patrick.net

DS,

Fair enough, there are good people in every field but that's no reason to enter a field that is generally speaking, an ethically dubious bust.

Randy H,

You're aware of course the liklihood that B. Gross would admit his monthly newsletter was a "knock-off" are just about nil, right? :(

"So I have a question for Patrick.net bloggers. If you were earning around 200K, had 200K in down payment, would you buy a 1.3M house ?"

Our income is higher than that and we have a similar down payment. I cannot even imagine paying $1.3 million for a house (especially for what it buys you in the Bay Area).

"No offense to former and current military folks. I have great respect for military people, but the current leadership resemble the British leadership for the Crimean War. "

You are correct, Astrid. Unfortunately, the only way the generals who are primarily politically skilled get replaced in favor of more qualified leadership is through a major war. That's when the fops get fired and the passed over majors get battlefield promotions.

Today a General who wants a policy of all first term combat troops to be single would be replaced by a General who would emphasis full time day care, plus maternity and paternity leave.

Headset,

I never take offense to any comments that might be seen as less than flattering to military personnel at all. You see, I had MY OWN Navy! :)

All you had to do was make your division officer and dept. head look good and you could literally get away w/murder. Just jump through the hopes from time to time and make sure that none of your guys ever got an article 15 (by whatever means available) and you were golden. I've even had several DO's that came right out and said it!

hoops?

justme,

Aptitude?

DinOR

I'm not going to take a "I want credit" approach with Mr. Gross. I figured I'd hit him up for a job as his economic strategist, or maybe just some consulting work.

Prospecting, prospecting, prospecting. I'm sure you know the drill.

DinOR,

Your own Navy, cool. Is this a reference to the "McHale's Navy"?

I bet the "murder" you got away with would be interesting to hear about.

Negative comments about the military do not bug me either, especially if they concern the Navy. All kidding aside, you gotta admire folks who can crash and dash from carriers, go to sea for months at at time, or cruise undersea for similar long periods.

What abut the genetic study of random blood samples that indicated that 11% of children born ino marriage are not he offspring of the husband? Seems that a lot of these reformed women still have a stud(*) on the side.

It makes perfect sense. A woman wants a man who can invest a lot in her child, so marries a man who can and will do that. She also wants an attractive child so she will happily get knocked up by the handsome rouge and let the husband invest in the child.

Note, by 'wants' in this case I mean 'finds it likely to increase the odds of her genes hitting the next generation' and not in any coldly conscious calculating way.

"It makes perfect sense. A woman wants a man who can invest a lot in her child, so marries a man who can and will do that. She also wants an attractive child so she will happily get knocked up by the handsome rouge and let the husband invest in the child."

I wondered why some some ugly guys have attractive kids

I think your numbers are wrong TOS, in a couple of ways:

On $1.1:

Mortgage @ 6% - $6600
Taxes - $1300
Insurance - $500

That gives me $8400, not $12,5k. Also, the tax rate for that couple should be 40%, not 30%, at least in California. Though that couple is probably paying AMT, so they can't deduct their taxes, just the Interest. Furthermore, only the first $1M of the mortgage is deductable at all.

But yeah, that leaves them with $5/mo after taxes to live on, which is plenty. But it leaves no margin for error, if one of them loses a job or something. I have made this argument before, that higher earners can pay a larger proportion of their incomes on their mortgage. You can imagine the reception I got here. But I think that is what most people are doing, certainly newer buyers.

lunarpark said:
I cannot even imagine paying $1.3 million for a house (especially for what it buys you in the Bay Area).

Well, that is why you are not buying a house here, right?

Randy,

You never answered my question about the Berkeley MFE program. What do you think of it and its graduates?

Yeah, except you can't rent a $1.3M home for $2000/mo. $3000 is more like it. I asked you show me examples a few threads back and you couldn't do it. You said you know someone that has that deal and I accept that, but that is not the market rate.

