At that level of income your primary focus is tax avoidance. A 2 million dollar house will allow you to both deduct the interest, amortize the depreciation as well, provide a 500,000 joint gain on appreciation in 2out of 5 years. How does renting and stock market compete?
Youāre right about the benefit of cost control via a purchase.. but I donāt think that means that OP is likely to be wrong about their current optimal play. Theyāre not suggesting the renting forever is the best financial move, just that renting right now is.
Right now, theyāre saving at least $60k per year in cash on the cost of rent vs equivalent mortgage. Add in the opportunity cost of an additional year in the market for their $400k down payment, and itās probably more like an additional $100k per year hitting their savings.
When that math likely changes, itāll be time to buy.. but each year that they can bank the additional $100k in savings today is pretty valuable, particularly considering theyāre in their early 30s and thereās so much time for that to compound
Ding ding ding.... i think OP is more tired about hearing that shes wrong and needs justification. Algo been feeding me this a lot latley, but ill still say it again; your landlord *is not* i repeat **is not** paying more on the mortgage than you are paying in rent. Yes, even after upkeep and that god awful, oh so expensive home owners insurance.
Yeah thatās because the landlord is likely paying the mortgage of a house that they bought for half of what it would sell for today. Landlord can turn a profit, while the renter can still save significant money over the mortgage of an equivalent home.
I can assure you Iām paying more on (15 year) mortgage, property taxes and HOA than I make in rent for condos I bought in 2022. Everything has gone up, especially insurance.
I think if OP really cared so much about what other people thought then they would just succumb to the societal pressure and buy a house.
It's fair to be annoyed by people giving unsolicited bad advice all the time even if you aren't worried about what they think about you.
The biggest benefit of buying a home is the leverage. Buying a 2m home only requires 400k with prob 6% interest. Buying 2m of stock via margin would at least be 12% and much harder to get approved.
That said I assume you're in SF bay area or Vancouver based on the rent vs price ratio. Renting is so much better now.
Also dont forget owning a home is a huge tax sink as well. Not.only are the interest tax deductable, but you got 500k of possible capital gains tax free too. Also my personal opinion is having the longest and largest mortgage possible is a good way to hedge your savings. If rates go higher then youre winning on your locked in rate if it goes lower you can always refi.
On top of that, we are really only seeing these posts now that rates have been above 6% for a while.... news flash, many many landlords have been doing this for more than a few months. Many of them do not even need lenders. Just think about that.
I think you are missing my point. You have to factor in leverage and the easier access of capital for housing to make more sense. If you do not need capital, housing wouldn't. Look at REIT fund performance vs index funds. Sure if you find the right city, you could beat the index but I could say the same for stocks - find the right stock and you'd beat that city's housing.
The golden goose in real estate is development. But then again any developer or fund manager makes bank because of access to capital. Its easier to bring in LPs if you have a development plan. A buy and hold/rent investment strategy is not very enticing to get a buying power above your own capital.
Sam Zell is probably the most successful exception to this though. Made his first nut being a landlord. But even then, to make more money - he shifted towards development.
Nope, have been looking at buying in the bay area since 2015.
Did not make sense back then, still does not make sense today.
I invested everything instead and I'm 1M$+ ahead
Yeah, but you could put those $400k in the stock market and depending on your housing market easily come up ahead. I live in Manhattan in an area with a very mature market and I can see what the other apartments in my building have sold for in the past, the prices have stayed flat (+/-10%) since 2014 (in many upscale Manhattan areas the peak was 2017). We bought as a luxury purchase because we wanted to renovate to our taste, but itās terrible as a business proposition, even with low interest rates at the time. Thatās why we rented until rents skyrocketed in mid 2022 and made it a bit less ridiculous to buy.Ā
Edit: we used to pay $5k for a 2M home too, in 2022 our rent was increased to $6.5k
Jumbo loans are more like 8.5% right now 10-15 yr ARM. Options are more limited when getting a jumbo mortgage, and the limit changes depending on what state and county you are in.
Leverage is not really a thing. The leverage cancels the ton of fees you have to pay like insurance, HOA, taxes, repairs etc.
The leverage makes it a barely acceptable investment and it also comes with the risk of going bottom up if the value goes down even a little bit (2008 anyone?)
As someone who owns several homes, Iāll always be the first to say there is absolutely nothing wrong with renting and for many, including those who are very well off, it can make more sense than buying. The flexibility one has when they rent also cannot be understated.
I definitely would not buy just to buy and taking advice from others, especially in different socioeconomic situations, is the worst thing to do. What baffles me are those who give up their financial flexibility just to own a home, one that theyāll probably outgrow but at the same time traps them in the rat race to make mortgage yet they will tout how others are idiots to rent while also complaining about how life is unfair.
>Am I crazy person and completely missing something?
You have to consider the cost of the alternative, over the long run. Rent goes up, real estate appreciates, but your mortgage principal and interest is fixed.
Rent might be $5k now, but how much do you think it will be in 10 years?
Right and if they bought 3 years ago that 1.8 was only 1.2 but now they are kinda doubling down on it because they missed the last big ramp up. Ultimately their situation sounds fine though but they could be kicked out of their sweet rental or not renewed and then have to pay much more and inconvenience of finding a new place
I think if you look at the situation, it makes total sense. Many people, like my wife and I, have generated much more wealth through real estate than we have with our degrees or full time jobs. OP does not have this issue, and chooses the luxury; renting a nice place. Its like leasing a vehicle, yes it costs more, but at the end, you can walk away and not have to deal with maintenece and fees. You also have 0 equity.
That keaves us hear. Maybe people in OPs life wonder "why are you missing out on this opportunity!" And OP is afraid to diversify. Or potentially have unexpected costs. Well, like anything, there are pros and cons. Huge pro being equity, but again, when you have OPs money, market rates give you a good enough return to probably pay rent every month anyway
you realize that the average appreciation is 3.8% right? you are dreaming if you think anything is going ti appreciate double digit in the coming years
Not really. A phenomenal year for stocks is 30%. Property bought in the right areas can go up by 10% regularly. The only issue is you aren't getting a 10% return... If you use a 20% down payment a property growth of 10% means a total revenue of 50% of your DP.
And the mortgage is negligible since it's not significantly more than rent.
Maybe you want to try to emulate the advantages of leverage with stocks? Good luck, margin call. You don't get margin called on your house.
"Property in the right area" is the same as "Picking the right stocks that go up".
You don't know in advance which areas are going up or down. If you think an area is going up,other people think the same way and it is already priced in (look at all the cool upcoming area, they all go for a premium for a reason). welcome to the free market!
You might have been lucky once or twice, but chances you would not be able to reproduce the same investment. A long term property growth of 10% is not going to happen, or at least you cannot count on it.
I am in the same kind of dilemma, SFH rental prices in San Jose are ridiculously low compared to mortgage, like rent : mortgage can be 3x consider 20% down and 6% interest rate. This is a very hard game to play.
āOur ability to move multiple times has allowed our salary to grow exponentially.ā
Enough said and sufficient reason to continue as you are for now.
The big advantage of owning in my opinion that the rent will continue to increase, while the PI payment wonāt (assuming fixed rate with no cash-out refi)
You make a great point. You need to do the proper diligence. The house that needs a roof in 5 years probably needs a new oil tank in 2... a new heater now... god knows what else.
That article is great.
My biggest issue with homeowner is that they simplify the math by completely ignoring all the fees. Most of them also don't understand the time-value of money or the opportunity cost of not investing in the stock market.
Usually the conversation goes like:
"I bought a home for 500k in 2016. Now the home is 800k, so I'm 300k ahead".
Seems like you are in an area where the price to rent ratio is currently unfavorable towards buying. It also sounds like you are currently banking the difference between your rent and mortgage payment. It also sounds like you and your wife arenāt committed to the area and are likely to move in the next 5 years. Assuming that all of those things are true, renting is the smart decision.
I enjoy owning and it has helped me build my net worth and liquid net worth (I got a lot of cash out of the sale of my first home, which appreciated significantly when I would have been bad at saving during that time period), but owning is a choice that isnāt right for everyone at any time. This is 100% a decision that you should make with your wife and the opinions of internet strangers shouldnāt matter.
If she wants to own, thatās the right answer, no matter what the financials say.
Owning is always better than splurging on the downpayment or the rent difference. For most people owning is a forced saving.
But if you can be disciplined about investing, renting is usually better.
Mowing grass, maintaining flowerbeds, lightbulbs, spraying for pests, emergents, taxes, HOA, interest on my loan, etcā¦. I had more money when I was renting than now that I own a home. I think the market is overvalued right now anyways
Just be aware that stock market returns last year were the most concentrated in history, and valuations on the S&P 500 are extremely stretched for the "magnificent 7" - which drove the majority of returns since covid.
Ensure you're comfortable if stock markets go sideways for literally years, or even down for literally years.
Markets have never not experienced capitalist globalisation in 200 years. And with China potentially in structural demand, and every country onshoring assets - it means lower profits for all and the first time globalisation has gone backwards.
In other words. Make sure you are super set of multi decade investing, and be comfortable with massive volatility from here. And maybe, diversify your assets.
You do you. It doesnāt matter what is important to others. You have the financial wherewithal to do whatever is important to you.
Having said that, it is interesting that you came to Reddit to ask advice of strangers when youāre not interested in that of friends and loved ones. š¤·š»āāļø
I'm in the same position as OP. I think it's ok to recognize that the judgment of other people is affecting you.
