patrick.net

bmwman91 says

3%+ rent increases are very real in the Silicon Valley. I was LUCKY and "only" had mine jump by 3.9% last year.

My experience in San Francisco since 1999 has been luckier. I've never had mine raised more than however the annual guideline is defined for places older than 197x.(I really don't understand a lot of the rules, but have never thought I got burned by them. My income increases have been much higher than rent increases) That's meant less than 2% increases and that only happened maybe five times in the first 7. As I said, I've currently had not one dollar of rent increase for six years. (/wood knocking)

bmwman91 says

Hey mell,

3%+ rent increases are very real in the Silicon Valley. I was LUCKY and "only" had mine jump by 3.9% last year. I moved into this apartment because my previous one tried to crank it up 10.7% on us, and after we left they brought new tenants in on a lease for 47% more than what we were paying (yes, 47%...this was summer 2011). Now, prior to that I actually got the that place to keep it flat one year and lower it by 2.7% another.

I am seeing rents here flatten out, albeit at about 25% more than they were ~2 years ago. Rental inventories are growing a lot as investors are bringing a lot online. I don't expect drops in rents since there isn't squat to buy out there, so people HAVE to rent.

The squeeze on the middle class is ON.

No doubt the fattest increases happen when new tenants move in, but if you are a good tenant with solid credit you have quite some leverage. I'd move out if they'd pull that on me. Of course, they count on the inertia, esp. with family and such. I only lived in the south bay for less than a year so I cannot speak for that, but you can find plenty of nice rentals in SF that stay relatively stable. Sure, competition has increased, nothing a good credit score can fix. Even better, if you have cash on hand, you can prepay and actually negotiate no increases or even bring the rent down a bit. Cash is still king in the cash flow business and landlords love pre-payers or people locking in longer-term leases ;)

wave9x says

Say the price is $1m.

One thing that really works about the calculators is that if I move that price up and down I get a really good or bad feeling for where all the other numbers sit. So if I move that million dollar price down to $650k, all the other numbers start to seem very comfortable.

Actually sold, could not afford it, tax/maintenance burden was cost inefficient for one person while wages stagnated.

FunTime says

So if I move that million dollar price down to $650k, all the other numbers start to seem very comfortable.

Maybe, more clearly, "all the other numbers start to seem very comfortable even in a wider range of percentage points."

If you set rent increase to 2%/year, i.e. same as inflation, you will be ahead buying in 3 years. If you set your rent increase to 0%/year, you will STILL be ahead buying in 3 years. And what are the chances your rent will be fixed for 30 years? My old $2200/mo rental from 10 years ago is now renting for $3900, an average increase of 8%/yr.

Put it this way - you are borrowing for barely more than the rate of inflation. Also, you are able to deduct the interest from your taxes, so you are pretty much getting the loan for free. Maintenance, property tax, and the opportunity cost of not putting your down payment in stocks or something are the main costs. Those don't outweigh the cost of renting.

wave9x says

If you set rent increase to 2%/year, i.e. same as inflation, you will be ahead buying in 3 years.

I see now that I've not been changing the effective tax rate high enough. I think '40' is too high, but that changes things considerably. And you're using the default "4%" of annual rate of return on other investments? I'm more confident of that number being low than the house numbers being low.

wave9x says

barely more than the rate of inflation.

But you get how "barely more" times a big number is a big number right?

wave9x says

so you are pretty much getting the loan for free.

I work in Sales/Marketing and that sounds like Sales/Marketing. That's one of my big problems with house buying. Many will have you believe that not only do some things come for free, but the very most expensive things you'll ever buy come for free. That scares the shit out of me, because that ain't how people work.

Barely more than inflation is not more than the cost of renting. How about this then, being very conservative:

30% income tax
7% ROI
3.5% interest
20% down
1.35% property tax
House prices and rents rise with inflation (2%)
5k/yr house maintenance and renovation
1k/yr homeowners
Cost of buying 1%
Cost of selling 6%

You're ahead buying in 4 years. You will need an ROI of 11% to make renting a better deal. Good luck with that.

In comparison to the above scenario, my property taxes are lower, house appreciation higher, rent increases higher, income tax higher, and ROI lower. All of these parameters favor buying even more.

Even if his rent never went up, i.e. 0% rent increase, he will STILL be ahead buying in 4 years. Sorry that angers you, donjumpsuit, I'm just doing the math.

donjumpsuit says

2003. $2650, split between two people. House in Point Richmond 3/2.
2005
$3000 split between two people. House in Point Richmond 3/3.
2007 $1750 split
between two people. House in Davis. 3/2
Current $1900 split between three
people. House in Fremont.

