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I've been living in San Diego for more than two years and I am in a position to buy a house now. There are several reasons that make me want to buy:
1, Buying a house may be a good investment against the possible future inflation caused by the Fed's money printing.
2, Having a place for my family to move in. My mom and sister are in Texas and they would love to move to San Diego.
3, Having a mortgage interest deduction. I'm a single guy sharing a room so I have pretty much no deduction, and, as a result, have to pay taxes through the nose. On the topic of tax deduction, I think that once I buy a home, I can deduct my mortgage interest AND property tax AND state income tax from my gross income if those deductions are greater than my standard deduction. Am I right?
4, Possible house value appreciation.
However, I also have several concerns about buying:
1, The low interest rate increases demands and thus increases house price. I wonder when the rate goes up, would housing price goes down significantly.
2, There have been talks about phasing out or eliminating the mortgage interest deduction. If this happens, I think housing price in California will suffer tremendously. Any of you have any insight/info whether this elimination is just a tough talk or whether it can happen?
3, You guys may laugh at this but after two years living here, I'm still afraid of earthquake. So when I'm out house hunting, I check this website My Hazards Awareness Map for ground shaking intensity. Unfortunately, the new development that I'm interesting in is in a "HIGH ground shaking" area. The website mentioned provides generic info in that it pretty much categorizes everywhere in San Diego into either "Moderate" or "High" ground shaking. Do you know of any other website providing more specific info?
Now, onto where I should buy. I work in Torrey Pines so I've been looking in Rancho Penasquitos area because of the good school district (I don't have children but a good school district may be good for resale value). Unfortunately, housing price in this neighborhood has been going through the roof and many of the houses listed for sale are old and need lots of work/updating. So after looking for a while, I'm leaning to buying a Plan 1 new home in Sorrento Heights. I REALLY like the floor plan. And my realtor has very good things to say about Pardee too. However, when I did an internet search, I found that some people have pretty nasty things to say about this builder too (10 Complaints and Reviews about Pardee Homes). I wonder if any of you have any experience with Pardee that you can share with me. Also, I'd love to hear your opinion about the Sorrento Heights development too. Is $660K for a 2155 sq.ft. house in Mira Mesa school district too high?
Thank you for enduring my extremely LONG question. I'd appreciate all of your opinions/insights. Thanks!!!
Congrats on being in the position to buy a house in San Diego.
Here is my 2 cents which is worth as much as you paid for it.
1. Yep. As you mentioned, typically it's a wise idea to buy a home if you now you will be in that city for the long haul. It doesn't make sense buying if you aren't sure if you will stay for a longer period of time but if you know you will be staying for a long time than definitely it can make sense to buy vs. pay rent forever.
No doubt eventually with all the money the Federal Reserve is printing that inflation will be a factor. It's not really IF. It's WHEN. The low interest rate environment will be around for at least the next few years however.
Buying isn't for everyone. Just take a look at the ratios/cost for buying vs. owning.
2. Having a place for your mother and sister would NOT have any bearing on the vast majority of people out there. In fact, I think people would use an excuse to get away from living with their mom or siblings. NOT the other way around. :P Different strokes for different folks but the vast majority of people wouldn't use this one as an excuse to buy a property. If it makes sense for you it makes sense for you though.
3. Yes, it can be a good tax deduction. I doubt they will get rid of it (even though I personally wouldn't mind seeing them get rid of this deduction). You have to go with what the laws are like now. Sure they can be changed later but definitely take advantage of it if you can.
4. Capital appreciation is nice and "icing on the cake" but I would NOT use this as an excuse to buy. I own a lot of real estate and I NEVER buy with the hopes of capital appreciation. Sure, it's nice if it happens but I would never count on it. Especially if you're buying as a home to live in and not an investment property.
However, if you're buying in a desirable area, over the long haul I have been blessed to have properties go up. I bought some properties that have doubled in value. I still don't think about that too much as I never plan to sell them. I rent them out and the cash flow on them is great. NEVER go into real estate purchases with the expectations of capital appreciation. If it happens it's nice but don't use that as an excuse to buy.
Concerns:
1. I wouldn't worry about this if you're buying as a home to live in. If it makes sense buying now and you can comfortably afford the mortgage payments, and they make sense vs. renting, then don't worry about what MIGHT happen later. If you can COMFORTABLY afford the payments long-term focus on that scenario. You get the benefit of locking in a low interest rate for a long period of time, so don't worry too much about what will happen to interest rates later.
