Downtown: rent or buy?

[Anonymous]

My wife and I own a 2bd/2ba condo in North Park and have decided that we want to live downtown (East Village specifically). We thought buying would be the way to go: we would sell our condo and do a slight trade-up to a comparable 2bd/2ba downtown. But, with the way the market is looking I’m wondering if renting would be a better idea.

Here’s my thinking…

To buy w/ 5% down payment:
80% 1st mortgage, interest only for 5 years
+ 15% 2nd mortgage, 30 year fixed
+ HOA
+ property tax = ~ $4,000/month

To rent:
$2,000-$2,500/month for rent

If we buy, isn’t it entirely likely that we will have gained zero equity in a downtown property after 5 years? If we rent we could be SAVING money each month and we could possibly hold to our North Park condo and rent it out.

What do you think?

[lamoneyguy]

I think you answered your own question.

I don’t know what you assumed purchase price is, so I’ll just trust your numbers. If you pay $2500/month in rent, and save the extra $1500/month at a mere 5%, you will have $102k. If you think the condo will go up more than that, buy.

~LAMoneyGuy

[lamoneyguy]

I think you answered your own question.

I don’t know what you assumed purchase price is, so I’ll just trust your numbers. If you pay $2500/month in rent, and save the extra $1500/month at a mere 5%, you will have $102k. If you think the condo will go up more than that, buy.

~LAMoneyGuy

[blahblahblah]

Don’t forget to factor in your mortgage interest and property tax deductions, which on those loans will be huge. However, even if the value of those deductions made your monthly outlay the same as renting, it is unlikely that the condo’s value is going to increase much, if at all. And it may very well decrease (I believe it probably will) as more of those towers get finished downtown and all the new units get dumped on the market. Add to this the fact that you could be earning interest on your down payment, and that as a renter, you’re much more flexible. If it were me, I’d rent…

[Anonymous]

Yeah, I think this is the way to go. We’ve been totally stressed about how we could afford to sell our condo (would it sell???) and buy downtown. Renting pretty much solves everything. These two columns affirm this strategy:

Cheer up, Renters:
http://www.voiceofsandiego.org/articles/2006/07/20/columnists/rich_toscano/97toscano.txt

Renter’s Paradise:
http://www.voiceofsandiego.org/articles/2006/07/20/opinion/01hockmuth.txt

Thanks for the feedback.

[SD Realtor]

mrmanfitz –

I would strongly agree that holding off on your downtown purchase is the way to go. I think you could see exceptional deals downtown in the upcoming years. I think that location may be the single most saturated location in the county.

Also you may want to decouple the sale of your current condo.

Maybe you sell the condo now and then put the money in a CD or something and let it accrue interest. Or maybe go live downtown and rent out the north park condo. Run a quick spreadsheet to see if you can get a positive cash flow out of it.

Or if those alternatives don’t work then sit tight.

Remember any decision that leaves you stressed out is the wrong way to go.

[DaCounselor]

My advice is to always hold onto your properties as you move on (and up!) and rent them out if at all economically feasible. I know of very few folks in SD who purchased properties over the years, traded up, and held onto and rented prior homes that wish they had done otherwise.

As for purchasing downtown – two issues there: first, downtown has been the focal point of speculators local and world-wide – yes, world-wide speculation on downtown SD condos. Several of the newer developments are stalling in pre or early construction phases due to financing, lack of pre-sales and the downtown condo glut. Second, many downtown condo buildings have significant construction related deficiencies that are really impacting residents’ lives. You really need to do your homework on these buildings to find out what is going on and what the solutions are, if any.

Of all the SD micro-markets, downtown is by far the shakiest. It is one of the few markets where I would advise a wait and see approach or a rental approach before purchasing.

[Anonymous]

We’re going to rent.

Can you point to any references that detail these “significant construction related deficiencies that are really impacting residents’ lives”? I’d like to avoid those even as a renter!

Thanks again for all the feedback.

[powayseller]

Why hold on to the condo? Why not sell it and collect interest on the proceeds? I bet you can get that same condo in 5 years for half the price. On top of that, you’ll have 5% annual interest, or an additional 25% of the proceeds. Wow!

If you hold on, you may break even on the cash flow and own a property at half of today’s price. You’ll also be saddled with all the repair bills.

Can you rent a condo downtown? I bet the rental supply in downtown SD will increase in the next few years. What a fabulous way to get to know the area and in which building you’d eventually like to make a purchase.

[DaCounselor]

I don’t know of a singular reference that compiles downtown condo defects/homeowner complaints. My sources of information regarding these issues are those that live in various condos as well as information from lawsuits filed by condo homeowners against the developer. I have heard of pretty terrible ongoing problems with elevators at Harbor Club, plumbing at Cityfront Terrace and hot water (as in none) issues at Treo. As many of the downtown condos have recently been built, the full extent of problems is yet to be known. I also understand that noise is quite a factor for many downtown condo residents – the train and Gaslamp revelry overflow have been cited to me as sources of complaints.

Not trying to scare you off – I will likely be purchasing a downtown condo myself in years to come – just passing along what I have heard.

[sdduuuude]

“I bet you can get that same condo in 5 years for half the price. ”

I would take that bet.

[Steve Beebo]

I’m not as negative about the market as most on this forum – and I also have 20 years experience doing residential appraisals in San Diego. The only area of San Diego that I would definitely, definitely, DEFINITELY urge you not to buy would be a condo downtown. The speculation there got completely out of control in 2003-2004 due to a lack of new and resale inventory, and the potential is there for a very ugly situation in the years to come.

[hipmatt]

Personally, I say rent. No offense, but if you can only put down 5% and must use an interest only loan to finance, I don’t think you or anyone else for that matter are/is in a position to buy.

Remember that these shady loans got us to where we are today(dangerously high speculated market w/ no fundementals to back it up). People are so desperate to say that they “own” a place, they are willing to risk financial suicide. Its at least 20% down and a regular mortgage(you at least pay SOME principal off). Good luck with your move and I also recommend cashing in on your current property and wait the 4-6 years for prices to bottom out.

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