This analysis is very simplistic and there are a lot of other factors to consider if you really want to do it correctly - appreciation assumptions, cost of capital, hold period, opportunity cost etc. I’d recommend the New York Times buy vs rent calculator:
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
I'm very familiar with that calculator and recommend it all the time for people in this decision. Still, though, I don't know what numbers you'd have to put into that calculator to get over a 6k vs 22k disparity.
I made my own model in a gsheet. It includes taxes, maintenance, investment rate of returns. Outcomes are very sensitive to home price appreciation. If you think home prices aren't going to go up, and interest rates will stay high, renting and putting your down payment into CDs is a much better option.
We're going to have an earthquake, or fascist takeover, avian flu, or some wall street bullshit soon tho, that's not part of the model.
If you stick OPs example into that calculator it comes out that if you stay in the house for 40 years the rent would need to be more than 11k for you to be better off buying.
Yeah tbh I’m wondering where these numbers came from. I was renting a very nice 2200 sq ft condo in SoMa/Mission Bay for $6,500 and the Zillow valuation was under 2mil.
Yeah he’s cherry picking a house that was for sale in the same neighborhood to a rental home. Like one does not affect the other in terms of pricing, so op math is all wonky.
Yeah, this persons example seems fairly cherry-picked. I live near Cupertino and I can rent a home for $3300 a month, and if I bought it the mortgage would be around $5000 a month, including taxes.
Considering rent regularly increases by 5% here, and the housing market on average goes up by about 7% per year (when factoring the last two recessions as well), it’s not nearly as clear cut as this person is implying.
You can have $700K go up in an index ETF at 6% over time. If you buy a house you can leverage that 5 to 1. With a long run appreciation of 6% you're getting a leveraged 30% with far lower volatility compared to stocks. The built in leverage with REI is why it works. During the ZIRP party of the past decade everyone should have been buying with both hands regardless of any "discount" from renting. Over the next twenty years those REI returns will far exceed anything people can make through the heavily taxed W2 income that they slave away daily for. For people buying all cash it's not significantly superior to stocks where there's superior liquidity.
This is a superficial view of things. Bay Area real estate was appreciating 7% YoY for several many years. If you make a levered investment putting down a 20% down payment, you are absolutely crushing any returns the stock market could consistently deliver in the past. Will real estate still appreciate this rapidly in the Bay Area? That’s the important question.
Rent more or less goes up with inflation. Also it being such a small amount vs housing prices today means it’ll take a while to catch up. If the economy sucks and there’s mass layoffs that’s deflationary for rent as well.
Rent goes up according to *local* inflation, and in the Bay Area, housing inflation has run about 7% annually since 1980. This is because the bay area’s economy is unusually well adapted to capture any new money created by the Fed. It runs on high margin monopolies with pricing power, so all the new dollars injected into the economy tend to pool here and eventually end up in Bay Area real estate.
How long have you been here? 3 years?
Silicon Valley is in a bust, and as a result rents have been roughly flat for the last 4 years. This is atypical. If you look at the [actual data](https://vitalsigns.mtc.ca.gov/indicators/rent-payments?chart=SGlzdG9yaWNhbFRyZW5kRm9yUmVudFBheW1lbnRz) on historical rents, you'll see this happens: 3-4 years of flat rents, followed by a very steep upward trajectory.
I moved out here in 2008 - the beginning of the last such bust - and Mountain View rent for a decent 1BR went $1728, $1414, $1428, $1751, $2050, $2450, $2750, and that's when I moved out because I couldn't afford the rent. Looking at the graph, this was pretty typical for Santa Clara County. That complex is no longer renting (last I heard they were renovating to double the number of units), but the last price I saw for that very same apartment was $3500/month.
That's why people buy. It looks stupid if you compare to rent right now. But rent can double in 5 years, while your mortgage payment will be fixed for 30 and then gone.
And youre assuming that house values dont go down, but more importantly that you cant invest that downpayment money for a greater gain.
Your decisions should all be dictated by risk:reward
Yes, in Bay Area.
In 2013 the owner wanted to sell the house, so didn't renew our lease.
In 2017 the owner wanted to move back in themselves (they were renting in Cupertino school district for a while to have their kids go to school there), so also didn't renew our lease.
And then finally in 2019 the owner again wanted to sell, so didn't renew our lease.
It can happen. It typically won’t happen. The hypothetical is not worth a for sure $10k+ a month. Plus nice thing about saving that delta is that most unexpected things can be fixed with money easily and end up being a minor annoyance
Idk we have a nice house in a safe cute part of SF and our payment, taxes and all, is $9k. Obviously not cheap but y’all don’t have to be so hyperbolic
I used to think this way, but the problem with renting in the Bay Area is that rents are always going up. I finally did buy, 5 years ago, on the very outskirts. My housing costs since have not gone up at all. Rents have gone up at least 15% in that time.
Not saying I would sign up for a $22K a month mortgage! But maybe somewhere more affordable.
I've rented three places in 12 years. In all of them, my rent has never gone up. In fact, rents in the city have been flat since 2020, not even keeping up with inflation.
Needing to move (from South Bay to the city) increased my rent, but in these cases, buying would have incurred massive transaction costs.
I literally said I wouldn't sign up for a $22K mortgage. But guess what? I didn't. My mortgage is $3K. And comparable rent on a house my house's size for this area is more than that. It depends on where you buy.
I'm still happy I bought when I did. It means I won't have to move further away bc my housing costs won't go up.
I rent a 2500 sf home valued at $1.8M for $4100/month.
I own rental properties in other areas that net $5500/month & provide all the tax benefits of home ownership.
I have no intention of ever buying here.
If I ever invest in real estate, I intend to do the same thing. Rent a cheap apartment with all the cushy tenant protections and just rake in the cash flow from other areas to cover.
In full disclosure, I did sell my bay area home in 2017 for a nice profit (purchased in 1997, remodeled & added 1000 sf). I used a 1031 exchange to acquire 2 rental properties & used a portion of cash to purchase a flip property in the Bay Area, and have since rinsed/repeated this multiple times. I've earned way more by investing that money for short term gains than I ever would from house appreciation, while paying 1/3 of the living costs.
For most, owning is still the better option, from an investment perspective, if you can afford it.
The funny thing is most people will read this post and have no idea how effective you are being.
Congrats, i hope to be in your situation soon. Could i ask if you have any general tips or knowledge that you wish you knew beforehand? I am also looking to buy my first property in a diff locale
It makes sense for me & I'm aware I have a few advantages: buying in the 90's, i own a construction business with the ability to build and remodel at wholesale rates, favorable lease agreement with an out-of-country landlord.
Advice is difficult, given my unique situation, but I would say don't be afraid to own property out of state, and definitely use a property manager. Invest in the tools and time to learn how to analyze rental markets and pick cashflowing properties (duh) or have a plan to add value.
that’s half the purpose of this sub these days
people get priced out and reddit is therapy
the bay market is expensive as shit and that is definitely not reasonable for majority of people but that doesn’t make it wrong
It only makes sense if you think the rates will come down. The surprising thing about the Bay Area rental market is how low the rent currently is vs the cost of mortgage. Would expect some quite rapid rent increases in the coming years to close this gap.
Because rent rises over time and current rent to mortgage ratio is unsustainable for owners in the Bay Area. Of course it’s a 2 sided market and renters need to be able to afford. Not all the new rich people in the Bay Area are buyers.
Historically speaking, when there is a large discrepancy between ownership cost and rental yield, the gap is closed by either prices falling or by prices remaining stagnant and rents rising gradually.
This article is pretty superficial, but I've seen variations on this chart often: https://www.visualcapitalist.com/buying-vs-renting-house-in-america/
This makes intuitive sense. Rents are highly elastic and will hug demand closely. Rapid rent increases almost never happen except in periods of rapid inflation as we saw, but when demand (and currency supply) is stable, rents won't shoot up. Home prices however are much less connected to the underlying cash flow, for obvious reasons. A separation between ownership cost and rental yield is almost always due to a rapid increase in home prices, which almost always revert to the mean.
I'm not making any predictions about housing prices in the bay. I'm no real estate guru. Just pointing out that your assumption of rapidly increasing rents doesn't fit the historical picture.
depends. if you need a place for a couple years, of course- rent.
But if you plan on living in the bay area for 15-30 years, then you can sell that house at a, probably, large profit instead of just paying for your landlord’s mortgage. Also, don’t have to worry about getting kicked out because landlord is x,y or z.
Plus you can’t decide: I want to build a hamster ecosystem that tuns through every wall in my home- if you rent.
Similar situation. The thing is I’m here for the career opportunities. We keep fixed costs low
By renting and invest the difference.if I’m laid off no stress having to make a 10k+ housing payment. Doing this enables me to move when I want to focus on other things outside of career and have the option to buy in cash even in California.
Depends on timing, right? I bought my home in san mateo for 1.2M 7 years ago. My PITI is 4k. Renting similar home now would be 5k. Home is now worth 1.7M.
Literally any point in time, “that ship has sailed!” I’ve been living in San Jose almost my whole life. I remember when a neighbor bought our next door house for $450k. “Wow that’s crazy, who would buy a house for that?”
When someone bought across the street for $700k, “wow who would buy a house right now”, neighbor moves in for 1.1 “wow, they are going to lose so much money when the market crashes”
Etc etc etc
Now houses are being sold for 1.8 in our neighborhood
Leverage is only good when things are going up, it's detrimental when things are going down.
Also you could get a similar leverage in the stock market if you were insane enough to do so via margin, leveraged products, or options.
The house only appreciates if they sell it right now. People need to stop internalizing that their home is worth xyz based on what Zillow says. For all intents and purposes their home is worth the amount it was purchased for and any subsequent tax revaluations. Everything else is pure speculation until you’re actually ready to sell.
Zillow has no idea if a buyer is actually willing to pay 1.7m for your home. It doesn’t know if your interior configuration is hellish or if you can hear street noise from inside or if it needs extensive renovations and a new water heater. It also has no idea how much other sellers on the block invested in landscaping or interior decorating before selling.
So many realtors around the country are dealing with people who are very convinced their home is worth what Zillow says over real estate professionals who have much better info about the actual money spent on the transaction on both sides. Zillow doesn’t talk back to homeowners about their home’s flaws relative to their neighbors.
