Thoughts on buying a townhouse?

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ScubaSteve_IHB

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My long time college sweetheart and I are tying the knot in January and were thinking of buying a townhouse soon. We were looking at Harbor Station in AV and noticed that prices have dropped down to 443K for a 1525sf 3bed/2.5bath place. They are offering modest incentives such as granite upgrades, all appliances furnished, 3% broker refund (cousin will give us most of it back), closing costs paid for, and a price guarantee until build out, which won't be until mid December this year.



We both rent separately right now and estimate rent to be about $2K a month for a 2 bed, with washer and dryer in Irvine, where we both work. Assuming we put 20% down, 30 yr fixed @ 5.75%, our monthly mortgage + tax, melloroos and hoa would come out to be about $3K Our D:I ratio right we bought now would be 1 to 3.7. It could be even better since we were thinking of renting out one of the rooms to a relative for the first two years until we decide to have our first child.





My finance really wants a new home and I am only willing to live in Irvine or South County. My fiance loves the place, but I read too many posts on this forum to be totally sure. Should we go for it?
 
What time frame are you expecting to remain in the townhome? As I am sure you have seen from this blog, the longer that you anticipate remaining in the home, the more sense it makes. If you are thinking that it is a reasonable possibility that you would move within 4-5 years, either for new job opportunities, or because you think you need/want additional space, you may be better off waiting and saving for a little more home.



In my case, I am close to purchasing, but I have also set up a situation where I will not be needing or expecting to move for well over 10 years... so the down-turn in the market is less of a concern than historical considerations (eg interest rates).
 
We are plan on staying at LEAST 7 years but probably more. I grew up in a middle class family in the Bay Area so I'm not used to having a large house. With that being said, I still want the best for my family.
 
Rather than buy and be stuck with $3k/mth in a townhome, why not stick with renting together for $2k/mth and add that extra grand to your downpayment and buy something better after the prices have stopped falling?



I mean, I understand the desire to own a new home, but domestic bliss is better served by better financial decisions. If waiting to purchase is an option, it seems that either paying less or getting more for the same amount (or both) beats any benefit you would get from owning in the next year. If this was your dream home, I might think of it differently, but a townhome? I say wait.
 
I'd say what's best for your family is to not overpay for one of the biggest purchases of your life. Are you cool with spending $443K on something that's likely to be worth $100 grand less in the next few years? That kind of money could pay for a couple college educations down the road. Think about it dude.
 
[quote author="ScubaSteve" date=1207824775]My long time college sweetheart and I are tying the knot in January and were thinking of buying a townhouse soon. We were looking at Harbor Station in AV and noticed that prices have dropped down to 443K for a 1525sf 3bed/2.5bath place. They are offering modest incentives such as granite upgrades, all appliances furnished, 3% broker refund (cousin will give us most of it back), closing costs paid for, and a price guarantee until build out, which won't be until mid December this year.



We both rent separately right now and estimate rent to be about $2K a month for a 2 bed, with washer and dryer in Irvine, where we both work. Assuming we put 20% down, 30 yr fixed @ 5.75%, our monthly mortgage + tax, melloroos and hoa would come out to be about $3K Our D:I ratio right we bought now would be 1 to 3.7. It could be even better since we were thinking of renting out one of the rooms to a relative for the first two years until we decide to have our first child.





My finance really wants a new home and I am only willing to live in Irvine or South County. My fiance loves the place, but I read too many posts on this forum to be totally sure. Should we go for it?</blockquote>
scuba steve,



Most likely you will get the advice "dont buy it yet, just wait" from lots of members here since most of them are renters and waiting to jump on when they think the market is right for their own analysis.



you do what you think is right for your situation...not market condition, not some unknown online advices....i mean would you listen to some forum advices on how to buy stocks??? I don't think so.



If you think the moment is right for you and your fiance to get a house after doing some serious homeworks (financial number, right house...), then you should go for it. But if you have some doubts, sit together w/ ur fiance, discuss the situation or talk to some family members, close friends, show them the house...they are the best people to give you advice.



Good luck
 
I have many friends who are planning to go straight from living with their parents to buying their own home. I think that's a bad idea. If you can rent for 2K and buy for 3k, I suggest you rent for a year together first. With the RE market the way it is, there is no rush to buy. I have lived in so many different cities in Orange County that I am now ready to settle down. Personally, I think it's important to live close to a freeway for commuting/traveling purposes. I don't like the 22, the 5, or the 55. I live in Tustin now, but hopefully will move to HB, FV, or IR by the 405 within the next few years. I guess my only point is... are you VERY certain you want to live in AV? You can rent a place for a year or more, but it is much too costly to own a place for less than 5 years. And 5 years is a long time to live in a place you don't like... especially when you're trying to establish some roots. Don't be too quick to be excited by the amenities of the property. Location really is the most important thing. And unless you have lived in an area before, it's very hard to know ahead of time if you would like it. Just from your comment, I can see that you prefer living in Irvine. Have you ever tried living in AV before? Maybe you should rent there first.
 
