Advice to San Diego Homeowners: Sell Now and Rent

[powayseller]

Good advice, Steve.

[LookoutBelow]

I sold 3 years ago….both of my homes for serious profits, and retired from my profession, because of the taxes from the sale. I no longer need the mortgage interest deductions for a mortgage and I dont have any dogs, so I am WAY ahead of the recently new homeowner these days. The "Greater fool than I" analogy comes to mind here. I got out of the "fool" business a long time ago…..it usually happens when you get older.

I would not have retired so soon, if it werent for tax exposure from my real estate returns and retirement income, I liked my job. But now, I wouldnt change it for anything. 

Anytime you have to spend 3 dollars to save 1 dollar in taxes, its a exercise in ridiculousness. Wheres the logic ? ESPECIALLY if your "investment" is DEPRECIATING daily…like real estate. I hope people continue to buy real estate, I have a lot of friends that are agents and they deserve the sability. BUT, we all know it cant end nicely like that…..Even they admit that.

I saw the writing on the wall, it sure didnt take a genius, I couldnt care less what motivates other people, I only know whats right for me. So I sold. One thing is for sure, I would rather be where I am now than sitting on a house or two "wishing" the market would continue it skyrocket climb……

Like my father used to tell me: "Wish in one hand and shit in the other…then tell me which hand fills up faster".

 

[powayseller]

Another option is to live in the duplex. If you pay off the loan of your SFR, you have free rent, but if you live in the duplex you have free rent, insurance, water, sewer, and trash, and the tenant on the other side is paying for it all. Meanwhile, your money is not tied up in equity in a paid-off house but is instead hard at work earning interest.

[34f3f3f]

1. no property taxes
These will be factored into the rent. You think the landlord is paying it for you?
2. no maintenance fees. Call landlord when something breaks.
Hopefully your landord maintains his property, and you don’t break anything out of negligence. These issues can lead to nightmare scenarios.
3. renters insurance costs less than homeowners insurance
Who pays insurance? …biggest scam around.
4. earthquake insurance costs less on a rental (yes, make sure y’all have that earthquake insurance)
How many people pay earthquake insurance?
5. if you’re just getting into the market, rent is much cheaper than a mortgage
I believe that is correct, but how much is much?
6. I can afford to rent in neighborhoods where I can’t afford to buy
It’s easy to jusify a reason for doing something, when it suits us, but the whole point of owning your own home, is the freedom and sense of ownership it gives you, otherwise we wouldn’t do it.
7. No money spent on the constant improvements. No ongoing projects.
I think that comes under repairs above.
8. Husband has more free time, since he’s not gardening, fixing, building, improving, and being a guy in his castle. More time to work on hobbies and spend w/ family.
For some, improving their home and gardening are their hobbies.
9. No ties to a depreciating asset.
Unless of course it is appreciating …which happens after the downturn …usually.
10. No mortgage, no debt. Financial freedom.
But you are still having to pay rent, which is paying somebody else’s mortgage, your landlord can increase the rent, and he can thrown you out.

I am a renter, and a landlord but only agree with 5). The only reason you need, not to buy is you can’t afford it, or don’t want to pay silly prices. The rest of it is swings and roundabouts.

[PerryChase]

Even as a homeowner I support renting rather than buying. My circumstances are different than most people’s. Most buyers live in their homes 5 years. If you don’t believe me, pick a few properties and look at this resale histories on sdlookup.com.

The best way to look at home prices is to look at same-house price histories and listings. Same with renting, look at how much it would cost you to “carry” a house vs. rent a similar one in the same neighborhood. Think about it as buying a car for 5 years or leasing the same car for 5 years. I know that my approach is rather simplistic but I believe it applies to most buyers — especially the first-time buyers.

[powayseller]

qwerty, I disagree with each of your points, but don’t feel the need to repeat myself. Got a 2 year lease, got earthquake insurance…

[BuyerWillEPB]

powayseller – Wow, you really sparked a good discussion from this post.

