Buying beach bungalow in San Diego for Winters

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Bfwolf
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Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sat Jul 15, 2017 2:19 pm

UPDATE: It's been pointed out that my original plan of buying a place and Airbnbing it won't work. The focus of the conversation is now how I could reasonably live in San Diego during the Winter and Chicago in the Summer.

I'm a single guy living in Chicago. This time of year, it's great. But the Winters suck. I rent a 1 BR apartment, and am self employed with a job I can do from anywhere in the country. I have a big group of friends in Chicago and really enjoy it's big city-ness, and the ability to get around without a car. But the Winters REALLY suck.

I went to high school in San Diego, and all my family lives there (La Jolla/University City area). I have a few friends who live there, too. I've been toying with the idea of buying a small beach bungalow in San Diego that I can spend November through April in, while maintaining my apartment in Chicago that I'd spend May through October in. I would Airbnb/VRBO the beach bungalow during the months that I'm gone. I'm not allowed to Airbnb my Chicago apartment, nor is there much of a market for it during the Winter time. I'd have to hire somebody to help administer the beach bungalow for guests of course, but my hope would be that I could cover most of my mortgage with the Airbnb $s. I don't know if that's reasonable or not. I haven't looked very hard into it at all and don't even know how much a beach bungalow would cost. I think anything more than $500,000 would make me really nervous.

There's also the possibility for changes to the law in San Diego that make short term rentals more difficult/impossible.

I should mention again that Winters in Chicago are really awful.

Is this a reasonable idea?
Last edited by Bfwolf on Sun Jul 16, 2017 5:13 pm, edited 2 times in total.

autopeep
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Re: Buying beach bungalow in San Diego for Winters

Post by autopeep » Sat Jul 15, 2017 2:37 pm

not enough info (income, retirement savings, debt,etc) for good advice.

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CAsage
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Re: Buying beach bungalow in San Diego for Winters

Post by CAsage » Sat Jul 15, 2017 2:38 pm

La Jolla is very, very expensive. Have you priced it lately? Maybe "renting" from someone in your extended family for a few months over the winter would make more sense.

adamthesmythe
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Re: Buying beach bungalow in San Diego for Winters

Post by adamthesmythe » Sat Jul 15, 2017 3:23 pm

I have been to a place on the beach in San Diego. It's really great. BUT expensive. In your price range- are you after a place with a roof and a bathroom??

cadreamer2015
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Re: Buying beach bungalow in San Diego for Winters

Post by cadreamer2015 » Sat Jul 15, 2017 7:40 pm

You might be able to find something in your price range in Oceanside. You'll need to check HOA, zoning rules on renting it out ~8 months a year. Not sure it's a great financial move, though.
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denovo
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Re: Buying beach bungalow in San Diego for Winters

Post by denovo » Sat Jul 15, 2017 8:27 pm

Bfwolf wrote:I'm a single guy living in Chicago.

I should mention again that Winters in Chicago are really awful.

Is this a reasonable idea?
Personally I don't think the summers are that great either. Humidity sucks. Why not move to San Diego?

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jimb_fromATL
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Re: Buying beach bungalow in San Diego for Winters

Post by jimb_fromATL » Sat Jul 15, 2017 10:07 pm

You mention the rent covering the mortgage. So whether you can get a satisfactory mortgage might be a question to address.

Since it won't be your primary home, you probably cannot get the best mortgage rate, and may have to pay more than 20% down.

And even if you can rent it for enough to cover the mortgage, that will not count in initial qualifying to buy the home.

Mortgage lenders are not in business to speculate on potential rental income. So your debt-to-income ratio for the mortgage, taxes, insurance, HOA fees, and possibly an allowance for maintenance probably cannot be more than about 28% of your income; and all of your monthly recurring debts including your rent in Chicago, any consumer loans, car loans, student loans, etc typically cannot exceed about 36% of your income.

Not only will you probably have to pay a higher mortgage rate because of the extra risk to the lender and their shareholders, you'll lose any homestead exemption on property taxes because it's not your primary residence, and property insurance will be higher than for a primary residence too. And if you're renting it out, you'll probably need a larger umbrella insurance policy.

If you don't own a car in Chicago, you'll probably need one in CA. Or if you do have a car, you may run into registration and insurance problems if you spend so much time in CA with it.

All in all, it sounds like it could be awfully expensive up front and for the months you live in it, even if you can qualify for the mortgage and can rent it out for enough to cover the mortgage when you're not using it.

jimb

4nwestsaylng
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Re: Buying beach bungalow in San Diego for Winters

Post by 4nwestsaylng » Sat Jul 15, 2017 11:47 pm

Think more like 1 million for a tiny beach bungalow, unless you are thinking Kearny Mesa is near the beach. Otherwise I think for 500k you are looking at either a studio suite in Solana Beach or Encinitas, and that is not actually beachfront.In fact, 500k for a studio condo would likely be a good buy.

Otherwise "near beach" might be more realistic; I swear prices go up for almost every foot east of the beach that you go.

Hobie Alter, who as you know created the Hobie Cat, and built surfboards at Dana Point, got his start growing up at the beach as a kid. He is said to have decided that he did not want a job that was east of the Pacific Coast Highway, and he stood firm.So he started building surfboards in his parents' tract house garage on the west side of PCH. He never left, and did pretty well. That was then, before the "foreign buyers" bought up the West Coast, from Vancouver to San Diego. They will go unamed, but every time you buy something in Wal Mart or any other store, they are thanking you.



