Buying & Selling Real Estate Discussion

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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
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Primary Residence or Investments?

Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
Posted Jan 18 2022, 08:30

Dear BP members:

I really need to hear some advice. 

Long story short:

-we are full time high income earners with W2 (also pursuing a start-up in biotech on the side) moved from Bay Area to SD (Cali)

-invested in Indy last year (duplex)

-we rented in SD for 5 mos while finding out the best area to live in and now are looking to buy primary residence

-we have about 240K in cash and another 130K coming soon from the sale of another property.

-we do plan to move out from Cali in 5 years (due to high taxes and expenses)

We both work from home, so we need to  have our own place, plus we have a toddler w/nanny in the house. Therefore were looking for 3-4 bdr in good areas of SD (4S, Rancho Penasquitos, Poway, Rancho Bernardo, Carslbad) where good community is. However, people are going all the way to removing all of the contingencies including appraisal and for a house of 900K-1 mil offering 1.2 mil and higher.

I don't feel offering and paying so much cash for something that is not going to bring me any income but actually is a liability. Is it better rent for around $3500, invest in other states rather than pay mortgage of $5500-$6000? However, we would lose appreciation (and it has been around 9% last year). 

Again for us, a community is important, so we don't want to buy duplex in SD as most of them are in not so good areas (of our criteria). 

Please consider that closing costs; moving fees and real estate agent fees are being paid for us.

Please advice.

Thank you!

Tatiana.

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Caleb Brown
  • Real Estate Agent
  • Blue Springs
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Caleb Brown
  • Real Estate Agent
  • Blue Springs
Replied Jan 18 2022, 08:43

Well I'd weigh out the pros and cons. If it was me I'd want a house and wouldn't rent(more of a preference). I like to have my own place that'll appreciate and can be a retirement vehicle. Let's say for example you bought a house for 1.2M with 9% appreciation after 2 years it'd be worth 1.4M+, that's already 200K in equity. In a few years you could utilize the equity for investments or just continue paying it off. People do it both ways, I see the benefit of renting compared to buying a personal residence. You can invest and build a portfolio then in 3-4 years buy you a personal home. Weigh it out both ways then start. You have a great launching pad so I don't think it'll matter too much, just don't blow the money on bad deals :)

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Dan Heuschele
  • Investor
  • Poway, CA
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Dan Heuschele
  • Investor
  • Poway, CA
Replied Jan 18 2022, 10:00
Originally posted by @Tanya Ansari:

Dear BP members:

I really need to hear some advice. 

Long story short:

-we are full time high income earners with W2 (also pursuing a start-up in biotech on the side) moved from Bay Area to SD (Cali)

-invested in Indy last year (duplex)

-we rented in SD for 5 mos while finding out the best area to live in and now are looking to buy primary residence

-we have about 240K in cash and another 130K coming soon from the sale of another property.

-we do plan to move out from Cali in 5 years (due to high taxes and expenses)

We both work from home, so we need to  have our own place, plus we have a toddler w/nanny in the house. Therefore were looking for 3-4 bdr in good areas of SD (4S, Rancho Penasquitos, Poway, Rancho Bernardo, Carslbad) where good community is. However, people are going all the way to removing all of the contingencies including appraisal and for a house of 900K-1 mil offering 1.2 mil and higher.

I don't feel offering and paying so much cash for something that is not going to bring me any income but actually is a liability. Is it better rent for around $3500, invest in other states rather than pay mortgage of $5500-$6000? However, we would lose appreciation (and it has been around 9% last year). 

Again for us, a community is important, so we don't want to buy duplex in SD as most of them are in not so good areas (of our criteria). 

Please consider that closing costs; moving fees and real estate agent fees are being paid for us.

Please advice.

Thank you!

Tatiana.

Some items to correct:

>However, we would lose appreciation (and it has been around 9% last year).

I do not know where you got 9%, but San Diego area appreciation was over 20% according to multiple reliable sources   I have seen no reliable source as low as 9% for last year.

