Home Buying in San Francisco>Question Details

Thomas Peason, Home Buyer in San Francisco, CA

Short term living- better to rent or buy?

Asked by Thomas Peason, San Francisco, CA Fri May 25, 2012

If I am planning on leaving the bay-area in the next five years, does it make sense to buy or should I just rent? A friend also mentioned the idea of buying now and renting it out once I leave. I don't know what that would entail. What would be the best option financially?

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Because interest rates are so low right now, and rents are so high, it is a rare time in San Francisco real estate where the monthly costs of owning are about the same as renting the same property in many segments of the City. But make sure you're able lock in a 30 yr fixed rate mortgage so there aren't any surprise cost increases down the road. Also speak to an accountant to find out what tax deductions are available to you as an owner-occupier vs. a landlord. With a 30 yr fixed rate mortgage locked in you can always sell in 5 years if it makes financial sense for you, but it gives you the option of hanging on for the full 30 years and having your tenant pay off your mortgage.

I would say rent if 1) you don't want to be a landlord, 2) you know you'll need your downpaymet money back in 5 years or less, 3) you're unsure about your career or future financial position, 4) you are risk averse in general, and want absolute certainty that you won't lose out on this investment. Never listen to anyone who says real estate always goes up, and is a sure thing. There's no such thing as a sure thing, so plan accordingly, and do your homework.
Web Reference: http://www.SFisHOME.com
1 vote Thank Flag Link Fri May 25, 2012
Thomas,

It looks like prices will continue to go up in San Francisco. So at the end of five years a home, if purchased today, should be worth more. You can't quote me on that though. Just for fun, say a $700,000 condo will go up 7% a year for the next five years and be worth $893,397 at the end of five years. I would cost your around $50,000 to sell it and you would net around $840,000. That looks pretty good. Wouldn't you say? And, you can forget about renting, if you want to.

Rents are at high levels now and appear to be strong. If you buy today with a nominal mortgage or with all-cash (highly recommended), and you can rent the place (5 years from now) for enough to cover all the expenses, then buying is probably a better idea. But, you can't quote me on that either. We realtors have to protect ourselves. Do you really have what it takes to be an investor and landlord? Don't know? Call me and I'll fill you in. It's a good question.

Let's say the rent you can get 5 years from now is $5,000 a month. Add up the expenses: real estate taxes ($750 estimated), insurance ($175 estimated), home owners dues if a condo ($500 estimated), utilities you will pay ($150 estimated but usually only apply if a single family house), maintenance and repairs ($200 estimated), yard care if tenant doesn't pay ($100 estimated). The tally would be $3,125 net rental income per month, before paying any mortgage payments.

If the house cost you $700,000 today that would be a $37,500 annual income or about a 5% cash on cash per year return on your purchase price not including the return on the appreciation. That would be good.

This is enough info to get you started and if you are serious call me for a free consultation. I'm a real estate investor and broker, and will steer you in the right direction. If the numbers don't work for you, and they'll probably be different than shown above, I'll let you know and suggest you put your money in the bank.

Check out how much you would be paying in rent for what you want to get. That will really give you the perspective you need to decide if renting or buying is the way to go. Say your rent turns out to be $5,000 a month.... that's $60,000 a year or $300,000 over 5 years. You could almost buy a decent house for that today. A decent house will be around $500,000 and $400,000 for a condo, depending how from from the city you end up.

Hope that helps. Call if you like. Where are you thinking about renting or buying? Let me know that, how much are planning to pay in rent, and how much cash you have available to invest and I can provide more accurate info.
1 vote Thank Flag Link Fri May 25, 2012
The answer depends on what you're looking for financially.

If you're looking to minimize your monthly payments, then renting is marginally better in San Francisco since you won't have any large, unforeseen home ownership expenses.

If you're looking to increase your overall wealth, then buying is a much better idea today. Being the tip of a peninsula, the buildable land in the city is extremely limited. Today is one of the rare times when you can afford to buy for about the same price as rent in the city, if you have 20% downpayment saved up. With the Bay Area experiencing a rebound from the 2009 correction, you have a good chance to double your equity in 5 years.
Web Reference: http://www.archershomes.com
0 votes Thank Flag Link Fri May 25, 2012
If you can afford to buy in the Bay Area right now then do it. If not, then try to buy where you plan to be in five years.

Oggi Kashi - 415.690.3792 direct
Broker Associate, Paragon Real Estate Group CA DRE 01844627
All data from sources deemed reliable but subject to errors and omissions, and not warranted.
Web Reference: http://www.oggikashi.com
0 votes Thank Flag Link Fri May 25, 2012
rent....I only recommend buying if you are buying for 5 or more years. You can rent it out after you leave, but you might want your capital to buy a home in your new location.

Think this through carefully!

Good luck.
0 votes Thank Flag Link Fri May 25, 2012
If you were only going to be staying here for 2-3 years, it wouldn't be worth it to purchase. 5 years is usually enough time for a home to appreciate so you can get out, and hopefully pay the commission when you sell.

To create wealth in real estate, the key is to hold it long term. I see no reason why you couldn't rent it out after you left in 5 years. But, if you were to sell the home after not living in it for over two years, you could have tax consequences so you should consult with a good CPA.

If you need a referral, feel free to ask.

Best.

Tap
0 votes Thank Flag Link Fri May 25, 2012
As a property manager who takes care of properties for many people who rent out thier properties I can say that as a wealth building tool holding onto real estate long term is still one of the best ways to build wealth.
If you have the means to buy and hold after you leave the property as a residence you will do very well to look into it as a serious option.
Call me if you have questions.
0 votes Thank Flag Link Fri May 25, 2012
Jed Lane, Real Estate Pro in San Francisco, CA
MVP'08
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