Reaching your number vs. owning a home

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Topic Author
etfan
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Re: Reaching your number vs. owning a home

Post by etfan »

coachd50 wrote: Sun Oct 17, 2021 11:46 am This has been such a curious thread. From a rather vague original and apparently poorly phrased post, that doesn't seem to consider housing costs when reaching "your number", to numerous back and forth side discussions that seem to make many apples to oranges comparisons (renting an 800sq ft place vs buying a 2000sq ft place) to posts that don't seem to consider the localized nature of real estate, to several posts which don't seem to consider the personal aspect of financial decisions...

Just curious.
This is a "general" investing theory board. It's not about what to do in any specific case, but rather about the general approach when it comes to prioritization of investing and home ownership.

I found all the responses/comments useful, including this critique of the question and the responses, in the sense of highlighting things to think about regarding the issue :happy
Drxgs
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Re: Reaching your number vs. owning a home

Post by Drxgs »

coachd50 wrote: Sun Oct 17, 2021 11:46 am This has been such a curious thread. From a rather vague original and apparently poorly phrased post, that doesn't seem to consider housing costs when reaching "your number", to numerous back and forth side discussions that seem to make many apples to oranges comparisons (renting an 800sq ft place vs buying a 2000sq ft place) to posts that don't seem to consider the localized nature of real estate, to several posts which don't seem to consider the personal aspect of financial decisions...

Just curious.
It basically a rorschach test. We all have different answers to the “hitting your number vs owning a home” question. A renter making bank in a HCOL market can’t fathom how owning a house would help him reach his number sooner. A home owner in the burbs who’s had a stable job for the last 3 decades can’t imagine how renting would have helped him hit his number sooner. They’re both probably right. If anything, I find it encouraging that bogleheads can follow two seemingly opposite approaches and be just as content in the end.
Marseille07
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Re: Reaching your number vs. owning a home

Post by Marseille07 »

etfan wrote: Sun Oct 17, 2021 12:43 pm
coachd50 wrote: Sun Oct 17, 2021 11:46 am This has been such a curious thread. From a rather vague original and apparently poorly phrased post, that doesn't seem to consider housing costs when reaching "your number", to numerous back and forth side discussions that seem to make many apples to oranges comparisons (renting an 800sq ft place vs buying a 2000sq ft place) to posts that don't seem to consider the localized nature of real estate, to several posts which don't seem to consider the personal aspect of financial decisions...

Just curious.
This is a "general" investing theory board. It's not about what to do in any specific case, but rather about the general approach when it comes to prioritization of investing and home ownership.

I found all the responses/comments useful, including this critique of the question and the responses, in the sense of highlighting things to think about regarding the issue :happy
Just calculate expenses for both scenarios. I do this myself. In my case, the numbers aren't that different, which means buying is better because your house is an asset, renting is not. But that's not the point, the point is to understand the expense implications of both options and to have a higher number as your "number" so you can choose later.
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tetractys
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Re: Reaching your number vs. owning a home

Post by tetractys »

I reached my number first, actually went beyond it (Actually there was no number, just an idea of a situation.), and then bought a house. My thinking was that a tiny footprint would save money—which turned out to be true, it saved a lot. Now I have a house and so far it’s working out fine; but I can’t say why—it may just be dumb luck.

Recently rents and house prices have been rising fast, and inflation seems to be kicking in. So far my timing seems lucky; but we’ll have to wait and see what floats down the river of time.
JackoC
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Re: Reaching your number vs. owning a home

Post by JackoC »

FIREmeup wrote: Fri Oct 15, 2021 10:51 am
Anyone rabidly advocating one way or another should be avoided. This is a big decision of personal finance. Read as much as you could before taking a big step into home ownership. I personally paid off my house. My bond portion of my investment went towards my mortgage...it was nice when my monthly expenses dropped 33% and now funding my accounts more. However, flexibility that renting provides is a major plus and has to be considered.
I agree with all that but the first sentence especially is repeatedly proved on threads on this forum on this topic. Usually here it's in the anti-home ownership direction when people are too extreme, but they probably justify that in their own minds by what they perceive as a too extreme home ownership culture in the US generally they somehow personally need to combat. Anyway your first sentence sums up this thread better in one sentence than any other single sentence in the thread IMO :happy .

