Jeeman was gracious enough to let us tour his new residence in Rancho Santa Fe – but then he sat down for a conversation about his homebuying experience:
It is rare that anyone will go on camera to talk about their own personal choices and decisions. My experience of Jeeman is that he is a humble guy, yet he was willing to expose himself and describe how he managed buying a home in this uncertain environment – with nothing to gain but the hope of helping others who are grappling with the same decisions.
THANK YOU JEEMAN!!!
Thanks for sharing Jeeman. Props on doing it the old fashioned way. Work hard, save. I wonder what your new neighbors think of their new comp.
Thanks for the insight Jim and Jeeman. I love the that you have great ‘professional’ jobs, but yet your friends call you cheap. Frankly, I love it when friends make that comment (but I’m sure you spend when you need to). 10 – 15% delta on price is a manageable price swing for some and should be the basis for home purchase – you will find some that disagree however. One other question, how many miles are on that previous generation Mustang? Ever thought of buying a nice new BMW, Mercedes, Land Rover? I hope Jim will post an update sometime in the future once the remodels are complete.
Thank you for the insights. Kudos to Jeeman for sticking to his guns and thinking independently about how to play this market.
BTW, anyone else notice an explosion in listings in mid-high areas (900k – 1.5 m)? It looks like hopeful spring buyers are coming out of hibernation. Any thoughts/views from anyone else?
Jeeman,
Would you mind sharing your experience with getting the loan; in particular, any hurdles you had to overcome? Sounds like you ended up needing a Jumbo. Your situation sounds similar to what my wife and I are planning on doing (i.e. 20-30% down for a home in the $1 – 1.3 range).
Thanks for sharing your experience!
Great interview – our situation almost exactly. . .bought last April in downtown new construction, directly from the developer at “closeout price.” We lowballed with cash (from the sale of our NorCal place in early 2006), and the developer (Bosa) took it. At the time, we knew that in one year prices would likely be about 10% less, and that has happened (a similar condo recently sold in the building for 8% less). . .but, at 60 and 63 (and retired) we really needed to move on with our lives – plus the money market rate on our “house money” had gone from 4.3% to .01%, and we were paying $2600 a month rent.
We were able to buy new construction, get the view we wanted, some upgrades, etc. We are here for 10-20 years (depending on health), so if the prices go down for another year, it doesn’t really both us. Prices in downtown condos (those that close) are basically back to about 2003/2004 levels.
Did you put all your cash in the down payment? If so, what is your plan for financing the renovations?
Great story, Jeeman! Mahalo for sharing. I loved that you and your wife were patient and saved. I bet your home purchase means more to you that it took a lot of hard work, saving, and three years of looking, eh?
Would you mind elaborating on the counter offers and that “adventure”? I think you mentioned seven (7). Wow!
Good for you Jeeman. With all the insanity in DM, LJ, and CV (sellers and buyers,) you go and find yourself a deal in, of all places, Rancho Santa Fe.
Today at least one family will offer $1.3 million for a McMansion here in CV because it’s in a popular area and is move-in ready. In ten years, they’ll have outdated granite and fixtures which their neighbors will enjoy through their bedroom windows, while you’ll have a home on an acre in Rancho Santa Fe overlooking the golf course.
Very enlightening. Jeeman is awesome. Jim is awesome. Everyone buy Jeeman and Jim a beer at the next Pizza Porty! (Yes I meant to type “Porty”)
(Oops there are a couple Ricks here- I should have signed that “Rick The Tuna”)
I am glad that Jeeman didn’t actually “Expose Himself” as Jim wrote in the header–Just to be safe, I had my wife watch the video first–better safe that sorry!
I have a theory that all computer people that made it through the dot com days are conservative with $$$.
I saw the tech bubble first hand at Comdex. I met people that sold off their stock and traveled the world. I also knew people that lost everything when their companies stock crashed.
The housing bubble was nearly identical to the tech bubble on it’s way up. The big difference was government stepped into the housing market to keep it going. Where the tech bubble was left on it’s own when it popped.
About the double dip, people are assuming a dip implies we go down then back up. I think we will be lucky just to maintain our current state.