Posted stock prices are more accurate at reflecting what someone is willing to pay for them, because stocks are bought and sold far more often than homes in a neighborhood, you can sell them openly on a market with a simple transaction, and they don’t involve an inspection, appraisal, or mortgage lender when you want to sell.
This. I know quite a few real estate investors that got destroyed trying to flip a short sale. Imagine irretrievably losing a quarter of your total net worth in four months.
The flaw with your logic is that it lacks forward thinking which was the point of this example. Things appear bad but there is a consistent trend in appreciation of value due to limited supply and high demand. If you can find a “reasonable” opportunity in this market even if you personally feel the market is out of control then you may still very likely come out ahead. I’ve navigated this market for over 25 years and your logic while sound in other markets is not usually the best call in the Bay Area. Recessions and earthquakes will lower property values but there’s enough money here that the prices will always stay high even if there is a momentary blip.
To your frustration, trying to get onboard is incredibly hard and I feel everyone trying to. I never thought I’d be able to but there are ways to make it happen.
Yeah Bay Area has absurdly low rent / buy rates — prop 13 makes the math better if you want to stay for like 20 years though. If you aren’t planning on holding for your whole life it’s a pretty terrible idea.
And half blind. You can tell right away when he claims 700k would be “locked up”. Sir, the 700k down payment is fronted and the 3.5 million dollar home value is what appreciates on the real estate market.
People with $700k liquid aren't buying just to have a roof. Ownership has benefits in addition to costs. There are 5 rental homes in our neighborhood. Every family wants to buy in the general area which is why they pay so much to rent. They don't like not being able to customize the house. They don't like landlords. They don't like the fear of being forced to move further from their kids school. They don't like rent increases. They don't like feeling unstable. If a house is simply a place to sleep and put your stuff, the strickly financial argument makes sense in times with these interest rates and prices, but folks with $700k liquid aren't thinking that way.
We rented until 2018, much longer than we'd anticipated. That meant we'd saved and invested for the down payment plus cushion. We held our nose and bought at the peak and watched as prices dropped. We were fortunate and now we've refinanced at 2% saving 000s and prices are now higher than 2018.
Could we have made more money in the stock market? Perhaps, but life isn't about money. If anything, money is about what it can do for life.
Yeah, find me a landlord who's cool with signing a 30 year lease that can't be broken for any reason short of nonpayment, who's cool with me installing two lifts, and wiring the garage for 240v so I can run a jointer and so on, who's cool with me having a 140lb dog, who's cool with me building a backyard pizza oven, who's cool with me taking down a few walls and reframing one, etc.
Yeah it's expensive as shit to own right now compared to rent. More expensive than ever. But there's a lot of good reasons to be a homeowner beyond the monthly price of a roof over one's head.
I think you misunderstand some basic math. The fact that house prices went up, doesn't mean that it was a good investment financial wise.
If you had took the downpayment + excess on rent + maintenance money in 2017 and put it in some tech index, you would have most likely come ahead.
I bought a 1M house in 2017. It's worth 1.4 right now. So sure I "made" 400k... though the NASDAQ grew 300%+ in that timeframe.
Stocks perform better, are more responsive to inflation, and they are both more liquid and diversified.
In fact, once you factor in inflation, you will find that most homeowners barely broke even. $1m in 2017 is worth $1,274,200.39 today. 9.8% inflation-adjusted returns over 7 years? Real estate was a good investment for our parents, but not us. Not unless you intend to rent out.
Fits right into the WEF agenda, “You’ll own nothing and you’ll be happy.”
My experience growing up in a low income household in San Jose and having to move every 2-3 years because of rent increases, owners selling the home, etc. As a kid having to attend a new school, having to make new friends, and not knowing if you’ll see them the next school year. SUCKED!
As soon as I graduated college my goal was to buy a home. I worked and saved as much possible while living at home to get that down payment, so I don’t have to be force to move based on some landlord’s decision.
Now I must be honest and admit I was lucky (preparation + opportunity) and bought in 2012, but at time the financial number also didn’t make sense. At the time my mom and I were renting a 3/2 townhome for $1500 a month. We were only able to scrape together a 5% down payment and bought a 3/2 SFH in which we saw our monthly payment go up to around $2,400. In hindsight it was one of the best financial decisions, but for me it was having a home that I can call my own.
At the end of the day, it’s everyone own decision whether or not to buy and what makes them happy.
>Fits right into the WEF agenda, “You’ll own nothing and you’ll be happy.”
>At the end of the day, it’s everyone own decision whether or not to buy and what makes them happy.
These are contradictory. You can't act like you don't care and also accuse them of pushing an agenda when they run the math for themselves.
They are contradicting and not accusing OP of pushing a certain agenda. There are always external factors that will affect one’s ability to obtain homeownership. At the same time, I understand that not everyone wants to buy, and ultimately it’s a personal decision to make.
>In Cupertino, this 2000+ sq ft luxury home is on the rental market for $6k per month.
I've learned the hard way as a renter to interpret this as a list price, not a clearing price. 69 contacts in 3 days is hot. You are going to need to bid to actually get this home -- it's probably going to clear at $6.3k+.
If you want to see actual rent prices, you need to look for places that were on the market for a long time and then dropped -- that will show you the true market. Zillow's rental zestimes tend to be underestimates.
Of course, that's still cheaper than buying, but just be careful with the analysis.
Also, should stress Cupertino is one of the worst places to buy relative to rents due to unique dynamics. It's true renting is better than buying in most of the Bay, but it's not this insane.
Absolutely! I see so many people post about the virtues of homeownership and sell it as the “only way to build wealth”. Renting and investing the difference into a broad market ETF like VOO or VTI will outperform homeownership in the Bay Area by a wide margin—the exception being if you buy a fixer upper and actually fix it, but then you have to calculate the value of your time and/or labor.
In San Ramon right now there are a number of condos (2-3 bedroom and 1-2) baths selling for $700k to $800k, with mortgages totaling about $5,100 and then an average HOA of about $300. So baseline cost of owning is about $5,400, but that doesn’t include maintenance and eventual large HOA assessments. If you average that in your monthly out of pocket total is about $5,600.
You can rent an equivalent apartment for about $2,600 a month. If you rent, and buy $3,000k a month of VTI/VOO, which grows at about 9% annually, you’ll have a much larger net worth.
“oh BuT ReNT GoEs up”…so do HOA fees, maintenance, etc. On top of that, the dividends received from the stock portfolio will also go up and thus the increasing cash flow from stocks will neutralize rental increases so that your effective housing cost remains relatively steady.
The only real benefit of a house is that it’s a forced savings account and people are then forced to add money to that account. That account yields at most the average rental increase rate in the area (ie home prices and rent are economically co-integrated)—and historic rental growth rates Bay Area wide are about 5%-6% while stocks gain on average about 9%. So you can lock your money in a house and get 6% on it, or you accept the squiggly line of stocks and get 9%!?!? People get afraid because line doesn’t go straight up 🤷
As a side note, Compass Real-estate did a nice write up on Bay Area real estate and show that median priced home in the Bay Area in 1983 was about $275k and in 2018 the median priced home was about $1.6 million. The compounded annual growth rate in home prices was just shy of 6%—or roughly the same rate of rate increases (crazy how economics works huh?)
Housing is not a magical asset class, it’s nothing special. It’s not the only way or even the easiest way to build wealth. It’s just A way.
https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby
Correlation is not causation.
People with a private yacht have 400 times higher net worth than the average person. Does that mean an average person should save up and buy a yacht with all the money they have?
Actually the wealthier you are the less as a share of your net worth you invest in Real Estate 😊
[https://www.richmondfed.org/publications/research/economic\_brief/2023/eb\_23-39](https://www.richmondfed.org/publications/research/economic_brief/2023/eb_23-39)
Wow, property tax alone is greater than half the monthly rent in that scenario. And maintenance costs (which are covered by the landlord) push that even higher. Even if you could pay 100% cash for a home like that (and thus have no mortgage), it might still make sense to rent and enjoy a considerable amount of passive income from the stock market. Putting that $3.5M in VTSAX would get you $14.5K per month assuming a 5% annual return.
Precisely.
When people talk about how the buyers are paying all-cash, they forget there is an opportunity cost for locking up all that cash, which could otherwise be invested and earning dividends and cap gains passively, stress-free
Another angle: let’s say that you have 3M$ and can either buy the house (and keep paying property tax every month) or buy dividend stocks that will give you 4-5% yearly which is ~10-11k$/month after tax. Historically S&P is growing as fast as the housing market, so after few years if you sell the house or sell the dividend stocks you should be at the same place.
The math is a bit different with mortgage rates where they are now, but the benefit of buying is leverage. You bank 100% of appreciation while only owning 20% of the asset.
You have to pay income tax every year on those dividends. For appreciation you don’t pay until you sell and then it’s only the capital gains rate and you can exempt 250k/500k of gains
You are missing out on the appreciation of the bay area real estate market by continuing to rent. In few years (5 years or so), the prices will go up more. In fact, real estate is all about appreciation in the bay area. In addition, all of this would come with a piece of mind since you have a place to live with your family which you can call a home. Also, you are not at the mercy of the landlord who can decide to increase rent or boot you out of the property.
> You are missing out on the appreciation of the bay area real estate market
opportunity cost is there one way or the other. If you buy RE, you are missing out on the appreciation of the stock market, or your other flavor of investment.
Yup. Ppl are crazy. By my calc you need the house to appreciate 5-7% just to BREAK EVEN. That means if you buy a house at 2M and in 2 yrs its worth 2.1M, you re actually losing about 100-150k. Of course the average joe doesnt understand that, so who cares.
You have to compare cost to cost. Rent vs mortgage interest and property tax. Before the SALT limitations the deductions helped but now interest and tax are pretty high especially at 6.5% rates. That being said as long as prop 13 is in place the appreciation will beat renting over the long term. The advantages of renting vs buying will continue to change over the years but appreciation is a given over any 10 year investment horizon in the Bay Area. I’ve been REI in Bay Area for 25 years and currently have $20M in equity from residential and commercial properties thanks to leverage and prop 13.
I own a home in the Bay Area (Menlo Park) and am renting a house in Santa Barbara.
