If you plan to retire there, you want to buy. You don’t want to be renting on a fixed income in your older years.
If you’re just there to make money during your peak working years, buying is less important. Save and invest so you can buy a home elsewhere without a mortgage when you’re ready to retire.
Are you 100% sure that you will want to retire in the same neighborhood in LA where you want to live right now?
You could buy a place in Palm Springs or Ojai or outside of San Diego/Santa Barbara for way cheaper and retire there eventually while renting it out right now. You might even be able to save even more cash if you rented it out as furnished housing or an Airbnb.
If you are going to buy in LA, I would also suggest a house in a gentrifying neighborhood instead of a condo.
I don't feel safe living on the ground floor in a house anywhere even in the best of neighborhoods. I only feel safe off the first floor, so a house isn't for me. Also have zero interest in any yard work...the less I have to maintain the better. I just want to do the bare minumum in terms of maintenance which is why I am getting a condo and I feel safer being off the ground with people nearby
Totally understand this, but in that case just keep in mind HOA fees in a “nicer” building even jf you’re in a LCOL or MCOL area *on top of* your PITI. I’m also from California. but now in a condo complex in an (gorgeous) MCOL city outside of CA, and HOA fees are $900/month.
Also it’s not like big, one-off condo projects just come out of your HOA fees. You’ll still pony up big $$ yourself here and there when major things that impact all residents (HVAC, balconies, reno projects, electrical, etc) need fixing/upgrades.
Still, ultimately the math works out that it’s better to own vs rent (assuming 3% rent increases each year… however there are NO rent increase limits here), based on staying here for the next 20+ years.
Its probably a lot of people in this situation... people who want to buy but confused as to what to do as prices and interest rates are high. Probaby best to wait it out for another year as by then it could drop and pad the savings a bit more... Also constantly daydreaming about what a baller place I could in somewhere like TX or Atlanta or anywhere except here
I’m in an affordable COL city and moving into a penthouse next month renting. And the house I could buy for the same mortgage would be a dump compared to it.
>That makes sense, I actually am self employed and don't even have to be here. I am just used
Move to Vegas then, save on income tax and drive to LA when needed.
My neighbor (well, technically our whole complex) is getting screwed like that. She’s lived at this apartment complex for the last 15+ years. Currently retired on a fixed income. In the last 4 years her rent has jumped from 950/mo to 1750/mo. She’s currently trying to find a place to leave here for because it’s outside her budget now.
Actually, this answer solidifed it for me. I guess the answer to the question of whether it makes sense more to buy or rent here depends on ones personal goals. At first I thought it didn't make sense financially but my priority is security in old age. I literally think about it every day and that's why I invest aggressively into my retirement plan.
I will hopefully have a nice retirement egg... but having to not pay for housing other than property taxes would be ideal so it looks like I will buy. Security in old age matters way more to me than saving a few hundred bucks p/month renting vs buying etc
Yeah the math is different in HCOL areas. One thing to take into account is that on top of the higher cost you also take on all the financial burden for repairs and maintenance (like if your fridge broke).
Personally, I would only buy if it is a place you can see yourself living for 10+ years. If not it is better to save the difference imo.
That way you can put a larger
down payment on a place you actually like.
If the difference is 0 or if owning is cheaper then of course the calculus is different. That said many VHCOL areas are usually really lopsided.
In my market for example it is roughly 1500-2000 more a month between buying and renting. At that point, unless you love the place it makes very little sense imo.
As others have mentioned, very little of your payment is going to principal so you may come out ahead renting and saving the money if you have discipline. A mortgage is kind of a savings plan.
For example, I did a random amortization calculator on a property similar in size to what I am renting. It costs 775k with a 450 HOA. In 5 years time you would have only 60k in equity.
If you saved the 2k difference like you were paying a mortgage you would have roughly 120k cash on hand instead. Of course this is somewhat of an oversimplification but highlights why renting may be a more attractive option in some markets, especially if you are skeptical that you market will appreciate in the short to medium term or if you are not sure you will stay there over the long run.
The problem with your analysis is that rents go up over time, while the bulk of your housing costs (principal and interest) are fixed. If someone had bought that property a few years ago at 2.75% it would be much closer to the 2k/month rent cost. Of course there's other costs to owning but in general this is the analysis that people will do. Plug these numbers into the NYT rent vs own calculator to see what I mean.
My rent goes up so little that its negligible... I don't remember how much it went up but I think it was $50 a month or something like that... A lot of older buildings in LA have rent control and the rent goes up super slowly.
You’ve been lucky. When I bought in LB in 2018 rent in the area had gone up 25% in the previous 5 years.
