July 29, 2009

This San Mateo house is the American Dream defined

1022 S DELAWARE St, San Mateo, CA 94402 | MLS# 80931255
1022 S DELAWARE St San Mateo, CA 94402
Price: $469,950

1022
Beds: 2
Baths: 1
Sq. Ft.: 860
$/Sq. Ft.: $546
Lot Size: 4,280 Sq. Ft.
Property Type: Detached Single Family
Style: Contemporary
Stories: 1
Year Built: 1949
Community: Hayward Park
County: San Mateo
MLS#: 80931255
Source: MLSListings
Status: Pending With Release
On Redfin: 14 days
Move in ready! Not a short sale or REO! This beautifully updated home includes updated kitchen and bathroom with new appliances, upgraded lighting and fixtures. Newly installed carpeting and tile flooring. Fresh paint in & out and professional landscaping. Beautiful garage conversion (permits unknown)

Thanks to Burbed reader Jeff for this find!

Apple pie, lawns, debt, and baseball – America. And this house further realizes the American Dream by having a striped lawn.

That’s right – no longer do you have to lust after the fields at NameOfTheDay Park, you can have it right at home. Sure a full game of baseball might be hard since your lot is just 4,280 square feet – but maybe you can play half court baseball. Uh. Or something like that.

I was going to say “Go ahead and buy your slice of the American Dream today” – but it looks like someone has beat you already.

Best of luck buying your own ballfield!

Comments (101) -- Posted by: burbed @ 5:40 am

101 Responses to “This San Mateo house is the American Dream defined”

  1. Christina Says:

    Can we “staged” together?!

  2. joey Says:

    How is this not a short sale if they paid 655k in 2005?

  3. Herve Estater Says:

    > How is this not a short sale if they paid 655k in 2005?

    They must be foreigners and paid cash for this house in 2005.

  4. nomadic Says:

    Yeah, cash or *gasp* made a down payment! What were they thinking?!

    Love how it says “updated kitchen.” Sure, updated since 1949. Too bad it was circa 1985.

  5. Neko Says:

    He, he, this is the best part.

    “Beautiful garage conversion (permits unknown)”

    If you build it, permits will come.

    It’s a field-of-dreams house!

  6. sfbubblebuyer Says:

    “Permits unknown” means “totally and completely unpermitted, built by owner’s drunken uncle Al who used to work for Toll as a carpet installer until he barfed on the foreman’s shoes” in Realtor Speak.

  7. A. Lewis Says:

    I do like that look on my lawn. I love mowing my lawn and making it pretty. Did you know I’m a renter? I bought a Bocce set and now we have little tournaments with the kids and the neighbors – it’s fun to play on grass.

    I continue to analyze the SF Case-Shiller data in detail. I’ve calculated Price/Rent, Payment/Rent, Price/Income ratios and much more.

    My conclusion is that if what I call High-Tier homes in my area really followed the price drops seen in the C-S data, due to low interest rates the Payment/Rent ratio is at 1997 levels. That’s a buy signal. The Down-payments are still high (20% is 20%, while a 5.3% mortage beats the pants off a 7% mortage), but not by nearly so much as a few years back. That is a signal that the people with a lot of cash are the only ones who should be considering buying. Prices have not dropped enough to think about getting yourself more leveraged than a 20% down payment. Price-Income has dropped to maybe 2002 levels, and are a lot better – but it’s a highly uncertain measure. What have local incomes really done in my neighborhood?? I worry about continued unemployment bringing demand down and future prices with it.

    But the problem is the houses I call High Tier around me have dropped maybe 10-15% (in a useless aggregate manner) from what I think the peak was. The C-S high tier has dropped over 30% to get the numbers I was talking about above. If houses here could shed another 20%, and I could get a mortgage at 5.0%, (and come up with the full 20% down), it’d be reasonable to buy now.

    If that was true, I don’t think it’d be worth waiting for another 20% out of fear – stagnation is certainly possible and acceptable (for a few years) for the benefits of homeowning. And it’s reasonable to assume that eventually future home prices will appreciate about as well as inflation.

    But those conditions aren’t met yet! Interest rates blipped up and have come back down a bit – 5.4% maybe? And prices haven’t dropped that extra 20% for me. Anybody gotten quoted on a 30-yr fixed lately?

    The other thing is if my household income goes up, I’d consider looking at more expensive houses, but I still want them to be at good value, or it’s too risky, and better to rent.

    Also, if rents were to go way up, that would push things in favor of buying. It’s hard to really judge the average rents for SFH in the area, but mine hasn’t been raised for a long time, and I’m not expecting it to any time soon. They seem pretty much stagnant in the area since late 2007. Maybe they’ll ask for 2% next year? Maybe I’ll ask for a 5% reduction unless they put in better-insulated windows? The new garage door was nice, but what have they done for me lately?

  8. SHBH Says:

    A. Lewis, I think most of us agree that while RBA price has come down from its peak, it still needs another haircut before it is in line with the rest of the region. The question is, is it going to stay flat over the next few years while everywhere else catches up, or is it going to drop further. Do you have any statics from past downturns in the region that can predict what may happen?

    On a separate note, I noticed most of the publicly available rent-buy calculators are somewhat simplistic, and applied my limited Excel skills to develop something more comprehensive. Now I can adjust more than 20 factors including inflation, fed/state tax bracket, fed/state capital gain bracket and exemption, adjusted property tax to reflect prop 13, cost of selling, investment return on the down payment (for the rent scenario), moving cost, etc.

    What I noticed is that from monthly cash flow’s perspective, buying is actually better than renting over a long period of time:

    - For renters, present value of rent cost does not change over time, assuming the annual increase is at pace with inflation
    - For owners, various fed and state tax breaks decreases over time, as the interest component of mortgage gets smaller. But even without the tax break, the net monthly cash outflow will decrease, because the (assuming 30-year fixed) mortgage is fixed at a certain amount (same payment 30 years later is actually worth a lot less today)
    - For a typical RBA house ($1M to buy, $3500/month to rent let’s say), the present value of monthly cash flow for renting will be at par with buying in 10 years.

  9. A. Lewis Says:

    #8, SHBH – glad I’m not the only Excel junkie out there. I, too, have my uber-rent vs. buy spreadsheet with Income Tax, Property Tax, Inflation, Investmen Return, etc. as variables.

    What I noticed is that from monthly cash flow’s perspective, buying is actually better than renting over a long period of time:

    Not to be nitpicky, but what you say is only usually true. As you know from looking at your spread sheet, it depends on the rate of increase of rent, the return on the investment of the DP the renter didn’t put into the house, and inflation.

    In most reasonable scenarios, your analysis is absolutely right – and every prospective buyer should look at the fixed mortage payment in 30 years as a wonderful thing. And think about year 31! No more mortgage and yet a place to live!!!

    But the time to get par on cash flow, or to realize net investment gain upon sale of the home vs. renting, comes at different points in the future. Is it 5 years? 15 years? 27 years? Varies on the inputs.

    And how many scenarios do you run where the house undergoes a 25% price reduction sometime in the first 5 years after purchase, and the owner is forced to sell? That’s the risk of buying at too high a price.

    Again, the things you cite are good reasons for there to be a premium with buying over renting. It can pay off in the long term, and for millions of people it has. Millions of others foreclosed since ’07, though…and millions more are underwater, and I think didn’t have to be. Because they misjudged the premium for owning.

    But your analysis should make people feel good about buying homes that they can afford. Even if it’s cash flow par with renting in 10 years, and better after, it’s not a good idea if you can’t afford the down payment or P&I payment on your income, with sufficient cash cushion for emergencies (people talk about 3-12 months expenses in cash on hand – AFTER that DP goes out of your bank account).

    I don’t argue much with people buying homes they can afford (though I still don’t think anyone should overpay by a lot), but many times voices on this blog have encouraged high leverage, or buying at a very high price/income ratio, usually using equity building arguments, or possibly long-term cash flow vs. renting arguments. I disagree strongly with that – it’s pure speculation on future appreciation of a very expensive asset class.

    Glad you’ve done your homework SHBH, and you should have a clear picture of the long-term costs of owning, can adequately judge for yourself if it’s a good idea vs. renting a similar place, and if you can afford the DP and PITI – go forth and enjoy homeowning!

    To address your first point about prices overshooting down in a bust – I don’t have anything better than publicly available stuff.

    The C-S SF data goes back to 1987. It shows that in the aggregate, SF prices declined or stayed stagnant from sometime in 1990 through about 1997. 7-8 years of decline or flat. Ouch.

    And the ’90 housing bubble was nothing compared to this one, in terms of percent increase, not mention sheer dollars. Based on that statement, I might assume the fall to be longer and harder.

    Than again, perhaps today’s real estate market moves faster, as information and real estate news is more available and moves faster, so the correction could be quicker?

    I think you might see that signal in a place like Stockton or Antioch. Massive, fast crash. How much below building costs can those prices go? Why shouldn’t they start following inflation soon…

    But in the RBA and MRBA? There’s been no massive crash – so why shouldn’t it limp along for at least 5 years, if not 10.

    I could easily see the BA zeitgeist on housing change from “10%/yr forever!” to “Housing is over-priced here, and a good way to lose your shirt – be careful”. The former fuels a bubble, the latter keeps things down for years.

    The fundamental reasons housing prices should exceed inflation are: A) incomes in the area exceeding inflation, B) supply constraints worsening, C) demand increasing, D) the benefits of the area exceeding other areas more than they already did in say the year 2000.