[quote author="hs_teacher" date=1207829845]I have many friends who are planning to go straight from living with their parents to buying their own home. I think that's a bad idea. If you can rent for 2K and buy for 3k, I suggest you rent for a year together first. With the RE market the way it is, there is no rush to buy. I have lived in so many different cities in Orange County that I am now ready to settle down. Personally, I think it's important to live close to a freeway for commuting/traveling purposes. I don't like the 22, the 5, or the 55. I live in Tustin now, but hopefully will move to HB, FV, or IR by the 405 within the next few years. I guess my only point is... are you VERY certain you want to live in AV? You can rent a place for a year or more, but it is much too costly to own a place for less than 5 years. And 5 years is a long time to live in a place you don't like... especially when you're trying to establish some roots. Don't be too quick to be excited by the amenities of the property. Location really is the most important thing. And unless you have lived in an area before, it's very hard to know ahead of time if you would like it. Just from your comment, I can see that you prefer living in Irvine. Have you ever tried living in AV before? Maybe you should rent there first.</blockquote>


I have been renting from a buddy of mine in Ladera for the last 5 years commuting to Irvine (about 40 minutes during rush; 15 minutes on Crown Valley), so AV seems like heaven for me (commute-wise), since both of our jobs are near the 73. I'm not too familiar with AV but it seems like a nice scenic place whenever I drive by. I definitely prefer Irvine over everything of course (but who doesn't?). Yea its a tough decision. Both our families think we should do it but, co-workers and forums are so anti-buy! Again I do plan on staying at least 7 years.
 
[quote author="hs_teacher" date=1207829845]I have many friends who are planning to go straight from living with their parents to buying their own home. I think that's a bad idea. If you can rent for 2K and buy for 3k, I suggest you rent for a year together first. With the RE market the way it is, there is no rush to buy. I have lived in so many different cities in Orange County that I am now ready to settle down. Personally, I think it's important to live close to a freeway for commuting/traveling purposes. I don't like the 22, the 5, or the 55. I live in Tustin now, but hopefully will move to HB, FV, or IR by the 405 within the next few years. I guess my only point is... are you VERY certain you want to live in AV? You can rent a place for a year or more, but it is much too costly to own a place for less than 5 years. And 5 years is a long time to live in a place you don't like... especially when you're trying to establish some roots. Don't be too quick to be excited by the amenities of the property. Location really is the most important thing. And unless you have lived in an area before, it's very hard to know ahead of time if you would like it. Just from your comment, I can see that you prefer living in Irvine. Have you ever tried living in AV before? Maybe you should rent there first.</blockquote>
+1 on living on the place for 5 years and location.



Location, location, location. You rather get a small house in really good city than big house in bad city.

I recently discuss buying a house with my current boss ( who is the CEO of DRI Default Managements, very knowledgable in real estate investments) to me 2 things i should consider when buying a house:

1)Location

2)do you plan to live in that house for at least 5 years?
 
[quote author="ScubaSteve" date=1207830301][quote author="hs_teacher" date=1207829845]I have many friends who are planning to go straight from living with their parents to buying their own home. I think that's a bad idea. If you can rent for 2K and buy for 3k, I suggest you rent for a year together first. With the RE market the way it is, there is no rush to buy. I have lived in so many different cities in Orange County that I am now ready to settle down. Personally, I think it's important to live close to a freeway for commuting/traveling purposes. I don't like the 22, the 5, or the 55. I live in Tustin now, but hopefully will move to HB, FV, or IR by the 405 within the next few years. I guess my only point is... are you VERY certain you want to live in AV? You can rent a place for a year or more, but it is much too costly to own a place for less than 5 years. And 5 years is a long time to live in a place you don't like... especially when you're trying to establish some roots. Don't be too quick to be excited by the amenities of the property. Location really is the most important thing. And unless you have lived in an area before, it's very hard to know ahead of time if you would like it. Just from your comment, I can see that you prefer living in Irvine. Have you ever tried living in AV before? Maybe you should rent there first.</blockquote>


I have been renting from a buddy of mine in Ladera for the last 5 years commuting to Irvine (about 40 minutes during rush), so AV seems like heaven for me (commute-wise), since both of our jobs are near the 73. I'm not too familiar with AV but it seems like a nice scenic place whenever I drive by. I definitely prefer Irvine over everything of course (but who doesn't?). Yea its a tough decision. Both our families think we should do it but, co-workers and forums are so anti-buy! Again I do plan on staying at least 7 years.</blockquote>
it's hard to pick any other city over Irvine. if you think irvine is a more desired city than AV, maybe you should consider Irvine.
 
