patrick.net

It's all fun and games until the cascade of defaults gets going.

astrid,

Exactly. Just how much excess cash are we gagging on that after the greatest borrowing and indebtedness binge in history there's STILL some left over to buy you out of 1/2+ of your "future appreciation"?

EBGuy, there WILL be some boomers that have so drastically starved and underfunded every other aspect of their lives that this deal with the devil will actually look good. They will be able to get a term life policy they should've put in place when they were still in 30's.

SP,

Thanks. I can see why they'd want a higher return, it just seems like it wouldn't be worth the bother if it had to include dealing with depreciating real estate. I guess you have to get in there while there are still assets to grab.

Do mortgage holders actually keep track of our risk profiles? I get solicitations from mortgage people that say 'I see you have a mortgage of $xxx, refinance with us.." but it is always the wrong amount, usually the initial loan amount from 1994.

SFWoman,

If there's a high likelihood of future default in a worse market, it would be in the lender's interest to sell the property ASAP.

SP,

There may be some truth to that. We have a fellow here in OR that had a very high profile meltdown ( big $ divorce and general chaos) and his hotel chain found that funding dried up overnight! Since his ex-wife was given over half of his hotels the lenders were lining up. (She had no experience running a hotel, let alone a chain) so I believe the lenders exercised their acceleration clause.

PAR,

In typical Rich Dad fashion RK has left this open to 'interpretation'?

I'm not even sure if his observation has any relevance? Is he visualizing some kind of mass event?

SFWoman,

That's actually another little REIC "goodie". Title companies provide your personal information to just about any mortgage firm either for a price OR w/the understanding that if the MB can get any business out of the "lead list" they will get the title biz. None of the parties involved see absolutely anything wrong w/this whatsoever.

(You really gotta get on the Do Not Call list!) :)

PAR,

Thanks. I have few friends who are considering renting the place together, and it just got me thinking about how much it would cost to buy it. If you look at the Craigslist post you can see it is very nice...I figure someone familiar with Nob hill will can clarify if it is in the $1M or $2M range.

http://sfbay.craigslist.org/sfc/apa/279468562.html

SFWoman,

is your property in the country bigger than 100 acres? If not, you can combine your lot with your neighbors to reach that threshold so as to put them under Williamsom Act. However, no residential structure can be allowed on WA land, so perhaps you need to designate only the portion of your land that won't have the structure on top to be lumped together with your neighbors'. It is a good incentive to keep more agricultural land in California, and particularly beneficial to those who plan to hold their land for a long time.

SFWoman,

the US banks can recall any loan that is a revolving credit line in nature, if they feel that the borrower's risk profile is quickly depreciating. The revolving credit line typically has no collateral, or quite flaky collateral like some business inventory that could lose half its value overnight (think fashion clothing).

Credit card loan can be recalled any time even if the borrower is paying.

Boston transplant,

I think the apartment is probably closer to the $1 million (maybe $1.2 or $1.3ish) than the $2 million range. It's small for a 4 bedroom, has only 1.25 baths for 4 bedrooms and has no parking in a neighborhood one block from Chinatown. (Absolute, utter parking nightmare) It does, however, have a noteworthy view. I doubt it is a doorman building, so the fees are probably less than $500/month. I would tell your friends to rent it only if they don't drive or can find leased parking nearby, otherwise they are going to spend all of their time trolling the neighborhood for a parking spot.

I have a friend who lived a block up the hill from there and just bought a new place last November. (I am basing my estimates on her place) The neighborhood is very convenient for people who work in the financial district, and it is easy to get to great restaurants. Because of the bad parking it is very difficult to have people from other neighborhoods over if they drive.

OO,

My place already is Williamson Acted, according to my deed. There were a bunch of disclosures "Wildfire area, no red legged frogs, etc, not within 1/4 mile of a known fault" and the Williamson Act was included as a disclosure. It is less than 100 acres.

Perhaps it should be 'trawling the neighborhood for parking".

SFWoman,

just out of curiosity, because I plan to acquire a WA lot sometime in the future, did you buy directly from the last owner as WA land or did you put it under WA yourself? I thought that one had to satisfy the contiguous 100-acre requirement, and no residential structure could be erected (except for farming structure like a barn etc.).

Do you know of any WA land agent that deals with such matters? Thanks.

StuckInBA Says:
What’s wrong with Kiyosaki?

Plenty...

Is he trying to reinvent his image?