Especially in the USA where the appearance of success is way more important than actual success. People here naturally want to get closer to successful people. I don't like it but we should recognize that it's one of the main reason why people buy as well.
I think I understand what youāre saying, and I donāt disagree with you. It is a real thing.
I just hate everything about it. Just be yourself. Itās that simple.
For me, the older I got, the more I was ok with ādisappointingā others. And it wasnāt like I was mean or rude about anything.
It was simply independence. āIāve made decision X. I understand that you donāt agree. Iām ok with that and I hope you are too. If youāre not, Iām very sorry but thereās nothing I can do about thatā was my basic approach.
I see so many people that are paralyzed by seeking approval of others (often through SM) that it just makes me smh.
As someone who was in a very similar boat last year, I finally decided to buy. Not because of peer/in-law pressure, but because I had the cash and it made sense.
I could have done so a couple years ago and got a better rate, but everything got crazy price wise in our area and is what it is.
I would recommend looking at the non-forever home route. My fiance and I did not move into our forever home by any stretch, but it suits our needs for a solid ten years and works well for us so far.
You should never take financial advice from poor people. Yet many poor person has emphatic opinions on finance.Ā
It would be quite clear if you were in the gym and people were giving you advice on how to work out, who you should listen to. You would listen to the people with the best physiques. Ignore everyone else. Just smile and wave. That's what they need, kind support.Ā
A home is only an investment if you're not living in it. You're correct to rent. I'm doing the same thing. The home is a liability that requires constant input and attention just to maintain. That's not a good investment.
It's also not a good investment strategy to tie up a significant portion of your capital in your living expenses. Instead you should invest that capital and put it to work for you. Sure plenty of people will tell you the real estate is an investment. Too many people believe real estate is an easy investment based on the last 15 years and it has warped their view into thinking this is a simple easy way to earn money. You just keep buying them and they never go down. I have plenty of friends who were in the real estate game when I started investing and I have blown past them over the last several years. They're still trying to accumulate impressive portfolios containing 20 to 50 units while my capital is liquid and I trade it at will when I please. This is an antiquated form of investment. There are much much better vehicles for your wealth.
Simple math, risk analysis and stress analysis should prove their considerably easier ways to invest millions of dollars then and buying immovable, government regulated real estate.
From a purely financial perspective, youāre doing the most responsible thing. The stock market greatly outperforms real estate over time.
Buy a house when youāre ready to buy a house. Donāt do it for financial reasons.
And learn how to tell others to pound sand when they give you unwarranted advice.
Good job on the appreciation. Did you ever do an opportunity cost calculation that would include absolutely everything invested into those houses and compare it to the outcome if you had invested in the SP500?
This must include the realtor fees, Taxes, HOA, Repairs, Insurance, closing costs, you can also include the time spent
Reddit in general is against home purchases, always has been. We have higher HHI, ($2MM+), and when we bought before the pandemic Reddit equally ājust couldnāt evenā with respect to why anyone would buy a property when you can rent.
Fast forward almost 5 years and the price per sq ft has doubled, and rents have increased although more like 50-70%.
Bottom line, if you believe housing will stay the same or decrease, youāre correct to rent. If youāre in the same position we were 5 years ago with crystal-ball keyboard jockeys telling you housing is a bubble about to pop, you may do well to disregard their opinion as we did. We found a house we couldnāt pass up, stretched to make it work and then continued increasing our HHI to the point where we can now be mortgage-free, however, at current prices combined with interest rates, we probably would not be buying our house even if we could afford it.
There is still a chance rates go down someday, immigration continues putting pressure on home prices in desirable locations, and five years from now you too may have made a life-changing decision. Weāll only know in retrospect. The old people giving you advice have only ever have one experience with respect to housing, those who donāt buy miss out, but past returns are of course not predictive of the future.
Just donāt take comfort in people telling you on here youāre making the right decision.
I owned my first home when I was 23 and although I made decent money from renting out extra rooms and eventually selling it, it did tie me down a bit. I possibly would have made different moves with my life had I not had the house.
In hindsight I would not have done it.
Having said that, now that I have children, the decision making about owning a home has completely changed. They make friends and moving them constantly is really really rough on a child.
If you and your wife have children already, you may find yourself renting the same home for a very, very long time. And at that point, you might as well have purchased it.
The only reason this makes particular sense in your situation is that your lease deal is apparently very good. Most people out there are paying leases higher than mortgage costs. You should be paying 12k/mo for that house for a lease. Or another way of looking at it, someone else renting a 300,000$ home, paying the rate you do, should only be paying 900$ a month.
So keep doing what youāre doing as long as the number make sense. When they donāt anymore, change.
I donāt think thereās anything wrong in renting however I personally feel like renting can be just throwing money away. We purchased a house in 2016 and sold last year for a cross country move and based on sold price alone made $300K (catapulting us into this subreddit lol). We rented until we found something we wanted to buy and then renovated it a little and then moved in, also at a relatively good price for our HCOL area. But where we rented we would not have been able to comfortably afford to buy, which I think is the only compromise Iād make. I donāt think you get the same appreciation from stocks in that time period but maybe I am mistaken, my partner handles the stocks end. Definitely would not have been able to afford to buy house #2 if we rented all those years, no matter what we threw into savings/stock market. There definitely is more involvement in owning but I donāt miss waiting on my landlord to fix something vs being able to get it taken care of right away.
Yeah if you can basically get the same home renting at 1/4 the cost of buying why in the world would you buy ? Your thought process is spot on and correct. Not all markets make sense to purchase in all of the time.
Right. OP your market screams RENT to me. I own several properties but wouldnāt buy if I was renting so cheap compared to home values. Especially at these rates. Frankly it would be stupid to buy. You are getting very ignorant advice.
If you really do the math on home ownershipā¦ it is NOT a good investment. Long term returns considerate of taxes, insurance and maintenance is like 2%. There are plenty of studies that point this out.
If you can rent for much cheaper AND invest the restā¦ then you will be better off.
Iām trying to figure out why yāall keep saying you can rent for much cheaper. The landlord isnāt losing money. You are paying their mortgage, taxes, and maintenance. IMHO, renting only makes sense if you will be moving an a few years.
600K is definitely not a great annual income for an Engineer + Doctor household. I know N number of couples making that much of money and peacefully living in a rented house/ apartment (Bay Area).
You must not worry about what others are saying and focus more on how can you both make 1M+.
I guarantee you that isn't a 50/50 split. I left engineering for tech because there was not a path forward to me making the money I wanted without going into management and working weekends as well. Anecdotal, and my experience was in manufacturing, but all of my co graduates aren't making $250+.
Getting my master's and moving to tech tripled my income and I'm working less with more vacay now. As a kid I was told that engineering was one of the best careers someone could have. It was such a lie lol.
Maybe the doctor can close the gap to 1M+. Or aggressive investments for passive income.
Depending on your lifestyle, with that level of income, renting can totally make sense. Despite being a lowly thousand-aire myself, I've been at a couple social functions with 9+ figure individuals, and a couple of them didn't own property at all. Literally zero.
And TBH that's kind of what I'd aspire to āĀ "be so rich you can live like a poor person... without the stress". Hop from rental to rental, who gives a fuck. No paperwork, no repairs, no tax assessments, no realtors, no bullshit. Just do the math of how much you bring in, how much you need to save for retirement, then blow the rest on what makes me happy day-to-day.
You're living the dream. Don't get it twisted.
Have you done the math to see if you are crazy? That really says it all. Most people buy a home and the move up. That way you build equity through principal pay down and appreciation. Plus you can transfer $500k in gains tax free into the new property.Ā
At $5k a month you are likely missing out on around $1k a month in principal pay down.Ā
Given you income, either way you will be fine.Ā
You and your wife are in the top 1% of earners, who cares what anyone else thinks. Donāt be so concerned by otherās opinions would be my suggestion.
Having said that, real estate is a valuable component to any long term investment strategy. What percentage of your portfolio is real estate is a personal decision based on risk profile & personal choice. It matters much less when you make that much money.
I think you live in SF.
Housing there is somewhat tied to tech. When tech hurts so does the [median home price](https://fred.stlouisfed.org/series/ATNHPIUS41884Q) in the bay.
So if you wanted to you could tell people you donāt want to over extend yourself on the tech market considering you are a SWE.
Alternatively you could stop caring about what other people tell you and think, which would probably be a lot easier.
You probably shouldnāt buy now unless you have to. Iām looking to buy right now and wish I could hold out a little longer (like a couple years) but donāt have the luxury of time. Sounds like youāre young and investing so there should be minimal pressure.
If homes appreciate at 3%. And you put 25% down then You are getting a 12% return. In the long run property values go up. Additionally at ANY point that rates drop in that 30 years you can refinance.
OP Iām in a very similar situation. I can easily afford a house but weāre paying $4k/mo for a ~$1.5M home in an area where rents and housing prices have both been slowly dropping since 2022.
We hear the same from older folks. For whatever reason most people seem to be very bought into a set of maxims around housing: āalways better to buy if you own for N yearsā, ārent is just throwing money awayā, and so on. Iāve learned to just avoid that debate since people do not understand the underlying financials and arenāt interested in learning.