Just don't buy more than you can afford.
2. They probably won't get rid of this deduction but again, don't worry too much about what COULD/MIGHT happen. See what I wrote above. Buying a home simply to get a tax deduction is NEVER a good sole reason to purchase real estate. It's a nice perk but I wouldn't go into ANY real estate purchase only to get a tax deduction.
3. Don't buy ANY real estate that you aren't 100% comfortable with. Don't worry about people laughing at you about your fear. It's your money and this is probably one of the biggest purchases of your life. It's likely you will never purchase anything bigger than your primary house so make sure you are 100% comfortable and at peace with your purchase. This is something that only YOU can decide. So be completely comfortable with the purchase.
On Pardee I've never purchased any Pardee properties but don't think it's anything special. Probably typical of the newer quality properties that go up quick these days. About the only builder that I've been impressed with in the area is Davidson. They seem to do a great job. I bought a Davidson home and really pleased with it. Build solid and I've done several upgrades since purchasing it and doing a few more but the house itself is really solid.
I'd like to consider myself very knowledgable about real estate. I've purchased quite a bit in different countries. I know that "real estate markets are local" but one thing I've learned is that real estate in desirable parts of the city in desirable cities will always do fairly well over the long haul. There is always demand for people to live in nice parts of nice cities.
Prices are still far off from bubble prices. The key is if you can truly and comfortably afford the payments, can expect to live in the property for many years. I find owning vs. renting in perpetuity extremely wise. I see lots of renters that argue on the merits for renting vs. owning and the truth is the vast majority of these people don't save nearly enough to take care of their future housing needs. For homeowners when they are older/retired, they have a paid off place to live free (besides property taxes, maintenance, HOA, etc). But many people that rent don't save up nearly enough for their future housing costs. That's just the truth.
Pardee built most of Mira Mesa in the early 1970s. The original homes were built very cheaply and priced cheaply. I am talking "Old Mira Mesa" around Mira Mesa High School, Black Mountain Road, Mira Mesa Blvd. Pardee did not have a good reputation back then. Now they build in more upscale areas and I don't here the "don't buy Pardee" warnings I used to hear when they were selling homes for $30,000.
We are native San Diegans and are not afraid of earthquakes. If I moved to Texas I would be scared to Tornados and Hurricanes. It is natural to be afraid of what you are not used to. How many people in San Diego have lost their homes to earthquakes? None that I know of. If you are nervous purchase earthquake insurance, it is expensive but will give you peace of mind.
Your tax savings will be significant. Don't worry about that going away. It is a lot of political blah, blah, blah.
Agree with everything "early retirement" said. Don't bank on prices going back down. They already did off the bubble years. There is a huge lack of inventory so I only see them going up in the next 5 - 10 years unless there is some kind of economic collapse which is not likely. I would buy now to lock in the 3.5% interest rates. Normal rates in a healthy economy are 6%.
On one hand western Mira Mesa is closer to the ocean so geographically speaking that is more desirable but which school system would kids in that neighborhood go to? Mira Mesa High is decent but not outstanding but maybe the new construction in Mira Mesa has kids going to a different school district. Personally, I find the plots of land to be too small and I would rather buy an older house in the Poway school district and remodel if I had to. That's just me though and I say that as someone who grew up in the Mira Mesa/Scripps Ranch area and who still lives there.
Also, as Inca said, Pardee did not have a favorable reputation for their homes they built in the late 70s here in Mira Mesa. It has been 30-40 year though so maybe the company is no longer making the slap job homes they used to but I had several friends whose parents owned Pardee homes and the walls were paper thin, the fixtures cheap, and the original equipment very basic. That said, yes, the houses originally sold for something like $30,000. The best homes in that area were built by Fieldstone but most of them were built by a 3rd company who's name I can't remember. The quality basically went Fieldstone at the top, the other one (which is what my parents bought in the late 70's) which I can't remember, and Pardee was at the bottom quality and price wise.
Thank you very much for your advice earlyretirement.
Quote:
Originally Posted by earlyretirement
1. Just don't buy more than you can afford.
With the current Chase interest rate (about 3.8%), my mortgage is less than 28% of my pre-tax income. However, it jumps to almost 50% of my take-home income. And this does not include property tax and HOA (around $150). My banker says that this mortgage is affordable. What do you think?
