2432 Pine Street (www.SocketSite.com)
Remodeled, refaced, and “reborn” since its purchase for $1,300,000 in August 2007, 2432 Pine was a three bedroom and one and one-half bath home without parking at the time.
2432%20Pine%202007.jpg
Now sporting a new facade with a new garage, a contemporary interior, and another full bath, they’re asking $2,095,000 in 2010. Make sure there’s no exclusions on the lighting.
2432%20Pine%20Kitchen.jpg
Yes, we’re digging on those Campbell’s “cans” (along with a few of the other fixtures).
UPDATE: Although we’re still partial to our original “Mmm, Mmm Good” headline, we’ve switched to keep today’s royalty theme alive (and at least one plugged-in reader entertained).
And wouldn’t you know it, “Exclusions from the sale of the real property: hanging light fixtures in the living and dining areas.” Yep, we’ve still got it.
∙ Listing: 2432 Pine Street (3/2.5) – $2,095,000 [sfproperties.com] [MLS]

131 thoughts on “A Princely “Rebirth” (And New Old Façade) For 2432 Pine”
  1. From the photo it looks as if the developer did a pretty accurate period facade reproduction. I’d be interested to know whether those who claim that it is not possible to create Vic detail from scratch anymore have seen this place and can report on whether it is convincing. It is possible that the only giveaway are the windows : perfectly flat and double paned vs. the wavy single paned stuff from the 19th century.

  2. In the orig photo, you can see a bit of the home on the right and left. It looks as if they made an exact twin to the one on the right. Only difference I see is stair railing and door color.

  3. curious to how much was likely spent on this remodel + adding a garage?
    also, are the lights in the kitchen florescents (in the cans)?

  4. I think it’s a great remodel!
    I am also curious on how much it cost to add a garage to a place like this? Anybody?

  5. 75-150k on the garage; maybe slightly less depending on how much structural /digging is involved.
    This will sell fast.

  6. no way would it be worth more with the garden vs. garage, it would not sell for 2m without a garage. Nice reno though, doesnt seem like they could be making to much off of it if they bought it for 1.3 and carried it 3 years, there a good amount of money put in here

  7. Reasonably accurate facade restoration: simple, elegant, not overdone. Entry stair railings and balustrade should have been wood, with substantial posts, like house next door. Garage door is cheap and cheap looking.
    Not a big fan of the interior stainless steel stair railings: out of place.
    Garage addition cost: depending on level of new foundation work and finishes: I would say $150-200k.

  8. Great remodel.
    -The facade trnsformation is amazing. The garage adds a ton of value (although I’m against garages facing the street.
    -I like the clean lines an open feel of the interior.
    -Too bad it’s on a one way street and across from a parking lot. One-way streets always detract from the natural flow of a neigborhood. And who wants to see a parking lot when your looking out the window of your wonderful home.
    -The proximity to Fillmore st is a definate plus.
    -I’d move into that house in a second (but it’s over my 4X household income threshold)

  9. $75-k to 150, eh? Right. Has anyone reading this blog heard of anyone getting a garage built under their house for under $150 since the 90’s?

  10. Do you have any experience in the matter? Or do you just go by what a bunch of people you have never met, most of them renters who have never hired a contractor, pooh pooh on this blog? The range Eddy said is pretty accurate in my experience.

  11. What stucco-sux is refering to is the discussions about garage additions where the house had to be lifted up and major structural work was needed. Here that’s obviously not the case. The house is at the same height.
    A permit filed in 2007 around the time of purchase shows:
    REMODEL EXISTING BUILDING TO CREATE NEW BASEMENT LEVEL/GARAGE, NEW FACADE @ STREET FACE, NEW STAIR FROM BSMT TO 1ST FLOOR, RELOCATE KITCHEN, NEW WINDOW @ GROUND FLOOR EAST SIDE,REPLACE WINDOWS AT STREET FACE.
    Cost = 70K (that’s what they filed)
    Another one:
    CHANGE MAT SLAB TO TYPICAL SLAB ON GRADE PER PLANS. ENLARGE GARAGE AT BASEMENT ONLY. NOT VISABLE (sic) FROM EXTERIOR.
    Cost: 20K
    Nothing about how much digging/foundation work had to be done.

  12. I was actually hoping for another royalty themed title to go with the kings and queens of the last two threads.

  13. Those Campbell soup can lights are by Ingo Maurer, as is the love note chandelier in the living room. I love them too.

  14. Sorry, anonn, I think you’re wrong about eddys speculative cost on just the garage remodel.
    And we all know that true project costs are never what is filed with the building dept. I think my costs are pretty accurate regarding the garage costs, including engineering, permits and fees and cost contingency.
    I’d say for the other parts of the remodel, including facade restoration, new kitchen, baths, lighting, finishes: I’d estimate another $200k + -.

  15. Well, I’ve seen it done in that — rather large, the lower half including the bottom most of your own estimate –range. YMMV. I don’t think one needs an architect to punch a garage in, tho, so there’s that.

  16. Having done 3 garage adds in the last 4 years my costs varied from $50k to $250k. All depends on amount of excavation, structural retrofit, lifting house, etc. Current project I’m working on is closer to $250k as we excavated 800 cubic yards of earth and poured 150+ yards of concrete, lifted house 18″ inches, added many tons of steel, putting in Klaus parking stacker, etc.

  17. Thanks Skirunman ! That’s the most useful garage add info I’ve seen so far. Can I assume your costs included permits and engineering ? Also did your $250K job add just a garage space or was there substantial (i.e. as large or larger than the car park space) utility space added too along with the 18″ lift ?

  18. Two snarky comments:
    Hello garage door, goodbye charm!
    and
    Who the heck wants to live on a freeway?

  19. TM, $250k job included 800 sq. ft. of parking area/access ramp. Also, another 400 sq. ft. of utility space/walkway. Permits are in the noise, but struct. engineering has run $5k to $25k depending on complexities.

  20. Nice work on the exterior and the facade, garage looks to be finished with high quality too.
    Main level is all kitchen and a very small living room though.
    Victorian homes are just not practical designed homes in the 21st century much less SF with most residents not having children, plus they are quite bland so the designers must really think how to spice them up. So they put in Vikings, granite, stainless…. blah blah
    Killer location with nice curb appeal but i would be so bored with this place after two years.
    Good job on the remodel with what they had to work with.

  21. Lovely re-facade. Now, if only Pine (and Bush) could be traffic tamed — there might actually be a neighborhood. Feels like little one-way throbbing highways from downtown to the Richmond or GGB. Unpleasant.

  22. Well, of course we all know that anonn had the right answer, since….after all he’s “seen it done..” maybe you could hire him next time to design your remodel..
    But I would mostly back up what Skirunman says..the numbers can vary widely depending on many factors…as I have said many times before. Each one is unique. But yes, my rough numbers would be in that range.

  23. Yep “seen done,” commissioned one myself, literally dug one myself, seen clients pay for it recently, interviewed contractors, fired a contractor, you name it. My numbers for this one are in keeping with both of yours anyway, so why did you have to say something snide? Oh. That’s right. Because I said I wouldn’t need an architect.