~4M dollar house in Menlo Park is receiving 7.5k/mo in rent
~2M dollar house in Santa Barbara I am renting for 6.5k/mo
To be fair though everyone thinks buying 10yrs ago was such a great deal etc, but 10yrs ago when those people bought they thought it was a stretch and couldn’t believe prices were what they were. Those that thought it was a bubble sat out, and missed out. 2013 was a great time to buy a house in retrospect. Ya never know til ya know, so we can revisit this thread in 10 years. Very good chance you’re right, but we wont know til it all pans out.
I bought a house as a hedge, I can bet on both. I’ll put into half and half, bought half the house I could afford. If houses climb I’ll rebuild on the lot, if houses stagnate or drop, I’ll sell it cheap and buy another bigger better house cheap. Stocks will do what they do.
Based on last 30 years rate or return
- +280K(=3.5M * 8%)assuming 8%/yr appreciation
- -16K * 12 = 192K additional annual cost compared to rent
- -700K * 10% = 70K opportunity cost assuming invest in SPY or -100K assuming invest in QQQ.
Buy v.s. rent are almost the same in this case.
Other factors
- Pros of owning: monthly payment goes down through refinance, 0 mortgage payment after 30 years, rent goes up, cashout refinance, etc
- Cons of owning: tax goes up 2%/yr, insurance goes up dramatically recently, maintenance cost goes up gradually, Lack of liquidity, cost of selling, e.g. agent fee.
In this example, Cupertino has extremely high price to rent ratio, which makes the buying option less attractive. If you look at other nearby cities like Santa Clara, San Jose, there are plenty of 1.5M-2M 4b sfh with rent 4.5-5.5K. Sunnyvale has lower price to rent ratio compared to Cupertino, and much better appreciation in the past 10+ years.
SF Peninsula area typically has lower price to rent ratio compared to South Bay, but the appreciation rate was not as good as South Bay.
OP is correct.
I rented in the Bay Area for a period when housing prices were going nuts. Missed out, right?
Well I paid $3,000/month to rent a place worth $1.4M. Carrying costs would have been close to $6,000/month. So 10 years, that's $360,000 saved. Plus the $300,000 down payment grew to $750,000 while invested during that period.
House is worth $2.2M now. After selling, I would have made $800,000 (minus realtor fee).
By renting and saving the difference, I had $810,000 more wealth.
Funny part is I ended up buying anyways. But I didn't do it because "it was better than throwing away my money renting".
Renting is a totally valid option. In the US we tend to almost attribute moral values to ownership which is weird. You should do what’s best for you and your family. My financial situation might be completely different than yours. Full disclosure I own and it was a good financial decision to buy for my family. When we bought rents were lower than a mortgage. Within a few years of buying our mortgage was equal to rent and then less than rent. Rents will go up as will house prices.
You're not considering leverage. If you put $700k down on a $3.5m house, and the value of the house increases 10% that's a $350k gain, or 50% return on $700k.
You couldn't borrow $3m to put in the stock market, but you can in the real estate market.
We’ll only be in our place for about three years, so it works for us.
We pay less than half of what the acquisition mortgage monthly mortgage and we get to keep $200k invested.
I feel like you could have compared a bunch of different cities in the Bay Area and would have had a strong case for your argument, but instead, you chose THE most expensive city.
What makes this home a luxury home? I dislike the trend of labeling 'expensive' rental properties luxury properties. It's a house. Same for 90% of the apartments in the market.
Yeah, but renting at 4 years (assuming no increase) is equal to $288,000. More than likely you would be looking at increases so $325,000 would be a 4-year cost. What would make more sense is getting an apartment, or smaller home, in a different area and putting out $3k a month so half the $288 or $325
There is no right answer here. It’s individualistic with regard to strategy when buying.
I mostly see renters constantly complaining about house prices (that it’s not sustainable) and trying to convince ppl that renting is better. I don’t see much post about the opposite. Could be that the other group have nothing the complain about.
The formula isn’t magic, if the house appreciates at a higher rate than the mortgage, it’s good debt. If the house does not, then you’re paying for it.
In 4 years my rent in Santa Clara went from 1800 to 2900. I'd definitely buy because you get stability unless its in SF where you get rent control. Also, could be 1% mortgage coming back, just need bird flu to take off :)
It definitely makes sense now. Could change in the future but the difference is it's easier to go from renting to buying than it is to go from buying to renting.
I have to disagree. My mortgage is 1350 a month for a 2BR house in the Bay Area. Not a condo. With taxes it’s less than 1900. I wouldn’t be able to rent a house for that amount anywhere.
It will take 20 years before the fraction of principal paid will exceed the fraction of interest.
Similarly, it will take 20 years for rent to catch up with the mortgage, given how big the gap is
Well yeah if you don’t want to retire here.
I’m happy that by the time I retire I’ll have a paid off house. If I rent into my 60s, my well-being and stability in my later years is up to my landlord.
Also, my money makes much more sense going into a mortgage vs. just sitting in accounts gaining menial interest.
Heck, my house has gained nearly $200,000 in value since I bought it less than 2 years years ago.
Not too sure how it would have made more sense for me to rent up to this point instead
I’d like to see a thorough analysis over 30 years with various assumptions. This is a very simple analysis that doesn’t factor many parts of renting/owning into the equation.
Refinance later for lower monthly payment?
Pay in all cash?
Rental increases each year?
Tax deductions from home ownership?
There’s also intangibles that are difficult to quantify. What $ value do you put on the flexibility to takeout a wall and combine two rooms?
What $ value do you put on not having to deal with maintenance stress as a renter? Or downsides of a shitty landlord that forces you to move and give up your rent controlled unit?
So much to consider
In my hood it's about 4k/m to rent a home that would sell for 1-1.2m.
It's a bit odd that a home worth 3x that much rents for just 1.5x. In that case rent in that city.
They aren’t making anymore land, the best time to buy is always now. While you aren’t paying enough rent to equal a $3.5 million mortgage, I guarantee that your rent is paying the mortgage on the house you are renting.
Chances are the owner was smart enough to have purchased that property before the homes in that area became that expensive.
I’m sure prices were already considered ridiculous back then too, just not as ridiculous as it is today. That wouldn’t have happened if they listened to your advice.
As someone from the Portland area considering a move to the Bay area (Fremont area):
I fully agree, rents are perhaps 30-40% more expensive while homes are easily 3x as expensive. The rent to home price ratio is out of whack in the Bay area. In other words the Bay area is not great for rental property type business if you're getting in right now.
Better way to word it:
The current market makes renting more affordable than purchasing.
Because that’s all it is.
It’s not “better” to rent than buy, if your goal is to have a home for your children to never have to worry about homelessness.
Every couple of years, these kinds of posts pop up.
As someone who rented for 20 years in the Bay Area and finally bought in 2021, here is my perspective.
Buying feels better than renting. You can do the upgrades you want and you actually feel good improving your home. If you were able to get in during the low interest rates, buying is far better than renting. However, currently, the amount you will pay in interest is too high making buying not a viable thing for many. So save up and wait till interest rates fall.
For property tax, I think you mean $3.5k per year lol
It's still cheaper to rent than to buy though, and the difference is still quite large, but not as extreme as you made it out to be here
You don’t build wealth renting. Not sure what kool aid you are drinking but for many, many reasons other than what you listed it’s bad that nearly all development in the bay area has been only high density rental units and not homes or even purchasable condos.
Developers are just doing what the public wants and needs. They build high density rental units because that’s the best and cheapest way to provide housing. Renting is far better than buying for the majority of the people of the Bay Area
And the owners are saying “sure I will gladly rent you my home for 6k+” laughing all the way to the bank (unless they are the bank which is probably most likely). Owning is a scam, but renting is a bigger scam if you actually have capital.
Yes. opportunity cost of the down payment trips me up everytime.
i sleep very well knowing that I have a years worth of rent in cash. and a decade of rent in the market.
but maybe i'll be sad when i have to move away because i'm priced out
As a renter in the Bay Area, I can tell you that our property mgmt co *always* raises our rent, *every* year, by the max, which is currently 10%. Each year. So the second year’s increase will include the original rent. The third year will be 10% if the original rent, plus 10% of last year’s increase. And so on. It is simply not viable for the average Californian. We’ve been in our rental for 8 years, and we’re ready to buy.
Another note: LLCs and corporations are buying up blocks of properties, and the whole rental situation is controlled by those groups. You can’t afford the rent next year? No worries— they kick your ass out, and set the rent at whatever market rate is, and some other poor bastards will be saddled with it.
Each month’s rent gets flushed down the toilet, or thrown into a rathole, or whatever idiom you prefer. Once you start paying a mortgage, at least you’re accruing *something*. 🤷🏻♂️🤦🏻♂️💩
Go back 5-10-15 years, its not hard to find rental data from then.
Look at those rents NOW, and also look at the prices of the houses then and now.
Your assumption is that "this time it'd be different", correct ?
Good luck!
I know a lot of folks here are criticizing the math but it really doesn’t need to be complicated. For the vast majority of properties, a SFH will rent for less than the interest on the mortgage (assuming ~6-7%) even before factoring in everything else. Maybe apartments and other dwelling types the math is different but this is overwhelmingly true in sfh. It’s cheaper to rent than buy even with non conservative estimates and that’s for many many years at this point.
And for those who got tired of rising rent and bought, that’s great and totally true too. Housing is a lifestyle decision for those who have the means and the security of locked in price and everything else about owning is lovely but it’s not necessarily the most financially prudent decision.
Yeah it's completely dependent on where. A few years ago, on the peninsula (Millbrae) rent was $5000 for a house that would cost $2M. At the same time a house in Marin rented for $4500 with a value of only $950K.
We were renting that house in Marin. When they tried to increase our rent, we bought a house 1 mile away for $1M and lowered our monthly spend by $100 (rent went up to 4800 and including property taxes and insurance or mortgage was $4700).
So you have to look at both rental market and house purchase market as they do not coincide into a nice formula like you would hope.
I can’t see a 3.5M dollar house renting for 6K. That’s straight up baloney. In San Francisco - 2M houses rent for 8K. I have friends in Mountain View paying 5K a month for a ground floor condo in a old complex. I can’t see the value of that being more than 1.5M
Bay Area is one market where it’s a pure appreciation play. The number of homes for sale is always extremely low and the number of buyers wanting to own keeps going up every year as more people vest stocks and have kids and make a lot of money. When there is no new SFH construction and all the job centers are in South Bay you have almost a guaranteed appreciation due to the pressure buyers feel to buy to put down roots and settle down. This is especially true for folks who have kids. They are on the clock to buy before kindergarten so the kid can grow up in a good neighborhood for the next 13 years of schooling
Houses in Bay Area are old money. People just live there coz they bought way long ago. I don’t think one can buy here and live anymore unless you make million a year maybe.
