patrick.net

robertoaribas says

What if someone gives you a home for free? do you still use the 1 or 2% rule then?

Well, instead of purchase price.. i should have said current APPRAISED price...

But, yeah, i'm just trying to refute the 2% maintenance theory thrown around a lot.

Taxes are a whole different matter.

Have you ever been in a home anywhere near a beach? They literally melt over time from the moisture. It can be dreadful.

robertoaribas says

What if someone gives you a home for free? do you still use the 1 or 2% rule then?

Of course not... A water heater costs roughly the same in LA or texas...

BUT the freaking tax on that 1,000,000 home will cost FAR MORE than your entire mortgage in Texas... or phoenix...

Not necessarily.

Our last landlord paid $2,288 in 2011 taxes on his $1-2M+ triplex (assessed value: $180,233) because Proposition 13 only allows assessed value to increase at the lesser of inflation and 2% and caps the tax rate at 1% of assessed value with some weasel room.

If I'd bought a more expensive property in Boulder, CO before the bubble taxes on a $1M property at the peak of the bubble would have run me about $6000 and change because TABOR limits tax collections to last year's multiplied by the rates of inflation and population growth unless the voters decide to tax themselves more.

BoomAndBustCycle says

But, yeah, i'm just trying to refute the 2% maintenance theory thrown around a lot.

The appraised price includes land, reflects what a buyer is willing to pay which can be far less than replacement cost of the building, and replacement cost for the building doesn't say anything about what it costs to maintain.

It's a rule of thumb. It may work for the median building/real estate market/climate but fails approaching the extremes. There are places where $50K gets you a 5 bedroom 2500 square foot Victorian and others where $1.5M gets you a 1950s 3 bedroom 1500 square foot ranch. There are places with temperate climates that almost never get above 80 degrees or below 40 degrees, you don't need air conditioning, and electric baseboard heat is sufficient for winter.

If you want a better example of how using a simplified rule of 2% for maintenance can be misleading just look at very similar locations and houses mainly distinguished by school districts. For example, a tiny shack in Palo Alto will cost $1M+. A similar tiny shack in East Palo Alto will cost $300k. These houses may be less than a mile apart. Therefore, climate, etc. will all be the same, yet using the 2% rule, the palo alto one would supposedly cost much more to maintain.

Yeah with prop 13 in CA - in the scenario where the 1m home in CA was purchased for 50k in 1973 its taxes will be about less than $1000 per year. (50k times .0125% plus whatever 'fees' and addons to the tax bill that city has, normally only a few hundy a year)

Also that rate does NOT increase from 73 - ever - not even at 1% per year which is max increase yearly for homes purchases after 1977 I think. So its almost zero in property taxes. (but CA has 10% income tax of course+10%sales tax!)

The same home in austin TX will be $3000 a year in taxes (100k times 3% combined tax rate of city/county/school taxes) - some areas in TX are less that 3% but not much.

High property tax rates promote best use of land. If the 1m home in CA was paying 3% it would be 30k a year - no way anyone would keep that asset - prices would crash.

If we're talking comparing Austin to a major coastal city in Cali, well been there, done that and I'm not afraid to admit that for years my Mantra was to save, save, save and then move to Austin. Why- its so cheep!

But is it? Not really. Sure- if you want to live in a cookie-cutter paradise in a huge suburb next to the freeway, then sure- you can easily buy a house in Austin ( well at least in the Austin burbs) for 100-150k. If you want to live anywhere interesting, like in a neat old neighborhood in Austin proper, or maybe the hills, well then you're easily looking at anywhere from 300k-500k easy. Only problem is that there's a few unforeseen costs attached:

A: Its HOT in Austin. As in its in the 90's and 100's for moths on end. So you'd better have AC, and not some wimpy window unit, but a big central system. Expect a hefty electric bill.

