Home › Forums › Financial Markets/Economics › Paying off Mello Roos
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September 19, 2013 at 4:19 PM #765635September 19, 2013 at 4:53 PM #765636
bearishgurl
Participant[quote-earlyretirement]…Sure, there are other places you can buy 1/2 to 1 acre lots but again the true reality is most buyers don’t want nor need that kind of space…[/quote]
ER, that’s just it. That’s reflective of who you have been talking to. Buyers in the $1M+ category who buy in your area “don’t want nor need that kind of space.” That is why they spend big bucks to buy there, because they do not need space to park RVs/boats or want to keep horse(s) because they know the HOA won’t allow it. They don’t want to look at neighbors’ vehicles, boats or corrals, either, so that is why they prefer the tightly-controlled gate-guarded HOA and are willing to pay for it.
This in no way means that those (non-HOA) properties throughout the county which are situated on 1/2 – 3 AC lots which have the same value as properties in SantaLuz are any less desirable for:
1) raising a family;
2) entertaining in;
3) having good neighbors in;
4) commuting from;
5) remodeling/upgrading;
6) retiring in;etc.
The large-lot semi-rural property I’m using is just an example. The same could be said of $1M+ ocean view homes, beach-area homes, boat-slip homes, city-view homes, historical homes, etc, all on city lots.
Different strokes for different folks.
September 19, 2013 at 5:14 PM #765637Participant[quote=earlyretirement]It just seems like sometimes you have an almost hatred for this area. Or at the very least, stern disdain for the area.[/quote]
I don’t know where you read that here. I posted recently that I viewed ALL the SantaLuz videos on a thread you posted and really liked it! I especially liked the elevation and the round lots with pano views.
HOWEVER, I don’t like the way the city/county has allowed the developers for rest of your zip code to sandwich in 9-10 units per AC in most tracts and charge ~$600K to $1.3M? for each unit, LOL. From the aerial view, some tracts’ houses/PUDS don’t even appear to have enough setback to park a typical 15-16′ long mid-size or full-size vehicle in the driveway (without it hanging over the sidewalk and curb).
This phenomenon isn’t exclusive to 92127. Subdivisions in 91914 and 91915 are notorious for this type of ultra-crowded (what I call “listen-to-your-neighbor’s-toilet-flush”) construction. And just try to pass another car going the opposite direction on one of these streets after dark, when they are lined from end to end with parallel parked cars. You have to slow down to 5 mph and hope you don’t bump rear-view mirrors with the oncoming vehicle!
The developers gypped many of these buyers paying Big Bucks and the Highest MR In The County out of a standard city lot and a standard setback and got away with it. Ask yourself how that happened.
But the buyers continued to swarm in, only to get ripped off in MR overpayments and in the misuse of their MR funds.
It’s astounding to me.
But as you said, ER, a lot of people really don’t care about all these messy, boring details. They think they have bought into a particular lifestyle and for as long as it lasts, they’re going to keep on keepin’ on :=0
September 19, 2013 at 6:46 PM #765638EconProf
ParticipantBG, you are up against many posters here who claim you are overbearing with your opinions and seem to expect other to share your values when seeking a home. They are right.
That said, you are sometimes a wealth of information, usually well-documented, and I value you for that. And I really do thank you for no longer putting quotes around everything. Now work on minimizing IMHO, CAPITALIZING FOR EMPHASIS, and 🙂 IMHOSeptember 19, 2013 at 7:13 PM #765639ParticipantSince early retirement and I both live in Santaluz and face Mello-Roos fees, we met up today to compare notes. It turns out the decision of whether or not to pay off the MR is not at all clear cut.
I brought my tax bill with me so we could crunch the numbers to see if it is worthwhile. I also called earlier today, the number on the tax bill to learn my cost to pay it off, and got additional information about MR.
My bill contains two MR payments, CFD#2 for $2108 per year, and expiring in 2030, and Poway Unified, CFD#4 for $904 per year. I only called the number for the first, which revealed that my cost would be “about $30,000” to pay off (exact amount would cost me $500 to find out, but would apply as a credit to the payoff). That means if the amount stayed the same for the next 17 years, I would pay a total of about $36,000.
