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.