Apartment/home rental & purchase decisions, and opportunities to rent elsewhere

[jeromedawg]

Hey all,

So we are about to put an offer to purchase a home that we viewed yesterday. The home is nice but the location would be a trade-off for now - it's a lot more centrally located than where we're at now but further away from our kids' current school (their assigned middle school, however, would be a bit closer to this home at that point in time). I think we'd be happy there but I wouldn't say it's the "ultimate dream house" - it does rank highly up there though.

Our lease on the current apartment (which is a 2/1) ends July 30th but we can give 30 days notice and move out *before* that without lease termination per an 'offer' we agreed on when we first moved in.

Apart from looking for homes, we are strongly considering upgrading to a larger rental that would better suit our needs and provide a bit more room in general.
Yesterday we visited the 4/3 and a 3/2. The 4/3 is 1600sq ft for $3300 and has a garage (enough room to park one car in it but ample storage otherwise) and has a decent layout. This is about 15mins from the school. The 3/2 is around 1000sq ft and $2600 but significantly smaller and tight-quarters (no garage either) - it felt very cramped and dark in there. Not that it's a *huge* deal but the 4/3 is completely furnished (all appliances included) whereas the 3/2 is not. The 4/3 is basically 'turnkey' for easy move-in and we'd be able to get everything out of our storage unit so we can more easily sort it out and discard/donate. We wouldn't be able to clear our storage unit out into the 3/2 however. And yes, I realize we need to pare down our belongings but we had valid reasons for getting the storage unit (namely we were in a rush to sell our last place and frankly didn't have time to sort through years and years, many pre-Mustachian, worth of belongings). Once we are able to lay our stuff out in a garage or driveway (versus at the storage unit, where it's not really possible or convenient), we promise to pare down :)
I should also note that $3000-$3500 is the going rate for a majority of larger 3/2 homes in the area but there's a major scarcity of them. Commercially operated apartment communities are renting their 3/2 apartments out for $3000-3300, which makes the 4/3 seem like a pretty good deal.

That said, we got a good feeling/vibe from the landlords of the 4/3 unit (they seem very reasonable and down-to-earth - newer landlords but live close by and seem very responsive and willing to work with and help with issues if they come up) and they told us to let them know asap as there are other families waiting. Reading between the lines, it *sounds* like we may have first dibs on it as they seemed to like us and were eager to have us view the place yesterday. Given the situation (with us planning to put an offer on the aforementioned home), how should we go about expressing interest in the 4/3 so as to not lose it especially in the case that the offer on the home gets beat by another bidder?

Should we just move forward and tell the landlords we're interested but try to 'stall' for a bit more time and ask for another day to review the lease agreement, etc? With private landlord rentals, this is the first time we've ever rented directly from a private landlord so I'm not familiar with the 'process' and order of things and typically what the timelines/timeframes are. They told us the target move-in date would be sometime after July 1st probably but they want to try to get a new tenant to commit well beforehand.

With the home offer, I think they are wanting to review all offers by Monday (tomorrow) though. Should we be honest with the prospective landlords of the 4/3 about our situation and tell them we're planning to make an offer but would love to rent if it doesn't work out? I would be hesitant to do that as it might leave a bad taste in their mouths and they pass us up for the next renters and we lose the opportunity.

[SunnyDays]

Be honest with the private landlord, but phrase it in a positive manner, so that he understands you “really like the house and would love to live there, it’s the top house that you’ve seen, and could he wait until Tuesday for a definite answer when you will hear back about an offer?”  Be direct but polite and honest because if he does end up being your landlord, you don’t want to start off the relationship with half truths.

You didn’t mention the numbers for the house, so I’m assuming you feel it would be an acceptable price at your offer over the rental?

[jeromedawg]

Be honest with the private landlord, but phrase it in a positive manner, so that he understands you “really like the house and would love to live there, it’s the top house that you’ve seen, and could he wait until Tuesday for a definite answer when you will hear back about an offer?”  Be direct but polite and honest because if he does end up being your landlord, you don’t want to start off the relationship with half truths.

You didn’t mention the numbers for the house, so I’m assuming you feel it would be an acceptable price at your offer over the rental?

Our realtor thinks if we tell the landlords for this prospective rental that we're putting an offer on a home, they'd likely pass us up. That said, I like how you phrased it but may just ask if we can let them know by Tuesday or Wednesday without telling them our intentions of home buying. I would think most prospective landlords, if you tell them you're shopping around to buy a home, may not want to keep you as a top candidate if there are others waiting in line behind you.