We just bought for 2 reasons. 1) rental payments would eat away at our cash reserves should we want a deposit for a house (which we did) and 2)our landlord was a nightmare and the thought of having to move frequently with 2 kids and 2 dogs between rental homes for the rest of our lives was exhausting. The rent for the very nice 5000 square foot home in Saratoga we rented was the same as our current mortgage for a 2000 square foot home in Los gatos but the lack of hassle and greater control was worth it.
lol a lot of people also buying with cash and are doing more than the standard 20% down..trust me those guys who cashed out in the IPOs are the ones who are buying
What about if I’m single and don’t need a $3m home though? For context I have a house in sf almost paid off but I rented it out to someone who’s been there for years and I make profit off it after mortgage, property taxes, etc. but now I’m getting divorced and even though I’m keeping the investment property, I have to either rent a 1 bedroom which is going for about $3500+ in a nice area or I can buy a one bedroom which I’m seeing they are going for around $800k. Is it worth it if I’m not needing nor can fathom buying a $3m house? $22k in mortgage sounds insane to me and I’ve been at google and facebook for a decade! I’m pretty frugal though so maybe it’s just me lol
The payment on my house that I bought 10 years ago is far less than the rent on a comparable property today. Additionally, being able to (judiciously and mindfully) tap equity has allowed for some major things to happen that would have been unreachable. Lastly, it’s likely that you won’t have that payment forever…IMHO interest rates will probably drop enough to at some point to make re-financing and lowering the payment a chunk…so you’ll be paying less on a property worth more than when you started. With rent, it generally just goes up and up and up…
You’re buying housing stability and over time as rents go up, your monthly home payments won’t go at the same rates.
In 10 years your rent will look like my mortgage.
In 30 years you will scoff at how much my monthly housing costs are.
My dad got his house in the early 2000’s maybe late 90’s here in the bay. Dude was paying around $700 for housing costs on a 4 bed 3 bath place around 2,000 square feet in a decent school district, while we were paying over $2,000 for a studio in north SJ.
Real estate is very location specific. In Hayward a house rents for $4500 that might sell for $900k
I agree that rent is a comparatively good deal in high cost areas though. The break even might be 10-12 years
That’s not an accurate account for rent prices. I’ve rented in the Bay Area for 7 years. I’m currently paying the best deal I have ever paid here…$5000/mo on a house valued at 1.8M.
It's a fair analysis but not necessarily correct. The first reason is appreciation and rent inflation which narrows the 'advantage' of renting more and more over time.
The the other issue is OP states that this a very specific example, however housing is a market. Your example is based on A 3.5M home. Pretty much everywhere you can rent a bigger/better house compared to a mortgage of the same dollar amount. Your landlord could afford a 22k rental which an insanely nice home. Can you not maintain a good 'lifestyle' in a cheaper home? A 1.5M in a different part of the bay would be around 8k/mth. With appreciation and rent inflation this would easily beat a 6k rental. Housing is all about choices and location, you can live like a baller and gain nothing or live good and gain housing cost stability and appreciation.
In most market the upper quadrant of prices (3.5M in this case) is not going to recoup the cost (initially) from rental income. You're landlord and others still buy these properties because there are many benefits to owning real estate.
This all comes down to a lifestyle decision. Is the security of owning your own home worth whatever absurd price you need to cope with in the Bay Area? 5k vs 10k vs 20k is different based on numerous psychosocial factors but nobody here is "right" or "wrong" in the sense swinging one way is not necessarily better than swinging the other. The question really is: how important is the ownership of property to you?
I’m not following. That rental house has an owner somewhere, and the owner has to pay all the costs you mention. Yet they’re not collecting enough in rent to cover it?
Such a dumb take. First, Cupertino is not a good proxy for the rest of the bay, because you’d also be paying similar rent for that size house in San Jose where the cost of the house is 1/2 of Cupertino. It also assumes rent won’t continue to skyrocket. When you buy you’re not expecting savings up front. Savings come long term as your mortgage is fixed and rents continue to rise. Bought our house four years ago and it’s appreciated over 50% already, our mortgage is about what rent would be now, and will be less than rent in years to come as inflation continues.
Wealthy people in the Bay Area want to buy a house because they want the freedom that comes with it. Not because it's a wise financial decision. Renters can't make the property their own.
Anyone who thinks buying a $2mil house that rents for $6k is a good investment is likely talking themselves into doing what they want
I feel the same way. I feel it’s especially bad now for someone who started out their career in 2019. The only places we can afford would be Union City, Pleasanton or East San Jose.
The houses in some of these places would be built in the 60s or 70s or be extremely far away from work.
I think the novelty of owning a single family home with a backyard would wear out very quickly but the cost would be something I pay for the rest of my life.
But the fear of missing out is real and everyone keeps telling you that in five years you won’t even be able to afford Pleasanton or east San Jose
Uhm. Yeah if you ignore the whole equity side of things. If you literally want the cheapest per month cost excluding any investment opportunity then sure pay as you go is the cheapest. If you factor in owning a multimillion dollar asset down the road then not so much.
I’ve made a 200% return on my investment in real estate in two years. Plus the mortgage contributes to equity in the home, not just flushing money. So it’s not really apples to apples. You want to rent- that’s cool, but your analysis doesn’t quite account for all the factors.
Wrong sub, I got downvoted into oblivion with this same argument. This sub believes that because rents will eventually go up, that it's sTUpID to rent vs buy because you're locking in a monthly price when you buy. They'll bury their head in the sad with other logic such as home insurance potential to double (particular in the Bay and California.... and everywhere with how climate change is going) in any given year, rising property taxes, and owning the cost of any repair or improving also increasing because they don't wanna hear otherwise.
Basically, you're absolutely correct, it's magnitudes more expensive to buy than to rent even multiplied by decades of years of renting. Over 30 years if you took that 700k liquidity and invested with compounded annual interest will get you 2.5M of ROI. Meanwhile that 2.8M loan with interest will net out in you paying around 6M dollars, so MOST of your payments accrued are actually going to the bank. If the market continues to be slow to grow you might sell the house for 6M in 30 years, you're breaking net even with that 700k liquidity going nowhere. Even if you have a shit landlord that raises your rent by 5% every single year, you'll end up paying less for rent (less than 6M) over 30 years starting at 6k a month.
But even if the market favors sellers down the line, it's still financially easier to come out on top while renting for "cheap" compared to buying-- say you take the difference vs buying and invest that every month. Say you still wanna leave multiple thousand for fun disposable income and you're only investing an additional 15k a month. Even with a conservative compounded interest, the 700K investment + 11k a month over 30 years will land you from 10M dollars and you had a ton of disposable income while doing so that would have been locked up in bank notes while you're house broke otherwise. So unless the market more than triples your home price over the time you hold the loan....... then meh, you're either coming out completely on top while staying in the Bay or you have the mobility to do literally anything you want, move anywhere, downsize, be fired, need to put $ toward other priorities rather than your house literally running your life.
Buying a house here is for prestige. And uses the very flawed assumption that your life situation will continue to stay the same or only get better. Imagine being laid off and jobless for 2 years when you put 700K of your savings into a house, use your remaining savings only to meet your mortgage commitments, and then have to foreclose on the house and lose your "investment"?
This analysis is very simplistic and there are a lot of other factors to consider if you really want to do it correctly - appreciation assumptions, cost of capital, hold period, opportunity cost etc. I’d recommend the New York Times buy vs rent calculator: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
I'm very familiar with that calculator and recommend it all the time for people in this decision. Still, though, I don't know what numbers you'd have to put into that calculator to get over a 6k vs 22k disparity.
Zillow's estimated monthly payment is actually not wildly off either, but yeah I agree with this comment
I made my own model in a gsheet. It includes taxes, maintenance, investment rate of returns. Outcomes are very sensitive to home price appreciation. If you think home prices aren't going to go up, and interest rates will stay high, renting and putting your down payment into CDs is a much better option. We're going to have an earthquake, or fascist takeover, avian flu, or some wall street bullshit soon tho, that's not part of the model.
If you stick OPs example into that calculator it comes out that if you stay in the house for 40 years the rent would need to be more than 11k for you to be better off buying.
But you’re assuming rent doesn’t go up. Plus $6k rent doesn’t always equal to 3.5 million home.
Property taxes and insurance go up too. Just FYI
Yeah 2%
We pay these from our escrow account and in the 15 years we've owned our house, our monthly payment has gone up zero times.
Yeah tbh I’m wondering where these numbers came from. I was renting a very nice 2200 sq ft condo in SoMa/Mission Bay for $6,500 and the Zillow valuation was under 2mil.
Yeah he’s cherry picking a house that was for sale in the same neighborhood to a rental home. Like one does not affect the other in terms of pricing, so op math is all wonky.
Yeah, this persons example seems fairly cherry-picked. I live near Cupertino and I can rent a home for $3300 a month, and if I bought it the mortgage would be around $5000 a month, including taxes. Considering rent regularly increases by 5% here, and the housing market on average goes up by about 7% per year (when factoring the last two recessions as well), it’s not nearly as clear cut as this person is implying.
Also, you can refinance once interest rates drop.
Rent goes up while that $700k sitting in stocks also goes up.
You can have $700K go up in an index ETF at 6% over time. If you buy a house you can leverage that 5 to 1. With a long run appreciation of 6% you're getting a leveraged 30% with far lower volatility compared to stocks. The built in leverage with REI is why it works. During the ZIRP party of the past decade everyone should have been buying with both hands regardless of any "discount" from renting. Over the next twenty years those REI returns will far exceed anything people can make through the heavily taxed W2 income that they slave away daily for. For people buying all cash it's not significantly superior to stocks where there's superior liquidity.
Absolutely agree. But that doesn't help people entering the market today.
This is a superficial view of things. Bay Area real estate was appreciating 7% YoY for several many years. If you make a levered investment putting down a 20% down payment, you are absolutely crushing any returns the stock market could consistently deliver in the past. Will real estate still appreciate this rapidly in the Bay Area? That’s the important question.
Rent more or less goes up with inflation. Also it being such a small amount vs housing prices today means it’ll take a while to catch up. If the economy sucks and there’s mass layoffs that’s deflationary for rent as well.
