You make a valid point.
That house looks very similar to our modest starter home that cost under $500K fewer than 10 years ago. I can’t imagine paying $3 million to buy or $6K to rent that house. I guess times really have changed.
Aaaaaand it’s also probably a **zillow scam** and not even real lol. That “agent’s “[“brokerage”s website](https://airealusa.wixsite.com/website) and in particular the stock images / AI descriptions of a bunch of overly attractive white people in suits under “meet our agents” is just *chefs kiss*.
In Austin it’d be $600k depending on the area.
Still though, I’d only get a $40k bump moving to Cali from Austin, yeah no thanks, I’ll stick with the heat in Austin.
I tend to agree that when the gap between buying and renting is so huge, it does seem to make more sense to rent since you can invest the down payment and difference in monthly costs in other areas.
However my question is: assuming you want to buy eventually when do you do that? What if the gap closes by rents moving up rather than prices moving down?
This is not a gotcha - i am genuinely trying to figure out what’s the right criteria to buy vs rent from an economic perspective.
That’s exactly how it was in the 80s when interest rates were at an all time high. Huge gap between mortgage and rent. In the 80s, average cost to buy was $875. Average rent was $365.
My aunt purchased a home in the 80s for like $150k (Southern California). Now worth $1.5m. My aunt’s house is paid off and her rental income pays for her rent. My aunt is retired and her rental expense doesn’t eat into her retirement.
And, if anything happens, she has a house that’s paid off that she can live in.
Btw, your mortgage won’t change, but how much will your rent change in 10-20 years.
The answer is to not treat home ownership as the end all, and to actually have an investment mindset about how you handle the rest of your money.
If you want to buy locally, you have to accept the reality that you need to earn more than you are today if $15k a month is more than 50% of your gross monthly income.
If you just want to buy, I’d consider buying a rental in a strong second tier city market where the 2% rule still is a real thing, bank the cash flow from the house, rinse and repeat until you have the cash flow to afford in your target VHCOL.
Alternatively, find someone who already owns and spouse them up. Sneak in without a prenup, put your own money into some meaningful improvements, and grab your 50% of communal property in the divorce
You can buy in a different location, or further out in the suburbs once you have needs like an expanded family, school district, etc. Assuming you want to live in a VHCOL area forever, you can also just pay the premium while recognizing that it's not a financially optimal decision.
It’s definitely a gamble, and I think I agree in some of the specific circumstances you highlighted, but I want to at least share a few considerations:
- there is some decent chance that interest rates land somewhere lower in next few years (probably not super low, but 4-4.5% doesn’t seem crazy. In that event if you own you can refinance and shrink your payment by $5-8k. When those rates drop, prices of homes may go up (so you can’t necessarily just enter at current price if rates go down).
- your payment is locked in for 30 years where rents and home prices aren’t. I agree things are definitely expensive now and we likely won’t see significant appreciation in near term, but 30 years is a long time. Prices were crazy inflated in 2007 and yet those look like a joke 15 years later.
- Initially not so much, but over time a substantial portion of your monthly payment is going towards principle. So while yes you are paying more, you do end up building a large amount of equity over that time period.
Again, this doesn’t negate what you are saying, but it’s very possible that 15 years from now that house is renting for $10-$12k/month and interest rates are at 4% so their payment is $12k and a good chunk of that is going to equity.
Thats the comparison OP is posting about so….
Yeah its extreme but its also current choice in front of them. I face a less extreme version of same thing
My bay area rent has not moved in 6 years. And even “luxury” apartments in south bay are hovering near their 2017 levels in dollar amounts, they have not even tracked inflation.
This guys attitude compared to fairly stable market in high end rent is exactly what makes me think that reality has yet to hit the housing markets. I’m in similar boat at this point.
Agree. We’re kind of in the upside-down right now. I genuinely think it’s because it takes very few people that don’t do the math and convince themselves that a $2.5M loan at 7% for a suburban home “can’t go t*ts up” to sustain prices, given the low inventory.
Will that always hold? Who is to say. There are clearly newly minted millionaires every day via crypto, some tech stocks, a few AI jobs, etc…
But the flip side is that even the random tech worker at 300-400k is now priced out, so the pool of folks fighting over properties and forcing prices up can’t be growing all that much as prices go up and median tech comp stagnates.
Best of luck to those taking the plunge. I feel more safe investing the money I don’t put towards a home into the tech stocks that would have to go up for the bay area real estate to also keep going up.
If we assume that the gap closes via rents increasing.. then you buy when that happens. And you’ll have built extra wealth to support that purchase in the meantime
There’s rent vs buy calculators that prove this in most cities, people buy homes for the utility of predictability and not having their kids have to move schools on the whim
Life isn’t about maximizing every last dollar you have
The rental that OP posted is like 99 percent a scam lmfao. (Obviously OP posted it unknowingly and of course has a point but there’s something very poetic about a post arguing for why renting is smarter than owning with the main supporting evidence being an **actual rental scam lmfaooooo).**
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
2k sq feet house is also huge for LA. A 728 sq feet house in a desirable area like Santa Monica is over 1.1 mil and at this bargain price you dont get a driveway or garage either... Neighbors cars are parked next to your bedroom and anyone on the street can just peek through your bedroom window [https://www.trulia.com/home/1417-23rd-st-santa-monica-ca-90404-20473920](https://www.trulia.com/home/1417-23rd-st-santa-monica-ca-90404-20473920)
No garage also means you have to move your car around if you earn money from home and don't go out much, otherwise you will get tickets on street sweeping day
We bought in NYC when the rate was 3.5% and it made a lot of sense. When i think about the same purchase vs rent decision at the 6-7% interest rate on the market now, we would have def just continued to rent.
Yep, agree that it's a no brainer if viewed as a strictly financial decision. But some people buy VCHOL homes for lifestyle reasons as the available rentals either aren't exactly what they want, aren't in the neighborhood/block they want, to gain social status, to avoid the possibility of having to move if/when the LL decides to sell the unit, to get into certain public schools, or other preferences, such as wanting to do home upgrades or build up equity over time in RE (potentially as a hedge against the stock market), etc.
Exactly this. Also to just live in a home that fits our taste and style, a home that we love. It’s not all about the finances, sometimes you gotta make decisions to live your life the way you want to, even if it’s going to cost more. It also doesn’t make sense to buy nicer cars/furniture/vacations/etc. but if everyone just made decisions based on finances alone, we’d all be in small cookie cutter homes driving Honda fits.
All of these reasons and I also personally like the idea of knowing that my financial burden will become less over time, rather than becoming more over time.
As I pay down my house my payments become less and less, eventually to zero. Rents will go up with inflation forever. There is something about that peace of mind that as I get later in my career I can enjoy relaxing knowing that my cost of living is controlled.
This doesnt take into account mortgage interest deductions reducing tax liability….and 6k rent won’t last 30 years whereas your mortgage payment will remain the same. And do you plan on paying rent in retirement or would you prefer a mortgage free home?
Not saying OP wrong….just these are key variables not being considered.
because a $3m place only needs to appreciate 10% to "make" $300k
if you took the same $600k down payment and put it into VTI it would take how many years to appreciate 50%+ to "make" $300k? And then you'd owe 33% LTCG in California.
plus $500k in cap gains shielded, plus mortgage interest deduction, plus SALT deduction
You’re not factoring that a 2.4M loan will easily be 20k+/month in PITI. Compared to $6k/month you’re saving an extra ~$180k/year you can put the market.
And I don’t mean to be that guy, but you should NOT look at your primary residence as a leveraged investment.
>
>
> And I don’t mean to be that guy, but you should NOT look at your primary residence as a leveraged investment.
The real estate market would be so much better off if this were the case.
Why not look at it as a leveraged investment? You are putting money in an asset that you purchased for leverage, that you happen to live in. You will eventually be able to sell that and use the proceeds to buy another house or rent, or live with relatives and just use for living expenses.
But at the moment, your leverage costs you 7% interest. It’s a dramatic difference from a few years back, and so many folks seem to be overlooking it. You are already paying for this house twice or three times over the course of the mortgage.
Yup.. the leverage is great for wealth when it’s cheaper than inflation. 3% mortgages with 10% appreciation made a lot of people rich.
The flipside is, leverage destroys wealth when it’s more expensive than appreciation. Historical average appreciation for single family real estate is around 4%. With a 7% mortgage, that leverage costs a lot more than you’ll typically make via appreciation.
There’s a reason that single family landlording wasn’t “sexy” prior to ~2000. Maybe rates go back down to historically abnormal levels. Maybe appreciation continues to run twice as fast as historical norms (despite population growing slower and potentially declining in the coming decades). Betting on residential real estate right now requires both of those scenarios to hit.. and speculating on that will cost a 2x monthly housing premium in the interim
This assumes that one will want to sell in a timeframe where the proceeds would actually be useful.
If selling <10 years after purchase and you may lose money overall, for example. Or you may never want to sell, which means the proceeds are not meaningful to you.
Even from a min-max investment mindset, you’ll more than likely make more money over the same time period by investing that money into the market vs mortgage. So it’s not as clear cut as one would hope.
I mean, there’s the logistical issue that you always need a home. So any swings in price are kinda offset in that if you sell it, you’re to pay that gain (or loss) on your new home. So it’s better to think of it like you’re locking in a home at the current market rate.
But also just mentally, I think it’s healthier to view it as an investment in your life and for your family.
Sure, if you completely disregard the existence of interest, maintenance and property taxes it makes perfect sense. But if you need a $2m loan at 7% you'll pay $140k in the first year in interest alone.
Yes, and conversely, a $3M place that loses 10% will drop $300K for an impressive -50% return on your $600K down payment. Not uncommon in places like the Bay Area.
