HELP - NEW USER - BUYING in 4s

User Forum Topic
Submitted by asterix007 on July 15, 2013 - 6:51am

Dear folks,
I've an opportunity to buy a house in 4s ranch. Here are the details:

Single family at 225$/sq ft. Beautiful neighborhood, we love the house. It however has a high Mello Roos, around 6000$/year.

Questions to the community:
1) Is 225$/sq ft a good price to buy in today's market?

2) In good financial situation, can afford the house. Will be financially tight for a few years, mainly concerned about the downside and high Mello Roos. 6000/yr == 60K in 10 yrs, that is a chunk of money..

Very conflicted.. Can someone provide some guidance.

Submitted by UCGal on July 15, 2013 - 11:03am.

I don't know the 4S submarket enough to comment. I expect some others to chime in on that.

As far as MelloRoos - folks have varying opinions. If you plan to stay in the home long term (forever)... it might be worth considering paying them off. But that requires a chunk of cash.

Here's a long thread on the subject.
http://piggington.com/paying_off_mello_roos

Submitted by SD Realtor on July 15, 2013 - 2:29pm.

Your realtor should be able to review the comps and tell you if the ppsf you quoted is above/below average.

You are purchasing at a time when the market has completed a significant leg up. Additionally your ppsf is to generic as ppsf varies based on home size. Average ppsf for a 2000 sf home in 4S will be much different then average ppsf for a 3500 sf home.

Yes there is a downside to Mello Roos but if you want to live in a relatively newer home then you will need to get used to it. Don't count on MR fees going away or being paid off soon. I would not recommend paying them off early as you never know what curve balls life will throw at you. If for some reason you had to move in 4 years you would feel awfully foolish if you paid them out early.

Your guidance is work with your agent and demand a thorough analysis from them. That is what they do to earn your money. If you don't trust them, go find someone you do trust.

Submitted by ocrenter on July 15, 2013 - 8:57pm.

UCGal wrote:
I don't know the 4S submarket enough to comment. I expect some others to chime in on that.

As far as MelloRoos - folks have varying opinions. If you plan to stay in the home long term (forever)... it might be worth considering paying them off. But that requires a chunk of cash.

Here's a long thread on the subject.
http://piggington.com/paying_off_mello_roos

ok, forever is a slight exaggeration. :)

long term as in 10+ years would be a no brainer to pay off the MR. mid term as in 5+ years the numbers could still work.

Submitted by ocrenter on July 15, 2013 - 9:00pm.

asterix007 wrote:
Dear folks,
I've an opportunity to buy a house in 4s ranch. Here are the details:

Single family over 3800 sq ft at 225$/sq ft. Beautiful neighborhood, we love the house. It however has a high Mello Roos, around 6000$/year.

Questions to the community:
1) Is 225$/sq ft a good price to buy in today's market?

2) In good financial situation, can afford the house. Will be financially tight for a few years, mainly concerned about the downside and high Mello Roos. 6000/yr == 60K in 10 yrs, that is a chunk of money..

Very conflicted.. Can someone provide some guidance.

bottom line is the MR payoff is essentially $60k. that's why I said if staying 10+ years, paying off the MR is a no brainer

the house is $855k based on your numbers above. So the question to you is, if the house cost $915k, is that a good deal to you.

Submitted by SK in CV on July 16, 2013 - 7:10am.

ocrenter wrote:

ok, forever is a slight exaggeration. :)

long term as in 10+ years would be a no brainer to pay off the MR. mid term as in 5+ years the numbers could still work.

My apologies for thread jacking, this is a bit off-topic from the OP, but I have to question the whole pay off MR thing...

My understanding, and maybe some RE professionals can chime in here, is that paid off MR doesn't generally bring a higher sales price.

I suspect that the interest rate on MR bonds are probably a few points higher than prevailing mortgage rates, so on a $60K MR liability, the interest differential might be $1800 a year.

From what I've read here, paying off MR early does eliminate future increases in MR assessments, though I'm a bit confused exactly why this is so.

But for a homeowner who has a mortgage, why wouldn't it be better to pay off a big chunk of mortgage debt rather than paying off MR? Paying off mortgage debt is a guaranteed increase in equity, and paying off MR may generate zero increase in equity, and the interest savings compared to equity build is pretty minimal. Are any of my assumptions way off? What am I missing?

Submitted by The-Shoveler on July 16, 2013 - 8:46am.

Don’t know much about that area really, but in general I would recommend finding a small builder (or Spec, home in older neighborhood), That way you may be able to avoid the MR and if luckily the HOA as well and still get a newer designed home.
I have seen small builder next to the larger development (KB/LEN/Toll etc…) that go to the same schools, still walk to same parks etc.. but have no MR or HOA and sell a lot of time for a better price even (better quality of home as well).
One side of street 3K a year MR/ other side of street no MR, not fair ? maybe.

