A house in the hills for $400K? Foreclosure and opportunity in Highland Park

Last week I published the the stories of three recent home-buyers, and one of them was brave enough (masochistic enough?) to offer a more detailed account of her decision to ignore the  comments on this blog and buy a house. Milla Goldenberg, who writes the blog Milla Times, on finding a home in L.A. for $400,000:

"Originally, I looked at Silver Lake but the fixers there were selling in the fives, so I moved my target east to Highland Park, where prices seemed more manageable.

"I drove around the neighborhood every weekend for about a month, even at night, to get the lay of the land. I had a friend who bought there a few years back, and I was always impressed that her street housed a Buddhist temple, a Baptist church and a Jewish synagogue, and was one block from the Gold Line. Sure, I noticed the graffiti and homeys with tattoos on their necks, but I saw plenty of that all over the city and wasn’t particularly afraid of mingling with the working class. Tons of cool bars, boutiques, coffee shops and galleries peppered York and Figueroa, and the hillside houses remained shockingly affordable. I also noticed that the area’s first Starbucks was being built and figured that if I got in after the first Starbucks but before the first yoga studio, I would be set.

"The landscape was filled with foreclosures, many of which were trashed by their previous owners. I passed on all these dumps and held out hope that I could find something more to my liking. I did, in fact, find many houses to my liking and thought I could score them easily at a bargain price. But something odd would always happen: I was outbid.

"Months of reading L.A. Land convinced me there were no other buyers out there, so I was shocked to discover that I had competition."

"Granted, it was nothing like the competition during peak, but I quickly realized I was up against other first-timers like me looking to score a deal. And we were looking at the same houses — the good houses — because the good houses, when priced right, were moving, and still relatively quickly. Many times, I saw a seemingly good house appear on the MLS for just a few days before being snatched up.

"After about two months of looking, I found my good house: a foreclosed property in the hills on the Highland Park-Eagle Rock border, a 3/1 on a 5,300 sq ft lot, detached garage, partially built basement, 1,000 sq ft inside, a sizable deck and amazing view into the valley below. The house had been on the market for a week before I made my bid. Price tag was $449,000. I checked the comps for the block, which were mostly in the fives. I checked the public records on the house and found out it had been occupied by the same family for 10 years, who refinanced twice during the boom, pulling out about $540K. They were in foreclosure a year later.

"I negotiated a purchase price of $410K, so I went over budget a bit, but not in a way that wrecked me financially.  I understand how the naysayers and doomsdayers can cry from their armchairs that the sky is falling, but as someone who actually went out there, I know things aren’t as dire as people think — unless, of course, you’re a speculator only concerned about your bottom line, which I am not. I also understand how a pack mentality and the bottomless echo chamber of the Internet can cause people to resist the idea that now really is a good time to buy. But it is a good time to buy.

"I do know that prices have already fallen 20% from their peak and I thank my lucky stars that I didn’t buy at peak. Did I buy at trough? Probably not, but that’s not my primary concern, because when we put market timing aside, owning a home is always a good thing. So I’m not worried about short-term depreciation. I found a great house in the hills that I know will sell when the time comes. I have a roof over my head, a big yard for my dogs to play in, a tax shelter that will keep me smiling at tax time, more space and storage than I’ve ever had in any apartment, no landlord to bother me and a killer view that soothes me after a long day. I couldn’t be happier with my purchase. I have no regrets now and I’ll bet you my house that I won’t have any in the future."

Thanks, Milla.
Comments? Thoughts? Be respectful, please. E-mail story tips to peter.viles@latimes.com

Comments

[anon]

Ann, where are you getting your numbers from? If you pay $25,000 in interest, you deduct $25,000 on schedule A. Tax savings would be 28% = $7,000. Where are you getting $8,048 from and why are you taking another 28% from it? Plus, she's going to be deducting property taxes too.

I can't believe how negative people are on here.

[brad]

Again, I don't know the Hills but 332 Brooks Avenue in Venice sold for $1.25MIL. It was listed for $1.1MIL and after 8 offers got pushed to $1.25MIL. It is a 1500 square foot box on a 5000sf lot in the transitional Oakwood neighborhood of Venice. It closed last week. PS 150 multiple questions there's your back up.

[Milla]

TakeFive: I went in as moderate income, not low. I do a fair amount of freelance work on the side in addition to working my day job. I had a down payment and no co-borrower. My FICO is past 700, so rest assured that I'm not one to default on my financial obligations, meaning no one will be paying my mortgage but me. I won't go into the details of my down payment, monthly payment, earnings or terms of my loan because that's no one's business but my own -- and it's pretty tacky to ask -- but trust that I sleep well at night.

