Home Buying in Cupertino>Question Details

Pvm, Home Buyer in Cupertino, CA

200K per year gross income - Currently renting at 1600 pm -- Rent Vs Buy?

Asked by Pvm, Cupertino, CA Fri Apr 18, 2008

Hi There,
We have a joint income of 200K per year. We plan to be in the US for around 2 more years (max 3 years).
In this situation, would it make sense for me to buy or rent? I would like to buy in the cupertino/sunnyvale area if possible

Please help....

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22
BEST ANSWER
Hi Pvm,
Over time, all things being equal, most people have found that it is better to buy than rent. Briefly, the benefits of home ownership include, but are not limited to:
1 - Holding an equity stake in a valuable asset
2 - Building wealth over time with an inflation resistant asset
3 - Realizing substantial tax savings (consult with a qualified tax advisor)
4 - Having control over your domain and not subject to the whims of a landlord
5 - Establishing roots in a community

The time frame you mention creates a special challenge and urgency. It really depends on the personal choices you and your spouse want to make. Some questions worth asking yourself are:
1 - Are you completely satisfied with your current lifestyle?
2 - Would you be comfortable spending 35-45% (before tax breaks) on housing? You now spend around 10%. The difference is closer when tax savings are factored in (consult with a qualified tax advisor)
3 - Are you sure you are leaving in 2 to 3 years and will you never come back?
4 - Would you have to sell when you leave, or could you keep the home as an investment, or hold it until you return?
5 - Is it possible that 5 to 10 years from now, you are still living here and may decide to stay forever (I know people in this situation)? Would you regret the decision you made in 2008?

The implied question you seem to be asking is "Will I be able to recover my investment if I have to sell in 2 -3 years?” No one has a crystal ball and no one can make ironclad predictions. The best we can do is provide historical data and assess current conditions. In general locally, real estate booms have lasted 3 - 5 years and shown gains of 50 - 100%, while downturns have lasted 2 - 6 quarters and shown losses of 5 - 15%. I recently attended a seminar where a respected real estate analyst stated that we are 6 months into a downturn that will probably last 12-18 months (most likely 18 mos.).
To be fully diligent, you need to focus on micro-markets and analyze the prospects for the exact neighborhood you are interested in. For instance, parts of Cupertino are very strong despite turmoil in other parts of the county. Engage the services of a qualified real estate professional to get this local data to make an informed decision on whether it's worthwhile to buy now and do your risk assessment to judge how you should fare in the future. Again, this should be done in the context with your overall lifestyle needs and your comfort with assuming risk.
I hope you find this advice useful and interesting.

Good luck,
Roland
3 votes Thank Flag Link Fri Apr 18, 2008
Hello Pvm,
Simple quick answer, for two years, don't buy! But only if it was that simple. This is something you need to look at details and analyze the data carefully. I'd be happy to sit with you and go over different scenarios to help you make a decision.
3 votes Thank Flag Link Fri Apr 18, 2008
Thumbs up to Ali for his honest answer.

I personally believe its a pretty terrible time to buy in general but with your max of 3 years, there is no way you could make up the ground of the 3-5% closing costs to buy and the 6% commission to sell. If you were going to be here much longer, then it could make sense if you were extremely diligent and found a good place in a great location and made sure you didn't overpay, but on your time horizon, this very likely isn't possible.
2 votes Thank Flag Link Fri Apr 18, 2008
Pvm,

