Joker Real Estate

This morning’s Daily Post brings with it, as always, dozens of colorful real estate ads. In one case, they’ve given up even trying to pretend the prices are sane………. Of course, it actually is a very cheap prices for an Atherton property. What has always struck me about real estate agents around here is how […]
Slope of Hope

Can real estate be a good investment for an individual even when it is a bad investment overall?

Robert Shiller purports to explain “Why Land and Homes Actually Tend to Be Disappointing Investments” (nytimes). Given the number of rich people wandering around who say that they made their money in real estate, I’m wondering if Shiller can be correct. What do readers think? Suppose that the rent on a commercial property covers the mortgage and other expenses. In that case 1 percent appreciation will become 10 percent per year if buyer has made a down payment of 10 percent and used leverage for the rest. Suppose that Shiller is right about the average but it is a volatile market and the buyer typically unloads any big losses onto a bank while keeping any big winnings?

Maybe real estate is a bad investment if bought for cash and then left to sit. But an individual real estate investor is probably not doing things that way. There will be a mortgage and the bank will take on much of the risk. If it is a commercial property there is rent received. If it is a residential property in which the buyer lives there will be rent not paid somewhere else.

At a wedding in Paris this summer the groom’s father chided the “boy” (over 30!) for not being a property owner. The dad talked about how, even with an entry-level job at an investment bank in London he had been able to purchase a flat while still in his 20s. We dug into this a little and found out that the flat and the entry-level jobs were still available and easy to price. The dad paid a little less than one year of pre-tax income for the flat. Today the same flat would cost nearly 20 years of income for an entry level banker. With that kind of appreciation in any of the places around the world where a person might actually want to live, how can Shiller be right? And with the world population continuing to grow while the number of desirable places to live remains relatively fixed, how can Shiller continue to be right? (It is possible that, compared to 1900, the U.S. actually has fewer neighborhoods where people can walk to shops, friends’ houses, social events, cultural events, essential services, etc., yet the population has grown from 76 million to 320 million. This has got to put price pressure on real estate in the handful of desirable neighborhoods, no?)

Related:

 

Philip Greenspun’s Weblog

New Yorker: Don’t buy real estate in Miami…

“The Siege of Miami” is a New Yorker article about flooding in Miami. Here’s one point that seems worth discussing..

“I believe in human innovation,” Levine responded. “If, thirty or forty years ago, I’d told you that you were going to be able to communicate with your friends around the world by looking at your watch or with an iPad or an iPhone, you would think I was out of my mind.” Thirty or forty years from now, he said, “We’re going to have innovative solutions to fight back against sea-level rise that we cannot even imagine today.”

What do readers think? I tend to be optimistic about technology for improving electric motors, batteries, windmills, and other items associated with cutting CO2 emissions. But flood control and pumps would seem to me to fall into the same category as building bridges, which Americans are getting worse over at over time (see “Longfellow Bridge repairs will now take about as long as the original construction” and “U.S. versus German infrastructure spending and results“).

Philip Greenspun’s Weblog

Is the new Zuckerberg fake charity an estate tax avoidance scheme?

Mark Zuckerberg previously demonstrated an awareness of California family law by waiting until just after Facebook went public to get married. I’m wondering if his new non-charity charity shows a sophisticated approach to estate tax avoidance.

The letter to our daughter works pretty well as comedy, e.g., “Medicine has only been a real science…”. It also works pretty well as a dictionary example of “optimism”, with Zuckerberg imagining that a $ 1 billion annual budget is going to move the needle (NIH spent $ 31 billion in 2010, according to Wikipedia, and the drug companies keep telling us that they are spending some of their Irish dough on research). Apparently he and his wife think that the folks behind “Why Most Published Research Findings Are False” can’t waste another $ 1 billion/year.

The letter is a significant addition to the literature of comparative American victimhood: “Can we truly empower everyone — women, children, underrepresented minorities, immigrants and the unconnected?” (we were talking about this line at the airport and it evoked the question “So which is worse? Having a pussy or not being able to download porn at home?”)

