[23109VC]

hey i know how you feel. I’m also an attorney…and make decent money. luckily, i live/work int he temecula area..and up here that 2500-3500 mortgage payment WILL get you into a nice house that you would be proud to call a home…BUT prices are falling here too..

AND you can renta lot more house for the money.

a 2500 payment will get you inot a low 400k home. 3500 is what you’ll be spending on the 500-550k home… keep in mind property taxes are usually 2% up here in the newer areas… 🙁

but you can RENT a 750-850k home for $2500/month or less.

right now, it’s cheaper to rent than buy as well. so keep renting. when the costs of renting get closer to the costs of buying, then it maks sense to buy.

[23109VC]

i’m in temecula, renting a 2005 house…lots of upgrades, nice private backyard, nicely landscaped…super clean…it looks like it was bought new and put up for sale/rent..never lived in. lot is small…but for a rental house it’s great. 1900 sq ft.

$1400/month. 🙂

I’ve seen large “executive” homes in the Temecula/Murrieta area going for $2000-2400/month. these are super fixed up, 3000+ sq ft, all the bells whistles, probably a pool…etc… more space than the normal family reallyneeds.

you could almost move your inlaws in…and have them kick in for the rent given how big some of these houses are…which I kind of think is what is happening in some of these areas.. 4 car garages…”suites” upstairs and down..it’s like the builders KNOW that 2 familes are chipping in to make the payment…

anyway..rent up here in Temecula is great. you can get a lot for your money. i’m just watching the prices go down.
the hosue I amr enting was up for sale at $550k six monthsa go. the other day the owner offered to selli t to me for $440k.

100k price drop in 6 months.. talk about overpriced…

[23109VC]

Kev-

i have thought the same way you do….look at what the house was selling for in 1998 or so..then apply a more NORMAL rate of appreciation, and do that for 1998-2006 to arrive at a figure that would represent what the house *should* be worth had the market not run up so out of control.

here is my question – what do you do for houses built in say…2005? houses built and SOLD in the heat of the market increase…so these houses have a basis that is already out of whack..

will these new homes also drop in price…i mean..what happens to an entire community of homes that were sold for roughly $500,000 a piece….when prices start dropping… i can see how the 6-8 year oldh omes..that were bought for $200k…never refinanced…it would be easy for sellers to drop prices if they had to sell..they wouldn’t lose beyond their basis..they’d only lose potentialprofit… but the people who bought recently… and how have houses dropping in value..will lose money…it will cost them to sell..

like the house I am renting. the buyer bought it a year ago for $440k. they did the backyard (nicely) probably cost them 10-15k….window treatments… the hous was a Lennar “EI” home..so it had all the bells/whistles standard.. granite, flooring was included in the price on this house…etc etc..

the person tried to flip it at $550. then dropped the price to $525. the realtor said theo nly offer they got was $475k and the seller rejected it. the house then sat, didn’t sell, then turned to a rental and I took it. $1400/month. a steal. beautiful brand new house. 🙂 cheaper than some apartments in this area! (Temecula)

the owner now has offered to sell it to me for $440k. essentially waht they paid..they just want to walk away. the problem is a comp down the street just sold for 430k…and if *I* bought…being that no agents are involved..and that prices normally include agent fees….like that $430k..that sold with agents..sot he seller only realy realized $400 or so… so I’d expect the price to me would be even lower than 440k… but here is a owner who paid 440k…and can’t bear to lose money..

what happens when an entire neighborhood has this problem… will whole neighborhoods drop in value so that peole are stuck with their homes or faced with foreclosure? it would be great if this neighborhood would drop in price to a realistic level…but can that happen on a grand scale to neighborhoods that are so new and where EVErYONE bought high?

i’m not sure what will happen on my house. the rent is so cheap it’s hard to even consider buying. to buy it i’d have to suddenly pay MORE money…just to say “i own it”..but nothing would really change…same house..jsut a differnt name on the property records…

when these houses were NEW it didn’t make sense to buy them. at 440k NEW this house was overpriced. it cost more to buy it and carry the house than to rent it. so the only way it would make sense to buy it is if the prices go BELOW what they sold for.

i have seen some new development wher the builder has dropped price…you can see some peole who bought in earlier phases who have for sale signs on the house..i pull the flier and they want MORE than the builder is selling the new one for..and the builder has no closing costs, all kinds of incentives. free upgrdes that the original buyer dind’t get…so what happens to THAT guy…who is trying to sell his house for $550k..and the builder is selling a better one at $500k..the guy selling is scrweed…assuming he really couldn’t afford that house in the first place..and has an ARM….he’s just goin to have to walk away… most people buying these big $$ houses in temecula area do NOT have cash reserves or other $$ investment where they could write off a loss and at least survive…most of them would take a $40k loss and go bankrupt…

[23109VC]

FYI

this house originally sold for $440k.
The owner landscaped the yard, did some nice shutters, and that’s about it.
Owner tried to sell it for $550k six months later, big suprise no one bought it.
Owner has told me they’ll sell to me for $440k….which is exactly what he paid.

