patrick.net

Jimbo,

I remember someone posting the BA specific housing price here before, perhaps FAB. The housing value shot up at the first half of the 70s but stayed the same for the next 7-8 years for inflation to catch up, which I believe will be the situation in the next 5-10 years. The only uncertainty is the unprecedented debt level of Americans. In the 70s, the US savings rate was still single digit positive.

I am of the camp that either of the two scenarios will likely happen:

1) Rampant stagflation of 20+% for the next several years as we print money to bail out failed banks, funds, and everyone in the financial food chain, while housing price stays stagnant, or slightly down on paper.

2) Deflation - when we cannot inflate any more, deflation is bound to happen, housing price crashes 50%+. But I highly doubt if the second scenario will happen because inflation is in the best interest of every single government around the world, and I never dare to underestimate the government's ability to inflate.

So from prop 13 point of view, those people who can buy in the slight dips before rampant stagflation catches on may not be a bad idea since in 10 years, our annual prop tax will be like worth nothing.

Or another group of beneficiaries will be those who put their money into assets that will shoot up with inflation, and swap out of those assets when inflationary period is over and buy back into real estate. Even certain sectors of the stock market will benefit tremendously (not subprime or housebuilding for sure).

Those who will be screwed the most will be those holding cash, USD cash.

theotherside,

investment is all about investing in the right asset class at the right time. I don't think buying a house is generally a bad idea, in fact I own one, but it is a bad asset class to be in right now.

When all the resets are over by 2010, I will start looking at housing again. Right now, I am having much more fun with other asset classes.

DinOR - It would just be five acres of raw land, no house.

lunapark,

do you plan to do anything with the raw land?

It is actually not a bad idea to buy raw agricultural land in California (way out, no chance of conversion into residential of course). Because raw land holders are protected by the Williamson Act in terms of prop tax, even a sweeter deal with prop 13, if you leave it to the wild or save for agricultural reasons. You pay almost nothing to keep holding the land for the designated purpose.

"do you plan to do anything with the raw land...It is actually not a bad idea to buy raw agricultural land in California"

It would be in the Midwest. It's something my husband wants to do (he is from that region). I'm not particularly interested. We are trying to compromise on this somehow, so I'm looking at ways that it could be beneficial. In my mind, it is not a good financial investment, but it's not just about the financial benefits/non-benefits. He has always wanted to build his own house and have a few acres. He's looking at buying the land now and building on it 5-10 years down the road.

Why do people cite inflation like it's going to help with your mortgage payment? At least recently, CPI has been going up while wages have been STAGNANT. That makes your mortgage an even worse deal because you're not making any more money, but everything else is getting more expensive, eating away at your cashflow.

If wages started going up again, then maybe inflation would make that house less expensive in nominal dollars.

Inflation is very helpful if:

* you have fixed rate, simple interest, no prepay penalty debt
* you can afford to service that debt
* inflation rises faster than _expected_, in other words, the loan's interest rate was mispriced too low.

Out of curiousity...I'm interested in doing a rent vs. buy comparison on this Nob Hill property...does anyone have an estimate for how much it would sell for?

http://sfbay.craigslist.org/sfc/apa/279468562.html

1072 WASHINGTON STREET (CROSS OF MASON STREET)

Newly renovated painted, hardwood floors throughout. Bright with lots of natural light in all rooms. Building is detatched on all 4 sides. On 2nd of 3 story/flat. A gracious classic Edwardian building. Safe and secure area. Convienient location. Walking distance to Financial & Northbeach districts. It’s only a couple of blocks up to the top of Nob Hill with its world famous hotels and historical Grace Cathedral. Also within easy reach are Downtown, Union Square, and the Theatre District. There is also nearby access to multiple bus lines and the Hyde/Powell or Mason/Powell Street Cable Cars.

