Real Estate: California/I Need Help Choosing
QUESTION: My wife and I will be relocating to the Inland Empire area of California in the next few months. We have found two new construction projects that we really like. One is a 2 bedroom, 2 bath town home with attached garage in an established, desirable area of Temecula. The other is in a new area of Lake Elsinore I would describe as more of a city in transition. The home is a 4 bedroom, 2.5 bath single family home in a brand new master planned community and the amenities in this community are first rate.
My question is: which is the best option to buy now in anticipation of turning this property into a rental in about 5-7 years? There is a chance we might keep the home to start a family in, but as of now, we see this as becoming an investment property in the next 5-7 years. Which would you choose? The town home in the better location or a larger single family home in a nice new area, albeit less desirable on paper? The prices of the homes are similar.
Your feedback is greatly appreciated. Thank you.
ANSWER: Hi Mike.
Thank you for your question. Obviously, you have given these two properties and options a considerable amount of thought -- yay! I agree with you, they sound pretty equal. So, the next steps would be to answer these questions for yourself:
* What are the Homeowner Association rules regarding the percentage limit, if any, for investment property in each development? - Assuming the single family home development has an HOA. It is not unusual for the limit to be 25 percent rentals. If this is the case, the HOA intends on keeping the development looking and feeling good, if you will, for the long term. If the percentage is higher or non-existent, I would reconsider investing there as the value of the home could decrease over time. Or, it could lag behind similar properties due to the abundance of renters and the issues that accompany them.
* Are the ratings for the schools similar? Although school districts warn against using APIs, Academic Performance Indicators, as the measurement to make this determination, unfortunately, it is usually the only statistical information available for comparison. If there is a clear winner, especially for the high school, this point should be kept in mind - as the home will be a better seller down the road.
* If there are no HOA fees for the single family home this would be a big selling point for me and my buyers. As you know, HOA fees can go up, especially with new developments trying to fund the necessary reserves to maintain the complex in 5-10 years regarding streets, paint, landscaping, general repairs, etc.
* If and when you choose to turn your home into a rental, will you want to increase the rent some to ensure the place is mowed and the plants manicured regularly? Do you want this looming concern? If you'd feel more comfortable with the HOA taking care of it, as it would be with a townhome, and, assuming it may not be with the single family home, then the townhome might be a good idea. Maintenance in general may be easier to handle when there's an HOA. BUT, keep in mind, it will depend on what the HOA documents read they -will- cover and how quickly or thoroughly they will respond to your request for maintenance. Pest control as an issue is a good litmus test.
In general, I believe a single family home will sell -and- rent better / easier. The privacy issue, the ability to enjoy a backyard and have whatever number or size dogs/cats you want never goes away -- and neither does the ability to paint or re-model, etc. when/whatever you want in a single family home. The clean look and feel of a new townhome will wear off.
...If most things are fairly equal, Mike - my vote for the long term investment would be the single family home, good amenities and an upcoming neighborhood.
'Hope that helps!
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QUESTION: Hello Kathryn,
I sincerely appreciate the logical and detailed response. Everything you said makes a lot of sense to me. I was hoping to fill you in on a few of the details I didnít provide in my previous inquiry to give you a better overview of my choices.
Both the town home and the single family home communities have HOAís. It seems most new construction projects these days have HOAís attached to them. The cost of the HOA fee for the town home is currently set at $248 per month, but it includes trash, sewer, homeowners insurance (inside & out), common grounds maintenance, roof maintenance, and street repair. The HOA fee for the single family home is $150 per month and includes front yard maintenance, street repair, clubhouse amenities, etc.
Now, I contacted both of these developments to ask about the limit on income property as per your suggestion. Both of them said that there is no limit currently in place, although that is subject to change by the HOA should it be voted on by the board. This is making me rethink my entire strategy. Should I not purchase a home in either of these developments due to the lack of a limit placed on income property? Iím not even certain I should buy, but of course Iíd like to take advantage of the tax incentives of owning real estate along with the low interest rates. I have been told that it is still better to buy real estate when prices are lower even if interest rates are higher, versus higher prices and lower interest rates. Do you agree with that advice? My thought is that I could just rent for a few years in anticipation of higher interest rates equating to a drop in homes prices.
