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Sounds like an awesome house — the price is probably fair if you can afford it. If you plan on staying there a while you’re probably safe as long as you don’t stretch yourself too much…

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And don’t forget the hidden bias introduced by seller kickbacks. These are rampant from what I’m hearing — many cases where buyers have no money at all and the seller gives then $5-15K so that they can purchase the home.

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I don’t want to send my kids to any high school that has an auto-shop class.

I went to a great high school with good test scores and lots of college-bound kids that also had a good auto shop class. Some of the smartest auto shop kids will become mechanical engineers someday.

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Also hidden in this story is one factor that’s keeping house prices up — kickbacks from the seller to the buyer. In many cases a sale will go on the books at an inflated price, but what’s not shown is that the seller gave the buyer $10K for a down payment or whatever. Some realtors love this sort of monkey business because it allows them to keep up the illusion that prices aren’t falling. What’s amazing is that the buyers are so stupid as to volunteer for increased transaction costs and property taxes. As someone smarter than me once said, “No one ever went broke underestimating the intelligence of the average American.”

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Analyzing properties using this formula, it is very possible to achieve more than 20% annual returns. A few people I know get more than 30%.

Possible, yes, but certainly not probable in the general case — if it was then no one would buy stocks. You and your friends are Real Estate experts — most people are not. If everyone else was capable of doing the same thing the returns would rapidly go to inflation-level or below. The most successful RE cash-flow investors are working full-time managing their properties, looking for new ones across the country, and arranging repairs/screening renters/etc… Finding undervalued assets of any type is not easy, especially in an environment of easy credit.

I of course agree that leverage, when employed by an expert, can indeed produce very good returns. Of course the converse is also true, that leverage can be extremely dangerous when wielded by someone who is ill-informed. In my experience, the latter greatly outnumber the former in the general population! No one here (to my knowledge) is saying that you should never buy homes or invest in real estate. The general sentiment among posters on this board is that it is difficult to find good real estate investments here in Southern California since E-Z credit made its debut a few years ago. Almost all of us here think that someday soon it will make sense again and we will buy when it does. I know I’m still watching house prices and when I see one that I can afford that I would enjoy living in, I’ll be on it…

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I don’t buy the 12% year after year inflation returns in the general case. If you were really able to get real estate returns like that with such a simple method, no one would even bother with stocks or bonds. A very savvy investor might be able to do this with selected properties, but he’d have to be really sharp to beat the market by such a wide margin. It is true that there will always be money to be made in real estate, it just rubs me the wrong way when people post about their 15% annual returns and say that everyone else is a clown for not being able to achieve the same thing.

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The author is a clown. He completely omits the positive impact of leverage over long periods of time. For example, if I purchase a property that is “fairly valued,” with a 20% down payment and it increases at 3%/year (that is, zero real return after 3% inflation), my nominal return is 15%/year on my invested capital (and 12%/year after inflation) assuming I relever the property every few years to maintain 20% equity.

Sounds like you’ve invented the financial perpetual motion machine. Why are you wasting your time posting here on Piggington when you should be frolicking in the Mediterranean on your 100ft yacht?

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Don’t worry Ash, that Amero stuff will make a lot more sense to you in about 10 years. Or to get a taste of what’s about to happen, take a trip to Texas and see the construction for the Trans-Texas Corridor which will soon be moving goods from Mexican ports to a Wal-Mart near you. Also keep an eye out for those Mexican long-haul truckers that will soon be blowing past you at 80mph in poorly-maintaned rigs with bald tires. Federally-mandated 8-hour driving limits? Not for Jose and Pablo, they get to drive for days at a stretch without sleep; if they stop to nap they’ll get fired and replaced with another $6/hour driver from Oaxaca. Ain’t globalization grand? The ultimate goal is to move the North American ports of entry for Asian and European goods to Mexico where labor is much cheaper and more difficult to organize. It’s a race to the bottom — Ross Perot called it back in 1992 but no one listened to him…

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I see the biggest areas of declines are probably in L.A. frankly, especially when the defense budget starts to shrink again. Happened when clinton took office, and it will happen again.

Aren’t there more defense contract workers in the SD area than in the LA area (per capita at least?)

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Holy cow, maybe that really was her! I never read her site so I just gave her the benefit of a doubt. After reading that bit I’m glad I didn’t waste my time…

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If the webmaster of this site has time, maybe they can ask the VOSD webmaster for the IP address that posted that letter — they should be able to search the logs here on this site and see if it shows up; if it does, you’ll know who posted it (please tell us if you find it!). I suspect someone is trying to make PS look bad. If not, then maybe she is just resorting to crazy tactics to try and drum up traffic for her site — but she’d have to be pretty freaking stupid to try something as lame as that…

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Someone needs to check the IP logs at VOSD and compare them to the Piggington IP log — I doubt that’s really her. It looks to me like a blatant attempt by a PS-hater to discredit her. She was never rude to Rich as far as I can remember and she’s not going to bash anyone for being too data-oriented since that’s what her whole website is about. Whoever posted it exhibits the characteristic poor spelling of an insecure faux-intellectual; one doesn’t “pour over data”, one “pores over data”.

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With an I/O loan, you’ll never have equity without appreciation. So you’re automatically speculating on appreciation if you go I/O, otherwise you’d rent which is much less risky. Your friends were simply speculating in two different markets at once — with their down payment money in something else (stocks?) and housing using someone else’s money. If times got tough they were betting that they could refinance their debt obligation, perhaps converting their stocks to a down payment at that point.

I’m not saying it never makes sense to use I/O, but those loans are best used by the wealthy — they have the possibility of converting other wealth into a downpayment and going fixed-rate conventional if necessary, or selling and taking the loss. They are still speculating, but in a way which is only risky to themselves.

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I had an interest only loan and didn’t see any appreciation any time soon.

Interest-only loan? Then you were speculating plain and simple and you should be thankful you were able to get out in time.

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Understood sdr, that makes sense. Also, Encinitas is always a little pricier than the areas of SD I usually watch and that explains the difference. It’s funny a $25K difference seems so small now that I would just equate $300K with $325K! In actuality it’s a lot of money of course but I’ve become so jaded with all of these high prices that I don’t even notice $25K now…

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