Investment in. Orange County

5 Replies

Hello, we have $300,000 saved to play with. My husband and I don't know what to do. We live in Orange County, CA. We are currently renting a 2bd and need to move to a 3bd because of the new baby. Right now our rent is $2100 and the new rent will be $3,000. We would like to know what to do. We are debt free and never invested in real estate before. Here our options we have thought off. Option 1: should we buy a SFR with a big lot to build a granny flat or ADU Option 2: should we flipping homes here in CA or invest in a different state? Although my husband's business company is located in CA. Option 3: should we keep renting? Your advice would be well appreciated.

@Mayra B. welcome to BP here in Orange County, California.  Sounds like you are way ahead of the game with that much money ready to invest.  I will make some assumptions here so I apologize.  

If you have that much saved up then I will assume that both of you combined are earning a hefty salary.  If so you know that "Uncle Sam" loves taxpayers like you.  Here are my thoughts.

1. You really need a tax write off. The best way to accomplish this is to own your own home. You can write off the interest and up to $10K in property taxes. This should lower your adjustable income so you pay less. I would encourage you to only put the minimum down you can tolerate and still be able to enjoy life. I would then use the remainder to invest in something else. I do like you idea about an ADU, but you need to be careful where you buy that you will not be overpaying at the end of the day.

2.  If you decide to flip properties, welcome to my world.  My average flip is around $500-$600K, yes we are in Orange County and its a teachable skill.  However, when I make a profit I do have to pay taxes, so if you are trying to reduce your taxable income this may not be what you want.

3.  STOP renting.  Although I love renters, since I have buy and holds, this is never going to get you anywhere.  

Good Investing...

Thank you Joe.

I forgot to mention that 100K is coming from my mom, 100K from my sister, and just a 100K from my husband and I. So it would be split ownership, but we would be the primary residents.

Our taxable income is actually low because my husband's business has been operating at a loss. And he's got a lot of expenses and write-offs.

As for renting, we've plugged the numbers into Rent vs Buy calculators at Realtor and Trulia, and both say rent, for at least the next 15 years.

We feel comfortable only paying $3K/month for either rent or mortgage. So if we buy something big, we would need to off-set the cost somehow.

So we're still not sure if we should:

1. Rent a 3 bd for $3K/mo

2. Buy a 3 bd condo for $570K

3. Buy a small duplex condo for roughly $620K, which includes 1 studio rental

4. Buy a SFH for $780K

5. Buy SFH for $850K with 7K sqft lot, and install a 2 bd ADU for additional $100K cost

We see here on BP that a lot of people are saying that OC is overpriced, and people should wait for the next downturn to jump in.

At the same time, we’ve got this cash just sitting there collecting 1% interest…and a baby coming. And come to think about it, we probably don't have time to learn the art of flipping.

Originally posted by @Joe Homs :

@Mayra B. welcome to BP here in Orange County, California.  Sounds like you are way ahead of the game with that much money ready to invest.  I will make some assumptions here so I apologize.  

If you have that much saved up then I will assume that both of you combined are earning a hefty salary.  If so you know that "Uncle Sam" loves taxpayers like you.  Here are my thoughts.

1. You really need a tax write off. The best way to accomplish this is to own your own home. You can write off the interest and up to $10K in property taxes. This should lower your adjustable income so you pay less. I would encourage you to only put the minimum down you can tolerate and still be able to enjoy life. I would then use the remainder to invest in something else. I do like you idea about an ADU, but you need to be careful where you buy that you will not be overpaying at the end of the day.

2.  If you decide to flip properties, welcome to my world.  My average flip is around $500-$600K, yes we are in Orange County and its a teachable skill.  However, when I make a profit I do have to pay taxes, so if you are trying to reduce your taxable income this may not be what you want.

3.  STOP renting.  Although I love renters, since I have buy and holds, this is never going to get you anywhere.  

Good Investing...

Buying your own home is not necessarily the best way to get a tax write-off.

If both the husband and wife are high earners and living in CA, they will likely not get a benefit from any property taxes that they pay(unless they use a portion for a business related purpose). This is because the state income tax will already bring them to $10,000.
They may get a benefit at the state level for the property taxes.

A discussion should be made what type of house they would buy and if they would have any itemized deductions(Medical or charity) besides the mortgage interest and Income/Property taxes.

Otherwise, if the itemized deduction is marginally higher than the standard deduction, it wasn't the best tax write-off.


 

@Mayra B. Congratulations on the new baby! New kids are always an exciting/challenge time. I don't have kids so I can't really make any recommendations, but I can comment on what I plan on doing.

I purchased my first owner occupied home in 2018 and would personally not do it again. In most instances in Southern California I do not see, owning the property you live in to be much of a financial benefit. In summary, it makes more sense for me to rent out my property and pay to rent some where else. The opportunity cost of the equity, taxes, and maintenance costs in a primary residence is very high.

In terms of the options that your laid out I would rent and then personally rank the remaining options as: #3, #5, #4, #2. I probably wouldn't look at #4 & #2.