The non-charity charity is apparently organized as an LLC. Let’s suppose that Baby Max owns shares in this LLC. If she acquires them today, before any Facebook stock or proceeds from selling Facebook stock are transferred in, she hasn’t received anything of value and has no tax liability. The LLC can invest its assets however it wants to, e.g., it could buy shares in an Ireland-based pharma company or fund a startup medical device firm in Singapore or China. If those investments prove more productive than Zuckerberg’s adventure in the Newark public school system, Grown-up Max will own a stake in something worth tens of billions of dollars.

What do readers think? Is this all about doing good or more about avoiding the world’s fourth-highest estate tax rates (actually we are higher than #4 if you add in estate taxes imposed by states)? Can it truly be this simple to say goodbye to $ 18 billion in federal estate taxes (plus potentially additional state estate taxes, depending on where the happy parents choose to live out their golden years)? (The links below suggest that a “family LLC” can substantially reduce but not entirely eliminate estate tax.)

Related:

  • “Using an LLC for Estate Planning”: “In a family LLC, the parents maintain management of the LLC, with children or grandchildren holding shares in the LLC’s assets, yet not having management or voting rights. … After you have established your family LLC according to your state’s legal process, you can begin transferring assets. … Here’s where the tax benefits really come into play – if you are the acting manager of the LLC, and your children are non-managing members, then the value of units transferred to them can be discounted quite steeply, often up to 40% of their market value. This discount is based on the fact that without management rights, LLC units become less marketable.”
  • “Limited Liability Company – Cutting Edge Estate Planning”

Philip Greenspun’s Weblog

Why hasn’t the real estate industry been Ubered by Google and Zillow?

It is annoying to pay the nation’s highest taxi fares here in Boston, which is why we love Uber so much. But it is presumably even more annoying to pay 6 percent to a realtor to sell a condo in Cambridge that, thanks to the Federal Government’s free money policies and the traffic gridlock that makes commuting from the suburbs ever more possible, will be gone within a few days.

There are a limited number of dwellings in the U.S. Zillow and Google already pretty much have complete databases of where dwellings are. Why do realtors still exist?

The New York Times ran an editorial yesterday “How Segregation Destroys Black Wealth” about how realtors, in addition to driving up our housing costs by 6 percent, also discriminate on the basis of skin color (but not in the positive right-thinking way that the New York Times suggests in other situations). The wise members of the Times Editorial Board (themselves nearly all white, but of course that is not a sign of discrimination) suggest that relief from this pernicious discrimination will come via the intervention of the Great Father in Washington following a “federal housing discrimination complaint.” There was no suggestion of simply banning realtors. If Amazon.com (happy to sell to everyone, regardless of race, but the Times still hates them) or a similar neutral server farm were doing the selling instead of prone-to-bias humans, wouldn’t that help us achieve racial justice? (and also save us about 5 percent!)

Philip Greenspun’s Weblog

Real Estate is Looking Up

Written By: DragonFly Capital

I am not talking about the housing market in your town though, but rather the iShares Real Estate ETF, $ IYR. This ETF has been consolidating in a tightening symmetrical triangle since July, and is just making the 5th touch at the top rail, often a breaking point. The Relative Strength Index (RSI) is bullish and rising and the MACD is also moving higher to support a break through. Finally the accumulation/distribution statistic shows strong accumulation as it reaches the top rail. A break higher targets a move to 75.55, near the previous high and nearly 13% higher. Yes Real Estate is looking up.

iyr

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Dragonfly Capital

Manhattan real estate prices… in Cambridge

I live in a four-unit condo near Harvard Yard (see the epic tale of my purchase back in 1996). The ground floor unit recently went on the market for $ 429,000. Very shortly five bids materialized, all over the asking price. The accepted bid was for $ 480,000.

What was bought? The broker, from perhaps Cambridge’s largest real estate firm, listed the apartment as 1363 square feet in the MLS (realtor.com entry for 5 Irving Terrace). The city lists 5-7 Irving Terrace, Unit 2A as having 713 square feet and being worth $ 349,300 (property database). What is actually inside the unit are two rooms: one bedroom plus a combined kitchen/living room. If you hired someone to refinish the floors they might find 500 square feet. How did the realtor manage to find 1363 square feet for this small one-bedroom? An old version of the condo docs had this apartment combined with another. They were later (20+ years ago) split into two separate condos. Folks who showed up expecting 1363 square feet and found a small one-bedroom were apparently not discouraged, though, based on the number of bids.