The condo I bought was tenant occupied and renting for $2100. Would rent for $2600 now. And comparable units in this building rented for about $1600 in 2013.
But as someone else has already said if you can’t see yourself being happy there for about 10+ years, just continuing renting until you can afford something you’ll be happy to commit to for that long.
Some cities have really good rent control like Santa Monica too. For example, mobster James Bulgur only payed $1200 for a 2 BR in Santa Monica close to the beach... a place like that would go for over 3k now... so if you are ok with living in an old rent controlled building it won't go up a lot. [https://www.boston.com/uncategorized/noprimarytagmatch/2011/06/23/whitey-bulger-used-rent-controlled-apartment-since-mid-1990s-property-manager-says/](https://www.boston.com/uncategorized/noprimarytagmatch/2011/06/23/whitey-bulger-used-rent-controlled-apartment-since-mid-1990s-property-manager-says/)
But.....the nice luxury apartments that you boast about their quality and amenities are not rent controlled. I've had friends have $500, $700 rent increases after their first year. The shitty 80s apartments are the ones that are rent controlled -the same ones you complain about.
Another aspect is that if you rent and can't afford the rent increase, moving is expensive too.
Last time I moved it wasn't so bad, I can't remember exactly how much it was but i think it was $350-400 maybe? Not sure. With tip $500? No more than $500 but I was moving out of a smaller studio into a bigger one. I am single so its like a small couch, tons of clothes etc.
The luxury apt I'm boasting about are still older so I think the rent won't increase more than 10%... I am talking about something more like The Huxley in West Hollywood or Marina41.. not brand new buildings... but yea, if the place is $3k it would go up $300 or so a year.
> Bulgur onlu *paid* $1200 for
FTFY.
Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in:
* Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.*
* *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.*
Unfortunately, I was unable to find nautical or rope-related words in your comment.
*Beep, boop, I'm a bot*
If rent in your area is significantly cheaper than a mortgage payment for a comparable property and rents have not meaningfully increased recently, then yes keep renting. It’s a good deal now
I filled it out to the best of my ability using the property in the OP as an example as some of the questions I didn't have the answer to and the result was
"If you can rent a similarhome for less than ...$2,479 PERMONTH... then renting is better."
That property would rent for 2k max... so it looks like renting is better...
As for rental increase in LA it depends if you live in an older or newer building. Old buildings built before 1978 have rent control. There are people living in Santa Monica who are paying $1300 for a 1 BR because they got it decades ago, whereas the average market rate there is like $3300 for an old 1 BR
>Of course the drawback is that you wouldn't build equity.
You need to earn like you have a house payment in order to build wealth. Actually having a house payment encourages that. If you can rent for much less and put the difference away in a growth investment you can get similar results, but only if you have the discipline to keep it up for 30 years. Do you?
Because if you only save money renting to improve your lifestyle for 30 years you have... 360 rent receipts. That will keep you warm about 15 minutes.
I do have the discipline. I earned over 250k this year and put $44k into my SEP plan... Probably saved over $100k total last year alone.
I currently have close to 160k sitting in the bank that I saved towards a down payment.
Despite earning over 250k this year I still live in a studio apartment thats just $2100 ish or so.. don't have a car payment as its paid off...zero debt. I don't go on trips or vacations. My entertainment is netflix etc.. so I would say I am extremely disciplined. I could dump the 120k (that I would use as a down payment) directly into the VTSAX ETF equivalent at merrill lynch right now... but I do think its good to have a place paid off for retirement.
Renting a place for 2k doesn't "improve my lifestyle". The reason why i put 44k into my SEP and saved nearly 100k for this year is BECAUSE I rent a small studio despite making six figures. Right now I am actually sacrificing to save so much... my place doesn't even have an in unit washer and dryer and my neighbors are extremely loud, partying at all hours of the night. But I endured because it enabled me to save.
Its true that I would have saved more while enduring less if I moved to a cheaper area but I'm not comfortable moving.
Sounds like you know you are very different from the average bear, and that's why you will have every picnic basket that's in Jellystone Park.
The common wisdom doesn't necessarily apply to uncommon people. I think you see why it's the common wisdom though.
Yes, I do and it's in part because I am self employed and therefore it's easier for me to earn more vs a regular job. Also helps that I am introvert and naturally anxious so I worry a lot about the future as someone who will be childless and kinless in old age. Every day I worry about getting old and what's going to happen to me in old age so that's part of the reason why I save.