  24. This is a whole Swedish group. The agents are Swedish, the developer is Swedish and he does tons of properties in the wine country. I just saw him in a magazine the site is http://www.tsjdesigngroup.com The lights that are cool are the ones by 7Gods in the upstairs rooms, they don’t even sell in the States yet and clearly brought the Tube light by Ingo from Europe as the wait-list is years……….looks good though, wish I could afford it.

  25. This guy stays consistent, looks a lot like the remodel he did in Sea Cliff. I like his work, you can tell he is European, he edits, edits, edits.

  26. Is this developer German?? How does he get Ingo lights that are not selling in the States?Ingo Maurer rocks! Look at those cans.

  27. Having just completed a remodel, this house is a steal. It isn’t easy to build and renovate a house that looks this effortless. Good taste and solid craftsmanship isn’ just expensive, it is rare. Having said that, what you don’t get with this turn-key house is:
    Nosy neighbors intent on stalling the process, incompetent, power-hungry inspectors, weather delays, the realization that despite your intitial excitement about renovating a house, you have no idea what your are doing (and your taste isn’t so great either), endless hours sampling shades of white paint, catfights with your spouse.
    Enough said. If I could, I’d buy the house, move in and throw a great party.

  28. Skirunman,
    it sounds as though you are paying too much for engineering. esp. for a project like this which should not cost more than $2,500. i’ve done 2 garage additions like this where there is not much, if any, digging and come in under $60k with curb cut,permits,engineering and all. of course, i’ve also seen add-a-changeorder-garage come in and fleece many a homeowner. it usually goes like this; get the house up in the air and ‘find unseen difficulties’ that require more $$$. the biggest mistake most people make is to use the garage builder’s engineer.
    in most parts of the world you can build an entire house for the money noearch blithely suggests a garage will cost.

  29. willow,
    “Another 2 million dollar property featured on SocketSite that nobody can afford…
    except the editor tells us that his average reader makes over $200k/yr. don’t you believe him?

  30. so $2m for a rather small place right on the freeway. with no views. that’s alot of money.
    this certainly shows that there is not enough inventory if people even consider this to be a reasonable deal.

  31. I stand by my estimate on garage costs. Call Add A Garage and they will give you a fixed bid for this job for under a 100k including the door, curb cut, permits, rough finish to code.
    I don’t think this home was purchased as a speculative investment. I think someone bought it, did the remodel, lived in it for 2+ years and is taking some exempt cap gains off the table.
    Two homes on Webster South of California were on the market right around $2m. This home on Pine is far superior and only 100k more. The nabe isn’t as great but this is a very nice home. I doubt there is much cap gain on this home really but the buyer is getting what appears to be a move in home.
    Should be interesting to see what happens.

  32. My comment on struct. eng. costs were related to my specific projects, which have included some retrofit in all 3 of my recent cases. Anyway, I use Rodrigo Santos as my engineer, definitely not the cheapest, but quite good in my opinion. $25k project actually was for all my struct. eng. plans for a major remodel so your mileage will vary.

  33. @anonee
    that’s because the average reader (or at least commenter) is a landlord.
    I thought landlords had it so bad?
    Guess not.

  34. I have seen this guy’s work both in SF and the Wine Country. He has amazing taste and his attention to detail is like no one else I have seen. Swedish, clean lines, modern sensability and always very functional. If I worked for Dwell Magazine, I would feature him!

  35. Santos is a good engineer, and well worth it. Watch out for those add-a-garage type guys. Some are like the aluminum salesman of the past. Cheap, great salesman, but the product is wrought with problems and extras. I will grant they make work for some, but you get what you pay for.
    Of course, not every one needs an architect. I’ve said that many times before. But you WILL notice the difference every time in design quality, functional layout, materials, and workmanship. And, of course, an excellent contractor is part of the equation.
    The difference in using design professionals and not using them is like this, in my mind: You can go to Burlington Coat Factory to buy a suit, or you can go to Barneys or Wilkes Bashford. The difference will be obvious.
    You get what you pay for.

  36. But you WILL notice the difference every time in design quality, functional layout, materials, and workmanship. And, of course, an excellent contractor is part of the equation.
    Materials? Workmanship?

  37. Yes, you will. That’s what Specifications are for: they determine the type of material that’s appropriate for the particular application, and Specs also define the method of assembly, and level of quality. For instance, in drywall application, there are 5 levels of finish available. Most homeowners don’t know this. Level 5 is the highest and involves 1/4″ skim coat of plaster on TOP of 5/8″ paperless drywall. This is the highest quality available, and of course it costs more.
    Just one example of “workmanship”.

  38. If the Ingo Maurer fixtures are excluded form the sale why are they featured in closeup photographs on the sales website? Seems unfair, and misleading.
    Furthermore, I don’t understand why they are excluded in the first place. It’s not as if they are rare, one of a kind items. Both fixtures are readily available online.

  39. The exclusions may be up for negotiation. If you want the fixtures, and your bid is higher than the next bid plus the cost of the fixtures, then they (and the house) are probably yours.

  40. “1/4″ skim coat of plaster on TOP of 5/8″ paperless drywall. ”
    “Most homeowners don’t know this”
    apparently you don’t either. paperless drywall???
    1/4 inch plaster?

  41. Why would a buyer choose this over 2231 Franklin, at $2.3, a little more, but bigger and real SF. Also on a freeway, but in non-lower PacHts and a better area.

  42. “Another 2 million dollar property featured on SocketSite that nobody can afford…
    except the editor tells us that his average reader makes over $200k/yr. don’t you believe him?
    These two thoughts are not incongruent.
    Principal and Interest alone on a $1,680,000 mortgage (80% of a $2,100,000 home) is $10,100.
    That doesn’t include taxes (about $2100/mo) or insurance ($500/mo?) or upkeep. Or heat. Or electricity.
    A rough guestimate: PITI payments plus upkeep would be nearly (if not more than) 100% of take home pay for the typical $200k/year earner, after a $420,000 down payment.
    this leaves no money for food, shelter, transportation, retirement, anything
    I agree with the poster: the average SS person cannot afford this.
    even a person making double that ($400k/yr) would be spending 5x income… stretching.
    as for the house:
    it is well done, and it looks very nice.
    they did what we did in our home: updated true to most period details, but then diverged and put in a modern bath and kitchen. I think that’s a wise choice since most people don’t love the bath/kitchens from 100 years ago.
    They can keep the lights, those aren’t for me… but they are original and interesting.

  43. Conifer, though I agree on the location, the house on Pacific is on the downslope next to 1800 Pacific, a huge apt. complex, has no yard – the one on Pine is small though, and would be incredibly dark. This specific area of Franklin, like Pine, is a freeway, but this slope is crazy in regards to pulling out/in the the garage. It is a great area.

  44. That doesn’t include taxes (about $2100/mo) or insurance ($500/mo?)
    Taxes will be ~1950 a month, not 2100. Insurance probably about 300 a month, not 500. That 350 a month difference will spell untilites. So call it 12,700 a month, with a 1.68M mortgage.
    That is why the average buyer of a property like this will probably not finance 1.68M. The average buyer of this property will probably finance half that, or even ~729K if possible. You guys always doubt how much capital people have in this town, but it’s the market.

