Purchased for $925,000 in August 2006, asking $895,000 seven months ago and then eventually reduced to a “bank approved price” of $619,000, the sale of The Palms (555 4th Street) #731 closed escrow on 9/1/09 with a reported contract price of $620,000.
Are The “Exceptions” (And Big Losses) Becoming A Palms Rule? [SocketSite]

67 thoughts on “A Two-Bedroom Palms Short Sale Closes At 33% Under 2006 Price”
  1. bottom!
    but really, does anyone know what the HOA on this unit was and if parking was included? I think 33% off the peak is about a fair adjustment for this unit if the HOA dues are above $600. congratulations to the buyers in that case, and boo to all the 50% off! naysayers.

  2. boo to all the 50% off! naysayers.
    Sometimes the truth hurts, huh? I never predicted 50% down outside of Bayview and outlying areas, but it’s pretty clear now that that is exactly where we’re headed…

  3. “but it’s pretty clear now that that is exactly where we’re headed…”
    So where are all those 50% off deals in d5,d6, d7??

  4. @anonm I don’t think the truth hurts at all. I’ve been shopping for the last three months now and 25% off seems normal for closing prices on peak priced homes. So this swing to 1/3 on a foreclosed property is not surprising, but I would be hard pressed to see it go much further south from here.

  5. Given what figures to be the buyer profile for SOMA condo owners (young, high LTV, 3-5yr hold period) a 50% fall from peak wouldn’t be surprising. Why would anyone keep paying a underwater condo mortgage, and HOA dues, on any of these interchangeable properties when the alternative is renting for a few years and then getting back on the property ladder?

  6. Various graphs on this site have shown that it was the low end that bubbled the most. Part of the reason that high end places are not typically showing drops of 50% or more is that they didn’t have the same wild ride up.
    It is interesting to see the capitulation, though. In the past the Real Bay Area was deemed immune to price corrections, but now the argument has shifted to three of the most desirable areas in San Francisco having less than a 50% drop. It seems quite clear that those who kept their focus on historic pricing, real value, and price to earnings ratios had a much clearer view all along than those who zoom in on the data and watch the market day by day and sale by sale.

  7. Rabbits’s post raises a question that I was wondering about previously and which maybe 40 yo or one of the other landlords here can answer: is there *really* an alternative for folks to default, get foreclosed, and then rent the same thing (and re-“purchase” later)? Any landlord is going to run a credit check and I can’t imagine they’d rent to someone with a recent and humongous property-related ding on the report. Being able to buy again (assuming they’re not in an all-cash situation, which the hypothetical appears already to assume) seems even less likely. No?

  8. Based on the refi that my wife and I just finished, you could buy this place for around $2500/mo + HOAs. Its no cheaper to rent (I would guess $3k/mo for rent), assuming you have a reasonable downpayment.
    I’d say look for another 20% decline from here and the balance is clearly in favor of buyers.

  9. Shza,
    There are so many people in that situation that it just won’t be a stigma as long as your other payments are on time. It is shaping up to be like being laid off was after dot com days: everyone got laid off, so it went from being a stigma to being no big deal.
    As far as buying again, given that a bankruptcy means waiting a mere 2 years before FHA will loan to you, I suspect having a short sale on your credit rating will stop you from buying a home for something in the neighborhood of one day:
    Lending officer: Do you have any short sales on your credit report.
    You: Yes.
    Lending officer: Well that is a BIG PROBLEM. Were they before today?
    You: Yes, it was yesterday.
    Lending Officer: Yesterday?! Why didn’t you say so? That will be NO PROBLEM AT ALL!
    OK, I’m exaggerating, but not by much. I think FHA requires 3 years from a foreclosure and I suspect they would use the same for a short sale. Big whoop. And when half the country is in that boat, they’ll just ignore that requirement when Barney Frank tells them to.
    The FHA is there to promote housing, no matter what the consequence to the American Taxpayer. They aren’t going to keep a big portion of the population from buying one as long as they have the “massive” 3.5% down required to do so (which can be gotten around in about 100 different ways).