B: As mentioned, TX has a high property tax. As in anywhere from 2-3%. A 300k house would cost you almost $10,000 a year in taxes. It only goes up from there each time your house goes up in value.

C: Ever tried to find a job in Austin? I did. For months when I was unemployed. LOTs of people from the coasts have had the same nifty idea for years: Move to Austin cuz its sooo cheep! Only problem- Not a whole hell of a lot of jobs to go around. On top of that, what I was applying for paid about 50% less than I was getting in the Bay Area.

Long story short, Austin isn't cheap. If you go, you'd better go with a big wad of cash and have a good job situation setup in advance.

rufita11 says

Have you ever been in a home anywhere near a beach? They literally melt over time from the moisture. It can be dreadful.

I have. Anything metal rusts to nothing within a few years. Paint doesn't last either. Then there's the traffic, smell of rotting seaweed, weekend noise, drunks barfing and/or having sex in the alleys.

Yeah, beach life really is the $#!!

tiny tina says

If you want a better example of how using a simplified rule of 2% for maintenance can be misleading just look at very similar locations and houses mainly distinguished by school districts. For example, a tiny shack in Palo Alto will cost $1M+. A similar tiny shack in East Palo Alto will cost $300k. These houses may be less than a mile apart. Therefore, climate, etc. will all be the same, yet using the 2% rule, the palo alto one would supposedly cost much more to maintain.

It will. The east palo alto resident will do all his own labor, whereas the palo alto resident will be jacked over by contractors. You think the typical Facebook, Yahoo, Google software programmer has a clue about construction? If it doesn't include html, java, python, C++, C#, or something along them lines they are screwed. Seen it first hand.

Apples and Oranges. You can't compare coastal properties to a suburb. Compare a suburb of L.A to a suburb of Austin. Then look at what you owe in taxes -which is one third of what you owe in TX.

Of course crime, school district etc factor into it, as they will in Austin too. My relative has a few houses in Austin they rent out. Not a bad area, but if I have to live in TX, I might as well live in Dallas-seemed to me there were more job openings there. Also the good thing is that alimony laws are a bit more stingy than other states-but after 10 years, I think it is community property like CA

robertoaribas says

You could sit out on the beach at night and drink, waiting for giant sea turtles to crawl up and lay their eggs.

Off topic, but I stayed recently on Melbourne Beach in FL and I actually got to see a sea turtle laying her eggs. It was awesome. Never thought I would get to see that, but I just stumbled upon it one night.

Do Spanish tile roofs really last forever in CA?

Average roofs in Texas last 8 years due to baseball size hail and 80 mph straight winds.

/you can still purchase houses down on the Gulf coast for $100k - but there is a reason they build them on stilts (and unlike CA, you can't own the actual beach, it belongs to the State/County/City ( how's that for Texas Socialism!) ).

There is no need to try to justify any California anything to me. California for me being one who came of age out there in very tony neighbourhoods where the public schools were as good as private, very clean and highly desirable today in my view CA esp. Southern CA is the most backwater, ridiculous, dirty, grossly overpriced, sickeningly overhyped, more often than not crime invested hellhole I have ever seen. I am so glad to be out of there. There are plenty of suckers in my opinion in Malibu, Pali, Santa Monica, Culver City the entire Westside what a joke to anyone with half a brain $1M for a small house? LOL please GET REAL that is so ...SUCKER 2005.

Reader,

Show me one place in this country that is a diverse economic powerhouse like Southern CA especially Los Angeles. Come on pal.
This place is awesome. There is everything here you can think of. If you can't find it here it simply doesn't exist. There is no hype about it. There is everything to do here and you can never be bored. There are allot of jobs in Southern California in almost every type of industry you can imagine. Entertainment, manufacturing, design, aerospace, everything and anything you can name. If it exists – it’s here. Los Angeles and SoCal has it all. Los Angeles is now the largest manufacturer of US made products. There is so much economic diversity here. The job market is not dependent on a single industry.

