From IHO to ex-IHO and back: The Pros and Cons of Renting vs. Owning in Irvine

irvine_home_owner_IHB

irvine_home_owner_IHB

New member
First off, if the mods think this belongs in Off-Topic, please move it.



As some of you know, we sold our Irvine house last December and became renters for the very first time in our lives:



<a href="http://www.irvinehousingblog.com/forums/viewthread/4017/">http://www.irvinehousingblog.com/forums/viewthread/4017/</a>



The threads go into the whys and hows but in the end, we felt like the market was going to collapse and we wanted to get out before we lost more money and wanted to rent something we considered buying to see how it was.



We ended up renting probably for more than we should have but we really enjoyed it. It was a much bigger home and it was in a really great area (Quail Hill). One big thing we noticed the first few nights was the silence. The home we just sold was located near a major street and that noise was unbearable at times. I had thought I could get used to it but after being there for three years... I realized that even a bargain isn't worth that nuisance. Maybe some of you might be able to make that concession... but it's not something I will do ever again. Unless you've lived in a similar situation, it is really hard to describe how annoying it is.



The other great thing about a rental is not having to worry about all the other associated costs of owning. You just pay one person and don't have to cut a check for HOA, property tax etc etc. It was a newer home so there weren't many maintenance issues but when there was, we just called the landlord and someone eventually came to fix it (it was a bit annoying as I had to work with his schedule instead of me doing it myself). But... unlike a home you own, we had to be more careful with cabinets, walls and other things. We were constantly telling our kids to be careful because Mr. Landlord will get upset. But that was more our fault because we rented a higher-end place so there were a lot of items that were not very kid-friendly. Before renting in QH, I really couldn't understand the appeal but I now appreciate "hillside" living. I know it's not truly "hillside" but other than TR (and sort of PS), it's the only thing like it in Irvine. The one great thing about renting here is it allowed me to walk around the community, look at the different neighborhoods and truly decide where I wanted to buy. I look at it as sort of a trial period which you don't get when you buy. If I had a trial period on our last house, we surely would not have ended up buying it.



So, fast forward 9 months later and we had a choice... re-rent in our current place, rent in a different place for less or move back to a rental home we owned in Irvine. We negotiated a shorter-term lease to specifically give us this option once our tenants moved out and this decision came upon us pretty quickly as time just zoomed on by. We worked with IrvineRealtor to look at the prospect of selling our rental and also looking into other houses to lease. One of our biggest problems is our home to move back into was smaller and required lots of fixing (4 years of college student renters is a lot of wear and tear). After long discussions and based on the recommendation of IR2, we decided to just move back into the former rental, save more money and look at our options within the next year or two.



<em>(I just want to note here that not only did Scott not push us to sell our rental, but he also did not push us to re-rent somewhere else. His recommendation was actually the worse situation for him financially because he makes no commission on us moving back to our previous home. Kudos to him for his honesty, time, effort and advice... it will not be forgotten when it comes time for us to buy our next home.)</em>



What also went into this decision other than saving money was 1) I was tired of being a landlord and and 2) My wife was tired of being a tenant. If we re-rented our property out and leased somewhere else, we would have to juggle two tasks and coordinate them which we just didn't have the time or energy for. Seeing how trashed our place got, we wanted to get back in there and fix it... and we were too tired of stressing over how much our landlord was going to ding our deposit for (which we have to do for our ex-tenants). I can't really blame people for wanting to be homeowners, there is a certain amount of freedom of owning and while financially, it may not make sense for some at this time, there is something to be said about wanting to make a space your own. Sure, you can paint your rental, but our landlord said... "If I don't like it, you need to paint it back". Well... that set the tone for the rest of the lease that my wife was not comfortable with.



For those of you who rent, do you usually stay longer than 1 year? I'm asking because... I HATE MOVING. Seriously... it's probably the most exhausting and unrewarding activity in the world. And what's worse... it wasn't like we were moving into a newer, bigger or better house... but moving back into a house we didn't like enough to stay in to begin with. Ugh. One good thing about moving is that it helps you get rid of garbage... but there are so many other bad things like furniture getting dinged up, walls getting dinged up, stuff breaking, losing items, sore feet, long nights of labor, sore feet (did I already say that?), finding out who your real friends are (hehe) and sore feet. My wife made me promise we will only move one more time for the rest of eternity... and I don't blame her.



