Below rental parity where I am renting

ipoplaya_IHB

ipoplaya_IHB

New member
Okay, need the bears to whip out some good stuff. I need a meeting of Home Buyers Anonymous...



There is a house I/we like in the neighborhood where I rent. It would rent for perhaps $3,400 right now. I could probably buy it for $800K or so, maybe even a bit less. We'd put $25-50K into it and probably $350K down to save some cash for a rainy day.



Running calcs on the monthly cost for this property, the after-tax expense with a mortgage rate of 4.75% (currently being offered at IndyMac for J/C 30-year), with a $400/month maintenance reserve included and of course foregone income on the down, is just shy of $3200. So this place, with 500sf more than my rental, better upgrades, better landscaping, etc. would actually cost me less each month compared to renting today and would be perhaps $200 per month below rental parity.



I've always had it in my head to we would consider buying at 2003 prices and/or rental parity and this situation would be both. Argh...
 
You won?t get any argument from me.

If the numbers make sense (which it seems they do) and you like the place, I?d move forward.

I?d pull the trigger (pay a premium) on a place irregardless of rental parity if I liked it enough.

That?s my take.
 
Couldn't any place eventually meet rental parity if you kept putting enough money down?



How would it be if you only came in with the standard 20%?



edit: i'm with ten, I would pay a premium (how much of one, i do not know yet) for a house that I like.
 
[quote author="24inIrvine" date=1230001917]Couldn't any place eventually meet rental parity if you kept putting enough money down?



How would it be if you only came in with the standard 20%?



edit: i'm with ten, I would pay a premium (how much of one, i do not know yet) for a house that I like.</blockquote>


Even if someone borrowed to the J/C loan max of $625K, it would be right at rental parity.



At list, this place is a 143 CS index value. I think it could be purchased at a value of 135. I know for a fact that the owners put at least $100K into the place a few years back also. It's early 2003, maybe late 2002 pricing.
 
[quote author="skek" date=1230002414]Do it, ipop. Start making memories with your family in the home that your kids will grow up in. If I found our spec home at 2003 prices with a 4.75% interest rate, I'd be in escrow tomorrow.



Oh wait, that's not the type of reaction you were looking for, was it?</blockquote>


I think if we absolutely loved the place, we'd have already pushed forward with it. We like it a lot but it's not easy as we'd have to do some interior re-engineering/construction to get it suited to our needs. The cost wouldn't much as it would be just moving a couple of interior walls and doors around. Would require some electrical but no plumbing. I think we would love it, but without it the we want now, its hard to have the vision...



Some immense pluses are that we know and like the next door neighbors already and my friend of 26 years and her family, godparents of our youngest, lives three houses down.
 
Why not start drafting your offer and see how things go. You will still have plenty of time to think about it. If this is really a house that you like, it's worth a try.
 
[quote author="skek" date=1230002414]Do it, ipop. Start making memories with your family in the home that your kids will grow up in. If I found our spec home at 2003 prices with a 4.75% interest rate, I'd be in escrow tomorrow.



Oh wait, that's not the type of reaction you were looking for, was it?</blockquote>


Agree with skek 100%. We just entered into a new lease, but think we have found the neighborhood we will want to call home for the long haul. We just talked about it last night --- as soon as an Ivywood Plan 2 or higher hits our current rental parity (we are in a Plan 1), that's it...we are done. Although I don't think it will be for a couple of years yet --- I will be very closely scrutinizing every single Ivywood model that comes on the market. Go for it, IPOP....this sideways slide could last for a while. As long as you have run the numbers and are comfortable with it, that's all that counts. A house is so much more than just the bottom line.
 
The big consideration is the future path of home prices, which is down. 2009 will be a sideways market at best, and a doomsday scenario at worst. Having cash right now is a HUGE advantage. I would rather check my hand, and see a few more cards before making any decisions. BTW, my money is where my mouth is (In CDs earnign 3.5% at the moment).



I will admit that the rate drop is making things a lot more enticing. However, I keep reminding myself of ALL the things I want in my next house:



1) View (city/ocean)

2) Cul-de-Sac

3) Large lot

4) 3 car garage

5) No freeway noise (this takes most of Irvine out of the running)

6) Good schools

7) proximity to my kids grandparents

8) Walking distance to groceries and restaurants

9) proximity to work

10) Finished/High Quality (I would rather not take on a series of home improvement products

11) Access to tennis courts and a lap pool



My point is, given where we are in the housing/economic/interest rate cycle, I am entering into the home buying decision with the expectation that I will be in the house for a LONG time (15+ years). I had better damn well LOVE that house.



If you can go down your own list, if you can't check off everything you want/need (or everything you think you might want/need), wait.
 
Rental parity on a $800K renting at $3400 sounds too good to be true. The buy/rent ratio is 235 months (or 19.6 years).

