Investor 路 Valley Glen, CA 路 Member since 2013 路 247 posts 路 111 votes
I have been renting a house for the past 7 years in LA and now sadly the family wants to move back in. I figured it's time to buy my own place, especially with rents so high, but timing couldn't be worse. Every home has 15 offers and I have gone $30 to $40k over asking yet still have lost 6 so far.
So Matt, you are saying you save in mortgage taxes so mat as well buy.
Mike,
Quick and dirty calculations. $36k/yr in PITI (Principal, Interest, Tax and Insurance) on a $600k purchase w/ 20% down. Less $8k in principal pay down, your allowable deduction is $28k. Plus you claim yourself and some other stuff. Your total deductions are closer to $34k.
At a conservative 25% tax bracket for Fed & State combined, you're getting $8,500 in refunds each year. The refunds should cover your annual property tax and insurance.
$36k gross annual PITI less $8k/yr in principal pay down (aka forced savings) less $8,500 in Fed & State refunds, your net carrying cost is $1,625/mo. Buying is cheaper than renting $2,500/mo.
The delta between renting and owning is $875/mo, or $10,500/yr. So your $120k down payment is earning you about about 8% annually. Not all is lost with the down payment. I would buy if I were you.
As you have witnessed, you're exposed to the ravages of inflation when you rent. Once you bought, you have essentially fixed your living cost. It's a short-term pain for long-term gain.
I have been renting a house for the past 7 years in LA and now sadly the family wants to move back in. I figured it's time to buy my own place, especially with rents so high, but timing couldn't be worse. Every home has 15 offers and I have gone $30 to $40k over asking yet still have lost 6 so far.
Bubble?
If anyone has property in LA (NoHo, Sherman Oaks, Valley Village) Or areas nearby- I'm looking to rent apparently- as buying isn't happening right now.
Anyone else experiencing this?
Hi Mike,
I know what you are talking about. The market is too hot and it is a sellers market. I see that your budget is around 600k. For that kind of money you should be able to get a decent 3 bed, 2.5 bath in west hills(good schools) . Now again, if you have kids and are keen on SCHOOLS, you are up for a bidding war. Woodland hills (certain part has good schools) will be out of reach, even if you find some, oh boy you are in for a war. But if you care less about schools, look at canoga park, reseda, winnetka. I'm sure you can find some.
I agree that the market is crazy, but no where close to a bubble. It is sad that LA housing is not able to keep up with the growth in population. So don't doubt the market, if you plan on buying a house. My advice is to buy a decent house in a GOOD SCHOOL DISTRICT, I cannot emphasise more on it. Houses in such areas tend to appreciate better and sell faster.
No kids. But yeah always looking at good schools for resell but I don't think that matters anymore. I'm in Valley Glen. Schools are a 3 but can't buy in here under $750k.
No kids. But yeah always looking at good schools for resell but I don't think that matters anymore. I'm in Valley Glen. Schools are a 3 but can't buy in here under $750k.
I'm surprised you cant find a 2 bed 2 bath under $750K. A quick look of MLS tells me a different story. But I'm not sure what you are looking for in a house/condo/townhome. I have a few friends who own rental properties around that area in NOHO and they didn't pay anything close to 750k, but this was during last spring to summer. But I agree the prices are too high, and the inventory is too less - but that explains the prices. And housing shortage will get worse going into future, till a big expected earthquake hits SOCAL :). Anyway good luck with your search
My neighborhood is that high. I am finding some homes in noho on bad areas under 600k can only hope they get better. Although I keep getting outbid
Mike, how much is the rent around valley glen for a 2 bed/2 bath condo? My focus is mostly around woodland hills/west hills/northridge mainly due to schools. With your assurances, May be I should venture out towards Van Nuys/Valley Glen/NOHO
The reality is that if someone is willing to pay 10 X what the same home is worth in most other parts of the country you are dealing with too many people that either have too much money or no comprehension of the value of money. Probably a combination of both in the case of California.
