personal rent vs buy debate - SF bay area
personal rent vs buy debate - SF bay area
I'd like some points of view on the rent vs buy debate. Here are some facts.
Late 30s with partner and 1 year old. Would potentially like a 2nd kid sometime.
Living in SF bay area
Income (solo earner): 170k/year
2022 Bonus: 30k
2022 Stock vested (rest of year is a projection): 131k
No income from partner
Tax advantaged retirement accounts: 700k (in VT)
After-tax accounts: 850k (mostly in VT with 20% small cap value, a couple years of I-bonds and 2% in treasuries)
Home: 1M value condo with 250k balance left at 3% interest
Career goals: I can stay where I am for a while longer (currently at 5 years and seems stable), but someday I might want to take a lesser income, more enjoyable job.
Housing desired: I don't feel too comfortable buying anything more than 1.6M and if I do, I would likely have to sell my condo as well. I want SFH.
1.6M homes would increase my commute (using 2019 time) from 30-40 minutes to 45-50 minutes.
Or I can rent a SFH closer to work, decrease commute to say 20-30 minutes at about 4-5k/month (depending on how lucky in my search).
Options are:
1) stay where I am with a low payment left on condo...total PITI+HOA is $2500/month.
2) buy a home, sell my condo (if so, should I use something like Flyhomes to buy first then sell) or try to hold onto both for a brief period and liquidate stocks for the down pay of the new place
3) buy a home and hold onto my condo
4) rent home and hold onto condo (rent it out)
5) rent home and sell condo
Late 30s with partner and 1 year old. Would potentially like a 2nd kid sometime.
Living in SF bay area
Income (solo earner): 170k/year
2022 Bonus: 30k
2022 Stock vested (rest of year is a projection): 131k
No income from partner
Tax advantaged retirement accounts: 700k (in VT)
After-tax accounts: 850k (mostly in VT with 20% small cap value, a couple years of I-bonds and 2% in treasuries)
Home: 1M value condo with 250k balance left at 3% interest
Career goals: I can stay where I am for a while longer (currently at 5 years and seems stable), but someday I might want to take a lesser income, more enjoyable job.
Housing desired: I don't feel too comfortable buying anything more than 1.6M and if I do, I would likely have to sell my condo as well. I want SFH.
1.6M homes would increase my commute (using 2019 time) from 30-40 minutes to 45-50 minutes.
Or I can rent a SFH closer to work, decrease commute to say 20-30 minutes at about 4-5k/month (depending on how lucky in my search).
Options are:
1) stay where I am with a low payment left on condo...total PITI+HOA is $2500/month.
2) buy a home, sell my condo (if so, should I use something like Flyhomes to buy first then sell) or try to hold onto both for a brief period and liquidate stocks for the down pay of the new place
3) buy a home and hold onto my condo
4) rent home and hold onto condo (rent it out)
5) rent home and sell condo
Re: personal rent vs buy debate - SF bay area
I would very much hesitate to increase the commute. Many studies show that commuting is a major cause of lower life satisfaction, and also substantially increases chance of family problems / divorce. (The strength of this effect is surprising but it seems to be one of the few happiness related things many studies agree on.)
Given your financial situation — which is strong and seems likely to set you and your family up for a very stable future with relatively little financial concern — I’d probably stay put. Renting out the condo would quite possibly lead to extra hassles you don’t need with your excellent job, and paying rent isn’t going to be good for building your net worth. I’d build up the portfolio for another few years and then — from a position of strength and more certainty about your longer term intentions — revisit.
Given your financial situation — which is strong and seems likely to set you and your family up for a very stable future with relatively little financial concern — I’d probably stay put. Renting out the condo would quite possibly lead to extra hassles you don’t need with your excellent job, and paying rent isn’t going to be good for building your net worth. I’d build up the portfolio for another few years and then — from a position of strength and more certainty about your longer term intentions — revisit.
Re: personal rent vs buy debate - SF bay area
oh I think I also wanted to say that the condo is feeling a bit small with the baby and challenging with limited parking and having to go up stairs
thats why i was looking for the SFH
thats why i was looking for the SFH
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Re: personal rent vs buy debate - SF bay area
I commuted 90 minutes on average to work for 30+ years. We choose to move out for a larger home in a better community. Your stay at home mom situation makes the decision easier. She takes care of the kids. Frankly I was numb to the commute after a short while. It was nice to get home after a hard day to relax. Truthfully anything under an hour for me was a cake walk.
Re: personal rent vs buy debate - SF bay area
With a 1 year old the current condo can probably be sufficient for another 3 - 4 years (depends on status of 2nd child). I would not rush out and buy a SFH in the Bay Area right now. But I would watch the real estate market carefully and be open to opportunities that might come along. As interest rates rise mortgage rates go up and there can be a tendency for housing prices to soften, particularly with the variety of tech cutbacks in the Bay Area that seem to be in the news every day.
The closest helping hand is at the end of your own arm.
