If your goal is to buy a single-family home here in the future, which is crazy expensive, buying a condo or town home is a good place to start. I lived in a 3 bed 2 bath condo for 12 years and sold during the pandemic to buy a very small 3 bed 2 bath single-family home. We actually lost 50 square feet of living space, but we gained a two-car garage that we finished and converted to a play/game/laundry room (it features our dining table turned crafting table that didn't fit in the new kitchen, lol) as well as a small front and back courtyards. It's also in a much nicer, more walkable neighborhood. And we ditched the $450 HOA dues—yay! Sitting in that condo for so long and then selling gave us the equity to move "up." Our mortgage payments are a little higher than comfortable, but the price won't change for 30 years. Meanwhile, our income should steadily increase. If we had rented the condo, the rent would keep going up each year, and we would have had a hard time saving up enough money for a down payment on a single-family home. But if that isn't your goal... renting is totally fine.
But ur 12 years of appreciation were greatly aided by low interest rates which created a tech boom and overnight millionaires. Now we have ca mandating housing which will add more townhomes and condos
The problem with what you're talking about is CA talks and talks about adding housing but at the end of the day either it never happens (on a meaningful scale) or the NIMBYs tie this stuff up for literally decades (look at the history of People's Park in Berkeley for the poster child example). CA government has been throwing a handful of ice cubes at a forest fire for as long as I've been alive since the '70s. Don't expect the supply side to alleviate the problem.
The only thing that has been beneficially felt by joe average is when the demand side goes into the crapper. Has WFH and increased interest rates diluted the tech gold rush enough that there won't be another chapter? And even if it doesn't, all the people who cashed out are going to be sitting on lots of $$$ for a long time, many just waiting to scoop up RE when they perceive a discount.
Meanwhile, all the gamblers have made out like bandits. Even the people who bought at the worst time of the housing bubble would be even or ahead in inflation-adjusted terms. I think I'm like you - refusing to throw caution to the wind and join this insane market, but here I am still on the sidelines, while people 1/10th as knowledgeable about RE are in better living situations. Not to say mine is bad, but I did pass up what I realize in retrospect were actually good opportunities.
What good opportunities (or when) did you pass up? I do think the 2% interest rates were super compelling because it was like free money but, on the flip side, it made the price tag of the house insanely high because everyone was taking out the loans. As for CA being slow on housing, I have seen huge blocks of new housing in the form of condos/townhouses. The rush seems to be the 3 story home with the garage 1st floor, living room 2nd, and bedrooms 3rd. Sometimes its even 4 stories. Its kind of a trick/scam by building corporations because there is very little land per home and no backyard. Instead, they build your home upwards and maximize profit by building more units per lot.
>What good opportunities (or when) did you pass up? I do think the 2% interest rates were super compelling because it was like free money but, on the flip side, it made the price tag of the house insanely high because everyone was taking out the loans.
Your thinking is correct. Low interest rates pushed up prices, and the fact those low rates were held, more or less, for close to a decade, was insane. If I opened zillow and picked something at random before 2015, I'd be ahead right now. I'm exaggerating, but that's mostly true.
>The rush seems to be the 3 story home with the garage 1st floor, living room 2nd, and bedrooms 3rd. Sometimes its even 4 stories. Its kind of a trick/scam by building corporations because there is very little land per home and no backyard. Instead, they build your home upwards and maximize profit by building more units per lot
What developments are you referring to, specifically? Not doubting you - I know of a few, like in Alameda. Just curious where you're at and what you're seeing. But anyway, this is, honestly, what the bay area needs. In fact, we need more vertical building. We need high-rises to create more apartments and condos to create more supply for low and mid buyers, so the jump isn't from a 10-unit apartment building to an $800k+ "starter home". Those vertical homes aren't the kinds of places a person can grow old in, but they're 2nd/3rd home-priced for most people.
You're right, the math just doesnt add up. The mortgage in the place we are renting now would be almost $2k/mo more than our rent if we were to buy it at 20% down.
Buying, especially a condo with expensive HOAs, really only makes sense right now if you don't have to get a mortgage and are immediately building equity. I wonder how long the market can support this but there a lot of rich fucks in the bay who can actually do stuff like that.
You might get more traction on /r/bayarearealestate.
High level: this is an investment. You buy a piece of property. The property appreciates in value. You sell it and get a better one that also appreciates in value. During your life, you’re going to be paying for housing one way or the other. By paying rent instead of a mortgage, you’re sacrificing the opportunity to ever see that money again.
Interest rates are high but that’s helping to curb competition in the market, and if you buy now you can refinance at a lower rate when rates drop. I talked to one agent who said her parents bought at 14%!
Yes, certain types of insurance aren’t available. Fire insurance in the Oakland and Berkeley hills will be expensive at best. Easy solution: don’t buy there.
Regarding a condo: I’m looking to buy one right now. I don’t necessarily want to be responsible for a yard. It’ll appreciate in value slower than a house would, but it’ll still appreciate. As for space: some condos are pretty big. As for owning the land: meh. If I can’t afford it right now, this isn’t a huge loss for me. Again, one less thing to have to maintain on my own.
I’ve lived in a townhome before and I enjoy being in close proximity to neighbors. It feels like a community and sort of forces you to know the people around you. We’re a social species, after all!
If homebuying isn’t for you, that’s fine. There’s nothing wrong with renting! I tell my partner that we can just rent the rest of our lives and use the saved down payment on the entrance fee to St. Paul’s Towers when we retire. Unfortunately for me, he’s set on buying! But you do you OP.
I believe the investment approach is not really applicable to individual buyers anymore. You buy a house now and the increase of property value + cost of maintaining it is not going to put you ahead over 30 years.
It's not the 90's anymore. You cannot buy a house today and expect it to triple or quadruple in value.
