What is going on with rental prices?

frenchyd said:

Ian F said:

pres589 said:

wheelsmithy:  Unless something has changed, you're on the hook for the rent for the months that you didn't live there until the lease is up.  You shouldn't be sued if you keep paying OR until they rent out the unit.  Once it's rented you're done as it can't be rented out to two separate parties at the same time.   The landlord is also obligated to get it rented again ASAP.

The deposit is also gone but that's always been the case as well.   

That is sort of what happened to me when I had to break my lease in NH when the project I was working on ended.  Fortunately, the management saw this sort of thing all the time and had a pretty reasonable policy about it.  $200 break-lease fee, deducted from your deposit and you're on the hook for the rent until they can rent the apartment. However since they had a waiting list to get in, the pro-rated rent was only for two weeks. So end I got a fair bit of my deposit back despite breaking the lease. I considered that one advantage of getting one of the cheaper places.  My coworker was in a much nicer apt, but the lease was considerably less flexible when he inquired about breaking it. Pretty much what wheelsmithy described. 

When you own, your "rent" does still go up a bit - my mortgage payment usually went up a bit each year for tax increases. It's also the advantage of paying off your mortgage. The "rent" for me now is basically making sure I have saved enough for the tax bills.

You make a good comment regarding the slight increase in taxes due to appreciation.  Savy home owners I know will make the case that while the land does appreciate over time. The building will depreciate. The average home in America is something like 48 years old when it’s either demolished  for new or so extensively remodeled  it may as well have been demolished.  

So whatever it cost to build the house ( minus land) divided by 48 is what the yearly depreciation on the building is.  Using that formula they contest a tax increase.  

Even this number isn't correct. 

"In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old." This is from 2015. 

I, and I'm absolutely positive many others, wish you would completely refrain from posting in threads that have anything to do with finances.

z31maniac said:

frenchyd said:

The average home in America is something like 48 years old when it’s either demolished  for new or so extensively remodeled  it may as well have been demolished.  

So whatever it cost to build the house ( minus land) divided by 48 is what the yearly depreciation on the building is.  Using that formula they contest a tax increase.  

Even this number isn't correct. 

"In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old." This is from 2015. 

I, and I'm absolutely positive many others, wish you would completely refrain from posting in threads that have anything to do with finances.

You guys are pointing out 2 different numbers... Depreciation rate is not related to median age.

z31maniac said:

frenchyd said:

The average home in America is something like 48 years old when it’s either demolished  for new or so extensively remodeled  it may as well have been demolished.

Even this number isn't correct. 

"In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old." This is from 2015. 

I, and I'm absolutely positive many others, wish you would completely refrain from posting in threads that have anything to do with finances.

Much as I agree with your final statement, I have to defend frenchy here:

He's not saying the median age of American homes is 48 years old.  He's saying the median age of homes that are replaced (or effectively replaced through extensive renovation) is 48 years old.  In other words, the median service life of an American home is 48 years.

Duke said:

z31maniac said:

frenchyd said:

The average home in America is something like 48 years old when it’s either demolished  for new or so extensively remodeled  it may as well have been demolished.

Even this number isn't correct. 

"In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old." This is from 2015. 

I, and I'm absolutely positive many others, wish you would completely refrain from posting in threads that have anything to do with finances.

Much as I agree with your final statement, I have to defend frenchy here:

He's not saying the median age of American homes is 48 years old.  He's saying the median age of homes that are replaced (or effectively replaced through extensive renovation) is 48 years old.  In other words, the median service life of an American home is 48 years.

I misunderstood then, I'll accept that. 

RX Reven' said:

frenchyd said:

I’m glad you pointed out that it’s not just where do you get a better rate of return. 

With the stock market your return is controlled by your investment.  If you have $400,000 to invest that is your return rate.   

If you buy a house with 20% down  that is the total of your investment.  So in theory your $400,000 could control a $ 2 million dollar home.  Then you get the tax deduction of the interest cost.  Plus either the benefit of living there or the rental income. 

Yes you do have to make payments and do maintenance etc.  so calculating rate of return gets extremely personal.  

High demand areas such as beach front or lakeshore increase rate of return beyond what normal real estate does. Just as selecting the next big company will do the same. 

 

Hi frenchyd,

I’ve always been a worker / saver and by 20 I had squirreled away just enough to purchase a modest rental property.

