HELP – Considering buying – Deal or No Deal???

[surveyor]

perry:

Property management fees are only 10%. And I’m not the only one who’s been able to make an out-of-state property cash flow. You just have to find the properties that will cash flow and avoid the ones that don’t. With the Internet and cell phone, you don’t really have to travel back and forth to that property that often.

I’ve mentioned before that I have a south carolina property that cash flows at about $300/mo. (bought it for $230k). It has a property management fee of 8%.

Every property is different, but if you find a good property, analyze the numbers, some will cash flow, some will not.

Obviously everything in California does not cash flow. However, that is not true in all locations.

[23109VC]

Yes – hipmatt is right. lots are small. this home we are in has a lot size of 5500sq ft or so. but other homes in Harveston – the cottages – have 2500-3000 sq ft lots with NO yard…. it’s not uncommon in parts of temecula/murrieta to find the ultra small lots. personally, i don’t really mind. i have a community pool, 3 LARGE parks within walking distance…so my rear yard is usally used to sit/relax with a drink or cigar, and to bbq. we don’t use our yard as a place to play ball…it’s there to relax in….so it’s just fine for what i need.

as to the property taxes…. good luck finding ANY House up in this area, built nit eh last few years that doens’ thave 1.8-2.0% property taxes. that’s the norm up here.

i’m trying to focus on teh cost to rent/buy and also to focus on whether I honestly want to stay in this house for the next decade. it’s only 3 bedrooms….and we have 2 kids, plus one more. I don’t feel compelled to give each kid their own room, but it would be nice. there’s nothign wrong with making them double up…i have one boy, one girl…so whatever comes next…there is a room waiting with a roomate of the same gender. 🙂 when they are small…my kids are 5 and 1….i don’t see being roommate to be as much of an assue for teh next 10 years..maybe when they are teenagers it will be more of a “problem”…in their eyes. 🙂 for now, a 4th bedroom would be nice..a luxury..not a need.

renting my current house at 1400 has been a steal of a deal..but if i don’t buy, an di move, i’m realistically going to be looking at 1800-2000/month for rent. now for THAT much money I probably coudl find a larger house…2500-2800sq ft… easily. lots of room…not that i need it..but for the money, i coudl get more.

the last comp for my house sold at $430k. buying at $350k would be pretty far below the comps…and my house is in a better location than the one that sold at 430k. mine backs up onto a greenbelt..no direct rear neighbors.. that one at 430k backs up on a street = noise. the house we are in sold with a 10k lot premium… i’m not sayuing it’s worth it.. but apples to apples…ours is better…to some degree. interior upgrades, they are very very very similar…so the only difference is location really…

i figure if i got the house at about 350….and he paid all my closing costs…so I effectively just walk into the mortgage (and HOAs, and property taxes, and insurance…) I’m looking at a ballpark monthly pricetag of $2700-2800. factor in another couple hundred for upkeep and the gardner…and i’m at an even $3000. i’d be saving roughly 700/month or so in taxes…at least. so i’d have a net monthly housing cost of 2200 or so. if i got a better deal on teh interest rates..maybe i could shave it down to 2000 even… if you factor in the *principle* that goes back into my loan you can sort of count that as a benefit..and on a 30yr fixed, that’s about antoher 300/month…

i figure i can rent someting comparable for about 1800…

so the spread between the cost of renting becomes very close. rent of a comparable house is about 1800/month.

cost to buy = $2800-3000/month. Minus $750-800 in tax savings, $300/month principle reduction… net housing costs = 1700-1900. almost a wash.

the big question is what will this house be worth when the market finally stops falling and begins to rebound. will it have fallen to what i paid or will it have fallen so low that i’m $50-100k upside down.

if i buy NOW at $350..and the house falls to $325… i don’t care. if it falls to $250k…i’d be pretty bummed.

if i pass this deal up…and houses like this fall to only 380-400k…i’ll feel like i missed a great deal.

i need a crystal ball.

[gn]

The chances of that house falling to “only 380-400k” is 0% because that’s its current market price.

Temecula is going to be hit hard. IMO, there is a 80% chance that it’ll be under 300k in a few years. I think Bugs & PerryChase would agree with me on this.

[SD Realtor]

23 I think the chances of the home going down to 250-300 are better then 50/50. However I don’t think it will stay at that level for to long. I agree with other posters who say if you have to finance it 100% then you should not be buying. Plain and simple.

