Orchard Hills - Capella by Taylor Morrison

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There is definitely a slow down right now.  I really see it.  Especially those $1mm+ homes is sitting in the market.  But, the market was pretty slow in the fall/winter of 2014 and suddenly picked up real steam in the spring 2015.  We'll see how this trend goes too (seasonal or change to long-term trend).  As long as the job market is strong and wage inflation picks up (eventually as we supposedly reached a full employment), it will likely support the real estate market in the long-run.  Higher inflation = RE will be the hedge as the replacement cost will continue to shoot up.  Higher wage inflation = affordability increases.

btw, does anyone especially Chinese mainlanders know about this policy (QDII2) change in China and how it might impact the investment behavior of mainland Chinese?  Is QDII2 going to change the investment flow and sentiment of Chinese investors?  Just curious as below article makes it sound like a big deal.  Are Chinese currently waiting to move their money legally following the implementation of QDII2 at end of the year?  Does that mean strong 2016? They think 33% of $2.3 trillion will flow to the U.S. RE.  That is a big chunk of cash.  But, sounds too optimistic.

China's QDII2 plan could result in $2.3 trillion (likely $661 bn) of new property investment worldwide. 
https://list.juwai.com/press/2015/0...trillion-of-new-property-investment-worldwide

http://www.worldpropertyjournal.com/real-estate-news/china/beijing-real-estate-news/qualified-domestic-individual-investor-program-china-qdii2-program-china-real-estate-investor-data-2015-international-real-estate-investors-report-world-trade-organization-juwaicom-9238.php?utm_content=buffer3a4b0&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer

Currently Chinese gov't cracking down on those that move money illegally for the eventual transition to legal system via QDII2.  Is the current slow related to the crack down along with slow down in China?http://www.wsj.com/articles/china-cracks-down-on-money-leaking-out-of-its-borders-1408031457

 
hello said:
Laguna21 said:
PS: did a quick google search, and looks like that home on bridle is up for rent. Definitely a more wise decision than trying to sell it in this market now.
http://www.realtor.com/realestateandhomes-detail/135-Bridle-Path_Irvine_CA_92602_M13683-37313
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We know the house was purchased for 1.464.  Assuming a rate of about 4% and a 20% down, the PITI on this house will be about $7200 a month.  Its costs the owner 7200 a month to own this house (without adding insurance, maintenance and all other costs of owning a house).  Lets assume a 43% marginal tax rate (fed and state) and the owners will likely save about 1600 a month on mortgage deduction.  This house is listed for 5,500\ a month.  Assuming they get the full amount (which often is not the case), it still leaves them negative.  If you add vacancies, cap ex, maintenance costs, bad tenant issues, realtor fees its gets even worse.  It doesnt makes sense to rent out a house that costs you more to own. 

Your only angle on renting now and selling later is a play on appreciation.  Unfortunately your own comment suggests the market is soft now.  Whats makes you think it will get better any time soon, especially with rates going up and economy being so soft?  Sometimes its better to cut your losses and run.  These people bought at a high and now are forced to sell as the market is softening.  If they were going to stay in the house, it wouldnt have been an issue.  Unfortunately its not the case.
Sorry man you drank the kool-aid.  Your type of thinking is probably what got a lot of people in trouble in the mid 2000's.

In all honesty I dont know how you think its definitely more wise to rent and try to sell later...
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There's just one problem with your post. You're making assumptions about what the seller put down. They could have paid cash for the place for all you know, or put a big chunk down on the home. They may not be losing anything at all renting it out. It's easy to throw numbers out there, but everyone's financial situation is different, including what their down payment was.

Not drinking the Kool aid at all. Again making assumptions about people you don't know.

I personally have more experience in real estate having learned a lot from a family business since the 80's including renting condos, apartment complexes, buying and selling, renovations, and 1031 exchanges. Been through it all and seen it all through the ups and downs, and fluctuations of property values. Been through the crash, and come out of it.

My opinions expressed here aren't iron clad, just stating what I think will happen, and I believe things will pick up again. I don't see things trending down forever, and as another poster said, the same thing happened this time last year.




 
That cash on cash return though....

So since they're renting it out, does that mean there's no company backstopping the losses?
 
Laguna21 said:
There's just one problem with your post. You're making assumptions about what the seller put down. They could have paid cash for the place for all you know, or put a big chunk down on the home. They may not be losing anything at all renting it out. It's easy to throw numbers out there, but everyone's financial situation is different, including what their down payment was.
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What about the opportunity cost of the large down payment or full cash payment?
 
