Advice to San Diego Homeowners: Sell Now and Rent

[PerryChase]

meadandale, 3 years ago is not exactly a long time. You’ll most likely see your new found equity evaporate. I think that houses will fall back to 2000-2001 prices, in which case you’ll be under water. Just my opinion. Only time will tell.

You’re still paying more than rent. You may be able to afford the house payments, but you won’t feel too good about it if your neighbors pay less than you to live in the same neighborhood. 7 years from now, your house might be worth just about what you paid for it.

But as Realtors will tell you, if you hold on for the long term you’ll be OK. But the neighbors who bought later at lower prices will be much better off in terms of equity and property taxes.

Think about the opportunity cost of paying interest, taxes and HOA for 10 years on a house that has no appreciation. You’ll be shocked if you put the numbers on a spreadsheet.

[meadandale]

My next door neighbor is the original owner. He paid ~$10k for his house when it was new.

A house in my neighborhood rents for about $2k. My PITI is about $2700/month. So, I’m paying $700 more per month than I could rent for. By selling, I’d lose almost $30k/year in tax writeoffs. At 28%, that would mean I’d lose about $8400 from additional taxes but I’m paying about $8400 additional in carrying costs. In other words, I would have NO additional cashflow from renting (aside from things like maintenance costs). A wash.

I certainly wouldn’t go out and buy something right now if I wasn’t already in the market. However, if I were to sell, by the time I calculate closing costs from the original purchase, commission by RE and closing costs on the sale, I’d probably end up with around half of the current ~$100k in equity that I have.

I won’t argue that there is a bubble in San Diego and many other regions but you guys sound like so many equity day traders. In RE as in equity investing, most people who try to predict the market and time their entry/exit end up holding the bag in the long run. Those who invest to hold for the long run and weather the ups and downs are the ones who prevail.

I’ll stick it out, thank you very much. Loses, just as gains, aren’t realized until you actually sell your investments. Otherwise, they are just on paper.

[PerryChase]

I don’t think that you should sell. But buying was not the most financially advantageous thing to do.

Sounds like you have an old house (perhaps build in the 1950s) if your neighbor bought for ~10k new. Think about maintenance costs like a new roof, new plumbing, slab leaks, termites, painting, new carpeting, remodeling, etc…

There are many personal reasons for buying. Perhaps people on this board like to focus on the economic fundamentals of buying vs. renting.

PS: I still own so I didn’t follow powayseller’s advice to sell. But I think that it was good advice for anyone who bought after 2000.

[(former)FormerSanDiegan]

meadandale –

It is a good idea to run the numbers for your particular situation before jumping in and selling. Also, it depends on your other assets outside your home and how comfortable you are in absorbing losses. Same goes for buying.

Last year I contemplating selling my remaining rental property in SD. I’m into my 5th year on it, so it cash flows. When I computed costs for selling, as well as Taxes (never lived in the house) it would have been about 18% of the price. I chose to keep it with the possibility of a greater loss, but perhaps balanced by rent creeping up at 3% per year rather than take the guaranteed 18% hit.

[Cow_tipping]

One more of those good intentioned but self destructing bits of advice.
If they all sell, sales prices will plummet. Remember they have to sell it, and it has to be priced to sell. If it takes 6 months for them all to sell, prices will drop like a rock in that time and entirely cave in the market. then they all will have to rent, and that will … guess what … drive up the rents … a lot. The first of the sellers will be the first of the renters too and will make like bandits till their landlord starts reading the news paper (now isn’t he supposed to sell as well ??? OK lets say its an apartment complex and converting to condos to sell isn’t an option) … and there goes that savings. This is identical to the “everyone needs to buy a house now because you are gettting equite and interest rates are so low” idea from the NAR.
Cool.
Cow_tipping.

[sdrealtor]

Its fun to go back and read through old posts like this. If people timed things perfectly they could have come out ahead. On the otherhand if they had hung on they came out not much worse for the wear. Of course hindsight is 20/20

Here’s an example.

I paid $400K in 99
House peaked in 05/06 around $925K
House bottomed in 09/10/11 around $725K
House is now about 80% above prior peak and I still have that low RE 1999 tax basis

Had I theoretically timed it perfectly by selling at prior peak and then buying back in 2013 when it was obvious things were starting to come back it was about $825K. I would have missed out on 7 to 8 years of principal payments, incurred moving costs at least once (more likely 3 times) and my annual RE tax bill would be double. On the otherhand I may have done well investing that equity so that counter balances some of that.

I have one friend that did this perfectly. He went from one of the smallest homes in our community, rented here for several years and then bought one of the biggest and nicest homes as short sale. He trades bonds and did well with his equity during the downturn. I dont know another that timed things that perfectly.

However for many if not most, anything but perfect execution like him didnt produce far superior results. There is a very good case that most were best served staying in place.

I wonder how all the folks on this thread made out. I know things did not go well for the protagonist. A very good friend works with her ex and I got all the tawdry details. Not gonna get into details but trainwreck would be a generous characterization.

[gzz]

Sell and buy back would have been a lot better for a condo that dropped 60%.