Jimbo

Sorry, I thought I had answered. Maybe it was one of those I hit submit and got a timeout. Comcast cable sometimes really sucks.

I think highly of the MFE program at Berkeley. It's probably the best or one of the best (there are only a handful so far) programs in the world.

My warning is to be sure it's right for you, and will help you by returning what you think it will for your career. My opinions of the positives and negatives:

+ MFE skills are in extreme demand right now, and likely to remain in demand for a number of years to come.

+ MFE skills are starting to become coveted outside of traditional finance by larger multinational corps with complex financial requirements (companies with lots of currency concerns, etc.).

- MFE is new, and a lot of grey hair bosses don't know what it is or the value of it.

- MFE is new and not yet worked its way into the consciousness of recruiters.

+ Executive recruiters in the finance industry know about MFEs and increasingly search specifically for the degree.

+/- It's not an MBA (even a focused finance MBA). Minus if you want to be more well rounded and you don't already have an MBA or equivalent management experience + a BSBA. Plus if you don't want to be a manager, but instead a superwonk.

- Superwonk = Technical Contributor which is always at some risk of eventual mass-panic offshoring, like happened to programmers.

+ It probably will not ever become a large enough field in and of itself to attract the kind of mass university education that attacked software and hardware engineering. For example, most quant finance software programming jobs are still in the US, and those that went offshore quickly came back.

+ Since it's officially in the world of High Finance, it's very likely it will enjoy certifications. Certifications are a big barrier to rapid offshoring or other dislocation.

Make sure you *really* like complex math (and statistics). It's the same kind of math a quantum physicists do, only intensely focused on a very narrow range of application. You should also have some interest in the computer sciencey stuff that overlaps like neural networks, Bayesian networks, genetic algorithms, and evolutionary computing. I don't actually know too many MFEs, but the one's I do know have to "code" a lot of their own models. Not like writing big server apps, but more like writing hyper complicated macros in Mathematica kinds of stuff.

I agree with you and that why I clearly hedged my bet in my post (by using “?” and “may”)

You left too much gamma unhedged. :)

So I have a question for Patrick.net bloggers. If you were earning around 200K, had 200K in down payment, would you buy a 1.3M house ?

With 200K down, you will be left with a 1.1M loan. Can 200K income support 1.1M debt?

200K may have difficulties with a loan of more than 600K? (I am hedging ToS style)

You cannot rent a $2k/mo home which is directly comparable to a $1.3m home. I'd say $3k/mo minimum; more like a range from $3.5k/mo-$4.5k/mo.

Keep in mind there is one big qualitative differentiator: condition of the home.

Unless you're renting a short-term situation from an absent owner who intends to reoccupy the home later (usually ex-pat situations), the house you end up renting is inevitably not nearly as well maintained, upgraded, or cared about as would a home you owned yourself.

Even if the owner is a smart landlord and keeps the roof patched, the garage door working, and the pipes from leaking, after 10-15 years as a rental the house will be *distinctly* different than an identical home next door which is owner occupied.

Examples are replacements of things such as microwaves, dishwashers, efficiency-related maintenance of HVAC, fixing broken sprinklers requiring digging up pipes, tree trimming, pest control, the list goes on. Again, not big things, but part of the equation for most people in real life. My current situation: I'm not asking for a Miele dishwasher, but the 35 year old rusted monster that costs 10x a nice Whirlpool to operate, and is louder than a A380 on takeoff from ORLY which the landlord says "Is just fine" grates on me every single day.

Randy, how much is an MFE?

I am at a crossroad right now. Stars are telling me to make a leap.

My wife and I are in about the same boat as the 200k + 200k.

She balks at the idea of paying 3k rent, but smiles at the thought of a 1mil house. :D

We're paying 2.1k for a 2-bed apartment with no yard for the dogs, and she's unhappy. We've agreed to move into a rental SFH or town house with a rent of

Huh, lost half a post up there.... anyway, we're moving to someplace with a rent of

A 1M house with 200K down requires a monthly PITI of about 6K.