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Re: personal rent vs buy debate - SF bay area
The above in red may not be an option. Have you confirmed a lender would lend you $1.3mm (assuming 20% down payment) with your current $250k mortgage?tcrez wrote: ↑Mon Aug 15, 2022 1:45 pm Options are:
1) stay where I am with a low payment left on condo...total PITI+HOA is $2500/month.
2) buy a home, sell my condo (if so, should I use something like Flyhomes to buy first then sell) or try to hold onto both for a brief period and liquidate stocks for the down pay of the new place
3) buy a home and hold onto my condo
4) rent home and hold onto condo (rent it out)
5) rent home and sell condo
What would the PITI be for a $1.6mm house ($850k mortgage?)?
How big is your condo? Number of bedrooms?
Re: personal rent vs buy debate - SF bay area
I’d sell and rent or stay where you are, but that’s just me.
Re: personal rent vs buy debate - SF bay area
Between the home equity in your condo and the taxable account you have about $1.5 million available to buy a house if you want to buy one. You can do pretty much anything within reason that you want so this is a more difficult question of what you should do and a lot of that depends on your personal preference.
Decades ago when I was around 30 I was working in the Bay Area as a software developers and I left when I was ready to buy my first house. Housing has always been expensive there and frankly the only type of house I could have afforded there would have been a tiny dump. Moving worked out very well for both financially and with the quality of life in other places I have lived. With my background my personal preference if I was in your situation would be to move to a less expensive place with a better quality of life.
You didn't mention if they have acceptable schools where you might want to buy a house at. If not then with possibly two kids that would be a non-starter for me buy there.
I have been seeing rumblings in the news about even FAANG companies having or threatening layoffs. Even if you are doing a good job if you are working on a project that gets cancelled then you could be laid off.
Don't count on you bonus and RSUs since if there is a recession the bonus may go away or the value of the RSUs may be greatly reduced. I have seen situations where the office watercooler joke was "The bonus this year is that you did not get laid off." If there is a bad bear market then many tech company stocks could go down a lot and be worth a lot less than you are hoping for and companies may not be inclined to give out large RSUs for future years.
In contrast here is what you could buy for cash now for about $825K here in the suburbs of Atlanta. (Housing in some areas downtown or in some prime areas could be a lot more expensive)
https://www.realtor.com/realestateandho ... 2946622475
The Great School ranking have lots of problems but the schools for that house are also rated as being 9 or 10.
I am not saying that you should move to Atlanta but you need to keep in mind that probably 80% of the country is priced more like this. There are also lots of tech jobs in other parts of the country too.
If you don't have something going on like you have a lot of family in the Bay Area then I would add another option to your list.
6) Develop an exit plan to move somewhere else by the time your kid starts school
a) Sell the condo that no longer fits your needs.
b) Rent a nice house with a short commute.
c) Keep saving like crazy
d) Check out other parts of the country to see if you can find a nice place that you would be excited about moving to.
One other advantage of a much lower cost of living area is that with your net worth you could likely retire in your 40s if you do not have an extravagant lifestyle.
In a few years if you find somewhere else that would work out better for you then you can move. If not then you will have saved more and can likely buy a decent Bay Area house for cash, or with just a modest mortgage.
Decades ago when I was around 30 I was working in the Bay Area as a software developers and I left when I was ready to buy my first house. Housing has always been expensive there and frankly the only type of house I could have afforded there would have been a tiny dump. Moving worked out very well for both financially and with the quality of life in other places I have lived. With my background my personal preference if I was in your situation would be to move to a less expensive place with a better quality of life.
You didn't mention if they have acceptable schools where you might want to buy a house at. If not then with possibly two kids that would be a non-starter for me buy there.
I have been seeing rumblings in the news about even FAANG companies having or threatening layoffs. Even if you are doing a good job if you are working on a project that gets cancelled then you could be laid off.
Don't count on you bonus and RSUs since if there is a recession the bonus may go away or the value of the RSUs may be greatly reduced. I have seen situations where the office watercooler joke was "The bonus this year is that you did not get laid off." If there is a bad bear market then many tech company stocks could go down a lot and be worth a lot less than you are hoping for and companies may not be inclined to give out large RSUs for future years.
It has been a long time since I lived there but I occasionally look at the housing there in areas that I knew. Even for $1.6 million you might not get a very nice house in an area with decent schools.tcrez wrote: ↑Mon Aug 15, 2022 1:45 pm Career goals: I can stay where I am for a while longer (currently at 5 years and seems stable), but someday I might want to take a lesser income, more enjoyable job.
Housing desired: I don't feel too comfortable buying anything more than 1.6M and if I do, I would likely have to sell my condo as well. I want SFH.
In contrast here is what you could buy for cash now for about $825K here in the suburbs of Atlanta. (Housing in some areas downtown or in some prime areas could be a lot more expensive)
https://www.realtor.com/realestateandho ... 2946622475
The Great School ranking have lots of problems but the schools for that house are also rated as being 9 or 10.
I am not saying that you should move to Atlanta but you need to keep in mind that probably 80% of the country is priced more like this. There are also lots of tech jobs in other parts of the country too.
If you don't have something going on like you have a lot of family in the Bay Area then I would add another option to your list.
