Will i ever be able to afford a house (Los Angeles: section 8, apartments)

[HyperionGap]

Yeah residential in LA/SoCal area seems to be all about getting a return on the capital appreciation instead of cash flow.

[thelopez2]

Originally Posted by HyperionGap

Yeah residential in LA/SoCal area seems to be all about getting a return on the capital appreciation instead of cash flow.

Yes and no, there are still locations with good cap rates.

There are also people willing to take on roommates in their SFR to pay down a larger home, a true investment, since financing a SFR is easier than a 2-4 unit.

We have so many people here , which mean that so many people need housing. Locations near work is very appealing to people, but then the job pays a lot so they splurge and move somewhere with better schools, nicer weather, less traffic. Those areas which they leave have good rental income and lower property values.

You'll have two cities next to each other where the rents will be 10-20% different but home prices are 100% different rent of $1800 versus $2200 but a home will be 400k versus 800k. Its just math

[HyperionGap]

What do you consider "good" cap rates in LA?

1800/mo for a 400k home with a 45% expense ratio is about a 3% cap (clearly superior to the 1.8% cap for the 800k home).

[jm1982]

Originally Posted by jw2

How much rent would you pay for the same or comparable home for those 30 years? Don't forget to factor in rent increases.

One example, using a 15GRM with 2% annual rent increases, the total is $1,351,891

2% is low, especially when inflation hits.

Not only have you paid more while renting, at the end of the 30 years, you are still renting. The homeowner has no more mortgage payments and has something to give their kids.

This is why I don't get the argument for renting. If people think they can rent for the same price over 30yrs..they are pretty delusional. Even with L.A rent control people tend to move once in a while, once you move you are subject to market rents.

[CA4Now]

Originally Posted by jw2

How much rent would you pay for the same or comparable home for those 30 years? Don't forget to factor in rent increases. Not only have you paid more while renting, at the end of the 30 years, you are still renting.

True, but the comparison was with long term costs of a small down payment (under 5%) vs a 20% down.

[HyperionGap]

What you continue to fail to understand is the principle of the present value of money and the opportunity costs involved. A dollar today is not worth a dollar tomorrow. This is basic finance & econ 101.

Please show me a model displaying: Option A) 5% down and and Option B) 20% down on a $500,000 house.

Make sure to include all the necessary assumptions (property appreciation per year, holding period, discount rate, principal payments, interest payments, write-offs from interest on the loan, etc).

Then with that analysis in hand and a comparison of the IRR's, try to explain to me why the 20% down option is the superior investment. I already know what the answer will be. You clearly do not, yet you somehow feel justified in giving your opinion.

[Ultrarunner]

Apologize if my previous post came off too strong.

I was going off the title of this thread... Will I ever be able to afford a house?

The problem I see is the thread should really be titled... Will I ever be able to afford the house I want?

This is why I mentioned starter homes and buying within your budget.

I've experienced when enough folks homestead in a marginal area... prices and quality of life often increase.

My first home was scheduled for condemnation hearings... my buying it threw a wrench into the city plan and they had to start over giving my time to haul out the trash, cut the weeds, fix broken windows and paint...

This was not a boarded up home... although not far from it and was occupied with the utilities on...

Still have it today and consider myself fortunate to be able to become a homeowner at age 22 with no mortgage.

I received no support from my family... my step grandfather came to take a look and said he didn't have the heart to tell me I should just walk away... the reason he couldn't say that is because I was so proud and enthusiastic at my achievement...

Millions of homes in California and not everyone is 500k

[thelopez2]

Originally Posted by CA4Now

We sold our house and bought another one last year,

In regards to the house that you sold , let's assume you took a mortgage and used a down payment and didn't use all cash. At the end when you sold the property , you probably sold for more than the original purchase price, if you take that gain and divide it by your original down payment what is your % return on investment. Down payment of $100,000 profit $30,000 ROI

If you were to do the same thing originally with 3% down scenario, the higher monthly payment eats away at your future profits, due to higher borrowing cost. I would be curious to see what the ROI difference between the two scenarios would be since hindsight is 20/20. if you put $15,000 down but had to pay $5000 more a year, your profit of $30,000 is really $0 at year if you compare the two scenarios, but in year 5, you'd still have made $5,000 at be at 33% on your ROI

Originally Posted by CA4Now

True, but the comparison was with long term costs of a small down payment (under 5%) vs a 20% down.

So it looks okay short term, but long term is bad is what it looks like to me

[HyperionGap]

Originally Posted by Ultrarunner

Apologize if my previous post came off too strong.

I was going off the title of this thread... Will I ever be able to afford a house?

The problem I see is the thread should really be titled... Will I ever be able to afford the house I want?

This is why I mentioned starter homes and buying within your budget.

I've experienced when enough folks homestead in a marginal area... prices and quality of life often increase.

My first home was scheduled for condemnation hearings... my buying it threw a wrench into the city plan and they had to start over giving my time to haul out the trash, cut the weeds, fix broken windows and paint...

This was not a boarded up home... although not far from it and was occupied with the utilities on...

Still have it today and consider myself fortunate to be able to become a homeowner at age 22 with no mortgage.

I received no support from my family... my step grandfather came to take a look and said he didn't have the heart to tell me I should just walk away... the reason he couldn't say that is because I was so proud and enthusiastic at my achievement...

Millions of homes in California and not everyone is 500k

Buying a home at 22 is definitely an impressive feat (especially considering you did not receiving any help from your family). I would say that in today's market that would be impossible for the vast majority of 22 year-olds to buy a SFR in LA, doubly so for those who do it 100% on their own. I certainly could not have done it, nor anyone my age I know.

[CA4Now]

Originally Posted by thelopez2

I would be curious to see what the ROI difference between the two scenarios would be since hindsight is 20/20.

Yes. And hindsight is always that. Back when we bought in 1990, we put down 25% (profits from previous homes)....the small down payments available in recent years were not around then, so we didn't have the alternative of investing that money elsewhere.