3 ms·

Well, I live here because I need a house, not as an investment property. That might be why the housing situation in California is a superfund site and in Chicag

Well, I live here because I need a house, not as an investment property. That might be why the housing situation in California is a superfund site and in Chicago I live in an expensive house because I want to.

lotsofpulp 5y ago
I do not think it matters if a house is an investment property (i.e. not the house you are living in) versus a house you need (i.e. to live in). My point is the cost of living calculation also involves the opportunity cost of the difference in land price appreciation. Of course, this opportunity cost only exists if you have the opportunity to choose between two or more locations.
- selectodude 5y ago
  My ROI on the extra million I'd spend has far better returns in the equity markets than even the most broken California real estate markets.
  - lotsofpulp 5y ago
    ROI would have to be calculated using the levered amount. Even paying $2.7M cash for this house, you can refinance and take out 80%, and have the $2.7M asset for $540k in a non recourse state with a non callable margin loan. And with capped 2% property tax increases. Plus you get to live in it. Plus you get CA amenities (value dependent upon individual preferences, but obviously valued very highly amongst people with money). One of those CA amenities is very worker friendly non compete laws and strict limitations on what employers can claim is theirs, a not insignificant benefit for knowledge workers in my opinion.
    - selectodude 5y ago
      Ah, but $1 million allows me to borrow upwards of $6.5 million at 0.75 percent from my broker. Real estate allows significant margin for the lower and middle class, but there's literally zero overlap between those people and people buying $2.75 million homes in Sunnyvale. Way better off leveraging your SPX shares than a house.
      - lotsofpulp 5y ago
        I suspected this would be brought up, which is why I tried to pre-empt it by specifying that a home mortgage has special conditions that make it not 1 to 1 comparable to other leveraged investments, such as non callability, non recourse (in California), you get to live in it, and you get to live in that specific location (assuming you value it).
        selectodude 5y ago
        I recognized that, which is why I tried to stick to a high-net worth situation like this particular one. I'm far better off buying a $300k house than having $60k in investments but those comparisons become a bit more fuzzy at these 7-figure numbers.
        lotsofpulp 5y ago
        I am not so sure. Another benefit of CA real estate is that you can gift it to your kids and not be subject to state estate taxes, and the capped property tax carries forward to your kids. Popular California land is a very unique asset.
        thghtihadanacct 5y ago
        The best benefit to one of these houses in this area is that you have one of these houses in this area. My house isnt an investment but a roof over my head and a good sized yard not far from a very beautiful bay and lots of mountain trails. Its worth more to me than what zillow says.
      - dragonwriter 5y ago
        > Real estate allows significant margin for the lower and middle class, but there's literally zero overlap between those people and people buying $2.75 million homes in Sunnyvale. People buying $2.75 million homes in Sunnyvale are largely either working (knowledge workers dependent primarily on wage labor) or middle (petit bourgeois; independent business owners and workers with mixed dependency on wage labor and capital investments) class.

lotsofpulp 5y ago

I do not think it matters if a house is an investment property (i.e. not the house you are living in) versus a house you need (i.e. to live in). My point is the cost of living calculation also involves the opportunity cost of the difference in land price appreciation. Of course, this opportunity cost only exists if you have the opportunity to choose between two or more locations.

selectodude 5y ago
My ROI on the extra million I'd spend has far better returns in the equity markets than even the most broken California real estate markets.
- lotsofpulp 5y ago
  ROI would have to be calculated using the levered amount. Even paying $2.7M cash for this house, you can refinance and take out 80%, and have the $2.7M asset for $540k in a non recourse state with a non callable margin loan. And with capped 2% property tax increases. Plus you get to live in it. Plus you get CA amenities (value dependent upon individual preferences, but obviously valued very highly amongst people with money). One of those CA amenities is very worker friendly non compete laws and strict limitations on what employers can claim is theirs, a not insignificant benefit for knowledge workers in my opinion.
  - selectodude 5y ago
    Ah, but $1 million allows me to borrow upwards of $6.5 million at 0.75 percent from my broker. Real estate allows significant margin for the lower and middle class, but there's literally zero overlap between those people and people buying $2.75 million homes in Sunnyvale. Way better off leveraging your SPX shares than a house.
    - lotsofpulp 5y ago
      I suspected this would be brought up, which is why I tried to pre-empt it by specifying that a home mortgage has special conditions that make it not 1 to 1 comparable to other leveraged investments, such as non callability, non recourse (in California), you get to live in it, and you get to live in that specific location (assuming you value it).
      - selectodude 5y ago
        I recognized that, which is why I tried to stick to a high-net worth situation like this particular one. I'm far better off buying a $300k house than having $60k in investments but those comparisons become a bit more fuzzy at these 7-figure numbers.
        lotsofpulp 5y ago
        I am not so sure. Another benefit of CA real estate is that you can gift it to your kids and not be subject to state estate taxes, and the capped property tax carries forward to your kids. Popular California land is a very unique asset.
        thghtihadanacct 5y ago
        The best benefit to one of these houses in this area is that you have one of these houses in this area. My house isnt an investment but a roof over my head and a good sized yard not far from a very beautiful bay and lots of mountain trails. Its worth more to me than what zillow says.
    - dragonwriter 5y ago
      > Real estate allows significant margin for the lower and middle class, but there's literally zero overlap between those people and people buying $2.75 million homes in Sunnyvale. People buying $2.75 million homes in Sunnyvale are largely either working (knowledge workers dependent primarily on wage labor) or middle (petit bourgeois; independent business owners and workers with mixed dependency on wage labor and capital investments) class.