patrick.net

dublin hillz says

My understanding is that interest only loans are only appropriate when someone can reasonably expect to be making more money when the time comes to start paying off principal. Otherwise, I have not seen any articles that would recommend utilizing this type of loan.

You pay off principal when you sell the house for a profit(or short sell it and debt is still gone). You dont even need a job for that. People move every what 7 years on average. All those 30 year fixed loans I got in 2001, 2002 were a rip off. Sold or refied every home asap.

PockyClipsNow says

ran says

This statement is not true everywhere. In the area I am looking rent is $2500 and going price $1 million.

Most of the time I have been outbid by all cash buyer and $100k above asking price. Its really insane right now. I am sure people buying with all cash ($1m) is definitely not buying to live there. It doesn't make sense. Or may be I am just a looser.:)

what city is that? lets compare redfin listings to craigslist rental ads.

Fremont's mission area

yeah thats a nice area.

Heres a nice rental for 4500

http://sfbay.craigslist.org/eby/apa/3695761744.html

For that much in house payment you could pay 2m and still live there under 4500 a month. Of course thats a huge down payment but those are the people buying this type of home.

I saw a master bedroom for rent in fremont for $800 a month. I would move into that if I was a tech worker up there.

(if you are dumb enough to get married/have kids what the fuck are you doing living in the most expensive city in CA and complaining about the cost of living?! move to TX)

PockyClipsNow says

You pay off principal when you sell the house for a profit(or short sell it
and debt is still gone). You dont even need a job for that. People move every
what 7 years on average. All those 30 year fixed loans I got in 2001, 2002 were
a rip off. Sold or refied every home asap.

My personal goal is to me mortgage free asap that's why I am prepaying principal. Interest only loans are an antithesis to that.

OK. The IO loan allows you to prepay principal.
No prepay penalty.
Pay 100k a month, the next months intrest payment will be based on the new lower principal.

If you dont get a lower rate, get the IO loan!

How many people became a distressed loan owner and lost the home due to cannot afford the extra 1k or whatever a month that is the principal payment? that is a risky loan, not the IO.

Also the IO loan will not blow up your DTI score. But you could still pay down princpial. The 'forced savings' argument of a 30 yr fixed is only forced to benefit the banks. Its a chump loan.

PockyClipsNow says

SFace says

I find it odd that some of the most educated/successful residents in the world (buyer's in Cupertino, Palo Alto as an example) got it all wrong and somehow the general population working at walmart or a factory got it all right.

Yes our entire educational system produces low IQ idiots who line up to pay 1m for a 3 bedroom home like sheep being slaughtered. Clearly tech employees are the dumbest people on the planet to be doing this.

This argument is ridiculous. Go sit down in a $20-40 or higher limit holdem game at Commerce(or perhaps in your case Bay 101) and report to me how amazingly brilliant all those engineers and businessmen are. Go and come back and tell me how they don't basically set fire to bennies.

Well i was being sarcastic. pointless i know.
Walmart employees got everything figured out. hahaha.

Well, if instead of making a 27+% down payment, you made a 100% down payment, then cash payment for a long term home maintenance contract from a contractor, your payment would be even lower: just taxes, insurance and water/sewer bill (or septic bill).

Tongue firmly in cheek of course. It's rank idiocy not to count the massive down payment (and closing cost) or the ongoing maintenance expense when claiming "twice." When gross rent yield (before subtracting expenses) is as low as 4-5%, there is no "double" to speak of.

troll thread detected.

SFace says

Reality says

you made a 100% down payment, then cash payment for a long term home maintenance

contract from a contractor, your payment would be even lower

It will get you a 2% ROI. (2.75% net of tax deduction)

I and almost everyone will rather keep the money.

No kidding! That's why I said "tongue firmly in cheek"
Porky is suggesting putting down nearly 1/3 mil on something that has a gross (not net) rent yield only 4-5%.

But Porky does make a larger point of counting permanant cost in rent vs. own analysis. The permanent cost of owning is almost always lower than the permanant cost of renting now, even for homes as high as 1M. Maintanence and insurance for a 3/2 SFH are at most 5K a year. or $400 bucks a month.

