Crazy for Corona? Please help talk me out of this. . .

Irvine Soul Brother_IHB

Irvine Soul Brother_IHB

New member
Okay, so say you're in my position. . . You're trying to advise some nice folks about what to do with some cash they've got laying around. Will they invest in stocks? No. Gold? No dice. The local real estate market in Orange County? They know it's not a good idea yet. They sold 2 biggies at the height of the market in 05, and there's a little cash sitting at various banks in the area.





But one day, instead of all of your Redfin browsing ending up in Corona Del Mar, it ends up in Corona. And oh, Mama, that whole town is for sale-- and cheap! We all know the IE was where the bloodbath began. And, still going, it is-- the bottom still not near. But, it is <em>nearer </em>than the Irvine bottom. 1 year nearer? 2? Who knows. For as far as Seattle might be lagging in Irvine Time, Corona is already at 2010. These people are losing their homes, and they will need to rent.





I mean, look at this stuff:





http://inlandempire.craigslist.org/rfs/598103164.htmlPut a 1 in front of this price, and you could almost get the same thing in Northwood.





http://www.redfin.com/stingray/do/printable-listing?listing-id=1510794





http://inlandempire.craigslist.org/rfs/596687957.html483k for 3700sqft. . . 483k/160 = 3k/ month. Could it rent for more than 3k a month?





The alternative is to leave it in CDs. . . but the look at the dollar plummeting. . . Will the best interest rate in the bank even hedge for inflation? I've also thought of just raw land. . . no one is hot for raw land now, because no one wants to invest in building.





I don't know, how crazy am I for thinking Corona? What would you think? What advice would you give?





Thanks, ISB
 
As long as you don't plan on living there ! I bought a house there in 2001 and only lasted 11 months.... South Corona is actually very nice... If it wasn't for the nightmare 91 traffic, I might still be there.





I'd just be worried about <em>too many</em> rentals competing with yours.... but it might not be a bad thought in another year or so.
 
<p>Don't look at the price, look at the industry in the area; who is going to employ the people you are going to rent/sell to in the future and how much are they getting paid?</p>

<p>On the face of it, Corona is BFE and will always be BFE until the west side of the SA fault slides underwater.</p>
 
<i>"I don't know, how crazy am I for thinking Corona? What would you think? What advice would you give?"</i><p>

Would you have positive cash flow?
 
Thanks all so far. .





Troop-- I would not consider living there, I thumb my nose at all of the IE. (I actually could have tried to say that more tactfully, but compared to where Tonye has set the bar, it doesn't really doesn't sound all that bad does it?).





Nude-- You know, I'm not really sure who that area employs. Don't those 909ers all come into OC/LA to work? Good point though, the local economy was probably all RE, and those jobs are Adios, Amigo.





Awgee-- With a GRM of 160. . . I'm not sure. Maybe with a lowball offer on a place, it happens. It's not clear yet. This "investment" though would be more about ::ugh:: an inflation hedge for some sort of peculiar "investors."








It's not a pretty picture yet, I know. And, buying in Corona might sound kind of crazy. I've got to believe that they'll be some bullshifting on this forum particularly about that area from people who know on this forum about that area certainly a lot sooner than the Irvine Bullshifting.
 
Yes Brother.....many, many Corona homeowners commute into OC and LA for work. Hence, the 91 fwy W/B at about 5:15 am. If you ain't on it by then, good luck.





As long as you do some research, I don't think it's out of the question.





BTW, I bought a 4/3 brand new in 2001 for 299K, premium lot with a killer view, nice sized yard that I promptly put a pool in. If it was just a little closer, I'd still be living in it. (2 hr commutes can take a toll on ya, especially after working 12 hr shifts !)
 
<p>ISB</p>

<p><em>"Troop-- I would not consider living there, I thumb my nose at all of the IE</em>."</p>

<p>May I offer a different thought on "investing".</p>

<p>One of my past guidlines on investing (not referring to primary residence) was to buy a home in a location and size that I could live in for at least 2 years. This has allowed me to sell multiple homes with no tax libability in the past 10 years. </p>

<p>Best money you can make is the tax free $500K every two years. If I did buy a property that I could not live in due to size or location I would sell it and do a 1031 exchange into one that I could live in as soon as possible.</p>

<p>This is long term planning and works as long as the current tax laws are not changed. You may want to choose a possible area out of California that you may want to move to in the future or retire in to get positive cash flow.</p>

<p>As awgee says it does need to be positive cash flow to be a true investment. </p>

<p>Keep in mind if you eventually sell without converting to primary residence you will owe taxes and recapture which will eat up a portion of your profit. If you have fed it as a negative and deduct those costs plus potential lost opportunity costs of your down payment and negative then it is hard to really make a profit.</p>

<p>Just one guys opinion. </p>

<p> </p>

<p><u></u></p>
 
Xsocal. . . hmmm, interesting take, thanks. Do you (or anyone else for that matter) know about the laws concerning the conversion of a primary residence to an investment property? I.E., what are the tax implications surrounding this. I know that with a 1031, you have the 45 days or 6 months if you jump through some hoops to "identify" the next property. The primary residence sale and new purchase includes a 2 year exemption, I believe.





