Sunday, September 25, 2005

Why Own When You Can Rent in Bay Area?

In the Bay Area it makes more sense to rent than hold a mortgage on a house as this person makes abundantly clear.

Some choice quotes:
"I'm making a killing in the housing market -- as a renter."

"After 15 years as a homeowner in the Bay Area, I've cashed out and taken advantage of a bizarre situation: Homes that sell for a fortune are available to rent for as little as $1,500 a month, less than half the cost of ownership, even after factoring in the tax benefits from the federal mortgage-interest deduction."

"Of course, homeownership remains the American Dream, but the reality is that renting is a better deal, especially in the Bay Area, where the cost gap between being an owner and being a renter is probably the largest in the country."

"The disparity stems from an unprecedented occurrence: As home prices have soared in the Bay Area over the past four years, rents have fallen an average of about 15 percent and sometimes much more."

"I could spend my proceeds, about $250,000, on a down payment for a new house, lock in sky-high property taxes and then groan under a mammoth mortgage. Plus, if the housing bubble bursts, I could watch the value of the investment fade into thin air."

"Or I could rent a house and become a premier customer at Wells Fargo."

"Landlords were happy to see me. In the rush to buy Bay Area real estate, nearly all the "good" renters -- people with cash flow and assets -- are gone, having become property owners themselves. What's left for landlords are young singles, poor families and eminently presentable folks who are, alas, recovering from a financial calamity. When I described myself to landlords and showed them some of my financial records, they threatened to become friends for life."

"From my knowledge of real estate prices, I knew I'd pay at least $500,000 to buy the place. My taxes alone would be $500 a month. My monthly payments, if I put no money down and got an ultra-attractive 5.1 percent interest rate over 30 years, would total $2,700. With $500 a month for maintenance and another $150 for insurance, my total carrying costs would be close to $4,000 a month."

"That's not bad, but I can rent the whole place for $1,600 a month. That's a cash savings of $2,400 a month."

"Even when you budget nothing for maintenance -- zero -- the carrying cost of owning a home is more than double. The same goes for a large down payment. If I put down, say, $200,000 on a house, I can no longer invest this money in T-bills or the stock market. That same $200,000 in a 4 percent certificate of deposit earns me $8,000 a year. So the lost gains and the reduced interest essentially cancel each other out."

"Whoa, say the ownership bigots. What about my federal tax deduction? Wouldn't that even the score?"

"Nope. Even if the mortgage deduction saved me $1,000 a month in taxes (and that's only possible if I paid the highest state and federal rates), I still save more than $1,400 a month by renting."

"So I am now living the American Dream -- renting a home prettier than any I ever owned."

"There's also the peace of mind I gain from watching my Wells Fargo accounts grow. I'm prone to telling my friends that they should sell their homes, too, and sometimes I don't even add the words "before the market crashes." The windfall from selling after years in the market and then renting is too good to pass up."

"Just the other day, one of my best friends succumbed to rental fever. He sold a one-bedroom apartment in Pacific Heights for an obscene amount of money and moved into an apartment in Noe Valley."

"He's literally laughing all the way to the bank. In a couple of weeks, he's coming over to try my hot tub."


Blogger fredtobik said...

Bringing it back to Marin.

I know two people that bought a house in June, sold it in October, walked away with 80k, but they had to move away from god's country.

Smart people buy homes to live in, not to make money.

Sep 25, 2005, 9:34:00 PM  

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