I have Arizona friends (aka "Zonies" in San Diego) who bought an apartment-style "condo" on Orange Ave in Coronado 15 years ago. They paid 600K and then had to gut it and spent about 200K on remodel. It is basically a nice two bedroom apartment on a busy street, but those are the prices. The location is worth it, they moved there to retire and love it.

SrGrumpy
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Re: Buying beach bungalow in San Diego for Winters

Post by SrGrumpy » Sun Jul 16, 2017 12:03 am

denovo wrote:
Bfwolf wrote:I'm a single guy living in Chicago.

I should mention again that Winters in Chicago are really awful.

Is this a reasonable idea?
Personally I don't think the summers are that great either. Humidity sucks. Why not move to San Diego?
This is the wisest advice you will ever receive.

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gunn_show
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Re: Buying beach bungalow in San Diego for Winters

Post by gunn_show » Sun Jul 16, 2017 12:29 am

SrGrumpy wrote:
denovo wrote: Personally I don't think the summers are that great either. Humidity sucks. Why not move to San Diego?
This is the wisest advice you will ever receive.
adamthesmythe wrote:I have been to a place on the beach in San Diego. It's really great. BUT expensive. In your price range- are you after a place with a roof and a bathroom??
autopeep wrote:not enough info (income, retirement savings, debt,etc) for good advice.
all jokes aside, we do need a lot more financial info to make any sane comments

but the words "beach bungalow" and "in San Diego" and "$500,000 budget" have no business being in the same sentence. this is not possible. you've either never truly been to San Diego / beaches or you have done literally zero research prior to making this post.

In fact to be fair, if you want any type of nice / Airbnb rentable home even close to the 5 freeway on the coast of SD, you may need a $500k down payment. You're talking $750-1mm+ if you want to walk to any major beach (mission, pacific, encinitas, carlsbad, la jolla) or to even have a mission bay view.

time to buy more jackets for those CHI winters ... or start binge watching HGTV beach front bargain hunt for alternative beach bungalow locations
"I love competition. And I want to win." R. Murdoch

Valuethinker
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Re: Buying beach bungalow in San Diego for Winters

Post by Valuethinker » Sun Jul 16, 2017 3:04 am

Bfwolf wrote:I'm a single guy living in Chicago. This time of year, it's great. But the Winters suck. I rent a 1 BR apartment, and am self employed with a job I can do from anywhere in the country. I have a big group of friends in Chicago and really enjoy it's big city-ness, and the ability to get around without a car. But the Winters REALLY suck.

I went to high school in San Diego, and all my family lives there (La Jolla/University City area). I have a few friends who live there, too. I've been toying with the idea of buying a small beach bungalow in San Diego that I can spend November through April in, while maintaining my apartment in Chicago that I'd spend May through October in. I would Airbnb/VRBO the beach bungalow during the months that I'm gone. I'm not allowed to Airbnb my Chicago apartment, nor is there much of a market for it during the Winter time. I'd have to hire somebody to help administer the beach bungalow for guests of course, but my hope would be that I could cover most of my mortgage with the Airbnb $s. I don't know if that's reasonable or not. I haven't looked very hard into it at all and don't even know how much a beach bungalow would cost. I think anything more than $500,000 would make me really nervous.

There's also the possibility for changes to the law in San Diego that make short term rentals more difficult/impossible.

I should mention again that Winters in Chicago are really awful.

Is this a reasonable idea?
Owning a rental property so far away is likely a nightmare.

As per others your budget is way too low.

Think what you want as a lifestyle choice and work towards that. Then plan out the financial steps. Take the Big view first.

msk
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Re: Buying beach bungalow in San Diego for Winters

Post by msk » Sun Jul 16, 2017 3:46 am

I have numerous friends who owned vacation homes in various far away locations (and countries). I also did myself. Invariably everyone seems to find remote homes burdensome (and boring) after 3 years or so and sells off within 5 to 7 years. Everyone I know paid cash, so they never counted on any fancy economics. Just making sure that all utility bills get paid on time quickly becomes a nuisance. My suggestion is to use AirBNB (I.e. rent from others) and actually enjoy your winter sojourns. Invest your money elsewhere to pay the rent. Most sensible amongst my friends bought a whole hotel so his accommodation is always ready with everything working (even wifi :happy ) whenever he and his family drop in for a beach break. But now he is grumbling that his anticipated 6 to 8% return on investment is not materializing because of low occupancy. You cannot win in this game. Invest in your favorite ETF and rent.

Ron Scott
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Re: Buying beach bungalow in San Diego for Winters

Post by Ron Scott » Sun Jul 16, 2017 5:29 am

If buying causes financial concern, rent.

We rented a nice 2-bedroom in Coronado with ocean views, just south of the Hotel Del, in '15/'16 for $6k a month. No commitments, no ongoing expenses. You know exactly what the total cost will be.

We bought in Boca a few months ago because the trip from NY was easier and winter weather better, but if we had friends in the SD area we might have been persuaded.

inbox788
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Re: Buying beach bungalow in San Diego for Winters

Post by inbox788 » Sun Jul 16, 2017 5:31 am

SrGrumpy wrote:
denovo wrote:Personally I don't think the summers are that great either. Humidity sucks. Why not move to San Diego?
This is the wisest advice you will ever receive.
Don't do it! You become a full time California resident and are subject to state taxes. Worse, living part time or by owning real estate, you might still be considered a full time tax resident.
Bfwolf wrote:self employed with a job I can do from anywhere in the country.
Move to Puerto Rico! Not cold at all! Visit Chicago and San Diego!