We are losing our competitive edge in the global marketplace. Some of the leading high tech companies are moving research departments to China where they can hire engineers with master’s degrees for $9,000 a year.
http://www.nytimes.com/2010/03/18/business/global/18research.html
Wow, lots to respond to, which I will later tonight. Got a busy day, but keep checking back and I’ll answer all your questions late tonight.
Thanks so much for sharing your story, Jeeman. Even I would probably buy at 2001/2002 prices.
Cheers from another old-time WSJ poster! 🙂
Excellent work Jeeman. You executed like my favorite quote from John Wooden “be quick, but never in a hurry”.
Enjoy clean living out there. In 2002 I tried to buy the white house on your street but it never came together (and it had some structural concerns). We loved the golf view as well!!
Great interview and insight. Would like to hear more about the finacing and any advice/buyer thoughts about the counter offers….That road noise is very loud!
“Excellent work Jeeman. You executed like my favorite quote from John Wooden “be quick, but never in a hurry”. (clearfund @ 5:44 pm)
I love this quote and just wrote it down. *Chuckle* Nothing about Jeeman in my next comment, but I just read a MSN article: “The Rich Bail Faster on Mortgages”.
From the article: “The better their credit rating, the more likely homeowners were to default. The trend is most pronounced where prices have fallen furthest: Florida and the West, especially California.
The finding — that 588,000 borrowers appear to have strategically defaulted in 2008, a 128% increase from the year before — surprised the researchers. Piyush Tantia, who conducted the research for Oliver Wyman, and Charles Chung of Experian spotted the trend while analyzing 24 million credit files to see what they could learn about mortgage delinquency.”
Full two-page article:
http://articles.moneycentral.msn.com/Banking/YourCreditRating/the-rich-bail-faster-on-mortgages.aspx
grats Jeeman. i’ve been following this site for over 1.5 yrs now and i think i walk by your office whenever i go to the SIL. enjoy your new view. (=
Back from a long but good day!
1) Funny that saving up for a house is considered “old-fashioned”. Tongue in cheek, of course because I know bubbleinfoheads believe that this is the only “fashion”.
2) I knew someone would mention my 11 year old mustang which just broke 100k miles. Back in May, I started looking in earnest for a MB CLS 550, 2007 or newer. Once we started looking for houses, I wanted to keep my “powder dry”, so I aborted the CLS search. Since we bought, it looks like I might be driving my mustang for the rest of 2010. LOL
3) MarkinSD, some of those condos were awesome down there! I’m with you…at 64/63, you want to just enjoy your life and your life’s hard work.
4) We put the majority of our cash into the downpayment, and for now we have little for renovations. JtR referred to our house as a “fixer”, but I’d rather refer to it as an “updater”, which is a “fixer” that we can live in happily for a while w/o fixing it. We will do everything in cash, as I expect rates to go up in a year or two, so refi’ing will be out of the question. Of course, I predicted 8-9% rates by now, so I was wrong there, but normal market forces have been subverted by the government.
(to be continued…)
5) Our loan…ugh…we went with BofA. I went in to get pre-approved back in June of ’09, “just in case” we saw something and wanted to jump on it. We were examined to the hilt…we were finally approved in early *SEPTEMBER*! (According to BofA, they weren’t using brokers and brought it all in-house to inexperienced employees). Ok, well, we didn’t find anything by that point, so no biggie. Our approval lasted 4 weeks. BofA hired a broker as an in-house consultant, so we worked with him at that point. Approval in 1 hour.
Everything was going fairly well, until the day before close. I had to transfer money from other accounts to the one that I would wire from. This raised alarms and they wanted all this proof, and this delayed our closing by 2 days.
It wasn’t such a big deal, since we planned to close on Wed and move on Saturday. We closed on Friday and moved the next day. I’d recommend trying to time your close early in the week if you want to move by that Saturday!