As far as the home (that we would be putting an offer on) it's a 4/3 in great shape. It's listed starting at $865k but we would be offering prob $885k on it with a $500k downpayment. I'm thinking it may get up to $900 but not sure... I don't know if we like it enough to beat $900k.
But I think either way, the cost of PITI (and factoring in repairs mostly) should be the same or less than renting this unit IF we were to get it at $885-890k

[jeromedawg]

Well, we put an offer it at $890k with a $5k escalation clause (asking price $865k...smh). The more we thought about it, the more we really liked the house and the general location.
While it's not super close to the school (10min~ by freeway and 15min~ local one way) my wife said she's willing to make the commute and really doesn't mind driving. It's also located a little bit more north along the major freeway, which means things won't feel as far when we travel to/from the rest of OC/LA.
The place is nicely appointed and the floorplan is good (in our opinion), there's a garage and long driveway, decent sized yard (not too big not too small) and it's across the street from the community pool (I'm not too concerned about noise since the bedrooms are at the rear of the house and the pool is situated across the street from the front of the house). The HOA is reasonable for the pool and upkeep of the general area. It is a corner lot but it *seems* the residential street that it's situated on is not that heavily impacted by cross-traffic. The only minor thing about it is that the bedrooms are *slightly* on the smaller side but I don't consider this to be a big deal.

Anyway, we're holding it loosely - I won't be surprised if someone comes in at more than $50k over asking for this. We are deliberating whether or not we'd really want to match that if it happens... I'm still keeping the line of communication open with the potential landlords for the home rental in the meantime - we're sort of 'stalling' and taking our time responding back in the form of questions we have about the lease/place (and the landlord actually encouraged this starting out). I think that want to make sure all of our questions are clarified before agreeing to move forward with a lease agreement being drafted. I have a few more questions so will send those back sometime today.

[jeromedawg]

Quick update: we were beat out by a 'strong' all-cash offer - the seller's realtor didn't disclose how high. We came in at $25k over asking with proof of funds showing we had more than a sufficient amount for an all cash offer. But of course the all-cash and higher offer won. 

[PMJL34]

It was a really, really nice house and I feared it would go for much higher as well. It was turnkey and nice yard with very strong curb appeal. That's the type of house that literally everyone wants. In this market, I tell all my friends to find what they can give up (view, huge lot, 4th bedroom, whatever) and to try to target a home that not everybody would want. Or else be prepared to over pay by a lot. Whatever you think the house is worth, just forget it, because it will go significantly above that. It's risky and not bulletproof (and frowned upon), but I also tell my friends to just work with the listing agent directly. Desperate times calls for desperate measures in Cali. I know it's not fun. Sorry to hear that you lost another bid.

Is the rental still available and you feel good about moving forward?

[jeromedawg]

It was a really, really nice house and I feared it would go for much higher as well. It was turnkey and nice yard with very strong curb appeal. That's the type of house that literally everyone wants. In this market, I tell all my friends to find what they can give up (view, huge lot, 4th bedroom, whatever) and to try to target a home that not everybody would want. Or else be prepared to over pay by a lot. Whatever you think the house is worth, just forget it, because it will go significantly above that. It's risky and not bulletproof (and frowned upon), but I also tell my friends to just work with the listing agent directly. Desperate times calls for desperate measures in Cali. I know it's not fun. Sorry to hear that you lost another bid.

Is the rental still available and you feel good about moving forward?

There's another home in the same neighborhood, listed by Zillow, where they dropped the price in the past week or so. But there's virtually no yard and zero updates to the interior (it needs work). Zillow bought it back in March I think for $828k and are trying to flip it at $862k (down from $881 when they listed it back in April) currently. Maybe *that's* the one to go for hahaha. https://www.zillow.com/homedetails/23835-Sycamore-Dr-Mission-Viejo-CA-92691/25539457_zpid/ - I think if you were to change the flooring and put new carpet in (or perhaps give it a good carpet cleaning) you could potentially command a higher price. The yard is small and weird though - there's all this land around the outside of the fence that's unused and apparently is just common ground for the HOA. Seems like a waste...

The rental is still available and we've been in contact with the landlord. We told her that by end of day Wednesday we'll have an answer for her. I think we're leaning towards it. But that Zillow home is somewhat interesting. My realtor says they prob lowered the price hoping to get more eyes so as to incite a bidding war... it's been on the market for 40+ days though. I'm not the biggest fan of the layout either - I don't really like the staircase being in the middle of the place like that. It just feels...weird. IMO the pictures show it better than it actually shows in person.

