"At the end of his lease he's no better off than he was going in. So forgive me for giving you attitude, I truly am grateful for the renters that increase my wealth, provide me with write-offs and help keep me from having to return to the corporate rat race"
At the end of my lease I've been able to save money, and invest in alternatives other than real estate. Renting a condo has also allowed me to enjoy the things I love most about the PNW, namely the Cascades, Olympics and Puget Sound.
If my renting, helps you too...so be it. I don't see anything wrong with that at all...
However, at the end of my lease I think I will be much better off regardless...
Currently, realestate is 1) to much drain on cash 2) Warren Buffet told me not to. For me, it just doesn't make sense to buy now is all...
Buying isn't always the best thing for everybody especially when you're young have a few wild hairs skewing your priorities. Nothing wrong with that. In another life before real estate I was a contract engineer and frequently out of the country for 6 months to a year at a time. Owning a duplex gave me a place to land when I was back in town that my rental receipts from one side covered 70% of my mortgage. Sometimes I rented my side to other contractors. While all of this is going on I've watched my equity grow by $20,000+ a year at minimal expense to me. Nothing if you consider that my portion of the mortgage was less than half of what it would cost to put a roof over my head in a rental. I don't know about you but I, like most Americans, just don't have the discipline or wherewithall to save $20,000 a year and even fewer of us have the investing savvy of a Warren Buffet. Owning my home(s) has likewise given me the freedom that you say renting has given you. I don't want to suggest that your decision is neccesarily wrong or bad but I do know that for me had I not bought my homes and leveraged them into more real estate I wouldn't be as secure as I am now. If you're young enough that retirement is an abstract concept I can see the reluctance to buy but now in my 50's I wish I'd gotten into it earlier. Maybe at some level my attitude about buying is a desire to let someone younger see what I didn't see when I was young. The value of most corporate retirement plans these days makes the consequences far more dire than for my generation and even then there are too many retirees eating Alpo now. What happens in 30 years? The bottom line is that I wish you well regardless of your decision.
Personally, I cannot think of a single reason for anyone to buy in this market.
I don't even buy into the argument of "buy and hold" (at this time). Buying right now is probably the most speculative investment you could make other than possibly buying other inflated asset classes (collectibles, art, etc)
Why does the baby boomer generation just seem to not get it when their parents were depression era? (rampant consumerism/conspicuous consumption, no savings [a house is not a savings plan!], disdain for the environment, entitlement mentality and a belief that "i'm going to live forever"). This is a generalization of course however I see most of the 50-65 year olds that I know behaving in this manner.
Probably best to be debt free at this point and take a "wait and see" approach, staying out of the RE market while this thing plays out. A conservative estimate would be 3-5 years before we see a bottom, but a Japanese style 1986 deflation of 15+ years in housing is certainly possible.
Why risk it?
Instead, what is likely to go up in value?
Precious Metals + PM Service Co's (public and private sector, US and global $$ move from increasingly worthless fiat currencies such as the Dollar)
Crude Oil/Energy/Alt Energy (It's a finite resource and the cheap stuff that's left resides in places where people hate us)
Commodities/Raw Materials (need oil to ship it and grow it, developing countries are growing at an ever increasing rate while global oil production has leveled off)
I've owned my own residence for nine years before moving to the PNW. The first house appreciated 8% total over 4 years. The second condo appreicated 2% total over five years. And boy was I glad to get that 2%. At one point equivalent condos were selling 20% below my purchase price. Losing that equity that I had worked so hard to save was not a good feeling.
I guess it's matter of timing on the condo Alan. My experience (bought my first condo at 20 in 1972) has been slow appreciation. That's always held true in my real estate business until last year. I sold a few condos at significant appreciation primarily, I believe, because single family homes just crept out of reach and because a condo right on the I-5 corridor started looking real good from a tired commuters standpoint. The current spate of condo conversions has probably cooled that demand a bit.
"ere are two simple reasons that the UGB argument is nothing more than a red herring and a canard:
Reason #1: The UGB pre-dates the present run-up by roughly 10 years.
The UGB was put into place in 1992, and has remained largely unchanged since. If the UGB were to blame for high home prices, one would expect to see home prices begin to shoot up shortly after its enactment.
