trying to figure out best plan for purchasing 1st property

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trying to figure out best plan for purchasing 1st property

Erin Schenk
Ventura, CA · Member since 2016 · 11 posts · 2 votes

Buy a Condo vs Rent vs wait longer to be able to buy a SFR

I live in Ventura, CA and am interested in getting into real estate investing.

I will be moving out of my current rental in a couple of months and am trying to figure out the best plan on housing situation- whether it makes more sense to rent or to buy.

Condos have been something that I have wanted to stay aware from since there is an HOA that could change and would be a cost every month even after the property is paid off. However with a teaching salary I am not able to qualify for a traditional loan amount large enough to buy a single family home.

Here are some of the numbers:

renting a room would cost $650-800/month

1 bedroom rentals are around $1300 for anything decent; Ive been seeing a range of $1100-$1800 depending on the location and property

lowest 2 bedroom rentals in the parts of town I would be interested in are around $1500 although most are higher than that

condos can be found for around $250,000 for some 2 bedrooms; there are some 3 bedroom ones in the mid 300s

HOAs tend to be around $200-$350 per month

I havent seen any houses under $400,000.

many 3 bedroom homes in the area I would be interested in are going around $530,000

I have enough for a 5% down payment on a condo. I could potentially put more down depending on the deal and if I had someone rent the other bedroom.

I’ve been crunching the numbers on what the rent/buy comparison would be for how it effects my bank accounts over the course of a year. just starting to work on numbers for what the debt pay down would be over 1 and over 5 years.

It would be great to get some feedback on what seems to make investment sense. and on whether it would be better to keep saving cash toward a down payment on a SFR or to buy something at a lower price point sooner.

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Robert L.
Ventura, CA · Member since 2016 · 97 posts · 43 votes
10y
My correction: 93004 = 769 Non-Owner Occupied, both in & out of Cali. Owners. (I was previously removing those who purchased over Assessment = 165. Otherwise, Purchase Price < Assessment = 604) 93003 = 1,379 Non-Owner Occupied Total 93001 = 1,305 Non-Owner Occupied Total I would venture to guess that unless there's an awful lot of vacation homes in these numbers, it might be tipping the scale in favor of renters going mostly for SFRs in Ventura. I was leaving out Condos and 2-4 Units (MFD) while running these numbers.
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  • Jo-Ann LapinPro Member
    Loan Officer · Tustin, CA · Member since 2015 · 3k+ posts · 713 votes
    10y

    You are a real delimma . Have you considered rather a smaller house and then adding some roommates to the equation. I am not a real fan of smaller condos . Yes the HOA fees really can change with no control on your end. i like Thousand Oaks, Oxnard and Simi Valley even oak park. You are now in my opinion buying in a peaking market. You must think long term. Of course it really hard to give sound advice without knowing your true financial situation

    [email protected]
    1Reply
  • Robert L.
    Ventura, CA · Member since 2016 · 97 posts · 43 votes
    10y
    Hi Erin, I realize your dilemma and see that you've been learning our local market. I'm new myself, so take my words with a grain of salt. 😉 To start; I would highly suggest attending the Ventura County Real Estate Investor's Club, held in T.O. (Usually Mimi's Cafe) on the second Thursday of each month. I should be there. I went last month and it was great. Look for a trusted and experienced investor willing to work with you (where you could offer your 5%, in exchange for a good return and some education). I'd be sure to attend the club meeting and build rapport there before investing your hard earned money. Best of luck, -Robert
    1Reply
  • Erin Schenk
    OP
    Ventura, CA · Member since 2016 · 11 posts · 2 votes
    10y

    I can qualify for a loan from the bank to purchase something in the 200,000 to 250,000 range. A mortgage broker I talked with thought he might be able to get me a bit higher. 

    Yes, I have looked at getting roommates and that is what would make it work to own a home. however I cant use that expected income to help get a higher loan from a bank. I heard that if I could show rent payments from a tenant for 1-2 years then I might be able to use that boarder income to help get a larger loan. 

