NY Times Buy vs. Rent Calculator: Reasonable Ranges for Variables


By ducsingle5313   Follow   Sun, 11 Nov 2012, 11:20pm   1,814 views   20 comments
In Redwood City CA 94062   Watch (0)   Share   Quote   Permalink   Like (2)   Dislike  

I've been experimenting with the NY Times buy vs. rent calculator here:

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

I'm wondering what are reasonable ranges for the following variables assuming a contemplated purchase in the San Francisco area with an upper price limit of about $850-900k?

*mortgage rate % (30yr fixed assuming good credit and 20% down)
*property tax %
*annual renovation costs %
*annual maintenance costs %
*homeowner's insurance %
*inflation rate %

It doesn't seem like renovation and maintenance costs should be linearly proportional to purchase price. And it seems like homeowner's insurance might not be either given the main value of a property is in the land and not the structure - - - in other words, the difference in value between two similar houses in San Jose versus Palo Alto is in the land itself, which isn't particularly susceptible to fire/flood/earthquake/etc. damage. And of course the inflation rate is a huge unknown.

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  1. curious2


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    1   11:21pm Sun 11 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    I've wondered about the same questions, haven't found better answers yet, but hopefully this thread might produce some.

  2. E-man


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    2   12:19am Mon 12 Nov 2012   Share   Quote   Permalink   Like (2)   Dislike  

    Duc,

    I'll take a stab at it.

    1) Mortgage rate for a jumbo loan is about 3.75%-3.875% no points, no costs.
    2) Property tax is about 1.25%, but could vary by +/- 0.1% depending on the city.
    3) There's not much renovation cost if you completely remodel the house to suit your taste before moving in.
    4)This number can be as little as $100/month to $500/month. It's about personal preference. You can replace that floor with $1/sq.ft. tile or $7/sq.ft. hardwood floor. You can install a brand new $400 white fridge or you can drop $3k on a nice stainless steel fridge. You get the point.
    5) This number is based on replacement cost of the house. My guess it is around $600-$800/year for home insurance. Remember I own 10 properties so my guesstimate should be somewhat accurate.
    6) Although the national inflation rate has been about 3%/year, the inflation rate for our local area has been closer to 5%. That means home prices double their value every 15 years. Put 4%-5% annual inflation rate into the NY calculator and see what you get. :)

    You got the rest of the points correct.

  3. ducsingle5313


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    3   8:43am Mon 12 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Thanks E-man.

    It's interesting that the NY Times calculator lists "annual inflation rate" rather than "estimated annual appreciation rate" like other calculators. I wonder if the NY Times calculator assumes that the house will appreciate at the rate of inflation, or at a rate slightly higher than that?

    I think the days of Bay Area real estate appreciating at double the rate of inflation (or more) are over. I doubt there will be a price crash, but my guess is the market will stay pretty flat flat for quite some time.

  4. E-man


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    4   8:17pm Mon 12 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    ducsingle5313 says

    Thanks E-man.

    It's interesting that the NY Times calculator lists "annual inflation rate" rather than "estimated annual appreciation rate" like other calculators. I wonder if the NY Times calculator assumes that the house will appreciate at the rate of inflation, or at a rate slightly higher than that?

    I think the days of Bay Area real estate appreciating at double the rate of inflation (or more) are over. I doubt there will be a price crash, but my guess is the market will stay pretty flat flat for quite some time.

    Well, keep playing around with the calculator and figure out your point of comfort level and go from there. No one here has a crystal ball on future real estate prices in the Bay Area.

    I talked to someone in Redwood City over the weekend. He mentioned that he is currently renting a 2 bedrooms apartment from Archstone for $4k/month. OUCH!!!

  5. ducsingle5313


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    5   9:12pm Mon 12 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    E-man says

    Well, keep playing around with the calculator and figure out your point of comfort level and go from there. No one here has a crystal ball on future real estate prices in the Bay Area.

    At my current salary I can afford to buy something up to $900-950k with conservative financing. However, at this point in my life, I have to factor in the affordability of retiring in the Bay Area. Paying more than $10k/year in property taxes alone in retirement doesn't seem like prudent financial planning. The retired and retiring Baby Boomers in this area have it easy paying 1970'd era property tax rates - - - yet they still complain about their taxes.

    E-man says

    I talked to someone in Redwood City over the weekend. He mentioned that he is currently renting a 2 bedrooms apartment from Archstone for $4k/month. OUCH!!

    That's nutty. I rent a small house in Emerald Hills for less than $2k. Waaay better than sharing walls with neighbors in an apartment complex.

  6. bg


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    6   9:48pm Mon 12 Nov 2012   Share   Quote   Permalink   Like   Dislike   Protected  

    E-man says

    I talked to someone in Redwood City over the weekend. He mentioned that he is currently renting a 2 bedrooms apartment from Archstone for $4k/month. OUCH!!!

    Archstone is a bizarre place. I don't think anyone fiscally minded at all will ever end up there. I think it takes someone with an ocean of money or someone wanting minimal contact with the real world who is financially ignorant to sign a lease there. Just my opinion, no slurs intended.