I've just started looking into Puerto Rico as a retirement haven vs places like Mexico, Puerto Rico or Panama. Great business tax haven as well.

viewtopic.php?t=112987

https://www.forbes.com/sites/robertwood ... fc31f63977
https://www.nytimes.com/roomfordebate/2 ... -tax-haven
https://www.sovereignman.com/tax/how-yo ... ide-16368/

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jimb_fromATL
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Re: Buying beach bungalow in San Diego for Winters

Post by jimb_fromATL » Sun Jul 16, 2017 7:48 am

inbox788 wrote: Don't do it! You become a full time California resident and are subject to state taxes. Worse, living part time or by owning real estate, you might still be considered a full time tax resident.


I'm pretty sure CA is like other states, in that if you're self employed, you'll pay state income tax only on money that you earn while you're residing in that state. But that does mean a lot more taxes, since CA state taxes for the months you're living there are considerably higher than Illinois.

If I understand it correctly, CA will use your total income from other states to set the highest tax bracket for state income tax. For someone who can afford a $500K home plus an apartment year-round, that probably means at least double to nearly triple the state tax for the months you work from California.

jimb

Dantes
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Re: Buying beach bungalow in San Diego for Winters

Post by Dantes » Sun Jul 16, 2017 8:52 am

I'm curious - is there a place in the US in the same range of desirability as a beach bungalow in San Diego where the purchase cost can be covered by renting it out for 8 months, reserving the winter months for oneself?

Valuethinker
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Re: Buying beach bungalow in San Diego for Winters

Post by Valuethinker » Sun Jul 16, 2017 9:08 am

inbox788 wrote:
SrGrumpy wrote:
denovo wrote:Personally I don't think the summers are that great either. Humidity sucks. Why not move to San Diego?
This is the wisest advice you will ever receive.
Don't do it! You become a full time California resident and are subject to state taxes. Worse, living part time or by owning real estate, you might still be considered a full time tax resident.
Bfwolf wrote:self employed with a job I can do from anywhere in the country.
Move to Puerto Rico! Not cold at all! Visit Chicago and San Diego!

I've just started looking into Puerto Rico as a retirement haven vs places like Mexico, Puerto Rico or Panama. Great business tax haven as well.

viewtopic.php?t=112987

https://www.forbes.com/sites/robertwood ... fc31f63977
https://www.nytimes.com/roomfordebate/2 ... -tax-haven
https://www.sovereignman.com/tax/how-yo ... ide-16368/
To what extent have the fiscal problems of Puerto Rico affected the quality of life? Cutbacks in law enforcement and other state provided amenities? Road repair? etc. etc.

autopeep
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Re: Buying beach bungalow in San Diego for Winters

Post by autopeep » Sun Jul 16, 2017 9:10 am

Dantes wrote:I'm curious - is there a place in the US in the same range of desirability as a beach bungalow in San Diego where the purchase cost can be covered by renting it out for 8 months, reserving the winter months for oneself?
Let me rephrase your question:. Are there affordable beach front houses in temperate, beautiful, cosmopolitan cities with great beer scenes? Errr... Probably not.

Have you seen the terrible HGTV show "beach front bargain hunt"? Even in remote, humid and IMO undesirable locations, crummy beach "adjacent" condos without water access cost hundreds of thousands of dollars.

Dantes
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Re: Buying beach bungalow in San Diego for Winters

Post by Dantes » Sun Jul 16, 2017 9:16 am

autopeep wrote:
Dantes wrote:I'm curious - is there a place in the US in the same range of desirability as a beach bungalow in San Diego where the purchase cost can be covered by renting it out for 8 months, reserving the winter months for oneself?
Let me rephrase your question:. Are there affordable beach front houses in temperate, beautiful, cosmopolitan cities with great beer scenes? Errr... Probably not.

Have you seen the terrible HGTV show "beach front bargain hunt"? Even in remote, humid and IMO undesirable locations, crummy beach "adjacent" condos without water access cost hundreds of thousands of dollars.
Well yes. Too bad 'cause I could use one of those.

SrGrumpy
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Re: Buying beach bungalow in San Diego for Winters

Post by SrGrumpy » Sun Jul 16, 2017 9:24 am

inbox788 wrote:
SrGrumpy wrote:
denovo wrote:Personally I don't think the summers are that great either. Humidity sucks. Why not move to San Diego?
This is the wisest advice you will ever receive.
Don't do it! You become a full time California resident and are subject to state taxes. Worse, living part time or by owning real estate, you might still be considered a full time tax resident.

Yes. Moving to a place generally means you become a full-time resident of that place.
inbox788 wrote:
Bfwolf wrote:self employed with a job I can do from anywhere in the country.
Move to Puerto Rico! Not cold at all! Visit Chicago and San Diego!

I've just started looking into Puerto Rico as a retirement haven vs places like Mexico, Puerto Rico or Panama. Great business tax haven as well.
Now I've heard everything! Puerto Rico? I hear Venezuela has tax advantages as well! And Illinois. But I rescind my advice to move to California. We have too many people here already. Hopefully OP can utilize family connections to find a great summer (i.e. 9 months of the year) rental.
Last edited by SrGrumpy on Sun Jul 16, 2017 10:51 am, edited 2 times in total.

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Clever_Username
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Re: Buying beach bungalow in San Diego for Winters

Post by Clever_Username » Sun Jul 16, 2017 9:24 am

Reasons already covered to not do it:

* Beyond your stated budget

* Managing a rental property that far away can be a problem

* California will likely consider you a full-time resident for tax purposes.

Important reason not yet covered:

* Pizza. If you live in Chicago, you're probably used to good pizza. We don't have much in the way of good pizza in this time zone. There's one good place in south Orange County.