  45. Property tax if sold at list will be $2030/mo. Tax rate was 1.163% when last set. For an old Victorian, figure at least $500/mo in maintenance (won’t come month after month but big expenditures will bring the average to around there) and $500/mo in utilities. Owner will get about 1/3 of mortgage interest back in tax deductions but not likely much if any property tax given the hit from AMT. And of course, the opportunity costs on a $420,000 down payment are significant — about 1600/mo just on foregone treasury yields.
    Given that you could rent a bigger, knockout place in a better neighborhood for no more than $7000/mo, you’re paying about a $50,000/yr “owner’s premium” to buy this place. That’s tuition for two at a great private school plus an extra 10k every year, or a big retirement contribution, or a new BMW 3-series and an awesome month-long vacation every single year you’re trading to be able to say “yes, but I own rather than rent.” Some may go ahead and leap, but they are nuts (I know, there are a lot of nuts out there).

  46. Let’s check back in three months and see how this is financed. Talking about what might otherwise be bought is not apt at this moment.

  47. anonn:
    $1950 x 12 = $23,400
    23,400/2,095,000= 1.116%
    are taxes that low on this place?
    FWIW:
    I used 1.12% x $2.1M / 12 = 2100/mo taxes.
    you can insure a 2.1M home at 3600/year? (300/mo)
    that seems low to me, but maybe I gotta just get a new insurer.
    regardless: I used a 6% 30 year fixed mortgage… are those even available for a nearly $1.7M mortgages?
    or are you playing the 5 year interest only game?
    in the end, we can argue about $100 to $200 here and there, but why bother? Even using your math:
    the person who makes $200k/year cannot afford this house. That’s 10x income.
    the house takes up nearly all of their take home pay! (even using your assumptions).
    How are they going to eat? get to work? buy clothes? Get a cup of coffee? Buy a chair? get a haircut? buy an umbrella?
    if your argument is that a child of a Saudi Prince can sell 25,000 barrels of oil on the spot market and pay cash for this, I don’t disagree. I’m sure JK Rowling could pen a little ditty and pay for this with her advance too…
    I was only pointing out that the two posters above did not have ideas that were incongruous.
    The average SS poster may make $200k/year
    the average SS poster can not afford this house.
    I don’t think I know anybody who makes so little who would sign up for something like that these days. (sure, they did in the bubble days when RE could only go up, but not now that they understand it can go down).
    A person of my income level would even have trouble swallowing this mortgage. (my HH income is 2x the average SS poster). It could be done, but only with a fair amount of sacrifice. (it would be 5x income).

  48. on a side note anonn:
    I have no doubt that this place can/will sell. I think it’s a great property actually.
    The recession is over (at least for now, in technical terms) and those at the top have unsurprisingly fared better than those at the bottom. Some of those at the top have done even better than they could have in a good economy.
    As I’ve said for years, the Fed/Govt will try to reblow a bubble as fast and hard as they can, and will do it until the bond vigilantes pull the credit card from Uncle Sam’s cold dead fingers. And they ARE blowing bubbles… all you have to do is look at commodity and equity prices. some of that created “wealth” will surely flow into RE, that’s the point. (they can blow bubbles, but can’t really choose where the bubbles will go).
    balance sheet recessions take a long time to play out (many years) and there are many gains to be made during those recessions, it’s not just a straight path down. (so called “bear market rallies”)
    I think many of the doom and gloomers (including the venerated LMRiM whose opinion I much respected) misunderstood how powerful the govt balance sheet really is, and how willing they would be to use it. Heck, I knew they were going to do it and even I was surprised at how far they went.
    The question now in my mind is if going forward we will have
    -sustainable growth (unlikely IMO)
    -double dip recession (highly likely IMO)
    -ka-POOM. (massive inflation). Also quite likely IMO.
    but for now: it’s bubble bubble bubble. Why do you think every yahoo like me is speculating in commodities? duh. because the Fed has said it will hold interest rates at NEGATIVE for “a prolonged period of time”. They’ve also signaled that they won’t let anybody fail… they’ll socialize the losses.
    one can only have your money in the bank earning 0% interest for so long.
    all the yahoos (like me) think that they/we can get out of the market just before the badness comes. Of course we are all wrong… but that day may be days or many years off… these bubbles sure can live way longer than anybody can anticipate.
    Anyway: don’t Fight The Fed or the govt. and the Fed says that your money is worthless and that you need to up your risk, and that it’ll be there (using taxpayer money of course) to soften the blow if you risk it and fail…

  49. My “argument” is that you guys keep wanting go parse a hypothetical mortgage that I and others who do this sort of thing for a living aren’t seeing at the moment. People are instead putting down a lot of cash and utilizing much smaller mortgages. So, a person has a lot of cash but makes 200K a year. They put a 1.4M cash down and finance 700K. Something like that. It’s commonplace.

  50. Anon @ April 25th, 10:51 AM.
    While your numbers are nicely presented, they are significantly off based on your parameters. First and foremost, your opportunity cost number is bogus because you have no idea what someone’s individual investment strategy and risk tolerance is. As Bloomberg notes,” from 2000 to 2009, equities as an asset class (as measured by the S&P 500 Index) failed to provide positive returns for investors”. The notion that the average investor could consistently beat the S & P 500, and in fact invest the majority of their excess capital in treasury bonds if they didn’t put it into a house purchase is naive and incorrect. Your $1,600 a month opportunity cost number is irrelevant.
    So, out of your $50,000 a year owners premium, $19,200 has just been subtracted.
    Next, lets look at your maintenance number. You claim there is a $500 maintenance because this house is “an old Victorian.” 2432 Pine a down to the studs remodel- its practically new construction. Lets say $125 a month in maintenance averaged over time.
    This subtracts an additional $4,500 from your number, bringing it to $26,300.
    Utilities are a wash, because most high end SFH rental landlords will not pay for gas, electric or garbage.
    Home owners insurance is going to be about $500 more a month than renters policy, which should add $4,500 to your number. However, I’m going to cancel it out without raising the $7,000 a month for rent number that you have used, as this number could easily be anywhere from $7,000 to $8,000 for renting a newly rebuilt home with 2 car parking two blocks off what is still a nice part of the commercial Fillmore district.( I rent something very close by, similar size, with no parking- and it needs to be completed renovated – for $6,000 a month.)
    So, using your scenario, you can either rent a place for $7,000 a month or own this home for $2,095,000. The cost you pay for ownership annually is $26,300, not $50,000. This doesn’t buy you a “new BMW 3-series and an awesome month-long vacation every single year”. It buys you a Saturn and a trip to Santa Barbara.
    $26,300 annually is not small change, but its also not crazy to someone who can afford this house. If finances are the only thing that drive you in regard to how and where you habitate in SF, then yes, buying over renting is somewhat irrational. But if ownership means more to you than just financial – then I’d argue it’s not crazy at all. This is the cost of ownership and the benefits that go along with it. To some people those benefits are unimportant and to others they are immeasurable. But neither renters nor buyers are “nuts”, they just have different priorities.

