Lake Forest New Home Buyer

NEW -> Contingent Buyer Assistance Program
Y

yodamoon_IHB

New member
Hello IHB readers,



I have turned to this site to seek your infinite wisdom ; )



I'm a 24 year old recent college graduate who works in Mission Viejo and lives with his parents in Lake Forest.



I recently found a property in Lake Forest that is similar to what I'm looking for.



<a href="http://www.redfin.com/CA/Lake-Forest/24311-Grass-St-92630/home/4838922">Redfin Link</a>



This is a large single family residence in the South County area for (What appears to me) a fair price. I ran the numbers on the calculator and it gives me a true cost to own of about $2,600 a month. The rental rates on a home of this size in Lake Forest float around this number.



I was thinking of purchasing the home and then having two roomates who would pay rent of $500-$600. I have the 20% down payment saved up. That would leave me with a $1,600 a month true cost to own, which I can definitely handle (I make about $55,000 a year). However, I obviously cannot afford such a home if I were to live alone...



I just wanted your folk's opinion on A) The House B) The value of me buying a SFR as opposed to a cheaper condo/apartment and C) If you think the home value would drop significantly. While it may be at rental parity, that doesn't mean it can't lose another 40K in value...



Thank you for your opinions!
 
[quote author="yodamoon" date=1226601420]Hello IHB readers,



I have turned to this site to seek your infinite wisdom ; )



I'm a 24 year old recent college graduate who works in Mission Viejo and lives with his parents in Lake Forest.



I recently found a property in Lake Forest that is similar to what I'm looking for.



<a href="http://www.redfin.com/CA/Lake-Forest/24311-Grass-St-92630/home/4838922">Redfin Link</a>



This is a large single family residence in the South County area for (What appears to me) a fair price. I ran the numbers on the calculator and it gives me a true cost to own of about $2,600 a month. The rental rates on a home of this size in Lake Forest float around this number.



I was thinking of purchasing the home and then having two roomates who would pay rent of $500-$600. I have the 20% down payment saved up. That would leave me with a $1,600 a month true cost to own, which I can definitely handle (I make about $55,000 a year). However, I obviously cannot afford such a home if I were to live alone...



I just wanted your folk's opinion on A) The House B) The value of me buying a SFR as opposed to a cheaper condo/apartment and C) If you think the home value would drop significantly. While it may be at rental parity, that doesn't mean it can't lose another 40K in value...



Thank you for your opinions!</blockquote>
Honestly, you'll have a hard time qualifying for the loan even with the 20% down with your income (that's even assuming that you have no other debts and perfect credit). Your income to the purchase price is about 7.5x times which is way too high (I mean, you are talking about getting roommates to bring out the costs). Have you factored property taxes, insurance, and repairs & maintenance expenses into your calculation? Honestly, if you do buy something look for it to be no more than 4x times your annual income. Wait a couple of years, your income will probably increase and prices of homes like this one will decrease.
 
You can get enough opinions on the value of the home, so I will give my opinion on the roommates to make the payment issue.



It's great. That is how I made the payments on my first home. What a deal, but get a once a week house cleaner to keep peace.
 
[quote author="yodamoon" date=1226601420]Hello IHB readers,



I have turned to this site to seek your infinite wisdom ; )



I'm a 24 year old recent college graduate who works in Mission Viejo and lives with his parents in Lake Forest.



I recently found a property in Lake Forest that is similar to what I'm looking for.



<a href="http://www.redfin.com/CA/Lake-Forest/24311-Grass-St-92630/home/4838922">Redfin Link</a>



This is a large single family residence in the South County area for (What appears to me) a fair price. I ran the numbers on the calculator and it gives me a true cost to own of about $2,600 a month. The rental rates on a home of this size in Lake Forest float around this number.



I was thinking of purchasing the home and then having two roomates who would pay rent of $500-$600. I have the 20% down payment saved up. That would leave me with a $1,600 a month true cost to own, which I can definitely handle (I make about $55,000 a year). However, I obviously cannot afford such a home if I were to live alone...



I just wanted your folk's opinion on A) The House B) The value of me buying a SFR as opposed to a cheaper condo/apartment and C) If you think the home value would drop significantly. While it may be at rental parity, that doesn't mean it can't lose another 40K in value...