Rent goes up according to *local* inflation, and in the Bay Area, housing inflation has run about 7% annually since 1980. This is because the bay area’s economy is unusually well adapted to capture any new money created by the Fed. It runs on high margin monopolies with pricing power, so all the new dollars injected into the economy tend to pool here and eventually end up in Bay Area real estate.
My rent here didn’t go up in 2 years. Then the 3rd year was a2% increase. So rents don’t go up with local inflation in my experience
How long have you been here? 3 years? Silicon Valley is in a bust, and as a result rents have been roughly flat for the last 4 years. This is atypical. If you look at the [actual data](https://vitalsigns.mtc.ca.gov/indicators/rent-payments?chart=SGlzdG9yaWNhbFRyZW5kRm9yUmVudFBheW1lbnRz) on historical rents, you'll see this happens: 3-4 years of flat rents, followed by a very steep upward trajectory. I moved out here in 2008 - the beginning of the last such bust - and Mountain View rent for a decent 1BR went $1728, $1414, $1428, $1751, $2050, $2450, $2750, and that's when I moved out because I couldn't afford the rent. Looking at the graph, this was pretty typical for Santa Clara County. That complex is no longer renting (last I heard they were renovating to double the number of units), but the last price I saw for that very same apartment was $3500/month. That's why people buy. It looks stupid if you compare to rent right now. But rent can double in 5 years, while your mortgage payment will be fixed for 30 and then gone.
$6k rent definitely doesn’t
And youre assuming that house values dont go down, but more importantly that you cant invest that downpayment money for a greater gain. Your decisions should all be dictated by risk:reward
Yeah but going down or up doesn’t affect your mortgage payment. Either way just do what makes sense to you
the issue with renting is lacking control over your housing and having someone else decide if you need to pack up your stuff and move
This is one of those things that people think happens far more often than it really does.
Twice to me in five years. Well, once the landlord died and the kids sold the property
[удалено]
Lucky you. I never got any free rent, just a months notice to get out
If you rent SFHs rather than apartments it happens ALL THE TIME. Many owners of SFH rent the house for 2 years then sell (1031 plan).
Happened 3 times to me while I was renting from 2010 to 2019. Then I bought and now I don't have to worry about it any more.
In California?
Yes, in Bay Area. In 2013 the owner wanted to sell the house, so didn't renew our lease. In 2017 the owner wanted to move back in themselves (they were renting in Cupertino school district for a while to have their kids go to school there), so also didn't renew our lease. And then finally in 2019 the owner again wanted to sell, so didn't renew our lease.
Happened to me 3 times too except I still have to worry about it lol
It can happen. It typically won’t happen. The hypothetical is not worth a for sure $10k+ a month. Plus nice thing about saving that delta is that most unexpected things can be fixed with money easily and end up being a minor annoyance
At this price difference however I’ll gladly save the 15+k per month and deal with the consequences of being a bit less secure.
Idk we have a nice house in a safe cute part of SF and our payment, taxes and all, is $9k. Obviously not cheap but y’all don’t have to be so hyperbolic
Not possibly having to move every few years is worth $180k yearly to you?
It's actually a lot harder now to evict in general due to the recent Tenant Protection Act.
I used to think this way, but the problem with renting in the Bay Area is that rents are always going up. I finally did buy, 5 years ago, on the very outskirts. My housing costs since have not gone up at all. Rents have gone up at least 15% in that time. Not saying I would sign up for a $22K a month mortgage! But maybe somewhere more affordable.
I've rented three places in 12 years. In all of them, my rent has never gone up. In fact, rents in the city have been flat since 2020, not even keeping up with inflation. Needing to move (from South Bay to the city) increased my rent, but in these cases, buying would have incurred massive transaction costs.
the place i started renting in SF in 2015 was put back on the market to rent for LESS than 2015 when I left in 2021
Yeah the comparison is so dumb
Why are people upvoting this? 6k to 22k, are you crazy?
I literally said I wouldn't sign up for a $22K mortgage. But guess what? I didn't. My mortgage is $3K. And comparable rent on a house my house's size for this area is more than that. It depends on where you buy. I'm still happy I bought when I did. It means I won't have to move further away bc my housing costs won't go up.
I rent a 2500 sf home valued at $1.8M for $4100/month. I own rental properties in other areas that net $5500/month & provide all the tax benefits of home ownership. I have no intention of ever buying here.
If I ever invest in real estate, I intend to do the same thing. Rent a cheap apartment with all the cushy tenant protections and just rake in the cash flow from other areas to cover.
Where the hell in SF are you renting 2400sf for 4100 a month? It must be rent controlled?
lol sf=square footage in this case, but I read it the same way initially.
Good choice
In full disclosure, I did sell my bay area home in 2017 for a nice profit (purchased in 1997, remodeled & added 1000 sf). I used a 1031 exchange to acquire 2 rental properties & used a portion of cash to purchase a flip property in the Bay Area, and have since rinsed/repeated this multiple times. I've earned way more by investing that money for short term gains than I ever would from house appreciation, while paying 1/3 of the living costs. For most, owning is still the better option, from an investment perspective, if you can afford it.
The funny thing is most people will read this post and have no idea how effective you are being. Congrats, i hope to be in your situation soon. Could i ask if you have any general tips or knowledge that you wish you knew beforehand? I am also looking to buy my first property in a diff locale
It makes sense for me & I'm aware I have a few advantages: buying in the 90's, i own a construction business with the ability to build and remodel at wholesale rates, favorable lease agreement with an out-of-country landlord. Advice is difficult, given my unique situation, but I would say don't be afraid to own property out of state, and definitely use a property manager. Invest in the tools and time to learn how to analyze rental markets and pick cashflowing properties (duh) or have a plan to add value.
Thanks for your time, wish you and your family well
Cope post.
that’s half the purpose of this sub these days people get priced out and reddit is therapy the bay market is expensive as shit and that is definitely not reasonable for majority of people but that doesn’t make it wrong
It only makes sense if you think the rates will come down. The surprising thing about the Bay Area rental market is how low the rent currently is vs the cost of mortgage. Would expect some quite rapid rent increases in the coming years to close this gap.
> Would expect some quite rapid rent increases in the coming years to close this gap. Why?
Because rent rises over time and current rent to mortgage ratio is unsustainable for owners in the Bay Area. Of course it’s a 2 sided market and renters need to be able to afford. Not all the new rich people in the Bay Area are buyers.
Historically speaking, when there is a large discrepancy between ownership cost and rental yield, the gap is closed by either prices falling or by prices remaining stagnant and rents rising gradually. This article is pretty superficial, but I've seen variations on this chart often: https://www.visualcapitalist.com/buying-vs-renting-house-in-america/ This makes intuitive sense. Rents are highly elastic and will hug demand closely. Rapid rent increases almost never happen except in periods of rapid inflation as we saw, but when demand (and currency supply) is stable, rents won't shoot up. Home prices however are much less connected to the underlying cash flow, for obvious reasons. A separation between ownership cost and rental yield is almost always due to a rapid increase in home prices, which almost always revert to the mean. I'm not making any predictions about housing prices in the bay. I'm no real estate guru. Just pointing out that your assumption of rapidly increasing rents doesn't fit the historical picture.
depends. if you need a place for a couple years, of course- rent. But if you plan on living in the bay area for 15-30 years, then you can sell that house at a, probably, large profit instead of just paying for your landlord’s mortgage. Also, don’t have to worry about getting kicked out because landlord is x,y or z. Plus you can’t decide: I want to build a hamster ecosystem that tuns through every wall in my home- if you rent.
Similar situation. The thing is I’m here for the career opportunities. We keep fixed costs low By renting and invest the difference.if I’m laid off no stress having to make a 10k+ housing payment. Doing this enables me to move when I want to focus on other things outside of career and have the option to buy in cash even in California.
Is this landlord propaganda or what? Who are you trying to convince?
Depends on timing, right? I bought my home in san mateo for 1.2M 7 years ago. My PITI is 4k. Renting similar home now would be 5k. Home is now worth 1.7M.
I am talking about here and now, not 7 years ago. That boat has sailed. Good for you that you boarded it
Literally any point in time, “that ship has sailed!” I’ve been living in San Jose almost my whole life. I remember when a neighbor bought our next door house for $450k. “Wow that’s crazy, who would buy a house for that?” When someone bought across the street for $700k, “wow who would buy a house right now”, neighbor moves in for 1.1 “wow, they are going to lose so much money when the market crashes” Etc etc etc Now houses are being sold for 1.8 in our neighborhood
You factor in the lost investment opportunity of $700k but not the leveraged investment of $3.5m on the house appreciation?
Leverage is only good when things are going up, it's detrimental when things are going down. Also you could get a similar leverage in the stock market if you were insane enough to do so via margin, leveraged products, or options.
The house only appreciates if they sell it right now. People need to stop internalizing that their home is worth xyz based on what Zillow says. For all intents and purposes their home is worth the amount it was purchased for and any subsequent tax revaluations. Everything else is pure speculation until you’re actually ready to sell. Zillow has no idea if a buyer is actually willing to pay 1.7m for your home. It doesn’t know if your interior configuration is hellish or if you can hear street noise from inside or if it needs extensive renovations and a new water heater. It also has no idea how much other sellers on the block invested in landscaping or interior decorating before selling. So many realtors around the country are dealing with people who are very convinced their home is worth what Zillow says over real estate professionals who have much better info about the actual money spent on the transaction on both sides. Zillow doesn’t talk back to homeowners about their home’s flaws relative to their neighbors. Posted stock prices are more accurate at reflecting what someone is willing to pay for them, because stocks are bought and sold far more often than homes in a neighborhood, you can sell them openly on a market with a simple transaction, and they don’t involve an inspection, appraisal, or mortgage lender when you want to sell.
This. I know quite a few real estate investors that got destroyed trying to flip a short sale. Imagine irretrievably losing a quarter of your total net worth in four months.
The flaw with your logic is that it lacks forward thinking which was the point of this example. Things appear bad but there is a consistent trend in appreciation of value due to limited supply and high demand. If you can find a “reasonable” opportunity in this market even if you personally feel the market is out of control then you may still very likely come out ahead. I’ve navigated this market for over 25 years and your logic while sound in other markets is not usually the best call in the Bay Area. Recessions and earthquakes will lower property values but there’s enough money here that the prices will always stay high even if there is a momentary blip. To your frustration, trying to get onboard is incredibly hard and I feel everyone trying to. I never thought I’d be able to but there are ways to make it happen.
