[Bay Area]Why buy when you can rent for cheaper?

Apple IDmn34
Apr 2 78 Comments

I know everyone in Bay Area goes after buying a house. But doesn’t it make sense to invest that money for a passive income? Looks like you can rent a nice house for $5000/$6000 in Cupertino/Los Altos/Mountain View area. While mortgage for the same house will be very high.

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TOP 78 Comments
  • F5 Networks / Product hmm....
    Building your own equity vs giving it to other is what you should think about.

    Also think about leverage. But that works both ways.
    Apr 2 13
    • Google / Eng
      hurrayy

      Google Eng

      PRE
      Microsoft
      BIO
      14 yoe engineer in tech
      hurrayymore
      20% was an anomaly, because of 2017 tax law which raised entire market. Dont expect same each year
      Apr 2
    • F5 Networks / Product hmm....
      Very true... so you do have great finance knowledge. MBA, I guess?

      Well I analyze stocks and do valuations, so not your average investor.
      Apr 2
    • F5 Networks RRA
      Oh, shut up. You're another anonymous Blinder. We all analyze stocks and do valuations.
      Apr 2
    • PayPal f1re
      @goodforu you clearly were not around here during the 2008 crisis. Housing was barely effected.
      Apr 2
    • F5 Networks / Product hmm....
      Good one, RRA!
      Apr 2
  • Bingo OP, you discovered the dirty secret of mortgages. They don't really make sense right now with this market.

    The single metric you should ever look at is called the buy to rent ratio.

    Right now in the bay area it's one of the worst in the country. This means it's not advantageous to buy, because the asking price are so inflated compared to the renting prices.

    You also need to be careful when you talk with people about housing. I would say 95% of them have no idea of finance 101.

    The typical example is when people tell you that when you rent you throw away money out of the window, or that it's the best investment ever.

    The key idea here is to see what is your opportunity cost for the money you would have invested in your mortgage? Could you do something better with it? And in the bay area most of the time the answer is yes. There is a calculator online I recommend by the NYT. You can Google "NYT Buy or rent ?"

    Finally don't forget the there is a huuuuge lobby (realtors, banks, current homeowner that want to inflate the market) that trie to convince you to buy. Those people have skin in the game. Do your own calculation and you will see that most of the time it doesn't make sense
    Apr 2 3
    • Salesforce st anger.
      Never thought about the lobbying aspect. Thanks.
      Apr 2
    • Google QmTN21
      The buy to rent ratio doesn't work here given how much the lot value is (assuming its sfh with option to expand). But the nyt calc is good. The key variable is expected appreciation
      Apr 4
    • Why doesn't the buy to rent ratio work here ? It is the one single metric that shows how much of an edge you have renting//buying.

      Yes the calculator you need to take a bet on home appreciation and market appreciation. For the bay area I put it on a conservative 2.5% a year given how high the market already is right now
      Apr 4
  • Cisco Wakeup
    Because after 30 years, you don’t have to pay rent especially when you stop working and have less income.
    Apr 2 4
    • @wakeup this comment shows that you don't understand economic101
      Apr 2
    • Microsoft YsTJ07
      Hahahaha retiring in the Bay area... What for???
      Apr 2
    • Salesforce lsSn48
      Family around
      Apr 2
    • Google QmTN21
      Buying is a bet on appreciation. With prop 13, retiring can be cheap here
      Apr 4
  • Amazon theories
    It’s a lifestyle choice, not a wise financial choice. If you look, you’ll find articles about how buying a house over 300k is not a wise investment.
    Apr 2 3
    • Facebook public2
      Rofl
      Apr 2
    • Facebook / Eng dudne
      300k house ? Where ?
      Apr 2
    • Credit Karma AvocadoToa
      And you’ll find way more articles saying this advise is BS. For many buying makes more sense than renting, even in the bay area over $1M housing prices
      Apr 3
  • Rally Health FuPayMe$$$
    Just rent. Invest your money in the stock market and profit long term whilst being mobile to be able to change jobs for higher pay.
    Apr 2 1
    • Financially this is the best answer.
      It will also allow you to rent exactly what you need whenever you need it. If you need one more room? Easy to do when you rent. Not so easy when you buy
      Apr 2
  • Even if the bay area housing market flattens and you’re not reaping benefits of insane appreciation, there’s a lot to be said for owning a house.