You might want to consider south O.C. or north S.D. county instead if you still want to do this, as it can at least obviate problem one (and to a lesser extent, problem four).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, [i]Layer Cake[/i]

sunny_socal
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Re: Buying beach bungalow in San Diego for Winters

Post by sunny_socal » Sun Jul 16, 2017 10:31 am

A "bungalow"? (LOL :D ) I'd also be living in a 500k bungalow along the coast if that were indeed possible :beer

I'd move out here if I were you. Reasons:
- Family already out here. It's a Big Deal if/when you eventually have your own family and kids.
- You already have some friends here too. That's also a big deal, the weather isn't enough to make up for being lonely.
- Lack of pizza is replaced by tons of great Mexican food. Probably better than the food down in Mexico! (There's Little Italy and downtown if you really want Italian food)
- SD is the beer capital of the country. We can't yet rival Belgium in sheer quantity but the beer is better than Belgian beer :beer
- I wear shorts & T-shirt year round. In the winter I'm forced to add a hoodie 8-)

FWIW I went to college near Chicago. Yes it's great place to visit but I'd never in a million years live there.

Point
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Re: Buying beach bungalow in San Diego for Winters

Post by Point » Sun Jul 16, 2017 10:52 am

CA will take the first 10% of your rental receipts regardless of profitability as an out of state landlord. And check to be sure there is no local incom tax penalty in the city you choose.

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jesscj
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Re: Buying beach bungalow in San Diego for Winters

Post by jesscj » Sun Jul 16, 2017 10:56 am

What about renting a beach property for those months? No buying, no management, no resident status, maybe try for a year or two to see if you even like it. I lived in SD for a few years just outside of PB, 500K won't get you on the beach.
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Carefreeap
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Re: Buying beach bungalow in San Diego for Winters

Post by Carefreeap » Sun Jul 16, 2017 11:20 am

Bfwolf wrote:I'm a single guy living in Chicago. This time of year, it's great. But the Winters suck. I rent a 1 BR apartment, and am self employed with a job I can do from anywhere in the country. I have a big group of friends in Chicago and really enjoy it's big city-ness, and the ability to get around without a car. But the Winters REALLY suck.

I went to high school in San Diego, and all my family lives there (La Jolla/University City area). I have a few friends who live there, too. I've been toying with the idea of buying a small beach bungalow in San Diego that I can spend November through April in, while maintaining my apartment in Chicago that I'd spend May through October in. I would Airbnb/VRBO the beach bungalow during the months that I'm gone. I'm not allowed to Airbnb my Chicago apartment, nor is there much of a market for it during the Winter time. I'd have to hire somebody to help administer the beach bungalow for guests of course, but my hope would be that I could cover most of my mortgage with the Airbnb $s. I don't know if that's reasonable or not. I haven't looked very hard into it at all and don't even know how much a beach bungalow would cost. I think anything more than $500,000 would make me really nervous.

There's also the possibility for changes to the law in San Diego that make short term rentals more difficult/impossible.

I should mention again that Winters in Chicago are really awful.

Is this a reasonable idea?
I'm a UC kid but went to Clairemont HS because UC High didn't exist. :wink:

Just closed my La Jolla Shores Condo for about $700k. You can find a 1br condo in the general UTC area (think off of La Jolla Village Dr.) for around $500k. The biggest challenge is going to be finding an HOA that allows short term rentals that you'd actually like to stay in. There are A LOT of college students in the area.

It's possible to rent out a unit for the school year (think 10 month lease) and you get to stay June and July but you'll be "turning" the property; advertising, painting and repairing. In other words you'll be having a "working vacation" but at least you'll have a tax write off.

I'm not sure that this makes sense from a financial point of view. I would do if your long-term plan is to move back to the area.

We sold because we're done with So. CA traffic and enough dealing with long distance tenant drama which affected our vacation plans two years in a row. They were both good tenants but moved out early to buy houses. There are strict rules about the timeline of returning a tenant's deposit even if they move out early. Make sure that you understand your responsibility as a LL and if you are expecting your family to help out be sure you have their explicit agreement (and pay them!).

Good luck with whatever decision you make.

mega317
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Re: Buying beach bungalow in San Diego for Winters

Post by mega317 » Sun Jul 16, 2017 11:24 am

The difference in income tax is 4%. I wouldn't have trouble spending 4% less of my taxable income in exchange for being closer to family in a nice city. I realize that's not doable for everyone.

Have you ever seen Chicago traffic?

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Watty
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Re: Buying beach bungalow in San Diego for Winters

Post by Watty » Sun Jul 16, 2017 11:50 am

One thing to look into is that I have seen apartment leases that don't allow you to leave the property vacant for more than 30 days. This is because they don't want a small problem like a water leak to become a big problem when it is goes unoticed. There can also be problems with other people moving into the apartment without your knowlege if they know it will be vacant for a long time.

There are lots of possible downsides but one thing you could look into is "Fractional ownership"(Google this) of a property in San Diego. This would be where you get the use of the property for six months out of the year and someone else gets it for the other six months.(or three people who each get it for four months, etc) This could work well to split the property with someone that lives in Arizona and wants to use the property in the summer when it is too hot in Arizona.

At the very worst this would just be a glorified toxic timeshare but there are situations where this can be set up right and work well.

inbox788
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Re: Buying beach bungalow in San Diego for Winters

Post by inbox788 » Sun Jul 16, 2017 12:01 pm

jimb_fromATL wrote:I'm pretty sure CA is like other states, in that if you're self employed, you'll pay state income tax only on money that you earn while you're residing in that state. But that does mean a lot more taxes, since CA state taxes for the months you're living there are considerably higher than Illinois.

