All Forum Posts by: Tony Kim

Quote from @Dax Nollenberger:

Searching the internet for whether homeownership is actually valuable will leave your head in a daze. Major players in the real estate investing space will argue that you shouldn’t own a primary home, others will argue that you shouldn’t take on any debt, and many more will encourage you to accumulate as much real estate as possible. So many varied opinions pulling in every conceivable direction only adds to an already overwhelming decision and leads to the inevitable buyer thinking “am I making the right decision?

To understand why you should be a homeowner, we need to identify the many benefits of homeownership. Pride of ownership and the ability to make a house a home are obvious benefits but I want to focus on the financial benefits of homeownership: debt paydown, appreciation, and tax benefits. If it were an investment property, there would be even more: rental income and rental property depreciation.

I know, I know, there is great value in using the money to leverage investment properties. In California, appreciation is king. 

The numbers will certainly look different wherever you are but the premise is the same, there are great monetary benefits to homeownership. 

To best understand the financial benefit of homeownership, we need to walk through a scenario:

Hypothetical Homeowner’s

• Buying in Santa Cruz, CA
• Using a 30-year fixed mortgage at 5% interest rate
• Married- Filed Jointly
• Cumulative Income: $350,000
• Purchase Price: $1.5M
• Down Payment: $300k
• Mortgage Amount: $1.2M
• Monthly Payment: $6,441.86

If they Rent: 

The math is pretty straightforward here. If they rent for 5 years at $5,000 per month, they will have paid $300,000 to someone else.

NOTE: This doesn’t even account for the potential of continually rising rents.

If they Buy:

One of the benefits of owning is that instead of paying off someone else’s mortgage, you are paying off your own. The Principle Paydown is the portion of the payments that go toward actually paying off the house. With an amortization schedule, the majority of the early payments are going toward interest on the loan but as you pay it off over the years, more goes toward the principle. This allows you to build equity in your home. After five years, the equity built from debt paydown is $98,055.21.

Another huge benefit for homeowners is the tax benefits. The interest that you pay on your mortgage is tax-deductible as is the property tax (although the property tax deduction is capped at $10,000 per year in CA). After five years, the cumulative tax benefit is $142,667.04.

Historically, Real Estate prices go up over time so it’s safe to predict the value of your home will continue to rise after purchasing. We assumed a highly conservative 3% annual growth rate. For reference, the Cumulative Annual Growth Rate (CAGR) in Santa Cruz County since 2010 is 7.6%. After five years, the value added from appreciation is $238,911.11.

After 5 years, the cumulative homeowner benefit is $479,633.36.

After 5 years, the cumulative benefit of not paying rent is $300,000.

After 5 years, the cumulative expenses (interest and property taxes) are $-380,706.35.

After 5 years, the NET benefit of homeownership vs renting is $398,927.01.

In the example above, homeownership would pay these potential homeowners about $80,000 a year!

Homeownership > Renting

So, buyers, if you are asking yourself “am I making the right decision?” the answer is a resounding YES!

If you'd like to plug in your own numbers, reach out for free access to my homeownership benefit calculator. 

- Dax Nollenberger

Realtor, Santa Cruz County 

Are you taking into account what the renter would do with the extra $300,000 he can keep as downpayment? What if that money was invested in the stock market that returned 8%? Or what if that money was used to buy a rental property? 

With that said, I'm obviously a homo and also rent out a portfolio of homes so I believe in homo-ship. But I honestly believe that there are multiple ways to achieve financial prosperity. I don't think there is anything wrong with renting your primary and putting all your assets to work outside of your primary.

Good article! The author also states that California has been losing residents for the past two decades. So why has real estate outperformed the rest of the country? I'm not trying to get into a pissing contest with you because I know you're very passionate in your anti-California views since you've sold everything here and relocated to Arizona (or maybe it's the other way around). Nothing wrong with that though! I hate California with a passion too! LoL. But seriously.....I'm just genuinely curious why California has done so well despite the population decline. I think the other parts of the article might help explain:

Quote from the article:
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People who move to California are different from those who move out. In general, those who move here are more likely to be working age, to be employed, and to earn high wages—and are less likely to be in poverty—than those who move away.

Those who move to California also tend to have higher education levels than those who move out—an especially important factor given the state’s strong need for college graduates. Notably, this gain in educated residents is concentrated among young college graduates (generally, adults in their 20s) looking for opportunities as they start their careers. In recent years, though, the net flow of college graduates has slowed considerably, and perhaps even reversed during the pandemic (but still remains positive for young college graduates).

Also of note: people who move to California have higher incomes than those who move away. Some have argued that the opposite is taking place—that California’s relatively progressive and high personal income tax rates drive out higher-income residents. But the fact is that California has been losing lower- and middle-income residents to other states for some time while continuing to gain higher-income adults. In the past five years the flow of middle-income residents out of the state has accelerated and net gains among higher income adults have ceased.

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So the above kinda confirms what my impression is of the folks that are leaving California. And I will most likely be part of that group that leaves eventually. We have real estate overseas in South Korea and will probably spend at least 50% of our time there in retirement. Meanwhile, my LA properties will continue collecting on its overinflated rent, lol!

And to speak from an anecdotal perspective, I have a few good friends that have left California due to the cost of living and struggled to buy and maintain a home. In contrast, my buddies who are doing well and earn a nice salary continue to live in the Bay Area, Orange County, West LA, etc. They hate the politics here and complain, but they also acknowledge that it's one of the best places to live if you have the means. I also have younger co-workers that are considering working remotely in Texas or somewhere in the east coast because they cannot afford to buy a home here in So Cal. 