    A) is not happening anytime soon – bay area has WORSE unemployment than the US, but it should be watched.
    B) is the best argument, but actually there are more vacant homes in the SF MSA than in a decade, and more construction has been done than ever recently – but we all know favored RBA fortresses which ARE more supply constrained, and they have higher prices. Is the supply MORE constrained than in 2000? (But beware the shadow inventory! – my neighborhood is MRBA and has unoccupied homes!). Should be watched.
    C) the population numbers aren’t moving in any exciting way. CA immigration is not accelerating right now. Should be watched.
    D) yeah, I don’t think so. The weather is not different than it used to be. The traffic, smog, schools, and cost of living are all WORSE compared with the entire country than the year 2000.

  10. A. Lewis Says:

    Oh yeah, and C (demand), was one of the huge false signals driving up prices in the ’02-’07 bubble. Appreciation created paper equity created move-up buyers. Massive speculation encouraged people to buy many more homes than they could afford and to flip them more often. Outright fraud was an important contribution.

    So I mean an increase in fundamental demand – like the population of young families looking to buy their first home who have jobs and a down payment.

    First: as I said, the population numbers are NOT going way up.

    Second: with job loss and belt tightening, you have less demand.

    Third: people do in fact double-up on housing when they can’t afford it. When they move in with their parents – they remove an entire unit of demand that does not have to replaced. They could just keep on staying doubled-up forever.

    Think of all the well-to-do in the SF area who have extra bedrooms. Bigger and better were a big part of the last boom, right? Imagine parts of their families fall on hard times. Or they do and decide to rent the rooms. Dramatic drop in C.

  11. nomadic Says:

    (grumble, grumble) … analysis paralysis … (mumble, grumble)
    .
    .
    .
    carry on!

  12. A. Lewis Says:

    #11 – hahahha! I write on Burbed for fun. It’s like a hobby, see. So I think it’s a lot closer to wasting time than paralysis, but I’m open to brutal criticism.

  13. nomadic Says:

    Whatever makes you happy. I won’t criticize it ’cause I’m not going to spend the time to read it all. ;-) Just had to put in that mini-rant.

  14. A. Lewis Says:

    A. Lewis – we kill more threads before 9pm than most people do all day!

  15. Gavin Says:

    A. Lewis & SHBH: I assume you want to make a best guess about the future of housing prices in the Real Bay Area (RBA) in the next couple of years. If so, you are thinking about this too hard.

    Over the long-term, five to ten years, the fundamentals such as price to income ratio and price to rent ratio, population growth matter.

    Over the shorter term, prices are momentum driven and affected by the inventory of homes for sales and the rate of sales.

    A simple way to predict next years price change is to assume that prices are going to behave similar to the previous year except not so extreme. So if home prices fell 18% last year, next year prices may fall half as much or 9%. Alternatively if prices rose12% last year, next year prices are likely to rise half as much or 6%.

    If prices just kept up with inflation than there is no need to adjust the change and you can just predict that prices are likely to keep rising at inflation.

  16. DreamT Says:

    “assume that prices are going to behave similar to the previous year except not so extreme”
    not a very good strategy when different tiers move in different directions simultaneously, indicating that the likelihood of a change of direction next year for any one tier is pretty high.

  17. Gavin Says:

    DreamT: I was looking for a one sentence model to predict house prices and I challenge you to come up with a better without using mathematical equations.

    That model does well most of the time except at turning points which occur once or twice a decade. You would be right eight or nine times in a decade using this simple one sentence model.

    By the way a good way to predict next years growth in the U.S. stock market is to say 10.5%
    irrespective of the change in prices the previous year. The stock market does not exhibit momentum or mean reverting behavior unlike the housing market. The 10.5% growth is the long term average over multiple decades.

  18. A. Lewis Says:

    Well, I think Gavin’s strategy would probably be OK for many years worth of data if you back-tested it. But it would be massively wrong some years, so I don’t know how much power I would give it.

    Psychology is such a big part of the short term swings – and while I would like to predict the 1-3 year price futures in the High Tier on certain blocks in my neighborhood, and I even have some opinions about it, I don’t think my confidence level is very high on those predictions.

    Conclusion: short term speculation in housing is gambling.

    I am interested in buying and owning for the long-term, so I could handle some fluctuations after I bought and try not worry about it (assuming my job is …but if the rent isn’t going up, and I think the 7-year view is somewhere between flat and -30% from today’s prices – I’m inclined to wait.

    Oh yeah, that’s what I’m doing!

    Here’s another reason to wait – maybe I can afford some homes now, and I don’t have any particular confidence they will drop in price, so for the reasons that SHBH cited, it’d be a good investment vs. renting. But I want homes in another neighborhood that are too expensive right now for me.

    I can wait for them to come down into my price range, and then buy the home I really want.

    This is the realtor’s and seller’s nightmare, and the reason I get so much flack.

    Sure, if prices just rise, I’ll be waiting forever. Sorry, that was the old story. New story: I can afford to wait.

    I have extremely high confidence BA housing prices will not exceed inflation over the next 7 years. Rents are relatively low, and I’m saving money, increasing my DP, and stand a decent chance of increasing my household income during that period due to promotion of me or my spouse.

    The very small amount I lose in long-term equity building during that time-frame, assuming prices do as WELL as inflation, is nothing compared to the possible gain I get by waiting and capitalizing for a 20% drop that is totally plausible looking at the data.

    If while waiting these 7 years and there is no drop, but at any time I feel I have saved enough, and the market fundamentals are more in order, I can jump in at the current price, and do just about as well as having bought this year instead.

    The only scenario in which I really lose is when there’s a repeat of the 02-08 bubble. If that happens, I should have bought the max I could qualify for, and probably lied about my income to get a bigger loan – anywhere. I’ll risk it.

    7 years from now, when this housing bust is becoming an old story, there is a much higher risk of a new housing bubble, so I’d be more inclined to get in on flat prices before they jump, and being forced to wait out another bubble.

  19. Gavin Says:

    The previous model I posted to predict next year’s change in house prices can be used when you have no information about the inventory of homes or the sales rate. These days thanks to refin.com you have a lot of data.

    To improve your forecast, type the zip code you want into redfin.com and look at sales trends. As long as inventory or sales are not too low in your zip code (less than about 30 homes), you can look at the graph and check
    1. Is inventory lower than inventory in the similar period (month or quarter) in the previous year?
    2. Are sales higher than in the similar period (month or quarter) in the previous year?

    When a housing bubble bursts, volume dries up before prices start falling. No one can forecast exactly when the bottom of prices is reached. Using the above two observations you can get much closer to the bottom in prices.

    How does this apply to the Bay Area? The lower priced zip codes have lower inventory and higher sales and are closer to the bottom than the higher priced zip codes where inventory is still rising and sales are still falling.

    If the Real Bay Area is Burbed lingo for “higher priced zip codes” than it is a good idea to wait if you want to buy in the RBA.

  20. SHBH Says:

    A. Lewis, just to be clear, I am not advocating the blind “buy now” mentality here. In fact I thought houses are over-valued back in 2004, and have been waiting for the fall ever since. I started the spreadsheet trying to justify my inaction, but the results were surprising and I felt like I had to share.

    To answer your question, my analysis is based on 3% inflation, 28% fed and 9.2% Ca income tax, 15% fed and 9.2% ca cap gain tax, 10k renovation cost before moving in, 2% closing cost, 30 year fixed at 5.5%, 20% down, $625k loan, 3% house appreciation, 1.16% property tax (capped to reflect prop 13), 0.1% home owner insurance, 1% annual maintenance on a 1M house, 6% selling cost, $500k cap gain exemption, $3500 in rent, 3% rent increase, 5% on investment return of down payment, moving every 5 years, and $3000 moving cost.

    Monthly cash flow is only half of the story. The other half is net asset. Once again, buying is better than renting (in 5 years using the number above). The most disturbing finding is that even if the property doesn’t appreciate at all over 30 years in a 3% inflation environment (a net effect of 3% depreciation), buying is still better than renting in 28 years! I am still scratching my head trying to figure out why. It appears that (1) in terms of %, your ownership of the house will increase over time. At the end, you will own 100% of something, even it’s worth somewhat less than what you bought it for, whereas the rent doesn’t go towards any equity (2) Although the stock market is typically doing better than real estate, part of that advantage is eroded by the fact that you have to pay tax every year on the gain generated from the down payment money that you put aside. On the other hand, captain gain on real estate is deferred, and there is a 500k exemption.

    But that doesn’t mean we should buy now. Just because someone buys a property now will do better than a perpetual renter in 28 years, it doesn’t necessarily mean a potential buyer should act now, as buy-rent function is not linear. 1Perhaps I need to build another set of data points to figure out the best time to jump in. To the spreadsheet!

  21. burbed Says:

    I’m really liking the quality of discussion in this thread!

    $3500 in rent

    That seems like a really large amount to spend on rent.

  22. SHBH Says:

    It IS A LOT. But to be fair, I want to make sure that I am comparing apples with apples.

    I checked a few postings on craigslist and it appears the house that I really want (currently at 1M range) is renting in the 3000-4000 range. If you have data points suggest otherwise, I will be happy to adjust my model.

  23. sfbubblebuyer Says:

    Given that “1.2″ million dollar houses, rent for $3500, and “750K” houses rent for $2500 or so*, I’d say your model needs adjustment on the rents. Run it with $3000 and $2500 and see where it gets you.

    *in my not-so-exhaustive searching of rental properties and houses for sale in areas I’d like to live (Menlo thru Belmont)

  24. SiO2 Says:

    SHBH, that’s great xls work.
    So you find that a $1m house with $3500 rent, it’s better to own (over time). The price/rent ratio is 285. The strong bubble proponents will say that price/rent should be 100, or perhaps at most 200. Yet you find with 285 it’s ok. Which I tend to believe based on my experience.

    Part of it is that CA has relatively low prop tax compared to other states, so the cost of holding is low. (even w/o p13, 1.1% is lower than average). And we have a higher income tax rate, so the mortgage interest deduction is worth more. Hmm, very interesting.