  10. shza,
    In a soft rental market, which we are in, someone that just got foreclosed on could make an aggressive offer on a rental and likely get it. Maybe a few months upfront or a larger deposit (esp. if the rental in question was not subject to rent control). Given that it takes a 12 months +/- to get foreclosed on, during which time there’s no mortgage/rent, it is no stretch that a recently foreclosed person might have the money laying around to do just that.
    As to purchasing again… there are already plenty of credit “consultants” out there to help someone recover from a foreclosure. With 9.24% of ALL mortgages currently in some stage of default, the buyer pool will be pretty shallow if foreclosees are excluded. I’m betting they won’t be, at least not for very long.
    Bottom line – if I were badly underwater on a McCondo, the last thing I would be concerned about would be shelter after I lost the place.

  11. So where are all those 50% off deals in d5,d6, d7??
    Where did anyone say that prices are off 50% in those districts (or any districts!) at this time?
    I would be hard pressed to see it go much further south from here
    ??? Real estate cycles are long and lag changes in fundamentals – prices don’t just adjust up or down overnight (or even over a few months). Both the bulls and bears agree on that. Unemployment likely still hasn’t peaked (and certainly doesn’t look to be going back down quickly) and Alt-A mortgages (to which SF has much, much more exposure than sub-prime) still haven’t hit peak recasts. And you can’t see any reason why prices could go further south than here?

  12. Ok, that makes sense for low-market areas where you can actually purchase something within FHA conforming limits and where there’s no rent competition but I still don’t see that applying in the jumbo market or for rentals in better neighborhoods. We’re moving to a new rental next month and they wanted multiple references in addition to bank statements, pay stubs, and a credit check. I think the fact that we had 800 FICO scores (in addition to being well off on the other fronts) had something to do with us getting the place over the 15 other families that put in applications.
    But this is admittedly anecdotal and maybe a total outlier situation. Would be interested to hear 40 yo’s take though.

  13. Personally, as a landlord myself, I wouldn’t rent to someone with a recent foreclosure (“recent” meaning, to me, in the past 2-3 years.) Maybe longer if it looked like they’d intentionally screwed their lender just because they were underwater and didn’t feel like paying any more. I probably wouldn’t accept that kind of tenant regardless of how long ago the foreclosure/short sale was. The message I get from that kind of history is that the applicant doesn’t believe in honoring their commitments. I might be swayed by a really believable explanation – but if I have multiple applicants (and I usually do) I’ll chose the one that pays their bills instead of runs from them.
    If you’re renting a decent property, it’s just not that hard to find good tenants who aren’t ethics-challenged. I’d rather take less rent, if necessary, and rent to someone honest.
    But I’d acknowledge that in areas with lots of vacancies, or with hard-to-rent units, you’ll probably find owners who would be more forgiving.

  14. “I would be hard pressed to see it go much further south from here”
    I suspect if you asked the seller of the property that is the subject of this thread, at the time they bought, they would have said they’d be hard pressed to see it ever go down. Yet it dropped by 33% 3 years later.
    They would have been more convinced than you are.

  15. January 1991, I rented out a lovely Pacific Heights 2/2 condo next to Lafayette Park to a well dressed, polite lady after confirming her employment. Credit check was not that common back 18 years ago. She gave me a check for 1st and last month rent plus a security deposit and moved in immediately. The check bounced. She apologized, sent another check the following week which bounced again. Then she stopped returning phone calls. I had to hire an attorney to help with obtaining a court order to evict. After serving her with notice, the hearing was set three months later. At the hearing, the renter showed up, promised the judge she would move out in two weeks. She didn’t. We went back for another hearing three months later and the judge issued an order of eviction which had to be carried out by the Sheriff’s department which gladly took the order and gave us a date that was 6 months down the road. They claimed they were overwhelmed with other tasks and eviction was not a priority. I finally got my unit back February 1992. In total, 13 months of lost rent and $6,000 of attorney’s fee. She lived there for 13 month for nothing. All she did was one court appearance and then moved on to prey on another sucker landlord. Will I rent to anyone with a blemished credit record again – hell NO !