Scuba, you need to take catchme's advice with a grain of salt or two. He is lining up to buy right now and already owns a place. He wants to feel good about his decision of course...



As an owner, not a renter, I might be a little bit more objective. My advice, hold out for a year or two and rent. Buying now is a very poor financial decision. Buying now very likely means the loss of your 20% down. Yeah, if you hold for seven you'll be back to break-even or maybe better but if you bought a year or two from now and held for five years, you'd maybe have some good appreciation to help fund your move-up purchase. Remember, unless you are buying to stay for the very long haul, you need to consider how the next purchase gets funded... If someone said "This here Lexus is $50K today but will go on sale next month for $40K" would you ever think of buying it today. Of course not. You'd milk whatever you were driving for another month and buy when it was 20% cheaper.



If you do buy now, just make sure you realize you are signing up for a likely 20+% erosion in your value followed by years of lackluster appreciation. Buying now is more to suit an emotional/personal need. If those drivers are stronger than the negative re: the financial side, do it. Just make sure you realize it and call it what it is... Don't try to delude and convince yourself like our boy catchme does.



I advocate renting and not buying and yet I am still an owner. How do I reconcile that? Well, I have approached my wife 4-5 times about selling and renting, beginning in 2006, and she will have none of it. I continue to own to keep a harmonious marriage in spite of the inherent financial stupidity associated with the decision. I don't hide behind BS about "no one can predict the market" and such. This real estate market has been tanking in an epic fashion much like prices rose in epic fashion. It has further to go as it is still much cheaper to rent vs. own for most people and bank-owned inventory is incresaing... Further price declines send more and more properties back to the bank, enforcing the spiral.



If you buy now, it should be out of personal necessity since the financial end of the decision-making is unarguably a thumbs down.
 
[quote author="ipoplaya" date=1207831093]Scuba, you need to take catchme's advice with a grain of salt or two. He is lining up to buy right now and already owns a place. He wants to feel good about his decision of course...



As an owner, not a renter, I might be a little bit more objective. My advice, hold out for a year or two and rent. Buying now is a very poor financial decision. Buying now very likely means the loss of your 20% down. Yeah, if you hold for seven you'll be back to break-even or maybe better but if you bought a year or two from now and held for five years, you'd maybe have some good appreciation to help fund your move-up purchase. Remember, unless you are buying to stay for the very long haul, you need to consider how the next purchase gets funded... If someone said "This here Lexus is $50K today but will go on sale next month for $40K" would you ever think of buying it today. Of course not. You'd milk whatever you were driving for another month and buy when it was 20% cheaper.



If you do buy now, just make sure you realize you are signing up for a likely 20+% erosion in your value followed by years of lackluster appreciation. Buying now is more to suit an emotional/personal need. If those drivers are stronger than the negative re: the financial side, do it. Just make sure you realize it and call it what it is... Don't try to delude and convince yourself like our boy catchme does.



I advocate renting and not buying and yet I am still an owner. How do I reconcile that? Well, I have approached my wife 4-5 times about selling and renting, beginning in 2006, and she will have none of it. I continue to own to keep a harmonious marriage in spite of the inherent financial stupidity associated with the decision. I don't hide behind BS about "no one can predict the market" and such. This real estate market has been tanking in an epic fashion much like prices rose in epic fashion. It has further to go as it is still much cheaper to rent vs. own for most people and bank-owned inventory is incresaing... Further price declines send more and more properties back to the bank, enforcing the spiral.



If you buy now, it should be out of personal necessity since the financial end of the decision-making is unarguably a thumbs down.</blockquote>
scubasteve,



The more opinions, the better. Ipoplayer has some valid advices. Why dont you try to collect a many as possible and discuss them with your fiance, your family members. These advices will definitely help you evaluate your decision on buying a house.



Good luck.
 
hey catch, would that be Duke Olrich you got the advice from? Did you realize that he has been quoted in articles saying that 2008 will be a very bad year in terms of high number of foreclosures? He seems to be dead on correct in that prediction.



If your boss is right, shouldn't that make you second guess any buying decision? Maybe in your world, massive numbers of foreclosures don't have much affect on home prices...
 
[quote author="ipoplaya" date=1207831802]hey catch, would that be Duke Olrich you got the advice from? Did you realize that he has been quoted in articles saying that 2008 will be a very bad year in terms of high number of foreclosures? He seems to be dead on correct in that prediction.