From January 1993 (the earliest month I have data for) to January 2002, the median closed price of single-family homes in King County increased an average of 6.3% per year. However, from January 2002 to December 2006 (the most recent month I have data for), the median increased 11.1% per year.
If the UGB is to blame for the ridiculous run-up in prices, why were its effects not noticed until ten years after it was enacted? That makes no sense.
Reason #2: King County was not alone in the home price run-up.
Many cities and counties across the entire country have experienced runaway home price growth over the past five years. UGBs cannot account for this near-nation-wide phenomenon. Absolutely zero evidence been provided to explain the notion that even though King County home prices jumped up by an unprecedented amount, it was not due to the factors that drove home prices up elsewhere in the country. If it is granted that these macro-economic factors had a hand in driving up King County home prices, why blame the UGB?
It would take quite a stretch of the imagination, combined with a healthy dose of tortured logic to attempt to claim that although home prices in King County were skyrocketing at nearly the same time as the rest of the nation (delayed by ~1 year), it was for an entirely different reason. Oh, and by the way that reason is a law that was passed ten years ago.
"
The worst thing about everything you keep saying, JD, is that it sounds so good because it is SO close to being correct. Of course, buying is on average a better way to go versus renting. But we are not in an average situation. Your circumstances when you were starting out and the market you entered are very different from the one that exists today. I'm sure you don't believe you got lucky. I'd bet that you give pretty much only your own brillance and self any credit for any success or wealth you've attained.
Creating wealth through leverage only works if the asset you've acquired appreciates or, I suppose, you are short selling on margin. You are making the assumption that real estate will continue to appreciate. Over the very long term, that is no doubt true. But since life changes so fast (perhaps necesitating a sale) and the downside risk right now is so high, I believe you are doing certain of your clients a grave disservice convincing them to jump in no matter what. I think it actually goes beyond disservice, I think it is greedy and irresponsible.
Buying isn't always the best thing for everybody especially when you're young have a few wild hairs skewing your priorities. Nothing wrong with that. In another life before real estate I was a contract engineer and frequently out of the country for 6 months to a year at a time. Owning a duplex gave me a place to land when I was back in town that my rental receipts from one side covered 70% of my mortgage. Sometimes I rented my side to other contractors. While all of this is going on I've watched my equity grow by $20,000+ a year at minimal expense to me. Nothing if you consider that my portion of the mortgage was less than half of what it would cost to put a roof over my head in a rental. I don't know about you but I, like most Americans, just don't have the discipline or wherewithall to save $20,000 a year and even fewer of us have the investing savvy of a Warren Buffet. Owning my home(s) has likewise given me the freedom that you say renting has given you. I don't want to suggest that your decision is neccesarily wrong or bad but I do know that for me had I not bought my homes and leveraged them into more real estate I wouldn't be as secure as I am now. If you're young enough that retirement is an abstract concept I can see the reluctance to buy but now in my 50's I wish I'd gotten into it earlier. Maybe at some level my attitude about buying is a desire to let someone younger see what I didn't see when I was young. The value of most corporate retirement plans these days makes the consequences far more dire than for my generation and even then there are too many retirees eating Alpo now. What happens in 30 years? The bottom line is that I wish you well regardless of your decision.
I guess there's some truth to the idea that we create our own reality. In mine what I said *is* correct and a part of my reality. Your inability to grasp and believe it will prevent it from being yours. I do place a certain amount of stock in luck and I've had my share of bad. Equity in real estate ameliorated much of it. That was the good luck part. The bad luck would have happened whether I had property or not and not having the equity would have made the aftermath of that bad luck worse if not insurmountable. There is a certain amount of skill involved in making good purchases; it isn't something any idiot can do but it doesn't take an Einstein to learn it.
The worst thing about everything you keep saying, JD, is that it sounds so good because it is SO close to being correct. Of course, buying is on average a better way to go versus renting. But we are not in an average situation. Your circumstances when you were starting out and the market you entered are very different from the one that exists today. I'm sure you don't believe you got lucky. I'd bet that you give pretty much only your own brillance and self any credit for any success or wealth you've attained.
