Thoughts on Avenue one.

NEW -> Contingent Buyer Assistance Program
biscuitninja_IHB

biscuitninja_IHB

New member
<p>I have the opportunity to buy in Avenue One. The cost for a 1B (- 725sqft -) is 385, down a significant amount from last year. The incentives currently are 5,000 in closing costs and 2 years worth of association fees (~310 month). What is the community recommendiation?</p>

<p>Thank </p>

<p>-bix</p>
 
I would recommend taking the time to really educate yourself about the housing market before making a decision either way. As you said, prices have fallen considerably in a short time. This tells you that the market is in flux. Should you keep waiting for prices to fall even more, or should you buy now while the getting is good? Only you can decide. With a $385K purchase, there is a lot at stake, and you should really invest at least 20 or 30 hours in learning about what is going on. You read Consumer Reports and edmunds.com before buying a new car, right? Well this is ten times as big a deal.



If you don't have any training in economics, I would highly recommend reading a basic microeconomics textbook or even just a couple of pop economics books before you tackle the specifics of housing. "The Underground Economist" and "The Naked Economist" were both very fun to read, and can be found at B&N.



Some people will tell you that if you can afford it, and feel good about it, then you should go for it. IMHO this is just crap. Yes, emotion matters, but the bottom line matters too. You have to weigh the costs and benefits. There are such a thing as bad deals and good deals, and when it comes to something as expensive as a home you should really work hard to try to get a good deal.
 
<p>Through this blog/forum and others dedicated to the OC, looking at ZipRealty and other places online, you will probably agree that the average asking price per sq ft in Irvine is in the $400 - $425 per sq ft range. Going with this valuation, the current asking price on the 725 sq ft condo should be $290k - $310k. The stated asking price of $385k works out to $531/ sq ft, i.e. a total ripoff. If you can get them down to the $300k level, then I would say you have at least a "market priced" deal (we can argue <em>ad nauseum (sic)</em> if the market is overvalued or not, but that's for the overall marketplace to decide).</p>

<p>Another valuation model is the rent vs. buy decision model <em>a version of </em>which goes something like this: if you agree to pay the asking price ($385k in this case) with say a 20% down, 6.5%/30- year fixed loan, your monthly P&I (principal & interest) payments would be (ta.. da..) $2443. This is before you pay mello roos, property taxes, insurance and HOA (albeit deferred 2 years into the future) etc which will be in the $500+ range. The valuation model applied to this case means that if the property was "fairly valued" then you should be able to rent this condo out at $2443 (at the very least) up to $3,000. Will the market bear this rent? <em>If you could just find one little sucka...</em></p>



<p>Apply this rent vs. buy decision model in reverse... Let's say you mosey on over to the Irvine rental living website and find a 725 sq ft 1/br for oh say, $1,500 per month in the <em>nicest</em> part of town (I mean with the <em>works</em>.) <em>(Ahem)</em> I will attempt to demonstrate for you what kind of down payment you would need in order to match the $1,500 rent:</p>

<p>You want your total payment to be: $1500.00</p>

<p>You will pay at least $500+ in non-P&I payments: -500.00</p>

<p>Your P&I will be $1500 - $500 = $1000</p>

<p>What is the principal amount of your loan with a $1000 payment? Drum roll please... $158,610!!!</p>

<p>In other words, you are going to have to come up with a down payment of $385000 - 158610 = $226,390 in order to break even using the rent vs. buy model.</p>

<p>So you decide... </p>
 
crucialtaunt,





Welcome. Nice analysis.





biscuitninja,





Don't do it. Prices are just starting to fall. Crucialtaunt's analysis is probably going to be close to the prices these units sell for in about 3 years (maybe a little higher if you include a 20% downpayment.) Nobody here would like to see you lose half your money.
 
"feels like they're selling very well, and might increase the price for the new phase"





Feels like you are listening to realtor nonsense talk. They are not selling well, if they were, they wouldn't be offering the big incentives. There is little or no chance of a price increase, but the sales agent is likely to tell you that to try to create a sense of urgency to buy. If you want to live there consider renting for a few years until the prices come back to reality.
 
Yesterday I saw a truck towing a rolling billboard advertising Avenue One driving around woodbridge. I find it hard to believe that a rolling billboard would convince someone to buy one of their condos, but that's just me. This advertising tactic doesn't sound like something they would do if they were selling well.
 
