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It makes no sense these days to buy in the silicon valley. I was talking to some people renting out their house for about 3500 dollars a month. It's a single s

It makes no sense these days to buy in the silicon valley. I was talking to some people renting out their house for about 3500 dollars a month. It's a single story ranch house (3 bed 2 bath) that they bought in the eighties for 150k. It's now worth about 1.5 million. Doing the math, a mortgage + insurance + property taxes on a 1.2 million dollar mortage (less 300k for the down payment) is about 7k. And rents should be inherently higher than house payments. Why would you buy when you could just rent, and not deal with any of the maintenance and stuff?

ethanbond 10y ago
Because those people you talked to are renting their house out at way below market rates (probably)? You can easily rent out a single bedroom for $1500-2500 anywhere near the more central SV hubs.
- jimmywanger 10y ago
  Two things. 1) Way below market rates: It is below market rates, but not that far below. This house is in west San Jose, and according to zillow and CL, they might be able to get 5k for it. Maybe. That's still far below the 7k mortage + property taxes, not to mention the investment income you could be making off the 300k you put up for a down payment. 2) Renter protection laws: The renter was introduced to them personally, and they were vouched for by a mutual friend. It is extraordinarily difficult to evict people in the bay area, even for non-payment of rent. The rentees are not professional property managers, they don't know the ins and outs of rental law, so they're willing to take a haircut. Having bad tenants in your property will easily wipe out 2k a month for 2 years. Edit: Of course they could hire a professional property manager, who would know all the laws and deal with bad tenants, but that would come right out of the bottom line. I don't know how much property managers charge, but then the trick is not to find a good tenant, but to find a good property manager. It would be like a non-technical cofounder looking to find a good engineer. Where would you even start?
  - jimmywanger 10y ago
    Oh, just for completeness. On Zillow (and we all know how accurate or not it is) the house apprasises for ~1.8 million. The zestimate for rent is about 4300. So not terribly under market.
esaym 10y ago
For me in Texas, I am kicking myself for paying $800 rent a month for 4 years now (so I've "given" $40k to my landlord). That 40k I've given away would be really nice to help me do a down payment on a house I'd like to buy (or anything I'd like to buy). But if I was "giving" away $7k a month, I'd be really kicking myself...
- jimmywanger 10y ago
  Hey I'm not trying to be snarky, but I'm trying to understand your point of view. You didn't "give" 40k to your landlord. You paid him for the use of his property, which presumably gave you shelter, kept you warm, gave you a place to park your car and keep your stuff, and he would fix anything that went wrong. That, to me, would like be me kicking myself for "giving" a hotel a couple hundred dollars for a room for a couple of days. A house provides you with shelter and warmth, and presumably provides these things to your family. You're paying money to take advantage of these things. Why is renting so much different from buying?
  - ScottBurson 10y ago
    One might add, the amount of a mortgage payment that goes toward interest -- which is most of it at the beginning, and the fraction comes down only slowly -- is just as "wasted" as rent would have been.
    - jimmywanger 10y ago
      Well, the interest part of the mortgage payment is tax deductible, so that offsets things somewhat. Not 100%, but somewhat. Basically the amount you're paying in interest is tax-deductible, but you're not building equity.
      - dionidium 10y ago
        This benefit is often overestated (especially in discussions focused on the parts of the country with the highest housing costs (which is to say, places unlike Texas)). This guy was paying $800/mo for rent, so presumably he'd be looking at mortgages near that cost. If so, he'd almost certainly just take the standard deduction.

ethanbond 10y ago

Because those people you talked to are renting their house out at way below market rates (probably)? You can easily rent out a single bedroom for $1500-2500 anywhere near the more central SV hubs.

jimmywanger 10y ago
Two things. 1) Way below market rates: It is below market rates, but not that far below. This house is in west San Jose, and according to zillow and CL, they might be able to get 5k for it. Maybe. That's still far below the 7k mortage + property taxes, not to mention the investment income you could be making off the 300k you put up for a down payment. 2) Renter protection laws: The renter was introduced to them personally, and they were vouched for by a mutual friend. It is extraordinarily difficult to evict people in the bay area, even for non-payment of rent. The rentees are not professional property managers, they don't know the ins and outs of rental law, so they're willing to take a haircut. Having bad tenants in your property will easily wipe out 2k a month for 2 years. Edit: Of course they could hire a professional property manager, who would know all the laws and deal with bad tenants, but that would come right out of the bottom line. I don't know how much property managers charge, but then the trick is not to find a good tenant, but to find a good property manager. It would be like a non-technical cofounder looking to find a good engineer. Where would you even start?
- jimmywanger 10y ago
  Oh, just for completeness. On Zillow (and we all know how accurate or not it is) the house apprasises for ~1.8 million. The zestimate for rent is about 4300. So not terribly under market.

esaym 10y ago

For me in Texas, I am kicking myself for paying $800 rent a month for 4 years now (so I've "given" $40k to my landlord). That 40k I've given away would be really nice to help me do a down payment on a house I'd like to buy (or anything I'd like to buy). But if I was "giving" away $7k a month, I'd be really kicking myself...

jimmywanger 10y ago
Hey I'm not trying to be snarky, but I'm trying to understand your point of view. You didn't "give" 40k to your landlord. You paid him for the use of his property, which presumably gave you shelter, kept you warm, gave you a place to park your car and keep your stuff, and he would fix anything that went wrong. That, to me, would like be me kicking myself for "giving" a hotel a couple hundred dollars for a room for a couple of days. A house provides you with shelter and warmth, and presumably provides these things to your family. You're paying money to take advantage of these things. Why is renting so much different from buying?
- ScottBurson 10y ago
  One might add, the amount of a mortgage payment that goes toward interest -- which is most of it at the beginning, and the fraction comes down only slowly -- is just as "wasted" as rent would have been.
  - jimmywanger 10y ago
    Well, the interest part of the mortgage payment is tax deductible, so that offsets things somewhat. Not 100%, but somewhat. Basically the amount you're paying in interest is tax-deductible, but you're not building equity.
    - dionidium 10y ago
      This benefit is often overestated (especially in discussions focused on the parts of the country with the highest housing costs (which is to say, places unlike Texas)). This guy was paying $800/mo for rent, so presumably he'd be looking at mortgages near that cost. If so, he'd almost certainly just take the standard deduction.