Author Topic: Advice for first time homebuyer San Diego  (Read 4400 times)

TangerineTea

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Advice for first time homebuyer San Diego
« on: June 26, 2013, 11:24:30 PM »
We are a family of 4 pre-qualified for conventional loan for the last year, and we made two offers (over list price) and were slaughtered by higher mostly cash offers. We like to live below our means and are simple when it comes to preferences, though we won't commute. Our 12 month lease ended last month, but we are not in a rush as we can go month to month. We've been trying to be smart about things but I want to know what the Mustachian advice would be. I am happy to provide more info if that helps.

My main concerns:

1. Are we getting stuck in some kind of rat race game of first time homebuying? My research says these sales prices are not sustainable, as it is not made up of enough first time home buyers and wages are still stagnant. Investors and low interest rates are not a true real estate recovery from what I have read.

2. We would love to have land (even an acre) and build a straw bale house, or just live on land and get a manufactured house....but we can't get a loan, re-hab loan, USDA loan it seems in these parts. Plus, there is the commute part.

3. We would like to live a more mustachian type life but feel reliant on the wages my husband earns as a mainstream mechanical engineer for a big corporation in Central SD. I know he would love to be some sort of financially sustainable freelancer of sorts doing engineering projects out of a workshop on the property we dream of, but I have no idea how to work in that direction....and that is saying something because I am an experienced career counselor (though at the moment I work only on very p/t and stay home with my children).

4. I know mustachians may say to move to a cheaper area, but we just did that by spending 2 years in WA state (my first time living outside of CA) and although it was affordable, all my family is here in So. Cal and I missed them desperately and family is important to us, especially as we raise our little ones. Besides, we spent all the college years, and early professional years far away from family.

I will stop rambling now....I just feel like maybe we are missing something????

Thanks everyone :)

fiveoclockshadow

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Re: Advice for first time homebuyer San Diego
« Reply #1 on: June 27, 2013, 04:41:28 AM »

1. I honestly think the problem is you are in San Diego.  I grew up there and as wonderful a place that it is I don't think I would consider purchasing a property there at the moment.  You've got two big problems at the moment, institutional investors are buying like mad in So Cal and because interest rates are so low primary residence buyers are also desperate to get into the market quick.  That is increasing demand as you've experienced.

To me what that says is RENT.  All of those institutional investors are buying to create rental properties.  So they are creating demand on purchasing a home and possibly excess supply in the near future in rental properties.  That would push the rent vs. own ratio further towards renting.  As to the interest rate opportunity that is causing other primary residence buyers to rush in now if you are aiming to be Mustachian then in theory you won't have a mortgage for very long and so you are less sensitive to interest rates than the average buyer.  In other words perhaps you can afford to miss the low interest rate opportunity and wait for those buyers rushing in now to exit the market lower the demand pressure.

2. This is something to do once you are FI enough to buy with cash.  That either means getting more cash or moving someplace where you can do it with the cash you have.  Doing something "odd" never makes a lender happy.  So you may have to remove the lender from the equation or at least limit their involvement by only getting a loan on land and doing all the improvement to the land with cash.

3. Can't help you much here other than pointing you to the blog?  Anything specific that is the issue?  As to independent work for your husband I have known a fair number of mechanical engineers that work as independent consultants, so it is a very real option.

4. I'd think about just how close you want to be to family.  If you mean down the street so they can pop in at anytime of the week then you have boxed yourself in to the high living costs of SD.  If you mean you want to see them more than when you were in WA then I think you have a number of in between options.  Given from 3 it doesn't sound like you are FI enough yet to stop working then I think this hinges on your husband getting a new work situation, namely independent consulting.  Once you do that you could move into the more remote east county where prices are significantly lower.  No commute if your husband works from home but you would be able to head into town to see family most any weekend and perhaps they will want to come out to the "country" to see you rather frequently.  Also your husband would be close enough to do face to face work with clients in the So Cal area as at the start of a contract many customers will get a warm fuzzy from a first face to face meeting.

So I'd suggest:

- Keep renting for now
- You and your husband come up with a work plan that would allow you to move into the boonies of east county.
- Consider carefully when to change your work situation and buy your property, order maybe very important (less risky to give it a try while still renting but may be harder to then get a loan for a property).  Evaluate your timeline for being able to make a cash purchase of lower cost east county property.