  25. Gavin Says:

    The loan assumption for the 1 million dollar house in 20. SBHB is suspicious. He appears to have only a $625k loan.

  26. Alex Says:

    What are you guys using for tax shelters? I’m getting ass-raped by Uncle Sam. I’m single, make good income and rent a $2200/mo 1-BR apt in San Francisco. Right now I have no tax write-offs at all.

    I work in SF and would like to live in Mountain View or Palo Alto. I don’t think I can handle a longer commute.

    I’m getting desperate and actually even considered buying rental properties.

  27. SHBH Says:

    The loan assumption for the 1 million dollar house in 20. SBHB is suspicious. He appears to have only a $625k loan.

    Good call Gavin. You guys are actually going through the numbers, this is great! I meant to say minimum 20% down payment with a conforming loan which is capped at $625k for San Mateo County. For a 1M house, that’s about $375k down payment (37%). In reality, I am hoping for a 20% haircut, so the same house requires $175 down payment (20%).

  28. nomadic Says:

    And we have a higher income tax rate, so the mortgage interest deduction is worth more.

    Debatable. Don’t forget our PITA, the AMT.

  29. SiO2 Says:

    Nomadic, I meant the top CA income tax of ~9.5 vs other states.
    It is true that many of us will get AMT. That means, no deduction for prop tax. But we still get the same deduction for interest. (With AMT there’s some limits on deducting interest on home equity loans, but up to $1m of regular mortgage is still deductible.) Also, decreasing the state inc tax paid via interest deduction doesn’t affect fed tax like it would w/o amt.

    hmm, it would be interesting to calc the total cost of ownership for a $1m CA house vs a Texas (high prop tax, no state income tax) or NY (high prop and income tax) house, assuming someone making say $200k and with a $375k down to make it a conforming loan. But not interesting enough that I’m going to do it :)

  30. DreamT Says:

    “DreamT: I was looking for a one sentence model to predict house prices and I challenge you to come up with a better without using mathematical equations.”

    Your model is flawed because its only variable is the past year’s variation in median, regardless of how high or low that median is vs where it “should be” (65% in prices in some places, 3% increase in other places during the same duration), regardless of the offer and demand environment/taste (some years, Los Altos and Portola Valley are in high demand, others not so much), regardless of local stock performance for high-end and local employment for lower-end.

    In real estate economics, simpler model = wronger model, so your challenge to come up with a better model without using math is misguided.

    That said I’ll humor you a bit. The zips that crashed the most are generally the most overheated markets at the moment, a good indicator that your model will prove wrong this year. Here’s a suggestion for a better model. Trace zip performance for the past 3 and 6 years, and compare both with the neighboring zips as well as other zips within driving distance with similar median. If that zip underperformed, chances are it will catch up over the next two years and relatively speaking would be a better investment. If that zip overperformed, chances are it will not increase as much and you’d only want to buy for the longer term. How’s that for a model?

  31. SHBH Says:

    Yet you find with 285 it’s ok. Which I tend to believe based on my experience.

    I’d like to think it’s not okay, but the data seems to suggest otherwise, unless there is a flaw in the model that I am not aware of.

    As I stated in #17, I am hoping for a 20% reduction. So for me personally, I feel comfortable with ratio of 228, which is still higher than the 100-200 range, but am not sure how realistic it is to expect a 1M house today to sell for $350k-$700k in the future.

  32. SHBH Says:

    I meant #27.

  33. DreamT Says:

    Alex, I was explained that if you own a profitable company, you can legally write off every single one of your meal and transportation costs, in addition to dedicated living space if you own your home and gifts to your own charity. Haven’t research that much but doesn’t it sound tantalizing?

  34. Gavin Says:

    DreamT: Assuming zip codes within driving distance with similar medians will have similar price gains over a decade is a good model. So buying in zip codes that have lagged over 3 years to 6 years is a good idea.

    But, this model invalidates the idea of a “Real Bay Area”(RBA). If there are other zip codes that perform similarly to RBA then the RBA loses its shine.

    Some of the posters on this board will be disappointed :-)

  35. DreamT Says:

    Gavin, the reason I suggested this is because over the years, the yearly San Jose Mercury News map of gains by zip code would not show consistently best performing zips, but every other year you’d get new contenders. The colors would magically shift, like Rorschach’s mask. I particularly recall when Mountain View was the hottest zip, or how Los Altos crashed briefly around 01 only to jump back within a matter of months. It just happens that the best performing zip in the past year was indeed reported to be RE’s favorite. The picture will be very different again for 09.
    There’s still a case to be made that the RBA is the place that suffers least and shortest in bad times. Conversely, non-RBA price gains are much higher in good times. Choose your poison.

  36. nomadic Says:

    But we still get the same deduction for interest. (With AMT there’s some limits on deducting interest on home equity loans, but up to $1m of regular mortgage is still deductible.)

    Okay, SiO2, you’re correct on that. But the Schedule A deductions (e.g., mortgage interest, property tax) also get diminished as income rises over a certain threshold… so the tax thing isn’t a real advantage. A lower cost of living is better.

    Besides, while a 1.1% property tax rate is lower than average, you’re paying it on a much higher than average value. For example, a $400k house in Michigan has about a $6k tax bill. An equivalent house here is at least $1M and has an $11k tax bill.

  37. Gavin Says:

    SHBH: I was wondering why you found buying better than renting in just 5 years even with a 285 price-rent ratio. Using the nytimes.com calculator I found a crucial number is the after tax investment return you assume.

    You have an investment return of 5% while using a relatively high tax rate. A renter paying $3500 instead of buying a million dollar house would have large cash flow savings in the initial years that would fall as his rents increased while mortgage payments remained fixed. The rate at which he is able to reinvest his savings is a very important input. Try increasing the investment return to 6% or 7%.

  38. Alex Says:

    Yeah, that sounds scrumptious. Since I work for a hospital, I don’t think I can manage to run a company that is still profitable after deducting all those things. Is there a place where I can read about this stuff? Any good accountants around?

    Alex, I was explained that if you own a profitable company, you can legally write off every single one of your meal and transportation costs, in addition to dedicated living space if you own your home and gifts to your own charity. Haven’t research that much but doesn’t it sound tantalizing?

  39. Alex Says:

    Is there something wrong with this property? Did they list the price real low to attract buyers? If this is legit, I may have to look into it.

    http://www.redfin.com/CA/Los-Altos/13151-Estralita-Pl-94022/home/1524084

  40. DreamT Says:

    Alex, the point is actually that the company shows no more profit after you deduct all these things, hence you end up not paying any taxes at all.
    I’m curious to hear where I can read more about this as well, this is just word of mouth from actual CEOs.

  41. nomadic Says:

    DT, Alex, I can attest to the strategy. In fact I was just going to joke that you don’t need (or necessarily want) to be profitable to execute the idea. I’m not saying you can write off all of your living expenses, but you can loan capital to your company, take a hefty income from the interest, a salary, and write off only tangentially relevant expenses and get it all without paying any income tax. Even better, own the property where the business is located and you can get some fat rent each month too – all tax free. It’s kind of sickening in a way.

    As for the house on Estralita – we’ve talked about that one here before. Looks like they took it off the market and relisted to freshen the DOM. It’s a short sale. So they can list for whatever they want. The bank is probably owed $2M of the original $2.1M purchase price and wouldn’t approve an offer at list. This puppy is going to foreclosure.

    Correction – MORE than $2M is owed – it was refinanced in 2006 and 2007 to get that ATM to cough up the maximum in cash.

  42. nomadic Says:

    Interesting. Estralita was purchased in 2005 with a hefty down payment, some equity was cashed out in 2006, then in 2007 it was financed for 100% of the original purchase price:

    Lender # 1 Sbmc Mortgage
    Loan amount # 1 $1,912,500
    Rate type # 1 Variable
    Lender # 2 Cal State 9 Cu
    Loan amount # 2 $255,000
    Rate type # 2 Variable

  43. Alex Says:

    Nomadic, is this what you’re referring to? Where did you get the details?

    http://articles.moneycentral.msn.com/Taxes/TaxShelters/TheUltimateTaxShelterYourOwnBusiness.aspx

    Whatever it is, I want it to be legit. Don’t want to commit any crime, get busted and get married to Rocko behind bars.

    DT, Alex, I can attest to the strategy. In fact I was just going to joke that you don’t need (or necessarily want) to be profitable to execute the idea. I’m not saying you can write off all of your living expenses, but you can loan capital to your company, take a hefty income from the interest, a salary, and write off only tangentially relevant expenses and get it all without paying any income tax. Even better, own the property where the business is located and you can get some fat rent each month too – all tax free. It’s kind of sickening in a way.

  44. DreamT Says:

    Alex, it’s just like option ARM loans. They’re not inherently bad or wrong, but they can be terribly misused and/or misunderstood, and they’re only meant for a small fraction of the population (the wealthy part that does not derive income from a regular salary).
    There’s nothing inherently bad about this tax sheltering strategy (as long as it remains legal), but yes there are plenty of ways to misuse/misunderstand it and end up in jail. Plus you have to trust that your accountant knows what he/she is doing. :)

  45. nomadic Says:

    Alex, I’m referring to a small business owner I know. I have personal experience with her business affairs, and I know the situation is not unique. This is a legitimate business that also provides a livelihood for its employees. I don’t know about using the same methods for an individual to avoid taxation.

  46. Herve Estater Says:

    Probably safer to follow SV Shopper’s tax advice.

  47. DreamT Says:

    Same here, legitimate small businesses < 10 people. You don’t get your tax deduction without a bit of actual work ;)

  48. A. Lewis Says:

    Gavin, never meant to imply you stated any kind of always-buy-now strategy, I think you’re being very thoughtful.