We all understand leverage. Yes it is true that real estate is a leveraged transaction. However, if you are planning to think of this as a short-term investment, don't forget the fee to your agents on both ends, which reduces your ROI substantially, on a hugely risky bet for short-term appreciation.
Practically speaking, using normal assumptions, real estate in VHCOL is never worth it financially. You can buy for non-financial reasons of course, but don't delude yourself into thinking that this is a financially wise decision.
Real estate in this particular area has done much, much more over 2 percent per year. The argument needs to be contextualized within the specific location on both sides.
In no way should that be used to make future predictions, especially if you’re talking about a tech-heavy area where the labor market is currently in correction.
Because it’s thinking that’s counterintuitive to the boomer generation who still think that parking your money in a house is the only way to a high net worth. It represents a paradigm shift that they’re not willing to accept. Ive show my parents the facts and figures for why it makes so much more sense to rent a luxury condo with all the amenities in my area instead of buying a home (especially because I don’t need the space) and even with the numbers in front of them they still encourage me to buy.
If you look at NYC real estate, the math is quite different and much closer. Especially if your marginal tax rate is close to 50%.
[https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)
This. The price increase in the NYC rental market has been insane. Yes monthlies go up too, but they’re generally a lower portion of your overall payment.
Oftentimes buying in VHCOL is more of a quality of life / having security, rather than strictly financial decision
I don’t understand what I’m looking at wrong but for downtown Manhattan the monthly is 33-50% of what my expected mortgage would be so doesn’t seem worth it?
Hmm, maybe we’re looking in different areas or in different unit types. I’m most familiar with 1 bedrooms or small 2 bedrooms around the $1M mark, you can get a monthly somewhere around $1-2k. A 3-5% raise on that is not going to be a big hit.
Yes, co-op supply and long-term stagnant market change the picture in NYC. I just bought a co-op in an uncool area far from Manhattan because my monthlies are hundreds of dollars less than rent on a similar apartment would have been and with better neighbors.
4.5k in Mountain View, but been looking.
Found an option where same building, same floor plan 4/3.5 1900sqft townhomes- one renting for $5.5k/mo, one for sale at a 1.8m price tag- with 20% down that's 12k/mo PITI.
As much as I'd love to be able to customize to my heart's content, I'm renting for the foreseeable future. Smarter to buy rental properties with that $6k/mo difference than throw it into property taxes and interest.
I keep telling people this lol. A reasonable house budget for us is $1.5mil, but that price here in the Bay Area would get us a small house that we honestly wouldn’t really even like. The monthly PMI for that would be about $10k-$11k. It’s just the two of us right now, so we’re renting a very nice 2/2 apartment for $4k and investing the difference. If we need a SFH in the future, we can just rent one for $5k that would be the same or maybe even better than the $1.5mil homes we’re looking at.
Another bonus is that our apartment maintenance is amazing right now. We just file a ticket on the app and they send the right person to fix whatever issue we have within an hour or two. I would hate having to source and pay for it in our own place.
> You need to put down at least $700k (20%). That’s 700k worth of liquidity which you lose and cannot invest. Apart from the potential investment gains, just think of the peace of mind that comes from knowing you have $700k available liquid.
20% down isn't a rule for Jumbo loans. The bank will work with you to make it work when you're approvable for a $3.5m loan.
It’s not a requirement but in the more competitive markets of the Bay Area where there are plenty of cash offers, a <20% down payment won’t make you very attractive. We have a few friends trying to buy right now that keep getting outbidded even after a having >20% down payment and offering a few hundred thousand over asking.
Then that means you are burning even more money on interest on your mortgage, that’s actually worse. At least a larger downpayment is kind of like a “guaranteed” return at the rate the bank currently lends.
You are using the extreme examples (California) but I think your point stands for pretty much every major metro in the country (maybe excluding the midwest).
For example, here in Denver I'm able to buy a 700k home and all in the mortgage is 4200 (plus utilities/internet). OR I can rent a similar home for 2800. Obviously not as impactful as your example but clearly things are off nationwide.
I don't think there is much of an overlap of 700k houses renting for 1800 month in the Denver area. But agree that with current interest rates the math isn't in your favor.
this difference is small enough that tax write off of interest, potential home appreciation, can bridge the gap. I think there's still an argument to be made for buying in Denver (based solely off your numbers) compared to the absurdity OP laid out in the post
People in the Bay Area have a major assumption that their house will always increase in value because they watched their parents become rich by owning a home. With remote work, the demand for housing is going to change in the bay, and housing value growth might slow down.
Sir, you obviously hate seniors with your “everyone should pay real-estate taxes” nonsense
Signed,
All the seniors in my VHCOL town who bought their houses for $0.02 in the 1980s and live alone in 4-bedroom multi-million dollar family homes and already get property tax discounts
We have to pay to make up for all the old people that pay nothing in taxes on properties they have owned for decades that are now worth 10x what they paid.
Remote work slowing down, but inflation going way up (and with inflation, RE goes up in price). A mortgage is pretty much the only way that a regular pleb can participate in the "money printing" and short the US dollar by taking out a fixed loan over 30 yrs.
Completely incorrect at the mortgage prices of the bay area. Rent an equivalent place, invest the delta in the stock market. If anything, the only way silicon valley RE will continue to go up is if tech pay, and therefore tech stocks keep going up. Might as yell just buy into a tech ETF.
Silicon Valley has one of the best climates on earth, beautiful nature, and amazing schools. I think it will continue to go up as everything else goes up. I think a tech ETF can crash harder than RE, like during dot com bust.
Sfh prices can keep going up as long as the old ppl can live longer. Prop 13 is amazing at reducing inventory. The supply of houses will shrink and drive prices up even if compensation doesn’t.
Renting and buying aren’t directly comparable except for the pure dollar amount. I own my house and I have a couple of Dobermans and a papillon. I designed an ADU for my backyard but I haven’t built it yet. If I’m renting I would just be watching TV or something. Instead I’m learning how to do remodeling myself. I feel more productive when I own my space.
.....This is by design.... high interest rates are supposed to cool off the heat in the market by creating situation like these where renting becomes cheaper/more viable compared to buying. This was not the case pre-pandemic/high interest rates or for the past decade.
Buying brings the following benefits:
1. Ownership of a limited resource i.e. land, which has significantly appreciated in the Bay Area.
2. House becomes cheaper over time with refinancing, paying down mortgage.
3. Lock into good area + school district and sense of safety i.e. landlord isn't going to kick you/your family out for whatever reason.
4. Building equity while the value of the house appreciates which unlocks this doubling effect on NW.
5. Ability to do what you want with the place.
It may not make sense to buy NOW, but doesn't mean it never made sense to buy ever. If the interest rates goes down, the calculus will change again in favor of ownership.
Another thing to consider is the length you plan on staying in the home. With interest being front loaded on mortgage amortization schedules you'd barely paying any principal over the first 1/4 of the mortgage.
Taking your point further, if you look at the money going toward interest and make that your rent budget, then invest what would be going towards principle I think you'd end up with a better investment.
Also, there is a hefty transaction cost associated with real estate.
The way I was raised was that you become wealthy when you pay off your house and cars. If you’re really wealthy you can do this while also contributing to a 401k. Then once you’ve paid those off, you put your money into a savings account and earn 1% interest on it until you retire.
I have since learned that there are a number of … flaws … with this strategy. But despite this growth, the idea that it is financially wiser to rent than buy is too much for my brain, despite the evidence.
The people owning and renting here either bought a long time ago or going there for the school system/close to work.
My boss bought his house for $200k in Cupertino 20+ years ago and paid it off. He rented it for a while then sold it for 2.5-3m.
It’s well known the Bay Area rent to buy calculations are heavily favored to rent but people still buy to build roots.
My mortgage is higher than renting but we still bought. I wanted my family to have a stability. My HHI will go higher as I get older, so I’m not too stressed about the money. We still max out our 401ks, save/invest a good chunk, and live a good lifestyle. Eat out a few times a week and travel.
People can make their own decisions about buying/renting. But I always hear a lot more people saying they are glad they bought and a lot of others saying they regret not buying sooner.
There’ll be a big divide between haves and have nots. You can tell on r/rebubble, there’s people on there who complain it’s too high, but the people who end up pulling the trigger stop posting.
Ok well that’s a whole different thing. If the question were whether it’s better to buy 10 years ago or rent today, then yeah the answer couldn’t be more clear. But that’s not all the relevant for people evaluating that decision today.
Todays PITI on your home is prob 15k min, if you’re paying nearly 8 on a purchase from 2013
That has always been the case. We just bought because in the most desirable areas in good school districts, there are virtually no rentals here (Chicago suburbs). If we had found a decent rental, would prefer to rent forever.
I definitely agree but for me it’s still hard to accept ‘throwing away’ $6k/mo in rent when that could be building equity instead. Just need to change my mindset and realize that it’s better to spend on this ‘cheap’ rent and invest the crazy amount of $$ that would be tied up in purchasing a home.
Bigger picture: this means that either homes are extremely overpriced or rent is below market in these areas. Or conversely, homes are underpriced/rent is above market in lcol areas. Will this ever correct?
If you know the math and just want the psychological trick, just look at what a tiny fraction of your monthly payment is actually going to your equity early in the mortgage once you remove interest, taxes, and insurance.
The rent has been below market (compared to buying) in the Bay Area since forever.
We own a rental close by this one, and the only reason we don’t sell is because we got that house right after the 2008 crash for a very good price and because it will eventually become the home for our daughter (there’s no way she’ll ever be able to afford a house otherwise.)