(to be continued…)
6) Susie, Aloha! My sister-in-law and niece are Hawaiian! So after my wife toured the house, she brought me back a couple days later. At that point, the seller’s realtor mentioned that they were motivated to sell. Our realtor said that the house had been off and on the market for 3 years. She also asked what their “low point” was, and the response was, “at this point, they themselves probably don’t know.” So we started with an offer over 25% off of asking. They responded with an offer that was 10% off asking. Offers 3,4,5,6 were $50k concessions closer. The last offer was our final offer, because we had gone $25k over our internal price.
So, when going into this, like I mentioned, this wasn’t our “dream home”, but it would have been our “dream price” in a “dream neighborhood”. We set our high price point of $1.2, and then our absolute high price point of $1.25. Our original offer was with the expectation of around $1.2, but we did go a bit higher.
Funny thing is that the first offer was December 21st, I think. Once we hit our high price point, we asked to see the house again on Christmas eve day. Felt so surreal to do all that on a holiday. We finally went under contract a few days before New Years.
(to be continued…)
6) TheBlur, that was a funny comment! I hope granite doesn’t go out of style…It’s hard to imagine what would replace it. I definitely want a more timeless renovation, rather than a “housing bubble renovation”, hehe. I was seeing more deals occurring in LJ than in Del Mar and CV. Some 2000 sqft Mt. Soledad homes with ocean views were listed for $1.5M and sold for $1.1-1.2M. That is what got us off the couch.
7) RickTheTuna, the piggingtons are having a meetup tomorrow, but I can’t make it! Maybe JtRHeads should plan a meetup!
8) LocalBoy, my “exposes” aren’t so bad! I have alot of mirrors around in this place, so I know. But I better keep this G-rated since I apparently have co-workers reading this, LOL.
9) Shadash, it was the dotcom bubble that helped me see the RE bubble in 2003. I even warned a mortgage broker who was swimming in money to save it, because if it’s that easy to make $300k/year, then everyone will be doing it. I know SD has a fairly stable tech/biotech industry now vs. the early/mid 1990s, but we can’t take anything for granted. I know someone who exercised 25% of his Broadcom stock options and was a millionaire when it hit 200/share. He paid taxes on the unrealized gains as income. The stock collapsed to 8, and he’s still paying $0 taxes on his income now because of the tax credits that he’s recouping. The tax code is sham for him.
10) bubblenerd, I think there is an upward trend, bouyed by the government. I don’t think it will last, but according to Rich Toscano, the case-shiller index has had an undeniable upward bounce here in SD.
11) CA Renter…I used to spend 2 hours/day keeping up with those posts. Happy Hairston was a kool-aid drinking joker! Did anybody ever find out who he was? I know he was based in Del Mar or CV.
12) clearfund, love the quote! One thing I always repeated to myself when I wanted to throw my money into this stock or consider that house, etc, was “keep your powder dry”. I love that saying too! The house you were considering…does it have a white fence in the yard with the house set-back from the road pretty far?
13) OCVulture, the road noise is somewhat loud, but in the backyard, you can hear the drivers hitting the golf balls louder than you can hear the cars. In the front, it’s not so bad. I don’t even notice it. I looked at a house on Highland Dr. in Del Mar off of Via de la Valle, and that house had an awesome view of the ocean, but overlooked the freeway. You couldn’t get away from it.
14) fellow_SWE, you’ll have to send me an intra-company email or stop by! Funny, because I knew this blog had readers, but not coworker readers!
Whew!
9, redux) Shadash, btw, my friend held onto the majority of his shares, and he’s no longer a millionaire, even though he paid around half a million in taxes. Ridiculous, huh?
CA Renter and Jeeman…. I surely remember HAPPY. What a shame that WSJ closed the board and removed all article of his.
That is the “Good old day” of this great RE bubble for me…
Thanks Jim and Jeeman. Thoroughly enjoyed the video and posts.
I have followed this house for as long as it sat for sale and if it had an ocean view, I would have gone to see it. But even though it didn’t, I couldn’t bring myself to take it off the list of homes I followed. It just seemed like someplace that was so unique that it would be fun to pick up.
Glad someone like you picked it up and are willing to share the experience.
I can sense a sequel in this story.
Thanks
Jeeman & Pepsi,
IIRC, Happy/Hal 9000(?) lived in La Costa, and he might still be around some of the blogs (I have my suspicions).