6) Develop an exit plan to move somewhere else by the time your kid starts school
a) Sell the condo that no longer fits your needs.
b) Rent a nice house with a short commute.
c) Keep saving like crazy
d) Check out other parts of the country to see if you can find a nice place that you would be excited about moving to.
One other advantage of a much lower cost of living area is that with your net worth you could likely retire in your 40s if you do not have an extravagant lifestyle.
In a few years if you find somewhere else that would work out better for you then you can move. If not then you will have saved more and can likely buy a decent Bay Area house for cash, or with just a modest mortgage.
Re: personal rent vs buy debate - SF bay area
The problem with renting in BA is that you are cutting yourself off from the potential depreciation. Yes, I know, past results etc. but for most people in the last decades RE in BA was probably the best investment they made.
Re: personal rent vs buy debate - SF bay area
We're going to try our hardest to stay in the bay as both our families are here as well as friends over the years.
I think one reason for wanting to buy is: could rents for SFHs become unreasonable someday in the future? Owning a home sort of locks your payments to a certain level.
I think one reason for wanting to buy is: could rents for SFHs become unreasonable someday in the future? Owning a home sort of locks your payments to a certain level.
Re: personal rent vs buy debate - SF bay area
Right now the rent in bay area is substantially lower than mortgage payment (assume 30 yr fixed) so I think you can afford to wait for it a bit and see where the interest rate, housing price, and economy is going. It's probably worthwhile to take a step back and really estimate how long you're going to stay around here. If 10-20 years then it's probably worth buying SFH at some point, otherwise renting is better off. Also, bay area housing price did go down 3 times in the last 30+ years so it's isn't always a straight line up . Good luck
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Re: personal rent vs buy debate - SF bay area
that would be a brutal commute. And its only gonna get worse. Would not do it.
Re: personal rent vs buy debate - SF bay area
You don't need to think. You can look up the numbers. I have never seen a bay area place that wasn't cheaper to rent than to buy with 20% down. But as the OP points out the problem is that both rents and house prices keep trending up. Paying 3k rent now versus say a 4k mortgage seems great. It isn't so great in 10 years when rent is 6k and mortgage is still 4k. Or in 20 years when rent is say 10k....Or of course things could reset and house prices drop 30% and rents drop 20% for a while...CletusCaddy wrote: ↑Mon Aug 15, 2022 8:48 pmI don't think this is true. Interest rates have gone up but rents have gone up too.
We have had these discussions for like 20 years on this board. And there is no good solution/option. You need to make a bet based on house prices and nobody knows that. And the numbers are big. Wait 2 years to buy that 1 million dollar place and you might have to come up with another 200k. Or buy it in peak 2006 and it might be selling for 800k in 2 years.
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Re: personal rent vs buy debate - SF bay area
I had a very lengthy explanation of why you should buy, but then realized it only applies narrowly to my personal tastes and experiences.
My suggestion is to move to a rent controlled city in the Bay Area and rent a SFH and never experience more than 2% increase in rent every 2yrs. I have friends who have kept their apartments for over 10years just so they can spend the weekends in SF or east bay because the rent is so cheap. Probably not as achievable today, but still good food for thought. Rent control can be a powerful ally to a renter.
My suggestion is to move to a rent controlled city in the Bay Area and rent a SFH and never experience more than 2% increase in rent every 2yrs. I have friends who have kept their apartments for over 10years just so they can spend the weekends in SF or east bay because the rent is so cheap. Probably not as achievable today, but still good food for thought. Rent control can be a powerful ally to a renter.
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Re: personal rent vs buy debate - SF bay area
You know, it’s interesting. The market rent for the Bay Area house I own and live in is exactly my mortgage interest + property tax + 4% SWR on my home equity. I don’t think that’s a coincidence. Supports my emerging hypothesis that current net worth allocation doesn’t matter to whether one can FIRE.randomguy wrote: ↑Mon Aug 15, 2022 9:57 pmYou don't need to think. You can look up the numbers. I have never seen a bay area place that wasn't cheaper to rent than to buy with 20% down. But as the OP points out the problem is that both rents and house prices keep trending up. Paying 3k rent now versus say a 4k mortgage seems great. It isn't so great in 10 years when rent is 6k and mortgage is still 4k. Or in 20 years when rent is say 10k....Or of course things could reset and house prices drop 30% and rents drop 20% for a while...CletusCaddy wrote: ↑Mon Aug 15, 2022 8:48 pmI don't think this is true. Interest rates have gone up but rents have gone up too.
We have had these discussions for like 20 years on this board. And there is no good solution/option. You need to make a bet based on house prices and nobody knows that. And the numbers are big. Wait 2 years to buy that 1 million dollar place and you might have to come up with another 200k. Or buy it in peak 2006 and it might be selling for 800k in 2 years.