Thank you for your opinions!</blockquote>


I think this house probably ends up selling for around $500K, maybe a smidge more. Recent sales have put that immediate area back into late 2003 price territory and $510Kish on this place would be the equivalent...
 
A) The House



I'm not as bearish as others here, so FWIW, that looked to be a good deal. I see that IPO thinks it will get bid higher, so may be worth a call to the listing agent to see if they have any offers. If there aren't any above the asking price, there's no harm in submitting an offer outside of the fact that you will get in inquiry on your credit reports because you will have to get a preapproval to submit with the offer. Will your parents sign with you? You need another borrower with good credit and some income to make up for the fact that your income isn't enough to qualify for 80% of this. Your max loan amount, if you don't have any other debt probably won't be higher than $247K





B) The value of me buying a SFR as opposed to a cheaper condo/apartment



If you can swing an SFR and you don't mind the extra maintenance and costs of maintenance, then that is definitely the way to go. SFR's depreciate less in declining markets than condos and they appreciate more in appreciating markets.





C) If you think the home value would drop significantly.



If you consider $40K significant, then maybe. However, it's hard to imagine a 5bd sfr in lf going for $380K, but then again I never thought they would be selling for $900K.
 
You are only 24. I certainly admire your forward planning at such a young age. I became a homeowner much later in life. I have some wisdom I would like to share with you. Your first job is only a stepping stone in preparing you for a rewarding career. Your future career will likely requires you to relocate.



I would not recommend you buying at this time because the price exceeds 4x your salary.



Living with roommate is a nightmare because my niece and nephew both had to resort to this method in order to make mortgage payments. They are a lot happier now by having no roommate even though they hold 2 jobs to meet their expenditure. Peace and privacy are priceless. People want to own their home because of they want to have control over their own destiny but having roommate violates the primary principle of owning.



Owning your home limit your career mobility. Job relocation is one of the common reason people selling their home. The sellers are desperate and often compromise to a reduced selling price.
 
Regardless of how much more I think the price of the SFR is going to fall (and it is more than the people above), what bkshopr said is really true.



You will have great difficulty selling any house for 5-9 years. You will be stuck there.



The economy is changing rapidly, and you will likely have to change jobs (unless you have a very permanent job???). If you get a job in LA or SD, will you want to commute from Lake Forest?
 
[quote author="bkshopr" date=1226624176]

Owning your home limit your career mobility. Job relocation is one of the common reason people selling their home. The sellers are desperate and often compromise to a reduced selling price.</blockquote>


Excellent point, especially valid as we are in a recession that could last quite some time.



Career mobility/flexibility was exactly why I didn't buy a place in my 20's. Back in '98 I was offered a retention bonus by my company to temporarily relocate to San Diego (from LA, was living in Santa Monica) for a year to help with a merger we were doing... That bonus amounted to two-thirds of my annual salary and I of course jumped on the chance. If I would have owned a place, it might not have worked out that way.
 
<img src="http://i-0.rfimg.us/photo/46/bigphoto/454/S553454_1.jpg" alt="" />



This house was built in 1965. Construction was terrible during this era. It would not be fun to substitute your dating lifestyle with home repair and gardening chores. It is no fun dragging your date to home improvement events and living at such a close proximity to your parents.



I do congratulate you for having good relationship with your parents. I sensed it from your post. I also sense that they are helping you in many other facets of your life and this may be perhaps the primary reason you chose to settle down at this location. Having a laundry room is not at the top of your priority?
 
I do like this house and location. I am in the same boat as you and I have pretty much decided that I can handle having one roommate rent from me, but not ever more than 1.



Also, if I can't cover all costs on my own or very closely on my own I will not touch it. I just don't want to leave whether or not I can pay my mortgage that month on two different people who may or may not have a good month.



I also doubt you'd be able to qualify for this place on the basis of roommate income as others have said.



Have you checked out Foothill Ranch a little further down Bake? Its newer than Lake Forest with many smaller places as well as SFR's.
 
Those 'rent to roommate' situations typically result in very high turnover of tenants, especially among younger people. I would assume that your room is going to be vacant at least 20% of the time.
 
