Buying Real Estate In California
I was just in San Diego over the weekend and went to look at some properties for an investment. The prices in California have sky rocketed to obscene levels (i.e. a 1200sq ft townhome in a decent neighborhood will run you about 450,000-500,000)
My questiosn is: I have always wanted to live in S. Cal but am afraid that if I don't buy something now, I will never be able to afford it. Should I buy this townhome for the ridiculous amount and hope that it will appreciate like everything else in CA or should I wait to see how the housing market will withstand?
Any advice is appreciated.
Quote: I will never be able to afford it. Should I buy this townhome for the ridiculous amount and hope that it will appreciate like everything else in CA
You've already answered your question. If you cannot afford it, why would you put your financial capability of doing other deals in jeopardy? There's plenty of deals out there that you probably can afford. Look for motivated sellers who are willing to sell at discounted rates. It really does happen, I know because I bought my first home that way in the San Francisco area in the middle of http://www.the.com boom.
hth.
Robert
[addsig]
I guess my main question is:
Should I buy a home as an investment while prices in CA are overinflated or wait to see how the housing marketing reacts to an increase in interest rates? Assuming prices in CA always seem to go up at drastic rates, I am feeling the pressure to buy now rather than wait.
I'm not in CA anymore :-( but thought I'd interject that I too have been looking in North County San Diego (Oceanside/Vista San Marcos) and found 435k homes new to be a good deal but high $ - agree with past posting "are you sure" but also see 25%+ increase in the past just 5 months alone. Get in while the going is up...
Anyway - please post if you do buy or if you find a way for any of us to get in..
Hay I know - I'll buy you move in and pay my mortage - only about 3.5k per month.
-- Lease Option? <- or does that work? --
I got out of the Navy in December 2001 and almost bought a 5 bedroom 3 bath home in Escondido (North San Diego County). Single level approx 2500sf in immaculate condition and a great neighborhood for $289,900.00
The worst mistake I ever made was to tell my wife "lets wait a year honey and see what happens". We rented for a year and of course homes in that neighborhood were 75 - 80K higher. We just purchased our first townhome, 3br, 3 ba 1540sf. 1 car garage, and we share a wall with the neighbor. Decent sized backyard though for 335K. We closed last January. My immediate neighbors are now selling for 399-425k. Six months later we have about 65K equity.
My personal advice, get in while you still can, it will level off at some point, maybe even drop a little, in my own personal experience it's been hard to time the market. Good luck and let us know how you do!
8-)
Quote:
On 2004-07-13 22:30, estategirl wrote:
I guess my main question is:
Should I buy a home as an investment while prices in CA are overinflated or wait to see how the housing marketing reacts to an increase in interest rates? Assuming prices in CA always seem to go up at drastic rates, I am feeling the pressure to buy now rather than wait.
Are you investing, or speculating the market? The market will always have cycles. What will you do if you find you need to sell but the market is cool? Investing, good. Speculating, bad.
You sound like a motivated buyer and your emotions are overcoming reason. You want to buy a house to live in (not exactly an investment in the classical sense), but what are your plans for the future? What is it about SoCal that you just have to move there?
I do not as a Realtor advise purchase of single family houses at their high Spike Price. Unless, here it comes. We buy one in foreclosure and close way under market.
An example. House 3 br 1.5 ba. The first is $225,000. IRS lien $600,000. A small second mortgage of $8,000. Seller takes $1,000 and walks away. The IRS lien prevents him from selling. My client buys the second mortgage for $4,000 and we now foreclose on the second. Showing advances to the first mortgage and a tax (real estate) payment for back taxes of $875. Foreclosure is completed. There was only one bidder at the sale and he could not properly qualify. I was of course the substituted Trustee and ran the sale.
My Client now owns the property. We have notified IRS and as usual they do nothing and the 120 days expire. The IRS lien is eliminated he owns the property for $242,000. True value about $315,000. Spike market about $410,000. He has moved in and I took back a second mortgage on the property for my commission and costs $12,000. Thus he is in for $254,000. He is tempted to sell and grab the profit. His wife has informed him that if he tries she will leave him, take the children, the dog and probably have the house moved.