<p>Well I decided to not go with the 725sqft condo. But I did buy the 602ft condo with a little more incentives on it, I have a 1031 account with some money that needed to be spent. I essentially bought it as a rental property, a family friend needed a place for her daughter (*MD student*). They immediately signed a 2 year contract. Great people and extremely smart daughter. After everything is said and done I will be a income producer for about 1k a month, nothing spectular, but better than the 1031 money getting taxed.</p>

<p>I did look at some Condos in Eastern Irvine. The cost per sqft was MUCH more reasonable at $410 Sqft. And of course bigger to boot. Anyway thanks for the information (Thanks <a href="http://forums.irvinehousingblog.com/account/40/">crucialtaunt</a> ). ON a side note my rent right now is 1600 getting set to go up to 1700 a month for a 750sqft. So its not much of a leap, especially in another year or two, but its no quite there.</p>

<p>OH well take it easy </p>

<p>-bix</p>
 
<p>"After everything is said and done I will be a income producer for about 1k a month."</p>

<p>I'm a little confused. Could you explain what the above means exactly? The condo is paid off, and the 1K is what you are renting it for minus HOA/taxes/insurance? Thanks.</p>
 
<p>BigMoneySalsa, yes, pretty much what you stated. I would have liked to buy in the same area to keep watch over the rental, but unfortunately it was just too much for me to spend out of my own pocket (not 1031 account). Anyway hope things are going well there.</p>

<p>-bix</p>
 
<p>I am familiar with the concept of a 1031-exchange but I would like to see some economic analysis (hard numbers) on why spending the 1031 money this way is better than getting taxed on it.</p>

<p>This looks very interesting indeed...</p>

<p>Biscuitninja, could you share some of your numbers in detail so we can see what rationale you used to make it work and arrive at your decision? Thanks</p>
 
A 1031 Like-Kind Exchange avoids capital gains by transferring a low basis from one property to the next. In essence it is like getting a 15% discount because you avoid the capital gains taxes. However, even with a 15% discount, I don't see how the math works.
 
<p><em>IrvineRenter: "However, even with a 15% discount, I don't see how the math works."</em></p>

<p>Thanks for reading my mind. This is what I had in mind to say but wanted to give bix the benefit of the doubt to see what rationale he used to make this work for him. Unless of course, he's loaded, and all this is chump change for him, in that case why would be swimming with the "bottom dwellers" on this forum? </p>
 
<p>You are right even with a 15% CG tax its a marginal deal, BUT once you start factoring in state taxes, fees and everything else, that number quickly grows. Usually to 20-30%. So a little 330k place comes something like 220ish and change. Just about the break even point - worth it? That's for you to decide. For me the tipping point is that I'll make 1,000ish a month for doing nearly nothing. After that I'm sure my rent would be a bit higher (200-300?), so I'll still be making the same amount. This is definitely a long term investment (4+ years easily) and quite frankly I don't mind flipping houses is not "it" for me.</p>

<p>Oh well thanks for listening</p>

<p>-bix</p>
 
<p>Ohh forgot to add, i'm not loaded. I have a decent 1031 account (nearly 13 years worth of buying and selling), but I live like the rest and drive a crummy economy car (shh don't mention the 600hp hot rod...).</p>

<p> </p>

<p>good luck</p>

<p>-bix</p>
 
Concession starts with real pricing, not incentives towards overly inflated retail value of those upgrades or paid HOAs or closing costs. Remember, your property tax is ad valorem, which essentially means that it is computed based on the assessed value of the real estate. In most cases, the assessed value is your purchase price, then readjusted to a maximum of 2% upward per year due to Proposition 13 (that is why people who bought and held on to their home from many years ago pay a much smaller tax bill than the recently purchased ones). If there is a big shift in the housing market, i.e. a crash, you can request the assessor to re-assess the value of your home. Unfortunately, your govt is a creature of addiction to your tax dollars and relies heavily on the property tax revenue to fund its coffers. In other words, good luck!
 
<p>Thanks for the information guys. I am learning a lot. I will be in the market to purchase a condo in Irvine in possibly the next year and I was looking into Avenue One or Watermarke condos. It is obvious that you can get a much better deal looking elsewhere but I appreciate the amenities, lifestyle, and "newness" associated with these properties. I've been watching MLS listings and it is apparent that these properties for sale are reducing in price. I see a few 635 sq ft condos going from 369k - 399k in the low end. I hope and speculate these prices will fall even more. What do you guys think and how low do you think they can reasonably go?</p>

<p>How does Avenue One and Watermarke compare to each other? Would you guys prefer one over the other? If so, why?</p>

<p>Are there any other condo communities in Irvine like these that are in a similiar price range? </p>

<p>Thank you in advance.</p>

<p>dayday</p>
 
dayday,





If you want an idea of how low prices could go. Find out what the comparative monthly rent is for the unit you are looking at. Multiply that number by 150, and you will get a number close to the bottom. Take that rental number times 100, and you will see how low it could possibly go before cashflow investors would buy them. I suspect what you will find is that these prices are double their fundamental value. That is how upside-down this market is right now. The longer you wait, the better price you will get. These condo prices are going to crash very hard over the next 3 to 5 years: very hard.
 
You must log in or register to reply here.
Back
Top