Yes, i guess so. When the advice in his earlier books is shown up to be complete cr@p appealing only to the Thompsons gazelles of investing, he then has to go on and engage his brain and do some reading on the markets etc to try to appear like a real expert. Same as Larry Nusbaum -- invent the persona first, then when you get called out on all your cr@p advice, go off and do some hard thinking to reinvent yourself as someone knowledgeable by cherry-picking everyone else's ideas and tone down the act a bit...

I got something in the mail today from an 'investment guru'/spruiker -- he is standing in front of a Bentley on a country road, except he, the Bentley and the country road are all photoshopped together from 3 different photos. These characters love to stage themselves in front of yachts, on marinas, in front of Ferraris, etc, and it's amazing and frightening how well that sort of simple image manufacturing works on most people to convince them the guy is a rich business genius. (Well, if they *are* rich it's usually from seminars, not taking their own advice in investing.)

OO,

My place came Williamson Acted, I was actually surprised when I found out (on the disclosures) because it isn't a super large property and the people I bought it from hadn't done anything agricultural with it. The people before that, however, had subdivided their 2000 acre cattle ranch into 22 'ranchettes', so perhaps it was Williamson Acted at that time. I don't know when the Williamson Act came about.

I don't understand how anybody could be bearish about this market. My wife and I just started looking for a house. We have :

Household income of 180k
Savings for downpayment of 250k

Unfortunately, we cannot find a decent sized house with good schools. We either have to accept living in a shitty school district, commute for an hour, or live in a tiny crapbox we can't afford to remodel now! We'd better buy before we get priced out of the market and count on massive appreciation to allow us to finally buy something livable!

How can you think the market is going to collapse? BUY BUY BUY!

(Also, anybody know of any sweet rentals coming up in June?)

SFBubbleBuyer :

Where were you 2 years ago ? I wish you had given that advice before I started hanging out with the JBRs here. I would have made so much money. How high the median in Cupertino be 2 years from now ? I may think of buying if there will always be so many people with 250K saved for down payment. I don't want to miss the boat.

Thanks for injecting some sense in this blog.

The guy who made up a story about a “rich dad” and made a lot of money selling books (but not much selling real estate) Says:

> For example, say you buy a house for $100,000 and put
> 20 percent down and borrow $80,000. If the market
> deflates and the value of your home drops to $70,000
> (because everyone else is selling their homes to get out
> of debt), the lender may ask you to pay the $80,000 you
> owe immediately.

I’ve never heard of a lender that could call a loan if the LTV fell below some point (but I’ve only actually read every word of a few residential home loan docs).

Then palo alto renter Says:

> I just clicked on one of those Kiyosaki stories and he
> mentions banks calling loans on depreciating houses,
> even if you are 100% current on the loan. I don’t read
> his stuff normally but I presume he knows what he’s
> talking about.

Kiyosaki knows how to sell books (and games, and classes and DVDs…) but not much about real estate investing.

The SFWoman Says:

> palo alto, Why would a bank ever call in a loan as
> long as the person is paying?

There are many reasons that a lender will call a loan that is current. Some examples include not maintaining home or allowing the home to be used for illegal activity like a crack house or pot growing house.

Then DinOR Says:

> Virtually every mortgage I’ve ever had contained an
> “acceleration clause”. Every time I brought it up it was
> quickly dismissed as “obsolete” and seldom if ever used.
> More applicable to the Great Depression era than today.
> O.K then, why is it still in here then?

I would be interested in reading this “acceleration language” and hearing if anyone here has heard of a bank calling the home loan of a solvent borrower who is making regular payments on his well maintained home. How would a bank “prove” that the value of had dropped below a specific point?

Then PaloAltoRenter (or just PAR) Says:

> DinOR, SP, SFWoman, Thx for your comments. Maybe
> Kiyosaki is specifically talking about investment properties?
> That would make more sense… Like I said, I don’t read his
> stuff but somebody here inserted a link.

I have actually read lots of commercial loan docs and while they have many more events of default (like change of control so a lender can call a hotel loan after Mr. Patel the veteran hotel guy dies leaving the property to his 19 year old girlfriend) than residential loan docs I have never read (or heard) of any LTV test…

Right now the rents vs. mortgage are still way out of whack.

I saw in the exact same neighborhood, about 2 blocks from eachother :

2 bedroom, 1 bath, 800 sq ft house on 4750sq ft lot, 660,000 bucks. Listed as 'ready for tear down, build your dream home.' Cheapest thing in Cupertino, basically.