Irvine Fanatic said:
I heard family moved to Bel Air. Based on that I'll make the assumption they've got some money to burn.
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Bel Aire? Uncle Phil?

I agree with the whole not best use of cash statement
 
Laguna21 said:
PS: did a quick google search, and looks like that home on bridle is up for rent. Definitely a more wise decision than trying to sell it in this market now. http://www.realtor.com/realestateandhomes-detail/135-Bridle-Path_Irvine_CA_92602_M13683-37313
Click to expand...

Guess the market has spoken.  Even with one of the "big-time" selling agents, this property could not move at $1.5M.  Not sure how you can view this a "definitely a more wise decision than trying to sell it".  It's a huge gamble with a *possible* payoff if they wait long enough.  In the meantime, there is a carrying cost which is a guaranteed expenditure. 
 
Laguna21 said:
hello said:
Laguna21 said:
PS: did a quick google search, and looks like that home on bridle is up for rent. Definitely a more wise decision than trying to sell it in this market now.
http://www.realtor.com/realestateandhomes-detail/135-Bridle-Path_Irvine_CA_92602_M13683-37313
Click to expand...


We know the house was purchased for 1.464.  Assuming a rate of about 4% and a 20% down, the PITI on this house will be about $7200 a month.  Its costs the owner 7200 a month to own this house (without adding insurance, maintenance and all other costs of owning a house).  Lets assume a 43% marginal tax rate (fed and state) and the owners will likely save about 1600 a month on mortgage deduction.  This house is listed for 5,500\ a month.  Assuming they get the full amount (which often is not the case), it still leaves them negative.  If you add vacancies, cap ex, maintenance costs, bad tenant issues, realtor fees its gets even worse.  It doesnt makes sense to rent out a house that costs you more to own. 

Your only angle on renting now and selling later is a play on appreciation.  Unfortunately your own comment suggests the market is soft now.  Whats makes you think it will get better any time soon, especially with rates going up and economy being so soft?  Sometimes its better to cut your losses and run.  These people bought at a high and now are forced to sell as the market is softening.  If they were going to stay in the house, it wouldnt have been an issue.  Unfortunately its not the case.
Sorry man you drank the kool-aid.  Your type of thinking is probably what got a lot of people in trouble in the mid 2000's.

In all honesty I dont know how you think its definitely more wise to rent and try to sell later...
Click to expand...

There's just one problem with your post. You're making assumptions about what the seller put down. They could have paid cash for the place for all you know, or put a big chunk down on the home. They may not be losing anything at all renting it out. It's easy to throw numbers out there, but everyone's financial situation is different, including what their down payment was.

Not drinking the Kool aid at all. Again making assumptions about people you don't know.

I personally have more experience in real estate having learned a lot from a family business since the 80's including renting condos, apartment complexes, buying and selling, renovations, and 1031 exchanges. Been through it all and seen it all through the ups and downs, and fluctuations of property values. Been through the crash, and come out of it.

My opinions expressed here aren't iron clad, just stating what I think will happen, and I believe things will pick up again. I don't see things trending down forever, and as another poster said, the same thing happened this time last year.
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there is something called opportunity loss which you do not seem to grasp.  In order to factor in opportunity costs, you have to make some of these assumptions.  If you are so well versed in real estate investing as you suggest, then you should really know this.  Even if an investor buys a property with all cash, you have to factor in a cost to everything.  Based on your argument, you can buy any house with 100% cash and say that you have cash flow for that house regardless of amount you paid for the house and how much rental income you get.  That is ridiculous and unfortunately that is basically the argument you are making.

Like I said before, renting this house out would only benefit the owners right now if the game plan is appreciation.  Unfortunately the chances this house appreciates significantly any time soon looks dismal.  The owners are losing money by renting.  Math is math.  How long will you wait for appreciation?  during that time how much money will you have lost to renting?  what are the chances of not finding a renter, especially at this price range.  what will be the turnover and thus monies lost in updating, maintenance, realtor fees?  luxury homes like these are not typical long term rentals.  What happens if the house depreciates in value?  Finally calculate the headache factor of owning an expensive rental far away. 

To me, this seems like a no brainer.  Sell for a loss.  Take a small haircut and run now before you get your head shaved completely...  Hopefully if this is a company relocation, the company may make up the difference.
 
