Move Up: Right Time?

[Irvine1stTimer]

I'm grateful for your valuable insights. Is this the general consensus here?

Sell it, get the equity, and buy a new affordable Home without worrying too much about hype and or unforeseen factors

 

[Burn That Belly]

x

 

[irvinehomeowner]

I'm grateful for your valuable insights. Is this the general consensus here?

Sell it, get the equity, and buy a new affordable Home without worrying too much about hype and or unforeseen factors

Just don't buy at the Great Park.

Or Delano.

 

[Mety]

I'm grateful for your valuable insights. Is this the general consensus here?

Sell it, get the equity, and buy a new affordable Home without worrying too much about hype and or unforeseen factors

Yeah, that seems to be the consensus.

I don't think the timing of buying an affordable home is as important as selling your home at a high peak. The price might go up even from here, but almost everyone can tell it is pretty high as of now. So selling is not a bad choice unless you wanna keep the property and give it to your children.

We are seeing some sort of slowing down on transactions as homes tend to be on the market longer now. Of course smart realtors will price their homes right and get above asking prices, but those are only the ones who know what they are doing. Not that many are too smart it seems.

Even if the home was bought at a high peak, it will go up eventually even after any down turns. The cycle keeps on repeating itself and it's doing more extreme each time so the new home will appreciate eventually no matter where or when you buy. I think Irvine is a pretty safe place to park your money as many are saying that in this forum.

Waiting couple months to buy a new home wouldn't hurt either as others have pointed out. Renting could turn out to be another smart choice to get to know the neighbor as well before you buy with more commitment.

 

[Irvine1stTimer]

Update:

We've selected a new place, offer was accepted last week and we are in the escrow with anticipated date of close first week of Aug. This home is not a dream house, but will definitely meet our needs for next 8-10 years and we can afford it. On a positive note we didn't have to sell our old(current) home

Current Home:

In next 30 days we have to decide what to do with our current home. Here are numbers

Sell it now:

Net profit of approx. between 140-150K. I am not good with investing in stock markets, so this cash will sit in my bank account at nominal interest rate.

Rent it out:

500 positive every month

Rent : 3200/month
P&I+tax+HoA= 3500/month
Maintenance etc= 100/month ( our new home is less than mile away from this place, so I can do minor things myself)
Equity contribution from the rent: 900$

Grand: 3200-3500-100+900= 500$ positive every month, with a hope for some appreciation

I think renting make sense, but here are my concerns

A) lack of diversification- both homes within a mile radius

B) I won't have enough emergency funds in the reserve, in case there is loss of job or big unexpected expenses. Maybe I will have close to 6 months of reserves by keeping both homes, not sure this is enough

C) Maybe uncertainty on the future of RE in the short term

Thanks

 

[the.irvine]

Update:

We've selected a new place, offer was accepted last week and we are in the escrow with anticipated date of close first week of Aug. This home is not a dream house, but will definitely meet our needs for next 8-10 years and we can afford it. On a positive note we didn't have to sell our old(current) home

Current Home:

In next 30 days we have to decide what to do with our current home. Here are numbers

Sell it now:

Net profit of approx. between 140-150K. I am not good with investing in stock markets, so this cash will sit in my bank account at nominal interest rate.

Rent it out:

500 positive every month

Rent : 3200/month
P&I+tax+HoA= 3500/month
Maintenance etc= 100/month ( our new home is less than mile away from this place, so I can do minor things myself)
Equity contribution from the rent: 900$

Grand: 3200-3500-100+900= 500$ positive every month, with a hope for some appreciation

I think renting make sense, but here are my concerns

A) lack of diversification- both homes within a mile radius

B) I won't have enough emergency funds in the reserve, in case there is loss of job or big unexpected expenses. Maybe I will have close to 6 months of reserves by keeping both homes, not sure this is enough

C) Maybe uncertainty on the future of RE in the short term

Thanks

Congratulation!!!!!!!!