3 bed, 1bath, tiny house... renting for 1600 a month. (http://sfbay.craigslist.org/sby/apa/281561700.html)

So putting 150k down, that's still almost 3200 a month, without taxes vs 1600 a month and 150k in 5% yield bonds or whatever you want to invest in.

It sure doesn't make sense.

FormerAptBroker:

I think it can happen.

When I borrowed for a mortgage in 1989 the mortgage guy at Great Western on Montague in Milpitas S & L laughed out load at my face when I asked him to show me in the contract the language that explicity told the policy on whether the loan could be called. In a derisive way, he, an immigrant from Hong Kong, told me that in California houses never lose value, without ever answering my question.

See, I remembered a news segment I'd seen a couple of years before about people in upstate NY losing their homes when their mortgages got called, because the loan was under water.

Boston Transplant,

Nob Hill goes for about $700/sq ft for a condo or $600/sq ft for a TIC, so somewhere between $1.2M and $1.5M, I would say. Maybe a bit less because it is on the Chinatown side, as SF Woman said.

So, $7k mortgage, $1.2k tax, that is $8.2k * .6 (40% tax bracket) = $5k.

A bit cheaper to rent, but not by much. Throw in $400 mo homeowners association fee, if it makes you feel better to rent,

Somebody gave me Kiyosaki's book as a birthday present a few years ago.

I agree with those who say he's a B.S.'er, but he also has some good ideas that are the same kind of common sense in a book called "The Millionaire Next Door".

SFBubbleBuyer,

Where do you work? You can buy something in Piedmont for ~$1M that would be 3/2 and probably 1500-1700 sq ft. I don't know if you consider that "decent sized" or not, but it is plenty of space for two children. You can probably get something slightly larger for that price in Moraga, but again, I don't know if you work in The City or Silicon Valley.

If it is the latter, how about Fremont? I hear the schools are good and homes are still relatively cheap. The commute must be brutal though.

On and SFBubbleBuyer, if you have only one kid you are much better off renting and sending the one to private school. With two it is kind of a wash and with more than two, you should buy, but your kids or going to have to double up or something if you want a top school district.

Why don't you buy in Campbell Haha?

But yet you can rent one in that area quite easily, Haha.

Shows a bit of a disconnect from fundamentals.

Jimbo, I work in Mountain View, my wife in Palo Alto. I've done a commute of San Leandro to Menlo Park before. That blew. I left for work at 6am just to avoid the traffic. FUN!

I don't mind commutes, but I'd like to minimize the commute with the idea of kids in the very near future. South peninsula and northwestern southbay is pretty much the most 'central' you can get, so future job changes would likely not change the commute TOO much.

I'd like to avoid commuting from Santa Cruz like some of my coworkers. Ugh.

OpinionsPlease,

I would not buy right now. I am holding off for 2004 prices, at least.

CB, now I see how everyone does it in SV, they have three adult incomes! This also explains the shortage of single women :-D

sybrib Says:

> Somebody gave me Kiyosaki’s book as a birthday
> present a few years ago.
> I agree with those who say he’s a B.S.’er, but he also
> has some good ideas that are the same kind of common
> sense in a book called “The Millionaire Next Door”.

Sure he has "some good ideas", but so does Casey Serin...

SFWoman, FAB, Jimbo...thanks for the advice. Fab, your description was pretty much right on the money. It's a group of gals working in the city, interested in the no-car thing.

Regarding the poor parking in that area...is that really considered such a huge downside by the majority of people in SF? I live in Beacon Hill in Boston, where parking is atrocious, but most people here either don't have a car at all, or else they just leave their car parked all week and take it out on the weekends. I consider the car-free thing very attractive, and I was under the impression that it was also common in SF.

Having grown up in Mendocino county, school on the peninsula, and now moved to Boston, I don't have a great perspective on SF proper. But as my wife and I consider moving back to SF, I think we would be attracted to the North Beach area and lower Nob Hill area. My wife's company is on Califonia St. a few blocks from the Embarcadero.

Is my impression that the North Beach area is the part of SF most like Boston correct?

Thanks...

p.s. When I say North Beach is "most like Boston", in addition to the Italian element, I am thinking of the smaller scale of the buildings, the greater preponderance of green space, and the greater walkability. These are things I love about Boston and am looking for in SF.

sybrib,

I can't say as I've ever had a MB be THAT rude (to my face anyway) but I've never rec'd a satisfactory explanation either. Now that we're finally gaining some traction in dismantling the REIC we will some day soon have the audacity to have this language removed from loan doc's! (If it's all the same to them).

