Would you buy a home in our situation?

[Count of San Francisco]

We are in mid-30s, DINK couple, no plan for kids. As you can tell by our moniker we live in the Bay Area, and we work in an area that is very HCOL even for Bay Area standards.  We rent a 1br condo from a nice landlord.  Our unit is not rent controlled, but he does keep our rent roughly 10% below comparables in the area.  It's a long-term investment property for him, so very little risk of us being forced out or anything like that.  So it's a pretty nice situation.  We are both able to walk to work from where we live.

We do have the cash saved up for a potential down payment.  If we target a property where that amount would be 20% and the remaining expenses (mortgage, property tax, HOA, etc) would roughly equal our current rent (what we want expense wise), then we are looking at 1-2 br condos a bit further away from where we work.  Closest would probably be about a 45 minute drive, 30 minutes public transit.  There would be some tax breaks from the mortgage interest and property tax deductions, but I am not factoring those in as I think they'd be a wash with unexpected maintenance expenses.

It would take us about 2 years to save back that down payment at our current savings rate, so this would set our FIRE back by 2 years, which to us isn't that bad. 

We are not sure if we want to FIRE in the Bay Area or would be able to, but considering our jobs, I think it's safe to say we'd be here another 5 years at least.  I think the biggest issue here is the lifestyle compromises, going from essentially no commute to potentially a 1 hour commute for both of us.

[Cranky]

Do you *want* a house? Do you have kids or 10 cats or 3 Great Danes or an unfulfilled passion for gardening? Those are all good reasons to buy a house. Other than that, I'd be pretty happy to pay rent for no commute, no commitment, and somebody else has to replace the hot water heater.

[bearvalleyak]

It seems the big factors to consider are 1) the commute, 2) whether you feel real estate is a strong investment in your area and 3) how important owning your own home is to you. My two drivers have been 1 and 3. I've always been within biking distance of work and I like owning my own home.  I have done OK financially but I'm not convinced I have done better than a renter who invests their money wisely. Interesting topic and looking forward to seeing what others have to say.

[HawkeyeNFO]

If the situation is based on a 5-year outlook, then for this specific scenario, I would keep on renting.  Especially if you don't need to own cars where you currently live. 

[Dee18]

I would never give up that walking to work.  Before you buy, make yourself spend the amount of time commuting that a purchase would require.  Do it at least five days, morning and evening.  I bet you will decide to keep renting.

[retireatbirth]

Seems risky. You maybe shorten your FIRE if the real estate market pans out, but the opposite could happen plus your QOL goes down.

[TheMadRussian]

I live 38 miles from SF and in addition to our primary residence, I also have a couple of rentals in the area. So I have some familiarity with the housing market but definitely take my advice with a grain of salt...

Nobody has a crystal ball but I wouldn't do it. I don't see SF housing prices rising much from their current prices* and I feel that from a pure investment standpoint, your money could be deployed better elsewhere.

Keep the good lifestyle you have now and avoid what will become an anchor or tether to future mobility.

* - I was also saying the same thing 2 years ago. D'oh.

[stashgrower]

If you are not sure you want to FIRE in the Bay Area *and* it adds to your commute, what is the motivation to buy now? Is it a bet on staying? Are you OK with maintaining it as an investment if you move?

[MustachianAccountant]

If the situation is based on a 5-year outlook, then for this specific scenario, I would keep on renting.  Especially if you don't need to own cars where you currently live.

This, exactly.

If everything else is roughly a wash, the 5 year outlook is a strong "rent" decider. When the 5 years is up, and you're ready to FIRE (or just FI), then you can decide whether you want to continue to rent, move somewhere else, or buy.

I know it's difficult to not buy when our society tells us that you're not a "real" adult until you are a home owner, but renting really is a legitimately good decision in many cases. Don't let the "real adults own their home" feeling cloud your decision making.

[Tuskalusa]

You have a great situation right now. The Bay Area housing market is crazy right now, with the economy going well. Of course, that cycle will eventually turn down. We grew up here in the Bay Area. We've had our best luck in the housing market in the downturns. While housing here will never be cheap, the bidding wars tend to subside during the downturns. There's more choice in affordable options.

My recommendation would be to hold off for now. You have a great situation. Wait for the next great situation before you jump.