Before committing, I read a few books on the subject and learned how to do the calculations as accurately as possible. This was before computers were commonplace so it took a lot of time to crunch the numbers but the result was shocking…the best estimate for a rental property’s net ROI was in striking agreement with the best estimate for the stock market’s net ROI.

It was at that moment that I had an epiphany…countless other investors had come before me and crunching the same numbers. The instant one investment class is a better deal than the others, money rushes into it and is drawn away from the others driving prices up and down respectively until equilibrium is restored.

I know this is fairly obvious stuff but it’s one thing to sit in an economics lecture and entirely another to make the journey yourself and discover on your own how it works.

None of this will make renters that are getting squeezed feel any better, I’m just pointing out the mechanics of why it’s happening.

My logic was a bit different.  As a young man I often listened when business was discussed and was astonished at the flexibility managers and accountants approached reporting profit and losses. The one constant seemed to be what the boss or stockholders expected.  

Using phrases like work-around and cost shifting they’d turn profit into loss and loss into profit. I used to believe that was procedures only used by small disreputable company’s  but decades of sales to Fortune 500 companies  proved otherwise.  

Banks though I really believed must comply with FEC regulations.  Savings and loan scandal  proved otherwise and  the Mortgage  crisis of 2008 showed the lengths even major Banks would go to profit by playing by their own rules.  

Looking at how companies like Sears and GM conducted business I realize that even a good thing remains good only as long as the people in charge are honest.  

In short if  you can’t trust the books to properly report profit and losses. Why would a person trust their retirement future to that company? 

Spreading your investment out over several companies and investment methods seems akin to buying more lottery tickets in the blind hope that you’ll get lucky. 

And you know what they always tell you when you buy stock.  “ past performance is no guarantee of future performance” 

That 48 year rule was about accurate for my house. Built in 1935. Extensive renovation about 50 years later in the 80's.  (Over)Due for another one 30-odd years after that (now). 

Zillow values my house at about $150K, but being realistic, I wouldn't sell it for anything less than $200K (after repairs and renovations) for the simple fact it would take at least that much to get something similar almost anywhere else I'd want to live (and other than a want for more enclosed parking, I like where I live).  I have a sneaking suspicion my number wouldn't be too far from reality. 

I always assumed the Zillow estimates are optimistic, not pessimistic.

Well there went my thread. 

Duke said:

I always assumed the Zillow estimates are optimistic, not pessimistic.

Depends on the area. They use an algorithm based on the taxes, recent sales in the neighborhood, and square footage. Really crappy houses are going to be optimistic. Really nice houses are going to be pessimistic. 

https://www.zillow.com/homedetails/443-Autumn-Dr-Beecher-IL-60401/72598056_zpid/

https://www.zillow.com/homedetails/432-S-Ahlborn-Dr-Peotone-IL-60468/5436188_zpid/

https://www.zillow.com/homedetails/3415-Huntley-Ter-D-Crete-IL-60417/2146369728_zpid/

Also ask around. If you're a member of a church/synagogue/temple, ask there first. Check the local papers. Drive around and look for signs. Head into the local bars and ask the owner/bartender and ask if they know of anything. 

Not from what I've seen in the N/NE Philly suburbs.  Recent example: a house I've been drooling over near work for the last few months (giant 4 bay garage with 2nd floor shop) had a Zillow value of around $700K.  It was just listed about a month ago for $810K.  Every house that has sold recently in my area has beat the Zillow value - some by quite a bit.

House values in my neighborhood tend to be heavily dependent on condition (like mine, many haven't been renovated in decades).  The relatively low taxes where I live are a blessing and a curse.  On the plus side, I don't have to pay much for services (schools) that I don't need (no kids).  On the negative side, the twp has a rep for generally crap schools and that keeps higher income families away and keeps values low. 

SyntheticBlinkerFluid said:

Well there went my thread. 

For better or worse, the housing market and rental prices are related.  Right now house values are nuts - anyone selling who doesn't ask for a fair bit more than estimated value is probably leaving money on the table.  As a result, rental costs are dragged up as well.  

Flynlow said:

frenchyd said:

You have most of it right.

Except 1  it’s not really a pendulum because there is only so much land( and less then you’d think when you factor in  job access And desirability. But an ever increasing population willing, neh,  eager to get on the inflation defeating elevator. 