  51. “The notion that the average investor could consistently beat the S & P 500” should read “would” beat, not “could “beat.

  52. nsc wrote:
    > While your numbers are nicely presented,
    > they are significantly off based on your
    > parameters. First and foremost, your
    > opportunity cost number is bogus because
    > you have no idea what someone’s individual
    > investment strategy and risk tolerance is.
    > Your $1,600 a month opportunity cost
    > number is irrelevant. So, out of your
    > $50,000 a year owners premium, $19,200
    > has just been subtracted.
    I bet nsc must be a top Realtor…
    Using the nsc logic that opportunity cost is irrelevant you could put down another million and BUY this place for less than the cost of RENTING a studio in the Mission…

  53. FormerAptBroker, why don’t you try actually refuting my argument instead of making some easy snide remark like you must be a top realtor. I’m not. I’m even a renter at present, as acknowledged in my post.
    And while your at it, why don’t you tell us about where you have made the most money investing over the past decade.

  54. “The notion that the average investor could consistently beat the S & P 500, and in fact invest the majority of their excess capital in treasury bonds if they didn’t put it into a house purchase is naive and incorrect. Your $1,600 a month opportunity cost number is irrelevant.”
    What complete drivel. I used the most conservative realistic number I could find for the 30-yr oppty cost return — 30-yr treasuries. Add back in that lost $19,200/yr in income, as one must to do a fair comparison, and your other quibbles are just rounding errors. A buyer would pay an enormous premium in the area of $50,000/yr to “own” this place (i.e. rent from the bank rather than a landlord). FAB was absolutely right about your faulty logic. By your logic, a cash buyer lives for free other than taxes, ins, and maintenance. That is utterly false. Opportunity costs are real, out-of-pocket costs. I did not say all buyers are nuts. I said that a person who buys this place at the listed price is nuts, at least from a financial standpoint.

  55. “why don’t you tell us about where you have made the most money investing over the past decade”
    The stock market, you should try.

  56. My “argument” is that you guys keep wanting go parse a hypothetical mortgage that I and others who do this sort of thing for a living aren’t seeing at the moment.
    I did nothing of the sort. I only reconciled two ideas from posts above that initially seemed incongruous but actually were not.
    People are instead putting down a lot of cash and utilizing much smaller mortgages. So, a person has a lot of cash but makes 200K a year. They put a 1.4M cash down and finance 700K. Something like that. It’s commonplace.
    Like I said, I don’t doubt there are Saudi princes out there. That still doesn’t mean the average $200k/year person has $1.4M cash downpayment. Perhaps your hangup is the word “commonplace”? Sure, it happens. Is it the typical SF buyer? no way. say what you will, but there isn’t a single data set out there that would confirm that the majority of SF buyers are all-cash or even mostly-cash.
    Thus, I only defend my argument, not the strawman you countered with.
    -the average SS poster makes $200k
    -the average SS poster cannot afford this property.
    your ethereal all-cash and mostly-cash buyers are out there to some extent… but clearly they are not in full force. If they were then we wouldn’t have seen such a dropoff in sales when lending tightened, and then a re-emergence of sales as lending loosened again.
    Do you think that the Govt created Jumbo-conforming loans for giggles? No… they did it because the higher quintiles of the market rely to some degree on financing as well
    Yes, you are “on the ground” and you see lots of people putting a lot of cash down. However, I am also “on the ground” because it is my friends and family in the doctor, tech, venture capital, and private equity world that are buying the houses from people like you.
    I often find it humorous when people tell me things about myself and my family, as if I don’t know them already.
    Yeah: I got it. People make big bucks.
    Yeah: I got it. People spend big bucks
    But yeah, I also know: people in my demographic are the top earners and most affluent of San Franciscans (the top 1-2%) and are thus not representative of anything “average”
    unlike you: I’d never confuse my life for being representative of the typical San Franciscan.
    will this house sell: I’m sure it will. It’s a great house.
    Will it sell to a person who is similar to the Typical San Franciscan or Typical Socketsiter (trademark)? no way.
    one last thing:
    my first degree relatives have bought 7 figure real estate in the last 1 month. They most certainly DID NOT put >50% down on the house, because that is the dumbest thing ever.
    why on Earth would you put this much down in a down market when other markets are roaring right now?
    the smarter thing to do is put as little down as possible. This unlocks your money so that you can invest in commodities or equities or goodness knows what else.
    also: if we’ve learned anything it is that you don’t want to have a lot down on a house, because it’ll make “strategically defaulting” a lot harder.
    No… I’m sorry, the plan now is pay cash for a house and then take out a loan as fast as possible… this improves leveraged returns, and also reduces your downside risk (because you can always default).
    (on a side note, they paid “all cash” to close on the 7 figure property, and then immediately took out a 79% loan after closing… I guess to the Realtor it would have looked like an “all cash” offer though).

  57. More adjustments on the “ownership premium”:
    Positive sides for the owner (factors to reduce the premium)
    1. The principal portion of the mortgage payment should not be considered as cost. It changes from one form of asset to another… so called “forced saving”.
    That would subtract another $25000.
    2. Most likely the buyer is in AMT. That actually made the calculation easier than the regular tax code. The tax rate is 26% to 28%. However, due to the phase-out of deductions, it is likely the marginal tax rate is 35% (7% due to the phase-out). Plus the 9.3% state income tax, total tax deduction is 44.3%.
    Negative sides
    3. HOWEVER, I really doubt anyone could get 6% loan on this kind of super-jumbo mortgage. Most likely to be 6.5% or higher.
    4. Isn’t AMT’s mortgage deduction limited to 1 million? Ouch, suddenly the tax deduction become a much smaller factor.
    My calculations
    2.1million price tag, 20% down, 6% mortgage rate.
    Mortgage+tax=11700/month, -2100 principal= 9600/month
    x12= 115200/year
    – 1,000,000 x 6% x 44.5% = 88500
    + 6000/year on insurance + maintenance=94500
    Assuming the same play would rent for 7000/month, the ownership premium is 10,000/year
    This does not count opportunity cost, and in reality the mortgage rate would likely to be higher.

  58. doit:
    I agree with you that a 6% 1.78M is unlikely.
    however: my math wasn’t showing ownership premium, it was roughly calculating HOLDING costs. Specifically, can a person making $200k/year even make the payments on a $1.68M mortgage.
    Thus, the 2100/month has to be added back in.
    they may or may not gain that back when they sell (depending on market), but it’s still money coming out of their paycheck every month.

  59. ex SF-er, yes, paying all cash followed by a big loan could be a good strategy, except, at least in California, you are then not protected in a strategic default. Since you did not purchase the house with the loan, creditors can come after your personal assets for any shortfall after a foreclosure. So I would not recommend this for anyone with assets or a decent income (judgments are good for 20 years in California).

  60. nsc68 wrote:
    > FormerAptBroker while your at it, why don’t you tell us about
    > where you have made the most money investing over the past
    > decade.
    I’ve posted before that in 2003 I sold the Burlingame home I bought in 1996 for a $750K profit and bought a fixer upper 20 unit Sacramento Apartment building and moved to SF where I am still renting. In 2005 I bought a 42 unit Sacramento Apartment building not far from the first one. I was cash flowing in under six months with both properties and since I have been improving the properties and renovating units as they turn over I’ve been able to increase my gross rents by more than $20,000 a month over the past five years.

