Another Buy vs Rent in Bay Area Thread

Apple wos8
Jul 10 28 Comments

Given the

1) High up-front cost of homes in the Bay (e.g., large down payment)
2) Ongoing costs associated with ownership (mortgage interest, HOA or the equivalent in home upkeep, homeowners insurance, etc)
3) Risk factors, e.g., earthquakes (earthquake insurance is expensive, and the deductible is also sky high, pretty sure most people don’t have it)

Does it make sense to rent an equivalent home instead of buying? E.g., rent a 3 bed/2ba home in the same neighborhood instead of buying it and keep the cash invested in say an index fund?

Ignoring leverage, which can cut both ways, seems to me one would come out financially ahead being invested in an index over a house. One would also likely experience less stress (no big mortgage obligation / lack of liquidity), while also preserving the ability to relocate closer to work should one change jobs (IMO pretty important given Bay Area traffic is only getting worse).

Thoughts?

comments

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TOP 28 Comments
  • Google Elon Musk
    Why you shouldn’t buy:
    In the Bay Area you have a buy-to-rent ratio of something like 40+ (this means buying a house is roughly equal to 40 years of rent from that house). Why does this ratio matter? It is a rough estimate of the ROI of your investment. If you bought a house to rent it out, you would have to collect rent for 40 years to just make back the investment (not even accounting for all associated costs or interest/repairs/fees/taxes).

    Compare this to a state like Ohio where buy-to-rent can get down to 10 or less. This means if you bought a house there and rented it out, you would collect over 2x your mortgage payment. In the Bay, good luck trying to break even.

    ———

    Why you should buy:
    There’s a good chance the housing market will rise in the Bay. If there is a downturn, chances are the Bay will not be as affected as other cities/states. The Bay Area is unique in that there is a huge amount of money that flows in from VC, and large tech companies. These get trickled to the landlords and raise housing prices. 80% of funding goes to housing. Why does this matter? When you buy, you basically leverage 5:1 if you put 20% down. A 300k down payment on a 1.5m house can net you a 100% return in a few years if the house increases by 20%.
    Jul 10 0
  • Google vkg38472
    My position is for renting
    Jul 10 0
  • Nvidia BTC40kXmas
    Get the fuck out of the bay area.

    Rent is throwing your money away.
    Buy is throwing your money at a bank for a bullshit property down there.

    Live somewhere wholesome. Fuck that town.
    Jul 10 4
    • Apple wos8
      OP
      Where do you recommend?
      Jul 10
    • Credit Karma leetkode
      South Dakota
      Jul 11
    • Facebook chunkya
      Even new Jersey seems better
      Jul 11
    • Nvidia BTC40kXmas
      Seattle (east side, not the smelly city) is a good balance of opportunities and civic liberties with a high qol
      Jul 11
  • Google vkg38472
    If you change employers or get moved to different campuses often it makes sense if you dont have kids.
    Jul 10 3
    • Apple wos8
      OP
      How often do you think is often enough to warrant renting over buying? And what do kids have to do with it?
      Jul 10
    • Google vkg38472
      If you switch jobs every two years or so. Do you want your kid to start at a new school every year or two? Even if you opt for private school someone still needs to drive kid to school.
      Jul 10
    • Apple wos8
      OP
      So let’s say you move in 6 / 3 / 4 years instead. Enough time to put kids through a elementary / middle / high school. You’d rather buy? Aren’t commissions on selling alone going to leave you financially worse off, not to mention all of the other factors I mentioned above? You sure about the bar being only 2 years?
      Jul 10
  • Facebook QGhE38
    Why ignore the leverage? That’s the biggest difference between renting and buying. From post 09, it’s not cutting both ways. Only one way...
    Jul 10 0
  • Facebook public2
    You are missing the actual factors: lifestyle, expected time in location, and leverage/tax benefits.
    Jul 11 10
    • Facebook public2
      Your math is incorrect and not sure why you are adding 10k out of nowhere? Regardless the tax break is icing on the cake, not the primary value. The cheap leverage is the value. You can earn 7% on your 200k or 5.5% (before tax break) on 1m. Choice is always yours of course.
      Jul 11
    • Google !abc
      10k is the max you can deduct for state and property tax (SALT). Lol ..out of nowhere. And such folks give advice on blind.
      Jul 11
    • Google !abc
      You can get way more than that in stock market.
      Jul 11
    • Nvidia paidrobot
      And way more than that buying this Bitcoin dip 🤑
      Jul 11
    • Facebook public2
      Understand what salt is lol, you were talking about mortgage interest. Make up your mind. 7% is the average stock market return, if you can get more its gravy. It's still not free leverage.
      Jul 11
  • This comment was deleted by original commenter.

    • Apple wos8
      OP
      I don’t see what this has to do with the post... I’m doing my best to reason based on data. If you think I’m truly missing something feel free to add
      Jul 10
    • Yahoo / Design getAway
      Recession is coming. It will indirectly affect all the immigrant tech workers. That will affect house prices. That will get the housing industry crashing. You should buy then
      Jul 10
  • Yelp bagofdust
    Jul 11 1
    • Facebook public2
      Naw, this only factors for money.
      Jul 11
  • MeridianLink / Product XVrn30
    If u can buy small and get into the market I think it's worth it mainly as a hedge. I wouldn't buy the max amount of space u can afford. We own 8 houses and rents are usually half of what you pay to own.
    Jul 11 0