He stays, is happy. Now thats a buy at high market. For other plans that are responsive to the Spike. Post again.
Cheers Lucius
Thank you all for your responses.
I mainly want to buy in CA as an investment. My family lives in Ca and someday I would like to move back but with the way home prices are, I fear if I don't buy now, I will never be able to afford it. My recent trip to San Diego has motivated me to buy eevn though I realize that I may be buying during a spike (as Lucius mentions).
Considering the rate of growth for CA, does anyone really believe that home prices will fall in CA? Won't there be a point where homes prices will be so expensive that nobody will be able to afford??
:-?
Quote:
On 2004-07-14 22:40, estategirl wrote:
Considering the rate of growth for CA, does anyone really believe that home prices will fall in CA? Won't there be a point where homes prices will be so expensive that nobody will be able to afford??
When my parent's moved here in '56, they spent 35, 000 for a small ranchette of 40 acres. I think they thought the prices were high then too, and that the prices couldn't go up. I bought a house in San Francisco area in '98 for 335K when my boss said he wouldn't buy because the prices were overinflated. I sold the house a year later for 375K. I guess what I'm trying to say is, previous generations probably all thought the market was overpriced, and I'm sure CA *is* overpriced. But the logic that says prices cannot keep going up is just as flawed as the logic that says prices will always go up.
Real Estate investors make money at the purchase, not at the sale of their properties. If you are counting only on appreciation, you are gambling. Look at Texas in the 80s and even CA in the 80's, a lot of people counted on appreciation and lost lots of money in RE.
If you want to live in CA, treat that as a home more than an investment. If it works out that the values continue to appreciate and you can resell later at a profit when life moves you on great. But, I wouldn't count on a personal residence as being more than that, a place to live.
Just my 2 cents worth.
Robert
From my point of View, California is a tough market. I have a number of friends that are doing well in LA, and I have a number of associates that are competing like Dogs in San Diego and Riverside County. For me, I bought a house in which to live in California, but do my deals in other (more affordable) states.
With regard to housing pricing, the Orange County economists at Chapman University are generally in agreement that the 1990 housing decline was a one time event brought on by the mass elimination of contracts in the airline defence industry.
Now, because the business base is much more diverse, the odds of a massive retail decline is much less likely. Coupled with that is the extreme limit on land that will be approved for water and power rights on which to build. These are all indicators that the housing shortage will remain and grow more pronounced. Keep in mind a lot of this also depend on how well the Terminator does in office in making California a business friendly state again.
My opinion is that the market will soften for the next year as interest rates rise. This will result in price growth going from more than 20% annually to a more moderate 6-9%. Regardless, prices are going to go up.
What does this mean to us as investors? Not much other than it will be more expensive if you want to pay to play. Prepare for more opportunities short selling, and more competition with couples looking to buy that first time fixer.
On a final note, I had an interesting conversation with a representative of KB Homes. His comments were that the townhome/condo market is increasing more rapidly than the SFR market. The explanation was that not only can the first time home buyers only afford a condo, but they are competing with Baby Boomers who are trying to downsize their lives. Here in Escondido, I am still looking for single family homes.
I found that two months ago when i was making offers on homes I was one of twenty and the homes usually sold for asking or above.
Now I am making offers and I am one of two offers max.
It seems that people are becoming a little more motivated now that they aren't getting the crazy offers they were previously.
For example:
I ran into a guy who had his 3bd 1 bth listed at $490k (it's crazy!, I know). We offered $480k w/ some creative financing. They went into escrow with a buyer at $520k. 20 days later they fell out of escrow because the buyer couldn't get his money together.
The owner has no other offers, but still rejected ours out of hand saying he was going to take the listing off MLS and go back on at $520.
Ah well....moving on.
Thank you for your responses!
My husband and I were looking into buying in the Temecula (you seem to gte more for your money out there) Do you see Temecula as a good place to buy?
Lets see, this is a site dedicated to Creative Investors. So lets get creative. I know I know I am a real estate broker so I am not suposed to be creative. True I do crease my trousers but my shoes are funny.