[yourkillingmelarry]

"A two-bedroom cottage in Los Angeles’ trendy Silver Lake neighborhood that had traded hands two years ago for $887,000 got picked up for $285,000"

Wow! That one hits home. Probably a story to this but still Silver Lake in the 2's. You are going to see and hear many more stories like this. Interesting thread, yes there will be home buyers in Spring regardless of how bad the market is. People will be buying homes all the way to the bottom. Just like they did last time, and just like they did in Japan. We could very well see multiple bids on the competitive priced properties again - much like that in 2004-2005 boom. If prices start to get bid up again then people will stop buying, inventory will accumulate some more, prices will fall below the last lows rinse, repeat until it bottoms.

Even with all the fuss about the increased activity S. Cal is still about 35% to 40% below last years volume.

[Lisa]

I'm sorry, but several commenters on this blog are classist if not downright bigoted -- my comment is directed to "JK" who says "Call me when the graffiti has been cleaned up and English speaking families start moving there again."

Since when does not speaking English as a first language make one undesirable? What the heck? I have several friends and extended family members who are immigrants and speak another language as a first language -- this does not make them dangerous. I can't believe people have the guts to post this kind of vitriol, especially in a wonderfully multi-cultural city like Los Angeles.

There aren't strong enough words to describe how horrible gang activity is for everyone involved and Milla should definitely take safety precautions that any Angeleno should take in any neighborhood (as I commented on the last post, I've been victimized by random crime in two separate incidents in a very expensive section of Miracle Mile) -- but in any neighborhood there are moms and pops and kids just trying to get by. For commenters on this blog to spew such hatred so casually is really depressing, and only illustrates the divisions in our city.

[shockg]

"I negotiated a purchase price of $410K, so I went over budget a bit, but not in a way that wrecked me financially. I understand how the naysayers and doomsdayers can cry from their armchairs that the sky is falling, but as someone who actually went out there, I know things aren’t as dire as people think — unless, of course, you’re a speculator only concerned about your bottom line, which I am not. I also understand how a pack mentality and the bottomless echo chamber of the Internet can cause people to resist the idea that now really is a good time to buy. But it is a good time to buy."

Milla congrats and enjoy your new home!! Ignore the langry jealous losers on this blog. They are so full of it and think they know it all. You ventured out into the marketplace and discovered that most of what the media and these fear mongers are saying is all hyped up BS. You hit the nail on the head. Many of these fools are indeed speculators who thinks its their birthright to buy ultr-cheap properties to flip for obscene profits. The sense of entitlement among these people is disgusting. Fools, Keep talking down the market while the smart ones make their move.

[Julia]

If I was living in an area with graffiti and homeys with tattoos, I don't think I'd be publicizing that I'm a single woman with a moderate income who just bought a house. I'd be getting a very scary dog and putting bars up on the windows. There are a lot safer areas to be spending that kind of money.

[Hula Girl]

Your Ann-ness,

Apparently my reading comprehension (which you love to obsess over) is superior to your math comprehension. Get a tax clue, will you.

I love how you serve up your "facts" and end up dining on crow,

Thank gawd you're an inmate and not an accountant.

[JK]

I'd like to add...$400K for Highland Park?? Milla, find the realtor that sold you this trap and sue them to get your money back, you've been had!

[peter m]

" Sure, I noticed the graffiti and homeys with tattoos on their necks, but I saw plenty of that all over the city and wasn’t particularly afraid of mingling with the working class"

Milla,

Gangs, homies, graffitti, and slum apt projects are part of the LA inner city landscape like rats in a sewer. It is inevitable in a PC'ed , illegal- immigrant safe haven city like LA. You just have to deal with it if you live in one of the innumerable quasi-ghettoized districts abounding in LA, including highland park.
Probably not quite as bad as some other cities such as maywood, bell, cudahy ,and Wilmington which are actually CONTROLLED BY GANGS.

The way to deal with it is by being street smart and adaptable to your surroundings, like a darwinian survival of fittest contest. For starters, get a big guard dog. intall plenty of outer perimeter flood lighting and bars on all windows and doors. Carry tear gas . Walk around looking serious, acting like you mean business and don't take crap from no one. Don't look homies directly in the eye. Keep out of certain designated streets which are gang-controlled turfs . Keep the car running in tip-top shape and have AAA auto coverage to call ASAP in case of breakdown.

With the rescession and housing bust there will be sharp upticks in ghetto crime as lots of gangs and homies will be unemployed/ unemployable and turn desperatey to property crime and robberies/assaults/burglaries to survive. Crime will spike in inner LA hoods as unemployment in LA spikes up to 7-8% by end of 2008 (real unemployment would be 10-15% in inner city areas) and 40-50% among gang-bangers and immigrant latino teens.