    I’ll have to try plugging your numbers into my spreadsheet. Are you taking into account the fact that if the renter’s initial monthly payments are less, he should be investing that difference each month, and you need to add that in? It’s not just the DP he saves (depending on PITI vs. rent). Also, is 0.1% a bit low for insurance? You’re definitely not including earthquake insurance, but even so…I thought maybe it was more? Any homeowners want to quote us a percentage?

    Also, I think maybe I can one-up you (in a friendly way). The thing I really didn’t like about other rent/buy calculators was putting a single number in for the rates of investment, rental appreciation, and housing appreciation.

    I set mine up so you can have whatever rates you want for each year over the life of the loan. So you can have the house stay flat (0%) for 3 years, then go 4 years at 2%, then go 5% for 3 years, then return to 3% for the rest of the loan. You can model bubbles or busts.

    You can have the investments earn 3% for the next 2 years, then go to 8% for 10 years, then drop to 5% for the next 18. Same for your rent, and same for your salary!

    This way, I can play out my own different scenarios (deflation vs. hyperinflation, promotion in 5 years, job loss at year 8, rent stays flat for 2 years then outpaces incomes, whatever…).

    The really really complicated part of the spreadsheet is correctly calculating the tax deduction for the homeowner during each year of the loan. In year 20, their salary is different, and even making the gigantic leap that the tax code won’t change, they might move right through different parts of the AMT ‘window’, and then there’s the fact that the amount of PITI that is ITI keeps changing.

    I’ve fitted polynomial curves to the effective tax rates using the different loan amount against different incomes, but I think it’s safer to just have a complete spreadsheet for each year in the loan, and link them all together.

    I was considering trying to make it really complete, and easy to use, and selling it as a commercial software product so I can afford to buy an RBA home.

    How much would you pay for the ultimate rent/buy spreadsheet? $1? $10? $60? (trick question – the answer is $0, b/c it’s always a good time to buy!!!)

    But I digress, sorry. Anyways, Gavin, can you clarify your final metric – what is the definition of buying being better than renting after X years?

    I think the best definition is your net worth. So net worth in this case means for the renter at year X: value of invested savings (from DP and any lower monthly payments), less cumulative taxes paid, less cumulative rent paid. I even include renter’s insurance to be fair. Moving costs I forgot to account for – but that’s certainly a potential renter’s cost. I’ll have to have a variable for how often you’re forced to move.Anyways, the grand total is a large negative number for most people.

    For the owner at year X: equity in the home after sale (and 6% sales cost), less (much lower) taxes paid, less insurance, maintenance, property taxes, principal and interest paid. This is also probably a large negative number. Don’t forget closing costs on the initial sale! Did you add in the transfer tax? Transfer tax is a nasty surprise at closing in some cities (>1% of sale price due in cash in Oakland – ding! Much lower in many cities – like 0.05%)

    Anyways, I’ll have to try your numbers. I’ll get back to you.

  49. A. Lewis Says:

    Oh yeah, I was just going to skip the capital gains taxes upon sale – if you just move-up into another home and roll your sale proceeds into the new (more expensive) place, don’t you avoid capital gains?

    Or if you transfer it to your kids at year 30, does anyone have to pay capital gains?

  50. Herve Estater Says:

    > if you just move-up into another home and roll your sale proceeds into the new (more expensive) place, don’t you avoid capital gains?

    Not since 1997…

  51. nomadic Says:

    Or if you transfer it to your kids at year 30, does anyone have to pay capital gains?

    I think you have to die for that to work.

  52. A. Lewis Says:

    #50/51, oh well, I’ll have to add that in. Of course, in Gavin’s scenario, he is assuming 0% housing appreciation, so there is no capital gain, right?

    Capital gain = Sale Price – Purchase Price?

    I just ran your numbers, Gavin, and for me, the break-even point is after 21 years.

    I take it when you say 28% Fed Tax bracket, you mean the marginal rate for this taxpayer household? This means a Married Filing Jointly income somewhere north of $200k. I’ll also assume 2 kids for the exemptions and tax credits.

    That makes the loan/income ratio a little over 3, and the price/income ratio almost 5. I guess that’s plausible.

    I also include the $8k 2009 Home-buying Fed tax credit to ease the outlay in Year 1.

    But man, you have to lay out $390k at the beginning on this house! I see you set it so that the P&I payment is pretty much equal to the rent. I think the rent may be too high on this home, but it’s your example, so let’s assume this is correct.

    So what happens is that both the renter and owner have $390k laying around in cash. The owner buys the freakin’ house, the renter invests it at 5%.

    The renter’s rent keeps going up at 3%/year, and although he saves the difference from what the owner is paying in PITI, his rent becomes higher than the owner’s payments after about 10 years. Then he starts laying out money faster and faster than the owner.

    It takes another 11 years for the renter to wipe out the savings of the initial $390k (including investment gains and the extra savings during the first 10 years) to spend on his higher rent.

    In the long-term, it certainly pays off. At year 30, if they sell, I estimate the owner’s net worth to be about $1M higher than the renters (coincidence that is equal to the home value). Unfortunately, that’s in actual dollars, and it’s 2039, and inflation has been running at 3%/yr. So in 2009 dollars, that’s the equivalent of $411k.

    Note that they must sell to realize the benefit. Of course, if they continue to occupy the home, they don’t pay any mortgage anymore (although property taxes, maintenance + insurance continue to run at almost $2k/month), while the renter is paying a whopping $8,500/month (exactly $3500 in 2009 dollars, since Gavin set rental increases = inflation at 3%).

    I estimate it would take another 15 or 20 years to come out ahead without selling the home (note to self: run spreadsheet into the years after the mortgage is paid off!!).

    Not that there’s anything wrong with including selling the home in the estimate.

    So all you have to do is be behind for the first 21 years, and then you speedily pull ahead and keep gaining after that.

    And, in this case, have $390k you can afford to part with on day 1.

    If you are forced to sell at any time before 21 years have passed, it turns out you should have rented in this scenario to be better off.

    That was a fun exercise, Gavin. Anyone else have numbers they’d like me to run?

    I for one would tweak the following: I don’t think rents are rising at 3%/yr right now, but that’s fine as a long term average (if that’s what you want to assume for inflation). I’d probably bring rents to 0% for 4 years to start.

    The housing price appreciation assumptions are a mix – I don’t think prices will be stagnant for 30 years! But maybe I go minus 5% for 2 years, flat for another 4, and then have it follow inflation at 3%.

    I don’t think anyone can guarantee 5%/year on your investments right now, especially if you were a renter keeping it in something liquid b/c you were hoping to buy if prices drop.

    Call it 2% for the next 2 years, then 4% after that. These are wild guesses, of course. Feel free to suggest other scenarios.

    What happens if after 2 years of recession, we enter a high inflation period (say 7%/yr), yet housing is stagnant? Then the feds reign it in with high interest rates after 3 years, and get it down to your 3%. What happens with investments? Rents? Do they follow inflation? Does your salary?

    Anyways, in my scenario, b/c the house starts to appreciate at 3%/yr after a few years, and I’ve reduced the return on investments, the homeowner comes out ahead sooner – only 18 years instead of 21.

    Hmmm – I think I see a problem with my estimates of future tax rates, so I may be significantly underestimating the homeowner’s tax burden compared to the renter’s after about 10 years. I’ll have to get back to you.

  53. Herve Estater Says:

    Hey A. (can I call you A?), ever thought of donating some money to burbed to pay for the bandwidth your posts are sucking? :-)

  54. DreamT Says:

    A. if you like a house and you can afford it and plan to stay long enough (> 10 years), just frickin’ buy it! :P If not, don’t bother with the calculations…

    Incidentally, you’re missing three key elements in your computations: the fact that a home is an illiquid asset (may take months to sell and requires to secure and move to an alternate place), is subject to offer & demand (which is anything but linear) and that at equal ROI probably 90% of the population would opt for ownership. Since these may shave or add 10 years to your 21y estimate and there’s no way to know in advance which way it’ll be, why even bother?

  55. nomadic Says:

    Capital gain = Sale Price – Purchase Price?

    Yes. And I’m pretty sure you can deduct the cost of capital improvements, but of course those depreciate over time. I’ve never had to worry about exceeding the $500k exemption so I never looked it up. Chalk that up to a problem I’d like to have. ;-)

    I’m with DreamT – while RE’s avoidance of any calculation is careless at best, analyzing it to death will never tell you to buy. You’re obviously not ready yet, but sheesh, you can’t control all of the variables and it doesn’t have to be such a complex equation.

  56. DreamT Says:

    A. don’t forget the 70% chances of a serious earthquake by the time owning financially makes sense to you ;)

  57. A. Lewis Says:

    #54/55. Don’t give a luddite reaction! Knowing what to do with an analysis can make it powerful. Misusing it or not understanding it can make it a waste of time. Ignoring it is…luddite.

    What I use my analysis for is to:

    1) Actually find out the correct amounts for the tax benefits of owning, both to understand what my real monthly take home pay would be, and to correctly compare renting vs. owning. You might think “oh, it’s about equal to the property tax and insurance, so it’s a wash”, and you’d be WRONG quite often. It varies by salary and home price in year 1, and it changes over time. I can plug in my own numbers and get an exact read on what I’ll be paying in P, I, T, I, fed. Tax, & State Tax for the first year of the loan and the remaining 29. That’s just called financial planning.

    2) Bracket reality with a range of assumptions about the future. I don’t think I can ‘know’, through heavy analysis, at what year I’m breaking even with renting on some house. That’s absurd and not my goal. I want to have an idea of the costs, the risks, and the payoff compared to renting, and understand the implications of different futures on my family’s bottom line.

    You make throwaway statements like “if you can afford it”. As if that’s easy to know. It’s actually very hard to know what my family can afford, when I’m interested in buying a home at about the limit of what is wise. I’m trying to calculate that limit, and anybody unwilling to do the math should stick to much cheaper homes. Like less than 3x your income. If that’s your advice, fine, but almost no one would ever buy in the BA.