However I think the likelihood of the home being 250-300k 10 years from now is pretty low. I think it will be in that range 5 years from now, but should come back. Also I have two kids and no way would a 3/2 home work for us. That is me though. If you think that you WILL occupy this home for the next 10 years to ride out the fixed rate period of your loan, then you will be okay. IMO if you pitched the 700 a month into a savings account for the next 24 months that would give you 16k to have as a downpayment in two years when many of us think the market will produce homes in a much lower price range. That is 5% down for a 300k house. Not alot but better then nothing. I do believe Temecula/Riverside county will take a pretty good hammering.

The hardest part of this whole thing is trying not to get emotional about the opportunity.

SD Realtor

[23109VC]

if it’s under $300k in a few years..that’s a big drop. big.

if prices fall…but not TOO MUCH…then buyign now before it’s harder to get 100% financing is a decent idea.

my big questions are:
where do you think rates will be in 3 eyars?
where do you think temecula prices will be in 3 years?
where do you think 100% financing will be in 3 years?

do you think temecula houses will fall to 2001-2002 prices?? ….in which case this house will sell for 250-275k max. i’d be bummed to be that much upside down.

if rates are up a lot – payment may not be much different. rents will be up..and the whole rent/buy thing may be the same.

if 100% financing is totally gone…i could be in trouble. while i make good money, i readily admit i’m a poor saver. i can afford the 325-350k mortgage at 100%. that’s not hard. it’s at the upper end of what i consider comfortable…which is why i’m in NO rush to run out and buy the houses I LOVE that are priced at 450-500k… just too much money to bite off. 350k is less than my last mortgage. my last one was 375k…and it was no sweat. i just suck at saving money. shame on me.. 🙂 i admit it. anyway..if 100% financing goes belly up in 3 years..i worry that i may not have put away enough to then qualify for the laon i will want/need to get into a comparable house.

if i get in now..at a price taht is under current values…i could be insulated aginast a lot of the future price drops, still get a good rate, nd take advantage of 100% financing while it still there to get.

i still thin prices will go down. ij ust don’t know how much. part of me wants to think they will go down..way down…like to 2002 levels…but part of me thinks it just won’t go down *THAT* much… no one really knows.

what do you all think about:

future price drops in temecula
future int rates
availability of 100% financing in the future?

[PerryChase]

I’m going to go out on a limb and make a controversial statement. I believe prices will be at 2000 levels by 2009/2010 and stay there for a couple years before going up slowly at the rate of inflation.

1997-2000 was a big run up already thanks the tech euphoria. Then you had Fed induced liquidity from Y2k; then you hadFed induced liquidity from 9/11; then you had the NINJA loans financed by foreigners and wall-street.

I don’t see anything out there that will save the market. Remember 2000 prices were unaffordable to a great majority of the population already.

100% financing and other exotics have been around a long time and will continue to be available to folks who have good professional jobs and good credit. Those loans will no longer be available to every breathing individual who walks in the door.

People will call me crazy and will want me to offer proof that prices will drop that much. Well, perhaps the more optimistic ones should offer proof that prices won’t drop to 2000 levels.

Others have posted much more pessimistic predictions. I think that mine is pretty fair and balanced.

[gold_dredger_phd]

Make sure that “Suzanne has researched it!”

[gn]

I agree with PerryChase 100%

There is so much speculation in Temecula, it’s going to be very ugly/nasty.

[4plexowner]

I agree with PerryChase although I am hoping for 1998 prices as prices overshoot the mean

I currently like the idea of prices bottoming in 2011 and staying mostly flat for 2 or 3 years before they start rising noticeably

~

To the original poster: I get the impression that you are trying to talk yourself into buying this house – that’s OK and it’s your decision – it could easily be the biggest financial mistake of your life but we all have to learn our own lessons – you should be thinking worst case scenario: the house being worth $230K until 2015 or so – I also get the impression that you are fooling yourself about your ability to afford this property – to ignore $700+/month in expenses in order to “focus on the rent vs buy decision” is less than intelligent – if I am understanding correctly you aren’t counting HOA dues, taxes, insurance, maintenance, trips to Home Depot, etc – and to do this using 100% financing! – grasshopper, what are you thinking – have you been ignoring your lessons again?