OpinionsPlease,

You've come to right place for all informations concerning housing prices, rum and supercharging your "babe magnet"!

DON'T BUY! :)

Seriously, what I know about Squaw could fit on the edge of a razor blade (and look like a BB rolling down a four lane highway). This much I do know, as the outer fringes of the rolling bubble die, resort areas are showing the first strain. In ways it was SO predictable! Most of the run up in resort/vacation areas was built on MEW (mortgage equity extraction) from core metro markets. Since many were part of multiple purchases from the same buyer it's easy for me to visualize mass defaults. Push come to shove these specuvestors will save their own hide (primary residence) and let these units go back to the bank!

The unprecedented explosion in "2nd homes" absolutely connects with the fact that there are more VACANT homes for sale today than any other time in our history. We know, waiting is a PITA, but buying now after only a 4% correction from peak (mid '05) doesn't represent much of a bargain. Sift through the price history data for that area and watch the burn as we plunge through 2005's prices altogether! :)

SVRenter - which school district? Could you be a little more specific - I was thinking of moving to Los Altos School District, but rentals are thin on the ground in our price range at the minute. My daughter is in MV-Whisman District and is doing okay - we can't afford private schools though.

I definitely do not want to be in Cupertino School District!

BostonTransplant,

I lived in Back Bay (Comm Ave between Berkeley and Clarendon) after college. I went to college in Cambridge. The foot of Russian Hill where it meets North Beach is probably the most Bostonian, Telegraph Hill is also fairly Bostonian. Parts of North Beach are now Chinese, and are no longer Italian, so you'd want to look around a bit to get the feel you want. The area south of Market near the Embarcadero isn't Boston-like, but is filled with young people going out at night to restaurants and bars and would be a fun place for a person who works downtown as well.

My one gripe about SF is the car culture. People drive here. I walk everywhere, and people think I'm nuts. The way that the car culture comes in to play is that other people all drive, so if you move to a neighborhood with no parking half of the people invited to your house can't figure out to take a cab over, or they do and then can't get a cab to come drive them home.

The car culture and the dirty streets are my two main gripes about SF. We do seem to have fewer homeless on the streets the past year or so. (Maybe Care not Cash is working?)

Opinions,

If I were you I'd lease a condo for a season and see if you want to own one. The idea of not having to schlep your equipment and clothes up every time you ski is appealing, but I'd see if you want to spend every weekend skiing at Squaw. It's probably cheaper to lease or rent a condo the weekends you need one, then you don't feel guilty if you want to go to Utah or Idaho or Aspen sometimes.

Boston Transplant,

I lived in San Fran proper in the Noe Valley area. I liked Noe because it was pretty quiet and very sunny compared to some areas of San Fran. I walked a LOT in San Fran, but you'll find it's much less a walking city than Boston or Manhattan. If you get a place pretty central, though, you can definately hoof it to pretty much anywhere in the city in a reasonable amount of time. Bart and Muni can cut that time down easily if you like walking. Usually you can walk 6-8 blocks total and be able to get from anywhere in the city to anywhere else if you take public transport. Check the routes where you're looking at living. And I'd definately rent for at least a year regardless of the market so you can get a feel for the town. Figure out where you're going to want to spend most of your time and get a place convenient to it.

SFBubbleBuyer,

(You sound like you're either sarcastic or trolling under a new alias, but just in case you're serious)

Why worry about buying when the buns aren't even in the oven? By the time your kids are school age, you might have a new job across the country and the "good" school district might turn bad. The high selling price of BA real estate makes selling at the wrong time extremely precarious. Why risk it when you don't need to?

SFWoman,

Great advice. I'd say that's the rule for buying any vacation home. Rent for a year to figure out usage and utility, run some numbers and see how it goes.

I don't get the appeal of vacation homes (as opposed to weekend homes or country homes) myself. Why get tied down to one place when the same amount of money (at current prices) will get the FVacationHomeB equal or superior accommodations just about anywhere.

Randy H.

Thanks for the spreadsheet link, but I'm too stupid to figure a couple things out. Is there a instruction link or forum? I didn't want to hijack this thread with questions.

Austingal said: "We are going to buy a mobile home in the good school district on a pier and beam foundation (unable to be financed) for cash."

You are spending $143k on a MH that doesn't qualify for financing in a crummy school district?!?

What's going to happen when you try and resale? Am I missing something?