Should I ride out the current market?

Question

I am looking to buy my first home in or around Los Angeles, CA (primary residence first, investment properties later). I understand home prices have risen and speculation shouldn't be my sole consideration on buying, but from both a home buyer and and investor's perspective of view, I hate to buy at the peak of the market (well, I don't know if we are at peak yet but I know prices have risen).

Yet at the same time I think I will likely be keeping this property for a long time (10+) years, and may decide to hack it and rent it out when we move on to bigger and better things ;) And in the long run the market will go up even if I buy at a previous peak.

I am torn between riding out the current market and buying. What would you do if you were me? I have a full time job and can get traditional loans, also have enough saved for downpayment.

Jeff Copeland · Answer

I think you have to look at it in terms of opportunity cost...where are you currently living?

If you're currently living somewhere for free, then staying put, building up capital, and waiting for a downturn might be a reasonable option.

But if you're currently renting, how much will you spend on rent in L.A. in the next 5 or 10 years? And how does that compare to your likelihood of gains/losses as a homeowner over the same period?

Even "doing nothing" has a significant cost, plus the risk of losing any potential gains in the real estate market.

Account Closed · Answer

Will definitely consider it @Ciprian L.! Thanks for the advice! I was actually thinking maybe I should put more focus on the investment aspects rather than the primary residence features. It's almost 100% certain we will move on after several years.

Account Closed · Answer

Haha

@Jd Martin you are funny. The boyfriend is marrying material and will soon become finance. I agree he should keep paying his share, but for our primary residence if he pays his share and the property still only belongs to me, he would want input on where to buy and what to buy....that might result in somewhere in Orange County costing over 600k...........The boyfriend definitely complicates things!

Account Closed · Answer

Thanks @Alex J.! Yeah I was looking at different properties ranging from SFR to 4 plex. The current market is really not friendly to me...unless i want to get a 50% LTV and keep monthly payment close to my current rent. Yet I feel cash is better spent/invested somewhere else....

Account Closed · Answer

@Jeff Copeland I am currently renting, but its tricky: my rent is $2300 a month split between me and my boyfriend, so my share is $1150 a month. But if I buy, I will be responsible for the entire mortgage payment...of course depending on how much I want to borrow I can control the mortgage amount, but I don't want to throw in all my cash on a over priced property in a peak market just to have a mortgage that stays around $1150. I think if I invest this cash somewhere else it will provide a greater return. Now I feel like I need to decide if I should buy or not, and if I buy, how much should I borrow...

Ciprian L. · Answer

@Paula Wang because of the boyfriend situation, I think it would be better to buy an investment property first, If you want to keep it for 10+ years.

A primary residence requirements  probably would change a lot in the next 10 years for you (husband that doesn't like the area where you bought the house, kids that need more space,...)

I would recommend to start with a house hack (2-4 plex), if your situation changes you can move and rent you unit out and still cash flow.

JD Martin · Answer

Is the boyfriend long-term, marrying material, or could be gone tomorrow? That might have some effect on your decision. If you bought something today, for example, even though it's in your name, why wouldn't boyfriend continue paying $1150 to live there? Let's say (in theory) you can buy a place just as nice for an $1800 monthly mortgage. Boyfriend should pay you $1150, and you take the savings from what you were spending and build a reserve account, buy another property, pay down this mortgage, go to Rio, whatever. What boyfriend pays should be irrespective of who holds the note. Unless you plan on buying something yourself and kicking him to the curb :)

Alex J. · Answer

well being that you are a real estate agent, you prob can find yourself a good deal... if you are looking for a comparable payment monthly you can back into that number basically its about 250k loan without any real estate tax or insurance which is a net wash w interset payment write off...thats off a 30 year loan 4 % rate...so if you are going to do 20% down you are going ot be lookin at a purchase price 312500 and d/p of 62,500

not many options in los angeles at that price for a SFR , but probably can find a condo at that price or lower in the valley

best of luck

Should I ride out the current market?

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