Re: personal rent vs buy debate - SF bay area
It is 100% a coincidence. Imagine your neighbor lives in an identical house but bought 20 years earlier. So they are paying 10k in property tax while you are paying 20k. How is this equation going to give the same market rent? Or imagine you bought in 2006 for 1 million. And at the time the equation held. What happens in 2009 when your house is off 20% and rents are down 5%? Your mortgage payment hasn't dropped enough. Rents and house prices have some correlation so things will be somewhat close. But it is far from exact...CletusCaddy wrote: ↑Tue Aug 16, 2022 9:27 am
You know, it’s interesting. The market rent for the Bay Area house I own and live in is exactly my mortgage interest + property tax + 4% SWR on my home equity. I don’t think that’s a coincidence. Supports my emerging hypothesis that current net worth allocation doesn’t matter to whether one can FIRE.
Re: personal rent vs buy debate - SF bay area
Mostly coincidence. The duplex next to my rental duplex has the same market rate as mine but they bought it many decades ago. Their property tax is $2,388/year. My sq ft adjusted tax is $14k. I'm assuming their mortgage is paid off. The market rent will follow whatever the rental market will support. It's somewhat independent of the current carrying costs for a new home purchase since the majority of landlords will not be new and will have drastically lower expenses. That's especially true in the Bay Area with Prop 13.CletusCaddy wrote: ↑Tue Aug 16, 2022 9:27 am You know, it’s interesting. The market rent for the Bay Area house I own and live in is exactly my mortgage interest + property tax + 4% SWR on my home equity. I don’t think that’s a coincidence. Supports my emerging hypothesis that current net worth allocation doesn’t matter to whether one can FIRE.
Re: personal rent vs buy debate - SF bay area
I think you prove that rent at this point is higher than mortgage interest + property tax + insurances Especially since you probably bought your place before the latest craze.CletusCaddy wrote: ↑Tue Aug 16, 2022 9:27 amYou know, it’s interesting. The market rent for the Bay Area house I own and live in is exactly my mortgage interest + property tax + 4% SWR on my home equity. I don’t think that’s a coincidence. Supports my emerging hypothesis that current net worth allocation doesn’t matter to whether one can FIRE.randomguy wrote: ↑Mon Aug 15, 2022 9:57 pmYou don't need to think. You can look up the numbers. I have never seen a bay area place that wasn't cheaper to rent than to buy with 20% down. But as the OP points out the problem is that both rents and house prices keep trending up. Paying 3k rent now versus say a 4k mortgage seems great. It isn't so great in 10 years when rent is 6k and mortgage is still 4k. Or in 20 years when rent is say 10k....Or of course things could reset and house prices drop 30% and rents drop 20% for a while...CletusCaddy wrote: ↑Mon Aug 15, 2022 8:48 pmI don't think this is true. Interest rates have gone up but rents have gone up too.
We have had these discussions for like 20 years on this board. And there is no good solution/option. You need to make a bet based on house prices and nobody knows that. And the numbers are big. Wait 2 years to buy that 1 million dollar place and you might have to come up with another 200k. Or buy it in peak 2006 and it might be selling for 800k in 2 years.
Re: personal rent vs buy debate - SF bay area
I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
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Re: personal rent vs buy debate - SF bay area
Theoretically over a long enough time scale, I suppose unlimited if either big tech keeps booming, and/or the next things big things economy wise come from companies with a big footprint in the bay area. Keep in mind real incomes rising needs to only happen for a relatively small subset of the bay area population. Also, I think at times the international bid can be pretty significant in many parts of the bay area.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
In the next 5 to 10 years though, a lot more uncertainty I think. But, if you want to be a bay area lifer, it's probably in your best interest to buy if you have the means and either are comfortable with the idiosyncratic risks of either having a huge fraction of your wealth tied up in your house, or maintaining a large amount of leverage long term.
Re: personal rent vs buy debate - SF bay area
Leverage goes both ways.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
Re: personal rent vs buy debate - SF bay area
I hear the same question since I moved in BA.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
This was in 2005. Meanwhile prices about tripled.
Housing in BA (especially in better area) has a much better history than the stock market, and nobody questions investing in the stock market.
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Re: personal rent vs buy debate - SF bay area
That’s because the stock market won’t get swallowed by a giant earthquake. I’m waiting for a single point of failure when all the tech companies vanish off the face of the earth, and my house is split across 2 blocks, and no amount of earthquake insurance will cover the property damage for the entire Bay Area. Then everyone can rejoice and say “I told you so”Starfish wrote: ↑Tue Aug 16, 2022 8:58 pmI hear the same question since I moved in BA.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
This was in 2005. Meanwhile prices about tripled.
Housing in BA (especially in better area) has a much better history than the stock market, and nobody questions investing in the stock market.
Re: personal rent vs buy debate - SF bay area
Ask your partner what they think and do that.