  61. AT:
    I don’t disagree with you.
    I only used my example to show
    -that I understand that there are affluent people buying 7 figure properties right now
    -that an all cash buyer might not “really” be an all cash buyer when it comes to holding costs.
    -reasons why even the affluent may avoid low DTI ratios on their RE holdings right now even if they can afford them.
    most of the affluent I know don’t plan on strategically defaulting… instead they use the buy-cash-then-get-loan as a money management technique. Redeploying capital and increasing leverage as it were.
    In this market sometimes it makes more sense to buy all cash THEN get a loan as opposed to buying with a loan. The reason: you can sometimes bid lower and still win with an all cash offer (no need for seller to worry about the bank).
    I will also add: although it is true that a bank can go after a person for a deficiency judgement, it happens rarely if ever in practice.

  62. Like I said, I don’t doubt there are Saudi princes out there
    You don’t get it, Ex-SFer, and you don’t want to. I realize you grew up in the city. It has changed. You say “Saudi prince,” I say “tomato.”

  63. Also, to back it on up, I said, “Let’s revisit this in a few months after we know what happened.” I’d definitely like to show you nonbelievers what’s going on. You do not want to wrap your heads around the notion that good SFRs are always very finite in this town, plus, there are a relatively large amount of people with a lot of cash. Last spring, less so on the cash front. Three years ago, cash not so necessary. Markets change.

  64. People tend to forget that a lot of people made an incredible amount of profit in real estate. Lots of people cashed out 2x and 3x returns on 5-10 year investments in real estate. I’d love to know the #’s here but I know several couples in their 40s and 50s that have traded up homes during their 20s and 30s and have taken massive gains that were rolled into newer, bigger properties and sold again and rolled again. The more affluent the greater the leverage and return. For these people, they view these gains as part of their real estate strategy and many of them are in fact sitting on well over $1M is gains that are still “in real estate”. It might be wiser for these folks to cash out and rent but this rarely happens (although this audience is sure to produce more than average).
    This whole scenario is most frustrating to first time buyers or long time renters who used to be able to streeetch into a pad in SF and now are finding it (even after the bubble has popped) extremely difficult and even if you can, the prospect for making the same returns as those in the 90’s and 2000’s are bleak. The continued unwinding will come but it’s going to be a long long time before we see what many first time buyers and long time renters are hoping to see. That is, a more balanced income / home ownership multiple. The fact is that this home here on Pine is probably fairly accurately priced and the market will tell us soon enough. Also, to the prospective buyer, if you want the lights, just put them as contingent on your offer and they are sure to be yours. Seems like a red herring to me.

  65. “it’s going to be a long long time before we see what many first time buyers and long time renters are hoping to see.”
    The longer it takes, the better for renters. They continue to get all the flexibility of renting, and save money in doing so. Nothing frustrating about it.

  66. “The continued unwinding will come but it’s going to be a long long time before we see what many first time buyers and long time renters are hoping to see.”
    You’re a kind soul. Will “it” even resemble “it” if and when “it” arrives? The amount of money people are spending right now, in this market, is making that proverbial Socketsite eventuality looking unlikely.

  67. Ultimately I believe in economics and that over time there will be a scenario where income and ownership multiples come back to long term trends. It might be in 20 years and the majority of correction will more likely result from incomes increasing rather than real estate decreasing.

  68. You don’t get it, Ex-SFer, and you don’t want to. I realize you grew up in the city. It has changed. You say “Saudi prince,” I say “tomato.”
    actually: I do get it. again: unfortunately for you facts are on my side on this.
    there are times when the local population is completely priced out of the market and the majority of owners are your tomatoes who can pay all cash or mostly cash, and whose spending habits do not rely on income. Aspen, Colorado is such a market as example. So is Cabo San Lucas.
    however: in those markets when you aggregate the data you see progressively lower DTI ratios as well as decreased use of mortgages.
    This has not been seen in SF. From 2000 to as late as 2008 (the last time I looked into this) average DTIs were rising in SF as were the % of interest only and negative amortisation loans. (I believe my source was LoanPerformance, Dataquick is less likely… unfortunately you have to pay for that data and it doesn’t interest me any longer so I don’t wanna pay for it).
    Why was the DTI ratio rising in SF if it’s the tomatoes that are buying with massive down payments? Why did SF Real Estate fall immediately when the Jumbo market froze if the buyers are tomatoes? why did it turn around so fast after the Jumbo Conforming Mortgages were introduced, if the tomatoes are the dominant force in SF real estate?
    the answer is simple: because the tomatoes are only a part (although an important part) of the SF real estate market.
    I think the problem is that you consistently confuse my message with other people. just now you misconstrued my entire message.
    I wrote “I don’t doubt there are Saudi Princes”. I also wrote that my first degree family members just bought a 7 figure property in the last 30 days, in an all-cash offer which they will now finance with a 79% loan, but they don’t have to do this… they could have paid this off with just the proceeds from their GOOG stock shares they sold after GOOG went public.
    So CLEARLY I understand your point that there are Tomatoes. I, myself, am nearly one of your tomatoes. In fact never once in this thread did I say that one of your tomatoes won’t buy this property. Read above and show me where I said this.
    My point was (and is) that the typical SS poster cannot afford this property.
    you then (purposefully?) confused my argument with some strawman that the average person buying this property will likely put down 50% (which makes them not the average SFer or Socketsiter by the way) and then jumped on the word Saudi Prince while completely ignoring the rest of my post.
    IMO what has happened is that you are trapped in what we call a “selection bias”
    your clientele is of the upper quintiles of SF. Thus, you are used to selling luxury properties to luxury people. Your sample therefore may miss all the Bayview and Ingleside and Outer Sunset buyers which are just as much of the SF market as are Infinity and Pacific Heights and Noe SFH buyers.
    and now you normalize all your luxury buyers as “average san Franciscan” when they are not.
    I, as part of that income/wealth demographic, clearly understand that it exists but I also clearly understand that it is not “average”.

  69. Regarding the strategy for the all-cash buyer of seven-figure properties, who takes a significant mortgage after closing:
    Cons:
    * $1MM limit on tax deductibility
    * You better know what you’re doing investing borrowed money in stocks, commodities, tulips, etc. It’s well-proven that nearly all active investors under-perform the market, especially after fees, cap gains, etc.
    * Even for the super, super credit worthy, you’re still probably paying about 6% on a mortgage. (actually, it’s possible today to get a 5.x% seven figure loan, but you better be really credit worthy).
    A an alternative strategy, that works better for many:
    * Borrow $1MM on the property
    * Borrow the rest on margin with an equity portfolio. Margin rates today can go as low as 4% pretty easily. If you know what you’re doing, you can get down 2% to 3%. Why pay 6% to borrow money when you can pay 3%?
    * Oh, and margin interest is tax deductible on balances greater than $1MM.
    * One caveat: borrowing on margin versus through a mortgage means rates fluctuate. But the Fed has said that rates will remain low for an extended period of time. So…

  70. @Anonee: I’m from a dual income household of just under $300,000 with a relatively high level of overall savings and this place is way out of reach. Even if the average SocketSite reader is making 200K, (it’s impossible to find out if that’s true with any certainty), and puts down the requisite 20%, then the loan balance would still be a substantial $1.6MM. Assuming a couple who both work and roughly make “the average” I don’t think they could realistically service that type of loan balance plus property taxes, insurance, maintenance etc. The person(s) who buys this I would think has at least seven figures already sitting in the bank…

  71. LOL, ex-SFer! Excellent post, though I’m surprised you didn’t work in a reference to Attack of the Killer Tomatoes.

  72. I wonder how out of date the information is for the $200K average salary, has it been inflation adjusted. Also, should we even be talking about the average and not the mean, as the editor loves to say Think Mix.