Submitted by all on July 16, 2013 - 9:27am.

SK in CV wrote:
ocrenter wrote:

ok, forever is a slight exaggeration. :)

long term as in 10+ years would be a no brainer to pay off the MR. mid term as in 5+ years the numbers could still work.

My apologies for thread jacking, this is a bit off-topic from the OP, but I have to question the whole pay off MR thing...

My understanding, and maybe some RE professionals can chime in here, is that paid off MR doesn't generally bring a higher sales price.

I suspect that the interest rate on MR bonds are probably a few points higher than prevailing mortgage rates, so on a $60K MR liability, the interest differential might be $1800 a year.

From what I've read here, paying off MR early does eliminate future increases in MR assessments, though I'm a bit confused exactly why this is so.

But for a homeowner who has a mortgage, why wouldn't it be better to pay off a big chunk of mortgage debt rather than paying off MR? Paying off mortgage debt is a guaranteed increase in equity, and paying off MR may generate zero increase in equity, and the interest savings compared to equity build is pretty minimal. Are any of my assumptions way off? What am I missing?

If you assume another 30 years of MR the effective interest rate for MR is 9%+, and that is if MR was flat (in theory it can be flat or get reduced, but in practice it increases the maximum allowed 2%/year every year).

Also, if you prepay the principal today you won't see the effects until you pay off the mortgage or sell the house. If you pay off your MR your monthly expenses go down almost immediately.

Submitted by all on July 16, 2013 - 9:32am.

The-Shoveler wrote:
Don’t know much about that area really, but in general I would recommend finding a small builder (or Spec, home in older neighborhood), That way you may be able to avoid the MR and if luckily the HOA as well and still get a newer designed home.
I have seen small builder next to the larger development (KB/LEN/Toll etc…) that go to the same schools, still walk to same parks etc.. but have no MR or HOA and sell a lot of time for a better price even (better quality of home as well).
One side of street 3K a year MR/ other side of street no MR, not fair ? maybe.

That is how it worked in one area adjacent to 4S - the sellers advertised enjoying 4S amenities without paying 4S fees. The local schools no longer take kids from that area (part of the deal between the developer and PUSD was that only the 4S kids will be attending the local schools once the schools reach the capacity).

Submitted by The-Shoveler on July 16, 2013 - 9:50am.

Hmmm , I guess you need to do some research into those type of deals, I have seen it the other way as well where they did not restrict the area not paying MR from the same schools,

I would be surprised especially once you hit the middle/high school level as they are much larger schools in general.

San Marco's new high school is enormous.

Submitted by joec on July 16, 2013 - 8:42pm.

There are various articles stating pretty much all the new elementary schools in 4s is full so if you aren't in the MR district, you won't be able to go. Even people IN the district and paying aren't sure to go to their school next door I read just in an article a few weeks back and the guy was being sent to Adobe Bluffs or something.

There is a new K-8 school coming in 4s near del sur where all the new building is which should help a bit I'd guess since most of the full classes seems to be in Kindergarten.

Everything in older 4s is pretty much sold/done.

Submitted by ltsdd on July 16, 2013 - 9:08pm.

It's a tough decision. I have no opinion if you're buying it as an "investment". However, if you have school-age children then I'd say go for it - I believe it's always a win situation if this is the motivation. Just make sure your kids could actually get in the schools.

I know folks who bought a house a few blocks from Stone Ranch elementary school last year and were told by that school that it may not have space for their kids.

The new k-8 school is adjacent to Del Norte High. I think they barely broke ground on that.

Submitted by Essbee on July 16, 2013 - 10:51pm.

I live in 4S the Stone Ranch Elementary area. (I LOVE it, BTW). I haven't heard of kids not being able to get in to Stone Ranch. Then again, my kids are only 4 and 2, so maybe I haven't talked to enough people yet. However, most of the kids here in south 4S seem to be older (older elementary/middle school/high school age) now as a function of the houses being built in the 2003-2006ish era. Thus, I imagine that more space in Stone Ranch will be opening up soon, as these kids age up.

In contrast I *have* heard that Monterey Ridge in north 4S is overcrowded and that some kids are being sent elsewhere (including to Stone Ranch, I believe).

Submitted by ocrenter on July 17, 2013 - 7:32am.

Essbee wrote:
I live in 4S the Stone Ranch Elementary area. (I LOVE it, BTW). I haven't heard of kids not being able to get in to Stone Ranch. Then again, my kids are only 4 and 2, so maybe I haven't talked to enough people yet. However, most of the kids here in south 4S seem to be older (older elementary/middle school/high school age) now as a function of the houses being built in the 2003-2006ish era. Thus, I imagine that more space in Stone Ranch will be opening up soon, as these kids age up.

