Coffee heat rising

Real estate

Small glimmer of light in the tunnel

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(Hope it’s not a headlight!)

Yesterday evening I walked Cassie past a foreclosed house a block to the west. The place has always been trashed: the people who lived there for years took pride in running it down, and so by the time they were tossed out, it was quite a mess. The “For Sale by Lender” sign has been up for several weeks.

Curious to look inside, I kicked the back gate open and found…lo! brand-new double-paned windows and Arcadia doors! A brand-new heat pump, merrily humming away in near silence. Through the windows, some of which still had the manufacturer’s plastic wrap clinging to the glass, I could see new cabinetry, appliances, and countertops in the kitchen. The house was tiled throughout with attractive Saltillos. A closer look at the structure revealed brand-new roofing, and it had a new paint job inside and out.

Dang! It looked pretty darned nice. Only things remaining to be done were to install a shade structure over a large patio slab, to revive the landscape, and maybe to put in a couple of shade or fruit trees. Since the grass is already pretty much dead, it wouldn’t take much to xeriscape the yard.

So I was standing in front thinking maybe I should consider buying that place, since it’s offered for significantly less than I could net on my house: it’s smaller (less work! lower utility bills!) and all the other houses around it are well maintained. Archie, the resident across the street, is a right-wing crazy, but that’s OK: for unknown reasons, he thinks I’m a right-wing crazy, too, so as long as I don’t disabuse him I’ve got a friendly neighbor. Pretty quick along came one of the other dog-walking regulars, a neighbor named Mike.

Mike knows what’s going on around the neighborhood, in extended detail. The house, he says, is in escrow: selling price is allegedly $260,000.

“That will pretty much set our prices for the next few years,” says he.

“Yup,” say I, knowing that now there’s no chance of escape.

Mike said the lender had put about $60,000 into the place. Some time back, Archie said he’d talked to the rep, and his story was that the upgrades cost $30,000. Assuming the tile floors were already in, I’d say thirty grand for the roof, air-conditioning, windows, and kitchen is closer to the truth.

Well. If the outfit that ended up owning that decrepit rathole fixed it up to this extent, maybe the same thing will happen with Dave’s Used Car Lot, Marina, and Weed Arboretum. Even a coat of paint on the outside would help: the place is a wreck. Right now the girlfriend has mounded the weeds she’s pulled during the past three or four weeks into a big haystack on the driveway. Somehow she manages to drive around the stack and park her car on the slab the between the closed garage and the stack—how, I can’t imagine. The garage, of course, is packed with junk, so there’s no way to get a vehicle in it. Take that back: about two weeks ago, Dave hauled away enough debris to get his pickup in there, but the mother of the new baby can’t put her car in out of the heat.

So maybe there’s hope: if a lender has to clean up a property to unload it, maybe the outfit that ends up with the Weed Arboretum will at least clear the brush and paint the tired (not to say “exhausted,” “debilitated,” or “comatose”) exterior. That would sure help a lot.

Mike has done a lot of renovating and upgrading on his house, another half-block to the west and dangerously close to the coming construction mess. Asked what he thought would be the effect of the train track project on our property values, he said he was disgusted when the City refused to give fair consideration to the residents’ request to turn the streets now opening onto 19th into cul-de-sacs but instead ramrodded its own half-baked concept past everyone’s objections.

During the construction of the trolley-car tracks, he said, our property values will drop significantly, and the foreclosure situation will drag values down further.(He’s calling it the “trolley”; I call it the “train”; no one who thinks the scheme is the biggest boondoggle to grace Arizona since the Freeway to Nowhere calls it by the City’s pet name, “lightrail.”) However, he has learned that neighborhoods near completed segments of the trolley-car tracks already are showing increases in property values. So, the folklore to the effect that trolley lines improve property values may contain a grain of truth.

We’ll see.

Anyway, I felt a little better about things after exploring the partially upgraded little house and imbibing Mike’s optimism. Maybe we’re not on a handcart to hell but on a roller coaster, instead. Roller coaster rides generally climb back up after they’ve gone down.

