Home Buying in San Leandro>Question Details

Justin, Home Buyer in San Leandro, CA

When can we expect price appreciation?

Asked by Justin, San Leandro, CA Fri Feb 20, 2009

I am looking into buying a foreclosed property in San Leandro. The sales price is $250K but the house is much smaller than what my wife and I had in mind. I think I could live there 3-5 years. With a decent down payment our monthly bill would be $1,100 which is less than our rent. My question is if we did cosmetic upgrades throughout the home when could we expect to get some equity in the home. It last sold for $500k in 2006. thanks.

Help the community by answering this question:


As I stated before, our monthly payment would be less than our rent now. Does this purchase make financial sense?

It's tough to say without your full financial picture.

For instance, yes - you'll get some tax deductions. In the scenario you're describing, perhaps $13K worth of deductions ($10k in interest, $3k in property taxes). However, you may well lose the standard deduction ($10,900 for couples) by doing so. Unless you have other itemized deductions you can take - the net tax savings could be trival (~$550/yr).

Second, what's the real cost of the monthly? Is $1,100 the cost of the mortgage alone, or does it include property taxes (~$250/month), maintenance ($100-$400 per month, unless something major goes wrong), various insurance, etc?

Third, you say "3 to 5 years" in the home. Assuming the home managed to hold the same value, you'll lose about 6%, or $15,000 on commissions when you sell. If you hold the house for 4 years then sell, the loss in commissions you'll face is the equivalent of $312/month for each of the 48 months you were there.

Finally there's the opportunity cost of your down payment. Assuming by "good down payment", you mean 20% - you'll lose the income you could have made with that $50k. At 6% a year, after 4 years your talking $9500 in lost income. at 4.5%, about $7K

So let's pretend:
- You bought at $250K with $50K down
- a 30 yr mortgage at 5.2% ($1100 monthly mortgage)
- 1.25% property taxes
- are in the 25% income bracket and have few deductions,
- you could make 4.5% on average investing elsewhere
- are selling in 4 years.

Over that time you'll spend:
$40.3K in interest
$4K in insurance (guessing)
$12.5K in property taxes
$7K in opportunity cost of down payment
$20K in maintenance
$15K on the sale of the home in 2013
.. and saved around $2400 off your taxes over that time.

Grand total is $96.5K spent for 48 months, or just over $2K per month.

If you could rent the comparable unit for $1350/month on average over the timespan, the home would have to be worth $280K at time of sale in four years for you to even out financially.
At $1500/rent, $273K
At $2000/rent, $250K

Obviously the equation will vary based on the balance of your financial picture. Your tax status, comparable rents, duration spent in home, etc. But, unless rents in your area are excessively high, you'll need to see somewhat substantial appreciation to make the purchase a wise financial choice.
2 votes Thank Flag Link Fri Feb 20, 2009
Hello Justin

I would really like to help you, however, I do not know the home that you are question about so location will be of great value. I do have extensive knowledge about San Leandro, I have lived there all my life. If I am correct, you are basically asking if you are getting a good deal. When reviewing current comps it basically means nothing, you need to know where the San Leandro RE market is headed. There are alot of fundamental factors that can address that. A 3-5 year time horizon is a possibility, but please know a house is not an asset, not in this market or any other prior market. People have gotten really lost within the past several years of what a home is supposed to be. When can we make an appointment? I would be happy to review your goals
1 vote Thank Flag Link Fri Feb 20, 2009
It doesn't sound as though you love the house enough to buy it in the first place, irrespective of the asking price. Cosmetic upgrades are hardly equity boosters--they're cosmetic and really are for the owners to enjoy their space.

I just wrote a blog post about 2 identical units in Alameda that sold for essentially the same price 11 years apart, one in 1988 and the other in 1999. It amounts to a $215,000 shortfall over 11 years compared to inflation (i.e. before we even start talking about appreciation above inflation).