  16. Outsider — ow! Just think of her saving up all that rent money and partying with it, all on your dime!!
    That’s got to be an extreme case, though — my neighbors were evicted for non payment of rent and were out in under two months.
    Isn’t there a penalty for passing bad checks? I’ve read about people being arrested for that in other jurisdictions.

  17. Evictions have always had priority in the California courts and passing bad checks has always been a crime that will send you to jail so this does not make any sense (and as a property manager I never had to wait over 72 hours for the Sheriff to do an eviction)…

  18. And you can’t see any reason why prices could go further south than here?
    See Jimmy’s mortgage versus rent opinion at 11:49. That’s one reason. What’s a 2 br in the Palms going to rent for, $2800 or so? At 629K the mortgage payment isn’t going to be all that much higher.

  19. What’s a 2 br in the Palms going to rent for, $2800 or so? At 629K the mortgage payment isn’t going to be all that much higher.
    It is going to cost 40% to 60% more to own instead of rent when you add in HOA and property taxes. Why pay more than renting to be a knife catcher?

  20. Property taxes are deductible. So is interest. Factor those back in and you cannot tell me it’s going to cost 40 to 60 percent more than 2800 a month for a 620K apartment. Or, LOL, you might just. I don’t want to get into this one again but you’re wrong about that.

  21. We just did a 5/1 IO ARM at 4.5%. I think you can even get down to 4%, depending on how much you’re willing to pay in fees.
    Do the math, J. Costs are much closer to my estimate than to yours.

  22. Yeah Jimmy, she probably puked malt liquor on the carpet and stained the walls brown with bong smoke.
    There’s nothing more fun than twisting the kife in a scammed landlord’s back, unless it’s a bankrupted flipper.

  23. There’s nothing more fun than twisting the kife in a scammed landlord’s back, unless it’s a bankrupted flipper.
    Huh? Yeah right. This town would cease to exist without the small landlords it routinely pisses upon like so many dogparks.

  24. That’s possible, but if she was really smart she’d have sublet a room or two and collected rent from the subletters … all the while not paying the landlord. Now there’s a profit opportunity!
    Seriously, the total lack of (criminal) consequences for these people is really shocking. If you stole $50 from someone on the street you’d be in jail for 5 years, but if you rip off your landlord for $15k, “it’s a civil matter.” Some crimes do pay.
    (Except for that VC guy who just got 8 years!!).

  25. If you can really get $2800 for a fairly downmarket 2BR like this, then with an I/O loan it looks like the rent vs. own would be pretty close at this price if you’re in a high tax bracket. You’re still several hundred a month better off renting by my rough calculation. Of course, with an I/O loan you’re building no equity but you have assumed the obligation for maintenance/upkeep and for any increases in HOAs. It is basically no more than a bet on fairly substantial appreciation. But once the market-juicing mechanisms go away that are keeping the price up — 1st time buyer credit, record low rates, FHA/conforming support — and they will go away, that is simply going to erode the price support which is effectively a big thumb on the buy side of the scale.
    So even at a 33% discount off 2006, I’d still avoid buying here at this price like the plague (OK, maybe not like the plague, but like the swine flu). If you really like this place and want to live there for 10 years or more, rent for two years then look into buying.

  26. I can’t imagine the homebuyer credit has much impact at this price level. Its less than 1.5% of purchase price.
    Why do you think a rate rise is imminent or that the FHA will cease supporting jumbo-conforming loans? Since the government now explicitly controls mortgage lending in this country I think they will continue to hold rates low and provide liquidity for higher-priced properties for the forseeable future.

  27. By the way, someone please explain “building equity” to me. Isn’t that just a nice way of saying “forced savings plan”?
    If I pay down my mortgage balance by $20k a year … but have an IO loan, am I not also “building equity” — albeit voluntarily.