If we take the city’s 713 square footage, the place sold for $ 673 per square foot, but in terms of usable interior space I think the total square footage is closer to that of a 500 sf place in a modern building, which gets us to $ 1000/sf, i.e., what people pay for an apartment in Manhattan. The apartment includes a driveway parking spot, which is a plus, but the kitchen and bathroom would need $ 30-50,000 of work to bring them into the modern era.

This supports my theory that the suburbs will be abandoned by the wealthy (May 2013 posting) due to the horrific traffic congestion in our metropolitan areas. Rush hour getting out of Cambridge through Alewife now extends until about 8 pm, but you can buy your way out of sitting in traffic if you’re willing to spend $ 480,000 on a one-bedroom apartment (plus kitchen/bath renovation costs and, very possibly, your share of a new roof (see below)).

Separately, in case you are ever tempted to trust a realtor…. the broker selling the unit had previously been managing the place for the owner as a rental. He thus became aware of an issue with leaks from the 125-year-old slate roof that might cost more than $ 30,000 to repair and thus result in an assessment to the new owner. The condo’s master insurance carrier had sent a letter refusing to pay for water damage because of “age-related deterioration” of the roof. I asked the realtor if he’d shared the letter, which he’d had in his possession, with the buyer. “No. That’s not my responsibility. It is up to her home inspector to discover any problems.”

[Finally, what do readers know about old slate roofs? At the end of almost every winter there is some ceiling damage from ice and snow melting through the slate/flashing/whatever. There is occasional additional damage from random events, such as a slate being kicked out of place or falling off. We hire a roofer who goes up there, charges us some money, pronounces the leaks fixed, and then departs. We repeat the cycle the next year. An experienced slate roofer (not our regular contractor) told me that the nails on our roof are copper and that they corrode after about 85 years, resulting in the slates being very easy to dislodge. This is why the life of a slate roof is not infinite. He said that the only real fix was to remove the slates, install ice and water shield material, and then reinstall the slates over the ice and water shield with new nails that will last another 85 years. Have any of the readers done this?]

Philip Greenspun’s Weblog

Anthony Kennedy and Antonin Scalia Say the Confederacy Won the Civil War and the Purpose of the Reconstruction Amendments Was to Reinforce Rather Than Diminish State Sovereignty. (Except on Affirmative Action, the Second Amendment, and Real Estate Property “Takings.”)

Leaving race aside for the moment (did someone mention that the Voting Rights Act has something to do with empowering black voters – who just might, for some strange reason, prefer Democrats?), what the court’s conservatives seem to see in Section 5 is a threat to state sovereignty — the “sovereign dignity” of the states, a phrase Justice Anthony M. Kennedy has used in another federalism context. This theme ran throughout the argument. Justice Scalia referred to Section 5 as imposing “these extraordinary procedures that deny the states sovereign powers which the Constitution preserves to them.” Justice Kennedy asked whether “if Alabama wants to acknowledge the wrongs of its past, is it better off doing that if it’s an independent sovereign or if it’s under the trusteeship of the United States government?”

A Big New Power, Linda Greenhouse, The New York Times, today, discussing the Feb. 26 argument at the Supreme Court in a case challenging the continuing constitutionality of the Voting Rights Act


Just so you know, the main Reconstruction Amendment at issue in Shelby County, Ala. v. Holder, the Voting Rights Act case–the 15th Amendment–provides in full:

Section. 1. The right of citizens of the United States to vote shall not be denied or abridged by the United States or by any State on account of race, color, or previous condition of servitude.

Section. 2. The Congress shall have power to enforce this article by appropriate legislation.


That language in Section 2, giving Congress the “power to enforce this article by appropriate legislation,” is standard Constitutional Amendment language.  It appears also in the other Reconstruction Amendment at issue in Shelby County–the 14th Amendment–a five-section amendment, the two relevant ones which read:

Section. 1. All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Section. 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.


Section 1, but not Section 5, also, as it happens, is at issue in the other culture-wars blockbuster Supreme Court case this term, Fisher v. The University of Texas, a.k.a., the big affirmative-action-in-state-university-admissions-policy case.  