  7. E-man


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    7   9:24am Tue 13 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    bg says

    E-man says

    I talked to someone in Redwood City over the weekend. He mentioned that he is currently renting a 2 bedrooms apartment from Archstone for $4k/month. OUCH!!!

    Archstone is a bizarre place. I don't think anyone fiscally minded at all will ever end up there. I think it takes someone with an ocean of money or someone wanting minimal contact with the real world who is financially ignorant to sign a lease there. Just my opinion, no slurs intended.

    Well, I just don't get it. Why would someone drop $4k/month to rent an apartment? Unless your company is paying for it, it doesn't make any sense to the average folks.

    Duc,

    The transition has been happening from single family homes to townhomes and condos in the last 10 years or so. Once we run out of land to build, we can only build up or down. Therefore, the value will be in the land. Things will only get more expensive in the future and our standard of living will gradually go down. That's just how it works. I didn't invent it. Therefore, retiring out of the Bay Area is very attractive to some folks. However, how can you move when all of your family and friends are here?

    I had this crazy idea where I would buy several acres on the hills of Milpitas or San Jose and build 15 homes for all of my family members and my spouse's family members. Wouldn't that be cool? Just don't have the money to do it yet.

    Who said money can't buy happiness? Not only t can buy happiness, but t can help solving a lot of problems. :)

  8. ducsingle5313


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    8   10:33am Tue 13 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    E-man says

    Things will only get more expensive in the future and our standard of living will gradually go down. That's just how it works. I didn't invent it.

    Until recently, purchasing a house in the Bay Area was a great investment. But times have changed. Basic economics says the cost of necessities (housing, food, energy, etc.) can't increase above the rate of inflation in perpetuity. But maybe thousands of millionaires from the PRC moving to the area will prove me wrong.

    Some socioeconomic groups have figured this out. Note the rapid increase in the number of Hispanics moving to small Midwestern towns. I expect this trend will start moving up the socioeconomic scale in the future. In fact technology companies are driving this with new offices in lower cost of living locales (Utah, Colorado, etc.).

    Like the majority of workers in the Bay Area tech industry, I'm a transplant and don't have any family here. I would be perfectly happy living in the Pacific Northwest or some parts of So-Cal given the right job opportunity.

  9. pkennedy


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    9   12:20pm Tue 13 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    ducsingle5313 says

    At my current salary I can afford to buy something up to $900-950k with conservative financing. However, at this point in my life, I have to factor in the affordability of retiring in the Bay Area. Paying more than $10k/year in property taxes alone in retirement doesn't seem like prudent financial planning. The retired and retiring Baby Boomers in this area have it easy paying 1970'd era property tax rates - - - yet they still complain about their taxes.

    If you purchase now, your taxes will be way out of wack by the time you retire as well. If you're a few years from retirement and planning on leaving the area, maybe it's not worth it. If you've paid the house off, you could rent it for a nice monthly income and live else where as well.

    But "buying" a 950K and renting a 2K house aren't fair comparisons, unless you're living off someone else's mistake, the 2K rental could be purchased for a lot less than 950K. That isn't someone making a smart investment choice, and there aren't a lot of those out there -- and for a good reason, if they buy a place for 950K and rent it for 2K/month, they're going to go bankrupt in no time.

  10. pkennedy


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    10   12:22pm Tue 13 Nov 2012   Share   Quote   Permalink   Like (2)   Dislike  

    E-man says

    Who said money can't buy happiness? Not only t can buy happiness, but t can help solving a lot of problems. :)

    I prefer to say money can't buy happiness, but it can buy stability. Stability will bring happiness. However, it's not guaranteed that money will buy you stability, if you're a fool with your money :)

  11. E-man


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    11   4:28pm Tue 13 Nov 2012   Share   Quote   Permalink   Like (1)   Dislike  

    pkennedy says

    it's not guaranteed that money will buy you stability, if you're a fool with your money :)

    Are you hinting me? ;)

  12. ducsingle5313


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    12   4:59pm Tue 13 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    pkennedy says

    But "buying" a 950K and renting a 2K house aren't fair comparisons, unless you're living off someone else's mistake, the 2K rental could be purchased for a lot less than 950K. That isn't someone making a smart investment choice, and there aren't a lot of those out there -- and for a good reason, if they buy a place for 950K and rent it for 2K/month, they're going to go bankrupt in no time.

    In my case it's a fairly close comparison. While not common, you can find plenty of properties in the Bay Area that rent for a small fraction of what the mortgage payment would be if the house was currently purchased. Especially very small houses in "high end" neighborhoods (Palo Alto, Atherton, Menlo Park, etc.). These properties are typically owned by older folks who purchased them in the 60's or early 70's who (through smarts or dumb luck) have seen huge gains with almost no increase in property taxes. The properties are long paid off and the owners are oftentimes well off financially - - - so they aren't concerned about maximizing their rental revenue so much as having stable tenants with professional jobs. These types of places are rarely advertised because departing tenants have a waiting list of friends who are keen to take on the same deal.

