5 ms·

I don't really think throwing away $3k+/month for a small 1 bedroom is a better option. At least have that money go towards a mortgage and get the tax deductio

I don't really think throwing away $3k+/month for a small 1 bedroom is a better option. At least have that money go towards a mortgage and get the tax deductions on interest...

winterchil 12y ago
If you're buying something comparable it's not $3k/month, it's $5k/month + $900/month in property taxes + all maintenance and expenses + the lost opportunity cost of investing all that money in diversified assets.
- mikeryan 12y ago
  I have to call bullshit on that. You're not renting in SF what's equivalent to a $1.5M home (which is roughly what 6k a month in mortgage + taxes + etc will get you) for 3k a month. This excess for investing doesn't exist. Its in fact cheaper to buy in SF every month then it is to rent. Trulia has a really cool tool where you can mess with the numbers yourself http://www.trulia.com/rent_vs_buy/ http://www.trulia.com/rent_vs_buy/
  - winterchil 12y ago
    You're welcome to call bullshit but it's not and here's why. First $6k/month will not get you a $1.5MM home unless you had a down payment of $500k and even then it would not cover your taxes and other expenses. A general rule of thumb for someone with good credit is a monthly payment of $3k will let you borrow $500k on a 30-year fixed mortgage. You can check this yourself here: http://www.mortgagecalculator.org/ http://www.mortgagecalculator.org/ (or use Trulia's). The problem with Trulia's "really cool tool" is unless you use the advanced version all the inputs are wrong. For example, its tax assumptions are less than half of real cost for SF. A more sophisticated tool is available from the NY Times (http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 http://www.nytimes.com/interactive/business/buy-rent-calcula...). Of course getting an apples to apples comparison is pretty hard unless you're talking about buying a condo vs. renting a condo in the same building. Yes, it would be cheaper to buy a 1 bedroom in Bayview then rent a 3 bedroom in Pacific Heights. If you're looking at starter homes in a decent area, say, Noe Valley and compare those costs to renting something similar in the same area renting is generally cheaper. The "excess for investing" DOES exist, at a minimum in the form of the down payment you did not spend. The good news for home buyers is that you get leverage on that return if the market keeps going up. The bad news is that it's illiquid and we don't know whether that's a better investment than the stock market or one of the companies we see on the front page everyday. In short, if you're never moving again buying is likely cheaper. Otherwise, it's complicated. TLDR: It's complicated, and most calculations downplay other buyer costs and ignore other renter opportunities.
- malyk 12y ago
  Rent for my loft at 11th and Folsom was raised in 2012 to $2650. My wife and I moved across the bay to Oakland and now pay $2725 a month all for a house. The loft was then rented for $3300 after we moved out. 1000 sqft loft: $3300 1150 sqft house w/ 40x50 yard and 1 car garage: $2725 But, that isn't in san francisco, but it is within a similar commute distance.
  - winterchil 12y ago
    This totally explains why everyone is moving to Oakland but, as you say, not a fair comparison. Out of curiosity, how much would you estimate it costs to buy the house? Some quick math will let us figure out the rent vs. buy for your neighborhood.
    - malyk 12y ago
      Yeah, that's the kicker for buying. You have to have something for a down payment. My place was $470k and we paid about $72k in closing costs. Our loan is 3.625% for $417k. You can still find nice places at that price point, but rates have gone up. So that's another reason why it isn't a fair comparison. But it's an option, and it isn't far away like other east bay places. And like I said, commute times are similar (35 minutes for me).
      - winterchil 12y ago
        Sounds like you got in at just the right time, congratulations!
ohsnapman 12y ago
Questionable - remember that interest over the life of a 30 year loan often dwarfs the principal itself. Depending on how long you live at a place, whether the price goes up or not if you sell and various sales costs, your tax "savings" from deducting mortgage interest might only be a small discount on getting screwed in general.
- jonnathanson 12y ago
  Correct. I'll happily take out a mortgage on an income-generating property, deduct interest from my taxes, and essentially lease-to-own a building on leverage while generating some modest cash flow as part of the deal. That's when a large mortgage makes sense. On the other hand, taking out an expensive mortgage to buy a residence I couldn't otherwise afford? Much more dicey, even after accounting for the tax deduction, appreciation, etc. Call me old fashioned, but I only like debt when it works for me, not when I work for it.
mrb 12y ago
The problem of buying in SF is that it is a high-risk earthquake area. If a big earthquake occur, not only you may lose your house, but you STILL have to continue to pay the mortgage... on a house that does not exist anymore. Even if you have earthquake insurance, insurers typically go out of their way to avoid/reduce claims they have to pay (this is exactly what happened to numerous Hurricane Katrina victims: http://rt.com/usa/katrina-state-farm-insurance-fraud-596/ http://rt.com/usa/katrina-state-farm-insurance-fraud-596/ ) On the other hand, if you are renting and your house gets destroyed, you move to a new house and you don't have the financial liabilities a homeowner would have.
- aetherson 12y ago
  That is not "the problem with buying in SF." Earthquakes big enough to damage houses are very rare, and much of the value of the property is in the land, not the structure.
  - ceejayoz 12y ago
    > Earthquakes big enough to damage houses are very rare The 20th Century was "abnormally stable" in SF, and they've got a long history of fairly regular ones. http://www.mercurynews.com/science/ci_25793975/quake-cluster-likely-strike-bay-area-scientist-say http://www.mercurynews.com/science/ci_25793975/quake-cluster... > and much of the value of the property is in the land, not the structure In a normal "selling my house" situation, sure. In a "good portion of the city got leveled" situation, not necessarily.
  - mrb 12y ago
    Earthquakes in SF are definitely not rare: "There is a 63% probability of at least one magnitude 6.7 or greater quake, capable of causing widespread damage, striking somewhere in the San Francisco Bay region in the next 30 years." Source: http://www.earthquakesafety.com/earthquake-faults.html http://www.earthquakesafety.com/earthquake-faults.html And I would say it is not true that most of the value is in the land. Even if it is 50/50 between land/house, losing 50% of your investment when the house is destroyed is still a terrible prospect...

