# Terrible at Math, You Poor, Filthy Renter? YOU CAN OWN!

I spotted the ad at right on the Seattle Times homepage yesterday. It’s not as patronizing as Quadrant Homes’ old “down payment latte” ad was, but the claim of buying for just \$800 a month immediately jumped out at me as unlikely.

Running some quick numbers through my Simple Affordability Calculator indicates that to have a PITI payment of \$800 or less, your purchase price would have to be no more than \$157,000 at an interest rate of 4.0%. Of course, that assumes you have \$31,400 saved up to make the 20% down payment. If you don’t have the down payment or you don’t qualify for the lowest interest rate, the purchase price that gets you an \$800 payment will be even less.

So, where in the Seattle area is Polygon selling brand new homes for \$157,000 or less? I clicked on the ad to find out. Three clicks down from the sparse, unhelpful landing page that the ad sends you to, I found the sales pitch for “Dunhill Terrace,” a townhome complex a couple miles north of Alderwood Mall. On this page, they advertise homes “from \$176,990,” and claim that “If Your Rent is More Than \$800, You Can Own at Dunhill Terrace!”

Let’s run the numbers on that claim. According to my calculator, if you put 20% down on that \$176,990 home your monthly payment (PITI) on the resulting \$141,592 mortgage at 4.0% would be \$896. Wait, that’s already more than \$800. Oh, and according to the MLS listings for the advertised floor plan, HOA dues for these townhomes add another \$128 to that monthly payment, bringing your total monthly nut up to \$1,024—28% higher than the advertised \$800 monthly payment.

Home financing is not some sort of dark art full of unexplained mysteries. There are only a few ways you could buy one of these \$180k homes and keep your payment down to the advertised \$800 a month. Even with a 2.0% interest rate (which you can’t get, even if you get an ARM), the PITI plus HOA dues add up to \$871, so it seems apparent that they’re conveniently excluding the non-optional \$128 HOA dues from their calculations, which feels rather dishonest to me.

Here are all the ways I could think of that you might be able to get down to \$800 a month:

• Put down \$82,250 (46%) instead of just \$35,400 (20%)
• Get an adjustable-rate loan (payment will increase later)
• Get an interest-only loan (payment will skyrocket later)
• Some sort of short-term builder incentive

So which one is it? Polygon doesn’t let on in their marketing materials. Even the pdf they link to on the Dunhill Terrace page just repeats the \$800 claim without offering any explanation.

As it turns out, there is one Polygon development in the Seattle area with starting prices under \$157,000—The Heights At Ridgeview in SeaTac, where you can get a 1-bed, 1-bath townhouse for \$140k. Your PITI would come in below the ad’s \$800 claim at \$719, but the \$185/mo HOA dues would push you back up to \$904. Oh, and their page for The Heights at Ridgeview changes the claim to “If Your Rent is More Than \$650, You Can Own at The Heights at Ridgeview!” So another strikeout there.

Does anyone fall for this junk? Why is it even legal to make claims like this that are so clearly false?

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

1. 1
goldbach says:

They’re factoring in the tax deduction on interest. Depending on the marginal tax bracket a person is in, the math could work.

It’s still dishonest, since HOA dues and property taxes are ignored, plus the fact that the interest tax deduction gets smaller over time. However, there is a version of reality where they could claim to be telling the truth (but not the whole truth).

2. 2
robotslave says:

Oh hey, I can think of one other way the math might work:

-> Buy the thing for well under the listing price.

3. 3
AndreL says:

But shouldn’t the principal payment be removed from the comparison, since it stays in the pocket of the homeowner? Maybe a portion of the principal, since there will be some repairs down the road?

I think it is as disingenuous to consider the payment on the principal as a loss equivalent to a rent payment.

That being said, I am not defending the add, just saying rent and mortgage are not apple and apple.

4. 4
Haybaler says:

I’ve seen these ads and done the mental calculations that you outline in your post.

I always accepted the advertisment as an indication that the builder would provide some sort of “buydown” on the financing at the time of purchase.

I think that it is common for the larger builders to pitch in w/ a buydown. In addition I recall that many builders who were in financial trouble worked up special incentive financing deals with the construction lenders to convert a construction loan over to an Owner occupied being in the best interests of the lender and the builder.

5. 5
Anonymous Coward says:

Why don’t you call the sales office and ask?

6. 6
tomtom says:

The ad clearly says “Your mortgage payment could be less that your rent,” so HOA is not included or principal subtracted.