The problem is there is a super high concentration of wealth here. The rich people buy up all the real estate and turn them into apartment homes. They drive up the Real Estate prices in the good areas. So does everyone else because those are the only safe and livable communities.
Yes there are massive crime infested dirty and dangerous areas however the crime rarely spills out of those areas. You rarely find people from east of the 405 breaking into homes in Manhattan Beach. They usually stay in their area and keep it looking like shit. Los Angeles and SoCal is very segregated by income, demographics, crime statistics, schools, housing etc. Look it up. Those 1 million dollar+ houses are expensive not only because the area "feels good" but because they are pretty, safe, and crime free, with good schools and lots of things to do. These communities even have their own police forces like El Segundo, Manhattan Beach, Redondo Beach, and Palos Verdes etc. These areas are not dirty. I have no idea where you get that from. If you want dirty you just have to go outside those nice communities.
Malibu is awesome. So is Pacific Palisades Pacific Palisades, Sunset, West Hollywood/Hollywood Hills, Beverly Hills, South Bay, Redondo Beach, Palos Verdes, and Belmont Shores Naples Island etc. The prices are sky high because of all the of above plus Prop 13 gives people no reason to move. Why does someone in an awesome area with a 1 million dollar house and no mortgage since 1989; and paying $1000 a year in property taxes; want to move to some boring place in Texas or the Midwest where they can pay high slave property taxes?
The admission fee into the livable communities in Los Angeles starts at 1 million. That’s just all there is to it. Manhattan Beach is one of those communities and one of the most expensive by far. If you got a house in Manhattan Beach for a million it would be a bargain.

Michael Cooke says

This place is awesome.

Great commercial for Southern California. You belong there.

Michael Cooke says

You rarely find people from east of the 405 breaking into homes in Manhattan Beach. They usually stay in their area and keep it looking like shit.

You clearly are young. You clearly don't know what LA was like. I remember Beverly Hills before Rodeo Drive was overhyped and elegant department stores lined Wilshire. I remember Santa Monica as a clean crime free area with no traffic and summers in Malibu with locals only no traffic and no overdevelopment by people pretending it could be Southampton (it wasn't then and isn't now to me.) I remember Westwood and Culver City as clean crime free villages of great community. No filth no crime. South Bay beach towns were never in my opinion anything since the 1950s as east of Sepulveda became a problem.

In my opinion this 2012 lunacy you speak of regarding LA, this fantasty land of hanger ons living off Prop 13, this over-real living experience in LA you describe is not real. Most of the people in overvalued properties that live off Prop 13 would not be there if it was not for Prop 13. They repeal Prop 13 as they have discussed numerous times the scenario for that crew will change and change their reality abruptly. This utter bullshite of how great LA is today is to me a joke.

Here is MY take of LA 2012, which having family there since the early 20th century I have seen plenty and not for the better high crime is through the roof, West LA demographics are now like a Third World if one doesn't remain in very small slices of neighborhooods, no longer are Santa Monica/Culver City/Beverly Hills schools a draw to live there, Venice is developed and it still hits me as a frightening dump beach town, Malibu is all but ruined by crowding, development and traffic; Westwood since the late 1980s is not even safe to walk around the Village anymore at night. So please you don't have to tell me about LA I know the town and the best areas of town all too well. You better look on YouTube under Santa Monica Gangs, or Venice Gangs get some reality on your overhyped LA.

I also hate to inform you "Mr LA" as you speak of these overhyped grossly overpriced areas against east of 405 that the "east of 405" does not hold any weight and if you were from LA or grew up in LA you would know that. First of all just east of Manhattan Beach is no thrill to me, matter of fact east of Sepulveda is no thrill to me from Westchester south. YET where this east of 405 issue doesn't hold weight is that Beverly Hills, Holmby Hills, Westwood, a number of once quaint parts of Culver City, and many others are EAST OF 405.

Reader says

Michael Cooke says

This place is awesome.

