Friday, September 08, 2006

Read the SMALL print!

I just thought I had to share with everybody what I pulled out of my mailbox this week. I got a 'nice' 6 x 11 inch card in the mail that says across the top: "RENTERS!" then the next line says "Kiss You Landlord Goodbye!". Maybe you didn't catch that, but yes, it said 'you' and not 'your'. So that was my first clue that attention to detail is NOT a strong suit of this 'luxury' condo cough-conversion-cough. I assume it is a condo-conversion because of the location and the fact that it says "New Spanish Tile Roofs" as a highlight of the building. Most 'new-builds' do not highlight the fact that the roof is new. You can check these condos out for yourself at

But lets get back to the "kiss YOUR landlord goodbye!" part of things. Below that it says you can "Own for as little as $1,088*/mo". That doesn't SOUND too bad. Heck, it is hard to find a decent place to rent for under $1000 in San Diego. I figured I would check and see what that little asterick (*) had to say. I won't retype what all of the 23 lines of micro-print had to say, but I will run through the highlights.

Here is the card:
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The loan is a CalFHA 2/1 buy-down with a 3.5% start rate and the payments are only $1,088 per month!

Sounds 'good' so far... (wink-wink)

This is based on the 'lowest' priced unit in the complex of $249,900, and the mortgage is on $242,400 (that would be $7,500 down...or 3%).

The loan is 3.5% for the 1st year with the seller paying for the 2/1 temporary buydown. Hey, at least you are paying principal with this loan!

The next year, the loan payment jumps to $1,228.21 at 4.5%, and the 3rd through 30th year, the payment is $1,376.32 at 5.50%.

So all in all, this doesn't sound THAT bad. It is a fixed loan after the first 2 years, and you are paying principal and interest the whole time...but wait! I really like these next parts.

"Mortgage monthly payment of $1,088.48 does not include mortgage insurance of $171.70 and property taxes of $229.08. Property taxes calculated at 1.10% tax rate. Does not included HOA fees. (yes, they put included instead of 'include') HOA fees estimated at $171 per month."

Wow, lets add that up...171.70 + 229.08 + 171 = $571.78 I don't know about you, but that extra $572 bucks a month kind of changes the picture a little bit. These costs add another 52% to the $1,088 mortgage payment. You can look at it like that, or that the mortgage payment only accounts for 66% of the total cost of ownership. Suddenly, $1660.26 per month doesn't look at good as $1088...and don't forget that is ONLY for the first 12 months! Assuming HOA's, taxes stay the same, you are looking at almost a $2000 a month payment after 24 months ($1948.10 assuming the HOA or taxes don't increase).

Don't forget, we are talking about the lowest priced 1-bedroom condo (conversion) in the complex!

But here is where it gets interesting: To qualify for the 5.50% CalFHA program, income limit for low income borrowers is $49,680 for 1-2 persons, $57,132 for 3 or more person in household.

Maybe its just me, but if you are only making about 49k per year, I don't know that spending $250,000 on a small 1-bedroom condo conversion is the best use of funds. You are going to be spending about 45-50% of your gross income on housing. I know there are worse things going on out there, but come on is just a house! Forget the massive appreciation that lots of people have seen the past few years, those days are OVER for a long time. If you are spending that much on housing, that isn't going to leave much room for savings, car payments, gas, food, etc. I hope that a 3 person household would not be buying a small 1-bedroom condo conversion, so I won't even go there right now. I know they must be small because they don't list the square footage, and the units don't look big from the pictures. If I were making an educated guess, these places would probably rent from $950 to $1200 per month.

I guess the thing that bothers me is that many people will see the "Own for as little as $1,088/month" part of things, and 'think' that is all there is. Aside from putting a LOT of money down, there is NO WAY to 'own' this place for $1088 per month. The last time I checked, you HAVE to pay your taxes, HOA, and PMI.

I don't know about the rest of you, but I hate it when I'm shopping for a hotel room on one of the online sites and the rates look good until you find out there is a $15-20 resort fee, and/or a nice 19% hotel tax or something. If you are going to charge a mandatory fee...just add that to the price of you $129 room. Am I the only person annoyed by this??

Other than that, I am sure that many of you are feeling better and better with the news that is coming out with regards to housing. Our fearless leaders are slowly starting to eat their words. Leslie Appleton-Young and Mr. Lereash are slowly coming around. It is just unfortunate that thousands of people are going to lose tens of thousands of dollars because they listened to those biased cheerleaders.

Stay tuned to Ben's blog and this one. I am working on a few things that I think you will really enjoy. REMEMBER...this is only the beginning. This is the equivalent of the NASDAQ dipping under is just a start. 2007 will be the year of reckoning. You think inventories are high now? Wait until another 1.5+ trillion dollars worth of mortgages adjust next year.

Stay tuned!



Blogger Metroplexual said...

Welcome back! I see this same kind of stuff around here in northern NJ. All the costs are not factored in, which like you, I find to be deceptive. Hotels and rental cars have all those add ons. I find it very annoying that hotel taxes always get raised because the notion is that visitors don't vote. But that is to a point, when you overtax they vote with their feet and don't stay in your fair city or state.

As to the housing meltdown underway, ARM resets are underway and I think are largely responsible for the inventories being so high. As for the loan values next year, I keep seeing all kinds of numbers for the valuation of the loans. The first and maost repeated value was 6 billion for 2006 and 1.3 trillion for 2007. Then last week I saw 2.1 trillion for both years. I assumed they lumped in the option ARMS. Either way it is a pretty scary number because it represents at least 20% of outstanding loan values. Any insight as to the real numbers SoCal?

9/08/2006 3:30 AM  
Anonymous Anonymous said...

Good Blog. Keep up the good work.


9/08/2006 5:48 AM  
Blogger Metroplexual said...

I meant 600 billion for 2006. (had not had my coffee yet)

9/08/2006 7:14 AM  
Anonymous Anonymous said...

The resort fee is only for a temporary time period. And it is not locked in like the added "fees" regarding real estate. Also, resort fees are charged to get around hotel tax in many cases. People are annoyed but it doesn't break their wallets like condo conversion hidden fees do.

9/11/2006 8:53 AM  
Blogger Out at the peak said...

People like to bargain hunt. But traps like these are deadly. Some people will think they are getting a "good deal," but they will run into "unexpected" HOA and tax costs. If they can survive that, they will then get the adjusted mortgage rate.

Too many will learn this lesson the hard way.

I would like to see the promoters to use their own product.

9/11/2006 5:45 PM  
Anonymous Anonymous said...

This comment has been removed by a blog administrator.

9/12/2006 3:16 PM  

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