I don't really think throwing away $3k+/month for a small 1 bedroom is a better option. At least have that money go towards a mortgage and get the tax deductions on interest...

winterchil 12y ago

If you're buying something comparable it's not $3k/month, it's $5k/month + $900/month in property taxes + all maintenance and expenses + the lost opportunity cost of investing all that money in diversified assets.

mikeryan 12y ago
I have to call bullshit on that. You're not renting in SF what's equivalent to a $1.5M home (which is roughly what 6k a month in mortgage + taxes + etc will get you) for 3k a month. This excess for investing doesn't exist. Its in fact cheaper to buy in SF every month then it is to rent. Trulia has a really cool tool where you can mess with the numbers yourself http://www.trulia.com/rent_vs_buy/ http://www.trulia.com/rent_vs_buy/
- winterchil 12y ago
  You're welcome to call bullshit but it's not and here's why. First $6k/month will not get you a $1.5MM home unless you had a down payment of $500k and even then it would not cover your taxes and other expenses. A general rule of thumb for someone with good credit is a monthly payment of $3k will let you borrow $500k on a 30-year fixed mortgage. You can check this yourself here: http://www.mortgagecalculator.org/ http://www.mortgagecalculator.org/ (or use Trulia's). The problem with Trulia's "really cool tool" is unless you use the advanced version all the inputs are wrong. For example, its tax assumptions are less than half of real cost for SF. A more sophisticated tool is available from the NY Times (http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=0 http://www.nytimes.com/interactive/business/buy-rent-calcula...). Of course getting an apples to apples comparison is pretty hard unless you're talking about buying a condo vs. renting a condo in the same building. Yes, it would be cheaper to buy a 1 bedroom in Bayview then rent a 3 bedroom in Pacific Heights. If you're looking at starter homes in a decent area, say, Noe Valley and compare those costs to renting something similar in the same area renting is generally cheaper. The "excess for investing" DOES exist, at a minimum in the form of the down payment you did not spend. The good news for home buyers is that you get leverage on that return if the market keeps going up. The bad news is that it's illiquid and we don't know whether that's a better investment than the stock market or one of the companies we see on the front page everyday. In short, if you're never moving again buying is likely cheaper. Otherwise, it's complicated. TLDR: It's complicated, and most calculations downplay other buyer costs and ignore other renter opportunities.
malyk 12y ago
Rent for my loft at 11th and Folsom was raised in 2012 to $2650. My wife and I moved across the bay to Oakland and now pay $2725 a month all for a house. The loft was then rented for $3300 after we moved out. 1000 sqft loft: $3300 1150 sqft house w/ 40x50 yard and 1 car garage: $2725 But, that isn't in san francisco, but it is within a similar commute distance.
- winterchil 12y ago
  This totally explains why everyone is moving to Oakland but, as you say, not a fair comparison. Out of curiosity, how much would you estimate it costs to buy the house? Some quick math will let us figure out the rent vs. buy for your neighborhood.
  - malyk 12y ago
    Yeah, that's the kicker for buying. You have to have something for a down payment. My place was $470k and we paid about $72k in closing costs. Our loan is 3.625% for $417k. You can still find nice places at that price point, but rates have gone up. So that's another reason why it isn't a fair comparison. But it's an option, and it isn't far away like other east bay places. And like I said, commute times are similar (35 minutes for me).
    - winterchil 12y ago
      Sounds like you got in at just the right time, congratulations!