Ok. You see a house on the market at the top of the spike. It is listed at $410,000 and the true market should be about $320,000. You note that the altakocker who owns the property has it free and clear and bought it for about $15,000. You investigate, I know you are creatively inclined so investigate prior sale and status (true status and desires) of the Seller. He wants an income, does not need the money on sale, just wants to stick it all in the bank for interest. Yip where is his head?
So you make an offer. The offer you meet his price of $410,000 you offer $10,000 down which leaves a balance of $400,000. This he will take back in the form of a first Trust Deed. You have met his price. He is now telling the world what a genius he is and what a putz you are. Agree, please agree. Now comes the kicker. Of course in consideration of the high price and all that profit you will pay no interest. Each payment will be applied on the reduction of the principal balance then due. Your payments will be spread of course over the full period of the note. Lets say 35 years. That is a payment of: $952.38 a month. Can you swing it? $10,000 down and $952.38 a month?
Plus taxes and guess what if they raise your taxes in view of the high purchase price you will appear before the tax review board and get it knocked down to the norm of the area.
Will he take it? Maybe yes and maybe no. You are the closer, the negotiator, you certainly would not let your dummy Real Estate Broker Negotiate for you?
Now lets consider, what did you really pay for this property. Supose you had bought it and paid its true market price of: $320,000 and the interest rate had been say the normal of 6.2% and you had been lucky enough to get a loan of $310,000 lets say for 35 years, just like you negotiated for with the owner. Your payment would be: $1,809 a month. Given 35 years that would be a total of: $759,780.
Oh my god what did you do? The banks will hate you that was mostly all of their profit. You have done a naughty. My god you bought that property cheap! Lets see now. You will be paying $952.38 for 35 years times 12 da months that is $399,999.60
I know, I know you are taking advantage of somebody. If we speak a truth we are eliminating interest which is your big cost. Why not give a little more. Pay the top of the spike and buy it way under market.
Ok you must go out and get an old fashioned HP12C calculator. It does the declining interest rate problems and anything else in the field of payments for time. This is a big secret. You could get rich on this.
I must confess I have only done it twice. You should have seen the Escrow Officers Face. Of course the Broker in transaction asked the usual question. How do I get my one half commission. I am almost tempted to pay it. He still does not get it. Now that I think of it he does resemble the General I worked for during the war. Who sent me to Russia in a P51 that did not have enough range or fuel supply. When I asked him about it he gave me the usual answer. "Not my problem go work it out." I modified the aircraft and put so many tanks under the wings you would have thought it a bomber. I came back to England by way of Italy. I felt I was entitled to a vacation. I mean all the tanks, never been done before. I could go anywhere. Guess what? This is the same kind of situation. Just a few little changes and away we go.
Cheers. Lucius owner of a HP12Ccalculator.
Quote:
On 2004-07-15 14:26, BarrettNiehus wrote:
From my point of View, California is a tough market. I have a number of friends that are doing well in LA, and I have a number of associates that are competing like Dogs in San Diego and Riverside County. For me, I bought a house in which to live in California, but do my deals in other (more affordable) states.
With regard to housing pricing, the Orange County economists at Chapman University are generally in agreement that the 1990 housing decline was a one time event brought on by the mass elimination of contracts in the airline defence industry.
Now, because the business base is much more diverse, the odds of a massive retail decline is much less likely. Coupled with that is the extreme limit on land that will be approved for water and power rights on which to build. These are all indicators that the housing shortage will remain and grow more pronounced. Keep in mind a lot of this also depend on how well the Terminator does in office in making California a business friendly state again.
My opinion is that the market will soften for the next year as interest rates rise. This will result in price growth going from more than 20% annually to a more moderate 6-9%. Regardless, prices are going to go up.
What does this mean to us as investors? Not much other than it will be more expensive if you want to pay to play. Prepare for more opportunities short selling, and more competition with couples looking to buy that first time fixer.
On a final note, I had an interesting conversation with a representative of KB Homes. His comments were that the townhome/condo market is increasing more rapidly than the SFR market. The explanation was that not only can the first time home buyers only afford a condo, but they are competing with Baby Boomers who are trying to downsize their lives. Here in Escondido, I am still looking for single family homes.
