Archive for September, 2012

Should I rent my house and buy another? Is now a good time to buy a move up property?

Posted on September 17, 2012. Filed under: First Time Buyer help |

Great question!  We get asked on a daily basis if now is a good time to rent your first house or condo and buy another.  As long as it works for you financially, the answer is probably ‘yes’,  for 3 reasons:

1. Our interest rates are so good right now that you can probably get MORE house for the same amount of money you are currently paying. 
2. You’ll be building your investments through your real estate portfolio
3. Rental properties create residual income

How do you go about confirming you’re a good candidate to move up or invest?  There’s a few considerations you’ll want to look into before jumping in on a second or third property.  Ask yourself the following questions:

1. Do I have any equity in my first property?  Most lenders require you to have at least 30% equity.
2. Do I have at least 3.5% saved for a down payment on the new property?  Remember you can use your IRA or gift money in many cases too. 
3. Do I have at least 3 months reserve income to make the mortgage on BOTH properties? 

If the answer is no, then it’s probably best for you to simply sell your existing house or condo and move up to a better property.  Again, you’ll get more house for your money 🙂 But, if you have all of the above, now is a GREAT time to consider investing in real estate.  Orange County real estate is a great investment because Southern California is such a desired area.  Everyone wants to live in the OC!!

Let’s get into the math.  Scenario 1:  “I’ll wait until the market goes down more”

Property value:  300K
Move up range:  400K

Market adjustment:  -10%

You lose: 30K
Move up decreases: 40K

At first it seems like ‘waiting’ gained you 10K.  But now your existing property doesn’t have enough equity in it to apply your proceeds toward a conventional loan.  You needed that 30K to put down so you didn’t have to do FHA financing, pay mortgage insurance, and deal with a higher interest rate.  If interest rates go up even .5% in this time (which they really have nowhere to go but up) then you REALLY made a mistake waiting 😦

Scenario 2:  “Let’s DO this!”

Property value:  300K
Move up range:  400K

Market adjustment:  -10%

Equity decreases: 40K

At first this math hurts a little.  It looks like you lost 40K.  But did you really?  Only if you choose to cash out after the adjustment.  Property is all about strategically holding.  If you hold, you’ve got a low low interest rate locked in on a better property than your first one.  And your payment is only a little more.  How much is the pool, the walk in closet, the extra bedroom, the lack of paying an HOA worth to you?  Aren’t you more ‘at home’ now that you moved up? 

Let’s take that homebuying math in the opposite direction…………say prices INCREASE 10%.  If you stayed, you’ve got 30K more, but your move up property is 40K more.  How long does it take for you to save 10K?  Would it have been easier to ‘autosave’ it by buying the bigger property before prices spiked?  And what if interest rates went up?  Can you even afford to buy the bigger property now?  You could be stuck because the payment on a 440K property just isn’t affordable. 

On the other hand, if you DID decide to buy the bigger property… your loan and payment are locked in low, you have a more comfortable lifestyle, AND a bigger bank account.   

This is why so many Orange County home owners are moving up in today’s market.  Its all about strategic, calculated risk.  If you’d like to meet with us to crunch numbers we do consultations like this every day.  Sometimes we say to ‘stay put’, sometimes we say to ‘get moving’ 😉  What’s best for your future?!  Call us at 877-230-3211 and let’s create a strategy for your real estate portfolio!

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