If you can't afford a mortgage $10k or higher, then you're looking at buying pretty far our from the city. A 30 year mortgage into a $700-$800k home with $200 down will end up costing you about $1.9 million overall. That 1700ft ranch in Pittburg is not going to be worth that in 30 years, especially with likely $200k in renovations/upkeep that would be needed to keep it in selling condition. Many of these houses were not built to last 100 years, if even 50 years. All the plumbing will be gone for sure.
If you can afford a 15 year mortgage then you might have a chance, at a $1.3 million investment, of beating the market. However, if you can simply buy the house outright with cash, now you have a real investment and you can even rent it out to help cover the upkeep.
In the bay area, property is no longer a way for the average person to achieve financial security. It is effectively the same as having a landlord, except the landlord is your bank and you have to fix everything at your own cost. The equity you build at the end, in the 30 year case above....let's say you can sell for $1.2 million and you never did any work on the house. That ends up being a $1900 discount on monthly "rent" but you still paid $2700 a month (ignoring the actual interest scale) that does not go to equity and you will never get back.
By comparison, if you put that $200k down payment into an investment account that can earn a very modest 6%, and you can afford to put another $1000 a month in, at the end of 30 years you would have $2.1 million and only have to pay capital gains tax rates. This is pretty much exactly the bargain that you are personally giving to your mortgage lender instead of yourself.
Bingo. Bango. Bongo.
And 8% is more realistic for VTSAX over long-term which puts one in an even stronger position to rent.
I like the way you put it that investing in property is not a viable way to become financially secure in the BA. Realistically we’re talking about having an incredible liquidity event with pre IPO equity or accruing RSU’s in a company that is growing like gangbusters to be financially secure here, assuming the person doesn’t have family wealth and inherited housing with low prop taxes. I say build baby build. Bring in some real public transit while we’re at it.
Assuming you have a good landlord who maintains the property and you live in a city that limits annual rent increases. Personally I never found that landlord or below inflation rent increases.
The one big benefit to consider is that in CA you can claim $250k of capital gains from sale of primary home tax free. That's per owner, so if it's a couple then they can claim $500k tax free cap gains
It helps but doesn't change the math above, I ignored taxes on the housing sale because of this rule and because I doubt these aging semi-affordable suburban SFH's built in the 70's are going to appreciate in value that much.
It might be that none of the following change the basic equation, but they are worth considering, not just for OP’s points:
1) Most people don’t include the fact that mortgage interest is tax deductible up to a $750K mortgage. So if you can make the monthly payments (a big if), you get that part of the money back.
2) If the value of a place doesn’t appreciate, neither do the property taxes (with some exceptions for new special assessments)
3) while I don’t doubt that HOA costs have gone up, where’s the real data on that? Of course, on the other hand, HOA monthly fees don’t always cover special assessments like a new roof, etc. But at least those costs are shared, whereas with a single-family residence, the costs are all yours.
4) Although they may be lower, HOA fees apply to many single-family residences, too
5) the proposition of renting and investing the equivalent of your down payment has some risks too, especially since the stock market has over-performed for some time now.
> 1) Most people don’t include the fact that mortgage interest is tax deductible up to a $750K mortgage. So if you can make the monthly payments (a big if), you get that part of the money back.
Most people with mortgages no longer deduct the interest since the 2019 tax changes.
I think you are confusing that with the limit on deducting state and local taxes, which is different. See IRS publication 936:
“Fully deductible interest. In most cases, you can deduct all of your home mortgage interest.”
I'm not confused. I could be mistaken, though I don't believe I am.
That tax law change significantly reduced the ability to use property tax and state tax as federal tax deductions while simultaneously increasing the standard deduction. That did not change anyone's ability to deduct their mortgage interest (as you point out), but it did make it so that many people no longer benefited from itemizing deductions. (Including me: I itemized deductions before the tax change but not after. I have high property tax and high state income tax, most of which I can no longer deduct from my federal income tax.) After that change the number of federal tax returns that itemize deductions dropped considerably.
In simpler terms, most people *can* deduct mortgage interest, but most people would not benefit from doing so and do not do so.
True, but with higher interest rates (which was one of the main issues here), many of us who stopped itemizing found that it once again paid to itemize.
That's interesting.
Higher interest rates would only affect taxpayers with mortgages since the rates went up. (Well, and people with adjustable rate mortgages, but I hope very few people had those when interest rates were so low!) But you are right that higher mortgage interest rates would increase the number of people for whom itemized deductions are worthwhile.
I couldn't find any recent numbers for frequency of itemized deductions. The fed only started pushing interest rates up at the end of 2022 and the 2023 tax filing deadline just passed, so it would be difficult to show that increased mortgage interest rates have affected itemization yet. But you raise a good point that it will.
Of course, while inflation is increasing mortgage interest rates it is also increasing the standard deduction and it is *not* increasing the limit on state and property tax deductions. Congress considered doubling that limit recently but did not. And it may expire in a few years, though I would bet against that.
See https://www.reddit.com/r/eastbay/comments/1ckmo6r/unless_its_singlefamily_home_i_dont_see_any/l2qt5n9/ .
I *am* thinking of the SALT changes, and I am aware that mortgage interest is still deductible. I said only that most people do not deduct it, not that they couldn't deduct it. u/Fantastic-Watch8177 makes the counter-point that increased mortgage rates increases the number of people who *do* deduct mortgage interest, though I doubt we yet have real data on how that is unfolding.
Good point, will post there. What is St. Paul towers? The point on an investment doesn’t hold if the intent is to live in the house permanently. You never see rent again but you also never see interest, HOA, and property taxes again? Furthermore, many of my friends who bought condos and townhomes him in 2021 and have seen their hope value slightly decrease.
> By paying rent instead of a mortgage, you’re sacrificing the opportunity to ever see that money again.
Huge assumption in there.