Creating wealth through leverage only works if the asset you've acquired appreciates or, I suppose, you are short selling on margin. You are making the assumption that real estate will continue to appreciate. Over the very long term, that is no doubt true. But since life changes so fast (perhaps necesitating a sale) and the downside risk right now is so high, I believe you are doing certain of your clients a grave disservice convincing them to jump in no matter what. I think it actually goes beyond disservice, I think it is greedy and irresponsible.
Buying isn't always the best thing for everybody especially when you're young have a few wild hairs skewing your priorities. Nothing wrong with that. In another life before real estate I was a contract engineer and frequently out of the country for 6 months to a year at a time. Owning a duplex gave me a place to land when I was back in town that my rental receipts from one side covered 70% of my mortgage. Sometimes I rented my side to other contractors. While all of this is going on I've watched my equity grow by $20,000+ a year at minimal expense to me. Nothing if you consider that my portion of the mortgage was less than half of what it would cost to put a roof over my head in a rental. I don't know about you but I, like most Americans, just don't have the discipline or wherewithall to save $20,000 a year and even fewer of us have the investing savvy of a Warren Buffet. Owning my home(s) has likewise given me the freedom that you say renting has given you. I don't want to suggest that your decision is neccesarily wrong or bad but I do know that for me had I not bought my homes and leveraged them into more real estate I wouldn't be as secure as I am now. If you're young enough that retirement is an abstract concept I can see the reluctance to buy but now in my 50's I wish I'd gotten into it earlier. Maybe at some level my attitude about buying is a desire to let someone younger see what I didn't see when I was young. The value of most corporate retirement plans these days makes the consequences far more dire than for my generation and even then there are too many retirees eating Alpo now. What happens in 30 years? The bottom line is that I wish you well regardless of your decision.
I think everyone here is talking about two entirely different eras of real estate. My parents bought a house back in the late sixties for a pittance in LA that now would list for millions. Flash forward to present era, my brother bought a house in NoCal a few years back that he's now desperately trying to sell because he now realizes that this market's going to tank. As my mom recalls, my father was so nervous about buying anything that he became physically ill the night before they signed the papers, even though it was for 40K (roughly 200K in today's dollars). It's been an extraordinary investment. In my brother's case, when he bought his house, there were multiple offers and he had to write a letter stating why he deserved the place. Now a mere two years later a realtor has convinced him to put in granite because he got so few walk throughs and no one would make an offer. The maxim in real estate shouldn't be location, location, location, it should be timing, timing, timing. And right now, it's clearly not the right time.
It's never the right time to buy just any ol' piece of real estate but there are still good investments to be made even now. It just takes a little intelligence and careful consideration. As for "Trust your RE Agent" as a universal mantra, I wouldn't extoll that either. The licensing requirements are so low that any idiot can get a license. With a little effort and an investment in building a relationship, you *can* find a good agent who will give you good advice. For all the doom and gloom some here preach, I've never heard of property values going down and *staying* down
I don't know, JD, I think buying property now, especially in an area that's still frothy (as Seattle certainly is) would be tantamount to buying stocks in the summer of 1929. The only ones who made out well then were those who shorted the market. You're right that real estate won't stay down, but if you guess wrong now you could end up waiting a decade to see your nominal price return. That would not be a pleasant experience. Imagine if the market reverts past the mean, as it might if liquidity dries up so much that it jump-starts a recession.
I've had enough of slimeball realtors slamming anything that seems to counterpoint the "buy now or be priced out forever" mental virus that still seems to float around in some circles (indeed, things always seem to boil down to that old, tired, disproven cliche).
Both JD, who sounds like a creep, honestly, and Synthetic, who seems to be wasting his breath trying to belabor points that are simply lost on kool-aid drinkers, are talking past each other.
JD, let's get straight down to it, champ. Muster all your honest, fiduciary Realtor(R) math skillz and head on over to the excellent NYT calculator.
Please reply with a set of numbers, EXACTLY as you entered them, that
make using a large amount of leverage worth it in the Seattle region.
Basically, state your assumptions instead of relying on bullshit hack arguments and slandering of people who choose to rent.
Many, many honest analysts with no personal axe to grind have proven and shown time and time again that renting is good for some people, buying is good for some people, but neither option is a no-brainer for all people, the way the realtor chicks make it sound. There is an incredible lack of intellectual honesty in anyone who will not disclose all the information.