    And if rents are low enough it would be very stupid to follow your advice – you’d be throwing away your money and hurting your family. In fact, that’s my conclusion in many neighborhoods. Just b/c you can afford it doesn’t make it a good idea. As I’ve said before, there is a justifiable premium to be paid for homeownership – but it’s not infinite. Shouldn’t one try to estimate it? I’m going to be my own judge of home value.

    Your other points are incoherent, DreamT, make it clear you don’t understand the results I shared, and don’t affect anything I’m using my analysis for. The point of the buy vs. rent calculation is a lot more than the ROI on investments vs. real estate. That’s just one factor, as I was trying to show.

    Think about what it means to spend or not spend the down-payment, and have it locked away in the home vs. liquid. Then factor in a variety of possible appreciation rates, and one can start to imagine if you like the outcomes. All these things are accounted for when I look at the non-linear curves output from my spreadsheet calculations.

    Maybe I didn’t communicate it to you very well in text, but by looking at the charts, I can imagine what it’s actually going to be like to own, financially, which is a key thing since I’ve never done it before.

    People who’ve been paying a mortgage for 10 years, and have built their financial lifestyle around it, and have already afforded a down payment may not realize the very different viewpoint a renter might have when trying to decide if it’s going to work for them. And the strong desire to be prepared for the change in finances, as opposed to just jumping in b/c some realtor told them they could get them in this home is just wise.

    I can’t tell you how many first time homebuyers I know who are surprised or confused at where they’ve ended up financially after 2-5 years of owning. I don’t intend to be one of them.

    I don’t intend to control all the variables – I intend to be able to do simple math via Excel to understand how overpriced a house is. And I’ve done it.

    I’ve shared my spreadsheet with a variety of friends and family, and they’ve all found it to be a great help in their understanding of housing costs. I add more factors in to make it more accurate. Some of them are now making bids on houses, b/c it told them it was a good idea, others have realized it’s much wiser to be renting right now.

  58. A. Lewis Says:

    #56 – that IS a big concern of mine :-). Actually, that would probably hand me cheap housing prices on a platter, since if I live through the quake, I’m golden as a renter.

    How about all homeowners on this site: don’t forget the 70% chance of a serious earthquake destroying your home, causing foreclosure, and giving me the chance to buy the lot for 1/10 of what you paid, bulldoze it, and build a better, safer home on the site!

    Or you could buy earthquake insurance. But the stats say most of you haven’t. Good luck with that.

  59. Herve Estater Says:

    > and giving me the chance to buy the lot for 1/10 of what you paid

    Dream on :-)

    No idea what the earthquake will be like, but it looks like most houses here survived the 1989 earthquake just fine. I personally am more concerned about giant locusts.

  60. DreamT Says:

    Sorry you found me to be incoherent, A. I’ve been a renter and a homeowner for an equal amount of time, about 7 years each, six locations total, and as such I feel qualified to disagree with most of your remarks.

    Yes, it’s easy to know if you can afford a lifestyle or not. It’s called reconciling a budget and your income/expenses on a monthly basis. A child can do it, and all responsible adults should do one (most adults I know do not). It takes all of two hours a month, and does not require graphs.

    No one would ever buy in the bay area at less than 3x income? Dual income families routinely break the 200k barrier, and believe me it’s possible to sustain a 6x or higher ratio along with retirement savings, unless you’re a consumption machine or you have two kids (then revise to 4x or 5x). Yes, I wrote sustain. It merely takes discipline and again, knowledge of your personal finances. One thing it does not take is knowledge of a hypothetical lifestyle.

    I’ll reiterate my point even more clearly regarding your financial extrapolations that disregard key unknowns: enjoy being dazzled by your graphs while you rebuke criticism as ‘incoherent’! Unless you work at Goldman Sachs or AIG and indeed know how to factor in unknown risk comprehensively, but this approach only makes sense with high volume and more liquid assets, while your analysis is meant for a single purchase.

    Your success influencing some of your friends may have inflated your head, A. Stick to the basics when you don’t control all the variables rather than claiming that “All these things are accounted for when I look at the non-linear curves”. Do you realize how foolish you sound?

  61. SiO2 Says:

    Regarding homeowner insurance:
    The insured value is the house replacement, not the land. So a 3/2 in SJ or in Palo Alto is roughly the same. Perhaps a bit higher in PA due to contractors charging more there. But not 2x as much. So insurance is a lower % of the home value in RBA. Yeah! Take that! :)

    also, you can set the deductible higher, like $1k or more. You don’t want to make a $500 claim anyhow as it can raise your rates.

    In my case the insurance is 0.06% of the value of the house + land. Not earthquake insurance, just typical fire / theft / liability. In my non RBA house it was 0.09%. Come to think of it, the insurance did not really go up from when I bought the non RBA house in the 90s til when I sold it, even though the value almost doubled. Because the house itself did not increase in value, it was the land, which is not insured.

  62. zanon Says:

    A. Lewis: Don’t trick yourself into thinking you have more accuracy than you do. To that extent, Dream T is right.

    Really, I think price/rent ratios (historic to current) capture 90% of what you’re looking at, are easy to compute, and are still totally out of whack for RBA.

    High inflation scenario is interesting, as high interest rates will crush house prices, and raise returns on savings. Deflation scenario is interesting too, as it just increases the real debt burden of housing debt, although prices can stay high.

    Did you model Japan? 30 years of zero interest rate, negative inflation, and declining house prices. When do buyers break even there?

  63. nomadic Says:

    Or you could buy earthquake insurance. But the stats say most of you haven’t. Good luck with that.

    That’s unusually snarky for you. Have you ever looked at earthquake insurance? IIRC, the last quote I got was for around $3k/yr, covered the structure with a $50,000 deductible and covered personal items (furniture, etc.) up to $7,000. Is that a good deal, Mr. Spreadsheet? An earthquake can do quite a bit of damage and still not exceed that deductible.

  64. A. Lewis Says:

    #60, from my point of view you sound foolish. Now you are disagreeing with ‘most of my remarks’? I’ve said a lot of things in the last few years. Care to be more specific?

    Maybe I haven’t articulated my analysis very well, or made it clear what I do and don’t know, but you haven’t seen the spreadsheet and yet you are so wise as to think you understand what it does and doesn’t include? Maybe you should ask me clarifying questions instead of assuming what I have or haven’t done.

    I find it bizarre that you think I’m trying to ‘control the variables’ – that’s the statement that makes it clear to me you don’t know what I’m talking about. And again, it’s my fault if I’ve not made myself clear. Oh well, if no one’s interested in using detailed math vs. traditional rules of thumb, to account for things like historically low interest rates and the distorting affects of Prop. 13, then I’ll keep it to myself. Thanks to SBHB for posting his numbers and results. I thought that was great and wanted to contribute.

    And I may be arrogant when I post on a blog, but you, DreamT, sit on a very high horse when you post here. I’d put your arrogance and unjustified self-assuredness up against mine any day, sir.

    It’s fine for us to respectfully disagree on points or conclusions, but I find your dismissiveness to be quite rude. I don’t think you’ve established why I’m wrong on anything substantial, so you’re just declaring yourself wiser and smarter. Do you realize how full of yourself you usually sound? I’d like some more evidence as to why your opinions are the best ones in the world. I’m long-winded because I feel obliged to justify my points with evidence, not merely state that I’m right.

    Actually, you’ve really pissed me off. I think I bring a lot of data and critical thinking to this blog, and try to make a real contribution to the analysis of home prices in the Bay Area, and insight into deep and non-trivial questions like “is now a good time to buy?” “should I rent or buy in this neighborhood?” and “what should the value of homes in this area be?”.

    I guess you don’t think so. I don’t feel welcome. I don’t think you give credit where credit is due, and seem to take pleasure in unconstructive criticism. Why is that? What on earth do you think my motivations are that you seek to dismiss my conclusions and analysis instead of expand and improve upon them for the benefit of all? I’m not selling anybody anything.

    I’m taking a hiatus from here, again. You can go back to just merely criticizing RealEstater’s remarks, if you think that adds something to the world. I’ll keep my spreadsheets to myself.

  65. SanMatean Says:

    BOOYAKASHA!

  66. SanMatean Says:

    As an unrelated third party you could see this blow up coming for a while. At its heart, you’ve got A. Lewis who is punching cold hard numbers and behaving like the ideal buyer that classical economists would assume represent most people. On the other hand, you’ve got DreamT who respects the analysis, but is influenced a bit more by intangibles, unquantifiables, and potential uncertainties. It’s a classic head vs. heart situation. (Note- I’m not calling DreamT dumb or A. Lewis uncaring). You both have presented valuable nuggets, perhaps you could both do a bit more to acknowledge the strengths of each others models in addition to pointing out the shortcomings? This might lead to a more collaborative effort.

    But A.- calling someone out as a luddite for disagreeing with you is a bit baiting, and you should probably expect that the offended party will respond with scorn. To expect otherwise is, ahem, foolish (64). Really, the ad hominem approach is so last administration.

  67. DreamT Says:

    A. needs some TLC! I guess “foolish” hit the spot.

    The remarks I was disagreeing with were simply the remarks in the post I was responding to.

    What you construe as arrogance is merely deconstruction of flawed logical thinking. Maybe you’re not used to that kind of criticism to recoil such. As for my personal opinions, I don’t impose them upon anybody and you’re free to criticize them as well – on a logical basis. Once you’re no longer “pissed off”, that is…:)

  68. DreamT Says:

    SanMatean – I’m not used to crediting raw effort when the result falls short :) Why fiddle with 40+ variables when the key ones you’re missing may well affect the outcome by 50%?