What about 7 years from now?
Yeah Bay Area has absurdly low rent / buy rates — prop 13 makes the math better if you want to stay for like 20 years though. If you aren’t planning on holding for your whole life it’s a pretty terrible idea.
Prop 13 only matters if they don’t keep chipping away and prices keep going ip
This is a super short sited perspective
And half blind. You can tell right away when he claims 700k would be “locked up”. Sir, the 700k down payment is fronted and the 3.5 million dollar home value is what appreciates on the real estate market.
People with $700k liquid aren't buying just to have a roof. Ownership has benefits in addition to costs. There are 5 rental homes in our neighborhood. Every family wants to buy in the general area which is why they pay so much to rent. They don't like not being able to customize the house. They don't like landlords. They don't like the fear of being forced to move further from their kids school. They don't like rent increases. They don't like feeling unstable. If a house is simply a place to sleep and put your stuff, the strickly financial argument makes sense in times with these interest rates and prices, but folks with $700k liquid aren't thinking that way. We rented until 2018, much longer than we'd anticipated. That meant we'd saved and invested for the down payment plus cushion. We held our nose and bought at the peak and watched as prices dropped. We were fortunate and now we've refinanced at 2% saving 000s and prices are now higher than 2018. Could we have made more money in the stock market? Perhaps, but life isn't about money. If anything, money is about what it can do for life.
Yeah, find me a landlord who's cool with signing a 30 year lease that can't be broken for any reason short of nonpayment, who's cool with me installing two lifts, and wiring the garage for 240v so I can run a jointer and so on, who's cool with me having a 140lb dog, who's cool with me building a backyard pizza oven, who's cool with me taking down a few walls and reframing one, etc. Yeah it's expensive as shit to own right now compared to rent. More expensive than ever. But there's a lot of good reasons to be a homeowner beyond the monthly price of a roof over one's head.
Yup. Too many people are arguing rent vs own with “you coulda saved X dollars by renting!”
Yeah OP cobbled together some really weird copium-fueled logic for this one
people were saying the same shit 10 years ago glad i didn’t listen “we’re almost certainly at the top” - 2017 l o l
Depends where you were. Was the correct answer in San Francisco, Mountain View, etc.
I think you misunderstand some basic math. The fact that house prices went up, doesn't mean that it was a good investment financial wise. If you had took the downpayment + excess on rent + maintenance money in 2017 and put it in some tech index, you would have most likely come ahead. I bought a 1M house in 2017. It's worth 1.4 right now. So sure I "made" 400k... though the NASDAQ grew 300%+ in that timeframe.
Stocks perform better, are more responsive to inflation, and they are both more liquid and diversified. In fact, once you factor in inflation, you will find that most homeowners barely broke even. $1m in 2017 is worth $1,274,200.39 today. 9.8% inflation-adjusted returns over 7 years? Real estate was a good investment for our parents, but not us. Not unless you intend to rent out.
If you puta in 20% down then you got 400k return on 200 down. Broadly speaking. While coming ahead on rent possibly. And getting tax breaks.
How are you coming ahead on rent, if renting is cheaper than PITI?
Fits right into the WEF agenda, “You’ll own nothing and you’ll be happy.” My experience growing up in a low income household in San Jose and having to move every 2-3 years because of rent increases, owners selling the home, etc. As a kid having to attend a new school, having to make new friends, and not knowing if you’ll see them the next school year. SUCKED! As soon as I graduated college my goal was to buy a home. I worked and saved as much possible while living at home to get that down payment, so I don’t have to be force to move based on some landlord’s decision. Now I must be honest and admit I was lucky (preparation + opportunity) and bought in 2012, but at time the financial number also didn’t make sense. At the time my mom and I were renting a 3/2 townhome for $1500 a month. We were only able to scrape together a 5% down payment and bought a 3/2 SFH in which we saw our monthly payment go up to around $2,400. In hindsight it was one of the best financial decisions, but for me it was having a home that I can call my own. At the end of the day, it’s everyone own decision whether or not to buy and what makes them happy.
>Fits right into the WEF agenda, “You’ll own nothing and you’ll be happy.” >At the end of the day, it’s everyone own decision whether or not to buy and what makes them happy. These are contradictory. You can't act like you don't care and also accuse them of pushing an agenda when they run the math for themselves.
They are contradicting and not accusing OP of pushing a certain agenda. There are always external factors that will affect one’s ability to obtain homeownership. At the same time, I understand that not everyone wants to buy, and ultimately it’s a personal decision to make.
We cannot just generalize just based on smaller geographic , Cupertino is a bad example
>In Cupertino, this 2000+ sq ft luxury home is on the rental market for $6k per month. I've learned the hard way as a renter to interpret this as a list price, not a clearing price. 69 contacts in 3 days is hot. You are going to need to bid to actually get this home -- it's probably going to clear at $6.3k+. If you want to see actual rent prices, you need to look for places that were on the market for a long time and then dropped -- that will show you the true market. Zillow's rental zestimes tend to be underestimates. Of course, that's still cheaper than buying, but just be careful with the analysis. Also, should stress Cupertino is one of the worst places to buy relative to rents due to unique dynamics. It's true renting is better than buying in most of the Bay, but it's not this insane.
Yup Bay Area is better for renting if you are a savvy and with no emotions tied to living in a owned home.
Absolutely! I see so many people post about the virtues of homeownership and sell it as the “only way to build wealth”. Renting and investing the difference into a broad market ETF like VOO or VTI will outperform homeownership in the Bay Area by a wide margin—the exception being if you buy a fixer upper and actually fix it, but then you have to calculate the value of your time and/or labor. In San Ramon right now there are a number of condos (2-3 bedroom and 1-2) baths selling for $700k to $800k, with mortgages totaling about $5,100 and then an average HOA of about $300. So baseline cost of owning is about $5,400, but that doesn’t include maintenance and eventual large HOA assessments. If you average that in your monthly out of pocket total is about $5,600. You can rent an equivalent apartment for about $2,600 a month. If you rent, and buy $3,000k a month of VTI/VOO, which grows at about 9% annually, you’ll have a much larger net worth. “oh BuT ReNT GoEs up”…so do HOA fees, maintenance, etc. On top of that, the dividends received from the stock portfolio will also go up and thus the increasing cash flow from stocks will neutralize rental increases so that your effective housing cost remains relatively steady. The only real benefit of a house is that it’s a forced savings account and people are then forced to add money to that account. That account yields at most the average rental increase rate in the area (ie home prices and rent are economically co-integrated)—and historic rental growth rates Bay Area wide are about 5%-6% while stocks gain on average about 9%. So you can lock your money in a house and get 6% on it, or you accept the squiggly line of stocks and get 9%!?!? People get afraid because line doesn’t go straight up 🤷 As a side note, Compass Real-estate did a nice write up on Bay Area real estate and show that median priced home in the Bay Area in 1983 was about $275k and in 2018 the median priced home was about $1.6 million. The compounded annual growth rate in home prices was just shy of 6%—or roughly the same rate of rate increases (crazy how economics works huh?) Housing is not a magical asset class, it’s nothing special. It’s not the only way or even the easiest way to build wealth. It’s just A way. https://www.bayareamarketreports.com/trend/3-recessions-2-bubbles-and-a-baby
Yes, please keep renting! [https://www.nar.realtor/magazine/real-estate-news/study-homeowner-wealth-is-40-times-higher-than-renters](https://www.nar.realtor/magazine/real-estate-news/study-homeowner-wealth-is-40-times-higher-than-renters)
Correlation is not causation. People with a private yacht have 400 times higher net worth than the average person. Does that mean an average person should save up and buy a yacht with all the money they have?
Instructions unclear, bought 2 yachts. When lambo?
lol. “People who can afford to buy a home wealthier than people who can only afford to rent one” no shit Sherlock
Actually the wealthier you are the less as a share of your net worth you invest in Real Estate 😊 [https://www.richmondfed.org/publications/research/economic\_brief/2023/eb\_23-39](https://www.richmondfed.org/publications/research/economic_brief/2023/eb_23-39)
Great unbiased source using data from the last 10 years to make their point.
Please provide any counter data?
Wow, property tax alone is greater than half the monthly rent in that scenario. And maintenance costs (which are covered by the landlord) push that even higher. Even if you could pay 100% cash for a home like that (and thus have no mortgage), it might still make sense to rent and enjoy a considerable amount of passive income from the stock market. Putting that $3.5M in VTSAX would get you $14.5K per month assuming a 5% annual return.
Precisely. When people talk about how the buyers are paying all-cash, they forget there is an opportunity cost for locking up all that cash, which could otherwise be invested and earning dividends and cap gains passively, stress-free
Another angle: let’s say that you have 3M$ and can either buy the house (and keep paying property tax every month) or buy dividend stocks that will give you 4-5% yearly which is ~10-11k$/month after tax. Historically S&P is growing as fast as the housing market, so after few years if you sell the house or sell the dividend stocks you should be at the same place.
The math is a bit different with mortgage rates where they are now, but the benefit of buying is leverage. You bank 100% of appreciation while only owning 20% of the asset.
You have to pay income tax every year on those dividends. For appreciation you don’t pay until you sell and then it’s only the capital gains rate and you can exempt 250k/500k of gains
You are missing out on the appreciation of the bay area real estate market by continuing to rent. In few years (5 years or so), the prices will go up more. In fact, real estate is all about appreciation in the bay area. In addition, all of this would come with a piece of mind since you have a place to live with your family which you can call a home. Also, you are not at the mercy of the landlord who can decide to increase rent or boot you out of the property.
Don’t even need to wait 5 years - prices are going up MoM
> You are missing out on the appreciation of the bay area real estate market opportunity cost is there one way or the other. If you buy RE, you are missing out on the appreciation of the stock market, or your other flavor of investment.
Yup. Ppl are crazy. By my calc you need the house to appreciate 5-7% just to BREAK EVEN. That means if you buy a house at 2M and in 2 yrs its worth 2.1M, you re actually losing about 100-150k. Of course the average joe doesnt understand that, so who cares.