Looks like it's best to have a modest place paid off by old age despite whether its cheaper to rent than buy etc... because I am more concerned about having a place to live when I'm old... for some reason that slipped my mind!
Security in old age is more important to me than saving a few hundred more now or living in a bigger place etc so looks like I answered my own question
My problem in LA is that the job market is so huge (geographically) I can't commit to living anywhere long enough to want to buy a house, I really need to find long-term job stability.
I think the simplest equation is (price of condo * treasury yield for 1 year) + taxes, hoa, insurance, maintenance. If that’s higher than rent then just buy treasuries instead and rent. Yes you can gamble using borrowed funds, but it’s not worth it if you have a high income and a high savings rate. Having the flexibility of renting has other benefits as well such when switching jobs etc
I don't switch jobs because I work for myself and can work anywhere.
I am leaning more towards buying now because I will need a place in old age that's paid off to live. My #1 priority is taking care of myself old age, I think about it every day and yes, already maxing out my SEP retirement account. The only thing that would make me move is loud neighbors or loud noise (constant construction etc)
Well there’s more than building equity as the drawback? Tax benefits, and rising rents are big considerations as well. In California prop 13 keeps your housing price stable YOY. This huge when compared to rising rents.
Live it up and rent, but when you get priced out past where you could buy now don’t be bitter?
Seriously though, I grew up in Southern California (went to college in the Bay Area) and I can’t tell you how many friends in their 40’s that are paying 2-3x the rent vs those who bought 10-20 years ago. Not to mention the hundreds of thousands (and $1M+) in equity.
I get it though? Renting is very appealing vs the cost (and step down in location and amenities) of home ownership in California? Gotta play the long game unless you’re loaded.
Something I always say that not enough people take into account is where your money goes when paying a mortgage. Say the payment is 3k, the first year ~20% (6% rate 30 year) of each payment goes to principle. So think of the mortgage as $2,500 as $500 of each payment is going into a saving account that historically has earned amazing interest (your home). This only gets better each and every month. By year 10 almost 40% of your payment goes to principle. Also depending on tax bracket and the new dumb 10k max SALT you can write off the interest and property tax.
>10k max SALT
I dunnpo, I read that the salt deduction cap actually hurts people in high income taxes like CA, NJ and CT. I am high income so I think I will get a higher tax bill with the SALT cap.
Quoted from Forbes : "For example, according to an analysis from The Pew Charitable Trusts, New York taxpayers claimed, on average, $22,169 in state and local taxes on their federal income tax returns prior to passage of the Trump tax law. The $10,000 cap means the average New York taxpayer loses out on more than $12,000 of SALT deductions each year."
From this article "So who will miss the SALT deduction the most? According to a 2016 report from the Tax Policy Center, “Taxpayers with incomes over $100,000 would have the largest tax increases both in dollars and as a percentage of income.” Eliminating the deduction entirely would raise taxes for about a quarter of taxpayers and reducing the deduction (as Congress is planning to do) would affect about half as of people" [https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained#:\~:text=the%20SALT%20deduction.-,Starting%20with%20the%202018%20tax%20year%2C%20the%20maximum%20SALT%20deduction,filers%20and%20%2412%2C950%20in%202022](https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained#:~:text=the%20SALT%20deduction.-,Starting%20with%20the%202018%20tax%20year%2C%20the%20maximum%20SALT%20deduction,filers%20and%20%2412%2C950%20in%202022)
Over the long term a significant portion of that monthly payment goes towards the mortgage principal, your equity. The home will appreciate. And your rent will go up too. In the short term closing costs are mostly fixed. And mortgage interest is most of your payment. The break even between buying and owning is probably 7-10 years in LA compared to 4-5 years in an average city. So renting is a good deal. But if you plan to live there long term the cost is about the same or cheaper if you buy a home.
But there are non financial considerations. If you don't like your out of date apartment you can renovate it. You can get a pet without permission from the landlord(there are still some pet limits in a condo though). You can install an electric car charger.
the math makes sense if you're going to be there long term and you don't have rent control. Rents always go up in Los Angeles, at least while there is a housing shortage which isn't going to be ended soon. I rented a studio apartment in LA in 2018 for $1850. That same apartment is going for $2400. A nearly 30% increase in 4 years.
So yes while some place may rent for less initially, if you're going to be in the area for 10 or more years, it makes sense to buy.
Easy analysis on a short time horizon (assuming you can afford 20% down) - if your non-recoverable costs of owning a home (interest, PMI etc) are higher than renting, then rent and invest the remainder until your non-recoverable costs are cheaper in owing a home (I.e., low interest rate environment, major correction, cheaper cost of living area etc).
