patrick.net

Reality says

mell says

But your willingness to hold out for the price you want to get strongly depends on how much your financing and upkeep costs are for keeping it vacant. And if you have access to close to zero interest rates you can certainly wait much longer, thus reducing the pressure to underprice for anybody.

Do the math, every month of vacancy would require 9% higher rent in the next 11 months to make up! If you were ever on the supplier side, you'd know that vacancy is extremely costly, usually the result of the owner getting distracted by something else in his/her life and unable to manage the property efficiently, not a deliberate strategy.

Sure, but what do you think about the reports a couple of years ago about big real estate trusts that just let their mostly commercial complexes sit and rot until they get an acceptable offer by the city/state to fill it or buy them out because it was better for them to roll over, especially if they financed those properties mostly and hardly had any down-payment at stake?

mell says

Sure, but what do you think about the reports a couple of years ago about big real estate trusts that just let their mostly commercial complexes sit and rot until they get an acceptable offer by the city/state to fill it or buy them out because it was better for them to roll over, especially if they financed those properties mostly and hardly had any down-payment at stake?

They needed more competition. The city/state should never be in a position to be able to fill them or buy them out to begin with. Talk about messed up incentives.

The Professor says

You go volunteer. I have bills to pay.

Actually I do/did. I volunteered at local schools and colleges when I had more time.

The Professor says

There is no shame in being a landlord. As you explained you provide a needed service. Would you prefer the title "Keeper of Houses"?

I may consider that. Thanks. I don't like the term "landlord" because the term's imprecision: the primary asset of value is not land but the house, and there is no "lordship" but a service, me and my workers being at the service of the customers. The appropriate medieval analogy would be the innkeeper not the feudal lord. It's a two-way negotiation for service at pay, not overlordship.

The Professor says

Banks have done the math. In their calculus not only can they go without collecting mortgage they will also pay a delinquent loanowners taxes and insurance.

Banks do that in order to avoid recognizing losses on bad loans. It's a form of fraudulent book keeping. The hope is to punt to the next bank manager or wait for taxpayer bailout.

The typical housing service provider however have no such luxury. He/she would have to eat the lost revenue by him/herself.

To the original poster's numbers:

At 1% annual repair reserve, the $875k house needs a $730/mo repair and "honey-do" reserve (most home improvements demanded by the wife will have very little resale value in the future). So between the $3800 rental potential and $2588 PIT, there's only less than $500/mo left for insurance and water/sewer bill, which just about cover the $500/mo for such a house.

So the original poster is getting almost 0% return on his $190k or so down payment and purchasing/closing cost, as far as cash flow is concerned. The only gain since buying would have to come from home appreciation.

What's there to be jealous about again?

Just as I suspected, the "rent being double the ownership cost" is pure figment of imagination. The doubling can not possibly be there when the house' rental yield is so low.

Well 20% price appreciation is pretty sweet. I will let you all know what my best offer is - plan to sell in June.

Roberto,

Budgeting 1% of house value as annual repair reserve is fairly standard practice for basic home ownership financial planning. Water heater replacement is a miniscule cost in the scheme of things. The more expensive items are like roof etc. More expensive houses tend to have bigger more expensive roofs and are located in areas with higher cost of labor.

In the cases similar to the original poster, where the house price to rent yield ratio is close to 20:1 (both of us would probably pause at somewhere close to 10:1), I was also counting the typical wife's demand on frivolous home improvements towards that 1%. Improvements that will add very little to house value at sale time. It's just a matter of keeping up with the Joneses in those neighborhoods and keeping a wife.

As for banks being slow at recognizing losses, what I wrote was not a statement on whether they are doing it, but a reason for why they did it once upon a time (if they did), as The Professor raised the issue.

robertoaribas says

the home owner is on the thread, why not ask him what he spent in his 9 months of ownership?

What he has done in 9 months in anticipation of selling after less than a year of ownership is not necessarily reflective of the long term ownership cost. A roof has to be replaced after a couple decades. The gradual deterioration takes place over time, not in the single year prior to replacement.

robertoaribas says

My girlfriend leaves all home improvement decisions to me, since I'm the expert...

That's why you and I keep girlfriends instead of wives. OTOH, girlfriends have their own problems due to lack of commitment from us. There is no perfect solution in life. Sometimes we can be slaves to what we own.

Roberto,

We are not talking about a million dollar two BR condo in NYC, but in the original poster's words a "huge estate home on acreage, zoned for horses" There are probably substantial on-going landscaping and grounds keeping expenses in addition to maintaining the "huge estate home" house structure itself.

Reality says

in the original poster's words a "huge estate home on acreage, zoned for horses" There are probably substantial on-going landscaping and grounds keeping expenses in addition to maintaining the "huge estate home" house structure itself

Not even sure where in LA such a house for $875k would exist. This sounds more like a Valley-or-north area, or, worse, Inland Empire. This is like bragging you bought 30 acres in Gainseville, FL. Big whoop.

robertoaribas says

he just noted a smaller, less improved property selling for something like 1.2 million..

I have no problem with this as a mere business transaction. My problem is with saying this property is in LA, when I know for a fact that 900k-1.3 mill barely buys you a 4/3 2500 sqft house on a 10,000 sqft lot. Unless you want to live in Crenshaw.

The Valley and Inland Empire are not LA. You can buy spacious "estates" out there for $875k no problem. But that's like buying a house in Elizabeth, NJ and saying you bought in NYC.

I'm not in the IE.

KarlRoveIsScum says

28% tax rate and you can afford a $1M home and multiple properties?

Sounds fishy!

If your income is that low how the hell did you qualify?