It clearly appears I should NOT pay it off, given that I could invest that $30,000 today and have it double assuming a mere 4.2% annual ROR compounded. Of course the unknowns are 1) Will that $2108 stay the same for 17 years, and 2) Will that expiration date of 2030 stay the same.
The guy I talked to on the phone was reassuring on both counts, but I do not share his confidence. Still, changes in 1 or 2, or both, would have to be pretty major to prompt me to pay it off. And the hurdle of 4.2%, (or 5%, or 6% depending on assumed changes in 1 or 2) should be pretty easy to beat with alternative investments, or paying down my other mortgages, of which I have many.
Early retirement and I also determined that the two MR fees are based on different factors. It seems the first depends on square footage, and the Poway Unified one depends on property value. Interesting.
Anyway, I am not paying off the MR, based on this information, unless someone here can bring other evidence to bear.September 19, 2013 at 8:58 PM #765640earlyretirement
Participant[quote=EconProf]Since early retirement and I both live in Santaluz and face Mello-Roos fees, we met up today to compare notes. It turns out the decision of whether or not to pay off the MR is not at all clear cut.
I brought my tax bill with me so we could crunch the numbers to see if it is worthwhile. I also called earlier today, the number on the tax bill to learn my cost to pay it off, and got additional information about MR.
My bill contains two MR payments, CFD#2 for $2108 per year, and expiring in 2030, and Poway Unified, CFD#4 for $904 per year. I only called the number for the first, which revealed that my cost would be “about $30,000” to pay off (exact amount would cost me $500 to find out, but would apply as a credit to the payoff). That means if the amount stayed the same for the next 17 years, I would pay a total of about $36,000.
It clearly appears I should NOT pay it off, given that I could invest that $30,000 today and have it double assuming a mere 4.2% annual ROR compounded. Of course the unknowns are 1) Will that $2108 stay the same for 17 years, and 2) Will that expiration date of 2030 stay the same.
The guy I talked to on the phone was reassuring on both counts, but I do not share his confidence. Still, changes in 1 or 2, or both, would have to be pretty major to prompt me to pay it off. And the hurdle of 4.2%, (or 5%, or 6% depending on assumed changes in 1 or 2) should be pretty easy to beat with alternative investments, or paying down my other mortgages, of which I have many.
Early retirement and I also determined that the two MR fees are based on different factors. It seems the first depends on square footage, and the Poway Unified one depends on property value. Interesting.
Anyway, I am not paying off the MR, based on this information, unless someone here can bring other evidence to bear.[/quote]EconProf,
It was great as always to catch up with you. We really need to meet up more often.
Yes, EconProf’s example was a good one that it might not always make sense. It was interesting to see that his CFD #2 was about half of what I was paying. I forgot that they base the tax based on size of house rather than value for CFD #2. My house is almost double the size of his so I get hit much harder on the CFD #2. I also was fortunate that I bought pretty much at the absolute bottom and I also negotiated a great price. So my % CFD tax exposure relative to my purchase price was high compared to his.
On the CFD #4 as he mentioned, I don’t think it’s solely based on sq. feet because his was just a bit under what I was paying. I paid just under $1,000 IIRC a year and my house is much bigger than his. So I guess I’ll have to see exactly how CFD #4 is calculated. It’s like we said before…all of this is kind of murky.
I still think that one would be worthwhile to pay off but I agree with him that maybe CFD #2 is not so compelling if your house size is smaller. But still, I tend to stay on the conservative side and although I’m sure I can probably make returns higher than that, my attitude is end the tax obligation forever while it’s on the table.
As well, it’s a GUARANTEED rate of return. I consider myself a pretty darn good investor and done very well. But I always try to be humble in the fact that I can NEVER any year say that I know with 100% certainty that I can make X% ROI. However by me paying it off and knowing I will stay in my house I could say that.
But it was really interesting seeing my CFD #2 was almost double his.
The one thing as I mentioned today EconProf are that (a) I would NOT assume that $2,108 will stay the same the next 17 years. They have taken advantage of some of the lowest interest rates in history and they can’t refinance lower so my attitude is the payments will only go up. I believe by law they can raise it a maximum of 2% a year. So I would expect them to keep raising it 2% per year until it’s paid off.(b) Although I think it’s not likely they would extend out CFD #2 past 2030, my philosophy is who knows?