Recession moves in to the front yard

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Dave’s Used Car Lot, Marina, and Weed Arboretum has been foreclosed. Yesterday evening the neighbor behind me, whose address is the same as Dave’s except it ends in “Lane” instead of “Way,” showed up at the door with a foreclosure notice that had been plastered on her door. She was shaken up, because at first she thought it applied to her house and was afraid she’d been the victim of a scammer. But on closer inspection we saw that it had been delivered to the wrong address and was intended for David.

My feelings about that are mixed. On the one hand, I’ll be happy to see the end of Dave’s proprietorship. On the other, I don’t look forward to another rental across the street! Maybe the new tenants can band together with Biker Boob and open an entire chain of shade-tree mechanic’s garages. And I feel bad for Dave: though there are times when I’d like to kick him in the shins, he is a sweet-natured and quiet man. Besides, given how overgrown my front yard has become what with the thick screen of shrubbery designed to block the view of the Weed Arboretum, I can’t be calling his kettle black.

Well, if we’re lucky, maybe we’ll get somebody who wants to live in the property and actually will take care of it. Not likely, though: the people who bought my old house after La Viajera defaulted are letting it go to pot. Often folks don’t realize how much it costs to maintain an aging tract house, and they just can’t afford to keep it up.

Dave owes $320,000 on a house that couldn’t have cost him more than $80,000 or $100,000. He’s been in the neighborhood at least as long as I have, and I paid an even hundred grand for my first house here. LOL! I guess it explains why he never goes to work: he’s been living on the equity!

M’hijito dropped by last night. We considered the possibility of trying to buy the place and either moving him and his roommate in there or renting it out. It’s really a wreck, though. The place has always been a disaster area—it was run down long before the Bubble came along. I’m afraid the cost of making it livable would be more than we can sustain.

Here’s how it looked when I moved in, back in 2004. Nice plywood in the front window, eh? Satan, the previous owner of my house, had quietly paid David to store the boat off the lot while the house was on the market, so it’s not visible here among the trailers and the vehicles, plus the junker car and the flatbed trailer full of ORVs are missing. Satan probably arranged to have the yard cleaned up, too: it hasn’t looked that good since he and Proserpine moved out and I moved in. The boat in the photo at the top of this post is a new model; he replaced the old one, which was nonfunctional and faded blue, with a nearly identical one in red.

M’hijito is beginning to worry that we won’t be able to turn over the Investment House before the 15-year period that we have to pay off the 30/15 loan runs, and if that happens, we won’t be able to refinance. That’s a bridge we’ll have to cross when we come to it, though. If we sell now, we’ll just break even; in fact, we might sell at a loss. Fifteen years is a long time. While it’s true that the D word is being bandied about in high places, if the world economy goes into a depression, we may have a shot at coming out of it in less than 15 years. Maybe not: as someone pointed out, the Dark Ages was actually an economic depression. But things move a bit faster these days….

Counterintuitive Advice: Borrow to the hilt

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Yesterday I called my investment adviser to discuss the possibility of buying a smaller house in a nicer neighborhood. I was operating under the assumption that I would apply all the proceeds from my present paid-off home’s sale to the new house.

He, however, urged me to finance as much of the new purchase as possible—80 percent—and invest the remaining cash in the stock market. The 5 percent drawdown (projected “take” for retirement income) from the increased amount in savings would cover the cost of the mortgage and, when combined with Social Security, would give me enough to live on. And then some, in his opinion.

Leveraging debt, as we know, is something that goes against my bourgeois grain. However, since this is a very smart guy with an MBA, I reckoned I’d better listen up.

So today I ran a bunch of figures, in an attempt to see the practical outcome of borrowing against real estate instead of paying it off. The fly in the proverbial ointment is the $1,000/month payment I’m making toward the house my son and I are purchasing as an investment, which we would like to hold until after the housing market turns around. That could be anywhere from two to ten years.