[quote author="usctrojanman29" date=1226617956]Honestly, you'll have a hard time qualifying for the loan even with the 20% down with your income (that's even assuming that you have no other debts and perfect credit). Your income to the purchase price is about 7.5x times which is way too high (I mean, you are talking about getting roommates to bring out the costs). Have you factored property taxes, insurance, and repairs & maintenance expenses into your calculation? Honestly, if you do buy something look for it to be no more than 4x times your annual income. Wait a couple of years, your income will probably increase and prices of homes like this one will decrease.</blockquote>
He did use the IHB calculator to come up with his $2600 monthly which does have some costs he won't be incurring (I don't believe there is an HOA where this house is).



However, usc is correct that you should really try to find something within your DTI as today's climate will not be easy to qualify in.



Have you spoken to a lender about prequal? You should really set up your financing first so that when a good deal comes along, you are prepared to pounce on it. Nowadays, homeowners are more wary of you who they are selling to as they don't want to get mired in escrow only to have it fall out when the buyer can't obtain financing.



Even if you do put in an offer... yours might get rejected over another offer that has a more solid financing package.



And even if you don't get this one... don't worry... more are coming... and in Lake Forest... they'll get cheaper.
 
Thank you for your opinions all =)



The qualification isn't a huge problem, as my parents are willing to co-sign with me. My father views it as a.. what did he call it... "Decent place to hide money for the future?" *laughs* So I can definitely afford to finance the house between the two of us. If absolutely necessary, they can just mortgage the house on their own (But obviously I'd rather be involved). The "roomate income" is more just how I'd attempt to cover all of the expenses on my own. There's also that handy $7,500 federal tax credit that would be nice to take advantage of before July of '09.



I've noticed no one really mentioned the possiblity of just renting this place out entirely. If my job relocated, or I had to go back to school for another degree, or what have you... I could just rent the place out to a family easily enough. At $2,600 a month, such a large home in Lake Forest would be a rental steal. (I could probably charge more) As for the duties of a landlord, I have my wonderful family living in the area who can serve that purpose if I'm unable to come back when needed. I also have the advice of another family friend who is a landlord of three SFR's in Dana Point and Corona Del Mar. He is the pushing for me to buy the SFR. He said they're easier to rent to OC familiies.



So I'm not worried about finances really, I understand there's no way I could afford the home on my own. I just wanted to see the opinion of the group here if this home would likely fall significantly anytime soon.



Some other issues you brought up: I have a pool at home, and I maintain it, it's not that bad. Unless it has structural cracks, but this one looks newer than the 1965 home it sits behind. As for the house being old, yes it is. It probably doesn't have central air and all of that good stuff. The pictures on Redfin don't tell a full story.



Lastly, while any ladies in my life may be offput by the idea of our 3rd date involving painting my living room, at least I'm not bringing her back to my my parent's place to spend the night in the bedroom I've had since I was 2. Besides, running single at the moment anyway ; )
 
[quote author="bkshopr" date=1226624176]You are only 24. I certainly admire your forward planning at such a young age. I became a homeowner much later in life. I have some wisdom I would like to share with you. Your first job is only a stepping stone in preparing you for a rewarding career. Your future career will likely requires you to relocate.



I would not recommend you buying at this time because the price exceeds 4x your salary.



Living with roommate is a nightmare because my niece and nephew both had to resort to this method in order to make mortgage payments. They are a lot happier now by having no roommate even though they hold 2 jobs to meet their expenditure. Peace and privacy are priceless. People want to own their home because of they want to have control over their own destiny but having roommate violates the primary principle of owning.



Owning your home limit your career mobility. Job relocation is one of the common reason people selling their home. The sellers are desperate and often compromise to a reduced selling price.</blockquote>


I agree with bkshopr. I waited until much later to buy my first home that I could have bought at this age. Don't forget the word "mortgage" has the word "mort" and that means death in French. Have fun while you are young, at least for a while. Don't rush into this mortgage business.
 