So go ahead Captain Finance, tell me exactly which sets of numbers make sense. Because the smell that's wafting off your poorly proven arguments indicates that basically it only works out if it's a speculation play based on ASSUMING greater appreciation than inflation (a no-no, according to those in the know), and a play on massive leverage.
There's nothing wrong with massive leverage required to get normal household incomes into a house, provided they can otherwise crank out the payments and probably don't plan to move for 8-10 years. But as far as I can tell, unless you assume a level of appreciation that doesn't rely wholly on the rear-view mirror, the numbers just don't work.
Slimeball? Creepy? I just ran a number of my transactions over the last 5 years through your calculator and every one of them came out as "better to buy". My most recent was a listing for a repeat client selling the house I found for them 3 years ago. $230,000 then, under contract and appraised at $437,000 now. Granted, that's a bit higher than the average appreciation but the *fact* remains that every one of my clients made money from day one. Even when appreciation rates are low, the pressure on rent increases (I know, I'm a landlord too) and you *still* make money buying. I don't what world you live in where all this sturm und drang exists but it's not a place where I take my clients. I'm inclined to wonder if you're reading the chart correctly. You do know that the dark grey "better to rent" portion is *below* the tan "better to buy" portion? The light grey above the tan isn't part of the data. If I'm a creepy slimeball for keeping my clients in the tan part of the graph, so be it, I'll wear the sobriquet proudly and drink all the Kool-aid I can get.
Granted, that's a bit higher than the average appreciation but the *fact* remains that every one of my clients made money from day one.
With a track record like that I'm sure you'd be willing to make a written guarantee with some considerations you consider to be fair? Seems like a low risk proposition if a customer buying today agrees to a specific resale window, agrees to use you as the selling agent and add on an extra $10K commission for successful completion.
Granted, that's a bit higher than the average appreciation but the *fact* remains that every one of my clients made money from day one.
With a track record like that I'm sure you'd be willing to make a written guarantee with some considerations you consider to be fair? Seems like a low risk proposition if a customer buying today agrees to a specific resale window, agrees to use you as the selling agent and add on an extra $10K commission for successful completion.
True?
The idea's not without merit. The problems are the aspects I can't control. The emotional aspect of homebuying doesn't always mesh with the purely pragmatic side and we all know that "if momma ain't happy, ain't nobody happy". I can't control whether or not my clients will make their payments, take care of maintenance, stay married or any of a plethora of problems that could make that a bad risk. What I do now is give my repeat clients a 15% discount on their resale listing and even more if I rep them in their next buy. The average turnover time is about seven years but some folks actually stay in their homes for the long term. I don't see how anyone would buy a home with the idea that they *had* to sell in certain time window and that they *had* to use me. While I enjoy real estate enough to keep doing it until I physically can't, I'll be in retirement age in 10 years. Then there's the likelihood that the $10,000 commission bonus I agree to ten years ago shrinking with inflation. Make it a percentage instead.
JD, it sounds like your success rate is more dependent on picking quality clients and 5 years of consistent market gains.
Not sure that supports the premise that using a rent vs buy calculator for 2002-07 will yield results in any way similar to 2007-2012.
I'd bet that if you put an equally qualified buyer in the same house in 2007 as you did in 2002 the odds of a repeat outcome for buyer #2 are below 25%.
JD, sorry for the combative tone in my earlier post. But a lot of the talking points regurgitated here are frustrating and not based on anything but blind assertions, and that gets frustrating.
I wasn't able to keep up with the thread, but I want to echo my point (clarified by another poster) again.
Projecting market appreciation (largely paper-based, to begin with) based on a brief, bubbly run up based on very few fundamentals (but in an environment with seeming fundamental risks) is like, as has been stated before, driving by looking in the rear view mirror.
I'm seeing arguments based on "appreciation will bail you out", rather than sound financial arguments. Largely because I think that's the only leg left holding the table up.
JD, no one argues that your clients would make money for property bought 3 years ago. The question is: what about now?
Can you run the calculator with specific numbers and tell us what you get if you put your client into a house now? I think everyone on this forum would be interested to know what you're plugging into that calculator.