  69. A. Lewis Says:

    I’m a sucker for responding, but oh well. Nomadic – yes it was very snarky for me on the earthquake comments – DreamT had already made me quite angry by that point so I wanted to fire back. I meant it in a taunting manner in parallel to the way he had just taunted me. It wasn’t nice, but there wasn’t much nice going on, and I decided to join the crowd.

    I felt picked on, and still feel picked on – you called me out for that, but no comment from you on DreamT being snarky at any point in this thread? Is it just because he’s established himself as so snarky or arrogant, that he doesn’t have to be called on it, but b/c I’m usually careful and thoughtful and try to be nice I am jumped on when I drop to his level?

    I thought I had established some kind of positive reputation on this blog, but if you guys all think I’m just full of shit, OK, I can take it. You dish out the analysis. I jumped in when I saw some good stuff coming from SHBH and thought I could materially contribute.

    But if you really just want me to shut up, because you don’t like my voice on this blog, then go ahead and say it. I don’t want to waste anyone’s time or annoy them with my writing. I wanted to talk about housing and do analysis of the market in my own way. If you don’t want that here, I’m disappointed, but OK, I don’t want to ruin the party.

    #66, thanks for the outside viewpoint. I would say I was calling others luddites not for disaggreeing with me but for dismissing me and hard work I’m proud of while throwing out generalities and saying that’s all we need to know about the market.

    I called DreamT’s brief points about what I had missed incoherent – not stupid or wrong. I did not mean an ad hominem attack, I don’t believe in that style of debate, and I apologize if that’s how it came out.

    I don’t think he established in any way that I have a flawed analysis. I he think he neither took the time to understand what my analysis consists of, nor actually addressed my conclusions much. He merely tried to dismiss my method as a bad one – perhaps because he thinks it’s geeky to work in a spreadsheet, or look at a chart, or b/c it didn’t take into account some things he thought were important but I didn’t. Things like the house sometimes taking longer to sell – that’s actually not important for what I was doing, though it matters to some things in life.

    I said that’s perhaps my fault for not making my purposes clear, but rather than be gracious enough to step back and ask me clarifying questions, he just rode right on as if his points were made and everything I said was invalid.

    I was disappointed he didn’t want to talk about the best parts of what I did, and I didn’t feel like refuting in detail what I took to be irrelevant criticisms of my work.

    And I find post #67 more arrogant than ever. “Deconstruction of flawed logical thinking.” Please. I assert that my logical thinking is not flawed, and that you haven’t shown a logic chain that is in conflict. And I challenge you to add something different in the analysis of renting vs. buying in the scenario SHBH brought up. I thought I added something, and hoped it would spark a discussion – maybe about the metric we chose (breaking even), or what it would mean for the numbers to come out with a 5 year break even point vs. 20 years. Or never. I’m angry you skipped that opportunity to instead try to claim, incoherently, that your brief sentences invalidated my calculations. Well they don’t.

    “Maybe you’re not used to that kind of criticism to recoil such.”

    I ‘recoil’ from rude behavior, not just any criticism of my thinking. Be specific and point out a flaw in my thinking. Read your sentence again. What is the purpose of this statement? Where are you going with this? Are you making an ad hominem attack on my debate experience in lieu of a logical point? Are you saying I need more experience with criticism to participate in this forum? Really?

    If you want to just say my posts are too long to get through and you don’t have the time to comment, fine (you wouldn’t be the first!). That’s a fair comment that doesn’t criticize the quality of my thinking unfairly.

    DreamT, you act as if you are the revered professor, and I am an inexperienced graduate student presenting weak work.

    I challenge the assumption of those roles on this topic and this blog. I don’t grant you tenure and me a subservient role. I expect to be treated as a peer.

    If you won’t treat me as a peer, that’s your prerogative, but I call that arrogant and unjustified.

    If I played the game like you play, you wouldn’t like it very much. You make a lot of assumptions and assertions in your posts – is your experience with criticism such that you would not ‘recoil’ from invalid contradictions of what you say? Would you prefer that? I think that would suck.

    I call on you to be nicer to me (and others), and a lot more careful in your own use of language.

    I think I’ve bent over backwards to be accommodating to your style of debate, and to continually add caveats, disclosures, and use careful language whenever I want to voice an opinion or make a prediction, and to give you the benefit of the doubt that you are seeking to improve the dialogue and not something bad.

    I think you are not rising to the occasion. I’ve been willing to admit mistakes or flaws in my own logic, I’ve apologized for occasional careless language, and I’ve tried to give positive reinforcement to thoughtful discussion even when the other writer is completely against me on a point.

    I think you should try harder to do the same, in the spirit of civilized, productive dialogue.

  70. nomadic Says:

    gawd, that’s too long to read, A. :-) I got the first few paragraphs. I don’t think you’re full of shit. Just perhaps a bit over-analytical in trying to account for every variable, which is impossible when you can’t predict the future. That’s why I put you on the opposite side of the RE coin. (He appears to avoid all of the heavy-lifting of analysis.) Anyway, a measure of that would’ve been a huge help in preventing the bubble.

    Keep on with what you like – it’s a free blog. Just don’t be hurt if I don’t read every word; nothing personal.

    On a lighter note, here’s an interesting article I ran across yesterday about the venerable Sir Isaac Newton being “taken” by the South Sea bubble in the late 18th century:

    http://www.cnn.com/2009/POLITICS/07/29/levenson.finance.regulation/index.html?iref=mpstoryview

  71. DreamT Says:

    A. – Still a lot of name calling in your post… Please kick out your inner neo-republican self if you expect a decent response.
    Maybe you’re touchy because several posters indicated they saw a valid point or two in my posts. I am not calling you snarky or arrogant or professorial or incoherent. I actually disagree with SanMatean that I’m more of the heart and you more of the mind. Your responses are very emotional, while I merely point out that the relative size of the potential variance due to key unknowns invalidates your approach to the rent vs own analysis.
    I have already posted on burbed several times long posts about my philosophy on renting versus owning, to which you did not contribute then. Feel free to anytime.
    Finally I won’t lay out further personal credentials here to gain some ‘credibility’ as you asked. The anonymity of this blog ensures that you get peer treatment purely based on the quality of the post content, writing and thinking, not based on real-life claims.
    What do you exactly want from me? I can have a pretty sharp, short and sarcastic tone, but I write what I believe is true. I’m not the moderator. If I overstep the bounds of decency, I’m sure unbiased posters will let me know. I’ve already conceded and even apologized in the past (including once in a post to RE). Take a deep breath and try to see the validity of my posts to you. Abstract the tone if that helps.

  72. mike Says:

    A. Lewis,

    Warren Buffett once said “It’s better to be approximately right, than precisely wrong.”

    Modeling using excel is very precise. Using so many variables is interesting but it’s correctness will never be 100%. How much error does it have? How right or wrong is it? Is it possible it will be precisely wrong?

    Also, DreamT’s other point is valid – that you can capture most of the important information using just a few variables.
    I did the same thing with excel adding lots of variables (although not as many as you have), but questioned the usefulness of the results. Using fewer variables helped me clarify what was important and what was not.

    Your analysis is interesting and another useful data point in help making a final decision. Keep it coming. Just try not to put all your eggs in one basket(your excel spreadsheet.)

    A general rule of thumb I’m using is if I like the house and location and I can afford it easily I’m going to buy it.

    Today there is nothing that fits this criteria. There are decent houses at the right price, but always in a less desirable location. I’ve see houses in better locations in the past year which gives me hope I will be a homeowner in a year or two.

  73. A. Lewis Says:

    Don’t understand what you mean about personal credentials. I can’t find the word I don’t want your personal credentials. I want the details of your claims that:

    “that the relative size of the potential variance due to key unknowns invalidates your approach to the rent vs own analysis.”

    because I dispute that. I will endeavor to keep this post free of personal attacks and just try to have an abstract tone.

    I think you think it’s invalid because you aren’t clear on what I’ve done, or which questions I’m trying to answer.

    Your post #54 is what I take to be your primary critique:

    Incidentally, you’re missing three key elements in your computations: the fact that a home is an illiquid asset (may take months to sell and requires to secure and move to an alternate place), is subject to offer & demand (which is anything but linear) and that at equal ROI probably 90% of the population would opt for ownership. Since these may shave or add 10 years to your 21y estimate and there’s no way to know in advance which way it’ll be, why even bother?

    First, these 3 statements just aren’t specific enough to mean anything to me. Explain how they would affect my analysis. What parts of my analysis or conclusions do they even relate to? You might have a valid point underlying this, but it’s just not clear at this point. I don’t want to guess at what you’re getting at. But I’m listening for clarifications, and will consider with an open mind to how it might affect my work.

    And taking your last sentence along with the first one:

    A. if you like a house and you can afford it and plan to stay long enough (> 10 years), just frickin’ buy it! :P If not, don’t bother with the calculations…

    taken together this is the material with which I criticize the validity of your recent posts to me. I boil them down to:

    1) Affordability is just known, so I should skip calculating it (???).

    2) If it’s affordable, just buy it (bizarrely absolute considering the context of this blog).

    3) If there are some things you can’t know precisely, you should ignore them (rather than trying your calculations with some guesses about reasonable values? Is that so wrong?).

    A few posts higher in the thread, you criticize Gavin’s model for being too simple. Later you (and others) criticize mine for trying to capture too much.

    So I have logic problems with you. Feel free to correct my analysis of what you wrote.

    And I am tired of being the only one making any concessions in this discussion and working to alter my style to be more palatable and free of criticism than it was before. I’m being awfully nice and patient to address almost everything you say, and I think you should do the same.

    You make it very hard to drop the discussion about being emotional, or name-calling when you say:

    Still a lot of name calling in your post… Please kick out your inner neo-republican self if you expect a decent response.
    Maybe you’re touchy…

    Do you care to make any follow-ups to these remarks now, or just let them stand?

