My inspiration for this week’s article is from a graduation BBQ party I attended over the weekend. It was great to be in the fresh air and socializing with family and close friends, and congratulating a recent graduate. At one point my conversation with a friend turned to real estate. This friend is paying $2,500 per month living in a two-bedroom rental apartment, a half-mile east of Ocean Beach. I suggested maybe he consider buying something and he had a couple reactions. First he wanted to wait until he was able to afford a proper home in the beach area.
I have heard this before as buyers sometimes want to wait until they can afford their dream home. But the typical path to a dream home usually starts with a starter home. I suggested starting with something smaller with the plan of eventually purchasing a forever home. The reason is that real estate prices tend to increase slowly over time and a starter home will get a buyer “in the game” and hedge against rising prices and allow a first-time buyer to start earning some equity. You have to start somewhere!
I helped a 25-year old recently purchase a two-bedroom condo near North Park for around $325,000. Over the next few years, his mortgage balance will decrease and the property value will likely increase offering that buyer options in a few years. He could sell the property and pull out maybe $75,000 to $100,000 in equity that could be put towards another property or that property could be turned into an excellent long term investment rental property. That buyer knew it wouldn’t be his forever home, it was just a stepping stone to greater real estate investment.
So that is my first point of this article. So many renters say they want to wait until they can afford a single-family dream home property but as I said, purchasing a condo or townhouse now is an important starting point to eventually reaching that goal. I have a listing in escrow right now where that is what the buyers did. They purchased a starter home some years ago and recently sold it generating a pretty large down payment for their current three-bedroom home in the College Area.
A second point I wanted to make is that amazing loan programs are available for buyers where just a 3.5% down payment is needed to purchase a property. Typically, a buyer just needs appropriate income to qualify. Interest rates are ridiculously low, making a mortgage payment similar to a rent payment. So renting for the next five years will build exactly zero equity but purchasing a nice condo or townhouse starter home, with a similar payment to renting, would typically build significant equity that could be used towards purchasing a larger property. They key is to “get into the market” and start building equity.
So for the friend I mentioned at the beginning of this article, paying $2500 a month, for that same payment (including property taxes) he could purchase a super nice luxury condo for around $425,000. For a very nice $350,000 condo in a nice location the all-in payment is just about $2,000. Once again, this does not have to be his forever home, this could be a five-year home and then he could either rent that property as an investment or sell that property at a profit and move into something perhaps a little more desirable. Gains on the sale of most primary residences are tax free after two years of ownership.
So the point of this week’s article is to reach out to those of you (or someone you know) who is currently renting and start exploring the possibility of owning San Diego property by seeing what is out there and what sort of payments would be required. I think you would be surprised to see that mortgage payments are similar to rental payments these days and a reminder that home owners receive a significant tax deduction, reducing taxes year over year while owning property. Call me for a no obligation meet up to further discuss the idea of purchasing a San Diego property.
College Area real estate
While new single-family residence listings were down year over year from 52 properties to 39 properties, the median sale price jumped up $100,000 from $585,000 to $685,000. That is a little misleading as we are looking at a much smaller sample size with only 14 properties closing last month versus 29 properties closing at this time last year. Inventory dropped from 46 properties down to 29 properties available for sale. The summary is that although the market slowed, property prices have remained firm and I do expect the market to ramp up over the coming months as demand remains very high and interest rates are extremely favorable.
—Sarah Ward is a Realtor with College Area Realty. Reach her at [email protected] or at 858-431-6043.