Buying Vs. Renting in San Francisco Bay Area
Should you buy or rent? Should you tie the knot with the 30-year mortgage or is it better to rent the place for next 5-10 years? The answer to this question holds the key to your financial future.
Most people assume that they must buy a house someday. However, this can be a self-made prophecy instead of a real dream. The point is to analyze the profit & loss statement, your dreams, the local market and then determine whether buying is the right decision for you.
Local Market Condition: San Francisco
When you calculate the monthly expenses, renting is more affordable than buying. However, financial calculations involve various factors such as inflation rate, property appreciation & taxes, investment returns, home maintenance costs, and the availability of homes in the market. Obviously, one cannot plan to buy if you do not have enough saved up for down payment and closing costs. In San Francisco, these costs can add up to $300,000.
As of May 2017, the median home price in San Francisco is $1.5 million. The median condo price is $1.2 million. This price range has broken all previous records. According to Paragon Real Estate Group, home prices in San Francisco have almost doubled in last five years.
These statistics show one important thing, “market appreciation.” That means the easiest way to increase your investment is to purchase a house in San Francisco. Appreciation rate has been slow in past few months. Experts are not expecting the same growth rate as the past, but still, the market is showing no signs of cooling down.
Buying Makes Sense in the Long Run
We do not recommend buying a property if you are planning to spend less than five years. Buying makes sense if you want to settle down for next ten years or more. Otherwise, you will end up paying extra money for buying & selling houses rather than building equity in the home.
Looking at the housing chart of past 23 years, we can see that:
- Home prices in San Francisco either stayed same or have been increasing steadily. The appreciation rate was 0% in 1995, 2010 and 2016.
- Prices went down in the recession period but San Francisco market recovered quickly, and prices went up again by 14.6%. Since the recovery, there have been talks about the bubble-burst but seems like the market is not ready to listen to bad news.
When we look at these statistics, buying is a favorable choice compared to renting. You will enjoy the status of homeownership. You can renovate the property as you want. Your family will enjoy the top-notch lifestyle, and the value of your home keeps increasing.
Renting is Inexpensive; Best for Short-term Focus
The monthly cost of buying a median priced home in San Francisco is $6,000-$7,000. This cost includes mortgage, insurance, property taxes, HOA fees, and general home maintenance expenses. The market rent value for the same property is $4,400-$4,600 which is way below the $7,000 mark. So, if you are planning to spend a few years in San Francisco then renting is your best option. Even if you can afford the $7,000, it is best to save the remaining funds and watch the market before planning to invest your money.
As a tenant, you are not responsible for property maintenance, taxes, repairs and association fees. Similarly, you are not entitled to homeownership benefits.
Renting a home is a right decision:
- If you do not have a 20% down payment. You can also take a mortgage with 3.5% down payment, but 20% is the recommended option.
- If you have no plans of living in the house for next 5+ years.
You should buy a house if:
- You can contribute the conventional 20% down payment.
- There is enough money to cover the closing costs.
- You are not planning to stay in the house for next 5+ years. In that case, you can go with a 5/1 ARM with low mortgage rates. You get the option to refinance or sell the house before the interest rates are changed. With this option, you can reduce your monthly expenses while also building your equity in the home.
About the Company:
JJW Homes LLC is a residential redevelopment firm in San Francisco, Bay Area. Our company buys, rehabs and sells properties throughout the San Francisco Bay Area. We aim to change neighborhoods and lifestyles by renovating one house at a time. Contact us now to know more about our services.
Photo Credits: Flickr & Flickr