    I would buy something based on the deal and the cash flow. Using seller financing would probably be the way to go. A lease-option would be something interesting to me but no one does that around here. 

    0Reply
  • Jesse Danzig
    Real Estate Broker · Los Angeles, CA · Member since 2016 · 55 posts · 16 votes
    10y

    Erin, do most renters rent apts or sfr's in ventura? Is a house-hack an option for you (buy a duplex, live in one unit and rent out the other)? 

    1Reply
  • Erin Schenk
    OP
    Ventura, CA · Member since 2016 · 11 posts · 2 votes
    10y

    not sure if more rent apartments of houses; it seems to be a mix. I have lived here 3 years and always rented a house. house-hacking would be interesting; there are way more SFRs than duplexes in the neighborhoods I have looked in. If I could get a loan based on the properties rental income instead of my income then that would be a possibility. 

    0Reply
  • Cornelius CharlesPro Member
    Investor · Oxnard, CA · Member since 2014 · 438 posts · 187 votes
    10y

    @Erin Schenk

    I think that it all depends on what you are comfortable with.  I agree that it is difficult to find anything affordable in a decent neighborhood around here.   My beliefs are that the numbers you present only tell half the story.  The other half is what you feel comfortable doing. I have coworkers who don't mind most of their paycheck going to their mortgage, whereas I prefer to have more wiggle room to work with.  I know there are many other Ventura County residents in the same situation that you're in, but i'm not sure there are any easy answers.  

    In my humble opinion, you can get the most bang for your buck in Fillmore, Santa Paula, or Simi Valley. Not sure if you are interested in living in one of those cities though.

    1Reply
  • Robert L.
    Ventura, CA · Member since 2016 · 97 posts · 43 votes
    10y
    To help answer the question of whether renters are renting apartments or SFRs. I recently pulled Non-Owner Occupied for 93004 and the listing came up with about 650. That didn't even include most of the Out of State Non-Owner occupied. Which I've recently mailed to for who I'm marketing to. Compare that to the apartment units in the area (sorry, I don't have that available). I can follow up with the 93003, but I think this should show that Erin is pretty correct. It's somewhat even. Especially with a couple large apartment buildings being added a few years ago. I've been hearing on a number of occasions about how landlords in this area are having trouble renting SFRs. I can't say how good they are/were or what they tried to be able to get renters... Just try to run the numbers on buy and hold though. Even if you run the numbers on a property you would find for 65% of ARV, renting/cash-on-cash return will likely come up negative, unless I suppose you bring a lot to the table. Even then, in this market, it is about working hard to get great deals. *** Short-Sales & Foreclosures are on the rise and we'll likely see them rise over the next year or two. So, I'm studying to see if I can work to help out with that problem. Yes, a lot of work, but if that'll be where I can add value and get a good return, I'm willing to put in the effort.
    1Reply
  • Robert L.
    Ventura, CA · Member since 2016 · 97 posts · 43 votes
    10y
    My correction: 93004 = 769 Non-Owner Occupied, both in & out of Cali. Owners. (I was previously removing those who purchased over Assessment = 165. Otherwise, Purchase Price < Assessment = 604) 93003 = 1,379 Non-Owner Occupied Total 93001 = 1,305 Non-Owner Occupied Total I would venture to guess that unless there's an awful lot of vacation homes in these numbers, it might be tipping the scale in favor of renters going mostly for SFRs in Ventura. I was leaving out Condos and 2-4 Units (MFD) while running these numbers.
    3Reply
  • Robert Bonderer
    Thousand Oaks, CA · Member since 2012 · 13 posts · 2 votes
    10y

    Glad to see a Ventura County thread pop up, sounds like I'll try and see some of you at the next meetup that @Robert L. mentioned! It does seem borderline impossible to find good investment opportunities anymore through the traditional MLS route - I've found a small number of properties that look like they might just break even on a monthly basis assuming decent occupancy, but not much and especially so at the ~300k price range. I guess that's good news for renters, in that they may really not be losing too much on the rent versus buy scenario in the local area, but not great for potential rental investments. Hoping to find some deals in the Ventura/Oxnard area that might have some appreciation potential, but leaning more towards the Inland Empire where you can find decent SFRs still for Ventura County condo prices.