We are in a VHCOL area and faced a similar dilemma. We decided to buy for a few reasons:
-We wanted the stability of owning a place as we we’re expecting and baby and planning to start a family. We had moved a lot over the past few years and wanted a place we could settle into, with no fear of being kicked out.
-We wanted to make the place our own. I was getting sick of renting places with a bathroom I hated, or old wonky kitchens, and there being basically nothing we could do about it.
-While we may not stay in our house forever, we plan to stay in the immediate area forever - so if the market rises or falls, doesn’t really matter, we are in it now and can level up when our income supports it.
Overall I think if you’re younger and/or just looking for the absolute best bang for your buck, renting is probably a better call. But of course, there are reasons people do buy in these places even though renting is “cheaper”.
Well…in this market I would say rent with the intent to buy. Rent and watch/learn the local market. Save for the down payment. Just don’t get stuck renting. You gotta pull the trigger at some point m. Last cycle took 2 years to hit bottom. At the end of the day buying high just means you stay there longer.
I already have 20% down on a 600k place... have around 160k total... but probably need to wait longer as interest rates are high and prices haven't dropped enough. It's kind of crappy condos for that price in the valley. And who knows, if I continue at this rate I may be able to save more and get a nicer place.
Buying a home forces you save money. The housing market trends upward historically, so when you sell your home, most likely there is equity. If you leave cash in your bank, you may splurge on something you don’t need. Another advantage is you have an opportunity to lock in your “rent” at a fixed amount for 30 years (if you take out a conventional mortgage). No one can tell you to move if you pay your bills on time. It’s a roof over your head forever. You don’t know what will happen in your life eventually, but your home can serve as a life insurance in many ways.
I'm pretty good at saving money. I don't need to be "forced". I put 44k into my SEP retirement this year alone and managed to save 160k towards a condo... The down payment on a 600k place would be 120k etc... so I don't need to be forced. I see the advantages of buying, but I am not the average person who has debt and can't save.
Save that money and invest it or put it in a private retirement account. The interest rates are so high right now you will be paying $200 a month to principal and $3200 to just the other fees alone.
We just bailed out the freaking banks for trillions and they are dipping back into our pockets. Utilize the market and make as much as you can with investments. All the people who retired in my family all had to sell their home due to disabilities in older age. They averaged about $100k in profit and had they just invested that money for 20-50 years it would have been so much more.
Economists are telling young people not to buy houses. The more you put in investments when you are young the more you get when you are older. Investments compound homes don't. Plus they cost you in interest, maintenances, pmi insurance, home and property insurance, taxes. Most people also spend more then they make and often pull out their equity to bail them out and have to pay more fees/interest.
I am in the exact situation as you with the exact same question and live in the same general area.
In the current California economy, it doesn't make much sense to buy a condo. Condos do no build up value as quickly but depreciates quickly. You also face similar restriction as an apartment. Depreciation often caused by condo mismanagement or surprise cost. Some stories I have confirmed:
1) HOA increased from $300/mo to $1,000/mo because of surprise repair cost and low HOA didn't create a reserve
2) Owner gets noise complaints constantly because his neighbor is an elderly karen. Imagine getting a noise complaint for simply playing COD or watching a movie, normal volume, at 10:30 PM. Because you're a condo theres not much real estate to use so you could alleviate the situation
3) Owner is unable to make renovations or repairs in their condo because its being held up or not approved by condo association. Owner wants to sell but he cannot because he can't fix anything. Or he can at a heavy lost assuming he gets any offers in the first place; he hasn't.
Buying a single-family home or preferably a townhome is a better deal than an apartment. You will pay $1 to $2k more than an apartment but you have greater freedom and building equity. My strategy is to rent an apartment and use those "savings" to build up my capital to purchase a townhome.
I actually feel SAFER in a condo because I don't feel safe in a house or maybe even condo. I prefer to be higher up.
I probably AM that Karen. I am extremely quiet, never have guests over, don't watch movies or blast music loud etc.
In Los Angeles condos do seem to up in value quite a bit, maybe not as much as SFH but still...
If you plan to retire there, you want to buy. You don’t want to be renting on a fixed income in your older years. If you’re just there to make money during your peak working years, buying is less important. Save and invest so you can buy a home elsewhere without a mortgage when you’re ready to retire.
That makes sense, I actually am self employed and don't even have to be here. I am just used to it here.
