Wow... unbelievable ratios. Is it all about appreciation, like Bitcoin?

We are looking to rent in the Palo Alto Area… I am amazed by the rents in relation to the estimated value of the houses (Zillow)… I am talking about a 2% ratio BEFORE taxes, repairs, etc (i.e. $8K/month on a zestimate of $4.9M)

Clearly the owners are counting on continued appreciation. Does this make sense, even with prop13, etc? I mean, maybe take some chips off the table here?

So, if you have the cash flow, you can “rent the life of a BA RE multimillionaire” on the cheap! :-):grinning:

wow, just wow

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Welcome to bay area where everybody is super rich and you are a middle class millionaire.

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You’re assuming the only people that buy homes are RE investors that plan to rent them out. The bulk of home purchases are families that want a place to live. They’re going to buy in the community they want to live and worry far less about rent ratios.

You are assuming that I am assuming. :-):grin: For that particular house, the owners are retired and live in the country of origin. Chatty property manager!

Bought long ago is ok.

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I find that a common thought in this forum and consider it a fallacy. The past is the past, good for them, but going forward it’s about today and how you are going to invest the $4.9M. Cost basis in a stock should not affect your selling decision, fundamentals and potential future growth should (that’s why Apple’s PE is a fraction of that of smaller, more nimble, faster growing companies)

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This is econ 101 :slight_smile: Sunk cost is irrelevant. But there are friction or obstacles :slight_smile: You have ignored costs like taxes, commissions, closing costs, and other not so obvious transactional costs… even for 1031, is not easy to find another house that you like. If talking about stocks, you have bid/ask slippages, at least right twice (sell AAPLs buy AMZN), commissions, taxes, and other not obvious costs.

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I agree. Lower mortgage payments and lower property taxes do help in holding on to a property bought pre-2013. However the decision to hold should take into account investment potential of current market value. Since no one has a crystal ball into the future, the question is does post-tax gain from investment property sale have same risk/reward profile as holding onto the house. Current SV landlords are betting on RE appreciation.

Those things you mention simply bring the $4.9M down to whatever. Even if they bring it down by 50%, the ratios still suck without continuing significant appreciation. The argument stands

Whatever, is your view :grinning: I can assure you many are aware of econ/ accounting 101 :slight_smile: Btw, there are many ways to pull out money to invest… there is such a thing called asset balancing and diversification.

I guess those PA homeowners are long past the asset accumulation phase. After you reach a certain point it’s more the return of investment rather than return on investment. If you have 20m already do you really want to sweat how to optimize the 4.9? They may just want to enjoy life knowing the house value likely won’t crash 50% unlike stocks.

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OK OK OK :grin:

Someone please change the name of this forum to:

it’s all in good spirits! Best

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But aren’t you assuming the PA homeowners are irrational in not selling the house? I am just saying that may not be the case.

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Won’t that apply to potential buyer? If the owner is irrational not to sell, and should sell, then the buyer of the house becomes irrational to buy because he would then become the owner? My brain hurts.

It does not sense to rent out expensive homes. Best thing is to 1031 them to a higher cap area.
A five million dollar apartment building can rent for $50000/ m. 6 times the yield of this example.

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Rational or irrational depends on someone’s circumstance. For someone like Mark Z buying a 5M house is like spending lunch money. For small flies trying to earn cash flow PA is highly irrational place to buy.

Many people rent out their expensive homes because they think one day they may come back and by then house price would be so much higher they won’t be able to buy.

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To rent or to stay? May be to rent is not so wise but to stay? I can see good reasons to buy to stay… many in fact.

Even buying to stay I think PA is borderline irrational, assuming the person’s net worth is below 10m and still need to work to make a living. It makes more financial sense to rent in PA and invest the money elsewhere for better returns.

But if you have 10m or above who cares? Just buy whatever you like.

Eventually PA will become too expensive for trophy homes and will full of high rises… not in my lifetime though.
I 1031ed my $3m RWC house into a huge money maker in Tahoe. Others will follow. Why sit around in a $5m liability, when you can buy a nice $1m house almost anywhere else. And then buy $4m of investment property that has a gross yield of $40k/m