Great commercial for Southern California. You belong there.

Reader

Actually it is. Having lived in several places in this country and abroad, it is hard to come by such a unique place. Now you may not like it, but that is fine-one person's opinion is not the truth. Millions and millions of folk concur by staying there.

lostand confused says

Reader says

Michael Cooke says

This place is awesome.

Great commercial for Southern California. You belong there.

Reader

Actually it is. Having lived in several places in this country and abroad, it is hard to come by such a unique place. Now you may not like it, but that is fine-one person's opinion is not the truth. Millions and millions of folk concur by staying there.

Yes, we all have our opinions of where we lived and where we now live. He gave his and I rebutted having lived there myself.

I'll also state, your screen name is perfect for you.

Reader says

lostand confused says

Reader says

Michael Cooke says

This place is awesome.

Great commercial for Southern California. You belong there.

Reader

Actually it is. Having lived in several places in this country and abroad, it is hard to come by such a unique place. Now you may not like it, but that is fine-one person's opinion is not the truth. Millions and millions of folk concur by staying there.

Yes, we all have our opinions of where we lived and where we now live. He gave his and I rebutted having lived there myself.

I'll also state, your screen name is perfect for you.

Reader

Can't answer, throw in personal insults-same old, same old. Los Angeles is not even among the top twenty cities in crime statistics-forget Santa Monica or other areas. But hey, carry on with your rants-wouldn't want reality to intrude in your projections.

They call it an armpit for a reason. Work hard, have a great paying job and live in a shit hole forever fixer, yes there is a lot of outdoor activity that is a plus but come on? The plumbing is old underground and wait TIL you get the bill to fix yours to the street, 20-30,000 to start. Oh and did that quake f' up your foundation and now you have to have your house corrected, 50,000 to start. I lived there, and I owned one. I was happy when we sold and moved to a modern apartment with a pool. The ocean is filthy, my husband got a rash after a beach dive in so cal. Prop 13, who cares, you spend the rest of the money trying to make your hole habitable. Been there, done that. Renting there is better.

I lived in Burbank and lived well, in an apartment. Loved that. Hated the house we owned for 10 years, gives me shivers. It was one of those houses friends would come over to and say how nice it was. BUT, when out of state family and friends came?, they thought we were living in poverty. No exaggeration. Crack heads lived in the driveway accross the street at one point in a van, right next store another house, albeit a 600 sq ft house that sold for over $460,000 in the boom, not a joke.

LA is cool for its diversity, flavor, etc. but the RE is the joke. Those 500,000 properties don't get more than 2,500 in rent, if that much. One can do so much better elsewhere.

Michael Cooke says

Show me one place in this country that is a diverse economic powerhouse like Southern CA especially Los Angeles. Come on pal.

New. York. City.

Case closed.

I respect your love for your hometown, but New York has everything you brag about, plus it has a functioning mass transit system, and the summers aren't nearly as hellishly hot.

Manhattan Beach? I'll stick with the real Manhattan. ^_^;

Oh and all those great jobs there? Yes there are, but, don't expect it to stay that way. Companies relocate to cheaper areas all the time. And the film/tv industry? Cable is on the way out. People are just losing interest in that medium. The Internet, Netflix, amazon, etc. are changing the way people get there entertainment. Who wants to watch CNN and the like? Not as many. You can get better info in 2 seconds by doing a search online. It's fading. Out with the old, in with the new, it's called progress.

KILLERJANE says

LA is cool for its diversity, flavor, etc. but the RE is the joke. Those 500,000 properties don't get more than 2,500 in rent, if that much. One can do so much better elsewhere.

Wouldn't that make buying a pretty reasonable choice?

KILLERJANE says

It's fading. Out with the old, in with the new, it's called progress.

