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I Was Thinking to Myself This Could Be Heaven or This Could Be Hell
invite response
2005 Oct 31, 1:59pm 72,153 views 451 comments
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ROFLMAO! Jack, Jack, Jack…I’m glad I’m not the only one so misunderstood by allah.
Ofcourse I know he was kidding....he said so twice in his post! :) :) :) (smileys to show my tone) :) :) :). ... I was to, but I didn't use any smileys....sorry :) :) :)
Swk:
I am with you...I have been looking for a rental as a backup plan to my possible purchase (the topic of this thread). It is REALLY tough to find a nice rental house. Yes, they are out there...but few are nice unless you want to spend $3000-3500 (at which point it is the same as my monthly owning cost).
Of the 3 we found after weeks of looking, 1 was in Menlo Park on the border of a bario, the other was in Palo Alto and had a barely-livable interior, and one was right next to Hwy 101 (constant noise) and train tracks. This is after SCOURING Craig's list, driving all over the place, checking with the wife, etc.
Additionally, at least in Palo Alto, if you want to rent you better have really good credit because every rental we looked at had a line of applicants. Some even have open houses - and they have been packed. Yes, many of them come from houses where the owner is selling...but the point is, there is still a shortage of housing.
It is really too bad that there is not a house-like apartment alternative...something where you are not going to get booted by a selling landlord but which does not share walls/ceilings with other people. Even in that case, a colleague of mine finds himself now getting raped with rent increases.
I will also guarantee you that you will not see mass vacancies of houses on the peninsula. Rat shacks in SJ - different story. But I have seen zero evidence of people buying peninsula houses on spec.
All that said, there are some factors that point to a major downturn. Let's compare today to 1999. In 1999, you could get a 3 Bdr house in SJ for $350,000 all day long. And yet there certainly were more people here, more people with good jobs and more people on the way. Even with higher rates then, it doesn't explain to me why houses are 2x what they were then. If the mortgage tax deduction squeaks through congress, there will be a major meltdown. It is also clear that there is a slowdown - ANY realtor will agree with that...it is indisputable.
So is this seasonal? Are we in for a dip, or a plummet? This is the issue I face. I have failed to find a nice rental. And it is clear that there are plenty of people who are in need of and willing to pay for $2500/month housing. I like my house. I've talked the owners down by $31k. It'll cost me $3200/month vs. $2500+ to rent (+ opportunity costs on the downpayment). And I'd have to move at least 2 more times. As irrational as it sounds, I'm basically prepared to take the risk.
Newsfreak: Good point on the piping. It's about $4,000 to have galvanized swapped with copper. It really is only an issue when you're not around for a while. But I really should have the quality checked out first.
Yeah, if I could snap my fingers and move, or had more time to decide clearly I'd sit this out. My consolation is that this is one of the more desirable areas on the peninsula, and so in the long run even with a dip this place will do well.
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Two years after signing a lease with a landlord who intended to never sell, he is selling.
I have to choose whether to buy this 3 bdr / 1.5ba, 1450 sq ft house in San Carlos for $888k or rent elsewhere. Here's my analysis...
I would put down $250k, financing $638k. At ~6.125%, my P&I comes out to $3,877. Property tax is around $928 for a total of $4805.
But I can deduct the mortgage interest of $3256. CA + Federal tax is 42%...so I save $1368 (and I already itemize, so it's not as if I lose the standard deduction). That brings me down to $3437.
Then comes something I can't calculate properly...I'd like to deduct the property tax, but I think I'm again in AMT hell this year...maybe someone can help. If I could deduct property tax, it would save my another $390 a month, bringing me down to $3047. Let's go with this for now.
Now if I think that the house won't lose value, I can look at it this way...of the P&I, $620 goes to principal. So that means my 'down the toilet' money comes out to $2427 a month. Renting anywhere on the peninsula in a comparable house is this much or maybe a bit more.
And at this point I'd say 'why not?', except for one thing...the opportunity cost on the $250k downpayment. Even with, say 5% after taxes, that's $1000 a month. Or put another way, if I rent for $2500 / mo, I really only pay $1500.
So then, let's assume I keep the house for 6 years and have to pay a 6% realtor commission. If I figure 5% savings rate, comparable rent of $2500 and $1054 opty cost on my $250k downpayment, it tells me that the house will need to sell for $1,076,000 to break even, or go up by roughly 21% (3.5% per year). If I assume no AMT deduction, I'll need to sell for $1,111,000 - required appreciation of 4.1% a year.
For fun, let's say that the proposed tax change limiting CA mortgage deductions to ~$350k comes into play. It actually makes less of a difference than you would think, at least for me. One one hand, my interest deduction goes down from $1368 to $750. But I can then deduct my state tax. Net, break even sales price becomes $1,130,000; appreciation of 27% or 4.5% a year.
Or, put another way, if the house does not go up in value, it will cost me around $260,000. If it dropped a mere 20%, it would cost me around $420,000.
I'm left with one (financial) reason to buy...inflation. Does anyone see an inflation scenario that makes this make sense to do?
Can you guys check my math?
#housing