Equity vs. Cash Flow, which is better?

I need a tax break and leasing a property wouldn't help me with that.

 

What about sheriff sales or Foreclosures? That's how I found mine.

 

Money saved = or > tax break

 

Yeah the house I am looking at is a foreclosure . The only houses that are $30k in CA are mobile homes located far away from markets and other businesses. The closest market is about a 30 minute drive from those housing areas. My coworker lives in an area that is similar. He drives over 100 miles one way just to get to work and the weather in those areas are extreme. If it's hot here it's like hell there. If it's cold here it's snowing there and also a lot of Las Vegas traffic clogs the freeway on Friday and Sunday also a chance of getting snowed in.

 

To lease a property near where I live is about $1,800 for a normal size house 3 bedroom/ 1 or 2 bath. A 2 bedroom apartment my friend is staying in is about $1,200. My friend who lives in San Diego, CA is leasing a property with 4 friends is paying $2,500 but was able to lower it down to $2,400. It is a 4bedroom/2bath.

 

A tax break for owning property, in my experience, involves spending money on it to increase it's value. The break you get just making payments on it is minimal. I haven't really seen much difference except by throwing 5k chunks at shit like new AC or new roof. Then combined with the little bit off paying your mortgage starts to be something helpful. We try to do something like that every year. Next year I'll be claiming the standby whole house 20 kw natural gas generator we dropped 10k on this year. That's the kind of stuff that really helps, that and having kids to claim, which I don't get to do.

 

if you need a tax break

pump more money into your retirement and keep looking for
a more affordable home in an area with good schools
near your work if possible

also dont forget to take the education credits
on your tax return



imo

 

I've been following the housing prices in So Cal for almost a year and things are starting to look good. Not like 5 years ago good but better than they were a year ago. A lot is going to ride on the new deal Obama (G20 concessions) has to make about stopping to pump money into the recession. If the money stops, I think things will get worse. That is ultimately going to determine the future for area hit like So Cal. My BIL's house value dropped from $450k to about $300k, he lives in Vista.

 

I was in your same situation about 4 months ago. Like you I make about 70K and take home is around 3,500 as well. I ended up going with a 3 bed 2 bath house for $370k, I also have a wife that makes over 50k, so it was an easy decision for us. I couldn't imagine trying to pay the mortgage on my own, I have a truck payment, school loan payment, and 1 credit card. I plan on renting this house in 5-10 years and buying another house and hopefully some lake front land in WA or ID. Don't know if this helps, but if I were single I would buy up a condo every few years. In 20 years you will be sitting pretty, at least here in so cal.

 

That makes sense. I would love to have value in the house. I guess if I have a tax break it won't as much as your home improvement tax break. If I purchase a 300k house I should be able to write-off 12-14k in interest . It doesn't help a lot but I would also get the CA state housing credit which is 10k spread over 3 years. It has a small benefits here and there but what you are saying does make sense. I want to be able to make changes like you are doing to your house later down the line but I don't know if I can do that on my first property.

 

If you think the market is still going to drop more and/or you can't afford a house that makes you happy, I'd rent and wait.

I think the market is still going to drop, but that is just my opinion. It's artifically high due to the first time home buyer incentive right now. Plus no one is hiring, jobs are not getting better. My real estate friends tell me the only buyers are first time buyers using the credit and investors paying cash for good deals. No one is upsizing or even down sizing. Too many people backwards on their load or facing foreclosure.

Socking away 15% and asking this question tells me you have a real good head on your shoulders. Good luck with what ever you do!

 

In my experience with Real Estate (Going back about 20 years), is that houses sell better than condos. Condos are the first in to a recession and last out. Single family homes always have a market. I think we are at or very near the bottom of prices. They will head back up, they always do. Interest rates are very low now but inflation is coming and they will rise and when they do you will not be able to afford what you can today. If I were in your shoes I'd buy a single family home, put some money into it with the intention of holding it for at least 5 years perhaps 7. You will make money. This recession will not last, the one in the early 80's didn't and neither did the one in the early 90's. California real estate is volitile as hell but prices can jump as quickly as they can fall. Buy and hold!