Rent a really nice place and enjoy it.
1 vote Thank Flag Link Tue Sep 16, 2008
Please do yourself a favor and millions of taxpayers by continuing to rent. If you buy now you will be underwater by the time you sell in 2 or 3 years. The smart choice for your circumstance will be renting no doubt about it.
1 vote Thank Flag Link Mon Sep 15, 2008
The link I've included may help in your decision. It's a buy vs rent tool.
1 vote Thank Flag Link Sat Apr 19, 2008
Sorry to be off topic, Pvm, but I feel compelled to respond to John in Moraga. His opinion of real estate is about as relevant as a Vegan reviewing a Wild Game Restaurant.
Roland
1 vote Thank Flag Link Sat Apr 19, 2008
Pvm, Do NOT buy. All the people here egging you to buy are real estate agents. (glorified car salesman) You are going to leave in 3yrs. In the meantime you will risk depreciation, pay taxes and up keep for a place that you have no intention of keeping. What is so bad about renting a nice place and living a carefree lifestyle?
1 vote Thank Flag Link Fri Apr 18, 2008
PVM, if you buy in the Cupertino/Sunnyvale area, you should not have any problems selling and making a few $$$$ within the next few years . There are hot pockets in Sunnyvale, and they go quickly! Good luck.
1 vote Thank Flag Link Fri Apr 18, 2008
The answer really depends on where you buy. The market has been softened by the sub-prime market financing issues. Some markets far more so than others. In Cupertino, there has been almost no effect. Because of this, prices keep going up. There may be higher risk in Cupertino if the assumption is that prices will continue up. Whereas, in parts of Sunnyvale, Santa Clara and Mountain View - there is evident softness. This softness will rebound when financing becomes more available in the next year or so. I think that is a good play in this market. Also, consider that you could rent the home out when you decide to leave the US - especially if the sales market is not what you want it to be at that time. This is not even mentioning what the tax benefits of owning a home will provide.
1 vote Thank Flag Link Fri Apr 18, 2008
Mario Pinedo,…, Real Estate Pro in Beverly Hills, CA
MVP'08
Contact
When people plan to leave in 2-3 years, I tell them to rent. If they can be here 5 years, it usually makes sense to buy. If they'll be here 10 years, they would be totally foolish to rent. Rent unless your plans change!
0 votes Thank Flag Link Mon Sep 22, 2008
First, a simple rent vs. buy analysis should be run. This can be done in our office within a half hour meeting. Then, a look at some of the properties available to you in your price range. I am sure you will be impressed with both the good inventory and the great tax benefits. In general, the US real estate market is in a slump and my opinion is it will rebound by the time you decide to go back home. Timing is always an issue and if the sales market is not right for you in 2-3 years, then renting the home out is always a good option. Cupertino and Sunnyvale are strong rental markets, as I am sure you are well aware! Buyers who buy in 2008 will do well in this market.
0 votes Thank Flag Link Mon Sep 22, 2008
Mario Pinedo,…, Real Estate Pro in Beverly Hills, CA
MVP'08
Contact
Dear PVM,
Without knowing your other requirements, i do not want to give you any suggestions. But when you Buy you have costs attached to the Purchase, and when you Sell, you have about 8% selling costs attached to that. So if you buy in Cupertino in an excellent area where your property value does go up evey year, you may break even in costs i 3 years when you Sell.......atleast you wont loose money!
here is a Buying V/s Renting pros and cons....
Advantages of Buying vs. Renting
Taxes
Rents are not deductible for income tax purposes.
The portion of the monthly mortgage payment that represents taxes and interest is income
tax deductible, within certain limits.
Interest Deductions
Without home mortgage interest deductions, many taxpayers do not have enough other
qualified deductions to “itemize.” Once you have more deductions than the standard
deduction, every additional qualified amount is deductible. This often changes previously
unused deductions into beneficial tax deductions, such as amounts spent for medical,
state tax, DMV fees, charity gifts, safe deposit fees, job seeking, and employment-related
expenses.
Savings
For taxpayers with roughly $30,000 to $100,000 of taxable income, the tax bracket might
be 28% federal, plus 9.3% California, for a combined state tax rate of 37.3%. This is
approximately the savings of any deductible amount spent.
Example:
Rent =$1,500 / month (no deduction, net cost = $1,500)
Mortgage = $2,500 / month
Deductible: $2,300 / month (assumed amount for interest & property tax) x tax rate @
37.3%
Tax savings = $858 [net cost to buy = $1,642]
Appreciation
Additional benefits of buying include control of the property and improvements, as well
as the economic growth as the property appreciates during ownership.