The one perhaps non-obvious thing to consider on the financial side is the concept of owner imputed rent. It's really the key to understanding the financial side of the issue, but lots of popular finance guru's are convinced their audiences would never understand it, so insist on oversimplifying (and that gets regurgitated here as eg. 'my house is a liability not an asset' and other nonsensical statements).

OP *is* investing by buying a house rather than renting. However, the anti-ownership side does have a point that people often tend to set themselves up in owned houses consuming more owner imputed rent than what they'd be willing to pay in cash rent if they went out looking for a place to rent. It's worth considering if that's what you're doing, why you're doing so (there are many non-financial aspects which also enter in) and assess the impact on your long term plan if you conclude that is what you're doing.
coachd50
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Re: Reaching your number vs. owning a home

Post by coachd50 »

etfan wrote: Sun Oct 17, 2021 12:43 pm
coachd50 wrote: Sun Oct 17, 2021 11:46 am This has been such a curious thread. From a rather vague original and apparently poorly phrased post, that doesn't seem to consider housing costs when reaching "your number", to numerous back and forth side discussions that seem to make many apples to oranges comparisons (renting an 800sq ft place vs buying a 2000sq ft place) to posts that don't seem to consider the localized nature of real estate, to several posts which don't seem to consider the personal aspect of financial decisions...

Just curious.
This is a "general" investing theory board. It's not about what to do in any specific case, but rather about the general approach when it comes to prioritization of investing and home ownership.

I found all the responses/comments useful, including this critique of the question and the responses, in the sense of highlighting things to think about regarding the issue :happy
I agree that general personal financial talk is often enjoyable and beneficial. As I mentioned, this has just been a curious thread because of the various reasons I mentioned. I believe even you tried to clarify your original wording a bit, to say you really were most interested in discussing the timing of buying a home in relation to reaching "a number" since the original post brought so many "rent vs own" sidebars.
Imadeit
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Re: Reaching your number vs. owning a home

Post by Imadeit »

To me the OP’s question seems to question if a person should delay buying a house until they reach a retirement number. In my case i decided buying a house was more important than reaching a retirement number. My wife and I bought our first house in Bay Area California when we were just 20 years old. Way before thinking of retirement. The reason at the time was house prices were increasing to the point we felt the need to Purchase before prices locked us out of the market. It turns out we could have waited and been just fine. We purchased our second house in the same area and rented out the first house approximately 5 years later, and later sold for a profit which we used to start a family and wife stayed home to raise our child until grade 6. I continue to live in the second house to this day. In the mean time we saved for retirement all these years with our house payment that never increased other than property taxes that could only rise 2% per year. Retired at age 58 with retirement saving that is more than enough and a house with no mortgage. The house today is slightly less than half of net worth. Based on my experience I was able to purchase a house and still retire early. So depending on the circumstances, there is no right or wrong answer to whether a person should delay purchasing a house or buying a house before reaching a specific retirement number.
nigel_ht
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Re: Reaching your number vs. owning a home

Post by nigel_ht »

JackoC wrote: Sun Oct 17, 2021 5:12 pm
FIREmeup wrote: Fri Oct 15, 2021 10:51 am
Anyone rabidly advocating one way or another should be avoided. This is a big decision of personal finance. Read as much as you could before taking a big step into home ownership. I personally paid off my house. My bond portion of my investment went towards my mortgage...it was nice when my monthly expenses dropped 33% and now funding my accounts more. However, flexibility that renting provides is a major plus and has to be considered.
I agree with all that but the first sentence especially is repeatedly proved on threads on this forum on this topic. Usually here it's in the anti-home ownership direction when people are too extreme, but they probably justify that in their own minds by what they perceive as a too extreme home ownership culture in the US generally they somehow personally need to combat. Anyway your first sentence sums up this thread better in one sentence than any other single sentence in the thread IMO :happy .

