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Old 09-30-2013, 04:36 PM
 
Location: Baghdad by the Bay (San Francisco, California)
3,530 posts, read 5,118,000 times
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In my neighborhood, which is at the ridiculous end of the spectrum, one bedroom condos smaller than my one bedroom apartment go for $800,000-$850,000. They have some nicer finishes, but some don't have the storage or parking spot that I have. In a rent-control building such as mine, in the heart of the City with amazing transit access and walkability, plus covered parking, plus water, hot water, garbage and heat (radiator) paid, the amount of rent I pay equates to a mortgage of much less than half what the going rate is.

Elsewhere in the Bay Area, my buying power is far greater, but I'm still in the "city life" mode, so for now, the trade-offs don't counter the benefits of ownership. Perhaps that will change in 5-6 years.
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Old 09-30-2013, 05:12 PM
 
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It depends on what you do with the money you save by renting (i.e., if you invest it), how long you intend to stay, whether rents are capped by law (yes!), and whether housing prices are going up or down. There is no one answer.
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Old 09-30-2013, 05:33 PM
 
28,107 posts, read 63,495,557 times
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Quote:
Originally Posted by Scott456 View Post
You forgot to mention the mandatory depreciation of a rental property over the period of 27.5 years.
So after 27.5 years of getting rental income from the property, your tax obligation is the value of your original purchase price. If you purchase it for $1 million, your mandatory depreciation is just a little less than $40K per year. You have to pay this back to IRS when you sell the property. If you sell this rental property after 10 years, you owe IRS $40K x 10 = $400K.
Or...

A builder/investor made a career of moving every two years into one of his rentals and was able to take up to 500k tax free.
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Old 09-30-2013, 05:34 PM
 
28,107 posts, read 63,495,557 times
Reputation: 23226
Quote:
Originally Posted by HappyinCali View Post
There are rarely absolutes. It is definitely not ALWAYS better to rent than to own.

It seems that the crux of a lot of arguments of buying is price appreciation.

If you look at a Long term comparison from 1978 to 2004, investing in the stock market vs. Real Estate resulted in 5% higher returns! That's pre-recession, which has likely further amplified the difference.

Stocks vs. Real Estate | 1 | CNNMoney.com


To me, saying that an asset is worth more because it will appreciate it is pure speculation. It very well might appreciate. But it will be pure luck. Just like if you bought in 2007. I would rather buy a 30-year investment grade bond that guarantees me 4-6% return (unless the company goes bankrupt) than hope that my house price will go up by 5% every year.

Rents also increase over time, so they SHOULD track pretty closely. But in San Francisco you have the great disruptor in the form of stringent rent controls. So, that adds an element of predictability to you rent expenses, while your house value is pure speculation.

If I am reading chart #1 correctly here, the CAGR of inflation adjusted house prices from 1970-2012 is 0.4%. Pretty shoddy investment.

Real Estate Charts: Graphs of inflation-adjusted, historical housing prices.
Don't forget about inflation... or a hedge against it.
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Old 09-30-2013, 05:36 PM
 
28,107 posts, read 63,495,557 times
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Originally Posted by wooliemonster View Post
Mostly, I'm worried about not being able to save enough for a down payment before I get priced out of the market.

So, for instance, say I have 80k available when I move, and my HH income is enough to make the mortgage payments / tax / insurance / maintenance / etc (assuming 20% down) on say 600-800k, depending on the assumptions. However, to get to the 120-160k downpayment point I'll need another 40-80k in savings. That could take me, with great discipline, another 2 years to acquire. However, in that 2 years, am I going to be priced out of the market completely? The houses I like in Berkeley and Rockridge are already routinely selling at 800k. So, every year it takes requires additional compromises on house location.

In Houston, it hasn't been as much an issue because there are various forces that put realistic caps on house appreciation (high property taxes, easy to build new units and subdivide lots for townhomes/condos). However, it seems that Bay Area houses can easily appreciate into the stratosphere. So, I have anxiety about coming up with the down payment very quickly, e.g., dramatically lowering our rent budget, getting a less expensive car (we share 1 car), cutting other budget items, etc.

When I started seriously considering a move to the Bay Area a couple years ago, prices were still at a low point. I guess I waited too long and might not be able to make it work.
I've been through several Bay Area market cycles... prices drop and then come back stronger.

Of course other factors can come into play... employment prospects and natural disasters like earthquakes.
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Old 09-30-2013, 05:53 PM
 
3,098 posts, read 3,772,589 times
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conversely it's hard to argue paying $3000 for a 1 bedroom makes a lot of sense.

What $3,000/Month Can Rent You Around SF - Curbed Comparisons - Curbed SF
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Old 09-30-2013, 06:37 PM
 
28,107 posts, read 63,495,557 times
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Quote:
Originally Posted by ssmaster View Post
conversely it's hard to argue paying $3000 for a 1 bedroom makes a lot of sense.

What $3,000/Month Can Rent You Around SF - Curbed Comparisons - Curbed SF
The high prices in San Francisco have helped sustain the markets in other Bay Area cities.

My last new tenant was paying $1800 for a large one bedroom unit and now pays less for a 3 bedroom house in Oakland.
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Old 09-30-2013, 06:49 PM
 
12,823 posts, read 24,327,075 times
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Quote:
Originally Posted by HappyinCali View Post
Now, I am fully aware I am not going to convince anyone. I can't even convince my wife, so I am pretty sure that when (if) we can afford it, we will buy a house. But if you detach the emotional aspect of it and look at just the numbers, owning in the Bay Area makes no sense.

Let's say you buy $1,000,000 house with $200,000 down.

So you have a $800,000 mortgage, and $1,000,000 house. Let's use a round property tax of 1.2% and a mortgage rate of 5%.

You are paying $12,000 in property taxes per year into perpetuity.

For the early years (until you start making a dent into your principal) you are also paying $40,000 in interest. Let's say you put $500,000 down and only have $500,000 mortgage. You are still paying $25,000 per year in interest in the yearly years.

So let's add those two. In my 20% down payment, you are paying a staggering $52,000 to the bank and the government. NOT to you.

So unless your monthly rent is >$4333 owning makes no sense. IF your monthly rent is $3,000, you are literally paying 4 months of your annual rent to the government every year.

You are also responsible for your maintenance etc.

Add in the fact that Bay Area politicians believe that Parcel taxes can fix the schools, pave the roads, cure cancer and bring peace to the Middle East and you really have no reason to buy a house in the Bay Area.

What are your thoughts?
Let's say your mom and dad are from China and give you $1,000,000. DONE!
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Old 09-30-2013, 07:59 PM
 
Location: Southern California
4,453 posts, read 6,777,269 times
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Ask you accountant a couple of questions
-how much you'd get back if you paid $50,000 in interest and property taxes?
-what depreciation is and when does it come into play?
-will this deduction always be around ?

Ask some who has owned their home for 30 years, how much is their property taxes.
Ask some who has been renting for 15 year what how much their rent was and is.
Also look at what has happened in Detroit and say can it happen here?

Although the past doesn't predict the future, at least you'll get an idea of what inflation has been.

If you don't have an accountant ask any of your friends with a mortgage for their accountant or financial planner.

If you feel that you are better off without the aid of a professional and everything is better free on the internet, PM me and I'll show you the lack of information in this thread.

I'm not saying if it make sense or not for your specific case but this is general information.
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Old 09-30-2013, 09:56 PM
 
Location: oakland / berkeley
507 posts, read 913,845 times
Reputation: 404
My wife is my CPA
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