HOPE THIS HELPS.....check out my website at: http://www.ninadaruwalla.com and do contact me, lets talk, then you can decide what you want to do!
Be well and safe,
Nina
0 votes Thank Flag Link Sun Sep 21, 2008
RENTING is the suckers bet. If you can't afford to BUY, you RENT. BUYING smartly is the better bet. That means, you buy a new SINGLE FAMILY home in a good area, which is pretty much anywhere in SUNNYVALE or CUPERTINO. Newer homes sell much faster, and they are easier for FIRST TIME and EXPERIENCED buyers to acquire. Just don't overpay for your NEW HOME - that should be easy since you have access to comparables.
0 votes Thank Flag Link Mon Sep 15, 2008
There is tons of debate on this exact same subject in this trulia thread. Its a great read.

http://www.trulia.com/voices/General_Area/Open_Opinion_Threa…
0 votes Thank Flag Link Thu Apr 24, 2008
For such a short time horizon you are better off renting. The exception would be if you were able to buy a distressed property at a substantial discount (at least 40-50% below market value). Typically these properties will require at least cosmetics so do your due diligence.
0 votes Thank Flag Link Thu Apr 24, 2008
It's my belief that buyers need to look at real estate as a long term investment. I generally advise clients against a purchase if they plan to leave in less than five years. It is possible that you could recover the costs involved if the market recovers quickly but at this point you are probably wise to continue to rent.
0 votes Thank Flag Link Thu Apr 24, 2008
Vicki has provided a link to a great tool. Thanks, Vicki.
Keep in mind that it doesn't factor in tax savings. Also, because it's a simple number cruncher, it does not factor in quality of life issues.
Roland
0 votes Thank Flag Link Sun Apr 20, 2008
Hi Pvm,
Since there have been a number of posts concerning your question, it would be interesting to hear your reaction to this information and the direction you might be leaning.
Believe it or not, I try to give brief answers, so I won't waste valuable space here with detailed statistical analysis. Anyone, such as Zack, who is interested can email me directly through my profie.
Others have tried to tell you what to do and I won't do that either. I try to provide useful information that allows you to make an informed decision that is in your best interest.

Roland
0 votes Thank Flag Link Sat Apr 19, 2008
Don't do it. You won't be able to recover your down payment, closing costs or interest paid when you sell in 2-3 years. One of the reasons the market is so soft is because people REALLY cannot afford to purchase a home unless they have 100% financing because people in the US are notorious for not saving!!! Lenders are being really tight as well as the mortgage insurance corporations. Even CALHFA has changed their lending standards and they used to be really liberal. From a finance/econ/accounting standpoint, it doesn't make any sense. Don't let anyone tell you that you are going to recover all your initial costs in 2-3 years in this market, that's ridiculous.
0 votes Thank Flag Link Sat Apr 19, 2008
Just to add, my data supports Roland's claim almost perfectly, but the long flat periods can cost you 20% of real equity due to inflation, so I'm more curious if he's seen those also.

I read a study by the NAR the other day as suggested in another thread and it made mention of much higher volatility in home prices in metropolitan areas so this may remove some of the flat times.

Zack
0 votes Thank Flag Link Sat Apr 19, 2008
Roland,
Your post did deserve best answer, it was well written and thought out. I was wondering if you have any data to support this claim:

"In general locally, real estate booms have lasted 3 - 5 years and shown gains of 50 - 100%, while downturns have lasted 2 - 6 quarters and shown losses of 5 - 15%."

I just put together a graph of the Case-Schiller index for SF metro area from 1987 to present and there is about a 50% run up from '87-'90, followed by a slight decline that doesn't get back to the peaks until '98. Jan '98 to Jan '01 had a runup of about 66% followed by a dip of about 10% until July '02, then the rocketship bubble took off with another 66% increase until 06' where we're 20%. I realize the index has limitations but most of the data (I usually look at national and NYC area data) I've seen show the downturns being about the length you describe, but following them are very long periods of zero growth while inflation will eat at your real spending power. Often 6+ years of 0 appreciation. I'd be interested in seeing some more localized data if you have it also but since I have no intention of moving to california, and won't be earning you a commission , I wouldn't expect you to spend too much time on anything. :-)

You're post was very good and I'd be very interested in seeing some data even if it is only local to San Jose which i know is a very desirable place to live.

Thanks,
Zack
0 votes Thank Flag Link Sat Apr 19, 2008
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