You go though different phases of your life, and one day you will just be tired of renting. Believe it or not, once you own something you feel more stable and you worry less about housing (time that can be spent doing something else).

Home ownership is not for everyone -- about 60% of San Franciscans rent. I admit that I have the real estate disease -- I bought in Noe Valley in the last downturn in the early '90s. I was house poor, but loved my neighbors and my little City house where I raised my kids. I sold at the height in early 2005 -- 32 offers, yikes -- and rents were very low a couple of years ago I started renting in a rent controlled complex. I love my location, even if the complex is a bit old. Jed is right to check with your accountant, my last buyer client is a CPA in fact and she knew exactly what she wanted to spend.

Hi Txp:

We moved five times before settling down in Marin years ago. Everywhere we moved, my husband's company covered the rent and all moving expenses. We were able to live in some of the best neighborhood everywhere we went and save money in the process

Then we settled down and bought a house in Marin.

It was 10 years ago. We were living in Carmel, IN. I only saw three fuzzy pictures on a very, very slow email. The market was hot, my husband wanted the house. I had a huge headache and almost cried when I first saw the house (can you imagine the kind of house we could have bought in Carmel, IN with that money?)

It was the best thing we had ever done. Mostly, after so many rental houses, where we could never call home, we finally had our own home.

After so many years, it is also one of the best investment we have ever made. But the truth is, all the equity is only paper money; unless you want to move away from the Bay Aeaa.

So, the numbers really do not matter; especially when they are so close.

What matters is this is a place you can call home and it is yours.

Best,
Sylvia

I'm one of the bearishest bear at Trulia and my math concurs with your conclusions. There's quite a bit of analysis along the same lines at the link below.

Current rent for a 2bdrm plus den in Noe Valley is around 3300k per month. (this is where I am currently renting) According to Zillow, these condos are worth around 1.3-1.4MM. On a 30 year fix, the mortgage, taxes, and insurance would be around 8K per month. Im not an accountant, but I would assume it makes more sense to rent right now.

Nice thing about renting in SF is not having to maintain these ancient homes. Something is ALWAYS going wrong.

Excellent question. By _far_ the two most important variables in the buy vs. rent discussion are a) Property appreciation and b) Price-to-rent ratio. Everything else is mostly a rounding error if you take, say, a five-year perspective.

Plugging roughly the same assumptions as above into my magic buy-vs-rent spreadsheet, here's what you get in an average month comparing renting costs to ownership costs:
Rent: $2100
Own: $4800 per month pre-tax; $3500 post-tax

Comparing over a five year period (with the assumption that you'll sell after five years) you'll end up as follows:
Rent: Spend about $130K out of pocket
Own: Spend about $270K out of pocket; net about $110K (post transaction costs) from the sale (which includes your original $60K equity plus a modest $50K in appreciation); net about $160K out of pocket

Not even taking into consideration your personal discount rate, in this scenario you're better off renting.

With modest tweaks to the model, things change:
Let's say property appreciates 3% per year and rents increase by 5% per year. Then you're better off by about $10K over a 5-year period owning. (But still of course worse off if you want to get technical and talk about NPV.)

As with all financial calculations, the answer depends on your assumptions. If reasonable-to-you assumptions lead to a calculation that you're better off owning than renting, AND if there is no real psychic/emotional benefit to you of owning, then it probably doesn't make sense to buy.

The latter variable changes over time. I've had clients who did the above calculations five years in a row and decided against buying. Then they had their second child...and BOOM they decided to buy. Home ownership is, for many people, as much of an emotional decision as a rational/financial one.

I don't often refer folks back to a specific article I've written, but this time I will. Go to my "buy vs rent" archive at http://3oceansrealestate.com/blog/category/real-estate/buyer… and read the three part series at the bottom of that archive.

When my clients have these questions I recommend that they talk to an accountant. Using your own numbers they can tell you the tax ramifications and how it will benefit you.
Our board has a video interview with a CPA that can be accessed from my web site. The button is about 2/3 of the way down the page and is labeled “Spotlight with Tom Sinkowitz”.
I know that when I was renting it was very important for me to be in a place where no one else can tell me to leave which happened twice. I also worked with many elderly people that lived in SRO’s in the Tenderloin.