  73. The typical Socketsite “poster” not “reader” is not buying anything, ever, ex-SFer. I speak of the market. Not the website.

  74. Also, you’re saying “average San Franciscan.” I’m saying “run of the mill millionaire, or son/daughter of wealthy person, who resides in San Francisco.” Again, you don’t want to get it. Fine. Average Socketsite poster. CTM. (chuckle to myself. not laugh out loud.)

  75. IMO what has happened is that you are trapped in what we call a “selection bias”
    your clientele is of the upper quintiles of SF. Thus, you are used to selling luxury properties to luxury people.
    Your sample therefore may miss all the Bayview and Ingleside and Outer Sunset buyers which are just as much of the SF market as are Infinity and Pacific Heights and Noe SFH buyers.
    Oh really? And what sort of property is this particular thread anchored by?
    Easy with the strawman thing. You’re a better communicator than that. Sheesh.

  76. Man, you know you may have hit a bubble on the word “strawman” if even anonn is using it.
    “but there isn’t a single data set out there that would confirm that the majority of SF buyers are all-cash or even mostly-cash”
    Here’s recent Census data under the American Community Survey for owner-occupied housing units in San Francisco County:
    2004: 88,496 housing units with a mortgage, 35,057 without (72% with)
    2005: 85,560 with mortgage, 37,043 without (70% with)
    2006: 87,731 with mortgage, 38,981 without (69% with)
    2007: 88,448 with mortgage, 33,361 without (73% with)
    2008: 95,909 with mortgage, 31,716 without (75% with)
    The number of people with mortgages dropped during the heart of the boom, but then started increasing.

  77. ex SF-er,
    I understand that you are doing a cash flow analysis.
    However, if cash flow is what you are focusing on, then the owner could do a 10-year interest-only loan.
    So I stand by my calculation of 10,000 ownership premium (assuming 6% mortgage rate and not counting opportunity cost) – or above 15% over the rental cost of $7000/month.
    It is still a big sum. However, I think 12% is not as un-reasonable as some people think. If one would pay $7000/month on rent (most SS readers won’t, let us be frank), I don’t think he would be stressed out by the additional $800/month for buying.
    Keep in mind, renting has hidden cost too, in the form of rent increase. It hasn’t happened much over the last two years (and won’t happen for another 2) doesn’t mean it will stay the same forever.

  78. The typical Socketsite “poster” not “reader” is not buying anything, ever, ex-SFer. I speak of the market. Not the website.
    ROFL.
    Also, you’re saying “average San Franciscan.” I’m saying “run of the mill millionaire, or son/daughter of wealthy person, who resides in San Francisco.”
    I know. this is why I’m saying that YOU’RE not getting it, while I am.
    In this thread I have ONLY been talking about the affordability of THIS PARTICULAR house to the so-called AVERAGE SOCKETSITE reader. nothing more, nothing less. (until I had to rebut your argument).
    you then misunderstood my post and expanded it into an argument that I didn’t make about the numbers/availability of the affluent to buy this house. I don’t disagree with you on that point. but it has nothing to do with my argument in THIS thread.
    To sum our argument in this thread:
    -I said the average Socketsiter and the average San Franciscan cannot afford THIS $2.1M home
    (nothing more, nothing less)
    I then showed rough guestimate that a $2.1M home would eat up nearly all the take home pay of the average Socketsiter
    your response:
    -the multimillionaire and/or affluent can afford this.
    uhh…. ok.
    ====
    All that said, on a completely unrelated point that had nothing to do with my posts in THIS thread…
    over the years I also have disagreed and still do disagree with you about the relative contribution of the affluent versus the contribution of what I’ll call the “stretching-high-income-earners” (those who make $200-400k/year buying $1-3M homes using “affordability” products)…
    you believe the affluent make up a higher proportion of the market than I do.
    I think the “stretching high income earners” make up a higher proportion.
    I have my beliefs based on the DTI ratios and the use of IO/exotic mortgages. you have your beliefs based on your on the ground experience, which happens to be with the affluent of SF by the way. thus, you can see why I think your viewpoint is skewed towards the upper end.
    You think for some reason that I don’t understand anything about wealth and how much the wealthy can and do spend when I am personally in the top income bracket in the country myself, and consort with those that would be called “super rich”.
    I don’t know why you think I don’t get it. Rich people spend a lot of money, often foolishly. As I said: my first degree family members just bought a 7 figure property the last 30 days or so. Did I mention it’s a vacation property?
    I myself spend foolishly at times too. As I said, I just dropped 70-80k on my house last year, and will spend another 80+??? on my house this year… all during what I consider to be a terrible housing market!
    I’m spending thousands of dollars to go to West Palm Beach this weekend to visit a friend who had a baby… thousands of dollars… for a 48 hour stay! that’s clearly not sensible.
    In fact, this all reminds me of an expression I used to use a lot in my life:
    “A bucketful of cash and a boxful of stupid”

  79. Btw, did anyone see the Calculated Risk post on Citi’s new loan portfolio for which they are selling bonds? This is a very high quality portfolio relative to the crap that sold during the boom, and the loan-to-value ratios are very low here on average relatively to a typical portfolio. The loans were issued in the last 11 months.
    There are no San Francisco loans here, but there are Los Altos, Saratoga, and Palo Alto loans here, all with average LTV of 51-55% and average loan value of around $1M, and some in Redwood City, with average LTV of 65% and average loan value of $940K. If we’re talking about tech money as a driver, some of these people probably have it.
    The loan values would seem similar to SF — average loan over $900K with a max of $2.5M. And a substantial number of people are of relatively high net worth, just like SF. Note that we are talking about very very small sample sizes here for the larger loans.
    What’s interesting is that people in the $1M-2M loan range in this high quality portfolio tended to have 50-60% LTV originally, so we’re talking about $2M-3.7M homes, aka SF high-end range. People above $2M were closer to 40% LTV giving approximately $5M+ homes.
    Another interesting stat is that people are broken down by net worth, and a substantial number of people whose loans are in this portfolio (about 30% of the loan holders) have a net worth between $1M and $10M. On average, those people started with a 51% LTV.
    Maybe this helps you figure out something about San Francisco buyers, maybe it doesn’t, but the price ranges are correct.
    SEC filing: http://sec.gov/Archives/edgar/data/1176320/000114420410021408/v181786_fwp.htm

  80. I got it. We’re talking past one another. My initial point was that this hypothetical numbers crunching is moot, an 80% mortgage is moot, and I continued in that vein. I agree that 200K a year earner without a lot of cash cannot afford this property.
    It’s nice to exchange with a civil person. I’m going to take a break from this website for a while. Maybe forever. I don’t think giving away so much for free is a particularly good idea any more. And I’m bad for this site. Too many people just sit back and talk about my talk, instead of saying something.
    Take it easy, man.