For a while there, we were actually considering buying another place instead of moving back (we're not too keen on the location of our old place) which kind of spurred my thread about rental parity with 4/3 SFRs in Irvine (<a href="http://www.irvinehousingblog.com/forums/viewthread/5648/">http://www.irvinehousingblog.com/forums/viewthread/5648/</a>) but waiting for the Phantom REO Menace seemed like a better decision. It's just difficult because RE just hasn't dropped as much as we thought it would and we probably could have stayed in our house, sold it last month and not really lost all that much. We would have never had the experience of living in one of our desired locations... but then we would have only had sore feet once.



So now we're back to being IHOs and we've already gone against one of Deuce's recommendations... we put in paint and new flooring (sorry USC... I was on a time crunch so I had to go with a company I used before... but next time I'll try Dad'oUSC Flooring Company). We figure if we decided to sell or rent it out in 2 years, it will help add to that value and we can enjoy it in the meantime. Plus, the money we save over our QH rental and even our sold home is significant enough to cover the expense in less than 6 months. Now I just got to replace some lighting, fix/replace toilets, replace faucets, fix/change countertops, clear out the backyard, address some leak issues... ahh... maybe owning isn't so hot after all.



So other than wasting your time, what does this post say about renting vs. owning in Irvine?



1. Renting is probably still less than owning certain types of properties but it's getting closer.

2. Don't hate on people for wanting to own... no one rents underwear and homes are sometimes just as personal. Just be prepared for the work and the expense.

3. Kids are a consideration. Although mine seem to be okay (as long as they have their toys and their TV... just like daddy), they do notice the change and it is a bit inconvenient for them to have to adjust year after year.

4. Renting allows you to try before you buy (highly recommended for out-of-staters or people who are not too sure about the area they want to move to)

5. If you rent, and you don't like your neighbors... that's temporary. If you own... you're stuck and will probably not be spending too much time on the porch or in the front yard.

6. If you know you are planning to be in a place for a long time, can afford it and can deal with lost equity... ownership would probably be a good choice in addition to the other benefits it provides. I really think this forum underestimates how much you save in taxes from ownership write-offs.

7. If you can't afford it or are not sure of your current job/economic/marital/etc status... renting would be better and less worrisome.

8. 3-car garages (even the tandem ones) are very useful... if just for the fact that you can temporarily store moving boxes and other stuff in your garage and still park 2 cars in there. The house we moved backed to only has a 2-car garage (gasp!) and we can barely fit one minivan in there. Once you go 3CG... you never want to go back.

9. Don't lease out to college students unless you are desperate (okay... this doesn't apply to you renting or owning but I had to say it).

10. My sore feet hate moving... if you rent... you may be doing more of that.



And last but not least, whether you are renting or buying... use a realtor who will give you honest answers, even if it means them not getting paid. I can't thank Scott Gunther enough for his help and sage advice... I owe him a 5-pack!



EDIT: IR2... not IR.
 
Thanks for sharing your story IHO. No problem with not using my dad, he is beginning to work more in Vegas and his arthritis was getting worse recently due to the higher humidity levels so he needed a break after finishing off one of my buyer's home. I would consider moving back into one of the rentals that I know, but the rental generates so much positive cash flow that it makes more sense for me to remain a renter.



EDIT: Chill on the quoting.
 
This is a good post sharing your strategy, hardship, benefit, anguish and advice. This post has plenty of pros and cons and how you came to the conclusion of your decision making process. Others can learn from your experience and it is actually could be a recipe. The product placement of Deuce in the text is excellent marketing and endorsement for him.



Did he pay you to integrate his service into your testimony? If you got paid by beers I just want you to know the beers came from IPO's and CK's premise.
 
You do have the equity from the proceed of your noisy residence and not relying on the sale of your rental to purchase your future 3CWG home right?
 
[quote author="USCTrojanCPA" date=1253329723]I would consider moving back into one of the rentals that I know, but the rental generates so much positive cash flow that it makes more sense for me to remain a renter.

