Johns Creek Homes and Real Estate
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NEW -> Contingent Buyer Assistance Program
According the NY Times rent vs buy calculator buying at $900k with 20% down is better than renting at $3,400/mohttp://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Not saying it's right.. but it's not a slam dunk in your favor Panda.
Panda,
I am not sure if I absolutely follow this line of thinking. Let's assume carrying costs to be $7000 a year (PITIA, opportunity cost etc.) for each $100k value of your PR, and consider JC buyer of $400k home and Irvine buyer of $800K home. Agreed, JC buyer will have $28000 each year to invest and grow wealth. may be he will put in stock market, or bonds, or REIT. But, at this point, isn't it just diversification of investments? Irvine buyer will be less diversified but has a bigger bet on market doing well. JC buyer has smaller initial bet and each year he will be adding to the bet. It is akin to dollar cost averaging. The DCA strategy works great in falling markets but you are almost always better off jumping both feet in during rising markets.
panda
Well-known member
Socal,
No I really love the golf course community I'm living in now which is in St Marlo Country Club. Even after 5 years, I thank the Lord everyday that I am able to live in this beautiful community.
The staging and the designs of the homes have improved quite a bit since moving out here in 2011. Ashton Woods is one of the best builders here in Atlanta and they build some quality homes with good designs. They were one of the first builders to actually fly in a stagers from Orange County, CA to stage their homes and teach the old native Georgians about Feng Shui.
I would love to remodel my current home to look like this. To have to spend over $700k on a house and have no drive way is just completely wrong in my opinion. If i was living in Irvine today, there is no doubt in my mind that I would be renting right now in order to keep my overhead low so that all my money is not tied up in my primary residence and that I could invest. In Irvine, it is just so much cheaper to rent than to own today.
No I really love the golf course community I'm living in now which is in St Marlo Country Club. Even after 5 years, I thank the Lord everyday that I am able to live in this beautiful community.
The staging and the designs of the homes have improved quite a bit since moving out here in 2011. Ashton Woods is one of the best builders here in Atlanta and they build some quality homes with good designs. They were one of the first builders to actually fly in a stagers from Orange County, CA to stage their homes and teach the old native Georgians about Feng Shui.
I would love to remodel my current home to look like this. To have to spend over $700k on a house and have no drive way is just completely wrong in my opinion. If i was living in Irvine today, there is no doubt in my mind that I would be renting right now in order to keep my overhead low so that all my money is not tied up in my primary residence and that I could invest. In Irvine, it is just so much cheaper to rent than to own today.
panda
Well-known member
Peppy,
How much would have to put down on a 4 bedroom SFR in Irvine for it to break even in terms of cash flow in 2016? My simple math is that if the home cash flows with 20% down, I would rather own, however if the home does not cash flow with 20% down, I would rather rent. I am talking about a potential buyer in 2016, not in 2010. Yes, had you bought a Sonoma in the 2010 Woodbury Collection opening day, your equity appreciation would look very nice by this time.... but for a buyer in 2016.. that is a diifferent story.
How much would have to put down on a 4 bedroom SFR in Irvine for it to break even in terms of cash flow in 2016? My simple math is that if the home cash flows with 20% down, I would rather own, however if the home does not cash flow with 20% down, I would rather rent. I am talking about a potential buyer in 2016, not in 2010. Yes, had you bought a Sonoma in the 2010 Woodbury Collection opening day, your equity appreciation would look very nice by this time.... but for a buyer in 2016.. that is a diifferent story.
Irvinecommuter
New member
Still in Georgia...no thanks.
panda
Well-known member
I don't want you guys to get the wrong idea. For those of you who've known me for some time, I really loved Irvine which the reason I actually flew out to attend the 2010 Woodbury Collection Grand Opening to possibly buy a home. Back then, even though housing market took a downward spiral, Irvine literally stopped building in order to dry up the supply, therefore the 2010 Woodbury Collection was a big hit with plenty of hungry buyers waiting on the sidelines.