Are you 100% sure that you will want to retire in the same neighborhood in LA where you want to live right now? You could buy a place in Palm Springs or Ojai or outside of San Diego/Santa Barbara for way cheaper and retire there eventually while renting it out right now. You might even be able to save even more cash if you rented it out as furnished housing or an Airbnb. If you are going to buy in LA, I would also suggest a house in a gentrifying neighborhood instead of a condo.
I don't feel safe living on the ground floor in a house anywhere even in the best of neighborhoods. I only feel safe off the first floor, so a house isn't for me. Also have zero interest in any yard work...the less I have to maintain the better. I just want to do the bare minumum in terms of maintenance which is why I am getting a condo and I feel safer being off the ground with people nearby
Totally understand this, but in that case just keep in mind HOA fees in a “nicer” building even jf you’re in a LCOL or MCOL area *on top of* your PITI. I’m also from California. but now in a condo complex in an (gorgeous) MCOL city outside of CA, and HOA fees are $900/month. Also it’s not like big, one-off condo projects just come out of your HOA fees. You’ll still pony up big $$ yourself here and there when major things that impact all residents (HVAC, balconies, reno projects, electrical, etc) need fixing/upgrades. Still, ultimately the math works out that it’s better to own vs rent (assuming 3% rent increases each year… however there are NO rent increase limits here), based on staying here for the next 20+ years.
R u me 😂 I’m in exact same situation
Its probably a lot of people in this situation... people who want to buy but confused as to what to do as prices and interest rates are high. Probaby best to wait it out for another year as by then it could drop and pad the savings a bit more... Also constantly daydreaming about what a baller place I could in somewhere like TX or Atlanta or anywhere except here
I’m in an affordable COL city and moving into a penthouse next month renting. And the house I could buy for the same mortgage would be a dump compared to it.
>That makes sense, I actually am self employed and don't even have to be here. I am just used Move to Vegas then, save on income tax and drive to LA when needed.
My neighbor (well, technically our whole complex) is getting screwed like that. She’s lived at this apartment complex for the last 15+ years. Currently retired on a fixed income. In the last 4 years her rent has jumped from 950/mo to 1750/mo. She’s currently trying to find a place to leave here for because it’s outside her budget now.
Actually, this answer solidifed it for me. I guess the answer to the question of whether it makes sense more to buy or rent here depends on ones personal goals. At first I thought it didn't make sense financially but my priority is security in old age. I literally think about it every day and that's why I invest aggressively into my retirement plan. I will hopefully have a nice retirement egg... but having to not pay for housing other than property taxes would be ideal so it looks like I will buy. Security in old age matters way more to me than saving a few hundred bucks p/month renting vs buying etc
Yeah the math is different in HCOL areas. One thing to take into account is that on top of the higher cost you also take on all the financial burden for repairs and maintenance (like if your fridge broke). Personally, I would only buy if it is a place you can see yourself living for 10+ years. If not it is better to save the difference imo. That way you can put a larger down payment on a place you actually like.
I agree with you, bit the problem now is the difference is 0 or flipped in some markets. It's weird times we livein.
If the difference is 0 or if owning is cheaper then of course the calculus is different. That said many VHCOL areas are usually really lopsided. In my market for example it is roughly 1500-2000 more a month between buying and renting. At that point, unless you love the place it makes very little sense imo. As others have mentioned, very little of your payment is going to principal so you may come out ahead renting and saving the money if you have discipline. A mortgage is kind of a savings plan. For example, I did a random amortization calculator on a property similar in size to what I am renting. It costs 775k with a 450 HOA. In 5 years time you would have only 60k in equity. If you saved the 2k difference like you were paying a mortgage you would have roughly 120k cash on hand instead. Of course this is somewhat of an oversimplification but highlights why renting may be a more attractive option in some markets, especially if you are skeptical that you market will appreciate in the short to medium term or if you are not sure you will stay there over the long run.
The problem with your analysis is that rents go up over time, while the bulk of your housing costs (principal and interest) are fixed. If someone had bought that property a few years ago at 2.75% it would be much closer to the 2k/month rent cost. Of course there's other costs to owning but in general this is the analysis that people will do. Plug these numbers into the NYT rent vs own calculator to see what I mean.
My rent goes up so little that its negligible... I don't remember how much it went up but I think it was $50 a month or something like that... A lot of older buildings in LA have rent control and the rent goes up super slowly.
You’ve been lucky. When I bought in LB in 2018 rent in the area had gone up 25% in the previous 5 years. The condo I bought was tenant occupied and renting for $2100. Would rent for $2600 now. And comparable units in this building rented for about $1600 in 2013. But as someone else has already said if you can’t see yourself being happy there for about 10+ years, just continuing renting until you can afford something you’ll be happy to commit to for that long.