Except 2. 50% can be sustainable if your goal is to use real estate as your investment medium.  I realize doing so violates two investment rules.  1 diversify.  & 2. Have a escape plan.  

The second isn’t relevant if you are committed to a particular location.   If for family reasons, business reasons or just plain preference you decide to remain in one location you don’t have to be like most Americans who move every 5 years on average.  There are solid fiscal reasons to remain committed to one location 

As for diversify,  while it is solid advice for most, it also imply’s  that your alternate plans may not be as good.  That if you make a selection mistake if you select enough alternatives  maybe something will “luck-out”.  

Sort of like by buying more lottery tickets you have a better chance of winning.  

Oh, and as for waiting. Remember after two years any profit you made on selling is exposed to capital gains taxes.  ( unless you want to take your one time exemption now instead of at retirement) 

Frenchy, no disrespect, but none of this is correct.  You may want to read up on capital gains taxes.  

 

EDIT:  Was on the phone, and I hate trying to insert links or edit quotes.  Cleaned up the quote block.  Also, here is the relevant section from the IRS on capital gains on primary home sale:  https://www.irs.gov/taxtopics/tc701

Short version:

• No, it is not exposed to capital gains taxes two years after selling, this is completely backwards.  You must live in the home as your primary residence for 2 of the past 5 years to qualify for an exemption.  2 years after the sale has no relevance to anything for exposure to taxes.
• You can exclude capital gains from multiple home sales over your life, as long as they are staggered to meet the use test in bullet one.  "One time exemption" is nonsense, and could refer to the exemption you take every year, which is not one time, or the lifetime gift limit of ~$5.4 million, recently doubled to $11 million

You are correct.  The law was changed in 1997  which explained the surge in flipping houses the last two decades.   

On the 4 th of July a Family member mentioned the 2 year rule exposing  the seller to capitol gains. I along with everyone else who owned a home  (about 10  people) nodded in agreement.  Explains why we use  tax preparer’s to do our taxes.  

Duke said:

I always assumed the Zillow estimates are optimistic, not pessimistic.

Not in my case...

The same floorplan as mine but on the absolute worst lot in my development (no view, at a T intersection, zero lot line connecting to a sidewalk on one side, tiny backyard with a neighbor looking right down on you) closed escrow six months ago for 925K.

My home is on one of the best lots in my development (at the top of a big hill, 270 degree view of surrounding mountains peppered with multi-million dollar custom homes, generous sized yard) and Zillow has it at 894K today despite the fact that prices have increased significantly since the sale of the other property.

If I were to put it on the market, I’d instruct my realtor to not just reject any offer that wasn’t north of a million but to literally fart directly in the prospective buyer’s nostrils while yelling “stop wasting our time ya’ berktard”.

mtn said:

https://www.zillow.com/homedetails/443-Autumn-Dr-Beecher-IL-60401/72598056_zpid/

https://www.zillow.com/homedetails/432-S-Ahlborn-Dr-Peotone-IL-60468/5436188_zpid/

https://www.zillow.com/homedetails/3415-Huntley-Ter-D-Crete-IL-60417/2146369728_zpid/

What’s funny, is that the first one has the incorrect address, I used to live at 443 Autumn Drive, it was the bottom unit. That one is 447. If it’s the same people who owned the building 5 years ago when I lived there, good luck to whoever moves in there. 

RX Reven' said:

Duke said:

I always assumed the Zillow estimates are optimistic, not pessimistic.

Not in my case...

The same floorplan as mine but on the absolute worst lot in my development (no view, at a T intersection, zero lot line connecting to a sidewalk on one side, tiny backyard with a neighbor looking right down on you) closed escrow six months ago for 925K.

My home is on one of the best lots in my development (at the top of a high hill, 270 degree view of surrounding mountains peppered with multi-million dollar custom homes, generous sized yard) and Zillow has it at 894K today despite the fact that prices have increased significantly since the sale of the other property.

If I were to put it on the market, I’d instruct my realtor to not just reject any offer that wasn’t north of a million but to literally fart directly in the prospective buyer’s nostrils while yelling “stop wasting our time ya’ berktard”.

 

My house just sold for about 150k. Zillow had the 'zestimate' at like $113k. Interestingly, about 3 years ago they had the zestimate much higher but they changed the algorithm and even changed their zestimate 'history'. That is off by a huge percentage.

