Currently renting and paying $4k per month in Santa Clara. There is a same exact floor plan house for sale and it's listed for $1.2M. Did quick math and looks like I will be paying approx $8300 every month on Mortgage + HOA + Ptax after 20% down. How does it make sense to buy? I feel renting makes more sense. Am I missing something here?
It makes sense for people who dont only think of houses as transactional or simply to have a roof over their head. So probably doesnt make sense for you OP.
In 10 years, if you bought the place you’ll be able to sell for well over $1.2. In 10 years, if you are still renting you walk away with $0.
But I can save 1.44M in 30 years where you just pay off your house
Sure if you’re thinking about it from a purely financial aspect. In 30 years the housing market will also have increased and what was attainable 30 years ago to buy in at might not be the case anymore. For some, renting might sound easier but you are also under a landlord’s will. He can raise your rate, put the apt or house up for sale, etc. If you care about appearance and maintenance, most rentals won’t be up to date and the ones that do will be significantly more to rent.
It doesn’t make sense at that point. And your landlord probably got the place for much less so they don’t need as much rent to make a positive return. Also, there’s a lot more to pay for than just PITI. A house is going to take all the extra money you can throw at it. Random projects, maintenance, upgrades, things just keep coming up. I would add 1% of the value of the home towards these sort of things every year.
1.2M can buy a shit house
You are helping other people to get rich
It depends on one’s goals. Also, don’t forget to remove principal from the mortgage number. In our case, our house appreciated and we sold it after two years and doubled our investment tax free. Those returns are difficult to do while renting.
The gap between renting and purchase seems excessive in your area. Sounds like it may not be worth it. Typical value proposition is as an investment that’s relatively safe and diversified from the stock market. Tax deductions don’t hurt either but that impact is limited since Trumps SALT cap that disproportionally impacts the wealthy.
Two main reasons for buying- 1. For some, living in their own home gives them a sense of joy and allows to live freely. 2. Rent keeps on increasing while mortgage payments remain the same, except the taxes. Right now, rates are high so you need to calculate what’s your “break even point”. You would have to refinance to bring your monthly payments down.
There’s a lot of financial leaders who say it doesn’t make sense. Check out Ramit Sethi or Morgan Housel. I personally wouldn’t think of it as an investment but more of a convenience if I was to buy.
Rent will increase every year. Mortgage payments remain the same for next 30 years.
It would take 30 years for rent to increase from 4k to 8k
Doesn’t make sense if it’s literally double the rent..