If I understand it correctly, CA will use your total income from other states to set the highest tax bracket for state income tax. For someone who can afford a $500K home plus an apartment year-round, that probably means at least double to nearly triple the state tax for the months you work from California.
There's how you think it's supposed to work, how it's really supposed to work, and how it actually works, and they can all be different. I don't have any direct experience, but I read about scary horror stories like this.
http://www.sangerlaw.com/Articles/THE-P ... TRAP.shtml
OP, go into this with your eyes wide open and knowledge of as much of the situation as you can get so you won't get too many unexpected surprises that life already spring on you.
Valuethinker wrote:To what extent have the fiscal problems of Puerto Rico affected the quality of life? Cutbacks in law enforcement and other state provided amenities? Road repair? etc. etc.
I'm just starting to investigate downsides to PR (i.e poor economy, risk in changing tax rates, etc.). I'm sure there are tons of risks as any other move, but the US Citizenship issues is an interesting angle vs. ex-pat status elsewhere.
SrGrumpy wrote:Now I've heard everything! Puerto Rico? I hear Venezuela has tax advantages as well! And Illinois. But I rescind my advice to move to California. We have too many people here already.
Yes, agree there are too many people already in CA, so we should talk OP out of coming! :wink: Without getting into forbidden discussion topics, here's my state tax planning regarding CA tax. If federal tax rates go down, but deductions are eliminated, I don't know if my taxes would go up or down, whereas those states without income tax become even more attractive to me. I won't be alone in investigating exit strategies, and the too many people problem may self-correct.
mega317 wrote:Have you ever seen Chicago traffic?
Are you trying to say there's not much traffic in Chicago? Do you mean it's lower or higher than San Diego? There is no good traffic, only bad, worse, and unbearable.
http://www.city-data.com/forum/san-dieg ... icago.html

Bfwolf
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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 12:02 pm

I appreciate the insight, especially regarding my budget being unrealistic.

I don't have much desire to live in San Diego all year. I really love my group of friends in Chicago and everything about the city for about 5 to 6 months out of the year. I also generally like the people here better...more cosmopolitan and professional, so it's easier for me to make new friends.

I'm not interested in any place BUT San Diego for the Winters. Yes, there are other warm places that are cheaper, but given my family is all in SD and I have a few friends there, it's the only logical destination. Even Oceanside is too far.

I do have a unique financial situation that I should have mentioned up front. I worked in corporate America for a while, made good money, saved/invested in the Boglehead way, and then got laid off. I have my own business now with a much better lifestyle (no desire to ever go back to corporate America), but with far less income. So for somebody in his early 40s, I have a weird combination of assets and income. I've got about $1.2MM, very roughly split 50% taxable, 30% tIRA/401k, and 20% Roth IRA/401k. My business makes about $40K a year, though it has grown every year. My total 1040 income when you factor in dividends and capital losses from tax loss harvesting is more like $50K. My expenses are around $60K.

I do have fairly significant capital gains in my taxable account, so cobbling together a huge down payment due to my low income would definitely have some tax consequences.

I get the idea of living with family while I'm there, but I need my own space. And I get the idea of trying to rent an apartment while I'm there, but this seems logistically difficult given that I only want it 6 months a year. So yes, I could just have full year rentals in both Chicago and San Diego, and maybe that is indeed the best solution. But this seems expensive. Airbnbing a rental is pretty much universally a no-no, though perhaps I could get an apartment in San Diego where I'd be allowed to sublet it (not short term rental) for 6 months a year. I guess the big question there is how easy it would be to fill and what kind of money I could receive. I'm trying to imagine the market for sublets in San Diego from May through October, and it doesn't seem very good to me? While of course the market for Airbnbs during this time frame would be excellent.

Someone mentioned difficulty in getting a loan due to this not being my primary residence. I would have no problem living there 6 months + 1 day a year to make it my primary residence.

Regarding CA taxes--yes, they are higher. But the impact on me would be muted by my relatively low income.

Regarding people buying a vacation home and then hating it and selling it a few years later, I don't think that's a fair characterization of what this is. When I think vacation home, it's a place people spend a month or 2 at per year. This would be my home half the year.

In terms of long distance administration of an Airbnb, I don't think this is as problematic as some people are making it out to be. I've run an Airbnb before, and I have had to administer it when away on travels, and it's very doable. I can bring in somebody to help given my network in San Diego...I have a friend in San Diego who is a property manager, I have a sister-in-law in San Diego who runs Airbnbs in another city. Yes, I'd need to compensate them, but lots of people around the world have homes they Airbnb out without being local by hiring local help.

OK, so I feel the REAL issue here is what kind of place could I actually afford. I am actually not married at all to being by the beach. I just figured that would make a big difference for marketability as an Airbnb. I wonder if that was a bad assumption....maybe people are Airbnbing places in SD that are a little inland?
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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 12:03 pm

duplicate

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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 12:10 pm

Watty wrote:There are lots of possible downsides but one thing you could look into is "Fractional ownership"(Google this) of a property in San Diego. This would be where you get the use of the property for six months out of the year and someone else gets it for the other six months.(or three people who each get it for four months, etc) This could work well to split the property with someone that lives in Arizona and wants to use the property in the summer when it is too hot in Arizona.

At the very worst this would just be a glorified toxic timeshare but there are situations where this can be set up right and work well.
While this sounds like a terrible idea in practice, I like the idea theoretically and love the out-of-the-box thinking. I will look into this.

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Re: Buying beach bungalow in San Diego for Winters

Post by WhyNotUs » Sun Jul 16, 2017 12:24 pm

I have a desire for two months a year in Maui and know exactly the complex in which I want to live. Even during the real estate bust, I could not make the numbers for owning make as much sense as renting without making some pretty big assumptions about appreciation.

