Clueless in Irvine: buy or rent? house or condo? now or later? (Santa Ana: real estate, to rent)

[jurrasic]

Hi,

I would appreciate any comment.

I'll begin working in a law firm in Irvine in September 2008. The frequent question I encounter here is what type of property will I settle in. I've decided to locate in or near Irvine for the short commute. But as a first time home shopper from the east coast, I'm clueless as to what types of property should I be looking for. My thought process comes down to the following:

1. Buy a house or condo now. Probably a 2 bedroom house or a 1 bedroom condo since I'm single.

Pro: saves tax (highest tax bracket hurts), saves rent, buyer market now (?).

Con: may move on to another location in 2-3 years, buyer market later. Irvine expensive.

2. Rent now. Buy later when price drops further.

Pro: I'm comfortable in a condo. More time to shop for homes. Keeps cash in hand.

Con: Tax, rent, dollar may depreciate faster than house price (kind of j/k). Irvine will always be expensive.


Thoughts?

[pshinspections]

Rent now if you think the market has not yet bottomed. This is the conservative choice. Buy now if you think the market has already bottomed. This is the aggressive choice. Facts are facts regarding the RE market, but you must decide where your needs lie, renting or buying?

My money would be renting until the market shows marked improvement in a way that I could see others selling at a profit from purchasing at this level. That is demonstrable.

Regarding home vs condo, I detest HOAs, they are out of control.

[jurrasic]

Thank you for the input. May I ask what "HOA" means. Appreciate.

[timelesschild]

HOA = Home Owner Association.

[Axiom]

Originally Posted by jurrasic

may move on to another location in 2-3 years

Thoughts?

That one alone would seal the deal for me.

I'd have to run some serious numbers before I'd consider sinking money into RE with that short of a turn around time in the best of markets. In a declining market... no way!

Had you caught the bubble at the right time, you would have been fine. Personally I think those days are over, at least for the next few years.

I'd try to find something decent to rent, preferrably spending no more than 25% - 30% of income (low side of that range or even less would be best - but we are talking Irvine here - so may not be possible) and concentrate on saving and investing until you're in a position where you know you'll be staying put for longer than 2 or 3 years before buying.

Just my opinion though.

Good Luck with your decision and congrats on the new position!

[CTNative73]

"All real estate is local" was one of the few comments Realtors said that was not a lie. So, although there are some markets in the country I "might" advise to buy in, Irvine and Orange County in general is not one of them - at least not at this time.

Since your window is 2-3 years, you will absolutely be upside down on the house when you plan to move. In addition, Irvine property taxes are very high. You will probably also pay HOA dues from $100-$400 a month. Between the taxes and the HOA dues, you are looking at 60%-70% of local rents anyway as a direct expense. You can't recover it, you can't deduct it, it's cash out of pocket.

At least with rent you can squirrel away cash that you'd normally be forking over to a mortgage on a depreciating property (to which you'd lose when you sold the house), make some minor interest on it (less than inflation though, thanks Fed!) and have a nice fat down payment when homes hit the skids in a couple years. I've been renting in Irvine for a couple years waiting for the housing bubble to complete the cycle - and we are not there yet. In these most interesting of times, there is no clear way to win; housing is falling, interest rates below inflation, dollar declining, fuel prices, a commodities bubble, etc...there is only a clear way to reduce the hemorrhaging - it's all anyway can do.

There are also some excellent blogs on Irvine Housing...just type those words into Google and you'll see the one I'm talking about.

[jurrasic]

My great appreciation to Axiom and CTNative73!
And thanks for pointing to Irvine housing blogs. I did find few.

Since "all real estate is local", what does everyone think about the argument that housing in So Cal/Irvine will hold value better? Thus, waiting would be futile? Thanks.

[EscapeCalifornia]

Originally Posted by jurrasic

My great appreciation to Axiom and CTNative73!
And thanks for pointing to Irvine housing blogs. I did find few.

Since "all real estate is local", what does everyone think about the argument that housing in So Cal/Irvine will hold value better? Thus, waiting would be futile? Thanks.

I prices like the tide. In times of appreciation, desirable areas rise first and fastest. Think LA's west side, coastal OC, etc. Toward the end of the cycle, even people in undesirable areas (high crime or just out in the middle of nowhere) are paying laughable prices. When the appreciation tide rolls back out to sea, its the worst areas that get hit first and hardest. These are areas where people jumped in the market last, with the riskiest loans, with the least down payments, with the least income, and with the least to lose by letting the bank take the house back. When things fall apart, they fall apart FAST. Think Palmdale, Inland Empire, Santa Ana.

Eventually, the desirable areas will take their hit too. It'll just take longer and they *may* not get slaughtered as bad. Irvine is a great area but even its seen price declines in the last year. Who knows what the future holds but I wouldn't be betting on prices going up in the next 5 years or less. Remember, real estate is expensive to acquire, hold, and dispose of. If its not appreciating every year, you're losing money.

[Unkllars]

I would say rent on a month-to-month basis while keeping yourself informed. The 'bottom' will be when the inventory comes down and the only deals are crappy homes that could barely sell in a good market. You don't want one of those. Many first-time buyers are coming out now that the homes they want are available to them. Others need it for tax reasons. Whatever your reason, you wouldn't want it to pass you by, so give yourself the option to buy or continue renting until the time is right for you and the ideal home is on the market for you.

If you are making pretty good money as an attorney, you could buy and then not sell if you decide to move. If you're fairly young and slowly getting rid of your law school loans (I know, my wife is taking the CA Bar in July, so her loans are pushing $120K), you could hold property for years and make it up down the road. Ask any person if they wished they bought more than one home in Orange County (Irvine no less) 10-20 years ago, I can bet they wish they had!

In 2-3 year, where do you plan to be?

[jurrasic]

Thanks to EscapeCalifornia and Unkllars.

I think I'll rent for the time being and educate myself better about the real estate business. It came to me that I'm a little too excited about my first home purchase and should "cool" my head a little.

As to where I'll be in 2-3 year, I honestly don't know. I'm interested in Asia and also may want to return to the east coast if I'm uncomfortable with perfect weather (not likely). Or I'll stay in So Cal. Even if everything goes down with the recession, I'll be privileged to be stuck in So Cal.