The one perhaps non-obvious thing to consider on the financial side is the concept of owner imputed rent. It's really the key to understanding the financial side of the issue, but lots of popular finance guru's are convinced their audiences would never understand it, so insist on oversimplifying (and that gets regurgitated here as eg. 'my house is a liability not an asset' and other nonsensical statements).

OP *is* investing by buying a house rather than renting. However, the anti-ownership side does have a point that people often tend to set themselves up in owned houses consuming more owner imputed rent than what they'd be willing to pay in cash rent if they went out looking for a place to rent. It's worth considering if that's what you're doing, why you're doing so (there are many non-financial aspects which also enter in) and assess the impact on your long term plan if you conclude that is what you're doing.
I’m not anti ownership. I’m saying it’s just not optimal when trying to FIRE.

It’s highly amusing how you guys want to sound like the voice of reason but choose to create a “rabid” strawman to argue against.
Topic Author
etfan
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Re: Reaching your number vs. owning a home

Post by etfan »

Imadeit wrote: Sun Oct 17, 2021 6:33 pm To me the OP’s question seems to question if a person should delay buying a house until they reach a retirement number. In my case i decided buying a house was more important than reaching a retirement number. My wife and I bought our first house in Bay Area California when we were just 20 years old. Way before thinking of retirement. The reason at the time was house prices were increasing to the point we felt the need to Purchase before prices locked us out of the market. It turns out we could have waited and been just fine. We purchased our second house in the same area and rented out the first house approximately 5 years later, and later sold for a profit which we used to start a family and wife stayed home to raise our child until grade 6. I continue to live in the second house to this day. In the mean time we saved for retirement all these years with our house payment that never increased other than property taxes that could only rise 2% per year. Retired at age 58 with retirement saving that is more than enough and a house with no mortgage. The house today is slightly less than half of net worth. Based on my experience I was able to purchase a house and still retire early. So depending on the circumstances, there is no right or wrong answer to whether a person should delay purchasing a house or buying a house before reaching a specific retirement number.
It's great that things worked out like that. I imagine in a different area, with different circumstances, you could be describing it after the fact as the wrong decision.

The timing played the major role. I wonder if people today are going through a similar thought process and wondering if the housing market in the Bay Area has peaked anyway even without Covid, but it's even far worse as the work-from-home shift drives tech workers away.
tibbitts
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Re: Reaching your number vs. owning a home

Post by tibbitts »

wolf359 wrote: Fri Oct 15, 2021 9:17 am You have to live somewhere. Buying a house freezes your housing cost to a fixed level.
Definitely not a fixed level, given increases in maintenance, repair costs, and taxes.
SantaClaraSurfer
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Re: Reaching your number vs. owning a home

Post by SantaClaraSurfer »

Happily renting in Santa Clara, CA. Married, empty nest, both in tech.

Here's the real estate listings for Sunnyvale and Santa Clara.

(If you don't want to click there are numerous Ranch Home listings in Sunnyvale for $2 million+ and in Santa Clara for $1.5 million+).

And here's the Rental Listings for the same area.

So, basically, $2,800-$5,200 to rent.

Or you could live in this $1.68 million home, (actually the estimate is that it will go for $1.825 million after the bidding war) for $7,330 a month for the next 30 years.

This is not normal, obviously. But that's a total cost of something like $2,640,000 to own that home. (Zero repairs or ownership expenses included in that. Also, no amenities beyond what you see in the photos.)

Let's say you pick a rent of $4,300 for a couple to get a decent apartment rental. (Again, that's not normal almost anywhere else.)

At what income would you say it makes more sense to purchase the house instead of rent?

