Does buying a home (in Socal) make any sense today?

[njdevilsfan87]

My girlfriend and I live in a rent controlled 800 sq ft 1BR apartment that is rent controlled. We pay less than $1500/month, and this is in Santa Monica, where comparable apartments rent for $2200/month now.

We've talked about purchasing a home elsewhere in the LA/OC area, and while we can do it, it doesn't seem to make any sense financially, because of our rent control situation. We cannot increase more than 3%. So while rents may keep rising, we're pretty much locked in to a $1500/month deal indefinitely.

Looking at homes or condos available in the $750K/range, (because everything else in Los Angeles is shit if you want to be within a decent distance to the ocean) putting 20% down leaves us at an estimated monthly payment of $3800/mo for the next 30 years (property taxes included in this amount). We have enough saved to do this.

So while we would no longer be "throwing away money" renting, to go from $1500/month with no commitment, to $3800/month for 30 years, while giving up so much liquidity, and living location, seems insane! Why would we ever want to do this?!? If we have one kid, this apartment can handle one. Plus the schools around here are good too. If we have two, hopefully by then that liquid down-payment will have turned into a fair amount more.

Is there something I'm missing here? Or is this just the reality to purchasing a home out here now?

 

[Ns1]

if you're rent controlled fuck no. because why don't you just wait until housing prices collapse again?

Or is this just the reality to purchasing a home out here now?

I am in the exact same situation, and if you google just 80 miles outside of core LA it's obvious that this is not normal.

 

[Cozarkian]

Based upon your description, I would wait until you have saved enough for a down payment that you can afford a 15 year mortgage, and ideally, one where the mortgage payment is close to what you are currently paying for rent.

 

[cbrunny]

obviously don't buy. or compromise on location.

 

[JEDIYoda]

Only if you pay cash!!

 

[SearchMaster]

It certainly doesn't make sense for you. Most families would NOT want to live in an 800sf, 1br apartment for any longer than they absolutely had to, so if you bump up to 1200sf+, 3br then your rent gets closer to $4K/mo and purchase makes more sense.

 

[soulcougher73]

Well considering your rent is as much as my 10 year old 3 bedroom/3 full bath/3 car garage house and escrow id vote to leave CA

 

[JulesMaximus]

Hehehe. My mortgage payment is $1500/month for a 4 bedroom/3 bath 2200sq ft home. I live in north county San Diego near the coast. Still, it would cost me more than double our current mortgage rate if I were to buy our home now.

We bought it in 1999 before things went crazy.

 

[purbeast0]

I've been looking at prices of housing out in SD as I've been looking for remote positions the past few months and that would give me flexibility to move wherever, and it's pretty damn expensive. It's expensive where I live but SD comparable houses are 150% - 200% higher. If I did ever end up heading out that way I'd definitely rent a place first while looking for a permanent location. If I moved out there getting a house with an in ground pool would pretty much be a requirement, as would being like 20 minutes max from the coast.

 

[soulcougher73]

Hehehe. My mortgage payment is $1500/month for a 4 bedroom/3 bath 2200sq ft home. I live in north county San Diego near the coast. Still, it would cost me more than double our current mortgage rate if I were to buy our home now.

We bought it in 1999 before things went crazy.

I wish i had stayed in San Diego in 97' when i left and bought...if only i knew then what i know now.

 

[Aharami]

for you, renting is not "throwing money away" as long as you're saving a huge portion of the money not going toward a mortgage

 

[ImpulsE69]

Like real south. Mexico like. Otherwise, no.

 

[dullard]

Is there something I'm missing here? Or is this just the reality to purchasing a home out here now?

The thing you are missing is that you are making the same logic mistake that almost everyone does. A monthly payment should be use ONLY to determine if you CAN do it. After that, never look at the monthly payment again in your decisions. What you need to look at instead is net worth to decide if you SHOULD do it.

By looking at the monthly payment, you are missing out on several important factors. First, you are ignoring that of the $3800 mortgage payment, an average $1667 of that money is paying yourself, moving from your bank account to your net worth. The house only costs a net $2133/month in interest+taxes if you keep it for 30 years (or move to similarly priced houses). Note: the payment to yourself changes each month, $2133 is the average over the life of the loan.

Simplistic Example:
So, lets make it easy and consider 30 years out with no inflation, no investment gains, no house price changes, and that the apartment stays rent controlled. Also assume you have just $3800/month for all of this and a $150k downpayment. If you stay in the apartment, after 30 years you'll have your $150k downpayment + the saved $2300/month. You'll end up with $978k in the bank. But if you buy the house, in 30 years you'll have $0 in the bank. Initially that sounds much worse because this monthly payment focus ignores the net worth.

The real comparison that you SHOULD be having is $978k in the bank with the apartment vs owning a house outright worth $750k. Looking at just the monthly payment means that you forget about $750k, which is a big chunk of change to just ignore. The difference in net worth is only $633/month between the two options, which is a far cry from the $2300/month difference in monthly payments.

Realistic Example:
But, even more importantly is what you do with the spare cash if you stay in the apartment. How much will the house go up in value vs how well will you invest that extra $2300/month. If you invest it in hookers and blow, then after 30 years in the apartment you'll have just your downpayment in the bank. But if instead you buy the house, then after 30 years in the house, you probably have a house worth millions.