    I already made an emotional appeal to you in my last post, and spelled out exactly what I wanted from you. To avoid belaboring this part of the discussion, I will just say please read that again and consider what I ask of you before posting to me further.

  74. DreamT Says:

    A., please understand I don’t mean to demean you or your delivery in any way. I only took issue with your method, as you rightly pointed out. The sarcastic jabs are just meant to lighten up the post readable for others ;) Don’t take them personally.

    On to your questions.

    1. “Don’t understand what you mean about personal credentials.”
    I was referring to your inquiry in #64: “I’d like some more evidence as to why your opinions are the best ones in the world”

    2. “I want the details of your claims”
    I listed a few examples which you quoted. You’ll agree that rampant inflation, a disastrous earthquake, a major pandemic, war in the middle east, harsher or lighter legislation both at state and federal level, etc. would dramatically alter the outcome of your computations. On a more micro level, two foreclosures on the same street, zanon’s observation (which I agree on) that transactions on my tier are almost nonexistent at the moment, a tree that falls on your roof (happened to three houses on my street last year), local flooding, required upgrades to level up to the demand when you finally sell, these are all variables you MUST include if you engage in that type of computation. And my point is you CANNOT do this successfully on a SINGLE property, because risk can only be reasonably predicted on volume. Yet the impact on your asset will very likely be GREATER than the difference you get between owning and renting, hence invalidating the effort.
    This is a logical stopgap, valid regardless of how much effort you’re putting in identifying, formalizing and metricizing your variables. I’m sorry you don’t see this and instead find me arrogant for pointing it out.

    I took your effort’s purpose to be, as stated by you: “the definition of buying being better than renting after X years? [...] is your net worth.”
    To which I forcefully disagree. I can elaborate but maybe not on this blog (just ask burbed for my e-mail used on my posts)

    3. “Affordability is just known, so I should skip calculating it (???).”
    Huh? You must do a budget and accounting reconciliation of your personal finances on a monthly basis to know what you can afford.

    4. “If it’s affordable, just buy it (bizarrely absolute considering the context of this blog).”
    If you can afford it AND LIKE THE PLACE AND PLAN TO STAY > 10 YEARS. You’re indulging in selective reading.

    5. “If there are some things you can’t know precisely, you should ignore”
    No. There are things you can’t know precisely, and there are things you control. My point is not to ignore them or not to capture to much, but to not mix both indiscriminately. You control your lifestyle and life decisions. You don’t control what happens on the long term (> 10 years) that affects the real estate segment of the economy. So, you end up being precisely wrong, and that won’t do you any good.

    A., I understand your purpose, correct me if I’m wrong: you want a YES/NO indicator out of a spreadsheet that tells you yes/no buying makes more sense compared to renting for that time period and that asset price. I think you’ll be hard-pressed to find someone else who thinks this is the correct approach to buying a house. Instead, KNOW if you can afford it, and keep your calculations to that only. Then, if you’re hesitating to continue renting versus owning, you’re probably just not ready to own yet. Kinda like having a baby, or getting married (do you have a spreadsheet for that?). If you try to compare life without a baby or staying single in order to decide, then you’re probably not ready yet either. You know that married people are generally wealthier and healthier, right? But people don’t get married to become wealthier or healthier, and if you see them extrapolating on their wealth and health 10 years down the road before deciding, what would you tell them?

  75. nomadic Says:

    But people don’t get married to become wealthier or healthier…

    hehehe. Trophy wives do.

  76. DreamT Says:

    nomadic – you’re not insinuating that A. is a Trophy Wife, now, are you?! :)

  77. MW2W Says:

    A. Lewis: I really appreciate your analyses. As you pointed out, they finally give some substantive content to this site instead of just boring attacks on Real Estater.

  78. nomadic Says:

    nah, he probably doesn’t look good enough in a dress. ;-)

    My remark was directed toward our missing troll.

  79. anon Says:

    He’s not missing, he’s just posting as SV shopper!

  80. A. Lewis Says:

    DreamT, thanks for the thoughtful post.

    A., I understand your purpose, correct me if I’m wrong: you want a YES/NO indicator out of a spreadsheet that tells you yes/no buying makes more sense compared to renting for that time period and that asset price

    I should start here. No, that’s not what I want. This is why I was talking about you not getting what I am trying to do with the outputs of my spreadsheet.

    I think we’re all in agreement that’s not really possible, and if you thought you had it, you’d be fooling yourself. False precision, systematic error, ec. I was upset you didn’t want to bother to ask me questions to get clear, and instead assumed I was so full of it I thought I could make a magic spreadsheet that could predict the future.

    First, a significant part of the spreadsheet is the basic math to tell me if I can afford the purchase price. It seems you are in complete agreement on this step in homebuying – I have to know if I can afford it. How would I know? Would you care to give your definition of affordability? Because to me it involves a calculation, and I need to know what the down payment is, and the monthly costs, and my own income.

    So the spreadsheet has those things in it. Of course the calculation changes as interest rates change, so one must regularly go back to update it.

    And there are variables there, too. Maybe my spouse is in a career transition. Maybe I don’t know her future salary to precise amounts. Maybe I think it’s reasonable we buy a house at more than just what my salary can afford because of her future income stream. Maybe it would be smart to put into a spreadsheet something that could give a couple of ranges on our household income in the future, and plot it out over time, so I could decide how much of a stretch now is affordable over the life of the loan? Or how much we’ll be able to afford if we wait a few years. No? Do you think I’m off track already? Should I just do something really simplistic and say “my annual salary times X = what I can afford”. Do you think that’s good advice for everyone in all situations? That’s rhetorical, but I ask because that’s how your advice sounds on this part of the discussion.

    But now let’s say I know what home I can afford.

    I know very well I shortened your sentence and dropped “if you like it and you plan to stay 10+ years”. Yes I would only consider both those things.

    But now you assert that if I find such a house, I should just buy it. Regardless of…anything! End of thinking. In your worldview either I want to buy and should under these simple conditions, or I’m not ready and need to get my head straight (rather than do any further analysis).

    Sorry, I disagree. There are other choices.

    #2) I could buy a different house I like and can afford at a different price point.

    #3) I could continue to rent instead of buying.

    The purpose of my spreadsheet is to help evaluate these alternatives.

    And also, just to know what it costs, how much equity I’ll have over time, etc. You know people plan for their retirement 30+ years in the future without knowing all the variables – it doesn’t hurt to make plausible estimates.

    The spreadsheet calculates how much cash I’ll spend under all 3 choices, 2 of which include joy of owning. The difference in cash is something I have to judge, using fuzzy logic against my personal values of the location, size/quality, and the joy of owning. The spreadsheet does NOT do the latter part.

    Your points in 1 are interesting, but I do not concede most of them. Some of the events are taken care of by insurance (tree falling for instance). I have insurance in the spreadsheet. It doesn’t really matter if the event happens or not. Virtually all of the rest of them can be reasonably bracketed by putting in different scenarios for the rates of inflation, rental prices, home price appreciation, and my own salary. I can model lots of scenarios which it’s easy to conclude bracket the range of the probable. Often I find that competing effects wash out and don’t alter the results much from my ‘middle of the road’ scenario.

    Other things have a big effect, so I’d have an idea what my mortgage debt is worth after 10 years of runaway inflation, and I can ponder if that’s a worry, a plus, or irrelevant.

    Worrying about something like a pandemic just isn’t relevant. If we all die of disease, I won’t be happier as a renter or an owner, I’ll just be dead. I mean, I guess you could argue that because of the risk of incredibly bad things, or of winning the lottery, I might want to try incredibly risky things b/c I’ll either get killed or be bailed out by magic.

    Does that mean I should over-leverage myself in housing, or rent a beautiful place way more than I can afford? Neither, of course…

    Anyways, I know very well that the predictions become more and more uncertain each year of the model. But how short a timescale are you going to bother looking at? Don’t you think it’s reasonable to view a range of scenarios and help that tell you if you’re better off with choice #1/2/3?

    I have no intention of being precisely wrong in my predictions. I won’t make them that precise! I intend for real life to fall inside the wide boundaries I explored, and for myself to be prepared whether it’s in the middle, low or high. To know what it will mean for me financially.

    But I think you might want to look at the spreadsheet before you declare that change in some variables will swamp the rent vs. buy numbers.

    That’s often not true. The money gained by buying is often so dominant after 20-30 years that pandemics are the only reason to worry.

    Anyways, the thing I will use the spreadsheet for is to educate my guess about buying making me happier than renting.

    When the rent vs. buy calculation is in some range, it would tell me it is time to buy, as long as I’m ready. If I’m ready, I will.

    I thought maybe once you know the range of scenarios I was putting in, and I gave you some of the numbers of how much it costs to rent vs. buy, we discuss some of the ranges and where the ‘gray area’ is.

    Wouldn’t that be interesting?

    I mean, we’ll have different opinions, and that’s the point, but we can learn from each other.

    For example, if the price/rent ratio was so high that even after 30 years you ended up saving $10M in today’s dollars, and paid less every month, don’t you think it’s smart to rent? What about if it’s $1M? What would be your premium for joy of ownership? I’m assuming the answer is not infinity…

  81. A. Lewis Says:

    #76 funny. #77 thanks.

    I wish I could just be a trophy wife and let my sugar daddy decide whether he was going to buy or rent. All I’d have to all day is be beautiful.

  82. DreamT Says:

    1. “What would be your premium for joy of ownership? I’m assuming the answer is not infinity…”

    I already answered and you already acknowledged my answer.

    2. “But now you assert that if I find such a house, I should just buy it”

    Yep. You like the place and can afford it, as long as you want to buy it, go ahead. It’s funny in a way that you find this assertion so shocking :)

    3. ” Should I just do something really simplistic and say “my annual salary times X = what I can afford”. Do you think that’s good advice for everyone in all situations?”