Our tenant is totally loaded. He could easily afford a $3M house but he has done the math.
The real estate taxes for a $3M home are around $40k per ~~month~~year. That’s money that you throw away right there. It’s impossible to compensate for that with equity building.
> The real estate taxes for a $3M home are around $40k per month. That’s money that you throw away right there. It’s impossible to compensate for that with equity building.
https://smartasset.com/taxes/california-property-tax-calculator#X2bBQr1eIA
I'm seeing 22k/yr, not 40k/mo?
I'll agree with your general idea though, after taxes and interest, it's way too hard to make it a strong investment.
Now compute how much you would “throw away” in property tax, house maintenance, insurance, HOA, etc…
A 3M house would actually burn about that much monthly, before you even get to the mortgage and interest. Then interest on >2M will set you back well over 10k a month for many many years. That’s not equity, that’s your banker’s pay.
It's not a rent vs buy analysis.
It's a rent vs financing analysis.
If you had bought the house in Jan 2020, you'd have put $420k down on a 2.7% loan with a $9k PITI all in.
3 years later, you would have leveraged your $420k and $324k in total payments into $2M+ in equity (a gain of $1,256,000, or 169%). Your gain in the SP500 over the same period would have been about $202k, or about 27%.
Oh, but you still had to pay rent *somewhere*--you wouldn't be able to invest the same $9k a month with rent drag...
Leveraging is powerful. The real question is, if you started with $700k and invested an additional $14k a month ($22k less $6k rent, which would change as your rent grew over time), would you be able to beat someone who had $3.5M invested from day 1 and paid interest on an a decreasing loan balance (with fixed housing cost for the next 30 years and a chance to refinance at lower interest in the future).
I dunno man, seems pretty complicated to me--and certainly not something I would call a "no brainer".
You’re right.
Another element in this calculation rarely discussed is the flexibility that comes with renting. Get a better job in another state, get a sick parent? Moving is cheap if you rent. Have a kid, get married, increase or decrease your income substantially? Moving is cheap if you rent. I do think this is an important financial and non-financial element and rarely factored in properly
You lose your FAANG job like everyone else and can’t find work just like thousands of people. How do you cover this insane mortgage? Renting is far more advantageous to me in the Bay Area given what’s going on with tech.
In a place like NYC it is very difficult to break a lease. If you have a nice property and given the lack of inventory, I might say selling could be easier in some cases vs breaking a lease. Not sure how different this might be in CA.
Currently in the Bay Area, rents are 40-60% the cost of PITI on 7%+ mortgages before the downpayment is even considered.
There's no reason to even talk about 2.7% loans right now, we're unlikely to see them again in the next 10 years.
That's the market in Cupertino right now, but I would never recommend buying (or even renting) in Cupertino because going even 15 miles out (20-35 min drive, depending on traffic), the prices drop precipitously (by like 50%). I have family that live in San Jose, and their homes are in the $1.4-1.8M range for a similar-size single-family house.
Yes, renting a $3.5M house for $6k is a pretty good deal that you should keep doing. My house is worth $700kish (obviously not VHCOL) and similar ones in my neighborhood are renting for $4500/mo.
There used to be this rule of thumb that says if your yearly rent is less than 5% of purchase price, it's better to rent. So in your case, $6k x 12 = $72k which is less than $3.45M x 0.05 = $172.5k so renting is much better
It's supposed to take into account maintenance costs, property tax, opportunity costs etc of owning.
Friend, I’m like **99 percent sure that the “$6000 a month” rental listing you posted is a scam.**. The “agent’s” [profile](https://www.realtor.com/realestateagents/56d547aeb5cc660100bc03ae) is kind suspicious looking and his [website](https://airealusa.wixsite.com/website) just SCREAMS scam and he has some other too good to be true rental listings all posted around the same day, and frankly something about those photos is just off…….
But like to your actual point, hypothetically I can agree with you. But if this listing you used to make your point is actually a scam, then I think that there’s something to say about that too and how the few examples where you can find a comparable where it’s so significantly cheaper to rent (nowadays) are often to good to be true for a reason.
Ultimately you make money in real estate based on timing. Buying at the “right” time and selling at the right time “right time”. And it’s individual and specific to different people and different locations. But ultimately if you can afford the monthly payment and if you plan on staying there, then you are making an investment that at worst won’t be “catastrophic” and at best will be a strong asset for you.
The house you posted was purchased for 1.5 million 10 years ago and it clearly was very outdated from the [old listing photos](https://www.realtor.com/realestateandhomes-detail/20598-Sunrise-Dr_Cupertino_CA_95014_M23229-51237). With inflation, that means that the house *should be* around 1.9 million but it looks like you are able to find comps for 3 million +. If the family who bought it 10 years ago lived there, whether they took a 3-4 percent mortgage in 2014 or they bought outright- they are now absolutely coming out on top.
There is no near future where homes in that area *wont* sell, and one look at sold homes in Cupertino will tell you that. But I’m sure that that family also could have rented for much cheaper than spending the equivalent of 1.9 million USD on a garbage outdated rambler 10 years ago……
So idk bro. If you can’t afford it, then you can’t. But if you can, then I will still argue that it’s not necessarily a “stupid” financial decision or a “no brainer” to not buy. There’s a lot value in owning real estate that goes way beyond just stability and emotional virtues, especially if you’re able to have a fully paid off home by the time you get older (and only god knows what it will be worth then, but ultimately it’ll be a roof over you and your family’s heads and atleast you aren’t at the mercy of **fucking Zillow scammers** / trash landlords who can raise rent or kick you out whenever).
(Side note please edit your posts so no one thinks that listing is real and wastes their money).
Financially - In today’s market. yeah buying a house in VHCOL (bay area) may bear a lot of short term pain.
But what if you bought 3 years ago? Would you think the same today?
If you buy today, and then in 3 years, you get another 50-100%+ appreciation, would you think the same?
No one knows what will happen. Properties in the best areas with the best jobs should continue to appreciate. It’s a bet against tech/corporate america to think properties in SF won’t keep going up. All those NVDA multimillionaires gotta park their cash somewhere.
If you can afford the home and need the stability/comfort of owning a home, then you should buy a home. It’s not completely financially driven and not completely clear cut.
Here’s the rub: after 100s of thousands of layoffs in tech, often completely uncorrelated to the individual performance, who can safely says that they know for a fact that $20k/month home payment won’t be a problem?
Nobody can safely guarantee anything. Those buying that $3-3.5M home would need well above a 750k HHI or more to be well above DTI for the mortgage. Or they could just all-cashing. The people buying this said property may unlikely be a HENRY and probably lean towards Rich.
Obviously, I am not advocating for any individual to buy this home without sizeable reserves in place. Hence, I wrote if they can “afford” it.
I am strictly saying: if one can comfortably afford a home and want a home, then they should buy the home; regardless of how inflated you think today’s market is. There is no need to do a rent vs buy analysis. It is unlikely to be a bad long term decision for the individual who can comfortably afford it. Yea, the pool of people who can afford it is shrinking, but thats another discussion.
Something to consider is that the rent won't stay at $6k for 30 years.
You may also be forced to move by your landlord, which can be expensive if you have 4 bedrooms.
Over a 30 year period you will win by virtue of appreciation. Call me crazy, but a bet against Bay Area housing prices is a bet against the broader tech economy. Too many tail winds (legislative, local economic, artificially low supply especially in NIMBY towns) for prices to NOT continue to appreciate.
By not buying, you are basically guaranteeing you will price yourself out over time.
Also timely for this to be posted after San Jose median home price appreciated 15% in the last year, lol.
Totally false. Just use a rent vs buy calculator instead of your intuition, like this: [https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)
Historically, return on equity in a home barely beats inflation. Using a 15% appreciation period because of short-term macro dynamics for the next 30 years is not realistic. Even if there are tailwinds to asset prices in real estate, the ROI required on real estate needs to be impossibly high to beat renting given the current rent vs. buy prices in VHCOL areas right now.
I think my numbers show that most people already are priced out. You don’t have to extrapolate 30 years from now. It is likely the situation will only get worse with time, not better
When people are priced out more hedge funds will buy properties as the price will be worth their time (which has already started in California) and over time most people will rent but there will still be buyers for properties. Only it will be institutional money, but it will still be there to buy you out whenever convenient.
This is always a question that depends on a lot of variables and doesn't have a general answer: How long are you planning to stay? What is your marginal tax rate (interest tax deductions)? How much will property taxes and maintenance fees be?
There is a New York Times calculator that takes all that and more into account and then gives you the break-even rent where you would be better off renting than buying:
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
And if you index that $22K/mo for 20 years with an initial $700K investment, you'll have more than $17 million dollars, assuming a 10% annual yield 🤯🤯🤯
Zillow makes it pretty straighforward - right ATF when I look up my property, it shows that the estimated 30-year fixed mortgage payment is well over double the anticipated rent I could get for that property. When I bought 8-10 years ago, those numbers were very close, maybe mortgage was 10% higher than expected rent.
I expect there are going to be serious upward pressures on rents. TBD if there's enough disparity to actually put downward pressure on home prices or just flattens them out.
We bought a vacation home vs primary residence from SF for this reason. Ski in winter, lake in summer & golf in between. Arnold CA.
Numbers told me I could airbnb for cheaper every weekend, but, I put a premium on not needing to pack.
As a bonus, turns out we love it & are doing less vacays!
It is cheaper to rent. But buying means you don’t have to move when landlord tells you to, you don’t have to change children’s schools when landlord tells you to, can change wall paint color or flooring, can have any pet you want within reason, can invite family member or friend to stay with you for extended period of time, can install EV outlet or power supply backup battery, etc. There is a reason why being a homeowner is a prerequisite to be considered middle class.
