Case Study - Housing in Los Angeles

[Kash101]

Hello Everyone ! I would like to pose my situation and welcome your feedback.

Goal : to decrease my mortgage by 1/2
Current Situation : Married, no kids yet, planning one to two in the next few years
Job: Live and work in LA , which is comically expensive for real estate
Current Home: Purchased ~ 1.5 years ago for 2.6M. Could probably sell today for 3M. 5 bed / 6 bath . Great school district for elementary . Would consider private school beyond that. Have a 7/1 ARM on the home. Put ~ 30% down.

Pros: can stay indefinitely , good school, great part of LA, great house
Cons: not as coastal as I would like , private school for jr high and high school ( $$ ) big house that we don't need all the space !

I am self employed so for the immediate future, I cannot leave the state or city. Fortunately the business has been good, which may change but not yet.

Do I sell the house now (before a potential downturn in the market, given interest rates are starting to creep up ) , and then rent for about a year and save ? in LA, this would still probably eventually translate into me buying something ~ 3-4M , but in an area with no private school necessary, smaller ( but better location for me, closer to the beach so I can surf more etc ) and no need to move ever again.

or do I stay the course?

or something else ?

Thank You.

[ysette9]

I think the answers you get here are going to ask you to look hard at your preconceived notions about what you need. For example, I doubt many are going to agree that you need a $3m house to stay in LA. I say that as someone who lives in one of the more expensive areas of the SF Bay Area, not as someone who lives in BFE where you can buy a mansion for $150k. Even in the most expensive areas of coastal CA there is no reason to pay $3m. You value the wonderful things this state has to offer? Great, you do that while living in a 3 bedroom 1200 ft^2 house. No need for more space anyway when the great outdoors is your living room with our weather.

I also ask you to look again at what you think you know about the goodness of schools. School scores and test results here are almost entirely a reflection of the demographics the students at the school (poverty, English language learning). If your kid isn’t in that demographic then she likely will do just fine at whatever school.

Reevaluating those two areas can free up the two biggest line items in your budget and allow you a lot of options.

[ysette9]

And to answer your specific question: sell immediately to get that ginormous burden off of your back. Rent a 2-bed condo near the beach while you surf and figure out your next steps in life. Unless you are housing your entire extended family, 5 beds and 6 baths are a catastrophic waste of your precious resources that should be put to much better use. 

[Kash101]

Good points thank you

[CrispKale]

Hi just a few questions:

What's your current savings rate after expenses?
How does the potential coast house and private school affect your savings rate?
If you decide on the coast house how much down will you consider? and will you go fixed or an ARM again?
Just curious why you bought the house a little over a year ago if you were considering leaving the area?
If staying can you afford the refi at a higher rate in 7 years? I know balance will be lower but odds are rate will be much higher.
What kind of emergency fund do you have in case your self employment hits a rough patch?
Will there be any additional employment expenses if you move locations vs staying?
What's the difference between renting in your area and paying the current mortgage, will you be getting ahead in the year you'll be saving?
What is the cost difference between commuting to a private school or having the school closer? Would having a private tutor be a better option?

[begood]

With a 7/1 ARM, you could be looking at a big increase in mortgage cost before your first kid even enters the elementary school you bought the house for. You might be able to refinance, but that carries costs as well, and usually it means committing to staying in that house for several years to recoup those costs.

I like ysette9's suggestion: sell the house, invest the equity, and rent a condo near the beach. Live the life you want to live now for now.

[affordablehousing]

I don't know, if you have the cash, could you try to get a house in Manhattan Beach? That always seemed like such a great community or at least Hermosa? It might be important for your business and clientele that you look like a baller. If business is good, I would double down and go all out. People are always going to want beachfront. On the other hand, why tie yourself to a mediocre neighborhood all for a school district when you don't even have a kid? Plus, private school is only $25-35K a year, which, compared to other expenses, might be just as much as a broker's commission on selling your house (though you sound like a realtor so maybe you have that covered) and not really that consequential.

