I was all set to buy…

[2buyornot2buy]

until I found this site. This is the first time I’ve ever posted on a blog (or even actually read one for that matter). Nonetheless, I’ve come to respect the opinions of the individuals who post and I love this site. Therefore, I need some confirmation that I’m making the right decision.

Who we are: my husband is an officer in the military and I’m a government employee. We are moving to San Diego after several years of living abroad. We have a combined annual income of over $200K, FICO scores of 800+ and we have a down payment. Our only home purchase consists of one rental property in AZ.

What’s my problem? After years of living in military housing, I have an intense desire to own a home that we actually live in. My emotional need to paint, landscape, remodel, etc, are overcoming financial prudence. But what I’m hearing is that I should (gulp) rent? Do you still think we’d lose our shorts if we bought a lower end (around $485K) SFH in Clairemont that is need of renovations and we lived in it for 2-3 years?

[Anonymous]

The short answer is, probably so. However, that is not to say that you absolutely should not buy. It sounds as if you may have other reasons for buying that outweigh the possibility, if not likelihood, that prices will decline substantially. Only you can make that decision. If you do decide to buy, while you would be smart to drive the hardest bargain you possibly can on a house in need of updating, I would advise against buying in a lower-quality neighborhood like Clairemont. I suspect your home would hold its value better in a nicer, move-up neighborhood such as Scripps Ranch, Carlsbad, or Mt. Helix. Another huge factor is your time frame: do you anticipate owning the home for at least five years? If not, you probably should not buy unless you would be able to rent out the house for enough to cover your mortgage, since you may need to hold onto the house for 7-10 years.

[2buyornot2buy]

Thanks for the comments and suggestions. I’m really not familiar with SD neighborhoods. I chose Clairemont based on driving distances in case my husband is assigned to Camp Pendleton vice MCRD, but those other neighborhoods do sound like options. I will be working in San Diego. We can rent, but I’m afraid of being stuck in a one-year lease and missing a prime opportunity to buy. Does anyone see leases for six months on houses in the $2500/month price range? We didn’t buy when we moved to Virginia in 2002 and that was a huge mistake. I’m trying to mitigate my foolishness…

[Anonymous]

Yes, absolutely you will lose your shorts if you buy now, especially a marginal area like Clairemont. Fight the urge, if you really need to own your own house that bad, then you should move to another city outside of California where the bubble isn’t so exagerrated.

[Diego Mamani]

…but I’m afraid of being stuck in a one-year lease and missing a prime opportunity to buy.

I can tell you that we won’t be seeing any “prime opportunities to buy” in the SD area for at least 3 years. This unraveling of the bubble has only started, and there is a long way to go before sales volume and prices hit bottom. Real estate cycles are very long, and it takes several years for trends to reverse. Unless you plan to buy and hold for 7+ years, it’s much better, financially, to rent.

When we bought our first house my wife spent a lot of time on decorations, but after a couple of years she had enough. We spent a small fortune every weekend with trips to Home Depot, and this was a brand new house with zero problems (all the purchases had to do with decoration or minor add-ons).

We were lucky to sell in the summer of 2005, at the peak of the cycle, because of an in-state relocation. Now we rent a beautifully upgraded house, and congratulate each other on not having to spend any time or money on maintainance. Our landlord even pays for the gardener. I’ll buy again, but not until after the market really bottoms.

[Diego Mamani]

We didn’t buy when we moved to Virginia in 2002 and that was a huge mistake. I’m trying to mitigate my foolishness…

You were not foolish, just unlucky. However, buying in SD now would really be foolish. We’re only 5% to 10% down from the market peak, so I can tell you it would not be smart at all to buy at this (overpriced) stage of the cycle.

Renting for a couple of years would allow you to know the region, and watch (as we Piggingtonians do) as house prices drop. By 2010, if you decide to grow roots here, you’ll have prices that, at most, will be as high as today (more likely lower), you’ll have an even bigger down payment, and you’ll know what neighborhood is best for you.

[Anonymous]

I can’t imagine that you would look back in ten years and feel foolish for not buying a house in San Diego in 2007. 2008-2009 may be a different story, but we’re not there yet. How long do you expect to live in the area? If you have a definite end point (i.e., 3 years), it’s very hard to see how buying would make financial sense for you. I wouldn’t worry about being “stuck in a one-year lease and missing a prime opportunity to buy.” The prices are likely to continue to drop for several years, so you would not need to be in a hurry. Also, in California, if you break a lease you do not have to pay for all the rent through the end of the lease, but rather, only until the landlord re-rents the property. I would not let a lease stop me from looking around if buying otherwise made sense. And yes, you should be able to lease a house on a six-month term. Check out sandiego.craigslist.org and go to apts/housing. This will give you a good idea of what’s available in your price range. If you still decide to buy, make sure to get a really good realtor who will be honest with you about prices and where the market is headed versus trying to talk you into a sale that doesn’t make sense for you. As a newcomer who isn’t familiar with the neighborhoods or property values, you could easily make a big mistake buying without some professional guidance. When do you plan to move?

[CostaMesa]

Here’s another way of seeing the situation.

