patrick.net

OP, you think YOU are frustrated? Talk to my realtor who saw my wife and I walk away from making an offer last month.

I doubt it. The site is registered to someone in BA and the discussions are all over the place. I didn’t dig too deeply but my short glimpse in suggests a site is crawling with FOBs who think entirely too well of themselves.

That's kind of why I thought that maybe MIT stands for the school. Just to make it "look better".

Here's a REAL question for people on the board...

If you had a chance to do a 'lease' option on a place you really liked in a neighborhood you really loved, where you had to put down 2.5% 'earnest' money, and had 1/5th of the rent for the time you would be there be added to the earnest money as part of the downpayment for when you bought the place.

Here's the 'hypothetical' :

A well kept up original owner selling his place for 950k, wants 25k earnest and charges 2500 a month rent of which 500 goes to the eventual downpayment, with a hard deadline of 'buying' in 2 years.

Your 'downside' is about 2.5%, in theory, but if you walk, you really are walking from 25k. The rent is comparable, so you're not losing money on 'overpaying' for the rental. If the market crashes, in 2 years you offer the fair market value, but he gets the 25k + 6k credit, plus all the rent you paid over the years.

OP, we didn't make the offer because I felt we were 'settling.' My wife REALLY wants a house, market be damned. But the place we almost offered on, we were settling for a house we knew was a little small in a neighborhood that wasn't exactly what we wanted, and in a school district that wasn't as good as we'd like. I just couldn't blow 3/4 of a million on 'settling' for a house, especially in a bubble. It involved a good deal of arguing and eventually kissing and makign up between me and my wife.

The site was started by someone who went to MIT, of course it has no connection with the school whatsoever.

SFBubblebuyer,

I have a problem of the strike price two years down the road. How do you set the price?

After all, you are not buying a stock, and if the transaction volume dries up in your neighborhood, you may not even be able to find a reasonable comparable. If you can agree on an objective yardstick that both sides can agree upon (for example, pegging the transaction price to the movement of DOW, or something like that), then it may not be a bad deal if you are uncertain about the housing movement in your target neighborhood in the defined time frame.

$25K is like an option you buy on the house. I suppose that you must be targeting some highly desirable neighborhoods where supply is rather limited. If you are just looking at some cookie-cutter burbs, then I would not pay the $25K.

Different Sean Says:

> How many LLs are prepared to sign leases restricting
> rent increases and making longer terms?

Most landlords will sign a longer lease if it makes sense for them. In areas of high turnover most landlords will give you a lower rent for a longer term lease, but in an area with increasing rents you will probably have to pay more to lock in a flat rent for multiple years.

> This particular apartment block was built ‘wholesale’
> by a developer years ago, before the boom,

What do you mean by “wholesale” (we don’t use that term to describe real estate in the US)?

> However, he wants to charge marginally *above* market
> rates right now because he thinks he can, at a time when
> rates are supposedly rising rapidly.

Unless a market is regulated by the government a landlord can’t get “above market” rents.

> This all goes back to my constant remarks in the past of
> what represents a fair and healthy social settlement.
> I have currently amassed about 6 emails from other
> tenants also protesting the steep rise.

You are better off trying to make a deal on your own, let the other 6 make their own deal.

> The fair social settlement notion is what underpins all rent
> control systems, and attempts to protect people from exactly
> this sort of behaviour.

What rent control does it give a small number of people a good deal at the expense of landlords and any new people that move to the city.

> Ironically, I suppose I’m from a family a little like FAB’s,
> who has amassed a pile of investment properties —
> I can move interstate and be given one at any time
> I like for almost nothing…

I don’t think you read that I have not taken a penny from my parents since my freshman year in college when they threatened to stop paying for college if I joined a fraternity to “goof off and drink beer” (and when I joined the fraternity they stopped giving me money). As a kid my parents didn’t make me pay for food but made me work at the rental properties for free. I never got an allowance and had to work outside the home if I wanted any money (they even made me pay for stamps when I wrote thank you notes after Christmas every year)…

OO, it's an area that has houses selling for comparable amounts right now. My yardstick would be "Can I buy a similar/better house for more than 31k less?" on whether I exercised the option. (Actually, it'd probably be rather more like 60K difference as we'd have 'grown roots' by then.) My wife and I have looked at other houses in the neighborhood and love the area, and the schools are good.

The fact that the option is about 2.5% of the 'current market price' makes me feel almost accomodating of it. It limits my risk of 'buying right now' by putting an option on it, and if it really IS a soft landing it keeps my wife from punching me in the head repeatedly.

And yes, there aren't a lot of houses in this area. It might make 'yardsticks' hard to come by in 2 years for comps.