Quote:
Originally Posted by earlyretirement
3. Don't buy ANY real estate that you aren't 100% comfortable with. Don't worry about people laughing at you about your fear. It's your money and this is probably one of the biggest purchases of your life. It's likely you will never purchase anything bigger than your primary house so make sure you are 100% comfortable and at peace with your purchase. This is something that only YOU can decide. So be completely comfortable with the purchase.
I've been trying this for a while now. However, I realize that with my budget of $670K max, and with San Diego housing market going crazy, I cannot be too picky. I wouldn't even look at Sorrento Heights a year ago but now this development seems to be one of my best choices.
Quote:
Originally Posted by earlyretirement
I'd like to consider myself very knowledgable about real estate. I've purchased quite a bit in different countries. I know that "real estate markets are local" but one thing I've learned is that real estate in desirable parts of the city in desirable cities will always do fairly well over the long haul. There is always demand for people to live in nice parts of nice cities.
With your knowledge, earlyretirement, what do you think of the area of Camino Santa Fe and Calle Cristobal? As Think4Yourself points out, this belongs to Mira Mesa, which is not very good but also not too bad in my opinion. I like this corner of Mira Mesa because it's close to my work in Torrey Pines
50% of take home pay without even counting HOA or property taxes is a recipe for disaster. Yes, since you're young your income will probably go up over time but that is a real stretch. I'd suggest saving up more for a bigger down payment or settling for a less expensive starter home. You mentioned you were single, when you get married she might not want to live there or might have a home of her own (assuming marriage and kids are even something you're thinking about) so it might be wiser to avoid an expensive new construction and instead to find a fixer upper which is in a good school district at the right price. When you're done fixing it up you'll have a prime property in a good location even if it takes a few years to get there.
On the upside older homes from the 70's through 90's have MUCH larger lots which give you more space to work with and the rest can be changed via a remodel when you actually have the cash to do so.
With your knowledge, earlyretirement, what do you think of the area of Camino Santa Fe and Calle Cristobal? As Think4Yourself points out, this belongs to Mira Mesa, which is not very good but also not too bad in my opinion. I like this corner of Mira Mesa because it's close to my work in Torrey Pines
It's actually a very nice area, I own a home in that area as well (bordering PQ canyon off Calle Cristobal), and I find it beautiful with an exceptionally low crime rate and a very central location in the city. The downside is you have to drive every where and there isn't really even a local store you can walk to. The schools are OK but not great, the area is diverse but not so much that it becomes an ethnic neighborhood (which depresses property values; diverse = good but exclusively non-white = bad for property values), and I could have bought in Del Mar Highlands but decided to save some money buying a less expensive home. I'm glad I did because many of my peers (in their mid 30's) signed up for adjustable rate mortgages and bought houses they really couldn't afford costing ~50% of income. Many of them have now defaulted or gotten foreclosed on.
In short, you seem to be shopping above your actual affordable price range and instead of looking at $700,000 houses you should be looking at $400k-$500k houses. The good news is you CAN find houses with large lots in good school districts in that price range. The key is to buy the worst house in a nice neighborhood and then remodel so you have a very nice house in a good neighborhood.
Last edited by Think4Yourself; 03-17-2013 at 01:53 PM..
Thank you for your many valuable insights, Think4Yourself!
Quote:
Originally Posted by Think4Yourself
In short, you seem to be shopping above your actual affordable price range and instead of looking at $700,000 houses you should be looking at $400k-$500k houses. The good news is you CAN find houses with large lots in good school districts in that price range. The key is to buy the worst house in a nice neighborhood and then remodel so you have a very nice house in a good neighborhood.
Interesting enough, about a year ago, I started looking for townhouses not to exceed $250K or SFH $350K max. Thinking this is one of the biggest purchase of my life, I refused to settle down for house that I don't like. When I can not find any house to my liking, I increased my price range, and up it goes, gradually to $670K which is the maximum that I'm pre-approved for by Chase
Btw, I think that your idea of buying "the worst house in a nice neighborhood and then remodel so you have a very nice house in a good neighborhood" very interesting. I have not thought of it before. I'll look into this. I have until May to decide if I'll sign a contract with Sorrento Heights. However, remodeling seems daunting to me (I don't own and don't know how to use any tools. I guess this has to change once I become homeowner). I did open an escrow on this RP property for $550K 13076 Cayote Ave, San Diego, CA 92129 | MLS# 120060983 | Redfin. However, after the home inspection revealed many problem, I was a bit overwhelmed with the repair/remodeling so I backed out
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