I assumed my monthly costs of groceries, clothing, gasoline, and the like will not change significantly, since I do not eat out and don’t have to buy special clothing for the office. Gas probably will drop a little, but not much, since the Valley’s sprawl requires everyone to drive from pillar to post just to accomplish ordinary errands. Monthly routine nonnegotiable costs such as tax & insurance, utilities, and the like probably won’t change if I move to the cute little house in Willo, but will drop sharply if I move to Sun City.

So: would I be better off to mortgage my home and add the cash to savings? Here’s what my calculations show:

In the first scenario, my real estate agent gets the seller to come down off his price by $10,000 and I get my full asking price of $325,000, netting a grandiose $274,100 after the Renovation Loan and closing costs are paid.

That’s depressing. Even without the cost of the Investment House, I can’t afford to move to the cute little house in Willo. Moving on…let’s suppose the guy is right, that carrying a mortgage on my house would allow me to leverage debt in such a way that I would have more to live on in retirement. Maybe that strategy would make it possible for me to stay right where I’m living. Suppose I did that right away, while I have a job, since no lender is likely to fork over 240 grand to an old lady on Social Security.

Wow! I profit by a fantastic $1,076. What keeps me in the black is my salary. In theory the positive balance is a bit higher, because I get a small income tax advantage. That notwithstanding, this does not look like it’s worth the effort, or the psychological stress of diving into debt up to my eyeballs.

Once all I have to live on is Social Security plus retirement savings, this scenario puts me deep in the red. Clearly I can’t afford to stay in my house using this strategy after retirement.

So, what if I pay off the Renovation Loan, leaving my house free and clear, and try to stay here after I retire. Can I afford that?

What with the ever-increasing property taxes and skyrocketing utility bills, it doesn’t look good. The only way I can stay here is to sell the Investment House prematurely, taking a loss on that. This will cause my son also to take a financial hit, which I would prefer not to do.

Ohh-kayyyy…. This leaves moving to Sun City as the last option. Costs there are much lower, because taxes are controlled and home and car insurance is much lower. Videlicet:

This represents a significant savings on the cost of living in my present (much preferable) home. So, what happens if I finance a sorta comparable house, which out there will cost around $260,000?

Lovely. I’m still in the red. Either my son has to come up with an extra $542 a month, or we have to sell the Investment House. This is getting depressing: so far, no matter what I do, I can’t afford to retire. Period.

But I can afford to pay for a Sun City house in full. What happens then?

OK! I probably could survive if I move to Sun City, buy a place for much less than I get for my present home, and continue to live frugally. The amount of play in my present budget is $29 a month, and so in this scenario my lifestyle would not change much. Except, of course, I would be enjoying the silence of the mausoleum in a ghetto for old folks.

In any event, this comparison suggests that paying off your debt is better than leveraging debt, at least in terms of providing you with cash to cover your living costs. Math is not my strong point, and there very well may be something in the logic that I just don’t understand. But if these figures are right, paying off all debt—mortgage included—is the sanest way for a middle-class earner to go.

LOL! Forget that!

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Well, La Maya managed to get into the County Recorder’s site and extract some information about the cute little Willo house. Taxes not only are NOT lower on a house and lot signficantly smaller than mine, they’re higher: $2,641. Good lord. I almost fainted when I got this year’s bill for $2,050!

Even if the utility bills are lower (they won’t be: the house is in a district served by one of priciest utility companies in the country, which charges extravagant amounts per KwH to fund its white elephant of a nuclear plant), I certainly can’t afford that. So…looks like it’s gunna be Sun City for me. Day-um!

Cute little house

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Still thinking about the adorable little house I saw in the downtown historic district. It’s a lot smaller than my house: more than the equivalent of two bedrooms smaller. On the other hand, my house is one or two bedrooms too large. Contemplating retirement, I’ve thought I need a smaller place, and two bedrooms would do. In addition, it has what appears to be an intact garage. Many homeowners in that area insulate and drywall the old garage, fill in the doorway with a regular door and a window, add a heat pump, and call it a “guest cottage.” This hugely jacks up the property value, because it adds about 300 or 350 square feet to the livable space. Put a bathroom and a kitchenette in there, and you can get $500 or $600 a month in rent, or have a nice place to put up visiting friends and relatives.