With gross rent yield only 4-5% (net perhaps 2.5-3.5%), the bet is actually on continued appreciation. Insurance on such a home is likely approaching $2k/yr (and you have to insure for replacement cost not cash payout option if you have substantial mortgage on it), the $30-60k roof works out to be about $2k/yr, septic in those expensive areas is probably about $2k/yr ($30k every 15yrs) or $150/mo in water/sewer bills assuming the occupant is not into gardening. When the wife starts gardening, the water bill goes up.

@Pocky, what you are proposing is a “speculator dancing on thin ice.”
After three years PI payment will jump to $3,600/mo. You can sell of cause by paying 6% commission. House is old so some repairs are expected.
From the other hand you can invest relatively safe $270K in stock market today and expect 15% return, which gives you $3,375/mo. You can sell/buy those stocks for $7 commission. This is what you are missing. Then renting this $4,000/mo. house will cost you only $625/mo., and no worries.
Both investments carry some risk, let assume nothing is going to change.

Have you check stock market lately? I have no problem to get this result in recent years.
One expl. ATT 15% gain plus 5% in dividends = 20%

Well, I have been making very decent gains in the stock market-double digit plus every year-for the last few years. But having been in the market a while, these come and go -I went a stretch after the dotcom bust where I made significant losses a few years in a row.

I think it is trying to go with the market , instead of trying to expect the market to go with your analysis. It is much easier said than done though. Which is why I am rather hesitant with real estate, as I am aware of how wrong I can be and that is a lot of money. But of course, I didn't forsee the FED and the ability to stay in your zero down house without paying a single payment for five years!!!

PockyClipsNow says

The 'forced savings' argument of a 30 yr fixed is only forced to benefit the banks. Its a chump loan.

and realtors...

Somehow I have met a very large number of people with net worth > 1m from real estate.

At the same time, almost no one who rents and has a stock portfolio over 1m. I'm sure they are out there.

Clearly the fed inflates everything, although unequally and haphazard, timing is tough.

PockyClipsNow says

Sadly the large downpayment people got screwed of course.

how about those rich Google employees who overpaid what ever the seller wanted..

they got screwed 2-3x more since they overpaid with ALL CASH..

their purchase took a loss.. and may never even break even.

PockyClipsNow says

Somehow I have met a very large number of people with net worth > 1m from
real estate.

At the same time, almost no one who rents and has a stock portfolio over 1m.
I'm sure they are out there.

Well, yes when real estate swings your way, it amplifies the gains. If you invest in stocks, unless you are using margin accounts-10k is 10k and 10% gain in one year will give you 11k. If you lock that in , then you pay taxes on that.

Real estate 10k downpayment, then transfer the rent payment to mortgage and a bit more and back then people could buy a 600k house. Then if they stayed there for two years and sold it-300k or so tax free assuming it is a couple. Now of course that is best case scenario and not everybody has that.

I have always been financially conservative and I guess not sure what to make of the FED angle which allowed people to squat in their houses for years with no payments and other such govt "gifts" . Sure it can be taken away-but any other "welfare" program the govt started-it hasn't taken away yet!

PockyClipsNow says

At the same time, almost no one who rents and has a stock portfolio over 1m.

Unrelated, but this reminded me of the poor Enron lady. She was an employee of Enron and was ready to retire I think and had 1 million dollars of Enron in her 401K I think. When the sh*t hit the fan, she couldn't sell , the executives sold and then her 1 million became worthless! Poor lady.

PockyClipsNow says

Somehow I have met a very large number of people with net worth > 1m from real estate.

At the same time, almost no one who rents and has a stock portfolio over 1m. I'm sure they are out there

LA is notorious for Real Estate "investing" and scams. I view it as a virus best left contained in SoCal.. such hype only can destroy our NoCal economy.

pretty much many Silicon Valley leaders agree as it 'plagues them'.

"We hear from HP all the time that a huge deterrent to the ability to recruit and retain people anywhere near Silicon Valley is the housing issue. We don't hear that from Dell, which is also a member company, about their operations in Round Rock. It does continue to plague us and we will continue to sound the alarm."