Have you looked at a corporate housing situation or furnished rental? Maybe just the worst three months.
I own the next hot stock- VTSAX

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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 12:29 pm

WhyNotUs wrote:I have a desire for two months a year in Maui and know exactly the complex in which I want to live. Even during the real estate bust, I could not make the numbers for owning make as much sense as renting without making some pretty big assumptions about appreciation.

Have you looked at a corporate housing situation or furnished rental? Maybe just the worst three months.
Not a bad idea at all. I will noodle on that. Good insight.

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Re: Buying beach bungalow in San Diego for Winters

Post by jimb_fromATL » Sun Jul 16, 2017 12:39 pm

Bfwolf wrote:... regarding my budget being unrealistic...

... unique financial situation ...

... my own business ... early 40s... weird combination of assets and income. I've got about $1.2MM, very roughly split 50% taxable, 30% tIRA/401k, and 20% Roth IRA/401k. My business makes about $40K a year, though it has grown every year. My total 1040 income when you factor in dividends and capital losses from tax loss harvesting is more like $50K. My expenses are around $60K.

I do have fairly significant capital gains in my taxable account, so cobbling together a huge down payment due to my low income would definitely have some tax consequences...

I guess the big question there is how easy it would be to fill and what kind of money I could receive. I'm trying to imagine the market for sublets in San Diego from May through October, and it doesn't seem very good to me? While of course the market for Airbnbs during this time frame would be excellent...

Someone mentioned difficulty in getting a loan due to this not being my primary residence...

I would have no problem living there 6 months + 1 day a year to make it my primary residence... OK, so I feel the REAL issue here is what kind of place could I actually afford...
Congratulations on doing so well financially. Unfortunately, even being a millionaire isn't likely to make it possible to get a normal mortgage for any significant amount of money. So it doesn't sound promising that a mortgage will be workable at all.

The taxes and whether it's a primary residence are not really the problem.

The big problem is that it's going to be virtually impossible to find a lender who will give you a normal mortgage. A million buck in savings means nothing with regard to your ability to make the mortgage payments, because it's not regular income. There's nothing to keep you from spending it, and nothing to keep the taxable account from being seized in case of a [shudder] lien or judgment against you.

If you were retirement age, some lenders will now consider the potential income from the 401(k) and IRA to be steady income for qualifying. But it's not very likely at all that they will consider the taxable accounts.

So ... you'll probably have to withdraw a huge amount from your taxable accounts to buy the home for cash. The amount you qualify for with your business (presumably for at least a couple of years already) probably would not qualify for the T&I alone, much less a mortgage.

But then you've lost one of the big advantages of owning rental property, which is the leveraging of your investment by getting any appreciation and tax breaks on the full value of the property even though you only have your down payment and on-going principal repayments tied up in it. And without the tax break on mortgage interest, more of your rental income will be taxable for fed and state.

If you are able to rent it out, then after a couple of years proof of income, some lenders may consider a portion of the rental income in qualifying for a mortgage. But they will want you to have a considerable amount of your own money still tied up in it, and you will already have suffered a lot of loss in paying capital gains tax prematurely and the loss of the time value of the money that you used to pay cash for the home.

jimb
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Re: Buying beach bungalow in San Diego for Winters

Post by simmias » Sun Jul 16, 2017 12:41 pm

Clever_Username wrote: * Pizza. If you live in Chicago, you're probably used to good pizza. We don't have much in the way of good pizza in this time zone. There's one good place in south Orange County.
I liked Bronx Pizza when I lived in San Diego. I'm not sure if it's still good. Food almost anywhere is going to be disappointing compared to Chicago, though. I lost 15 pounds when I stopped living there.

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Re: Buying beach bungalow in San Diego for Winters

Post by mega317 » Sun Jul 16, 2017 12:42 pm

You have 20x expenses and spend more than you make. Forget about paying double rent for even part of the year that makes no sense. As it is you're on a path towards never retiring.

I meant Chicago traffic is bad--worse than san diego by my memory.

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Re: Buying beach bungalow in San Diego for Winters

Post by runner540 » Sun Jul 16, 2017 12:50 pm

Mega317 beat me to it:

With the new details, I'm going to say this would be living far beyond your means to maintain two HCOL residences. Your expenses are higher than your income already. Wait until you grow your business and income. It's not clear if you are reinvesting dividends or living off them.

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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 1:02 pm

jimb_fromATL wrote:
Congratulations on doing so well financially. Unfortunately, even being a millionaire isn't likely to make it possible to get a normal mortgage for any significant amount of money. So it doesn't sound promising that a mortgage will be workable at all.

The taxes and whether it's a primary residence are not really the problem.

The big problem is that it's going to be virtually impossible to find a lender who will give you a normal mortgage. A million buck in savings means nothing with regard to your ability to make the mortgage payments, because it's not regular income. There's nothing to keep you from spending it, and nothing to keep the taxable account from being seized in case of a [shudder] lien or judgment against you.

If you were retirement age, some lenders will now consider the potential income from the 401(k) and IRA to be steady income for qualifying. But it's not very likely at all that they will consider the taxable accounts.

So ... you'll probably have to withdraw a huge amount from your taxable accounts to buy the home for cash. The amount you qualify for with your business (presumably for at least a couple of years already) probably would not qualify for the T&I alone, much less a mortgage.

But then you've lost one of the big advantages of owning rental property, which is the leveraging of your investment by getting any appreciation and tax breaks on the full value of the property even though you only have your down payment and on-going principal repayments tied up in it. And without the tax break on mortgage interest, more of your rental income will be taxable for fed and state.

