Thinking about buying..Am I crazy?

[movielover]

sdcellar — believe me I’m not willing to pay for anything overpriced. Hell, I didn’t get my car for $1000 below invoice without doing my research. I could buy a condo in UTC now if I wanted to but those condos are worth $250k for a 1br if that. I thought people who bought a condo in UTC for $499k for a 2br a couple of years back should’ve spent their money on a shrink.

I don’t intend to lower my standard of living. I’ve started looking, and my real estate agent is well aware of the fact that it’s only a want and not a need, and if I don’t find that steal, I am not going to be buying.

[an]

movielover, sounds like you have your bases covered. So, no, you’re not crazy. I’m in the exact same boat as you actually. I want to buy, and am working w/ an agent to find that one “steal” where rent of a similar place would be the same as mortgage before and tax deduction. Until I get the price I want, I won’t be buying. It doesn’t hurt to keep an eye out now. A steal comes and go very quickly, so keep your eyes peeled.

[sdcellar]

Yes, sounds like you’re making all the right considerations. The only other thing I’d keep in mind is that in the same way you’re worried about rents going up, the values of properties stand a good chance of continuing to go down, and even if you get a deal, the price could fall below what you paid in either nominal or real dollars over the next five years.

The best thing you can probably do is run a couple of reasonable scenarios based on the actual price of the property you’re interested in and just make sure you’re comfortable with the potential outcomes.

[Anonymous]

I tend to agree with the prudent advice you’ve been given. To summarize:

1. Make sure your interest payments are roughly the same as the out of pocket you would spend anyway if you were renting.
2. Make sure you keep saving money and diversifying your portfolio.
3. Make sure you are not going to be in a position in which you have to sell in a couple of years, because at that time you might not get what you paid for the property. When prices go down, the ones who go belly up are the ones who are forced to sell. You might be in for a ride for a few years, but it should stabilize eventually.
4. Make sure you buy in a good location.
4. Good luck with your house hunting.

[sdduuuude]

“I didn’t get my car for $1000 below invoice without doing my research”

Cars aren’t just past the peak of a speculative bubble of epic proportions, either.

[an]

“Cars aren’t just past the peak of a speculative bubble of epic proportions, either.”

I think he’s trying to prove a point that he’s a prudent spender. Even though we just past the peak of a speculative bubble of epic proportions, if he can find a place that = rent, why not buy?

[sdcellar]

Prudent folks still make mistakes (and movielover sounds very prudent, I mean he’s here, right?). To be honest, I’m hard pressed to believe that there are places out there right now that can beat what you can find in the rental market.

And that’s without factoring in any possibility of further depreciation. If a $200K condo depreciates 3% a year, that’s $500 a month (but you won’t be throwing money down the drain on a rental, yippee!)

[Anonymous]

cassiopeia
That is why movielover has to make sure he will be able to hold on to the property until he breaks even considering inflation, the taxes he paid and the extra expenses he had for maintenance.
I think we all agree here that that might take a few years, but that is where the tax break comes in, to help him ride the storm. I’m from Argentina and I know what economic meltdowns look like. Not a pretty sight, but if you stick to your guns you can come out more or less OK. We bought a tiny apt. in a nice part of Buenos Aires for 39,000 in 1990, when we got married. At the peak of our bubble, people told me it was worth over 100,000 which I didn’t believe, but some people were paying those prices. Then in 2001 came the big crash, and I wouldn’t have been able to sell the place for 35,000. Fast forward five years and it’s back at around 80,000. The carrying expenses have not been so huge because we own it outright and the value is below the minimum for paying property taxes. There’s just the HOD, and we were able to rent it out from time to time. So there’s the story, you have to be able to hold on to things, which is much more that those overstretched homeowners in this country will be able to do, unfortunately.

[(former)FormerSanDiegan]

Cars aren’t just past the peak of a speculative bubble of epic proportions, either.

This market has many facets and although the bulk of the market is not even half way there yet IMO, there may be some screaming bargains hidden in the nooks and crannies that represent reasonably fair value.