Also, I'd love to hear what people think that house will be worth in 30 years time?
Imadeit
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Re: Reaching your number vs. owning a home

Post by Imadeit »

etfan wrote: Sun Oct 17, 2021 7:50 pm
Imadeit wrote: Sun Oct 17, 2021 6:33 pm To me the OP’s question seems to question if a person should delay buying a house until they reach a retirement number. In my case i decided buying a house was more important than reaching a retirement number. My wife and I bought our first house in Bay Area California when we were just 20 years old. Way before thinking of retirement. The reason at the time was house prices were increasing to the point we felt the need to Purchase before prices locked us out of the market. It turns out we could have waited and been just fine. We purchased our second house in the same area and rented out the first house approximately 5 years later, and later sold for a profit which we used to start a family and wife stayed home to raise our child until grade 6. I continue to live in the second house to this day. In the mean time we saved for retirement all these years with our house payment that never increased other than property taxes that could only rise 2% per year. Retired at age 58 with retirement saving that is more than enough and a house with no mortgage. The house today is slightly less than half of net worth. Based on my experience I was able to purchase a house and still retire early. So depending on the circumstances, there is no right or wrong answer to whether a person should delay purchasing a house or buying a house before reaching a specific retirement number.
It's great that things worked out like that. I imagine in a different area, with different circumstances, you could be describing it after the fact as the wrong decision.

The timing played the major role. I wonder if people today are going through a similar thought process and wondering if the housing market in the Bay Area has peaked anyway even without Covid, but it's even far worse as the work-from-home shift drives tech workers away.
Timing definitely played a role. At the time we were afraid we would be priced out of purchasing a home in the area based on our income. That being said it could be done today but would be much harder. Purchase a $1.5 million dollar home with 20% down you would need $300k. That leaves you a $1.2 million mortgage and high property taxes. Then you still need to save over the years for retirement. But in 30 years your $1.5 million dollar house is paid off. Assume your original $1.5m house is worth more than you paid for it, and you saved enough for retirement, you end up with the same result of retirement with a paid off house. Would not be easy but doable if the circumstances are right.
Marseille07
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Re: Reaching your number vs. owning a home

Post by Marseille07 »

Basically the premise of "reaching your number" is wrong, because your "number" is derived from some assumptions you made regarding housing. Since you said "vs owning a home," I presume you're renting and your "number" includes some rent per month.

You just do the same exercise for owning a home, perhaps one scenario for owning outright, another scenario for carrying a mortgage. Just compare those numbers and you have your answer.

This is not hard.
phxjcc
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Re: Reaching your number vs. owning a home

Post by phxjcc »

SantaClaraSurfer wrote: Sun Oct 17, 2021 9:08 pm Happily renting in Santa Clara, CA. Married, empty nest, both in tech.

Here's the real estate listings for Sunnyvale and Santa Clara.

(If you don't want to click there are numerous Ranch Home listings in Sunnyvale for $2 million+ and in Santa Clara for $1.5 million+).

And here's the Rental Listings for the same area.

So, basically, $2,800-$5,200 to rent.

Or you could live in this $1.68 million home, (actually the estimate is that it will go for $1.825 million after the bidding war) for $7,330 a month for the next 30 years.

This is not normal, obviously. But that's a total cost of something like $2,640,000 to own that home. (Zero repairs or ownership expenses included in that. Also, no amenities beyond what you see in the photos.)

Let's say you pick a rent of $4,300 for a couple to get a decent apartment rental. (Again, that's not normal almost anywhere else.)

At what income would you say it makes more sense to purchase the house instead of rent?

Also, I'd love to hear what people think that house will be worth in 30 years time?
Numbers, not emotions.

In 15 years @ 5% rent increase per year, rent will be $8600 in 15 years, $17,200 in 30.

Pencil it out and decide.

As I have said in other threads, the lines cross for me at between 12 and 17 years.

…and I am NOT moving to another area in retirement.

Just….do the math.
mr_brightside
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Re: Reaching your number vs. owning a home

Post by mr_brightside »

personal decision. varies by individual.

IMO -- worth what you paid for it -- a mortgage is like any other expense. if it fits into your budget - and mortgage rates are pretty much near all time lows -- i don't see 'owning your home' as a pre-requisite for a successful retirement.

if anything -- if the bulk of your wealth is tied up in a non-liquid asset (house) -- THAT could be a problem...

peace of mind? sure. but necessary? no.

and renting vs. owning is big-time location dependent. can't really consider one better than the other in a blanket fashion.

--------------------------------------------------
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jeffyscott
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Re: Reaching your number vs. owning a home

Post by jeffyscott »

SantaClaraSurfer wrote: Sun Oct 17, 2021 9:08 pm Happily renting in Santa Clara, CA. Married, empty nest, both in tech.