Featuring:

Approximately 2200 square feet
8 Rooms
4 Bedrooms/1 Living Room/1 Dining Room/1 Kitchen/1.25 Bathrooms
# All Refinished Hardwood floors
# All new modern luxurious kitchen
# New Cherrywood cabinets in kitchen
# Granite counter tops/back splash
# New appliances (refrigerator/freezer,dishwasher,s/s sink w/disposal& s/s gas stove/oven/hood)
# New Limestone kitchen floor
# New full bathroom with shower over tub w/sliding glass doors
# Marble shower walls and surround marble floors in bathroom
# All new double pane windows
# New Water Heater
# Coit Tower views
# Window coverings
# Washer/dryer hookups
# Locally owned and managed

(It has asking rent of $4000)

SJ_oldtimer,

What you are saying is true. The concept of the standard deduction is to make things simple for the majority of taxpayers (so they don't have to itemize). It's primary purpose is not to be a tax break. So I am told by my friend who works at the IRS.

If this irks you there is one standard "tax planning" way around it...basically you take the standard deduction on year 1. Then on year 2 you itemize and try to double up all your deductions to year 2. This is relatively easy for charitable giving. On medical expenses its a bit harder. On the mortgage deduction it's impossible (as far as I know).

Boston Transplant,

True, "bunching" actually works and works well (particularly if you have some sort of business). As with any strategy, it has it's limits and that's what I'm up against right now. My Schedule C is all but tapped out. There's a strong temptation to start yet another "business" but my "spidey senses" tell me that's a great way to flag yourself.

Broadly speaking, inflation is only useful if nominal wages go up in the same time period. Nothing bankrupts masses of people faster than high inflation on consumables without matching wage inflation. In such situations, real estate and other non-essentials will become very very cheap in real dollars.

lunarpark,

Go a little easy on the guy, o.k? :)

Like a handful of others here, I too am a native MW and have tinkered w/the notion of spending summers back in the corn belt. Yeah, I know, weird huh? Here's a way that hopefully you can both live with.

Open a "self-directed IRA" and find a seller that will take a very modest down payment. (The paper is lousy w/them back there). Then make sure your annual payments do not exceed your contribution limits. You'll want to structure things so that you will have the land paid off by the time you are ready to retire (or well prior).

From there you can go about it one of several ways. If you'd like to build/occupy prior to 59 1/2 you may do so by taking a "72(t)" (early IRA distribution) OR find a non-recourse lender and actually build the home and rent it out to cover your construction cost obligation. That way you'll have a "summer home" paid off by the time you retire OR you could simply continue to rent it out and use the rental income to augment your retirement. Please do not be intimidated by the 72(t) thing. It's just the standard IRA Withdrawal Form and it's one side of one sheet of paper w/one page of instructions attached. It's really no big. You're young enough to have plenty of time to research and execute! :)

Just a bit off topic here (just a bit :lol:)..... Aside from the news that this article brings, I have never seen an article that has so many spelling and grammar mistakes than this one!

DinOR - Thanks! I would have never even *thought* of the above. I'm going to look into your suggestion.

Btw, I lived in the Midwest for a while. I actually like it there. My largest concern is employment. I can see living there when we're "older" though.

http://finance.yahoo.com/expert/article/richricher/24515

"Throwing Good Money After Bad"

Btw, I lived in the Midwest for a while. I actually like it there. My largest concern is employment. I can see living there when we’re “older” though.

Don't be surprised if companies start relocating there in the near future to avoid having to pay high salaries in the "more desireable" areas; they have been outsourcing to other countries for a reason, there isn't a reason why they can't outsource to other states.

I think the inland West and the South will be preferred over the Midwest. Fewer unions. Fewer ethnic minorities. Less burdensome tax structure.

OO,

I thought that when someone sponsored an immigrant to the United States, either a benevolent society or an individual sponsoring a relative, they did sign an agreement that they would reimburse the government for any welfare type expenses that the person incurs. I read that someplace, that it wasn't enforced because of political pressure from groups that sponsor people from China and Russia to come to the US.

