August 11, 2010

Dick(ering Over One Via) Vandyke

1 Via Vandyke

On the market across the bridge in Mill Valley asking $6,900,000 in December, as far as we know 1 Via Vandyke never sold. But as a plugged-in tipster notes (and gets headline credit), the 7,000 square foot home with 600 square foot cottage (dibs!) is now available for lease and asking $16,000 per month. And yes, an option to buy is available.

If you plan to share a rent versus buy calculation, please share your assumptions as well.

∙ Listing: 1 Via Vandyke (7/5.5) - $16,000/mo (Marin) [millvalleyluxuryliving.com] [Craigslist]
The Woods Atop A Grassy Knoll In Mill Valley (1 Via Vandyke) [SocketSite]
To Rent Or To Buy, That Is The Question (That Only You Can Answer) [SocketSite]

First Published: August 11, 2010 8:00 AM

Comments from "Plugged In" Readers

Assuming 1.1% for property taxes and another 1% for insurance, maintenance, vacancy, management and keeping the koi ponds stocked etc., yields a cap rate or 0.6%. I say rent it but then you would be throwing your money away.

Posted by: alazyman at August 11, 2010 8:50 AM

Put a little differently, $16k/mo is just about right what you'd pay on a $3 million loan (inc. property taxes and after tax deductions). So this place is priced at about double where it should be (on this basis). If you're even thinking about this place, it's a no-brainer -- rent it rather than buy it.

Of course, that goes for just about every property in the Bay Area except, perhaps, for some very low-end places.

If you threw 1960s Mary Tyler Moore in with the package, I'd pay $6.9 million in a heartbeat.

Posted by: A.T. at August 11, 2010 9:30 AM

Just think, with all the property taxes you'll be paying you will be supporting 1-2 non-productive liberal bureaucrats. Think of them as pets.

Posted by: glennz at August 11, 2010 9:56 AM

16k and I have to ask permission for a pet.

Posted by: eddy at August 11, 2010 10:16 AM

Conservatives never waste money or run up debts!

Posted by: glenniswrong at August 11, 2010 10:46 AM

Agree with eddy. For 16K/mo, they should be providing someone to pick up my pet's feces.

Does anyone have any idea what the comps are that justify this place being listed for almost $7M? It can't be the lot alone -- is it 1.33 acres or 22,000 sqft (more like 0.5 acre)? The tax record says the latter. I've seen big houses on bigger lots in Mill Valley for much less coin, even if this place is 7K+ sqft.

Posted by: sfrenegade at August 11, 2010 10:51 AM

Rental properties are really all over the map right now because owners who purchased at the top are offering things for rent based on their inflated costs. They can't compete with what people who either bought recently are offering or people who bought long ago are offering, but some are still trying.

St Regis 35f is for rent asking $8600. The owner paid 2.45M in 2006. His payments, plus property tax plus HOA and parking ($17,200) are exactly twice his asking rent of $8600. He thinks he's being generous.

Meanwhile, 31f is languishing for sale at $1.4M. That means the after tax cost of buying 31f is around $7500, and if it sells for something closer to $1.2M, after tax costs of owning will run $6750.

So the owner of 35f thinks he's already offering it for rent for such a huge loss (his costs are a whopping $17,200 per month and he's only asking half of that for rent), that he probably doesn't want to drop down to a rent/buy parity rent of a little above $6750 (for the higher floor than 31f, though both have views), but that's the unfortunate reality of the market.

In the mean time, he's losing around $200K per year as the value of that property continues to sink. Everyone who bought at the St Regis in 2006 is on track to have lost about 50% by the end of the year. Wow!

Redfin Listing for 31f: http://www.redfin.com/CA/San-Francisco/188-Minna-St-94105/unit-00031F/home/12330699

Rental listing for 35f: http://sfbay.craigslist.org/sfc/apa/1892018158.html

Posted by: tipster at August 11, 2010 11:24 AM

Here's my really optimistic estimate of the cost to buy this place, with maxed-out tax benefits and really low maintenance assumptions (much of this thanks to the calculator at IHB):

$6,900,000 purchase price
$1,380,000 downpayment
30 year fixed-rate loan at 5.1%
1.15% property tax -> $79,350 / year
0.15% homeowners insurance -> $10,350 / year

Monthly cash costs are $37,446

Tax savings: $79,350 in property taxes and $51,000 in interest on $1,000,000 are deductible
Assuming maximum tax rate of 44.55% (35% federal + 9.55% CA)
Annual tax savings of $58,070.93 = $4839.24 / month

Monthly interest on the first payment is $23,460
Equity hidden in payment is $6511

Lost income on downpayment, net of taxes, assumed to be 2.4% = $2760 / month
Maintenance reserves of 0.25%, as anybody who would buy this property is already an accomplished koi wrangler, is $1438 / month

Monthly cost of ownership is $30,293. Rent.