Read more: http://www.sfgate.com/business/ontherecord/article/ON-THE-RECORD-CARL-GUARDINO-2574540.php#ixzz2Os3pAAhW

Based on the past it looks like silicon valley has almost no political pull when compared to the banks, the fed, and the nar (FIRE complex)

The dot com burst had about zero bailouts. All those failed companies failed. And they actually did real things like entertain or webvan delivered groceries. AIG and the banks simply push paperwork around, speculate, lend, insure- classic middlemen/parasites right?

The silicon valley is powerless to stop a housing bubble, we all are. Its going up and there is nothing we can do except buy or rent.

SFace says

I find it odd that some of the most educated/successful residents in the world (buyer's in Cupertino, Palo Alto as an example) got it all wrong and somehow the general population working at walmart or a factory got it all right.

I haven't found many people at any education level challenging the choice to buy a house. For a lot of people it is a major life milestone like getting and education and starting a family. What a great business!

PockyClipsNow says

Yes our entire educational system produces low IQ idiots who line up to pay 1m for a 3 bedroom home like sheep being slaughtered.

That's what "irrational" means without the low IQ part. People with very high IQs still act irrationally. The influence of society is very strong.

FunTime says

PockyClipsNow says

Yes our entire educational system produces low IQ idiots who line up to pay 1m for a 3 bedroom home like sheep being slaughtered.

That's what "irrational" means without the low IQ part. People with very high IQs still act irrationally. The influence of society is very strong.

Yes too true!
I'm skipping all the usual disasters men embrace to thier doom: marriage, divorce, child support, alimony.

Patrick should shut this blog down and start a 'dont get married dont have kids' blog now THOSE are the real rackets. He worries about the 6% commision, well....a stay at home mom and 3 kids gonna cost a whole_lot_more patrick after lifetime alimony.

PockyClipsNow says

FunTime says

PockyClipsNow says

Yes our entire educational system produces low IQ idiots who line up to pay 1m for a 3 bedroom home like sheep being slaughtered.

That's what "irrational" means without the low IQ part. People with very high IQs still act irrationally. The influence of society is very strong.

Yes too true!
I'm skipping all the usual disasters men embrace to thier doom: marriage, divorce, child support, alimony.

Patrick should shut this blog down and start a 'dont get married dont have kids' blog now THOSE are the real rackets. He worries about the 6% commision, well....a stay at home mom and 3 kids gonna cost a whole_lot_more patrick after lifetime alimony.

Yup, a stay at home mom will ask for children and a beautiful house with many rooms (to put the children in.) That costs money. If you don't play well, she divorce you (or you divorce her) and that costs even more money. That may be the reason Patrick is trying to save the 6%.

I suspect Patricks wife works so he can fart around all day with this website. If so, good job!!!!

All assumptions are destroyed by reality. But the people paying 1m for a house in menlo park really are running the numbers and buying looks 'ok' its not insane at all.

SFace says

donjumpsuit says

I could make an argument that I could rent a $4000 house, and get 3 roommates

who pay $1000 each, and keep my $271k

or I can make the argument you can buy the house pay 2,500 in permanent cost and still get three roomates who pay 1,000 each.

In the latter situation, I don't need permission from the landlord.

I did it in 2001. Worked great. Roomates didnt even care when I sold it for twice what I paid. (no i did not share profits hahaha). I went thru a bunch of roomates back then. The worst were the women. (never live with a woman you arent %&*#ing!!!! all the painintheass and none of the benefits.)

PockyClipsNow says

Based on the past it looks like silicon valley has almost no political pull when compared to the banks, the fed, and the nar (FIRE complex)

The dot com burst had about zero bailouts. All those failed companies failed. And they actually did real things like entertain or webvan delivered groceries. AIG and the banks simply push paperwork around, speculate, lend, insure- classic middlemen/parasites right?

none... zippo zilch... no bail out... but the tech bust was also more on tech companies that did hardware and software geared for enterprise class companies.. large Auto, Aerospace, Banking/Finance, Life Science/ etc etc etc. They dont get mentioned cause the media doesnt quiet understand it. The Toys.com and Webvan while high on the media list was a minority .. not a good example!

PockyClipsNow says

I suspect Patricks wife works so he can fart around all day with this website. If so, good job!!!!

