Is the delta between renting & owning now so high that it really just makes sense to rent?
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Anonymous
I don’t think that renting is a no brainer with the two examples you give. You’re leaving out 2 important things: 1-the interest is deductible (up to 750k in mortgage loan). So close to $2,000/month of that delta will be erased with lower taxes (assuming a 7% interest rate, 1.28M mortgage, 37% marginal federal tax rate and 9% state/local tax rate). 2- in addition, $1,000 of the monthly PITI payment in the early years is principal payment. Even if you assume no deduction for property taxes (because of the SALT limits), together, these 2 things decrease the delta by about $3,000/month. |
Anonymous
They are banning exclusively single family neighborhoods with the ridiculous law, which most CA voters do not support. There are legitimate concerns related to school capacity, traffic, infrastructure limitations. Allowing by right increases in density 2x+ everywhere a top down level policy that does not work for every community in California. There are some areas where it work out ok, but other areas where it will be disastrous in other areas. Hopefully, the Judge overturns this law and lets local communities decide what works best for them. |
Anonymous
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I’ve done the math, A LOT, on rent vs buy. What I’ve found is: the “cheaper” the home, the more it makes sense to buy. Like the math on a $600K starter home with 10% down is way better than a $1.6M with 10-20% longer term home.
A lot of it has to do with rates, the amt of mortgage taken out, and my perceived “acceptable” monthly. With the starter home, you can very comfortably have a monthly under $4k, vs the forever home at 10% is feeling like $10K which feels absurdly high… so then you start going into 20-30% down. At 30% for a $8k monthly, thats like $500K which is a huge amt of money you are forgoing market returns on. Now, when you add up the market returns and the fact that you CAN rent a comparable home for like… $5-7K vs the aforementioned $8k (that doesnt include maintenance costs)… there is quite the gap. You would be significantly better off just renting, pocketing and putting the diff in the market, and leaving your massive down payment in the market. You dont really see this dynamic though with that $600K starter home bc youre talking like a $60K down and you dont have a huge spread in renting. |
Anonymous
Yes. There has traditionally been a “1% rule” for investors, specifying that to be a good investment, the property monthly rent should be at least 1% of the property value. So a $200,000 home that you could get $2,000 a month rent for—possible in some areas of the country but not DC or California—would be something that an investor would go for. It’s much more possible to get 1% for a lower priced home than for a higher priced home. Renters aren’t going to pay $10,000 per month to rent a $1,000,000 home. These days, the rough investor guideline is more like a 0.75% rule than a 1% rule. Even 0.5% could be acceptable in some cases. When these guidelines aren’t met, there may be an original long-time owner hanging onto a home that they used to live in and not running or caring about the numbers. It does seem better to rent especially in the high-cost areas. The danger may be that investors will realize that they aren’t earning enough return on their equity invested, compared to what they could get in CDs or high-yield savings accounts, for example, with no tenant hassles. Then if they sell, fewer properties will be available to rent, and rents will go up. Historically rents do tend to rise to approach owning costs, even if not exactly matching them. |