SFBubbleBuyer Says:

> Here’s a REAL question for people on the board…
> If you had a chance to do a ‘lease’ option on a place
> you really liked in a neighborhood you really loved,

Lease options usually don’t make a lot of sense since if you thought prices were going up you should buy the home now and if you think prices are going down why “pay” to lock in the price a the top of the bubble?

> Here’s the ‘hypothetical’ : A well kept up original owner
> selling his place for 950k, wants 25k earnest and charges
> 2500 a month rent of which 500 goes to the eventual
> downpayment, with a hard deadline of ‘buying’ in 2 years.

Let’s say you have $190K in a money market or CD it will be earning about $825 a month.
If you get a $760K first TD at 6% your payment will be about $5,400 a month and taxes/insurance/misc. will be about another $1,300 a month so your pre tax cost to “buy” will be about $7,500.

If you really like the home renting it for $2,500 a month or just over $3,500 a month if you spread the $25K over two years rent is a great deal. I would try and get the lease option for longer than two years. Despite the perception from DS that every landlord is rolling in money most bust their ass to get the bills paid every month and will often give you a great deal if you can pay the rent 6 months or a year in advance.

The lease option seems like it might be a good idea for my particular circumstances where the wife doesn't believe that housing prices will crash no matter how much info I give her. We've been up in the neighborhood and REALLY loved the location. If the house is pretty much exactly what we're looking for, I'd consider it. An extra 1k a month in rent for a very happy wife would be worth it to me in the first place.

I'm sure housing prices will fall. How quickly they'll fall I'm less certain of. But I DO think 2 years from now everyone will have a better idea. If I had my druthers, we'd wait until it really was cheaper to buy than to rent, or we had a kid getting old enough to start attending school. 5-7 years makes sense for a target for me. My wife disagrees. :D Houses before kids, she says. I cannot argue with her ovaries effectively as they have no ears. Alas.

I'm going to look at the property tomorrow, most likely, and if it turns out to be a 'dream property' I'd consider doing it. The worst case for ME is property values plummet, and he refuses to sell me the house for anything BUT the strike price, in which case we 'lose' our overpriced dream house and the 25k (plus investment gains/cap gain taxes, etc.) and start looking for a 'new' dream house.

Oh, and the best case is I overpay for the house by 30-40k (by offering him market value plus my deposit when the 2 years is up. and then housing prices continue to drop and I've STILL overpaid.

Damn this housing market!

SFBB,

You present a compelling case. $25K is not a high price to pay for two years of domestic tranquility and conjugal bliss. This might be the best compromise for you.

If you go ahead with this, do have a RE lawyer go through the contract for for you. You need to protect your option - even if you think it's likely to be worthless. Make sure that the seller will be in a position to sell you the house in two years' time and the contract will hold up if you stand to benefit from the arrangement.

SFBB,

Nah. The best case scenario for you personally is to have the housing market drop 50%+ in the next 24 months. Then you can congratulate yourself on saving hundreds of thousands of dollars and a wife who thinks you're a financial genius -- and take us all out for sushi.

justme Says:

> I seriously hope that everyone that is against
> rent control also is against Prop. 13!
> While FAB is probably a principled person,
> somehow I can imagine that most landlords
> are not with respect to this matter.

I have said many times on this BLOG that I think that it violates the “equal protection” clause of the constitution when the government to give special benefits to anyone so I am against both rent control and Prop. 13 (and laws cost us all money when qualified firms with low bids lose out on government contracts to less qualified forms that charge more to make the government feel good about helping women and minorities who may be worth many times more than the white guys that own the firms with the low bids)…

Cody red, I feel your pain...not!

What about the pain of all the responsible people who played by the rules: joined the Army, joined the Army Reserves, went to college & got a BS & then an MBA only to be laughed at and told, "we've just raised the bar again dumb a--!"

What about all the people who were laughed at as dumb a--es for renting while the insouciant, irresponsible masses who luxuriated in their pimp digs and just piled into housing & piled it on because "housing friggen' NEVER goes down...Don't you know they aren't making land anymore?"

I don't know. I guess I'm so numb, I just can't feel your pain anymore.

Keep on looking. You’ll find something. B/c when you love something, it sometimes doesn’t even matter what it costs as long as you can afford it. You feel me?

Only if you feel like too many serranos in my chili, about three hours after the fact. Your posts certainly smell the same.

remember it is very simple. for every work visa, there is a non american working a job that an american, who votes and thinks in a similar way to you, would otherwise be working.

Bullshit. Sometimes people just don't have the intelligence or capabilities that you require. Using visas to cherry pick smart people from other countries gives you a much bigger pool of intelligent candidates. What you're suggesting might be true in undifferentiated grunt labor like construction or software, but it isn't accurate in high-end fields.