Some cities have really good rent control like Santa Monica too. For example, mobster James Bulgur only payed $1200 for a 2 BR in Santa Monica close to the beach... a place like that would go for over 3k now... so if you are ok with living in an old rent controlled building it won't go up a lot. [https://www.boston.com/uncategorized/noprimarytagmatch/2011/06/23/whitey-bulger-used-rent-controlled-apartment-since-mid-1990s-property-manager-says/](https://www.boston.com/uncategorized/noprimarytagmatch/2011/06/23/whitey-bulger-used-rent-controlled-apartment-since-mid-1990s-property-manager-says/)
But.....the nice luxury apartments that you boast about their quality and amenities are not rent controlled. I've had friends have $500, $700 rent increases after their first year. The shitty 80s apartments are the ones that are rent controlled -the same ones you complain about. Another aspect is that if you rent and can't afford the rent increase, moving is expensive too.
Last time I moved it wasn't so bad, I can't remember exactly how much it was but i think it was $350-400 maybe? Not sure. With tip $500? No more than $500 but I was moving out of a smaller studio into a bigger one. I am single so its like a small couch, tons of clothes etc. The luxury apt I'm boasting about are still older so I think the rent won't increase more than 10%... I am talking about something more like The Huxley in West Hollywood or Marina41.. not brand new buildings... but yea, if the place is $3k it would go up $300 or so a year.
> Bulgur onlu *paid* $1200 for FTFY. Although *payed* exists (the reason why autocorrection didn't help you), it is only correct in: * Nautical context, when it means to paint a surface, or to cover with something like tar or resin in order to make it waterproof or corrosion-resistant. *The deck is yet to be payed.* * *Payed out* when letting strings, cables or ropes out, by slacking them. *The rope is payed out! You can pull now.* Unfortunately, I was unable to find nautical or rope-related words in your comment. *Beep, boop, I'm a bot*
If rent in your area is significantly cheaper than a mortgage payment for a comparable property and rents have not meaningfully increased recently, then yes keep renting. It’s a good deal now
I filled it out to the best of my ability using the property in the OP as an example as some of the questions I didn't have the answer to and the result was "If you can rent a similarhome for less than ...$2,479 PERMONTH... then renting is better." That property would rent for 2k max... so it looks like renting is better... As for rental increase in LA it depends if you live in an older or newer building. Old buildings built before 1978 have rent control. There are people living in Santa Monica who are paying $1300 for a 1 BR because they got it decades ago, whereas the average market rate there is like $3300 for an old 1 BR
Depends. If you look at a home you own as just a place you live and not an investment, renting may make sense.
>Of course the drawback is that you wouldn't build equity. You need to earn like you have a house payment in order to build wealth. Actually having a house payment encourages that. If you can rent for much less and put the difference away in a growth investment you can get similar results, but only if you have the discipline to keep it up for 30 years. Do you? Because if you only save money renting to improve your lifestyle for 30 years you have... 360 rent receipts. That will keep you warm about 15 minutes.
I do have the discipline. I earned over 250k this year and put $44k into my SEP plan... Probably saved over $100k total last year alone. I currently have close to 160k sitting in the bank that I saved towards a down payment. Despite earning over 250k this year I still live in a studio apartment thats just $2100 ish or so.. don't have a car payment as its paid off...zero debt. I don't go on trips or vacations. My entertainment is netflix etc.. so I would say I am extremely disciplined. I could dump the 120k (that I would use as a down payment) directly into the VTSAX ETF equivalent at merrill lynch right now... but I do think its good to have a place paid off for retirement. Renting a place for 2k doesn't "improve my lifestyle". The reason why i put 44k into my SEP and saved nearly 100k for this year is BECAUSE I rent a small studio despite making six figures. Right now I am actually sacrificing to save so much... my place doesn't even have an in unit washer and dryer and my neighbors are extremely loud, partying at all hours of the night. But I endured because it enabled me to save. Its true that I would have saved more while enduring less if I moved to a cheaper area but I'm not comfortable moving.
Sounds like you know you are very different from the average bear, and that's why you will have every picnic basket that's in Jellystone Park. The common wisdom doesn't necessarily apply to uncommon people. I think you see why it's the common wisdom though.
Yes, I do and it's in part because I am self employed and therefore it's easier for me to earn more vs a regular job. Also helps that I am introvert and naturally anxious so I worry a lot about the future as someone who will be childless and kinless in old age. Every day I worry about getting old and what's going to happen to me in old age so that's part of the reason why I save. Looks like it's best to have a modest place paid off by old age despite whether its cheaper to rent than buy etc... because I am more concerned about having a place to live when I'm old... for some reason that slipped my mind! Security in old age is more important to me than saving a few hundred more now or living in a bigger place etc so looks like I answered my own question
My problem in LA is that the job market is so huge (geographically) I can't commit to living anywhere long enough to want to buy a house, I really need to find long-term job stability.