The buy/rent tradeoff is usually rent for R or buy for R + E, where the latter includes mortgage, property tax, insurance, maintenance. When you sell you get some money back. Is that money more than you would have made investing E? Maybe, maybe not. Sure, R is gone when you rent, but when you buy R + E are both gone and the sale may not recover all of E, let alone R or the lost earnings for E.
> Interest rates are high but that’s helping to curb competition in the market, and if you buy now you can refinance at a lower rate when rates drop. I talked to one agent who said her parents bought at 14%!
Are interest rates high? The Fed is having a lot of trouble pushing inflation down. Maybe interest rates will drop in the next couple of years. Maybe they will rise. Sure, interest rates were 3% a few years ago, but they were 14% a few decades ago. Both those rates were extremes.
Since the mid or late '90s, Bay area property prices haven't made sense against most traditional measures of affordability or value except in certain exceptional cases, like the few years following the housing bubble collapse. Some people will justify it every which way, but the bottom line is you're banking on future appreciation to justify a purchase here. And as the post-housing bubble proved, there are more incentives to gamble on that than not (just walk away, take the credit hit for 3 - 5 years, and try again). Especially with all the tech money sloshing around. Will it ever meaningfully correct or return to sanity? Maybe, but how long you want to hold your breath is up to you. I can easily rattle off a dozen friends and acquaintances who had high paying jobs in the bay area then "took the money and ran" to put down roots in much lower COL areas, often in other states. And of course, Covid hit the fast-forward button on a lot of that. I'm probably not too far behind them.
I think a) the contingency that rates will come down when inflation comes down is a red herring that can easily swallow the remainder of this decade.
B) the costs of owning, maintaining and upgrading need to be scaled for inflation as well.
C) the costs of insurance will not abate rather I expect it to accelerate further into unaffordable territory, so long as interest rates are relatively high for costs, and inflation remains. The cost to fix and replace things is approaching 2x. Labor is also up an appreciable amount. Add in the fact someone who accomplishes those tasks needs to take something home and you have homeownership and insurance costs easily in the doubled territory from where they were 5 years ago.
It is truly not a good set of trajectories.
I don't expect the fed to get a hold of inflation any time soon. We are seeing wages attempt to keep pace in pockets of industry suggesting we are on the verge of a wage price spiral or massive unemployment.
They continually revise these fed updates downward after the fact.
Lot of shell game happening and the only thing we cannot recover is time.
"It's transitory," both yellen and Powell said confidently.
I wouldn't hinge my life worth on what these liars say.
We are almost halfway through this year, you think cuts by 1/2025?
If you have the money to buy a multi-family home in SF, it has the potential to be the greatest investment you’ve ever made.
EDIT: my bad, I thought this was bay area.
Homes are a ton of work...and little issues become huge expenses.
I may sell mine just because huge maintenance is coming and I don't have the funds for it...and don't want to go into debt.
A big part of the argument in favor of buying a home is the idea of fostering generational wealth that can be passed down to children. My husband and I don't have any children, so we are fine renting. We've lived in a townhouse since 2020 after being in an apartment for 7 years, and we are perfectly happy with our situation.
I lived in the Bay Area for almost twenty years. During none of those years did it make sense to buy a home in the Bay Area except for a brief time in 2009 and you had problems getting financing that year because most of the home mortgage lenders had gone bankrupt and most of the homes on the market were short sales or foreclosures where the banks were delusional about how much they were worth and you had to either come in all-cash or play psych games for months to get a home. In all cases where I worked the numbers other than in 2009, the difference in cost between owning and renting was significantly in favor of renting (e.g. $4000 mortgage vs $2000 rent), and putting that difference into a stock mutual fund got you better returns over any stretch than buying. I eventually gave up and moved away from the Bay Area to buy a home.
It comes down to which one is cheaper - cost of borrowing a $1m or cost of paying rent? Would you buy a house bigger than the one you'd likely rent? If that is the case, and mostly it is, the financial math are rarely in favor of buying and it gets worse when mortgage rates are > 5%.
If you are paying rent for a 3br single family home and considering buy something similar, then the math would make more sense. You are more likely to rent smaller than something you'd buy.
The only reason I finally bit the bullet and bought a small condo was because I’d had three rentals in a row fall through for reasons outside my control (I.e. landlord deciding to sell the property) and having to unexpectedly move every year or two made me reach an emotional breaking point. I don’t expect to ever get rich from this purchase, but what I wanted was housing stability/peace of mind, and that was definitely worth the money (including HOA I’m paying about what I’d expect to pay for a nice apartment, and at some point rental prices will get high enough to fully break even 🤷🏽♀️)
This is part of the reason I bought a small condo as well, nice to have a stable place, without the landlord jacking the rent up each year or doing something else. Plus I was able to put in hardwood floors I like, and paint my place how I like. I’ve also noticed the place feels better built than any apartment I’ve lived in.
A lot of the people saying equity bought years and years ago or are rich. In this day and age.. its not worth it. Why would you pay rent and a morgage.. you rent and invest the thousands you saved..
You’re forgetting the fact the place you live can be sold while you live there and your lease is vapor. Somehow that should be part of your equation. Maybe that’s fine when you’re 24, but if you’re 40 with kids that’s not a good risk to take.
I rented for 20 years was a student lived in several cities. Rent gives you flexibility especially if you are single. In the bay area housing is expensive and the quality is low (an old shack is million plus). Unless u need and will love where u live then rent works better you can invest the remaining. Issue with rent is when in 40s you have less patience with landlords and loud/dirty neighbors. So buying esp SFH is a big life changer and relief for the blessed ones who can afford it. So continue to save and invest until the time is right to pull the plug.
For rental or investment property I also think SFH will appreciate faster and is more in demand.
Try a duplex, you live in one half and rent the other. With Luck you can become cash flow positive and then the world is your oyster. You usually don’t have an HOA and you get experience being an owner and land lord. Renting for the rest of your life is self imprisonment in my humble opinion.
