What price range are you shopping for in Irvine?

[irvinehomeowner]

I don't know where rents are now, but I am pretty sure that my monthly mortgage is less than what it costs to rent a similar size house in my neighborhood.

Pointless to compare rents now versus mortgage on a purchase from years ago.  Better question is what are rents now vs cost of buying now.

My mortgage when I bought was less than rents back then. Rents have gone up (at least in my area) and my mortgage has not which is how I came to my statement.

Although IHO may disagree but costs of renting now are much less than cost of owning (which is more than just mortgage) now.

It depends. Renting a 1/2br apartment is probably less than a mortgage on a 2br property, but rent on a 4br house may be the same.

Here are the rental rates for 4/3 SFRs in Irvine:
https://www.realtor.com/apartments/Irvine_CA/beds-4/baths-3/type-single-family-home/affordable

Looks around $3400-$4500 a month depending on size, age, etc.

Mortgage for a $1.1m home with 20% down, $880k loan at 3.75% is about $4000 a month. MRs and taxes increase that cost but writeoffs can decrease it too. And you can even use an OARM to get a lower rate.

And yes, you do have to put $220k down but if you're shopping for a home, that's something you should account for.

And as I did say, people are usually willing to pay more on mortgage than rent... which meccos12 may disagree with.

 

[moc]

A question, when you guys compare owning vs. renting, do you guys include all mello-roos and tax in your monthly cost to compare or just the principal/interest and the HOA?

We do include mello roos, taxes and HOA in addition to P&I when we are running the numbers. But - we are not directly comparing the cost of renting right now (2 bed/2 bath apartment) with owning. We are just looking at how much per month we can afford. In the short term, owning will be more expensive than renting. But - we don't want to pay rent anymore, and owning a home is about more than our monthly payment to us.

We also aren't going to do 20% down. If we were going to need 20% we'd be waiting. We're avoiding PMI through our lender - we've learned there's lots of programs out there for high income buyers with high credit scores to avoid PMI. That surprised us, we thought we were screwed because 20% down on a house in California was years away.

 

[moc]

Also just to give numbers...

We pay $2700 (ish) per month for a 2 bed/2bath apartment currently. Irvine Company apartment complex. There aren't any 3 beds in our complex to compare to - but in other complexes it looks like $2800-$3500 is the range for a 3 bedroom.

We are looking at 3 bedroom homes in the 700k range in Irvine, and with taxes and HOA we're estimating between $4200-$4500 for our monthly payment. If you just look at P&I it's comparable to rent.

So as I said - we're going to spend more per month to own.

 

[Kenkoko]

Pointless to compare rents now versus mortgage on a purchase from years ago.  Better question is what are rents now vs cost of buying now. 

Completely agree. I own the exactly model as the home linked below. The cost of ownership vs renting is so out of whack today. It's almost crazy to not consider renting.
https://www.zillow.com/homedetails/74-Ashford-Irvine-CA-92618/25502774_zpid/

To rent my house $3600 a month.

To own my house TODAY $3700 a month... Interest alone. That's with $240k down just sitting there doing nothing. On top of that, you have to endure the extra cost below.
- $150 HOA
- $1300 Property Tax
- $250 Insurance
- $???? Maintenance & Repairs (people often forget to mention this)

Sure you will benefit from some mortgage tax deduction but is worth all the extra cost of ownership? your 240K will get you $600 a month even if you just park it in a 3% CD.

 

[meccos12]

My mortgage when I bought was less than rents back then. Rents have gone up (at least in my area) and my mortgage has not which is how I came to my statement.

Again, this is pointless to consider at this time.  What your situation was many years ago has absolutely no bearing on what people are looking at now.  The only thing that is important is now, hence why I said the better question is what is the rent vs owning comparison now. 