  28. Laws in SF is so pro-tenants there is NO WAY you can legally evict a non paying tanent in two months. You cannot change the lock or enter the unit. You cannot call the person’s place of employment or disclose to the employer that he/she is a year behind on rent. You can hire some muscle to do the dirty work or, in a friend’s case, pay the dead beat tenant a negotiated $4000 to move out. I considered suing for damages but my attorney advised against it. It takes time and money up front to sue and there is little guarantee you will get anything. You may attach someone’s wage but that’s a court determined issue based on the financial situation of the culprit – not yours ! Can you image you are counting on the rent to pay the mortgage and taxes on the rental ?

  29. I think a rate rise is imminent simply because we’re at record lows. They can’t stay there forever. We’re benefiting from the panic flight to treasuries. As soon as the economy picks up a bit and there are alternative places to plop funds, or buyers become spooked from our record debt, treasury buying simply has to slow and rates will rise. That’s the big one. I have no idea what the govt will do with jumbo-conforming loans. Those have only been supported by stop-gap measures, and I’m just guessing that when the govt decides it is politically expedient to declare victory on housing, that support will simply disappear.
    I disagree with you on the $8000 issue. It is only 1.5% of the purchase price but a much higher percentage of the down payment. That shouldn’t matter to people, but it does.
    Don’t get me wrong. I think your decision to refi with a record low I/O loan was quite smart. But I also think these measures are providing support at the low end, and that support will go away at some point — it is only a matter of when. So those buying in a market with price supports who sell in a market without them will not see the expected appreciation that current (even heavily reduced) sales prices have baked in.

  30. Wow! I did not expect people to try to credibly bring Interest Only ARMs into the discussion…
    Bottom line is property taxes plus HOA are going to be around $1,200 a month. If $2,800 is the fair market rent, that justifies a loan payment of around $1,600 a month. That’s not happening even with 20% down.

  31. Let’s see… 20% down on a purchase price of $620k … 4.5% IO loan, lookin at $1860/mo in interest costs. Pretty close to your $1600/mo number.
    If you figure it’ll cost $3k a month to rent (what I paid for a 2/2/1 pkg when I was renting), its a wash.
    Never mind the taxes… I’m not a big believer in the tax deduction even though it helps a little bit. Maybe its worth 15% of the interest and taxes in this scenario?
    At a certain point you’re splitting hairs with the costs. Like I said originally, I’d expect a further 20% discount — to where nice-ish yet generic 2/2s are selling around $500k in the city. Does anyone realistically expect them to go lower? Seriously?

  32. Jimmy,
    I’ll go on record as saying that no, they won’t go lower than $500k barring some sort of currency/treasury event that raises rates radically. In the $500-$600k range these condos compare favorably to rentals and/or housing further out in the burbs. Also, a $3k per month payment equals 28% DTI on an income of $128k, putting this within reach of lots of folks. Lastly, $500K +/- puts us within shouting distance of an inflation adjusted pre-bubble price.
    Hard to believe we’re finally able to discuss properties meeting any of these criteria, no less all of them.

  33. Let us not forget the $130k in closing costs if you are in fact putting 20% down. If there really was going to be inflation, having that $130k in a money market account would cover a good ammount of you rent on a unit like this with interest.
    And come on, interest only just means you are renting from your bank. What happens in 5 years when you need to refi and are underwater???

  34. Ok, one last reply before I quit this thread. My current loan resets at LIBOR + 2.25% in 2014. (12-mo) LIBOR is currently at 1.5%, so if my loan reset today, my rate would drop to 3.75%. One of my neighbors has an ARM on even better terms that is currently costing him 3.25%.
    So let’s not presume that you “have to” refi when your ARM resets. Its a rigged game now, the government controls the interest rate levers and there’s no guarantee that your payment will be significantly higher in 5 years.

  35. “I’d say look for another 20% decline from here and the balance is clearly in favor of buyers.”
    Assuming that the rent on this place won’t decline further as well. Which is a big assumption to make.