Regarding A.T.'s comment that rent v. buy favors renting for "just about every property in the Bay Area," I believed this to be the case as well, but it seems to be changing. We're moving to San Jose (both our employers are relocating), and while we're going to rent at first, purchase prices are looking pretty attractive. An identical unit we're going to rent for $1750 (San Jose is so much more affordable than the peninsula) sold last month for $285,000, for a (monthly) GRM of 163. Now, the $400 HOAs may tilt this in favor of renting, but it's pretty darned close, especially at today's interest rates.

Posted by: Jeremy at August 11, 2010 11:29 AM

Hey Jeremy (or anyone else)-

Just curious, is there a formal or informal GRM number where it makes more sense to own as opposed to rent. I have heard an annual GRM of 17, but not sure how accurate that is. I have also heard an annual GRM of 15 or under makes a lot of sense as an income producing investment.

Anybody have additional insight on this? Thanks.

Posted by: Kiteen-Mitten at August 11, 2010 11:51 AM

I know he said he was being really optimistic, but isn't Jeremy's math really flawed given deduction phaseouts (clearly a buyer w/ said means would be in that territory) as well as AMT?

How would tax benefits be anything but a rounding error here?

Posted by: Tripp Knightly at August 11, 2010 12:40 PM

"but isn't Jeremy's math really flawed given deduction phaseouts"

Jeremy was calculating the lowest possible cost of ownership just for comparison, so his math is fine and helpful. In reality, yes, it's entirely possible that phaseouts could kill the interest deduction, that the AMT could kill the property tax deduction, and that the tax rate might not be 35%.

Also maintenance could be higher. On a property this large (and I'm including land), maintenance is higher than on, say, a 5000 sqft lot where the house takes up much of the space.

Posted by: sfrenegade at August 11, 2010 12:55 PM

The math is totally flawed because people who earn enough money to buy a house like this only pay 17% tax on average, not 35% like us wage-earning schmucks.

Which only tilts the balance even further in favor of renting.

Posted by: Jimmy (No Longer Bitter) at August 11, 2010 6:26 PM

Effective tax or on the margin?

Posted by: Tripp Knightly at August 11, 2010 8:31 PM

the 17% figure is nice to rile us masses but if 95% of your income is qualified dividends and long term capital gains at 15% it drops your average down pretty quick. we can debate the macro effects of increasing the dividend and ltcg tax rates if we want but that's a different argument. also no one pays 35% effective tax unless they are doing their taxes wrong.

Posted by: fancy rental at August 12, 2010 12:15 AM

Keeping localities running is non-productive? As if roads will simply rebuild themselves as necessary? If only we could return to the days when sewage was dumped in the street and trash was burned out back!

Posted by: Mole Man at August 12, 2010 8:17 AM

Just axe the entire edifice of municipal government and let the free market provide.

For roads, trash and sewer, people can sub out their day-to-day upkeep needs to Home Depot day laborers for $12/hr.

For permitting and building code enforcement.... well, no one really needs that anyway.

Crime control can be a DIY effort -- who needs cops when you have Smith & Wesson at the ready?

And as for fires -- just invest in a good rope ladder in case you need to evacuate from the 2nd story. Or better yet, fireproof your house with asbestos tiles! The private sector will provide!

Posted by: Jimmy (No Longer Bitter) at August 12, 2010 9:45 AM

Can't tell if you're being sarcastic Jimmy, but love your post regardless.

Posted by: alazyman at August 12, 2010 10:26 AM

"Keeping localities running is non-productive?"

It would be nice if property taxes actually kept localities running, but they don't. One of the biggest flaws in Prop 13 is the amount of control it gives to the state government instead of local governments. Of course, maybe the Board of Supervisors having more power would be worse than letting the state control things in the case of San Francisco County, but in the state's other 57 counties, local control would be better.

Posted by: sfrenegade at August 12, 2010 10:42 AM

ST Regis 35f now asking $7800, down $800 and not even half the owner's costs!

Posted by: tipster at April 2, 2011 8:34 PM

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