  81. Gotta love the high self-opinion required to describe oneself as:
    “giving away so much for free”
    If it had value, there would be little time left to spend here.

  82. Sans “anonn” this blog may have just become a lot less interesting.
    This is true if you think the following are interesting, which pretty much comprises the totality of fluj contributions:
    You’re wrong just because I say so.
    Here is some made-up fact spouted off the top of my head and now I demand unambiguous, irrefutable proof that my made-up fact is untrue, and then I’ll still pat myself on the back with some dumb comment like “game-set-match” even after I’ve been embarrassed.
    I challenge your argument with a complete strawman, and when you call me on it I’ll respond with nothing more than that the word “strawman” is so internetty.
    Editor, you included erroneous information that proves you’re biased. OK, OK, your statements were absolutely correct, but I’m still right that they show you’re biased. Just because.

  83. He tried staying away about a year ago. It lasted all of a day, as I recall. He started posting as “anon” instead of his old name and the regular posters recognized his style and called him out essentially immediately. It took diemos all of 95 minutes to recognize him (at noon in the thread posted in the link below).
    A few hours later, the editor started replacing his new name with his old one and he finally gave in and admitted to everyone it was him. Hilarious.
    https://socketsite.com/archives/2009/01/a_rather_real_apple_on_the_tree_in_the_marina_1756_nort.html
    He then added a second “n” to anon and that was that. Back to posting 80 times per day.
    See you soon, anonn. I think it should be anonnn next time. That way we can all track the number of times you’ve left and came back!

  84. sfrenegade wrote:
    > Did anyone see the Calculated Risk post on
    > Citi’s new loan portfolio for which they are
    > selling bonds? There are no San Francisco
    > loans here, but there are Los Altos, Saratoga,
    > and Palo Alto loans here, all with average LTV
    > of 51-55% and average loan value of around
    > $1M. Another interesting stat is that people
    > are broken down by net worth, and a substantial
    > number of people whose loans are in this
    > >portfolio (about 30% of the loan holders) have
    > a net worth between $1M and $10M.
    I only originated and securitized commercial loans (where all the appraisals were done by friendly appraisers who were paid to “hit a number” not “value the property” and where we “took the Borrowers word for it” when they sent us financial statements) but I have told by people working in the world of residential securitized lenders that our values were much closer to reality and that the average commercial borrower was closer to reality than the residential borrowers when estimating net worth. I just finished reading Zuckerman’s book “The Greatest Trade Ever” and it makes my low opinion of the world of residential loan origination and securitization even lower.
    P.S. to anonn who wrote: “I don’t think giving away so much for free is a particularly good idea any more.” I’ll be sad to see you go (I really will since you make me laugh), but I would not describe defending MLS tricks like lowering prices before sales to show as “over market” and re listing property to lower the DOM number as “giving away so much for free”…

  85. tipster, that thread is too funny! How fitting that it pertains to a property that sold at an 18% loss in two years, and fluj just went right on sniping — “gave it away for free”! I, too, will miss anonn. Two or three times a day I read his posts and shake my head laughing at the inanity. But I’ll believe it when I see it. I’m not entirely convinced fluj isn’t a plant from the ed. to post nonsense just to get reactions . . .

  86. taunting aside:
    I actually like having diverse opinions around here… otherwise it becomes an echo chamber.
    In general I’ve had my tiffs with anonn over the years. Although I don’t always cherish his style, it doesn’t negate all of his worth.
    despite everything, he does have first hand knowledge of some of the nabes around town. although he uses the “it’s all micro dude” argument more than I might like and is sometimes overly dismissive of others, I still think that he adds to the mix of conversation.
    There are times when I have needed to amend my own personal argument because of points he brought up. in that I find value.
    @anonn… take a break. it’s just a blog. come back when or if you’re ready. if not, peace be with you.
    but my guess is that it becomes exhausting arguing all day long, and that is never good for the soul.
    Namaste.

  87. FAB, um, I proved that that wasn’t what happened. Perhaps the editor changing the lede wasn’t convincing enough? Oh, that’s right. You don’t care about what you say.
    AT, you were proved incorrect about a dozen times recently. But you move on, and keep talking, like you were right? Weird internet person, you.
    Tipster, you were proved incorrect on that 7th Avenue falsehood. And a million other times. But what a charitable soul you are.
    Anon, you’re nothing. Wiki “nothing.” http://en.wikipedia.org/wiki/Nothing . That’s you.
    Noearch, you were on here talking about “don’t criticize people’s grammar” a few days ago. Rendering you, among other things, pretty much a hypocrite’s hypocrite. Cheers.
    Ex-SFer, keep on keepin on. Legacy Dude, eat my shorts. LRMiM, you live in Florida. Probably you fit in now.
    OK. That said, I’m really out. Peace.
    [Editor’s Note: Assuming you’re referring to 33 Prosper, the property was actually listed on the MLS twice. And while you might have missed it, the list price was in fact changed on one of the two listings after the property closed escrow. It was changed back the day after we pointed it out (and the MLS now reflects two transactions for the price of one).]

  88. FAB, no doubt that was often the case. But maybe they’re asking for at least minimal documentation these days, since many lenders have to hold on to the loans.

  89. Well, at least I got a mention in his farewell speech. Should I be flattered?
    Let’s all count the days when he’ll be back..once he’s done licking his wounds..
    How many times is this now? jeez..I’d be embarrassed if I were him.
    Well, I did like the Scarecrow analogy at lot..I mean strawman.

  90. I would make love to those soup can lights. If that act alone could knock a few hundred grand off the price of this property, I’d do it in a heartbeat. Hell, I’d even do it live on webcam/ChatRT for all to see.
    Mmmmmmm, soupy.

  91. Well, more classic fluj going out declaring victory and gloating about a point that he was completely wrong about. He already lasted but a total of an hour and 37 minutes to chime in after his “farewell,” and I’m skeptical his latest will last any longer. But assuming it does, it will be interesting to see if his absence brings the discourse back up a notch (as he seems to believe given his comment that his presence is “bad for this site”) or if there will just be fewer posts since he accounts for about a third of them. I hope it’s the former. I learn a lot on this site.

  92. Well, this site needs someone like him.
    So I’ve decided to change personas and will now post from the perspective of a Realtor, until anonn comes back (in what, another hour?).
    Remember, real estate only goes up!

  93. That is great tipster, I am going to change my persona as well. Thinking I might be the new laughing millionaire renter.