On the other hand, moving is a big expense: do I really want to blow off what I’ve put into this house (which is very pleasant, the neighborhood and pending train-track construction notwithstanding) to move to a smaller place?

What’s the worst that could happen?

I move to Willo and…
…the house and moving expenses are more than I can afford; the house is no cheaper to maintain. I’m forced to move to an apartment or Sun City.

I stay here and…
…the house is more than I can afford, I’m forced to move to an apartment or to Sun City. Property values stay static or drop, so I can’t get into a place where I want to live.

Kinda looks like a wash, doesn’t it? Is it wishful thinking, or are there really more advantages (and fewer disadvantages) to moving than to staying?

To move or not to move…and if so, where?

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Yesterday’s confirmation of my suspicion that I won’t be able afford to stay in my home after I retire is disturbing. I will have to move someplace cheaper to operate. And if I need to carry a mortgage to do it, I’d better find a place sooner than later. No one will lend a house-sized chunk of money to an old lady trying to live on Social Security.

If I’m going to stay in the Phoenix area and not live in a three-story walk-up, there are only two choices: Sun City or a foreclosure in the city’s gentrified core. The city stands down off the property taxes in the historic district (the locals consider a house that’s 50 years old to be “historic,” a bit of a joke but hey…it’s Arizona). Right now three or four such shacks are on the market.

The historic area known as “Willo,” part of the larger Encanto district, is exceptionally well maintained and pretty: gentrified with a vengeance. My ex- and I lived there for 15 years. We moved after our son got big enough to play outdoors—surrounded with a blighted area boasting the highest per-capita drug use in the city, Encanto is infested with homeless mentally ill and dangerous criminals. We felt it was unsafe to let him play outside, particularly after one of the neighbors (yea verily: an elderly woman) was killed by an ax murderer. A woman living alone down there really needs a large dog. But (sigh) I suppose that can be arranged.

I saw two derelicts on Third Avenue as I drove down into the area this afternoon. One of them was so spaced, the poor guy, he was stumbling up the middle of the street. On the other hand, when I stopped to look at one of the vacant repo houses, I chatted with a yard crew. Their foreman said his company cleaned up and did handyman work for the bank that now owns the place. They were up on the roof the other day replacing parts in the air conditioner when two squad cars full of cops showed up and, pistols drawn, ordered them to explain themselves.

So that would mean the cops are showing up, something they rarely bothered with in the past. I remember the time The Walker, a mentally retarded gentleman who used to walk around and around the neighborhood, oblivious to the traffic on Third and Fifth avenues, from early in the morning when the settlement house tossed him out to evening when he could go back to bed. One hot day he passed out on my neighbor Chuck’s lawn. Chuck called 911 to get an ambulance for him, and the despatcher said—I kid you not!—”Don’t worry, he’ll sleep it off.”

They figured the old guy was a drunk, and they didn’t give a damn that drunks were passing out on people’s lawns. Chuck had to call the city, raise Hell, and put a block under it to get somebody to come take care of the man.

On the Night of the Screaming, it was an hour before the cops showed up. They almost arrested my husband, who appeared, coming home from a firm meeting, about the time a squad car surfaced. This was the time a rapist tried to come in the side door, having got himself all hot and bothered after he watched me, through a window, doing some calisthenics. I went to another door, threw it open, and started screaming “Fire!” LOL…didn’t know I even could scream that loud.

Anyway, the prospect of watching a house burn down brought the neighbors out, which scared our boy off. They watched him lam out of there on a bicycle.

That’s the neighborhood I’m planning to move back into. On the other hand, the mayor lives there now. That would explain the improved police presence. The city has long been anxious to gentrify that area, and these days people with lots of money have moved in. So…times may have changed in Encanto.