If you are able to rent it out, then after a couple of years proof of income, some lenders may consider a portion of the rental income in qualifying for a mortgage. But they will want you to have a considerable amount of your own money still tied up in it, and you will already have suffered a lot of loss in paying capital gains tax prematurely and the loss of the time value of the money that you used to pay cash for the home.

jimb
Excellent points. You're right, this probably wouldn't work for me.

My brother and SIL purchased the homes they're Airbnbing in another city due to it being more affordable. They're not in the market for another Airbnb right now, but maybe in another few years they might be. All warnings about mixing family with business aside, I wonder if we could work out a financial arrangement at that point to split the cost of the house, have me make rental payments during Winter low season when living there, and then share Airbnb Summer profits with my local SIL administering it. Of course lots of TBD about who pays what and how the profits are shared, but could make sense.

Finding a way to get an apartment there for a part of the year seems like the most viable approach. As someone pointed out, even if it was just December through February that would make a big difference. I'll explore more.

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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 1:12 pm

mega317 wrote:You have 20x expenses and spend more than you make. Forget about paying double rent for even part of the year that makes no sense. As it is you're on a path towards never retiring.
I have a <2% withdrawal rate, will get an $18K pension when I turn 65 and will receive significant Social Security retirement benefits. I will almost certainly be in a fine place to retire, but I do have to keep the expenses under control.

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Re: Buying beach bungalow in San Diego for Winters

Post by jimb_fromATL » Sun Jul 16, 2017 1:27 pm

Bfwolf wrote:
mega317 wrote:You have 20x expenses and spend more than you make. Forget about paying double rent for even part of the year that makes no sense. As it is you're on a path towards never retiring.
I have a <2% withdrawal rate, will get an $18K pension when I turn 65 and will receive significant Social Security retirement benefits. I will almost certainly be in a fine place to retire, but I do have to keep the expenses under control.
Sounds like you'll be in a great shape to retire provided you don't use half or more of your assets to buy a home that you don't really need now.

One caution: Bear in mind that if we revert back to normal inflation, or even worse -- like the 80's -- that $18K pension won't be nearly as much as it seems in today's dollars now.

Plus, any projections you get from the SS administration about future benefits are based on 35 years of income at the rate you were paying while you were working. As time goes down with lower income, that projection will go down too. The final benefit will be based on the average of the highest 35 years income, which may be considerably less when you retire early or have a lot less income with FICA tax from now on. Been there, seen that. (Fortunately, the earlier years are adjusted for inflation for use in the calculations.)

Your Retirement Benefit: How It’s Figured

jimb

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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 1:49 pm

jimb_fromATL wrote:
Sounds like you'll be in a great shape to retire provided you don't use half or more of your assets to buy a home that you don't really need now.

One caution: Bear in mind that if we revert back to normal inflation, or even worse -- like the 80's -- that $18K pension won't be nearly as much as it seems in today's dollars now.

Plus, any projections you get from the SS administration about future benefits are based on 35 years of income at the rate you were paying while you were working. As time goes down with lower income, that projection will go down too. The final benefit will be based on the average of the highest 35 years income, which may be considerably less when you retire early or have a lot less income with FICA tax from now on. Been there, seen that. (Fortunately, the earlier years are adjusted for inflation for use in the calculations.)

Your Retirement Benefit: How It’s Figured

jimb
Yes, you're absolutely right. The purchasing a place idea in my head was under the guise of putting something like 20% down on a $500K place, but clearly that's not reasonable based on my income.

Yeah, I do my own SS benefit calculations for the reasons you describe. Since I'm going to be well past the 2nd break point of the SS benefit curve, my lower income hurts my benefit but not catastrophically.

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Re: Buying beach bungalow in San Diego for Winters

Post by EyeYield » Sun Jul 16, 2017 2:44 pm

While potentially not applicable to your situation, because you have family to look after your property if you faced a situation where you couldn't for a long period of time, I think this is still interesting to consider.
http://enewspaper.latimes.com/infinity/ ... f54d7f1bd3
"In California, a “squatter,” that is, a person who occupies land without the right to do so, can gain possession of someone else’s property by openly occupying it for at least five years without interruption and acting the way a true owner would."
With the ever growing homeless population, it's not uncommon for squatters to enter a property that has been vacant for even a couple of months.
"The stock market is a giant distraction from the business of investing." - Jack Bogle

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Re: Buying beach bungalow in San Diego for Winters

Post by nura » Sun Jul 16, 2017 2:55 pm

Dantes wrote:I'm curious - is there a place in the US in the same range of desirability as a beach bungalow in San Diego where the purchase cost can be covered by renting it out for 8 months, reserving the winter months for oneself?
Have you looked at the gulf coast in Pensacoloa, Biloxi or Mobile?
You might find something for half your budget perhaps.

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Re: Buying beach bungalow in San Diego for Winters

Post by 4nwestsaylng » Sun Jul 16, 2017 3:00 pm

there are a few options:

1. decide on a small condo instead of a house, which is a no-go.One bedroom condos a better investment than studio, and a 2 bedroom even better because if you rented it out, two people could split the rent.

2. Go inland. Look at San Marcos or Poway or Rancho Bernardo area. Rancho Bernardo would be a nice choice, Arizonans like to rent in the summer, yes usually by the beach, but some of them can't afford that.

3. I remember there was a nice permanent RV park at San Marcos Lake, mostly seniors then. Some of the good RV parks (manufactured homes on foundations) in S.Calfornia (I am dating myself, we didn't call it "SoCal" in the 70s),where the people own their own lot, have done very well, for example Paradise Cove in Malibu.

