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sdrealtor
Participantdemand and cash buyers
ParticipantI thought your wife was a programmer? A quick inventory here:
Realtor
Engineer overseeing chip designers?
Wife a Programmer
Skin Care businessI love your entrepreneurial spirit. Keep at it and you will defintely end up where you want to go!
ParticipantHopefully under the watchful eye of someone like Bellock!
ParticipantDLJ,
Very little that I do in life or business is untentional. I agree we are in for a wild ride, I just dont know how wild and like you I’m trying to figure it all out.Here’s an interesting tidbit you might enjoy. When I was growing up Michael Miliken lived a block away from my family briefly. He rented one of the few rental homes in my neighborhood. In fact it was the only one I know of out of thousands.
BTW, I feel as you do.
SDR
SDR
ParticipantDLJ,
Fair enough. To clarify, I said a range between 120% and 140% the potential for appreciation returns. Exactly where I do not know and I do consider 120% very low for an SFR in a desirable part of SD. A little mea culpea, the use of the word obscenely was probably a bit of puffery on my part.Lastly, my comment on the cash balance was not a net worth question but rather an asset allocation question. I never doubted you had assets of that level based upon previous posts you have made over time.
BTW, Do you get my small joke referring to you as DLJ? 😉
SDR
Participantsdcellar,
Sorry if it came off as snobish, sometimes I get carried away having fun and it was not intended to be a snub. If you knew me, you would laugh if you heard me described as snobish. There are no doubt opportunities to rent in most neighborhoods but those homes generally dont offer the opportunity for the long term lifestyle valued by many individuals. Those that are long term rentals quite frankly show their age.I guess after all is said and done, my point is that there are no standard fundamentals as people all have different value systems. Those that place a high premium on home ownership tend to make the market while those that don’t are left to deal with the reality that there are others who place a greater premium on it. The result is it makes for a decision making process that is very uncomfortable for those placing a smaller premium on it.
SDRParticipantDLJ,
I agree that paying a 160% premium should eliminate appreciation but you changed my point. If prices are back to a more reasonable premium level of somewhere between 120% to 140%, the potential for appreciation will come back at some point.You are also looking at a very skewed sample (condos) which behave very differently than single family homes. The premium placed on the lifestyle afforded by living in a SFR is very different than the premium afforded to someone owning an appartment as you do. It sounds like you are a single guy and that comes with a very different value system than someone trying to raise a bunch of children in a positve, safe and noroushing environment.
FWIW, I have a very solid financial situation asset and income wise and could right a check today to pay off my mortgage. My accumulation of capital and assets didnt come from buying dear and selling cheap either. I do wonder whether your boast of buying my place for cash would be substantiated by a 7 figure liquid cash balance though or whether its a bit of puffery on your part.
ParticipantJosh,
5 years is not alot of seniority even with a masters degree. That would leave a teacher still under the age of 30. At that point, they would typically just be entering the stage I am referring to. I am talking about the teachers that have been at it 10+ years who easily make 60K+ in a decent school district as the link by NSR shows. Throw 2 of those together and you are right in the ball park I mentioned.I do agree that my numbers are anecdotal and skewed as I said above. The fact that I live in my own home places me in daily contact with a very different set of neighbors than they typical renter which is yet another benefit of being a homeowner.
SDR
ParticipantFWIW,
I know several teacher family HH’s in my area that fit this profile. Two experienced teachers in this area can easily have an income over $125,000 while working 10 months a year with a handful of two week breaks each year. Not a bad gig in my book!
SDRParticipantgreekfire,
My figures are purely anecdotal and are defintely in line with most people I run into in my area. I’m am sure it is the minority but it is only a small minority that purchases a home each year. I don’t pretend that it fits median stats which include renters and lower income workers. I am only refering to what I see as the typical homeowner profile in my area. This brings an interesting thought to mind. Could it be that being a home owner puts me in an environment where I typically interact with more successful, higher income individuals and shelters me from the opposite. It would a ppear so and the benefit of interacting with highly educated, highly motivated, family oriented neighbors is yet another benefit of homeownership that I enjoy. That is another thing i would pay some sort of premium for.I wonder how many on this board fit that profile? I suspect it would be most of you. If you are under 35 & single earning at least $75,000 you are well on your way to fitting this category also.
One interesting thought that came to me as a result of this thread is that there is defintely a difference in how much of a premium people place on owning a home. Many of you might fall into 20% premium and I suspect this would put you into the lifetime renter category. I remember buying a home at the bottom of this last cycle in my area when homes were undervalued by most measures and the premium was definitely more than 20% to get in the game. I would venture to guess that most homeowners out there put a much bigger premium on home ownership which is what it takes to become a homeowner around here.
SDR
ParticipantDLJ,
Everything I hypothesize on is for the typical household living in a nice part of the NCC area. Thus, I’m assuming a typical white collar professional family with one or two well employed people and a HH income of $125,000 to $200,000 (or more). I suspect you might fall into this category or soon will. In this situation the tax savings I used are entirely reasonable.I think the 5 to 10% for peace of mind is very reasonable. If you are worrying about loss of mobility you should rent and thats why I dont think its relevant.
I went through most of what you covered regarding rent increase in my mind (including a quick and dirty discounted cash flow calculation) and used the 3% to compensate for those factors. The truth is rent will increase more than 3% per anum on a long term basis.
Last and not insignificantly, I purposefully left out appreciation. Assuming you purchase at a reasonable price relative to the cost of renting, the potential for significant appreciation with the benefits of leverage enter the equation again.
IMHO, if someone places only a 20% premium on owning vis a vis renting for whatever combination of the above reasons they probably are better off renting.
ParticipantSDC,
Of course I meant at this time in my life. It would be silly for me to talk about something in the past as my Delorean is on the fritz. Between the ages of 18 and 35, I moved 15 times. Thankfully that is in the past and nothing I ever intend to do again.Regarding the tax benefit you calculated the tax savings on a 50% down purchase rather than a 20% down purchase which is more typical. You also subtracted the real estate taxes which i already included. It’s the “T” in the PITI (Principal, Interest, Taxes and Insurance).
SDRParticipantBMS
I think you pretty much illustrated the difference between those who prefer to and should rent with those who can buy and prefer to.The idea of relocating in 10 years let alone 30 days is outside of my mindset. I have had several opportunities to chase big bucks other places but have chosen to live where I want and how I want.
SDR
ParticipantIs it me or does a 20% ownership premium seem obscenely low? Lets look at DLJ’s 3 factors.
1.) No rent increases: If we assume a modest 3% rent increase for an average ownership period of say 10 years we are paying 35% higher rent in year 10. Sure you may stay shorter but if you are buying it should be in your plan to stay that long. Also an average of 3% annual increases is probably overly optimistic. Any way I look at it, this alone has to be worth a 10% premium. Note this is subjective and different folks may feel differently about how long they would stay.
2.) Peace of Mind: Not only peace of mind but moving is expensive and disruptive to one’s life. Don’t know about you, but I would pay 5 to 10% higher rent to have security knowing I was in control and could do what I want with the property. Note that this is very subjective and some folks actually enjoy moving every 12 to 24 months.
3.) Tax Advantage: Most of us are in a 28% marginal tax bracket federally and 9% state taxes in CA. If you figure that about 80% of what pay in PITI is tax deductible that’s another 30%. This is not subjective and depends only upon your marginal tax bracket.
I just dont see how anyone can claim a 20% premium is reasonable. I think a 40 to 50% premium for a white collar professional is not unreasonable.
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