Owning in the Bay Area really makes little sense (Richmond: insurance, condo)

[Ultrarunner]

Originally Posted by dalparadise

Aren't you reassessed with any permitted improvement to the property? Thus, in a prohibitively expensive market like this one, the best entry for most is a property needing improvement...

To a degree...

Just know the assessor will try to fight you on a value deemed to low... it has happened to me several times.

Also, a property that is too distressed is difficult to purchase if dependant on outside funding... appraisers like to see everything ship shape.

[ssmaster]

Originally Posted by dalparadise

Aren't you reassessed with any permitted improvement to the property? Thus, in a prohibitively expensive market like this one, the best entry for most is a property needing improvement...

like ultra runner said
in this market it is very difficult for an average consumer to get mortgages on properties that need significant work.

most fixer uppers in desirable areas of the bay area are bought by developers and flippers rehabbed and sold.
so for the overwelming majority of buyers concerns about increasing property taxes are not relevant thanks to prop 13.

[ambient]

Originally Posted by dalparadise

Absolutely agree, all things being equal...which of course, they aren't. In a rent-controlled environment the picture gets more complicated. Add to that the constant threat of losing that deduction for interest paid (I've been hearing this was coming for years) and it becomes less clear cut. I can compare Houston (where I owned 3 homes) to San Francisco, where I still rent.

In Houston, valuations on my properties were very low compared similar properties here, making them more affordable at entry level. Over time, however, the downward pressures of over saturating the market with new construction, exorbitant property taxes, and high HOA fees served to take away potential for the properties to increase much in value. My effective property tax rate at my last home in suburban Houston, after MUD, county and HOA was 3.94%!

In SF, my apartment is rent-controlled and did not increase last year when my lease was up. I also paid $24 in total utilities this month, as opposed to the $450-$550 I would have paid in Houston. Maintenance and insurance is another factor in owning--I was forced to purchase windstorm insurance in Texas. The money I had invested in my homes in Texas, is now invested in my retirement and appreciating at a similar, if not greater rate.

Was it all a wash in terms of my buying power there versus here in SF? Of course not. Prices here are out of control. However, the opportunity to build equity very quickly exists more here than in a market like Houston, despite ownership seemingly being less attractive here.

If you have the resources to weather downturns, maintain your property and cover the tax increases of a rapid increase in valuation, ownership in the Bay Area is a good investment. It's just one with a prohibitively high cost of entry for many. That said, renting in this market can also be more advantageous than simply "throwing money away" if you factor in comparable costs of owning and invest the money you would otherwise spend in taxes, etc. wisely.

Well, yes... in places like the city where you have rent contol, renting makes more financial sense.

But in other parts of the peninsula and bay area where you don't have rent control... There it just depends on how long you're content to stay put. It will take time for that financial benefit of ownership to come through, of course - and it's completely independent of what the value of your home will end up being, which we've learned is unpredictable.

And all that aside... it's of course a ton of money up front, which makes it a moot point for most of us non-wealthy people anyway.

[Ultrarunner]

Here is a link to the 15 cities with rent control...

Landlord/Tenant Book - California Department of Consumer Affairs

The Bay Area is well represented having 9 of the 15.

Berkeley
Campbell
East Palo Alto
Fremont
Hayward
Los Gatos
Oakland
San Francisco
San Jose

[Mack Knife]

Originally Posted by HappyinCali

Now, I am fully aware I am not going to convince anyone. I can't even convince my wife, so I am pretty sure that when (if) we can afford it, we will buy a house. But if you detach the emotional aspect of it and look at just the numbers, owning in the Bay Area makes no sense.

Let's say you buy $1,000,000 house with $200,000 down.

So you have a $800,000 mortgage, and $1,000,000 house. Let's use a round property tax of 1.2% and a mortgage rate of 5%.

You are paying $12,000 in property taxes per year into perpetuity.

For the early years (until you start making a dent into your principal) you are also paying $40,000 in interest. Let's say you put $500,000 down and only have $500,000 mortgage. You are still paying $25,000 per year in interest in the yearly years.

So let's add those two. In my 20% down payment, you are paying a staggering $52,000 to the bank and the government. NOT to you.

So unless your monthly rent is >$4333 owning makes no sense. IF your monthly rent is $3,000, you are literally paying 4 months of your annual rent to the government every year.

You are also responsible for your maintenance etc.

Add in the fact that Bay Area politicians believe that Parcel taxes can fix the schools, pave the roads, cure cancer and bring peace to the Middle East and you really have no reason to buy a house in the Bay Area.

What are your thoughts?

There is nothing to think about. First, you set the argument and then cited the specific criteria to make the argument work the way you want.

Change things around then and lets see:

You buy that 1 mil house with 500,000 down. A lot of people who bought in the early 90s have that if they sell.

Now you have a 500,000 mortgage and if you bought wisely a just a short time ago, your payment might be a little over $2100 per month including some things.

Hmmm, easily affordable. Give the increases in house prices, that 1 mil house is now worth about 1.2 mil, not bad.

These lets say posts are really nothing more than questions designed to give you the answer you want to justify what you believe. You can't convince your wife because she knows more about this than you.

Come on.

[wooliemonster]

I was 10 years old in the early 90s. Trading houses in the same market is radically different than entering the market for the first time, or coming from a lower cost market.

[sonarrat]

Originally Posted by wooliemonster

I was 10 years old in the early 90s. Trading houses in the same market is radically different than entering the market for the first time, or coming from a lower cost market.

It's the same for me. First-time buyers, even if they have incomes around the median for the area, are having a really hard time. For a small single-family house in a price range I could afford, I'm looking at either a 2 hour commute, a neighborhood where most my neighbors won't speak English, or both, and I'm competing with all cash buyers who want to make them rentals, so my chances of even being able to buy are slim and none.

[funtimessf]

Originally Posted by dalparadise

Aren't you reassessed with any permitted improvement to the property? Thus, in a prohibitively expensive market like this one, the best entry for most is a property needing improvement...

Prop 13 states that only "new construction", like an addition, can result in a reassessment. The assessed value of the addition is added to the original assessment, the pre-existing property isn't reassessed. Repairing an existing structure (e.g. new kitchen, bathrooms, floors, electrical, plumbing, etc.) should not result in a reassessment.

New Construction - Frequently Asked Questions

There are also rehab loans, like the FHA 203k loan, that you can get to buy a house that is not in livable condition. You can refinance to get rid of any MIP or high interest once the rehab is complete.

[stateofgreen]

Originally Posted by sonarrat

It's the same for me. First-time buyers, even if they have incomes around the median for the area, are having a really hard time. For a small single-family house in a price range I could afford, I'm looking at either a 2 hour commute, a neighborhood where most my neighbors won't speak English, or both, and I'm competing with all cash buyers who want to make them rentals, so my chances of even being able to buy are slim and none.

Am doing this now...got out bid of one place by a bunch of wealthier people who paid way over asking price so they could flip the place and rent it out, not to mention HOA fees when trying to buy condos....it's all a big ripoff! What are HOA fees ranging nowadays? What is the top limit for a "median" priced condo or townhome? I've seen $200-$400......

One was going at $345 HOA and it didn't have a pool....where does that money all go?

[bigdumbgod]

Originally Posted by stateofgreen

One was going at $345 HOA and it didn't have a pool....where does that money all go?

If the question needs to be asked, then the fears are quite likely to be real.