[former player]

Property is a long hold proposition: five years is not long enough.

One option if you are really keen on becoming property owners is to work out whether there is a property which you would want to keep for the rest of your lives and buy that.  I'm thinking here of an advance purchase of a retirement home or holiday home that you could rent out until you move in permanently.

Which is of course completely anti-mustachian, but it's something I did with success.  Financially, your best bet is to stay where you are and keep putting your money into low-cost index funds, but you knew that before you posted.

[EarthSurfer]

I would never give up that walking to work. 

+1

Unless owning and staying in the Bay Area are specific elements of your FIRE plan / dream, don't buy the condo. (Do you have a written plan?)

You would be signing up to waste a year of working hours over the next 5 years in commuting! Assuming the 1 hour drive time is average, two people commuting 1 hour a day for 48 weeks/yr for 5 years is 2,200 hours! That puts this in the "Oh Hell No!" category for me.

Maybe I missed something, but what is the purpose for considering owning in this situation? The only reason I could find in the OP was essentially "We saved up enough for a down payment."

Your current situation shows you know how to optimize in a VHCOL area. It is unlikely you would be able to return to it since there will be 1000 others searching for that "affordable" 1BR rental within walking distance of work.

[Turtles All the Way Down]

We are in mid-30s, DINK couple, no plan for kids.

Does that mean you don't plan to have kids or you have no plan?  If you have no plan, I'm guessing that means someday but not now.

From my perspective, having kids changes everything.  You'll start looking at the quality of local schools/daycare, commute distance to schools/daycare and locations of parks.

I'm from the camp that a "starter home" is a ridiculous concept where the real estate business is telling you (while you pay them), "this home will not meet your needs soon, so see you in a few years to take more of your money".  If there's a chance you may ever have kids, why trade a 1 br rent for a 1 br own if it's not a great financial investment?  Real estate is too risky in my mind.

[Linea_Norway]

Buying and selling houses is quite costly. You'll need to make a big profit to make to not lose money on it. Experts say often that you should only buy a house if you plan to live in it for at least 7 years, to justify the cost of it. Experts also says that you cannot count on a house making big profit. You can expect it to follow inflation. A house has a lot of maintenance cost that people tend to underestimate. With your 5 year perspective and walking distance to work, with an alternative of a 45 minute commute, the choice really favors for staying put. Commutes in a car feel pretty pointless, because you can't do much else when driving. Commuting on public transport gives you the option to read and answer some emails, but it will make you dependent on their schedules and delays. It is really a very simple choice, especially if your income doesn't change.
And by renting, you keep the option to do what you want afterwards, like moving to some other place.

[NorCal]

I would never give up that walking to work. 

+1000


That's a pretty nice perk. 

Based on your description, I would recommend renting.  Not because of anything you said, but because of how you said it.  In your entire post, you didn't have any good reason TO own a home.  A lot of considerations and trade-offs.  But you didn't give a reason that makes owning a home a good idea.

BTW, we could be neighbors based on what you described.

I would see it differently if you were planning on retiring in the Bay Area.

Don't forget that your property taxes probably won't be deductible, because of the AMT (it's a fact of life in the Bay Area).  In my personal situation, I found that the property taxes were much higher than the tax savings on interest.

[KarefulKactus15]

I +1 +2 and +3 all the post about it being crazy to give up a walking commute.     I strongly agree with the poster who said wake up every morning and commute for 40 minutes before work to see how you like it....

Sounds like a society pressure thing.    I'm not local to the Bay area, but isn't it known for absurd house prices compared to rent?

[zinnie]

I'm not hearing a lot about why you want to buy a condo in your post. Do you?

It sounds like you have a pretty good deal right now and if you're not even sure you're staying in the area long-term why tie yourself down by purchasing something? Add in the cost of places where you are, and I'd be very, very wary unless you have a really good reason to buy. I'm in a HCOL area that isn't nearly as HCOL as where you are, but I've been seriously re-evaluating whether I want this much of my net worth tied up in a property. There is definitely a point in HCOL areas where from a mustachian perspective in particular, it doesn't make sense to buy.

We don't know much about your motivations to buy, but don't even consider doing something like this just because everyone else is doing it! If you buy, do it because it will increase the quality of your life enough to make the financial commitment worth it. (And because the numbers make sense!)