John Roberts will write the 5-4 opinions in both cases.  In Fisher, he and Kennedy will agree that the Union won the Civil War, and that the three Reconstruction Amendments–the third one, the 13th Amendment, actually being the first of the three; it abolished slavery–did not, after all, flip the Supremacy Clause in Article VI, Clause 2.  It said (and the 5-4 Court majority will confirm in Fisher) still says:

This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding.


But Fisher was argued early in the Court’s term, in October, and probably will be decided before Shelby County. So Roberts & Kennedy & Co. will be able to clarify very quickly that–as Kennedy, Thomas and the others routinely and unselfconsciously, and without explanation–say, states are sovereigns.  Not that states have some but not all the attributes of sovereigns; no, that states are sovereigns.  And so, the Supremacy Clause notwithstanding, states need not comply with federal constitutional or statutory law.  Except, of course, on issues important to 1980s-90s Republican White House, Justice Department and judicial appointees.  

These folks have a list, and they are checking off each item on it, even when that means that in the very same Court term they’ll casually flip the Supremacy Clause back and forth. As it will this term.  Christmas will come in May and June this year.  Or at least Santa Claus will.

Federal trusteeships of states are, it will become clear by the end of this Court term, constitutional only when the trusteeship is of a state, such as Texas, whose legislature enacts a statute that butts up against a 1980s-’90s-era rightwing cause célèbre–a bullet point on the list.  Federal trusteeships of states are clearly unconstitutional, however, when the trusteeship is explicitly authorized in the Constitution itself, as it is in Section 2 of the 15th Amendment, but the explicit authorization is itself on the list.  That’s because, then, it turns out, that despite appearances–i.e., the language in the Amendment itself–the purpose of the 15th Amendment was not to make the states’ racial-minority citizens better off vis-à-vis the states, but apparently, as matter of historical fact, the opposite.  

Who knew?  Other than the Republican far-right, that is?  

Not me, and probably not you.  You probably learned, incorrectly, back in U.S. History class that the Reconstruction Amendments were added after the Civil War in order to make the states’ racial minorities better off vis-à-vis the states.  But, then again, you also probably learned that the Confederacy lost the Civil War.  Even those of you who went to upscale suburban schools or to fancy private ones.  Well, those of you who took that class pre-1980s, anyway.  But we’ll soon be disabused of that misconception, in a high-profile Supreme Court 5-4 opinion that will be simply the denouement of a decades-long juggernaut by a bizarre cadre of legal wingnuts who have gained a stranglehold on the American judicial system to deny that the Confederacy did not win the Civil War.  

Sort of like the Tea Party congressional delegation’s decision to deny the result of last November’s election, but with no near-term reversal possible in 2014.  Only an unexpected vacancy on the Court will do that.  

Meanwhile, if Alabama wants to acknowledge the wrongs of its past, it will be better off doing that if it’s an independent sovereign rather than if it’s under the trusteeship of the United States government.  Which is good, since Alabama surely will want to acknowledge the wrongs of its past. (Assuming, of course, that constitutional wrongs were committed in the past, which in this case presumes facts not in evidence at the Supreme Court on the day of the argument in Shelby County.  Including the fact that that Section 1 of the 15th Amendment eliminated the concept that the right to vote is a racial entitlement.)
I suggest a statue.  And as an independent sovereign, which “it”–the intended beneficiary of the 15th Amendment–is better off as, Alabama might decide to erect one.  


But these extraordinary procedures that deny the states sovereign powers which the Constitution preserves to them apply only to extraordinary procedures enacted by Congress.  They do not apply to extraordinary procedures in the Supreme Court.  Such as the one in which the Reconstruction Amendments are rewritten, right along with Civil War and Reconstruction-era history.  

I do have a suggestion for Texas, though, just as I have one for Alabama, since, when Texas, like Alabama, wants to acknowledge the wrongs of its past, it will be better off doing that if it’s an independent sovereign rather than if it’s under the trusteeship of the United States government.  

Again here, I suggest a statue–this one honoring all the white Texas high school seniors who narrowly missed the cut to gain admission to their state’s flagship university since the current state statute and its predecessor statute were enacted.  


Angry Bear