Also if you are going to make comparisons, at least use realistic numbers.  Just looking at the rates, I know its BS.  Anyone able to find a 3.75% rate right now?!?!??!?!  A rate change of 1% makes things 11% more expensive.  In reality a 1.1M house with 20% down at realistic rates of 4.75% will be around 6,100 a month.  Those are realistic numbers. 

BTW I dont mind paying more on a mortgage vs rent but thats a whole different story right?

 

[irvinehomeowner]

@moc:

We didn't put 20% down on our first home either.

In fact, our last home, I didn't want to put 20% down either which was why we were looking at a much lower price range because we wanted to keep more liquidity but like you, we ended up spending more to get what we wanted so we had to put more down to get us into the affordability range.

As long as your are considering affordability and the ability to stay long term, you should be okay*.

*Grain of salt... I'm not a CPA, investment banker, or a real estate expert.

 

[irvinehomeowner]

Also if you are going to make comparisons, at least use realistic numbers.  Just looking at the rates, I know its BS.  Anyone able to find a 3.75% rate right now?!?!??!?!  A rate change of 1% makes things 11% more expensive.  In reality a 1.1M house with 20% down at realistic rates of 4.75% will be around 6,100 a month.  Those are realistic numbers. 

I apologize, that's a typo... it should be 4.75 but it's on a 40-year loan. I just used some website and massaged the numbers so that it fell into the $4000 range.

Your numbers seem to be wrong too... 4.75% on a 30-year loan says $4600, not $6100.

 

[Mety]

If you deduct the principal and tax advantage, owning is still lower than renting or about the same if you did regular 20% down.

If you inculde all, owning is a lot more than renting. BUT you DO get tax advantage and there IS your principal money in every month so it still is lower or around the same amount as renting.

What do you guys think? Am I missing something?

 

[Irvine Dream]

If you deduct the principal and tax advantage, owning is still lower than renting or about the same if you did regular 20% down.

If you inculde all, owning is a lot more than renting. BUT you DO get tax advantage and there IS your principal money in every month so it still is lower or around the same amount as renting.

What do you guys think? Am I missing something?

Unless the tax advantage is more than $1,700 per month  rental is better per below since interest alone is $3,700

"To rent my house $3600 a month.

To own my house TODAY $3700 a month... Interest alone. That's with $240k down just sitting there doing nothing. On top of that, you have to endure the extra cost below.
- $150 HOA
- $1300 Property Tax
- $250 Insurance
- $???? Maintenance & Repairs (people often forget to mention this)"

 

[sgip]

If appreciation does slow to 1-2%, and savings rate yields rise to 3%, there will be challenges coming on the benefit of home ownership. A $1.0m home at 2% appreciation is worth $1,020,000 however if it costs 2% to sell, you've seen zero net gain in that year - assuming of course you've been compelled to sell. You'll need a good 3 years of 2% appreciation to overcome cost of selling.

If you were putting 20% down on that $1m home, that $200k has a potential 3% rate of return, I'd argue then that it will soon take 3 years of owning to equal the benefit of renting renting, and 4 plus before ownership and appreciation begins to look better than renting.

Most buyers are in for the longer haul, and ownership then begins to make better sense, but if we're in a 5% rate market and a 5% rate of return (stocks, CD's, etc) the enthusiasm to purchase may fade even more.

My .02c

 

[Ready2Downsize]

If appreciation does slow to 1-2%, and savings rate yields rise to 3%, there will be challenges coming on the benefit of home ownership. A $1.0m home at 2% appreciation is worth $1,020,000 however if it costs 2% to sell, you've seen zero net gain in that year - assuming of course you've been compelled to sell. You'll need a good 3 years of 2% appreciation to overcome cost of selling.

If you were putting 20% down on that $1m home, that $200k has a potential 3% rate of return, I'd argue then that it will soon take 3 years of owning to equal the benefit of renting renting, and 4 plus before ownership and appreciation begins to look better than renting.

Most buyers are in for the longer haul, and ownership then begins to make better sense, but if we're in a 5% rate market and a 5% rate of return (stocks, CD's, etc) the enthusiasm to purchase may fade even more.