 >for a house of 900K-1 mil offering 1.2 mil and higher.

I do not know what your basing the value on but if it is the listing price you need to recognize that it is a pricing tactic sometimes to list below comp value to create as much frenzy as possible to obtain highest price.  I suspect those removing appraisal contingencies have a good idea what the range the property will appraise in.  Few are believing they will need to bring extra cash to closing in order to obtain financing. 

Now for your question:

I start with where the projections are, nationally projections I have seen range from -2.5% to 9%, but the projections for San Diego are significantly higher. I have seen ranges from 4% to 18%.  I personally will be surprised if with the already announce intention to raise rates that we will get 18% local RE appreciation.  

The fed has an ounces intent to raise rates.  It is a near certainty that rates are going up in 2022.  Buying now is likely to provide the best rates. 

Rent versus buying cash flow: nearly all RE purchases in San Diego are have negative initial cash flow at high LTV financing >=80%). That negative cash flow is even more extreme in the nice areas that you have listed (I live in one of those areas). It will be initially cheaper to rent than to purchase. However, rents are increasing at an incredible rate nation wide, but especially in areas like San Diego. For example rents in Carlsbad rose 18.4%. I expect rents to continue to raise at a fast rate for a few years minimum. Here is my reasoning: 1) houses have appreciated faster than rents for nearly a decade. The rents lag property prices and are going to be in catch up mode for quite a while. This is of course related to the cash flow situation. Rents are at a low compared to property values. Rents need to go up due to the underlying property costing more. 2) those announced interest rates wil, further make homes less affordable. Not a 1% rate increase is a 33% increase in the rates (3% rate goes to 4%, means current rate has gone up by 1/3). This is almost certainly going to affect affordability more than the property appreciation. Less affordable home makes it more difficult on new home buyers which keeps them renting. 3) new identified risk related to covid eviction moratoriums. San Diego county had the most stringent eviction moratorium in the country. The only legal evictions were for health and safety items. The tenant was allowed to stop paying and break every lease term not related to health and safety and you could not evict them. This newly identified risk must be and will be reflected in the rental revenue. in summary rents are going up.

Appreciation forecast for San Diego continue to predict high appreciation.  I tend to be on the conservative side of these forecasts.  I am forecasting the short term (<5 years) to be in line with inflation, but I expect in the long term San Diego appreciation will continue to be far better than inflation (it has for at least 70 years).

Equity pay down, with the rates were they are and the cost of properties (>$1m) where you are looking, the equity pay down is substantial.

My own belief is 5 years is border line now on renting versus owning.  It could take 5 years to where property would be cash neutral if a rental.  Appreciation and equity pay down, versus cost to buy (various closing costs including possibly points) and sell (RE commission and other closing costs).  If you were going to own longer, I would be advocating buying. In the near term appreciation/depreciation risk is real.   I would not rely on a short term appreciation as there are too many things that could occur without adequate time to recover.  

Good luck



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Daniel Godbout
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  • Oceanside, CA
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Daniel Godbout
  • Investor
  • Oceanside, CA
Replied Jan 18 2022, 12:12

Hi @Tanya Ansari, I can relate! I founded a software startup in real estate, keeping up a W2 remotely, family is growing, and we're looking for a new primary in similar areas. After considering for the better part of a year, I decided to go after the new primary in Carlsbad, but just be realistic stay flexible in case I can't find the right property in time. It's going to be difficult with inventory as low as it is, but In the long-run I do really believe SD appreciation is going to work out best financially for me so it becomes a shorter-term problem.

It's going to be tough to get a clear answer on this one because there's speculation involved & it affects your family, but hopefully helps with the thought process. For me, I kind of mentally mapped out a flexible decision tree that takes into account different market factors, my startup, and the lifestyle I want for my family so hopefully I'm happy with the outcome regardless of what happens because I limited the negative possibilities (based on my personal criteria).