  36. wow.
    I can’t believe people have already forgotten the problem with IO loans.
    yes, the government has been able to drop mortgage interest rates to low levels. but it is costing our country untold amounts of money. Trillions for bank guarantees and Trillions more for Fannie/Freddie support and also a lot for Quantatitive easing in the Treasury market.
    the quadrillion dollar question: how much longer can they continue to do so? how much longer can they keep running record deficits? how much longer can they float these immense debt offerings? how much longer can they prop up these programs?
    it can’t go on forever. at some point it will either trigger massive inflation (raising rates) or a currency crisis.
    an IO ARM can clearly bring monthly payments down in the short term. unfortunately, it comes with SUBSTANTIAL interest rate risk.
    I’m not willing to bet one way or another where interest rates will be in 3-5 years. it is unlikely they will be anywhere near where they are now, but possible. more likely they’d be in the 6-18% range, depending on what our fearless leaders do.
    the green shoots meme is that they will float this immense amount of debt and then the economy will recover, which will help to rectify this massive debt.
    Remind me again when was the last time that the Fed was able to reverse from it’s super low interest rate policy? 2005? oh yeah that worked great…
    the problem is that we’re “trapped” in near-zero interest rate policy. as soon as they raise rates again: bammo… all the variable rate loans explode again.
    if they don’t: bammo… we run the risk of rampant inflation or a currency crisis.
    a lot of risk IMO.
    as for the property itself:
    it’s a blemished property with lots of issues. therefore IMO it’s valuation could fall significantly. I think some properties will always hold their value better than others. but this ain’t one of them.
    i’d be completely unsurprised to see this place fall in price significantly. I’d also be unsurprised if it held out here.

  37. Sure, ok, life is all about assumptions. But when rent cost = buy cost, then its really a matter of personal choice. Even patrick.net crazies would back me up on that one.

  38. Incredible. It’s just shocking that people are still using IO ARM loan rates to justify purchasing. It’s obvious from my conversations with other people (not just here, but IRL too) that the bubble mentality still reigns in the minds of many. If you want one reason why further declines are likely in the long run, look no further than that!
    Anyway:
    @Jimmy – The average value of LIBOR from 1990-2000 (i.e., pre-bubble) was ~6%, with a peak of close to 9%. The current rate is the lowest it’s ever been in history. There is little chance that LIBOR in 2014 will be as low as it is today unless we are still stuck in a long, grinding, jobless recovery with possible deflation. In that scenario, what do you think will have happened to RE prices?
    @ anonn, others – Using a 30 yr fixed loan, I calculate carrying costs at $4,000/mo (5.3% interest on $620k plus $1200/mo for taxes, HOAs, residual maintenance). I’m not counting principal payments as a cost. If you are a homeowner, then interest + taxes is deductible. But as has been discussed many times here, the tax deduction isn’t worth nearly as much as many seem to think. Still, it might get $650-850/mo back (20-25% on $3350/mo). So that could bring it down to $3200/mo.
    I submit that renting a Palms 2 BR is likely cheaper than $3200/mo.
    Of course, this calculation assumes that you are planning to live in it forever (or close to forever in economic terms, which is 20+ years). That may be true of a nice SFH in a town with great schools, but it’s unlikely to be true for a 2 BR condo in a less-than-stellar area of SF. The likely buyer of a Palms 2 BR has a decent chance of selling in the next 5-7 years (in which case you must account for a near 10% hit in transaction costs) or turning it into a rental (in which case you can throw all the tax deduction benefits out the door). Given these realities, renting should be more expensive than buying right now, particularly since interest rates are virtually guaranteed to be higher when you sell (thus lowering prices) than they are right now.
    Even at $620k, this only looks attractive vs renting if you expect a lot of price appreciation in the not-too-distant future (or if you plan to live in a Palms 2 BR forever). In other words, even at $620k, you still need a bubble mentality to justify this purchase.

