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L.A. Real Estate. To Buy or Not to Buy? That is the Question

Posted by janepeters on September 28, 2013
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Los Angeles is not an inexpensive place to live, and not a place where you can easily say it makes more sense to buy than rent. However, I often get people who are considering renting a home in Los Angeles and end up buying because it does make more sense.

To buy or not to buy a home in Los Angeles?

Because rents are so high in Los Angeles we are talking about people looking for rentals around the $3,000 and up mark. At $3,000 a month you are throwing away $36,000 a year paying someone else’s mortgage, and at this level it makes sense to talk to an accountant and/or a lender to crunch the numbers.

The biggest deterrent to buying your first home is coming up with the downpayment, which ideally should be 20% and if there is a way you can put 20% down then buying is definitely the best route.  Example:

Let’s say you find a condo for $500,000.  Even on the Westside of Los Angeles you should be able to find something close to this price range, although it would probably be a one-bedroom. If you put down 20% = $100,000, you will be borrowing $400,000. Let’s be conservative and say the interest rates are 5%, your monthly mortgage payments are going to be roughly $1,667. Add property taxes of approximately $521 per month, insurance of around $80 and homeowners dues of around $500 and your monthly payments will be $2,768.  You will have saved $232 a month making payments on your own place. But wait! You will get a tax deduction at the end of the year based on your income, so the savings are even more, plus you are building equity.

If you are thinking of renting a home in Los Angeles you really should sit down and do the math,. If you don’t have enough for a reasonable downpayment the interest rate is going to be higher and there will be mortgage insurance. On the other hand if you can afford to pay more per month to get a two-bedroom you can rent the second room and have someone else help pay your mortgage.

$36,000 a year is a lot of money to throw away.

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