Author Topic: Rent or buy? San Francisco edition  (Read 3867 times)

ConfidentialitySpice

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Rent or buy? San Francisco edition
« on: October 04, 2016, 06:42:05 PM »
Hi everyone! I've been lurking on this forum for a while now, but am struggling with a rent-or-buy question and could use some collective wisdom.

Background: My partner and I are currently renting in San Francisco for a somewhat mind-boggling amount. He works in the city, and I have a tech job in the South Bay: both are high-stress, high-pay. At our current savings rate, we could FI/RE in 3-5 years, but that depends on housing...

Option A: buy into the SF market next year. For a two bedroom, one bath condo in range of the tech shuttles, we're looking somewhere in the neighborhood of $1.2 million. Putting 20% down still leaves us with a million dollar mortgage (gulp). I'd like the extra bedroom since we'll hopefully have a kid in a couple of years; moving out of the city core puts my commute over 1.5 hours each way, which doesn't seem sustainable.

Option B: keep renting for a few years until I can leave my job. We're currently paying $4500 a month, and I doubt that'll drop unless there's a big crash. If I didn't have the south bay commute to contend with, we could move across the bridge and instantly get a 30% discount on housing. At least, that's how it stacks up right now, but housing conditions change quickly around here.

I've tried calculators like the NY Times's, but they're extremely sensitive to how long we expect to stay in the city. It's rough spending over 50k a year on rent, but taking a million dollar gamble on the SF housing market doesn't exactly sound relaxing. This city is a strange place.

So, WWMMMD?

emilypsf

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Re: Rent or buy? San Francisco edition
« Reply #1 on: October 04, 2016, 08:47:59 PM »
I have been in your shoes.  Do you want to stay in SF or the Bay Area once FI?  If not, don't buy.  If so, and with a possible kid in the future, do you plan to keep both jobs?  It is very, very difficult to have two jobs with long hours with kids, especially with the commute.  You don't want to buy in SF and end up only keeping the S. Bay job, so you need to decide which you'll keep if you're only going to keep one.  Finally, look into the public school lottery and the local schools.  Even if you don't plan to stay until elementary school, you likely will end up staying if housing prices drop.  You want to buy in a neighborhood with a good AA school.  Potentially you could buy in a CTIP1 neighborhood, but they change those boundaries and might change the lottery priority order.  I don't know which neighborhoods with tech shuttles have good AA schools.

cchrissyy

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Re: Rent or buy? San Francisco edition
« Reply #2 on: October 04, 2016, 09:23:08 PM »
I don't think buying "within range of the shuttles" makes ANY sense unless you both plan to work longer.*
If FIRE for one or both of you is just a few years away, keep renting.

Don't view that as money wasted, view it as money well-spent on your current housing needs and the flexibility to move to the ideal spot later when you are ready to stay put for the long haul.

*Or unless that neighborhood is where you'd want to live even after FIRE.

jamesbond007

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Re: Rent or buy? San Francisco edition
« Reply #3 on: October 04, 2016, 10:56:24 PM »
Ahem. So you are one of those people who live in SF? Just kidding....

I've been living in the Bay Area for close to 10 years now and never really understood the appeal of living in the city for whatever reason. I've had endless arguments with my friends on why it doesn't make financial sense to live there. I get some really lame reasons as responses. Any how, have you looked at Fremont as a potential city to buy? Has really good schools, good commute options to go across to the peninsula, to south bay and to the city and rest of East Bay.

I recently bought a town home (2 Bed, 1 bath) for 440K. Looking back I actually paid a bit more (~10K) than market rate. You can find some really good single family homes in 650K range in Fremont in some nice neighborhoods. I am not talking about Mission San Jose.

Coming to commute, there is BART to East Bay and the city. I work in Mountain View, so I take the ACE train from Fremont Centerville Amtrak station, get down at Levi's Stadium take the free VTA shuttle to virtually all companies in San Jose, Santa Clara, Sunnyvale, Mountain View. If you work in Palo Alto, San Mateo, Redwood City etc, VTA runs the Dumbarton Express bus from Fremont BART to take you across the bridge. If ACE train is not your thing, then you can take the VTA route 120 to go to Mountain View from Fremont BART via 880/237/101. It takes exactly 55 min. Sure, commute takes at least an hour. But better than driving. Once you have kids, then you can maybe look into buying an EV ti get the incentive and the HOV lane permit. Most companies provide a commute benefit and if not, you can still apply pre-tax dollars towards monthly pass up to $250 per month.