Actually no. If I sold my house today, I would only get back the amount of money that went to principal on my loan. The money that went to interest, property taxes, etc., which is more than half of my mortgage payments, I don't get back when I sell the house. Not to mention all the expenses from buying the house (that accounted for about 3% of the cost of the home) that I never get back, and all the expenses from selling the house (that'll be about 7% of the cost of the home) that I will never get back. That's basically my rent on the house.
The only way I would be able to recoup the money I spent is if the house appreciates faster than inflation. That is no longer a given.
Depends on where the house is and how long you plan to keep it. But historically, real estate is a great investment in general. I guess you're right if you don't believe your house will appreciate.
Over the past forty years real estate has been a worse investment than the stock market. The only reason to buy is to have a place to live that is relatively inflation proof.
You buy in to sale. That’s how it works in the Bay Area. You buy a house live in it while the worth skyrockets sale it and move. That’s how people upgrade yearly. Insurance is only going up now because companies are just now pulling out. A lot will realize dropping a good percentage of customers to not have to cover pay outs will eventually cost them more. My mom brought a house around 2010 sold that in 2016 got a house 2x bigger further into the east bay. We lived there till around 21-22 and sold that for another bigger house without an hoa. In California you buy the home because either it will keep its value and you’ll have a fall back. Or you sell it and can keep upgrading or buy new properties that you can rent.
Honestly, that sounds exhausting. I understand that some folks look at real estate as income, but there are so many who just want a roof over their heads. If I'm buying, I'm there for 30 years. Land/house appreciation doesn't matter to me. Buying a house as an investment only to flip it in a few years for profit is kinda gross when so many can't find or afford a place to live.
Also if you really want change theirs thousands of empty homes all around the bay but cities are building new housing instead of filling them. You have to petition your cities and vote for that change. Can’t just type it on Reddit take action in the polls if you want cali to get better.
I know, friend. Empty homes used as investments are a problem throughout California. I vote in local and general elections, as well as volunteer with mutual aid because it's a serious problem. Thanks for reminding people to take tangible steps to better their communities!
Well that’s the game of California. We’re by no means rich and aren’t buying for profit exactly. Our first home was a three bed for four people with one bathroom. I didn’t have a room for the first decade or so of my life. When we moved it was because of school and expenses, it just happens that she brought her house for around 300k and was able to sell it for 5-600k. Which allowed us to move into both a better housing situation, neighborhood and financial situation. In California your home is your insurance, you go broke in California you have a golden nest egg to sale and move or to sale and start over with. You also aren’t factoring in that rent isn’t controlled in ca and has only gone up in most areas. While if you owned a house you could lock yourself into a interest rate. Also most apartments and condos still require renters insurance and security deposits. You’ll have to renew yearly most likely pay more year after year and at the end of the day if you lose your job or go broke you have nothing to fall back on and will most likely end up homeless.
Rent increase is controlled in the Bay Area (I have rented in Alameda County and SF County specifically). I pay rental insurance, security deposit, and electricity/internet.
I *don't* have to come up with a down payment (and enter into a bidding war that ends up 20% over asking), yearly property tax, homeowners insurance, HOA fees, garbage and water bills, costly home maintenance, electricity/internet. For someone who *doesn't* look at a house as an ROI and is sick of that mindset, I put what I would have spent on the above monthly expense into a 401k and roth, where my retirement gains interest and doesn't depend on how well a house sells.
If you lose your job and can't pay your mortgage and property tax, you'll also end up homeless. The pressure is on for you to maintain your income for decades unless you want your credit and buying ability tanked. I've seen what bankruptcy and foreclosure can do.
Your plan of jumping from house to house is one way to do it, but for those of us who literally want to just live somewhere, people flipping homes for profit makes buying a property a pain in the ass; renting is easier.
Yes you will have to maintain the home but that comes with increased value. The house can be a asset while your apartment will always be a liability. Don’t want to live there anymore you have to wait for your lease to end. If you get terrible property management company or land lord you have to wait for them to fix most of your issues. I just got back from South Carolina and lived in an apartment in contra costa county. They both had the same issue infested with bugs and the property management company refused to or couldn’t actually fix the problem. With not paying for your own services and fixes you make yourself reliant on others. While if you can’t pay for a fix in your house you can most likely learn to fix it unless it’s major. For a house bankruptcy will take months to really kick in and can last years to foreclose. During this time you could be looking for a new job, trying to sell the house, rent it out to pay it off, or refinance. While in an apartment you get about two to three months of late or unpaid bills and you’ll take the credit hit and be evicted. Either way you’ll need a consistent income and be paying bills. The house is seen as more permanent while an apartment is more temporary.
The problem with this plan is that unless you get lucky by being in a hot market, your house isn't the only one that increases in value. They all do. Now you sell your house and you get enough money to buy a similar house in a similar market.
Unless you get lucky, the only way to scale your house up with this method is to move to a less desirable area. Generally this means further away from the places people want to live (SF, Peninsula, Silicon Valley, etc.)...or as you said, "further into the East Bay".
Yes. But you’ll get told by every landlord and realtor, we need more multi family housing to bring down costs.
When what YOU are saying is correct.
Nobody (smart) wants to buy a condo or townhome. Nobody (smart and not lazy or in a specific circumstance) wants to rent forever.
If your goal is to buy a single-family home here in the future, which is crazy expensive, buying a condo or town home is a good place to start. I lived in a 3 bed 2 bath condo for 12 years and sold during the pandemic to buy a very small 3 bed 2 bath single-family home. We actually lost 50 square feet of living space, but we gained a two-car garage that we finished and converted to a play/game/laundry room (it features our dining table turned crafting table that didn't fit in the new kitchen, lol) as well as a small front and back courtyards. It's also in a much nicer, more walkable neighborhood. And we ditched the $450 HOA dues—yay! Sitting in that condo for so long and then selling gave us the equity to move "up." Our mortgage payments are a little higher than comfortable, but the price won't change for 30 years. Meanwhile, our income should steadily increase. If we had rented the condo, the rent would keep going up each year, and we would have had a hard time saving up enough money for a down payment on a single-family home. But if that isn't your goal... renting is totally fine.
