Johns Creek Homes and Real Estate

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SoCal,

Pretty much anywhere you move outside of Orange County / SoCal will be a downgrade in terms of weather. It does get hot and humid here in June, July, and August (80s & 90s), but the it is nothing like the summer heat of Phoenix, Dallas, Vegas (90s to 100s). but the Fall and Spring weather is beautiful here. We definitely have a lot of trees here and it is very green here during the Fall, Spring, and Summer months.

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Where (What months) in the south did you visit? Did you visit Florida in the summer? I only drive down to Florida in the Fall, Spring months and down to Clearwater / Siesta Key Beach area in the winter. The summers in Florida is pretty brutal.
 
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Hmmm, this is interesting as I see the numbers changing. Are you guys experiencing hotter summer months: June, July, August than you guys are used to in the past 10 years in the OC?

I had mentioned this before, but the weather here in Atlanta last December was very unusual from the norm. Last Christmas eve was in the high 70s and we averaged in the 60s and 70s all December which is not normal for Atlanta weather.
 
Panda said:
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Hmmm, this is interesting as I see the numbers changing. Are you guys experiencing hotter summer months: June, July, August than you guys are used to in the past 10 years in the OC?

I had mentioned this before, but the weather here in Atlanta last December was very unusual from the norm. Last Christmas eve was in the high 70s and we averaged in the 60s and 70s all December which is not normal for Atlanta weather.
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Global warming at its best  :)
BTW I've lived in the east coast with humid summers and also in the dry heat of Vegas/ phoenix and I have to tell you the dry hot heat is SO much more tolerable even at 115 degrees than the humid heat of just 90 degrees
 
Panda said:
SoCal,

Where (What months) in the south did you visit? Did you visit Florida in the summer?
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The Gulf Coast of Texas in the summer. Corpus Christi, Padre Island, and Matamoros, Mexico. It was hell. Haven't been to FL yet. Thinking about visiting a friend in Panama City Beach next spring / summer.
 
Panda,

I recently learned of my neighbor Fala Chen in NYC. She lived at 3727 Thornbrooke Pl. Duluth and attended HS there. Graduated from Emory and now attending Juilliard. Have you heard of her?

 
IHS,
Sorry I haven't been to TI for a while. 3727 Thornbrooke Pl is very close to where I live. Sorry I haven't heard of Fala Chen.
 
My favorite floorplan in Woodbury is the Juliet's Balconey tract. I actually walked the JB model homes during my visits to Irvine. Imagine that as a 28 year old, you leveraged yourself and paid 1,525,000 for a brand new (Vicara Tract) 3750 sq/ft SFR in Quail Hill back in 2004 (Uni High School Cluster zip code: 92603). The mortgage you took out was $1,220,000. Just by focusing and setting a goal to own your primary residence free and clear, one can have a multi-million dollar networth. Real Estate Wealth is created by Appreciation, Mortgage Pay Down, and Tax Benefits. In this particular case there is no cash flow to build wealth. I have put in an assumption of a cyclical housing market correction in the Irvine housing market of 10-15% between 2016 - 2018.

If this home was converted in an Executive / CEO relo rental property, you will get three more additional benefits that you would not get if this is was just your primary residence. 1) Cash flow (depending on the financing and how much equity is in the home), depreciation of an estimated $45,000/year, and the ability to deduct all the expenses related to maintaining the home.



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How do you get to the $45000 deprecation?

The land is not depreciable.

The county is probably going to give that property around $400-500K for the structures and the rest goes to the value of the land which means most likely is $15-18K in depreciation.

In 2004 mortgage rate on that loan would have been around 6.5% with a payment of $7500 plus property taxes, HOA, etc. (easily over $10K in the mortgage and taxes alone, then add in HOA, insurance).

That's a whole lot of payments for a 28 year old who likely has kids to pay extra on their mortgage to pay it down early.

I guess a 28 year old who had over $300K as a down payment and another $100K+ sitting around for landscaping/upgrades should have been able to scrape together more to pay down the mortgage but I bet there weren't many of those around.
 
Panda said:
My favorite floorplan in Woodbury is the Juliet's Balconey tract. I actually walked the JB model homes during my visits to Irvine. Imagine that as a 28 year old, you leveraged yourself and paid 1,525,000 for a brand new (Vicara Tract) 3750 sq/ft SFR in Quail Hill back in 2004 (Uni High School Cluster zip code: 92603). The mortgage you took out was $1,220,000.
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Juliet's Balconey is also one of my favorite too.

I so want one after visiting the models back in 2005, some lender told me all I have to do is take out some interest only loan and when fill out the loan application, just add one more zero to my income figure.
 
Ready2DownSize,

Yes, you are correct that land is not depreicable. I was thinking in "Johns Creek" terms whereas the land is about 15% of the value here. In Irvine, I would assume that the land maybe 70% vs 30% structure. In this case the depreciation is $16,636 which is kind of funny because the most expensive rental property I own, I paid $546,000 back in 2006 and the current depreciation on the home is around $16k a year. The key is to never paying the depreciation recapture tax by performing a 1031 exchange to higher yielding investment properties or holding onto the property forever. On a $16k annual depreciation held for 10 year would be a mean a tax liability of a $40,000 depreciation recapture tax.
 