My .02c

How can it "only" cost 2% to sell? Commish alone (on the entire price, not just price over what was paid or only the mortgage) is way more than that.

 

[Ready2Downsize]

If you deduct the principal and tax advantage, owning is still lower than renting or about the same if you did regular 20% down.

If you inculde all, owning is a lot more than renting. BUT you DO get tax advantage and there IS your principal money in every month so it still is lower or around the same amount as renting.

What do you guys think? Am I missing something?

If houses don't appreciate significantly, you're "stuck" living in the same house. Renters can just up and move.

If houses drop in price (more supply than demand and don't say it can't happen... houses drop by drip drip drip most often), then you'll see more rentals hit the market and rents will drop.

If you HAVE to sell and the house didn't go up significantly you lose money due to cost to sell which is not a tax deduction, it's just a loss.

If a crappy neighbor moves next door, oh well.

If things start breaking, there is no landlord to pick up the tab.

For many (maybe not here because houses cost so much), but there isn't much in the way of a tax deduction with the increased standard deduction.

Mello and taxes go up 2% every year which can be pretty significant in this area.

But if you like your house, neighborhood and don't have to sell or want to move and don't mind the idea of money doing nothing for you...?. u gotta live somewhere so might as well own where u live.

I always say, buy something u don't mind living in forever...?. something in a good school district which is big enough for the largest family you will have...?? something u can afford if something really goes wrong at the worst time like a bad car accident, big health problem, job lay off, etc.

Then you'll be fine.

But if you bought something with the idea of moving up to what u really need later..... u might not be doing that.

 

[Kenkoko]

If you deduct the principal and tax advantage, owning is still lower than renting or about the same if you did regular 20% down.

If you inculde all, owning is a lot more than renting. BUT you DO get tax advantage and there IS your principal money in every month so it still is lower or around the same amount as renting.

What do you guys think? Am I missing something?

Have you ran the numbers since the new 750k mortgage cap / 10k SALT cap came into play?

The tax benefit does not move the needle very much in today's rent vs buy, even if you are making 400k a year (33% tax bracket) taking full advantage of the tax benefit.

 

[sgip]

Ready2,

Yes, it's more than 2%, but was using that figure for ease of explaining the general concept.

My .02c

 

[eyephone]

If you deduct the principal and tax advantage, owning is still lower than renting or about the same if you did regular 20% down.

If you inculde all, owning is a lot more than renting. BUT you DO get tax advantage and there IS your principal money in every month so it still is lower or around the same amount as renting.

What do you guys think? Am I missing something?

Have you ran the numbers since the new 750k mortgage cap / 10k SALT cap came into play?

The tax benefit does not move the needle very much in today's rent vs buy, even if you are making 400k a year (33% tax bracket) taking full advantage of the tax benefit.

I can?t believe I read this on someone?s twitter account. Turbo tax has not come out yet so how do you know the impact of the salt cap? I say it doesn?t take a genius to estimate your tax liability. For those people that don?t know good luck.

 

[Mety]

If you deduct the principal and tax advantage, owning is still lower than renting or about the same if you did regular 20% down.

If you inculde all, owning is a lot more than renting. BUT you DO get tax advantage and there IS your principal money in every month so it still is lower or around the same amount as renting.

What do you guys think? Am I missing something?

Have you ran the numbers since the new 750k mortgage cap / 10k SALT cap came into play?

The tax benefit does not move the needle very much in today's rent vs buy, even if you are making 400k a year (33% tax bracket) taking full advantage of the tax benefit.

Yes. Many changes were made this year and our tax actually went lower. Strange..

Who would be the most victimized catagory for this new law?  Someone with $750k+ loans with bigger MR tax?

 

[meccos12]

I apologize, that's a typo... it should be 4.75 but it's on a 40-year loan. I just used some website and massaged the numbers so that it fell into the $4000 range.