  13. ducsingle5313


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    13   5:07pm Tue 13 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    pkennedy says

    If you purchase now, your taxes will be way out of wack by the time you retire as well. If you're a few years from retirement and planning on leaving the area, maybe it's not worth it. If you've paid the house off, you could rent it for a nice monthly income and live else where as well.

    Can you clarify the "your taxes will be way out of wack" comment?

    I'm in my early 40's. With no kids, I don't have to worry about college tuition bills, so I'm hoping to transition to a bridge job (for medical insurance and beer money) by my mid to late 50's.

    At current interest rates locked in for 30 years, there wouldn't be much point in paying off a house early. And I'm not sure if I would want the hassles of being a landlord.

  14. E-man


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    14   9:38pm Tue 13 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    ducsingle5313 says

    Can you clarify the "your taxes will be way out of wack" comment?

    I think he meant inflation in the future will make your $900k home worth $9M in 30 to 40 years. At 2% annual increase property tax, it will not be much by then. Of course he's basing it on history. Who knows what the hell may happen in the next 5-10 years. 30-40 years are way out there.

    Given your scenario, I would save money, invest it and retire elsewhere. There are a lot of beautiful places in this country and around the world where you can retire comfortably, and the cost of living is much cheaper.

  15. CaptainShuddup


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    15   6:25am Wed 14 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    ducsingle5313 says

    *mortgage rate % (30yr fixed assuming good credit and 20% down)

    Why does that matter?
    All the bank wanted from me in 2010 was 3.5% down.
    The difference between 20% and 3.5% on the amount I mortgaged, spread out over a 30 year loan, was less than $30 a month. A Clubhouse or recreation usage fee for some rental could be more than that.
    Sure it would be a big difference on a high over priced estate somewhere.
    But for your average Burbdale home listing at a reasonable price, how much you put down is really semantics.

  16. dublin hillz


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    16   10:11am Wed 14 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    CaptainShuddup says

    ducsingle5313 says



    *mortgage rate % (30yr fixed assuming good credit and 20% down)


    Why does that matter?
    All the bank wanted from me in 2010 was 3.5% down.
    The difference between 20% and 3.5% on the amount I mortgaged, spread out over a 30 year loan, was less than $30 a month. A Clubhouse or recreation usage fee for some rental could be more than that.
    Sure it would be a big difference on a high over priced estate somewhere.
    But for your average Burbdale home listing at a reasonable price, how much you put down is really semantics.

    What about the PMI?

  17. CaptainShuddup


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    17   11:53am Wed 14 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    dublin hillz says

    What about the PMI?

    I bought a year before the PMI became Obama personal little hidden "tax em all you want, they'll never miss it" vehicle. My PMI is only $71 a month.
    It is the reason I've said it here before, that even at 2.5% it wouldn't be worth it for me to refinance.

  18. ducsingle5313


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    18   6:16pm Wed 14 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    CaptainShuddup says

    I bought a year before the PMI became Obama personal little hidden "tax em all you want, they'll never miss it" vehicle. My PMI is only $71 a month.
    It is the reason I've said it here before, that even at 2.5% it wouldn't be worth it for me to refinance.

    So by your own admission, the rules have now changed. So 3.5% down vs. 20% down can make a substantial difference now. In other words, 3.5% vs. 20% didn't matter for you in the past, but it might for others currently and in the future.

  19. CaptainShuddup


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    19   8:24am Thu 15 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    Yes, essentially I realize that if I wanted to actually finance at a lower rate, I would want to come up with the 20% down, or wait for the Realtor Cheerleader brigade to spin the price of my house to give me 20% equity in value.

    But even then I would need to be very cautious, my Title Lawyer when I was going over the papers to sign, was very impressed with all of the protections I had in the Mortgage. He instructed me either pay it off, or never refinance that loan, he's never seen one so one sided on the buyers side. This was at the height of the reactionary rules were being made adhoc, in fact the format of the GFE(Good faith Estimate) was changing every other day. And the rules were changing so fast, the Mortgage broker was having to resend me a new GFE every other day. Which that was a head scratcher in its own right. What good is a mandated GFE, if you're going to keep changing it, long after we've all agreed?

    In my mortgage there are no late fees, and my rate can never go up.
    The only recourse the bank has is to foreclose should I stop making payments. I don't remember, but I wouldn't be surprised if that time frame isn't at least 6 months.

    Now the home owner insurance industry here in South Florida, I wish was a different story. They seem to make their own rules with impunity, and raise rates every time the CEO needs a new yacht it seems.

  20. Kevin


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    20   1:27am Sun 18 Nov 2012   Share   Quote   Permalink   Like   Dislike  

    You'd be surprised what it costs to build in different areas.

    Labor in expensive coastal cities is easily double that of the midwest.

    I'm in the process of building a new home and labor is a larger part of the budget than materials -- and I'm using high end materials.

    My sister is doing a major renovation in Ohio and materials are more than double the cost of labor.

    In tightly packed neighborhoods things are also more expensive. You can't leave equipment / materials on site, you have more permits to deal with, and you have to use expensive methods of land clearing and the like.

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