I’ll have to go back and look at my exact notes but for what it’s worth, EconProf, I did recall that CFD #4 was going up the maximum % each year. So you can probably assume that rate will keep going up 2% a year until 2041 or beyond (if it gets extended). But one thing is for sure, the tax obligation will NOT end until 2041 at the earliest. And I DO think that it will keep going up 2% each year. PUSD won’t leave any money on the table, IMHO.
I certainly would NOT trust the judgement or advice of the third party administrator that handles tax payments for the city. LOL. Because the longer the taxes go on the longer he has a job. 😉
As well, much of the factor to me just depends on if you know that you’ll keep the property for the long-term. In my case we won’t sell the property in the next 15 years and probably even after that. I tend to buy properties and hold on to them for the long term. If I don’t live in them I turn them into a rental property. So that’s a factor to consider as well.
Again, great seeing you again.
September 19, 2013 at 9:21 PM #765641ParticipantWe agree on most of this, ER. Like much in economics and finance, decisions hinge on assumptions we must make with imperfect knowledge. If the MR does go up 2% a year (which is not assured–they went down for the past two years), then my 4.2% hurdle becomes 6.2%. Since I have 6% mortgages I could pay down with this money, its a tossup.
One question that has been batted around on this thread is whether paying off the MR translates automatically into a correspondingly higher value to the property. If not, IOW if buyers are not perfectly rational, then someone could lose by paying off the MR and then moving. So I should estimate my odd of moving in the next few years and factor that in to the decision.
In general, I think that buyers are pretty rational, and plug do MR’s into prices automatically. A heavy MR will lower a property’s value; its absense will raise it. For a buyer to swear off MR areas entirely would not be rational, since in newer areas they are practically impossible to avoid. If one has a family with school kids, MR is the price you pay for better schools, on average.
As for the close-together, grotesquely large and expensive new houses they are putting up around Santaluz in 4S and Del Sur, I agree with BG that they are not to my taste. But you are paying for the demographics, the shopping, and the resale value, and that is what is compelling to today’s buyers.September 19, 2013 at 9:41 PM #765642ocrenter
Participant[quote=EconProf]Since early retirement and I both live in Santaluz and face Mello-Roos fees, we met up today to compare notes. It turns out the decision of whether or not to pay off the MR is not at all clear cut.
I brought my tax bill with me so we could crunch the numbers to see if it is worthwhile. I also called earlier today, the number on the tax bill to learn my cost to pay it off, and got additional information about MR.
My bill contains two MR payments, CFD#2 for $2108 per year, and expiring in 2030, and Poway Unified, CFD#4 for $904 per year. I only called the number for the first, which revealed that my cost would be “about $30,000” to pay off (exact amount would cost me $500 to find out, but would apply as a credit to the payoff). That means if the amount stayed the same for the next 17 years, I would pay a total of about $36,000.
It clearly appears I should NOT pay it off, given that I could invest that $30,000 today and have it double assuming a mere 4.2% annual ROR compounded. Of course the unknowns are 1) Will that $2108 stay the same for 17 years, and 2) Will that expiration date of 2030 stay the same.
The guy I talked to on the phone was reassuring on both counts, but I do not share his confidence. Still, changes in 1 or 2, or both, would have to be pretty major to prompt me to pay it off. And the hurdle of 4.2%, (or 5%, or 6% depending on assumed changes in 1 or 2) should be pretty easy to beat with alternative investments, or paying down my other mortgages, of which I have many.
Early retirement and I also determined that the two MR fees are based on different factors. It seems the first depends on square footage, and the Poway Unified one depends on property value. Interesting.
Anyway, I am not paying off the MR, based on this information, unless someone here can bring other evidence to bear.[/quote]Interesting point EconProf. My first thought was maybe this is due to timing of the payoff being difference.
When I paid the MR off, we still had 22 years to go on the MR. Total cost over the 22 years would have been $150k. With the payoff at $58k, and one of the MR at 7.5% the calculation came out in favor of payoff as we essentially “earn” $92k by paying the $58k upfront.
Now I have to assume the bulk of the principle is back-end loaded, much like mortgages. Therefore, homeowners are paying primarily interest the first few years.