At 3000/month rent, you can afford to rent two apartments. :) (Perhaps a vacation "second rental")

*slaps self*
Rent of less than 3k a month. I will not use the 'lesser than' sign on a place that parses for HTML anymore. SHAME ON ME! Anyway, being in the 200x200 situation, we've decided we need to find a place we can tolerate (preferrably like) to rent for the long haul while being able to save more towards a down payment while we watch the market to see what it's up to.

Use &lt; instead of <

SFBubbleBuyer: don't use the angled-bracket greater/lesser than, the blog thinks it's an HTML tag.

By comparison for some perspective:

My wife and I had around $250K/yr combined salary in 1996, when we bought into the Bay Area. That salary plus $75K bought us into a $365K home in Redwood City. We wanted Menlo Park, but there the same house would've been $650K (I refer to my earlier discussion about how non-prime areas like RWC have risen to close the gap with places like Menlo, which is clearly not justified or sustainable).

Anyway, we felt that servicing a $290K debt, which was a Jumbo back then, at 8.25%/yr 30yr fixed was a risky proposition and depended heavily upon our ability to grow our incomes substantially over the next 10 years. We had a hard time qualifying because I was categorized as self-employed, and I had the higher salary in those days.

We did grow our incomes, but that was rendered irrelevant by the fact those homes now sell for ~$1.0m.

But think for a moment. We had trouble qualifying for a $290K first loan 30yr fixed to buy a $365K house, with $250K/yr in income, and that was just over 10 years ago.

We've come a long way (in the wrong direction). If even a quarter of that rigor was reapplied to mortgage lending, houses would drop by 50% in 6 months.

SFBB,

Sounds like a great compromise. If your wife is happy with your rental, she may no longer worry so much about owning.

My mom hated her first rental after my parents sold their home, and consequently, she kept regretting the niceness of her old home. She's been extremely happy with her current rental and now would be happy to rent for the rest of her life.

Jimbo Says:

> Yeah, except you can’t rent a $1.3M home for $2000/mo.
> $3000 is more like it. I asked you show me examples a
> few threads back and you couldn’t do it.

I did send some examples a while back (and even included a home on a street of recent $4-$7mm sales is Jordan Park south of California that was renting for $4.4mm)…

Below is a place in Burlingame that is renting for $2,395 that would probably sell for about $900K (there is a recent sale on the street for $880K and a couple other recent sales east of El Camino) of a 2x1 on Oak Grove for $1.1mm and a 2x2 on Crossway for $1.3mm.

http://sfbay.craigslist.org/pen/apa/310656587.html

Here is a tiny East of El Camino place renting for $1,900 that would probably sell for $800K.

URL deleted but you can look for it.

I could not find much of anything in Burlingame or San Mateo west of El Camino (where the values are a lot higher but the rents are just a little higher) for rent since it looks like most (unlike my parents) have cashed in and sold to idiots for over $1mm.

With that said it looks like we have seen some rent increases on the Peninsula this year and you will probably pay closer to $2,500 (almost double the property taxes) to rent a $1.3mm home on the peninsula today (or a $1.3mm 1br condo in SF)…

P.S. I agree with Randy that (in Marin) you can not least a $1.3mm home for $3K, but in a place like Woodside on a street like Hillside (that is about as wide as my parents driveway and is full of crappy little homes) you can rent a $1.5mm home for $2K a month (a friend used to rent on the street and every recent sale has been a teardown)…

How was servicing a $290K debt with $250K risky? The PITI would be less than $2700 a month. Plenty of money left for sushi.

least = lease

Randy,

Thanks!!!

(I just read a New Yorker article that "!!!" is good e-communication etiquette)

We'll see how my boyfriend takes to finance and economics. I don't think the math will present a problem for him (he finally told me his silent retort to my numerous prior mentions about taking graduate math class was that he took advanced calculus, did pretty well, and don't see the point of taking more math classes). He got a 7 on his IB HL math, for whatever that's worth.