I will play devil’s advocate for a moment because I didn’t see any mention of an important topic. Definitely, everyone in this post brings up issues that must be considered with regards to housing being one of our largest INVESTMENTS.

I think we should also remember the value of housing as a HOME. Remember back when the house you lived in felt like home instead of your 401K? I hope that feeling returns again after all this craziness is cleared away and I can actually afford to buy. 🙂

Think about it. If (and yes, I know in many cases it’s a big IF) you had bought a house for a decent price many years ago before the bubble, and you had a decent fixed rate conventional mortgage, reasonable Prop 13 property taxes, a stable job, and you actually liked your place, and it felt like HOME, that would be a good reason to not sell right now.

[PerryChase]

Considering that most people live in their houses 5 years or less, home is not really “home” in the traditional sense. We are now a highly mobile society and we should view houses in that light.

Of course each family’s situation is different but mobility and liquidity are important factors for the vast majority of the population.

BTW, a highly mobile society is great for the RE industry because is creates churn. Brokers don’t really care about appreciation. They would much rather have growth in transactions.

[gold_dredger_phd]

Housing prices in San Diego county have reached a permanently high plateau!

[ibjames]

I agree with both, house is your home, but is also one of the biggest purchases most people make in their lifetime.

While I would love to have that feeling of having my home, and painting the walls, my wife tending to flowers and getting a dog. All those rosey feelings would fly right out the window if I knew that I was so upside down that my little house now turned into a cage.

Or I bought a cage because that was all I could afford. 😉

[Nancy_s soothsayer]

gold_dredger_phd,

Two years from now you would be eating those words. San Diego residents would be feeling so depressed by 2008. The economy would be in the tank by then. Crystal ball says that.

[cabinboy]

PS, your analysis puts the cart ahead of the horse…your first two points automatically assume that the overvaluation estimates in the article are 100% certain and even underestimated for many of the markets.

Statements like:

“and then buy back in when your house is worth half. Heck, you could pay cash for the house in 5 years!”

“you would lose all that paper profit. It won’t be there in 5 years.”

assume that this housing bubble deflation is going to behave very similarly to the last. That’s still a big assumption. So, far everything looks like it’s on track to behave the same way…But, what if it just drops 20%, plateaus for 5 years, and then goes up again. Suddenly your advice is not prudent decision for a much larger percentage of folks.

The big-money cash out your talking about doesn’t exist for many of these markets. Sure, it works in SF, SD, and LA, since our homes were fairly expensive to start out with, but the guy in Duluth who bought at 65K isn’t going to bring in “the biggest payoff that you may have in your life.” Futhermore, the couple that bought at the top in Duluth for 140K and faces a potential 30% decline is far from committing financial suicide.

So, to summarize…there are a lot more factors to this decision than the little red number by your hometown. I’ve pointed out 2 of them, but there are many more (quality and location of the property being another big one that’s never considered in your sweeping analyses).

BTW, your SVP friend was likely chasing some very sweet relocation packages and made some very serious coin at each stop along the way. The kind of coin that rivals your once in a lifetime payout.

-CB

[PerryChase]

cabinboy, I believe that PS’ advice was directed SD homeowners, not homeowners all over the country.

[(former)FormerSanDiegan]

Money saved by renting vs mortgage: $800
Insurance Savings: $150
Saving on repairs: $300
Gas savings by living closer to work: $250

Publicly delving into ever-nutty conspiracy theories : Priceless

[meadandale]

“Every person who sells now trades in potential bankruptcy for financial security”

Uh, not exactly.

I bought my house 3 years ago. I have a 30 year fixed loan and can afford the payments. What happens if I follow your advice and cash out and prices never fall below what I paid for my house (comps in my area are still about 30% over what I paid)?

Then, I’d have to rebuy at higher cost and a higher interest rate.

Your approach has an enormous amount of risk as well–you just choose not to acknowledge it.

[Author]

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