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jefa_IHB

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I have a "hypothetical" scenario I want your guys advice on:



Condo with 460k left of a loan on it, that can generate 300k+ equity in a sale. (760 take home after all fees) (this is in a coveted area that has seen 15% price decline thus far... might have hit bottom, might have way more to go)

Total out of pocket cost per month to keep condo $3750. (w/ taxes and hoa. Does not consider tax savings, just out of pocket)

Condo will rent for $3500, safely. Maybe more.



I will eventually need to purchase a house, but can rent in the interim. How much should I pay in rent for it to make sense that I'm not living in the condo? Under 3k? or at $3750. Sell now? Or keep forever as an investment? We've outgrown the space, so living in it ourselves is not really an option. What are my real out of pocket costs per month... maybe only 3k? My tax bracket fluctuates, but let's say 25% (on the low side).



If housing prices fall so that they wipe out my equity... then I can buy a house with what I have saved outside of condo ownership. If housing prices stay where they are now, I need the equity. If housing prices rise, I'll wish I'd kept the condo to have more equity to buy.



Thoughts?
 
What makes you so sure you could rent your condo for 3500? I'm having trouble with that, especially since you think you could get 760k for it. I'm sure someone will do the GRM numbers for you - not me, sorry - but this just doesn't compute.
 
[quote author="jefa" date=1211700880]Condo with 460k left of a loan on it, that can generate 300k+ equity in a sale. (760 take home after all fees) (this is in a coveted area that has seen 15% price decline thus far... might have hit bottom, might have way more to go)

Total out of pocket cost per month to keep condo $3750. (w/ taxes and hoa. Does not consider tax savings, just out of pocket)

Condo will rent for $3500, safely. Maybe more.

</blockquote>


In this market, I have hard time seeing a condo going for over 800K (760 + 6% fees + closing costs), unless you have some prime views of the ocean. Either way, I'd say sell and rent and withdraw any equity you have. Then rent and save until the market bottoms. You'll be in a prime position to buy at that time..
 
Depends on the hypothetical location. You don't have enough details to really give an answer and from the tone of your note, I suspect you've already made up your decision. Terms like 'coveted', 'might have hit bottom', usually means the poster has a decision and it's 'the market will rebound'.



Here's the short answer. When the back of the envelope quicky optimistic calculation has you being short every month, ($3750- $3500= -$250) it's usually not a good investment.



It may be close, but in general, the quicky calcs tend to have rents 10-20% too high, no expenses, and no vacancy. So while with taxes, the loss get's sheltered, you still in reality end up sticking in an additional $5000 or more a year to keep holding it and having someone else there.
 
No_Such_Reality,



Actually I'm pretty sure I'm going to sell, but I'm just nervous about it. I have a buyer, and it should be an easy selling process (someone who's been eyeing my place for a long time... no realtor fees). I haven't even looked into finding a renter. My neighbor just rented his unit for $3200, and it is 100 sq feet smaller and much less swanky than mine. (His is 1350 sq feet, mine is 1450 sq feet). Condos near me have been sitting on the market, but recently there's been a burst of sales, so who knows what all of that means.



Also, I'm not in Irvine, but the guys writing here seem the most educated, so I posted here. Sorry for barging. My financial advisor/tax planner just got back to me, and he thinks we have hit bottom and I should rent the place out. He says if I can rent it out for over 3K, I'll essentially break even (accounting for the tax deduction I get from the mortgage and tax payments) The thing is, if housing prices DON'T fall more than 35% then I'm going to need the equity to be able to purchase a home. The current plan is to rent for two years then buy a house. So, does it make sense to rent my condo out for two years and then sell? My guess is no.



I'm a bear, always have been. I guess the only thing that makes me jumpy, is I was so wrong about the housing market when it went up. We moved out here at the beginning of the boom, and luckily we bought, but at the time I thought it was a stupid, stupid move. As prices appreciated, I thought everyone had lost their mind. Now they are going down, and I feel validated... but I think I have Post Traumatic Boom Disorder. I fear that prices will whipsaw back up the moment I sell, and I _really_ will be screwed and never able to get a house. Of course, if prices DO fall that dramatically, then I can buy a house without my condo equity, AND keep my condo as an investment vehicle. On the other hand... if they do fall that dramatically, then I should sell now and buy a property later for rental income (which makes me realize, I really don't want to be a landlord for a living, I just like my condo). The point is... prices are going all over the place quite dramatically. I thought housing prices were supposed to go nice and slow, is this price fluctuation the new reality? It screws up my brain.



Maybe I should suck it up and make the condo work for another two years, and then sell. My current real out of pocket per month is around $2700 (b/c of tax savings), and 2+beds in my area that rent for that price are CRAP.



