patrick.net

Randy H:

Thanks for the thoughtful and friendly response to my question. I'll ponder your words seriously. You're a class act, man.

Bruceb:

I'm glad you dug my herb...I mean my crumbs in the midst of the key-tossing McDebtor neighbor story. I'll see what else I can cook up. But I think that little vignette may be a cult classic soon...and difficult to top.

Malcolm Says:

"...Instead of shooting the messenger you should go get yours."

Well, I've got mine, and it still doesn't mean sh-t because it's really not all that much and pales in comparison to the housing bubble...

Very true. I was astounded when I sold my houses that I realized I had made more money than if I took all of my paychecks from all of my jobs and added them up. Working for someone else is not the way to do it, you are always subsisting that way. You have to have something else going on the side. Especially if you fall into the standard marketing traps.

Paycheck = 30% housing + 15% car + 35% taxes .......

The good old 80/20 rule. 20% of your expense items are 80% of your costs.

You can't get ahead that way. The masses work and work and don't get anywhere.

Michael, it's not what you earn, it's living within those means. Even earning $10/ an hour I always seemed to have more disposable income than my bosses. You have to simplify, and not be placed in the system.

That was in the mid 90s.

I have been enjoying this blog for about a year now. Given the MENSA qualities of the posters, I've been intimidated to enter the fray (those econ models and formulas freak me out). But what I can offer, as a true lay person and bona fide non-expert, is my own experience and my 'simple', common sense opinion about real estate in the Bay Area.

To CMAC's question about rental rises:

I was recruited to the BA from Southern California in 1997, with all the lure that was so very rampant at that time -- the sign-on bonus, the low strike-price grants, the paid relocation, the silly toys and the dorm like environment, etc. -- and God was I shocked at the rental market! I mean, it wasn't like I was moving from an inexpensive area!

My roommate and I basically took the *first* apartment we could find in Santa Clara. We hadn't even seen it. But given the wait lists we'd encountered, we simply had to take the first place we could find.

Long story short, my company was purchased, I went to another start-up, went IPO and then bankrupt, got purchased, then purchased again by an even bigger fish, and voila, I ended up in San Ramon in 2001. All the while, the H1-B visa holders left en masse. You could easily find a parking spot or leisurely walk the mall at Valco unimpeded. The tech bust became fully realized.

What a lovely surprise to pay less rent for a much nicer apartment deep in the burbs. More shocking, I pay less rent now than I did 6 years ago when I moved in. That's not a type-O folks. My rent fell every six months for the following 5 years. I did experience one increase (5%) last summer, but still, well below the original lease.

It doesn't take an Alan Greenspan or a fancy model to see what was happening/ is happening. Rents have been consistently falling while real estate prices have been going through the roof. This unbelievable trend defies all the fundamentals and all known historical models. If it smells like sh*t, looks like sh*t, even tastes like sh*t (which many FB's are well familiar with), then it is indeed a big, heaping pile of steaming sh*t. Lowly renter that I am, I can move at a moment's notice, which in the M&A craze of the Silicon Valley is a nice option for an American-born engineer to have.

In addition, *every* weekend for the past year, I've seen poor schlubs standing on all the major corners with those ridiculous signs, pointing me, desperately, to the many new developments within the Dougherty valley. For the first time in all these years, I'm seeing "For Rent" signs as well, for the multi-million dollar homes in my subdivision.

I see empty units all around me. I regularly receive flyers from the management, offering discounts on rent to refer friends. And that 5% increase? They returned 1/2 of that increase to me (over six prior months) when I finally signed a 12-month lease.

Rents going up? I think not. At least not in the Tri-Valley area. There are so many new condos and SFHs as well as new apartment complexes, that the increased supply necessarily demands a relative lowering or at least stagnation of rental rates. Considering inflation and my increase in salary (yes, "Uh-Amekican" engineers are still getting courted and paid well in the BA), I am making out very well. Gone are those days of IPOs and VC capital growing from trees. BA software companies have to recruit from the residents who have some how eked by in this area. For sure, foreign investors are still coming to BA to buy, but keep in mind, they aren't workers, they're investors. Somebody still has to write the code and evangelize the product to US clients (the insurmountable logistics surrounding outsourcing are a whole 'nother thread, but not entirely unrelated to RE issues in the BA).

For any FB's or Happy B's out there who look upon my cohort with pity and disdain, save it for yourselves. My savings and investments are doing quite well, thank you very much.

Question for FAB: In your experience, have apartment management companies been able to pull off a 10%+ increase on current residents? I have not seen that succeed myself (i.e. lots of empty units appear suddenly) but given the crazy RE economics of our last 5 years or so, I suppose anything is possible. I'm particularly interested in the large management firms, as they have the foot hold in most residential areas, still.

Thanks much,
-LSR