Here's why renting is better than buying in LA. (San Francisco: real estate, apartment)

[TexasBound19]

next time you're thinking "oh, i dont want to throw money away renting" remember:

living in a nice brand new apartment with washer & dryer inside in a reasonable area, you're going to spend about $2000-2500/mo in rent (for a studio or 1 bedroom).

the same level of quality, if you were to buy, you'd be spending easily around 3,500-4,500/mo (a condo around 650k -- and im taking into account all costs related to buying in these amounts).

if you buy a condo that is worth 650k, you are throwing away the following (roughly):

6500/yr in taxes
6000/yr in HOA fees
900/yr in insurance
X/yr in maintenance, let's throw a number out there and say, maybe 3,000.
also add a few thousand for closing costs, etc. but let's skip that.

that's a total of $16,400.

renting a place for 2,000/mo is equivalent to 24,000/mo.

24,000 - 16,000 = $8,000 that's the difference between buying vs renting in terms of "throwing money away"

now the big difference is:

if you're renting and spending $2,000/mo, AND not paying 3,500-4,500/mo on a mortgage, HOA, insurance, and maintenance, you're going to have a lot more money in the bank.

You could use this money to live better or invest.

"oh but equity" ... at the end of the day, when you put all the numbers down, you're more likely to be better off financially renting, than buying.

buying is a scam.

[SoCal_Native]

Originally Posted by TexasBound19

next time you're thinking "oh, i dont want to throw money away renting" remember:

living in a nice brand new apartment with washer & dryer inside in a reasonable area, you're going to spend about $2000-2500/mo in rent (for a studio or 1 bedroom).

the same level of quality, if you were to buy, you'd be spending easily around 3,500-4,500/mo (a condo around 650k -- and im taking into account all costs related to buying in these amounts).

if you buy a condo that is worth 650k, you are throwing away the following (roughly):

6500/yr in taxes
6000/yr in HOA fees
900/yr in insurance
X/yr in maintenance, let's throw a number out there and say, maybe 3,000.
also add a few thousand for closing costs, etc. but let's skip that.

that's a total of $16,400.

renting a place for 2,000/mo is equivalent to 24,000/mo.

24,000 - 16,000 = $8,000 that's the difference between buying vs renting in terms of "throwing money away"

now the big difference is:

if you're renting and spending $2,000/mo, AND not paying 3,500-4,500/mo on a mortgage, HOA, insurance, and maintenance, you're going to have a lot more money in the bank.

You could use this money to live better or invest.

"oh but equity" ... at the end of the day, when you put all the numbers down, you're more likely to be better off financially, renting than buying.

buying is a scam.

If this is true, why do most PhDs in Economcs and Finance and MBAs and Bankers buy homes?

[TexasBound19]

Originally Posted by SoCal_Native

If this is true, why do most PhDs in Economcs and Finance and MBAs and Bankers buy homes?

Renting a 1 bedroom apt in the midwest, you're looking at around $700-800/mo.

if you were to buy something similar, you'd pay maybe 160k.

let's say you buy it straight cash, you'd still be paying roughly the same (and sometimes more) because of taxes, HOA, insurance and maintenance.

Illinois property tax: 2.32

2.32% of 160k = 3712 (309/mo)
HOA for cheap apt: 150/mo
insurance (on the cheap side): 800/yr (66/mo)
maintenance: 2000/yr (166/mo)

total: 691

l o l

[looker009]

While i am renting and i do not have any current plans to buy and feel like for us renting is best choice i must put my broker hat on and say your numbers are somewhat wrong.



We are talking about socal and one thing that is true is price will continue going up. Even with recession price will come back. Only thing that i see that will result in prices crashing is very big earthquake. If we get 8.0+ and results in extremely large amount of damages, prices will crash.



Regarding your numbers, $6500 in taxes can be used to reduce your state/federal income taxes. 6500 hoa is way to high. Most HOA are between $150-200 no way are they almost $600 a month. Yes there is not much you can do about insurance but if you combine car/auto together you do get a nice discount. 3k maintenance seem to be high. Maybe $500 a year but it really depends what you buy, how old or new .

[JJonesIII]

Oh how funny. The guy that thinks nothing of spending $1000/month on food and $400/month on a car payment is now trying to give financial advice on renting vs buying

You'll excuse me if I don't take a single thing you say seriously when it comes to financial matters.

The answer to that question is always ...it depends. The most important factor being location. More times than not, those taking the side of renting do have a tendency to cherry pick and only take a snap shot of a given time. Or in the case of a comparison on how you could have done with investing your money somewhere else, only look at specific investments (i.e. well if you bought Apple when it first came out, etc.)

But let me throw out some of the stipulations so when this thread goes on for 100 pages, they'll be some ground rules. Here are the things to keep in mind....

1) Location. I already stated this, but it's the most important one. There might not be much of an argument if you were talking about an area like Detroit. But a major metropolitan area of CA? Yeah, pretty doubtful it's going to work out in the renters favor.

2) Time frame. One could argue that looking at the price of a house today, they are at a peak. Were they 10 years ago when most people had the greatest opportunity of a century? No. Will prices be as high some 5-7 years ago being we are in year 10 of a recovery. Probably not but no one knows. Also, if we run the numbers out 40-50 years, how's that scenario going to work for the renter? For most people the mortgage payments are fixed. For the renter, shy of being in an area with rent control, the price just keeps going up.

3) Rents. What the likelihood rents will remain where they're at? Probably not very likely. I didn't even notice that much of a drop on rents even back in 2010 (don't know about LA but am talking about my neck of the woods in San Francisco and can't imagine there being that much difference). In most scenarios, a mortgage hits a breakeven with renting somewhere around the 7 year mark of a loan. After that, the homeowner tends to get ahead. And when the house is all paid off, they are saving that much more on a monthly basis. We were paying about $800 more on our impounded mortgage when we first bought. Today, the rent is about $2k more than our mortgage and climbing. It wouldn't surprise me much if 10-15 years from now it's $3k more. Some people in our neighborhood are currently nearing the $4k mark on the difference.

4) When talking about appreciation, are you looking at it from the point of view of the original home price or are you taking into consideration that the money is leveraged? In other words, we put down $60k on our home and it's now worth roughly $1.2 million (we didn't buy it outright so comparing to that number is not very accurate in determining how well we did).

There are also a lot less limitations on me if I own on what I want to do with my home (not financial but a consideration). I like having the freedom to get appliances I want and have work done on different things in the house (maybe I want a nice media room, etc).

[Returning2USA]

Originally Posted by SoCal_Native

If this is true, why do most PhDs in Economcs and Finance and MBAs and Bankers buy homes?

Depends on the time period and where one lives, IMO.

Most means more than 50%, not all.

[JJonesIII]

In post #5, I meant to say ...."Will prices be as high some 5-7 years from now being we are in year 10 of a recovery".

[looker009]

Originally Posted by JJonesIII

In post #5, I meant to say ...."Will prices be as high some 5-7 years from now being we are in year 10 of a recovery".

general rule in real estate 7-10 years up, 4-7 down and then 4-7 flat. So i would expect us to have recession next year and prices start dropping.

[Vic Romano]

Originally Posted by looker009

general rule in real estate 7-10 years up, 4-7 down and then 4-7 flat. So i would expect us to have recession next year and prices start dropping.

If this were true you could time the market and you'd be rich. But it's not true. And you're not rich.

[looker009]

Originally Posted by Vic Romano

If this were true you could time the market and you'd be rich. But it's not true. And you're not rich.

Yes it's true but you are welcome to think it's not true.