RE HCOLA versus LCOLA

**GoodSteward** · 09-14-2016, 10:59 AM

That's insane and unsustainable. I highly doubt that you will get the same returns over the next 20 years if you bought today. Incomes are not increasing at the same rate.

If you happened to buy 20 years ago, kudos you hit the lotto. If you waited until today...you must not like having money.

I live in a LCOL area, and I do agree it sucks being stuck. I mean, I have value but only because of special circumstances (gained land and office building from property line issue). And, not that much value. 20-30k if someone really wants it. I would assume the harder part would be getting into a HCOL area now that it's up so much.

**Singuy** · 09-14-2016, 07:17 PM

This is definitely one of those "pass performance do not guarantee future results" type thing. Like the above post said, if you bought your house when CA was a LCOL then CONGRATS! You really did hit the jackpot. My issue with these areas is moving there today..unless hating money is truly your thing.

I have been investing heavily in peerstreet, a crowdfunding RE investment for people who flip houses. My jaws just drop after looking over the appraisal reports for houses in Palo Alto CA. This one 1300 squareft crack house..something that is not even worth 30k in central FL due to its condition, is appraised for 1.75 million...and can be sold for 1.9 million after renovation! The inside literally looks like that crack house in Breaking Bad...the episode with the little kid. The median household income vs home prices just doesn't add up for the majority of Americans.

Of course not every LCOL houses will give the returns that of CA, or NY..but you got to think of these things like individual stocks. Some will just perform much better than others and who knows where the next big increase will be. Thanks to Tesla's new plant..all the houses surrounding that area..which was considered in the middle of nowhere before, now sees a HUGE spike in house prices.

I would say same can be said about Orlando FL..without Disney and the space center, Orlando would of been nothing more than some small town in the middle of no where like it was back in the 50s. But then you have your losers like Detroit...

**Singuy** · 09-14-2016, 07:46 PM

Just thinking here.

HCOLA is almost like living in a LCOLA + 30 years worth of inflation. Yay I make 450k/year! But booo I still can only afford a crack house

I feel that those who lived in HCOLA when before the skyrocket in house prices really are beyond lucky. You guys have the ability to say, move from one HCOLA to another without any consequences because you'll just sell your 1.5 million dollar house for another 1.5 million dollar house..and if say one day you do decide to retire and live like kings..you cash out and live in a LCOLA. The rest of us are nothing more than spectators. Anyone of us LCOLA folks who want to live in a HCOLA is committing financial suicide because we don't have that 1.5 million dollar house.

It's almost like the LCOLA are the mini-third world counties in the U.S..imagine a LCOLA family sells all their assets and live like kings in Vietnam.

**DaveInPgh** · 09-14-2016, 07:49 PM

I found a business to invest my $5k into

**Singuy** · 09-14-2016, 07:57 PM

Here's the house I was talking about. I didn't post the picture where there's mold on the ceiling. Newest appraisal came back at 1.8million!

Just for comparison, here's a 1.65 million dollar 5300 sqft house in Orlando's most prestigious neighborhoods.

So I wonder if the the land in Palo Alto is worth 1.7 million and the house sitting on it is worth the 20-50k....

From where I am looking at, all it take is some really bad news for that Palo Alto house to drop a million in value(say nearby school is overrun by gangs) because I don't see 1.7 million dollars worth of materials used on that house. If it comes to betting on the future of home value, I rather put my money on this Orlando house..even if it doesn't go up as much say in 20 years, I still enjoyed the house and I know it's not going to lose value because there's at least 1 million dollars worth of material used on the house.

**Fishindude77** · 09-15-2016, 07:30 AM

Wow !
That house would probably go for $50 - 75,000 in this neighborhood.

**LivingAlmostLarge** · 09-15-2016, 09:03 AM

I don't know if it's unsustainable. I guess some CA people should weigh in. I mean it appears the US is just in general moving towards a more haves and have not population. So why is it unsustainable? The trend of affording these types of homes I don't know who is just appears to keep happening. If it's so unaffordable prices should come down but they aren't.

**Singuy** · 09-15-2016, 09:50 AM

Originally posted by LivingAlmostLarge View Post

I don't know if it's unsustainable. I guess some CA people should weigh in. I mean it appears the US is just in general moving towards a more haves and have not population. So why is it unsustainable? The trend of affording these types of homes I don't know who is just appears to keep happening. If it's so unaffordable prices should come down but they aren't.

It's just a supply and demand issue. Rich silicon valley folks are willing to pay whatever because there's a really small supply of houses on the market. Probably due to the fact that people do enjoy living in CA and can't imagine themselves anywhere else. Thanks to the computer age, you have a huge influx of high income earners and low supply since a lot of established houses were built 50-90 years ago with very little new constructions in sight unlike LCOLA where there are plenty of new constructions to choose from. So yes, the majority of people who live in LA can't afford the houses they live in, but they also didn't buy their houses for 500k either.