A house down the street – exact same house – just sold for $430k. That house has a larger lot, but a less private location…all in all..let’s say they are “equal” in terms of value. Level of upgrades is virtually identical.

That house sold USING agents..so that owner “lost” 5-6% to the agents. The owner of this house wants to sell to me w/out agents…which means there is no commissions coming out…and if you ask me..in a buyer’s market with prices falling..if anyone gets that benefit it’s ME. So knock off another 5-6% which is roughly $25k.

so if the most recent comp is $430k. – $25k = $405k.

Not a bad price for a house in this area, in this location/condition….assuming things don’t drop much more…

if prices go down a ton more, then buying now means i lose.

if prices go down only a little … buying it cheap enough would basically allow me to avoid the hassle of moving…and get the house at a price where it might not go under..

but the BIG problem is that renting is cheaper now.
Renting at $1400/month… a house that would cost me $400k…at 100% financing.. (which i’d do) i’m looking at a large house payment, 2% property taxes, $150 HOA, and another $100 for the gardner. plus other upkeep. even with the tax writeoff…renting is cheaper.

i do like th ehouse and the thought of moving is a pain in the you know what..but to save thousands and thousands of dollars..i’ll hire a moving company to move my stuff to another rental if i have to get out of this one….

[23109VC]

maybe he’ll walka way, the bank will take it,a nd the bank will try to sell to me…

he actually DID refi the house shortly after I movedin. from checking property records, he put down about 50k to buy the house, i rented it, then he refi’d it, and took his equity back out…

so the banks took the loans subject to my lease. so for the next 7-8 months, they are stuck with me. 🙂

I’ve got a nice window of time to watch the market go down the drain… i’ll feel sorry for friends who “own”…but I sure hope the market here goes down the toilet…

[23109VC]

thanks for the info.

FYI – the house I’m in is pretty much brand new…maybe a year old. It’s around 2000 sq ft. Nothing close to the 3300 sq ft home you’re talking about… but it’s in a very nice community. We like the house but the owner is smoking crack based on what they think they can get for this thing.

Right now, if I had to move out – I’d be able to find a comparable rental house as there are a ton of them on the market. I could find any number of rental houses – although maybe not as cheap as this one. this particular house was slightly smaller than the “normal” hosue in this area. A lot of the recently built homes in Temecula/Murrieta are 2500-3000 or even more. This one at just under 2000 sq ft is “small”. Although it was immaculate, had a nice yard, and came iwth all the applicances..perfect for a rental. at 1400/month..it was dirt cheap.

if I had to move to a “larger” house, I’d be able to get a house that is 2500sq ft or so for $1700-1800. $2000/month would put me in an “executive” home..huge, all the bells/whistles…but more than I really need.

I have found some websites that do a nice job of letting you plug in various variables and do a nice “rent vs. buy” comparison..but all of them assume the housing market will appreciate over time…

to “buy” this hosue would cost me around $3000/month when you factor in the mortgage, taxes, insurance, and HOAs. my guess is the owner will sell it when my lease s up b/c they are losing too much money by renting…

if i have to move, i can easily find another house like this one or one even nicer. rents here average 1700-1800. this house i’m in was on the cheap side at ony 1400 b/c it’s “small” at only 2000 sq ft…. lots of homes here are 3000+

even with the tax writeoff…renting is still cheaper.