EDIT: currently, we're leaning towards just going into the bigger rental. In the back of my mind though, I keep wondering if maybe we should just renew our lease in the current small space and keep looking to buy a place ASAP. But I feel like doing it this way would be pretty stressful and we'd be under a lot of pressure to feel like we have to get out of this place ASAP. Especially if we were to try for a third kid. Going into the bigger rental I think would give us some peace of mind and we'd feel more at ease psychologically, and while we're paying [a good amount] more for the bigger space, it would sort of buy us that 'peace of mind' and we can take our time making a more sound decision on permanent housing without feeling pressured, rushed or stressed.

[SunnyDays]

Yeah, that’s not a great layout.  Lots of wasted space and the kitchen is kind of cramped.  The backyard is small, but if you can use the common space for things like playing with the kids, then it might be okay.  Less land for you to take care of.  But for that price, I would want better.

Moving into the bigger rental is probably the best idea.  Like you say, less stress and pressure and you get what you want now.  And like I just said in another thread, things could look different in a year or two, once the buying frenzy has ended and people start to realize they can’t afford what they bought.

[jeromedawg]

Yeah, that’s not a great layout.  Lots of wasted space and the kitchen is kind of cramped.  The backyard is small, but if you can use the common space for things like playing with the kids, then it might be okay.  Less land for you to take care of.  But for that price, I would want better.

Moving into the bigger rental is probably the best idea.  Like you say, less stress and pressure and you get what you want now.  And like I just said in another thread, things could look different in a year or two, once the buying frenzy has ended and people start to realize they can’t afford what they bought.

We walked through it since it was just down the street when we were looking at the other place. It's just an odd layout. No wonder it has been on the market for 40+ days now. Zillow got a little too greedy with this one. I'm sure they'll sell it eventually, but probably not at the price they were hoping to get. On the other hand, they can afford to sit on it for as long as it takes to sell [at a price they want] and have the head-room to try to push for the highest offer they can get, play around with bidders and try to incite bidding wars by lowering the numbers and garnering more attention.

A lot of people here don't think there's going to be much of a break on prices, if anything. I'm leaning towards agreeing with that. But what I think *should* settle down is the # of buyers/buyer pool size. What I hate most about the process, currently, is knowing that you have 10-15 other people vying for the same home and at least one or more people with the "I'm going to beat you at it" mentality causing the prices to be driven up so much. By the time *that* dies down I think appreciation/inflation will have increased to the point that you will end up still paying what you would have paid today or perhaps a little more. So the $900k home today that ppl are willing to pay $1mm for today will probably end up at least being $1mm once the dust settles... that's my opinion and educated guess.  I feel strongly that the motto of the day is "Do you want to pre-pay for the appreciation on your home? And how many years of appreciation are you wanting to pre-pay?" - some people are willing to pre-pay for *many* years of [assumed] appreciation ;) I don't know that we have the stomach to deal with Ebay-style home purchases/auctions though... to begin with, I *hate* bidding on Ebay auctions and will only do it in rare cases. It stresses me out and makes me anxious when other people start jumping into the fray though. If that's how Ebay auctions make me feel, then why should I even entertain home buying in the current environment, right?

[PMJL34]

I don't like that house, either. Layout isn't great, no yard, and the lot placement.

If you are going to over pay, at least over pay for a home you will be happy in for decades to come.

[windytrail]

A lot of people here don't think there's going to be much of a break on prices, if anything. I'm leaning towards agreeing with that.

What about the end of mortgage forbearance? Can you explain why that would not put downward pressure on housing prices (assuming a significant amount of homes are foreclosed upon) as supply opens up?

I have heard people predicting that the real estate investors will be there to buy up any foreclosed homes and turn them into rentals, thus no additional supply will be left for home buyers. But with current home prices so high, it seems to me that, in many cases, the investors will make more money selling the homes to new owners than renting them out, which would increase supply for home buyers.

In the meantime, I am going to stay in my $1800/month, 1/1, 570 square ft apartment rental here in the Bay Area. No use in tying up the funds required to get an overpriced condo.

[jeromedawg]

I don't like that house, either. Layout isn't great, no yard, and the lot placement.

If you are going to over pay, at least over pay for a home you will be happy in for decades to come.

Agreed. If we were to buy now, I think we'd have to settle for paying $50k over or more. Just thinking about it, and dealing with other bids and potentially getting into a deep war, makes me cringe... I guess another way to put it is "would you prefer overpay NOW *and* deal with major competition and bidding wars? OR would you prefer to pay the amount later in a few years when you likely aren't going to have the same competition and pressure?"

