Housing advice for friends

[Escoguy]

There are two people who have been discussing housing with me.

A friend/former colleague 32 y.o. Asian male single with a good six figure income in LA. He has been looking all over which I’ve encouraged him to do for educational value but given the market conditions, I’ve told him recently that if he doesn’t need to buy now, then it is better to wait for when he actually needs a house/condo.
He does fine in the stock market so I’m not worried about him but want to be fair with the advice and not be too strong.

Given part of me looks at the inventory levels and wants to shout buy as soon as you can. But I don’t want to be part of a “pressure machine”.

Another guy I work with 41 y.o. single successful entrepreneur, but all his money goes into his business. I’m suggesting to him to find something modest and affordable as he now pays $3,250/month in rent. Problem is he wants to be close to the beach so there’s not really anything less than 650K-700K.
So I’m telling him to wait another year until he can get the proper downpayment (20%). Is this fair advice? Am I missing something?

Most of my property is in RB/San Marcos/North County Inland so giving advice on coastal areas is a little tricker for me.

Thoughts? and Thanks

[Coronita]

maybe the two people are happy without owning a home.

The entrepreneur is probably not thinking about how to milk money out of real estate probably because he’s having too much fun making money doing other things. The 31 year old, probably the same thing.

I certainly wouldn’t be very motivated right now to buy or upgrade. It would be great to upgrade to a home with more garages, but I like even more not having a regular payment every month (minus the property tax which my tenants effectively pay for).

Makes me able to enjoy my hobbies more these days, less time thinking about real estate, and the optimal time to purchase. It will come, when it comes….no idea when. Until then, look and wait…. or stop and smell the flowers while you can…or in my case the exhaust fumes, heh heh.

[poorgradstudent]

In general home ownership is less useful for single guys without kids. One huge perk of being a single guy without kids is if a job opportunity pops up in Seattle or San Francisco or Tokyo you can pick up and go. Buying a place can limit that.

The big perk would be if you are renting for $3,000 a month and can find a place to buy where your mortgage and taxes are less than that, you can potentially free up cash every month. And there are tax benefits for the mortgage deduction, and that single guy making six figures isn’t getting the same deductions those of us with kids get.

I have no clue where housing prices are going to go. All of Rich’s data suggests there is little supply to drive down prices. But the fundamentals seem rather poor if you look at incomes vs. prices. I guess if you go in expecting no appreciation and only look at tax benefits and a mortgage less than current rent it might be a fairly safe bet?

[spdrun]

If you’re single, buy where you can rent it easily to an ATM on the hoof (aka a tenant). I live near a couple of hospitals, a university, and a med school. Med and Ph. D students make great, quiet tenants.

[CA renter]

[quote=poorgradstudent]In general home ownership is less useful for single guys without kids. One huge perk of being a single guy without kids is if a job opportunity pops up in Seattle or San Francisco or Tokyo you can pick up and go. Buying a place can limit that.

The big perk would be if you are renting for $3,000 a month and can find a place to buy where your mortgage and taxes are less than that, you can potentially free up cash every month. And there are tax benefits for the mortgage deduction, and that single guy making six figures isn’t getting the same deductions those of us with kids get.

I have no clue where housing prices are going to go. All of Rich’s data suggests there is little supply to drive down prices. But the fundamentals seem rather poor if you look at incomes vs. prices. I guess if you go in expecting no appreciation and only look at tax benefits and a mortgage less than current rent it might be a fairly safe bet?[/quote]

Though none of us truly knows where prices will go in the near future, it sounds like your friends are doing well as renters, at least for now. But if they can find something that is at least as nice as what they’re renting for the same or lower cost, they might be okay with buying if they don’t plan on needing to sell — or get back all of their money if they do need to sell after the market has dropped. They should be mentally/emotionally/financially willing to do a short sale in the future, IMHO.

Personally, I’m 98% convinced that we are in another bubble, but I would be tearing my hair out now if we were still renting. Watching the housing market has been painful, and I feel badly for those who do not yet own, but who have reached a stage in life where home ownership would otherwise be appropriate.

[Hobie]

All current plans will change if/when they get married 😉

[spdrun]

Here’s the question about being married:

Would it be better to own a nice house, but have no income from it, or own 4-5 houses in less nice areas, populated by reliable ATMs-on-the-hoof, providing more than enough income to rent a nice house or condo?

Seems that real estate ownership could provide a lot of independence, even if you don’t actually live in it.

[FlyerInHi]

[quote=spdrun]If you’re single, buy where you can rent it easily to an ATM on the hoof (aka a tenant). I live near a couple of hospitals, a university, and a med school. Med and Ph. D students make great, quiet tenants.[/quote]

Yep, i agree. Buy something old but well located, close to everything. Remodel and enjoy. You can always rent it out easily.

[Escoguy]

With that thought, I showed my friend who wants to live by the beach that inland rents are not that different than coastal rents (the size of the place is just smaller).

But most rents cap out at the $4,000/month range.

So yes, a person could buy a home inland and rent it out for $3000-$3,500/month and then get their “coastal place” as a rental for a similar amount just perhaps 2 BR instead of 4BR.

Not sure how many people actually try this.

[CA renter]

[quote=FlyerInHi][quote=spdrun]If you’re single, buy where you can rent it easily to an ATM on the hoof (aka a tenant). I live near a couple of hospitals, a university, and a med school. Med and Ph. D students make great, quiet tenants.[/quote]

Yep, i agree. Buy something old but well located, close to everything. Remodel and enjoy. You can always rent it out easily.[/quote]

Best of all, they can deduct all of their costs if they own rentals. Repair and maintenance expenses can be brutal; being able to write-off these costs makes it feel less painful.

I’ve often wondered why more people don’t do this — own rentals, and rent where they live. Financially, it could be the best bet.

[sdsurfer]

If they are both single I’d recommend they love where they live and make sacrifices later.

If it was me I’d probably buy a condo near the beach that would become a rental when they move inland a bit after they get married and want more space. You could also go the route of buying the rentals inland, but I’d be worried that inland will be the first to fall in a downturn.

I never recommend buying anywhere unless you are living in it (and optimistically paying about what rent would be) or if you are cash flowing (or breaking even in a really good area).

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