I usually let some smarter people talk real estate on this site. But I came across this little house the other day and I can’t imagine there’s a better illustration anywhere of how truly unsound this part of our economy is.

Let’s start with the basic facts. It’s a tiny house. It’s 840 square feet. It has two bedrooms and one bathroom. It’s on the corner of Santa Cruz and Santa Barbara in Ocean Beach, which is right at the top of a hill — a great spot in an amazing neighborhood.

But it’s got one of those roofs that looks like it is made of cigarette ashes. And while this guy says it has an “ocean” view. That’s a bit of a stretch. You can walk out to the middle of the street, jump and see the ocean. And I suppose you could put a second story on the house and see even further.

But it’s a somewhat grungy, mediocre little house. I mean, 840 square feet is not that much.

It’s listed for sale at a price range of $925,000-$975,000.

That just blows my mind. I suppose that the owners could just be hoping to trip up a perspective buyer. They could be trying to persuade someone to low-ball them and offer a price that’s much lower than $975,000 but probably still higher than what its worth.

But, if that’s true, what a joke.

Normally, I’d just roll my eyes and walk away.

But wifey and I are probably going to have to move sometime soon. And we’ve been keeping our eyes on the rental market. I came across a listing the other day in the neighborhood that accepted dogs and seemed a little small.

And it dawned on me: It’s the same house.

Yep, as they are trying to sell it, the owners of this place are trying to rent it out:

Month to month lease (this house is on the market).

And how much do they want to rent it out for?

$2,100 a month.

Now, if anything, that’s a little expensive. Remember, it’s a tiny two bedroom. Sure it’s on top of a hill and a hair-raising skateboard ride down to beach. But looking at the market around there, you can find more room for that price. And add in the fact that they’re trying to sell it so they plan to kick you out as soon as they can, and it’s not cheap at all.

So shake your head and understand this for a second: They are trying to sell a house for more than $925,000 that you can rent for $2,100 a month.

So I got out my calculator. Let’s pretend someone negotiated to buy the place at $950,000. Let’s pretend that this magical mystery buyer had 20 percent of that — $190,000 — in his checking account just waiting to be invested in the San Diego housing market.

Let’s pretend that people actually still put money down on houses (last year at least 67 percent of them didn’t).

And finally, let’s pretend that someone with that much cash and that much credit is willing to live in a mediocre little place with one bathroom and an ugly yard.

Check my arithmetic, but by my calculations, the magical mystery buyer would have to get a loan for $760,000.

Let’s assume he got a 30-year fixed rate mortgage (and, I’m sorry, I have to use that in the example. Would you really dare do any “exotic” loans with everything that’s happened these days?).

OK, let’s say the magical mystery buyer got a loan for 6.75 percent a year.

That produces a monthly payment of $4,929 a month. If I remember right, property taxes would be about $9,500 a year on this property. So that, if you spread it over the entire year, would up your payment to $5,720.

Finally, let’s say for insurance and maintenance, you have to pay $280 a month.

That makes it an even $6,000 a month.

Is there anyone in their right mind who would invest their $190,000 in savings and then spend $6,000 a month to live in a place that they could rent for $2,100 a month???

I’m serious. If there is someone, send me a note, I know just the place. I’d come along and carry all your papers just to watch it all happen.

Now, let’s think about something else. There are people who, unlike me, could spend $190,000 and $6,000 a month on housing costs. But would they live in a tiny little house like this?

I mean, there used to be a rule that you only spent 30 percent of your income on housing expenses. But let’s assume that’s a non-operative aphorism. Let’s pretend the new rule is you should spend no more than 50 percent of your income on housing. To be able to purchase this house, then, you’d have to earn $12,000 a month. I just don’t see how someone who’s making about $150,000 a year and has $190,000 burning a hole in their pocket wants to live in this place. Or, let’s clarify, I don’t see how someone who’s smart enough to earn $150,000 a year would decide that he should dump all his savings and spend $6,000 a month to live in a place he could rent for $2,100.

It makes sense, I suppose, that a house would be more expensive to purchase then rent. It’s nice to own a home — you can punch holes in the wall and nobody can make you move (unless you don’t pay).

But the discrepancy between the rental price and the purchase price seems does not seem like one on which you’d want to bet your savings.


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