"One of my past guidlines on investing (not referring to primary residence) was to buy a home in a location and size that I could live in for at least 2 years. This has allowed me to sell multiple homes with no tax libability in the past 10 years."





Does this mean that you're sort of tweaking the "primary residence" designation to help on the taxes?





As far as my situation, I can't (and wouldn't) live anywhere else than Orange County. Although, because I still live with the 'rents, I don't have a "primary residence." Maybe there's something creative I could do with that. Hmm. Either way, I would need to do a fractional interest with the 'rents on anything I purchase because I don't have the coin to buy anything around here out right-- and the 'rents do loans anyway, so I'd just sort of borrow the rest from them.





But, I guess Corona or not, I'm just sort of trying to figure out how to help these "investors" park some cash.
 
<p>Socal... I have NO idea what you are talking about... pssh 1031? What's that? </p>

<p>I've looked and there is WAY too much competition. If I had a few more bucks I'd be investing in Newport or newport coast. Yea you would be underwater for a year or two, but you WON'T be in competition with anybody. Plus in the good years you'll make a KILLING. Heck if you even wanted to live there its absolutely beautiful. And as Socal Merchant mentioned when you sell it, it would be tax free. A little bit of pain for a big payoff... </p>

<p>But then again, that's just me and I don't mind....</p>

<p>-bix</p>
 
<p>ISB</p>

<p>I am one of those who play by the rules so I don't "tweak" the IRS rules. It usually takes at least the minimum holding periods for appreciation to occur and I like to sleep at night. I look at a mid to long range period rather than flipping. Although I have done some successful flipsbut they are more luck and timing and the tax bite is large.</p>

<p>The IRS does not establish exact time lines for conversion (changing pirmary residence to income or vice versa) but I have usually rented a property for one year if I aquired it via 1031 before moving into it to start the 2 year clock ticking as you can do a tax exemption every two years. </p>

<p>I use the same 1 year period as a rental if I want to convert a primary residence to rental to exchange it without taxable event. Recently the IRS enacted a five year holding period if you purchase a property via 1031 and you have to owner occupy for 2 of those 5 years prior to selling and claiming the tax exemption. Most of my properties were aquired and sold prior to that 5 year holding period. If you buy a rental property without using a 1031 then you could rent it for 1 year occupy it for 2 years or vice versa then sell it and qualify for the exemption. One way to 'tweak" the time period is to file 2 tax returns from that address which could be done in an 18 month period but that would be between you and the IRS.</p>

<p>Awgee may want to comment on this as various tax people will offer different opinions on length of time for conversion.</p>

<p>The other poster here who sounds very experienced at this is biscuitninja.</p>

<p><em>"Does this mean that you're sort of tweaking the "primary residence" designation to help on the taxes?"</em></p>

<p>I actually rent a property for one year then lived in it for 2 years and 1 day to meet the requirements for exemption. Several moves were a small price to pay for the tax free appreciation from 1999 through 2007 on multiple transactions.</p>

<p><em>"I know that with a 1031, you have the 45 days or 6 months if you jump through some hoops to "identify" the next property. The primary residence sale and new purchase includes a 2 year exemption, I believe. "</em></p>

<p>If your property qualifies as "income" property and you want to take advantage of an IRS 1031 exchange you have 45 days after close of escrow to identify the new property and a total of 180 days (including 45 days to identify property) to close escrow. 180 days is different from 6 months. You can identify more than one property up to certain amounts but I don't want to get into that since it is very technical. You need a true tax expert for that information. You also need to use a third party service as an accomadator to perform the transaction. </p>

<p>The new property needs to exceed the cost basis of the old property or there will be a taxable event for a portion of the sale. You would then need to rent it for a year or more (based on your tax preparer's guidence) prior to moving in. It would then be your primary residence. You then need to occupy it for 2 of the next 5 years to qualify for the tax exemption. Lets say you lived in it for the first 2 years then rented it for 3 years you could sell it meeting the requirements. During the final 3 years of renting it out you could buy a primary residence, live in it for 2 years, sell it with the tax exemption and then 2 years later sell the rental property tax exempt (based on living in it for the earlier 2 years).</p>

<p>A good way to "park cash" is to buy duplexes out of California to maximize cash flow. Most rentals in CA get eaten up by HOA dues so it is very hard to have property pencil positive. At some point in the future you sell them and 1031 back into a home in CA, rent it for a year, then move into it and convert it to primary residence. With duplexes if you have a vacancy then you only lose 1/2 of income rather than all of it as with an SFR.</p>

<p>Your best advice to your "friends" may be to consult with a good accountant who specializes in 1031s as it can be very nasty if not done correctly.</p>

<p>Quite wordy for a Sunday evening!</p>

<p>








</p>

<p> </p>

<p> </p>
 
The only house they should be "investing" in is a 1/100 scale house of pure gold. Seriously, this can be made and would be easy to maintain. Would this be a loophole through their rules?
 