I still think that Irvine is a great place to live with its beautiful surroundings, nice weather, and beaches nearby, but comes at a very expensive cost. Personally for me, the decision not move to Irvine was more of a financial decision. Looking back now, it would probably take me about 10-15 more years to retire had I decided to move to Irvine rather than to Johns Creek. In my opinion, buying in Irvine is not an investment, it is a lifestyle you are buying into, but a very expensive lifestyle.
Below are pages from the "Millionaire Next Door" author Dr. Thomas Stanley.
page 42:
The Money Pit:
When we make home buying choices, we look at several factors, mostly the carry costs of the home such as mortgage and taxes. I believe the greatest detriment to building wealth is our home/neighborhood environment. The type of home we live in and where we choose to live often takes the greatest toll on our financial wealth, and from it, all other perils flow.
page 43:
Contrary to popluar belief, however, most of the self made millionaires I have studied have one thing in common : They are able to build wealth precisely because they never lived in a home or neighborhood environment where their domestic overhead made it difficult for them to build wealth. In essence, they ran their households like a productive business. It is not only about how much your make (or generate sales) More important, it is how much you keep. And the ?keep? component begins and ends at your home address.
Buying an expensive home is a great way to fool people into thinking that you are wealthy. And it is likely that you will not feel out of place. Many people who live in pricey homes situated in tony neighborhoods are not millionaires. If you want to actually become rich one day, then enhance your chances by living in a modest home ? say, one valued at under $300,000. Most millionaires do not live in homes that have a market value of $1 million or more. About 90% live in homes valued under $1 million.
Page 46:
Once the market value begins to move up beyond the $500,000 level, wealth building productivity moves into unproductive range (i.e. less than 1.00). Buying a more expensive home is likely to decrease the odds of becoming financially independent. With the ?big house? strategy, not only would you face hefty mortgage payments. But ? also?. Property taxes, maintenance costs, HOA, insurance, and utlilties. Buying a bigger house isn?t an investment. Rather it is a lifestyle choice ? and it comes with a brutally large price tag.
To enhance your chances of becoming financially independent, you should live in a home and neighborhood environment that has high wealth-building productivity characteristics. You need to be surrounded by neighbors who have lower incomes than your household generates.
The millionaires profiled by Dr. Stanley who live in million dollar homes have an average net worth of $6.8M. For these penta-millionaires, you can see that only 15% of their net worth is the value of their home.
I still think that Irvine is a great place to live with its beautiful surroundings, nice weather, and beaches nearby, but comes at a very expensive cost. Personally for me, the decision not move to Irvine was more of a financial decision. Looking back now, it would probably take me about 10-15 more years to retire had I decided to move to Irvine rather than to Johns Creek. In my opinion, buying in Irvine is not an investment, it is a lifestyle you are buying into, but a very expensive lifestyle.
Below are pages from the "Millionaire Next Door" author Dr. Thomas Stanley.
page 42:
The Money Pit:
When we make home buying choices, we look at several factors, mostly the carry costs of the home such as mortgage and taxes. I believe the greatest detriment to building wealth is our home/neighborhood environment. The type of home we live in and where we choose to live often takes the greatest toll on our financial wealth, and from it, all other perils flow.
page 43:
Contrary to popluar belief, however, most of the self made millionaires I have studied have one thing in common : They are able to build wealth precisely because they never lived in a home or neighborhood environment where their domestic overhead made it difficult for them to build wealth. In essence, they ran their households like a productive business. It is not only about how much your make (or generate sales) More important, it is how much you keep. And the ?keep? component begins and ends at your home address.
Buying an expensive home is a great way to fool people into thinking that you are wealthy. And it is likely that you will not feel out of place. Many people who live in pricey homes situated in tony neighborhoods are not millionaires. If you want to actually become rich one day, then enhance your chances by living in a modest home ? say, one valued at under $300,000. Most millionaires do not live in homes that have a market value of $1 million or more. About 90% live in homes valued under $1 million.