Each time I'd run the calculator, it'd say that I'd have to live in the house at least 10 years to make house-buying more profitable than renting and investing the remainder in stocks.
Hey folks, don't pick on JD. If it weren't for suckers like him I'd never make any money.
Honestly, why do speculators always think they are the chosen ones? Here he is planning on retiring in 10 years along with a few other baby boomers, and how does he plan on doing this? By selling some/all of holdings at the same time all of the other baby boomers are trying to do the exact same thing. This may have worked for the pre-war generation, but they were selling to a larger demographic pool...his generation, the boomers.
What he said. Tell us the numbers and your underlying assumptions? What is that property worth if you sold it today? What do you get from rent today? What do you expect to get moving forward?
Please don't forget the advanced function on the right hand side of the NY Times calculator page. I think 10 percent is about right based on historic returns.
I've got no hostility and I'm happy you've done well in RE.
I am a bit puzzled though by any owner who has a lot of confidence heading into 2008. Historically, housing in the U.S. goes up around 1% per year in real appreciation.
I think it would be interesting to see JD pick a house that is listed right now on MLS (so that everyone can see what we're talking about), and explain to us what happens when JD's client buys this house at the asking price. Use the calculator (and tell us all the numbers and assumptions) to prove that your client is better off buying than renting.
A case study like this would certainly show quite a bit, and would certainly force this thread into 10+ page count.
JD, no one argues that your clients would make money for property bought 3 years ago. The question is: what about now?
Can you run the calculator with specific numbers and tell us what you get if you put your client into a house now? I think everyone on this forum would be interested to know what you're plugging into that calculator.
Each time I'd run the calculator, it'd say that I'd have to live in the house at least 10 years to make house-buying more profitable than renting and investing the remainder in stocks.
Did you adjust the rent increase up to compensate for lower appreciation? If the demand for purchased housing decreases it will not only flatten the appreciation but the pressure on the rental market goes up. I managed a 15% increase in rental rates this year and the appreciation rate hasn't dropped much. Make no mistake, if appreciation rates go down your rent *will* go up. In the Puget Sound area there's a *lot* of room for rent to increase. If you're good at managing your own stock portfolio you may be right but I submit that if you're *that* good you can buy anything you want. Most of us are too far out of the insider loop to be making any kind of serious money in stocks. If I plug in $2500 rent for a $450,000 Ballard house it could *lose* at -1.5% in 7 years with a 15% rent increase rate and still break even at the 7 year turnover time. I don't see a decrease in appreciation rate going that low.
JD, it sounds like your success rate is more dependent on picking quality clients and 5 years of consistent market gains.
Not sure that supports the premise that using a rent vs buy calculator for 2002-07 will yield results in any way similar to 2007-2012.
I'd bet that if you put an equally qualified buyer in the same house in 2007 as you did in 2002 the odds of a repeat outcome for buyer #2 are below 25%.
If only I could pick my clients. I *attract* quality clients because I'm well educated (MBA), don't compromise on integrity and have better analytical skills than the typical agent. The closest I get to "choosing" my clients is not accepting listings from clients insist on overpricing their property or otherwise aren't prepared to accept that *I* am the RE expert. My parting line with them is, "I'd rather turn you down than let you down" as I close my briefcase and head for the door.
Hey folks, don't pick on JD. If it weren't for suckers like him I'd never make any money.
Honestly, why do speculators always think they are the chosen ones? Here he is planning on retiring in 10 years along with a few other baby boomers, and how does he plan on doing this? By selling some/all of holdings at the same time all of the other baby boomers are trying to do the exact same thing. This may have worked for the pre-war generation, but they were selling to a larger demographic pool...his generation, the boomers.
I shouldn't plan on retiring at 65? I'm not planning on selling off my holdings, I plan on living on the passive income while I jack up the rent every year.
Did you adjust the rent increase up to compensate for lower appreciation? If the demand for purchased housing decreases it will not only flatten the appreciation but the pressure on the rental market goes up.
Not if builders keep on building. Nationwide, appreciation has gone negative, inventory continues to grow and stagnant rents are keeping the CPI in check while other prices are shooting up.