Also, not sure if this anecdote is relevant, but I grew up in a city that was very white when I was young, but is now 98% hispanic. The city did a series of articles on the dynamics behind this change in demographics. Apparently, the small remaining 2% did not have the means or have the career success to partake in the 'white-flight' to neighboring Buena Park, Irvine, etc and are barely hanging on by a thread and just relying on the low cost of living from Prop 13. Can make your own conclusions on the above. 

Also, as someone who works in venture capital specializing in tech companies, I can say without hesitation that there is absolutely zero slow-down in the technology and innovation that originates in California. We as a country need to watch out though because there is a staggering amount that is also originating in places like Singapore, India, China and Australia. And finally, I used to work for BlackRock but left about six months ago. They have huge plans to build out their presence in California. 

Biggest mistake my parents made was to sell their prime Manhattan Beach home. Per Zillow and Redfin, the house is now worth an estimated $5 million. If they had kept the home, they would be paying property taxes based on an assessment value of around 500K IMO. Talk about low property taxes! Of course, they had no way of knowing MB would be the de facto location for rich people living in Southern California. But it's amazing how this false narrative about Californians paying high property taxes keeps getting perpetuated (kinda like California being broke). What makes property taxes even more insanely low in CA is if you are 55 or older, you can sell your primary home and buy a new one and transfer your base year value to avoid a sudden jump in taxes based on your new assessed value.

Interestingly enough, I have found that the only things currently cheaper in Texas than where I live are gas prices and real estate prices. Everything else that I encountered such as groceries, restaurants, Uber, were noticeably more expensive. Why is Uber more expensive there with gas prices being half what they are here in LA? And yes, there were a lot of complaints from the locals about property taxes and the way they are reassessed regularly. 

Food is incredible though...

Ouch, that must have hurt really bad. I guess if they decided to relocate to LV to start purchasing performing properties, it would sting a bit less, but I'm guessing they didn't do that. I've seen several indicators showing that LV is off-the-charts overpriced right now. But I guess that isn't as bad as what a certain buddy of mine did, which was to sell his home in Los Angeles and move his family into an apartment about 5 years ago in anticipation of another GFC-like correction. God help him.....I don't think he will ever get the chance to win an argument for the rest of his life after that stunt.

I also decided years ago that OOS just wasn't for me and it wasn't a long-term solution to build wealth. 

By comparing it to "any other state", you're making it impossible to answer the question. I feel values are inflated here in California. But I also feel values are even more inflated to the extreme in several other parts of the country. I just came back from a one week business trip to Dallas. Of course, that obviously doesn't make me an expert on the Dallas market, but it did reinforce my belief that the best market to invest in is still your backyard. I loved Dallas and I loved the people here...super-friendly and I ate loads of great BBQ. But I'm pretty sure I wouldn't want to buy a multi-unit in Dallas unless I lived here. But if I DID live in Dallas, I would start gobbling up properties before prices started to resemble Austin or Houston. It also reinforced my beliefs about California...and they are pretty much in line with @Karen Margrave's post. I just wouldn't be able to give it up to relocate and thereby have direct access to cheaper properties.

California is at a point where direct ownership by Mom and Pop investors such as myself just doesn't make much sense unless you're extremely well capitalized. If you're intent on direct ownership, then most par-time investors like me will have to invest OOS to avoid negative cash-flow for the first several years. I leave it to the pros and have put most of my focus on evaluating syndicated deals on the west coast, of which there is a ton of activity. The pros don't seem to be frightened of the oppressive CA regime. It's mainly the Mom and Pops like me that like to overplay it. 

Down drastically from 2020/2021? The S&P is currently higher right now than it ever was in 2020 and it's 1-year return as of today is around -9.5%. Not a good number, but certainly not what I would call a drastic fall. What kind of investments are you making where your stock portfolio is down so drastically?

With margins so thin right now in RE, I certainly wouldn't pay a penalty to move money from my retirement accounts to fund an OOS investment property. Also, don't be fooled by what these OOS's yield on paper. In real life, they are generally a very different story. 

I have emptied my retirement accounts twice in my lifetime, but this was during a very different economic situation. The moves paid off handsomely for me as I used that money to purchase local properties that have really taken off. Given where we are in the current cycle, I would never do the same thing right now. I agree with @Steve Vaughan.... I would only do this if I came across a killer deal. 

 I stand corrected. 

 I take it you haven't read the whole thread.

Quote from @David P.:

Quote from @Nancy P.:

I just want to address your OP where you said  his threatening to not pay rent "did not sit right".  Please let that go.  Men who feel their tiny daughters are in danger say whatever it takes to make him feel his child is safe again.   I'm shocked at the eviction laws currently in place.  I'd at least call Animal Control.  Maybe they can get rid of the dog where you can't, or cite them for not monitoring the dog well.  

 So worst possible outcome happened today. While putting on the lock the dogs attacked me and I had to go-to ER. Pretty gruesome. At this point I'm lost for words. They assured me the dogs are gone and won't be there anymore. 

Holy effin Christ! I want to say that I'm shocked that this happened....but then again, we are talking about out of control Pit Bulls. Oh yeah, and I'm sure these pits were the sweetest and most loving dogs before this happened right?  So does this mean the owners in the front unit were abusive or bad owners? JFC, I get so annoyed at that  "there are no bad dogs, just bad owners" argument.

I'm about as sorry as possible that this happened to you, but I'll be the first to say it. The silver lining in all this is that these are pictures of your foot and not of your tenant's two-year old daughter's corpse.  I hope you have a smooth recovery! Again, I'm so sorry this happened to you!