Hollywood is over the studios are over just look at what happened to MGM that was a precursor. As for diversity I can do without it. The rest? I have no desire to pander to some greedy asshole trying to run out of their Prop 13 1950s house and drop them 1M to do so just to call LA home and still live near what are to me dumps. In LA even on the Westside there are no more havens IMHO again, just look at the areas of the Westside today and YouTube Santa Monica Gangs and Venice Gangs or crime in Westwood Village.

I got out lock, stock and barrell a week before the riots. The best move I ever made for my family. Yes, it's progress and what I see in LA that is not my view of progress in the right direction.

Bigsby says

KILLERJANE says

LA is cool for its diversity, flavor, etc. but the RE is the joke. Those 500,000 properties don't get more than 2,500 in rent, if that much. One can do so much better elsewhere.

Wouldn't that make buying a pretty reasonable choice?

Nope. Why? Because those 500,000 properties are still grossly overpriced.

@Bigsby
No not a good return for rent income. I could take 500,000 in properties and get 6000 a month in rents. So no.

The real estate in many areas of CA are defnitely overpriced. Especially for what you get in the mid west. But live through one winter and tornado season and you get why people like L.A. I love the S.F bay area-weather not so much. Lived a few months in Seattle for a project-was dull and gloomy-couldn't wait to leave.

Now despite claims to the contrary, prop 13 is not the major factor in prices. Prop 13 has existed for decades. prices were quite reasonable before 2000-that was when the economy was much better and the state was actually in surplus. Then of course the FED did what they did and Bubba and the repubs repealed the Glass-Seagal act and all hell broke loose. I find it funny that Bubba is now feauturing in ads against deregulation??!!!!!

I still think the prices will come down. But of course now Helicopter Ben has introduced unlimited QE3-40 billion a month for ever. So not really sure on what that will do .

I know it is easy to think of L.A. as gang central -but crime stats show L.A is not even in the top ten cities in the USA. Reality and projection are two different things.

You buy a house anywhere in the country-you still have to maintain it-just because you live in los Angeles does not mean it magically fixes itself. Basic stuff will cost you the same anywhere. There are plenty of newer houses here.

Being in IT, though I find it much easier to get jobs/gigs in the mid-west. I worked abroad for a few years too. But lot less competetion there. In L.A, lot more people who live there, qualified and looking for work. S.F is a lot better, but billing rates are not what they used to be and the cost of living is horrendous. Some projects I actually get better billing in the mid-west and the cost of living is much, much lower. If the weather was better, I wouldn't mind staying.

But back to L.A. I come with a full time job. Of course nowadays that means squat!

KILLERJANE says

@Bigsby

No not a good return for rent income. I could take 500,000 in properties and get 6000 a month in rents. So no.

Just keep your blinders on! Common sense is a myth.

6000 a month total for all 500,000? OK I can see that one.

KILLERJANE says

@Bigsby

No not a good return for rent income. I could take 500,000 in properties and get 6000 a month in rents. So no.

Just keep your blinders on! Common sense is a myth.

What? I'm not talking about an investment property. I'm talking about buying rather than renting. If you are paying $2500 for a house that would cost you $500k, then you may as well buy.

Reader says

Bigsby says

KILLERJANE says

LA is cool for its diversity, flavor, etc. but the RE is the joke. Those 500,000 properties don't get more than 2,500 in rent, if that much. One can do so much better elsewhere.

Wouldn't that make buying a pretty reasonable choice?

Nope. Why? Because those 500,000 properties are still grossly overpriced.

Reader

They may or may not be, but if they're renting for $2500, then that doesn't strike me as being grossly overpriced given current interest rates.

Bigsby says

Reader says

Bigsby says

KILLERJANE says

LA is cool for its diversity, flavor, etc. but the RE is the joke. Those 500,000 properties don't get more than 2,500 in rent, if that much. One can do so much better elsewhere.

Wouldn't that make buying a pretty reasonable choice?

Nope. Why? Because those 500,000 properties are still grossly overpriced.