Ugh. Too many big decisions. That's why I tried to keep the first post simple. So I should sell and rent for two years, right? I should spend less than 3k a month on rent for that interim two years, right? I can do the crappy college-type lifestyle for the short term.
 
Are you sure your CPA calculated the tax savings correctly? You won't get to itemize your mortgage any longer. Instead you will do a schedule E. The rent is income offset by deductions.
 
[quote author="jefa" date=1211950913]

Ugh. Too many big decisions. That's why I tried to keep the first post simple. So I should sell and rent for two years, right? I should spend less than 3k a month on rent for that interim two years, right? I can do the crappy college-type lifestyle for the short term.</blockquote>


Depends. For your situation, the old phrase that comes to mind is "A bird in hand..."



I faced a similar choice a couple years back when I sold. It's still a toss up on whether it was right or not, I have more in the bank but my rent is now more than my former PITA for a comparable place.



If you have a buyer lined up, it seems like an easy sell, but what comes next?



Having sold done the post-college college lifestyle thing myself, my operative advice would be really think through where and how you're going to live. In your first post you said we've outgrown the space. In the last post, you mention living the college lifestyle.



My second thought would be that once you've lived in a nice place, do not underestimate the impact not having the swanky place will have once you downgrade. It's depressing. Downgrading digs is just that, a lifestyle downgrade. Is a downgrade from swank to 'crap' worth $300/month?



If you wait, the buyer may not be there. If you go, you may be living in crap for the next few years and hating it. If it's WE, and not 'me', talk to the WE, cuz the WE will have their own thoughts on any lifestyle change.



If you're in an HCOL market like SF/NYC, really think through your rent decision. And if you're in a regular rent market, I'd strongly suggest touring prospective rentals before you make a decision. Not one, not two, a dozen at the price point you think you want. Here in OC, the rental market is nuts and all over the place. More importantly, junk sits and decent places disappear horribly fast making competition for nice places pretty fierce unless you are living in the big complexes. Here, when you casually look around it seems like you can rent a nice place for $2300, but when you gotta go, you can't find a nice one for under $2500.
 
No, I'm not sure he did. But it seems about break even to me, as well. I have around $600 going to principal, so I would assume under his scenario of housing prices staying flat or appreciating, I would come out at least even.
 
[quote author="No_Such_Reality" date=1211953193]

If you're in an HCOL market like SF/NYC, really think through your rent decision. And if you're in a regular rent market, I'd strongly suggest touring prospective rentals before you make a decision. Not one, not two, a dozen at the price point you think you want. Here in OC, the rental market is nuts and all over the place. More importantly, junk sits and decent places disappear horribly fast making competition for nice places pretty fierce unless you are living in the big complexes. Here, when you casually look around it seems like you can rent a nice place for $2300, but when you gotta go, you can't find a nice one for under $2500.</blockquote>


Yeah, this is what has me nervous.



As for my swanky place, it's great for a couple, but now I have a kid. And the swank doesn't work for kid. The size is fine, but the swank is unworkable. I need something practical. So, I could actually downgrade to ugly, clean, and practical. Or try to find something nice, fancy, and also practical. At $5k there's tons! :) At $2500 I can find stuff that works but it's not private, and I've grown used to playing my television at full blast.



The good rental stuff in the dream range does go fast. I'd have to roll the dice and hope luck sticks with me when I know what my official move date would be. Or sign early and hope my sale goes through.
 
Just wanted to give you guys an update. I committed to the sale. Sale price was 10% below peak. Condo was in Pasadena. 2bd, 2ba around 1500 sq ft. We're renting in Seattle now. $2400 for a 3200 sq foot house with 4 beds and 3 bath, fully furnished, viking stove, etc etc. I am very happy.



Now... where do I put my equity? What's safe? How long should I wait to buy? What would you do?
 
You should also take into account of the new tax law that affects rental properties.

<a href="http://www.signonsandiego.com/uniontrib/20080810/news_1h10harney.html">http://www.signonsandiego.com/uniontrib/20080810/news_1h10harney.html</a>
 
[quote author="jefa" date=1220835977]Just wanted to give you guys an update. I committed to the sale. Sale price was 10% below peak. Condo was in Pasadena. 2bd, 2ba around 1500 sq ft. We're renting in Seattle now. $2400 for a 3200 sq foot house with 4 beds and 3 bath, fully furnished, viking stove, etc etc. I am very happy.



Now... where do I put my equity? What's safe? How long should I wait to buy? What would you do?</blockquote>


You should talk with a qualified financial planner. We have no clue what your goals are, and unless someone here is a qualified fianancial planner willing to give you free advice, and you're willing to disclose a hell of a lot more detail than you already have, I'm not really sure what info you are looking for. Are you thinking retirement, are you thinking how to leverage some cash to buy investment properties in other states, etc. Your questions are just so broad, that I really think you're asking the wrong place.



But I did enjoy reading your original post. Glad things seem to have worked out.
 