Here's the real estate listings for Sunnyvale and Santa Clara.

(If you don't want to click there are numerous Ranch Home listings in Sunnyvale for $2 million+ and in Santa Clara for $1.5 million+).
It looks like the mobile homes are at prices that I might see in my area, but here it would be an actual house (and also be on a 14 to 1/2 acre and have a basement).

$269,9993, 3bd 2ba, 1,624 sq ft
$349,0003, 3bd 2ba, 1,800 sq ft

https://www.zillow.com/homedetails/600- ... 6955_zpid/

https://www.zillow.com/homedetails/1220 ... 0563_zpid/
And here's the Rental Listings for the same area.

So, basically, $2,800-$5,200 to rent.

Or you could live in this $1.68 million home, (actually the estimate is that it will go for $1.825 million after the bidding war) for $7,330 a month for the next 30 years.
That one give a rent estimate of about $4000, so the buy/rent ratio is about 35 :!:
This is not normal, obviously. But that's a total cost of something like $2,640,000 to own that home. (Zero repairs or ownership expenses included in that. Also, no amenities beyond what you see in the photos.)

Let's say you pick a rent of $4,300 for a couple to get a decent apartment rental. (Again, that's not normal almost anywhere else.)

At what income would you say it makes more sense to purchase the house instead of rent?
I don't really like either option and have no idea what I would do if I lived in a market like that, I want to say rent, but that may be just because it's difficult get past the bias from a lifetime of living in the midwest where house prices are "normal" and increase at about the inflation rate. Around here, we're talking about how we can not believe that someone paid $320K for a 1200 sf ranch and the alternative might be $2000ish to rent something similar. So if you could buy at 1/6 of your prices, but rent would be still be 1/2 of what it is, what would make sense then?

I guess what the buyers are looking at is that, using your example of the $1.7-1.8 million home, it sold for about 1/2 that price 6 years ago, so they probably figure that in a few years it'll be over $3 million.
YeahBuddy
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Re: Reaching your number vs. owning a home

Post by YeahBuddy »

I prioritized home ownership simply for the lifestyle upgrade. Financially speaking it's tough to say what's really better without crunching more numbers than I care to right now.
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bertilak
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Re: Reaching your number vs. owning a home

Post by bertilak »

This may have been mentioned already, but ...

If you own your home then your (required) number is lower, putting it more in reach.
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SantaClaraSurfer
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Re: Reaching your number vs. owning a home

Post by SantaClaraSurfer »

jeffyscott wrote: Mon Oct 18, 2021 9:34 am It looks like the mobile homes are at prices that I might see in my area, but here it would be an actual house (and also be on a 14 to 1/2 acre and have a basement).

That one give a rent estimate of about $4000, so the buy/rent ratio is about 35 :!:

I don't really like either option and have no idea what I would do if I lived in a market like that, I want to say rent, but that may be just because it's difficult get past the bias from a lifetime of living in the midwest where house prices are "normal" and increase at about the inflation rate. Around here, we're talking about how we can not believe that someone paid $320K for a 1200 sf ranch and the alternative might be $2000ish to rent something similar. So if you could buy at 1/6 of your prices, but rent would be still be 1/2 of what it is, what would make sense then?

I guess what the buyers are looking at is that, using your example of the $1.7-1.8 million home, it sold for about 1/2 that price 6 years ago, so they probably figure that in a few years it'll be over $3 million.
Good points. Personally, I don't make that assumption. If anything, I think the opposite.

I think the key factor for a renter is what percentage of your gross income will your housing costs be, and whether you can commit to save/invest whatever you save over purchasing. If this works out for you, you can make the decision to rent knowing you haven't made a bad choice.

Renting [+ any utilities] allows one to define housing costs as a straight percent of gross income for the length of your lease.

(US Average Housing Costs are 32.6% of gross income, SF Bay Area average is 36.6%.)