There are plenty of options and hidden gems in the Bay Area. You just have to look for them :)

In general, ideally, Id plan to move away from Bay Area when I FIRE but when I could buy a house at 440K(My monthly PITI+HOA is less than the rent for a comparable house) it is too hard to pass up, even if it means paying 10K more than market value to make sure you get the house. Worst case, I'd save the remaining money to buy a log cabin some where and rent this sucker out when I FIRE :)

bognish

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Re: Rent or buy? San Francisco edition
« Reply #4 on: October 05, 2016, 01:30:54 PM »
I was in your situation 10 years ago. Wife & I rented in SF for a few years, lived relatively cheap and banked the extra. When baby #1 came along we bailed on CA and moved to a lower cost more child friendly state. With the move it was extremely easy financially to switch to a 1 income family. San Francisco is a great place for adults, but you pay a huge premium on housing to be in a city that is not all that great for kids.

mxt0133

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Re: Rent or buy? San Francisco edition
« Reply #5 on: October 05, 2016, 03:10:20 PM »
Ahem. So you are one of those people who live in SF? Just kidding....

I've been living in the Bay Area for close to 10 years now and never really understood the appeal of living in the city for whatever reason. I've had endless arguments with my friends on why it doesn't make financial sense to live there.

WARNING thread hijack.

Here are a few reason for why living in the city absolutely makes financial sense.  One is rent controlled apartments.  My rent has only gone up $150 total in the last 7 years. We value walking distance access to 80-90% of the places we need and want to go.  This means that I don't drive an hour back and forth to spend an hour somewhere, like I used to do when I lived in the suburbs.  This lowers our transportation costs, saves time, and improves our health as we walk/bike 1 hour each day on average.  Golden Gate park is literally our back yard.  We have put 37K miles on our car the past 7 years with most of it spend on long road trips out of state.  We have access to libraries, museums, parks, and events that are all free.  We have a one income household and still have a 45% savings rate, we do not indulge in expensive hobbies or buy a lot things new.  Living in the city allows us to buy mostly brand new things at 70% or greater discounts.  Example, 1 year old couch for $150 that cost $750 new from craigslist, never used clothes at good will for around $5-10 dollars.  We picked up free furniture, toys, ect, at the curb.  Living in the city also gives us access to more job opportunities that the suburbs.  If I have to change jobs, which I have 3 times, I never had to worry about the commute or location, they are all in the city.  If my company were to go bankrupt or I get fired I could find a job in less than two weeks if I'm not picky.

So yes it absolutely makes financial sense for my family to live in the city, because we don't need a lot of space, 650sf for a family of 5, don't buy a lot of crap, and hate driving the clown car that we do own.


obstinate

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Re: Rent or buy? San Francisco edition
« Reply #6 on: October 05, 2016, 11:13:51 PM »
Wouldn't buy in the city if I'm riding a shuttle. You will never see your kid.

obstinate

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Re: Rent or buy? San Francisco edition
« Reply #7 on: October 05, 2016, 11:16:15 PM »
Here are a few reason for why living in the city absolutely makes financial sense.  One is rent controlled apartments.  My rent has only gone up $150 total in the last 7 years. We value walking distance access to 80-90% of the places we need and want to go.  This means that I don't drive an hour back and forth to spend an hour somewhere, like I used to do when I lived in the suburbs.  This lowers our transportation costs, saves time, and improves our health as we walk/bike 1 hour each day on average.  Golden Gate park is literally our back yard.  We have put 37K miles on our car the past 7 years with most of it spend on long road trips out of state.  We have access to libraries, museums, parks, and events that are all free.  We have a one income household and still have a 45% savings rate, we do not indulge in expensive hobbies or buy a lot things new.  Living in the city allows us to buy mostly brand new things at 70% or greater discounts.  Example, 1 year old couch for $150 that cost $750 new from craigslist, never used clothes at good will for around $5-10 dollars.  We picked up free furniture, toys, ect, at the curb.  Living in the city also gives us access to more job opportunities that the suburbs.  If I have to change jobs, which I have 3 times, I never had to worry about the commute or location, they are all in the city.  If my company were to go bankrupt or I get fired I could find a job in less than two weeks if I'm not picky.