Assuming I have 17 years left on the MR, with payoff reduced slightly to $50k, residual 17 years of payments would still be $121k. So it would still be worth paying off, but the benefit is not quite as impressive.
Looks like the big difference here between econprof and my scenario is the interest rate involved.
Econprof’s CDF #2’s payoff is $30k with 17 years left, but because the interest rate is only 4%, yearly obligation is only $2100. My CDF11-3’s payoff was $26k with 22 years left, but interest rate was 7.5%, yearly obligation was $3000.
So essentially with the low interest rate of CDF2 and less number of years left on the MR, the payoff strategy doesn’t make sense.
I do wonder why PUSD can get CDF2 rate down to 4% but CDF11-3 is still at 7.5%.
September 19, 2013 at 10:51 PM #765644ParticipantER, I think the 2% yearly MR increase is automatic. They essentially computed the bond payoff with the 2% yearly increase in mind. Just checked my street and it looks like the 2% MR increase is right on schedule.
This is another reason why the MR payoff made sense to me. When I paid it off last year, the yearly obligation was $5300. But after 10 years, that yearly obligation would be $6400, and after 15 years, that yearly obligation would then be $7000.
Meanwhile, with the AMT, the MR essentially feels like double taxation. I’m using post tax dollar to pay more tax, just doesn’t feel right.
September 20, 2013 at 6:13 AM #765647Participant[quote=ocrenter]ER, I think the 2% yearly MR increase is automatic. They essentially computed the bond payoff with the 2% yearly increase in mind. Just checked my street and it looks like the 2% MR increase is right on schedule.
This is another reason why the MR payoff made sense to me. When I paid it off last year, the yearly obligation was $5300. But after 10 years, that yearly obligation would be $6400, and after 15 years, that yearly obligation would then be $7000.
Meanwhile, with the AMT, the MR essentially feels like double taxation. I’m using post tax dollar to pay more tax, just doesn’t feel right.[/quote]
Yep. I didn’t know if it was “automatic” per se. I know the last 2 or 3 years wasn’t normal due to extremely low interest rate environment and refinancing. But we won’t be seeing another refinance of those that have been refinanced already.
It would be nice if CFD #4 gets it’s act together and refinances for it’s taxpayers. But I’m not going to hold my breath. But yes, like you in my models I included the assumption they will raise it 2% a year and won’t leave any money on the table.
ocrenter, where do you live? Do you live around our hood? Thanks for posting such great information. Actually it was some of your posts that were really really educational for me on this whole CFD pay off. That’s why these message boards are so valuable. Thanks.
September 20, 2013 at 6:22 AM #765643Participant[quote=EconProf]We agree on most of this, ER. Like much in economics and finance, decisions hinge on assumptions we must make with imperfect knowledge. If the MR does go up 2% a year (which is not assured–they went down for the past two years), then my 4.2% hurdle becomes 6.2%. Since I have 6% mortgages I could pay down with this money, its a tossup.
One question that has been batted around on this thread is whether paying off the MR translates automatically into a correspondingly higher value to the property. If not, IOW if buyers are not perfectly rational, then someone could lose by paying off the MR and then moving. So I should estimate my odd of moving in the next few years and factor that in to the decision.
In general, I think that buyers are pretty rational, and plug do MR’s into prices automatically. A heavy MR will lower a property’s value; its absense will raise it. For a buyer to swear off MR areas entirely would not be rational, since in newer areas they are practically impossible to avoid. If one has a family with school kids, MR is the price you pay for better schools, on average.
As for the close-together, grotesquely large and expensive new houses they are putting up around Santaluz in 4S and Del Sur, I agree with BG that they are not to my taste. But you are paying for the demographics, the shopping, and the resale value, and that is what is compelling to today’s buyers.[/quote]Yes, EconProof. I do agree with you that your example isn’t as compelling as mine was. I think it’s GREAT that CFD #2 was refinanced to take advantage of this low interest rate environment and I’ve questioned publicly and encouraged the Press to see why ALL CFD’s haven’t refinanced at the lower rates.
Probably in your situation I’d maybe not pay off CFD #2 but I still would pay off CFD #4.
I do think you have to assume that the rate WILL go up from here out forward. We were in a very unusual situation the past few years but I think you would agree that interest rates can’t stay artificially low for too much longer. Plus, they already refinanced so the rate won’t be going down. It will only move up from here on out. To be conservative, I think you should assume that.