    0Reply
  • Ariel Bertsch
    Ojai, CA · Member since 2016 · 18 posts · 2 votes
    10y

    I'm so happy to see a thread about Ventura County!  With LA county and SB county people moving to "cheaper" more charming Ventura County, paired with a very low rate of new development, demand and cost have accelerated at an unsustainable rate (long term).  In terms of house hacking, Ventura County property owners know that they have and want top dollar.  Therefore cap rates and the cash on cash figures are negligible, if not non-existent right now.  In my opinion, and as many of you have already indicated, the market that we're in right now is over inflated.  As real estate investors, we make our money at the time of purchase.  Based on current market information, I've chosen not to buy here.  I'm investing out of state (Georgia and Florida right now) to build up more cash, so that when the market does correct, I'll be in a position purchase even more properties in this gorgeous county we call home.  Of course, with all of that said, if someone had an established marketing strategy, great networking skills, and perfect timing, one might be able to find one of those needle-in-a-haystack deals.  Erin, if you or any of my other fellow Ventura County investors find one of those rare deals and want to partner up, I would be thrilled to do so :)  

    0Reply
  • Jacob Pereira
    Real Estate Agent · Austin, TX · Member since 2014 · 636 posts · 486 votes
    10y

    @Erin Schenk, have you considered looking into a grant program? You're a teacher, which tends to get a lot of subsidized options. In Texas (where I live) there are tons of programs where teachers can buy houses at below market prices, get a grant for downpayment, preferential loan rates, etc, provided you live in the house for a number of years. A quick Google search reveals options in California such as CalPath, Extra Credit Teacher Home, and of course the national ones such as the Good Teacher Next Door Program.

    Make sure you use all the potential benefits at your disposal; I used the VA loan to get started on my investment career and it really helped me gain the experience and confidence I needed to invest more heavily.

    0Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Erin Schenk:

    Buy a Condo vs Rent vs wait longer to be able to buy a SFR

    I live in Ventura, CA and am interested in getting into real estate investing.

    I will be moving out of my current rental in a couple of months and am trying to figure out the best plan on housing situation- whether it makes more sense to rent or to buy.

    Condos have been something that I have wanted to stay aware from since there is an HOA that could change and would be a cost every month even after the property is paid off. However with a teaching salary I am not able to qualify for a traditional loan amount large enough to buy a single family home.

    Here are some of the numbers:

    renting a room would cost $650-800/month

    1 bedroom rentals are around $1300 for anything decent; Ive been seeing a range of $1100-$1800 depending on the location and property

    lowest 2 bedroom rentals in the parts of town I would be interested in are around $1500 although most are higher than that

    condos can be found for around $250,000 for some 2 bedrooms; there are some 3 bedroom ones in the mid 300s

    HOAs tend to be around $200-$350 per month

    I havent seen any houses under $400,000.

    many 3 bedroom homes in the area I would be interested in are going around $530,000

    I have enough for a 5% down payment on a condo. I could potentially put more down depending on the deal and if I had someone rent the other bedroom.

    I’ve been crunching the numbers on what the rent/buy comparison would be for how it effects my bank accounts over the course of a year. just starting to work on numbers for what the debt pay down would be over 1 and over 5 years.

    It would be great to get some feedback on what seems to make investment sense. and on whether it would be better to keep saving cash toward a down payment on a SFR or to buy something at a lower price point sooner.

    HI Erin,

    A quick break down for you would be:

    5% of 250k for 2 bedroom condo would be 12,500 so that leaves you with a 237,500 loan assuming you structure your conventional loan with lender paid MI (absorbing it through rate) around 4.25% you could have a monthly payment around $1168.35 + 300 HOA + 260.42 est property tax @1.25% annual + 40 estimated condo HO6 policy per month = $ 1768.77 per month payment cash out flow.