Alternatively if you instead invest the $2300/month in the apartment into an S&P 500 index you probably will have stock worth $2.3 million after 30 years. Use this to determine if you should buy the house. If you will invest the $2300/month in crap, get the house. If you invest it well, stay in the apartment.

 

[Staples]

No, it does not make sense. It is just like why not very many people in CA sell their house because many long time home owners are grandfathered into a really really cheap property tax bracket.

It may protect home owners (and that is why there are still poor people here who would otherwise have been priced out of the area long ago) but it hurts the overall market I think.

I benefit from a really low property tax. If you were to buy a house down the street from me today, you'd be paying at least 5k more per year than I do.

 

[Humpy]

Alternatively if you instead invest the $2300/month in the apartment into an S&P 500 index you probably will have stock worth $2.3 million after 30 years.

Hmmmm.... 30 years is right about the time that Death will start hanging around the OP's tiny apartment door.

 

[Red Squirrel]

That's an insane monthly mortgage amount, definitely makes no sense in that case. I would compromise on location and buy somewhere cheaper if you want to buy, which does make sense as it's nice to actually have property of your own. A given location is only as good as what you can realistically afford to have/do in it. Where I live now my mortgage payment is $600 biweekly and that's $200 more than what I actually have to pay. (I pay more into it to pay it down faster). It's no California beach front but still a decent area and not too busy and not crazy expensive. The cheaper the area you live in, the more you can get for your money.

 

[Imported]

Wish my rent was that cheap! Maybe I'd stay then.. as it is, I need to get out of this state.

 

[AznAnarchy99]

Your situation is different and it wouldn't make sense for you to buy right now.

I was looking for a 2 bedroom apartment in OC and prices were around $2500+ for a 950-1200 sqft apartment in a decent area. Mom gave me money for a down payment and I bought a condo/townhome for $485k with mortgage/hoa payments, impounded at $2700 a month. House today, 6 months later, is already valued at about $550k.

 

[:emaN resU]

I lived in West LA until last year. I bought a townhouse there in 2011 for 570k and sold it last year for $720k. My rent in 2009 was $1650 and it made sense for me, at the time, to buy. You can do the math for you and figure how long you will live there and if it is worth it to buy. I hated living in an apartment with noisy neighbors, smoke alarms, bad parking, etc, etc. My house was much closer to work too.

Your rent is extremely cheap. If you like your current living situation, it might not be worth buying. I'd have a hard time moving out of Santa Monica to buy a house in another area too. I do think buying a house is a winning move in the long run if you're smart/lucky, because owning property is good way to build wealth and be more comfortable later on.

Most people only live in a house for about 7 years. I lived in my first one for 5. Figure if in 7 years you'd come out ahead financially owning or renting. If it's close, consider if you'd rather live in Santa Monica or have your own house in a cheaper area.

Another option - buy a property and rent it out. Stay where you currently are. Win win?

 

[lxskllr]

The only reason I'd do it is to get away from other people, and do what I wanted with my place. That leaves condos right out, so your freedom is worth what it's worth to you. Hard for random people to assign a value for *you*.

Home ownership isn't all that anyway. Quit paying property taxes, and you'll find out who really owns your home.

 

[Red Squirrel]

Home ownership isn't all that anyway. Quit paying property taxes, and you'll find out who really owns your home.

That's a real piss off actually, there's not really such thing as TRUE ownership it seems. I would love to be able to fully own a parcel of wooded land with lake, but you just can't do that, someone else still has power over you, though there are places that are better than others as far as the freedom you do get. The less populated areas tend to be better and the more north you go, the less the government tends to be up your ass, or even know you exist. Downside is those places don't get funding or anything either. People in places like the territories or Alaska have quite a lot of freedom from what I understand.

Then there's the other side of the coin: HOAs. That is the most retarded concept ever, and only designed for people who only see a home as an investment, and that's it. Some of them are so strict they don't even allow flags or patriotic displays, they may as well be run by ISIS.

Been following some ham radio sites/forums etc and HOAs are a huge issue for hams, but my favourite is the clever loopholes some people find. One guy wanted to put up an antenna mast. The HOA has no jurisdiction over vehicles, so the guy just put a mast right on a truck he bought and parked for that purpose. LOL. 50+ foot mast on the truck, and they tried to fight it and they could legally do nothing, because it's not on the property, it's on the vehicle, and it's technically considered a mobile object. Another trick is in HOAs where flags are actually allowed, people just mount the antenna inside a flag pole. I guess you'd need to use some kind of composite pole or make the pole itself the antenna.

But it's kind of sad when you have to find loopholes to do stuff on your own property. This is not what our ancestors fought for.

 

[Ns1]

One guy wanted to put up an antenna mast. The HOA has no jurisdiction over vehicles, so the guy just put a mast right on a truck he bought and parked for that purpose. LOL. 50+ foot mast on the truck, and they tried to fight it and they could legally do nothing, because it's not on the property, it's on the vehicle, and it's technically considered a mobile object

inb4 "Proposed ban on large trucks parked in driveway" at next HOA meeting.


(and there ARE HOA's with such rules)

 

[Red Squirrel]

inb4 "Proposed ban on large trucks parked in driveway" at next HOA meeting.


(and there ARE HOA's with such rules)

Oh would not surprise me lol. I'm sure this guy's days are numbered as they figure out legislation to pass.