patrick.net

Sniper says

You're paying that already as a renter, but don't get and benefit of the tax deduction.

Maybe he's paying for it, maybe not.

Strategist says

factor in double digit appreciation rates that are common during boom times, and you will see buying rather than renting is a no brainer.

I agree, but how do you know that's going to happen? If renting is cheaper than owning right now in many parts of CA, wouldn't that signify that double-digit gains are unlikely to happen and future prices may be flat or drop?

PrivilegedtobeWhite says

Strategist says

factor in double digit appreciation rates that are common during boom times, and you will see buying rather than renting is a no brainer.

I agree, but how do you know that's going to happen? If renting is cheaper than owning right now in many parts of CA, wouldn't that signify that double-digit gains are unlikely to happen and future prices may be flat or drop?

Exactly. For safety, you want to buy only if the price is low enough that you can rent it out and cover all monthly expenses.

For most "retail" houses on the market, you cannot actually rent it out and cover all monthly expenses. That's why they have to advertise, cajole, and manipulate buyers to overpay.

There are other, non-retail houses that are better bets, like foreclosures, that are generally not listed in the MLS because they are cheaper and drag comps down.

FP says

Sniper says

You're paying that already as a renter, but don't get and benefit of the tax deduction.

Maybe he's paying for it, maybe not.

In the majority of cases, the renter is paying it.

Patrick says

For most "retail" houses on the market, you cannot actually rent it out and cover all monthly expenses.

You guys really need to get away from the bubble known as the Bay Area. Landlords don't become landlords because they like to lose money every month on their tenants. Housing in the rest of the country isn't appreciating double digits to make up for the monthly loss on rent income.

Sniper says

Landlords don't become landlords because they like to lose money every month on their tenants.

You're right about that, and in most of the country landlords can buy places that will be cash-flow positive.

But not in the Bay Area. Around here, landlords cannot buy rental property and be cash-flow positive. Prices are just too high to make it profitable. So landlords either have to make a bet that appreciation will make up for their monthly loss, or to have to have bought so long ago that all their property taxes are paid by new buyers due to Prop 13.

Patrick says

Exactly. For safety, you want to buy only if the price is low enough that you can rent it out and cover all monthly expenses.

I think you are 100% correct, except that I'd argue that you shouldn't only look at today when analyzing the rent/buy decision. If you are reasonably stable and expect to stay in the same place for many years (kids in school, love the area, etc.) then you should take a reasonable timeframe into account.

The main cost advantage of buying is that your shelter expense is constant while rent increases. If you disregard that advantage, you will make a poor decision.

Sniper says

Landlords don't become landlords because they like to lose money every month on their tenants.

In bubbly places people often buy to speculate or because of fear of missing out, and other such stupid reasons. Then they end up renting their units for more than the upkeep. There are many such examples - take any major Canadian city, for example.

Patrick says

Jeez, it's just math and easily proven. Try the NY Times rent-vs-buy calculator:

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

The problem with this calculator is it's wrong in Orange County, Ca. Rents are considerably higher then the scale. Not a good time to rent or buy.

beershrine says

The problem with this calculator is it's wrong in Orange County, Ca. Rents are considerably higher then the scale. Not a good time to rent or buy.

@beershrine What do you mean? Rent is an output of the calculator, not an input. I don't think they have any upper limit on the output rent number.

Patrick says

Sniper says

Landlords don't become landlords because they like to lose money every month on their tenants.

You're right about that, and in most of the country landlords can buy places that will be cash-flow positive.

But not in the Bay Area. Around here, landlords cannot buy rental property and be cash-flow positive

That's my point. Many here keep referencing the Bay Area as the poster child for rentals, but it's a very small piece of the pie. There are like 43 million rental units in the country. I'm sure the vast majority of those landlords are cash positive each month.

What goes on in the Bay Area regarding rents not covering the monthly nut of the landlord is a outlier in comparison to the rest of the country.

I would never invest in a high rent district, in general. My reasoning is simple, people who can afford them already own, and the renters in those areas tend to be wannabes, they tend to be overextended, they’re not good quality renters.

Profitable rentals are usually in your regular middle-class neighborhoods.

The ideal time to buy them is during economic downturns and when interest rates are higher. That is the optimal time.

HappyGilmore says

I think you are 100% correct, except that I'd argue that you shouldn't only look at today when analyzing the rent/buy decision. If you are reasonably stable and expect to stay in the same place for many years (kids in school, love the area, etc.) then you should take a reasonable timeframe into account.

I don't think most people buy with an idea of leaving in 2 years. Life happens and things out of your control can force one to sell and move. If any of us had bought in 2005/2006 with the idea of long term in mind, we'd be barely breaking even right now, 12 years later.

Sniper says

What goes on in the Bay Area regarding rents not covering the monthly nut of the landlord is a outlier in comparison to the rest of the country.

Yes, I should be clearer about that.

PrivilegedtobeWhite says

I don't think most people buy with an idea of leaving in 2 years. Life happens and things out of your control can force one to sell and move. If any of us had bought in 2005/2006 with the idea of long term in mind, we'd be barely breaking even right now, 12 years later.

Yep--unexpected things happen. But if you ran the numbers in 2005/2006 you never would have bought in the first place,

HappyGilmore says

PrivilegedtobeWhite says

I don't think most people buy with an idea of leaving in 2 years. Life happens and things out of your control can force one to sell and move. If any of us had bought in 2005/2006 with the idea of long term in mind, we'd be barely breaking even right now, 12 years later.

Yep--unexpected things happen. But if you ran the numbers in 2005/2006 you never would have bought in the first place,

And if you run the numbers now, no one should buy. Oh wait, it's different this time ;)

PrivilegedtobeWhite says

And if you run the numbers now, no one should buy.

Might be OK in a lot of places away from the tech money.

Patrick says

PrivilegedtobeWhite says

And if you run the numbers now, no one should buy.

Might be OK in a lot of places away from the tech money.

True. I was generalizing

PrivilegedtobeWhite says

And if you run the numbers now, no one should buy. Oh wait, it's different this time ;)

It really depends on your time horizon. If you're planning to stay for 7+ years, then with rare exceptions (in the BA maybe, I don't know), it will be better to buy.

It is much different now than 2005/6 though--the price/rent ratio is pretty normal in the US.

I’m primarily referring to expensive coastal areas such as LA, SF or SD. It certainly warrants doing the math wherever you’re buying.

HappyGilmore says

It really depends on your time horizon. If you're planning to stay for 7+ years, then with rare exceptions (in the BA maybe, I don't know), it will be better to buy.

It is much different now than 2005/6 though--the price/rent ratio is pretty normal in the US.

There is no normal ratio across the us. All markets are local. The markets run all across the spectrum from strongly favoring renting to strongly favoring buying.