</blockquote>
Are your rentals in Irvine or elsewhere? I believe you have one in Vegas.

<blockquote>

Did he pay you to integrate his service into your testimony?

</blockquote>
Nope... IR2 actually hasn't even asked me for props. But his service deserves it.

<blockquote>

Is this now the singular property you own in Irvine or do you own more (rentals) here too?

</blockquote>
There is another... but that's more of a familial thing so it doesn't fall under the traditional landlord/tenant relationship.

<blockquote>

You do have the equity from the proceed of your noisy residence and not relying on the sale of your rental to purchase your future 3CWG home right?

</blockquote>
We lost quite a bit of money from the last house we sold (improvements, commissions, closing costs, deferred interest*)... whatever we have left, is no where close to enough for another down payment, hence the need to save again.



*Yes... we had an OptionARM loan. We could bear the burden of a full P&I payment but wanted to improve our cash flow for other things.



By my calculations, in 2 years, I don't think we'll need to sell this current house in order to purchase my 3CWG home... but we may anyways just to get rid of the headache. But maybe I'll want to be Mr. Landlord again. That's also why we chose 2+ years -- the whole primary resident tax exemption thing, prediction of price bottom and opening of new developments like Laguna Crossing. Knowing us, we'll probably buy again in the next year but we'll have to try to resist the power of the dark side.
 
Very interesting perspective from you IHO. I do admit that I did want to be a land lord for sometimes now. The thought of owning another house and having someone pay for it and at the end of the loan term it will be your free and clear sounds very tempting. So the idea of rent my current house out and move into another one did toss around my head for awhile now. The only difference is that I want to buy and move into it rather than rent a new place. What holding me back from buying is all the analysis and figures that Irvine Renter skillfully and continuing to discuss and demonstrate week after week. No doubt, that these threads or alike from IHB did save a lot of heartache for many people including me. I am patiently on the sideline and watching the market and not in a hurry at the moment.



A lot of really good suggestions from your post on being the land lord part.
 
[quote author="irvinebullhousing" date=1253338506]

A lot of really good suggestions from your post on being the land lord part.</blockquote>
We actually touched on this in the infamous $150k thread and it's probably something that should be discussed more since there are few members here who manage rentals.



When we initially rented out home out, we had hoped for a family instead of a group of students. The problem was the one set of applicants was a young couple with a child and they had a friend on the application as a renter. Their credit was not very good and we were more afraid of the financial complications than the cleanliness/maintenance ones. The students on the other hand, put their credit-worthy parents on the application and even had written letters on how they would take care of the house.



It would seem that a family would probably take care of a rental better but you never know. We had thought that the students (all girls) would be pretty clean... which it was to some extent except they had done some damage to the flooring.



From a pure investor perspective, not much Irvine housing is cash-flow positive enough to make it worth it. If you bought in the 90s and even up to 2003, you could use your primary resident as a rental (this is called PANDA-style) and move up but at current pricing... you'll probably get stuck in the second one (like we did). In retrospect, we should have probably just rented instead of buying another home in '05 and that would have ended up saving us more money.



Live and learn... and hopefully others can learn from it too.
 
If IHB existed in 05 then IHO would not have made a bad financial decision.



This should be a warning for the folks letting their emotion drives their decision. So what if you win the bidding war or bought that brand new home at inflated prices. Chances are you will find something else comparable for a cheaper price.



There is no such thing in Irvine called one of a kind or unique property so don't fool yourself that you just bought something rare. Listen to the expert here home prices are still falling. Wait after 2012.
 
IHO, thanks for sharing. You have put a lot of things in perspective for me. Is the rent on the QH home much more expensive than the mortgage payments on your rental?
 
[quote author="bkshopr" date=1253342787]If IHB existed in 05 then IHO would not have made a bad financial decision.

</blockquote>
Yes... I blame zovall and IR for not inventing a time machine and creating the IHB earlier.



Actually... if I were to timewalk further... I probably should have bought the next house in 2002. I think the prices were still fairly low but at that time we were trying to start our family so becoming real estate moguls was the last thing on our minds.
 