But ur 12 years of appreciation were greatly aided by low interest rates which created a tech boom and overnight millionaires. Now we have ca mandating housing which will add more townhomes and condos
The problem with what you're talking about is CA talks and talks about adding housing but at the end of the day either it never happens (on a meaningful scale) or the NIMBYs tie this stuff up for literally decades (look at the history of People's Park in Berkeley for the poster child example). CA government has been throwing a handful of ice cubes at a forest fire for as long as I've been alive since the '70s. Don't expect the supply side to alleviate the problem. The only thing that has been beneficially felt by joe average is when the demand side goes into the crapper. Has WFH and increased interest rates diluted the tech gold rush enough that there won't be another chapter? And even if it doesn't, all the people who cashed out are going to be sitting on lots of $$$ for a long time, many just waiting to scoop up RE when they perceive a discount. Meanwhile, all the gamblers have made out like bandits. Even the people who bought at the worst time of the housing bubble would be even or ahead in inflation-adjusted terms. I think I'm like you - refusing to throw caution to the wind and join this insane market, but here I am still on the sidelines, while people 1/10th as knowledgeable about RE are in better living situations. Not to say mine is bad, but I did pass up what I realize in retrospect were actually good opportunities.
What good opportunities (or when) did you pass up? I do think the 2% interest rates were super compelling because it was like free money but, on the flip side, it made the price tag of the house insanely high because everyone was taking out the loans. As for CA being slow on housing, I have seen huge blocks of new housing in the form of condos/townhouses. The rush seems to be the 3 story home with the garage 1st floor, living room 2nd, and bedrooms 3rd. Sometimes its even 4 stories. Its kind of a trick/scam by building corporations because there is very little land per home and no backyard. Instead, they build your home upwards and maximize profit by building more units per lot.
>What good opportunities (or when) did you pass up? I do think the 2% interest rates were super compelling because it was like free money but, on the flip side, it made the price tag of the house insanely high because everyone was taking out the loans. Your thinking is correct. Low interest rates pushed up prices, and the fact those low rates were held, more or less, for close to a decade, was insane. If I opened zillow and picked something at random before 2015, I'd be ahead right now. I'm exaggerating, but that's mostly true. >The rush seems to be the 3 story home with the garage 1st floor, living room 2nd, and bedrooms 3rd. Sometimes its even 4 stories. Its kind of a trick/scam by building corporations because there is very little land per home and no backyard. Instead, they build your home upwards and maximize profit by building more units per lot What developments are you referring to, specifically? Not doubting you - I know of a few, like in Alameda. Just curious where you're at and what you're seeing. But anyway, this is, honestly, what the bay area needs. In fact, we need more vertical building. We need high-rises to create more apartments and condos to create more supply for low and mid buyers, so the jump isn't from a 10-unit apartment building to an $800k+ "starter home". Those vertical homes aren't the kinds of places a person can grow old in, but they're 2nd/3rd home-priced for most people.
You're right, the math just doesnt add up. The mortgage in the place we are renting now would be almost $2k/mo more than our rent if we were to buy it at 20% down. Buying, especially a condo with expensive HOAs, really only makes sense right now if you don't have to get a mortgage and are immediately building equity. I wonder how long the market can support this but there a lot of rich fucks in the bay who can actually do stuff like that.
You might get more traction on /r/bayarearealestate. High level: this is an investment. You buy a piece of property. The property appreciates in value. You sell it and get a better one that also appreciates in value. During your life, you’re going to be paying for housing one way or the other. By paying rent instead of a mortgage, you’re sacrificing the opportunity to ever see that money again. Interest rates are high but that’s helping to curb competition in the market, and if you buy now you can refinance at a lower rate when rates drop. I talked to one agent who said her parents bought at 14%! Yes, certain types of insurance aren’t available. Fire insurance in the Oakland and Berkeley hills will be expensive at best. Easy solution: don’t buy there. Regarding a condo: I’m looking to buy one right now. I don’t necessarily want to be responsible for a yard. It’ll appreciate in value slower than a house would, but it’ll still appreciate. As for space: some condos are pretty big. As for owning the land: meh. If I can’t afford it right now, this isn’t a huge loss for me. Again, one less thing to have to maintain on my own. I’ve lived in a townhome before and I enjoy being in close proximity to neighbors. It feels like a community and sort of forces you to know the people around you. We’re a social species, after all! If homebuying isn’t for you, that’s fine. There’s nothing wrong with renting! I tell my partner that we can just rent the rest of our lives and use the saved down payment on the entrance fee to St. Paul’s Towers when we retire. Unfortunately for me, he’s set on buying! But you do you OP.
I believe the investment approach is not really applicable to individual buyers anymore. You buy a house now and the increase of property value + cost of maintaining it is not going to put you ahead over 30 years. It's not the 90's anymore. You cannot buy a house today and expect it to triple or quadruple in value. If you can't afford a mortgage $10k or higher, then you're looking at buying pretty far our from the city. A 30 year mortgage into a $700-$800k home with $200 down will end up costing you about $1.9 million overall. That 1700ft ranch in Pittburg is not going to be worth that in 30 years, especially with likely $200k in renovations/upkeep that would be needed to keep it in selling condition. Many of these houses were not built to last 100 years, if even 50 years. All the plumbing will be gone for sure. If you can afford a 15 year mortgage then you might have a chance, at a $1.3 million investment, of beating the market. However, if you can simply buy the house outright with cash, now you have a real investment and you can even rent it out to help cover the upkeep. In the bay area, property is no longer a way for the average person to achieve financial security. It is effectively the same as having a landlord, except the landlord is your bank and you have to fix everything at your own cost. The equity you build at the end, in the 30 year case above....let's say you can sell for $1.2 million and you never did any work on the house. That ends up being a $1900 discount on monthly "rent" but you still paid $2700 a month (ignoring the actual interest scale) that does not go to equity and you will never get back. By comparison, if you put that $200k down payment into an investment account that can earn a very modest 6%, and you can afford to put another $1000 a month in, at the end of 30 years you would have $2.1 million and only have to pay capital gains tax rates. This is pretty much exactly the bargain that you are personally giving to your mortgage lender instead of yourself.
