Hugo Township
Active member
Sidehussle said:
Those people still need to take distributions that flow to their personal tax return unless they are avoiding taxes putting their luxury SUVs on the company 1120.
Newer Irvine listings with crazy WTF asking prices from equity sellers
- Thread starter usctrojancpa
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NEW -> Contingent Buyer Assistance Program
Those people still need to take distributions that flow to their personal tax return unless they are avoiding taxes putting their luxury SUVs on the company 1120.
$1.39m is the high end of the middle market. I classify the $1.5m+ market is the high-end of the market. A good rule of thumb with today's interest rates is that buyers can typically qualify for a loan of 6x their annual gross income with 20% down assuming they don't have any large monthly recurring debt obligations (ie auto lease/loan payments, student loans, etc) to meet the 43% Debt-to-Income backend lender maximum ratio. So the gross household income would need to be around $200k per year which isn't as high as you'd think if you have a high earner or two moderate professional earners in the household. Keep in mind that the average down payment for an Irvine buyer is probably somewhere between 30-40% (excluding cash buyers which represent 30%+ of all Irvine home purchases). Irvine buyers tend to be very conservative buyers and under buy around 80% of their maximum purchase capacity.
Or they have cash businesses and under-report their income (that's a whole other issue). Business taxable income flows from their 1120 and 1065 to their Schedule E but there are more creative ways to find tax deductions with an S Corp or an LLC versus reporting self employment income via Schedule C. The work-from-home movement has also helped to bring more higher wage professionals to Irvine from more expensive areas like LA and the Bay Area.
if I was making 200K a year, I wouldnt dare dream about a 1.4M house. House alone would cost a min of 6300 a month. That in addition to the other living expenses would quickly deplete the 12K a month one would take home with a 200K salary. Definition of "house poor" in my opinion.
Even if you put 40% or 50% down? Everyone has a different risk tolerance on monthly housing costs to gross income and most all of my Irvine buyers are in the 20% to 35% DTI range.
Well with a 40 or 50% down, you are changing the scenario right? However how many buyers will have 700K for a down? Is it realistic to think people making 200K a year can save 700K for a down payment??? Even with a 40% down, you are looking at 5300 a month on a 12K take home. Thats still almost half your take home. Sure you may have a 1.4M house, but do you have enough to max out retirement accounts, save in a 529, take yearly or bi yearly vacations, go out for nice dinners regularly, buy crap without worry about money, fix a roof leak or foundation repair or save some money for an emergency fund in case you lose your job because of an unforeseen pandemic? Sure everyone has different risk tolerance but to me, thats the definition of house poor.
Just because a bank says you can afford it, doesnt really mean you can afford it. We saw this before and thus it wouldnt be surprising to see it again.
You note all your clients are 20to35% DTI. do you think that applies everywhere or just to your clients?
Also correct me if I am wrong but DTI is calculated prior to any taxes or deductions being taken out right? So it is actually very possible that your client with a DTI of 35% could fit the very exact scenario I proposed above right (or even worse actually)?
I have no proof of this but anecdotally this feels true. We have friends and coworkers who we know make similar or less money than we do, and they live in houses and drive cars that are more expensive than ours. I speculate that people live well above their means, or perhaps aren't saving for retirement, or maybe some have access to family money, but generally it is baffling and I don't know how people make it work. We are right under that $200k mark as a household and absolutely there is no way we could afford a home that is $900k much less $1.4 million.
I can't speak for other Irvine buyers but I do know that about 1/3 of all Irvine purchases are for all cash and I've only worked with few all cash buyers (although some could have bought for all cash but wanted to get a loan because rates were so low). The DTI is calculated on a gross income basis before tax and before any deductions by the lender. The majority of my Irvine buyers are move-up buyers that have significant equity positions in homes that they sold and/or receive gift funds from family for the down payment. Keep in mind that there is a tax benefit from the mortgage interest that will reduce your federal tax liability and the property tax/mello roos will reduce your state income tax liability.
Lenders are much more strict when it comes to underwriting loans today versus what happened 12-15 years ago when you had those ninja loans (no asset and/or income verification with little to no down payments along with option arm loans). Irvine buyers are very strong financially and a 5-10% price reduction (if that even comes) will not make them nervous, I'd argue a price reduction like that would bring in many buyers from the sidelines who are still waiting for that kind of price drop.
Ahhh yes, those crazy kids of FCBers. I've seen one at the track who totaled his $400k+ Lambo and was telling his buddy that he'll just buy another one. Must be nice. haha
But they could be indicative of the true reflection of Irvine buyers.
Those people still need to take distributions that flow to their personal tax return unless they are avoiding taxes putting their luxury SUVs on the company 1120.
usctrojancpa
Well-known member
kpatnps said:
$1.39m is the high end of the middle market. I classify the $1.5m+ market is the high-end of the market. A good rule of thumb with today's interest rates is that buyers can typically qualify for a loan of 6x their annual gross income with 20% down assuming they don't have any large monthly recurring debt obligations (ie auto lease/loan payments, student loans, etc) to meet the 43% Debt-to-Income backend lender maximum ratio. So the gross household income would need to be around $200k per year which isn't as high as you'd think if you have a high earner or two moderate professional earners in the household. Keep in mind that the average down payment for an Irvine buyer is probably somewhere between 30-40% (excluding cash buyers which represent 30%+ of all Irvine home purchases). Irvine buyers tend to be very conservative buyers and under buy around 80% of their maximum purchase capacity.
usctrojancpa
Well-known member
HMart said:
Or they have cash businesses and under-report their income (that's a whole other issue). Business taxable income flows from their 1120 and 1065 to their Schedule E but there are more creative ways to find tax deductions with an S Corp or an LLC versus reporting self employment income via Schedule C. The work-from-home movement has also helped to bring more higher wage professionals to Irvine from more expensive areas like LA and the Bay Area.