So yes it absolutely makes financial sense for my family to live in the city, because we don't need a lot of space, 650sf for a family of 5, don't buy a lot of crap, and hate driving the clown car that we do own.
Whoa! This is amazing. Would love to see a visual tour of your place. 650sf is pretty small for five. Would be fascinated to see how you make it work.

mxt0133

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Re: Rent or buy? San Francisco edition
« Reply #8 on: October 06, 2016, 01:06:20 AM »
Whoa! This is amazing. Would love to see a visual tour of your place. 650sf is pretty small for five. Would be fascinated to see how you make it work.

To be clear our kids are only 5, 3, and 1 years old.  But we still get creative with our space.

First we don't have a lot of crap.  I'm not saying we don't buy stuff but we purge every few months.  If it hasn't been used in a month or so it's put on craiglist or thrown away/recycled.  Craigslist is basically our online storage space.  This excludes seasonal stuff like our camping gear and winter clothes for Tahoe.

Second, we go up so lots of shelves and racks on the walls.  We have two adult bikes and two kids bikes up on wall racks.  Bunk beds for the kids, which they don't use, we co-sleep.  The bed go too crowded for me so I got a 4 inch folddable mattress and I will never buy another bed again.  I sleep so much better by myself on the floor.  After i wake up I fold it up and put in on the top bunk.

We have an expanding table and just hosted three families for dinner.  Total of 6 adults and 9 kids, one adult table for 9 and a kid table for 6.  After dinner some kids played board games and the others used our bunk bed and built a fort.

As the kids get older we will make the bedroom the kids room and either get a sofa bed, Murphy bed, or a queen size folding mattress and sleep in the living room for the wife and I.  I intend to stay here for another 4-5 years until the kids approach their teen years.  I remember my teen years and it was nice to have my own room so we will try to get at least a two bedroom by then.  We should be FI by then and will move to another country with LCOL.

I'm not saying it's all sunshine and rainbows.  We do get cabin fever so we take lots of road trips and spend a month or two in the east coast visiting our family.  This is on top of our normal un-Mustachian vacations, like Hawaii this year (offset by rewards travel of course).

It can work if you make it.  To me I can go smaller, but I want to stay married so this is our compromise.  I grew up in a third world country where I can easily live with two more adults in our space.

ohmylookatthat

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Re: Rent or buy? San Francisco edition
« Reply #9 on: October 06, 2016, 08:23:48 AM »
buying an EV car won't really help in terms of commute time. those lanes are almost just as packed as the others during peak time.

jamesbond007

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Re: Rent or buy? San Francisco edition
« Reply #10 on: October 06, 2016, 11:18:44 AM »
buying an EV car won't really help in terms of commute time. those lanes are almost just as packed as the others during peak time.

I agree but I was referring to ease of access and flexible times when you have a car vs public transport.

jamesbond007

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Re: Rent or buy? San Francisco edition
« Reply #11 on: October 06, 2016, 11:25:53 AM »

Here are a few reason for why living in the city absolutely makes financial sense.  One is rent controlled apartments.  My rent has only gone up $150 total in the last 7 years. We value walking distance access to 80-90% of the places we need and want to go.  This means that I don't drive an hour back and forth to spend an hour somewhere, like I used to do when I lived in the suburbs.  This lowers our transportation costs, saves time, and improves our health as we walk/bike 1 hour each day on average.  Golden Gate park is literally our back yard.  We have put 37K miles on our car the past 7 years with most of it spend on long road trips out of state.  We have access to libraries, museums, parks, and events that are all free.  We have a one income household and still have a 45% savings rate, we do not indulge in expensive hobbies or buy a lot things new.  Living in the city allows us to buy mostly brand new things at 70% or greater discounts.  Example, 1 year old couch for $150 that cost $750 new from craigslist, never used clothes at good will for around $5-10 dollars.  We picked up free furniture, toys, ect, at the curb.  Living in the city also gives us access to more job opportunities that the suburbs.  If I have to change jobs, which I have 3 times, I never had to worry about the commute or location, they are all in the city.  If my company were to go bankrupt or I get fired I could find a job in less than two weeks if I'm not picky.