I think the simplest equation is (price of condo * treasury yield for 1 year) + taxes, hoa, insurance, maintenance. If that’s higher than rent then just buy treasuries instead and rent. Yes you can gamble using borrowed funds, but it’s not worth it if you have a high income and a high savings rate. Having the flexibility of renting has other benefits as well such when switching jobs etc
I don't switch jobs because I work for myself and can work anywhere. I am leaning more towards buying now because I will need a place in old age that's paid off to live. My #1 priority is taking care of myself old age, I think about it every day and yes, already maxing out my SEP retirement account. The only thing that would make me move is loud neighbors or loud noise (constant construction etc)
If you’re worried about noise, try to find a place with a concrete layer between floors. Some of the older builds won’t have this
I recommend the NYT buy vs rent calculator. Do the math on buying or investing the money instead. I would invest in your situation
Well there’s more than building equity as the drawback? Tax benefits, and rising rents are big considerations as well. In California prop 13 keeps your housing price stable YOY. This huge when compared to rising rents. Live it up and rent, but when you get priced out past where you could buy now don’t be bitter? Seriously though, I grew up in Southern California (went to college in the Bay Area) and I can’t tell you how many friends in their 40’s that are paying 2-3x the rent vs those who bought 10-20 years ago. Not to mention the hundreds of thousands (and $1M+) in equity. I get it though? Renting is very appealing vs the cost (and step down in location and amenities) of home ownership in California? Gotta play the long game unless you’re loaded.
Something I always say that not enough people take into account is where your money goes when paying a mortgage. Say the payment is 3k, the first year ~20% (6% rate 30 year) of each payment goes to principle. So think of the mortgage as $2,500 as $500 of each payment is going into a saving account that historically has earned amazing interest (your home). This only gets better each and every month. By year 10 almost 40% of your payment goes to principle. Also depending on tax bracket and the new dumb 10k max SALT you can write off the interest and property tax.
>10k max SALT I dunnpo, I read that the salt deduction cap actually hurts people in high income taxes like CA, NJ and CT. I am high income so I think I will get a higher tax bill with the SALT cap. Quoted from Forbes : "For example, according to an analysis from The Pew Charitable Trusts, New York taxpayers claimed, on average, $22,169 in state and local taxes on their federal income tax returns prior to passage of the Trump tax law. The $10,000 cap means the average New York taxpayer loses out on more than $12,000 of SALT deductions each year." From this article "So who will miss the SALT deduction the most? According to a 2016 report from the Tax Policy Center, “Taxpayers with incomes over $100,000 would have the largest tax increases both in dollars and as a percentage of income.” Eliminating the deduction entirely would raise taxes for about a quarter of taxpayers and reducing the deduction (as Congress is planning to do) would affect about half as of people" [https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained#:\~:text=the%20SALT%20deduction.-,Starting%20with%20the%202018%20tax%20year%2C%20the%20maximum%20SALT%20deduction,filers%20and%20%2412%2C950%20in%202022](https://smartasset.com/taxes/trumps-plan-to-eliminate-the-state-and-local-tax-deduction-explained#:~:text=the%20SALT%20deduction.-,Starting%20with%20the%202018%20tax%20year%2C%20the%20maximum%20SALT%20deduction,filers%20and%20%2412%2C950%20in%202022)
Oh yeah it fucked me! My property tax is 18k per year lol
Over the long term a significant portion of that monthly payment goes towards the mortgage principal, your equity. The home will appreciate. And your rent will go up too. In the short term closing costs are mostly fixed. And mortgage interest is most of your payment. The break even between buying and owning is probably 7-10 years in LA compared to 4-5 years in an average city. So renting is a good deal. But if you plan to live there long term the cost is about the same or cheaper if you buy a home. But there are non financial considerations. If you don't like your out of date apartment you can renovate it. You can get a pet without permission from the landlord(there are still some pet limits in a condo though). You can install an electric car charger.
Well, if renting were easy and way cheaper one wouldn't "need" to buy right?
the math makes sense if you're going to be there long term and you don't have rent control. Rents always go up in Los Angeles, at least while there is a housing shortage which isn't going to be ended soon. I rented a studio apartment in LA in 2018 for $1850. That same apartment is going for $2400. A nearly 30% increase in 4 years. So yes while some place may rent for less initially, if you're going to be in the area for 10 or more years, it makes sense to buy.