  39. In the $500-$600k range these condos compare favorably to rentals and/or housing further out in the burbs.
    Have you looked lately? I’ve seen recently renovated, top floor condos in nicer parts of Oakland (e.g. Adams Pt/Grand Lake) that have 30% more sf than this place, 2 parking spaces, and still aren’t selling even listed at $399k…

  40. Well, you realize that I just refi’d out of a 30-year loan into a 5-year fixed rate interest only ARM? And that my out-of-pocket costs to do so were under $1000 and I am guaranteed to save over $40k on interest costs over the next 5 years. I think I’ll buy a BMW with the difference.
    That’s just my particular case, but don’t be shocked if a lot of people who plan to sell in the next five years start refinancing out of 30-year loans at 5.5%-6.5% and into 5-year IO ARMs which are offered in the low 4% range now.

  41. Well, you realize that I just refi’d out of a 30-year loan into a 5-year fixed rate interest only ARM? And that my out-of-pocket costs to do so were under $1000 and I am guaranteed to save over $40k on interest costs over the next 5 years.
    Not disputing that you did that. Or that you’ll save $40k on interest costs over the next 5 years. Just wondering what your plan is if it resets at 8.25% (which would be in line with historic averages)? Or if it resets at 11.25% (which would be in line with historic peaks)?

  42. Just wondering what your plan is if it resets at 8.25% (which would be in line with historic averages)? Or if it resets at 11.25% (which would be in line with historic peaks)?…
    …Right around the time the BMW is out of warranty(with higher maintenance costs compared to other brands, by historical average)…

  43. I continue to find the uneven considerations given to potential tax deductions for homeowners comical. It’s a 620K purchase we are eentertaining here. Why assume the buyer’s income is such that significant tax deductions are not possible? It’s funny. “Nobody makes very much money in SF except for hypothetical homeowners.” — every time.

  44. Jimmy,
    I have no doubt that you’ll save money on your ARM over the short term.
    just as long as you recognize that you have taken on interest rate risk to do so. nothing in life is free.
    your choice may be the right thing to do. You’re just more optimistic about future mortgage rates and mortgage availability than I am. (I have a 30 year 5% fixed mortgage)
    we are currently undergoing the second wave of near zero interest rate policy, and this one with more governmental intervention than has ever been seen in the history of the mortgage market. it is taking record deficits to do so.
    I find it unlikely that this can last, that’s all.

  45. Eh, you guys are tiresome… but anyway, we’re going to be moving in less than 5 years, guaranteed (can’t possibly send our little MIT Ph.D / Stanford MBA hybrid offspring to a San Bruno public school!).
    The rate resets on ARM loans are capped, in this case, at 5% above the initial rate. Which puts a ceiling of 9.5% on the loan no matter what happens with LIBOR.
    Given our current (net) debt-to-income ratio of 0.45 … I think you all get the idea. Not much risk to us.
    So the really important question is: 535xi (stick shift) or an X5?

  46. “So the really important question is: 535xi (stick shift) or an X5?”
    Your $620K pad is going to be worth half that in five years. So yeah, very smart move. A total no-brainer. I would go for the X5…..

  47. What’s with the SUV ? Too heavy, too slow and at 14 mpg in the city, too un-green. Unless you are stuck with kids, a Carrera 4S is the way to go !
    Last year of Ivy League for one kid and three more for another. That, folks, is serious after tax money. Easily took care of the condo and the 4S…