Seattle will probably buck this trend for a while, but with the current increases in inventory plus the massive increase in construction you'd have to be pretty dense to conclude that low appreciation can continuously sustain rental increases.
Every other bubble city has gone though the same cycle. Apartments convert to condos, renters get displaced, rents go up, building permits skyrocket, rents continue to increase, new buildings get occupied, renters find more affordable digs, more buildings open, flippers decide to rent out units that they can't sell at a significant profit, then vacancy rates rise.
Sure, Seattle will be different, because you want it to be.
Wait, aren't you in Marysville? Now it makes sense! There's a huge land shortage out there thanks to all the cows.
JD, who's going to live in your apartments if rent increases 15% a year? Sure, you were able to do it this year, but sooner or later this streak should end. The salaries do not increase at this rate, and rent depends also on salaries in the area, last time I checked.
JD, who's going to live in your apartments if rent increases 15% a year? Sure, you were able to do it this year, but sooner or later this streak should end. The salaries do not increase at this rate, and rent depends also on salaries in the area, last time I checked.
Trust me, *somebody* rents them; usually people who had to lower their expectations to live in what they can afford. Ask anybody who's ever lived in NYC. I found a similar parallel in the boat industry; when the economy goes bad, the people who would have been in the 50' market slide down to the 40 footers and so on. The only only real fallout is the boats at the top of the market and the buyers at the bottom who (please forgive the phrase) get priced out of the market. You say that rents depend on salaries in the area. That's true only to a point. Salaries are also edged upward by the cost of living. Sure, I may not do 15% a year in rent increase but I can almost guarantee that as appreciation rates fluctuate down the rents will move up and vice versa.
Comments
JD wrote:
"At the end of his lease he's no better off than he was going in. So forgive me for giving you attitude, I truly am grateful for the renters that increase my wealth, provide me with write-offs and help keep me from having to return to the corporate rat race"
At the end of my lease I've been able to save money, and invest in alternatives other than real estate. Renting a condo has also allowed me to enjoy the things I love most about the PNW, namely the Cascades, Olympics and Puget Sound.
If my renting, helps you too...so be it. I don't see anything wrong with that at all...
However, at the end of my lease I think I will be much better off regardless...
Currently, realestate is 1) to much drain on cash 2) Warren Buffet told me not to. For me, it just doesn't make sense to buy now is all...
I don't even buy into the argument of "buy and hold" (at this time). Buying right now is probably the most speculative investment you could make other than possibly buying other inflated asset classes (collectibles, art, etc)
Why does the baby boomer generation just seem to not get it when their parents were depression era? (rampant consumerism/conspicuous consumption, no savings [a house is not a savings plan!], disdain for the environment, entitlement mentality and a belief that "i'm going to live forever"). This is a generalization of course however I see most of the 50-65 year olds that I know behaving in this manner.
Probably best to be debt free at this point and take a "wait and see" approach, staying out of the RE market while this thing plays out. A conservative estimate would be 3-5 years before we see a bottom, but a Japanese style 1986 deflation of 15+ years in housing is certainly possible.
Why risk it?
Instead, what is likely to go up in value?
Precious Metals + PM Service Co's (public and private sector, US and global $$ move from increasingly worthless fiat currencies such as the Dollar)
Crude Oil/Energy/Alt Energy (It's a finite resource and the cheap stuff that's left resides in places where people hate us)
Commodities/Raw Materials (need oil to ship it and grow it, developing countries are growing at an ever increasing rate while global oil production has leveled off)
I've owned my own residence for nine years before moving to the PNW. The first house appreciated 8% total over 4 years. The second condo appreicated 2% total over five years. And boy was I glad to get that 2%. At one point equivalent condos were selling 20% below my purchase price. Losing that equity that I had worked so hard to save was not a good feeling.
You got lucky, JD.
Ever been to Tokyo?
Yep and if you don't want to see that kind of thing here tell your representative to repeal the GMA
That myth has been debunked a long time ago:
http://seattlebubble.blogspot.com/2007/ ... arkey.html
"ere are two simple reasons that the UGB argument is nothing more than a red herring and a canard:
Reason #1: The UGB pre-dates the present run-up by roughly 10 years.