Living with roomates and most people who live with roomates rent has significant drawbacks for obvious reasons. For me it was fun in the dorms and all but I also lived that way for 2 years after college and lack of privacy and certain other inconveniences really starts to get annoying as one gets in their mid 20s and older. Yes, it is a great way to lower renting costs, but it is much easier to live with girlfriend or even solo accounting for individual temperament of course.

wave9x says

5k/yr house maintenance and renovation

1k/yr homeowners

Cost of buying 1%

What justification did you use for making these lower than the default?

FunTime says

5k/yr house maintenance and renovation

Actually, I made a mistake and think this is the default. cost of buying defaults to 4%

Of course you can't predict the future, but that doesn't mean you should take a random course of action and hope for the best. You can make educated, conservative guesses as to what inflation and other factors will be based on historical data. I think saying 2% inflation with house values and rents matching that is pretty conservative and is biased towards renting if anything. House values and rents have gone up much more than inflation in my area over the past 10 years.

4% cost of buying is way too high - that would be $40k in closing costs on a $1m place.

wave9x says

Even if his rent never went up, i.e. 0% rent increase, he will STILL be ahead buying in 4 years.

I tried to duplicate that and it didn't seem to work. Even upping to a one percent rent increase makes buying better in 7 years, but at zero it shows no dice.

SFace says

Value is in the eye of the beholder. It's easy to say I'm single, I can sleep in my car and cost nothing. A house has no value to me. It's another thing when you have a wife, 2 kids and other. The value is worth a lot more when there are more heads involved.

i totally agree with SFace. well said.

This is my situation. I have a non-increasing, month-to-month, $1600/month rent from a foreign landlord who just wants his property always occupied and has had a history of druggie criminal tenants, so I'm a godsend to him.

My rent hasn't increased in four years since I started renting houses and it's not going up any time soon. Even using the very optimistic 2% nominal appreciation for housing, I would never, ever come out ahead by buying given the current prices in south Florida. If prices collapse another 30-50%, which is likely given all the fundamentals, then I get majorly ass-fucked by buying now. Why take that risk?

Boomers are retiring and downsizing. Gen X is tiny compared to boomers. Millennials have no money, no jobs, and hundreds of thousands of dollars of college debt. Right now low interest rates and foreign investors are propping up housing in the sun belt. What happens when interest rates go up (they can't go any lower) and foreign investors find better returns on their cash (say in China or other developing markets)? Total collapse.

Worst case scenario, I rent and invest my money letting it grow. When I retire, I move someplace cheap and live like a king. Time is on my side, not the side of foolish real estate speculators from the Boomer generation. They'll die before I have to buy.

Dan8267 says

This is my situation. I have a non-increasing, month-to-month, $1600/month
rent from a foreign landlord who just wants his property always occupied and has
had a history of druggie criminal tenants, so I'm a godsend to him.

Like, SFAce said--you can make the calculator say whatever you want it to say based on your inputs.

I notice you chose no rent increase forever--which is pretty ridiculous. You think your landlord will not raise rent for the next 30 years??

Also, you have an interest rate of 5.5%--is your credit rating subprime or something?

More realistic numbers of 2% annual rent increase and 3.5% mortgage rate with 20% down, give a result that it's better to buy after 5 years.

And if you put taxes at 1% instead of 2% (which, based on a few ads on zillow, appears to be closer to reality), it's better to buy after 4 years.

wave9x says

House values and rents have gone up much more than inflation in my area over the past 10 years.

I think this is the operating basis for a lot of calculation, they are based on the Real Estate market performance of the past ten years.

Home prices are allowed to rise now, because they are measured to the "peak" in pricing.

The price however is unsustainable.

You don't get to have inflation if the consumer can't afford to pay more. They, whoever they are, can figure the CPI anyway they want until the cows come home, but unless the consumer has the ability to pay there is no inflation, it's just random pricing with alternative choice.

Absolutely renting is at least at par with buying. Buying is a thirty year debt. Where will you be in thirty years?

SFace says

Value is in the eye of the beholder. It's easy to say I'm single, I can sleep in my car and cost nothing. A house has no value to me. It's another thing when you have a wife, 2 kids and other. The value is worth a lot more when there are more heads involved.

We continue to pay a mortgage because of our kids, and the school they attend. In two more years I'll think seriously about whether to keep the house, walk away, or sell, whatever comes of the market place.

We can buy for cash in most parts of the country, and maybe here close to Seattle, but I don't see the point.

I see a feel good aspect to property, or bragging rights? but economically I would rather own another business than a rental, or personal residence.

Take your money and run until the next roller coaster ride the way I see it.