New Thread

SF Bay Area is Stubbornly Sticky (for now)

These are the ads Google sense is serving me right now:

Real Estate Bubble Burst?
We're hanging from a $300 billion rope, on its last thread. Full rpt.

Bipolar Disorder
Learn About Symptoms & Treatment Options: Find Information

For some reason, I find this incredibly amusing.

The visa holders competed with other engineers for their jobs. In my experience they are generally very bright and hardworking people.

The "generic" candidates work out of India or China. Nobody is going to spend good money to bring a substandard candidate to the U.S. If you want to bring the generic jobs back onshore, then talk to your fellow Americans. It wasn't until recently that engineers enjoyed the same level of wealth as doctors and lawyers. $40,000 is not a shameful starting salary as college grads are now led to believe. People can live without the Rolex, the Lexus and the McMansion.

And I'm not selling anyone out. Welcome to reality--if people want to buy cheap shit from China, the U.S. will keep losing manufacturing jobs. In the earlier part of this century we did the same thing to Europe. Nobody in the U.S. cried for them when our standard of living surged at their expense. The Chinese feel as sorry for us as we felt for the English, French and Germans.

Cold world, ain't it?

I recall back in late 70's when the Vietnamese people came over, their offspring who barely spoke English take to Computer programing like fish to water. The rest of the kids in Sunnyvale High were just more preoccupied getting stoned.

Local employers are not interested in cherry picking foreigners. Its doesnt solve problems on cost side. Therefore you will find many employers find it much easier to set up R&D in Asia due to cheaper labor and friendlier goverment taxation.

"SF Bay Area is Stubbornly Sticky (for now)"

The numbers off DQNEWS show SCC prices declining. But its not showing widely.

True but once we get that one shocker... all bets are off and prices
will show up.

Already the job market if flat for past 5 years. Fact is we are 850K in workforce the
same number we had back in 1990. Due to price pressure from customers and high
employer costs, i expect some pull back on headcount spending.

'backward, broken country"

so was Santa clara County. All we had here was fruit canary industry.
Some Lockheed jobs and fewer tech jobs.

Shmend Rick The Pious- my point is few locals favored a good education.
They were more interested in wasting away with drugs and booze.

As I recall going to Sunnyvale High we had castes too... we had Filipino, fewer whites, and lots of Chicanos. Lots of chicanos! We all hung out with our own kind. There was plenty of violence and gangs. Plenty gangs from east side and EPA. That was the Sunnyvale in the 70s.

No worry the shocker due to high cost will force many employers to scale back as they did back in mid 80;s. Once that hits the media, I expect prices once again to tumble like it did in the 80s and 90's. Many people overpaid hoping for a next 1999 stock boom in tech around 2010 or so. But given all the stock option scandels and compliance costs, we are not seeing IPOs like that of past decade. That boom wont happen again.

oh what the hell, may as well persevere... i'm back from work...

FormerAptBroker Says:
Most landlords will sign a longer lease if it makes sense for them. In areas of high turnover most landlords will give you a lower rent for a longer term lease, but in an area with increasing rents you will probably have to pay more to lock in a flat rent for multiple years.

The landlord isn't even interested in signing a 6 month lease where I am. They prefer to keep a rolling monthly agreement after the first 6 months has lapsed. The rest of the discussion is therefore theoretical and moot, and longer terms are not normally entered into in this country, but I'm not personally interested in signing even a 6 month lease either, as it reduces my mobility and options.

What do you mean by “wholesale” (we don’t use that term to describe real estate in the US)?

Wholesale is actually accurate in this case, it's sometimes used by foreclosure buyers and RE gurus to mean 'very cheap', but in fact as the owner was the developer, they own the units at cost or construction price, rather than adding the 25-30% retail markup that most individual investors have to pay to the developer. Working backwards from nominal retail, then, they got a 20% discount over most investors. They just had to be able to manage finance on 70 apartments at once, but it's probably no worse than an investor managing a single apartment, in fact, it's probably easier once you get tenants in.

> However, he wants to charge marginally *above* market
> rates right now because he thinks he can, at a time when
> rates are supposedly rising rapidly.

Unless a market is regulated by the government a landlord can’t get “above market” rents.

Comparable prices in the area for similar apartments. Technically whatever they get *is* the market, but the Tribunal doesn't see it that way when it comes to rent increases.

You are better off trying to make a deal on your own, let the other 6 make their own deal.

unity is strength. we can bombard the tenancy tribunal with 20 similar applications. i'm going to try to reverse the increases for everyone, though, as many are not confident negotiators. and these are stressed students with limited incomes.