If your boss is right, shouldn't that make you second guess any buying decision? Maybe in your world, massive numbers of foreclosures don't have much affect on home prices...</blockquote>


ipoplaya,



it all comes to location and how long to keep the house.

Highly demanded location is less likely to be effective due to demand and supply. I also plan to keep the house at least 5 years just like the property I have right by south coast plaza.



My goal is to own 2 more houses when I turn 35.



Thanks for reading our company website.
 
I haven't added in the savings we would get from taxes but that should bridge the gap from renting to buying even closer (maybe down to $700? - haven't worked out the numbers exactly).



Again my finance has decided that we only want to buy a new place (emotional ideal of being the first to start something together). We could realistically save about 40K more in two years giving us about 150K for a down. Will that still be enough for a BRAND NEW SFR (still seems like it isn't for me without having a high monthly payment).



Thanks for everyone's honest responses (although I knew what you guys were gonna say before I posted).
 
Save another $40k in 2 yrs? With inflation and the devaluation of the dollar. How much is $40k in 2 years? Suppose the buying power of the US dollars diminish further in 2 years. What will that affect on your purchase? Will you need more dollars since they're not worth much in 2 years?



Lets assume prices will go down further. Okay, so we have lower prices. But interest rates will eventually go up higher. Possibly in the double digits. So there you go. Lower prices but with higher rates and less buying power of the US currency. So much for fundamentals and predictions.
 
If you are analyzing from a financial perspective, you should compare apples-to-apples in terms of rent vs. buy. That is, comparing buying the unit to renting a similar unit in mostly the same location.



You might be able to buy in AV with a net monthly payment of $2300 but then you have additional gas, tolls possibly, more wear and tear on vehicles, etc. for your commute to work. We have considered SFRs in AV and the extra bucks associated with commute, not to mention additional time in the car, haven't penciled out. I think as prices fall faster there vs. Irvine, it might start making more sense for some southern/eastern Irvine workers to look harder at AV though.



I know you can pick up a 2/2 1000sf condo on Scholarship for probably $1850-1900/month. I suspect that is pretty close to work too...
 
[quote author="reason" date=1207834024]Save another $40k in 2 yrs? With inflation and the devaluation of the dollar. How much is $40k in 2 years? Suppose the buying power of the US dollars diminish further in 2 years. What will that affect on your purchase? Will you need more dollars since they're not worth much in 2 years?



Lets assume prices will go down further. Okay, so we have lower prices. But interest rates will eventually go up higher. Possibly in the double digits. So there you go. Lower prices but with higher rates and less buying power of the US currency. So much for fundamentals and predictions.</blockquote>


Oddly enough, the dollar has been tanking since 2006 and you can still buy much more house with it vs. two years ago. Who woulda thought that?! A weakening dollar and more buying power, at least in that one asset class...
 
[quote author="ScubaSteve" date=1207833237]I haven't added in the savings we would get from taxes but that should bridge the gap from renting to buying even closer (maybe down to $700? - haven't worked out the numbers exactly).



Again my finance has decided that we only want to buy a new place (emotional ideal of being the first to start something together). We could realistically save about 40K more in two years giving us about 150K for a down. Will that still be enough for a BRAND NEW SFR (still seems like it isn't for me without having a high monthly payment).



Thanks for everyone's honest responses (although I knew what you guys were gonna say before I posted).</blockquote>


Steve - I get the nesting instinct, not to mention all the cool money draining ideas The Knot and Wedding Channel put in a girl's head. Have you considered renting the biggest, most blinged out house you can get with your housing budget? Since you haven't been owners and you haven't lived together, this would be the a great opportunity for you try both at the same time without the financial burden. Sharing a space with someone on a daily basis can be <em>hard</em>. It's even harder when you get to bargain over who is going to wash the dishes, do the laundry, take out the trash, and mow the lawn. You know, the stuff they don't show in the Pottery Barn ads. If you really want the feel for owning, negotiate a lower rent with the landlord and tell him/her that you will take care of all the day to day maintenance. The romance of homeownership will likely dissipate once you spend 45 minutes with a bobby pin clearing a slow drain of hair, toothpaste residue, and other assorted matter that wasn't enough of a blockage for the Drain-o to work on.



Also, while I am all for saving, maybe you could take some of the rental savings and go on a really great first anniversary trip. In other words, replace one goal or reward with another.
 
Not sure if this will be relevant to you or not but I know when we started out after college I thought we would be in our place for at least 5 years - only to discover that in certain fields moving is the key to getting promoted quickly. I know now that for us we can never know for sure we will be somewhere for more than maybe two years and even that could be shorter with mergers. layoffs, etc. Just something to think about depending on your area of work......
 
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