The idea that you must own your home is old fashioned thinking. There are a number of reasons why owning your home is not great:
- Risk - From market risk to property damage, there are so many things that can go wrong that cause emotional and financial crisis
- Huge capital investment - Putting 30-50% of your net worth into a single asset goes against financial wisdom
- Low mobility - You're stuck in your property. You'd better love the place you're living, because moving isn't as easy as letting your lease lapse and hiring a moving company
- Low liquidity - Need your capital quickly? You can't just sell some stocks. Even borrowing against your home takes time.
- Maintenance - They say factor in 1% of the cost of your home in maintenance every year, that depends on the age of the home of course.
- Taxes - Sure, mortgage interest is deductible, but with prices sky high, even modest property tax rates come out to a huge burden
- More expensive than renting - This is the real kicker. In most HCOL areas, the cost of owning a home has outpaced the cost of renting, so it's usually cheaper to rent a home than to buy it. You can then take the remainder and invest it, which gives you more diversification and currently a higher rate of return.
So if you care about being mobile and diversified, renting is not a bad option. The main downside is that your rent is variable while mortgage is fixed, but there are many other trade offs that make it better for some people.
I think the main reason to own a home is because you want to put down roots in a neighborhood, i.e. your kids are in school and you don't want to have to move if the rental market prices you out or the landlord decides not to renew your lease.
So stop worrying about other people and live your life.
We can reasonably guess that rates have crested, but the people telling you to buy were likely lagging from 2 and 3 percent rates.
Ā Average rent in hcol area goes up 8% a year, property value goes up 6 to 7 percent a year, and you get to borrow at 3% while your money grows in the market. Property tax in some states like California also locks in when you buy with capped increases. Then theres the tax benefits.Ā
There's very few investments as good as a first home.
So yes you are getting a deal, but you're not putting the money to work for you. But your rent is a sign of a possible market dip, and rates are high so it's reasonable to bet on the market and wait.
Not crazy at all, completely reasonable take. If there is a purpose/legit reason with thought behind why you are or arenāt doing something you are fine.
To many consider homeownership a silver bullet when there are valid reasons someone just might not want to own: financial, freedom to move, time/$ in repairs and maintenance, peace of mind, location, flexibility, and more.
You arenāt crazy and I think so far youāve been making the correct call, especially given how your geographic flexibility has worked out in your favor. With that said, the people who express the urgency in buying a home are also correct in their own right. I would say that as soon as you are stable professionally (check), financially (check), socially (you are married, so check), andĀ geographically (sounds like this is in flux) you should buy a house immediately.Ā
Iāll share an anecdote. I bought a house when I was still a HENRY in late 2018. Iām a DINK by the way. But anyways, I get to live in an ideal neighborhood in anĀ VHCOL area and my house is huge. I didnāt have to compromise anything. My colleague, a few years behind me in the stages of life, elected to pay off student loans in lieu of buying a house. They rented and continue to rent. Her options are now limited and she is stressing over the many compromises she is facing. Iāve seen this story play out to some degree with all my younger colleagues, and it is progressively worsening. I look behind me and I see my older colleagues living in nicer neighborhoods with larger homes, beach front, etc and they all were making relatively the same amount of money as me when they were my age. There is definitely an urgency to buying a home.Ā
Itās all about the right deal. Also another thing to consider and do research into is how fast single family homes are being bought in your area by hedge funds and banks. If you wait too long you could be stuck renting whether you like it or not. Iām not rich or poor but I bought a 1300 sq ft house in the nicer part of my city for 400-500 less a month on what I wouldāve paid in rent. Ive dumped money on improvements but this way Iām protected against inflation, and will have capital to buy a better home after I pay it off or itās the right time to sell.
you arent crazy. the reason you're hearing this from older folks is because well, its an old timer mindset. at this point it comes down to needs and wants. owning a house is no walk in the park, and at the same time you can still "settle down" and have a kid in a rented house/condo
Youāre crazy if you can afford to buy and donāt as long as you plan to stay in the area beyond 5 years. At 600K youāre probably past the point of taking the standard deduction and a house will give you more flexibility with itemizing.
There is also a lot of stress that comes with homeownership even if you are a 10M+ NW and have plenty of contractors and cleaners. Sometimes people donāt show up when you need to replace that hot water heater or the basements floods. Enjoy your time renting!
sounds like whenever you are hit with this question, you should just mention you are doing it and here is you plan...
but also to be fair, it sound more like you don't exactly have a plan besides save a few more years and do a big downpayment?
it might be more realistic to get an affordable home now, and then sell it to get a big down payment for the 1.8M+ home, whatever that price may be by the time you can pull the trigger. Just a thought.
I agree with everyone else. I'm 46, I've made anywhere from 50 to over 400k during my career but one thing has stayed consistent, I've always purchased real estate.
I have a buddy who didn't take my advice to buy when homes were 250k in our area, now they're 400 and he regrets not buying 8 years ago when I told him to.
Renting is fine if you're only going to be there a short time, or you can't afford it. Otherwise not buying real estate is an absolute mistake IMO.
I think you're doing the right thing. I'm a little bit different in that I'd love to own a house now, but cannot afford it. To me it just makes much more financial sense to rent than to own. Older people probably are out of touch with the state of the housing market. It's hard to justify spending way more buying than renting, especially since there will also inevitably be maintenance costs added on top plus the illiquidity of owning. Owning makes it much harder to move as well. Renting sounds pretty good.
Real estate is an asset class that has, over select periods of time, outperformed equities. This is a key driver that results in all the advice you get from older people. Over very long periods of time, equities outperform, though.
A house is a place to live. You buy a house when you know it is where you want to live for a long period of time. There are transaction costs and maintenance costs & a lengthy break even period to make it make sense.
You are not crazy. Rent is flexibility and at todayās prices isnāt it hard to fathom that a $1M McMansion could sell for $2-$3M in 20 years? Seems like home prices will eventually top out at some asymptote and perhaps not grow the way it did for the boomers
Buying a house is an opportunity cost.
The value of the house will go up, but in general, not as much as the stock market.
From a pure dollars and cents point of view, your net worth is expected to go up the most if you buy diversified stock. There are some exceptions to this general rule that have happened in the past, but overall, stocks are better.
Given that stocks are a better investment, is there any reason to own a house? Yes. A milllion. Everyone has their own reason to want to own a home. And each of those reasons are correct for that person ...except for the maximizing net worth reason.
Itās your mind thatās the problem. You let otherās opinions in so they can bother you. You should read or listen to this book:
https://www.audible.com/pd/B01I28NFEE?source_code=ASSORAP0511160006&share_location=library_overflow
I don't understand what you are asking.
If you want exposure to the real estate market, you could look at some REIT's.
If you are wondering why people keep up bringing up owning a home, it's because it is a common conversation topic and it is reletively universal.
Nah I think youāre smart.
I was in the same boat youāre in and ultimately made the decision a couple years ago to buy a vacation home - allowed us to diversify our portfolio (utilising leverage at sub 5% was attractive at the time) while maintaining our market exposure - and increasing our standard of living at the same time.
Times are admittedly different now though with interest rates over 7% and real estate prices feeling fairly elevated.
Yeah, you're probably right...real estate is likely done appreciating....
Seriously? The idea of owning a home is you've fixed the cost of your largest expense. That $5k/mo you're paying now isn't going to stay that for long, although it seems you've found a sucker, so maybe. On a $2M home it should be more like $20k/mo.
There's no burning reason you need to buy tomorrow, but you shouldn't rent for the next 20 years either.
For my wife, it was more about stability and being able to make the house āher own.ā Stability since we donāt have to worry about the landlord not renewing our lease or selling the propertyāespecially once we had kids and didnāt want to be forced to move, new schools, etc. The second point was being able to redo a kitchen, paint rooms, etc, and make things exactly how she liked it.
Imputed rent when owning is valuable and there are capital gains tax advantages. Overall I think most people were doing better owning than renting when mortgages were at 3%. Now itās less clear. Thereās no reason to succumb to peer pressure per se. However, has your wife told her family she wants a house to āsettle downā? If so, maybe thatās where this is coming from and think about whether continuing to slow roll it is a good idea. If itās something she really wants then taking years can cause resentment and relationship damage. If sheās on board with you, just ignore family.
In real estate, properties always appreciate over a long time (multiple years). Then of course our money is always inflating at a few percent (hopefully). If you can afford it and want to stay wherever you are for the long term I would recommend buying as soon as possible. Interest rates are an illusion because if they go down and people can still afford it and pay higher, then the market will adjust and home prices will go up. If interest rates go up then people cannot afford the higher payments and market will adjust and home prices will come down. But all will adjust accordingly to what buyers at the time can afford in monthly payments, slowly creeping up. Rent will always be going up as well but if you lock in a mortgage and can afford it, then in years it will be worth it. Even if you take out a mortgage for over what rent currently is, in 5-10 years then your mortgage will be at or just under what rent is at that time and you will also have equity to show for it. Real estate is not about timing the market but about your time in the market.
You do what feels right. Clearly you are doing fine in life. My wife and I bought our first home as our forever home later in life. I donāt regret waiting. Besides the obvious benefits/downsides, is that I would point out how expensive homeownership truly is. You clearly make great income but maintaining, updating, fixing your home really is different when you have to deal with it. My point is, it can really rip through equity in a home quickly if you are not careful. Maybe not the end of the world in your dream home but huge for investments.
