Should I buy this condo?

R

Raptor_IHB

New member
I submitted an offer for a short-sale condo a few months ago and the bank approved it yesterday. Now I am kind of having a second thought on this purchase and I'm wondering if I could get some advice from this forum.



The condo is near Harvard and Warner, on Tustin side but Irvine schools, 1760 sqft, built in 2007, 1 common wall (3 units in the building), decent price of about $270/sqft. I like the house and the neighborhood, but my biggest concerns are:



1. High HOA: $390/mo

2. High Mello Roos: $4k/yr



The monthly payment before tax savings turns out to be about equal to if I bought a $560k older house ... So I'm wondering how should I think about this investment - should I discount the mello roos & HOA for the next xx number of years and add them to my purchase price? Would I have trouble pass on this high HOA and high mello roos to the next buyer if I decide to sell, say 5 years down the road?



I did a "rent' or "buy" calculation, assuming it cost me $2500 to rent the same place, if I buy it, my total monthly expense (interest, HOA, mello, tax net of tax savings, excluding principle portion of the mortgage) turns out to be about $2350/mo. So if I assume that the house price stays flat, I still can break-even with renting since my monthly expense is slightly cheaper than renting (this is of course not considering the interest that I'm forgoing on my 20% downpayment).



Any input, opinions, suggestions are welcome.

R.
 
in my opinion rent vs. buy is a bit misleading in our current times. It might have been a useful tool in the past but i think people forget that rent is not fixed. It has been super inflated these past 7-8 yrs just like home prices.
 
[quote author="Raptor" date=1240533106]I submitted an offer for a short-sale condo a few months ago and the bank approved it yesterday. Now I am kind of having a second thought on this purchase and I'm wondering if I could get some advice from this forum.



The condo is near Harvard and Warner, on Tustin side but Irvine schools, 1760 sqft, built in 2007, 1 common wall (3 units in the building), decent price of about $270/sqft. I like the house and the neighborhood, but my biggest concerns are:



1. High HOA: $390/mo

2. High Mello Roos: $4k/yr



The monthly payment before tax savings turns out to be about equal to if I bought a $560k older house ... So I'm wondering how should I think about this investment - should I discount the mello roos & HOA for the next xx number of years and add them to my purchase price? Would I have trouble pass on this high HOA and high mello roos to the next buyer if I decide to sell, say 5 years down the road?



I did a "rent' or "buy" calculation, assuming it cost me $2500 to rent the same place, if I buy it, my total monthly expense (interest, HOA, mello, tax net of tax savings, excluding principle portion of the mortgage) turns out to be about $2350/mo. So if I assume that the house price stays flat, I still can break-even with renting since my monthly expense is slightly cheaper than renting (this is of course not considering the interest that I'm forgoing on my 20% downpayment).



Any input, opinions, suggestions are welcome.

R.</blockquote>


I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.
 
[quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560
 
[quote author="Raptor" date=1240540484][quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560</blockquote>


Don't you have to pay tax on interest? And who pays 5%?
 
AI - I guess you are right, if I give 2% interest, and add tax on that. Total loss on interest is $120/mo - that makes cost to own down to $2280/mo. Compares even more favorably against renting.
 
[quote author="Raptor" date=1240540484][quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560</blockquote>


Why did you exclude maintenance? Does the unit have some special perpetual appliances that never age or break-down?



And BTW, Columbus Grove is a crappy neighborhood that will not hold up well value wise...
 
I'm still in escrow, so I don't have the exact figures, but the Mello Roos + HOA alone on that condo will just about equal my total payment (including all taxes and insurance) for my 4 bed/2 bath 1,800 sq foot house with a 3 car garage on an 8k+ sq ft lot here in a good neighborhood in Riverside. Geez.
 
[quote author="ipoplaya" date=1240541985][quote author="Raptor" date=1240540484][quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560</blockquote>


Why did you exclude maintenance? Does the unit have some special perpetual appliances that never age or break-down? </blockquote>


Ok, I'll bite... how much do YOU budget every month for broken appliances? The condo costs cover the insurance, roof, exterior plumbing and landscaping. The only costs would be light bulbs and broken down kitchen appliances. The builder warranty covers the rest for 10 years. Ok, 8 more years since the place is two years old.



To Raptor, do you have small kids? If so, its a great area to have a young family. If you don't plan on having kids you may want to re-think paying the Mello Roos, taxes, etc for a place like that and move to an older area. The proximity to 99 ranch, the district, diamond jamboree etc is great, but you can get that from a Westpark condo as well. For me, the Harvard street area (Tustin Field, Westpark, CG, Westpark II) is the only location to live if you're gonna be in Irvine (**disclaimer, YMMV, everyone is different, etc). I don't personally like the Irvine side of CG, with those lovely lots that back to trash and concrete with power lines overhead all at the same time but the Tustin side has some really nice spots.
 