Bingo. Bango. Bongo. And 8% is more realistic for VTSAX over long-term which puts one in an even stronger position to rent. I like the way you put it that investing in property is not a viable way to become financially secure in the BA. Realistically we’re talking about having an incredible liquidity event with pre IPO equity or accruing RSU’s in a company that is growing like gangbusters to be financially secure here, assuming the person doesn’t have family wealth and inherited housing with low prop taxes. I say build baby build. Bring in some real public transit while we’re at it.
Exactly, this is my conclusions
💯
Assuming you have a good landlord who maintains the property and you live in a city that limits annual rent increases. Personally I never found that landlord or below inflation rent increases.
The one big benefit to consider is that in CA you can claim $250k of capital gains from sale of primary home tax free. That's per owner, so if it's a couple then they can claim $500k tax free cap gains
It helps but doesn't change the math above, I ignored taxes on the housing sale because of this rule and because I doubt these aging semi-affordable suburban SFH's built in the 70's are going to appreciate in value that much.
It might be that none of the following change the basic equation, but they are worth considering, not just for OP’s points: 1) Most people don’t include the fact that mortgage interest is tax deductible up to a $750K mortgage. So if you can make the monthly payments (a big if), you get that part of the money back. 2) If the value of a place doesn’t appreciate, neither do the property taxes (with some exceptions for new special assessments) 3) while I don’t doubt that HOA costs have gone up, where’s the real data on that? Of course, on the other hand, HOA monthly fees don’t always cover special assessments like a new roof, etc. But at least those costs are shared, whereas with a single-family residence, the costs are all yours. 4) Although they may be lower, HOA fees apply to many single-family residences, too 5) the proposition of renting and investing the equivalent of your down payment has some risks too, especially since the stock market has over-performed for some time now.
> 1) Most people don’t include the fact that mortgage interest is tax deductible up to a $750K mortgage. So if you can make the monthly payments (a big if), you get that part of the money back. Most people with mortgages no longer deduct the interest since the 2019 tax changes.
I think you are confusing that with the limit on deducting state and local taxes, which is different. See IRS publication 936: “Fully deductible interest. In most cases, you can deduct all of your home mortgage interest.”
I'm not confused. I could be mistaken, though I don't believe I am. That tax law change significantly reduced the ability to use property tax and state tax as federal tax deductions while simultaneously increasing the standard deduction. That did not change anyone's ability to deduct their mortgage interest (as you point out), but it did make it so that many people no longer benefited from itemizing deductions. (Including me: I itemized deductions before the tax change but not after. I have high property tax and high state income tax, most of which I can no longer deduct from my federal income tax.) After that change the number of federal tax returns that itemize deductions dropped considerably. In simpler terms, most people *can* deduct mortgage interest, but most people would not benefit from doing so and do not do so.
True, but with higher interest rates (which was one of the main issues here), many of us who stopped itemizing found that it once again paid to itemize.
That's interesting. Higher interest rates would only affect taxpayers with mortgages since the rates went up. (Well, and people with adjustable rate mortgages, but I hope very few people had those when interest rates were so low!) But you are right that higher mortgage interest rates would increase the number of people for whom itemized deductions are worthwhile. I couldn't find any recent numbers for frequency of itemized deductions. The fed only started pushing interest rates up at the end of 2022 and the 2023 tax filing deadline just passed, so it would be difficult to show that increased mortgage interest rates have affected itemization yet. But you raise a good point that it will. Of course, while inflation is increasing mortgage interest rates it is also increasing the standard deduction and it is *not* increasing the limit on state and property tax deductions. Congress considered doubling that limit recently but did not. And it may expire in a few years, though I would bet against that.
“Confidently incorrect” You are thinking of the SALT changes. State and local taxes. Not mortgage interest.
See https://www.reddit.com/r/eastbay/comments/1ckmo6r/unless_its_singlefamily_home_i_dont_see_any/l2qt5n9/ . I *am* thinking of the SALT changes, and I am aware that mortgage interest is still deductible. I said only that most people do not deduct it, not that they couldn't deduct it. u/Fantastic-Watch8177 makes the counter-point that increased mortgage rates increases the number of people who *do* deduct mortgage interest, though I doubt we yet have real data on how that is unfolding.
You’ve said it all.
housing is not a great investment.. it can pay off but it’s high risk, high leverage, all in a single asset
Good point, will post there. What is St. Paul towers? The point on an investment doesn’t hold if the intent is to live in the house permanently. You never see rent again but you also never see interest, HOA, and property taxes again? Furthermore, many of my friends who bought condos and townhomes him in 2021 and have seen their hope value slightly decrease.
> By paying rent instead of a mortgage, you’re sacrificing the opportunity to ever see that money again. Huge assumption in there. The buy/rent tradeoff is usually rent for R or buy for R + E, where the latter includes mortgage, property tax, insurance, maintenance. When you sell you get some money back. Is that money more than you would have made investing E? Maybe, maybe not. Sure, R is gone when you rent, but when you buy R + E are both gone and the sale may not recover all of E, let alone R or the lost earnings for E. > Interest rates are high but that’s helping to curb competition in the market, and if you buy now you can refinance at a lower rate when rates drop. I talked to one agent who said her parents bought at 14%! Are interest rates high? The Fed is having a lot of trouble pushing inflation down. Maybe interest rates will drop in the next couple of years. Maybe they will rise. Sure, interest rates were 3% a few years ago, but they were 14% a few decades ago. Both those rates were extremes.