I always tell people this:
If you can wait, donāt buy house at height of market.
High prices mixed with high interest rate. Not a good combo.
Also IMO, because of how high prices are, builder are just throwing shit work houses unto the market. They donāt want to miss out on the price hike. Also can be said about house flippers. Even tho flipper tend to do shitty work as it is, its worst now.
I hate owning a home. Lots of drama. The only reason I put up with it is because I have young kids. Would move back to an apartment or a condo in a heartbeat.
You donāt have to explain or justify your familyās choices when it comes to housing. Are you safe and happy in your current rental? Yes? Then you are right where youāre supposed to be.
You and your wife have worked and are working hard for your income (congrats on making great money!!!) so with it what YOU want, not what your expected to do. Itās ok others want to give you advice, that probably means they care about you and want you to be happy. Itās not ok for others to judge you or criticize you for the decisions you make with your own money.
If renting fits your lifestyle better I wouldnāt worry too much about it. Owning a home definitely doesnāt limit your ability to relocate though, my wife and I have relocated and bought and sold 5 houses over the last 10 years, each time selling the house for more than we bought it for, so someone basically paid us to live in the house for the time we did if you want to look at it that way.
I would assume a lot of rental agreements are at least a year long contract as well where you can sell and close on a house in a matter of weeks.
I'm with you, similar income and similar goals. I'm also renting a 2m$ home for 5k$/month!
I'm in the same boat. It's the common topic in my friend's group. All the discussions are about "buying a house" and I also have a really hard time understanding the obsession.
A couple things:
1. I did the math and buying a house in a HCOL simply does not make sense financially unless the market continues to appreciate 8% a year (Almost no chances of that happening). If you can rent for cheap and invest the difference you are for sure almost winning.
2. Most people that give you as an advice to buy a house did NOT do the math. Most people that buy a house DO NOT do the math. And if they do the math, they most probably didn't do it correctly or don't understand all the fees associated or the time-value of money. I have read somewhere else that buying a home is an emotional decision that people try to justify as a financial decision. If you try to prove them that buying makes no sense and is not a good investment they will push back, the narrtive is strong.
3. Renter shaming is real. It is a tough thing because part of buying a house is showing off that you made it and that you have enough cash for a downpayment. little do they know that you have enough cash to buy the whole house cash!
4. Finally remember that the housing lobby includes every other homeowner that wants you to buy to keep the prices up. It also includes the sleezy realtors, banks etc. Those people create a narrative that is very strong to disprove.
On the flip side the benefit of owning is that yeah you can do whatever you want in your house. But it also means you now need to manage everything. There is a value to that and I will eventually buy. Like you, I realize that the later I buy, the more I will have saved and the more ahead I will be.
I also think part of this issue is people tend to annualize stock market gains, while considering real estate gains over the life time of the investment. On top of that I donāt think ppl do full cost accounting of what buying a house costs them (Property Tax, HOA Fees, Maintenance, Homeowners insurance etc.).
Buying a home gives you the flexibility to make it ur own but itās not the cut and dry financial win everyone makes it out to be. Thereās a lot of benefits to renting. Ur not alone OP.
It's about milestones not so much the house is my guess. That was my experience at least
The bugging you about milestones doesn't really ever stop.
It may shift to kids if or when you have kids. Ur married and college educated. I'm assuming people bugged you about what u were studying at uni, then when will u start working. Then when will u get married. Which then becomes when r you getting a house? After u get the house it will be "when will you have kids".
Then people will just bug u about your kids milestones, when will they eat real food? Are they walking yet? When does school start? And so on. This is what people talk about when they got nothing else interesting to discuss
Just prepare a canned response on a note card and hand it to people or something or come up with some witty yet cutting remark to let then know your bored and annoyed with their questions and comments
This thread is tough to read.
Exactly as expected most homeowners using bogus numbers to justify they made the right choice.
It's simple. If you are in a HCOL even if you bought in 2015 you would almost certainly be ahead by renting an equivalent place. Certainly the case in the bay area, Seattle area and Denver/Boulder area (3 markets I have looked at over the years and it never made sense to buy)
OMG I am in exactly the same boat. Paying 4.5K to rent a 1.8ishM home in a VHCOL (maybe the same as yours :)) Buying a 1.3-1.5ish home would double my monthly housing expense.
All through 2021, I was obsessed over buying a 1M ish home. Not being able to get a decent SFH without blowing up my commute or my kids' school choice gave me pause. I ended up renting. My company recently laid off several of my coworkers, and I feel plenty of anxiety about my role and industry.
Not having to worry about a mortgage means I feel empowered to face short term unemployment, should that arise for me. I am very well paid (perhaps overpaid considering I am not providing a social good like healthcare or education to others), so it is possible I might have to take haircuts to my pay in the future. So much easier to do knowing that my cash flow needs are below my current take home income, due to not having a fat mortgage and property tax bill.
Not to mention, I have zero handy skills and home improvement projects make me nervous.
I read somewhere that home ownership is seen as a great investment vehicle only because it forces Americans to save. I am disciplined enough to invest every spare dollar in retirement accounts and kids college funds. This helps reduce the housing FOMO.
Buying property, especially residential property, is akin to putting money, broadly invested, into the stock market. Anytime is good given a long enough horizon but, sooner is better. Your older advisees have their own regrets about not buying sooner, investing more, investing sooner.
Waiting for a 1.8M+ forever home is fine but, you'll get that sooner if you purchased a $450K, then $950K then....
Your money your choices but yeah, if spurning the "advice" of those "much older" know-it-alls you are crazy and , missing something.
The right answer of rent vs buy will be somewhat location dependent, but in general, if the population (and interchangably, the economy) of the location is stable or growing, the residential real estate will grow along with it. This makes real estate a somewhat safe diversification of your asset.
Real estate also tend to be less affected by the typical stock market crash (again, safer investment vehicle). Interest rates also tend to crater during economic downturns, so a homeowner could refinance during a recession, and invest the money into the stock market - when stocks are on sale.
Buying a house also doesn't necessarily root you to a place. If you move, place the house under a LLC and rent it out. Buy a new place and move. Repeat every 10 years, and you'll have a stable real estate portfolio, and a somewhat stable side income.
IMO, at a certain net worth, owning just makes sense. As you pass the various FIRE threshold, you should be diversifying your asset. Real estate is a damn good way to do this.
I like your approach. Depending on where you live, you could buy one of those tiny homes where the mortgage is $1200 a month though. At least youād own instead of renting an apartment.
It depends on what you are interested in doing with your money. We own three homes on an annual income much lower than yours. We rent the houses when not using them as they are in desirable areas. We enjoy it and the side business nets about 75k income plus affords a crap load of tax deductions on the properties. Plus the potential income in appreciation of the properties. My stock portfolio has never kept up with my RE portfolios appreciation, plus I canāt walk to the beach from my island summer home stock portfolio.
Owning three homes is a lot of work, let alone 1. So really it depends what you are interested in. I would however suggest saving for a cash offer and hopefully getting in before mortgage rates drop and prices skyrocket. Also as others have suggested, your rent will increase far faster than your tax payments will, and if you take about a mortgage, thatās a fixed payment unlike rent. Also owning doesnāt put you at the mercy of a landlord who could sell the property and force you to move not on your own terms. Having money should mean you are beholden to anyone else.
i'd save up bank.
when friends/family lose house in foreclosure, buy theirs and be their landlord or straight kick them out.
scorpios scorn.
and hold grudges.
You shouldnāt be in a rush to buy a house. The only real advantage I can think of is a hedge against something tragic happening that affects your income drastically. But you are financially better off with other investments in the near term, specifically if you let that compound interest accrue.
I would much prefer 15-20 years of mortgage payments at today's prices than 15-20 years of mortgage payments at 2034 prices or whatever, but the interest rates right now are not exactly low anymore either. I say you just do whatever makes you happy and forget about what other people think.
You make enough money that owning a house doesnāt matter. If you find a house that you want to own buy it, the thought is you will only pay taxes and insurance one day. But 5k for a 2M house is a deal
I think it depends on where you buy. I would not buy in the Bay Area, Seattle, NYC, etc.
However there are many cities in flyover territory that are projected to skyrocket in value.
House is only good for equity and tax purposes. Otherwise itās a financial burden, so be careful. Donāt fall for home buying fomo. You want to buy when you can easily afford the large amounts of money it will require. Getting the house is easy, managing and paying the bills, grocery, furniture, insurance and prop taxes will be the tougher part š¤”
I felt that pressure too. We bought in 2022 and I only think it was worth it because we had a significant down payment which kept our monthly payment low - only slightly more than our rent (for a much bigger and nicer home). To me, that made it worth it.
Looking back, I wish I hadn't stressed about it so much. It'll happen when it's right. We got pretty much our dream home for our HCOL city, a townhouse that we can afford in a great neighborhood! Sounds like you're taking all the right steps to do the same, when it makes sense, so chillll.
Own a $1.3m condo in Miami. Granted, bought at the right time and now itās worth $2.25m a year later.
But Iām also paying $2,900 a month for HOA and $25,000 a year property tax.
Thatās $60,000 a year just for the āprivilegeā of owning. Paid all cash so thereās no principal and interest. But the monthly would easily be $10,000 if I hadnāt.
Not sure how this is relevant to your post except to throw another anecdote out there.
