Buy versus rent

User Forum Topic
Submitted by mixxalot on May 17, 2016 - 1:57pm

I have been approved for up to 700k for a loan. However, after running numbers, renting is almost 2-3x cheaper than owning. For example:

Rent 2 bedroom townhouse in San Diego - Point Loma, Pacific Beach, Mission Valley
1700-2000

Buy 2 bedroom townhouse in San Diego- Point Loma, Pacific Beach, Mission Valley
Listing price: 500-700K
Monthly payment: 3-4k

Plus taxes add up to the annual cost.

So why do people buy in this inflated market if it costs 2x to own versus rent?

Submitted by spdrun on May 17, 2016 - 2:09pm.
Submitted by mixxalot on May 17, 2016 - 2:25pm.

True but you still need to put 10-20% down cash and cost more over time than renting.

Submitted by an on May 17, 2016 - 2:34pm.

Wow, rent in those expensive area are cheap. 2/2 condo in Mira Mesa are going for ~$1700/month and similar condo are selling for low $300k. 3/2 SFR with ~1200 sq-ft rent for about $2200-2400 and are selling for ~$500-550k.

Submitted by mixxalot on May 17, 2016 - 2:44pm.

Yeah I am paying now what I was paying 10 years ago in Loma Portal. Actually the place now I am at has a new remodeled kitchen, new carpet, wood floors. I am on the fence whether or not to buy. Yes, I'd like more room and a garage but I'd also have to spend twice as much cash for a place to live over time. So its a risk. What if I ever have to move for a job?

It is funny how coastal San Diego rents are half as much as buying same size place. Never can understand that.

Submitted by joec on May 17, 2016 - 5:29pm.

mixxalot wrote:
Yeah I am paying now what I was paying 10 years ago in Loma Portal. Actually the place now I am at has a new remodeled kitchen, new carpet, wood floors. I am on the fence whether or not to buy. Yes, I'd like more room and a garage but I'd also have to spend twice as much cash for a place to live over time. So its a risk. What if I ever have to move for a job?

It is funny how coastal San Diego rents are half as much as buying same size place. Never can understand that.

If you need to ask folks here whether to rent or buy or to convince you one thing or the other, then I think you should just keep renting...

The math is not hard and if you are in a place that's comparatively lower than buying and you don't have kids/family/needs schools/may move, by all means, just rent. Usually, the math and other factors make it such an easy comparison I feel that these debates are pretty meaningless.

All I can say as a data point is all the houses near my hood now are > 4k/month rent in stucco 4S McMansion hood and my mortgage even though I am stuck with a higher rate will soon be close to 2k month without tax calculations/benefits (still have prop tax though).

Most people ran numbers and bought years ago and are sitting on 200k+ equity gains now...I think we're over 50% equity already personally.

Also, with renting, I just heard a family friend is now forced to MOVE which is a nightmare to have to deal with if you are busy with other things in your life. Moving as a single guy in a 1 bedroom is nothing compared to moving a 4k sqft house with a family.

That and renting has gone up in nearly all the areas I watch. Maybe not yours, but certainly up > 33% here (3k -> 4k).

Submitted by mixxalot on May 17, 2016 - 6:08pm.

My point being financially it's cheaper to rent.

Submitted by svelte on May 17, 2016 - 7:07pm.

mixxalot wrote:
My point being financially it's cheaper to rent.

Depends on whether you're talking long term or short term and whether you are stable enough to live in one area long enough.

Submitted by flyer on May 17, 2016 - 7:12pm.

Exactly, Svelte. I was just going to mention the same.

Also, for those of us who bought properties here, or most anywhere, years ago, there's no question that buying has definitely proven to be cheaper than renting.

Submitted by Hatfield on May 17, 2016 - 8:14pm.

This is sorta Homeownership 101, I think there's a couple factors Sir Mixxalot is overlooking:

1) What is your current effective income tax rate? Because for the first many years, your mortgage payment is almost all interest (deductible) and property taxes are also deductible. So if you're currently paying a high % effective income tax rate, that % of interest and property tax are effectively subsidized for you.

2) How long do you plan to stay put? Because in ten years your rent will have increased, perhaps significantly, but your mortgage payment will stay the same, and your property tax will have increased only marginally.

That said, I think the current market is way overheated. Of course I've been saying that for a decade now, but I dunno, I don't see how these valuations are sustainable longterm, so

3) Where is it that you really want to live? If that neighborhood is significantly cheaper to rent than buy, even factoring in (1) above, by all means, keep renting and socking your savings away.

Submitted by utcsox on May 17, 2016 - 8:18pm.

It's easy to run different scenarios using NY Times rent vs. buy calculator.

http://www.nytimes.com/interactive/2014/...

Submitted by Rich Toscano on May 17, 2016 - 8:59pm.

utcsox wrote:
It's easy to run different scenarios using NY Times rent vs. buy calculator.