[jeromedawg]

A lot of people here don't think there's going to be much of a break on prices, if anything. I'm leaning towards agreeing with that.

What about the end of mortgage forbearance? Can you explain why that would not put downward pressure on housing prices (assuming a significant amount of homes are foreclosed upon) as supply opens up?

I have heard people predicting that the real estate investors will be there to buy up any foreclosed homes and turn them into rentals, thus no additional supply will be left for home buyers. But with current home prices so high, it seems to me that, in many cases, the investors will make more money selling the homes to new owners than renting them out, which would increase supply for home buyers.

In the meantime, I am going to stay in my $1800/month, 1/1, 570 square ft apartment rental here in the Bay Area. No use in tying up the funds required to get an overpriced condo.

I don't doubt this is a factor... especially with COVID unemployment benefits ending in September (in CA at least). I think there might be a slowing and MAYBE a slight dip in the market potentially in Q3 or Q4 of this year but it's not going to be significant. If anything, I think what might happen is that the pool of buyers will shrink ever so slightly. As far as number of people with mortgages who are in forbearance: per my realtor, that number/percentage isn't as high as people think. And even if that were the case, I think the demand will still far exceed the supply - you have a lot more buyers than homes out there right now so the presumably small amount of homes coming on the market from ppl who are no longer able to make monthly payments is going to pale in comparison in my estimation. Also, to go into actual forbearance takes a while too, so if this truly were an issue we may not see the full/fuller effect of it for at least another year or more (so 2022-2023). IF in fact there are a high number of properties that go into forbearance, then that might contribute to whatever market cool-off in the future (some have projected that 2022-2023 might in fact be the time for this cool-off). Anybody's guess is as good as ours... as they 'roughly' say: whoever has the working crystal ball can let us all know. Haha.

As far as real estate investors buying foreclosed homes, I don't doubt that either. Most of them I'm sure are positioning themselves just for that very thing. With the frenzy, I'm sure a fair amount of them will be speculating too so you could be right: if too many of these "investors" get caught up in speculation-mode, and there's an influx of homes that come to market from investors (and many where they're just trying to turn quickly without fixing up, etc) we may see some potential deals out there. But I feel like that's a bit of a stretch factoring in what's been happening with inflation lately.

[jeromedawg]

The home rental we were looking at fell through. After viewing the house I told the landlord we would have an answer by Wednesday (so as to give us some time to think through the decision) and she didn't say anything about any other potential renters other than that there was general interest. I let her know this AM that we would be interested moving forward and just a couple hours ago she told me another family was further in the process and made a deposit and that we're the backup in case it falls through. I'm somewhat relieved just because it would have been further away from the school and where we're at now is really close. We're fine staying put here - upgrading would have been more of a "nice to have" so I'm not too bothered by it. But I do feel a bit pressured to try to find a home now haha. And so it begins...

[jeromedawg]

Quick question: our current complex just released the rates for renewal for the coming year. If we don't re-sign the lease, we'll be defaulted to a month-to-month lease... in the terms they say the rate for month-to-month is the *same* as the monthly rate for the 12-month lease so I contacted to clarify this and ask if the rate is subject to increase on the month-to-month lease. I was told that yes, month-to-month lease would in fact be subject to increases (I figured this but wanted to make sure it was clear).

That said, would you all recommend just going month-to-month at this point as we have been currently looking for a place to purchase in the meantime? It kind of feels like gambling because we would be putting all bets on finding a place to buy ASAP. At the same time, if we were to sign a year lease I think we'd still be looking for a place to purchase regardless and if we find it would have to pay the early termination fee (one month's rent). It seems that if we're confident that we can find a place to buy within several months, going month-to-month might make the most sense. I don't know if there's a max/cap that landlords are subject to when raising rents on month-to-month leases so also curious about that as I think that would impact the decision too.

Thoughts?

EDIT: found some material (this is for OC). There's no rent control here so:
"If an owner gives more than one rent increase per year and those increases total more than 10 percent, the owner must give tenants a 60-day advance notice. (For example, if the first rent increase is 5 percent, you can give a 30-day notice; if the second rent increase is 6 percent, the owner must give a 60-day advance notice.)"