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Twana Rasoul
  • Real Estate Agent
  • San Diego, CA
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Twana Rasoul
  • Real Estate Agent
  • San Diego, CA
Replied Jan 18 2022, 22:43

@Tanya Ansari Hi Tanya, Appreciation in San Diego has been around 20% or so but forecasts are around the 7-10% range for this year and moving forward as interest rates begin to increase....this market can be intimidating especially when seeing properties get bid up 200-300k but a property going 300k above asking price doesn't necessarily mean that someone paid 300k more than the value of the property.  I recently sold a property and we went 300k above asking price less than 24 hours of property being on the market but we got the property $500,000 BELOW market value/appraisal value.

I  recommend those willing to hold property in san diego minimum of 5-7 years to purchase instead of rent.  You can certainly review multiple options:

Option 1: Purchasing a townhome in those above locations that are 3-4 bedrooms.

Option 2: There are limited multifamily properties in those areas of North County but they do exist...I recently sold a 2 unit and a 3 unit in Solana Beach.

Option 3: There are options to purchase properties off market.

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Replied Jan 18 2022, 23:26

How do you get option 3☑️

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Replied Jan 18 2022, 23:29

Buy in east poway

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Wesley I.
  • Investor
  • San Diego, CA
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Wesley I.
  • Investor
  • San Diego, CA
Replied Jan 19 2022, 00:01

@Tanya Ansari

I hear you. We are also in the market for our primary and the competition is fierce. But you have a good chunk of resources for a downpayment and can make it work on the areas you mentioned.

What I would suggest is buying something with value add. A fixer, properties with ADU potential, bedroom/bathroom additions that can help you bring up property values or properties that can be corporate rentals down the road.

Also want to mention that networking is very important. Through the course of searching for my primary, i have discovered co workers that will be selling their properties in the next month or two.

Driving for dollars and farming absentee or foreclosure lists to reach out to property owners might help too.

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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
6
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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
Replied Jan 19 2022, 09:23

thank you all for all of your answers! it really helps to redefine my strategy and many of you corrected me, which again I thank you for.

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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
Replied Jan 19 2022, 09:24

@Twana Rasoul thanks Twana! we actually are thinking of converting our home after 5 years to rental as well.

I will reach out to you!

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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
Replied Jan 19 2022, 09:26
Originally posted by @Dan Heuschele:
Originally posted by @Tanya Ansari:

Dear BP members:

I really need to hear some advice. 

Long story short:

-we are full time high income earners with W2 (also pursuing a start-up in biotech on the side) moved from Bay Area to SD (Cali)

-invested in Indy last year (duplex)

-we rented in SD for 5 mos while finding out the best area to live in and now are looking to buy primary residence

-we have about 240K in cash and another 130K coming soon from the sale of another property.

-we do plan to move out from Cali in 5 years (due to high taxes and expenses)

We both work from home, so we need to  have our own place, plus we have a toddler w/nanny in the house. Therefore were looking for 3-4 bdr in good areas of SD (4S, Rancho Penasquitos, Poway, Rancho Bernardo, Carslbad) where good community is. However, people are going all the way to removing all of the contingencies including appraisal and for a house of 900K-1 mil offering 1.2 mil and higher.

I don't feel offering and paying so much cash for something that is not going to bring me any income but actually is a liability. Is it better rent for around $3500, invest in other states rather than pay mortgage of $5500-$6000? However, we would lose appreciation (and it has been around 9% last year). 

Again for us, a community is important, so we don't want to buy duplex in SD as most of them are in not so good areas (of our criteria). 

Please consider that closing costs; moving fees and real estate agent fees are being paid for us.

Please advice.

Thank you!

Tatiana.

Some items to correct:

>However, we would lose appreciation (and it has been around 9% last year).

I do not know where you got 9%, but San Diego area appreciation was over 20% according to multiple reliable sources   I have seen no reliable source as low as 9% for last year.

 >for a house of 900K-1 mil offering 1.2 mil and higher.