[23109VC]

there are some places that I just wouldn’t want to live, no matter how cheap it was. Utah would be on the list of “places I’d rather not live”….

there’s a reason why it’s cheap there…no one wants to live there….

i think the reason we’ve seen massive price increases in areas that originally were NOT hot spots – like Vegas, Phoenix, etc… was that all the CA folks who cashed out headed east. Also, people who were finally ready to buy but couldn’t stomach CA prices, may have gone east to find a suitable/affordable place to buy/live.

as the boom ENDS in so cal and prices start to fall….you’ll see less people leaving. maybe even see people come back. as that happens, the bubble may pop out in those less desireable places too…

you just have to wonder WHY some of these places exploded…I mean do people REALLY want to live in Phoenix…..or did they go there b/c it was a compromise. They didn’t like the desert heat (aka HELL in summer) – but liked the fact that they coudl buy a great house at a good price….so they “settled”. had prices been “normal” in so cal they would have stayed/bought in so cal.

as prices get back to normal…i wonder if the trend will reverse…

all things equal..i can’t see how anyone in their right mind would live in Phoenix over San Diego. but they aren’t equal..housing prices are WAY different…as that differnce shrinks….which I think it will to some extent….what will happen to the people who bought in Phoenix and rode the wave up..they too may see prices cool/fall….piles of inventory….

[23109VC]

what do you mean a lease option? you mean offer the potential renter a “lease option to buy” meaning they pay a slightly higher monthly lease payment, and they get an option to buy at a set price when the lease is up? I coudl do that – but don’t those usually require me to agree on the future sales price? if prices drop, and I put down a price based on current market prices, then they pass up the option. if somehow the market picks up and my option to buy is too low – they buy it and I lose the equity.

they might opt NOT to buy, and then I’m right back where I started.

elaborate how these alternative forms of “selling” woudl work?

I also debated about renting with an optiont o buy in a house whenI move. I’ve seen some homes that were “for sale” now offer “lease w/option to buy”. the sellers are desperate, are losing money, and want to get their home occupied, get some cash and maybe sell it down the road.

also, prices are still going down where i live. a competing house just dropped it’s price another $20k. At this rate, I’ll be unable to sell my house if prices drop too much. I am almost to the pint where I am going to LOSE money if I sell it. I’m starting to worry I may be stuck in my house. I mean, I LIKE my house, but I have already transferred my job…I am in a nwe office that is 75 miles from my house…I trasnsferred alrady..and now my house won’t sell. I can always transfer back…but I may not get another opportunity to trasnfer again..it was a favor they did me to move me from one office to the other..and the move put me much close to San Diego/better weather/family/etc….i can go back to the Palm Springs area..which is nice, but summers are hell….

what do I do? one person suggested to me that I refi my house, but i looked into doing an interst only loan to get my payments lower…but since rates are now higher,a nd my current loan is at a great rate, even an IO loan saves me VERY little per month…not enough to make the loan payment more affordable.

any suggestions?

i now understand how people got stuck in their houses in the last decline. you have a payment you can afford, prices go down, you go negative, you can’t leave/sell…

[23109VC]

the people who bought recently, or refinanced and burned up equity (me) – should get out now.

the property tax hike is a big factor. if you bought recently, many areas have horrible tax rates to go along with the inflated prices. i’m looking to move to temecula where the average tax rate is almost 2% on the newer homes. so if you rent, and lose the tax writeoff – you also odn’t pay that nasty propety tax.

although my neighbor, who bought in 1998, paid only $160k for a hosue that is now “worth” $600k. so his taxes and mortgage, which is low – are all dirt cheap. he would probably be ok to ride it out. his house is awesome, awesome pool, great location…kids..moving would be a pain…

but to sell, and cash out..what a big payoff that would be.

[23109VC]

i’ve talked to a CPA and got that same advice. If I keep it too long – then I pay gains on the almost $180k appreciation…which yes, I already spent. 🙂

another problem is that I earn over $100k…and the tax breaks on passive losses start to get phased out at $100k+. So even though I’d have some losses to offset the negative cash flow – I’d only get about half of them b/c I earn “too much” according to Uncle Sam.

Renting it only makes sense if I hold it long term. If I did that, and held onto it for 20 years – then maybe I’d look back and be glad I did…but I’d have to compare what else Ic ould do with that money if I didn’t convert my home to a rental.

If I rent the house, I lose much of my home interest deduction, so my effective net income goes down b/c now I”m not getting as much of a write off on my income…and at the upper levels, it’s at 33-35% between fed and state. so in reality, if I pump $1000/month into the house, it really is costing me more int hat I lose some of the tax benefits I have now while occupying it.

if I keep it 20 years, and have to pump all that cash itno it – maybe $1300 – what would have happened if I put that money into a 401k or other interest earning investment. even if I just ut it in a hole in the ground, in 5 years I’d have $75k in cash. the house may go up, it may not go up at all.

