[(former)FormerSanDiegan]

[quote=carlsbadworker]
You are again using historical examples to predict future. Interest rate could rise not because of inflation, but because no one is willing to lend us money. I don’t believe Greek inflation ever topped 3% in recent years.[/quote]

I am not predicting the future.

Some people (such as the original poster) assume that increases in interest rates will automatically cause home prices to decline.

My point is that that this not what has generally happened over the past 50+ years. It does not mean that it cannot happen. But it is not a given, nor is it very likely.

[(former)FormerSanDiegan]

[quote=CA renter] We were soooo lucky to have them as our LLs. They are incredibly awesome people.[/quote]

Now that’s something you don’t hear too often…

Kinda the opposite of this Eddie Murphy Classic role as Tyrone Green, Prison Poet:

[(former)FormerSanDiegan]

[quote=SK in CV]

I think you’re asking the wrong question. The right question is what would have happened to home prices if not but for the changes in interest rates.[/quote]

“…what would have happened to home prices if not but for the changes in interest rates ?”

One cannot answer that question without generating assumptions that would generate even more questions.

[(former)FormerSanDiegan]

The notion that interest rate increases lead directly to home price declines is derived from the mis-application of a microeconomic concept (How much less house can I afford if interest rates go up) to a macroeconomic measure (Home prices).

Interest rate changes do not live in a bubble, they impact and are impacted by other factors in the economy. Higher interest rates typically accompany higher inflation. Higher inflation is the result of increases in the price of goods and services. This typically includes labor and housing.

[(former)FormerSanDiegan]

[quote=SK in CV][quote=FormerSanDiegan][quote=anxvariety]

I am not in/on a lease, the question isn’t particular to Coastal CA – opinion is that both are mostly irrelevant. How can one argue that change in interest rates will not affect prices?[/quote]

If you look at the past 40+ years of data …increases in interest rates do not correlate with decreases in property values.[/quote]

Gotta be careful with the difference between correlation and causation. You’re right that higher interest rates haven’t correlated with lower property values. (As a practical matter, we haven’t seen interest rates do anything but go down for the last 30 years, save for some minor fluctuations.) Particularly in the last 30 years the Fed has been manipulating interest rates to counter inflation. So higher interest rates were used to stop prices from going up, or at least to stop them from going up as fast. So when price acceleration slows, interest rates drop.

Interest rates DO affect prices. The stronger correlation than interest rates v prices, is that between changes in interest rates and the rate of change in prices.[/quote]

Agreed, if there is a correlation between A and B, it may not necessarily true that B causes A or that A causes B.

However, if there is no correlation, there is no causation.

Rates have declined in the past 30 years, so let’s look before 1982.

Look at the period from the 1960’s to the early 1980’s…

Interest rates went from the 4-5 % range to the teens. Where did house prices go in that 20 year period ?

Interest rates increased dramatically in the period form the late 1960’s to 1982. Did the rate of change of home prices increase or decrease ?

[(former)FormerSanDiegan]

[quote=anxvariety]

I am not in/on a lease, the question isn’t particular to Coastal CA – opinion is that both are mostly irrelevant. How can one argue that change in interest rates will not affect prices?[/quote]

If you look at the past 40+ years of data …increases in interest rates do not correlate with decreases in property values.

[(former)FormerSanDiegan]

[quote=AN][quote=FormerSanDiegan]The rent you pay will track the rent you charge… so the amount you pay will remain fixed. At some point.in the future the interest and other costs will.be less than the standard deduction and you might actually come out ahead.[/quote]
I don’t think it always work out that way. If you have a good tenant, you definitely don’t want to raise their rent while they’re in there, at least while rent are rising slowly. It’ll cost you more to clean up and find another tenant and lost rent during the time in between. While on the other end, you’re at the mercy of your landlord. If you have a landlord who want to raise your rent, you have no choice but to obey, or you can move and still pay market rent. If your landlord doesn’t do proper repairs and you end up moving, you’d have to pay market rent as well.[/quote]

Seems like it could just as easily work out the other way. I could be the model tenant whose rent never gets raised.

On average, over long periods of time the rents will track.

[(former)FormerSanDiegan]

[quote=mike92104]Federal Spending:

2004 – 2.29 Trillion
2012 – 3.80 Trillion

65.9% increase.

I’d love to go back to the spending levels of 2004![/quote]

How about a compromise? Go back to 2004 spending + inflation AND implement the 1% Patriot tax act. Problem solved.

[(former)FormerSanDiegan]

On a related note, why is nobody talking about raising taxes on the 100%?

Food for thought: much revenue would be generated with a 1% across the board tax increase in all tax brackets, plus a 1% increase on capital gains and dividends?
Same for corporate tax rates.

12 trillion in personal income (2010) yields 120 billion.

Make it apply to all income ( no deductions) and name it the Patriot Tax Act.