[23109VC]

I’m not trying to talk myself into buying it. However, I have to admit…given where prices WERE… 325k-350k for this house is not bad given the current prices…of course it may go down even more.

I’m not fooling myself into thinking I can afford it. I earn about $140k/year…full gov’t benefits, plus a pension system that would put most 401k plans to shame. I have a student loan that sucks up a good $1000/month….and one car payment. Other than that, my only expenses are the wife and two kids. I drive a POS to work and back. but do have a nice new family car for the wife/kids. it’s safe reliable..but it was a splurge…but i’m sure my ONE car payment is probably less than most of my co-workers who both drive 3 series BMWs or Lexus’.

so affording a $3000/month nut is not a stretch. I did it for several years on my last house when i was earning less than I do now.

I focus on the rent/buy pricing b/c if it is honestly cheaper to buy or the same – then it makes sense. Sure, i could maybe ride the market out and get more for my money…but while we all predict prices will go down…no one knows for sure..and no one knows how much.

i would NEVER buy this house if the prices were far more expensive than renting. that’s why i never bought here in this area when i moved here…renting was FAR cheaper than buying. now that prices have come down,t hat margin/gap is shrinking..and renting..while perhaps a bit cheaper. is by no means a HUGE savings.

100% financing and all costs comes to:

$2200-2300 for the mortgage.
$600 property taxes
$150 HOA
$150 insurance
$100 Gardner
Total = $3200-3300.
Tax savings is roughly $700-800/month.
$300/month to principle.

Net costs come out to roughly $2000ish. Rent cost $1800.

so i’m paying an extra $200.

there won’t be many if any trips to home depot on a brand new home that has every upgrade you need already in it. it’s totally done. i’m sure my wife could find a thing to do here or there…what wife wouldn’t.. but it needs no “projects”.

bottom line – i just want advice. it seems like a good deal..but again, that’s all relative.

[sdrealtor]

Sounds like a fair deal to me. I think all the downsides have been covered already. There are also many benefits such as not having to move when your rental gets sold, not having the rising rent to think about, the security of raising your family in your home, doing what you want with it and many more.

The bottom line is you are looking for advice when the answer can only be found inside your heart and head.

[SD Realtor]

If anything you have done a thorough analysis. You seem to have run the numbers well, and you are going in eyes wide open. One thing that none of us here can advise you on is, how will this purchase affect your family. If all things are equal but you have a higher quality of life, then you should take that into account. Don’t take that factor lightly. Also not having a landlord is nice as well.

SD Realtor

[cowboy]

It sounds like you don’t have any/much savings. If you don’t have at least six months of savings in your bank account right now, don’t buy the house. You do not want to be in a month-to-month financial situation. If you lost your job tomorrow can you find another job? How fast can you find one? Can your family survive in the meantime? Do not think you are EVER SAFE at your current job. It’s a different climate these days. Instead of buying the house, save a little in case of the rainy day scenario. Everybody should have that money anyway in my opinion. You do not want to live month to month.

What do you think the economy has in store for the USA in the next 5 years? I hear the “R” word popping up more and more. I truly believe now is the time to have a little nest egg just in case.

All-in-all, if you don’t have 6 months cash in the back right now, don’t buy the house….save up money instead.

[Bugs]

In answer to your questions about interest rates and prices in 3 years, obviously nobody here can answer that. If pricing continued to drop at 10%/year the current benchmark of $425k could wind up around $310k.

However, I think most people here would probably agree that if that happens the 100% financing programs will probably not be available because of the losses suffered by the lenders and secondary market investors. Interest rates probably will be higher. A 7% loan on $310k is about $30/month less than a 6% loan on $350k.

The upsides of buying at the lower price are twofold; you’re that much closer to paying the loan down, and there is the option of refinancing at the lower rate if/when interest rates come down again.

At any rate, this entire discussion might be academic. I question how sincere your landlord is about actually selling at the $350k.

[gn]

Bugs made a good point:

>> … how sincere your landlord is about actually selling at the $350k.

Currently, $350k is significantly below the market price for that house. Even during a downturn, there are buyers, so there are people who would jump at buying that house at $350k.

The landlord can sell that house to someone else, why would he insist on selling it to his tenant ? To avoid paying broker’s commision ?

[Author]

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