[D]

In regards to Ann

I had a feeling someone that pretentious and long winded was suspect. Makes you wonder what else she's been wrong about. Her posts are soooooo long who could stay awake long enough to check her numbers. Go away Ann...PLEASE!

[brad]

Hula girl, have you ever even owned real estate? I thought so

[Milla]

Mommy: i guess bad taste knows no geographic boundaries. :-) congrats on your pending purchase in LB. i raise my glass to you as well and know you'll feel as overjoyed about your decision to buy as i do -- and that's the only thing that counts.

[D S]

How come the buddist temple and the Jewish Synagogue bring hope. But having "hommies" (the term is homeboys) paint aerosol murals is somehow now as redeming. I find that very offensive to all the homeboys that live in Silver lake and highland park.

[Ann]

Ann,

You don't know what you're talking about. If you paid $20k in interest for the year (not principal), you can deduct that whole amount. If your marginal rate is 28%, then you saved $5,600 in taxes that year.

Posted by: GDC |

______________

Gotta disagree - I DO KNOW what I am talking about. That A+ in tax law class in law school says so.

It is what the 'deduction is worth that is the poiint.

Most people assume that they 'deduct' against their taxes when in fact they 'deduct' against income. (Never underestimateed the stupidity of the populstion. They don't know the difference between a deduction and a credit.)

I ballparked the amount of the first year payments that goes to interest. Some does go to principal - just not very much. In later years, les and less goes to interest and more to principal so the value of the mortage interest deduction goes down and down and down (and maintenance costs go up and up and up)

Payments should be 'around $28k" if she put down 5%. Definitely will have more in the monthly costs with the PMI if there is not 20% down. $3K or so should go to prinicpal. That leaves aroung $25K in interest. 28% of $45K or so is $7000. (Mistyped $8000 before.)

That is the the deduction against TAX as opposed to the deduction against income. The bottom line question is what is the affect on her tax liability.

Ergo, deducting $25,000 from income reduces tax liability by $7000. "But For" the payment of interest, she would have paid $7000 more in income tax.

All she 'saves' is $7000 or $583 a month. (Again, miskeyed above.) My ROOFER charges that much -and we aren't even going to talk about the costs of the lawn, calling the electrician out, the heating/cooling system that croaks and needs all redone and all the rest.

Lookng at it another way, if she has $35,000 and does not buy the house, she pays $9800ish in tax. in the 28% bracket , and then pays rent (call it $1800/month). That leaves her with $31,400 spent on taxes and housing and $3600 in hand.

If she buys the house, at that price mentioned, she has around $6700 in real estate taxes and insurance (est.), $3000ish in principal and $25,000 in interest. Assuming she has the real estate property tax deductions and the interest deductions, she still has to pay tax on the amount spent on insurance (est. $2600) and the principal ($3000ish). She owes arouond $1500 in tax in a 28% bracket. $6700 (TI) + $3000 P) + $25,000 (In) + $1500 (Income Tax owed) = she spends $36,200 + all the costs of maintenance and repairs. (And having paid those for over 2 decades, those are not costs to be ignored.)

Actually, by those numbers she is worse off with the house by $4800.

__________

Just noticed the size of the lot. After deducting the house and 2 parking spaces the size of a 2 car garage, that would only leave around 3700 sq feet. Hope she has a chihuahua. My dogs wouldn't have enough room to take a piss - let alone run around and play. I have flower beds that take up that much space - and are less than 20% of the yard.

[Cal]

I think Milla got the most flak in the last thread because of all the ones stated hers was the most financially shaky. The math didn't seem to work out.

Add into the mix an opinionated crowd here and an opinionated young lady that believes very much that she made the correct decision, you have all the fuel for a very lively debate.

Milla is happy with her decision and has already combined a bedroom to make her house a 2/1. She will be enjoying her house for a long time...

On the tax debate regarding mortgage interest rate (and property tax) deduction. I mentioned in the other thread that people tended to overestimate its use. 28% marginal tax bracket doesn't mean I pay .28 * $100, it's progressive tax I pay 10% on the first X, 15% on the next Y.. etc. So people always overestimate its magnitude. I am in the 35% Federal tax bracket.. it doesn't mean I pay 35% of my salary to the Fed. Also, as I said in the other thread.. people tend to ignore other available deductions to them when using the "I need a deduction" motivation for buying a home.

[ANn]

Your Ann-ness,

Apparently my reading comprehension (which you love to obsess over) is superior to your math comprehension. Get a tax clue, will you.