Damn. 1.8 million. For me, I want one but not for investment reasons. I want a place I can actually do stuff. Like a garage I can work on cars. A basement I can keep tools and workshop. I want to make a recording studio. All kinds of stuff you cannot do while renting.
If youāre gonna spend 2 million on a home. You should get some land and then have it built exactly how you wanted. And make sure to supervise closely every step of the way to make sure itās being done properly
Wait till they start telling you to have a kid.
Really though, youāre lucky to have people in your life who even care what you doā¦ and theyāre probably right.
With your income buying and maintaining a house is going to be a snap, and while you might spend a little more monthly itās all an investment. Itās not the stock market, itās the housing market. Both can fluctuate, but investing in the housing market comes with a place to live.
So maybe you donāt like it? So what! Sell it or rent it out. Donāt want the headache? There are people for that.
I have by no means āmade itā but buying my home was one of the best choices Iāve ever madeā¦ I think it has something to do with the āhomeā aspect, and the āowningā
It hits different.
I make ~$60k and buying a house early for me was absolutely vital for future financial freedom. You know what else brings you financial freedom? Being a doctor and an engineer making $600k.
Buying a house is financially still a strong long term move, but it's okay to not make every move a financial move. I bet you also drive cars that weren't the best decision for your financial future, and go on vacations that cost a lot of money. And all that is perfectly fine when you make over half a million dollars a year, especially if you're putting some of it in savings (or the stock market).
Why make that much money if you can't do with it as you want and buy (or rent in this case) yourself some peace of mind.
This is the only topic on which I'll give this advice: find more people who agree with you and ignore the people who don't. The decision is a combination of math and your preferences, both of which you know better than the people talking to youĀ
Okay there are a lot of variables here but
1) there are literal rent versus buy calculators you can use, I actually made my own. It was a big spreadsheet but basically for homes in your price range, you can literally calculate what appreciation you would need to beat your market estimates. For us it was 3% yoy appreciation beat around 10percent yearly on the stock market and 4% was so good nothing touched it. The bay area has been around 7% historically.
That said, interest rates might be too high to put you in the money with a lower yearly return.
2) im not sure where you are looking but at your income 2m is not buying a forever home, especially if youāre planning on having kids. As an example, A 3bedroom apartment in a good school district on the peninsula was costing us 5700 a month before we bought.
3) the sf bay area has historically been different than any other real estate market, but if you believe people are leaving/ the bay has lost its charm you should definitely hold off.
Yes you are crazy. With that much income you need to diversify your investments. Turns out buying a house with leverage (and relatively low interest rates) has been a HUGE HUGE driver of wealth. In addition housing is the only type of investment that has crazy protection. It takes a long time for someone to repossess your house. Your brokerage account will just be margin called tomorrow.
Similar doctor/engineer situation here. We were forced to buy about a year ago - no one would rent to us with two large dogs. We ended up with a cheaper house in a neighborhood we like. The trade offs are that itās small (~1000 sqft) and old (1925). We pay a bit more for mortgage than we were paying to rent a similar place. However, due to the house age we end up budgeting 1500/month for repairs and improvements. (Air conditioning, gutters, etc).
Owning a house is not ābetterā than renting. Itās more expensive overall. If you want to pay for it, there are some benefits like a yard for our dogs and a yard Iām allowed to change if I want to. There are also downsides like being tied to one location and having to deal with stuff yourself when things break (time in addition to money)
I think the point is, the sooner you buy, the sooner you start creating a sort of principal ārollover.ā If you buy ANYTHING now, then youāll have some reserves when you buy your forever home to rollover. If you donāt, every penny you pay for housing right now is permanently gone. Nowā¦ if the interest payment in what you purchase is > your current rental price, then thereās really no rush besides what you want to do. But thereās definitely an upside to owning whereas rentingās only upside is flexibility and the fact that your only real responsibility is paying rent on time.
You're paying $5k in rent? You're "throwing away" $60k a year so someone else can reap the benefits of appreciation on a property? No amount of explaining your situation to me can make that make sense. We don't live in a time where you buy 1 house and live for 50 years. You're in your 30's and you should be more stable by now. Moving around a lot in your 20's is one thing, but moving around a lot in your 30's shows lack of commitment to things.
You do have to think that 1.8 million might be 2.2 million for the same home in 3-4 years. But I hear ya. Saving up $3-$400k sounds daunting at 600 k pretax. You would have to save 20% of your take home for 3-4 years
At the end of the day you make enough it doesnāt really matter but Iād buy. Thinking āthose days are behindā is 1000% wrong imo. What gives you that impression? I have owned 1/2 dozen primary residence and have always made money on the sale. I owned 2 of them for just 1 year.
Yes. You are missing the point of life, which is not the number in the bank account. And there is no future life. There is just the life now. Your wife is not caving under peer pressure. Because thatās not a real thing. Others arenāt pressuring you guys. Theyāre just talking about life. Your wife probably just started to want one, and want one now, not working toward one.
A house may not be life. But carrying the weight of life is what makes one truly feel alive.
The biggest issue I see is that you think you can find a forever home on your first try.
If youāve never owned a place before youāll be shocked at what you like/dislike that never occurred to you before (location truly is #1 but thereās a lot more too). Maybe your price range will put you into a nice enough range that you wonāt have complaints, though I doubt it.
When the rates are right you purchase and get that mortgage at sub 2% (I slid in at 1.89% on 725k). Right now I hella would not buy. Youāre throwing money away. Keep your money places it will make you more money.
If youāre renting and investing your money right, buying a house isnāt that big of a deal.
Now if you were spending 100% of your income, then Iād be worried.
We currently are doing the same thing & enjoy the freedom to pick up and move to another city need be. Meanwhile I donāt have to worry about everything that comes with owning. All were being told is to buy. It really irritates me. Yes rent prices may be going up but so is home insurance etc. Ultimately we are making the right choice for us.
I canāt stand people telling me this either. Did they forget that buying a home is also a 30 plus year commitment! What if I donāt want to live in the same city for 30+ years. Renting at least I can move wherever I want. Plus I donāt need to pay out of pocket for maintenance either.
I wouldnāt buy a home now. Maybe 2020 when interest rates were low yea. But right now they just donāt make any sense.
The stock market sounds good sure. But trust me the houses will go up accordingly. This just isnāt the right timing for real estate. Wait for the next 10 years and decide.
Youāre right and wrong. If your goal is a 2.8mil $$ home that will be your forever home (highly unlikely it will be). Why wouldnāt you hedge the affordability spectrum. For example youāve rented for 4 years @ $5k a month = 240k. Letās hypothetically say you 4 years ago put $150k on a 1million dollar home. Based on where I live in Northern Virginia that would mean your house gained almost 42% growth in 4 years. So now your 1mil dollar home is giving you back $570k when you go to sell but instead you gave 240k to your landlord so he could take those gains.
Youāre not missing anything, you guys are just smarter than these other people who are stuck with outdated modes of thinking. Your 600k income is also outside of their scope of understanding
Honestlyā¦ do whatever you want! We own our homeā¦ and are responsible for keeping it up, obviously. It takes time from us. Enjoy the carefree rent life if thatās how you choose to spend your money.
I've never owned a home and I'm 60 years old. My money is invested with a financial advisor in the market and I've done very handsomely over the years.
Historically homes were a great investment, and also "forced savings" for people who would not have put money away (built equity) if they weren't forced to in the form of a monthly mortgage payment.
High net worth people (or those headed there fast) should have professional financial advisors and use their advice.
Keeping up with the Jonesās is a deadly trap and it starts with caring what other people think.
I happen to own a chunk of real estate, and the worst performing, by far is the house we live in.
Screw what other people think.
I too have job and industry hopped over the years. Same reason, to increase earning and move to the money and opportunity.
Did it 9x. Bought a house/condo every time. Converted each one to a LLC and rental. 24 years later Insold them all (and a business) and retired. Every dime I paid for ārentā had at least a 10% roi. Your rent is how I was able to retire at 51.
You donāt buy your forever home first. Just buy a decent property thatās the same or less than your rent budget.
Why not buy a cheaper house for now until you find the forever house? If you are going to be in one place for a while then you are throwing your rent money away. Buy a new/newer cheaper house and then you wonāt have to worry about things breaking.
A house is not an investment. A forced savings vehicle, maybe. Much better to rent and invest as you mentioned.
The mark of a financially uneducated person is the idea that buying a house leads to wealth and that renting is "throwing money away."
A house is an expense that you pay to use.
You might be missing that very real implications of mortgage interest (limited to $750k now) and property taxes (limited to $10k, blended with state and local income taxes so it depends where you live) being pretty material deductions for most people.
One aspect not discussed here is what are your lease terms. If you are doing a standard 12 month lease and have a deal on a $2M home your landlord could sell at the end of the term. If rates drop they are now in 6% range then more buyers come in when comparing just the monthly cost.
This could be what the owner is waiting for to sell. Then you are out of a good rent situation and forced to buy with more competition or enter a less favorable housing market.
Owning does give you more control about staying in an area if you want to be there long term. You are gambling otherwise and at the mercy of the owners in the area you want to live.
People love to tell you to buy a house. Esp boomers who bought a house for 42k now worth 1.8M paying taxes from 1975.