It seems that the majority of California citizens, although they may be intelligent, are not particularly smart. Stupid is not a reflection of intelligence. They continue to buy with the belief that the housing economy is a stair case to infinity. Sad but stupid.
Remember Forest Gump...stupid is as stupid does.
Mike R. that home is not worth over $950K simply because that is what someone is willing to pay for it. It is only worth what it would cost to rebuild if completely destroyed.
No I meant rush buy or rent and hope to find when there is better inventory?
I wish there was some light at the end of the tunnel, like 2006 with bogus financing or something like that. There is not. The only thing that I can see is an earthquake or some radical interest rate changes or major league recession otherwise when looking back these might be considered bargains I am afraid. Look for value add almost only now. Many of these are still sub peaks from 10 years ago....even if they were even that is still 20% less today when inflation is factored.
Even a modest rise in interest rates over the next few years will crush RE. Anything even approaching normalized rates and all of the "investors" who have gotten into real estate over the last decade for no other reason than extreme desperation for yield will exit as fast as you can blink. At least those subprime borrowers circa 2006 had some sort of personal attachment to most of their houses. These "cash buyers" are not as stable as everyone says they are. There's also a lot of leverage behind the scenes but most importantly this is all being fueled by the liquidity that would not be there were it not for the unprecented insanity of current monetary policy. All of this cash pumped into the market is the new bogus financing that has allowed buyers to circumvent the traditional reigns on home prices - and banking on these prices is banking on the continuation of a level of real estate "investment" mania far outside of the historical norms.
Originally posted by @Greg S.:
The reality is that if someone is willing to pay 10 X what the same home is worth in most other parts of the country you are dealing with too many people that either have too much money or no comprehension of the value of money.
I wonder why that would be.
Originally posted by @Mike R.:
Yep and then add to that interest rates are going up. I'm still searching and now moving north of victory in van nuys. This is so stressful.
Would you rather have a more expensive house at a lower interest rate or a cheaper house at a higher interest rate?
I would stop stressing and settle for renting from some guy who's probably losing money on his "investment" until things calm down. Real estate has hardly appreciated historically and there's no reason to believe it will continue to do so. Reversion to the mean is the most likely scenario.
There is also talk of rents beginning to drop especially in more expensive markets like LA.
For what? Now I'm more confused. Ha. I feel that as rates go up, banks make it easier to get loans so now people would buy and prices could go up more.
For what? Now I'm more confused. Ha. I feel that as rates go up, banks make it easier to get loans so now people would buy and prices could go up more.
As rates go up, prices (theoretically) go down so buyers can actually afford their mortgages. But the bigger issue here is the indirect effect of these unprecented low rates on the values of all financial assets, real estate being probably the asset type most out of whack during this cycle compared to historical norms. Investors have been pushed into real estate due to the high risk/reward ratios of traditional investments and if and when rates normalize they will pull out of real estate in a big way, which will cause prices to reset to what the traditional demand cohort (ie you) can reasonably afford.
So Matt, you are saying you save in mortgage taxes so mat as well buy.
Mike,
Quick and dirty calculations. $36k/yr in PITI (Principal, Interest, Tax and Insurance) on a $600k purchase w/ 20% down. Less $8k in principal pay down, your allowable deduction is $28k. Plus you claim yourself and some other stuff. Your total deductions are closer to $34k.
At a conservative 25% tax bracket for Fed & State combined, you're getting $8,500 in refunds each year. The refunds should cover your annual property tax and insurance.
$36k gross annual PITI less $8k/yr in principal pay down (aka forced savings) less $8,500 in Fed & State refunds, your net carrying cost is $1,625/mo. Buying is cheaper than renting $2,500/mo.
The delta between renting and owning is $875/mo, or $10,500/yr. So your $120k down payment is earning you about about 8% annually. Not all is lost with the down payment. I would buy if I were you.
As you have witnessed, you're exposed to the ravages of inflation when you rent. Once you bought, you have essentially fixed your living cost. It's a short-term pain for long-term gain.
Thank you so much! I did find a rental for $1995. But still seems like taking $100k to $120k out of stocks and adding to a $400k mortgage makes sense. If I could find that place.