    No, I had something more in line with “At the moment I have this much saved for emergencies (ex: 6 months income or $50k), and I would still be able to contribute 100% of my 401k and maintain my savings level for 5 years.” Others may decide 3 months and 50% 401k contribution is OK, others may require a continued 10% or 20% monthly contribution to savings. You set your own standard of what affordability means. Affordability is not just a cash-flow calculation.

    4. “Some of the events are taken care of by insurance (tree falling for instance).”

    The typical home insurance doesn’t cover the cost of the tree falling, only the cost of fixing up the house(s) damaged by the tree. Same if your electrical wiring burns up in the wall after you plug a space heater: your insurance will typically cover some aspects of the fixing but not preventive maintenance such as rewiring some outlets. You cannot simply dismiss potentially expensive maintenance items under an “insurance” category. And you’ll never be comprehensive enough for your result to be relevant enough, i.e. real life outcome will fall outside your spreadsheet result’s boundaries. I understand you disagree with this statement, so let’s just leave it at that.

    5. “But how short a timescale are you going to bother looking at?”

    Five years, which is why long-term benefits of renting versus owning aren’t actually a factor in the decision. But favorable or equivalent short-term cash-flow comparison may definitely guide the decision, which was my situation back in 2002.

    Let me know if I missed another question.

  83. DreamT Says:

    A. regarding “#2) I could buy a different house I like and can afford at a different price point.”, it ends up being a matter of personal priorities, isn’t it?
    We bought the best we could afford at the time (which was 80% of what the bank was willing to lend), basically we started by saying we’ll buy into this specific price point, and we made offers for the best houses we could find at that price point, based on various personal preferences, primarily (subdued) recent bubble behavior, crime-free neighborhood and house in pretty good shape. We found cheaper houses we could have liked, but just as we were disciplined not to go over our price point, we were disciplined not to settle for less. I don’t think you are taking this approach at all, you sound like you’re considering multiple price ranges or not even owning. When you finally start making offers on what you (and, as a result, everybody else) considers a good value, you might be surprised at the mindset it takes to beat the other offers. Conversely, if you’re the only offer, you presumably didn’t hit on such a good value after all…

  84. A. Lewis Says:

    Well, I do have a maintenance item to account for some things. What do you think about 0.5%/year?

    And you suggest real life will fall outside the boundaries so often it’s not worth estimating likely outcomes. Doesn’t that seem to say one should never buy? Think of the unknown catastrophic risks you can’t calculate the probability of! Aren’t there more ways for things to go wrong as an owner, when you’re on the hook for 6 figures? I don’t see why one can’t get to some estimate that is say 90 or 95% comprehensive of the things that have ever occurred to people in modern times.

    Nothing ever weird happened to my parent’s houses, and they sold them at market prices within reasonable times. Had some maintenance. Lived normal lives through various stages of inflation…

    Should a story of a rare catastrophe mean there’s no point in estimating what the average homeowner would experience, and using that as a baseline planning estimate? You just seem so negative on trying to account for stuff. How about I put all the top big items into the spreadsheet, and acknowledge it has some uncertainty?

    Thanks for the link to your previous post – that’s very valuable. I did mean it to be a question for everyone else as well.

  85. SHBH Says:

    I built a lot of decision making models in my professional and (believe it or not) personal lives. While the models didn’t always point me towards the optimum solution (in hindsight), it certainly helped me to have a better understanding of the problem, and to discover obscure Excel functions in the process.

    In the case of buy vs. rent, I admit that there are factors that are currently missing from, or simply impossible to introduce into any Excel model. But that doesn’t mean that we should ridicule people like A who is trying to utilize the information available today and make the best educated decision possible. The accuracy will improve over time. Although it won’t be perfect given the inherent of randomness in the system, there is certainly value in this iterative analytical process.

    Allow me to use an analogy: Imagine how hard it was to forecast the weather 200 years ago. There were many factors at play and people didn’t understand many of them. If our attitude was “screw it, it’s too complex”, then we would have not made any progress. Thanks for analytical minded scientists like A, our ability to predict the weather is much better today and will continue to get better.

  86. R Says:

    Holy mother of words, I have a lot reading to do on this one.

  87. DreamT Says:

    Maintenance costs increase over time. A percentage doesn’t make sense because based on how well the house was maintained, first you can have huge surprises (think $100k on a $400k house upon purchase just to fix up parts of the foundation) and second you really want to make a comprehensive line-item list upon purchase. You may also have different priorities based on your circumstances – we replaced our heating duct because we have a small child, others wouldn’t have but might have decided to resurface the cracked surface in front of the garage.. or not. No hard and fast rule for maintenance, let alone upgrades (who doesn’t want a Jacuzzi or an aquarium like the one in the Cupertino library?).
    As for the macro or micro events I mentioned, they’re not rare (think Palo Alto flood 20y ago or the 70% chance of earthquake in the next 2-3 decades) but most importantly, cumulated together the chance that any one of them occurs during the homeownership cannot be ignored. Home buyers know that and usually take a chance. Probabilities won’t help because again you’re not buying a pool of houses, just one.
    And finally your parents’ experience is not only anecdotal but also irrelevant. Different times, different regulations, different economy, different house age and construction, different consumption habits, etc.

  88. anon Says:

    good lord what a lot of posting!

    don’t you people know we have a country to rebuild??

  89. nomadic Says:

    I’d say maintenance costs decrease over time – at least for, say, the first 5-10 years of ownership. For precisely the reason you mentioned, DreamT. You move in, and it’s suddenly not “move in condition” anymore. ;-) Things bother you and need to be fixed. Or you discover that nearly every water shut-off under the sinks leaks (a little plumbing, some new cabinets… and suddenly you’ve remodeled all of the bathrooms).

    Once you get over that hump, you’re golden until the house needs to be painted outside or the roof needs to be replaced. Sigh. Pralay – come water my lawn, will you? LOL.

    That said, I think 0.5% for annual maintenance is plenty for A’s spreadsheet (unless you have a house under $500k, then maybe it’s a little light).

  90. DreamT Says:

    nomadic – It depends on the condition of the house upon purchase… we got a house in pretty good condition that was recently remodeled, so save for some minor updates we tabled all major projects and distributed them such that we’ll not observe a decrease. Typically after a few months, I think the opposite of what you described actually happens: stuff that bothered you that you didn’t immediately fix, becomes not so urgent to fix any longer. But if you had to fix the roof upon purchase, then yes you’re probably right :)

  91. Herve Estater Says:

    Enough spreadsheet stuff, here are some links for everyone (esp. steve) to enjoy:

    http://www.powerhouse-company.com/polder360.html

    http://www.powerhouse-company.com/xxl.html

    http://www.powerhouse-company.com/villa1.html

    A. Lewis, keep posting. Seriously, you should convert these spreadsheets into iPhone applications and make some money out of them.

  92. nomadic Says:

    LOL – DreamT. I’ve had five houses. Two were custom built for us. I have never NOT spent thousands of dollars in the first year or two of ownership. Guess we can chalk this one up to individual differences too. :-P

  93. nomadic Says:

    Cool links, Herve Estater. $200k is considered “very cheap” in Holland? That doesn’t even include the site.

    Love the second two – they look heavily influenced by Mies van der Rohe. If I ever get back to Chicago, I have to tour Farnsworth House:

    http://www.farnsworthhouse.org/

  94. DreamT Says:

    nomadic – No, I probably just got lucky – twice.

  95. CB Says:

    House maintenance costs no more than a couple hundred every quarter. Upgrades are another issue. I think both 1 and 0.5 percent are ridiculous not only because they’re gross overestimates but they assume the 3/2 in Menlo Park is going to cost more to maintain than the 3/2 San Leandro.

    In fact, it would take a total catastrophic event to reach 1 percent. For measure, in my experience finding out your shower tile grout failed and the wall is rotted out will cost about 3k to remedy. A bad roof requiring a reshingle as about 6k. Those jobs are 0.5 and 1 percent of a 600k home, respectively. If you anticipate having to perform this type of maintenance yearly you are either looking at the wrong houses or should be renting.

    (Perhaps items in my post have been addressed, but christ this thread is quite the read and I got two kids and a home to maintain)

  96. nomadic Says:

    (psst, CB, if your shower leaks it isn’t the grout’s fault)

    Herve – check this out:
    http://dornob.com/modern-rustic-modular-underground-forest-home-design/

  97. Herve Estater Says:

    > Herve – check this out

    Danke Schoen… Steel beams rule. When you’re in Chicago, don’t forget to visit the glass house from Ferris Bueller’s Day Off (still on the market with all its steel beams).

  98. steve Says:

    herve and nomadic, excellent links.

    mies is a god.

    re: roofing costs, yah right. in the RBA you can’t roof a 1000 sq ft cottage for less than 10K.

  99. CB Says:

    Steve is exactly right. In the RBA not only do you pay 1 Mil for a 600k home, you pay 10k for a 6k reshingle. The RBA premium uis expensive but as you see very predictable.

    (psst, nomadic -grout separates from tile and allows water to enter the wall behind. I’ll leave it to you to assign blame to either the tile or the grout)

  100. A. Lewis Says:

    I think that in evaluating a home for purchase I would have a list of things I would ‘have to do’ in the first year – unique to each house I looked at, and would add those to the purchase price (in my mind) as opposed to considering them maintenance.

    I appreciate the range of comments on the 0.5% idea.

  101. nomadic Says:

    CB, I won’t get into the finer points of shower construction and just say this: neither the tile nor grout are responsible for keeping a shower waterproof. And neither are capable of it; particularly grout, which is as porous as cement.

    A. (#100), that sounds like a good idea. Just keep in mind that your list may change quite a bit after you move in. Add 25% to your estimate. :-)


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