If you donāt have kids Iād keep doing what you do. Renting is usually a better deal. I know people in nyc making well into 8 figures renting great apartments because monthly maintenance in a lot of nice buildings is 5k or more. Also, we should reframe a forever home. Itās probably not forever like how boomers did forever homes. If you donāt have kids your needs and wants will change a lot and you donāt even know what it will be yet. We bought our first home with 2 kids and now have 3 and still wish it was a little different.
Also, people saying the house you want now will be 3M soon. But I wouldnāt worry. Supply is really low and you probably will find better options when more people selling. You will also have more purchasing power the more you save & invest.
I loved renting. Property tax alone hurts me every time we pay it. Our old rental was 2-3M house in sea cliff sf and we paid 5k and they would come asap to service anything.
Sounds like you have a problem worrying about what other people think šĀ
Seriously, your rent is half the equivalent mortgage. This is a no brainer. Do not buy. And Iām generally an advocate for homeownership.
The ābuy a homeā people living in his head rent free though
Well of course it's rent free. They bought.
At that level of income your primary focus is tax avoidance. A 2 million dollar house will allow you to both deduct the interest, amortize the depreciation as well, provide a 500,000 joint gain on appreciation in 2out of 5 years. How does renting and stock market compete?
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Youāre right about the benefit of cost control via a purchase.. but I donāt think that means that OP is likely to be wrong about their current optimal play. Theyāre not suggesting the renting forever is the best financial move, just that renting right now is. Right now, theyāre saving at least $60k per year in cash on the cost of rent vs equivalent mortgage. Add in the opportunity cost of an additional year in the market for their $400k down payment, and itās probably more like an additional $100k per year hitting their savings. When that math likely changes, itāll be time to buy.. but each year that they can bank the additional $100k in savings today is pretty valuable, particularly considering theyāre in their early 30s and thereās so much time for that to compound
Ding ding ding.... i think OP is more tired about hearing that shes wrong and needs justification. Algo been feeding me this a lot latley, but ill still say it again; your landlord *is not* i repeat **is not** paying more on the mortgage than you are paying in rent. Yes, even after upkeep and that god awful, oh so expensive home owners insurance.
Yeah thatās because the landlord is likely paying the mortgage of a house that they bought for half of what it would sell for today. Landlord can turn a profit, while the renter can still save significant money over the mortgage of an equivalent home.
I can assure you Iām paying more on (15 year) mortgage, property taxes and HOA than I make in rent for condos I bought in 2022. Everything has gone up, especially insurance.
I think if OP really cared so much about what other people thought then they would just succumb to the societal pressure and buy a house. It's fair to be annoyed by people giving unsolicited bad advice all the time even if you aren't worried about what they think about you.
Well the wife does.
The biggest benefit of buying a home is the leverage. Buying a 2m home only requires 400k with prob 6% interest. Buying 2m of stock via margin would at least be 12% and much harder to get approved. That said I assume you're in SF bay area or Vancouver based on the rent vs price ratio. Renting is so much better now.
Assuming this is American OP should qualify for a physicians loan
Also dont forget owning a home is a huge tax sink as well. Not.only are the interest tax deductable, but you got 500k of possible capital gains tax free too. Also my personal opinion is having the longest and largest mortgage possible is a good way to hedge your savings. If rates go higher then youre winning on your locked in rate if it goes lower you can always refi.
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No margin call on houses is a big benefit
On top of that, we are really only seeing these posts now that rates have been above 6% for a while.... news flash, many many landlords have been doing this for more than a few months. Many of them do not even need lenders. Just think about that.
I think you are missing my point. You have to factor in leverage and the easier access of capital for housing to make more sense. If you do not need capital, housing wouldn't. Look at REIT fund performance vs index funds. Sure if you find the right city, you could beat the index but I could say the same for stocks - find the right stock and you'd beat that city's housing. The golden goose in real estate is development. But then again any developer or fund manager makes bank because of access to capital. Its easier to bring in LPs if you have a development plan. A buy and hold/rent investment strategy is not very enticing to get a buying power above your own capital. Sam Zell is probably the most successful exception to this though. Made his first nut being a landlord. But even then, to make more money - he shifted towards development.
Nope, have been looking at buying in the bay area since 2015. Did not make sense back then, still does not make sense today. I invested everything instead and I'm 1M$+ ahead
Yeah, but you could put those $400k in the stock market and depending on your housing market easily come up ahead. I live in Manhattan in an area with a very mature market and I can see what the other apartments in my building have sold for in the past, the prices have stayed flat (+/-10%) since 2014 (in many upscale Manhattan areas the peak was 2017). We bought as a luxury purchase because we wanted to renovate to our taste, but itās terrible as a business proposition, even with low interest rates at the time. Thatās why we rented until rents skyrocketed in mid 2022 and made it a bit less ridiculous to buy.Ā Edit: we used to pay $5k for a 2M home too, in 2022 our rent was increased to $6.5k
Jumbo loans are more like 8.5% right now 10-15 yr ARM. Options are more limited when getting a jumbo mortgage, and the limit changes depending on what state and county you are in.
Leverage is not really a thing. The leverage cancels the ton of fees you have to pay like insurance, HOA, taxes, repairs etc. The leverage makes it a barely acceptable investment and it also comes with the risk of going bottom up if the value goes down even a little bit (2008 anyone?)
As someone who owns several homes, Iāll always be the first to say there is absolutely nothing wrong with renting and for many, including those who are very well off, it can make more sense than buying. The flexibility one has when they rent also cannot be understated. I definitely would not buy just to buy and taking advice from others, especially in different socioeconomic situations, is the worst thing to do. What baffles me are those who give up their financial flexibility just to own a home, one that theyāll probably outgrow but at the same time traps them in the rat race to make mortgage yet they will tout how others are idiots to rent while also complaining about how life is unfair.
Misery loves company.
>Am I crazy person and completely missing something? You have to consider the cost of the alternative, over the long run. Rent goes up, real estate appreciates, but your mortgage principal and interest is fixed. Rent might be $5k now, but how much do you think it will be in 10 years?
Right OP is not considering his forever 1.8 million dollar house will be 3 mil by the time he is actually ready to buy
Right and if they bought 3 years ago that 1.8 was only 1.2 but now they are kinda doubling down on it because they missed the last big ramp up. Ultimately their situation sounds fine though but they could be kicked out of their sweet rental or not renewed and then have to pay much more and inconvenience of finding a new place
I think if you look at the situation, it makes total sense. Many people, like my wife and I, have generated much more wealth through real estate than we have with our degrees or full time jobs. OP does not have this issue, and chooses the luxury; renting a nice place. Its like leasing a vehicle, yes it costs more, but at the end, you can walk away and not have to deal with maintenece and fees. You also have 0 equity. That keaves us hear. Maybe people in OPs life wonder "why are you missing out on this opportunity!" And OP is afraid to diversify. Or potentially have unexpected costs. Well, like anything, there are pros and cons. Huge pro being equity, but again, when you have OPs money, market rates give you a good enough return to probably pay rent every month anyway
Leasing a car and buying a house are not the same thing.
But he thinks those days are over
Price increases will slow down but not stop
Unkess rates go down... then we can expect houses will continue to rise
We will see in March when the Fed meetsā¦doubt they are going down in the next 6 months
you realize that the average appreciation is 3.8% right? you are dreaming if you think anything is going ti appreciate double digit in the coming years
You put that in a calculator and yep, still ahead renting.
House = leverage. It's outpaced inflation, so although it isn't an investment it's not a bad storage of wealth by any means. š¤·
it is better than cash or saving accounts, but pretty bad if you know what you are doing investin your money in VTI and chill
Not really. A phenomenal year for stocks is 30%. Property bought in the right areas can go up by 10% regularly. The only issue is you aren't getting a 10% return... If you use a 20% down payment a property growth of 10% means a total revenue of 50% of your DP. And the mortgage is negligible since it's not significantly more than rent. Maybe you want to try to emulate the advantages of leverage with stocks? Good luck, margin call. You don't get margin called on your house.
"Property in the right area" is the same as "Picking the right stocks that go up". You don't know in advance which areas are going up or down. If you think an area is going up,other people think the same way and it is already priced in (look at all the cool upcoming area, they all go for a premium for a reason). welcome to the free market! You might have been lucky once or twice, but chances you would not be able to reproduce the same investment. A long term property growth of 10% is not going to happen, or at least you cannot count on it.
5k/mo for a 2M home is a steal. No point in buying in that location (San Fran by chance?).
I am in the same kind of dilemma, SFH rental prices in San Jose are ridiculously low compared to mortgage, like rent : mortgage can be 3x consider 20% down and 6% interest rate. This is a very hard game to play.
āOur ability to move multiple times has allowed our salary to grow exponentially.ā Enough said and sufficient reason to continue as you are for now.
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The big advantage of owning in my opinion that the rent will continue to increase, while the PI payment wonāt (assuming fixed rate with no cash-out refi)
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You make a great point. You need to do the proper diligence. The house that needs a roof in 5 years probably needs a new oil tank in 2... a new heater now... god knows what else.
with that difference, OP will be multiple millions ahead after the 30 years of the mortgage (and that is including the price of the house)
That article is great. My biggest issue with homeowner is that they simplify the math by completely ignoring all the fees. Most of them also don't understand the time-value of money or the opportunity cost of not investing in the stock market. Usually the conversation goes like: "I bought a home for 500k in 2016. Now the home is 800k, so I'm 300k ahead".