If you buy now, you'll be living in a house that's too small, needs cosmetic updates, and will likely be depreciating for a long time. I'd stay put in my rental if I were you.
1 vote Thank Flag Link Fri Feb 20, 2009
In upstate NY, we continue to have minor price appreciation. We are still seeing multiple offers ( our last 2 listings were each a multiple within 6 days), though price, locaion and condition obviously weigh heavily into that equation. We have to spend alot of time letting people know the market is not bad everywhere, it is so doom and gloom for many others, but there continue to be brigth spots in the market. Our market was ranked by Forbes.com as being one of the Top 25 Real Estate markets in the nation. I know this does not truly go with the specific question, but there needs to be some upbeat news on the market now and than.....
0 votes Thank Flag Link Fri Feb 20, 2009
Steve: thank you for a substantiated answer.
0 votes Thank Flag Link Fri Feb 20, 2009
Justin, in my opinion 3 to 5 years would be sufficient to regain some appreciation, this market as bad as it is, is not going to last like this forever. The appreciation can be influenced of course with the type of repairs and improvements that you do during the time you live in the house. Just make sure that if you ad something of value, like a large kitchen remodeling for example that you take the necessary permits. As a 24 year veteran in the real estate business I can tell you that before this huge jump on prices, the typical appreciation per year was a modest 6-8% per year. When we recover it probably start again somewhere in that range. Good Luck, and feel free to contact me if you want to explore your opportunities in San Leandro, my home office is in Estudillo Avenue.
0 votes Thank Flag Link Fri Feb 20, 2009
One of my last sales is in Marina Faire in San Leandro, and I have a new listing coming up in the same vicinity. The prices have come down (good for my buyers, and bad for my sellers) and we don't see this changing any time soon.

Unless you have a crystal ball that can actually predict when market values are going to stop plummeting and start stabilizing before it appreciates again, all anyone can really do is keep a close eye on what's happening in the market.

For example, as of this writing, there are 247 homes for sale in San Leandro.
190 are detached single family homes
81 are short sales, and 41 are bank-owned for a combined 64% of total homes for sale.

That leaves 36% being sold as regular sales who have to compete with the short sales and bank-owned properties that drag the prices down.

Until that inventory of short sales and foreclosures go down to a manageable level where the regular sales won't have to compete for the pool of buyers, one may expect that the prices are going to stay where they are, or even go lower if more distressed homes are put up for sale.
0 votes Thank Flag Link Fri Feb 20, 2009
John is right. I have seen him active in the San Leandro area in the Real Estate market. Any time an area expert can help, I would say that's the way to go.
0 votes Thank Flag Link Fri Feb 20, 2009
Anytime you can own instead of renting you are making a better choice. You can deduct the mortgage interest of the property from your income taxes and rent you can't. I would always advise to put more money in your pocket and not the Governments.
0 votes Thank Flag Link Fri Feb 20, 2009
Maybe I need to rephrase my question. The price of the home in questions is about $50K lower than comps in the area. It needs minor upgrades (paint in and out). Is it beneficial to purchase a home for $250 w/ $50k down only to live in it for 3-5 years. We would probably put in another $20K in upgrades.

As I stated before, our monthly payment would be less than our rent now. Does this purchase make financial sense?
0 votes Thank Flag Link Fri Feb 20, 2009
I think I can better answer your question being from the area. I am not a Realtor but a Mortgage Broker. In my opinion there are some great incentives put forth in the Economic Stimulus package. For more reading check out http://www.GreenMortgageGroup.com my blog. I think that the bottom for lower priced homes has begun. there are great financing programs and now tax incintives that should help clear up the inventory. In addition Fannie and Freddie lifted the hole of 4 properties and fewer for investors now allowing 10. That"s a true stimulus.

I would be happy to discuss this further on the phone if you would like and I can also provide graphs showing the inventory number also.

Hope this helped.


0 votes Thank Flag Link Fri Feb 20, 2009
No one will be able to really answer this. No one has a clear cut date as to when things will turn around. Maybe next year, maybe another 5 years?! Who knows?!
0 votes Thank Flag Link Fri Feb 20, 2009
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