I love how you serve up your "facts" and end up dining on crow,

Thank gawd you're an inmate and not an accountant.

Posted by: Hula Girl |

______________

Oh it is her cow-ness again.

Gee, shall I hire you to come type for me?

The dictation system was misfiring and 'hearing' numerals incorrectly.

At least I have a reason for mistyping. Being permanently disabled with a shoulder injury that elminates that use of one hand and forces me to rely upon the erratic dication system is such a bore.

What is your excuse for being a fool - and an ingorant and rude fool at that? You really really really need to get a life.

The concept is correct. The mortgage interest deduction has to be viewed in terms of the end result in terms of tax liablity.

I didn't run the state income tax aspect. Just the federal.

[Katherine]

Mr. Viles:

I have been reading this blog for awhile.

Who is the Hula Girl? Why do you post her comments like the one above? She is nasty and busy attacking the other posters with nothing to say on the topic?

It says this is moderated but that is hard to believe when you permit that kind of abuse and conduct.

[Fred]

Enjoy losing your $5000 a week! Might as well quit your job, because you're just going to be in the red regardless.

[Chris]

Lisa wrote "Since when does not speaking English as a first language make one undesirable? What the heck? I have several friends and extended family members who are immigrants and speak another language as a first language -- this does not make them dangerous."

The fact in L.A. is that if you are in a neighborhood in which Spanish is the predominant language, you're in a neighborhood with violent crime rates that are well above the average. What can anyone say? That's just a fact about life here, regardless of what your friends and extended family members are like. They're probably good people, but that's them.

[mc]

Personally, I think it's naive to spend that much on a single family home in that area right now. I was born in Highland Park, had done the "loft thing" downtown for several years, seeing first hand that it's not getting "cleaned up" and watched two gangs fight over drug turf outside my window until one member was left for dead, bleeding outside my window even after several calls to the police over a 2 hour period yielded no help.

I have lived in Lincoln Heights for 3 years now and, although quiet for the majority of those three years, the increase of tagging, petty vandalism and bicycle drug dealers are on the rise. BIG TIME. I've grown up in mixed, working class and semi-sketchy neighborhoods my whole life. Now that I make a decent income, I don't see the point in paying $1900/month for some crap apartment in Santa Monica to be surrounded by douche bags. But I'm starting to re-think my neighborhood even though the neighborhood kids know me and call me "miss." It's the ones I don't know who could be trouble, and I'm noticing a lot of new faces milling around with not a lot to do in the middle of the day when I'm home sick or telecommuting. I have to admit that I'm feeling very wary.

Milla might have that same reality check coming in the near future.

[dunno]

Congrats on the house and all, but I don't know... it just doesn't feel right buying a 3bd 1ba <1000sqft in Highland Park for 400K. A 20% or so haircut is nothing when you consider that its value exploded by 200% or more during the bubble.

My brother bought a 4bd 2.75ba 2000sqft home in Reseda in '93 for 150K.

It still just doesn't make any sense these prices today. Well, I guess it does if you're willing to
- be a debt slave
- risk your financial well being, god forbid something unfortunate happens like losing your job. What if you need to sell for some reason in a few years? You're going to lose a lot of money.

It's just not worth the risk right now to jump into a house IMHO.

[HulaGirl]

Ummm. Brad? Why would you ask if I've ever owned real estate and then answer with a smug little "thought so".

Perhaps if you've ever read one of my posts (Uhh, like the one I made above mentioning a purchase I'd made in 2001) you would know the answer.

But I'm guessing you're a pissed of ex-real estate agent serving up double grande mochas to your former clients.

[Inland Empire]

Millla good for you! It never fails to amaze me how many sour grapes folk are on this blog. The fact is you have a home, you are thrilled with your purchase, it suits you and you are happy. These other people aren't. They are still waiting for those prices to fall so they can get a $75K condo on the beach somewhere.

[Brian]

Well, good for you!. The only two caveats are that you can afford the fully amortizing payments, and you plan on staying there for a number of years.

I was struck by your "tax time" comment, however. In my experience, the extra cost of ownership balances out the deductibility of mortgage interest in property taxes. In fact, I have found it surprisingly high.

I had been told to budget 2-3% of the purchase price toward maintenance and repair on an annual basis. Perhaps because I, like you, did some significant renovating, it has been much higher, more along the lines of 5%. It doesn't seem like that much, but it certainly adds up as an annual cost.

When I sat down to figure out the return I've had in nine years of homeownership (last year, near the peak), it worked out to an appreciation of approximately 6% per year. This, in the greatest housing boom we've had!

So as long as you are primarily looking to enjoy living there, as opposed to making a killing, good luck!