Living for less than 2 years (San Francisco, Sacramento: middle-class, real estate, renters) - San Francisco - Oakland - California (CA) - City-Data Forum

maya24 · 07-07-2009, 04:25 PM

All our family is on the east coast and we are thinking of moving out east in 2 years. But the housing prices now are so affordable here that we are considering buying something small in the bay area (townhouse/condo), living in it for the next 2 years and then renting it. My husband and I are young, have great jobs and we can afford a townhouse/condo for the price range and location we are looking at. When we rent it, we may need to pay <$500 extra to cover mortgage, which is ok with us. Any thoughts on whether this is a good idea or are we better off renting now and wait to buy a house on the east coast when we move? Thanks for your inputs!

ecvMatt · 07-07-2009, 07:00 PM

The Bay Area is on the West coast, huh? What?

That hurt my brain.

sonarrat · 07-07-2009, 07:04 PM

Why would you buy anything as a rental property that wasn't cash flow positive? If you're going to have to get an investor's loan anyway, you might as well buy a multi-unit building.

clongirl · 07-07-2009, 07:54 PM

It seems very unwise to me to pay a mortgage (plus insurance, maintenance costs,property tax etc) that will be far greater than the rental income you'd recoup. Unless you are looking to purchase in a place further out like Antioch or Brentwood or even parts of Sacramento, then you will be losing money every month. Just my 2cents though!

Jonotastic · 07-08-2009, 01:07 AM

How much would you have to buy a place?
How much would you have to rent a place?
What do you expect (1 bed, studio, 2 beds) etc?
Where in the Bay Area?

maya24 · 07-08-2009, 10:37 AM

Thanks for your responses.

@Jonotastic: We are looking in Fremont to buy and are looking at 350-400K range for a 2 bed 2 bath townhouse/condo in a good school district. In the area we are looking at, rents are expected to be around 1800-2000 per month.

Looks like east vs west coast threw people off

I'll remember to be more specific next time!

sonarrat · 07-08-2009, 12:08 PM

Quote:

Originally Posted by maya24

Thanks for your responses.

@Jonotastic: We are looking in Fremont to buy and are looking at 350-400K range for a 2 bed 2 bath townhouse/condo in a good school district. In the area we are looking at, rents are expected to be around 1800-2000 per month.

Looks like east vs west coast threw people off

I'll remember to be more specific next time!

I have to say it again, don't buy a condo or single-family property as a rental or investment. It may seem smart to have something you would want to live in yourself, but if you look at it from a business point of view, that almost never works. There's a giant premium for ownership in good school districts. If you used that money instead to buy a quadplex in a decent middle-class part of Oakland, even if you didn't want to live there yourself, it would be a much better investment. Then you could keep up with the mortgage effortlessly with extra money coming in every month, have a good property management company to keep the out-of-state headaches to a minimum, and ultimately buy a much nicer property than the townhouse you have your eye on in Fremont.

maya24 · 07-08-2009, 01:00 PM

Sonarrat, thanks for the insightful response. Mind if I probe further? Our plan to buy a house if only to live in it for two years is so we can avoid paying rent for two years and hope that the property values rise. Even if the latter does not occur and house prices stay the same for the next five years, we would still save on the 2 yr rent. Its true that for the next three years that we rent it out to others, we would lose some because the rent wouldn't cover mortgage, but its a small price to pay and hopefully the house prices would increase enough to cover that difference.

As far as alternatives go, if we dont buy in Fremont, we wouldn't buy at all and keep renting for another two years, and buy when we move out east, which a lot of people say is a wise thing. Would you agree?

GritstoGranola · 07-08-2009, 03:04 PM

I have own rental property for years. Rental properties can be a great investment, but in this current climate? Buyer beware! And I see where you are coming from, why pay rent when you can buy? It seems like you are throwing money away when you could own some real estate. Well, we are moving to San Francisco and we are going to rent for a number of reasons. 1) We are not familar with the area; 2) The housing crisis isn't over and we don't want to invest in a property that won't increase in value within the next 5 years, as we may not be there longer than 5 years; 3) Ca. real estate is insanely expensive. It's cheaper to rent what I want. And if I had to get a mortgage, the it takes years to start paying off equity, most of your mortgage will be interest (kinda like rent - it's gone!); 4) I don't have to worry about maintaining the property, the owners will have to deal with the headaches of lawn care, broken appliances, etc.

Here is my 2 cents: 1) Don't buy anything that you would not live in your self (ever!) and make sure the location is in the BEST school district; 2) Do not buy a property and then move across the country. Dealing with tenants and repairs can be a major pain (not to mention if you have to boot them out), you want to be close by; And what happens when they lose their job and can't pay the rent on time? Will you be able to cover the house if you don't have renters? Trust me, it can be a revolving door where tenants are concerned. The house may sit empty for a month or two...can you cover it? 3) You did not mention if you will be moving back to Ca. but in order to avoid capital gains, you must live in a rental property 2 out of 5 years; 4) Did you also factor in the annual cost to maintain the home? What if the furnance goes? The water heater? The roof? These are huge expenses. The average annual maintance cost on a home is 5% of the property's value. A $400k property would cost you approx. $20K a year to maintain (this does not include mortage). Now, this may be higher in Ca., I don't know, I haven't moved there yet! 5) Property values are still dropping and I have heard reports that it may not bottom out until approx. 2011 (may be longer in places like CA).

Bottom line, don't do it. It sounds like you are willing to have a mortgage of approx. $2,500. In order to see a profit, you will have to own the home for at least 5-8 years (and that is in a normal climate). What happens in 5 years when you want to buy a home in the east and you are saddled with a run down rental. And trust me, they get run down when they are rentals (which means more $$$ to get it up to speed for when you want to put it on the market). You would be much better off investing the money in something very safe and bide your time. So, that's my 2 cents.

clongirl · 07-08-2009, 03:18 PM

Quote:

Originally Posted by maya24

Sonarrat, thanks for the insightful response. Mind if I probe further? Our plan to buy a house if only to live in it for two years is so we can avoid paying rent for two years and hope that the property values rise. Even if the latter does not occur and house prices stay the same for the next five years, we would still save on the 2 yr rent. Its true that for the next three years that we rent it out to others, we would lose some because the rent wouldn't cover mortgage, but its a small price to pay and hopefully the house prices would increase enough to cover that difference.

As far as alternatives go, if we dont buy in Fremont, we wouldn't buy at all and keep renting for another two years, and buy when we move out east, which a lot of people say is a wise thing. Would you agree?

Have you even looked at how much property tax and homeowner's insurance will cost you. What about repairs.. or the cost of screening good tenants and dealing with potential problems from across the country.

Here in the Bay Area it's nearly always better to rent and invest your money in other, safer ways. I don't understand why it would be alright for you to "lose some"...paying for someone to live in your house just so you can have a house just doesn't make much financial sense. Tenants have strong rights and it's not always likely that you'll just be able to get them to move out when you want.

It sounds like you're looking at purchasing out of fear (worried about prices over inflating again) and trying to "hedge" your bets that prices will increase. Most people cannot accurately predict what life has in store for the next six months let alone three years. How do you all know that you'll still retain the jobs/incomes that you have or other unforseen event happens? What if the neighborhood you're looking to purchase becomes undesirable and it's all renters when you get back? You could potentially lose big time.