Remember the “super-hot, blond-haired, blue-eyed wife” he always talked about (presumably because he was an “owner”)? Oh yeah, and renters are wife beaters…with low-I.Q. kids. (remember those nuggets?)
Kool-Aid days, indeed!
Cheers to you, Jeeman, for buying a truly lovely home. It looks perfectly wonderful just the way it is, too. No need to rush into remodeling everything 🙂
First, mahalo (again), Jeeman, for taking the time to explain what happened with the counter offers. And I loved that you took the extra time (on Christmas Eve day yet) to take one more look.
I’m so happy you found your gorgeous home! And *Chuckle* I agree with you regarding BoA…ugh is right! (They will never get a penny of my money after what they did to my son.)
Jeeman,
Great info — thanks!
Don’t sweat the ‘stang if it’s running well. My SUV’s running perfect at 145K and I love having no car payment. Spend your money on your new house.
Also (like you) it was dot-bomb that made me notice the housing bubble building. Major successive bubbles tend to open one’s eyes, no?
I too agree on the dot com comments. I brought up the ‘Stang’ because it represents frugality and I about fell out of my chair when Jeeman said his friends call him cheap. Well that ‘Stang parks in front of a very sweet home in RSF now. Again, well played Jeeman. Many could live in that house as it sits.
Warren Buffett’s friends called him cheap.
Buffett was a millionaire when he bought his first house for $30k, and he thought the price was silly expensive.
The thing I didn’t get from this very interesting thread is any sort of valuation? Jeeman compares prices now to prices at another point in time. Why were they cheap then? Why were they expensive two years ago? Aside from comparing a house price to it’s price history, how can one value a house?
Jeeman,
One quick follow up. HOw long had the home been listed before you started the low balls?
I’ve seen 1.5M homes, worth 1.5 fly off in under a month. I’ve also seen 900K sit for 6 months when they are worth 750K.
I don’t mind going for lowballs, but think a home needs to sit at least 45-60 days. What was your experience–with the one guy who raised the price and the other who negotiated.
I believe Buffett drives a Toyota right now, not a MB, or BMW, etc. Second richest man drives a “regular” car…I wonder if he’s ever had accelerator problems :-). I’m going to the shareholder’s meeting, like I do every year. There is a group of 8-10 of us that go yearly.
Chris, JtR actually asked me that, but his camcorder went on the fritz at that point. His question was, “what kinds of formulas did you use to value property?” My answer:
1) Most solid valuation is to take the monthly rent of a similar house in the neighborhood and multiply by around 240 (12X for annual rent * 20 for purchase/rent ratio). DM, CV and LJ were easier to do that way. RSF isn’t.
2) Look for 2001/2002 comps, and this itself had a 2002 comp, but that doesn’t fully account for the sellers themselves overpaying in 2002.
3) Take any earlier comp and use the inflation calculator and roughly adjust to the RE cycle. I used this website: http://data.bls.gov/cgi-bin/cpicalc.pl This house had a 1997 (the last trough in SD RE) comp of around $800k. That calc puts the value around $1.08M, which is about 10% below our purchase. I believe the breakfast area was an addition since then, a new roof, and the guest house, but I’ll conservative and not count that, so that is how I arrived at a 10-20% drop. I think SD’s tech/biotech in 1997 was just gaining steam, where now they are entrenched, so 1997 was coming out of fairly defense-oriented city. Now things are more diversified, and should have a higher floor. So I assumed that the $800k 1997 comp was below market, and thus our price was just about right with inflation.
“but I’ll conservative and not count that, so that is how I arrived at a 10-20% drop.”
I meant to say that is how I arrived at a 10-20% FURTHER drop for this property. 20% if things get really bad, but I really expect about a 10% drop. But it’s not like houses on the west end of RSF come up for sale everyday, so that was worth it.
skeptic,
This house was first listed 3 years ago for twice our purchase price! I hope they aren’t reading this blog, but it was way too high for an “updater”, and they chased the market down for those 3 years. Like JtR always says, reprice within a couple of weeks and don’t chase the market down. I don’t know if they were trying to seriously sell, but if you want to sell, price aggressively. $1.5M would have flown off the market 3 years ago. In 2009/2010, it stagnates.