I do not know what your basing the value on but if it is the listing price you need to recognize that it is a pricing tactic sometimes to list below comp value to create as much frenzy as possible to obtain highest price.  I suspect those removing appraisal contingencies have a good idea what the range the property will appraise in.  Few are believing they will need to bring extra cash to closing in order to obtain financing. 

Now for your question:

I start with where the projections are, nationally projections I have seen range from -2.5% to 9%, but the projections for San Diego are significantly higher. I have seen ranges from 4% to 18%.  I personally will be surprised if with the already announce intention to raise rates that we will get 18% local RE appreciation.  

The fed has an ounces intent to raise rates.  It is a near certainty that rates are going up in 2022.  Buying now is likely to provide the best rates. 

Rent versus buying cash flow: nearly all RE purchases in San Diego are have negative initial cash flow at high LTV financing >=80%). That negative cash flow is even more extreme in the nice areas that you have listed (I live in one of those areas). It will be initially cheaper to rent than to purchase. However, rents are increasing at an incredible rate nation wide, but especially in areas like San Diego. For example rents in Carlsbad rose 18.4%. I expect rents to continue to raise at a fast rate for a few years minimum. Here is my reasoning: 1) houses have appreciated faster than rents for nearly a decade. The rents lag property prices and are going to be in catch up mode for quite a while. This is of course related to the cash flow situation. Rents are at a low compared to property values. Rents need to go up due to the underlying property costing more. 2) those announced interest rates wil, further make homes less affordable. Not a 1% rate increase is a 33% increase in the rates (3% rate goes to 4%, means current rate has gone up by 1/3). This is almost certainly going to affect affordability more than the property appreciation. Less affordable home makes it more difficult on new home buyers which keeps them renting. 3) new identified risk related to covid eviction moratoriums. San Diego county had the most stringent eviction moratorium in the country. The only legal evictions were for health and safety items. The tenant was allowed to stop paying and break every lease term not related to health and safety and you could not evict them. This newly identified risk must be and will be reflected in the rental revenue. in summary rents are going up.

Appreciation forecast for San Diego continue to predict high appreciation.  I tend to be on the conservative side of these forecasts.  I am forecasting the short term (<5 years) to be in line with inflation, but I expect in the long term San Diego appreciation will continue to be far better than inflation (it has for at least 70 years).

Equity pay down, with the rates were they are and the cost of properties (>$1m) where you are looking, the equity pay down is substantial.

My own belief is 5 years is border line now on renting versus owning.  It could take 5 years to where property would be cash neutral if a rental.  Appreciation and equity pay down, versus cost to buy (various closing costs including possibly points) and sell (RE commission and other closing costs).  If you were going to own longer, I would be advocating buying. In the near term appreciation/depreciation risk is real.   I would not rely on a short term appreciation as there are too many things that could occur without adequate time to recover.  

Good luck



Thank you for your time! this is an awesome answer in full detail.

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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
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Tanya Ansari
  • Rental Property Investor
  • San Diego, CA
Replied Jan 30 2022, 11:53

UPDATE:

I would like to thank @Twana Rasoul for the incredible....and magical work he has done for our family!

Within 3 days... after posting this we were able to lock down the property with him! He is truly a professional and has great influence/negotiation skills. 

I don't know how he does it, when nobody else can! We have had 2 agents prior to him and were tired of going to open houses and failing each time! We lost every house we submitted our offer on.

With him...we did not go into overbidding war, as other agents would recommend. We did not lose on equity here.. as many people today do! 

We were able to buy a house that is excellent for our family - great peaceful community, great schools, no remodeling needed!

Twana has a strategy in mind when it comes to real estate. Truly, as investor himself, he understands the game. This is not average real estate agent but only the top 2%.

As hot as San Diego market is, he was able to do it with high speed and top quality! I can't recommend him enough!

I can't wait to do more deals with him and invest in SD as well.

Yes, that might sound as an ad, but when truly he saved us - I can't just stay quiet ;)

Tanya.