Irvine: Rent vs Buy

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the.irvine

Active member
What would make sense in Irvine, say

Price 2800-3000 Sqft home: 1.3-1.5m
20% down, all incl montage and taxes approx 6000$ per month

Rent for same size home: 4000-4200 $ per month

Annual cost to buy: 72,000 + 2K maintenances
Rental cost: 50,000$

Five year cost for buying: 370,000
Rental cost for 5 years with 10% increase annually : 250,000$

Unless home appreciate so much, would renting not make sense? Excuse my ignore please, and help if you can :)



 
Now that there isn't much tax benefit to buying, your main benefit is paying down the mortgage. How much would you pay down the mortgage in 5 years?
 
paperboyNC said:
Now that there isn't much tax benefit to buying, your main benefit is paying down the mortgage. How much would you pay down the mortgage in 5 years?
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Not sure if i will be able to pay more than what i am required to, so on this trend i would pay 100K principal in next 5 year, with balance left to around 935K after 5 years.
 
you obviously know this, but there are more than just financial reasons to buy a house - ability to customize it to your needs and the needs of the family , not being under the gun in case the owner decides to sell , etc. 

over past few years, I know many people rented and became "sideline buyers " and missed out on home appreciation and improved  quality of life for many years while counting their cash earning 0% .

now if you were someone that had a serious use for your cash otherwise - say in a business, or you were an active day trader who could swing 15% plus returns a year after tax on your capital , I would say , yes maybe renting is more your thing. 

but most people who use opportunity cost as an excuse , never really get to use that " opportunity " in real life . go ahead and buy if you can comfortably afford it , you will be happier for it
 
the.irvine said:
What would make sense in Irvine, say

Price 2800-3000 Sqft home: 1.3-1.5m
20% down, all incl montage and taxes approx 6000$ per month

Rent for same size home: 4000-4200 $ per month

Annual cost to buy: 72,000 + 2K maintenances
Rental cost: 50,000$

Five year cost for buying: 370,000
Rental cost for 5 years with 10% increase annually : 250,000$

Unless home appreciate so much, would renting not make sense? Excuse my ignore please, and help if you can :)
Click to expand...

The numbers are closer if you take into account lower finance rate and homeowner deductions.

At the 3000sft home range it?s close to a wash not including the down. We did this math a few years ago.
 
irvinehomeowner said:
the.irvine said:
What would make sense in Irvine, say

Price 2800-3000 Sqft home: 1.3-1.5m
20% down, all incl montage and taxes approx 6000$ per month

Rent for same size home: 4000-4200 $ per month

Annual cost to buy: 72,000 + 2K maintenances
Rental cost: 50,000$

Five year cost for buying: 370,000
Rental cost for 5 years with 10% increase annually : 250,000$

Unless home appreciate so much, would renting not make sense? Excuse my ignore please, and help if you can :)
Click to expand...

The numbers are closer if you take into account lower finance rate and homeowner deductions.

At the 3000sft home range it?s close to a wash not including the down. We did this math a few years ago.
Click to expand...

Based on your current finances and how much money you will have in five years or a decade, you have to make a choice considering long-term savings and your monthly expenses. Buying the place on 20% down payment would be suitable for those who have no desire to leave the city. Renting can save you from paying taxes or renovating the place every two years. You can live in a different remodeled house after every few years if you no problem living as a tenant, which most of the people do.
 
irvineresidential said:
Based on your current finances and how much money you will have in five years or a decade, you have to make a choice considering long-term savings and your monthly expenses. Buying the place on 20% down payment would be suitable for those who have no desire to leave the city. Renting can save you from paying taxes or renovating the place every two years. You can live in a different remodeled house after every few years if you no problem living as a tenant, which most of the people do.
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Yes, you should only buy if you plan to stay long term. Not sure about having to renovate every 2 years... and moving every 1 to 2 years is not fun either especially if you have stuff to fill a 3000sft home.
 
the.irvine said:
What would make sense in Irvine, say

Price 2800-3000 Sqft home: 1.3-1.5m
20% down, all incl montage and taxes approx 6000$ per month

Rent for same size home: 4000-4200 $ per month

Annual cost to buy: 72,000 + 2K maintenances
Rental cost: 50,000$

Five year cost for buying: 370,000
Rental cost for 5 years with 10% increase annually : 250,000$

Unless home appreciate so much, would renting not make sense? Excuse my ignore please, and help if you can :)
Click to expand...

Buying a home is not just about numbers.  Do you like the house?  How do you feel inside the house?  Would you be happy waking up in the morning inside that house/bedroom?

When I went to buy burial plots at Rose Hills, I would lay down on the lawn at various locations and get a feel.  You'll know when you hit the right spot (or plot).  Same with houses, like "this is the house where I want to live in" and "this room here is sunny with good ventilation/air-flow, if I were to die in my home this would be preferred room".

