some have said they want to buy in order to have certainty in the case the landlord kicks them out…ive visited some rental properties and often the landlord has moved away, in a senior home, etc with no intention to return. im not sure how much of a risk this actually is
also, some have said they want the ability to modify the home…talking to landlords, they seem willing to potentially cover the cost, or split cost or some other kind of agreement… and if you’re saving 50k/year by renting vs buying…whats the issue with throwing away a little bit of money on renovations to rent?
lastly, i feel like in the bay area owning a place is also a way to show off… if you rent then its like you haven’t made it… but owning…thats like a very visible status symbol…a house is a way to turn digits on your bank/brokerage account into something very obvious
and i feel like its harder to convince family members that you’re going to spend 5k on rent versus 1.8M on a real estate with the idea that it will appreciate 10x in the next generation like it had in the past
I wouldn’t want you as a tenant … probably would complain a lot. Good luck. But you forgot one big thing. Rental properties are generally run down poorly maintained junkers… Often it’s difficult to be able to stay for a long time. Those old owners will die and their heirs will sell. My tenants last about 2 years average. Being a renter is a nomad existence . Hard to put down roots.
Go for it. There’s a shortage of good rental units. Looks like a flip gone wrong. Too nice for a rental. It’s a steal at $5k.
Seller would probably consider a low ball offer to sell. But beware if you rent. I am sure this flipper will sell as soon as it appreciates to allow him a decent profit.
I think the main financial benefit of owning your own home is that you can take on a rather large leverage (20% or 25% down) without the matching risk/stress. Pulling this kind of leverage with stocks (if someone is willing to lend to you at this ratio) is very risky and at least I wouldn’t be able to sleep well at night. Of course there is always risk and anything can happen, but historically the chance of losing money on a long-term real estate investment is relatively low. So if you are willing to believe this theory, then a 20% or 25% appreciation would net you a 100% return on investment, minus the PITI-to-rent difference.
Then there is stability that comes from owning. The feeling that there will be no more uncertainty in where you are going to live tomorrow or next month or a year from now or in 10 years is priceless to a lot of people. Young folks don’t appreciate this, but when you have kids in school stability is very important. A single person or couple without kids can move around fairly easily, so owning is less attractive. Kids definitely make you want to have stability. What is the reason there is so much push for rent control from tenants? Because they want stability but can’t get it (renting is fundamentally unstable). If you have the experience of being forced to move against your own will, you will probably value stability more.
Also owning an SFH gives you the ability to improve it. Typically a rental property will not satisfy all your needs especially as your needs change over time. Are you willing as a renter to spend money to put up a shed or improve landscaping or paint the outside of the house if you have the potential of not living there in a year? As a renter you can only plan short-term because you are by definition transient.
The joy and pride of homeownership is underestimated.
I moved into my farm house after renting it out for 4 years. I was amazed how little my tenants appreciated or enjoyed it. I have been improving and restoring it for 10 months. I have really come to love the place. Tenants never get that joy. I am looking forward to working on many more improvements…especially the landscaping, vineyards and orchard. Renting just doesn’t allow you to really feel at home. Renters just bitch all the time at their landlord. Because deep down they know they are just throwing their rent money away. They had made me hate the place I now love. The intimacy of owners with their home, terroir, place,neighborhood, city is very special.
It saves lot of money and help retire too. My friend who bought Cupertino home appx $800k never paid more than $2400 as PITI (locked arm and now refinanced at 2.25% for 30 years) last 20 years. Entire family of four enjoys 5BD, 4BH appx 8200 sqft lot.
Another friend bought smaller home, but 4BD 2BH, for $420k, now renting more than $4000/month as he did not like to sell this first primary (converted to rental).
Previously, my old neighbor paid $1080 as yearly property tax for around 40 years, now sold the home for $2.5M retired.
This kind of financial freedom won’t be there with rental.
In Tahoe there are still rental investments that give great cash flow. Impossible in the Bay Area. I bought a house with a ADU 6 years ago for $350k.
I have had three sets of tenants. The current tenant really appreciates it. Did many improvements that cost me only $12k. Now it’s a three unit property with a ADU and a JADU. My tenant makes up to $8k per month renting rooms and the cottage with Airbnb . I charge $4k and am happy that he can live there and make a profit. As a 3 unit property it’s now worth $1m. A lot better ROI than a $1.8m San Jose house that rents for $5k.
I think there are a lot of real risks here to own. I mentioned that when renting, you throw away 60k while buying you throw away 112.5k (interest and taxes, no principal payment yet). An extra 52.5k each year for the renter can go to the S&P 500, which returns 11% a year since the index started.