Kevin
Kevin
Re: personal rent vs buy debate - SF bay area
True, but the downside leverage riskis capped due to the fact that loans in California are non-recourse. So even if home prices crater by 75%, your loss is likely limited to your ~20% downpayment. Of course you get to enjoy the uncapped leverage on the upside.crossbow wrote: ↑Tue Aug 16, 2022 1:46 pmLeverage goes both ways.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
Re: personal rent vs buy debate - SF bay area
I am a lot more afraid of fire, earthquake is not on my list (I don't even carry the earthquake insurance, and nobody I know does).uglymcmuffin wrote: ↑Tue Aug 16, 2022 9:49 pmThat’s because the stock market won’t get swallowed by a giant earthquake. I’m waiting for a single point of failure when all the tech companies vanish off the face of the earth, and my house is split across 2 blocks, and no amount of earthquake insurance will cover the property damage for the entire Bay Area. Then everyone can rejoice and say “I told you so”Starfish wrote: ↑Tue Aug 16, 2022 8:58 pmI hear the same question since I moved in BA.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
This was in 2005. Meanwhile prices about tripled.
Housing in BA (especially in better area) has a much better history than the stock market, and nobody questions investing in the stock market.
Re: personal rent vs buy debate - SF bay area
I get that it's legal - but that feels unethical.tjtv wrote: ↑Tue Aug 16, 2022 10:45 pmTrue, but the downside leverage riskis capped due to the fact that loans in California are non-recourse. So even if home prices crater by 75%, your loss is likely limited to your ~20% downpayment. Of course you get to enjoy the uncapped leverage on the upside.crossbow wrote: ↑Tue Aug 16, 2022 1:46 pmLeverage goes both ways.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
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Re: personal rent vs buy debate - SF bay area
The banks price the loans with the downside in mindcrossbow wrote: ↑Wed Aug 17, 2022 1:19 pmI get that it's legal - but that feels unethical.tjtv wrote: ↑Tue Aug 16, 2022 10:45 pmTrue, but the downside leverage riskis capped due to the fact that loans in California are non-recourse. So even if home prices crater by 75%, your loss is likely limited to your ~20% downpayment. Of course you get to enjoy the uncapped leverage on the upside.crossbow wrote: ↑Tue Aug 16, 2022 1:46 pmLeverage goes both ways.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
Re: personal rent vs buy debate - SF bay area
Insurance companies calculate the probability of undetectable fraudulent claims when pricing policy premiums. Costco factors in customers returning Christmas trees after Christmas. The right thing to do/not do does not always follow the letter of the law.CletusCaddy wrote: ↑Wed Aug 17, 2022 1:24 pmThe banks price the loans with the downside in mindcrossbow wrote: ↑Wed Aug 17, 2022 1:19 pmI get that it's legal - but that feels unethical.tjtv wrote: ↑Tue Aug 16, 2022 10:45 pmTrue, but the downside leverage riskis capped due to the fact that loans in California are non-recourse. So even if home prices crater by 75%, your loss is likely limited to your ~20% downpayment. Of course you get to enjoy the uncapped leverage on the upside.crossbow wrote: ↑Tue Aug 16, 2022 1:46 pmLeverage goes both ways.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
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Re: personal rent vs buy debate - SF bay area
To me the unethical path would be getting away with something. When you default on a loan your credit is ruined for 7 years, and the interest rate was priced in for that probability ahead of time. Doesn’t seem like getting away with anything.crossbow wrote: ↑Wed Aug 17, 2022 1:34 pmInsurance companies calculate the probability of undetectable fraudulent claims when pricing policy premiums. Costco factors in customers returning Christmas trees after Christmas. The right thing to do/not do does not always follow the letter of the law.CletusCaddy wrote: ↑Wed Aug 17, 2022 1:24 pmThe banks price the loans with the downside in mindcrossbow wrote: ↑Wed Aug 17, 2022 1:19 pmI get that it's legal - but that feels unethical.
Re: personal rent vs buy debate - SF bay area
Did the law change? It used to be illegal to have rent control on single family homes or condos in California https://en.wikipedia.org/wiki/Costa–Haw ... ousing_Actuglymcmuffin wrote: ↑Tue Aug 16, 2022 2:56 am I had a very lengthy explanation of why you should buy, but then realized it only applies narrowly to my personal tastes and experiences.
My suggestion is to move to a rent controlled city in the Bay Area and rent a SFH and never experience more than 2% increase in rent every 2yrs. I have friends who have kept their apartments for over 10years just so they can spend the weekends in SF or east bay because the rent is so cheap. Probably not as achievable today, but still good food for thought. Rent control can be a powerful ally to a renter.
edit: the law did change -- but the single family home needs to be owned by a REIT or a corporation for rent control to apply https://www.latimes.com/california/stor ... ons-signed
Re: personal rent vs buy debate - SF bay area
It's a business deal with a company and a contract where everything is spelled out. Insurance fraud is fraud, a legal term. A company would/should never show morality, loyalty etc, because it's a mechanism not a human, why do you insist in treating it like a human?crossbow wrote: ↑Wed Aug 17, 2022 1:19 pmI get that it's legal - but that feels unethical.tjtv wrote: ↑Tue Aug 16, 2022 10:45 pmTrue, but the downside leverage riskis capped due to the fact that loans in California are non-recourse. So even if home prices crater by 75%, your loss is likely limited to your ~20% downpayment. Of course you get to enjoy the uncapped leverage on the upside.crossbow wrote: ↑Tue Aug 16, 2022 1:46 pmLeverage goes both ways.tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
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Re: personal rent vs buy debate - SF bay area
The way I see it:
1) Right at this moment the Bay area housing mrkt has slowed considerably - definitely a great time to buy.