Anyway, there are probably lots of different ways to get going in the direction you want to go and hopefully you'll see better ideas than mine soon!

Another Reader

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Re: Advice for first time homebuyer San Diego
« Reply #2 on: June 27, 2013, 08:30:44 AM »
In San Diego, the demand far outstrips the supply.  The run up in prices and interest rates will slow the market down a little, but there are still 5 to 10 buyers for every correctly priced property.  Fortunately for you, all those cash investors that outbid you will be competing for tenants now.  This is the time to rent, and do it as inexpensively as possible.  Sock away as much as you can, and rethink purchasing periodically as your lease expires.


SunshineGirl

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Re: Advice for first time homebuyer San Diego
« Reply #3 on: June 27, 2013, 10:44:50 AM »
I was just there last week and read several articles about the housing industry and WOULD NOT buy right now. Just keep renting and saving money. You are correct in your hesitation.

TangerineTea

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Re: Advice for first time homebuyer San Diego
« Reply #4 on: June 29, 2013, 02:36:45 PM »
Thanks for the thoughtful replies everyone!! I pretty much never make a move without consulting all the ones that are wiser than I. 90% of the people I know lost their home for one reason or another....so I have to do this right.

tryan

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Re: Advice for first time homebuyer San Diego
« Reply #5 on: June 30, 2013, 09:01:47 AM »
Owning will NOT be fun if your in debt - up to your eyeballs - struggling to make the payments.  And the future will look lousy - with a 30 or 40 year note - until, hopefully, prices increase (alot).

Not a chance I would take.  Rent and keep your options open.

TangerineTea

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Re: Advice for first time homebuyer San Diego
« Reply #6 on: June 30, 2013, 12:15:03 PM »
In terms of renting vs. buying, I found this recent report which states that buying will be cheaper than renting in San Diego Metro area as long as rates are below 7.5% and that as of now, buying is 33% cheaper than renting if these assumptions are true: a 3.5% 30-year fixed-rate mortgage, 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.

Any new/additional guidance based on this?

http://trends.truliablog.com/category/rent-vs-buy-index/

Another Reader

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Re: Advice for first time homebuyer San Diego
« Reply #7 on: June 30, 2013, 01:15:49 PM »
In my neighborhood in Silicon Valley, you can rent my house for around $3,500.  PITI at the current Zillow value with 20 percent down, the correct tax amount and a 4.195% mortgage will cost you $5,100 a month.  No HOA here.  Add in repairs and maintenance, and subtract out your mortgage interest deduction.  Which is cheaper?  Renting. 

Trulia will tell you buying is cheaper, but they are in the business of referring you to a sales agent.  Their numbers are suspect, to say the least.  I would have to see the actual assumptions for San Jose and San Diego to see how they get to their conclusions.

In Phoenix, it's usually cheaper to buy, even with the increase in interest rates.  Not so in the high cost coastal areas.

StyleAndError

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Re: Advice for first time homebuyer San Diego
« Reply #8 on: June 30, 2013, 04:16:34 PM »
Just wanted to show some support on this thread! I also live in San Diego and dream of being a homeowner. I rent in North Park, and I love living here, but I'm shocked by how much homes are going for, even when they're in terrible condition. I have a couple of friends also trying to buy now, but everyone's getting outbid with cash. It seems like a dangerous time to buy. If I end up buying, it'll probably have to be farther out, and we'll try to get my fiance working from home more often.

SnackDog

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Re: Advice for first time homebuyer San Diego
« Reply #9 on: June 30, 2013, 05:03:27 PM »
Coastal California real estate has defied gravity for decades as investors pour money in from abroad.  If you really want to be in SD long term current prices and interest rates suggest you buy now. Do your own math on rent vs buy, which you probably already have and concluded buying makes more sense. Then, just keep trying! You will get one eventually.  See if you can find a place investors don't want - look for those which have been on the market a while.

dragoncar

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Re: Advice for first time homebuyer San Diego
« Reply #10 on: June 30, 2013, 05:53:09 PM »
My personal calculations show that renting is cheaper than buying in San Diego (for a condo).  Still I regret snapping up a $135k studio near the beach a couple years ago.  At least I can't really regret it because I didnt have cash on hand and probably couldn't have gotten a traditional mortgage in that complex.