The other likely route is indeed to go to law school and be an IP attorney. However, if he wants to go that route and commit to 3 years and upwards of $150K in student loans, he better be sure he likes working 80 hour work weeks for about a decade, possibly in an overcrowded field where getting an equity partnership is less and less likely. Plus, he said he lost interest in his previous job because he didn't feel he got enough support from his superiors and was getting bored by the job. So I don't think this would be a good route for him.

Astrid, do you know the sun sign of your boyfriend?

Huh? He's a gemini.

He's also (half seriously) considering playing internet poker to see how good he can get.

(I know, to be so young and wacky :) )

I'm not exactly sure how much the MFE at UCB costs. I'd be surprised if it were much under $45-50K.

POP QUIZ

Yes put down your books and keep your eyes on your own work because it is time to test your mettle on reading and retaining this latest thread's postings.

here is the drill
16 posts were "spot on" with the premise of "pocket listings"
attribute the poster to the postings - good luck

1- can afford but won't buy a 1.3m shit-house

2-has been compared to Elaine an old friend of Brand by speaking with a sulphuric tongue

3 -claims that an onomatopeia was flung at him

4-posted this math equation{1.137^5*0.945^4=1.52}

5-jumped on a BMX after gang's spray painted a building

6-claims metaphysically that we are all jukubots

7-sat in an ebay boxster in venice feeling envious of meth heads with hot tattoed chicks

8-wondered if Mrs Skibum had a problem with premature withdrawal

9-turned off by realtwhores with the execu-slut look

10-has the ability to see women undressing in high-rise condos while driving at 50mph on highway

11-claims not to care about zits on a roach

12- correcty and emphatically stated the meaing of tramp stamp

13-chooses to live precariously by posting his thoughts on attractive kids

14-knows by having read Psycology Today that randy should change his avatar on 2nd life to a more perfect symetry if his goal is finding an orgasmic trophy blonde (is that an oxymoron sry)

15-claims 1/3 responsiblity on the mounds of crustacean parts left last week in DC

16-pines for lobster bisque pastry at tommy toys but was left wandering why nobody replied to his invitation to go there

Possible Answers-- TOS- softest landing - peter p- skibum--malcolm-dinor- former apt broker- headset--jimbo -GC -astrid- SP-robert cote-

correct answers on a later thread

"Below is a place in Burlingame that is renting for $2,395 that would probably sell for about $900K (there is a recent sale on the street for $880K and a couple other recent sales east of El Camino) of a 2x1 on Oak Grove for $1.1mm and a 2x2 on Crossway for $1.3mm."

900k or even 800K ... i dont think so... homes like this were selling for one third (1/3) a few years ago. I sure feel sorry for ths idiot who thinks these homes are worth that much...

Thats my view... no justification for the prices... eventually this puppy will drop by 50%.

Huh? He’s a gemini.

He’s also (half seriously) considering playing internet poker to see how good he can get.

My brother-in-law is also a Gemini who likes to play internet poker to see how good he can get.

I refer to my earlier discussion about how non-prime areas like RWC have risen to close the gap with places like Menlo, which is clearly not justified or sustainable.

Randy H (and others),

We've made an assumption that homes in "subprime areas" like RWC have increased in value to come absurdly close in price to "prime" areas, and this is silly, unsustainable, and bound to revert to historical norms. What if this trend doesn't revert? Many (but certainly not all) of the people buying these $1M stucco boxes are usually educated, make at least BA median household income, and would have preferred buying in Menlo Park, Palo Alto, Los Altos, whatever. Say these folks stay in RWC (or wherever) and permanently change the demographics of the place. Won't this essentially be a "forced" gentrification of these areas? I've already noticed this has happened in places like San Carlos and others.

Thanks to everyone who answered my question.

I actually agreed with many things said by TOS ! Wow.

TOS is not evil. However, he seems to have some karmic conflict with Randy.