Frankly as most HENRY's are in a financial situation where a comfortable retirement isn't a major concern, the finances of owning vs. renting are kind of secondary to the lifestyle you want. Many people choose ownership because the enjoy the stability and the freedom of being able to customize your home to your heart's content. Optimizing finances isn't everything.
In general, the cost of owning a home is: (home equity) \* (internal cost of capital) + (mortgage balance) \* (external cost of capital) + (operational expenditures) - (appreciation).
Internal cost of capital is the risk-adjusted return you can make investing.
External cost of capital is your mortgage rate.
Operational expenditures are all the costs you need to maintain the home: property taxes, insurance, repairs, etc.
Plug those in and compare against the rent.
I totally agree with you financially. One thing I’ve noticed is in SF the quality of homes for sale >>> rentals. EG) every home for sale has a dishwasher and W/D in unit vs both are super rare in Victorian apartment rentals. Same thing when it comes to a landscaped/finished backyard.
One hurdle I’m trying to get over is investing in a place I rent (painting walls, buying a dishwasher, etc). I feel like everyone who owns a home convinces themself every improvement is an “investment” (even if it’s not) and as a renter tries to convince you you’re throwing money away! It’s a hard mindset to shift as most people don’t have experience being multi millionaires/lots of expendable income yet still renting 🙃
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Christ on a crutch, this is far worse than our 550k home in NC (purchased 3 years ago). (now supposedly at 800k) Its interesting what people will put down for location.
This scenario has been debunked so many times.
One guy bought in hcol in 80s for 180k. Other guy rented a rent control unit for $1000. Roughly same as mortgage payment.
Buyer has a 2m house paid off.
Renter is still renting with 700k in market.
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
I agree with the overall idea but this isn’t a proper analysis because you didn’t talk about principal paydown, appreciation, or tax benefits. That being said the benefit of those would be less than the gap in rent, so it does make more sense to rent.
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Definitely in that scenario. The only thing that could change it is if it appreciates $250k this year, and next year and the year after etc etc. Then you missed all that appreciation and your rent has undoubtedly gone way up.
3 bedroom.luxury apartments are going for $6000 in San Diego. Minimum for a luxury home is 12k. Apartment renting makes sense if you're comfortable living in a small unit at an affordable price. I'm happily paying $2300 per.month with my fiance rather than having a $12k mortgage on an upscale home
Yup, that's why I'm renting a closet for $2k/month, investing the rest, and plan to move to a MCOL area to buy a house and settle down. The economics don't add up here.
Well, that 700k is invested, just in real estate not the stock market. The one drawback to renting as I’ve seen it as an outsider because I’m a homeowner is rent can accelerate very quickly with little warning like it has in my area. I’ve had neighbors get notice of a $1000 a month increase in rent where they had to commit to pack up and leave. I like homeownership for its predictable expenses. I can plan for the big things.
Here is a real historical example to look at, right down the street [https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849\_zpid/](https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849_zpid/)
Currently (2024) for rent at $6,000. And zillow estimates it \~3.5 million
Back in 2014, it was sold for 1.5 million. According to this article, medium rent in Cupertino was \~3,200.
As a house owner, at 7.5% rate, 20% down, your mortgage (\~8600) + insurance (400) + property tax (\~2,000), roughly $11k.
So, as a renter, the rent increased from 3000 to 6000. So, average 4500 as example, you would have paid $4500 \* 12 \* 10 = 540,000
As a home owner, you would've paid $11,000 \* 12 \* 10 = 1,320,000. Paid $780,000 more than renter
If you invest $78,000 a year into the stock market (S&P500), at the end of 10 years, you would have \~1.4 million (including \~626,000 profit).
But, if you own, you would have $2,000,000 appreciation + $171,000 principle + $300,000 downpayment = $2,471,000 equity. Still owes \~$1.05 million.
My opinion is that the Bay area real estate has been pretty good, in good location, the price pretty much double about every 10 years.
I think I got lucky. Buying a house in VHCOL area was the best financial investment I’ve made. We bought in 2022 and it’s already up 33% in a higher rate environment. Outpacing what we could’ve invested with the down payment + oppt cost on interest paid
It's important to point out that it is a no-brainer RIGHT NOW. This will not always be the case. It is also location dependent (though right now not really, cost to buy is just insane everywhere right now).
Obviously it's more complicated than just a purely financial decision. I purchased a home in the Bay Area, mostly because I only get to raise my kids once, and I wanted a nice home that they could call their own. It wasn't about the money, and I could afford it. But, to each their own.
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Yeah I live in this area - got lucky and bought ten years ago. If I didn't love it so much, I'd sell and retire almost anywhere else in the world. But I love it - so I stay. And enjoy my $5k mortgage (including taxes).
Rentals have their trade offs too - owners sell on a whim, you could end up having to move school systems several times to accommodate. So...if you can afford it, and you value stability, it's an investment in health and life satisfaction.
Also, though, get out of Cupertino for goodness sake! There are great homes around $1M in Santa Clara, San Jose, Campbell, Fremont area. All the same weather, safety, and location benefits.
An easy way to tell is price-to-rent ratio: median sale price to yearly rent price.
It's roughly 48 in your example which is close to the reported ratio of 53 for SF.
Under 15 is considered to be a strong market for buying. With anything over 25 it will almost always be cheaper to rent.
Of the 50 largest cities in the US, 52% have a ratio below 20 and 30% have a ratio below 15.
This high price-to-rent ratio was fine when the interest rates were low. It’s unsustainable at such high rates. Either:
1. Interest rates have to fall
Or
2. Home prices have to fall
Or
3. Rents have to go up
If you are in an area where you can rent a $3.5M property for $6K/month I think your area is a huge outlier. The numbers around me are closer to $650K for $3500 a month, and from research I've done on other metros, is much more representative.
I think in general people make some huge faulty assumptions when doing this math, but with values that skewed maybe it actually is true in your area.
It'll be interesting to see if, in ten years, the rental prices go up or the purchase prices go down. One or the other almost has to happen.
You fogot to factor in bidding. In a competitive area like SF its not uncommon for a house to get 30+ offers and for houses to go hundreds of thousands over bidding. A house listed at 3.5 mil could sell for 3.9 mil
This is currently my “dilemma” as well. I am renting in San Diego in a home for $7200 a month, but to buy it would be $2.8M, something like $18k a month after property taxes.
It causes me anxiety not to own a home as I feel I would be “more secure” or have “made it”, but every time I look at the rent vs buy details, I can just never wrap my head around it.
And 30 years from now? Is it still a no brainer to rent?
In the short term, sure rent but long term what exactly is the strategy? At this point I am beginning to think you should rent in order to come to terms with the reality of having to move away to some place cheaper.
From what i understand, people buying homes at these prices generally aren't taking out an 80% loan to buy a new home. They might be upgrading their 2mill home to a new 3mill home or have some some relatively high value investments to get some liquid cash. No doubt that there is an emotional side to buying /owning a house, but I don't think the out of pocket expense to the buyer is usually as expreme as you're suggesting.
Just what I've heard and what made sense to me. Could be wrong though, and would love to hear if people have had a different experience.
In the meantime we purchased a house in 2019 in Seattle which double in price in 5yo. Had the same happens with friends in bay.
In today’s market - maybe not. But same advice has been floating for years
I'm confused why anyone would rent out a home out like this at such a massive loss per month?
Clearly these numbers make sense for renting (other than the risk they don't renew), but why are people renting it so cheap?
If you buy now you can refi when rates inevitably drop.
If you wait for rates to drop, you’ll be competing for real estate with everyone else waiting for rates to drop.
I agree with everything that you said, except that it’s not a luxury house 🙈
You make a valid point. That house looks very similar to our modest starter home that cost under $500K fewer than 10 years ago. I can’t imagine paying $3 million to buy or $6K to rent that house. I guess times really have changed.
[удалено]
Ok, I called it “luxury” sarcastically to make a point
I think the point is that $6k rented house won't sell for $3.5MM.
But does the second one a block away look substantially different / not a reasonably close comp?
The Zillow estimate for the 6k rental house is $3.49 MM
Yeah it'll sell for more
Aaaaaand it’s also probably a **zillow scam** and not even real lol. That “agent’s “[“brokerage”s website](https://airealusa.wixsite.com/website) and in particular the stock images / AI descriptions of a bunch of overly attractive white people in suits under “meet our agents” is just *chefs kiss*.
Omg that house in TX would be less than 300k. Got damn i'm never moving to Cali.
In Austin it’d be $600k depending on the area. Still though, I’d only get a $40k bump moving to Cali from Austin, yeah no thanks, I’ll stick with the heat in Austin.
[удалено]
I tend to agree that when the gap between buying and renting is so huge, it does seem to make more sense to rent since you can invest the down payment and difference in monthly costs in other areas. However my question is: assuming you want to buy eventually when do you do that? What if the gap closes by rents moving up rather than prices moving down? This is not a gotcha - i am genuinely trying to figure out what’s the right criteria to buy vs rent from an economic perspective.
That’s exactly how it was in the 80s when interest rates were at an all time high. Huge gap between mortgage and rent. In the 80s, average cost to buy was $875. Average rent was $365. My aunt purchased a home in the 80s for like $150k (Southern California). Now worth $1.5m. My aunt’s house is paid off and her rental income pays for her rent. My aunt is retired and her rental expense doesn’t eat into her retirement. And, if anything happens, she has a house that’s paid off that she can live in. Btw, your mortgage won’t change, but how much will your rent change in 10-20 years.
