House for 300-400k range in Orange County? (Irvine, Tustin: for sale, foreclosures)

[Humanoid]

Rents are going up because demand is going up (people losing their homes are now renting)

I've heard people say this but I don't see it at all in Southern California, in fact I've seen the opposite. Also, the monthly CPI data actually shows that housing is growing slower in 2008:

Consumer Price Index Summary

Also, considering the expenses above, I wonder how much homes would have to go down in order to break even on the sell-rent-buy process.

Probably around 10%, but it depends on your situation. Areas in Southern California have already seen 15~30% declines so anybody that sold with this strategy a year ago is doing great.

But even if prices do not decline it doesn't make sense to own in Southern California unless you assume there is going to be a lot of price appreciation. You could just sell your house and pay your rent with the interest from investing it.

[Unkllars]

Originally Posted by Humanoid

Have you checked the batteries in your calculator? Lets take Irvine as an example, the cheapest you could find a 2-bedroom condo is about $340,000. Now this will cost you (For simplicity assume 100% financing):

Mortgage: $1950 (30 year fixed @ 5.62)
HAO: $200+
Property tax: $283/month
Maintenance: $200/month (Most people don't save for this, but its real)
Total: $2,733

Now assuming you do not have a lot of other deductions, itemizing with the mortgage interest deduction and other common deductions your total itemized deduction would be about $22,000, but the standard deduction is $10,700 so you're able to now deduct 11,300 more than you could before. For most this would amount to saving around $2500~$3000 on taxes, so if you also add the state tax benefit then it amounts to about $280/month savings. So your total cost is $2,353, not $1,800.

You're so funny. You change the entire scenario to make your point. I don't need batteries in the calculator because my loan rep did it for me for a client right now. Here's the breakdown on a 300K property (not 340K):

Loan amount $295,822 @6%= 2,407.54 Principle, interest, taxes, and Ins.
Total Tax Deduction 21,499.31 x 25% tax bracket= 5,374.83 Total write off
Total first year write off 5,374.83/ 12 months= $448

The effective loss of renting is the rent plus the tax loss. Assuming your scenario of Irvine rent being $1600, the effective loss would be $2048/month.
The effective payment is monthly payment minus the tax write off. The scenario's payment is $2,408 minus $448= $1,960

[Humanoid]

You change the entire scenario to make your point.

I changed nothing but the price and the only reason I did that was because I know exactly what the rentals cost in Irvine and you can't get a 2-bedroom condo for much below $340,000 there right now.

Total Tax Deduction 21,499.31 x 25% tax bracket= 5,374.83 Total write off

Please google "Standard Deduction". When looking at the tax benefit of ownership what matters is the amount ABOVE the standard deduction. You CANNOT both itemize your deduction and take the standard deduction. Anybody can take the standard deduction whether they rent or own, therefore in this case your tax benefit in ownership is only around 10k. The tax loss to a renter would only be around $220 as I suggested already, because a renter can take the Standard Deduction. Thus even in your example if you correctly apply the tax benefit renting is cheaper.

So renting is both cheaper and you don't deal with declining property values, sounds pretty great to me!

[Unkllars]

Interesting, I Googled Standard vs. Itemized deductions and you are right to a small extent. It says that many tax filers are better off standardizing... BUT those who have medical and dental expenses, property tax and interest, gifts to charity, casualty and theft losses, job expenses, exemptions like dependents and other miscellaneous deductions should itemize. My Personal Finance teacher in college said rule of thumb is that we should only itemize if we OWN PROPERTY or we can prove more job expenses than the $10,700 standard deduction.

The best thing for us to say is to contact a tax person if the main goal is whether or not its tax beneficial. I guess I just focus on homeownership as a whole, with benefits both tangible and intangible. I commend you for renting and actually enjoying it!

[EscapeCalifornia]

Originally Posted by Unkllars

Interesting, I Googled Standard vs. Itemized deductions and you are right to a small extent. It says that many tax filers are better off standardizing... BUT those who have medical and dental expenses, property tax and interest, gifts to charity, casualty and theft losses, job expenses, exemptions like dependents and other miscellaneous deductions should itemize. My Personal Finance teacher in college said rule of thumb is that we should only itemize if we OWN PROPERTY or we can prove more job expenses than the $10,700 standard deduction.

The best thing for us to say is to contact a tax person if the main goal is whether or not its tax beneficial. I guess I just focus on homeownership as a whole, with benefits both tangible and intangible. I commend you for renting and actually enjoying it!

2006 was the first year I was both married and had a full year's property tax and interest deduction. I figured our taxes both ways (standard deduction w/o the house and itemizing with the house) and the net tax benefit barely covered my property tax. The cost of the mortgage interest itself is at least 50% greater than what I could have rented the house for. The tax benefit from owning also includes the fact that state income taxes became deductible once we itemized. In my experience, the home owner tax savings isn't all that people in the real estate business claim it is.

[sheri257]

Originally Posted by Humanoid

I'll say this because nobody else has. Buying a house now in Orange County is probably one of the worse things you could do...wait 1-3 years and get it for half price.

I totally agree. At this point you're pretty much guaranteed an instant negative equity situation if you buy now.

While we're not moving back to OC we are going to move back to the coast and, for now, we're going to rent.

We're going to look at a ton of properties and figure out exactly where we want to live. Then, when it looks like the bottom has hit ... namely when prices start inching up a little bit ... then we'll buy.

But right now it's all downside and too soon to buy, IMO.

[sheri257]

Originally Posted by Humanoid

Please google "Standard Deduction". When looking at the tax benefit of ownership what matters is the amount ABOVE the standard deduction.

Yeah ... a lot of people don't understand this. The standard deduction has gotten so high that it wipes out a lot of the tax break.

[Charles]

If you don't have a complicated situation (rental properties, one spouse owns a business, etc.), Turbo Tax really is the way to go (and it may be the way to go even if you do have a complicated situation). (You can torrent download free copies of it.....) It makes all these decisions for you and evaluates every decision. I've used it for years but I've always had a pretty simple situation: One or two W-2s, own only the home I live in, etc. Even the brokerage information (dividends, interest, and capital gains from taxable accounts) is imported electronically into my forms. I don't need to type lines x, y, and z in.

[Soccersupporter]

Originally Posted by Humanoid

I changed nothing but the price and the only reason I did that was because I know exactly what the rentals cost in Irvine and you can't get a 2-bedroom condo for much below $340,000 there right now.


Please google "Standard Deduction". When looking at the tax benefit of ownership what matters is the amount ABOVE the standard deduction. You CANNOT both itemize your deduction and take the standard deduction. Anybody can take the standard deduction whether they rent or own, therefore in this case your tax benefit in ownership is only around 10k. The tax loss to a renter would only be around $220 as I suggested already, because a renter can take the Standard Deduction. Thus even in your example if you correctly apply the tax benefit renting is cheaper.

So renting is both cheaper and you don't deal with declining property values, sounds pretty great to me!

I would have to agree that with declining prices it would be smarter to rent right own right now. However in a healthy housing market it is much more beneficial to own versus rent. It is a no brainer actually.

[kturbe]

The question poised by KEC originally was are there any homes available under $400k and what are the interest rates. The answer is simply YES!