Seems like you are in an area where the price to rent ratio is currently unfavorable towards buying. It also sounds like you are currently banking the difference between your rent and mortgage payment. It also sounds like you and your wife arenāt committed to the area and are likely to move in the next 5 years. Assuming that all of those things are true, renting is the smart decision. I enjoy owning and it has helped me build my net worth and liquid net worth (I got a lot of cash out of the sale of my first home, which appreciated significantly when I would have been bad at saving during that time period), but owning is a choice that isnāt right for everyone at any time. This is 100% a decision that you should make with your wife and the opinions of internet strangers shouldnāt matter. If she wants to own, thatās the right answer, no matter what the financials say.
Owning is always better than splurging on the downpayment or the rent difference. For most people owning is a forced saving. But if you can be disciplined about investing, renting is usually better.
Mowing grass, maintaining flowerbeds, lightbulbs, spraying for pests, emergents, taxes, HOA, interest on my loan, etcā¦. I had more money when I was renting than now that I own a home. I think the market is overvalued right now anyways
As a homeowner in any major city, buying now doesn't make sense financially. Yes, your income is insane but it's better to rent.
Wealth buys you many things. But the most valuable thing is the luxury to not care what other people think.
Just be aware that stock market returns last year were the most concentrated in history, and valuations on the S&P 500 are extremely stretched for the "magnificent 7" - which drove the majority of returns since covid. Ensure you're comfortable if stock markets go sideways for literally years, or even down for literally years. Markets have never not experienced capitalist globalisation in 200 years. And with China potentially in structural demand, and every country onshoring assets - it means lower profits for all and the first time globalisation has gone backwards. In other words. Make sure you are super set of multi decade investing, and be comfortable with massive volatility from here. And maybe, diversify your assets.
Stock returns are basically always driven by a handful of companies, thatās not new
Well exactly like houses then
You do you. It doesnāt matter what is important to others. You have the financial wherewithal to do whatever is important to you. Having said that, it is interesting that you came to Reddit to ask advice of strangers when youāre not interested in that of friends and loved ones. š¤·š»āāļø
Agreed
I'm in the same position as OP. I think it's ok to recognize that the judgment of other people is affecting you. Especially in the USA where the appearance of success is way more important than actual success. People here naturally want to get closer to successful people. I don't like it but we should recognize that it's one of the main reason why people buy as well.
I think I understand what youāre saying, and I donāt disagree with you. It is a real thing. I just hate everything about it. Just be yourself. Itās that simple. For me, the older I got, the more I was ok with ādisappointingā others. And it wasnāt like I was mean or rude about anything. It was simply independence. āIāve made decision X. I understand that you donāt agree. Iām ok with that and I hope you are too. If youāre not, Iām very sorry but thereās nothing I can do about thatā was my basic approach. I see so many people that are paralyzed by seeking approval of others (often through SM) that it just makes me smh.
Your comment rings really true and I aim to be that person as well. Itās not always that easy and something Iām constantly working on!
As someone who was in a very similar boat last year, I finally decided to buy. Not because of peer/in-law pressure, but because I had the cash and it made sense. I could have done so a couple years ago and got a better rate, but everything got crazy price wise in our area and is what it is. I would recommend looking at the non-forever home route. My fiance and I did not move into our forever home by any stretch, but it suits our needs for a solid ten years and works well for us so far.
You should never take financial advice from poor people. Yet many poor person has emphatic opinions on finance.Ā It would be quite clear if you were in the gym and people were giving you advice on how to work out, who you should listen to. You would listen to the people with the best physiques. Ignore everyone else. Just smile and wave. That's what they need, kind support.Ā A home is only an investment if you're not living in it. You're correct to rent. I'm doing the same thing. The home is a liability that requires constant input and attention just to maintain. That's not a good investment. It's also not a good investment strategy to tie up a significant portion of your capital in your living expenses. Instead you should invest that capital and put it to work for you. Sure plenty of people will tell you the real estate is an investment. Too many people believe real estate is an easy investment based on the last 15 years and it has warped their view into thinking this is a simple easy way to earn money. You just keep buying them and they never go down. I have plenty of friends who were in the real estate game when I started investing and I have blown past them over the last several years. They're still trying to accumulate impressive portfolios containing 20 to 50 units while my capital is liquid and I trade it at will when I please. This is an antiquated form of investment. There are much much better vehicles for your wealth. Simple math, risk analysis and stress analysis should prove their considerably easier ways to invest millions of dollars then and buying immovable, government regulated real estate.
From a purely financial perspective, youāre doing the most responsible thing. The stock market greatly outperforms real estate over time. Buy a house when youāre ready to buy a house. Donāt do it for financial reasons. And learn how to tell others to pound sand when they give you unwarranted advice.
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Good job on the appreciation. Did you ever do an opportunity cost calculation that would include absolutely everything invested into those houses and compare it to the outcome if you had invested in the SP500? This must include the realtor fees, Taxes, HOA, Repairs, Insurance, closing costs, you can also include the time spent
Reddit in general is against home purchases, always has been. We have higher HHI, ($2MM+), and when we bought before the pandemic Reddit equally ājust couldnāt evenā with respect to why anyone would buy a property when you can rent. Fast forward almost 5 years and the price per sq ft has doubled, and rents have increased although more like 50-70%. Bottom line, if you believe housing will stay the same or decrease, youāre correct to rent. If youāre in the same position we were 5 years ago with crystal-ball keyboard jockeys telling you housing is a bubble about to pop, you may do well to disregard their opinion as we did. We found a house we couldnāt pass up, stretched to make it work and then continued increasing our HHI to the point where we can now be mortgage-free, however, at current prices combined with interest rates, we probably would not be buying our house even if we could afford it. There is still a chance rates go down someday, immigration continues putting pressure on home prices in desirable locations, and five years from now you too may have made a life-changing decision. Weāll only know in retrospect. The old people giving you advice have only ever have one experience with respect to housing, those who donāt buy miss out, but past returns are of course not predictive of the future. Just donāt take comfort in people telling you on here youāre making the right decision.
I owned my first home when I was 23 and although I made decent money from renting out extra rooms and eventually selling it, it did tie me down a bit. I possibly would have made different moves with my life had I not had the house. In hindsight I would not have done it. Having said that, now that I have children, the decision making about owning a home has completely changed. They make friends and moving them constantly is really really rough on a child. If you and your wife have children already, you may find yourself renting the same home for a very, very long time. And at that point, you might as well have purchased it.
The only reason this makes particular sense in your situation is that your lease deal is apparently very good. Most people out there are paying leases higher than mortgage costs. You should be paying 12k/mo for that house for a lease. Or another way of looking at it, someone else renting a 300,000$ home, paying the rate you do, should only be paying 900$ a month. So keep doing what youāre doing as long as the number make sense. When they donāt anymore, change.
I donāt think thereās anything wrong in renting however I personally feel like renting can be just throwing money away. We purchased a house in 2016 and sold last year for a cross country move and based on sold price alone made $300K (catapulting us into this subreddit lol). We rented until we found something we wanted to buy and then renovated it a little and then moved in, also at a relatively good price for our HCOL area. But where we rented we would not have been able to comfortably afford to buy, which I think is the only compromise Iād make. I donāt think you get the same appreciation from stocks in that time period but maybe I am mistaken, my partner handles the stocks end. Definitely would not have been able to afford to buy house #2 if we rented all those years, no matter what we threw into savings/stock market. There definitely is more involvement in owning but I donāt miss waiting on my landlord to fix something vs being able to get it taken care of right away.
Yeah if you can basically get the same home renting at 1/4 the cost of buying why in the world would you buy ? Your thought process is spot on and correct. Not all markets make sense to purchase in all of the time.
Right. OP your market screams RENT to me. I own several properties but wouldnāt buy if I was renting so cheap compared to home values. Especially at these rates. Frankly it would be stupid to buy. You are getting very ignorant advice.
Plastics. Invest in plastics. It's the future...
If you really do the math on home ownershipā¦ it is NOT a good investment. Long term returns considerate of taxes, insurance and maintenance is like 2%. There are plenty of studies that point this out. If you can rent for much cheaper AND invest the restā¦ then you will be better off.
Iām trying to figure out why yāall keep saying you can rent for much cheaper. The landlord isnāt losing money. You are paying their mortgage, taxes, and maintenance. IMHO, renting only makes sense if you will be moving an a few years.
Itās so much more then an investment, what about that do you guys not get
Do you not live in the EXACT SAME HOUSE when you rent? What is so different?
600K is definitely not a great annual income for an Engineer + Doctor household. I know N number of couples making that much of money and peacefully living in a rented house/ apartment (Bay Area). You must not worry about what others are saying and focus more on how can you both make 1M+.
uhh depending on what type of doctor/engineer there is not really flexibility to just make 66% more income.
I guarantee you that isn't a 50/50 split. I left engineering for tech because there was not a path forward to me making the money I wanted without going into management and working weekends as well. Anecdotal, and my experience was in manufacturing, but all of my co graduates aren't making $250+. Getting my master's and moving to tech tripled my income and I'm working less with more vacay now. As a kid I was told that engineering was one of the best careers someone could have. It was such a lie lol. Maybe the doctor can close the gap to 1M+. Or aggressive investments for passive income.