For me the difference between a rental and a purchased home is that the rental is about fulfilling a short to intermediate term checklist, and a purchased home is about feels and long-term commitment.
 
momopi said:
Buying a home is not just about numbers. 
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Agreed, not sure if the op has family/kids, but that was a huge consideration for myself and many others.  Do you want to uproot your kids every few years after they've gotten comfortable?
 
the.irvine said:
What would make sense in Irvine, say

Price 2800-3000 Sqft home: 1.3-1.5m
20% down, all incl montage and taxes approx 6000$ per month

Rent for same size home: 4000-4200 $ per month

Annual cost to buy: 72,000 + 2K maintenances
Rental cost: 50,000$

Five year cost for buying: 370,000
Rental cost for 5 years with 10% increase annually : 250,000$

Unless home appreciate so much, would renting not make sense? Excuse my ignore please, and help if you can :)
Click to expand...

You should factor in opportunity costs(which favor renting) and equity build up (favoring buying) into this as well.  The total equity accrued in the first five years would be a little over 100K.  If we assume the housing market and the stock markets keep doing what they have been doing lately, the clear winner is renting in my opinion.  Again this is strictly looking at it from a numbers perspective. 


 
I remember when I bought my first property in 2006 and I assumed the housing market and the stock market would keep doing what they had been doing.  That ended up not working out so well.
 
buying is almost always better with 2 condition: 1) buy what you can afford, may be stretch a little like instead of 28%/38% DTI ratio, go up to 35%/45% in good location with potential and 2) do not sell within roughly 5 to 7 years later even if you have to move because of job or something else, try to keep it and rent it out even if that requires a few hundreds dollars more per month.

Especially places like Irvine or most of southern Orange county, it's likely that appreciation will be significant 5 years or more.  I regret that I was on the side line for many years and missed out while renting what was actually very cheap house compared to apartments but still missed out big time.  I bought one a couple of years ago only after my land lord jacked up the rent by threatening to sell the house and force me out.  On the paper my home appreciated more than 15% since I bought, I thought, was way over priced. 

The total cost of home ownership expenses is more than the rent I pay but 1/3 of it is tax write off and nearly $1000 per month principal pay off.  Again, that's on top of more than 15% appreciation.  The appreciation won't continue like that every year but it will only going to climb up.

Also as someone mentioned, I don't have a landlord playing around with me.  I can a home for my family, not just a house.  Numbers will be better on calculation sheet for renters who invest "wisely" which I also proved myself a few years ago, but that's under perfect scenario.  Housing can go down in value to but will recover (has recovered even from 2007) and while you paid off good chunks of your mortgage during those years.

Whether they financed or paid for cash, most if not all "millionaires" bought real estates one form another and it's the only almost safe and sure way for regular folks like me to accumulate wealth relatively easily over a period of time.

If you can buy a home but thinking you can save/invest/use your down payment on something else, think again.  Learn from me who made that exact mistake.  Always buy home when/if you can and be on tight budget for 2 to 3 years.  Then your income will go up minimum 7 to 10% or more, mortgage stays the same or similar for that period and within 10 years, you will be so glad...
 
Liar Loan said:
I remember when I bought my first property in 2006 and I assumed the housing market and the stock market would keep doing what they had been doing.  That ended up not working out so well.
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That's why rent vs buy calculations are so important and should not included home appreciation in the formula.

In 2006, dozens of friends pressured me to buy. My rent was $1,400/mo and buying an identical unit would have cost $3,000/mo without the teaser loans everyone was using.

I opted to keep renting.

I also sold all of my stocks in 2007 :)
 
Liar Loan said:
I remember when I bought my first property in 2006 and I assumed the housing market and the stock market would keep doing what they had been doing.  That ended up not working out so well.
Click to expand...

Do you still have that property? It should be okay now right?

We bought a home in Irvine during that same time frame (the "peak") and now it's worth at least 20% more than back then (real sell prices). During the "crash", its value never dropped more than 10% despite the calls of 40%+.

So it really depends on the area, home type etc.
 
irvinehomeowner said:
Liar Loan said:
I remember when I bought my first property in 2006 and I assumed the housing market and the stock market would keep doing what they had been doing.  That ended up not working out so well.
Click to expand...

Do you still have that property? It should be okay now right?

We bought a home in Irvine during that same time frame (the "peak") and now it's worth at least 20% more than back then (real sell prices). During the "crash", its value never dropped more than 10% despite the calls of 40%+.

So it really depends on the area, home type etc.
Click to expand...

We kept it for 11 years and just sold it this past November for $25k less than we paid.  I would have held on longer but our renters of 7 years decided to move out of state, and I didn't feel like being a hands on manager any longer.  Hiring a property manager was also out of the question as it would have made the negative cash flow worse.  So after paying the mortgage down for 11 years, we still walked away with a check that covered the prior years of negative cash flow on the property.  Basically, we broke even after 11 years of ownership (not adjusting for inflation).

One thing that really helped us was having an 3/1 ARM loan because our rate dropped from an initial 5.125%  down to 2.875% during the crisis, which made the monthly cost much closer to rental parity and roughly doubled the speed of loan amortization.  Without Ben Bernanke dropping bags of cash from his helicopter we probably would have given it up in a short sale during the downturn.
 
irvinehomeowner said:
We bought a home in Irvine during that same time frame (the "peak") and now it's worth at least 20% more than back then (real sell prices). During the "crash", its value never dropped more than 10% despite the calls of 40%+.
Click to expand...

Also, our property had a cumulative drop of 60% during the downturn, followed by a 125% increase in value to get back to what we sold it at.  Anybody else like rollercoasters?
 
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