ohsnapman 12y ago

Questionable - remember that interest over the life of a 30 year loan often dwarfs the principal itself. Depending on how long you live at a place, whether the price goes up or not if you sell and various sales costs, your tax "savings" from deducting mortgage interest might only be a small discount on getting screwed in general.

jonnathanson 12y ago
Correct. I'll happily take out a mortgage on an income-generating property, deduct interest from my taxes, and essentially lease-to-own a building on leverage while generating some modest cash flow as part of the deal. That's when a large mortgage makes sense. On the other hand, taking out an expensive mortgage to buy a residence I couldn't otherwise afford? Much more dicey, even after accounting for the tax deduction, appreciation, etc. Call me old fashioned, but I only like debt when it works for me, not when I work for it.

mrb 12y ago

The problem of buying in SF is that it is a high-risk earthquake area. If a big earthquake occur, not only you may lose your house, but you STILL have to continue to pay the mortgage... on a house that does not exist anymore. Even if you have earthquake insurance, insurers typically go out of their way to avoid/reduce claims they have to pay (this is exactly what happened to numerous Hurricane Katrina victims: http://rt.com/usa/katrina-state-farm-insurance-fraud-596/ http://rt.com/usa/katrina-state-farm-insurance-fraud-596/ ) On the other hand, if you are renting and your house gets destroyed, you move to a new house and you don't have the financial liabilities a homeowner would have.

aetherson 12y ago
That is not "the problem with buying in SF." Earthquakes big enough to damage houses are very rare, and much of the value of the property is in the land, not the structure.
- ceejayoz 12y ago
  > Earthquakes big enough to damage houses are very rare The 20th Century was "abnormally stable" in SF, and they've got a long history of fairly regular ones. http://www.mercurynews.com/science/ci_25793975/quake-cluster-likely-strike-bay-area-scientist-say http://www.mercurynews.com/science/ci_25793975/quake-cluster... > and much of the value of the property is in the land, not the structure In a normal "selling my house" situation, sure. In a "good portion of the city got leveled" situation, not necessarily.
- mrb 12y ago
  Earthquakes in SF are definitely not rare: "There is a 63% probability of at least one magnitude 6.7 or greater quake, capable of causing widespread damage, striking somewhere in the San Francisco Bay region in the next 30 years." Source: http://www.earthquakesafety.com/earthquake-faults.html http://www.earthquakesafety.com/earthquake-faults.html And I would say it is not true that most of the value is in the land. Even if it is 50/50 between land/house, losing 50% of your investment when the house is destroyed is still a terrible prospect...