-----------------
Chapman Univ. So that was his opinion as to the small drop in market. Statistics, god I love them. Just hate those that use them. That was one of four major events that occured in those times. Anybody remember the loss of film production? Everybody took off for Canada. My daughter among them. Did anybody offer to negotiate with the unions and the City of Los Angeles work out some deals and keep that goody here. No.
KB, you should have asked them for a statistic on the average age on their TownHomes. Guess what their biggest buyer are slightly older couples who dumped their homes on the spike or slightly below. they are fed up with doing the lawns and fighting over fences and garbage pickup. So they are buying Townhomes. Perfect answer. Oh I cheated, I went down and bought a few drinks for those who are doing the closings. Why, cause if the all Steel Houses made out of Containers gets known and the desire increases. Why would anyone buy a copy of an obsolete design when they can have a really modern house for about $58,000 plus land cost which should be about maybe $100 a month more.
Dear Sir, Times are achanging. No more will Termites rule the land. Want to have a real blast, watch the solar panels spin the electric meter backwards. Imagine how Dipsy Waspy and Pipy oops DWP, will feel over that. Tired of the neighbors peering in the window, push a button and the gas between the two panels of glass go opaque. Want to let the neighbors in on the secret of how the upper classes live? Why push the button again. And wave. ISO Containers may very well revolutionize this fair state as to housing. The concept of long term lease land instead of fee ownership might just solve the price of high priced land. The local Council may finaly approve the introduction of secondary housing on Single Family Lots and by that increase in density double the available housing in this fair County. Now tell me, just between us Creative Investors what effect will these events have on the present market "ssking" price of houses? I moniter these events almost every night. I see a slow down on time on market. I see some of the wildest paper deals for Brentwood and Belair and Dear old Beverly Hills I have ever seen since I was a kid going to Beverly Hills Hi. and trying to get Rin Tin Tins autograph, and watching the amount of true funds involved dropping like the score board on a Lakers Game.
I own a small house in Saffron Walden in England Kent. For three generations the same family have been renters. I bought it during the Battle of Britain, I needed a small place where I could get away from airplanes and angry German Fighter Pilots and talk to my cat. The mice that live in the thatch roof call us by our first names.
They send me a letter and inform me that times are changing and that rents are going up and they would like to negotiate an upward rental amount. I almost dropped my drink. Damnation. I thought I had a good grasp on the human condition. I wrote them back at once. "Never" I said, enjoy the place and say hello to the mice. I miss them."
It is in that spirit I say. Now is the time to play creative in your purchases and assemblages. Yes there will be a dip. But lets face it everything is going up but one rather interesting item. WAGES. When they move, then and then only will the high prices be sustainable.
A brief bit ago we had a small riot down in Watts. A considerable time ago at the end of the late Medievel Age in England, they also had a riot. It was called the Watts Riot or if you are a student of history the Watts Rebellion. Watch out, the factors that are present in the creation of such events are fast approaching.
I think our new highly talented Governor should stop giving diction corrections to the states name and get with it and start some really fast corrections. He might begin by informing Sacramento that there will be no more dispursement of expenses and other payments to the Legislat'ors until they place their X's on the budget and no more riders and changes.
Cheers Lucius and of course The Cat.
"With regard to housing pricing, the Orange County economists at Chapman University are generally in agreement that the 1990 housing decline was a one time event brought on by the mass elimination of contracts in the airline defence industry. "
What happened to '69 and '79? Did they really say there has only been a major decline once in So. Cal? It goes up and down every 10 years or so. If it didn't, our median prices would be more like 5 million instead of 500k. Never heard that before about there being only one decline. I would think they had charts or something.
D.
The market here is without a doubt, unaffordable in southern california at this point. We have seen home prices double in many areas in 4 years and less. The majority of the loans I originate are stated income as most families simply don' t show enough income to qualify for their enormous mortgages. If you try to buy property here it will be difficult to have a positive cash flow, people have been speculating on equity appreciation and winning.... myself included, we'll see how long the party lasts.