My position would be for HCOL renters in the current market that if you can get your total housing costs under 28% or 25% or even lower (For example...$3500 rent x 12 mos. = $42,000, and $42,000/$250,000 = 17%) of gross income via renting, then by all means rent if you are so inclined. The houses (and I've toured plenty of them in our area, including walking the neighborhoods) are almost universally not worth the inflated asking price and, at least for me, it's a fools game to chase those prices, and the alternative, condo and townhome developments, have inherently more costs (HOA/upkeep fees) and have more price volatility than single family homes.

Some folks, of course, see $42,000 in rent for a year and gasp. 'You're throwing your money away!' But really, you're not. Esp. in the first ten years when a typical mortgage is paying out predominantly interest. And especially if you are saving and investing the difference between what you pay in rent and 36% of your gross income. What you are doing is paying market rate for rental housing at a price you can afford and investing the balance. (In the example of the $250,000 per year income, that might be $48,000 in investments per year, or $4,000 per month.)

And the other side of that equation is that while someone making $250,000 a year can easily afford $42,000 annually in rent, by most common sense standards they really should not be trying purchase a $1,750,000 home at 7x income with a 30 year commitment to $95,000 in annual mortgage payments that don't account for budgeting for repairs, upkeep and unanticipated expenses, not to mention calamities or job loss.
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Re: Reaching your number vs. owning a home

Post by Admiral »

SantaClaraSurfer wrote: Mon Oct 18, 2021 5:30 pm
jeffyscott wrote: Mon Oct 18, 2021 9:34 am It looks like the mobile homes are at prices that I might see in my area, but here it would be an actual house (and also be on a 14 to 1/2 acre and have a basement).

That one give a rent estimate of about $4000, so the buy/rent ratio is about 35 :!:

I don't really like either option and have no idea what I would do if I lived in a market like that, I want to say rent, but that may be just because it's difficult get past the bias from a lifetime of living in the midwest where house prices are "normal" and increase at about the inflation rate. Around here, we're talking about how we can not believe that someone paid $320K for a 1200 sf ranch and the alternative might be $2000ish to rent something similar. So if you could buy at 1/6 of your prices, but rent would be still be 1/2 of what it is, what would make sense then?

I guess what the buyers are looking at is that, using your example of the $1.7-1.8 million home, it sold for about 1/2 that price 6 years ago, so they probably figure that in a few years it'll be over $3 million.
Good points. Personally, I don't make that assumption. If anything, I think the opposite.

I think the key factor for a renter is what percentage of your gross income will your housing costs be, and whether you can commit to save/invest whatever you save over purchasing. If this works out for you, you can make the decision to rent knowing you haven't made a bad choice.

Renting [+ any utilities] allows one to define housing costs as a straight percent of gross income for the length of your lease.

(US Average Housing Costs are 32.6% of gross income, SF Bay Area average is 36.6%.)

My position would be for HCOL renters in the current market that if you can get your total housing costs under 28% or 25% or even lower (For example...$3500 rent x 12 mos. = $42,000, and $42,000/$250,000 = 17%) of gross income via renting, then by all means rent if you are so inclined. The houses (and I've toured plenty of them in our area, including walking the neighborhoods) are almost universally not worth the inflated asking price and, at least for me, it's a fools game to chase those prices, and the alternative, condo and townhome developments, have inherently more costs (HOA/upkeep fees) and have more price volatility than single family homes.

Some folks, of course, see $42,000 in rent for a year and gasp. 'You're throwing your money away!' But really, you're not. Esp. in the first ten years when a typical mortgage is paying out predominantly interest. And especially if you are saving and investing the difference between what you pay in rent and 36% of your gross income. What you are doing is paying market rate for rental housing at a price you can afford and investing the balance. (In the example of the $250,000 per year income, that might be $48,000 in investments per year, or $4,000 per month.)

And the other side of that equation is that while someone making $250,000 a year can easily afford $42,000 annually in rent, by most common sense standards they really should not be trying purchase a $1,750,000 home at 7x income with a 30 year commitment to $95,000 in annual mortgage payments that don't account for budgeting for repairs, upkeep and unanticipated expenses, not to mention calamities or job loss.
Percentage of gross income paid in rent (or mortgage) is not the proper metric, IMO. Housing is paid for in net dollars. Someone single living in CA and making 250k is losing, ballpark, 90k to taxes, if not more. As a high earner they should max retirement savings, so there's another $20k. Subtract food and utilities, so another... 15k? More? Obviously MFJ is a little less, perhaps $70k federal + state.