They put it up for sale three weeks ago and decided to rent it out pretty quickly after that. Makes me think they really can't or won't take any more of a loss on it (they are already taking a loss factoring in cost to sell and landscaping which may or may not be paid for by their company) or perhaps their relocation is temporary and they plan on coming back so why take a loss?

One thing to factor in is if this is a relocation, renting it means they won't be nearby to keep an eye on it and likely will have someone who gets some type of management fee or be calling tradesmen out if anything needs fixing.

 
@Hello - how much experience do you have renting out properties & tax implications of selling vs renting and doing a 1031 exchange on a rental?

With the home having only been on the market for 20 days, it's not enough time to speak for the market. Has to be on there for at least 70 days for that priced home in order to even qualify it as being overpriced, plus it already had a gaping price drop.

Obviously the purchase of a 1.5 mil home is already a gamble in and of itself, if they sell it for even 1.4, they're taking a huge loss, none of which can be written off, unless their circumstances are that the new company helps with the losses.

If the #'s add up, renting it over a period of time makes more sense, and you can also depreciate the cost of a rental, AND do a 1031 exchange into another. The difference being, you can write off rental expenses, you cannot write off personal losses on the sale of a property.

We can argue about this until the sky turns purple. Fact of the matter is we don't know their financial circumstances.

Let's revisit this 3-5 years from now and see where property values lie, until then, no one knows for sure.

Additionally: As readytodownsize said: It could be a temp move, and they're moving back to the home, so it makes more sense to rent it out temporarily rather than take a loss now if their job is a contracted position. Again, TOO many variables to just make a blanket statement argument on anything.
 
Somehow I don't think they're thinking 1031 as it really only benefits on gains and not losses. 
This is just one of those unforeseen life circumstances.
 
That's true. Either way it's unfortunate for them b/c they lose no matter what. Major loss if they kept it on the market the way things are now, also will incur losses renting. It's a gamble no matter what.
 
Not a great time to find a renter either.

Someone had said they thought a floor would be put in until the builder is sold out of the development. I think it's the other way around.......... a cap is put on the upside in a slow market. When the builder still has houses to sell (especially standing inventory) they can add incentives, reduce prices, buy down rates, etc. The reseller has one house and not much he can do other than lower the price.

If there comes a time when supply is just too high to absorb demand, we'll see plenty of rentals come on the market.

This area really is going to need FCB to get prices to inflate. Most of the rest of us have to depend on move up buying (and finding another buyer who can afford our place) or qualifying for a loan.

Without that, IMO we are getting way too much supply in new homes in the area to support significant price increases.

Reminds me of the peak in 1989 to the early 90's. Builders just kept on building, not being able to see they were adding way too much supply.

We'll see what happens, but I suspect high end $$ homes will be soft and more rentals will become available unless FCB accelerate their purchases after the new year.
 
Laguna21 said:
@Hello - how much experience do you have renting out properties & tax implications of selling vs renting and doing a 1031 exchange on a rental?

With the home having only been on the market for 20 days, it's not enough time to speak for the market. Has to be on there for at least 70 days for that priced home in order to even qualify it as being overpriced, plus it already had a gaping price drop.

Obviously the purchase of a 1.5 mil home is already a gamble in and of itself, if they sell it for even 1.4, they're taking a huge loss, none of which can be written off, unless their circumstances are that the new company helps with the losses.

If the #'s add up, renting it over a period of time makes more sense, and you can also depreciate the cost of a rental, AND do a 1031 exchange into another. The difference being, you can write off rental expenses, you cannot write off personal losses on the sale of a property.

We can argue about this until the sky turns purple. Fact of the matter is we don't know their financial circumstances.

Let's revisit this 3-5 years from now and see where property values lie, until then, no one knows for sure.

Additionally: As readytodownsize said: It could be a temp move, and they're moving back to the home, so it makes more sense to rent it out temporarily rather than take a loss now if their job is a contracted position. Again, TOO many variables to just make a blanket statement argument on anything.
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Laguna,

has this become a competition of who knows more?  I honestly could care less.  However why does it matter to you if I know a little or a lot about real estate?  What do you want me to tell you about renting, tax implications and 1031 exchanges?  What I know for sure is that your comment regarding a 1031 exchange doesnt make sense since you have to make a profit on this house for a 1031 to make sense.  Furthermore what good is writing off rental expenses if you are still losing money on it?  You just lose less.  You are right though, the numbers have to make sense.  In this case unfortunately the numbers make no sense to rent.  You are also right that we do not know their financial status.  I would argue however that it doesnt matter in this case.  Renting out a house like this doesnt make sense whether you have 10 million in cash in the bank or struggling paycheck to paycheck. 