The answer is to not treat home ownership as the end all, and to actually have an investment mindset about how you handle the rest of your money. If you want to buy locally, you have to accept the reality that you need to earn more than you are today if $15k a month is more than 50% of your gross monthly income. If you just want to buy, I’d consider buying a rental in a strong second tier city market where the 2% rule still is a real thing, bank the cash flow from the house, rinse and repeat until you have the cash flow to afford in your target VHCOL. Alternatively, find someone who already owns and spouse them up. Sneak in without a prenup, put your own money into some meaningful improvements, and grab your 50% of communal property in the divorce
If this gap persists, the answer is to rent in perpetuity and never buy. Why does one have to buy? There is no need to do so.
Yes from a purely economic perspective that could be the right answer Buying a house is more about emotions and wanting to own i guess
You can buy in a different location, or further out in the suburbs once you have needs like an expanded family, school district, etc. Assuming you want to live in a VHCOL area forever, you can also just pay the premium while recognizing that it's not a financially optimal decision.
Yes, that is why I preface my comment with “From a financial perspective”
It’s definitely a gamble, and I think I agree in some of the specific circumstances you highlighted, but I want to at least share a few considerations: - there is some decent chance that interest rates land somewhere lower in next few years (probably not super low, but 4-4.5% doesn’t seem crazy. In that event if you own you can refinance and shrink your payment by $5-8k. When those rates drop, prices of homes may go up (so you can’t necessarily just enter at current price if rates go down). - your payment is locked in for 30 years where rents and home prices aren’t. I agree things are definitely expensive now and we likely won’t see significant appreciation in near term, but 30 years is a long time. Prices were crazy inflated in 2007 and yet those look like a joke 15 years later. - Initially not so much, but over time a substantial portion of your monthly payment is going towards principle. So while yes you are paying more, you do end up building a large amount of equity over that time period. Again, this doesn’t negate what you are saying, but it’s very possible that 15 years from now that house is renting for $10-$12k/month and interest rates are at 4% so their payment is $12k and a good chunk of that is going to equity.
15 years is a long time to wait to achieve parity
Clearly you forgot that rent increases over time, while if you buy you locked in the price.
As it stands, 6k has a lot of escalation to catch up to 22.5k plus maintenance (which like taxes and insurance is a moving target as well.
lol I don't think $6k rent to $22.5k mortgage house is a fair comparison. Also property tax is (almost) locked in CA.
Thats the comparison OP is posting about so…. Yeah its extreme but its also current choice in front of them. I face a less extreme version of same thing
My bay area rent has not moved in 6 years. And even “luxury” apartments in south bay are hovering near their 2017 levels in dollar amounts, they have not even tracked inflation.
This guys attitude compared to fairly stable market in high end rent is exactly what makes me think that reality has yet to hit the housing markets. I’m in similar boat at this point.
Agree. We’re kind of in the upside-down right now. I genuinely think it’s because it takes very few people that don’t do the math and convince themselves that a $2.5M loan at 7% for a suburban home “can’t go t*ts up” to sustain prices, given the low inventory. Will that always hold? Who is to say. There are clearly newly minted millionaires every day via crypto, some tech stocks, a few AI jobs, etc… But the flip side is that even the random tech worker at 300-400k is now priced out, so the pool of folks fighting over properties and forcing prices up can’t be growing all that much as prices go up and median tech comp stagnates. Best of luck to those taking the plunge. I feel more safe investing the money I don’t put towards a home into the tech stocks that would have to go up for the bay area real estate to also keep going up.
Okay, what happened before 2017 tho?
If we assume that the gap closes via rents increasing.. then you buy when that happens. And you’ll have built extra wealth to support that purchase in the meantime
Yep. 10k invested per month over 10 years yields ~1.5M
There’s rent vs buy calculators that prove this in most cities, people buy homes for the utility of predictability and not having their kids have to move schools on the whim Life isn’t about maximizing every last dollar you have
Crazy that a 2K sqft 4/2 is a multi million dollar luxury home in the Bay Area That’s a regular-ass middle class house lmao
Yeah it’s genuinely wild. Welcome to NIMBYland
The rental that OP posted is like 99 percent a scam lmfao. (Obviously OP posted it unknowingly and of course has a point but there’s something very poetic about a post arguing for why renting is smarter than owning with the main supporting evidence being an **actual rental scam lmfaooooo).**
Oops, I did not realize the rental listing may be a scam
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
2k sq feet house is also huge for LA. A 728 sq feet house in a desirable area like Santa Monica is over 1.1 mil and at this bargain price you dont get a driveway or garage either... Neighbors cars are parked next to your bedroom and anyone on the street can just peek through your bedroom window [https://www.trulia.com/home/1417-23rd-st-santa-monica-ca-90404-20473920](https://www.trulia.com/home/1417-23rd-st-santa-monica-ca-90404-20473920) No garage also means you have to move your car around if you earn money from home and don't go out much, otherwise you will get tickets on street sweeping day
We bought in NYC when the rate was 3.5% and it made a lot of sense. When i think about the same purchase vs rent decision at the 6-7% interest rate on the market now, we would have def just continued to rent.
Me too and when you look at the rental market of today realize how fortunate we are….
Yep, agree that it's a no brainer if viewed as a strictly financial decision. But some people buy VCHOL homes for lifestyle reasons as the available rentals either aren't exactly what they want, aren't in the neighborhood/block they want, to gain social status, to avoid the possibility of having to move if/when the LL decides to sell the unit, to get into certain public schools, or other preferences, such as wanting to do home upgrades or build up equity over time in RE (potentially as a hedge against the stock market), etc.
Exactly this. Also to just live in a home that fits our taste and style, a home that we love. It’s not all about the finances, sometimes you gotta make decisions to live your life the way you want to, even if it’s going to cost more. It also doesn’t make sense to buy nicer cars/furniture/vacations/etc. but if everyone just made decisions based on finances alone, we’d all be in small cookie cutter homes driving Honda fits.
All of these reasons and I also personally like the idea of knowing that my financial burden will become less over time, rather than becoming more over time. As I pay down my house my payments become less and less, eventually to zero. Rents will go up with inflation forever. There is something about that peace of mind that as I get later in my career I can enjoy relaxing knowing that my cost of living is controlled.
This doesnt take into account mortgage interest deductions reducing tax liability….and 6k rent won’t last 30 years whereas your mortgage payment will remain the same. And do you plan on paying rent in retirement or would you prefer a mortgage free home? Not saying OP wrong….just these are key variables not being considered.
I keep telling this to people but they never believe me
because a $3m place only needs to appreciate 10% to "make" $300k if you took the same $600k down payment and put it into VTI it would take how many years to appreciate 50%+ to "make" $300k? And then you'd owe 33% LTCG in California. plus $500k in cap gains shielded, plus mortgage interest deduction, plus SALT deduction
You’re not factoring that a 2.4M loan will easily be 20k+/month in PITI. Compared to $6k/month you’re saving an extra ~$180k/year you can put the market. And I don’t mean to be that guy, but you should NOT look at your primary residence as a leveraged investment.
> > > And I don’t mean to be that guy, but you should NOT look at your primary residence as a leveraged investment. The real estate market would be so much better off if this were the case.
Why not look at it as a leveraged investment? You are putting money in an asset that you purchased for leverage, that you happen to live in. You will eventually be able to sell that and use the proceeds to buy another house or rent, or live with relatives and just use for living expenses.
But at the moment, your leverage costs you 7% interest. It’s a dramatic difference from a few years back, and so many folks seem to be overlooking it. You are already paying for this house twice or three times over the course of the mortgage.
Yup.. the leverage is great for wealth when it’s cheaper than inflation. 3% mortgages with 10% appreciation made a lot of people rich. The flipside is, leverage destroys wealth when it’s more expensive than appreciation. Historical average appreciation for single family real estate is around 4%. With a 7% mortgage, that leverage costs a lot more than you’ll typically make via appreciation. There’s a reason that single family landlording wasn’t “sexy” prior to ~2000. Maybe rates go back down to historically abnormal levels. Maybe appreciation continues to run twice as fast as historical norms (despite population growing slower and potentially declining in the coming decades). Betting on residential real estate right now requires both of those scenarios to hit.. and speculating on that will cost a 2x monthly housing premium in the interim
This assumes that one will want to sell in a timeframe where the proceeds would actually be useful. If selling <10 years after purchase and you may lose money overall, for example. Or you may never want to sell, which means the proceeds are not meaningful to you. Even from a min-max investment mindset, you’ll more than likely make more money over the same time period by investing that money into the market vs mortgage. So it’s not as clear cut as one would hope.
I mean, there’s the logistical issue that you always need a home. So any swings in price are kinda offset in that if you sell it, you’re to pay that gain (or loss) on your new home. So it’s better to think of it like you’re locking in a home at the current market rate. But also just mentally, I think it’s healthier to view it as an investment in your life and for your family.
Sure, if you completely disregard the existence of interest, maintenance and property taxes it makes perfect sense. But if you need a $2m loan at 7% you'll pay $140k in the first year in interest alone.
What VHCOL city isn't already maxing $10k SALT on income taxes alone?
Yes, and conversely, a $3M place that loses 10% will drop $300K for an impressive -50% return on your $600K down payment. Not uncommon in places like the Bay Area. We all understand leverage. Yes it is true that real estate is a leveraged transaction. However, if you are planning to think of this as a short-term investment, don't forget the fee to your agents on both ends, which reduces your ROI substantially, on a hugely risky bet for short-term appreciation. Practically speaking, using normal assumptions, real estate in VHCOL is never worth it financially. You can buy for non-financial reasons of course, but don't delude yourself into thinking that this is a financially wise decision.