Absolutely, I totally agree you have to factor in the odds you will move/sell in the next few years. No doubt about it.
But still, I don’t think that anyone paying it off won’t be able to recoup it. I don’t believe lenders loan for future CFD tax liability but if you increase your price of your house, you could get a loan for home value.
I also believe that we won’t see the lows and the housing depth mess like we saw after the last crash with no-doc loans and anyone with a heartbeat getting a mortgage. So I assume we’ve seen the lows. Not to say there couldn’t be more ups and downs but I don’t honestly see a situation like we saw before. I do believe that anyone that bought at the depths of the lows were truly fortunate and timed it right.
Yes, I agree that not all the communities around here are my cup of tea. For example, several developments in Carmel Valley like Pacific Highlands Ranch totally aren’t worth it with 5 or 6 people looking in on your backyard and NO privacy. I also don’t find anything too special about 4S Ranch.
But there are several beautiful developments around here. We have friends in several of them and they truly love living around here. (Verrazzano, Santa Monica, Del Sur, Fairbanks Summit, Crosby, Collins Ranch, and of course Santaluz).
[quote=ocrenter][quote=EconProf]Since early retirement and I both live in Santaluz and face Mello-Roos fees, we met up today to compare notes. It turns out the decision of whether or not to pay off the MR is not at all clear cut.
I brought my tax bill with me so we could crunch the numbers to see if it is worthwhile. I also called earlier today, the number on the tax bill to learn my cost to pay it off, and got additional information about MR.
My bill contains two MR payments, CFD#2 for $2108 per year, and expiring in 2030, and Poway Unified, CFD#4 for $904 per year. I only called the number for the first, which revealed that my cost would be “about $30,000” to pay off (exact amount would cost me $500 to find out, but would apply as a credit to the payoff). That means if the amount stayed the same for the next 17 years, I would pay a total of about $36,000.
It clearly appears I should NOT pay it off, given that I could invest that $30,000 today and have it double assuming a mere 4.2% annual ROR compounded. Of course the unknowns are 1) Will that $2108 stay the same for 17 years, and 2) Will that expiration date of 2030 stay the same.
The guy I talked to on the phone was reassuring on both counts, but I do not share his confidence. Still, changes in 1 or 2, or both, would have to be pretty major to prompt me to pay it off. And the hurdle of 4.2%, (or 5%, or 6% depending on assumed changes in 1 or 2) should be pretty easy to beat with alternative investments, or paying down my other mortgages, of which I have many.
Early retirement and I also determined that the two MR fees are based on different factors. It seems the first depends on square footage, and the Poway Unified one depends on property value. Interesting.
Anyway, I am not paying off the MR, based on this information, unless someone here can bring other evidence to bear.[/quote]I
I do wonder why PUSD can get CDF2 rate down to 4% but CDF11-3 is still at 7.5%.[/quote]Exactly OCR! I can’t figure out why they can’t get it refinanced but then again NOTHING about PUSD surprises me these days.
September 20, 2013 at 8:00 AM #765652Participant[quote=earlyretirement]
Yep. I didn’t know if it was “automatic” per se. I know the last 2 or 3 years wasn’t normal due to extremely low interest rate environment and refinancing. But we won’t be seeing another refinance of those that have been refinanced already.
It would be nice if CFD #4 gets it’s act together and refinances for it’s taxpayers. But I’m not going to hold my breath. But yes, like you in my models I included the assumption they will raise it 2% a year and won’t leave any money on the table.
ocrenter, where do you live? Do you live around our hood? Thanks for posting such great information. Actually it was some of your posts that were really really educational for me on this whole CFD pay off. That’s why these message boards are so valuable. Thanks.[/quote]
I think they may have contract obligations to the bond holder to keep it at a certain interest rate??? just speculation on my part.
haha, we are in lizard country, aka Stonebridge. According to some people’s Thomas Guide, the place is so far flung they didn’t even assign a page #!