Page 46:
Once the market value begins to move up beyond the $500,000 level, wealth building productivity moves into unproductive range (i.e. less than 1.00). Buying a more expensive home is likely to decrease the odds of becoming financially independent. With the ?big house? strategy, not only would you face hefty mortgage payments. But ? also?. Property taxes, maintenance costs, HOA, insurance, and utlilties. Buying a bigger house isn?t an investment. Rather it is a lifestyle choice ? and it comes with a brutally large price tag.
To enhance your chances of becoming financially independent, you should live in a home and neighborhood environment that has high wealth-building productivity characteristics. You need to be surrounded by neighbors who have lower incomes than your household generates.
The millionaires profiled by Dr. Stanley who live in million dollar homes have an average net worth of $6.8M. For these penta-millionaires, you can see that only 15% of their net worth is the value of their home.
A 2200 sq-ft. 4BR SFR in Irvine rents for about $3400. A quick search puts a similar property at about $900K. Rental is definitely tightening so I'd expect it to outpace inflation. What is your market return assumption in your rental scenario? How long are you holding the house in your "simple math"? Keep in mind that we are not looking at investment. We are comparing rent vs. home that serves as primary residence.
Show me the numbers!!!
Show me the numbers!!!
Panda said:
panda
Well-known member
Eyephone,
I like REITs at this time. Do you invest in financial REITs or brick and mortar REITs? The two Financial REITs I like are Analy (NLY) and AGNC as they are quite liquid and undervalued. These financial REITs are a nice play as dividends are high and its book value is significantly undervalued from its historical values.
I like REITs at this time. Do you invest in financial REITs or brick and mortar REITs? The two Financial REITs I like are Analy (NLY) and AGNC as they are quite liquid and undervalued. These financial REITs are a nice play as dividends are high and its book value is significantly undervalued from its historical values.
eyephone said:
panda
Well-known member
Peppy, I am feeling a little lazy right now. Would you mind putting together a Proforma Cash Flow Analysis for me on excel for that $900k Irvine SFR with 20% down that can fetch $3400 rent in order for us to see if this SFR is overvalued or not?
Down Payment : $180,000
Jumbo Loan: $720,000
Rent : $3400
On the expense column, you can add the mortgage (Principle and Interest), HOA, CA Tax + Mello Roos with 0 vacancy and CAPex. What does your cash flow look like every month?
A 2200 sq-ft. 4BR SFR in Irvine rents for about $3400 purchased new for $900,000. Value / Rent = 264.70 & Adjusted Gross Yield = 4.5% = Overvalued.
A 2200 sq-ft 4BR SFR in N. Atlanta rents for about $1600 purchased new for $195,000. Value / Rent = 121.87 & Adjusted Gross Yield = 9.8% = Undervalued.
Down Payment : $180,000
Jumbo Loan: $720,000
Rent : $3400
On the expense column, you can add the mortgage (Principle and Interest), HOA, CA Tax + Mello Roos with 0 vacancy and CAPex. What does your cash flow look like every month?
A 2200 sq-ft. 4BR SFR in Irvine rents for about $3400 purchased new for $900,000. Value / Rent = 264.70 & Adjusted Gross Yield = 4.5% = Overvalued.
A 2200 sq-ft 4BR SFR in N. Atlanta rents for about $1600 purchased new for $195,000. Value / Rent = 121.87 & Adjusted Gross Yield = 9.8% = Undervalued.
peppy said:
paperboyNC
New member
Panda said:
According the NY Times rent vs buy calculator buying at $900k with 20% down is better than renting at $3,400/mohttp://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
Not saying it's right.. but it's not a slam dunk in your favor Panda.