Your argument about following up on the value of this house in 3-5 years reveals once again that your only play in this is appreciation since it is clear that renting this house will result in negative cash flow with additional potential risks.  No one can be sure where values of homes will be in 5 years, however one thing that is certain is that renting makes no sense.  Thus this leads to my main point.  Your ONLY play is appreciation... and for your argument to make sense, that appreciation must be rather large.  You have drank the Kool-aid my friend...
 
Laguna21 said:
That's true. Either way it's unfortunate for them b/c they lose no matter what. Major loss if they kept it on the market the way things are now, also will incur losses renting. It's a gamble no matter what.
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yes its unfortunate.  What you are recommending is basically can kicking with the HOPES that prices will appreciate.  So basically lets keep losing money while they rent the house out and hope prices improve...  Horrible idea.  Sometimes its just better to cut your losses and run.
 
We were unfortunately in this situation (wanted out of TR because of the school situation, not job transfer). Houses had already been dropping for five years when we bought a resale in Irvine (how low can they go and our TR house was nearly paid off so we were cash flow positive and figured we needed another tax deduction since we were paying little in interest on the first house) but then wouldn't you know the county declared BK and lower we went............... two houses going down. Hubby swore he would never be a landlord again and we had only one month of vacancy in 6 years of renting, basically no maintenance issues and great tenants). But that was a different time...... a time when there were few houses that were in our condition, before people staged houses to sell them.

It took literally 11 YEARS to break even (not counting depreciation, income generated). It took 4 years to break even on the resale we bought. Cost of selling is not that cheap.

Would we see a price slide like we did with my TR house (30%)? I doubt it but we might see a time when houses just stay flat and these people probably need to see a 10% rise from where they bought to break even since they are going to have vacant times and those property taxes, HOA and however much cash flow neg they are add up.

Renters know their rental is temporary and they don't necessarily want to pay a higher price to rent a new place than one that has the same number of rooms that is cheaper AND this house isn't in IUSD which just might be an issue for a home with enough room for a family with school age kids.
 
Ready2Downsize said:
We were unfortunately in this situation (wanted out of TR because of the school situation, not job transfer). Houses had already been dropping for five years when we bought a resale in Irvine (how low can they go and our TR house was nearly paid off so we were cash flow positive and figured we needed another tax deduction since we were paying little in interest on the first house) but then wouldn't you know the county declared BK and lower we went............... two houses going down. Hubby swore he would never be a landlord again and we had only one month of vacancy in 6 years of renting, basically no maintenance issues and great tenants). But that was a different time...... a time when there were few houses that were in our condition, before people staged houses to sell them.

It took literally 11 YEARS to break even (not counting depreciation, income generated). It took 4 years to break even on the resale we bought. Cost of selling is not that cheap.

Would we see a price slide like we did with my TR house (30%)? I doubt it but we might see a time when houses just stay flat and these people probably need to see a 10% rise from where they bought to break even since they are going to have vacant times and those property taxes, HOA and however much cash flow neg they are add up.

Renters know their rental is temporary and they don't necessarily want to pay a higher price to rent a new place than one that has the same number of rooms that is cheaper AND this house isn't in IUSD which just might be an issue for a home with enough room for a family with school age kids.
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Very sorry for your ordeal with the 2 homes :( Sounds like the product of terrible timing with the market conditions.

I was fortunate enough to get out of a home before the market crashed in 2007, very lucky indeed, but not everyone can time things well.

We currently rent out a few places, some in the bay area, and they do really well as far as renters go. I have a management company take care of everything, and never heard from the tenants. But the Bay are rents are the highest in the U.S, specifically in San Francisco. Overall market conditions are much different than here. Sell any home now in SF, and you'd get multiple offers.

A lot of Irvine homes rely on FCB's to maintain prices, especially with these luxury market homes.

It's actually a good thing you were eventually able to break even though, some people can't even get there!
 
Laguna21 said:
Very sorry for your ordeal with the 2 homes :( Sounds like the product of terrible timing with the market conditions.


It's actually a good thing you were eventually able to break even though, some people can't even get there!
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No need to feel sorry for R2D.  Even with all these initial stuff she made a quite a bit of profit in real estate and is retiring in fully paid brand new 3,900 sq feet home.  We all will swap places with her in a heartbeat. ;D
 
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