LOL! Now that's funny. @Patrick, great job. That'd make two of us, and I'm very proud of it.

donjumpsuit says

If I had $271k in cash, I might lend it to a flipper at 14% a month.

Can I get the name of the flippers who are paying that kind of interest rate? I'd love to loan them some money at 10%/month, and I'll let you keep 4% referral fee.

Uh oh, the 'rich dads poor dads' are at it again, Everybody knows that houseownership is the secret TRILLION dollar cash-flow industry - call you agent and OWN now! ;)

mell says

Uh oh, the 'rich dads poor dads' are at it again

Didn't that guy declare bankruptcy and didn't his fancy, blonde wife dump him??

lostand confused says

mell says

Uh oh, the 'rich dads poor dads' are at it again

Didn't that guy declare bankruptcy and didn't his fancy, blonde wife dump him??

Apparently so. But he was going strong for quite a while ;)

PockyClipsNow says

Obviously renting was the wrong choice from 09 to 2012

I think people who rented made a good choice.

You are talking about dumping in a quarter of a million dollars into one asset, that is stagnant, and saves you rent money.

You are responsible for the care of the asset, and you still have three quaters of a million dollars in debt on your ledger, all so you can save money on rent.

You could say that the asset will increase to $1.3 Million, but how do you know? Even if it does increase in sales price will those be inflation dollars, or appreciation over inflation?

You don't know, because the Real Estate market place has billions of dollars in speculation money driving it.

The stock market is hot. You may not be able to afford to play, but speculators can certainly pull dollars from Real Estate assets, and invest elsewhere.

Kind of sounds very shakey to me. I spend a quarter of a million dollars of my hard earned money to put three quarters of a milion dollars in asset liability on my ledger sheet. Hmmmm...

E-man says

Can I get the name of the flippers who are paying that kind of interest rate?

Here in Seattle one company is called Vestus, and they have made a ton of money lending to want to be investors.

David Losh says

Kind of sounds very shakey to me. I spend a quarter of a million dollars of my hard earned money to put three quarters of a milion dollars in asset liability on my ledger sheet. Hmmmm...

Presumably that entirely depends on what a like-for-like comparison between rent and PITI looks like, how long you plan to spend in the property etc. etc. If all those things look OK for you, then why would you want to fund someone else's mortgage payments?

Bigsby says

If all those things look OK for you, then why would you want to fund someone else's mortgage payments?

They don't look OK to me.

I see plenty of people who are in over their heads in properties. It sounded like a good idea at the time, but they didn't know what they were buying into.

Another thing we see in Seattle is temporary contract positions that pay really well, but they have a five year span.

Many people here rent for what a mortgage payment would be. I don't get this idea that by buying you automatically are paying less. You have lost opportunity on your down payment, and are at the whim of a future Real Estate market place, that I have stated looks really suspect to me.

One year of double digit price hikes doesn't make a bull market, if you want to use those terms.

David Losh says

They don't look OK to me.

I see plenty of people who are in over their heads in properties. It sounded like a good idea at the time, but they didn't know what they were buying into.

Another thing we see in Seattle is temporary contract positions that pay really well, but they have a five year span.

Many people here rent for what a mortgage payment would be. I don't get this idea that by buying you automatically are paying less. You have lost opportunity on your down payment, and are at the whim of a future Real Estate market place, that I have stated looks really suspect to me.

One year of double digit price hikes doesn't make a bull market, if you want to use those terms.

How many of the people who bought in the last couple of years are in over their heads?

PockyClipsNow says

Somehow I have met a very large number of people with net worth > 1m from real estate.

At the same time, almost no one who rents and has a stock portfolio over 1m. I'm sure they are out there.

That's because you live in California where pretty much anyone who bought property between World War II up until a few years ago has realized huge gains. Go to other states and the incidence of real estate millionaires drops significantly.

I have friends who are worth a few billion $$$ who rented a 2 or 3 BR apartment until a couple of years ago. Admittedly, that's pretty unusual, but I have other friends who are very well off who rent because they have professional jobs that require moving every few years.

Not for a 1-2 bedroom condo when you figure in the down payment, insurance and taxes. I ran the numbers and unless rent goes to 3k a month its a wash.