[(former)FormerSanDiegan]

[quote=enron_by_the_sea][quote=flu]
It doesn’t quite work that way enron…When you rent out a house to someone else, you can deduct the mortgage as an expense but you also have to report the rental income.

However, if you rent someone else’s house, you can’t deduct your rental cost (unless your poor..And in that case, you probably can’t qualify to buy a home)…

So I’m not sure how this would be beneficial for you…Seems like a lot of paperwork to report a $0 gain.[/quote]

Oops. That is probably why this does not work. Nevermind.[/quote]

Don’t give up so easily.
I think it can work

If your goals of owning are:
1. To lock in monthly housing costs long term
2. To participate in future capital appreciation of property
this strategy works.
The rent you pay will track the rent you charge… so the amount you pay will remain fixed. At some point.in the future the interest and other costs will.be less than the standard deduction and you might actually come out ahead.

[(former)FormerSanDiegan]

PLAN A –
First, draft up an agreement, with a property lawyer stating that you will recognize owner #3’s stake after the refinance. Include all the contingencies necessary to make them comfortable (e.g. what happens if refinance doesn’t go through, etc)
Explain to owner #3 that the situation will be beneficial to all if you re-fi. Holding costs will go down and owner #1 and #2 will not be forced to sell or default on the loan.

PLAN B –
If that does not work, the partnership is not working. Dissolve it by any means necessary.
Easiest way is to sell the property. If owner #3 doesn’t want to sell, sue them or stop making payments, whatever it takes. Offer to buy them out for half their loss. (They pay you 25K to take their name off the property).
If they cannot go along with plan, tell them you will let it foreclose and sue them for half the loss (assuming that your agreement or partnership of 50% stake is documented).

Lesson Learned:
Never set up ownership stake in property where the incentives are unequal among the parties. By having one party make a down payment and other parties make the monthly payment, this puts parties into different boats, with different incentives. If one party is cash poor and the other makes the down payment, have a separate loan agreement among the owners to each other, but still have all three on the loan.

[(former)FormerSanDiegan]

One major source for Rentals is Westside Rentals: westsiderentals.com

You have to pay 50 bucks or something. I found it useful in researching rentals in LA when we were looking about 7 years ago.

As you might suspect, commutes in LA can be a nightmare. A 10-mile drive in San Diego is nothing like a 10-mile drive in some parts of LA.

I think there are enough contributors to this board who live in LA that you should post your questions here (maybe you already have).

[(former)FormerSanDiegan]

I think flu touched on many of the things you need to know/consider. I don;t think there is one single answer because of all the factors.

I think there are three basic scenarios (with various options within each) to consider, and lots of issues to sort out with each.
You’ll have to consider each under your particular circumstances (e.g. value of home, size of mortgage, your income, your marital status, etc).

1. Buy it yourself as a second home.
Let your parents live in it free or have them separately give you cash gift payments less than the annual gift tax limits (could be as much as ~52K per year as of 2012. $13 K gift from each parent to you and $13 K gift form each parent to your spouse, assuming you are married.

In this case, if your combined mortgage balances on your primary (of you own one) and the secondary are less than $1 Million, then you can generally deduct the mortgage expense on both. However, there is that darn AMT. And second home interest is probably on the chopping block or further limited in the current fiscal cliff environment.

2. Buy it as a Rental property.
You could treat it as a rental property and rent to your parents. The consequences of this depend on several factors:
– If the rent is too low, there are tax consequences in terms of how much loss you can take. – Annual losses on rentals phase out as your income approaches 150K (joint).
– Would you want to hold this as a rental long-term (e.g. after your parents pass) or would you want to move there eventually.

3. Purchase jointly with your parents.
This might allow them to deduct the interest payment , if they are making them. But it depends on what tax bracket they are in, relative to you.
The downside here are all the estate issues you’d have to deal with.

All of these assume you are financing. If you are paying cash, I would simply buy it as a second home in your name.

[(former)FormerSanDiegan]

Not exactly uniformly tree-lined, but some parts of Bay Park – particularly the upper, southern sections are worth a look.

Streets might include the following and their surroundings…
Dunhaven/Penrose/Garfield/Cecelia/Southcrest area
Calendar streets area (February/March/September/July).

[(former)FormerSanDiegan]

[quote=sdduuuude][quote=birmingplumb]Don’t think 1,000 month return is enough on 240k and it’s super high offer for Detroit suburb as I valued it 175k 3 yrs ago. Timing. Motown[/quote]

I would have asked the “what would I do with 200K to make $1000/month” question before selling it. If no answer, then don’t sell. If lots of answers, then sell.[/quote]

I second this point.
But, to properly analyze your situation you would need to understand what a 5% cap rate is. In fact, before getting into the property this should have been understood. Regardless, you are where you are…

You cannot get anything anywhere close to risk-free 6% return on your money. You can (obviously form your example) get that by investing in property.

flu’s suggestion, gets you reasonably close (though you’ll likely net less from your daughter in San Diego than you would in a Detroit suburb)

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