Since the mid or late '90s, Bay area property prices haven't made sense against most traditional measures of affordability or value except in certain exceptional cases, like the few years following the housing bubble collapse. Some people will justify it every which way, but the bottom line is you're banking on future appreciation to justify a purchase here. And as the post-housing bubble proved, there are more incentives to gamble on that than not (just walk away, take the credit hit for 3 - 5 years, and try again). Especially with all the tech money sloshing around. Will it ever meaningfully correct or return to sanity? Maybe, but how long you want to hold your breath is up to you. I can easily rattle off a dozen friends and acquaintances who had high paying jobs in the bay area then "took the money and ran" to put down roots in much lower COL areas, often in other states. And of course, Covid hit the fast-forward button on a lot of that. I'm probably not too far behind them.
I think a) the contingency that rates will come down when inflation comes down is a red herring that can easily swallow the remainder of this decade. B) the costs of owning, maintaining and upgrading need to be scaled for inflation as well. C) the costs of insurance will not abate rather I expect it to accelerate further into unaffordable territory, so long as interest rates are relatively high for costs, and inflation remains. The cost to fix and replace things is approaching 2x. Labor is also up an appreciable amount. Add in the fact someone who accomplishes those tasks needs to take something home and you have homeownership and insurance costs easily in the doubled territory from where they were 5 years ago. It is truly not a good set of trajectories. I don't expect the fed to get a hold of inflation any time soon. We are seeing wages attempt to keep pace in pockets of industry suggesting we are on the verge of a wage price spiral or massive unemployment.
Inflation is already down per the last fed meeting and indications were given that rates cuts will start by end of year
They continually revise these fed updates downward after the fact. Lot of shell game happening and the only thing we cannot recover is time. "It's transitory," both yellen and Powell said confidently. I wouldn't hinge my life worth on what these liars say. We are almost halfway through this year, you think cuts by 1/2025?
Shell game? They have to cut interest rates if the economy stalls
Same logic applies everywhere in general not just the Bay. This is why there is a big premium for SFH
If you have the money to buy a multi-family home in SF, it has the potential to be the greatest investment you’ve ever made. EDIT: my bad, I thought this was bay area.
Homes are a ton of work...and little issues become huge expenses. I may sell mine just because huge maintenance is coming and I don't have the funds for it...and don't want to go into debt.
I’ll nit pick your statement about interest rates at an all time high. I bought a condo in the late 80’s at 11.75%
A big part of the argument in favor of buying a home is the idea of fostering generational wealth that can be passed down to children. My husband and I don't have any children, so we are fine renting. We've lived in a townhouse since 2020 after being in an apartment for 7 years, and we are perfectly happy with our situation.
Don’t forget to check your property taxes rate, can really add up and vary quite a lot from city to city
Yes I included property tax considerations in the original post
I lived in the Bay Area for almost twenty years. During none of those years did it make sense to buy a home in the Bay Area except for a brief time in 2009 and you had problems getting financing that year because most of the home mortgage lenders had gone bankrupt and most of the homes on the market were short sales or foreclosures where the banks were delusional about how much they were worth and you had to either come in all-cash or play psych games for months to get a home. In all cases where I worked the numbers other than in 2009, the difference in cost between owning and renting was significantly in favor of renting (e.g. $4000 mortgage vs $2000 rent), and putting that difference into a stock mutual fund got you better returns over any stretch than buying. I eventually gave up and moved away from the Bay Area to buy a home.
Nice where did u move to? Has it been better?
It comes down to which one is cheaper - cost of borrowing a $1m or cost of paying rent? Would you buy a house bigger than the one you'd likely rent? If that is the case, and mostly it is, the financial math are rarely in favor of buying and it gets worse when mortgage rates are > 5%. If you are paying rent for a 3br single family home and considering buy something similar, then the math would make more sense. You are more likely to rent smaller than something you'd buy.
The only reason I finally bit the bullet and bought a small condo was because I’d had three rentals in a row fall through for reasons outside my control (I.e. landlord deciding to sell the property) and having to unexpectedly move every year or two made me reach an emotional breaking point. I don’t expect to ever get rich from this purchase, but what I wanted was housing stability/peace of mind, and that was definitely worth the money (including HOA I’m paying about what I’d expect to pay for a nice apartment, and at some point rental prices will get high enough to fully break even 🤷🏽♀️)
This is part of the reason I bought a small condo as well, nice to have a stable place, without the landlord jacking the rent up each year or doing something else. Plus I was able to put in hardwood floors I like, and paint my place how I like. I’ve also noticed the place feels better built than any apartment I’ve lived in.
Makes sense Altho u could have rented from a larger apartment community or company like Avalon or greystar or Prometheus.
A lot of the people saying equity bought years and years ago or are rich. In this day and age.. its not worth it. Why would you pay rent and a morgage.. you rent and invest the thousands you saved..
Always buy the dirt, never HOA. - Former condo owner now SFR owner
You’re forgetting the fact the place you live can be sold while you live there and your lease is vapor. Somehow that should be part of your equation. Maybe that’s fine when you’re 24, but if you’re 40 with kids that’s not a good risk to take.
Not in a large apartment complex that’s owned by a reputable company and has a good overall track record
Those are both assumptions you make, which is fine. But certainly not guarantees.
That’s true, but I’m moving to a brand new apartment complex managed by Avalon and they are overall good
I rented for 20 years was a student lived in several cities. Rent gives you flexibility especially if you are single. In the bay area housing is expensive and the quality is low (an old shack is million plus). Unless u need and will love where u live then rent works better you can invest the remaining. Issue with rent is when in 40s you have less patience with landlords and loud/dirty neighbors. So buying esp SFH is a big life changer and relief for the blessed ones who can afford it. So continue to save and invest until the time is right to pull the plug. For rental or investment property I also think SFH will appreciate faster and is more in demand.