7. 7

The Mortgage Noose

The rentors calling up the landlord when the roof leaks or the upstair’s toilet flap got stuck open all night plugged up with 100s of gallons of water draining out destroying the downstairs. Or the neighbor slips on your porch and sues you….

Or the HOA fining you for doing the same thing half the people on the block do too, without fines. BTW, if you rent out in a HOA, the fines “sky-rocket” then….the landlord pays them.

Ahhhhh…these things never happen to happy home owners. And SWE has a bridge he can sell ya.

Picture the haughty rentor watching football with is magic football angel TV…..with not a care in the world.

8. 8
The Tim says:

RE: tomtom @ 6 – You’re probably right. If that is the reasoning, it’s disingenuous at best and maliciously misleading at worst. When you buy a home you write one check every month, it includes principal, interest, taxes, insurance, and HOA dues. Even if only the principal and interest are the “mortgage” most people think of that check as their “mortgage payment,” and it will be hundreds more than the \$800 they claim.

9. 9
Scotsman says:

Completely dishonest. And the numbers would be even worse when you appropriately add in the 3-5% annual capital loss on the declining resale value in a deflationary market.

Bummer, dude.

10. 10

It’s not lying, but it’s outright BS.
Sure, your mortgage payment COULD be less than your rent. If you make an 80% down payment, or if you’re renting a 3000 sq ft penthouse in downtown Bellevue.
If you buy a foreclosure home in parts of Tacoma, or Renton, or Kent, or Auburn, you may find mortgage payments the same as or slightly lower than your rent. But what they’re advertising?
Real Estate professionals have been successful at manipulating and misleading know-nothing fools in the past. I guess they feel there are still a few of them still out there to fool.

11. 11
Suitably Skeptical says:

RE: goldbach @ 1 – This is what I was going to comment, so consider this a full agree.

But then I wonder…..at \$800 per month, the Interest and tax (IT) would be maybe \$615 so \$7380 per year. This is about \$1600 more than the standard deduction for a single person…worth between \$13.25 and \$37.00 per month in tax savings (the first year, anyway). That’s still too short to bring the payment down to \$800/month.

I am sure that they have a model, with assumptions, for determining the comparable rent. Perhaps they assume a certain rate of price growth, or they ignore tax and insurance (much as they did HOA dues). But caveat emptor – this analysis was done by marketers, not by financial consultants with (hopefully) your best interest in mind.

12. 12
ChrisM says:

http://www.redfin.com/WA/Seattle/1080-W-Ewing-Pl-98119/home/22071366

HOA dues \$238, 30 year mortgage is \$282, so we’re under the \$800 limit. Built in 2010!

13. 13
The Tim says:

RE: ChrisM @ 12 – Hah! Not really though. According to this page, moorage at the Nickerson Marina runs \$8.75 / ft. That looks like about a 40′ slip (terminology?), so we’re talking an extra \$350 a month. Oh plus another \$75 a month if you want to actually live on it.

So for that place you’re looking at: \$282 + \$238 + \$350 + \$75 = \$945.

Dang.

14. 14
Ross says:

By goldbach @ 1:

They’re factoring in the tax deduction on interest. Depending on the marginal tax bracket a person is in, the math could work.

It’s still dishonest, since HOA dues and property taxes are ignored, plus the fact that the interest tax deduction gets smaller over time. However, there is a version of reality where they could claim to be telling the truth (but not the whole truth).

Would interest deductibility @ 140K mortgage qualify for deductibility? Maybe.

140K@4% fixed 30yr, that would be \$5500 in interest during the first year (though you probably don’t get your loan during january, so the first year’s interest may not be enough to be useable), under the standard deduction of \$5700 for single and \$11400 for married. Property taxes and sales taxes would push slightly over that individual limit, but deductible property taxes on a 170K property are probably around 1500. I guess that could be a bit higher with charitable contributions or other itemizale deductions, but probably not that much in most cases. So the benefit might be around \$1300 (less income). And then yearly interest paid would drop and standard deduction limits go up.

15. 15
ARDELL says:

Why are there toilet seats on the kitchen cabinets with little green “hats” on?

“When you buy a home you write one check every month, it includes principal, interest, taxes, insurance, and HOA dues.”

HOA dues are part of the mortgage qualifying process, but the HOA dues are not part of the mortgage payment…or at least I have never seen them included. The homeowner pays that directly to the HOA, not to their lender.