Why not buy something like a 4-plex for rental instead. Obviously that means 4 times as many tenants, but 4-plexes will sell based on being cash flow positive. You'll have to put 25% down, but you can probably buy an OC 4-plex for $500K or $600K and get about a 5% cash return on your down payment based on today's rents.
 
[quote author="Joe33" date=1253347672]Why not buy something like a 4-plex for rental instead. Obviously that means 4 times as many tenants, but 4-plexes will sell based on being cash flow positive. You'll have to put 25% down, but you can probably buy an OC 4-plex for $500K or $600K and get about a 5% cash return on your down payment based on today's rents.</blockquote>
One of my rentals in Vegas is a 4plex. I'm down about 50% but I'm still cash flow positive.
 
[quote author="Joe33" date=1253347672]Why not buy something like a 4-plex for rental instead. Obviously that means 4 times as many tenants, but 4-plexes will sell based on being cash flow positive. You'll have to put 25% down, but you can probably buy an OC 4-plex for $500K or $600K and get about a 5% cash return on your down payment based on today's rents.</blockquote>


Yeah right? Which city? Ive looked in HB, CM 4-plexes are over 1-mil... well, are you talking about garden grove, westminster? Thanks for sharing IHO...
 
[quote author="irvine_home_owner" date=1253328934]

For those of you who rent, do you usually stay longer than 1 year? </blockquote>


We are in a two year lease where we are now, and I would not do anything less than two years on a private party rental.



I also agree 100% on the try before you buy upside of renting. Similar to your experience with Quail Hill, we generally liked the location and community where we live now --- but you can never be sure if it is really *the* place until you actually live there. Now that we have lived here for a year we have confirmed that we not only really like the community, but also really love our immediate neighborhood. At this point we will be terribly disappointed if we cannot buy the home we are renting at some point, or one similar in the immediate vicinity. But it certainly could have gone the other direction, and if we ended up hating it we could just walk. As much as I want to eventually buy, I am firmly convinced that in 2009 Irvine renting is the way to go if you are not already a homeowner here.
 
[quote author="Joe33" date=1253347672]Why not buy something like a 4-plex for rental instead. Obviously that means 4 times as many tenants, but 4-plexes will sell based on being cash flow positive. You'll have to put 25% down, but you can probably buy an OC 4-plex for $500K or $600K and get about a 5% cash return on your down payment based on today's rents.</blockquote>


If the place is nice, you could even live in one of the units yourself and save that way as well, assuming your family and job situations allow that and you are ok with living in what is basically an apartment. Sure would make it easier to look after the place.
 
Living in our own home the past few days has me convinced that we can probably never be renters again.



I know for everyone it's different but I can't really describe the feeling of relief that we have not having to worry about breaking stuff or wanting to modify things. It's much less stressful and while we know we are basically "renting" from the bank... the bank isn't threatening you with a professional inspector who will use a blacklight to determine if you ever had your dog indoors. I'm spending way too much time doing small projects but there is a certain level of satisfaction that comes with even changing light fixtures in the bathrooms. I'm probably going to end up changing all the door knobs too... hopefully with the same style (in our last house, I bought two different door knobs to see how they would look, and then we decided to sell it and I never changed them out... hehe).
 
I think that people tend to put a premium on "owning". That is, they rather own a crappy place than rent a nice place. In my opinion, where you live is more important than how you hold title to the property. It's all about the quality of life.



I know a lot of happy/unhappy owners and renters. You just have to put some work into figuring out what works best for you.
 
What's funny is I'm actually trying to convince a relative to rent a nicer place than to buy some place they can afford right now.



I think the stress of keeping the "nicer place" nice is what got to us. When you have kids, you already have enough to worry about without adding the additional "Ooo... that's gonna hurt the deposit" factor. And there is no ticking clock... if something breaks, I can wait until 2012 to fix it... not the end of lease.



And on the flip side, I don't think I want to be a landlord any more either. Seeing how our home got neglected really makes us sad. Sure... it's wasn't our home for the last few years but it was at one time and I'm not comfortable with loaning it to people so they can tear it up. We'll see... there are just too many things that I'm fixing right now that makes me wonder what some renters think about. Like if I saw something leaking, I wouldn't just let it leak, I would tell the landlord instead of letting them discover it 4 months later.



usc: Do you have zero issues with your rentals?
 
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