    Aside from the points already mentioned like owning it outright after some time, homeownership is something that many cherish. Not answering to anybody, changing your living situation when you feel like it, and being part of a real community versus transients.

    Housing is so expensive these days that I would advise you make a decision based upon your lifestyle, not the numbers. After all, not everything is about money.

    - Recent homebuyer
    Apr 2 0
  • Infinera xJaD20
    My mortgage is 1/3 of rent for same house today. It seemed ridiculous for me to become a homeowner back then, but looking at the housing situation today, it was a freaking genius move. It was a long term outlook to settle here in the Bay Area too, that had a lot to do with that decision so long ago.
    Apr 2 10
    • GoDaddy / Eng hydvhu
      I always hear that, but if that were true, every landlord would be listing money, no?
      Apr 2
    • It's not that you "lose money", but that you make one investment versus another. In this case a landlord is making less out of his rental than he could on the stock market.
      I mean all those statements you make are very simplistic for something that is fairly mathematical and complex. That's why I hate to discuss this subject because most people are highly emotional about buying and don't understand all the factors in play or even what the concept of "opportunity cost" is
      Apr 2
    • Facebook public2
      It's not emotional or an either or. I am a landlord who invests a lot of the monthly real estate earnings in stocks, more real estate, and other businesses. Diversification is great and recommend all of the above ;)
      Apr 2
    • Yep, agree with you. My point is that buying a house is a very complex investment that sometimes makes sense and sometimes doesn't. It mostly doesn't in the bay area.
      Therefore generic statements saying that mortgage is the price of your rent don't make any sense.

      I also agree that housing is a great way to diversify at some point
      Apr 2
    • Facebook public2
      But you don't believe in markets as efficient? Real estate is all about location location location so at least until transportation and access to education dramatically changes location will dictate most of the value. Markets aren't perfect and maybe the bay is over valued but simply noting that people have been saying that for the last 50 years.
      Apr 2
  • Indeed zegra
    You should discount payment to principal in that calculation, although it should be compared to what it could be making elsewhere. Also consider that a mortgage locks in the cost whereas rent can keep going up. Even with that, it still arguably makes sense to rent in the Bay area because that area is insane.
    Apr 2 3
    • Yelp / Eng sJJv80
      > Even with that, it arguably makes sense to rent in the Bay area because that area is insane.

      Totally. When I can rent a 2BR apartment for $2200 with rent control, there’s no way I can touch that with a mortgage without a huge down payment.
      Apr 2
    • Indeed zegra
      I do wonder where you're seeing rent numbers like that unless you started renting the place 5 years ago.
      Apr 2
    • Yelp / Eng sJJv80
      East Bay.
      Apr 2
  • This comment was deleted by original commenter.

