Buy v.s. Rent in OC

User Forum Topic
Submitted by carlsbadworker on November 6, 2017 - 7:32am

I have been looking to buy a primary resident house in Orange County, but it looks like the Trump Tax plan will push me over to the rent camp forever.

As OC is high cost area, the convention loan limit is $636K, which is likely the amount that I will borrow. With this mortgage, the yearly interest expenses is $25K (of which $20K is deductible, as mortgage interest limit is $500K), and the property tax is another ~$10K per year, which could be more depending on the mello roos rate). I am at 25% tax bracket. So I can only save $20K+$10K-$24K (standard deduction) = $6K over standard deduction. Or less than $200/month tax saving even factoring all the charitable contribution.

So basically, my yearly costs of owning (excluding principle payment) is $25K (interest) + $10K (property tax) + $1K (insurance), which is about $3000 per month, minus $200 tax saving is $2800. That is close to what I currently pay for rent but it fails to consider the opportunity costs of my down payment and the flexibility of renting.

On one hand, it doesn't look like the price is going to go down anytime soon because of the tight inventory, so the comparison will become worse and worse over time. But on the other hand, I don't know why would I choose to over-spend on shelter costs, just because there are Chinese buyers with tons of cash looking in this area.

Does it now make more sense for me to use my downpayment to buy a rental property in low cost area to subsidize my OC rents instead, as I feel like losing hope to ever buy a property here.