Profile picture for ClaireVC

First Time Home Buyer: Buy in the Location of our Dreams or Current Locale?

My husband and I want to take advantage of the housing market (and feel like we can afford to do so), but are unsure of where to buy.

We know we someday want to end up in San Luis Obispo (where prices are low, but haven't necessarily tanked like in other markets), and are considering buying there now (and finding renters or putting it onto the vacation rental marketplace until we actually move down there).  This option would leave us paying our mortgage (but having it subsidized by renters) and also paying a rent of about $2K in the Bay Area.

The other option is to buy in the Bay Area (where the market may have declined slightly more than San Luis), just pay a mortgage and not a monthly rent, and then sell the home and put that money towards our dream home.  

 We're probably not in a place to move to San Luis Obispo for another 3 years.  What is the best bet for our future? Any insight would be greatly appreciated!
  • December 21 2012 - San Francisco
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Answers (4)

Profile picture for Ofe Polack
I suggest that you meet with at least two mortgage brokers and explain what your plans are.  Once you have a discussion with them, you may be in a better place to make a decision.
  • December 21 2012
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Where in the Bay Area are your specifically referring to? It will make a huge difference in your analysis. Also your current finances need to be considered. To intelligently answer your question I will need more information. Feel free to contact me directly to discuss. 

Best,

Oggi Kashi 
Broker Associate, Paragon Real Estate Group CA DRE 01844627
  • December 21 2012
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Happy Friday -

I think the best place to start is to speak with your loan officer and find out the requirements for a loan in each scenario.  Knowing the loan requirements each scenario, should help make the decision more clear for you.

For example, how much do you have saved for a down payment?  The down payment requirements are different for owner-occupied properties and rental properties (since you won't be ready to transition to San Luis Obispo for another 3 years, buying there now would mean purchasing as a rental property in most cases).  On an owner occupied you may only need between 10% and 20% down, whereas on an investment property you may need 25% or more down.

Also ask your lender what are the debt to income ratios needed for loan approval.  Knowing this will allow you to see if your current income can support both a mortgage in San Luis Obispo and your rent in the Bay Area.  Generally, lenders will only give you credit for 75% of the gross rental income when calculating your debt ratio. It will be most important to know  that your income can support 2 housing payments for the next 3 years. What if the tenants don't pay? Do you have enough reserves to pay the mortgage if you can't collect the rent?

Also, you may want to take into consideration of the effort necessary to be long distance landlords.  Isn't about 200 miles between San Luis Obispo and San Francisco?  If your tenants call for repairs or other problems with the property, does your schedule allow you to travel to San Luis Obispo or would you need to factor in the expense of property management/maintenance fees?

Again, I think having a in depth conversation with your lender to get a clear picture of the financial considerations will help you make the best decision related to your goals.

I hope this helps and good luck!
  • December 21 2012
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Claire, I don't think that your plan is all that far off.  I sell here in the Coachella Valley (Palm Desert/La Quinta) and you would be surprised how many people are doing the same thing that you are talking about, that being buying here and putting it into the rental program.  My area has a huge draw each year of Canadians and northern cold weather snow birds that come for weeks, month or months at a time.  The prices out here in the winter seasons often times are double what the mortgage would be, and one nice thing that does, is it frees the place for a personal get away in the shoulder seasons.

The best advise for you though is know what you want, meet with an accountant and realtor in each area and decide the safest and smartest way to achieve your goal.  What you are thinking of doing I think would be best off if you could avoid paying rent yourself, but you ultimately need to be content with the decision you choose.
  • December 21 2012
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