"Property taxes in California are fixed at the purchase price with a minor increase allowed for inflation. My home has quadrupled in value since I bought it twenty years ago, but my property taxes have only gone up 60%."
-I love your observation. I moved to the San Francisco Bay Area to take a senior job in Finance. I have been here a couple of months and have been looking at real estate.
Last weekend, I looked at a house in Berkeley, CA. The homeowner said the house hadn't been on the market for 40 years. So the homeowner was probably paying $1,200-$1,500 a year in taxes. Let's say they bought the house in 1965 for $20,000. Now, they have it on the market for $799,000. The real estate agent says they will "accept bids" on May 25th (today), and that it will probably go for $950,000.00. At 1.5% tax rate, which Berkeley is, the tax burden alone will be nearly $14,250/yr.
You gotta understand, this place is the classic grandma's craftsman. It hasn't been worked on in years. The yard is small and overgrown, the floors sag and the walls are not plumb. It has a sweeping view of the San Francisco Bay but dozens of steps up from the street and a mass of tangled electrical wires block the view. It ain't the western white house.
So, here I am, making high $200's to low $300's in a finance job, looking at this overpriced piece of junk that has structural issues and needs 40 years of updating and thinking, "Sure, if I take this on, I will be paying $1,200 for taxes a month, $5,000 for mortgage and additional for utilities, remodeling and upkeep."
Meanwhile, the State of California is taking 10% of my pay in taxes each payday before I even see the money. Please tell me...am I supposed to look at the guy who posted the quote above and with a smile take this junk house off his hands so he can make his mint, laugh all the way to the bank and pay the taxes he hasn't paid over the past 40 years?
I can't suspend belief enough to participate in that ponzi scheme. So, the solution? My friends and I who are working in California, are taking the money out of state and buying beautiful homes back in the real world. Smart people are finding other solutions. Renting in the same area with a better view in an updated apartment currently costs the equivalent of the monthly tax payment alone. Assets are leaving the state as smart people look elsewhere for a reasonable tax shelter.
...just one guy's story.
Good Story, One of my good friends bought in a iffy part of Costa Mesa,CA for $300,000 in "99 sold at $585,000 in 04, and moved to Oregon laughing all the way to the bank.
A couple pt. rise in interest rates combined w/ the "interest only" & other funny loans will crash this mkt - big time.
Combine above w/ funny biz at Fannie Mae & HOLD ON, it'll be the roughest ride since '29 !
Ground "creep" is a really slow motion landslide over an extended period - say an inch a year for 50+ years. A whole neighborhood can move almost as a unit. This causes incredible title problems.
I used to practice real estate law and have a friend who is a soil engineer.
Quote: My friends and I who are working in California, are taking the money out of state and buying beautiful homes back in the real world.
My wife and I own 12 acres in appalacia (eastern Ohio).
The economy sucks but we paid $35,000 for the ground and built our 1700 square foot home on it. We have about $180k in the house & land. Our home values have not gone up in 10 years and will probably still be worth 180k 10 years from now because people are moving from our county (no jobs).
However we really like it. Closest neighbor is 1/4 mile away and we live on a dead end country road with only 3 homes past ours. Our town has 400 people and no red light or traffic.
Would not trade it for anything.
Everyone else can have their rat race.
I'm in a very similar financial/employment situation to yours. Right now I'm living in a million dollar condo in the East Bay with a monthly rent less than half what the mortgage/taxes/insurance payment would be had I been stupid enough to buy it. I did decide to buy some real estate for investment: a high-rise condo in Las Vegas at a pre-construction price eighteen months ago.
If the market wants to punish owners, be a renter, I say. There's always a way to play the game. ;)
New construction is around $100 a sq.ft. and trust me, for even $500,000 you have a home in a fantastic neighborhood you would be proud of!
Heck, for $250,000 you can have a home here you'd be proud to own. Little Rock housing is the best kept secret in the Nation :~)