 

buy a cheaper house and build up equity. if this is your first home, you can withdraw money from your ira, and not have to pay the 10% penalty for early withdrawl. if you can put 20% down, you will not have to pay pmi (mortgage insurance). this will lower your payment.

 

Both of your advice is very helpful. I do think the prices of the houses will come down a little more but I have no idea how much more. From what I've been hearing from friends that work in Wells Fargo and Chase, they said there is an overwhelming amount of foreclosures that are suppose to hit the market in July and August. These foreclosures are coming from the modified loans that people weren't able to pay off because they might have lost their jobs. I also think that the market was flooded with the first time home buyer's credit as well and a lot of people that are buying are the people with cash in hand.

I do think real estate will jump back up but I do not know when. My parents always tell me to buy a house because of the interest rate. I did not really understand what the big deal was about the interest rate until everyone kept saying almost the same thing. They told me that interest rates use to be between 15%-20% for houses. With that being said, if 15% intrest rates were to ever come back , or even 10%, I would never be able to afford a single family residential. I would have a mortgage of $4k a month. That is ridiculous. So both of your advice is very good. It makes it even harder to decide.

 

I wasn't referring to school loans. I was specifically saying that owning a house can suck up a lot of your time & excessive money when you first move in.

But now that you mention is.... How are you gonna be able to pay for your school loans with a mortgage like that?

Dude - get your school loans paid off and all credit card debt, car loans, or other loans now. I wouldn't commit to buying a house of that expense unless everything else is taken care of first. You're far better off waiting and making sure you're financially secure - then getting in over your head and ruin your credit in the process. Don't become a statistic.

 

real estate is not going to "jump back up". it is basic economics, it is a issue of supply and demand. there is a over supply of housing, and there was a over supply of loan products. there is no way people can get loans like they used to. for housing to go up, it has to be driven up by purchases. as long as forclosures continue to flood the market, the situation is not going to improve. i am an accountant, and my wife does mortgage loans. every night when she gets home, she complains about
how hard it is to get someone approved. i audit banks, the industry, (of loans) has changed a ton.

 

Wow I don't see how ya'll do it. Making that kinda money and paying those prices on homes. Those prices to me are outrageious. Good luck, I could never make it there.

 

Look at it this way, you are going to pay someones mortgage to live just about anywhere, you might as well pay your own and get some tax benefit. You get to write off mortgage interest and most of your payment in the first 5 years is interest. As long as the monthly payment is affordable you won't lose money unless you try and flip the property. I've never lost a dime on real estate, I've always been able to wait out the market and sell when the prices go up. I'm upside down on rental house right now but I don't care, I get so much benefit in tax breaks that I'm still ahead, and if I did sell it at a loss it's a business loss so I get to write that off as well.

 

Based off this, i would say you are a cop/firefighter/teacher, sounds like my wifes teacher next door program-- buy a house get 50% paid buy uncle same at end of three years.
What I would do (I did do ) is buy the condo at 1000$ a month you are most likely close to rent levels in the area. I would then take the 2200 a month that you would have paid on the house and pay that on condo ( so 2200$ month on the condo) that plus the 80K$ equity you can deal with another market drop.

At your rate of pay I can see you paying it off easy in 5-6 years and then having the cash flow from the rental of that unit towards the house in the future. The condo would be lower maint cost as HOA covers most things outside(roof windows etc) or common to units.
Once that condo becomes a rental and no mortgage it is income and equity. Then the fun starts-- in 5 years the price of a house will be about 10% higher maybeless, but you can buy a house and have the condo buy another condo.

That will be your retirement and tax deductions.
Plus rent from 2 condos covers all the condo HOA ,condo & house taxes,and 50% of Mortgage on house.
Then by the time you are forty you can just go play all the time and not work except as the landlord.

2 condos and counting
-LAB

 

buy and rent, it's what asians do to make money