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JAK1
Posts: 17
Registered: ‎11-13-2012
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Buying a New Property vs Old One

Hello,

 

I am in the market looking out for home for the past 10 months and have not been able to get one coz of multiple biddings and cash offers. I am tired of looking at these old ones.Even the crappy ones are selling for 600k+ in Bay area.

 

I was thinking of buying one of the new developments and have some questions.

 

1> Does most of the new developments go for HOA litigation after a while ?

 

2> People say that unlike old the new properties once we get the keys the value goes down by close to 100k like a used new car.Is this true ?

 

3> Is it better to go with FHA loan or PMI with 10% + down ?

 

FYI :- I am thinking of buying a townhome probably in (Berryessa , Milpitas , South San Jose) below 500K with HOA less than 200.We are looking for a decent school something above 850

 

Any suggestions from Real estate gurus appreciated.

 

Regards,

 

 

-NF
Gold Regular Contributor
sheriff
Posts: 2,343
Registered: ‎06-01-2012
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Re: Buying a New Property vs Old One

[ Edited ]

You won't find a townhouse with fees under $200 unless its a relatively new development and the developer has set fees low in order to attract buyer.  If that's the case they will go up soon.

 

New properties are more expensive because of all the fees cities and counties ask developers to pay for so they pass the cost to you.

 

Silver creek high school in evergreen has a good api and the townhomes are reasonably priced but if you work downtown the commute on 101 is bad , even if it is short.

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JAK1
Posts: 17
Registered: ‎11-13-2012
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Re: Buying a New Property vs Old One

Thanks for the reply.

 

I was thinking of going up till 300$/month for HOA.Can you give me the builder names or websites to look at. Appreciate it. 

-NF
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ptiemann
Posts: 1,228
Registered: ‎08-07-2009
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Re: Buying a New Property vs Old One


 

2> People say that unlike old the new properties once we get the keys the value goes down by close to 100k like a used new car.Is this true ?

 


that seems vastly exaggerated, unless you are talking about a $10mm purchase.

 

The biggest hit in value is probably in the first 3 years. A brand-new home, never lived in, sells about 10% to 15% higher than a comparable house that is 30, 50, 80 years old. Note that I said "comparable".. this means that the 30+ year old house has been remodeled with a new kitchen, new baths, new electrical and new plumbing.

 

On the surface, the old and thew brand-new one may have the same amenities, even updated plumbing, electrical and mechanical, but there are things one simply cannot fix in an older home. High ceilings, floor plan, framing, foundation would be examples.

 

I think if a builder has a brand-new home that would sell for $700k and he decides to rent it out for a year, most likely, after a year it has lost value. It is no longer "never lived in". I would say that the loss is probably $35k to $50k in that case.

 

Definitely not a $100k loss the moment the keys are handed over.

Silver Super Contributor
El_Katz
Posts: 1,337
Registered: ‎04-26-2009

Re: Buying a New Property vs Old One


JAK1 wrote:

Hello,

 

I am in the market looking out for home for the past 10 months and have not been able to get one coz of multiple biddings and cash offers. I am tired of looking at these old ones.Even the crappy ones are selling for 600k+ in Bay area.

 

I was thinking of buying one of the new developments and have some questions.

 

1> Does most of the new developments go for HOA litigation after a while ?

 

2> People say that unlike old the new properties once we get the keys the value goes down by close to 100k like a used new car.Is this true ?

 

3> Is it better to go with FHA loan or PMI with 10% + down ?

 

FYI :- I am thinking of buying a townhome probably in (Berryessa , Milpitas , South San Jose) below 500K with HOA less than 200.We are looking for a decent school something above 850

 

Any suggestions from Real estate gurus appreciated.

 

Regards,

 

 


The new properties values are always controlled by the developer until the time the project is closed.  if sales slow, the base price may not drop, but the free upgrade train begins - making a "used" unit in the same complex worth less purely because yours is used and may not have the "free" amenities.  So, in some ways yes... in others, no. 

 

The opposite can also be true.  Housing sky rockets and the builder is raising prices to slow demand.  You pop yours on the market and hit an immediate payday. 

