educated Indians speak English well, so at least it is easier for them to melt. Everytime I go into Milpitas, it sort of makes my head spin, it is so Chinese that some Chinese even find it repulsive.

I was referring to LLC's in CA exclusively. I only know CA and IL corporate law very well. I think pretty much every state has ruled on LLCs in one way or another.

Remember that the LL doesn't give you any extra indemnity. In fact, all these corporate structures are just tax elections (ok, LLCs are a bit more complicated, but for the purposes we're discussing). All corporations have equal corporate shields of indemnity so long as you, the owner/manager/director don't pierce that shield through your actions. That is, don't use the company's bank account like it's your own. If you run it like it's a real company, then you get the indemnity.

If you don't want all the hassel, and aren't worried about being sued, then just file as sole proprietorship, which costs you only self-employment tax and an extra form on your return.

Economic theory, econometrics or macroecomics or whatevernomics, has nothing to do with real estate.
Real estate is a willing seller and a willing buyer agreeing on a sales price, with full disclosure. It is never anything more than that.

The funny thing is you just described a microeconomic equilibrium. Seems whatevernomics might be a good field for you to look into after all.

Vee, there is nothing that I am ashamed of my heritage. But there is no point for those so proud of their heritage to come to the US to preserve that heritage. They can stay where they are and preserve it even better. Won't Chinese staying in China preserve Chinese culture better?

The whole point why we fled our countries because there were something wrong there that we felt beyond our ability to fix, one way or another. When you go to a new soil, it will be a lost opportunity not to embrace the new culture and new way of living entirely. Nobody can choose which culture or race can be born into, but one certainly can pick and choose the best culture to follow. The fact that some immigrants are clinching so hard onto so many habits that only make sense in their own country is a fact that they are complacent, unadaptive, and timid when it comes to embracing their new country.

If they like their old country, own language and old way of living so much, why bother with emigration? Won't it be for their own good to bind with their countrymen and build a better home country?

These same people when go to native land try to behave American!

LOL

Anyway, this is a topic for a different blog.

vee, can you write a short paragraph about how this aspect of immigration is related to the housing bubble? I can put it up as the topic for the next thread.

I have been scanting through craigslist, it seems that the rent is going down for the same-quality inventory compared to 3 months ago. I am wondering if it is possible for BOTH the rent and the housing price to go down when the bubble pops? Why? Because there are many homes being built right over the mountain of East Bay that are banking on investment interest. Once the investment interest dries up, who will buy these homes? What kind of rental pressure will add to the market?

ScottC,
Show me two economists who can agree on anything, and I’ll show you one economist standing in front of a mirror.

It is the job of the economist to make forecasts based on economic theory. However much we like to think that theory will be fact, other factors will arise to prove the forecasts less than perfect.

I guess investing in RE is similar in that we make assumptions on performance of the investment, but unfortunately you cannot guarentee the results:- tenants move, prime becomes unprime etc.

It would be blind folly to expect tomorrows returns to be the same as yesterdays ones, if you do not understand the underlying conditions that gave results. This is called analysis. I would have to say that most shrewd investors would analyse their investments and try to forecast how the fundamentals may change.

ScottC,
Real estate is a willing seller and a willing buyer agreeing on a sales price, with full disclosure. It is never anything more than that.

It would also depend on how the money is obtained.
I'm sure the lender (if they are sane) would want to ensure that the borrower can meet their obligations.

Unless of course the lender is a wrapper that has overpriced the property and offered vendor fincancing with repossession if the buyer defaults. (This of course represents minimal risk to the vendor, and is obviously a bad deal for the buyer)

“There are some immigrants who refuse to accept and assimilate into the society they have moved into”

Somethings never change.
I guess this was the case for the first settlers in America, and Australia in that we did not integrate into the pre-existing native cultures.

All I have to say about the US is, all those immigrants who came to this country obviously vote with their feet, and money too. Those who think that this country is broken and reluctant to be a part of the solution should just go back to where they come from, and this comes from ME, a first generation immigrant.

It is just myth that Americans have a higher divorce rate. I studied in Europe for a while and was shocked to find out most people don't even bother to get married. They move in, they move out. The divorce rate is obviously lower. Another surprise is China, which has the highest number of prostitutes per capita, if prostitution becomes legal, that will probably becomes the largest industry employing the most people on the face of earth. Lots of upper middle class men in China have a second wife/ extramarital girlfriend, there goes your Asian family value. America is actually a very prude country with lots of established family/religious values, for better or for worse.