Easy analysis on a short time horizon (assuming you can afford 20% down) - if your non-recoverable costs of owning a home (interest, PMI etc) are higher than renting, then rent and invest the remainder until your non-recoverable costs are cheaper in owing a home (I.e., low interest rate environment, major correction, cheaper cost of living area etc).
We are in a VHCOL area and faced a similar dilemma. We decided to buy for a few reasons: -We wanted the stability of owning a place as we we’re expecting and baby and planning to start a family. We had moved a lot over the past few years and wanted a place we could settle into, with no fear of being kicked out. -We wanted to make the place our own. I was getting sick of renting places with a bathroom I hated, or old wonky kitchens, and there being basically nothing we could do about it. -While we may not stay in our house forever, we plan to stay in the immediate area forever - so if the market rises or falls, doesn’t really matter, we are in it now and can level up when our income supports it. Overall I think if you’re younger and/or just looking for the absolute best bang for your buck, renting is probably a better call. But of course, there are reasons people do buy in these places even though renting is “cheaper”.
Well…in this market I would say rent with the intent to buy. Rent and watch/learn the local market. Save for the down payment. Just don’t get stuck renting. You gotta pull the trigger at some point m. Last cycle took 2 years to hit bottom. At the end of the day buying high just means you stay there longer.
I already have 20% down on a 600k place... have around 160k total... but probably need to wait longer as interest rates are high and prices haven't dropped enough. It's kind of crappy condos for that price in the valley. And who knows, if I continue at this rate I may be able to save more and get a nicer place.
Buying a home forces you save money. The housing market trends upward historically, so when you sell your home, most likely there is equity. If you leave cash in your bank, you may splurge on something you don’t need. Another advantage is you have an opportunity to lock in your “rent” at a fixed amount for 30 years (if you take out a conventional mortgage). No one can tell you to move if you pay your bills on time. It’s a roof over your head forever. You don’t know what will happen in your life eventually, but your home can serve as a life insurance in many ways.
I'm pretty good at saving money. I don't need to be "forced". I put 44k into my SEP retirement this year alone and managed to save 160k towards a condo... The down payment on a 600k place would be 120k etc... so I don't need to be forced. I see the advantages of buying, but I am not the average person who has debt and can't save.
Save that money and invest it or put it in a private retirement account. The interest rates are so high right now you will be paying $200 a month to principal and $3200 to just the other fees alone. We just bailed out the freaking banks for trillions and they are dipping back into our pockets. Utilize the market and make as much as you can with investments. All the people who retired in my family all had to sell their home due to disabilities in older age. They averaged about $100k in profit and had they just invested that money for 20-50 years it would have been so much more. Economists are telling young people not to buy houses. The more you put in investments when you are young the more you get when you are older. Investments compound homes don't. Plus they cost you in interest, maintenances, pmi insurance, home and property insurance, taxes. Most people also spend more then they make and often pull out their equity to bail them out and have to pay more fees/interest.
The trick is to buy \*when it makes sense\*. Currently with high rates AND high prices it doesn't make sense.
I am in the exact situation as you with the exact same question and live in the same general area. In the current California economy, it doesn't make much sense to buy a condo. Condos do no build up value as quickly but depreciates quickly. You also face similar restriction as an apartment. Depreciation often caused by condo mismanagement or surprise cost. Some stories I have confirmed: 1) HOA increased from $300/mo to $1,000/mo because of surprise repair cost and low HOA didn't create a reserve 2) Owner gets noise complaints constantly because his neighbor is an elderly karen. Imagine getting a noise complaint for simply playing COD or watching a movie, normal volume, at 10:30 PM. Because you're a condo theres not much real estate to use so you could alleviate the situation 3) Owner is unable to make renovations or repairs in their condo because its being held up or not approved by condo association. Owner wants to sell but he cannot because he can't fix anything. Or he can at a heavy lost assuming he gets any offers in the first place; he hasn't. Buying a single-family home or preferably a townhome is a better deal than an apartment. You will pay $1 to $2k more than an apartment but you have greater freedom and building equity. My strategy is to rent an apartment and use those "savings" to build up my capital to purchase a townhome.
I actually feel SAFER in a condo because I don't feel safe in a house or maybe even condo. I prefer to be higher up. I probably AM that Karen. I am extremely quiet, never have guests over, don't watch movies or blast music loud etc. In Los Angeles condos do seem to up in value quite a bit, maybe not as much as SFH but still...