Can you please provide more details on your calculation? Thanks!
 
As a matter of fact, when I put your numbers into the IHB calculator's view, the result came back at $4,406. It seems that you're off by about $1000, unless there is something I missed.

By the way, what is a J/C loan?
 
I'm with CapWorks... are there other plans/locations in that neighborhood you would prefer over this one and you wouldn't have to change it as much? If there are... I would wait since it's obvious that they may come up eventually.



Also... can you break lease where you currently live? Time is on your side here and if this house isn't your "must have"... you may have regrets later when prices drop another $50k on a plan/location you would have preferred.
 
[quote author="evening rose" date=1230005721]As a matter of fact, when I put your numbers into the IHB calculator's view, the result came back at $4,406. It seems that you're off by about $1000, unless there is something I missed.

By the way, what is a J/C loan?</blockquote>


Jumbo conforming. Are you using a sub 5% rate? I'm pretty sure ipop's calcs are right. Alot of properties are coming near rental parity now with low rates and lower prices.
 
Use a 10% or 20% downpayment to figure out the rental parity. What about the true possibility of lower rental rates due to higher unemployment? And why would you buy a home when you think your own employment may be in question? To me, it sounds like you are trying to talk yourself into buying this home. The market isn't going up, even if the gov't gets rates down to 3%. You'll see the same home or similar one go for 20%+ less in the next few years. Remember, patience is a virtue!
 
If you think you're going to be in it for years and the numbers don't make you stretch, I say go for it. While most people on this blog keep talking about prices going down, the fact is that you never know what may happen in the future. You don't know what else the government will do to prop up housing. You don't know how many home buyers are also waiting to pull the trigger. So what if you might get it cheaper next year? Maybe you'll pay another year's worth of rent that might be equal to the difference. If you're there for 20 years, it won't matter. Good neighbors, and known friends, are a huge, huge plus, not to be underestimated. If it were a rental, you wouldn't hesitate. Too many people think of a house as only a financial investment, like stocks. I think if financially it works for you, don't hang on waiting for prices to go down. The only down side I see is that remodeling work. Is the purchase really worth that hassle?
 
[quote author="evening rose" date=1230006835]I've used Ipop's numbers. 4.75% interest, $360K down. You're welcome to try it yourself ;-)</blockquote>


Here's my calc in IRs calculator:



<img src="http://www.ipoplaya.com/rentvown.jpg" alt="" />



The key difference is tax savings. At our income level, we are already itemizing due to state tax liabilities, so our tax savings on morg/tax deduction is at marginal rates, 28% and 9.3%, for a total of 37.3%. Also, I used an after-tax rate on our foregone/lost income. Since we are earning around 4% on our down payment fund, and lose 37.3% of that to taxes, a net rate of 2.5% is more appropriate.



MRs and association are very low relative to much of Irvine on this property.
 
I'd say the question is how far away is the house you <em> really </em> want, and what are your chances of getting one like it anytime soon?
 
[quote author="irvine_home_owner" date=1230005946]I'm with CapWorks... are there other plans/locations in that neighborhood you would prefer over this one and you wouldn't have to change it as much? If there are... I would wait since it's obvious that they may come up eventually.



Also... can you break lease where you currently live? Time is on your side here and if this house isn't your "must have"... you may have regrets later when prices drop another $50k on a plan/location you would have preferred.</blockquote>


You can always break a lease IHO, just a matter of how much it would cost. I am figuring that we'd have to find our landlord another well qualified tenant to replace us and maybe subsidize $100-200 per month in rent for the remaining six months of our term. I'm pretty sure we could re-rent/sublet our place very quickly if we were kicking in a small subsidy.
 
Ipop,



Check Wells Fargo- 4.75, 1 point for 30 yr fixed- key in your numbers and tally with Indymac- mine turned out lower.

*Done with renting* I am ready to be drowned in the soothing river sounds on Culver every night..So I say go ahead, make an offer:)



Cubic



[quote author="ipoplaya" date=1230001444]Okay, need the bears to whip out some good stuff. I need a meeting of Home Buyers Anonymous...



There is a house I/we like in the neighborhood where I rent. It would rent for perhaps $3,400 right now. I could probably buy it for $800K or so, maybe even a bit less. We'd put $25-50K into it and probably $350K down to save some cash for a rainy day.



Running calcs on the monthly cost for this property, the after-tax expense with a mortgage rate of 4.75% (currently being offered at IndyMac for J/C 30-year), with a $400/month maintenance reserve included and of course foregone income on the down, is just shy of $3200. So this place, with 500sf more than my rental, better upgrades, better landscaping, etc. would actually cost me less each month compared to renting today and would be perhaps $200 per month below rental parity.



I've always had it in my head to we would consider buying at 2003 prices and/or rental parity and this situation would be both. Argh...</blockquote>
 
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