Reader

They may or may not be, but if they're renting for $2500, then that doesn't strike me as being grossly overpriced given current interest rates.

If I had to be there I'd gladly pay the $2500 instead of facing the alternative today.

Bigsby says

KILLERJANE says

@Bigsby

No not a good return for rent income. I could take 500,000 in properties and get 6000 a month in rents. So no.

Just keep your blinders on! Common sense is a myth.

What? I'm not talking about an investment property. I'm talking about buying rather than renting. If you are paying $2500 for a house that would cost you $500k, then you may as well buy.

Not if that 500K house is going to be 250K or less in the coming years then you are on a sinking ship.

Reader says

If I had to be there I'd gladly pay the $2500 instead of facing the alternative today.

You'll have to explain what you mean.

Bigsby says

Reader says

If I had to be there I'd gladly pay the $2500 instead of facing the alternative today.

You'll have to explain what you mean.

I mean running the risk that the half a MILLION dollar purchase is going to slide into 250K I'd rather shell out $2500 a month and be free with no 500K debt on my back.

Reader says

I mean running the risk that the half a MILLION dollar purchase is going to slide into 250K I'd rather shell out $2500 a month and be free with no 500K debt on my back.

I don't really see your point. House prices in most areas of the US are around their historical adjusted averages, so what chance is there of prices falling by that extent? What if they stay flat, or track inflation? When does renting stop being a good idea to you? And hey, if you are paying $1800 on a mortgage rather than $2500 in rent for the same house...

Bigsby says

Reader says

I mean running the risk that the half a MILLION dollar purchase is going to slide into 250K I'd rather shell out $2500 a month and be free with no 500K debt on my back.

I don't really see your point. House prices in most areas of the US are around their historical adjusted averages, so what chance is there of prices falling by that extent? What if they stay flat, or track inflation? When does renting stop being a good idea to you? And hey, if you are paying $1800 on a mortgage rather than $2500 in rent for the same house...

If you think this pricing today coast to coast is correct to the dollar? Today? And into the near future? You go ahead and I wish you all the luck you'll need. I'll put my money elsewhere anywhere but RE today and into the near future until I see pricing go way below what it was before this bullshite began.

Reader says

If you think this pricing today coast to coast is correct to the dollar? Today? And into the near future? You go ahead and I wish you all the luck you'll need. I'll put my money elsewhere anywhere but RE today and into the near future until I see pricing go way below what it was before this bullshite began.

In most areas prices are way below the peaks.
And I already have a house, so that's irrelevant.

Bigsby says

Reader says

If you think this pricing today coast to coast is correct to the dollar? Today? And into the near future? You go ahead and I wish you all the luck you'll need. I'll put my money elsewhere anywhere but RE today and into the near future until I see pricing go way below what it was before this bullshite began.

In most areas prices are way below the peaks.

And I already have a house, so that's irrelevant.

Lose the word PEAKS. Peaks of what? The peak or rise was not real, there was in the clearest sense no peak it was all a con a bullshite game. Do you get that point? The prices of even 2000 were way too high, the rest up through '07 was just sheer brainwashed lunacy.

People have been fed a bill of goods, which in the bigger scheme of things unlike that new pricey coat from the department store someone buys and has buyer remorse but with the tags still on and a receipt they can return it, unlike this shite they cannot return from where they started without major repercussions.

I may be wrong but I feel a few things need to be asked since this is irrelevant to you. Do 1. You have a mortgage? 2. If so is it is well over 250K? 3. And do you have an auto loan or loans?

Darrell In Phoenix says

Bigsby says

House prices in most areas of the US are around their historical adjusted averages,

Prices are at 2004 levels still, thus you just LIED.

You are a LIAR.

2004 prices? Post a link up please. Or shall I save you the bother?

My point is if you are going to invest 500,000, then why not do it where it can create income and use that income to rent where the cost of buying is insane overpriced? Your investment will pay your rent rather than it coming out of pocket from a job.