I put down 20%.
Make 100k a year.
Got an IO ARM.
Pretty much maxed out what they would lend me. At first they denied the loan, then saw my major cash position in the bank and approved it. What would be fishy - I'm making shit up? lol

Philistine says

The Valley and Inland Empire are not LA. You can buy spacious "estates" out there for $875k no problem. But that's like buying a house in Elizabeth, NJ and saying you bought in NYC.

The Valley is definitely part of Los Angeles... It may not be Beverly Hills.. but it's not Crenshaw either. LA is made up of a bunch of rich and poor areas.. But it's still all Los Angeles.

KarlRoveIsScum says

it's your marginal rate, i understand.

Do you know how much you could get a loan for in the UK on $100k

a max of $350k

Wouldnt that vary wildly with the variable intrest rates?
I mean with 2.8% IO loan that is a wildly different payment than the same amount financed at 7.25 30 year fixed( i had a loan like that in 2001).
So now I should be able to finance double the loan since rates are half what they were in 2001. This is how they let us have 'affordable housing' - prices are not allowed to go down for long.

robertoaribas says

nobody gives a rat's tail with what you consider to be LA,

Actually, Redfin and Zillow do. So does the state government. Between zipcodes and real estate maps, nobody considers Thousand Oaks to be Los Angeles. BTW, Thousand Oaks is a good 90 minute commute to most work centers in LA, and is a paradise of '80s stucco box living and chain restaurants. Now I see why you are so fit for Phoenix.

Thousand Oaks is pretty much LA....but way nicer. Half the town is actually in LA county I think.

PockyClipsNow says

Thousand Oaks is pretty much LA....but way nicer. Half the town is actually in LA county I think.

I think Thouand Oaks is in Ventura County. I used to live in Westlake Village which straddles both sides of the county. I love that whole area of the Conejo valley-got a very nice feel to it and the beach is a short hop away. Lovely hiking and plenty of activities. But the commute can be a pain if you have to commute to say downtown or Burbank etc. But know a few people who do it and love it. It has a nice feel to it.

Philistine says

Actually, Redfin and Zillow do. So does the state government. Between zipcodes and real estate maps, nobody considers Thousand Oaks to be Los Angeles. BTW, Thousand Oaks is a good 90 minute commute to most work centers in LA, and is a paradise of '80s stucco box living and chain restaurants. Now I see why you are so fit for Phoenix.

Thousand Oaks is quite a commute away during rush hour.. Only 30-40 minutes on off peak times to Hollywood.. And yes, i believe it's Ventura County.. a neighbor county of LA.

But it's a pretty UPPER middle class area from when I've visited. I'd actually love to live there if it weren't for the commute on the 101. Homes are still pricey though...

Thousand Oaks is fine if you are not a city person. I just find it ironic all the people that live in LA and hate city living. LA is a sprawling mess, and the least urban of any city I've lived in.

My entire point is not "what is LA", which is a nonstarter. My point is a place like Thousand Oaks (to run with this example) is 20 miles away. We are talking the suburbs. Trying to compare a suburban real estate market with a major city market is apples-to-oranges.

BoomAndBustCycle says

Only 30-40 minutes on off peak times to Hollywood

Yes, maybe to H'wood off peak. I live in Mid-Wilshire, which is more central, and it takes 90 minutes to get to Topanga on a Saturday afternoon. It's the traffic, not the distance (26 miles).

Again, you miss the point. All real estate is local. I know you like to be insulting, but really you should be more interested in advancing the conversation.

robertoaribas says

what the hell is he supposed to do, every time anyone asks where he lives, give out precise latitude and longitude?

Nope. I merely asked Pocky where in LA he bought (a long while back in this thread). LA is a pretty spread out area, and where you buy here makes a pretty huge difference in price/quality/amenities.

It's still valid: Thousand Oaks is 40 miles from LA. So is Malibu. Two completely different kinds of markets. You have my permission to call them both "LA" if you like.

PockyClipsNow says

Well 20% price appreciation is pretty sweet. I will let you all know what my best offer is - plan to sell in June.

Already? You just barely moved in. Imagine after you cashed out and we get hit with hyperinflation. Isn't that going to wipe you out? :)

Why sell now and pay capital gain? Wait until you hit the 2 year ownership mark and get $250k capital gain exclusion. $500k if you're married or your significant other is also on the title.

PockyClipsNow says

Price: 875k

$ Financed: 700k

Loan: 5/1 Interest Only ARM at 2.875 with .25 points (union bank)

What is the fully indexed rate? Like 8.874%?

Yes I have contemplated waiting until the 2 year mark for taxes.

BUT I am still going to get the remodeling done and put it on market in June to see what its worth. This will motivate me to gitter done (mostly all painting/tile I'm doing myself).

Then if I get a 1.2m offer I will take it, anything less I would think about and probably wait a year.

One issue is I closed escrow in late november. SO if i want to hit the 2 year mark for tax selling that means closing in december 2014 - have to basically list it in September..... 6 months after the spring rush when you normally get top dollar. This market is far from normal now though.

So in theory probably best to wait until spring 2015 to sell if prices keep rising and in regards to minimize taxes/maximize sales price. Thats pretty far off.

All good points.
Well if i dont get a fat offer then my choice is made for me.
Also probably a good idea to list your house every spring to 'see what its worth'.

The only reason i bought this damn thing was to make money/keep up with inflation in housing. I was actually happier in a 1 bedroom apt bubble sitting. Now my weekends are home depot and lowes...used to be at the beach and travelling or finding cool bars.

PockyClipsNow says

Well 20% price appreciation is pretty sweet. I will let you all know what my best offer is - plan to sell in June.

How'd you make out?