2) Job stability is very important given that a recession may be on the horizon (or not - but some indications point to that)
3) You have - 1.Emer. Fund 2.good portfolio 3.possibly buying forever home
If I were in your situation here is what I would do:
1. Buy in the range that you describe if the house feels like a bargain (Multiple price cuts, seller seems eager, etc)
2. NOT INCREASE THE COMMUTE - why buy a home only to spend more time out of it
3. Hold on to the CONDO and rent it until the market shows signs of life then sell it and reduce the total mortgage
4. Make extra sure to hold onto the job while you own both SFH & Condo
1) Right at this moment the Bay area housing mrkt has slowed considerably - definitely a great time to buy.
2) Job stability is very important given that a recession may be on the horizon (or not - but some indications point to that)
3) You have - 1.Emer. Fund 2.good portfolio 3.possibly buying forever home
If I were in your situation here is what I would do:
1. Buy in the range that you describe if the house feels like a bargain (Multiple price cuts, seller seems eager, etc)
2. NOT INCREASE THE COMMUTE - why buy a home only to spend more time out of it
3. Hold on to the CONDO and rent it until the market shows signs of life then sell it and reduce the total mortgage
4. Make extra sure to hold onto the job while you own both SFH & Condo
Re: personal rent vs buy debate - SF bay area
An off-topic series of personal attacks was removed. Stay professional and respectful.
Re: personal rent vs buy debate - SF bay area
But what if we change this claim to
"Housing in *DETROIT* has a much better history than the stock market, and nobody questions investing in the stock market."
Of course, that's ludicrous. But when you're looking in the rear view mirror at the ~best housing market in the country over the last ~4 decades, of course it looks great. At one time, Detroit was a booming city too (as were many others with stagnant home prices).
The next 4 decades may look rather different than the last 4...
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Re: personal rent vs buy debate - SF bay area
People have been betting against California since the Gold Rush. Apple finished their spaceship campus a few years ago. Google is about to start up a mega campus in San Jose. It's hard to describe how they're pulling out of the BA anytime soon. With that being said, the houses I've been watching in the BA have take some decent haircuts.psteinx wrote: ↑Wed Aug 17, 2022 5:32 pmBut what if we change this claim to
"Housing in *DETROIT* has a much better history than the stock market, and nobody questions investing in the stock market."
Of course, that's ludicrous. But when you're looking in the rear view mirror at the ~best housing market in the country over the last ~4 decades, of course it looks great. At one time, Detroit was a booming city too (as were many others with stagnant home prices).
The next 4 decades may look rather different than the last 4...
Re: personal rent vs buy debate - SF bay area
You can say the same thing about Japan's stock market, and we still invest in the stock market. You can say that the entire American stock marked evolved in circumstances very different from today (no competition, different culture etc) so it could easily drop in the next 50 years, the empire could disappear etc.psteinx wrote: ↑Wed Aug 17, 2022 5:32 pmBut what if we change this claim to
"Housing in *DETROIT* has a much better history than the stock market, and nobody questions investing in the stock market."
Of course, that's ludicrous. But when you're looking in the rear view mirror at the ~best housing market in the country over the last ~4 decades, of course it looks great. At one time, Detroit was a booming city too (as were many others with stagnant home prices).
The next 4 decades may look rather different than the last 4...
Bay Area has things going for it rare or unique in the world.
I think we are terrible at calculating risk. Nobody is looking for a risk free solution because it does not exist. Diversification does not mean risk reduction, but people mistake one for the other. BA RE could be a better investment than stock market, or could be terrible, it's nothing to say for sure which.
Re: personal rent vs buy debate - SF bay area
At the start of the Bay Area's big price boom, circa 1980, tech was a fairly small presence, and prices in the Bay Area, compared to the nation, weren't too inflated - perhaps 1.5x?
Now, tech has blossomed, is a huge % of the stock market value, and real estate prices in the bay area (S.F. and South Bay) are perhaps 5-10x national averages.
Trees don't grow to the sky.
It is possible to do tech work outside of the Bay Area. Companies and/or workers can choose (and apparently, in the last ~2 years, HAVE BEEN choosing) to locate elsewhere.
Also, for all of the high taxes on tech incomes in the Bay Area, the degree of services/quality of life provided by the government does not seem to be keeping up. Education, crime, homelessness...
Now, tech has blossomed, is a huge % of the stock market value, and real estate prices in the bay area (S.F. and South Bay) are perhaps 5-10x national averages.
Trees don't grow to the sky.
It is possible to do tech work outside of the Bay Area. Companies and/or workers can choose (and apparently, in the last ~2 years, HAVE BEEN choosing) to locate elsewhere.
Also, for all of the high taxes on tech incomes in the Bay Area, the degree of services/quality of life provided by the government does not seem to be keeping up. Education, crime, homelessness...
