Home › Forums › Housing › The “Property Tax” Factor and People Just Don’t Care what Things “Really” Cost
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(former)FormerSanDiegan.
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AuthorPosts
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December 5, 2006 at 12:10 AM #8008December 5, 2006 at 2:52 AM #41140
CBad
ParticipantYes, people do consider it. People like me. I bought my house in Carlsbad in ’93 and paid 185K (no HOA, no Mello Roos). It’s been totally remodeled by my crafty husband throughout the years. We now have 3 children and I would LOVE to buy a bigger house. Obviously we have a ton of equity in our home and could afford a step up in the area. But I will never, ever throw all of that $$ down the drain in property taxes, HOA, and Mello Roos. The increase in those payments alone would be more than our existing mortgage! We won’t even consider moving with the home prices today and the resulting property taxes we’d have to pay for the rest of our lives. It’s just not worth it. In the next few years we’ll either add on to the house or continue to watch the market to see if houses get anywhere near back to reasonable where a move would make sense. And even then, there’s no way I’ll pay some of the outrageous HOA and Mello Roos fees. I’d consider paying a reasonable HOA if it offered something in return. Mellos Roos, hopefully you can catch the property after the previous owners have already paid it off or close to it.
And yes, I too laugh at the people who say, “I made xxxK on my house”. They never mention how much money they paid into it or the costs involved with buying and selling a home and moving. I’m not under any delusion that remodeling our house cost money (though we have saved a bundle doing it all ourselves but that takes patience and hard work). And I’m well aware of all of the interest we have paid throughout the years (I have a spreadsheet that shows the exact figure). But we make extra payments towards the principal of our loan every month and it will be totally paid off in 2009.
I think a lot of people are only concerned with the monthly payments because quite frankly, that’s how they live: month to month, paycheck to paycheck. And that’s why these same people won’t be able to handle it when their monthly payments increase on their ARM’s.
December 5, 2006 at 8:02 AM #41144zeropointzero
ParticipantI would definitely/do consider them — I would hate to pay an HOA for services I didn’t need/use, property taxes are significant where I live (Northern Virginia) — I managed to appeal mine down (from 585k to 515k). As far as Mello Roos go — such fees are assessed the builder and/or made up through property taxes around here. Everyone bitches about property taxes around here, but nobody does much about it.
The thing that worries me is the future pension/healthcare obligations of my town – and my understanding is that San Diego has some significant issues as far as this goes, too. I am not against making sure teachers and public safety personnel are well taken care of in retirement – but I do think that few people understand the obligations that municipalities will be under in the coming decades. In other words, just wait until retirement obligations REALLY start to come due for cities/towns/counties/states around the country.
On the other hand – at least you’re not in Florida – where you’re also getting hammered by crazy insurance increases. Are any parts of So Cal getting drilled by fire-related insurance increases?
Thanks for bringing this up – property taxes / HOAs / Mello Roos / insurance = “death by a thousand cuts”
December 5, 2006 at 8:02 AM #41145Anonymous
GuestGreat approach, CB. Glad to hear that there are some sane young homeowners here in SoCal.
December 5, 2006 at 8:33 AM #41146(former)FormerSanDiegan
ParticipantWe have always avoided HOA fees and mello roos like the plague. Property taxes have always been a consideration when buying, especially our first house.
In the longer term property taxes (because of the prop 13 limitations) tend to keep people in homes who otherwise might consider moving. Remember that once you purchase, future property taxes are capped at an annual 2% increase. People who have lived in their place for 5+ years actually have an incentive to keep living in their homes to avoid a huge property tax increase.
December 5, 2006 at 9:03 AM #41149rhinopham
ParticipantRemember, when the housing prices plummet back and beyond previous median prices before the run up, it’s possible to appeal your home price and have it re-assessed to decrease the property tax via Proposition 8 (see previous postings regarding property tax evaluations…). Still, it would be nice to avoid useless HOA’s and mello roos…
December 5, 2006 at 9:30 AM #41151Irish
ParticipantOne way to avoid high proprerty taxes in California is to look out for an Historic property, one that has Mills Act proprty tax relief. I sold such a property in April of this year in Northpark, San Diego for $435k (a very small 775 square feet Craftsman). The lucky new owner will pay around $100/month versus the usual 1.25% sales price or about $453/month. What a relief to get out at the height of the market.
December 5, 2006 at 9:43 AM #41153powayseller
Participantnice post, cowboy.
The amortization is not a sock-it-to-you scheme. It’s just a fact of how saving and interest accrual works, in your favor when you save and against you when you borrow.
The interest is simply calculated from your principal, so as your principal is reduced, so is your interest payment. If you want to pay less interest, get a smaller loan or a shorter loan period. The lender has to get paid for lending you the money. I am earning 5.5% in my CD because there’s a guy paying 8% on his HELOC.
When housing prices fall back to $250K median, and you get a 30 year loan at 6%, your total interest paid over 30 years is more than you paid for the house. It’s $290,000.
Likewise, when you save money your interest paid to you grows each month, so that by your retirement hopefully, the interest you earn is larger than the money you used to open your account.
December 5, 2006 at 9:44 AM #41154Raybyrnes
ParticipantIn response to Cowboys example of the car sales person not mentioning how much the car with interest payments add up too He simultaneouly did not mention the opportunity cost of capital you have when you are able to put the same money to work for yourself.
If I pay 6% on a loan but I earn 10% on my investments then the car cost less. If I lose 10% the car costs more. To try and simplify the matter to adding the payments and subtracting the cost could be a pretty costly mistake.
December 5, 2006 at 9:44 AM #41155(former)FormerSanDiegan
Participantrhino –
Yes it is true that you can appeal your property tax basis to a lower rate when the value drops. However, if/when the price recovers the Tax Man can also bring it back up to the prop 13 level, which is the purchase price plus 2% per year, as long as the current valuation supports it. Around 2000-2002 this became a hot-button issue.
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