The UGB was put into place in 1992, and has remained largely unchanged since. If the UGB were to blame for high home prices, one would expect to see home prices begin to shoot up shortly after its enactment.
From January 1993 (the earliest month I have data for) to January 2002, the median closed price of single-family homes in King County increased an average of 6.3% per year. However, from January 2002 to December 2006 (the most recent month I have data for), the median increased 11.1% per year.
If the UGB is to blame for the ridiculous run-up in prices, why were its effects not noticed until ten years after it was enacted? That makes no sense.
Reason #2: King County was not alone in the home price run-up.
Many cities and counties across the entire country have experienced runaway home price growth over the past five years. UGBs cannot account for this near-nation-wide phenomenon. Absolutely zero evidence been provided to explain the notion that even though King County home prices jumped up by an unprecedented amount, it was not due to the factors that drove home prices up elsewhere in the country. If it is granted that these macro-economic factors had a hand in driving up King County home prices, why blame the UGB?
It would take quite a stretch of the imagination, combined with a healthy dose of tortured logic to attempt to claim that although home prices in King County were skyrocketing at nearly the same time as the rest of the nation (delayed by ~1 year), it was for an entirely different reason. Oh, and by the way that reason is a law that was passed ten years ago.
"
Creating wealth through leverage only works if the asset you've acquired appreciates or, I suppose, you are short selling on margin. You are making the assumption that real estate will continue to appreciate. Over the very long term, that is no doubt true. But since life changes so fast (perhaps necesitating a sale) and the downside risk right now is so high, I believe you are doing certain of your clients a grave disservice convincing them to jump in no matter what. I think it actually goes beyond disservice, I think it is greedy and irresponsible.
Reminds me of that Kendra Todd doll at Toys R Us....you pull the string and it says:
"Its a great time to buy"
"Buy now or be priced out forever"
"Bubbles are for bathtubs"
"Trust your RE agent"
"Renters are losers"
etc. etc......yawn.
Both JD, who sounds like a creep, honestly, and Synthetic, who seems to be wasting his breath trying to belabor points that are simply lost on kool-aid drinkers, are talking past each other.
JD, let's get straight down to it, champ. Muster all your honest, fiduciary Realtor(R) math skillz and head on over to the excellent NYT calculator.
NYT Rent vs. Buy Calculator
Please reply with a set of numbers, EXACTLY as you entered them, that
make using a large amount of leverage worth it in the Seattle region.
Basically, state your assumptions instead of relying on bullshit hack arguments and slandering of people who choose to rent.
Many, many honest analysts with no personal axe to grind have proven and shown time and time again that renting is good for some people, buying is good for some people, but neither option is a no-brainer for all people, the way the realtor chicks make it sound. There is an incredible lack of intellectual honesty in anyone who will not disclose all the information.
So go ahead Captain Finance, tell me exactly which sets of numbers make sense. Because the smell that's wafting off your poorly proven arguments indicates that basically it only works out if it's a speculation play based on ASSUMING greater appreciation than inflation (a no-no, according to those in the know), and a play on massive leverage.
There's nothing wrong with massive leverage required to get normal household incomes into a house, provided they can otherwise crank out the payments and probably don't plan to move for 8-10 years. But as far as I can tell, unless you assume a level of appreciation that doesn't rely wholly on the rear-view mirror, the numbers just don't work.
True?
The idea's not without merit. The problems are the aspects I can't control. The emotional aspect of homebuying doesn't always mesh with the purely pragmatic side and we all know that "if momma ain't happy, ain't nobody happy". I can't control whether or not my clients will make their payments, take care of maintenance, stay married or any of a plethora of problems that could make that a bad risk. What I do now is give my repeat clients a 15% discount on their resale listing and even more if I rep them in their next buy. The average turnover time is about seven years but some folks actually stay in their homes for the long term. I don't see how anyone would buy a home with the idea that they *had* to sell in certain time window and that they *had* to use me. While I enjoy real estate enough to keep doing it until I physically can't, I'll be in retirement age in 10 years. Then there's the likelihood that the $10,000 commission bonus I agree to ten years ago shrinking with inflation. Make it a percentage instead.