I also recommend looking at historical housing data
There was a peak in 1989, which was not exceeded until 1997. That’s 8 years where the renter can save an extra 50k/year and let it compound like crazy in the stock market. A peek at an S&P 500 total return calculator shows your money have compounded at 16% annualized during those 8 years (use Oct 1989 - June 1997).
There are many scenarios where the renter (if you diligently invested in the S&P) comes out a whole lot richer than the buyer (even when counting the value of home the buyer has).
Lumpsum analysis? Did you do any pragmatic comparison?
In general,
RE is bought with a downpayment + monthly payment (don’t forget about re-fi especially cash-out re-fi)
Investment in S&P is by regular (usually based on payday, in SV is fortnightly) DCA purchasing
Frankly, nearly impossible to compare buy vs rent from a financial perspective.
I am in the camp of buying a Primary whenever you can afford to and reasonably sure you won’t be out-of-a-job (if yes, not too long), regardless of economic and direction of the property trend. Future is too unpredictable, no need to spend too much time doing financial analysis. You only need to do analysis for property investment.
“Being able to afford” is actually a pretty subjective measure.
Afford in where? San Jose or Palo Alto? Most techies can afford to rent a decent SFH in PA but will take years (if ever) to save the down payment to buy.
One income or two? Many parents want to have one adult stay at home to take care of young kids.
Retirement saving first or never? Do you put money in 401k first and only then you calculate your affordability? Or you want to all in on RE before everything else?
I started this whole thread to point out “buy whenever you can afford” is no longer a slam dunk easy decision when mortgage rate is at 7% and RE price falling. Many old assumptions may not apply anymore.
How about buying in 1988? 1987? or 1990/1991? Your buying-in-1989-and-hold-for-8-years-then-sell scenario should be averaged out with other possible scenarios. What if you buy at the peak in 1989 but still hold it today? In the bay area you will probably still come out ahead.
There is always a lot of risks to own. I think the biggest risk is not the market going south but rather losing your income to keep paying mortgage and be forced to sell in a hurry.
That is the interest rate when I first bought a Primary
When I landed in SV, I bought a townhouse in 2003.
I upgraded to SFH in 2007 (near ATH). Sold the TH.
Bought another SFH in 2011 (near bottom).
Totally didn’t check property trend nor interest rate direction. Can afford, do.
Home price 4x in the last twenty years in CU. If they 4x again, average home in Cupertino will sell for 12M in 2040. How likely is that? How much would a tech worker be paid to afford that home?
Even during 2008-2011 real estate downturn, I have seen very less foreclosures and many cash offers at 2.5M level. Cupertino school district related homes are limited by numbers (no expansion) and many full cash offers are there at any time. Competition is high at such school district locations.
6993-Chantel-Ct-95129 homes like this were no buyers when it was listed in 2008 for $425k.
For all risks to own … Not owning has bigger risks. Without the pride and joy of ownership. S&P returns are irrelevant. Plus they are taxed unlike most RE gains. 11% is a myth. 8% is more likely.
And timing is everything with stocks. Ask people that bought in 1928
2000, 2007, 1967… you can wait 20 years to recover from a bad stock market.
I quoted a site saying returns are 11% (actually almost 12%) on the S&P500 going back its entire history. I’m not sure why you think its a myth. Remember reinvested dividends are included in total returns.
Also, having most of your money in a single property also exposes you to diversification risk. You might do well, but you might also end up in the pits forever. Tech companies can go out of favor, leading housing to fall behind…forever, while the rest of the world marches forward with higher and higher prices. It’s happened in other cities…
Yes stocks do fall and can take years to come back. I’d recommend a dollar cost average approach over time which you would do with contributions from paychecks. You end up buying more shares when markets are low anyways.
At the end of the day, what matters with stocks is the price you sell it at. If you don’t plan to sell for 20+ years you can be almost 100% certain prices will be higher, while you’ve also DCA during the lows.
You have no history or credibility on this forum . You might want to get on a stock forum to tout your great stock prowess. Otherwise I don’t believe a thing you say. BTW I have been investing in stocks and RE since 1976. So quoting Shiller and stock shills means nothing to me. Good luck renting.
I made a lot money in RE from 1989-1997. Experience always beats nameless quotes of internet info.
In fact DCA is a joke. The prime stock promoter on this forum believes in putting everything in a winner like TESLA. DCA just means average returns at best. Put your money in your home then invest in what you know… hopefully with sweat equity or insider info.
Trust a 69 year old cranky investor who is not exposed much to BA RE. Or trust you over eager millennial stock brokers.