[quote author="JLegend" date=1220841528][quote author="jefa" date=1220835977]Just wanted to give you guys an update. I committed to the sale. Sale price was 10% below peak. Condo was in Pasadena. 2bd, 2ba around 1500 sq ft. We're renting in Seattle now. $2400 for a 3200 sq foot house with 4 beds and 3 bath, fully furnished, viking stove, etc etc. I am very happy.



Now... where do I put my equity? What's safe? How long should I wait to buy? What would you do?</blockquote>


You should talk with a qualified financial planner. We have no clue what your goals are, and unless someone here is a qualified fianancial planner willing to give you free advice, and you're willing to disclose a hell of a lot more detail than you already have, I'm not really sure what info you are looking for. Are you thinking retirement, are you thinking how to leverage some cash to buy investment properties in other states, etc. Your questions are just so broad, that I really think you're asking the wrong place.



But I did enjoy reading your original post. Glad things seem to have worked out.</blockquote>


I just want somewhere to park my money for the next couple of months while we figure out what we're doing. Ideally, we'd buy our dream house in January, as we're having kid #2 in March. But as we are looking in the over 800k housing group, I feel like I would be making a very dangerous move. I just don't like moving the kids around so much. But what can you do?



My financial advisors will tell me to invest in the stock market, as "Now is a great time to buy!" But they make money off of me when I invest, so that's a conflict of interest. They do well in general, my portfolio is as sound as is possible these days. They didn't fail me in the dot com bust, or this bust, so they aren't completely crazy. I just don't think they get how bad the housing market is. They told me after subprime that the banks had "written down" all the bad debt. Their graphs tell them "historic worst case scenario" and we've already matched that. They also are based in Georgia, so they have a different perspective than us Californians have. They might be right... but I'd rather be safe.



Anyway, I'm just looking at something with the best return but that is very very safe in the short term. (I know, not possible). I was thinking of opening a short term USAA cd. Bankrate says H&R Block interest bearing checking accounts are very safe. Other people tell me to put my money in treasuries. Other people are telling me that there are different accounts that are insured by some entity that isn't the FDIC, and to avoid FDIC places as FDIC is going to go bankrupt. (My financial advisors would never believe that).



You guys are the most bearish people I know, so I figured I'd ask you, then I can tell my financial advisors and see what arguments they use to talk me out of it.
 
[quote author="jefa" date=1220842612][quote author="JLegend" date=1220841528][quote author="jefa" date=1220835977]Just wanted to give you guys an update. I committed to the sale. Sale price was 10% below peak. Condo was in Pasadena. 2bd, 2ba around 1500 sq ft. We're renting in Seattle now. $2400 for a 3200 sq foot house with 4 beds and 3 bath, fully furnished, viking stove, etc etc. I am very happy.



Now... where do I put my equity? What's safe? How long should I wait to buy? What would you do?</blockquote>


You should talk with a qualified financial planner. We have no clue what your goals are, and unless someone here is a qualified fianancial planner willing to give you free advice, and you're willing to disclose a hell of a lot more detail than you already have, I'm not really sure what info you are looking for. Are you thinking retirement, are you thinking how to leverage some cash to buy investment properties in other states, etc. Your questions are just so broad, that I really think you're asking the wrong place.



But I did enjoy reading your original post. Glad things seem to have worked out.</blockquote>


I just want somewhere to park my money for the next couple of months while we figure out what we're doing. Ideally, we'd buy our dream house in January, as we're having kid #2 in March. But as we are looking in the over 800k housing group, I feel like I would be making a very dangerous move. I just don't like moving the kids around so much. But what can you do?



My financial advisors will tell me to invest in the stock market, as "Now is a great time to buy!" But they make money off of me when I invest, so that's a conflict of interest. They do well in general, my portfolio is as sound as is possible these days. They didn't fail me in the dot com bust, or this bust, so they aren't completely crazy. I just don't think they get how bad the housing market is. They told me after subprime that the banks had "written down" all the bad debt. Their graphs tell them "historic worst case scenario" and we've already matched that. They also are based in Georgia, so they have a different perspective than us Californians have. They might be right... but I'd rather be safe.



Anyway, I'm just looking at something with the best return but that is very very safe in the short term. (I know, not possible). I was thinking of opening a short term USAA cd. Bankrate says H&R Block interest bearing checking accounts are very safe. Other people tell me to put my money in treasuries. Other people are telling me that there are different accounts that are insured by some entity that isn't the FDIC, and to avoid FDIC places as FDIC is going to go bankrupt. (My financial advisors would never believe that).



You guys are the most bearish people I know, so I figured I'd ask you, then I can tell my financial advisors and see what arguments they use to talk me out of it.</blockquote>
Either spread the money across CDs or pick up some Fannie/Freddie MBS bonds to get a higher yield.
 
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