4. Alternatively, downsize to a studio condo that you own, and leave it empty half the year. Better than renting it out. And probably a better investment than a bond.

Remember, owning something in the SD area may eventually lead you to transition from Chicago. If not, maybe it is time to make the break from SD and truly look at alternative areas for a second place.The real problem with coastal property as I noted before, is that you are not just competing with American buyers, you are competing with World money, people who can afford to buy a multimillion dollar property and visit it a week a year. Some of them own six or seven homes, maybe one in S.Cal, one in Seattle or Vancouver, one in NYC, one in London. You woudlnt believe how common this is.
How do you compete with that?

5. Post an ad in the local SD newspaper for a while, preferably even in a community newspaper like in Point Loma area, express interest in renting a small guest house. You might even get a response in the Rancho Santa Fe area. With good references, owners like the idea of having someone on the property if they travel a lot. You just don't want to have the experience of Kato Kaelin of course!


P.S.to those who commented on the HGTV "beach bargain" show: I actually find them a guilty pleasure, not only the unreality of the choices, but the interplay of the couple, some of the scripted but still real personality differences , you wonder how long the marriage is going to last after they settle in, say a condo in Puerto Rico with a distant "view" of the beach, and the wife starts to miss the stores in NYC or LA.
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Re: Buying beach bungalow in San Diego for Winters

Post by killjoy2012 » Sun Jul 16, 2017 3:00 pm

Lots of good advice here. I won't pile on, but maybe suggest you consider flipping the approach. If you're dead set on Chicago continuing to be your 'home', why not just AirBnB/VRBO that beachfront house in the SD area for a couple months during the winter. In the end, you get what you want w/o having to try to fund a $1-2MM secondary residence & maintain/rent it our year-round.

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Re: Buying beach bungalow in San Diego for Winters

Post by Valuethinker » Sun Jul 16, 2017 3:43 pm

inbox788 wrote:
Valuethinker wrote:To what extent have the fiscal problems of Puerto Rico affected the quality of life? Cutbacks in law enforcement and other state provided amenities? Road repair? etc. etc.
I'm just starting to investigate downsides to PR (i.e poor economy, risk in changing tax rates, etc.). I'm sure there are tons of risks as any other move, but the US Citizenship issues is an interesting angle vs. ex-pat status elsewhere.
Ok. And crime-- when the economy goes, places often have rising (or soaring) crime rates? I mean we don't have to get apocalyptic (Venezuela, where a man will kill you for enough money to feed his family a meal, apparently) to see the problem.

Costa Rica is also supposed to be nice, one hears of retirees there. Crime is supposed to be bad in the main city (Central American drug gangs, I think).

Health care is of course the other main issue for retirees. I am presuming in PR you can use American Medicare, but not in CR? There is medical tourism to CR, though, so perhaps cost is significantly lower.

Another issue to consider is hurricane season and the impacts. I won't bore you here with forbidden topics, but I have a prior (and I am not alone) that hurricane issues are going to get significantly worse. Intensity if not frequency (one can search Kerry Emannuel's website at MIT for his views, he is one of the world's leading experts on hurricanes). I realize Central America gets bad ones too (Hurricane Hugo comes to mind).

In many ways, it has struck me that the US Gulf Coast might offer the best of all possible worlds to a US retiree? *if* one can deal with the summer climate (but that's common to all of these) and the cultural issues (I had a friend who spent a year in graduate school in Tuscaloosa, and said "never again"; conversely I am aware of the many advantages of the southern USA in terms of the people and way of life)? But you are still in USA, and you have the advantage of a generally low cost of living. One should not be too close to sea level-- see hurricanes, above.

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Re: Buying beach bungalow in San Diego for Winters

Post by DVMResident » Sun Jul 16, 2017 4:19 pm

You won't find a $500k beach unit anywhere in SoCal. Heck, you'll be hard pressed to find a decent condo within <10 miles of the beach for that price range.

$500k is a pretty large budget. How about Airbnb or long term style hotels a winter rental 3+ months of the year? There's plenty.

On the car front, San Diego does have a coastal train and some lines go to LA. It's a bit limited compared to better equipped public transit cities (e.g. SF, Boston, NYC), but doable with some Uber supplement.

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Re: Buying beach bungalow in San Diego for Winters

Post by Hawaiishrimp » Sun Jul 16, 2017 4:33 pm

Sorry to say, but you won't find any decent beach bungalow in SD for $500k. If you have $900k or so, you will find something (small).
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

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Re: Buying beach bungalow in San Diego for Winters

Post by inbox788 » Sun Jul 16, 2017 4:49 pm

Bfwolf wrote:Finding a way to get an apartment there for a part of the year seems like the most viable approach. As someone pointed out, even if it was just December through February that would make a big difference. I'll explore more.
It takes a bit of searching and luck, but if you find a student taking a quarter away (abroad or at another college), you can probably work out a good arrangement. See how the local colleges align with your desired dates.

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Re: Buying beach bungalow in San Diego for Winters

Post by Bfwolf » Sun Jul 16, 2017 5:04 pm

inbox788 wrote:
Bfwolf wrote:Finding a way to get an apartment there for a part of the year seems like the most viable approach. As someone pointed out, even if it was just December through February that would make a big difference. I'll explore more.
It takes a bit of searching and luck, but if you find a student taking a quarter away (abroad or at another college), you can probably work out a good arrangement. See how the local colleges align with your desired dates.
That's a good thought and one I'll take under consideration. Especially with UCSD being so close to my family. Downside is that I'm in a college kid's apartment. Probably kind of crappy and how many of them live alone to start with? And then I've got to repeat the process every year.

But I shouldn't be critical, it's a good idea.

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