  94. @ ex SF-er
    Question, wondering what type of equity loan you are talking about that can get 2-3%. Im curious as I recently purchased a 3 unit building with a 933k mortgage. I looked into equity loans and found all were a higher rate than my 5% mortgage. Is this portfolio equity loan something different than borrowing against your own property? Is it on a combination of assets?

  95. I didn’t talk about the equity loan, that was Joshua.
    I’m not 100% sure that I understood the exact strategy that he elucidated.
    however it has 2 risks if I understand his thrust correctly
    -loans on margin have variable interest rates.
    -loans on margin risk a margin call (something he didn’t post in his post).
    I also think that a margin loan on equity can create a pseudo-duration mismatch, which I dislike in general.
    long story short: that technique should be used only by the most sophisticated of investor and then needs to be watched like a hawk. not for people like me.

  96. I’m not going to go back and forth on this issue -opportunity cost- anymore on this thread. This will be my last post on it.
    Former Apt Broker,
    You’re cherry picking, not keeping to the allotted time period (investment in 2000 and return in 2009 or early 2010) and discussing gains outside of stocks, bonds which is what ‘anon @ 10:51 April 25th’ and other people are citing as the next best alternative for money that would otherwise go toward a down payment and subsequent mortgage payments. I don’t think many people on this blog are going to strongly support “other real estate in SF” as the next best investment opportunity to buying a primary home in SF.
    As TallGuy stated in retort to my challenge when asked where the average investor would have the best returns over the past decade: “The stock market, you should try.”
    But he obviously didn’t read my post in full, alluding to “The Lost Decade” we’ve had in the stock market, where, as I’ll repeat the quote again from Bloomberg; “From 2000 to 2009, equities as an asset class (as measured by the S&P 500 Index) failed to provide positive returns for investors.”
    When folks on this blog discuss the opportunity costs and then turn to perfect 20/20 hindsight of what stock or bond they could have invested in during the same time period, I laugh. Anyone can cherry pick time periods and stocks. It was not just a bad decade for real estate, it was a bad decade for the stock market as well. If we opended it up to a longer time period- say the last 30 years – and looked at averages- then yes, I would agree its valid to take into account lost opportunity cost. But if we just compare the last decade, which is what 99% of Socketsite posts focus on, then lost opportunity costs associated with money which could have otherwise invested in the stock market are not terribly strong.

  97. @ mikeywoodz
    The strategy I mentioned related to the discussion of wealthy people who purchase a seven (or eight) figure home for cash, and then later take a mortgage. It’s really only appropriate for someone who, as I mentioned, really knows what they’re doing and is really, really credit worthy.
    Among a number of risk factors to consider, ex SF-er correctly highlights two:
    1. Margin rates change with the Fed funds rate. Currently the Fed has repeatedly stated that rates will remain historically low for an extended period (which is a reason you see risky assets skyrocketing). So if you follow the strategy, you’re betting that you will get 2%-3% margin rates (and actually, there’s at least one place to get 0.5% margin rates) for a long enough time period to off-set the future risk of higher rates.
    2. Margin calls do happen, especially to investors who don’t know what they’re doing and who don’t properly manage portfolio risk. It’s sad, and people can be wiped-out. On the thread earlier, an argument was made to take money out of a property and invest it somewhere that generates a better return. As has been noted, the average investor didn’t do so well over the past decade. And they did even worse if they were investing with borrowed money.
    Bottom line: interesting strategies do exist, and the risk/reward can be managed. But such an approach should only be attempted by someone with pretty sophisticated financial knowledge, and very deep pockets.
    Sorry to bore people…back to whatever was going on with anon/anonn/anonnn and about the last 50 posts…

  98. If you can afford to pay all cash, the 2 to 3% loan is very easy.
    Get one of the adjustable loans tied to libor with short fixed period. If it is 1.5%+libor, it will be under 3% right now. This is much easier to understand and manage than Joshua’s method.

  99. Joshua, no you cannot.
    However, home equity loan is even worse. Consult an CPA for that please. There is no way you come out ahead on tax deduction with equity loans.

  100. ^ John, you misunderstand. A home equity loan has nothing to do with the strategy described. If you’re interested, please re-read my original posts.

  101. Joshua
    I would be the first one to admit that I don’t understand your strategy – and that’s why I don’t think it is a good one.
    I wasn’t even considering tax deduction when I first posted it. Thank you for reminding me. With tax deduction considered, the effective tax rate gets to below 2% with my method.

  102. When folks on this blog discuss the opportunity costs and then turn to perfect 20/20 hindsight of what stock or bond they could have invested in during the same time period, I laugh.
    Agreed.
    this is why I usually recommend using Treasuries to calculate opportunity cost
    They can be duration matched
    they are also risk free
    they are also plentiful and easy to invest in.
    when I calculate opportunity risk for my personal home RE I calculate vs 2 and 5 year Treasuries.

  103. anonn, You will be missed. The timing is interesting, though. I know you’d argue otherwise, but it’ll be interesting to see if the Feb. Case/Shiller numbers indeed market the beginning of the end (or if we get our regular Spring bounce and then some).

  104. fluj/anonn is just being a drama queen as usual. He’ll be back soon, if he isn’t already. He’s already threatened to leave numerous times whenever he makes an ad hominem and thinks the editor might delete it.
    There was a time when fluj leaving would have been considered a loss, but most of his posts lately have been argumentative without much substance or evidence and more about calling people haters than providing much useful commentary. I certainly would welcome him back if he started making substantive posts again, even if we probably disagree on several things.

  105. If he was secure in his beliefs, he wouldn’t have left just as SF has entered a “new reality”, and that the declines were part of the “last market”. He would have stayed to gloat.

  106. Maybe fluj is the guy referred to in this NYT article at the very last line, describing how sellers are desperately trying to sell before this Friday’s tax credit expiration for fear that the market is poised to tank:
    “But he also mentioned the plans of a colleague in real estate: As soon as the [federal tax] credit expires, the man plans to get on his Harley and just keep riding south.”
    http://www.nytimes.com/2010/03/30/business/30housing.html?pagewanted=2&sq=tax%20credit%20expires&st=cse&scp=7

  107. @noearch (Doug Shoemaker, Architect)
    Doug, interesting comments. I see that you are the Deputy Director of the Mayor’s Office of Housing — capital planning and housing development. Good for you! It must be an interesting position. You probably see and hear about almost everything in the works.
    Do you still have a private practice in Noe Valley (you linked your web site)? I will take a look at your site when I have some time.
    I may be looking for someone with inside track information.

  108. Two different Doug Shoemakers. The Mayor’s Dept Director of Housing (I thought he was the Director, but, whatever) had similar positions at Mission Housing Development Corporation and the Nonprofit Housing Association of Northern California. A great guy (not to say Noearch isn’t). But not an architect as far as I know.

  109. 2344 California St that is truly in D7 just closed for $1.85M and is 2250 square feet. $815/psf. I would have taken the California house over this one on Pine and saved 250k. Congrats to those buyers @ 2344. And also to the sellers who bought in 2001 for $1.5.
    I think $1.85 is a pretty good market rate for a solid D7 house. Not the best stretch of California street, but certainly better than Pine! Lot’s of deals / bargains to be had in this market.

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