Your numbers seem to be wrong too... 4.75% on a 30-year loan says $4600, not $6100.

6100 is correct unless you do not want to factor taxes insurance hoa .  This is not even factoring maintenance costs which we should.

 

[irvinehomeowner]

Pointless to compare rents now versus mortgage on a purchase from years ago.  Better question is what are rents now vs cost of buying now. 

Completely agree. I own the exactly model as the home linked below. The cost of ownership vs renting is so out of whack today. It's almost crazy to not consider renting.
https://www.zillow.com/homedetails/74-Ashford-Irvine-CA-92618/25502774_zpid/

To rent my house $3600 a month.

To own my house TODAY $3700 a month... Interest alone. That's with $240k down just sitting there doing nothing. On top of that, you have to endure the extra cost below.
- $150 HOA
- $1300 Property Tax
- $250 Insurance
- $???? Maintenance & Repairs (people often forget to mention this)

Sure you will benefit from some mortgage tax deduction but is worth all the extra cost of ownership? your 240K will get you $600 a month even if you just park it in a 3% CD.

So based on pure numbers, you would rent today instead of buy?

I understand from a money aspect, people would rent, but just remember that many people buying homes aren't doing a rent vs own comparison. Like moc, they are just seeing what is affordable because they don't want to rent. I think most among us would pay more to own over renting.

I appreciate moc's post because this just shows how personal preferences affect what buyers are looking for, what price they are will to pay and will have some effect on pricing as a whole. These are the non-fundamental factors I referred to years ago during that last crash and contributes to Irvine price stickiness. Whether or not they will have an effect on the current situation is hard to tell but based on history (which some people prefer I not reference), they could.

 

[Mety]

Pointless to compare rents now versus mortgage on a purchase from years ago.  Better question is what are rents now vs cost of buying now. 

Completely agree. I own the exactly model as the home linked below. The cost of ownership vs renting is so out of whack today. It's almost crazy to not consider renting.
https://www.zillow.com/homedetails/74-Ashford-Irvine-CA-92618/25502774_zpid/

To rent my house $3600 a month.

To own my house TODAY $3700 a month... Interest alone. That's with $240k down just sitting there doing nothing. On top of that, you have to endure the extra cost below.
- $150 HOA
- $1300 Property Tax
- $250 Insurance
- $???? Maintenance & Repairs (people often forget to mention this)

Sure you will benefit from some mortgage tax deduction but is worth all the extra cost of ownership? your 240K will get you $600 a month even if you just park it in a 3% CD.

So based on pure numbers, you would rent today instead of buy?

I understand from a money aspect, people would rent, but just remember that many people buying homes aren't doing a rent vs own comparison. Like moc, they are just seeing what is affordable because they don't want to rent. I think most among us would pay more to own over renting.

I appreciate moc's post because this just shows how personal preferences affect what buyers are looking for, what price they are will to pay and will have some effect on pricing as a whole. These are the non-fundamental factors I referred to years ago during that last crash and contributes to Irvine price stickiness. Whether or not they will have an effect on the current situation is hard to tell but based on history (which some people prefer I not reference), they could.

I'm sure Kenkoko's $3700 example is PI, not just the interest. The principal would be around $1300. So I think It's fair to subtract that number then the total number becomes around $3850 excluding the the insurance because you would get an insurance even when you rent anyways. So owning would be paying about $250 more per month. But you also get tax return in April so the total number might end up even lower for owning than renting.

I strongly believe owning is still more desirable or you can say slightly cheaper even at this crazy RE market, but this is not to say now is the good time to buy because it seems like the price might drop more and also in case of the huge price drop, the downpayment and the principal might be in danger, but that's a whole another topic. I'm just comparing the current situation of buy vs. rent.

BTW the poll result bars seem like a big middle finger. Maybe I'm just not so innocent.



Edit: Actually my mistake. Kenkoko was right $3700 is the interest alone.

 

[paperboyNC]

I think a lot of TI'ers are in the move up market.