Cornflakes
Active member
Panda said:
Panda,
I am not sure if I absolutely follow this line of thinking. Let's assume carrying costs to be $7000 a year (PITIA, opportunity cost etc.) for each $100k value of your PR, and consider JC buyer of $400k home and Irvine buyer of $800K home. Agreed, JC buyer will have $28000 each year to invest and grow wealth. may be he will put in stock market, or bonds, or REIT. But, at this point, isn't it just diversification of investments? Irvine buyer will be less diversified but has a bigger bet on market doing well. JC buyer has smaller initial bet and each year he will be adding to the bet. It is akin to dollar cost averaging. The DCA strategy works great in falling markets but you are almost always better off jumping both feet in during rising markets.
panda
Well-known member
Cornflakes,
There is a reason why primary residence equity is usually not included when calculating your networth. This is usually true when Forbes or a Wealth Management Firm publishes how many millionaires, penta millionaires, deca millionaires or ultra high networth (30M+) households there are in the United States. This is because the equity you have in your home is considered dead equity. If you look at the profile of a millionaire with a net worth of $3M, only 11-12% of his or her networth is tied into their primary residence.
The other 85% of his networth is working hard for him in either his private business, real estate, private equity, or in the stock market. Yes, if you had bought a home in 2010 in Irvine, your primary residence equity would have rose quite a bit in the last 5 years on paper, but the southern California real estate market as you know is highly cyclical appreciating 5 years forward and stepping backwards 2-3 years, before appreciating again making a new high. If you are deeply rooted in Irvine, it should not matter if the home value goes up or down as this home is lifestyle you are providing for your family, rather than an investment. Looking at the currently RE market cycle today in SoCal, the probabilities for home prices to correct 10-15% in the next 2-3 years is more likely that appreciating another 10-15% from today.
The less dead equity you have in your primary residence, the more assets you have outside working for you. Generally speaking 50% of your earned income goes to your state, federal, SS, and medicare. 20% of your portfolio income is taxed. If you understand the tax laws for both real estate and Corporations, you can pay 0% on your passive income. Thus, your focus needs to be to grow your net worth and passive income vs growing your earned income as it is taxed at 50%.
There is a reason why primary residence equity is usually not included when calculating your networth. This is usually true when Forbes or a Wealth Management Firm publishes how many millionaires, penta millionaires, deca millionaires or ultra high networth (30M+) households there are in the United States. This is because the equity you have in your home is considered dead equity. If you look at the profile of a millionaire with a net worth of $3M, only 11-12% of his or her networth is tied into their primary residence.
The other 85% of his networth is working hard for him in either his private business, real estate, private equity, or in the stock market. Yes, if you had bought a home in 2010 in Irvine, your primary residence equity would have rose quite a bit in the last 5 years on paper, but the southern California real estate market as you know is highly cyclical appreciating 5 years forward and stepping backwards 2-3 years, before appreciating again making a new high. If you are deeply rooted in Irvine, it should not matter if the home value goes up or down as this home is lifestyle you are providing for your family, rather than an investment. Looking at the currently RE market cycle today in SoCal, the probabilities for home prices to correct 10-15% in the next 2-3 years is more likely that appreciating another 10-15% from today.
The less dead equity you have in your primary residence, the more assets you have outside working for you. Generally speaking 50% of your earned income goes to your state, federal, SS, and medicare. 20% of your portfolio income is taxed. If you understand the tax laws for both real estate and Corporations, you can pay 0% on your passive income. Thus, your focus needs to be to grow your net worth and passive income vs growing your earned income as it is taxed at 50%.
Cornflakes said:
panda
Well-known member
Eyephone,
If you are leveraged too much with little cash to cover, you are at risk of losing your homes. I like to invest in the premium asset areas, 9/10 school zones, affluent demographics as the risks are quite a bit lower than investing in the rough part of town. The quality of tenants are mostly professionals who make good income in the premium asset areas.
If you are leveraged too much with little cash to cover, you are at risk of losing your homes. I like to invest in the premium asset areas, 9/10 school zones, affluent demographics as the risks are quite a bit lower than investing in the rough part of town. The quality of tenants are mostly professionals who make good income in the premium asset areas.