California Real Estate, keep paying ever increasing rent or buy?

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  • Wed, Jun 29, 2016 - 12:29pm

    #1
    Acousticpharm

    Acousticpharm

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    California Real Estate, keep paying ever increasing rent or buy?

I am currently paying $1620 for a 2 bedroom apartment close to Los Angeles (suburbs). My rent for next year will be jumping to $1780. A studio apartment costs $1300 and there are literally no cheaper 2 bedroom apartments in my area. I could buy an old remodeled house in the area for about $500,000 (which seems insane to me). New homes cost well over a million. I have heard Wells Fargo has 3% down mortgages now. Every year rent and home prices increase. Do i jump in now with a 30 year mortgage? I feel like with the way things are going prices might just keep going up for the next 5 years and then I wasted 100 grand on rent. I could have 20% down in about a year but don’t have that yet. I intend to stay here as long as I have a job which is relatively stable. I have family and friends here and will not leave. I have all of my other investments done well but am lost on this topic. Thanks!

  • Thu, Jun 30, 2016 - 09:02pm

    #2
    lmcdel

    lmcdel

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    Do you ever read Dr Housing

Do you ever read Dr Housing Bubble's blog? I have no advice (left SoCal 3 years ago) but the comments on his blog include many discussing the same topic. Good luck!

http://drhousingbubble.blogspot.com/

  • Thu, Jun 30, 2016 - 09:04pm

    #3
    lmcdel

    lmcdel

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    Correction: http://www.docto

Correction: 

http://www.doctorhousingbubble.com/

  • Fri, Jul 01, 2016 - 05:58am

    #4
    Acousticpharm

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    I have been reading them for

I have been reading them for 4 years and rent/home prices just keep going up :X.  It feels like it will never stop and I worry by renting I am making a stupid decision. I feel like it could be 7 years before a drop and by then maybe the drop will be to a level higher than prices are now.

  • Fri, Jul 01, 2016 - 12:07pm

    #5
    Jamie Mason

    Jamie Mason

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    Buying may not be much better

I am in the LA area as well and am paying an obnoxious amount of rent. Fortunately I am in the military and they adjust our housing allowance every year in accordance with market rates (it is intended to pay for 95% of the rent and utilities cost for the type of housing you rate–a 3bedroom single family home in the case of a mid grade officer). I always do the rent versus buy calculation every time I move. Most people know that when you rent, you are throwing away the full amount. However, what most people don't think about is that when you buy (and finance), you are throwing away most of that money as well since the majority of your monthly payment is going towards paying for interest, taxes, and insurance. I recommend comparing the small amount of equity you accumulate in your house every month to how much cash you could save if you rented a comparable house. If they are the same amount, I would prefer cash in the bank over equity in an overpriced house that could crash to nothing at any time (I own a house in Seattle I have to rent out at a loss  because I bought stupidly in 2006 and now market rental rates aren't enough to pay for mortgage, taxes, insurance, and the ever annoying maintenance expenses). 

Sometimes it makes sense to buy. When I lived in southern VA from 2012-2015 the rents were much higher than the cost of purchasing a comparable house. I purchased a house that cost me $1400 per month (1100 of which went in the garbage and 300 went to equity), and a comparable house would have cost over$2k to rent. Those numbers were so favorable I thought that even if there were a market crash and the house went under water, I could still rent it out at a profit. I ended up saving $900 a month from going in the garbage (2000-1100) and I got my $300 a month of equity back when I sold the house.  Way, WAY better than renting. 

It is nothing like that in here in SOCAL.  Rents are super inflated, but I think housing is even more so. Just go on a mortgage calculator like bankrate and see for yourself. Open the amortization table and look to see how much of your projected payment will go in the garbage. Don't forget PMI if you can't put 20% down and you will also want to consider maintenance expenses, which those calculators usually don't. Finally single family homes have other expenses apartments don't like yard maintenance. 

It seems to me the best way to live affordably here is to find a roommate. If you are willing to change your lifestyle, I know some people saving tons of money living in an RV. I am actually considering that for my next duty station since my goal is to save enough to buy a house with cash. Google Early Retirement Extreme if you're interested in that.  

Good luck!!

 

 

 

 

 

  • Fri, Jul 01, 2016 - 12:08pm

    #6
    Jamie Mason

    Jamie Mason

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    Buying may not be much better

I am in the LA area as well and am paying an obnoxious amount of rent. Fortunately I am in the military and they adjust our housing allowance every year in accordance with market rates (it is intended to pay for 95% of the rent and utilities cost for the type of housing you rate–a 3bedroom single family home in the case of a mid grade officer). I always do the rent versus buy calculation every time I move. Most people know that when you rent, you are throwing away the full amount. However, what most people don't think about is that when you buy (and finance), you are throwing away most of that money as well since the majority of your monthly payment is going towards paying for interest, taxes, and insurance. I recommend comparing the small amount of equity you accumulate in your house every month to how much cash you could save if you rented a comparable house. If they are the same amount, I would prefer cash in the bank over equity in an overpriced house that could crash to nothing at any time (I own a house in Seattle I have to rent out at a loss  because I bought stupidly in 2006 and now market rental rates aren't enough to pay for mortgage, taxes, insurance, and the ever annoying maintenance expenses). 

Sometimes it makes sense to buy. When I lived in southern VA from 2012-2015 the rents were much higher than the cost of purchasing a comparable house. I purchased a house that cost me $1400 per month (1100 of which went in the garbage and 300 went to equity), and a comparable house would have cost over$2k to rent. Those numbers were so favorable I thought that even if there were a market crash and the house went under water, I could still rent it out at a profit. I ended up saving $900 a month from going in the garbage (2000-1100) and I got my $300 a month of equity back when I sold the house.  Way, WAY better than renting. 

It is nothing like that in here in SOCAL.  Rents are super inflated, but I think housing is even more so. Just go on a mortgage calculator like bankrate and see for yourself. Open the amortization table and look to see how much of your projected payment will go in the garbage. Don't forget PMI if you can't put 20% down and you will also want to consider maintenance expenses, which those calculators usually don't. Finally single family homes have other expenses apartments don't like yard maintenance. 

It seems to me the best way to live affordably here is to find a roommate. If you are willing to change your lifestyle, I know some people saving tons of money living in an RV. I am actually considering that for my next duty station since my goal is to save enough to buy a house with cash. Google Early Retirement Extreme if you're interested in that.  

Good luck!!

 

 

 

 

 

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