There is one off of El Camino Real that went SS for $1.3M. The realtor said it had 4-5 offers in 2-3 days and any . I took video of it on my iphone, and it was nicely updated, but smaller than this place. http://www.sdlookup.com/MLS-090052262-15315_El_Camino_Real_Rancho_Santa_Fe_CA_92067
It’s still under contract 4 months later. If JtR can get in, it’s a great house to tour for the blog.
Jeeman – See you in Omaha…our group of 8 from across the county meet there each year for the meeting…funny how the wives never want to come and never get jealous about this guys trip…
clearfund, same with my wife. She yawns and stays away, LOL. We are going to dinner at Piccolo Pete’s at 6pm on Saturday….we usually go to Gorat’s, though. Do you guys have dinner plans?
Jeeman,
Good for you. I’m glad to hear that every once and a while the good guys win. I’m almost in your exact same boat. Can easily afford in the 1.1 range and am willing to stretch to 1.25M. I have a huge down and can close in however long it takes to get a loan (45 days or so).
Frankly, I’m a little amazed at how many folks seem to be in this same range. But there honestly seems a huge drop off as you get past 1.3 and honestly the 1.3-1.6 range seems dead. Once you get past 1.75, you aren’t looking at working stiffs buying homes anymore so its a whole new class of folks. But I think 1.3-1.6 seems dead because those in that 1.3-1.6 range I think are eying 1.75-2, and they may not be far off.
skeptic,
Interesting thoughts. I see the same thing, and I suspect that your analysis is spot on.
Ok, well I’m encouraged by your more thoughtful valuation than just comparing prices to yesteryears.
Once you get past 1.75, you aren’t looking at working stiffs buying homes anymore so its a whole new class of folks.
LOL! As it is you’re talking about some high-class working stiffs, i.e., dual good income families with significant savings. Those aren’t THAT common, but that’s what you’ll tend to see since that’s the demographic you inhabit.
I paid all cash for my house. If I would’ve leveraged up to buy a $1.5 million house … would that make me classy?
Skeptic, like you said, and JtR alluded to, if there is a jump in “class” of buyers, then to get any real appreciation in our property, we would definitely have to go high end in our renovations. “Working stiffs” won’t go that high regardless of renovations, and the upper class won’t buy anything without high-grade stuff.
Good stuff Jeeman. I wish you the best with your purchase.
Jeeman has used a lot of math to validate the purchase decision to us, but what it all boils down I believe is loving the location, liking the price and soon creating this to be his family home over time the way they want it to be. Math + Location= good home!
Jeeman,
About your calculations, I think you are on the right track, but 20 for rent/price is what I would consider the top end. The current interest rate environment supports 20, but I don’t see how much longer the FED can keep rates so low without blowing another bubble somewhere else in the economy. NY Times has a very nice graphical tool for figuring out price/rent ratios.
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
Anyway, enjoy your new home.
Bubblenerd, I agree that 20 is probably too high. Nationwide, the average is 15. I’d say SD should be historically around 17-18, but historically, we were a military/defense town, as well. I just erred a bit on the side of bullishness because my natural instinct is still to be bearish.
In my new/2006 home 92009 neighborhood my 3400 sf rental is spot on at 15x annual gross rent….I say rsf should be a higher multiple….
$1.2 million in rsf is a pretty amazing deal especially with the lot size. Great golf course view and looks private. The only thing that makes me pause a little about the Covenant is that ~$400 association fee (is that correct) and the property tax. At the end of the day that certainly is some good value…
The association fee is 14 cents per $100 of house value, which comes out to $1715/year, or $143/month. Not bad when it includes a membership in the country club.
Jeeman – I will trade you rounds of golf at my golf club. A round at RSF for a round at Santaluz???
clearfund, I haven’t even attempted a swing yet, so it may be a while. 🙂 But when I get good enough, I’ll take you up on the offer!
Jeeman – OK, sounds like a classic case sandbagging to me… in that case I’ll spot you 6 strokes…see you out there soon!!