Now whether $4k-5k/mo in rent on take-home pay of $12k makes sense is a personal decision, and would depend on other costs and obligations like commuting etc. But the math is not $48k/$250k. That gives a false sense of affordability.
nigel_ht
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Re: Reaching your number vs. owning a home

Post by nigel_ht »

Admiral wrote: Tue Oct 19, 2021 6:00 am
SantaClaraSurfer wrote: Mon Oct 18, 2021 5:30 pm
jeffyscott wrote: Mon Oct 18, 2021 9:34 am It looks like the mobile homes are at prices that I might see in my area, but here it would be an actual house (and also be on a 14 to 1/2 acre and have a basement).

That one give a rent estimate of about $4000, so the buy/rent ratio is about 35 :!:

I don't really like either option and have no idea what I would do if I lived in a market like that, I want to say rent, but that may be just because it's difficult get past the bias from a lifetime of living in the midwest where house prices are "normal" and increase at about the inflation rate. Around here, we're talking about how we can not believe that someone paid $320K for a 1200 sf ranch and the alternative might be $2000ish to rent something similar. So if you could buy at 1/6 of your prices, but rent would be still be 1/2 of what it is, what would make sense then?

I guess what the buyers are looking at is that, using your example of the $1.7-1.8 million home, it sold for about 1/2 that price 6 years ago, so they probably figure that in a few years it'll be over $3 million.
Good points. Personally, I don't make that assumption. If anything, I think the opposite.

I think the key factor for a renter is what percentage of your gross income will your housing costs be, and whether you can commit to save/invest whatever you save over purchasing. If this works out for you, you can make the decision to rent knowing you haven't made a bad choice.

Renting [+ any utilities] allows one to define housing costs as a straight percent of gross income for the length of your lease.

(US Average Housing Costs are 32.6% of gross income, SF Bay Area average is 36.6%.)

My position would be for HCOL renters in the current market that if you can get your total housing costs under 28% or 25% or even lower (For example...$3500 rent x 12 mos. = $42,000, and $42,000/$250,000 = 17%) of gross income via renting, then by all means rent if you are so inclined. The houses (and I've toured plenty of them in our area, including walking the neighborhoods) are almost universally not worth the inflated asking price and, at least for me, it's a fools game to chase those prices, and the alternative, condo and townhome developments, have inherently more costs (HOA/upkeep fees) and have more price volatility than single family homes.

Some folks, of course, see $42,000 in rent for a year and gasp. 'You're throwing your money away!' But really, you're not. Esp. in the first ten years when a typical mortgage is paying out predominantly interest. And especially if you are saving and investing the difference between what you pay in rent and 36% of your gross income. What you are doing is paying market rate for rental housing at a price you can afford and investing the balance. (In the example of the $250,000 per year income, that might be $48,000 in investments per year, or $4,000 per month.)

And the other side of that equation is that while someone making $250,000 a year can easily afford $42,000 annually in rent, by most common sense standards they really should not be trying purchase a $1,750,000 home at 7x income with a 30 year commitment to $95,000 in annual mortgage payments that don't account for budgeting for repairs, upkeep and unanticipated expenses, not to mention calamities or job loss.
Percentage of gross income paid in rent (or mortgage) is not the proper metric, IMO. Housing is paid for in net dollars. Someone single living in CA and making 250k is losing, ballpark, 90k to taxes, if not more. As a high earner they should max retirement savings, so there's another $20k. Subtract food and utilities, so another... 15k? More? Obviously MFJ is a little less, perhaps $70k federal + state.

Now whether $4k-5k/mo in rent on take-home pay of $12k makes sense is a personal decision, and would depend on other costs and obligations like commuting etc. But the math is not $48k/$250k. That gives a false sense of affordability.
Its $48K out of $145K...which isn't terrible after taxes and 401K. Whether it's a lot depends on how much more you want to save in taxable and your other expenses.
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