16. 16
Lake Hills Renter says:

17. 17
Dave0 says:

RE: The Tim @ 13 – The \$238 in the listing is likely the broker’s estimate of moorage, so you are essentially counting moorage twice. The correct math would be: \$282 + \$350 + \$75 = \$707. Not bad for a waterfront home 4 miles from Seattle, IMO.

18. 18

who buys a house from an ad like that? I did! LOL… I was renting an apartment in Kent by “bark mountains” and someone (an agent, builder, I don’t know…) left a flyer on my car. I did buy a home from that flyer planting a seed in my 21 year old brain. We moved so much growing up that my family never owned a home so I was pretty excited about it at the time.

Back to this ad… I think it’s crappy that they don’t disclose the terms – and I’m 90% sure that they may be required to due to recent guidelines with advertising. They’re not quite quoting a mortgage payment, however they are insinuating a mortgage payment. If I quote a mortgage payment, terms and APR must be disclosed.

19. 19
Feedback says:

Congratulations to Tim on outsmarting Polygon Homes’s copywriters!

20. 20
CCG says:

Hell, the slogan of the housing bubble was “Too poor to rent? Now you can own!”

21. 21
HappyRenter says:

There is also another thing: Location. Do I really want to move to SW Seattle just so that I can own? Add also the hidden costs of traveling. That is another thing that I consider when looking at properties: How long is it going to take me to get to my work place, and do I like the area?

22. 22

“Bark Mountain”- Carpinito Brothers?

23. 23

If I quote a mortgage payment, terms and APR must be disclosed.

I’m not sure those rules apply to sellers, and I think the feds may have even indicated that they won’t enforce them against agents. Just lender related entities.

24. 24
Ray Pepper says:

“Does anyone fall for this junk”…Gotta love advertising……..This is still one of my favorites (even though its fake):

25. 25
robroy says:

By goldbach @ 1:

They’re factoring in the tax deduction on interest. Depending on the marginal tax bracket a person is in, the math could work.

This is kinda funny. I was in Louiville last weekend and there were big signs at apartment complexes right next to an upscale neighborhood that shouted the cost savings of renting. And prices to BUY out here (and the real estate taxes) are so low that unless you have about four times the home of most people and donate heavily to charities, itemizing won’t come up to the level of the standard deduction. Heck, my place out here that I just refinanced was so cheap (less than a years wages) and the taxes are so low that even if my entire house payment was interest the standard deduction is more. We’re talking 13 PRIME view acres and a 3 year old top quality home, And my RE taxes are \$500 a YEAR!!!

Every time I fly over a large city on our approach I consciously think of the enormity of the tax base, and the sadness of the Television fed slaves to consumerism. Chicago is the hardest. Seattle is bad because all my kids live in condos downtown, but at least I’ve got a couple of them seriously considering…

26. 26
No Name Guy says:

Note the wiggle words: “Your mortgage payments COULD be less than your rent.” Yes, there is the “\$800” on the face of the ad as well, however it doesn’t say the payments will be this amount or less.

Note that it does NOT say “your monthly payment will be less than \$800”.

It’s like BS credit card offers – “you’re pre-approved for up to \$50,000 limit on such and such a card”. Yeah, so the f*** what…..up to 50k means it could be as low as \$1.

Typical marketing BS – put it wiggle words to hook people in. Speak in terms of monthly payment instead of price.

What Lake Hill @ 16 said……

27. 27
robroy says:

It’s like BS credit card offers – “you’re pre-approved for up to \$50,000 limit on such and such a card”. Yeah, so the f*** what…..up to 50k means it could be as low as \$1.

Without getting too far off topic, a few years ago I got one of those zero interest offers from a credit card attempting to incent me to transfer my funds from one card to theirs. I decided for “fun” to read and comprehend ALL of the fine print, and there was a LOT of it.

Bottom line was that all transfers (Including the one they wanted me to make) had such an enormous one time fee based on the amount of the transfer that it would have cost me several hundred dollars to do that “zero interest” transfer.

I don’t blame them though. It’s all about buyer beware. Besides: “It’s immoral to let a sucker keep his money”

28. 28

I’m not sure if this has been addressed, but arguably “mortgage payment” is only P&I, even if they require T&I to be escrowed. It’s deceiving, but arguably that’s all they are trying to say.

29. 29
robroy says:

I make my mortgage and tax payments separately and the bank is fine with that. But I think it’s becuase here in Kentucky we are living in the past: a world where RE taxes were not punitive government extortion. When your RE Tax is so big you have to pay it monthly and it is more than many people pay in RENT, then they want to make sure they get it. ;-)

I still wake up every few days in a cold sweat thinking about King county taxes.