Interesting questions-- Fortune11 and Martin would be the best people to answer these. I am sure BTB is happy with ROI methodology

 

[usctrojancpa]

Update:

We've selected a new place, offer was accepted last week and we are in the escrow with anticipated date of close first week of Aug. This home is not a dream house, but will definitely meet our needs for next 8-10 years and we can afford it. On a positive note we didn't have to sell our old(current) home

Current Home:

In next 30 days we have to decide what to do with our current home. Here are numbers

Sell it now:

Net profit of approx. between 140-150K. I am not good with investing in stock markets, so this cash will sit in my bank account at nominal interest rate.

Rent it out:

500 positive every month

Rent : 3200/month
P&I+tax+HoA= 3500/month
Maintenance etc= 100/month ( our new home is less than mile away from this place, so I can do minor things myself)
Equity contribution from the rent: 900$

Grand: 3200-3500-100+900= 500$ positive every month, with a hope for some appreciation

I think renting make sense, but here are my concerns

A) lack of diversification- both homes within a mile radius

B) I won't have enough emergency funds in the reserve, in case there is loss of job or big unexpected expenses. Maybe I will have close to 6 months of reserves by keeping both homes, not sure this is enough

C) Maybe uncertainty on the future of RE in the short term

Thanks

Congrats on the upcoming purchase.  Given the numbers that you've quotes, you can rent your current home.  Then in 2 to 2.5 years reassess to see if it makes sense to sell it to capture tax free gains and potentially get more appreciation, plus during this time you will learn whether you want to be a landlord or not.  I'm fairly sure that your home should appreciate more than your negative monthly cash flow.  List your home for rent about 30 days before you guys move out so that you can have a tenant move in shortly after you vacate the home.  If you PM me the address of the home, I can check MLS for the rental comps for you.

 

[paperboyNC]

Update:

We've selected a new place, offer was accepted last week and we are in the escrow with anticipated date of close first week of Aug. This home is not a dream house, but will definitely meet our needs for next 8-10 years and we can afford it. On a positive note we didn't have to sell our old(current) home

Congrats! You had first posted that "The ones which are they are not too big and/or not very desirable". I hope you found a home that was desirable.

Sadly, $1,000,000 doesn't buy dream homes around here. Even $2,000,000 doesn't. Dream homes are starting at $2,500,000+. https://www.redfin.com/CA/Laguna-Beach/31371-Monterey-St-92651/home/3263204

 

[Mety]

Update:

We've selected a new place, offer was accepted last week and we are in the escrow with anticipated date of close first week of Aug. This home is not a dream house, but will definitely meet our needs for next 8-10 years and we can afford it. On a positive note we didn't have to sell our old(current) home

Current Home:

In next 30 days we have to decide what to do with our current home. Here are numbers

Sell it now:

Net profit of approx. between 140-150K. I am not good with investing in stock markets, so this cash will sit in my bank account at nominal interest rate.

Rent it out:

500 positive every month

Rent : 3200/month
P&I+tax+HoA= 3500/month
Maintenance etc= 100/month ( our new home is less than mile away from this place, so I can do minor things myself)
Equity contribution from the rent: 900$

Grand: 3200-3500-100+900= 500$ positive every month, with a hope for some appreciation

I think renting make sense, but here are my concerns

A) lack of diversification- both homes within a mile radius

B) I won't have enough emergency funds in the reserve, in case there is loss of job or big unexpected expenses. Maybe I will have close to 6 months of reserves by keeping both homes, not sure this is enough

C) Maybe uncertainty on the future of RE in the short term

Thanks

Congrats! I don't think there is a dream home especially in Irvine.
People buy and live in each phase of their lives and move on to the next.
You move up one by one and once the kids go to college or get married, you are ready to downsize.

I personally would sell your home now, but following USCTrojan's recommendation seems good since he is the professional in the field.

 

[eyephone]

What?s the congrats for? He said it wasn?t his dream home?

Then why buy it in the first place.

 

[eyephone]

Who knows? He may come back and say he got a good deal.

 

[Mety]

What?s the congrats for? He said it wasn?t his dream home?

Then why buy it in the first place.

He said the home will meet their needs for the next 8-10 years.
That's a thing to congrats I guess..

 

[the.irvine]

What?s the congrats for? He said it wasn?t his dream home?

Then why buy it in the first place.

He said the home will meet their needs for the next 8-10 years.
That's a thing to congrats I guess..
[/quote

Agreed.

