Rent vs. Buy in Bay Area

It may be just me (us) but, man, I cringe twice a year when I dole out a fair amount for property tax bills alone. To think that I would send a landlord a freaking $7K check every month is like, wow, a recurring nightmare…

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I am also a landlord outside the BA, so it kind of lessens the “nightmare” feeling :slight_smile:

You can just rent this 7k house and buy 3 more rentals outside BA. Then you’ll enjoy best of two worlds. I’m wondering why not many people do it.

We can pursuade out of state candidates to take this route and join BA companies as a no brainer.

When many such wealthy tenants rent in BA, Prop 10 will be defeated strategically

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@Rent_and_Vent, please recheck your numbers. With a 30 year loan, with your $14K payment , you are paying back about $100k per year in principal. That’s about $8k per month. Inflation is certain like death and taxes. Your rent will double in 10 years but your monthly payment won’t go up by much thanks to prop 13. You are overthinking cost of repairs. They are not more than $1K to $2K a year. Unless you change your roof which will be 10k for 50 years. Not too bad.

You are assuming he keeps to house for 30 years. The initial payments includes far less than that. Most people don’t keep a house that long anymore. The appreciation should make up for it if it follows the trend of the last 8 years, but who knows what it will do.

$3.2M house.
80%=$2.56M.
Google mortgage calculator: $12,104/month.
California prop tax calculator: $22,400/year, ~2k/month.
Pool and yard maintenance included in rent
$2k/year in repairs seems very low to me, but that is not a very relevant variable here

Also, I guess my rental income will also “double in 10 years”. If landlords in this segment are unable to get more rent now, with a great economy and RSUs, stock market at all time highs, etc, what makes you think the rents will keep going up way beyond inflation??

You’re right. Rent would plateau. Extrapolation of rent is fantasy.

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Rental yield for high end housing is really low. It would make economic sense to rent a $3.5M house and buy 10 350k rental houses in Vallejo or Phoenix.

I think high end housing can benefit the owners in psychological and social demensions. If you live in a 3.5M house, your self esteem would be boosted, you would work harder, you would socialize with successful people. Its benefit is from non-economical factors. For example, your neighbor may introduce you to a good investment deal and suddenly you are making 5M from one deal.

Prop tax on $3.2M house is $38000/yr or ~3k per month

Even if you assume that your rent will stay the same for the next 25 years, what about the principal component of about 8k per month?

you mean the additional 8k going to principal?

First of all, check an amortization table and see how much of the mortgage payment goes to principal for the first 5-10 years

Second, how do you know that 8k is not buying RE, just not this house?

You can analyze all you want, renting high end in the BA right now is a great deal

Agreed. We bought our current primary before having kids and are now looking for more bedrooms. Looking at buy vs rent in the $3M+ range, it is hard to pass up renting a for a while and picking up a few lower priced properties in up and coming neighborhoods that are more likely to appreciate (plus interest and depreciation would actually be deductible).

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agreed, renting is a good deal. Rent in a good neighborhood and pick up some rentals in up and coming neighborhoods. All sounds good but what if you are forced to move out, with kids in local schools its hard to find a similar property in the same neighborhood.

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You can sign a longer lease. Also is it that hard to find another rental when forced to move?

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Assuming you are talking for BA, isn’t those up and coming area would drop their price faster than fortress when down run hit? Not saying this is a bad idea, but we should consider that scenario as well depending on where your outlook is.

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Redwood City, San Mateo, Daly City, SSF is about as far as I’m willing to stray…my thesis is “the fortress” will grow as new residents move into these areas who can afford at current prices.

$7k a month for a $3.5m house is a steal (In SF one bedrooms are going for $4k)But not sustainable. No sane landlord will keep it for long. He will either 1031 into a better deal or raise the rents to market… whatever and whenever that is.

To be fair: $3.2M house (zestimate, sold for 3M in late 2017). $7300 rent. Pool and yard maintenance included

really not that unusual in this price range actually (in the BA, anyway)

I believe there is more of a ceiling to rent prices than there is for sales prices

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Couple of nice options at $7500:

https://www.zillow.com/homes/for_rent/Hillsborough-CA/15516325_zpid/55743_rid/37.59815,-122.34242,37.560738,-122.400956_rect/13_zm/

https://www.zillow.com/homes/for_rent/Hillsborough-CA/15519894_zpid/55743_rid/37.602468,-122.308817,37.52763,-122.42589_rect/12_zm/

Yup, i know a house that sold for 3ish that was renting for 6500. Could probably pull 7000-7500 but not more. Dunno about who pays yard/pool etc.