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

+1 on the NY Times thinger.

Can't speak to the specific properties you are looking at, OP, but generally speaking in SD it is most definitely not 2x as expensive to buy as to rent, once you consider everything (including the all important mortgage interest deduction). In fact the monthly nut ratio is not far from the lowest ever, per the second graph here: http://piggington.com/shambling_towards_...

Submitted by bewildering on May 17, 2016 - 10:30pm.

Rich Toscano wrote:
utcsox wrote:
It's easy to run different scenarios using NY Times rent vs. buy calculator.

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

+1 on the NY Times thinger.

Can't speak to the specific properties you are looking at, OP, but generally speaking in SD it is most definitely not 2x as expensive to buy as to rent, once you consider everything (including the all important mortgage interest deduction). In fact the monthly nut ratio is not far from the lowest ever, per the second graph here: http://piggington.com/shambling_towards_affordability_midyear_2015

The OP thinks he can rent a 2 bedroom townhouse in Pacific Beach for
1700-2000? lol. Maybe a 600 sq ft apartment in a complex on Garnet. But not a townhouse.

Submitted by La Jolla Renter on May 17, 2016 - 11:51pm.

I used to think I was so smart renting a high end home from someone that was losing $3k a month, but over time, rent vs buy in San Diego has been a losing bet. Even the $1M-$2M homes are now cheaper to own, or at worst, break even. A newly remodeled $1.4M ish condo or home in La Jolla or PB will cost you $5-6k plus a month to rent.

I think you can pretty much buy anything in the county with 20% down and it will cash flow. 10-20 years ago it took 30% to 50% down.

Submitted by livinincali on May 18, 2016 - 9:26am.

joec wrote:

All I can say as a data point is all the houses near my hood now are > 4k/month rent in stucco 4S McMansion hood and my mortgage even though I am stuck with a higher rate will soon be close to 2k month without tax calculations/benefits (still have prop tax though).

I honestly don't understand people renting a 4K a month property unless it's intended to be a temporary thing. I think those kind of markets are a pretty poor gauge of the rental market.

Submitted by mixxalot on May 18, 2016 - 10:58am.

Yes, paying 3-4k a month to rent is stupid if one can buy for that. I pay half that in rent and live close to the beach. For me, to buy a 1 bedroom condo costs twice as much with down payment, taxes and fees. A larger home costs even more.

Submitted by spdrun on May 18, 2016 - 1:28pm.

Assuming money can be more productively invested elsewhere, paying 3-4k per month in rent isn't a bad thing.

Maybe you can also buy for $3-4k per month, but if other investments yield more, that's where your money should be.

Submitted by mixxalot on May 18, 2016 - 5:53pm.

Or pay 1500/month rent and invest 1500-3k in high growth stocks

Submitted by joec on May 18, 2016 - 6:48pm.

livinincali wrote:
joec wrote:

All I can say as a data point is all the houses near my hood now are > 4k/month rent in stucco 4S McMansion hood and my mortgage even though I am stuck with a higher rate will soon be close to 2k month without tax calculations/benefits (still have prop tax though).

I honestly don't understand people renting a 4K a month property unless it's intended to be a temporary thing. I think those kind of markets are a pretty poor gauge of the rental market.

Maybe they are, but I know of properties that have been rented near me for 3+ years at these rates by the same family. Some for 2+ and I am sure others probably are the owners/landlords that have had no trouble renting neither...

When there is only 1-2 months of supply and no cheap/affordable homes are being built, people simply have no choice I think.

Bottom line I have been saying for the longest time is the rents are insanely high IMO, but people rent them with no problems apparently and until that changes (massive job losses, some other outside event), I find it impossible for housing to go down in price.

That being the case, yeah, maybe it's not a good indication, but I am sure flu in CV and folks who own in mira mesa or most anywhere convenient can charge what they wish and rent it out easy.

I also think "families" are much more constrained with there to live due to schools, wife not wanting to live in a slum, etc vs a single guy.

I personally wouldn't have a problem living in a more slum place and have actually when I was single in the bay area...

Submitted by matt on May 18, 2016 - 7:11pm.

I've been renting my la costa oaks home for the past 5 years, 4 bed 4000 sq feet. First 2 tenants stayed 1 year at 4200. Most recent tenant year is going on 3 years at 4500 waiting for their kids to graduate before moving back to their home state. Never had a vacancy or late payment and conduct an annual inspection. Repair / replace any tenant concerns immediately. Give my realtor 6 percent on a new tenant and 3 percent of an extension, also agree if I sell (which I don't plan to) he gets the listing. He does an excellent job screening tenants. Bought the house for 900k in 2010 now it's approx 1.25. Worked my tail off in difficult conditions overseas to pay the house off and give me peace of mind that I own a home with a roof over our heads outside taxes and bills should I lose my job. Now thinking about buying an oceanfront lot and building in baja east cape for retirement as I don't think I can afford to live in USA particularly health / long term care. Would love another property in San Diego but yields are tough and it's difficult to get financing from overseas. I feel extremely fortunate for everything we have and hope the rental market can stay strong.