**GoodSteward** · 09-15-2016, 10:18 AM

Originally posted by Singuy View Post

It's just a supply and demand issue. Rich silicon valley folks are willing to pay whatever because there's a really small supply of houses on the market. Probably due to the fact that people do enjoy living in CA and can't imagine themselves anywhere else. Thanks to the computer age, you have a huge influx of high income earners and low supply since a lot of established houses were built 50-90 years ago with very little new constructions in sight unlike LCOLA where there are plenty of new constructions to choose from. So yes, the majority of people who live in LA can't afford the houses they live in, but they also didn't buy their houses for 500k either.

Right, a lot of them bought when it was more sensible. I suppose it isn't unsustainable if the incomes are increasing at a highly inflated rate also, but since this isn't nationwide, but isolated to just one small area, I still say it will go bust soon and the market will come to stand still due to too high a prices. Maybe I'm wrong, but severely overvalued houses can't go on forever. The economy will see to that.

I have a cousin in his 20s that is making bank doing CGI work. He was sharing a two bedroom apartment with someone in SFC, and it was costing him 1400$(half) a month for 1 bedroom, and a shared kitchen/bath. He wasn't goign to buy anything because he doesn't like the area and it costs way too much. He is from Portland OR. Completely insane!

**AnotherReader** · 09-15-2016, 10:20 AM

That's on a through street in the area between Old Palo Alto and South Palo Alto. In Old Palo Alto, the house would go for more. The house actually detracts from the value, as the buyer will demolish the house and build as large of a house as Palo Alto will allow. So the price should reflect land value less demolition costs.

The higher priced homes in Palo Alto are now sitting. Many have been on the market for 60 or 90 days. A year ago, marketing time would have been a few days. The cycle is shifting.

**LivingAlmostLarge** · 09-20-2016, 09:23 AM

AR you are saying what I noticed. But what I found to be funny is that mortgage brokers and realtors are saying that it's not. But I see the homes I look at sitting.

**sv2007** · 09-20-2016, 12:52 PM

Originally posted by Singuy View Post

From where I am looking at, all it take is some really bad news for that Palo Alto house to drop a million in value(say nearby school is overrun by gangs) because I don't see 1.7 million dollars worth of materials used on that house. If it comes to betting on the future of home value, I rather put my money on this Orlando house..even if it doesn't go up as much say in 20 years, I still enjoyed the house and I know it's not going to lose value because there's at least 1 million dollars worth of material used on the house.

I highly doubt Palo Alto homes will drop $1m; just look at the history (even during the worst of 2000/2008, there's little drop). The fundamentals are very strong, there's high paying jobs, there's no more land to expand.

As for schools, one of the most expensive towns here (Atherton) goes to one of the worst schools (mixed in with E. Palo Alto and Redwood City). Now, many Palo Alto folks do value their public schools (and it's got one of the best), but once you get past a certain price point, school rankings don't matter all that much as kids tend to go to private schools.

That Orlando house doesn't have $1m of materials. Look at Las Vegas, so many $1m+ houses back in 2008 aren't anywhere near $1m even today. Now, this is LV, Orlando may be different of course.

RE is all about location. You can build whatever house you want anywhere, but it's value will be associated with its location first and foremost. Oh heck, sometimes even across the street makes a huge difference.

**Singuy** · 09-20-2016, 03:48 PM

Originally posted by sv2007 View Post

That Orlando house doesn't have $1m of materials. Look at Las Vegas, so many $1m+ houses back in 2008 aren't anywhere near $1m even today. Now, this is LV, Orlando may be different of course.

RE is all about location. You can build whatever house you want anywhere, but it's value will be associated with its location first and foremost. Oh heck, sometimes even across the street makes a huge difference.

Houses worth 1m+ in 2008 was pretty much 40% house, 60% speculation and fluff, hence the housing crisis. Of course the houses didn't have 1mil worth of materials put in.

Yes the value of the land is very important, but if you are okay with buying a small pott of 1/4 acre land for 1.8 million with a 50k house(material wise) sitting on it, than that's your thing. The house I displayed above will most likely cost a million to build no matter where you put it..even in the worst possible neighborhood, that cost will still cost a million(or more) to build given the size, material, engineering, etc etc. The land value of that house is 650k being a lakefront and oversized lot..hence the price of 1.65million (all a guess on my part but you get the idea).

**Outdoorsygal** · 09-20-2016, 06:09 PM

What's interesting is it is San Francisco

It's not a beautiful place, overcrowded, and pretty dingy in many areas. Many of the streets are vandalized and buildings sprayed with graphitti. Google employees with a Degree living in the parking lot? that's unfathomable. I hear they have laundry facilities, a great cafeteria, gym, showers, internet so its equipped to fill your basic needs. You could probably save a ton of money working there for a year if you can stomach it. If i was paid enough, I think I'd live there a short while

Currently there is just one cheaper rental available in our town but you must share a 3bdrm/3 bath home for $1795 a mo. Blows my mind we found this older 3bdrm/3bath house for $1300 a mo. which is just down the street from that same rental house. Unless you are a fan of Skeet Reese who lives next door, I cannot see how $1795 for a room + private bathroom is worth it. My husband has done alot to this house though not charging them. He's gotten rid of much of the mold hopefully, fixed the linoleum floor putting in a tile entry, replaced the bathroom sink, fixed some of the electrical and we painted most of the inside. Yet it doesn't nearly come close to what they could get for this house.

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RE HCOLA versus LCOLA