[quote author="ipoplaya" date=1240541985][quote author="Raptor" date=1240540484][quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560</blockquote>


Why did you exclude maintenance?

</blockquote>


HOA covers maintenance. If it's your own stuff inside then you have to pay for that if renting anyway.
 
Do you already itemize your taxes? If not, consider how much over the std deduduction the interest and tax puts you (only $10k), so your real tax savings are reduced if you don't already itemize to say 40% rate times $10k, so $330/month. why did you pick 25% tax savings?



and btw, the tax savings is too high, even at 25%. $1516 interest, plus $440 tax = $489
 
[quote author="Raptor" date=1240540484][quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560</blockquote>


This is getting closer. As Ipoplaya noted, you can't ignore maintenance. You will spend something on keeping up this property other than routine cleaning. If you have absolutely no exterior maintenance responsibilities, this number might be small, but it will not be zero.



You can put in a lower amount for lost interest on your downpayment to reflect today's horrible interest rates on savings and the taxes on that interest, but that is not a permanent situation. If we start having inflation and higher interest rates, the lost interest could be quite significant.



Also, the tax savings are generally 10% under your highest marginal tax rate. You may be at or near the highest tax bracket, so the 25% number may be good for you, but if you are not hitting those tax brackets, this number should be reduced.



Realistically, your cost of ownership should be about $2,750 a month, but you will have a monthly cash burden of $3,250, so be prepared for that much money going out.



Perhaps I need to do a post revisiting the gross rent multiplier. If people are getting 4.88% interest rates, that does raise the GRM and the values at rental parity. We may now be closer to 175 than 160.
 
I am in agreement with a lot of the other notes in this thread regarding rent v. buy. My only 2 cents is on the rental assumption:



A) Have you checked into craigslist etc. to see if $2500 is a reasonable rental assumption for this size property? It seems a little high to me.



B) For the time being, let's assume your rental assumption is correct. I think if/when you rent this out, it is reasonable to assume that the property will be vacant two to three months out of a year. So unless you find yourself to be extremely lucky in finding renters who would stay and keep renewing ad inifinitum, I would recommend adjusting your rental assumption for a 9- to 10-month average occupancy, i.e. adjust the monthly rental figure to the range of 9/12 * 2500 to 10/12 * 2500 = $1,875 - $2,083. This is a more conservative approach that better reflects the reality of the rental marketplace.



Sorry to harsh your mellow...





[quote author="Raptor" date=1240540484][quote author="IrvineRenter" date=1240536352]



I question the accuracy of your math. A $2,500 rent on a property with high HOA and Mello roos would be lucky to break even at $400,000. I don't see how it could possibly break even at $560,000. Put your numbers into the calculator on the main blog and see what it tells you.</blockquote>


Here's my calculation (added in the lost on interest on downpay, total cost becomes higher than rent $2500/mo)



Items Annual Rate Dollar Amount

Purchase Price $480,000.00

Downpayment 20% $96,000.00

Mortgage 80% $384,000.00

Interest Rate 4.88%



Monthly Mortgage $2,032.16

Monthly Property Tax 1.10% $440

Monthly Mello Roos 0.90% $360

HOA $390.00

Maintenance 0% $0.00

Total Monthly Cash Out $3,222.16

--------------------------------------------------------------

Tax savings 25% ($590)

Payment toward Principle ($472.16)

Lost Interest on Downpay 5% $400

--------------------------------------------------------------

Total Cost of Ownership $2,560</blockquote>
 
[quote author="Goofy" date=1240545266]



Ok, I'll bite... how much do YOU budget every month for broken appliances? The condo costs cover the insurance, roof, exterior plumbing and landscaping. The only costs would be light bulbs and broken down kitchen appliances. The builder warranty covers the rest for 10 years. Ok, 8 more years since the place is two years old.



</blockquote>


Who covers the cost of interior plumbing, electrical, HVAC? Don't you think carpet wears out and needs to be replaced? How about interior fixtures and finishes? Will the HOA come inside and repaint?



I don't budget anything for broken appliances because I rent. In the nine months that I've been in the rental, someone has come to fix the dishwasher, the AC unit and GE came twice to repair the oven. Those four visits probably cost my landlord $600-800...



Having owned a new condo, I'd probably put maintenance expense/reserve at $100-150 per month.
 