Not sure that supports the premise that using a rent vs buy calculator for 2002-07 will yield results in any way similar to 2007-2012.
I'd bet that if you put an equally qualified buyer in the same house in 2007 as you did in 2002 the odds of a repeat outcome for buyer #2 are below 25%.
I wasn't able to keep up with the thread, but I want to echo my point (clarified by another poster) again.
Projecting market appreciation (largely paper-based, to begin with) based on a brief, bubbly run up based on very few fundamentals (but in an environment with seeming fundamental risks) is like, as has been stated before, driving by looking in the rear view mirror.
I'm seeing arguments based on "appreciation will bail you out", rather than sound financial arguments. Largely because I think that's the only leg left holding the table up.
Can you run the calculator with specific numbers and tell us what you get if you put your client into a house now? I think everyone on this forum would be interested to know what you're plugging into that calculator.
Each time I'd run the calculator, it'd say that I'd have to live in the house at least 10 years to make house-buying more profitable than renting and investing the remainder in stocks.
Honestly, why do speculators always think they are the chosen ones? Here he is planning on retiring in 10 years along with a few other baby boomers, and how does he plan on doing this? By selling some/all of holdings at the same time all of the other baby boomers are trying to do the exact same thing. This may have worked for the pre-war generation, but they were selling to a larger demographic pool...his generation, the boomers.
Please don't forget the advanced function on the right hand side of the NY Times calculator page. I think 10 percent is about right based on historic returns.
I've got no hostility and I'm happy you've done well in RE.
I am a bit puzzled though by any owner who has a lot of confidence heading into 2008. Historically, housing in the U.S. goes up around 1% per year in real appreciation.
A case study like this would certainly show quite a bit, and would certainly force this thread into 10+ page count.
Did you adjust the rent increase up to compensate for lower appreciation? If the demand for purchased housing decreases it will not only flatten the appreciation but the pressure on the rental market goes up. I managed a 15% increase in rental rates this year and the appreciation rate hasn't dropped much. Make no mistake, if appreciation rates go down your rent *will* go up. In the Puget Sound area there's a *lot* of room for rent to increase. If you're good at managing your own stock portfolio you may be right but I submit that if you're *that* good you can buy anything you want. Most of us are too far out of the insider loop to be making any kind of serious money in stocks. If I plug in $2500 rent for a $450,000 Ballard house it could *lose* at -1.5% in 7 years with a 15% rent increase rate and still break even at the 7 year turnover time. I don't see a decrease in appreciation rate going that low.
If only I could pick my clients. I *attract* quality clients because I'm well educated (MBA), don't compromise on integrity and have better analytical skills than the typical agent. The closest I get to "choosing" my clients is not accepting listings from clients insist on overpricing their property or otherwise aren't prepared to accept that *I* am the RE expert. My parting line with them is, "I'd rather turn you down than let you down" as I close my briefcase and head for the door.
I shouldn't plan on retiring at 65? I'm not planning on selling off my holdings, I plan on living on the passive income while I jack up the rent every year.
Seattle will probably buck this trend for a while, but with the current increases in inventory plus the massive increase in construction you'd have to be pretty dense to conclude that low appreciation can continuously sustain rental increases.
Every other bubble city has gone though the same cycle. Apartments convert to condos, renters get displaced, rents go up, building permits skyrocket, rents continue to increase, new buildings get occupied, renters find more affordable digs, more buildings open, flippers decide to rent out units that they can't sell at a significant profit, then vacancy rates rise.
Sure, Seattle will be different, because you want it to be.
Wait, aren't you in Marysville? Now it makes sense! There's a huge land shortage out there thanks to all the cows.
Trust me, *somebody* rents them; usually people who had to lower their expectations to live in what they can afford. Ask anybody who's ever lived in NYC. I found a similar parallel in the boat industry; when the economy goes bad, the people who would have been in the 50' market slide down to the 40 footers and so on. The only only real fallout is the boats at the top of the market and the buyers at the bottom who (please forgive the phrase) get priced out of the market. You say that rents depend on salaries in the area. That's true only to a point. Salaries are also edged upward by the cost of living. Sure, I may not do 15% a year in rent increase but I can almost guarantee that as appreciation rates fluctuate down the rents will move up and vice versa.