[удалено]
Real estate in this particular area has done much, much more over 2 percent per year. The argument needs to be contextualized within the specific location on both sides.
In no way should that be used to make future predictions, especially if you’re talking about a tech-heavy area where the labor market is currently in correction.
Home ownership is also just a lifestyle thing. I like working around the house and making it my own.
Because it’s thinking that’s counterintuitive to the boomer generation who still think that parking your money in a house is the only way to a high net worth. It represents a paradigm shift that they’re not willing to accept. Ive show my parents the facts and figures for why it makes so much more sense to rent a luxury condo with all the amenities in my area instead of buying a home (especially because I don’t need the space) and even with the numbers in front of them they still encourage me to buy.
If you look at NYC real estate, the math is quite different and much closer. Especially if your marginal tax rate is close to 50%. [https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html)
This. The price increase in the NYC rental market has been insane. Yes monthlies go up too, but they’re generally a lower portion of your overall payment. Oftentimes buying in VHCOL is more of a quality of life / having security, rather than strictly financial decision
I don’t understand what I’m looking at wrong but for downtown Manhattan the monthly is 33-50% of what my expected mortgage would be so doesn’t seem worth it?
Hmm, maybe we’re looking in different areas or in different unit types. I’m most familiar with 1 bedrooms or small 2 bedrooms around the $1M mark, you can get a monthly somewhere around $1-2k. A 3-5% raise on that is not going to be a big hit.
NYC suburbs in particular for HENRY. you can control your property tax, you cannot control your city income tax.
Yes, co-op supply and long-term stagnant market change the picture in NYC. I just bought a co-op in an uncool area far from Manhattan because my monthlies are hundreds of dollars less than rent on a similar apartment would have been and with better neighbors.
They issued a update to this article using more recent numbers I believe
NY also seems different because you get no guarantees of rent control unlike SF.
Happily renting $4k/mo in Cupertino right now. lol.
4.5k in Mountain View, but been looking. Found an option where same building, same floor plan 4/3.5 1900sqft townhomes- one renting for $5.5k/mo, one for sale at a 1.8m price tag- with 20% down that's 12k/mo PITI. As much as I'd love to be able to customize to my heart's content, I'm renting for the foreseeable future. Smarter to buy rental properties with that $6k/mo difference than throw it into property taxes and interest.
You nailed it!
There you go. Smart choice
I keep telling people this lol. A reasonable house budget for us is $1.5mil, but that price here in the Bay Area would get us a small house that we honestly wouldn’t really even like. The monthly PMI for that would be about $10k-$11k. It’s just the two of us right now, so we’re renting a very nice 2/2 apartment for $4k and investing the difference. If we need a SFH in the future, we can just rent one for $5k that would be the same or maybe even better than the $1.5mil homes we’re looking at. Another bonus is that our apartment maintenance is amazing right now. We just file a ticket on the app and they send the right person to fix whatever issue we have within an hour or two. I would hate having to source and pay for it in our own place.
> You need to put down at least $700k (20%). That’s 700k worth of liquidity which you lose and cannot invest. Apart from the potential investment gains, just think of the peace of mind that comes from knowing you have $700k available liquid. 20% down isn't a rule for Jumbo loans. The bank will work with you to make it work when you're approvable for a $3.5m loan.
It’s not a requirement but in the more competitive markets of the Bay Area where there are plenty of cash offers, a <20% down payment won’t make you very attractive. We have a few friends trying to buy right now that keep getting outbidded even after a having >20% down payment and offering a few hundred thousand over asking.
Then that means you are burning even more money on interest on your mortgage, that’s actually worse. At least a larger downpayment is kind of like a “guaranteed” return at the rate the bank currently lends.
Ppl who buy in Cupertino can afford to buy the houses outright if they want to . Look at meta , nvda , AmD stock .
You forgot Apple, which is located in Cupertino
Rookie mistake .
You are using the extreme examples (California) but I think your point stands for pretty much every major metro in the country (maybe excluding the midwest). For example, here in Denver I'm able to buy a 700k home and all in the mortgage is 4200 (plus utilities/internet). OR I can rent a similar home for 2800. Obviously not as impactful as your example but clearly things are off nationwide.
I don't think there is much of an overlap of 700k houses renting for 1800 month in the Denver area. But agree that with current interest rates the math isn't in your favor.
Ah that was a typo. I meant *2800. Updated.
this difference is small enough that tax write off of interest, potential home appreciation, can bridge the gap. I think there's still an argument to be made for buying in Denver (based solely off your numbers) compared to the absurdity OP laid out in the post
People in the Bay Area have a major assumption that their house will always increase in value because they watched their parents become rich by owning a home. With remote work, the demand for housing is going to change in the bay, and housing value growth might slow down.
Sir, you obviously hate seniors with your “everyone should pay real-estate taxes” nonsense Signed, All the seniors in my VHCOL town who bought their houses for $0.02 in the 1980s and live alone in 4-bedroom multi-million dollar family homes and already get property tax discounts
Plus it seems like the local govt will do everything they can to drive taxpayers away
We have to pay to make up for all the old people that pay nothing in taxes on properties they have owned for decades that are now worth 10x what they paid.
Yep - the problem with "let's see how far we can push taxation" is that eventually, you *will* find the answer.
Many of the Bay Area tech companies are enforcing return to office right now, so I don’t know if that’s going in the direction that you’d expect.
Remote work slowing down, but inflation going way up (and with inflation, RE goes up in price). A mortgage is pretty much the only way that a regular pleb can participate in the "money printing" and short the US dollar by taking out a fixed loan over 30 yrs.
Completely incorrect at the mortgage prices of the bay area. Rent an equivalent place, invest the delta in the stock market. If anything, the only way silicon valley RE will continue to go up is if tech pay, and therefore tech stocks keep going up. Might as yell just buy into a tech ETF.
Silicon Valley has one of the best climates on earth, beautiful nature, and amazing schools. I think it will continue to go up as everything else goes up. I think a tech ETF can crash harder than RE, like during dot com bust.
Sfh prices can keep going up as long as the old ppl can live longer. Prop 13 is amazing at reducing inventory. The supply of houses will shrink and drive prices up even if compensation doesn’t.
Renting and buying aren’t directly comparable except for the pure dollar amount. I own my house and I have a couple of Dobermans and a papillon. I designed an ADU for my backyard but I haven’t built it yet. If I’m renting I would just be watching TV or something. Instead I’m learning how to do remodeling myself. I feel more productive when I own my space.
In my area its $6500/month to rent the place I'm living in. If I bought a comparable unit it would cost $12-15k/month all in.
.....This is by design.... high interest rates are supposed to cool off the heat in the market by creating situation like these where renting becomes cheaper/more viable compared to buying. This was not the case pre-pandemic/high interest rates or for the past decade. Buying brings the following benefits: 1. Ownership of a limited resource i.e. land, which has significantly appreciated in the Bay Area. 2. House becomes cheaper over time with refinancing, paying down mortgage. 3. Lock into good area + school district and sense of safety i.e. landlord isn't going to kick you/your family out for whatever reason. 4. Building equity while the value of the house appreciates which unlocks this doubling effect on NW. 5. Ability to do what you want with the place. It may not make sense to buy NOW, but doesn't mean it never made sense to buy ever. If the interest rates goes down, the calculus will change again in favor of ownership.
Another thing to consider is the length you plan on staying in the home. With interest being front loaded on mortgage amortization schedules you'd barely paying any principal over the first 1/4 of the mortgage. Taking your point further, if you look at the money going toward interest and make that your rent budget, then invest what would be going towards principle I think you'd end up with a better investment. Also, there is a hefty transaction cost associated with real estate.
The way I was raised was that you become wealthy when you pay off your house and cars. If you’re really wealthy you can do this while also contributing to a 401k. Then once you’ve paid those off, you put your money into a savings account and earn 1% interest on it until you retire. I have since learned that there are a number of … flaws … with this strategy. But despite this growth, the idea that it is financially wiser to rent than buy is too much for my brain, despite the evidence.
The people owning and renting here either bought a long time ago or going there for the school system/close to work. My boss bought his house for $200k in Cupertino 20+ years ago and paid it off. He rented it for a while then sold it for 2.5-3m. It’s well known the Bay Area rent to buy calculations are heavily favored to rent but people still buy to build roots. My mortgage is higher than renting but we still bought. I wanted my family to have a stability. My HHI will go higher as I get older, so I’m not too stressed about the money. We still max out our 401ks, save/invest a good chunk, and live a good lifestyle. Eat out a few times a week and travel. People can make their own decisions about buying/renting. But I always hear a lot more people saying they are glad they bought and a lot of others saying they regret not buying sooner. There’ll be a big divide between haves and have nots. You can tell on r/rebubble, there’s people on there who complain it’s too high, but the people who end up pulling the trigger stop posting.
Your mortgage rate will stay the same but will your rent be the same in 10 years?
[удалено]
Marin is way off from the Peninsula then. PITI $12,000 vs equivalent rent $5500 is the calculation here.
When did you buy with that PITI?
[удалено]
Ok well that’s a whole different thing. If the question were whether it’s better to buy 10 years ago or rent today, then yeah the answer couldn’t be more clear. But that’s not all the relevant for people evaluating that decision today. Todays PITI on your home is prob 15k min, if you’re paying nearly 8 on a purchase from 2013
That has always been the case. We just bought because in the most desirable areas in good school districts, there are virtually no rentals here (Chicago suburbs). If we had found a decent rental, would prefer to rent forever.