HMart said:
if I was making 200K a year, I wouldnt dare dream about a 1.4M house. House alone would cost a min of 6300 a month. That in addition to the other living expenses would quickly deplete the 12K a month one would take home with a 200K salary. Definition of "house poor" in my opinion.
usctrojancpa
Well-known member
kpatnps said:
Even if you put 40% or 50% down? Everyone has a different risk tolerance on monthly housing costs to gross income and most all of my Irvine buyers are in the 20% to 35% DTI range.
USCTrojanCPA said:
Well with a 40 or 50% down, you are changing the scenario right? However how many buyers will have 700K for a down? Is it realistic to think people making 200K a year can save 700K for a down payment??? Even with a 40% down, you are looking at 5300 a month on a 12K take home. Thats still almost half your take home. Sure you may have a 1.4M house, but do you have enough to max out retirement accounts, save in a 529, take yearly or bi yearly vacations, go out for nice dinners regularly, buy crap without worry about money, fix a roof leak or foundation repair or save some money for an emergency fund in case you lose your job because of an unforeseen pandemic? Sure everyone has different risk tolerance but to me, thats the definition of house poor.
Just because a bank says you can afford it, doesnt really mean you can afford it. We saw this before and thus it wouldnt be surprising to see it again.
You note all your clients are 20to35% DTI. do you think that applies everywhere or just to your clients?
Also correct me if I am wrong but DTI is calculated prior to any taxes or deductions being taken out right? So it is actually very possible that your client with a DTI of 35% could fit the very exact scenario I proposed above right (or even worse actually)?
Bullsback said:
I have no proof of this but anecdotally this feels true. We have friends and coworkers who we know make similar or less money than we do, and they live in houses and drive cars that are more expensive than ours. I speculate that people live well above their means, or perhaps aren't saving for retirement, or maybe some have access to family money, but generally it is baffling and I don't know how people make it work. We are right under that $200k mark as a household and absolutely there is no way we could afford a home that is $900k much less $1.4 million.
nosuchreality
Well-known member
For the last decade, being leveraged to the hilt and living to the extent of your debt servicing limit has been massively rewarded with lower interest rates for your debt service and substantial capital gains to bury your expenses.
sgip
Well-known member
I have financed all types over the years. There are those who are fiscally reckless (upper 40 DTI, no 401k/IRA/Plan B other than MAX ROI!!!), but many of the Irvine buyers don't fit into that mold. I'd say the greater number of buyers I've see are 2 income earners and Mom/Dad/other family member living with them contributing towards their housing expense. We can't count that data, nor can we "see it" on their returns, but if the payment is $10,000 per month, $6,000 might be paid by the buyers with $4,000 coming from their live in relative. The other significant group I finance also may have a $10,000 per month payment, but significant holdings in Asia that subsidise their lifestyle. Those who are livin' La Vida Loca, driving a leased volcano orange Mclaren 570s's down Sand Canyon away from their $1.125m zero lot line detached condo are the ones who bought their home with someone else's cash.
These owners are not indicative of a true reflection of median Irvine area income.
My .02c
These owners are not indicative of a true reflection of median Irvine area income.
My .02c
usctrojancpa
Well-known member
kpatnps said:
I can't speak for other Irvine buyers but I do know that about 1/3 of all Irvine purchases are for all cash and I've only worked with few all cash buyers (although some could have bought for all cash but wanted to get a loan because rates were so low). The DTI is calculated on a gross income basis before tax and before any deductions by the lender. The majority of my Irvine buyers are move-up buyers that have significant equity positions in homes that they sold and/or receive gift funds from family for the down payment. Keep in mind that there is a tax benefit from the mortgage interest that will reduce your federal tax liability and the property tax/mello roos will reduce your state income tax liability.
Lenders are much more strict when it comes to underwriting loans today versus what happened 12-15 years ago when you had those ninja loans (no asset and/or income verification with little to no down payments along with option arm loans). Irvine buyers are very strong financially and a 5-10% price reduction (if that even comes) will not make them nervous, I'd argue a price reduction like that would bring in many buyers from the sidelines who are still waiting for that kind of price drop.
usctrojancpa
Well-known member
Soylent Green Is People said:
Ahhh yes, those crazy kids of FCBers. I've seen one at the track who totaled his $400k+ Lambo and was telling his buddy that he'll just buy another one. Must be nice. haha
Hugo Township
Active member
Happy those obnoxious ones are far and few between. They definitely stick in the mind tho
irvinehomeowner
Well-known member
Soylent Green Is People said:
But they could be indicative of the true reflection of Irvine buyers.
