Should I buy? Why or why not?
Hi all, So my wife and I bought a house back in December 2020 for $420k. We knew this house wasn’t going to be our forever home but we bought it because we didn’t want to keep renting and it’s in a great location in the Palm Springs area. Since we bought it, it’s gained over $100k in value in 9 months.
Now, there’s a new development community being built later this year and we really want to purchase one. Existing homes in this area are going nuts and there’s bidding wars, as I’m sure in many parts of the country. There will be tons of new development being built around this community: more new single family homes, condos, expansion of a Cal State University, resorts, and a huge Arena that will host sport games and concerts, etc all within a 10 mile radius of this new development I want to buy.
The home will cost about $750k (more if we decide to add a pool). 3 bedrooms/ 3 bath + casita. So In total 4 bed /4 bath and 2,600 sq ft home. My plan to is rent out our current home. Rents here are crazy expensive and after speaking with agents, they tell me I can get about $3,300/month on long term lease. My mortgage with PITI is $2,300 so it will more than cover expenses.
On the new home, we plan to rent out the casita for at least $1,200/month. Im being conservative in the $1,200 because I tested out the market and posted on Nextdoor that I was renting out my casita. I had 4 people contact me and the lowest someone offered me was $1,500 per month. Someone was willing to pay $1,800. It’s insane – so that’s why I figured $1,200 is a good starting point.
Finances – Combined income: $170k – Stable jobs in healthcare – We’re both 25 years old – 1 baby – We contribute into our 401k and investment accounts – no debt – Will put 20% down on the home
Our mortgage payment will be about $3800 with an interest rate at 3% (rates are actually lower but being conservative with 3%) jumbo loan and $600k financed. I know this is basically going over our budget and we’re over leveraged. But considering that we will be renting out the casita for at-least $1,200, this would bring down our payment to at-least $2,600 if not more ($300 more than we’re already paying). I’m entertaining this idea because of how low interests are and the appreciation this house will get after build out and the expansion of all the other developments surrounding this house. Yes, the price of the home is crazy high, but the interest rate is insanely low! And property values will only increase in this area and there’s a bunch of new development happening. Homes near this development are exceeding the $1M price tags and Real Estate agents have told me this is a prime location. Not to mention, new construction homes are being rented out for over $6,000/month short term rentals and there’s a waitlist (note: they all have pools as that’s what renters are looking for). Also, if the values does significantly increase after build out, I can sell it and take my profit. Or keep it, take out a HELOC and buy more investment properties.
I’ve spoken to an investor that has over 25 homes in the Palm Springs area and he gave me his perspective and told me: One of two things are going to happen, 1. In 5 years, you’re going to be extremely happy and grateful you bought this house 5 years ago because it’s worth $1M plus or 2. You’re going to purchase it and regret it because it’s now worth $500k. What side do you want to be at?
Why shouldn’t I buy this house? What am I missing? What should I consider?