[quote author="yodamoon" date=1226647092]Thank you for your opinions all =)





So I'm not worried about finances really, I understand there's no way I could afford the home on my own. I just wanted to see the opinion of the group here if this home would likely fall significantly anytime soon. Besides, running single at the moment anyway ; )</blockquote>




OK, I was trying to relay reasons it might not be right for you given your life stage, but here is my opinion on the value:



Over the next two years, the economy is going to become worse, and rents for older houses in LF will fall.



You will have difficulty finding reliable renters willing to pay more than $1600 for that house. You may find renters willing to pay $2500, but the place will be trashed from the two or three families sharing it.



Families with $100k steady incomes will be able to buy in better areas than LF, with better schools and shorter commutes.



The price of comparable houses will fall to ~$100/sf, so low $200s for a similar place.



The price of comparable houses will not reach $400k again until ~2018.
 
Honestly, I'd get a small condo in a VERY nice area and pay it down as fast as I can. That way it will be cheap to carry if you have to, as well as a nice place to own. Houses are nice, but I don't think you or your parents understand the entire costs of renting out, maintence and of course contingency funds. Ever had to replace a water heater on a Sunday? How about a leak? Earthquake?



PLUS you also have to think about your parents. They are not as young as they used to be (i'm more than a few years older) and (God Forbid) anything happen to them or even one, then all the plans might be in vain. Start off small and work up, nothing says you have to jump into the deep end just yet. Plus you can always build up with small items to big items.



If you're going to take a risk, minimize all the unknown factors... NOT maximize.



good luck

-bix
 
[quote author="yodamoon" date=1226647092] At $2,600 a month, such a large home in Lake Forest would be a rental steal. (I could probably charge more) </blockquote>


Are you guessing at this or do you have MLS data on closed leases to support the conclusion?



I ask because I don't think $2600 is a steal at all for 2000sf of 60's pad near the 5 freeway in Lake Forest... Scanning Irvine rentals as a basis for comparison, there are a number of 2000sf 4 bedroom places in older parts of Irvine, Brady Bunch Northwood, Walnut, etc. that rent for $2600-2700. Why would someone pay a premium to rent this older home in Lake Forest? The elementary school that serves this house (Gates) is primarily hispanic, mediocre test scores, etc. The junior high is decent, for Saddleback, but again, inferior to the IUSD counterparts servicing Irvine rentals in the same price range.



As rents are decreasing, in the short to intermediate term at least, I think a place like this in LF is more likely headed down to the $2000-2200/month range vs. the $2600+ per month you are expecting. Even at a price of $399K, which you wouldn't be able to get, it still doesn't pencil out as an investment property.



Check out this rental listing at 25122 Paseo Cipres in LF:



<img src="http://p.rdcpix.com/v01/l7a72bb41-m0m.jpg" alt="" />



Listed at $2600. It's 2600sf and 13 years newer. It's in a better part of LF I presume, by Bake and Trabuco, and been on the rental market for over 70 days. Suggests again that a price of $2600+ on your target property is too optimistic.
 
[quote author="freedomCM" date=1226650074][quote author="yodamoon" date=1226647092]Thank you for your opinions all =)





So I'm not worried about finances really, I understand there's no way I could afford the home on my own. I just wanted to see the opinion of the group here if this home would likely fall significantly anytime soon. Besides, running single at the moment anyway ; )</blockquote>




OK, I was trying to relay reasons it might not be right for you given your life stage, but here is my opinion on the value:



Over the next two years, the economy is going to become worse, and rents for older houses in LF will fall.



You will have difficulty finding reliable renters willing to pay more than $1600 for that house. You may find renters willing to pay $2500, but the place will be trashed from the two or three families sharing it.



Families with $100k steady incomes will be able to buy in better areas than LF, with better schools and shorter commutes.



The price of comparable houses will fall to ~$100/sf, so low $200s for a similar place.



The price of comparable houses will not reach $400k again until ~2018.</blockquote>


Freedom, are you having a bad day? In 1998 a crappy two bedroom apt in LF was $1200/mo. In 2001, during the recession, albeit mild, you couldn't even rent a room in LF for less than $500. A 5 bd house in 2009 is not going to rent for $1,600. I'll bet you two avocados and 5 tomatos :)
 
You must log in or register to reply here.
Back
Top