<i>"The IRS does not establish exact time lines for conversion (changing pirmary residence to income or vice versa) but I have usually rented a property for one year if I aquired it via 1031 before moving into it to start the 2 year clock ticking as you can do a tax exemption every two years. "</i> <b>BINGO</b><p>

xsocal is not tweaking anything. He is playing by the rules and using them to his advantage. What he is doing is nothing new or tweaking. It is standard advice that I and other tax professionals give to their clients.<p>

<i>"I use the same 1 year period as a rental if I want to convert a primary residence to rental to exchange it without taxable event. Recently the IRS enacted a five year holding period if you purchase a property via 1031 and you have to owner occupy for 2 of those 5 years prior to selling and claiming the tax exemption. Most of my properties were aquired and sold prior to that 5 year holding period. If you buy a rental property without using a 1031 then you could rent it for 1 year occupy it for 2 years or vice versa then sell it and qualify for the exemption. One way to 'tweak" the time period is to file 2 tax returns from that address which could be done in an 18 month period but that would be between you and the IRS."</i> <p>

Just reread this and I want to clarify something. If you purchase a former rental property with non-1031 funds, you do not need to make it available for rent for one year or any other time period for purposes of the primary residence $250,000 exemption from cap gains tax.<p>

<i>"upperlowerclass



Awgee-Are you posting under a new name? Gold it is!"</i><p>

Nope, still here as Awgee. Don't know ulc.
 
I'd buy there under the following conditions:


1) If the state put a new UC or CSU campus in the city


2) Ranch 99


3) More rail


4) Insurance for airplane falling out of the sky (on to you or your property)
 
ISB - Sorry for being really late to the party on this. Since I don't know the situation in detail, I can't say for sure if it's a good idea. What I do know is that you should never ever make an investment that you don't understand. It's usually a recipe for





That said, if you learn enough about it, consider all the risks, and it pencils out at a profit, go for it.
 
<p>Eva, </p>

<p> Certainly the best investing advice i've ever received has been," convince yourself". As a engineer convincing myself has meant "do the math". After that everything is clearly spelled out along with any contingencies and CYA factors. </p>

<p>If its a push, its generally not a great idea or you need more research. </p>

<p>good luck</p>

<p>-bix</p>
 
Hey Eva-- Welcome back!





Bix-- yeah, it's not totally clear about being a solid investment. . . yet. Looking at the numbers though, it was crazy to me how in range it seems to be. . .





That being said, with the continuing fall of the dollar, I wonder about just what one should do with cash on hand. . .





The idea of buying a small, gold, house seems more and more logical. . .
 
Also keep in mind the difference between <a title="Permanent Link to Speculation or Investment?" rel="bookmark" href="http://www.irvinehousingblog.com/2008/01/28/speculation-versus-investment/" linkindex="15">Speculation or Investment</a>. If you are only breaking even on rent, then you are still hoping for appreciation, and that is speculation. If you wait until prices drop to where there is a positive cashflow (taking in to consideration the likely decline in rents), then you are investing.
 
I am not a financial guru but common sense and history could allow one to see the future. Moreno Valley the first time around in the 80?s was full of optimism and I thought the city did a fairly good job on their architectural guideline. Third rate architects who could not compete in OC or LA designed most of the products out there. Designers misinterpreted guideline as well as bad execution of details. The city really does not have the resource to acquire any top architects for its review and guideline enforcement. It was a place of architectural dump. Mass exodus occurred during the late 80?s recession and it is happening again. It was a bargain to buy there but it was an undesirable place. As for investment the house mostly will be rented by crowd having the lowest denominator for integrity. Trying to collect rent and eviction is a painful process. The same goes for the Inland Empire. Corona although is not quite the same but shares similarities to Moreno Valley and IE like not having a strong high salary employment center so most jobs in the region are low wages thus limiting the property potential for higher rent. Higher salary individuals would not want to rent out there due to a bad commute and there are plenty of properties for rent near the places of high wage employment. People do not choose Corona because they love it there. Buyers settle for Corona because OC properties are unattainable. Many endure the drive from Corona so as soon they find something reasonably priced they will move closer to the employment center. For the next 4 years shoppers will concentrate in the nice area of OC and LA. Until the supplies run out then Corona will have a chance. You may not want to wait that long and deal with negative cash flow on a property in the meantime for at least 7 years.
 
i miiiiiight consider living in cowrona under a few conditions. the western most side of corona isn't too bad. turtle ridge mcmansions for a third of the price. growing up in the north orange/vp/anahills area, west corona really isnt any further from my old stomping grounds than irvine/newport. commuting to work down the toll road might be bearable and the 261 isnt too expensive. if i had to commute using the 91, that's a totally different story. anyone ever notice what the east-bound tolls are on a weekday evening? as much as $10-15!!! thats a deal killer.
 
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