 

Not all HOA's go into litigation unless the developer lied or the construction is sub standard.  That can happen in one off custom homes too.  Read the contracts, the by laws, the HOA covenants, keep a copy of the sales brochure that shows all the amenities that are supposed to be built, get everything in writing..... as that's the only thing that saves you in a real estate deal.  Spoken promises mean nothing.  It's only what's on the contract and in writing that a person could "reasonably expect" the developer to offer.  If he claims to be building a intergallactic space station on the property and that's the compelling reason you bought there, you'd better have that in writing or you've got nothing. 

 

I prefer to buy homes in mature neighborhoods.  Mature doesn't mean old.... just built out.  When they are built out you know what you have. 

 

Two cases in point:  The current development that I live in was begun in 1992.  The real estate market took a dump in the mid 1990's and the developer sold the unfinished lots off to other builders.  I was one of the fortunate ones who purchased in the tract release that had most of the houses built by the quality builder.  The infill lots were sold to Centex or someone of that ilk and they puked up cheap boxes with cheap finishes (although the outside still was nice).  Those poor saps try to ride on the coattails of the "nicer" homes, but fail time and again - to the tune of $200K or more.  Why?  They - even after remodelling - feel cheap.  The floors were trussed rather than built with "silent floor" beams and were not stick built.  The floors are bouncy and that's not something that can be remedied cheaply. 

 

In another instance, we bought in an "almost" completed development.  That was back east during the "hot" real estate market of the late 1980's.  We carefully picked out our exterior finishes and then saw the abominations that were built next to us.... along with the cheezy landscaping.... which detracted from the value of our house simply by proximity.  When your neighbor's home is affectionately known as the "modern house of rags", it doesn't bode well. 

 

Why pay PMI?  That's wasted money.  With interest rates as low as they presently are (and won't remain there forever) it's rather goofy to pay money you don't need to.  Real estate isn't an "investment".  It's a place to live.  Spend your time making sure you get the right place and pay the right price rather than figuring out how to game the system.  You will normally lose as the game is smarter than most. 

 

FHA limits your options to new construction.  Most sellers (yours truly among them) won't even consider a "get me done" loan with FHA that comes in and picks the fly poo out of the pepper and expects unneeded repairs to be made in order to close.  Sorry, but no.  I'll take a few grand less and take a better overall offer. 

Contributor
JAK1
Posts: 17
Registered: ‎11-13-2012
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Re: Buying a New Property vs Old One

@ ptiemann

 

Thanks for the reply. Ok got it.so for an home which is less than 600 to 700k the value can go down by 35 to 50k in the first 3 years. Am i right ?

-NF
Gold Regular Contributor
sheriff
Posts: 2,343
Registered: ‎06-01-2012
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Re: Buying a New Property vs Old One

On the issue of HOA fees, also  be sure to compare what they cover.  Some cover garbage and water, others don't.  Some cover cable tv, even earthquake insurance, which is not necessary in many neighborhoods if it is recent construction and not a high rise.

Silver Super Contributor
ptiemann
Posts: 1,228
Registered: ‎08-07-2009
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Re: Buying a New Property vs Old One


JAK1 wrote:

@ ptiemann

 

Thanks for the reply. Ok got it.so for an home which is less than 600 to 700k the value can go down by 35 to 50k in the first 3 years. Am i right ?


 

yes, that sounds about right.

 

Now, I had originally responded from my own point of view. I have bought parcels in (hopefully) desirable areas, usually with an old house on it, tore the house down, built a new one, and sold it for a small profit.

 

If you are buying in a development with 30, 50 or even 100 more or less identical houses, then there could be stronger swings in value, both up or down. E.g. KB Homes, Pulte etc.. they build 100 homes in one location. If they come under pressure, they can cut their prices dramatically and hurt your value big time.

Contrary, in an up cycle as we have it now, they sell in phases, and each phase may sell higher than the previous one.. you will have perfect comparables
.

Both are "new homes" but in a big development, you have lots of comps.. while my small projects, usually don't.

 

Overall, I think in a "complete new development", unless there is a huge market crash, you are actually better protected than if you buy a brand-new single house in an older neighborhood.