It looks like acreage for development and higher end residential is becoming a buy again in Los Angeles. And all it took was months of buyers holding back.

Monique Bryher called to tell me about some residential buys: she said she'll talk to you if your serious and mention my secret code-name, Arnold Williams.

How's that for a tip?

Thanks to the City of Santa Monica, we have a new definition of what a landmark is: A landmark is an apartment building that the tenants are afraid might be redeveloped, improved, or modernized, so that their sweetheart deals under rent control might go away.

What do I mean? Well, let's take the Teriton Apartments on San Vicente. The City's historic resources consultant did a lengthy review of the building, and said it met NONE of the requirements for designation as a landmark. The tenants said that 1. It was at the end of the block, 2. Some people who later became famous stayed there, 3. It is just like lots of other apartment buildings built at the time, 4. We know the architect's name, and 5. It's been there a while.

Moral of the story for future landlords: redevelop frequently. Blow up the buildings before the City can decide it's a landmark, or you have forfeited any right to change the use of the lot, modernize it, or expand it.

Should I own a house or rent?


Houses and cars make up the two largest expenditures for any family. Cut them, and you've done a lot more than could be done by saving on the smaller costs. That's an application of a power law (see paper 12, page 12) for you. For more data on power laws, see Wikipedia's illuminating article, and click on the cross-references.

There are a lot of versions of this question, and they all boil down to costs. Since I don't know where all of these people live, I'm just going to use national numbers: adjust as necessary for your community. The proportion is likely to be roughly similar.

The source of the numbers? The federal government's bureau of labor statistics (PDF) (Look for table 7 on page 2), but I'll be pulling numbers from everywhere.

First, there are three groups to consider: renters, owners with mortgages, and owners outright. Adding together expenses for shelter, utilities, housekeeping supplies, & furniture and equipment yields total costs of $9909 for renters, $18,088 for owners with mortgages, and $9107 for owners without mortgages.

So far, it looks like being an owner without a mortgage is the way to go. Let's add in the tax benefits that morgage owners are always crowing about: with the pre-tax salary of $76,571, the mortgage payer benefits at the rate of 34% (marginal rate) times property taxes plus mortgage interest, or (2215 + 6848)x.34, or $3081, leaving a $15,007 after tax cost. The property owner without a mortgage still gets to deduct property taxes, though what he pays is a little lower, at $1771 in property taxes, and his pre-tax income, at $46,967 means that his marginal rate is 15%, with the result that we deduct $265, leaving us with $8842.

But the outright property owner has another cost, a hidden one, and another benefit, also hidden. For the past 41 years, his property will have risen at 1.6% per year in real dollars on average -- a benefit. But he will have tied up money in the property that could otherwise be invested in, say, 10 year treasury notes, whose real yield was 1.1% higher, so 1.1% of the value of his home at time of acquisition should be added to his annual cost. Currently, the median US price is about $221,000 -- so if you wanted to get into the low-cost owner position today, your annual cost afterward would include $2,431 annual opportunity cost. $8,842 plus $2,431 is $11,273. I'm sure there is a way to figure this cost for mortgage holders, but I've got enough numbers running here (and I suspect I'd simply have to add another $2431 to the mortgage owner -- and he's high enough! So, the following contains slanted statistics in favor of the mortgage owner).

Where does that leave us? Well, renters pay $9,909 annual cost, those who own outright have an annual cost of $11,273, and those who bought with a mortgage have an annual cost of $15,007. Housing and automobiles are the two biggest expenditures for most families: and if you can reduce the expense from 15,007 to $9,909, you save about a third of what you would have otherwise spent, and that kind of saving can pay for a lot of other things. Even if your favorite uncle dies and leaves you the price of a house, should you buy the house and get into the intermediate class of those whose housing costs $11,273? Well, annually if you rejected this bargain, you would save twelve percent: a fairly sizable chunk of your biggest expense. It might be time to talk to people who sell those ten year treasury notes after all, or other, more profitable investments.

As a side note, for those who wish to find out about automobiles, check out Intellichoice to see the five year costs of operating the cars you want to purchase.

I recognize that there are other, intangible benefits to "owning your own home" -- and those intangible benefits must be VERY large in Santa Monica, where the rent charged on properties could not cover the mortgage payments, let alone the maintenance costs, of the properties. Either that or someone is getting rooked.