[Kash101]

Hi all - I save ~60% of annual income currently , and still looking to improve that. The 7/1 ARM is a big unknown so another reason to sell. Manhattan beach was number one on my list but it is so crazy expensive now I cannot justify it. North Hermosa is ideal if the right property presents itself.

The coast house would require a larger down payment in order to keep savings rate in a comfortable place. I have been thinking more about just getting the right place for now , be it a ourschase in MB or HB or a 2/3 bedroom spot as a rental or a purchase and just waiting to figure out the rest once we actually have kids. So much changes day to day that in one year from now I could be out of state so why worry about that now.

One of the reasons I purchased our current home is the school district. Regardless of my situation it will always make it more attractive and high deman d to sell or rent  down the road.

I am not a realtor or anything near it.

Thank you !

[the_fixer]

Also keep in mind that the larger the house the more expenses that come with it for repairs, heating, cooling, maintenance, lawn care, things you need to buy to furnish it and even the amount of time you need to spend on cleaning.

We sold a 4800 square house about 2 years ago and purchased a 1700 square ft townhouse and it is amazing how much our bills have dropped and our free time has also increased.

My brother in law + wife + kid have a townhouse by La Jolla and every time I go out there i always walk away thinking he is living the life, they have nothing to maintain, paid off house and go out and play whenever they want.

How much does a 2 or 3 bedroom house, condo or townhouse cost within a 5 min drive /10 min bike ride cost?




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[Kash101]

I am currently 10miles from there office
To get within a 5 min car ride , looking at about 2M after checking Redfin. For a townhouse or condo. Then there’s the HOA etc. reason is my office is coastal , very desireable , but I currently live more “inland”

[ysette9]

I was amazed by how much things changed once in actually had a kid. The things I thought mattered (house, amenities, products, etc.) sometimes ended up being fairly far off from what I had thought would be important to me. That isn’t to say that everything changed and I had no way of predicting my future self, but that having flexibility to change your mind in the future was valuable for me.


Conventional wisdom says to buy the house in the right school district so you have room for everyone/everything, with the big back yard, blah blah blah. Our reality was that the kid slept in our room in the beginning so another room wasn’t needed until later. The kid doesn’t even walk for the first year and can’t play outside unsupervised for years after that anyway, so we found ourselves at the neighborhood park making new friends instead of using our back yard. You have a long way to go before any offspring will be going to school and a lot can change between now and then. In our case a language immersion program was started that fit our needs and opened up a neighborhood to us we have previously discounted. Things could certainly change in your nearby school, a job opportunity could pop up elsewhere, you could decide that your calling in life is to do homeschooling or slow travel or who-knows-what.

My point is that flexibility is good, and it doesn’t make sense to carry the enormous burden of a house for which the benefits are almost entirely unused now.

[Kash101]

good points. Yes, planning for all possible scenarios in the unforeseen future can be problematic for sure.. And its true that schools are not that important for now... So my most recent thought is to take advantage of the good school districts and perhaps rent the house out to a family that can actually use all the associated amenities like space school etc etc... if i can break even doing this ill keep it, and move on. If not then I wont !

Random though and would love your input - we are actively trying to get pregnant now, and one thought i have is stay put until we have ( hopefully !) our first child, then move, so as to minimize stress on Momma to be... but perhaps this is another rationalization...

[ysette9]

I have moved pregnant twice now and definitely recommend it over moving with an infant/small child. There is a nesting instinct that can set in for some women which means having your “nest” not settled prior to birth can be a source of stress. We did our most recent move on a Friday so our kiddo would be at daycare, but it was tough knowing we had to get her room all set up before she come home in the evening because she really needs a routine for bedtime. Adults have a lot more capacity for flux and change in routine than little kids, so living out of boxes is a lot easier when you don’t also have a little kid who needs a bubble of normalcy and routine.

I do recommend hiring movers if pregnant so there is no temptation to “just help a little bit” and overdo it physically (ask me how I know that!).

[Kash101]

makes sense . thanks for the input !!