  48. Jimmy:
    my goal isn’t to be argumentative, but even you then must see that your advice doesn’t apply well to people thinking of BUYING at the Palms.
    Your plan works for you because you are only staying in your home for 5 years or less, you already own your current home, and because you’re using the low monthly payments on a 5 year IO ARM
    however, can you honestly say this is a wise idea for a buyer at the Palms? To rely on the low payment for 5 years and then to move before 5 years from now? The low monthly payment on the 5 year IO ARM (that makes it compare favorably to rent) is that low precisely because there are no principal payments. once you add principal payments to the mix, it again becomes more expensive than rent.
    so you’re in essence recommending that one use an IO ARM for 5 years to rent from the bank, with the hope that 5 years from now either the interest rate will be this low so the person can refinance, OR that enough house appreciation has occurred to allow that owner to refinance again.
    this is interest rate risk, and also requires house price appreciation to work (for the new buyer).
    as I said, this is the game many people played from 2003-2007, and we saw how that worked out. I’m not saying it will happen again for sure, only that it is a risk.
    you clearly don’t see such a risk as a possibility for whatever reason, I do.
    (I’ve said countless times on socketsite since 2007 that I anticipate housing pressure until Dec 2011.)
    your advice may work for a current homeowner who is refinancing because you plan on a short term hold (which helps to negate interest rate risk), but not as well for a renter considering buying. (if they’re only going to hold for 3-4 years then why even bother buying now?)
    ===
    in terms of your more important question:
    I would favor the 535xi over the X5. I don’t own eiter but ride in both quite often. the 535xi is much more sporty and fun to drive, even with the all wheel drive. the X5 is powerful, but bulky. It loses much in the transition to SUV. I actually think the X3 is a much better drive even though it’s small (since it’s on a car platform).
    Unless you go to Tahoe often (or somewhere with snow) I would go for the 535 rear wheel drive over the 535xi. much better performance.
    For sport SUVs, you really can’t beat the Porsche Cayenne (I ride/drive this 3-4x per week). That is an amazing (But expensive) SUV. you can get a midline one for about $65k (with Bose and nice rims etc). the top of the sport version costs over $100k, but the midline one is awesome enough. Porsche is struggling a bit right now so 2009’s have some pretty good deals right now. you can’t find a 2009 Lexus, Audi, Acura, or Infiniti near me right now.
    for reliability both Porsche and BMW suck unfortunately. but you don’t buy those for reliabaility. you get the Lexus or the Acura or Infiniti for that.
    (can you tell I just went sports SUV shopping?)

  49. You cannot call the person’s place of employment or disclose to the employer that he/she is a year behind on rent.
    Is this true? Wouldn’t this be struck down in a court challenge as violating the 1st ammendment? Forgive my naivete…

  50. Watch the 535i. There’s a known problem with the high pressure fuel pump that’s causing a lot of cars here in CA to become officially a lemon.

  51. Fred wrote:
    > Jimmy, What public school district do
    > you believe is best?
    I got a great free education in the Hillsborough public schools and it is the first choice for my kids. We may end up in Woodside or Portola Valley and would not have any problems with the public schools there (the one kid is currently under 1 yr old). My next choice would be the Burlingame public schools.

  52. Most of the expensive Silicon Valley suburbs offer good public schools. No strong opinions on that quite yet.
    I was considering Millbrae for various reasons (father-in-law owns a house there which we could live in, for example) but also thought it would be neat to send her to the Lycee La Perouse so she can get a french immersion education like I did. Of course, in Canada, French immersion is free and here its $17k/year (even more for high school).
    I guess that decision will depend on whether I can afford to live in Ashbury Heights plus $17k/year in tuition or not … we’ll see in 2013.
    Interesting point about the high pressure fuel pump; I hadn’t heard of that and it definitely impacts my buying decisions. Regarding the sports SUVs I was always partial to the G500 due to its extreme ugliness, but then there’s also the Cayenne S and the X5 … not a fan of VW or Audi (although the diesel Touareg is supposedly awesome, its still a VW with all the attendant problems).

  53. If one were to look closely, one would notice that many of Jimmy’s posts are merely vehicles for him to try to impress a bunch of faceless anonymous people with details about his fabulous life.
    It could be details about his (alleged) dating history, his (purported) entrepreneurial skills, or what (supposed) college he attended. Or it could be mundane details about his quotidian life or bygone shagalicious days, etc etc.
    What these types of posts all have in common is that the real purpose of Jimmy’s opinion or “analysis” is to aggrandize his web persona rather than to make a cogent argument. In other words, the analysis is “in service” to the details, as opposed to the details serving to bolster the analysis.
    The analysis itself is almost always flip and not well thought out, and any post pointing this out is met with a straw man attack or a changing of the subject. For example, talking about public schools (though it’s pretty clear that it was name-dropping alleged college degrees that was the intent of his above post) and cars instead of responding to ex SF-er’s critique of his original “analysis”.
    Frankly, it’s hard to see how a (self described) start-up entrepreneur with a new child has the time to post as often as Jimmy. I would postulate, though, that the large amount of time he spends here would be better spent with his child. In the end, that may well be more important to the well being of the child than the relative quality of San Bruno schools.