Re: personal rent vs buy debate - SF bay area
3-5X maybe. Average home price is 430k, in my side of BA 2 million still buys a nice home, nicer than average for sure. There are houses for 1-1.5MM closer to average.psteinx wrote: ↑Thu Aug 18, 2022 10:01 am At the start of the Bay Area's big price boom, circa 1980, tech was a fairly small presence, and prices in the Bay Area, compared to the nation, weren't too inflated - perhaps 1.5x?
Now, tech has blossomed, is a huge % of the stock market value, and real estate prices in the bay area (S.F. and South Bay) are perhaps 5-10x national averages.
They obviously do, look at stock marketTrees don't grow to the sky.
In terms of prices per sq/ft BA is nothing special. Prices are in line with any other desired area in the world.
Re: personal rent vs buy debate - SF bay area
Of course as you get further away from the core areas around San Francisco & Mountain View, prices drop. But then, Oakland lacks the appeal of the other areas, too. IIRC, a ~1200 s.f., ~nothing house, with a ~nothing lawn, in a nice part of Mountain View/Palo Alto goes for ~$2M-ish. That same house would probably average $150-$200K across the rest of the country as a whole (more in some places, less in others).Starfish wrote: ↑Thu Aug 18, 2022 10:44 am3-5X maybe. Average home price is 430k, in my side of BA 2 million still buys a nice home, nicer than average for sure. There are houses for 1-1.5MM closer to average.psteinx wrote: ↑Thu Aug 18, 2022 10:01 am At the start of the Bay Area's big price boom, circa 1980, tech was a fairly small presence, and prices in the Bay Area, compared to the nation, weren't too inflated - perhaps 1.5x?
Now, tech has blossomed, is a huge % of the stock market value, and real estate prices in the bay area (S.F. and South Bay) are perhaps 5-10x national averages.
The stock market is priced based on earnings, with the multiples based on competing investments (i.e. prevailing real interest rates on bonds). Future long-term returns for the US stock market will likely be lower than in the past (because real interest rates are lower, and so all financial assets are priced for lower future returns), but they're not outlandish, IMO, and the stock market CAN deliver the (decently positive) real returns embedded in current prices, or could even surprise to the upside if, for instance, yields drop further.
OTOH, there's an inherent limiting factor - a rubber band on pricing - for extreme markets like the Bay Area, in that folks can choose to live elsewhere. It's a big country. Even if the Bay Area continues to substantially restrict new building (a big if), other parts of the country are unlikely to. Telecommuting has gotten much better in the last 3 years, and also, tech companies recognize that their workers want affordable housing, so even physical locations for tech companies may drift away to areas that compete effectively on house pricing, among other attributes.
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Re: personal rent vs buy debate - SF bay area
I’m also interested to see how telecommuting changes the Bay Area. For hardware companies telecommuting is still less effective than working in person, but for all the software companies they had previously heavily incentivized going to office with luxurious work perks. I think deep down there is a nonzero number of people who still love going to the office for the social aspects, and companies are trying to keep that culture from dying.psteinx wrote: ↑Thu Aug 18, 2022 11:04 am
OTOH, there's an inherent limiting factor - a rubber band on pricing - for extreme markets like the Bay Area, in that folks can choose to live elsewhere. It's a big country. Even if the Bay Area continues to substantially restrict new building (a big if), other parts of the country are unlikely to. Telecommuting has gotten much better in the last 3 years, and also, tech companies recognize that their workers want affordable housing, so even physical locations for tech companies may drift away to areas that compete effectively on house pricing, among other attributes.
But maybe when all the kids who had to telecommute to school for Covid grow up they won’t want to do anything in person, and nobody will live near where they work.
Bay Area has other cultural differences that keep people around. Things that you can’t find in other states. A lot of things happen here first (for better or worse), so it’s the cost of living on the bleeding edge of the left… if you are into that thing - obviously it’s a major turn off if you disagree with the policies.
Re: personal rent vs buy debate - SF bay area
Not really. Imagine I am making 200k today. I can spend 60k on housing. I get a big raise to 300k. I pay an extra 40k in taxes. How much can I spend on housing? 120k. I can spend all 60k net of that raise on housing. I don't need more money for food, cars, vacations and the rest. I don't even need to save much more since in retirement I will own that house....tcrez wrote: ↑Tue Aug 16, 2022 12:48 pm I think one of the big draws for owning is the potential appreciation you can get and at 5X leverage (20% down) it's pretty attractive
The question is, with the big gains we've already seen, how much more is theoretically possible? If prices doubled in a few years, wouldn't income have to also double (assuming the same interest rate)?
Lots of people in LCOL are very uncomfortable with this math. The people who live in the VHCOL gamble that it makes sense. Maybe we have hit the peak for the expensive metros (NYC, SF, Toyoko, London, Vancouver,...). Maybe not.
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Re: personal rent vs buy debate - SF bay area
Most of the rest of the country is not within biking distance of companies with either headquarters or significant operations that collectively constitute a large chunk of the S&P500.
