Sold on the Beach

After Fresno resident Darren Gennuso was sworn in as a California Highway Patrol officer in 1998, he could have asked to be located anywhere in the state.

Single and feeling the Central Valley wasn’t quite metropolitan enough, he opted for Los Angeles. “I love the beach,” the 29-year-old said. “That’s the biggest reason I came here.”

Back in Fresno, Gennuso, who grossed about $40,000 a year as a paramedic, lived well, sharing a three-bedroom apartment with two friends. It was the perfect bachelor pad, with a pool and a sand volleyball court in an upscale part of town. The rent was cheap--especially split three ways. “That’s the frustrating part,” he said. “My rent was as little as $225 a month there.”

But even with the jump to a CHP’s salary of about $66,000 a year, Gennuso has found that his income doesn’t stretch far in Los Angeles. In the last three years, he’s rented a room for $500 a month in Westlake Village and is now living in a converted garage in Brentwood for $800 a month.

“Some one-bedroom apartments are between $1,200 and $1,600 a month,” he said. “I think [with rent like that] I could probably just buy a house somewhere.”

In addition to Gennuso’s frustration with rental rates, he is beginning to worry that while he’s having a great time, he’s squandering his money, especially the $1,000 a month he spends on entertainment--mostly eating out with friends. “I have a lot of Cheesecake Factory binges.”

So now Gennuso is considering settling down a bit and getting into the housing market as an investment. “I want a home that I can afford and still maintain a good quality of life,” he said. “I just need some structure.”

Based on Gennuso’s excellent credit history, Joe Parisi, a senior loan consultant with Metrociti Mortgage Corp. of Encino, was able to qualify him for the purchase of a $220,000 home. Parisi recommended a 5/1 ARM loan, a fixed loan with zero down at an interest rate of 6.75% for five years. In the sixth year, the loan would convert to an adjustable rate mortgage with an interest rate based on current market conditions.

“I recommend this type of loan for those who plan on stepping up to a higher-priced home in the future,” Parisi said. But Gennuso’s housing payment would be $2,000 a month--more than double what he is currently paying in rent.

“That’s a big jump,” Gennuso said. “That means the $1,000 I spend on entertainment and messing around would have to go out the window.”

Not necessarily. Even though Gennuso has only $4,000 in savings, he has managed to put $23,000 in a company 401(k) plan since his employment with the CHP. Currently he contributes $875 a month to the plan as a kind of forced savings account.

Reducing or temporarily eliminating that hefty 401(k) contribution coupled with a change in the exemptions that Gennuso claims on his state and federal income tax might help him afford a mortgage payment and not put too much of a damper on his lifestyle, Parisi said.

A change in tax exemptions--from his current zero--could help Gennuso have an additional few hundred dollars a month now, Parisi said, instead of waiting for a big income-tax return later. “That would free him up for a bigger house payment now, instead of grinding it out and waiting for a return later.”

Additionally, Parisi estimated that Gennuso would be able to write off about $450 a month in income tax as a homeowner. But above all, Parisi stressed homeownership as a good investment.

“While you are sitting on the sidelines, property values are appreciating and you are missing out on that,” he said. “We are still in a slight recession, but a lot of economists think we will be turning the corner in 2002.”

But Gennuso knows that what $220,000 could buy him in Fresno won’t come close here. “I think I make decent money,” he said. “But it’s almost like you need a dual family income to get into a house here.”

Making it even more difficult for Gennuso is that he wants to live in pricey Manhattan Beach without having to depend on having a roommate. That, however, may not be realistic. According to Carole Stonich, a sales associate and manager with Shorewood Realtors specializing in South Bay real estate, Gennuso is not alone when it comes to sticker shock for Manhattan Beach area homes.

“People who have lived here are pretty property savvy,” she said. “But if they are moving in from out of the area we have to sit them down and tell them how it is.”

According to Stonich, the entry price for a Manhattan Beach home today starts at $600,000, and that could be for a duplex on a tiny lot or a small fixer. “When expectation and reality are so far apart,” she said, “there’s going to be some disappointment.”

While no homes were available in Gennuso’s price range in Manhattan Beach, Stonich was able to locate seven properties in the neighboring cities of Hermosa Beach and Redondo Beach. The properties--all condos except for one--ranged in size from 619 to 1,429 square feet. Prices ranged from $227,000 to $279,000, slightly above Gennuso’s target but not out of the question.

“We may be able to push him up,” Parisi said. “[Gennuso] has good credit and good stability, so we might be able to stretch him” to get a higher loan. Of particular interest was one condominium just five blocks from the ocean that Stonich said has appreciated greatly since the mid-1980s.

“This is the absolute lowest thing going in the beach cities,” she said. “It’ll have to appreciate [even more].”

After grasping the reality of the Manhattan Beach housing market, Gennuso was pleased he could afford anything at the beach at all. “The fact that I can live in a beach community with a five- to 10-minute [walk] to the beach is satisfying to me. It’s a younger crowd there, and that’s what I’m looking for.”

But even though many first-time buyers are entering the housing market now because of lower interest rates and a fear that prices may be on the rise, Gennuso said he thinks he will wait a year.

“I look at the housing market like gas prices,” he said. “If you wait, it’ll come back down.”

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Meet the Experts

Joe Parisi has been in the mortgage banking business for 14 years and is with Metrociti Mortgage Corp., a large, privately held retail mortgage bank that funded more than $2 billion in loans in 2001.

Carole Stonich has 23 years of real estate experience and is a manager of one of Shorewood Realty’s five offices in the South Bay whose combined sites closed $1.2 billion in business in 2001.

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Allison B. Cohen is a Los Angeles freelance writer.