Also, the Williamson Act thing is interesting. My country house (a small former ranch) is Williamson Acted. I still pay property taxes based on what I paid for the place when I bought it, but there are restrictions on any development I can do on it. My next door neighbors' place has Williamson Act on it and I have deeded access to trails on their property, so they can't do any development at all on their 500+ acres.
I don't think my taxes were much lower, but because my property can't be subdivided I'm sure I paid a much lower price for the property.

lunarpark,

No problem. The Custodial Bank I normally use is PENSCO Trust actually on Sansome Street. They have a very good internal compliance officer that makes sure I don't do anything stupid. There are a lot of "me too" firms out there that may be cheaper yet adequate for what you are looking to do. Some are "flat rate", others charge based on "assets under management". It just depends on what you want to do. If you anticipate a lot of investment activity (fixer uppers etc.) then flat rate makes more sense.

OO,

I found some info on sponsored immigrants. The sponsor can be sued to recupe costs (but won't be for political reasons).

http://www.formdomain.com/aosfaq.htm

If it bothers you a lot you should start writing editorials, contacting your elected officials, and making the problem well known.

SFWoman,

I'm not sure OO or I would start a letter writing campaign against such sponsored immigrants, since it does benefit our demographic group quite a bit. It's more disturbing that native born Americans aren't more concerned about such abuses. On this point, Canada and Australia have much more sane immigration policies. It's like tax policy, more of a collective action issue.

lunarpark Says:

http://finance.yahoo.com/expert/article/richricher/24515

What's wrong with Kiyosaki ? Is he trying to reinvent his image ?

palo alto,

Why would a bank ever call in a loan as long as the person is paying? If the house was worth less than the loan would the bank really want to have to deal with the house and get less for the house than the loan is for, even at a higher interest rate? I was under the impression that banks really, really do not want to own real estate, and the houses are the collateral for the loans.

The guy is a bit late to the party, isn't he? And he recycled the old 'Joe Kennedy knew to get out of the market when his shoeshine boy gave him stock tips' story.

palo alto renter,

Not having been a Rich Dad fan I'm not sure what RK's context is here or what he's really driving at? Virtually every mortgage I've ever had contained an "acceleration clause". Every time I brought it up it was quickly dismissed as "obsolete" and seldom if ever used. More applicable to the Great Depression era than today. O.K then, why is it still in here then?

RK was WAY late to the HB camp. In fact without a whole lot of effort I'm willing to bet I could find cheerleading articles from him up until at least OCT 2005! Well, if your loyal flock were still buying that late in the game they'll be moving back in with Poor Dad real soon. RK just happened to stumble on this little known tidbit and is flaunting it as if he's cutting through the noise etc. "I" can't see how it has any application.

My understanding is that the acceleration clause was structured to allow banks to recover a certain amount of cash to meet reserve requirements, like a "run on the bank". These clauses pre-date the scraping of the gold and silver standard so I'm not even sure why they're still in your closing doc's?

SP,

That analogy would be strained at best. House calls typically kick in when the stock investor is below 35% equity. If he can't "cover" the call 3 X the dollar amount of the call is liquidated. When in FED Call (under 25% equity) 4 X's the amount is sold out. Yes, it is possible to have neg. eq. in a margin account!

Since scores of late to the party home buyers came in with ZERO equity (100% or more financing) there's really not much of a comparison?

Okay, I am a Bay Arean pine boxer, but if I was thinking about getting out of dodge in the next couple of years, I would definitely take REX up on their offer. This actually seems like a great product for housing bears who want to hedge against a downturn in the real estate market. Please note Rex shares in the downside with the homeowner. I don't know of any other mechanisms (besides the CME Housing Futures) that offer this type of "protection" for home prices.... And yes, I do realize over the long term, a fool and his money are soon parted. Back of the envelop calculation, assuming house appreciation equivalent to inflation (say 3%), REX makes 10% on their investment. But we all know that at this point, homes are not going to be appreciating, right?

