12 replies to this topic

[boethius]

Hi All,

 

I value the experienced advice on this forum and could use some advice and input from experienced folks out there. 

 

I work in Folsom and have been making the 1.5 hr / day total round-trip commute from Elk Grove to Folsom for the past 7 years, 5 days a week.  I decided to sell my house so I can live in Folsom or closer to Folsom, and also because there has been a considerable amount of equity built up thru mostly appreciation and partly principal pay-down over the last 2-3 years.  Prior to this, the home value fell to about $20K-30K below the purchase price.  So I felt now was a good time to sell and free up the equity for flexibility, other investment opportunities, and greater security.  I'm due to close on the sale of my house early next month.

 

Additional Info:  some family members may move to the mid-west in 3 years or so.  If that happens, I may want to move there so we can all keep together.  Plus, large brand new

homes out there can be had for $260K (4bd, 3ba, 2300-2500sqft).

 

So now, based on the above, I'm trying to decide on the best financial decision between the following:

 

1. Rent a 2bd/2ba, 1-car garage apartment/condo in Folsom for $1500 (also thought about renting outside of Folsom but the commute time, wear and tear, and gas would probably negate any cost advantage of renting out of Folsom).

 

2. Buy a condo in Folsom for around $235K, making my total monthly payment $1500 (which includes tax, HOA, etc), which would be same as renting, except I'd be paying

down principal and building equity with this option.  If in 3 years, family moves to the mid-west and I wish to follow suit, I can rent it out to Intel, Micron or other gainfully employed renters in Folsom.  At the very least, if it does not appreciate much compared to a single family detached home, I would be paying down the principal and building equity.  I would be putting only 5% down and not paying off my car/student loans, so I can keep $50-70K of the net proceeds from the sale of my house, that can be used for a rainy day fund, investment fund, and down payment on a new house should I move to the mid-west.

 

3. Buy a single family detached home for $270K or so, on the outskirts of Folsom, somewhere safe, has growth potential and a solid future as a rental.  In this scenario, I am told that it has more likely a chance to appreciate in value than a condo in scenario #2.  As the house would likely be 3bd/2ba, 2-car garage w/ yard.  But the downside would be it'd have to be outside of Folsom, so safety, home value stability, and rental demand compared to Folsom would be a concern.  Here two, I'd be able to pay down principal and build equity, at least, and hopefully also experience some gains due to appreciation in value.   I would be putting only 5% down and not paying off my car/student loans, so I can keep $50-70K of the net proceeds from the sale of my house, that can be used for a rainy day fund, investment fund, and down payment on a new house should I move to the mid-west.

 

4. I ruled out a 4th option of buying a very nice house at $420K putting me at my loan maximum and down payment maximum, due to being too high-risk (it'd consume all of my net proceeds from the sale of my house, leaving me with no rainy day fund or down payment for a new house if I move to the mid-west) and tie me down more than the other options should my family situation change.  I'd have to sell it first before I can move anywhere else, and I'd probably break even, at best, after closing costs.

 

So, I essentially have 3 viable options to consider, really (options 1-3 above).

 

Does anyone have input on which option may be the most financially sound and yield the greatest returns over the long run, given my situation as described above? 

 

Some people say that renting an apartment isn't throwing away money, since you're paying for a roof over your head, and sometimes renting is cheaper when considering all total costs of renting vs owning, and that if the savings difference by renting is enough, if invested, you could have a near break-even bottom line result between renting vs owning. 

 

Thanks in advance.  If I missed providing any pertinent info, please let me know.

 

 

 

 

 

 

1. Buy a very nice house in Folsom on the high end of my loan and down payment ceiling ($420K w/ 10% down, plus pay off $28K in debt), and be very stretched financially

 

Although I technically qualify to purchase in Folsom on the lower end ($350-$420K), it would not leave me with rainy day funds, and I also am not certain I'll be in Folsom for the long term, over 5 years.  Maybe not even over 3 years.  This is because I have family members that may move to the mid-west, and since as a family we may want to stay together to see each other more often, I may follow suite and move to be closer to them should that happen in 3-4 years.  So anything I'd purchase in Folsom could end up being a rental property or I'd have to try to sell and break even, at least.

 

I would say that $350K is probably the maximum I could consider while still having some rainy day funds saved up from the sale of my house (rather than put it all into a house in Folsom and leave me stretched).  But given that I may not live in Folsom long-term since it's possible I may move to the mid-west or elsewhere in 3-4 years, and given that home values in Folsom seem to be on the top end right now, I'm wondering if a better strategy might be to buy a house near Folsom but is safe, has growth potential, and has rental potential for around $270K max (a

 

 

[The Average Joe]

Folsom will hold value/appreciate better than surrounding areas.   At least until S of 50 goes in. That is a wildcard as to what it will do to the desirability. Buying could have substantial tax benefits depending on your current income since with low down payment, most of your 1500.00 would be deductible interest. And don't forget the property tax deduction. Renting would sure make things easier when you decide to move, but in a strictly dollars and cents perspective, it's probably better to buy (assuming no major home expenses pop up).