What rent control does it give a small number of people a good deal at the expense of landlords and any new people that move to the city.

poor old landlords, always losing money. why the expense of newcomers? can't see why. anyhow, rent control schemes can be devised in any number of ways...

I don’t think you read that I have not taken a penny from my parents since my freshman year in college when they threatened to stop paying for college if I joined a fraternity to “goof off and drink beer”

I haven't had anything much since the age of 15. They purchased properties later, just before the boom...

Shmend Rick The Pious Says:
sean, i just want to make a rare positive statement here, but I always read your posts. you obviously have a good liberal arts background and it shows. you would probably make an excellent scotch drinking buddy, but from what I understand you are living down under. ive lived there for a year and I love aussies and your country to death. what a great bunch of people.

yay. must swap addresses. i haven't commented on 'post-autistic economics' yet, i'm waiting for just the right moment...

Ace Says:

"...All we had here was fruit canary industry..."
_____

Is that a type of bird?

SP,

Maybe some folks think Indira Gandhi is a man...

Jon,

Fairness is irrelevant. When you rent, you're paying for a temporary right of occupation to the true owner of the property. There's no reason you should have any rights beyond the terms of the lease.

I simply don’t put someone’s right to (unlimited) profit above the sanctity of another’s home. People go on and on how it ruins the market, etc. I see absolutely no evidence of that here. Fairly applied, rent control is a benefit.

I know a woman who pays $470/month for a four-bedroom apartment in Manhattan, two blocks from Central Park and a block from the Dakota (where John Lennon lived/got capped). She started renting that apartment in the late 70s. That’s an example of unfair rent control. Not all rent control works that way.

Jon,

You just provided the rebuttal to your own argument here. Although rent control --& Prop. 13-- sound like great ideas on the surface (gee, saving $$ at my LL's expense, how wonderful!), such selective redistribution schemes typically result in worse inequities than they were supposedly designed to "fix" (i.e., the cure is worse than the disease). I have yet to see a "well designed" rent control system that did not create severe market distortions that were UN-beneficial to the majority of the general public, as well as lots of bad incentives (to game the system). In other words, it usually creates big, counter-productive moral hazards.

Shelter is a basic necessity and is the ‘base’ around which people structure their productive lives and the lives of their families. I’ll say it again: when people are forced to drop everything, uproot their families, incur moving costs, and in some cases, change jobs, the community and society pay a price that is not justified by the LLs right to maximize profit under and all circumstances.

If you want to remove the profit motive and consider shelter to be a basic citizen "right", then I would suggest supporting government-built housing for the poor. Rent control is one of the most ineffective, inefficient and costly ways of subsidizing housing for poor people. Most of the time, the truly poor see no benefit at all --it's the smart, rich, crooked types that are most successful at gaming the rent control game.

I have yet to see a “well designed” rent control system that did not create severe market distortions that were UN-beneficial to the majority of the general public, as well as lots of bad incentives (to game the system).

Because any price control system will create severe market distortions.

What is fairness anyway?

astrid Says:
Fairness is irrelevant. When you rent, you’re paying for a temporary right of occupation to the true owner of the property. There’s no reason you should have any rights beyond the terms of the lease.

that's a narrow view of decently providing shelter in a society, though...

Peter P Says:
>I have yet to see a “well designed” rent control system
> that did not create severe market distortions that were
> UN-beneficial to the majority of the general public, as
> well as lots of bad incentives (to game the system).

Because any price control system will create severe market distortions.

This is just more of the same neo-liberal market dogma and fundamentalism. It's like a neural network which always oscillates to the same answer no matter what the inputs.

This is completely unsubstantiated by argument. You've looked at *one* system and said therefore that all systems can't work. (And maybe the system *does* work for many, just not in your view.) This is just a nonsense. Talking about scientific reasoning, because one rocket misfires means in your logic that no rocket will ever get off the ground and there will never be a space shuttle. People invoke 'scientific reasoning' when it's convenient and then proceed to prove they don't have any, and they have a 'one size fits all' answer. Where does this neo-classical market brainwashing come from, by the way?

In other words, it usually creates big, counter-productive moral hazards.

The only 'moral hazards' I see are exploitation of workers by landlords, unhelathy economic bubbles which are harmful to both the micro- and macro-economies, and incredible unfairness and disenfranchisement of a sector of the population for the enrichment of others. That's my definition of a 'moral hazard'. The original defn of moral hazard was from insurance companies talking about the question of whether it becomes too tempting for a businessman to torch their business and claim the insurance. It now means anything which jeopardises so-called 'free markets' apparently, as redefined on this blog.

The whole cycle of creating 'haves and have-nots' also increases crime and anomie, which I see as 'counter-productive' also.

just a test post