Submitted by Coronita on May 18, 2016 - 8:18pm.

livinincali wrote:
joec wrote:

All I can say as a data point is all the houses near my hood now are > 4k/month rent in stucco 4S McMansion hood and my mortgage even though I am stuck with a higher rate will soon be close to 2k month without tax calculations/benefits (still have prop tax though).

I honestly don't understand people renting a 4K a month property unless it's intended to be a temporary thing. I think those kind of markets are a pretty poor gauge of the rental market.

Some people want to live a good area, and don't have a down payment.

Submitted by Coronita on May 18, 2016 - 8:19pm.

mixxalot wrote:
Or pay 1500/month rent and invest 1500-3k in high growth stocks

And if you make a bad pick?

Submitted by mixxalot on May 19, 2016 - 9:07am.

True and same holds water in real estate. If the market turns cold you can lose that 20% down payment quickly as we saw in the last real estate downturn.

Research is your friend. I read morningstar and the different investment rags. I dislike 401k because they limit fund choices.

Submitted by Coronita on May 19, 2016 - 9:56am.

mixxalot wrote:
True and same holds water in real estate. If the market turns cold you can lose that 20% down payment quickly as we saw in the last real estate downturn.

Research is your friend. I read morningstar and the different investment rags. I dislike 401k because they limit fund choices.

You can't live in your stocks.

Think of a primary home as a mixed product.
1. Provides housing
2. Forces you to save
3. If your mortgage + operating cost is already close to rents, the extra mortgage interest deduction (and property tax deduction if you aren't hitting AMT), is just extra icing on the cake.
4. You don't have to deal with a pain in the ass landlord or wondering if he's going to jack up rent next month, or if he's going to sell the house and make you move.

Your 20% decline in stock is most likely immediate (unless you are one of those people that like to speculate in the short term, and then when you take a 20% bath, your short term speculating suddenly becomes a long term buy and hold investment :) )

Your 20% decline in housing is spread out over the utility of your use of a house as a primary. Also, over a long period of time, if you can cash flow the thing as a rental, even better.

I'm not suggesting you go out a buy a house right now, but I'll agree renting for an extended period of time in SoCal is a losing proposition with the way rents have been and are going. If you think rents are significantly cheaper, you're probably not doing an apples to apples comparison. You're probably pricing a rental house that is less than the house you're looking to buy. The problem with the rental markets these days is that there are so many people that cannot quality/afford to own, and lending standards are still pretty tight, and the inventory in San Diego is not exactly keeping up, since the majority of the new homes being built are the more expensive $800k+homes.

Submitted by mixxalot on May 19, 2016 - 8:39pm.

Fed highly likely to raise interest rates soon in June which if mortgage rates skyrocket will put a dent in real estate prices hopefully.

Submitted by spdrun on May 19, 2016 - 8:59pm.

I thought that's more likely in Sept or Dec than June, but what do I know?

Submitted by moneymaker on May 19, 2016 - 9:34pm.

Yes, it is smarter to rent right now!

Submitted by bearishgurl on May 19, 2016 - 9:47pm.

mixxalot wrote:
Fed highly likely to raise interest rates soon in June which if mortgage rates skyrocket will put a dent in real estate prices hopefully.

Um, mixxalot, do you realize the listing in your "desired area" that Pigg bewildering gave you to look at nine days ago (it was "open to the public at that time") on YOUR thread . . .

http://piggington.com/serra_mesa

. . . is now "pending" and cannot accept any more offers at this point?

https://www.redfin.com/CA/San-Diego/3528...

Your "theory" might prove to be believable (IF MIR's actually end up "skyrocketing") for listings in St Louis, MO . . . but NOT in San Diego, CA.

Did you ever actually view this property that I suggested you do back on May 10th?

http://piggington.com/serra_mesa#comment...

If you haven't viewed it, mixxalot, my humble opinion is that you're still "asleep at the switch" and that is A-okay. Perhaps it means that you are/were meant to be a forever-renter in SD.

Submitted by FlyerInHi on May 19, 2016 - 9:52pm.

BG, just what are your bearish about? Certainly not housing!

Submitted by Rich Toscano on May 19, 2016 - 9:54pm.

bearishgurl wrote:
Perhaps it means that you are/were meant to be a forever-renter in SD.

I literally have not heard that argument since 2005.

Submitted by Rich Toscano on May 19, 2016 - 9:54pm.

FlyerInHi wrote:
BG, just what are your bearish about? Certainly not housing!

Haha, I was wondering the same thing!

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