[boethius]

Folsom will hold value/appreciate better than surrounding areas.   At least until S of 50 goes in. That is a wildcard as to what it will do to the desirability. Buying could have substantial tax benefits depending on your current income since with low down payment, most of your 1500.00 would be deductible interest. And don't forget the property tax deduction. Renting would sure make things easier when you decide to move, but in a strictly dollars and cents perspective, it's probably better to buy (assuming no major home expenses pop up).

 

Thanks.  What do you think about the Condo option (say a 2bdrm/2ba/1car Moon Circle condo up in Empire Ranch) that eventually becomes a rental? 

[Steve Heard]

Hi Boethius, and welcome to myfolsom.

 

Option 1 (renting) gives you the most flexibility, although you may have to buy out  your lease if you decide to pick up and go, and least responsibility for maintenance. It also offers little in the way of helping you gain financially, as any equity/appreciation goes to the landlord, not the renter, and as mentioned, you don't get the tax deductions that home owners get. Renting also leaves you at the mercy of landlords who can jack up the rent, evict you, or refuse to repair or maintain the property. Another thing to note is that Folsom is a tight rental market. Talk to a local property manager about how many applicants they get for each rental. It's tough out there.

 

Otion 2 (buying a condo) In your price range, below $240K, you won't have many choices. Moon Circle (offically the 'Madrone at Empire Ranch') condos are the only recently built condos in that price range. Beware though, if you're planning to turn one into a rental. When last I checked (I can check again if you like), there was a moratorium on rentals in the complex. They have too many. Alturas Village condos are nice, but were built as apartments and later converted to condos. That makes them a little less desirable. 

The Waterford is another apartment to condo conversion, and there was a $5million dollar mold lawsuit won by the homeowners there. There are some older condos on Wales near city hall in your price range as well. All of the other newer complexes will be go for considerably more. Speaking of which, all of the condos in town are selling for much higher today than 3 years ago. Esplanade units were going for $100K less just a few years ago, so they do indeed increase in value. 

 

Option 3 (buying outside of Folsom for $270K or less). This might be a good option because your costs can be close to what it would be to rent, and you can rent them out for nearly as much as a rental in Folsom. I know investors who buy in Folsom because although they won't make as much money on the rent, they will have their pick of good renters, and Folsom should remain desirable, with higher prices than neighboring communities. 

 

It is getting tough, however, to find a decent place for under $270K in places like Orangevale, Fair Oaks, and Cameron Park. For that price, you tend to get small and/or below average condition, but there are some gems out there.  I recently sold a 1434 sq ft home in Folsom for $390K cash, and am currently in escrow with a buyer for a house in Orangevale, 1356 sq ft, beautifully remodeled, for for $299K. As a rental, they might be $100 to possibly $200 apart, but there's a $91,000 difference in cost. 

 

As for the South of 50 development, it remains to be seen as to when that will happen, and what their prices will be. The fears that they would hurt existing home sales and prices was the same fear they had about Empire Ranch and Broadstone, but here we are today with all of Folsom enjoying strong prices. Perhaps it will be the same with the South of 50 plan. No one knows for sure.

 

I guess the bottom line is that buying seems to be more advantageous for most but not all people, Folsom is a stronger market, even for condos, but you can get some nice homes for much less in neighboring communities.

 

I hope that helps.

 

I'm glad to answer any more questions.  

[ducky]

There is a home for sale on Grappa Way in the brand-new Elliott Homes subdivision in Rancho Cordova  for sale, I believe, for $370,000.  It's a 4 bedroom, 2 bath.  Quick commute to Folsom, same school district.  Elliott did a great job on those homes.

 

The only drawback is the airport, but I've talked to people who live there and it really doesn't bother them.

Their only other complaint is lack of a supermarket nearby, but that will probably change soon.  For now, there is a Costco on Sunrise and a Lowe's on International & Zinfandel.

 

It's been for sale for a while now.  I think it's by owner.  Steve, you might want to check into that.

[boethius]

^{There is a home for sale on Grappa Way in the brand-new Elliott Homes subdivision in Rancho Cordova  for sale, I believe, for $370,000.  It's a 4 bedroom, 2 bath.  Quick commute to Folsom, same school district.  Elliott did a great job on those homes.}

 

^{The only drawback is the airport, but I've talked to people who live there and it really doesn't bother them.}

^{Their only other complaint is lack of a supermarket nearby, but that will probably change soon.  For now, there is a Costco on Sunrise and a Lowe's on International & Zinfandel.}

 

^{It's been for sale for a while now.  I think it's by owner.  Steve, you might want to check into that.}

 

^{How safe is Rancho?}

[FolsomEJ]

My advice is to not overthink this choice.  Isolate your family needs and your investing goals and don't try to combine and optimize them at the same time.