[quote author="ipoplaya" date=1240552453]



Having owned a new condo, I'd probably put maintenance expense/reserve at $100-150 per month.</blockquote>


$100-$150 per month at Wisteria?!?! I owned a new Cal Pac condo for 4 years and my total maintence bill for that entire time was $0.
 
[quote author="High Gravity" date=1240555185][quote author="ipoplaya" date=1240552453]



Having owned a new condo, I'd probably put maintenance expense/reserve at $100-150 per month.</blockquote>


$100-$150 per month at Wisteria?!?! I owned a new Cal Pac condo for 4 years and my total maintence bill for that entire time was $0.</blockquote>


You must have had some pretty dirty carpets and HVAC filters if you didn't spend a dime in four years HG.



Part of my estimate was current expenses, e.g. changing HVAC filters, replacing broken sprinkler heads and landscape lights, Orkin guy once per quarter, carpeting cleanings every six months, the HVAC guy once per year for a check-up/tune-up, etc. We had Cal Pac warranty to cover some things, but we had to replace the control board on the oven and a cracked facia on the microwave. We had to redo the flooring in the guest bathroom because vapor/moisture had gotten underneath (plumbing issue with original build) and warped the floor over time.



The balance of those dollars per month would be a reserve for future expenses. We repainted inside after six years and that cost a couple of grand. For rent vs. own comparative, a cost like that needs to be factored in from day 1, not just be an expense when incurred. That's the whole idea of a reserve...
 
I'm probably a broken record on this, but places like the Plaza are shitted on for their high HOA. But this condo is $750 for HOA and Mello Roos, and I'm not sure whether this includes cable, internet, phone, water, garbage and heat. Does this amount cover hazard insurance as well? Assuming it does cover all of this, this is about $200-250 less than living in a "Luxury" building.



Just putting things into perspective.
 
[quote author="ipoplaya" date=1240556874][quote author="High Gravity" date=1240555185][quote author="ipoplaya" date=1240552453]



Having owned a new condo, I'd probably put maintenance expense/reserve at $100-150 per month.</blockquote>


$100-$150 per month at Wisteria?!?! I owned a new Cal Pac condo for 4 years and my total maintence bill for that entire time was $0.</blockquote>


You must have had some pretty dirty carpets and HVAC filters if you didn't spend a dime in four years HG.



Part of my estimate was current expenses, e.g. changing HVAC filters, replacing broken sprinkler heads and landscape lights, Orkin guy once per quarter, carpeting cleanings every six months, the HVAC guy once per year for a check-up/tune-up, etc. We had Cal Pac warranty to cover some things, but we had to replace the control board on the oven and a cracked facia on the microwave. We had to redo the flooring in the guest bathroom because vapor/moisture had gotten underneath (plumbing issue with original build) and warped the floor over time.



The balance of those dollars per month would be a reserve for future expenses. We repainted inside after six years and that cost a couple of grand. For rent vs. own comparative, a cost like that needs to be factored in from day 1, not just be an expense when incurred. That's the whole idea of a reserve...</blockquote>


Does your landlord clean your carpets, replace your filters, pay for HVAC inspections, paint your house to your color of choice and pay for the Orkin guy? Those are out of pocket for owners or renters. Also, I do my own painting for about $50 per room including paint, so several thousand is really a personal decision.
 
[quote author="Goofy" date=1240560645]



Does your landlord clean your carpets, replace your filters, pay for HVAC inspections, paint your house to your color of choice and pay for the Orkin guy? Those are out of pocket for owners or renters. Also, I do my own painting for about $50 per room including paint, so several thousand is really a personal decision.</blockquote>


Yes my landlord does pay to replace the filters and for the HVAC tune-up. He also pays for pest control... He paid for a replacement tub spout, replacement toilet handle, replacement thermostat, replacement garbarge disposal unit and replacement light fixture also. Renters and owners do not have the same maintenance costs. My landlord has spent at least $1K on maintenance/repairs since July 2008 on my place. If he would have paid outside contractor labor to effect the repairs, it probably would have been $1500 total with parts and labor. Tack on reserves for aging exterior paint, roofing, appliances, HVAC system, flooring, etc. and the maintenance costs on my home are easily $200 per month.
 
[quote author="Goofy" date=1240560645]



Also, I do my own painting for about $50 per room including paint, so several thousand is really a personal decision.</blockquote>


You need to invest in some higher quality paint... A typical 11' X 12' bedroom will require 2.5-3 galloons if you are doing two coats. The paint cost alone for that small room should be over $50 if you are using halfway decent paint.
 
You must log in or register to reply here.
Back
Top