 

[ChiKid24]

First, congrats on the new home.  Nothing wrong with not buying the dream home.  My wife and I recently decided to buy a "transition" home rather than our "forever" home.  If you think you'll be happy there for 8-10 years that sounds good to me.

That said, I'm still in the "sell" camp for you current place.  You definitely should get those rental comps from USCTrojan.  $3,200 for a 3-bed condo seems high to me.  Sure there's a chance you can get it, but if not you'll have a vacancy and be on the hook for all the monthly costs.  Also, while you are positive monthly from an ROI perspective (which includes principal paydown), this property is going to be negative cash flow on a monthly basis, and that's with you assuming a very small 3% cost of maintenance. 

My calcs would be as follows:

Rent = $3,200 (subject to confirmation based on comps)
PITIA = $3,500
Maintenance = $160 (5% of rent is lowest I'd use if it's a newer property)
Vacancy = $266 (Assumes 1 month of the year or ~8%. Conservative investors use 10%)
Management = ???  (Is your time worth money?  You'll need to source tenants, comply with landlord laws, collect rent, follow-up on late rent, etc.)
Net monthly cash = $3,200 - 3,500 - 160 - 266 = ($726) x 12 = ($8,712) negative cash per year before considering the time investment.

Yes you will have principal paydown which adds another 900 x 12 = $10,800 (non-cash), for a net positive annual return of ~$2k on your $150k equity, or 1.33% ROE.  Sure this doesn't account for appreciation, but the housing market has run up since 2010 so I'm not sure you want to bank on a big number there.  I don't think we'll see a severe drop, but you do have to account for some risk of values declining.  To me, I'd rather put the $150k elsewhere for a higher return with less risk and better liquidity.

 

[Mety]

First, congrats on the new home.  Nothing wrong with not buying the dream home.  My wife and I recently decided to buy a "transition" home rather than our "forever" home.  If you think you'll be happy there for 8-10 years that sounds good to me.

That said, I'm still in the "sell" camp for you current place.  You definitely should get those rental comps from USCTrojan.  $3,200 for a 3-bed condo seems high to me.  Sure there's a chance you can get it, but if not you'll have a vacancy and be on the hook for all the monthly costs.  Also, while you are positive monthly from an ROI perspective (which includes principal paydown), this property is going to be negative cash flow on a monthly basis, and that's with you assuming a very small 3% cost of maintenance. 

My calcs would be as follows:

Rent = $3,200 (subject to confirmation based on comps)
PITIA = $3,500
Maintenance = $160 (5% of rent is lowest I'd use if it's a newer property)
Vacancy = $266 (Assumes 1 month of the year or ~8%. Conservative investors use 10%)
Management = ???  (Is your time worth money?  You'll need to source tenants, comply with landlord laws, collect rent, follow-up on late rent, etc.)
Net monthly cash = $3,200 - 3,500 - 160 - 266 = ($726) x 12 = ($8,712) negative cash per year before considering the time investment.

Yes you will have principal paydown which adds another 900 x 12 = $10,800 (non-cash), for a net positive annual return of ~$2k on your $150k equity, or 1.33% ROE.  Sure this doesn't account for appreciation, but the housing market has run up since 2010 so I'm not sure you want to bank on a big number there.  I don't think we'll see a severe drop, but you do have to account for some risk of values declining.  To me, I'd rather put the $150k elsewhere for a higher return with less risk and better liquidity.

My thought exactly. Put $150k in a CD with 2-3% annual interests. You will get $3000-$4500 a year. That's someone's MR right there.

 

[ChiKid24]

My thought exactly. Put $150k in a CD with 2-3% annual interests. You will get $3000-$4500 a year. That's someone's MR right there.

Yup. There are even some savings accounts paying close to 2% that offer near-immediate liquidity.  Would be a better return and provide the ability to access the funds opportunistically or if needed in a pinch.

 

[Irvine1stTimer]

Who knows? He may come back and say he got a good deal.

I will disclose the details upon closing. I think we got very sweat deal

Inflation is going up, will 2% CDs and/or saving accounts would be wise investment strategy?

 

 

[ChiKid24]

I will disclose the details upon closing. I think we got very sweat deal

Inflation is going up, will 2% CDs and/or saving accounts would be wise investment strategy?