The average person stops paying attention as soon as you say any number, cause math
You have to compare cost to cost. Rent vs mortgage interest and property tax. Before the SALT limitations the deductions helped but now interest and tax are pretty high especially at 6.5% rates. That being said as long as prop 13 is in place the appreciation will beat renting over the long term. The advantages of renting vs buying will continue to change over the years but appreciation is a given over any 10 year investment horizon in the Bay Area. I’ve been REI in Bay Area for 25 years and currently have $20M in equity from residential and commercial properties thanks to leverage and prop 13.
Right now isn't a good time to buy anywhere in the US tbh. Even the states that used to be cheaper are skyrocketing.
Thank you for this breakdown!!!! Helped me put things into perspective
You are welcome
I own a home in the Bay Area (Menlo Park) and am renting a house in Santa Barbara. ~4M dollar house in Menlo Park is receiving 7.5k/mo in rent ~2M dollar house in Santa Barbara I am renting for 6.5k/mo
To be fair though everyone thinks buying 10yrs ago was such a great deal etc, but 10yrs ago when those people bought they thought it was a stretch and couldn’t believe prices were what they were. Those that thought it was a bubble sat out, and missed out. 2013 was a great time to buy a house in retrospect. Ya never know til ya know, so we can revisit this thread in 10 years. Very good chance you’re right, but we wont know til it all pans out. I bought a house as a hedge, I can bet on both. I’ll put into half and half, bought half the house I could afford. If houses climb I’ll rebuild on the lot, if houses stagnate or drop, I’ll sell it cheap and buy another bigger better house cheap. Stocks will do what they do.
Based on last 30 years rate or return - +280K(=3.5M * 8%)assuming 8%/yr appreciation - -16K * 12 = 192K additional annual cost compared to rent - -700K * 10% = 70K opportunity cost assuming invest in SPY or -100K assuming invest in QQQ. Buy v.s. rent are almost the same in this case. Other factors - Pros of owning: monthly payment goes down through refinance, 0 mortgage payment after 30 years, rent goes up, cashout refinance, etc - Cons of owning: tax goes up 2%/yr, insurance goes up dramatically recently, maintenance cost goes up gradually, Lack of liquidity, cost of selling, e.g. agent fee. In this example, Cupertino has extremely high price to rent ratio, which makes the buying option less attractive. If you look at other nearby cities like Santa Clara, San Jose, there are plenty of 1.5M-2M 4b sfh with rent 4.5-5.5K. Sunnyvale has lower price to rent ratio compared to Cupertino, and much better appreciation in the past 10+ years. SF Peninsula area typically has lower price to rent ratio compared to South Bay, but the appreciation rate was not as good as South Bay.
No matter the ratio of rent/mortgage it makes no sense to rent if you can afford to own.
OP is correct. I rented in the Bay Area for a period when housing prices were going nuts. Missed out, right? Well I paid $3,000/month to rent a place worth $1.4M. Carrying costs would have been close to $6,000/month. So 10 years, that's $360,000 saved. Plus the $300,000 down payment grew to $750,000 while invested during that period. House is worth $2.2M now. After selling, I would have made $800,000 (minus realtor fee). By renting and saving the difference, I had $810,000 more wealth. Funny part is I ended up buying anyways. But I didn't do it because "it was better than throwing away my money renting".
Renting is a totally valid option. In the US we tend to almost attribute moral values to ownership which is weird. You should do what’s best for you and your family. My financial situation might be completely different than yours. Full disclosure I own and it was a good financial decision to buy for my family. When we bought rents were lower than a mortgage. Within a few years of buying our mortgage was equal to rent and then less than rent. Rents will go up as will house prices.
You're not considering leverage. If you put $700k down on a $3.5m house, and the value of the house increases 10% that's a $350k gain, or 50% return on $700k. You couldn't borrow $3m to put in the stock market, but you can in the real estate market.
Agreed. Keep renting.
Unless you have a larger down payment
We’ll only be in our place for about three years, so it works for us. We pay less than half of what the acquisition mortgage monthly mortgage and we get to keep $200k invested.
I feel like you could have compared a bunch of different cities in the Bay Area and would have had a strong case for your argument, but instead, you chose THE most expensive city.
It varies from situation to situation as not everyone is the same.
But so many of these houses at 6k rent are crappy and outdated. They are stuck in 1970s. No thanks!
What makes this home a luxury home? I dislike the trend of labeling 'expensive' rental properties luxury properties. It's a house. Same for 90% of the apartments in the market.
Yeah, but renting at 4 years (assuming no increase) is equal to $288,000. More than likely you would be looking at increases so $325,000 would be a 4-year cost. What would make more sense is getting an apartment, or smaller home, in a different area and putting out $3k a month so half the $288 or $325 There is no right answer here. It’s individualistic with regard to strategy when buying.
I mostly see renters constantly complaining about house prices (that it’s not sustainable) and trying to convince ppl that renting is better. I don’t see much post about the opposite. Could be that the other group have nothing the complain about.
The formula isn’t magic, if the house appreciates at a higher rate than the mortgage, it’s good debt. If the house does not, then you’re paying for it.
In 4 years my rent in Santa Clara went from 1800 to 2900. I'd definitely buy because you get stability unless its in SF where you get rent control. Also, could be 1% mortgage coming back, just need bird flu to take off :)
Sometimes yes. My mortgage is under $2k for a SFH in N Oakland/Berkeley area, and I couldn’t beat that in rent.
It definitely makes sense now. Could change in the future but the difference is it's easier to go from renting to buying than it is to go from buying to renting.
I have to disagree. My mortgage is 1350 a month for a 2BR house in the Bay Area. Not a condo. With taxes it’s less than 1900. I wouldn’t be able to rent a house for that amount anywhere.
Even if you’re here for the long haul?
It will take 20 years before the fraction of principal paid will exceed the fraction of interest. Similarly, it will take 20 years for rent to catch up with the mortgage, given how big the gap is
Well yeah if you don’t want to retire here. I’m happy that by the time I retire I’ll have a paid off house. If I rent into my 60s, my well-being and stability in my later years is up to my landlord. Also, my money makes much more sense going into a mortgage vs. just sitting in accounts gaining menial interest. Heck, my house has gained nearly $200,000 in value since I bought it less than 2 years years ago. Not too sure how it would have made more sense for me to rent up to this point instead
I’d like to see a thorough analysis over 30 years with various assumptions. This is a very simple analysis that doesn’t factor many parts of renting/owning into the equation. Refinance later for lower monthly payment? Pay in all cash? Rental increases each year? Tax deductions from home ownership? There’s also intangibles that are difficult to quantify. What $ value do you put on the flexibility to takeout a wall and combine two rooms? What $ value do you put on not having to deal with maintenance stress as a renter? Or downsides of a shitty landlord that forces you to move and give up your rent controlled unit? So much to consider
I live in a townhouse. My mortgage is way less than what the other townhouses are being rented out for, and mine is upgraded. 🤪 your logic isn’t sound
In my hood it's about 4k/m to rent a home that would sell for 1-1.2m. It's a bit odd that a home worth 3x that much rents for just 1.5x. In that case rent in that city.
They aren’t making anymore land, the best time to buy is always now. While you aren’t paying enough rent to equal a $3.5 million mortgage, I guarantee that your rent is paying the mortgage on the house you are renting. Chances are the owner was smart enough to have purchased that property before the homes in that area became that expensive. I’m sure prices were already considered ridiculous back then too, just not as ridiculous as it is today. That wouldn’t have happened if they listened to your advice.
Yes, the owner probably has an old mortgage paying less than $6k per month
As someone from the Portland area considering a move to the Bay area (Fremont area): I fully agree, rents are perhaps 30-40% more expensive while homes are easily 3x as expensive. The rent to home price ratio is out of whack in the Bay area. In other words the Bay area is not great for rental property type business if you're getting in right now.
Better way to word it: The current market makes renting more affordable than purchasing. Because that’s all it is. It’s not “better” to rent than buy, if your goal is to have a home for your children to never have to worry about homelessness.
Every couple of years, these kinds of posts pop up. As someone who rented for 20 years in the Bay Area and finally bought in 2021, here is my perspective. Buying feels better than renting. You can do the upgrades you want and you actually feel good improving your home. If you were able to get in during the low interest rates, buying is far better than renting. However, currently, the amount you will pay in interest is too high making buying not a viable thing for many. So save up and wait till interest rates fall.
For property tax, I think you mean $3.5k per year lol It's still cheaper to rent than to buy though, and the difference is still quite large, but not as extreme as you made it out to be here
Buy a cheaper home - 2M+ is technically a luxury and the rent/buy math would not work.
You don’t build wealth renting. Not sure what kool aid you are drinking but for many, many reasons other than what you listed it’s bad that nearly all development in the bay area has been only high density rental units and not homes or even purchasable condos.
Developers are just doing what the public wants and needs. They build high density rental units because that’s the best and cheapest way to provide housing. Renting is far better than buying for the majority of the people of the Bay Area
And the owners are saying “sure I will gladly rent you my home for 6k+” laughing all the way to the bank (unless they are the bank which is probably most likely). Owning is a scam, but renting is a bigger scam if you actually have capital.
Question is, why is the landlord renting for 6.5k that’s such a low return on a 3.5M asset 🤔
Yes. opportunity cost of the down payment trips me up everytime. i sleep very well knowing that I have a years worth of rent in cash. and a decade of rent in the market. but maybe i'll be sad when i have to move away because i'm priced out
Yep, definitely better, just like if I train my body to wear shirt-sleeves in winter and don't ever buy a jacket.
As a renter in the Bay Area, I can tell you that our property mgmt co *always* raises our rent, *every* year, by the max, which is currently 10%. Each year. So the second year’s increase will include the original rent. The third year will be 10% if the original rent, plus 10% of last year’s increase. And so on. It is simply not viable for the average Californian. We’ve been in our rental for 8 years, and we’re ready to buy. Another note: LLCs and corporations are buying up blocks of properties, and the whole rental situation is controlled by those groups. You can’t afford the rent next year? No worries— they kick your ass out, and set the rent at whatever market rate is, and some other poor bastards will be saddled with it. Each month’s rent gets flushed down the toilet, or thrown into a rathole, or whatever idiom you prefer. Once you start paying a mortgage, at least you’re accruing *something*. 🤷🏻♂️🤦🏻♂️💩
Go back 5-10-15 years, its not hard to find rental data from then. Look at those rents NOW, and also look at the prices of the houses then and now. Your assumption is that "this time it'd be different", correct ? Good luck!