The whole bubble argument is based on fundamentals. If someone can purchase for about the same as renting in SD, then it is not a bubble situation in that instance , based on the funadamentals.

This doesn’t mean they won’t lose money, as things will likely over-correct to the downside.

[sdcellar]

And I also agree that if you want to buy for purely personal reasons, that’s fine. Just be careful not to kid yourself that economics make sense when there stands a very good chance they don’t.

Another example– most people don’t buy condos as their long term residence, rather it’s typically a stepping stone to a bigger house down the road. Be careful to not let that stepping stone become an anchor. If one is fine in the knowledge that they may have to hold on to it for 10 years to escape without losses, then fine, but make sure you consider this possibility.

I agree about fundamentals and I just honestly don’t believe there’s much out there that can be purchased for about the same as rent. If somebody thinks differently… got MLS? And I promise I won’t snatch it away from you (although clearly if you’re concerned, don’t share as others may gladly swoop down on it)

[an]

There are deals starting to creep up. Here’s one example: MLS# 066087578. It’s already in escrow. It’s a 1700sq-ft house w/ small lot in Mira Mesa. That size house can probably be around $2000-$2100/month in rent depending on the time of year the lease is signed. It was listing @ $400-$475k. They got 2 offers, one for $440k and one for $450k. They countered w/ $475k. I don’t know what’s the final price is. But let assume that it’s $475k. If you take out a 30 year fixed @ 5.5% (assuming great credit), you’re looking at monthly interest of around $2200 + $100 in HOA. That’s $2300/month. That’s getting pretty close to the cost in rent. I’m sure next year, we’ll be seeing more and more deals like these pop up.

[sdcellar]

I did $450,000 with your somewhat low interest rate– With $90K down, it’s $2,044/mo + $100 for HOA + $375 for property tax, grand total $2,519. Simple interest on the $90K at 4%, $300/month.

Not a realtor, so I can’t look at the property, but I’m guessing good luck with that $2000-$2100 per month on rent as well. Not a very big place and it took me two seconds to find several 4 bedrooms in Mira Mesa for less than $2000/mo.

See! I told you I wouldn’t steal it.

[an]

What you’re calculating is P+I. So it’s not really fair since you’re paying down your loan. It’s better to just compare rent to I since I is the part where you’re throwing your $ away to the bank. Also, you’re counting property tax. If you count property tax, then you should also count tax deduction too. Which will amount to $750/month. So $2519 – $750 = $1769/month. So, lets remove the P from the equation and the down payment. Assuming you’re doing 100% financing.

@$450k @ 6% interest (since you think 5.5% is too low), your interest a month is $2250 + $100 in HOA + $375 in property tax = $2725/month. But let say you’re in the 28% tax bracket and 9% state tax, then your tax deduction would be = $971/month which make a grand total of $1754/month after taxes and tax deduction.

In regards to renting a 4 bedrooms in Mira Mesa, the price changes quite a bit comparing older places w/ newer places this the one in our example. I was looking for rent around that complex too back in May. That’s the rent I see.

[sdcellar]

You won’t get a 6% interest rate at 100% financing and I’ll admit I left out the tax break (so I probably should have left out the tax hit, but for whatever reason I was thinking of it in terms of a rental where the benefit is less). It’s not, however, the full $917/mo, rather it’s the difference between that and the standard deduction (roughly). I guess you chose to leave out maintenance. I’ll let you pick that number.

Again, couldn’t see the property, but if it is indeed newer, than I would agree, the rent should be higher. That said, since it’s newer, are there any special assessments?

[no_such_reality]

Asia, the numbers get close, the only problem is the price and payments still require about $110,000 worth of income to keep you PITI payments to the 30% of gross range.

Essentially, the numbers are just getting to were the top end of income can “afford” the bottom end of the housing market.

The other gotcha on rents is rents will need to hold their current run up, with empty units returning to the market, that’ll get harder.

[Author]

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