September 20, 2013 at 8:32 AM #765653Participant[quote=ocrenter]
I think they may have contract obligations to the bond holder to keep it at a certain interest rate??? just speculation on my part.
haha, we are in lizard country, aka Stonebridge. According to some people’s Thomas Guide, the place is so far flung they didn’t even assign a page #![/quote]
Yes, I thought about that as a possibility. Like with the PUSD Capital Appreciation Bond mess and the lack of them being able to refinance lower. It’s all shady and even when you try to investigate and find answers it’s usually a dead end.
Our only hope with that is the media and that they continue to press forward with investigations and reporting it. It’s the taxpayers biggest ally.
Stonebridge is great….. We have a friend living there and they LOVE it and our realtor also lives out there and raves about it. Such beautiful homes as well. That’s a great area. far flung..ha ha. Yeah, I get a crack out of some of that “far flung and lizardland” talk….
September 20, 2013 at 8:34 AM #765654all
Participant[quote=earlyretirement][quote=all]
Black Mountain Ranch (Santaluz + Del Sur) is supposed to have 300-room resort. The plan was to have two golf courses, one in Santaluz and one (public) in Del Sur. The resort was supposed to be adjacent to the north course. The Del Sur golf course was scrapped few years ago (commercial sqft was increased instead), but the resort is still on. That’s one possibility. The other is another high-end subdivision similar to Ivy Gate.[/quote]
I don’t see this ever happening. Santaluz’s Golf course is really nice. I don’t see anything like that ever coming and Del Sur will never see a golf course. Not sure about the resort but I don’t see that happening either.[/quote]
Did you confuse me with BG?
Del Sur had a fee-based public golf course planned and it was supposed to designed by the same team that designed the Santaluz golf course. You can see an overview of the original plan for Black Mountain Ranch here: http://www.blackmountainranch.com/Open/projdesbody.htm
The north golf course was canceled few years ago. And based on the financing plan for FY2013 the 300-room hotel is still on:
Residential
The anticipated remaining residential development for Black Mountain Ranch is estimated at 2,694 dwelling units. A list of the types and amount of planned residential development can be found in Table 1 on page 6.
Non-residential
The anticipated remaining non-residential development for Black Mountain Ranch is projected to be 225,000 Commercial and 515,000 Employment/Office square footage, and 13.2 Institutional acres, and 300 hotel rooms.http://www.sandiego.gov/facilitiesfinancing/pdf/plans/bmrelement121221.pdf
September 20, 2013 at 9:16 AM #765656Participant[quote=all][quote=earlyretirement][quote=all]
Black Mountain Ranch (Santaluz + Del Sur) is supposed to have 300-room resort. The plan was to have two golf courses, one in Santaluz and one (public) in Del Sur. The resort was supposed to be adjacent to the north course. The Del Sur golf course was scrapped few years ago (commercial sqft was increased instead), but the resort is still on. That’s one possibility. The other is another high-end subdivision similar to Ivy Gate.[/quote]
I don’t see this ever happening. Santaluz’s Golf course is really nice. I don’t see anything like that ever coming and Del Sur will never see a golf course. Not sure about the resort but I don’t see that happening either.[/quote]
Did you confuse me with BG?
Del Sur had a fee-based public golf course planned and it was supposed to designed by the same team that designed the Santaluz golf course. You can see an overview of the original plan for Black Mountain Ranch here: http://www.blackmountainranch.com/Open/projdesbody.htm
The north golf course was canceled few years ago. And based on the financing plan for FY2013 the 300-room hotel is still on:
Residential
The anticipated remaining residential development for Black Mountain Ranch is estimated at 2,694 dwelling units. A list of the types and amount of planned residential development can be found in Table 1 on page 6.
Non-residential
The anticipated remaining non-residential development for Black Mountain Ranch is projected to be 225,000 Commercial and 515,000 Employment/Office square footage, and 13.2 Institutional acres, and 300 hotel rooms.http://www.sandiego.gov/facilitiesfinancing/pdf/plans/bmrelement121221.pdf%5B/quote%5D
No, I didn’t confuse you. I was just responding in one post. Sorry for any confusion.
Yes, I am aware of the original plans for that Golf Course but as mentioned, I doubt that will ever happen. I do understand it was cancelled but I didn’t know if you were trying to imply it was a possibility for the future.
As far as the 300 room hotel. Where is that supposed to go? I’m not sure about the financing plan for 2013 but it’s already September 2013. Where do they propose to do that?
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