[sdrealtor]

I bought one for 70% off. Buying condos in the urban core and outlying areas where they got hardest hit had great returns. This was more about primary homes though

[42nate1]

Bought our condo in 2008 during the frenzy & sold it in early 2008. Didn’t make any money. It was a bad location, and 1st time buyer mistakes – terrible noise pollution. Did manage to get out right before the crash. Watched the new owner walk away from it after more than $100k loss. Just lucky timing on our part, and poor timing on theirs.

Rented for 2 years and bought a short sale 4-bedroom on a cul-de-sac in Carmel Mountain Ranch in 2010. Love the neighborhood, and great appreciation over the last decade. Not quite a double, but close. Will never sell, so value is really irrelevant. Without the crash, we probably couldn’t have afforded to buy into the neighborhood.

In 2012, we bought a 4-bedroom house as a rental in mira mesa. Wish we would have bought a few more. It’s more than doubled & is a cash cow for rental income.

Also bought a 1-bedroom condo in mira mesa around the same time for my mother-in-law. Some appreciation. Not a great purchase, but it was bought out of need, rather than an investment.

Mira Mesa (and surrounding area) no longer pencil out from a price/rent standpoint. Latest properties are up in Oceanside. Have picked up a duplex, a 3-plex in the last 5-6 years. Hunting for a 4-plex, but its getting much harder to find deals that make sense. Not even looking at single family anymore. More tenants create their own challenges, but they do cash flow the purchase.

How about others?

[Coronita]

[quote=42nate1]Bought our condo in 2008 during the frenzy & sold it in early 2008. Didn’t make any money. It was a bad location, and 1st time buyer mistakes – terrible noise pollution. Did manage to get out right before the crash. Watched the new owner walk away from it after more than $100k loss. Just lucky timing on our part, and poor timing on theirs.

Rented for 2 years and bought a short sale 4-bedroom on a cul-de-sac in Carmel Mountain Ranch in 2010. Love the neighborhood, and great appreciation over the last decade. Not quite a double, but close. Will never sell, so value is really irrelevant. Without the crash, we probably couldn’t have afforded to buy into the neighborhood.

In 2012, we bought a 4-bedroom house as a rental in mira mesa. Wish we would have bought a few more. It’s more than doubled & is a cash cow for rental income.

Also bought a 1-bedroom condo in mira mesa around the same time for my mother-in-law. Some appreciation. Not a great purchase, but it was bought out of need, rather than an investment.

Mira Mesa (and surrounding area) no longer pencil out from a price/rent standpoint. Latest properties are up in Oceanside. Have picked up a duplex, a 3-plex in the last 5-6 years. Hunting for a 4-plex, but its getting much harder to find deals that make sense. Not even looking at single family anymore. More tenants create their own challenges, but they do cash flow the purchase.

How about others?[/quote]

I’m still looking in mira mesa because I guess the way I look at it. $320kish for a 1-1 is roughly $1750 month, so after HOA etc, probably around $1250-1300/month… So I figure that’s roughly a 3.5-4% return on cash..versus CD rate is:

[img_assist|nid=27375|title=cd|desc=|link=node|align=left|width=500|height=400]

My$540k cashout refinance is 3% for 30 years… I probably didn’t need to do it, but I thought it might be fun to play around with it to see if arbitraging this amount, I could come out ahead. We will see. worst comes to worst, I can always pay it off early again, but at 3% why bother. So, the way I look at it. Bank loaned me money to go buy a property on them…And they can eat a weakened USD with a 30 year loan pegged at 3% if we really have severe inflation. Now there could be a time when CD rates are above 3%… Could be 2 years , 5 years, 10 years from now. Who knows. I’ll deal with that if that’s the case. But for the time being, I’ll take my chances on real estate. And it’s not like I’m leveraging up the ying-yang. I’m running about a $95k/year positive cash flow before this loan that I really don’t need along with my W2 income…So while I’m still able to work and collect a W2, I’ll do just about anything to reduce my rental cash flow closer to $0 in the near term to lower my taxes as long as have a larger cash flow with all properties free and clear when I can’t/won’t want to collect an income from a W2 and my rentals needs to support me and my family.

I’m not looking to heavily leverage. I’m looking for a place to park my money and collect something like a more predictable stream of income. Now, people say that I’m not counting vacancy rate into the equation. True. But in both my 1/1’s in MM and my 2/1 in MM, my tenants have consistently stayed 4-5 years+ waiting for their greencard. And when they finally get it and decide to move on, there’s another engineer that take’s their place. So the longest time I had a vacancy was maybe 6 weeks 3 years ago. Still see a pretty hefty stream of people starting out looking for a starter place to rent…Lot’s of engineers starting out, not trying to spend a lot, and trying to save/invest for their own home….and lots of companies hiring them maybe to replace older engineers that cost too much and/or retire…That’s my target rental pool…and it’s worked for me so far (knock on wood) pretty well). I have an inside plug on the Qualcomm internal QC boards and so usually when my rentals do come up, they get posted there first and then zillow (goodbye crazy craiglist). So most of the time, an QC engineer contacts me way before anyone else does, and usually they are first contact, first to qualify with their income and credit score,

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