So, in the context of the bay, rather than paying my $3k/mo rent, I should buy a $1 million dollar home?
Basically - you're trying to avoid the scenario where you live in a place so short that the exchange cost you pay to flip it on the far side exceeds the amount of rent you'd pay to reside in it.
Determining the exchange cost isn't always straight forward - the 6% given above may or may not be realistic for you, there are some brokers that will take a 1% cut and those folks are more common in hot markets, and there may also be taxes you need to take into consideration.
Also, there is a risk of getting stuck with a lemon - if you purchase a house which seems fine but actually has extensive water damage and mold you could lose a portion of the value, this is a really significant consideration in quiet housing markets (like the midwest) and less important in areas like SF where most of the property's value is likely the land itself - in either case you're taking a big chunk of the value of the structure out of the equation when reselling the property but in the later case the value of the structure is rather minimal while in the former case the land is essentially free.
Basically you almost always want to buy if you are able to. The money you're spending on housing when you own a property is accruing as equity instead of being siphoned off by a landlord.
Meanwhile, someone not investing on margin will be up 60%.
lol what? Trees fall on houses all the time. Pipes break and water damage can seriously impact structure & foundation. Dumb-ass kids accidently drive their mom's car through the veranda. Houses burn down and kill people. A factory shuts down and now there are no more jobs so everyone leaves, driving your house price down.
Assuming a home is a secure investment -- even in a hot market like SF or DC -- is foolish.
> More than one-quarter (27%) of reported fires in 2014-2018 occurred in homes. Even worse, more than three-quarters (77%) of civilian fire deaths and almost three-quarters (73%) of all reported injuries were caused by home fires.
> During this five-year period, US fire departments responded to an estimated average of 353,100 home structure fires per year. These fires caused an annual average of 2,620 civilian deaths; 11,030 civilian fire injuries; and $7.2 billion in direct property damage.
https://www.nfpa.org/News-and-Research/Data-research-and-too...
Put 10% down on 1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.
Also, if it's your primary, then tax free income up to that 500k if filing jointly when you sell if you lived in it for 2 years. Hard to beat.
You will have a commission in the expense ratio indefinitely.
But yes, definitely a decent option if you want to put your money in real estate with less headache.
Those who have a million or two but a house not because it's good for financials, but because they can't stand cranny rentals. Those with bare minimum money jump into a mortgage because for them it's the only efficient financial instrument available (a margin trading account essentially). If they tried to open such an account with a brokerage, they would be told no after looking at their net worth.
How is that, or even the 250k individual comical? Also, that's the gain that has no taxes AFTER fees/commissions. It does not get "eaten away".
You can also do 1031 exchanges, opportunity zones with real estate, or put it into an LLC. A lot of flexibility and tax strategy available.
1M. Goes up in value to 1.5M in a few years. Boom. 500K gain on 100k. Not that uncommon.
Also there are tons of options to flip if you want to put in some work and have the funds. Not that hard when the price per square foot grossly exceeds the cost to build.
You should generally only reneg if interest rates are dropping - and interest rates dropping causes an upward pressure on home prices.
In principle, the principal payments are doing that (interest payments are being siphoned off by a bank, instead of a landlord), as is any delta in the property value (but if that's negative, that's anti-equity).
Even in a mildly inflationary economy, making fixed nominal payments on a salary rising more in line with inflation for an asset valued more in line line with inflation can be a fairly attractive deal.
But none of the above is meant to be investment advice. Homeownership has its risks and certainly loses flexibility.
- $3300 in principal + interest
- $1000 property tax
- $500+ HOA
- $200 homeowners insurance
That is $5000+ monthly and requires $200k upfront (and significant upfront cost as the brokers are paid off). How is that comparable in after-tax payments to renting a $3000 apartment?
I must admit that I had forgotten how high property taxes in the US can be, though. HOA surely depends a lot on what exactly you'd be buying.
The standard deduction was increased for everyone to compensate for it.
Owning in SF is generally more expensive than renting. Why? Because house prices have appreciation assumptions already priced in. Plenty of people lose money every month versus rent but appreciation more than covers it.