30. 30
Ray Pepper says:

RE: robroy @ 29

” still wake up every few days in a cold sweat thinking about King county taxes” Love it..funny…But you should see the taxes in Pierce County or even worse…El Paso Texas

31. 31
masaba says:

And unfortunately, when compared to the advertisements that the credit card industry uses, the Polygon homes ad is pretty honest…

32. 33
tomtom says:

Very amusing…I in fact, emailed Polygon on this very same ad a few days ago!

Here is the message returned:

Thank you for your interest in Polygon Homes. I’m happy to hear our ad caught your attention and do apologize for any confusion. The ad â��if your RENT is more than \$800 â�� comes from the Principle and Interest payment using a 30 fixed FHA rate at 3.75%, 3.5% down and calculated a payment using our most affordable home at Dunhill Terrace \$176,990. This does not reflect property taxes or any HOA dues.

Ouch, another lie. The ad clearly says

Is your rent \$800 or more?

which is different than “if your RENT is more than \$800”.

33. 34

RE: robroy @ 29

” still wake up every few days in a cold sweat thinking about King county taxes” Love it..funny…But you should see the taxes in Pierce County or even worse…El Paso Texas

There are a lot of states with real estate taxes much higher than Washington. Some are so extreme that they really need to be considered when comparing values of properties between different states. It’s sort of like the thread on an \$800 mortgage payment. In some states \$800 a month wouldn’t even cover your real estate taxes on a fairly modest piece of property, and so that expense undoubtedly holds down their property values.

34. 35

These types of ads have always cracked me up. They stand out to me as so misleading that I’ve never bothered to see if they are real or not.

35. 36

The Cost of Parking Living in Downtown Condos Without Unit Parking

I assume that’s the lion’s share, correct me if I’m wrong.

One blogger alleged that they put parking spots up for the highest bidder….like \$2K/mo.

I bet downtown Seattle condo owners without parking at their unit, if they even have a car, only own one.

Which brings up another question, without a car, how do they get groceries…..then the \$10,000 question, where’s the grocery stores in downtown Seattle???? Does online groceries from Safeway even deliver where they can’t afford or find parking either???

36. 37

The Cost of Parking Living in Downtown Condos Without Unit Parking

I assume that’s the lion’s share, correct me if I’m wrong.

One blogger alleged that they put parking spots up for the highest bidder….like \$2K/mo.

I bet downtown Seattle condo owners without parking at their unit, if they even have a car, only own one.

Which brings up another question, without a car, how do they get groceries…..then the \$10,000 question, where’s the grocery stores in downtown Seattle???? Does online groceries from Safeway even deliver where they can’t afford or find parking either???

This place:
http://www.kressiga.com/
Which is at 3rd and Pike
And there’s a Whole Foods around Westlake and Denny, not quite downtown but close.

37. 38
dancingeek says:

RE: Ira Sacharoff @ 37 – There is also Amazon Fresh: http://fresh.amazon.com/ for deliveries.

38. 39

RE: Ira Sacharoff @ 37 – There’s also a Safeway at Pike and Broadway (or maybe Pine). I wish that had been there when I lived on First Hill. Back then the nearest stores were about 5-10 blocks away (Safeway/QFC further north on Broadway, and a brand I don’t remember further east, almost to Madison).

Part of the reason I still have my 89 Ranger is because when I lived there and worked downtown I’d walk to work. To get groceries I’d drive to 65th & Roosevelt or even Northgate, just so the truck would get a little exercise every now and then.

39. 40
astrolake says:

There are lots of ways to fiddle numbers, for example you come up 28% high which they might assume is the tax savings rate (not likely on this price home, and, it replaces the standard deduction and …, but that is a “bracket number”)

Or, there is always the 1 year arm

and as one person pointed out, not counting principal

maybe counting insurance as some other expense (or at least, add a renter’s policy
to the \$800)

a bit misleading, well maybe, but criminal, no, worst it does is probably encourage someone to save the downpayment. Anyone who has done that and pays \$800/mo rent can “surely afford a home”

40. 41

[…] Terrible at Math, You Poor, Filthy Renter? YOU CAN OWN! – Polygon Homes’ new home ad claiming that “if your frent is \$800 or more, YOU CAN OWN” wins the prize for most grossly misleading real estate advertising of the year. […]

41. 42

[…] though, it seems like a highly deceptive practice to me. Of course, misleading advertising seems to be par for the course when it comes to home builders, so I’m certainly not […]