The ratings for the local schools are similar, although the schools in the community of the town home have a slightly higher rating than those of the single family home community.
Iím really confused as to which home to choose, if any. Any more feedback/advice would be greatly appreciated! Thank-you.
ANSWER: Additional note: 'Just noticed the time you sent this. Unless, you're in a different time zone, and buying in CA, there has been a time lag between your sending your message and my receiving it..I answered it as soon as I got it. Hmmm...sorry for the delay!
Hello again, Mike.
Thank you for the updated information. I can certainly understand why you are having a difficult time choosing! With all of the things we have discussed in mind, I'd say these homes have relatively equal statistical values. So, now it's a question of what your personal preference / needs / desires are, not just what home will have better value in the long term.
Let's say you decide never to rent the home out, for whatever reason you cannot foresee in 5-7 years...Which home 'speaks' to you -personally-? Do you and/or your family want a yard? Be near a park, the karate studio, the mall, hiking, the quiet only one of the home brings...Is one of the garages bigger than the other? If that's important to you. Is there an in-door laundry? Is it where the bedrooms are? My concern is you may be focusing only on the dollars and, excuse the bad pun, not the senses.
And, good for you for checking out the HOAs! Some people just won't take this extra step! I'm guessing you have looked at what rules have been determined already and have made that comparison as well. As for the rental limits, it looks like you may have to get involved with whatever HOA you choose so you can have some impact on the decision making process. Then you'll need to keep a watchful eye on the climbing investment numbers so your personal ship does not sail.
As I am in Santa Clara County, I am unable to give you advice on the areas - an important piece of historical information. This could mean natural hazards such as past floods, fires, higher propensity for earthquake damage, winds at a certain time of day or season, known ground water concerns, etc. A Realtor in your area would be able to give this perspective re: man-made and natural hazards. And, a Realtor will be able to negotiate on your behalf regarding upgrade pricing, etc. Most importantly a Realtor in your area will be better equipped to give you a historical overview re: the real estate market in your area. They will have their ear to the ground in a way this, or any, outsider cannot have. Their services are free to you. If you do not already have one, I am happy to refer you to one...Oh, and this is not to say you're not welcome to keep in touch with me! I'm only mentioning it as an additional resource.
What I'm telling my clients in my area: Interest rates are low and only going up. Prices had been rising until about 4-6 weeks ago and they are now flat. NO ONE knows what the prices will be in 1-3 years or even 6 months from now. The economy is a tricky, liquid thing. And, the bubble was unique. There isn't any data that will point to what our futures hold. My suggestion is to buy when you know what the price is and get the tax advantage. Why give your rental money away?
And, for a quick reiteration -- Personally, I am a fan of single family homes over townhomes.
'Wish you were my buyer! I'm always thrilled to have one so engaged!
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QUESTION: Well thank-you so much again for your knowledge and assistance on this Kathryn. I wish you could be our realtor too! I would welcome a recommendation from you on a local expert in the areas of Temecula and Lake Elsinore where I am looking.
It is interesting that on paper, the single family home seems to be the better buy, but it is indeed the town home that speaks to both my wife and I. We shall see what transpires from here! Your assistance is greatly appreciated.
Thanks, Mike! Ahh...The townhouse...I'm thinking your head is telling you 'go for the single family home'. But, your heart -and wife- are whispering townhome to you. Cool! Now, let's ensure there isn't anything you and I have missed and get the area expert involved.
If you would like to forward some contact info I can provide the referred agent, I'm happy to be of assistance. And, as with open disclosure that I absolutely believe in, that agent will be obligated to pay me a small part of their commission earned from the seller. You're welcome to email me: Kathryn@NewVintageHome.com and to research me by name, if you'd like some additional comfort level = Kathryn Hisert.