So yes it absolutely makes financial sense for my family to live in the city, because we don't need a lot of space, 650sf for a family of 5, don't buy a lot of crap, and hate driving the clown car that we do own.




Great that it is working out for you. Kudos. But I do everything you mentioned, single income, 1 kid, still manage to save 50% of my income at the same time paying off my mortgage in an east bay city where the schools are better than those in SF. Your rent has gone up only $150 in 7 years. Great. Only, my rent will never go up and I am probably paying way less on my mortgage than you are on rent. No I don't want to get into a pissing contest.

Look, with all due respect, I don't want to get into an argument with an anonymous person on the Internet. I've had this type of arguments ad nauseam and I don't want it now. But My point was, you can definitely have a similar lifestyle for cheap or better lifestyle for the same spending elsewhere compared to the city. Now, you could cram 5 people in a 650sft apartment . There is nothing wrong with that. I grew up like that.  But you will feel the pinch when the kids grow up. You have to move, then rent control won't help you.

mxt0133

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Re: Rent or buy? San Francisco edition
« Reply #12 on: October 07, 2016, 12:07:48 AM »
I agree, there is no need to get into a pissing contest.  I was just addressing your comment when you said:

I've had endless arguments with my friends on why it doesn't make financial sense to live there.

I was trying to illustrate that it can make financial sense if you don't value home ownership, 1000sf+ living space, and actually take advantage of the free things to do in the city.  I mean there are 800K people that live in the city and other than the handful of mustachians that live here, there has to some that know how to do basic math and determine that it financially makes sense to live in the city vs the suburbs.

Only, my rent will never go up and I am probably paying way less on my mortgage than you are on rent.

Are you saying that you somehow locked up your property taxes and HOA fees that they won't ever go up?  Also cost of maintaining you home could be thought of as rent if you want to be able to sell it in the future.

You might be right that you are paying less on your mortgage than my rent, but take into account I don't pay for water or waste.  Utilities cost me $60 a month. I only have 1 car that will basically last me 20+ years and average $80 on gas per month.

jamesbond007

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Re: Rent or buy? San Francisco edition
« Reply #13 on: October 07, 2016, 10:09:05 AM »
I agree, there is no need to get into a pissing contest.  I was just addressing your comment when you said:

I've had endless arguments with my friends on why it doesn't make financial sense to live there.

I was trying to illustrate that it can make financial sense if you don't value home ownership, 1000sf+ living space, and actually take advantage of the free things to do in the city.  I mean there are 800K people that live in the city and other than the handful of mustachians that live here, there has to some that know how to do basic math and determine that it financially makes sense to live in the city vs the suburbs.

Only, my rent will never go up and I am probably paying way less on my mortgage than you are on rent.

Are you saying that you somehow locked up your property taxes and HOA fees that they won't ever go up?  Also cost of maintaining you home could be thought of as rent if you want to be able to sell it in the future.

You might be right that you are paying less on your mortgage than my rent, but take into account I don't pay for water or waste.  Utilities cost me $60 a month. I only have 1 car that will basically last me 20+ years and average $80 on gas per month.

Very valid points. My mortgage is $1600 per month. Even if I include property taxes + HOA + Insurance + some maintenance (this happens very rarely) my monthly for "rent" are around $2200. I have one car too and monthly gas expense is around $30 with current gas prices. I pay $40 to PGE. Water is covered in HOA. I pay $20 pm for trash service.  HOA takes care of the roof, exterior, etc. so my insurance is only $400 per year. The upside I am looking at is, when I FIRE I can rent this out and move to a LCOL area and feed off of that rent.

To each their own.