Re: personal rent vs buy debate - SF bay area
Sure, the question is, how much is that biking privilege worth? It costs a LOT now (in relative terms). Do you think it is underpriced? (i.e. These towns will appreciate MORE than the national average, going forward). Even with better telecommuting, and much of big tech opening satellite offices far from San Francisco?slicendice wrote: ↑Thu Aug 18, 2022 12:15 pmMost of the rest of the country is not within biking distance of companies with either headquarters or significant operations that collectively constitute a large chunk of the S&P500.
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Re: personal rent vs buy debate - SF bay area
Silicon Valley is the South Bay.psteinx wrote: ↑Thu Aug 18, 2022 12:44 pmSure, the question is, how much is that biking privilege worth? It costs a LOT now (in relative terms). Do you think it is underpriced? (i.e. These towns will appreciate MORE than the national average, going forward). Even with better telecommuting, and much of big tech opening satellite offices far from San Francisco?slicendice wrote: ↑Thu Aug 18, 2022 12:15 pmMost of the rest of the country is not within biking distance of companies with either headquarters or significant operations that collectively constitute a large chunk of the S&P500.
Re: personal rent vs buy debate - SF bay area
Yes, but when I say satellite offices far from San Francisco, I'm thinking more of Austin, Colorado and other locales hundreds/thousands of miles away, not the difference between S.F. and the South Bay Area.Californiastate wrote: ↑Thu Aug 18, 2022 12:50 pmSilicon Valley is the South Bay.psteinx wrote: ↑Thu Aug 18, 2022 12:44 pmSure, the question is, how much is that biking privilege worth? It costs a LOT now (in relative terms). Do you think it is underpriced? (i.e. These towns will appreciate MORE than the national average, going forward). Even with better telecommuting, and much of big tech opening satellite offices far from San Francisco?slicendice wrote: ↑Thu Aug 18, 2022 12:15 pmMost of the rest of the country is not within biking distance of companies with either headquarters or significant operations that collectively constitute a large chunk of the S&P500.
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Re: personal rent vs buy debate - SF bay area
There are lots of intangible factors here such aspsteinx wrote: ↑Thu Aug 18, 2022 12:44 pmSure, the question is, how much is that biking privilege worth? It costs a LOT now (in relative terms). Do you think it is underpriced? (i.e. These towns will appreciate MORE than the national average, going forward). Even with better telecommuting, and much of big tech opening satellite offices far from San Francisco?slicendice wrote: ↑Thu Aug 18, 2022 12:15 pmMost of the rest of the country is not within biking distance of companies with either headquarters or significant operations that collectively constitute a large chunk of the S&P500.
What is the value of:
likely not having to uproot your life and move to a new city if you want (or need) to change jobs?
being a destination in the global real estate market?
very favorable long term real estate tax laws?
easy access to restaurants collectively preparing the cuisines of most countries of the world?
easy access to high level cultural venues?
being guaranteed no snow, sleet, or freezing rain November to April unless you want to drive to it a few hours away?
no oppressive humidity nor weeks of 100+ degrees?
almost no mosquitos?
I could go on... and even though to be honest I'm largely agnostic when it comes to bay area real estate. Long term I think it will almost certain to at least marginally outpace the national average in terms of prices for single family homes.
Many places have some of these features but the bay area is unique in having them all.
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Re: personal rent vs buy debate - SF bay area
Like other metro areas SF Bay Area is sprawling. If commute is factor in decision making process, its difficult to advise OP without knowing where they live and work. Also lifetime employment doesn't exist any more and workers change jobs on average every 5 years. Maybe even more frequent in silicon valley where the product cycle in tech is 3 years. Then there's WFH that is being embraced by both emloyers as a way to save on office rent, and employees as way to reduce commute time. That opens up options for home buyers if they are only commuting into office 1-2 days per week.
With rising interest rates, putting the condo on the market now might not get 12 offers over asking price. You might only get 1-2 offers at or below asking price. But then buying the bigger replacement home probably wont be as competitive either. That could "potentially" create the market opportunity to trade up? It depends on other factors like surrounding property values, deferred maintenance issues, mortgage terms etc. Real estate is different asset category and doesn't fit neatly into asset allocation analysis with stocks and bonds.
With rising interest rates, putting the condo on the market now might not get 12 offers over asking price. You might only get 1-2 offers at or below asking price. But then buying the bigger replacement home probably wont be as competitive either. That could "potentially" create the market opportunity to trade up? It depends on other factors like surrounding property values, deferred maintenance issues, mortgage terms etc. Real estate is different asset category and doesn't fit neatly into asset allocation analysis with stocks and bonds.
Re: personal rent vs buy debate - SF bay area
The question isn't whether the Bay Area has advantages that make people want to pay a premium to live there.slicendice wrote: ↑Thu Aug 18, 2022 1:25 pm There are lots of intangible factors here such as[snip]
I could go on... and even though to be honest I'm largely agnostic when it comes to bay area real estate. Long term I think it will almost certain to at least marginally outpace the national average in terms of prices for single family homes.
Many places have some of these features but the bay area is unique in having them all.
Cleary they do.
The question is, will those advantages (in sum), be MORE intense in 10/20/40 years, such that whatever the premium of Bay Area/rest of USA is today, it will be HIGHER then?