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

Apr 2, 2019 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, 2019 13
    • PayPal f1re
      @goodforu you clearly were not around here during the 2008 crisis. Housing was barely effected.
      Apr 2, 2019
    • F5 Networks / Product hmm....
      Good one, RRA!
      Apr 2, 2019
  • 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, 2019 3
    • 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 3, 2019
    • 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, 2019
  • Cisco Wakeup
    Because after 30 years, you don’t have to pay rent especially when you stop working and have less income.
    Apr 2, 2019 4
    • Salesforce lsSn48
      Family around
      Apr 2, 2019
    • Google QmTN21
      Buying is a bet on appreciation. With prop 13, retiring can be cheap here
      Apr 3, 2019
  • 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, 2019 3
    • Facebook / Eng dudne
      300k house ? Where ?
      Apr 2, 2019
    • 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, 2019
  • 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, 2019 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, 2019
  • 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, 2019 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, 2019 10
    • 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, 2019
    • 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, 2019
  • 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, 2019 3
    • Indeed zegra
      I do wonder where you're seeing rent numbers like that unless you started renting the place 5 years ago.
      Apr 2, 2019
    • Yelp / Eng sJJv80
      East Bay.
      Apr 2, 2019
  • This comment was deleted by original commenter.

    • 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, 2019
    • Facebook public2
      Unless real estate is what made you rich of course.
      Apr 2, 2019
  • 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, 2019 0


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