    • Microsoft yiqing
      It's more than that. They're trying to make us comfortable living with less. They're trying to get the public to accept the return to serfdom.
      Apr 2
    • You guys are funny. You bought head first into the owning a home==rich fallacy.
      I don't own a home and I'm pretty sure I have more assets than most homeowners.
      At some point when you get really rich a home is worth it as a way to diversify, but that's it. Not a good investment
      Apr 2
    • Facebook public2
      Unless real estate is what made you rich of course.
      Apr 2
  • Microsoft ufhudv
    There comes a point where renting is smarter than buying. As long as you rent less than as you would be able to buy in the same area and invest the difference. But what happens is people rent a better place with a better location with the most they can afford. The investment or equity potential is lost in the better housing quality which normally wouldn’t be achievable if you were to buy.
    Apr 2 0
  • Google Bor
    Some of the mortgage is going to principal.
    House value goes up and your investment is leveraged. For instance, overly simplified, you put 200k down to buy 1 mil house. Next year house goes up 5% in value. That's 50k return on 200k investment. Of course there are other factors but you get the idea.
    Apr 2 0
  • DoorDash lermoP
    It depends on what you value. I value mobility and not having to do my own maintenance, so I'm not interested in buying a house especially at Bay area prices. Investment properties that cash flow are a different story however
    Apr 2 0
  • Facebook public2
    Fixing cost, free money (historically low interest rates), tax incentives, and prop 13 aside personally I also get a lot of value in having my own property I can control how I see fit and not having to share walls with neighbors. The peace of mind and security alone is worth it for me. If you do not plan to own real estate for life though it may not make sense to buy, especially in the bay.
    Apr 2 0
  • Square Jqty44
    At least for East Bay rental prices for a house is pretty close to the mortgage. I agree 2 bedrooms and smaller make more sense to rent.
    Apr 2 2
    • Amazon HouseBezos
      But dude fuck East Bay. Crossing Dumbarton Bridge is hell...and it's more prone to crime...
      Apr 2
    • Square Jqty44
      Yeah I wouldn't drive, just take the Bart into SF.
      Apr 2
  • New / Mgmt VSwf01
    FOMO is real
    Apr 2 2
    • Very good point. The market is partially inflated with all the idiots being now because they are afraid to miss out. Another reason why it is better to rent. That Inflation doesn't happen in the rent price as can be seen with the "buy to rent ratio"
      Apr 2
    • Facebook public2
      People who understand basic supply and demand aren't idiots. Relax guy, you don't have to buy real estate. Fear of being priced out is real but of course hundreds of years of history isn't a guarantee of the future.
      Apr 2
  • Apple parking
    Renting is a great option in Bay Area. Time is the biggest reason. You can rent close to your work while most who buy have to commute much longer just to make the mortgage work financially. When you can walk to work versus having to spend 2-3 hours commuting it is a huge lifestyle difference.
    Apr 2 2
    • Microsoft yiqing
      Living in a van on campus is even better.
      Apr 2
    • Apple parking
      Not the same as living in a luxurious home that costs a fraction to rent as opposed to buying
      Apr 2
  • Google / Eng
    xoogle

    Google Eng

    PRE
    LinkedIn
    xooglemore
    Why rent and expose yourself to fluctuations in your monthly housing costs when you can buy and get more predictable housing costs for ~30 years?

    It's a trade-off between short and long term.
    Apr 2 2
    • It's all about opportunity cost. Renting is better . Fluctuations don't matter that much
      Apr 2
    • Google / Eng
      xoogle

      Google Eng

      PRE
      LinkedIn
      xooglemore
      You can't say "renting is better" without qualifying it. Strictly financially, renting would have been terrible for me. We bought a house in 2015 for 650k (130k down) and in that time our value has grown to roughly 900k with another 50k in updates. That's a ROI of over 110% in 3.5 years, or 20% YoY. I can't find that elsewhere when subtracting the rent I would have paid otherwise. If you subtract monthly payments, we made 40k or 11% ROI but you can't do that unless you chose to be homeless.
      Apr 2
  • Oath xxxcd
    Assuming 30 year fixed mortgage, it means your monthly payment for that roof over your head will be a fixed amount for 30 years.

    Your rent may get raised a few percentage every year. You get raises every year to offset inflation.

    Your mortgage will become cheaper than rent after some time.
    Apr 2 1
    • That's with a lot of assumptions. You forgot a lot of factors (taxes, HOA, renovation,...)
      Apr 2
  • Qualcomm designstuf
    Deficit spending by government means inflation. We might be temporarilly screwed by new tax law limiting deduction of property tax and mortgage
    Apr 2 0
  • Uber A29S
    Well, considering I got my house for $750k and comparables are now worth $1.4M I’d say home ownership was worth it. This was back in 2012 though.

    For something so expensive as housing timing is everything.
    Apr 2 0