It's all fun and games until the cascade of defaults gets going.

astrid,

Exactly. Just how much excess cash are we gagging on that after the greatest borrowing and indebtedness binge in history there's STILL some left over to buy you out of 1/2+ of your "future appreciation"?

EBGuy, there WILL be some boomers that have so drastically starved and underfunded every other aspect of their lives that this deal with the devil will actually look good. They will be able to get a term life policy they should've put in place when they were still in 30's.

SP,

Thanks. I can see why they'd want a higher return, it just seems like it wouldn't be worth the bother if it had to include dealing with depreciating real estate. I guess you have to get in there while there are still assets to grab.

Do mortgage holders actually keep track of our risk profiles? I get solicitations from mortgage people that say 'I see you have a mortgage of $xxx, refinance with us.." but it is always the wrong amount, usually the initial loan amount from 1994.

SFWoman,

If there's a high likelihood of future default in a worse market, it would be in the lender's interest to sell the property ASAP.

SP,

There may be some truth to that. We have a fellow here in OR that had a very high profile meltdown ( big $ divorce and general chaos) and his hotel chain found that funding dried up overnight! Since his ex-wife was given over half of his hotels the lenders were lining up. (She had no experience running a hotel, let alone a chain) so I believe the lenders exercised their acceleration clause.

PAR,

In typical Rich Dad fashion RK has left this open to 'interpretation'?

I'm not even sure if his observation has any relevance? Is he visualizing some kind of mass event?

SFWoman,

That's actually another little REIC "goodie". Title companies provide your personal information to just about any mortgage firm either for a price OR w/the understanding that if the MB can get any business out of the "lead list" they will get the title biz. None of the parties involved see absolutely anything wrong w/this whatsoever.

(You really gotta get on the Do Not Call list!) :)

PAR,

Thanks. I have few friends who are considering renting the place together, and it just got me thinking about how much it would cost to buy it. If you look at the Craigslist post you can see it is very nice...I figure someone familiar with Nob hill will can clarify if it is in the $1M or $2M range.

http://sfbay.craigslist.org/sfc/apa/279468562.html

SFWoman,

is your property in the country bigger than 100 acres? If not, you can combine your lot with your neighbors to reach that threshold so as to put them under Williamsom Act. However, no residential structure can be allowed on WA land, so perhaps you need to designate only the portion of your land that won't have the structure on top to be lumped together with your neighbors'. It is a good incentive to keep more agricultural land in California, and particularly beneficial to those who plan to hold their land for a long time.

SFWoman,

the US banks can recall any loan that is a revolving credit line in nature, if they feel that the borrower's risk profile is quickly depreciating. The revolving credit line typically has no collateral, or quite flaky collateral like some business inventory that could lose half its value overnight (think fashion clothing).

Credit card loan can be recalled any time even if the borrower is paying.

Boston transplant,

I think the apartment is probably closer to the $1 million (maybe $1.2 or $1.3ish) than the $2 million range. It's small for a 4 bedroom, has only 1.25 baths for 4 bedrooms and has no parking in a neighborhood one block from Chinatown. (Absolute, utter parking nightmare) It does, however, have a noteworthy view. I doubt it is a doorman building, so the fees are probably less than $500/month. I would tell your friends to rent it only if they don't drive or can find leased parking nearby, otherwise they are going to spend all of their time trolling the neighborhood for a parking spot.

I have a friend who lived a block up the hill from there and just bought a new place last November. (I am basing my estimates on her place) The neighborhood is very convenient for people who work in the financial district, and it is easy to get to great restaurants. Because of the bad parking it is very difficult to have people from other neighborhoods over if they drive.

OO,

My place already is Williamson Acted, according to my deed. There were a bunch of disclosures "Wildfire area, no red legged frogs, etc, not within 1/4 mile of a known fault" and the Williamson Act was included as a disclosure. It is less than 100 acres.

Perhaps it should be 'trawling the neighborhood for parking".