  54. we’re going to be moving in less than 5 years, guaranteed
    Then that works out well for you. But it has little relevance to a prospective Palms buyer. Or are you saying that it’s a good investment to buy if you’re sure that you’ll be moving in less than 5 years? You take a big hit in transactions cost for such a short holding period. Even fluj/anonn has gone on record saying that you can easily lose money, even in the super-special SF, if your holding period is that short.

  55. “Nobody makes very much money in SF except for hypothetical homeowners.” — every time.
    Huh? I’m assuming that the income of prospective buyers of a $620k SOMA condo is not super high (e.g., low-100s at most). This HH has a relatively low marginal tax rate and will have to give up their std deduction to take the mortgage deduction.
    I agree that at 200k HH income, the tax benefit is potentially more. But I know a lot of households with incomes around that range (including my own), and none of them want to live in a 2 BR Palms condo for the next 10-20 years.
    Anyway, for all those who think 620k is a floor because a 2 BR Palms could rent for $2800/mo (which is pretty optimistic, but whatever), riddle me this:
    How is it that properties in Oakland like the one mentioned above are selling at 399k or less? A reasonable rent for a recently renovated 3/2 on the good side of Lake Merritt is $1800-2000. Using Jimmy’s calculations, cost of ownership for this unit is:
    400k*(80% financed)*(4.5% interest)*(85% after tax deductions) + 400k*(1% tax)*(85% after tax deductions) + 3.6k HOA = $19.2k/yr = $1600/mo.
    But wait, that looks to be at least 10-20% below the potential rental cost! I thought the imputed rental value gives a floor below which housing prices cannot fall?? What gives?

  56. Ok, well there’s a thousand-and-one ways to skin a cat.
    In my case, I looked at my options and our 5-year plan and calculated what would be cheapest for my exact circumstances. Your mileage may vary.
    And don’t forget that I said that I’d want a further 20% decline from current prices before the Palms transaction in question was solidly in favor of buying in lieu of renting.
    And wrt nnona, I’ll have to look back to the post earlier this year where I predicted I’d be bringing in $2.2M in new contracts this year. I just opened negotiations on the last one for this year, which brings my actual total to $2.7M.
    Not bad for a slacker MIT Ph.D engineer working out of a garage, who also got married and had a kid in his spare time. Its called multitasking, and it can do wonders. (Some who know me have also called it “ADHD”).
    Now I REALLY do have to work. Seriously. Everyone please just stop replying to this thread.

  57. And don’t forget that I said that I’d want a further 20% decline from current prices before the Palms transaction in question was solidly in favor of buying in lieu of renting.
    Fair enough. I guess we disagree on the exact numbers, but we agree on the overall trajectory.

  58. anonm,
    How did you ballpark 650 to 800 dollars a month back in tax deductions, only? 5% of 620K is 31,000. Property taxes are going to be around 8K. Is there a home office (probably yes)? This is not a huge wage earner. This is a sub 1M property. Why a mere 10K — max — deduction? Have you ever submitted an itemized return?

  59. I’m talking about the value of the tax deductions, not the amount of the deductions themselves.
    I think I assumed $33k in interest and $6k in property taxes, which means $39k/yr ($3.3k/mo) in deductions. If the deduction is worth 20-25%, then I calculate that it’s worth $650-$850/mo.

  60. The “home office” deduction is considered tax fraud if you use the room for absolutely anything other than work. The IRS decisions on this are outrageously strict. There are very few people who claim this that wouldn’t get slapped with a fine if actually audited.

  61. “And wrt nnona, I’ll have to look back to the post earlier this year where I predicted I’d be bringing in $2.2M in new contracts this year. I just opened negotiations on the last one for this year, which brings my actual total to $2.7M.”
    If that is so, why are you dicking around with some Palm condo? Hmmmmmmmm…….

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