People often quote rent vs. buy costs as a reason the bay area is over priced. I think there’s an important difference about the bay area that is being ignored. In most of the country, land is 28% of the property value. In CA, land is 61% (only HI is higher). People are renting the structure which depreciates, and the landlord gets the appreciation in land value. If you look at just the percent of property value that is the structure, then bay area rent vs. buy makes way more sense. I’d expect buying in the bay area to be ~33% more expensive than renting based on California’s deviation of land value as a percent of property value.
This house would be ~$9,000/mo if purchased with 20% down… Zillow says rent would be $5,241. That makes renting 40% cheaper than buying. I wonder if the numbers would hold over a larger data set?
Is it really necessary to do all that fancy calculating to arrive at whether one should buy vs rent? To me, if you have a steady job/income stream you should always buy if qualified. You get the tax breaks and hopefully the appreciation. Rent just goes down the drain without any benefit to you at the end of the day.
Well, it materially changes the logic used by the rent vs. buy bears. It’s the land the increases in value, so it makes sense you’d pay a premium to buy if the land is a higher percent of the total value. More of your purchase price will be appreciating over time.
At the end of the day, do you know any renters who are well off financially? And let’s keep it to normal folks (not celebrities or people in rent controlled apts). We are all owners mostly to some extent and well a fair amount of our net worth is achieved via the owning of property. As the saying goes, they ain’t making any more land…
These are not the homes someone is looking for rent perspective. These places, such as Palo Alto or HB or Atherton…etc, are for those people who has high cash and wants to stay near by their business/office or work !
But interestingly when I was looking in PA a few years back, many of the homes we considered were ultimately purchased by international buyers from mainland China and I would immediately spot them for rent on hotpads.com. I suppose they are counting on land appreciation and not the rent.
Those were the periods when China economy was doing great. Pre-2013, our economy was recovering, but not fully recovered, gave low deal opportunities everyone who had cash. Many Chinese wealthy investors parked their money for various reasons, such EB-5 and even to hold their assets outside of China (includes US,UK, HK, SG…etc). We were hearing Chinese buyers on US real estate until China economy had started falling recently !
Or, more draconian laws like that in the Seattle piece that some landlords say no more I give up. My Big Bro left the Fab 7x7 rental market since he felt the rent control laws were too bad even back then.
absolutely true. I am living this right now. In our case, we are renting for about 50% of what an 80% mortgage and property taxes would cost, and in a great school district (no private school tuition), quick commute up 280 to SF
rent was lowered several times before we took it. The gap between buying and renting (even if I had the available funds at hand), is just too juicy to pass, especially with kids that really enjoy a large backyard and a pool
it would actually be hard to buy and have to “downgrade”
i know, I couldn’t believe the numbers myself. House sold in 2017 in low $3Ms, 80% mortgage and prop tax would be ~14k. Doesn’t include repairs, etc (house is form the 1950s, already had a few). Rent is low $7Ks
FWIW it’s the same advice I gave a recent executive the company I work for hired. He was concerned about taking the offer (was relocating with family). Suggested he rent rather then buy (at least initially) as he was looking at fortress cities (for same lifestyle as where he was coming from). He is now renting in Palo Alto and very happy about that decision as he could not have afforded to buy there.
