Dear BP family, I have a difficult decision to make and would like your opinion. Decision: I'm looking to move to Pasadena, CA in June. Should I buy or should I rent? Background: • I love Pasadena! I regretted moving away few years ago and would love to move back. • For a 1-bed apartment, the rent is ~$1900 • To purchase a 1-bed condo with FHA, the downpay+closing is ~ $15,000; monthly payment is ~ $2300 (including PITI, PMI & HOA) • My investment goal is to purchase 1 property a year, which is why I don't want to put 20% for a primary residence • A multi-unit in Pasadena is out of reach for me. I don't have enough for 20% down. And the rents are not high enough to qualify for multi-unit FHA Options: • Buy a condo in Pasadena with FHA. Hold on to the rest of my cash in case an investment opportunity comes up later 2016. • Rent in Pasadena. Purchase a multi-family as "primary residence" somewhere the numbers make sense. • Others (please advise).

Hello @Fay Chen, Thanks for posting about this. I think a lot of people are running those scenarios, too! In fact, I am doing similar calculations for Pasadena! While I am focusing my search in Pasadena; but I'm open to surrounding areas, too (Alhambra, San Marino, Altadena, even as far north as La Crescenta/Montrose, La Canada). I'm POSITIVE that there is a way to finance a small multi-family using FHA or a similar program in that area. Since you have some time to search until you want to move in June, it seems that you still have enough time to find a property whose numbers will work for you. There's an article by Logan Allec about how he purchased a small multi-family via FHA in Santa Clarita here. A couple of questions: 1) How have you been searching: Redfin et al? Or realtors? Craigslist? 2) Are you working with a lender now (e.g. to get pre-qualified) or are you looking for a property first? Have you considered private money? Also, here's a list of "Low and No Money Down Mortgages" from "The Mortgage Reports." https://www.biggerpockets.com/forums/50/topics/262800-for-2016-low--and-no-money-down-mortgages Let me know your thoughts! RD

There are personal reasons for buying vs renting that you will need to figure out on your own. As for the investment side, if you are buying in Pasadena, that is an appreciation play (both forced and market appreciation), not a cash flow play. IMHO, the best way for an appreciation play is to buy a distressed SFR at a discount (motivated private seller or bank REO, smallest, ugliest, least expensive home on a nice block with no HOA), then roll your sleeves up and put in some serious sweat equity while you live there, then rent some rooms to offset some of your mortgage. Then, after 2+ years you can choose to sell at profit (assuming you bought and renovated it right, make sure you do) or rent it if/when rents go up enough to turn it cash flow positive. Rinse and repeat as necessary and desired. This is how I got my start right up the road in Glendale, CA and the reason I can now afford to raise my family a mile from the ocean in Huntington Beach. Save up a decent down payment, make sure you have sufficient and stable income to hold as a primary indefinitely if you need, and make sure you get a really good deal ... if any of these elements are missing, keep renting and saving and don't pull the trigger until you figure out how/when they all come together. Don't let your emotions or fear of "missing out" get you into a bad deal. Good luck!

Buying a one bedroom condo is the WORST MISTAKE any real estate investor can make.... you get zero help from roommates helping pay your mortgage, and you have to pay HOA fees. No, don't do it. Rent, save up and just buy a 3/4 bedroom house, duplex, or keeping renting and buy an investment property elsewhere that's cheaper.

@Fay Chen Just a few random thoughts after reading the thread (interesting read by the way). -- I've looked at condos in Pasadena and some of the HOAs seem pretty outrageous ($600 - to almost $1000). HOA period, dissuades me from condos, but that's just me. One of the things about HOAs is that if they were low, the association is often not very well funded, which could lead to poor upkeep/condition of the building, impending HOA increases, or special HOA assessments later on. If you'll be purchasing a condo with low HOA pay special attention to the overall condition of the property. Ask about how well funded the HOA is. And check for deed restrictions that would make it difficult to sell. On the other hand, paying a high HOA pretty much just sucks and makes renting rather than buying a bit more attractive. -- Pasadena has appreciated a lot in the last few years. A nice chunk of it has come from Chinese buyers, especially younger folks with parent money. This makes it harder to not overpay especially with FHA. I don't see this letting up. But if it becomes less convenient for these buyers due to global economic or geopolitical reasons, Pasadena would be affected more so than other communities, IMO. -- I'm sure you've considered adjacent communities. I really like west Alhambra up by Main and Poplar, and further west into El Sereno. Some of the homes are gorgeous, and cheaper than Alhambra, San Gabriel and of course South Pas. I think there are much better appreciation opportunities here. Also I really like the Lincoln Corridor in Alta Dena is interesting with the Cafe de Leche and all. Congrats for moving so far along in REI! Good luck on your next property!

To Rent Or To Buy?

Fay Chen

OP

Investor · Bothell, WA · Member since 2015 · 214 posts · 104 votes

10y

@Lee L., I saw a condo once with a $700 special assessment...ouch!

I have heard some interesting rumors about Chinese investors in the SGV. A few years back, there was a change in leadership. So a lot of rich business ppl & high government officials wanted to move money out of China before the political change. A lot of them were buying homes and sending their kids to US and Canada. It'll be a way out if they get in trouble under the new leadership.

Not surprisingly, the new leader started an anti-corruption campaign soon after he took office. So a lot of the rich ppl who were too late to leave are trapped. And China realizes its losing a lot of money to investments out of the country, so it started to restrict how much its citizens can withdraw out of the country. It's just part of the plan to keep the money in China and control the Yuan.

Hence, there are speculations that the SoCal market, specially purchases in SGV area, will slow down due to less money coming from China. I kinda like the theory, but remain skeptical. I'll believe it when I see it.

To Rent Or To Buy?

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