    Of the total $1768.77 monthly, $321.21 is principal and the interest and property tax portions are 841.14 interest and 260.42 for property tax.

    So if we assume you're in the 30% tax fed & state brackets and you took out that tax benefit along with the principal portion since you're paying down your own loan you'd be at a net monthly payment of $1,117.09.

    You can use that to compare your rent vs buy.

    Hope that helps.

    1Reply
  • Erin Schenk
    OP
    Ventura, CA · Member since 2016 · 11 posts · 2 votes
    10y

    thanks for the information everyone. Its nice to know that I am on the right track in how I was figuring numbers, and how I was reading what the local market is like right now. 

    Albert, how exactly did you come up with the lower number where tax benefit was deducted. I have been running numbers on what the mortgage, taxes, and insurance would be and then comparing that with the amount of cash I would have in my accounts after that vs what I would have if I was renting at different level. then was accounting for debt paydown/ equity or tax benefits as a different number. probably not the typical way to try to figure it out but given that its not the best market for buying or rent, it is was seemed to make sense for my current situtation.

    I dont know that this is the best time to invest in Ventura or that it is the best market. however I think starting is better than doing nothing. and it would probably be best to do my 1st deal locally rather than out of area. 

    Santa Paula might be an option since I work there. because I work at 2 schools, and have worked at 4 all on the same side of town I am pretty picky about what part of town I would even consider. 

    0Reply
  • Harold Lewis
    Investor · Moorpark, CA · Member since 2015 · 11 posts · 4 votes
    10y

    Hi Erin,

    Before I buy any rental, I run the numbers with an app called Property Evaluator. With this app, you can run and compare many different scenarios. You only input a few numbers and the app figures your mortgage payments, taxes, insurance, closing costs, ROI, cash flow, cap rate, and more. It also gives you charts and graphs of the many projections over time including equity building, refinancing, sale analysts, and much more. I analyze all of my deals with it.

    I hope this helps.

    1Reply
  • Michael B.
    Newbury Park, CA · Member since 2015 · 157 posts · 121 votes
    10y

    Hi erin! 

    I'm curious what you decided on. We live in a 3 bedroom condo in newbury park and your numbers were spot on. $350,000 with a $320 a month hoa. My wife works in Santa paula and oxnard and noted that housing is much more affordable in those cities. Let us know what you ended up doing!

    0Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Erin Schenk:

    thanks for the information everyone. Its nice to know that I am on the right track in how I was figuring numbers, and how I was reading what the local market is like right now. 

    Albert, how exactly did you come up with the lower number where tax benefit was deducted. I have been running numbers on what the mortgage, taxes, and insurance would be and then comparing that with the amount of cash I would have in my accounts after that vs what I would have if I was renting at different level. then was accounting for debt paydown/ equity or tax benefits as a different number. probably not the typical way to try to figure it out but given that its not the best market for buying or rent, it is was seemed to make sense for my current situtation.

    I dont know that this is the best time to invest in Ventura or that it is the best market. however I think starting is better than doing nothing. and it would probably be best to do my 1st deal locally rather than out of area. 

    Santa Paula might be an option since I work there. because I work at 2 schools, and have worked at 4 all on the same side of town I am pretty picky about what part of town I would even consider. 

     HI Erin,

    How I determined my "net monthly," figure was by taking out the 30% tax benefit of writing off interest and taxes plus I took out the principal portion you're paying each money to reduce your loan balance to determine just the "pure," cost that you're losing.

    This total loss is considered the real cost of buying or owning. You can take the pure loss to compare it to renting because with renting you're losing everything as well if you dont want to get to technical (since all tax payers have a 6300 dollar deduction in 2016 for single filers whether you buy or rent you get this and its an either or deductions if your itemized deductions are higher you get your itemized if they are lower than this you get the flat 6300 standard deduction "either or.").

    This standard deduction vs itemized deduction issue complicates the rent vs buy but if you want to look at it simply you can use my explanation of the net cost of buying vs renting as the main consideration.

    Does that make sense? Let me know if you have any questions. 

    0Reply
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