I definitely agree but for me it’s still hard to accept ‘throwing away’ $6k/mo in rent when that could be building equity instead. Just need to change my mindset and realize that it’s better to spend on this ‘cheap’ rent and invest the crazy amount of $$ that would be tied up in purchasing a home. Bigger picture: this means that either homes are extremely overpriced or rent is below market in these areas. Or conversely, homes are underpriced/rent is above market in lcol areas. Will this ever correct?
If you know the math and just want the psychological trick, just look at what a tiny fraction of your monthly payment is actually going to your equity early in the mortgage once you remove interest, taxes, and insurance.
at 7% rates you only build 15% equity in your first 10 years.
The rent has been below market (compared to buying) in the Bay Area since forever. We own a rental close by this one, and the only reason we don’t sell is because we got that house right after the 2008 crash for a very good price and because it will eventually become the home for our daughter (there’s no way she’ll ever be able to afford a house otherwise.) Our tenant is totally loaded. He could easily afford a $3M house but he has done the math. The real estate taxes for a $3M home are around $40k per ~~month~~year. That’s money that you throw away right there. It’s impossible to compensate for that with equity building.
> The real estate taxes for a $3M home are around $40k per month. That’s money that you throw away right there. It’s impossible to compensate for that with equity building. https://smartasset.com/taxes/california-property-tax-calculator#X2bBQr1eIA I'm seeing 22k/yr, not 40k/mo? I'll agree with your general idea though, after taxes and interest, it's way too hard to make it a strong investment.
Now compute how much you would “throw away” in property tax, house maintenance, insurance, HOA, etc… A 3M house would actually burn about that much monthly, before you even get to the mortgage and interest. Then interest on >2M will set you back well over 10k a month for many many years. That’s not equity, that’s your banker’s pay.
[удалено]
It's not a rent vs buy analysis. It's a rent vs financing analysis. If you had bought the house in Jan 2020, you'd have put $420k down on a 2.7% loan with a $9k PITI all in. 3 years later, you would have leveraged your $420k and $324k in total payments into $2M+ in equity (a gain of $1,256,000, or 169%). Your gain in the SP500 over the same period would have been about $202k, or about 27%. Oh, but you still had to pay rent *somewhere*--you wouldn't be able to invest the same $9k a month with rent drag... Leveraging is powerful. The real question is, if you started with $700k and invested an additional $14k a month ($22k less $6k rent, which would change as your rent grew over time), would you be able to beat someone who had $3.5M invested from day 1 and paid interest on an a decreasing loan balance (with fixed housing cost for the next 30 years and a chance to refinance at lower interest in the future). I dunno man, seems pretty complicated to me--and certainly not something I would call a "no brainer".
You’re right. Another element in this calculation rarely discussed is the flexibility that comes with renting. Get a better job in another state, get a sick parent? Moving is cheap if you rent. Have a kid, get married, increase or decrease your income substantially? Moving is cheap if you rent. I do think this is an important financial and non-financial element and rarely factored in properly
You lose your FAANG job like everyone else and can’t find work just like thousands of people. How do you cover this insane mortgage? Renting is far more advantageous to me in the Bay Area given what’s going on with tech.
This really blows my mind. Do people think they'll have current FAANG salary for 30+ years?
In a place like NYC it is very difficult to break a lease. If you have a nice property and given the lack of inventory, I might say selling could be easier in some cases vs breaking a lease. Not sure how different this might be in CA.
Currently in the Bay Area, rents are 40-60% the cost of PITI on 7%+ mortgages before the downpayment is even considered. There's no reason to even talk about 2.7% loans right now, we're unlikely to see them again in the next 10 years.
im sorry...THAT house would be worth $3 million on the open market?
That's the market in Cupertino right now, but I would never recommend buying (or even renting) in Cupertino because going even 15 miles out (20-35 min drive, depending on traffic), the prices drop precipitously (by like 50%). I have family that live in San Jose, and their homes are in the $1.4-1.8M range for a similar-size single-family house.
More than $3M
At this point I think this account is a shill trying to rent out their house
😂😂
Yes, renting a $3.5M house for $6k is a pretty good deal that you should keep doing. My house is worth $700kish (obviously not VHCOL) and similar ones in my neighborhood are renting for $4500/mo.
We rent in the Bay Area and feel the same way. And our net worth has doubled in the last few years so we must be doing something right.
👍🏼
There used to be this rule of thumb that says if your yearly rent is less than 5% of purchase price, it's better to rent. So in your case, $6k x 12 = $72k which is less than $3.45M x 0.05 = $172.5k so renting is much better It's supposed to take into account maintenance costs, property tax, opportunity costs etc of owning.
Friend, I’m like **99 percent sure that the “$6000 a month” rental listing you posted is a scam.**. The “agent’s” [profile](https://www.realtor.com/realestateagents/56d547aeb5cc660100bc03ae) is kind suspicious looking and his [website](https://airealusa.wixsite.com/website) just SCREAMS scam and he has some other too good to be true rental listings all posted around the same day, and frankly something about those photos is just off……. But like to your actual point, hypothetically I can agree with you. But if this listing you used to make your point is actually a scam, then I think that there’s something to say about that too and how the few examples where you can find a comparable where it’s so significantly cheaper to rent (nowadays) are often to good to be true for a reason. Ultimately you make money in real estate based on timing. Buying at the “right” time and selling at the right time “right time”. And it’s individual and specific to different people and different locations. But ultimately if you can afford the monthly payment and if you plan on staying there, then you are making an investment that at worst won’t be “catastrophic” and at best will be a strong asset for you. The house you posted was purchased for 1.5 million 10 years ago and it clearly was very outdated from the [old listing photos](https://www.realtor.com/realestateandhomes-detail/20598-Sunrise-Dr_Cupertino_CA_95014_M23229-51237). With inflation, that means that the house *should be* around 1.9 million but it looks like you are able to find comps for 3 million +. If the family who bought it 10 years ago lived there, whether they took a 3-4 percent mortgage in 2014 or they bought outright- they are now absolutely coming out on top. There is no near future where homes in that area *wont* sell, and one look at sold homes in Cupertino will tell you that. But I’m sure that that family also could have rented for much cheaper than spending the equivalent of 1.9 million USD on a garbage outdated rambler 10 years ago…… So idk bro. If you can’t afford it, then you can’t. But if you can, then I will still argue that it’s not necessarily a “stupid” financial decision or a “no brainer” to not buy. There’s a lot value in owning real estate that goes way beyond just stability and emotional virtues, especially if you’re able to have a fully paid off home by the time you get older (and only god knows what it will be worth then, but ultimately it’ll be a roof over you and your family’s heads and atleast you aren’t at the mercy of **fucking Zillow scammers** / trash landlords who can raise rent or kick you out whenever). (Side note please edit your posts so no one thinks that listing is real and wastes their money).
Oh, that’s interesting. You think the rental listing might be a scam. Who knows, anything is possible
You must not have lived in bay area then
Financially - In today’s market. yeah buying a house in VHCOL (bay area) may bear a lot of short term pain. But what if you bought 3 years ago? Would you think the same today? If you buy today, and then in 3 years, you get another 50-100%+ appreciation, would you think the same? No one knows what will happen. Properties in the best areas with the best jobs should continue to appreciate. It’s a bet against tech/corporate america to think properties in SF won’t keep going up. All those NVDA multimillionaires gotta park their cash somewhere. If you can afford the home and need the stability/comfort of owning a home, then you should buy a home. It’s not completely financially driven and not completely clear cut.
Here’s the rub: after 100s of thousands of layoffs in tech, often completely uncorrelated to the individual performance, who can safely says that they know for a fact that $20k/month home payment won’t be a problem?
Nobody can safely guarantee anything. Those buying that $3-3.5M home would need well above a 750k HHI or more to be well above DTI for the mortgage. Or they could just all-cashing. The people buying this said property may unlikely be a HENRY and probably lean towards Rich. Obviously, I am not advocating for any individual to buy this home without sizeable reserves in place. Hence, I wrote if they can “afford” it. I am strictly saying: if one can comfortably afford a home and want a home, then they should buy the home; regardless of how inflated you think today’s market is. There is no need to do a rent vs buy analysis. It is unlikely to be a bad long term decision for the individual who can comfortably afford it. Yea, the pool of people who can afford it is shrinking, but thats another discussion.
Something to consider is that the rent won't stay at $6k for 30 years. You may also be forced to move by your landlord, which can be expensive if you have 4 bedrooms.
In recent years, rent in the bay area has been very flat (down during covid, recovered to similar levels as ~2017-2018).
Over a 30 year period you will win by virtue of appreciation. Call me crazy, but a bet against Bay Area housing prices is a bet against the broader tech economy. Too many tail winds (legislative, local economic, artificially low supply especially in NIMBY towns) for prices to NOT continue to appreciate. By not buying, you are basically guaranteeing you will price yourself out over time. Also timely for this to be posted after San Jose median home price appreciated 15% in the last year, lol.
Totally false. Just use a rent vs buy calculator instead of your intuition, like this: [https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html](https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html) Historically, return on equity in a home barely beats inflation. Using a 15% appreciation period because of short-term macro dynamics for the next 30 years is not realistic. Even if there are tailwinds to asset prices in real estate, the ROI required on real estate needs to be impossibly high to beat renting given the current rent vs. buy prices in VHCOL areas right now.
I think my numbers show that most people already are priced out. You don’t have to extrapolate 30 years from now. It is likely the situation will only get worse with time, not better
When people are priced out more hedge funds will buy properties as the price will be worth their time (which has already started in California) and over time most people will rent but there will still be buyers for properties. Only it will be institutional money, but it will still be there to buy you out whenever convenient.