Because of the area’s exceptional charm (it’s actually the only charming district in the entire Valley—otherwise, all the housing is ticky-tacky sprawl, except for the huge and hugely expensive 1950s ranch houses of North Central), prices ran up very fast and stayed up, long before the Bubble. In 1968, three months after we moved into our very beautiful Santa Barbara-style house, a Realtor came to my door and offered $100,000 for it. We had just paid $33,000. Twenty years later, after I Ieft the marriage, I considered moving back into the area, but by then prices were utterly out of the question.

No more. The bust has brought prices for some very sweet little places back down under $400,000. If I can get three and a quarter for mine, I probably can afford as much as $370,000.

Right now an exceptionally pretty small house, shown above, is on the market for $365,000; probably the price can be negotiated down. It’s pretty tiny—1,488 square feet, compared to the 1,860 in my present hovel—but it has three (minuscule) bedrooms, an office, and, a valuable rarity in that neighborhood, an actual garage with a garage door! And a pool, freshly replastered. The roof looks new. The house has a new HVAC system…very big, indeed. The kitchen has been remodeled; the distressed owners left a restaurant-style gas stove and a big, brand-new refrigerator. Strangely, they built an outdoor fireplace on the far side of the pool, in a space too small for outdoor furniture; but it’s atmospheric, I suppose.

Three hundred sixty-five grand is cheap for that area. That’s $245 a square foot. Just down the road, on the street where our babysitters used to live, someone is trying to get $850,000 for this little manse: at 2,520 square feet, that comes to $337.30 a square foot. Now I will say, it’s a lot more elegant inside and out; it has a huge, fancified kitchen, the most stylish of all possible swimming pools, and a large, swell bathroom with a whirlpool tub. And no place to park your car. One extracts 2,520 feet from those places by converting the garage into a “guest house” (read “impossible to air-condition studio”).

Another place around the corner from where we used to live is on the market for $525,000. The seller boasts that the taxes are $1,780, significantly less than I’m paying on a house worth something around $300,000. Cute little fellow, isn’t it? It has a nice big kitchen, an office with handsome built-ins, big bright rooms, and the original tiling in the bathrooms, very attractive. At $228.25 a square foot, you get 2,300 allegedly livable square feet, again because the garage has been converted and you have no place to park your car. Understand, there’s no neighborhood in Phoenix where you can safely leave your car outside, and this particular high-crime area is not a place where you would want to leave your car sitting en plein air all night long. One of our neighbors popped out of her home one morning, jumped in her car to go to work, started to back out the driveway, and, turning around to watch where she was steering, found a derelict sleeping in the back seat. When she got her husband to evict the uninvited tenant, the man was indignant to have been awakened at such a ridiculously early hour.

The house I saw where I stopped to talk with the workmen was on the market for $270,000, having failed to sell at auction a week or so ago. The reason for that, I expect, is that it backs onto the commercial strip facing McDowell, a busy and loud main drag, so that the view from the backyard is the backside of some aged, run-down commercial buildings and their gigantic garbage bins. Needless to say, few people are willing to buy a fixer-upper of a repo for anything like what the bank wants to get for that thing. At any rate, while we were chatting I noticed a pile of broken car window glass in the street. The crew’s super said the car had been broken into while they were off at lunch. So: a garage is a nonnegotiable, as far as I’m concerned.

All these nervous-making issues notwithstanding, the area has many things to recommend it:

  • An amazing esprit de corps exists among the neighbors. People live there because they love the old houses and they love living in the central part of the city. They’re vital, young, and generally quite friendly. When we lived there, we knew and socialized with neighbors for three blocks around; in my present house, I haven’t exchanged more than 200 words with any of the neighbors except for La Maya and a lady down the street who has a dog about Cassie’s size.
  • The neighbors keep the houses up. Every yard is perfectly groomed. No one looks out her window to see anything like Dave’s Used Car Lot, Marina, and Weed Arboretum.
  • It is a lot closer to the Great Desert University than where I’m living. I could get to work in ten minutes flat.
  • The city has fostered a midtown cultural and arts district. The neighborhood is within walking distance of the main city library and two vibrant museums.
  • The train will go right up Central Avenue, four blocks from the coveted house. It will carry riders downtown and let them off within walking distance of the theater district, making it possible to enjoy plays and music without having to pay $10 or $15 to park your car for a couple of hours. There’s a baseball stadium downtown, too, for those who enjoy athletic events and can afford to watch them.
  • My friend VickyC lives in the general area.
  • Once the bust is over, property values can go nowhere but up.
  • Taxes are kept low (although nothing can stop the city and county from rescinding the special tax district).
  • It’s within walking distance of Phoenix College, where in my dotage I undoubtedly can pick up some classes to teach, to the tune of a couple thousand bucks a semester. This would be an easy way to pick up some pin money. Since the college has a writing program, I’m sure I can get hired to teach something less torturous than freshman comp.

The other possibility is to move to Sun City.

The biggest advantage of Sun City is price: it is extremely cheap to live out there. SDXB’s taxes are half of what I pay, and when he moved his homeowner’s and car insurance dropped to a third of what he was paying here. It also is very quiet and relatively safe—the crime rate is low, and since the notorious Sheriff Joe Arpaio knows that elderly right-wingers (which describes most of the populace) will keep him in office, he provides prompt and effective police coverage. The houses are built for old folks: many are intelligently designed, and they have lots of storage. Most have double garages. There are two big hospitals and several life-care communities, amenities one needs to think about as one ages.

For $300,000, for example, you can buy this place. Truth to tell, it’s a better house than anything in the price range in Encanto. It’s bigger, it’s newer, it’s in a safer area, it has an updated kitchen and interior, and it backs onto a golf course. Similar houses can be had for lots less: most of the sellers are either old folks who have been carted off to a nursing home or out-of-state heirs, both sets that fall into the “distressed” category. Houses are not selling in Sun City, with the result that every second shack is on the market. For $290,000, I could buy a place on a fake lake, with its own private dock.

And lo and behold, here’s a house with a pool, right on the golf course, with a kitchen best described as vast: it appears to be SDXB’s model, which is a nice house. It’s on the market for $259,900. I expect I could stand to live in this place.

So…why would I even consider spending $65,000 or $100,000 more to live in a smaller house in the noisy, crime-ridden heart of a big city?

Why, indeed?

Well, for starters, because it is Sun City.

  • It’s a ghetto for the elderly. I’m a big-city girl. If I’m going to live in a small town, I will move to a real small town, not a “planned community” that plans out the sound of children playing.
  • My politics lean to the left. Most elders in this part of the country lean to the right. Chances of finding sympatico friends are almost nil.
  • Sun City is full of couples. It’s difficult enough to make new friends when you’re old. But when you’re a single old person in a culture where people don’t care to have a fifth wheel along, it’s almost impossible.
  • Watching old movies does not strike me as a cultural event.
  • I can’t think of anything more depressing than watching the few friends I would manage to find grow more and more decrepit. While I enjoy friends my age, I also crave the acquaintance of younger people.
  • It’s way, way too far away from the university. If I can, I intend to keep my job another two to seven years. I wouldn’t want to make that commute every day for two weeks, much less for seven years!
  • My son hates it and has said he will not drive out there to see me.
  • The ‘burbs have moved west and surrounded the Sun Cities. As a result, the entire area is crowded, hectic, and crazy-making.
  • The Sun Cities themselves are’burbs: vast tracts of almost identical houses turned out of a limited number of cookie-cutter molds. They are ugly, dreary, and monotonous.
  • When you use the term “quiet” about Sun City, you mean the silence of the mausoleum.

So, while I’d love to turn a $40,000 profit on the sale of my house, I don’t think I’d like the trade-off. A smaller house in the central city would be less work for me to take care of and, with the taxes controlled and fewer square feet to air-condition, would cost less to operate. While I wouldn’t come away with the extra money I need to pad my retirement savings, expenses at least might be manageable.

It’s worth looking into.