 

Find the house you need.  Find the purchase or rental arrangement that makes sense for your current plans.

 

If you think you want a rental home, consider that investment as a separate transaction.

 

Here's a thought experiment: Why didn't you rent out your existing home that you are selling?  Why might this newer purchase (if you decide to purchase) not also have the same "sell" criteria?  You don't need to answer here, just consider it.  Predicting the future, especially the shorter term like 3-5 years is really hard.

[ducky]

 

^{How safe is Rancho?}

 

This section is a new subdivision and I feel safe there.  They have walking trails that are pretty well used.  It feels like it is more owners than rentals.  The only drawback is the house I mentioned is so new it probably never had a back yard installed so that would be an added expense.  If we were talking Rancho on the other side of the freeway I wouldn't feel safe.

 

You might want to check out the Capital Village area, also, along International.  There is a park where they do movie nights in the summer, have food truck nights, etc.  It is more townhomes, but they seem to hold their value.  The traditional-looking ones seem to sell faster than the boxy, cube-shaped ones, though. 

[boethius]

I know this wasn't a question requiring answering, but just as FYI the reason I sold is because I have considerable equity built up due to appreciation over the last 2 years, and the net proceeds will give me a rainy day fund, investment fund, down payment fund on another house.   Plus the commute time from my current house to Folsom was costing me time, gas, personal and car wear and tear.

 

My advice is to not overthink this choice.  Isolate your family needs and your investing goals and don't try to combine and optimize them at the same time.

 

Find the house you need.  Find the purchase or rental arrangement that makes sense for your current plans.

 

If you think you want a rental home, consider that investment as a separate transaction.

 

Here's a thought experiment: Why didn't you rent out your existing home that you are selling?  Why might this newer purchase (if you decide to purchase) not also have the same "sell" criteria?  You don't need to answer here, just consider it.  Predicting the future, especially the shorter term like 3-5 years is really hard.

[FolsomEJ]

Just don't forget that most of the time, the interest deduction of owning with a mortgage is overstated.  An accurate "value" of the interest deduction would need to calculate taxes with and without it, and take into account that the standard deduction is worth a considerable amount on its own.

 

http://en.wikipedia....ndard_deduction

[Steve Heard]

There is a home for sale on Grappa Way in the brand-new Elliott Homes subdivision in Rancho Cordova  for sale, I believe, for $370,000.  It's a 4 bedroom, 2 bath.  Quick commute to Folsom, same school district.  Elliott did a great job on those homes.

 

The only drawback is the airport, but I've talked to people who live there and it really doesn't bother them.

Their only other complaint is lack of a supermarket nearby, but that will probably change soon.  For now, there is a Costco on Sunrise and a Lowe's on International & Zinfandel.

 

It's been for sale for a while now.  I think it's by owner.  Steve, you might want to check into that.

 

The place on Grappa is priced a bit higher than others in the area. There is a similar one pending at $340K right now.

 

I haven't been inside either to compare. 

 

It is a very nice area of new and fairly recently built homes.

[rip]

Real estate can be a very good long term investment.  Emphasis on long term. I'd say of your options, buying the more expensive house in Folsom that you may need to sell in 3 years would be the least favorable.  In three years, even if there is a modest level of appreciation, you would at best, be even.  If the market flattens or declines a bit you would be upside down and stuck.  The conventional wisdom is unless you are going to occupy an home for more than 5 years it is better to rent than buy.  The other thing to consider, unless you have a very large down payment, it is more difficult to cash flow a more expensive house as a rental if it came down to that.

 

Condos can be great or a nightmare depending on the HOA.  Unless you are VERY familiar with a development I'd be wary.  

 

Buying a less expensive house outside of Folsom, seems like a workable solution.  You use less of your savings and it would be easier to cash flow if you need to rent it. That said, not sure where near Folsom you can buy a nice house in a good neighborhood for $270k? 

 

Honestly, with your long term plans up in the air and possibly looking to move in 3 years, I'd rent.  Take the proceeds from your house and invest in something else.  Vanguard has many great index funds at very low cost that might be a great place to park your cash until you know for sure how long you will be in the area. 

[Robert Gary]

Folsom homes provably hold their value better than most areas. However, if you are concerned with market movement, condos seem to swing a bit extreme. In a bad economy they are difficult to off load as they compete with apartments. When people can't get homes in a hot market condos get snapped up quickly for high prices. 

 

-Robert