In reply to Robbie :

I’m aware of Zillow’s revisionistic history…as a practicing statistician, I find them to be an embarrassment to my field.

Ian F said:

SyntheticBlinkerFluid said:

Well there went my thread. 

For better or worse, the housing market and rental prices are related.  Right now house values are nuts - anyone selling who doesn't ask for a fair bit more than estimated value is probably leaving money on the table.  As a result, rental costs are dragged up as well.  

I understand what you are saying, but this whole thread turned TL:DR for me once you guys started getting in depth. 

In reply to SyntheticBlinkerFluid :

Did you really expect to start a thread here and have it NOT go down some deep rabbit hole of analysis, theories and unrelated commentary?  

How long have you been here? 

Here's what I wonder, though: when market prices are being driven by lack of supply, can't you make more money off building? 

In my area, 1 acre lots are getting subdivided into four 1/4 acres lots. 1/4 lots are getting subdivided into slivers. There is a guy around the corner from me who bought a house where he could use his neighbors roof as his back porch. 10' might separate the foundations, but I swear that with overhangs they are like 6' apart. 

In today's increasing profitable rental/airbnb market, one advantage I see to building your own house is that you could build a simple house with a MIL suite, and detached garage with a MIL suite, and potentially rent all those out to cover your mortgage. 

pheller said:

Here's what I wonder, though: when market prices are being driven by lack of supply, can't you make more money off building? 

 

In my area, 1 acre lots are getting subdivided into four 1/4 acres lots. 1/4 lots are getting subdivided into slivers. There is a guy around the corner from me who bought a house where he could use his neighbors roof as his back porch. 10' might separate the foundations, but I swear that with overhangs they are like 6' apart. 

 

In today's increasing profitable rental/airbnb market, one advantage I see to building your own house is that you could build a simple house with a MIL suite, and detached garage with a MIL suite, and potentially rent all those out to cover your mortgage. 

That works if there is space. Where I live, my lot would be worth more if the house wasn't here.  My house has nothing wrong with it and we will probably live here for at least 10-30 more years.

Literally, my house is insured for less than we paid for it and way less than we could sell it for. The cost to replace the house, as it is, is less than the price of the ground it is sitting on. 

In reply to pheller :

It depends.  The idea of building in a MIL suite has potential for AirBnB income. It also depends some on what you can get away with in your township.  Some are more restrictive than others and nearly all of them are looking for ways to dip their hands into that cookie-jar.  Some (most? all?) see that as rental taxes they aren't getting.

The idea of the land being worth more than the house is definitely increasing,  The house next to my mother's sold recently and is slated to be torn down.  There's nothing really wrong with it - looks like your basic Cape Cod that was built sometime during the 50's or 60's.  The house sold for about $275K but the area can support a house double that.  When sold, my mother's house would likely suffer the same fate, which definitely changed my mother's renovation plans. Pointless to invest a lot of money into the house when only the actual land has value. 

In reply to pheller :

You basically just described a duplex or triplex, and you're right that it can be a really nice deal, but building anything right now is incredibly expensive. I'd be shocked if you couldn't buy one for quite a bit less than building new. That's doubly true if you're talking about building a custom home with multiple living quarters.

Ian F said:

In reply to SyntheticBlinkerFluid :

Did you really expect to start a thread here and have it NOT go down some deep rabbit hole of analysis, theories and unrelated commentary?  

How long have you been here? 

Are we counting the times I have to take a break from this place for a few months? 

Plus, most of my threads are dead within the first page. 

For what it's worth I'm angling for a one bedroom close to the border of Md but still inside the District.  At the most I'll save $400 to $700 a month over a closer in similar unit.  Parking looks considerably better.  Crime is almost certainly considerably better.  My commute will probably make me regret using the M/T 200sx rather than the A/T sibling as my designated downtown parking garage car.  Better gas mileage due to smaller engine though and if I ever get around to replacing the clutch cable it should not be as sucky.  Now for the real bad part.  I've never been more than a ten minute walk from shopping/dining/entertainment you name it.  Walking in the future will only be for exercise as there is nothing within 2/3 miles of the new place.  And how much you ask?  $1,040 for a one bedroom basement in a small walk up building.  It has a decent storage/tool shed unit in the basement directly across the hallway which will be nirvana.  My only true worry is the social isolation.  But that's what project cars are for. 

Dang now I want to go for a beer.  Let me look out my window to see who the bartender is across the street.