I also asked the leasing office and they are claiming that the max they'll increase is 5.69% month over month. Not sure if I believe that according to https://www.fairhousingoc.org/landlordtenant/:
"Because there is no rent control in Orange County a landlord can raise a tenants rent as much and as often as they wish, so long as they give proper notice of the change in terms. Proper notice means that an increase of less than 10% requires 30 days written notice before the increase takes effect. However, increases of more than 10% in any 12 month period, requires 60 days written notice before the increase takes effect. (For more information regarding proper notice, please see the section on defective notices.)"
Unless there's some special provision for apartment complexes.

But then there's this https://www.nolo.com/legal-encyclopedia/california-rent-control-law.html#:~:text=The%20total%20increase%20is%20capped,in%20any%2012%20month%20period.&text=Annual%20rent%20increases%20are%20limited,Consumer%20Price%20Index%20(CPI).&text=The%20%22Annual%20General%20Increase%22%20is,5%25%20via%20one%20annual%20increase. which talks about the provisions from AB 1482 which passed last year.

[chemistk]

Month to month leases are much easier to get out of. I know I haven't commented in here or your other threads, but I have kept moderately up to date with them.

If you think that your current place indeed isn't somewhere you want to be long term (and it definitely sounds like that's the case), then month-to-month lets you move on a new place quicker without incurring lease-breaking fees.

It's also generally more attractive to home sellers if you're financing, as you can communicate to them that your lease is month-to-month which signals to them that you have more flexibility with a settlement date.

Of course the risk is always that you get hit with a wave of rent increases but it generally sounds like you want out of there anyway so I think the flexibility is worth the few hundred you might see in additional rent (unless breaking your lease on a 12month is less than the 5+% rent increase that you'd see, then in that case just renew for the year to lock in.)

[PMJL34]

Month to month. Don't overthink it.

[windytrail]

AB 1482, which has applied since 2020, caps rent increases at 5% annually + CPI inflation; but there are exceptions, including:
- You live in a single family home that is owned by an individual. If it's owned by a real estate investment trust (REIT), a corporation, or an LLC where one of the members is a corporation, then AB 1482 does apply.
- If your property is new construction, then it's exempt for the first 15 years.
- Disclosure requirements: check to see if the rent control law is mentioned in your lease with a disclaimer that your home is exempt from the law. If there is nothing in your lease about the law, then your home does become subject to rent control, according to this site: https://www.mynd.co/knowledge-center/how-ab-1482-or-statewide-rent-control-impacts-single-family-rentals (but see below - sounds like if your tenancy began before july 1, 2020 then disclosure is not necessary)

Disclosure requirements from the bill:

(B) (i) The tenants have been provided written notice that the residential real property is exempt from this section using the following statement:

“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”

(ii) For a tenancy existing before July 1, 2020, the notice required under clause (i) may, but is not required to, be provided in the rental agreement.
(iii) For a tenancy commenced or renewed on or after July 1, 2020, the notice required under clause (i) must be provided in the rental agreement.

[jeromedawg]

AB 1482, which has applied since 2020, caps rent increases at 5% annually + CPI inflation; but there are exceptions, including:
- You live in a single family home that is owned by an individual. If it's owned by a real estate investment trust (REIT), a corporation, or an LLC where one of the members is a corporation, then AB 1482 does apply.
- If your property is new construction, then it's exempt for the first 15 years.
- Disclosure requirements: check to see if the rent control law is mentioned in your lease with a disclaimer that your home is exempt from the law. If there is nothing in your lease about the law, then your home does become subject to rent control, according to this site: https://www.mynd.co/knowledge-center/how-ab-1482-or-statewide-rent-control-impacts-single-family-rentals (but see below - sounds like if your tenancy began before july 1, 2020 then disclosure is not necessary)

Disclosure requirements from the bill:

(B) (i) The tenants have been provided written notice that the residential real property is exempt from this section using the following statement:

“This property is not subject to the rent limits imposed by Section 1947.12 of the Civil Code and is not subject to the just cause requirements of Section 1946.2 of the Civil Code. This property meets the requirements of Sections 1947.12 (c)(5) and 1946.2 (e)(7) of the Civil Code and the owner is not any of the following: (1) a real estate investment trust, as defined by Section 856 of the Internal Revenue Code; (2) a corporation; or (3) a limited liability company in which at least one member is a corporation.”

(ii) For a tenancy existing before July 1, 2020, the notice required under clause (i) may, but is not required to, be provided in the rental agreement.
(iii) For a tenancy commenced or renewed on or after July 1, 2020, the notice required under clause (i) must be provided in the rental agreement.

Thanks - does this apply even to month-to-month leases though?

[nalor511]

Yes rent control applies to m2m tenancies