In contrast I *have* heard that Monterey Ridge in north 4S is overcrowded and that some kids are being sent elsewhere (including to Stone Ranch, I believe).

I'm not surprised Monterey Ridge is so overcrowded given how many homes they managed to squeeze into the north side.

To the OP, if possible, I would try for a house on the 4S south side, the MR is less too.

Submitted by ltsdd on July 17, 2013 - 7:39am.

Essbee wrote:

In contrast I *have* heard that Monterey Ridge in north 4S is overcrowded and that some kids are being sent elsewhere (including to Stone Ranch, I believe).

That's interesting. I heard the opposite. The folks I was talking about were told that their kids may have to go to Monterey Ridge instead of SR. It ended well for them as both of their kids eventually attended SR.

Regardless, if the local schools are an important factor then it would be prudent to get these questions answered.

Submitted by Essbee on July 18, 2013 - 11:04am.

ltsdd wrote:
Essbee wrote:

In contrast I *have* heard that Monterey Ridge in north 4S is overcrowded and that some kids are being sent elsewhere (including to Stone Ranch, I believe).

That's interesting. I heard the opposite. The folks I was talking about were told that their kids may have to go to Monterey Ridge instead of SR. It ended well for them as both of their kids eventually attended SR.

That info sounds several years old (ie before the north area was built out, and when the kids in South 4S were younger.

I'm referring to the situation now.

compare this link (Monterey Ridge):
http://powayusd.sdcoe.k12.ca.us/pusdmres...
(states that they are at capacity, etc)

to this link (Stone Ranch):
http://www.powayusd.com/pusdsres/enrollm...

(no mention of any overcrowding issues)

Submitted by ltsdd on July 18, 2013 - 7:43pm.

Essbee,
I stand corrected. Good info you provided there.

Submitted by paranoid on July 19, 2013 - 8:57pm.

The new school k-8 will open in 2014. So school shouldn't be a concern.

Submitted by earlyretirement on July 21, 2013 - 3:45pm.

My advice is ONLY buy what you can comfortably afford. You mention things like "in good financial situation". Well, I'd hope you were in a good financial situation with a secure job if you're going to buy a $850,000 house with annual $6,000 Mello Roos taxes along with 1%+ property taxes each year.

You mention "financially tight for a few years". It's difficult to ascertain if you're saying that this is more than you are comfortable with or if you're saying that you're blowing most of your savings and emergency savings to buy the house.

None of us can tell you if it's worth it. That can be a really subjective question. That area is really great and the schools are EXCELLENT in that area. Me personally, I don't think the build quality over in many of those areas of 4S Ranch is anything to write home about. But that's just my opinion.

It's a VERY nice area for raising kids. Definitely you're paying a premium to be in the PUSD.

IMHO, you don't have too many options if you want to be in this area and want a relatively big house like this. Sure, you can save money and go further out to areas like San Marcos, which may or may not be an option for you.

As to Mello Roos, I also think you have to look at your personal situation and circumstances. There is a "no size fits all solution" for homeowners. As mentioned, if you are confident you will stay in the home over 10 years then it's a complete NO BRAINER to prepay it off.

Anyone that thinks that they won't raise it the maximum annual 2% heading into the future is deluding themselves, IMHO. Plus, several districts have already refinanced to a lower rate. You can get a lot of detailed information on the Mello Roos thread that someone mentioned.

The truth of it is that in a hot market like now, with limited inventory, you will definitely be able to get every $ you prepaid towards it. We've gotten several unsolicited offers from private individuals to purchase our home. And they could already see from the tax rolls that we paid off our MR and offered to reimburse for that.

We aren't interested in selling our house and probably will never sell it. But I truly believe it's one of those things in a hot market you will always be able to get back what you prepaid and in a really horrible real estate market it will be tough.

The question to prepay it off would depend on your personal situation. We knew we would keep the house so it was a really wise move paying it off and I have no regrets at all.

I can't emphasize enough to NOT bite off more than you can chew. Again, difficult to tell from your post but it almost sounds like you're buying something that you might not be able to comfortably afford.

I have several friends that formally lived in the area and they had to move. Not only leave the area but left San Diego due to a job loss by either them or their spouse. Really plan and make sure that your bases are covered in the event of a job loss and taking time to find another, etc.

It sounds like you love the house, area, and IF you can comfortably afford it and you are confident you will be in the house longer term, I wouldn't get too stressed about capital appreciation, etc. IF you don't know for sure if you will be in the house too long and therefore have to worry about capital appreciation concerns, then my opinion is you should wait until such time where you feel you will be in the house longer term and also considering a possible not so good/worst case scenario with job, etc.

Good luck.

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