[23109VC]

if the bubble is everywhere, and it bursts – there is going to be massive problems….

if people have leveraged their houses to the max, spent all the money on cars/toys/bigscreens/etc – and did option ARMS to “live their dream” – we’re going to have widespread bankruptcies, foreclosures, etc etc.

People will be walking away from houses because they’ll be negative..with no way to sell b/c prices will have gone down so much…

[23109VC]

without giving me *ADVICE* – what do you think are the pros/cons?

or anyone with some basic tax skills – who could give me an idea as to what my house/rental would actually *cost*?

[23109VC]

My monthly mortgage is $2300.
MOnthly taxes are $300.
I pay $100 to my gardner – who I would keep on so my yard stays intact.
I pay a bit less than $100 for insurance, and I honestly don’t know if it would stay the same, or go up/down slightly once I convert to a rental. Assume it stays the same.

So monthly CASH needed to keep the property going is $2800.

I can rent it for $1500-1600. $1600 would be the max. $1500 is very realistic, and I have no doubt I could have it rented in less than a month for $1500-1550.

As to depreciation, I don’t know what my basis would be on the home – I know you calcualte it via the value of the *structure*, not the land…and I believe my house/structure assessed at $200k on my tax statement – but my home is “worth” about $425k – so maybe I could fudge the number up a bit….assume a $200k basis, which I believe i depreciate over 27.5 years.

So about $7200 of additional “losses”.

Also factor in that my mortgage is NOT one of those ARMs, or interest only loans. I think about $300 a month goes to principal on my loan right now. So each year, I would be paying down my loan by about $3600.

I have a payoff of $365,000. My house is on the market for $425k. So assuming it’s really worth that much, I have $60k in equity.

IF I sell, I lose 6% to the agents, plus another $5k in escrow fees. So assuming I sold at current list price – I’d walk away with about $25k.

I honestly don’t think it would sell for list price right now. Maybe it would sell between $400-$415k. So I could sell it at $400k, and between the realtor fees and escrow fees, I’d just unload the debt, and walk away with no cash in hand. I might get $10-15k out of it if I sold on the high side.

If I rent it out – I am going to have to come up with $1300 in cash each month, but I would technically get $300/month back into my equity, and I would have some tax writeoffs/deductions to offset some of the loss/pain.

I make enough money that I would be able to rent an ok house in the area I’m moving to. I probably wouldn’t be able to buy, and I’m not sure I want to at this point. The only thing I could comfortably afford would be a small condo/townhome in the $330-350k price range. I”ve found some that my family and I would be ok living in – but we wouldn’t want to be in one long term.

I’m partly concerned about the tax implications. If I rent my hosue out, and try to factor in all the losses and the small pricnipal pay down – I can find myself rationalizing keeping the house – albeit LONG term.

I then wonder if I did rent it out – should I rent or buy in the new market. If I rent a house, I wont’ be able to write off what I pay in rent. I can’t buy the house I would want, but I probably could easily rent the house I would want to live in. I could afford to buy a condo that I would be tolerable of – and get a write off – but it would not be the place I would want to live long term.

I can rent a nice house for $1600-1800 in Temecula or Murrieta. That same house would cost $500-550 to buy. I’d have to do 100% financing to buy a house that expensive, and my monthly payment would be $4000 a month at least. I can’t afford that and rent my house out.

Given the above numbers, does it make financial sense to rent my house out? How much would it actually “cost” me – when tax breaks, depreciations, principal pay down, etc are all factored in?

Given I can rent a house that I would genuinly LIKE – for $1800 – does it make any sense to buy for $500k – even if I coudl afford it?? Seems no since renting is cheaper.

Would it be better to rent the hosue I like at $1800 a month, or buy a condo I would “tolerate” at $3000 a month – given that the condo would have a write off and effectively cost me less than $3000.

I am the sole breadwinner. My wife stays at home with our two small children and does not work or earn an income. I make $125k a year working for the gov’t.

thanks a TON for the advice.

[23109VC]

My job is pretty safe. it’s gov’t / public safety. I’ve been there long enough that if layoffs occurred, as unlikely as that would be, I’m high enough up the ladder of seniority, that I’d never get let go.

Taxes are much higher in that area. Average of 1.7 – 1.8 % in most areas. That adds up. It is a tax writeoff, but it’s still money out of my pocket.

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