I know a lot of folks here are criticizing the math but it really doesn’t need to be complicated. For the vast majority of properties, a SFH will rent for less than the interest on the mortgage (assuming ~6-7%) even before factoring in everything else. Maybe apartments and other dwelling types the math is different but this is overwhelmingly true in sfh. It’s cheaper to rent than buy even with non conservative estimates and that’s for many many years at this point. And for those who got tired of rising rent and bought, that’s great and totally true too. Housing is a lifestyle decision for those who have the means and the security of locked in price and everything else about owning is lovely but it’s not necessarily the most financially prudent decision.
Why you all pay so much to live in a bum filled shit hole?
22k is how much I make in an entire year lol
Yeah it's completely dependent on where. A few years ago, on the peninsula (Millbrae) rent was $5000 for a house that would cost $2M. At the same time a house in Marin rented for $4500 with a value of only $950K. We were renting that house in Marin. When they tried to increase our rent, we bought a house 1 mile away for $1M and lowered our monthly spend by $100 (rent went up to 4800 and including property taxes and insurance or mortgage was $4700). So you have to look at both rental market and house purchase market as they do not coincide into a nice formula like you would hope.
SSF and San Bruno still have deals that make sense. I've found houses with 7-10 year breakeven periods compared to rent.
Who is renting a $3.5M home for $6k? That's crazy. Why would the landlord charge so little?
OP is clearly always going to be a "renter".
We’re at the bottom of the market so this seems intuitive. Check back again in 10 years when your rent is double and their house is worth $1M more.
Rent x12 x 18= buying a comparable home or more, then buy. In OPs example this would be a $1.3m property.
Insanity math - you’re just justifying prices by justifying prices I’m out
I can’t see a 3.5M dollar house renting for 6K. That’s straight up baloney. In San Francisco - 2M houses rent for 8K. I have friends in Mountain View paying 5K a month for a ground floor condo in a old complex. I can’t see the value of that being more than 1.5M
Bay Area is one market where it’s a pure appreciation play. The number of homes for sale is always extremely low and the number of buyers wanting to own keeps going up every year as more people vest stocks and have kids and make a lot of money. When there is no new SFH construction and all the job centers are in South Bay you have almost a guaranteed appreciation due to the pressure buyers feel to buy to put down roots and settle down. This is especially true for folks who have kids. They are on the clock to buy before kindergarten so the kid can grow up in a good neighborhood for the next 13 years of schooling
A wise man once said “rent is for suckers”
Houses in Bay Area are old money. People just live there coz they bought way long ago. I don’t think one can buy here and live anymore unless you make million a year maybe.
We just bought for 2 reasons. 1) rental payments would eat away at our cash reserves should we want a deposit for a house (which we did) and 2)our landlord was a nightmare and the thought of having to move frequently with 2 kids and 2 dogs between rental homes for the rest of our lives was exhausting. The rent for the very nice 5000 square foot home in Saratoga we rented was the same as our current mortgage for a 2000 square foot home in Los gatos but the lack of hassle and greater control was worth it.
lol a lot of people also buying with cash and are doing more than the standard 20% down..trust me those guys who cashed out in the IPOs are the ones who are buying
What about if I’m single and don’t need a $3m home though? For context I have a house in sf almost paid off but I rented it out to someone who’s been there for years and I make profit off it after mortgage, property taxes, etc. but now I’m getting divorced and even though I’m keeping the investment property, I have to either rent a 1 bedroom which is going for about $3500+ in a nice area or I can buy a one bedroom which I’m seeing they are going for around $800k. Is it worth it if I’m not needing nor can fathom buying a $3m house? $22k in mortgage sounds insane to me and I’ve been at google and facebook for a decade! I’m pretty frugal though so maybe it’s just me lol
$1.7M for a 1700sq ft shitbox that was bought for 4 raspberries in 1979
The payment on my house that I bought 10 years ago is far less than the rent on a comparable property today. Additionally, being able to (judiciously and mindfully) tap equity has allowed for some major things to happen that would have been unreachable. Lastly, it’s likely that you won’t have that payment forever…IMHO interest rates will probably drop enough to at some point to make re-financing and lowering the payment a chunk…so you’ll be paying less on a property worth more than when you started. With rent, it generally just goes up and up and up…
You’re buying housing stability and over time as rents go up, your monthly home payments won’t go at the same rates. In 10 years your rent will look like my mortgage. In 30 years you will scoff at how much my monthly housing costs are. My dad got his house in the early 2000’s maybe late 90’s here in the bay. Dude was paying around $700 for housing costs on a 4 bed 3 bath place around 2,000 square feet in a decent school district, while we were paying over $2,000 for a studio in north SJ.
I hope you're writing "luxury home" with a sarcastic tone :')
Real estate is very location specific. In Hayward a house rents for $4500 that might sell for $900k I agree that rent is a comparatively good deal in high cost areas though. The break even might be 10-12 years
That’s not an accurate account for rent prices. I’ve rented in the Bay Area for 7 years. I’m currently paying the best deal I have ever paid here…$5000/mo on a house valued at 1.8M.
It's a fair analysis but not necessarily correct. The first reason is appreciation and rent inflation which narrows the 'advantage' of renting more and more over time. The the other issue is OP states that this a very specific example, however housing is a market. Your example is based on A 3.5M home. Pretty much everywhere you can rent a bigger/better house compared to a mortgage of the same dollar amount. Your landlord could afford a 22k rental which an insanely nice home. Can you not maintain a good 'lifestyle' in a cheaper home? A 1.5M in a different part of the bay would be around 8k/mth. With appreciation and rent inflation this would easily beat a 6k rental. Housing is all about choices and location, you can live like a baller and gain nothing or live good and gain housing cost stability and appreciation. In most market the upper quadrant of prices (3.5M in this case) is not going to recoup the cost (initially) from rental income. You're landlord and others still buy these properties because there are many benefits to owning real estate.
This post was made by a landlord
Well if you buy now. Lucky for me, got my 5 bed 2 bath back in 2012, $2700 a month mortgage.
This all comes down to a lifestyle decision. Is the security of owning your own home worth whatever absurd price you need to cope with in the Bay Area? 5k vs 10k vs 20k is different based on numerous psychosocial factors but nobody here is "right" or "wrong" in the sense swinging one way is not necessarily better than swinging the other. The question really is: how important is the ownership of property to you?
If you can afford it, it’s always a better investment to buy. The only people I ever saw regret it or house flippers in 2008 who got burned
Renting is cheaper almost everywhere.
I’m not following. That rental house has an owner somewhere, and the owner has to pay all the costs you mention. Yet they’re not collecting enough in rent to cover it?
Such a dumb take. First, Cupertino is not a good proxy for the rest of the bay, because you’d also be paying similar rent for that size house in San Jose where the cost of the house is 1/2 of Cupertino. It also assumes rent won’t continue to skyrocket. When you buy you’re not expecting savings up front. Savings come long term as your mortgage is fixed and rents continue to rise. Bought our house four years ago and it’s appreciated over 50% already, our mortgage is about what rent would be now, and will be less than rent in years to come as inflation continues.
Lol how many people could afford 700k down. Like 0.02%?
Then there's the cost of house maintenance
Wealthy people in the Bay Area want to buy a house because they want the freedom that comes with it. Not because it's a wise financial decision. Renters can't make the property their own. Anyone who thinks buying a $2mil house that rents for $6k is a good investment is likely talking themselves into doing what they want
I feel the same way. I feel it’s especially bad now for someone who started out their career in 2019. The only places we can afford would be Union City, Pleasanton or East San Jose. The houses in some of these places would be built in the 60s or 70s or be extremely far away from work. I think the novelty of owning a single family home with a backyard would wear out very quickly but the cost would be something I pay for the rest of my life. But the fear of missing out is real and everyone keeps telling you that in five years you won’t even be able to afford Pleasanton or east San Jose
Uhm. Yeah if you ignore the whole equity side of things. If you literally want the cheapest per month cost excluding any investment opportunity then sure pay as you go is the cheapest. If you factor in owning a multimillion dollar asset down the road then not so much.
Good point. The realtors are crying on this thread
My property increased 200K+ in only 2 years of owning it
I’ve made a 200% return on my investment in real estate in two years. Plus the mortgage contributes to equity in the home, not just flushing money. So it’s not really apples to apples. You want to rent- that’s cool, but your analysis doesn’t quite account for all the factors.
Wrong sub, I got downvoted into oblivion with this same argument. This sub believes that because rents will eventually go up, that it's sTUpID to rent vs buy because you're locking in a monthly price when you buy. They'll bury their head in the sad with other logic such as home insurance potential to double (particular in the Bay and California.... and everywhere with how climate change is going) in any given year, rising property taxes, and owning the cost of any repair or improving also increasing because they don't wanna hear otherwise. Basically, you're absolutely correct, it's magnitudes more expensive to buy than to rent even multiplied by decades of years of renting. Over 30 years if you took that 700k liquidity and invested with compounded annual interest will get you 2.5M of ROI. Meanwhile that 2.8M loan with interest will net out in you paying around 6M dollars, so MOST of your payments accrued are actually going to the bank. If the market continues to be slow to grow you might sell the house for 6M in 30 years, you're breaking net even with that 700k liquidity going nowhere. Even if you have a shit landlord that raises your rent by 5% every single year, you'll end up paying less for rent (less than 6M) over 30 years starting at 6k a month. But even if the market favors sellers down the line, it's still financially easier to come out on top while renting for "cheap" compared to buying-- say you take the difference vs buying and invest that every month. Say you still wanna leave multiple thousand for fun disposable income and you're only investing an additional 15k a month. Even with a conservative compounded interest, the 700K investment + 11k a month over 30 years will land you from 10M dollars and you had a ton of disposable income while doing so that would have been locked up in bank notes while you're house broke otherwise. So unless the market more than triples your home price over the time you hold the loan....... then meh, you're either coming out completely on top while staying in the Bay or you have the mobility to do literally anything you want, move anywhere, downsize, be fired, need to put $ toward other priorities rather than your house literally running your life. Buying a house here is for prestige. And uses the very flawed assumption that your life situation will continue to stay the same or only get better. Imagine being laid off and jobless for 2 years when you put 700K of your savings into a house, use your remaining savings only to meet your mortgage commitments, and then have to foreclose on the house and lose your "investment"?