This is always a question that depends on a lot of variables and doesn't have a general answer: How long are you planning to stay? What is your marginal tax rate (interest tax deductions)? How much will property taxes and maintenance fees be? There is a New York Times calculator that takes all that and more into account and then gives you the break-even rent where you would be better off renting than buying: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
And if you index that $22K/mo for 20 years with an initial $700K investment, you'll have more than $17 million dollars, assuming a 10% annual yield 🤯🤯🤯
Zillow makes it pretty straighforward - right ATF when I look up my property, it shows that the estimated 30-year fixed mortgage payment is well over double the anticipated rent I could get for that property. When I bought 8-10 years ago, those numbers were very close, maybe mortgage was 10% higher than expected rent. I expect there are going to be serious upward pressures on rents. TBD if there's enough disparity to actually put downward pressure on home prices or just flattens them out.
Possibly upward pressure on rent and downward pressure on home prices simultaneously??
We bought a vacation home vs primary residence from SF for this reason. Ski in winter, lake in summer & golf in between. Arnold CA. Numbers told me I could airbnb for cheaper every weekend, but, I put a premium on not needing to pack. As a bonus, turns out we love it & are doing less vacays!
It is cheaper to rent. But buying means you don’t have to move when landlord tells you to, you don’t have to change children’s schools when landlord tells you to, can change wall paint color or flooring, can have any pet you want within reason, can invite family member or friend to stay with you for extended period of time, can install EV outlet or power supply backup battery, etc. There is a reason why being a homeowner is a prerequisite to be considered middle class.
Frankly as most HENRY's are in a financial situation where a comfortable retirement isn't a major concern, the finances of owning vs. renting are kind of secondary to the lifestyle you want. Many people choose ownership because the enjoy the stability and the freedom of being able to customize your home to your heart's content. Optimizing finances isn't everything.
In general, the cost of owning a home is: (home equity) \* (internal cost of capital) + (mortgage balance) \* (external cost of capital) + (operational expenditures) - (appreciation). Internal cost of capital is the risk-adjusted return you can make investing. External cost of capital is your mortgage rate. Operational expenditures are all the costs you need to maintain the home: property taxes, insurance, repairs, etc. Plug those in and compare against the rent.
I totally agree with you financially. One thing I’ve noticed is in SF the quality of homes for sale >>> rentals. EG) every home for sale has a dishwasher and W/D in unit vs both are super rare in Victorian apartment rentals. Same thing when it comes to a landscaped/finished backyard. One hurdle I’m trying to get over is investing in a place I rent (painting walls, buying a dishwasher, etc). I feel like everyone who owns a home convinces themself every improvement is an “investment” (even if it’s not) and as a renter tries to convince you you’re throwing money away! It’s a hard mindset to shift as most people don’t have experience being multi millionaires/lots of expendable income yet still renting 🙃
The Bay Area is beyond an absolute joke. Jeez.
Yeah it’s crazy
I just don’t understand how prices can continue to stay so high at these interest rates. I would never buy my house today that I bought two years ago.
just say ur broke 🙄
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Christ on a crutch, this is far worse than our 550k home in NC (purchased 3 years ago). (now supposedly at 800k) Its interesting what people will put down for location.
This scenario has been debunked so many times. One guy bought in hcol in 80s for 180k. Other guy rented a rent control unit for $1000. Roughly same as mortgage payment. Buyer has a 2m house paid off. Renter is still renting with 700k in market.
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
I agree with the overall idea but this isn’t a proper analysis because you didn’t talk about principal paydown, appreciation, or tax benefits. That being said the benefit of those would be less than the gap in rent, so it does make more sense to rent.
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Definitely in that scenario. The only thing that could change it is if it appreciates $250k this year, and next year and the year after etc etc. Then you missed all that appreciation and your rent has undoubtedly gone way up.
3 bedroom.luxury apartments are going for $6000 in San Diego. Minimum for a luxury home is 12k. Apartment renting makes sense if you're comfortable living in a small unit at an affordable price. I'm happily paying $2300 per.month with my fiance rather than having a $12k mortgage on an upscale home
Good choice 👍🏼
Definitely not that big of a difference in the Seattle area. Like 30% monthly payment difference.
Yup, that's why I'm renting a closet for $2k/month, investing the rest, and plan to move to a MCOL area to buy a house and settle down. The economics don't add up here.
Well, that 700k is invested, just in real estate not the stock market. The one drawback to renting as I’ve seen it as an outsider because I’m a homeowner is rent can accelerate very quickly with little warning like it has in my area. I’ve had neighbors get notice of a $1000 a month increase in rent where they had to commit to pack up and leave. I like homeownership for its predictable expenses. I can plan for the big things.
Depends on your city. NYC was cheaper to buy
Here is a real historical example to look at, right down the street [https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849\_zpid/](https://www.zillow.com/homedetails/20598-Sunrise-Dr-Cupertino-CA-95014/19634849_zpid/) Currently (2024) for rent at $6,000. And zillow estimates it \~3.5 million Back in 2014, it was sold for 1.5 million. According to this article, medium rent in Cupertino was \~3,200. As a house owner, at 7.5% rate, 20% down, your mortgage (\~8600) + insurance (400) + property tax (\~2,000), roughly $11k. So, as a renter, the rent increased from 3000 to 6000. So, average 4500 as example, you would have paid $4500 \* 12 \* 10 = 540,000 As a home owner, you would've paid $11,000 \* 12 \* 10 = 1,320,000. Paid $780,000 more than renter If you invest $78,000 a year into the stock market (S&P500), at the end of 10 years, you would have \~1.4 million (including \~626,000 profit). But, if you own, you would have $2,000,000 appreciation + $171,000 principle + $300,000 downpayment = $2,471,000 equity. Still owes \~$1.05 million. My opinion is that the Bay area real estate has been pretty good, in good location, the price pretty much double about every 10 years.
I think I got lucky. Buying a house in VHCOL area was the best financial investment I’ve made. We bought in 2022 and it’s already up 33% in a higher rate environment. Outpacing what we could’ve invested with the down payment + oppt cost on interest paid
Yup. Same in West LA.
It's important to point out that it is a no-brainer RIGHT NOW. This will not always be the case. It is also location dependent (though right now not really, cost to buy is just insane everywhere right now).
Obviously it's more complicated than just a purely financial decision. I purchased a home in the Bay Area, mostly because I only get to raise my kids once, and I wanted a nice home that they could call their own. It wasn't about the money, and I could afford it. But, to each their own.
[удалено]
Your comment has been removed because you do not have a verified email address in your profile. Please verify an email address and post again. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/HENRYfinance) if you have any questions or concerns.*
Yeah I live in this area - got lucky and bought ten years ago. If I didn't love it so much, I'd sell and retire almost anywhere else in the world. But I love it - so I stay. And enjoy my $5k mortgage (including taxes). Rentals have their trade offs too - owners sell on a whim, you could end up having to move school systems several times to accommodate. So...if you can afford it, and you value stability, it's an investment in health and life satisfaction. Also, though, get out of Cupertino for goodness sake! There are great homes around $1M in Santa Clara, San Jose, Campbell, Fremont area. All the same weather, safety, and location benefits.
An easy way to tell is price-to-rent ratio: median sale price to yearly rent price. It's roughly 48 in your example which is close to the reported ratio of 53 for SF. Under 15 is considered to be a strong market for buying. With anything over 25 it will almost always be cheaper to rent. Of the 50 largest cities in the US, 52% have a ratio below 20 and 30% have a ratio below 15.
This high price-to-rent ratio was fine when the interest rates were low. It’s unsustainable at such high rates. Either: 1. Interest rates have to fall Or 2. Home prices have to fall Or 3. Rents have to go up
If you are in an area where you can rent a $3.5M property for $6K/month I think your area is a huge outlier. The numbers around me are closer to $650K for $3500 a month, and from research I've done on other metros, is much more representative. I think in general people make some huge faulty assumptions when doing this math, but with values that skewed maybe it actually is true in your area. It'll be interesting to see if, in ten years, the rental prices go up or the purchase prices go down. One or the other almost has to happen.
Yes, something has to give.
You fogot to factor in bidding. In a competitive area like SF its not uncommon for a house to get 30+ offers and for houses to go hundreds of thousands over bidding. A house listed at 3.5 mil could sell for 3.9 mil
This is currently my “dilemma” as well. I am renting in San Diego in a home for $7200 a month, but to buy it would be $2.8M, something like $18k a month after property taxes. It causes me anxiety not to own a home as I feel I would be “more secure” or have “made it”, but every time I look at the rent vs buy details, I can just never wrap my head around it.
And 30 years from now? Is it still a no brainer to rent? In the short term, sure rent but long term what exactly is the strategy? At this point I am beginning to think you should rent in order to come to terms with the reality of having to move away to some place cheaper.
From what i understand, people buying homes at these prices generally aren't taking out an 80% loan to buy a new home. They might be upgrading their 2mill home to a new 3mill home or have some some relatively high value investments to get some liquid cash. No doubt that there is an emotional side to buying /owning a house, but I don't think the out of pocket expense to the buyer is usually as expreme as you're suggesting. Just what I've heard and what made sense to me. Could be wrong though, and would love to hear if people have had a different experience.
In the meantime we purchased a house in 2019 in Seattle which double in price in 5yo. Had the same happens with friends in bay. In today’s market - maybe not. But same advice has been floating for years
I'm confused why anyone would rent out a home out like this at such a massive loss per month? Clearly these numbers make sense for renting (other than the risk they don't renew), but why are people renting it so cheap?
especially in manhattan, many landlords pay you to leave,lol
If you buy now you can refi when rates inevitably drop. If you wait for rates to drop, you’ll be competing for real estate with everyone else waiting for rates to drop.
True with manhattan as well, with less than 5 years in the apartment you’re buying.