If one finds a rental that could use some good lovin’, it’s not unusual to negotiate a deal with the landlord that recompensates the renter for the sweat equity that they put into the property. All too often, a landlord is a guy with a wife, kids and a 60+ hour a week job that just doesn’t want to spend his free time making improvements that won’t result in immediately higher rent.

I’ve done it more than once…and my previous landlords all give me outstanding referrals. 🙂

[2buyornot2buy]

We plan to move as early as May and we’ll be there for at least two years and maybe as many as four. When we move around 2011, it would most likely be to the D.C. area, but we probably would return to San Diego after two years. Military life just doesn’t allow you to grow a lot of roots and being somewhere seven years is unheard of for us.

I didn’t know that about CA leases. Thanks!

I appreciate all the posts. It’s helping me see that renting would be the smart option. Sometimes you just need to hear it from others.

[Cow_tipping]

Paint and plant fruit trees in the rental. Your owner will love you for it and you get to enjoy it for the time you are there. When you leave, the karma will follow you.
Cool.
Cow_tipping.

[greekfire]

If you think you might be relocated to Camp Pendleton, I’d check out Carlsbad or Oceanside. Carlsbad has a much better reputation in terms of schools, location, education, etc. Carlsbad is also just a few freeway exits south of Camp Pendleton.

You basically have two conflicting feelings going on right now:
1. You are smart and KNOW that home prices are overly inflated.
2. You have that nesting, “I want to own my own space”- type of feeling.

The next question comes to time frame. If you know you are going to stay there long-term, the greater weight you will place on feeling #2 above.

My wife and I are in a similar position to you and your husband in many regards. We don’t make as much as you both do, however we are eager to purchase our own home and experience the American dream of home ownership. We want to re-landscape the front yard, put a new deck and patio out back, invite friends and family over, and all that other good stuff.

Enter the reality of things. A typical home that you are looking to purchase was roughly half the price it is now around 5-8 years ago. Many homes are triple the price now than they were before. You will hear from countless kibitzers out here that home prices just continue to rise. The real estate propaganda machine has succeeded in producing this level of thinking.

If you purchase a home now, there are better than reasonable chances that it will lose 10-20% of it’s purchase value. This is not a scientific figure and nobody really knows what this crazy market is going to do. However, just ask yourself if you can live with knowing you bought a $500k home now that may sell for $400k a year or two from now. I’d like to plant my own Bacopas, Alyssum, and Hibiscus as much as the next person, but not at that price.

Interest rates won’t likely have as much of an affect on your decision because you have a down payment and make good money…you can probably afford to pay the loan(s) off early if you wanted to. So waiting a bit (as interest rates rise) won’t be as much of a detractor.

My personal opinion would be to plan on renting for another 1-2 years. Find a nice home that was purchased many years ago. One that you know doesn’t require a huge monthly payment because the owners bought well before prices got out of control. You might even luck out like we did and find one that is not as well maintained but costs a lot less. We are renting a 3bd/2ba, 1700sf detached home in north Carlsbad for $1800/mo. We have no HOA or Mello Roos fees, either. I even converted the garage to an office and run my small business from it. In the meantime, open up some high-yielding, high-liquidity accounts and invest your excess savings there. It’s better to earn 5% than to lose 1%.

[Chris Scoreboard Johnston]

Chris Johnston

I just closed on a home purchase last week and would still tell you not to buy if you know your time frame is at most 4 years. The odds of selling for a higher price in 4 years are very low. Suck it up and rent. I rented for almost 2 years after selling out, and found a very good deal on a buy or I would not have bought back in. If you could find a distressed property in a nice area, then it might pay to buy it. However, the time to look at real estate as an investment is not now.

[kewp]

If you are new to the area, you really should rent something close to where you work and make it a point to check out other areas of the county.

Take your time and figure out exactly where and what you want; I think by the end of 2007 you will be glad you did.

[CardiffBaseball]

Depending what part of San Diego you are going to work, another possibility would be Cardiff, Encinitas, Solana Beach, etc. Problem is some of these towns have less rentals, or else the owner makes more money renting for horse season, and isn’t looking for long term renters.

However craigslist is a good resource. There are still rentals in these towns, and it might split your commute. Del Mar or Carmel Valley are also options.

[kicksavedave]

2 to 4 years before you move again? OMG, DO NOT BUY ANY property in San Diego right now.

Given that we are at the beginning of a long, slow pullback on prices to god only knows exactly where, and given that those real estate cycles are 7 to 10 years on average, if you buy now and are forced to sell in 2 to 4 years, you could be in for a humongous shock come time to sell. You could easily find that your house is worth $100 to $200K less than you owe on it, or that your $100K down payment has vanished into the flower beds and new paint you needed to install.

If anyone was to buy now, it would be a good idea ONLY if you knew you were able to hold onto it for 7 to 10 years…. otherwise you risk losing a small fortune. Buying a property which is almost certain to drop in value, just so you can decorate it yourself, is a tremendously risky financial proposition.

How much is all that decorating really worth to you? $25K? $75K? $150K??? More?

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