The key take away from this discussion is that we are not going to see the 20-30% fast growth appreciation we have seen in the Irvine housing market between 1996 - 2006 when it was in its emerging market phase. This is how the real estate millionaires in Irvine were made, by holding multiple rental properties during this time frame. Another key take away is that it is the land that goes up in value, not the structure. The structure detrioriates over time. Irvine real estate is safe in that it is going to hold its value and not drop suddenly 30-40%, but on the flip side the upside is very limited at today's prices. As a buyer today, are you doing to get rich of of your Irvine real estate, probably very unlikely.

I believe that the Irvine Housing market will start to appreciate at a much much slower rate like 1-5% just keeping in pace with inflation starting in 2019.

If $2.5M real estate is 95% of your holistic networth, obviously this is not a healthy asset allocation as you house right and cash poor. I believe a healthy real estate allocation of your networth should be around 40% of your networth (equity in primary residence + your investment properites). So for this super ambitious 28 year old, with a $2.5M of real estate allocation by the time he is 50 years old, a healthy holistic networth for this individual would be around $6.25M which will put him in the top 1% of wealthiest Amercian Households. 

Optimal Asset Allocation : Holistic Blue Print of a $3M Networth Portfolio.

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Ready2Downsize said:
How do you get to the $45000 deprecation?

The land is not depreciable.

The county is probably going to give that property around $400-500K for the structures and the rest goes to the value of the land which means most likely is $15-18K in depreciation.

In 2004 mortgage rate on that loan would have been around 6.5% with a payment of $7500 plus property taxes, HOA, etc. (easily over $10K in the mortgage and taxes alone, then add in HOA, insurance).

That's a whole lot of payments for a 28 year old who likely has kids to pay extra on their mortgage to pay it down early.

I guess a 28 year old who had over $300K as a down payment and another $100K+ sitting around for landscaping/upgrades should have been able to scrape together more to pay down the mortgage but I bet there weren't many of those around.
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Panda, Irvine home prices popped about 20-25% in 2013.  I expect Irvine home prices to appreciate more than inflation, especially once Orchard Hills, Eastwood, and Portola Springs (I'm not counting the Great Park) are build out in the next 5-7 years.  Today, if there were no new homes for buyers resale home prices would have risen materially. 
 
Trojan, I am very aware that the LA-index rose 19.2% in 2013, but i would not expect those kind of returns to come back.

Between 2012 - 2016 you can see that LA-index is tracking the Atlanta-index very closely and I do believe that the two market will decouple very soon. Also the notice between 1991 - 1996, the LA index showed negative numbers while the Atlanta index showed positive numbers. Just like stocks, past performance shows no guarantee for future returns. Whatever has happened in both LA and Atlanta in the past does not indicate future returns.

You make money in your investments when you purchase quality assets low and sell high. I don't think you would argue with me that the money has already been made in Irvine and the buyer today will have a very limited upside in his investment. After a short term correction in the Irvine housing market, the annual appreciation in Irvine will look more like 2014 - 2016, not 2012 - 2013.

Below is a graph for the most recent LA index and the Atlanta index.

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USCTrojanCPA said:
Panda, Irvine home prices popped about 20-25% in 2013.  I expect Irvine home prices to appreciate more than inflation, especially once Orchard Hills, Eastwood, and Portola Springs (I'm not counting the Great Park) are build out in the next 5-7 years.  Today, if there were no new homes for buyers resale home prices would have risen materially. 
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Does LA include the OC?

BECAUSE in 1994 the county went belly up. I imagine LA felt some pain along with the OC during that time....... a time when housing was going back up (after the S/L crisis) nationally but continued to drop here. Uncle Al reduced interest rates due to the OC BK which helped housing nationally.

Local OC economy DEFINATELY felt that BK.
 
Ready2downsize. I don't believe there is  a seperate OC case shiller index so the LA index should be a good macro overview of the la/oc market. Back then in the early 90s the orange county job market was heavily concentrated in aerospace. When the recession hit the aerospace sector, excess supply inventory of homes grew and the housing market declined between 1990-1995.

My research shows me that there is a direct reverse correlation between the unemployment rate in orange county vs housing prices. Therefore I would watch the unemployment figures in orange county very closely.
 
I don't foresee a 20-25% annual increase in home prices in Irvine or OC in the foreseeable future.  However, I do think we'll get a "pop" in resale Irvine home prices once all the new homes in OH, PS, and Eastwood are all sold in the next 5-7 years.  How much that "pop" will be is anyone's guess.  Irvine home prices from what seen since the last peak have outperformed most all of other cities in Orange County both in terms of lower price declines and higher price appreciation.  People that buy rental properties in Irvine are looking for preservation of capital (i.e. low risk of big price declines), higher quality of tenants, central location, very close to huge white collar job center, potential for future price appreciation, and not having to pay a property manager since the rental is so close to where they live.  Their main focus is not on getting the highest cash-on-cash return, but low price volatility and strong tenants who tend to turnover slower. 

A wise man years ago told me that you should only buy rental properties that you yourself would be willing to live in if worse come to worse.  I share that same advice with my clients who are looking for investment properties.  My worse performing rental property investments have been my Las Vegas 4plex and my Santa Ana condo (both properties I personally wouldn't want to live in).  My best performing rental property investments have been my Huntington Beach condo (where I used to live) and my Aliso condo (where I'd have been fine living in). 
 
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