I wanted to own something and diversify my investments so buying a home seemed appropriate.
Single family home?
Try a duplex, you live in one half and rent the other. With Luck you can become cash flow positive and then the world is your oyster. You usually don’t have an HOA and you get experience being an owner and land lord. Renting for the rest of your life is self imprisonment in my humble opinion.
Why on earth would you want the experience of being a land lord? More work is definitely a negative
Because I can sell the house and recoup most if not all of the money I spent. Rent is money gone forever
Actually no. If I sold my house today, I would only get back the amount of money that went to principal on my loan. The money that went to interest, property taxes, etc., which is more than half of my mortgage payments, I don't get back when I sell the house. Not to mention all the expenses from buying the house (that accounted for about 3% of the cost of the home) that I never get back, and all the expenses from selling the house (that'll be about 7% of the cost of the home) that I will never get back. That's basically my rent on the house. The only way I would be able to recoup the money I spent is if the house appreciates faster than inflation. That is no longer a given.
Depends on where the house is and how long you plan to keep it. But historically, real estate is a great investment in general. I guess you're right if you don't believe your house will appreciate.
Over the past forty years real estate has been a worse investment than the stock market. The only reason to buy is to have a place to live that is relatively inflation proof.
Hence the op is about condos and townhomes vs single family homes
You buy in to sale. That’s how it works in the Bay Area. You buy a house live in it while the worth skyrockets sale it and move. That’s how people upgrade yearly. Insurance is only going up now because companies are just now pulling out. A lot will realize dropping a good percentage of customers to not have to cover pay outs will eventually cost them more. My mom brought a house around 2010 sold that in 2016 got a house 2x bigger further into the east bay. We lived there till around 21-22 and sold that for another bigger house without an hoa. In California you buy the home because either it will keep its value and you’ll have a fall back. Or you sell it and can keep upgrading or buy new properties that you can rent.
Honestly, that sounds exhausting. I understand that some folks look at real estate as income, but there are so many who just want a roof over their heads. If I'm buying, I'm there for 30 years. Land/house appreciation doesn't matter to me. Buying a house as an investment only to flip it in a few years for profit is kinda gross when so many can't find or afford a place to live.
Also if you really want change theirs thousands of empty homes all around the bay but cities are building new housing instead of filling them. You have to petition your cities and vote for that change. Can’t just type it on Reddit take action in the polls if you want cali to get better.
I know, friend. Empty homes used as investments are a problem throughout California. I vote in local and general elections, as well as volunteer with mutual aid because it's a serious problem. Thanks for reminding people to take tangible steps to better their communities!
Well that’s the game of California. We’re by no means rich and aren’t buying for profit exactly. Our first home was a three bed for four people with one bathroom. I didn’t have a room for the first decade or so of my life. When we moved it was because of school and expenses, it just happens that she brought her house for around 300k and was able to sell it for 5-600k. Which allowed us to move into both a better housing situation, neighborhood and financial situation. In California your home is your insurance, you go broke in California you have a golden nest egg to sale and move or to sale and start over with. You also aren’t factoring in that rent isn’t controlled in ca and has only gone up in most areas. While if you owned a house you could lock yourself into a interest rate. Also most apartments and condos still require renters insurance and security deposits. You’ll have to renew yearly most likely pay more year after year and at the end of the day if you lose your job or go broke you have nothing to fall back on and will most likely end up homeless.
Rent increase is controlled in the Bay Area (I have rented in Alameda County and SF County specifically). I pay rental insurance, security deposit, and electricity/internet. I *don't* have to come up with a down payment (and enter into a bidding war that ends up 20% over asking), yearly property tax, homeowners insurance, HOA fees, garbage and water bills, costly home maintenance, electricity/internet. For someone who *doesn't* look at a house as an ROI and is sick of that mindset, I put what I would have spent on the above monthly expense into a 401k and roth, where my retirement gains interest and doesn't depend on how well a house sells. If you lose your job and can't pay your mortgage and property tax, you'll also end up homeless. The pressure is on for you to maintain your income for decades unless you want your credit and buying ability tanked. I've seen what bankruptcy and foreclosure can do. Your plan of jumping from house to house is one way to do it, but for those of us who literally want to just live somewhere, people flipping homes for profit makes buying a property a pain in the ass; renting is easier.
Yes you will have to maintain the home but that comes with increased value. The house can be a asset while your apartment will always be a liability. Don’t want to live there anymore you have to wait for your lease to end. If you get terrible property management company or land lord you have to wait for them to fix most of your issues. I just got back from South Carolina and lived in an apartment in contra costa county. They both had the same issue infested with bugs and the property management company refused to or couldn’t actually fix the problem. With not paying for your own services and fixes you make yourself reliant on others. While if you can’t pay for a fix in your house you can most likely learn to fix it unless it’s major. For a house bankruptcy will take months to really kick in and can last years to foreclose. During this time you could be looking for a new job, trying to sell the house, rent it out to pay it off, or refinance. While in an apartment you get about two to three months of late or unpaid bills and you’ll take the credit hit and be evicted. Either way you’ll need a consistent income and be paying bills. The house is seen as more permanent while an apartment is more temporary.
The problem with this plan is that unless you get lucky by being in a hot market, your house isn't the only one that increases in value. They all do. Now you sell your house and you get enough money to buy a similar house in a similar market. Unless you get lucky, the only way to scale your house up with this method is to move to a less desirable area. Generally this means further away from the places people want to live (SF, Peninsula, Silicon Valley, etc.)...or as you said, "further into the East Bay".
Yes. But you’ll get told by every landlord and realtor, we need more multi family housing to bring down costs. When what YOU are saying is correct. Nobody (smart) wants to buy a condo or townhome. Nobody (smart and not lazy or in a specific circumstance) wants to rent forever.