If you think inflation is going up, then interest rates will go up so savings accounts rates will trickle up too.  If you're in a CD you're rate is fixed for the duration of the CD. But that's a short term investment so you can take the money out and find a higher CD at maturity if that is the case.

 

[zubs]

First, congrats on the new home.  Nothing wrong with not buying the dream home.  My wife and I recently decided to buy a "transition" home rather than our "forever" home.  If you think you'll be happy there for 8-10 years that sounds good to me.

That said, I'm still in the "sell" camp for you current place.  You definitely should get those rental comps from USCTrojan.  $3,200 for a 3-bed condo seems high to me.  Sure there's a chance you can get it, but if not you'll have a vacancy and be on the hook for all the monthly costs.  Also, while you are positive monthly from an ROI perspective (which includes principal paydown), this property is going to be negative cash flow on a monthly basis, and that's with you assuming a very small 3% cost of maintenance. 

My calcs would be as follows:

Rent = $3,200 (subject to confirmation based on comps)
PITIA = $3,500
Maintenance = $160 (5% of rent is lowest I'd use if it's a newer property)
Vacancy = $266 (Assumes 1 month of the year or ~8%. Conservative investors use 10%)
Management = ???  (Is your time worth money?  You'll need to source tenants, comply with landlord laws, collect rent, follow-up on late rent, etc.)
Net monthly cash = $3,200 - 3,500 - 160 - 266 = ($726) x 12 = ($8,712) negative cash per year before considering the time investment.

Yes you will have principal paydown which adds another 900 x 12 = $10,800 (non-cash), for a net positive annual return of ~$2k on your $150k equity, or 1.33% ROE.  Sure this doesn't account for appreciation, but the housing market has run up since 2010 so I'm not sure you want to bank on a big number there.  I don't think we'll see a severe drop, but you do have to account for some risk of values declining.  To me, I'd rather put the $150k elsewhere for a higher return with less risk and better liquidity.

Does this calculation take into account the deductions you can take from:
interest expense
insurance expense
HOA expense
property tax expense
And of course depreciation expense (dwelling / 27.5)

 

[qwerty]

First, congrats on the new home.  Nothing wrong with not buying the dream home.  My wife and I recently decided to buy a "transition" home rather than our "forever" home.  If you think you'll be happy there for 8-10 years that sounds good to me.

That said, I'm still in the "sell" camp for you current place.  You definitely should get those rental comps from USCTrojan.  $3,200 for a 3-bed condo seems high to me.  Sure there's a chance you can get it, but if not you'll have a vacancy and be on the hook for all the monthly costs.  Also, while you are positive monthly from an ROI perspective (which includes principal paydown), this property is going to be negative cash flow on a monthly basis, and that's with you assuming a very small 3% cost of maintenance. 

My calcs would be as follows:

Rent = $3,200 (subject to confirmation based on comps)
PITIA = $3,500
Maintenance = $160 (5% of rent is lowest I'd use if it's a newer property)
Vacancy = $266 (Assumes 1 month of the year or ~8%. Conservative investors use 10%)
Management = ???  (Is your time worth money?  You'll need to source tenants, comply with landlord laws, collect rent, follow-up on late rent, etc.)
Net monthly cash = $3,200 - 3,500 - 160 - 266 = ($726) x 12 = ($8,712) negative cash per year before considering the time investment.

Yes you will have principal paydown which adds another 900 x 12 = $10,800 (non-cash), for a net positive annual return of ~$2k on your $150k equity, or 1.33% ROE.  Sure this doesn't account for appreciation, but the housing market has run up since 2010 so I'm not sure you want to bank on a big number there.  I don't think we'll see a severe drop, but you do have to account for some risk of values declining.  To me, I'd rather put the $150k elsewhere for a higher return with less risk and better liquidity.

Does this calculation take into account the deductions you can take from:
interest expense
insurance expense
HOA expense
property tax expense
And of course depreciation expense (dwelling / 27.5)

Those deductions don?t matter. He is already cash flow negative. If you add back the principal (not a true expense) he is barely breakeven on paper. Those deductions are helpful when when you are cash flow positive and use the deductions to have a P&L loss on the tax return. Most people are phased out of deducting the paper loss anyway. Unless they qualify as real estate professionals