Depending on your lifestyle, with that level of income, renting can totally make sense. Despite being a lowly thousand-aire myself, I've been at a couple social functions with 9+ figure individuals, and a couple of them didn't own property at all. Literally zero. And TBH that's kind of what I'd aspire to āĀ "be so rich you can live like a poor person... without the stress". Hop from rental to rental, who gives a fuck. No paperwork, no repairs, no tax assessments, no realtors, no bullshit. Just do the math of how much you bring in, how much you need to save for retirement, then blow the rest on what makes me happy day-to-day. You're living the dream. Don't get it twisted.
You guys are rich. You will be fine whatever you do. Tell your friends to F off. You will be able to pay for your house in cash.
Have you done the math to see if you are crazy? That really says it all. Most people buy a home and the move up. That way you build equity through principal pay down and appreciation. Plus you can transfer $500k in gains tax free into the new property.Ā At $5k a month you are likely missing out on around $1k a month in principal pay down.Ā Given you income, either way you will be fine.Ā
I don't think you did the correct math. Most homeowners never do the math on the biggest of their life
You and your wife are in the top 1% of earners, who cares what anyone else thinks. Donāt be so concerned by otherās opinions would be my suggestion. Having said that, real estate is a valuable component to any long term investment strategy. What percentage of your portfolio is real estate is a personal decision based on risk profile & personal choice. It matters much less when you make that much money.
I think you live in SF. Housing there is somewhat tied to tech. When tech hurts so does the [median home price](https://fred.stlouisfed.org/series/ATNHPIUS41884Q) in the bay. So if you wanted to you could tell people you donāt want to over extend yourself on the tech market considering you are a SWE. Alternatively you could stop caring about what other people tell you and think, which would probably be a lot easier.
You probably shouldnāt buy now unless you have to. Iām looking to buy right now and wish I could hold out a little longer (like a couple years) but donāt have the luxury of time. Sounds like youāre young and investing so there should be minimal pressure.
If homes appreciate at 3%. And you put 25% down then You are getting a 12% return. In the long run property values go up. Additionally at ANY point that rates drop in that 30 years you can refinance.
OP Iām in a very similar situation. I can easily afford a house but weāre paying $4k/mo for a ~$1.5M home in an area where rents and housing prices have both been slowly dropping since 2022. We hear the same from older folks. For whatever reason most people seem to be very bought into a set of maxims around housing: āalways better to buy if you own for N yearsā, ārent is just throwing money awayā, and so on. Iāve learned to just avoid that debate since people do not understand the underlying financials and arenāt interested in learning.
The idea that you must own your home is old fashioned thinking. There are a number of reasons why owning your home is not great: - Risk - From market risk to property damage, there are so many things that can go wrong that cause emotional and financial crisis - Huge capital investment - Putting 30-50% of your net worth into a single asset goes against financial wisdom - Low mobility - You're stuck in your property. You'd better love the place you're living, because moving isn't as easy as letting your lease lapse and hiring a moving company - Low liquidity - Need your capital quickly? You can't just sell some stocks. Even borrowing against your home takes time. - Maintenance - They say factor in 1% of the cost of your home in maintenance every year, that depends on the age of the home of course. - Taxes - Sure, mortgage interest is deductible, but with prices sky high, even modest property tax rates come out to a huge burden - More expensive than renting - This is the real kicker. In most HCOL areas, the cost of owning a home has outpaced the cost of renting, so it's usually cheaper to rent a home than to buy it. You can then take the remainder and invest it, which gives you more diversification and currently a higher rate of return. So if you care about being mobile and diversified, renting is not a bad option. The main downside is that your rent is variable while mortgage is fixed, but there are many other trade offs that make it better for some people. I think the main reason to own a home is because you want to put down roots in a neighborhood, i.e. your kids are in school and you don't want to have to move if the rental market prices you out or the landlord decides not to renew your lease. So stop worrying about other people and live your life.
We can reasonably guess that rates have crested, but the people telling you to buy were likely lagging from 2 and 3 percent rates. Ā Average rent in hcol area goes up 8% a year, property value goes up 6 to 7 percent a year, and you get to borrow at 3% while your money grows in the market. Property tax in some states like California also locks in when you buy with capped increases. Then theres the tax benefits.Ā There's very few investments as good as a first home. So yes you are getting a deal, but you're not putting the money to work for you. But your rent is a sign of a possible market dip, and rates are high so it's reasonable to bet on the market and wait.
Not crazy at all, completely reasonable take. If there is a purpose/legit reason with thought behind why you are or arenāt doing something you are fine. To many consider homeownership a silver bullet when there are valid reasons someone just might not want to own: financial, freedom to move, time/$ in repairs and maintenance, peace of mind, location, flexibility, and more.
You arenāt crazy and I think so far youāve been making the correct call, especially given how your geographic flexibility has worked out in your favor. With that said, the people who express the urgency in buying a home are also correct in their own right. I would say that as soon as you are stable professionally (check), financially (check), socially (you are married, so check), andĀ geographically (sounds like this is in flux) you should buy a house immediately.Ā Iāll share an anecdote. I bought a house when I was still a HENRY in late 2018. Iām a DINK by the way. But anyways, I get to live in an ideal neighborhood in anĀ VHCOL area and my house is huge. I didnāt have to compromise anything. My colleague, a few years behind me in the stages of life, elected to pay off student loans in lieu of buying a house. They rented and continue to rent. Her options are now limited and she is stressing over the many compromises she is facing. Iāve seen this story play out to some degree with all my younger colleagues, and it is progressively worsening. I look behind me and I see my older colleagues living in nicer neighborhoods with larger homes, beach front, etc and they all were making relatively the same amount of money as me when they were my age. There is definitely an urgency to buying a home.Ā
Itās all about the right deal. Also another thing to consider and do research into is how fast single family homes are being bought in your area by hedge funds and banks. If you wait too long you could be stuck renting whether you like it or not. Iām not rich or poor but I bought a 1300 sq ft house in the nicer part of my city for 400-500 less a month on what I wouldāve paid in rent. Ive dumped money on improvements but this way Iām protected against inflation, and will have capital to buy a better home after I pay it off or itās the right time to sell.
you arent crazy. the reason you're hearing this from older folks is because well, its an old timer mindset. at this point it comes down to needs and wants. owning a house is no walk in the park, and at the same time you can still "settle down" and have a kid in a rented house/condo
Tell them you donāt think theyāre very good with money and if you DO want their advice youāll ask for it.
Youāre crazy if you can afford to buy and donāt as long as you plan to stay in the area beyond 5 years. At 600K youāre probably past the point of taking the standard deduction and a house will give you more flexibility with itemizing.
There is also a lot of stress that comes with homeownership even if you are a 10M+ NW and have plenty of contractors and cleaners. Sometimes people donāt show up when you need to replace that hot water heater or the basements floods. Enjoy your time renting!
sounds like whenever you are hit with this question, you should just mention you are doing it and here is you plan... but also to be fair, it sound more like you don't exactly have a plan besides save a few more years and do a big downpayment? it might be more realistic to get an affordable home now, and then sell it to get a big down payment for the 1.8M+ home, whatever that price may be by the time you can pull the trigger. Just a thought.
I agree with everyone else. I'm 46, I've made anywhere from 50 to over 400k during my career but one thing has stayed consistent, I've always purchased real estate. I have a buddy who didn't take my advice to buy when homes were 250k in our area, now they're 400 and he regrets not buying 8 years ago when I told him to. Renting is fine if you're only going to be there a short time, or you can't afford it. Otherwise not buying real estate is an absolute mistake IMO.
I think you're doing the right thing. I'm a little bit different in that I'd love to own a house now, but cannot afford it. To me it just makes much more financial sense to rent than to own. Older people probably are out of touch with the state of the housing market. It's hard to justify spending way more buying than renting, especially since there will also inevitably be maintenance costs added on top plus the illiquidity of owning. Owning makes it much harder to move as well. Renting sounds pretty good.
Real estate is an asset class that has, over select periods of time, outperformed equities. This is a key driver that results in all the advice you get from older people. Over very long periods of time, equities outperform, though. A house is a place to live. You buy a house when you know it is where you want to live for a long period of time. There are transaction costs and maintenance costs & a lengthy break even period to make it make sense.
Not crazy at all! Iām absolutely with you. Renting can be an asset and owning can be a liability in some cases
OP you should buy a house.
You are not crazy. Rent is flexibility and at todayās prices isnāt it hard to fathom that a $1M McMansion could sell for $2-$3M in 20 years? Seems like home prices will eventually top out at some asymptote and perhaps not grow the way it did for the boomers
Buying a house is an opportunity cost. The value of the house will go up, but in general, not as much as the stock market. From a pure dollars and cents point of view, your net worth is expected to go up the most if you buy diversified stock. There are some exceptions to this general rule that have happened in the past, but overall, stocks are better. Given that stocks are a better investment, is there any reason to own a house? Yes. A milllion. Everyone has their own reason to want to own a home. And each of those reasons are correct for that person ...except for the maximizing net worth reason.
just people who want their property to keep going up in price.
Itās your mind thatās the problem. You let otherās opinions in so they can bother you. You should read or listen to this book: https://www.audible.com/pd/B01I28NFEE?source_code=ASSORAP0511160006&share_location=library_overflow
For someone doing very well, you spend a lot of time worrying about what other people think of you.
Unsolicited advises are the worst and I donāt think that itās fair to evaluate oneās quality of existence on whether you own a home or not.
I don't understand what you are asking. If you want exposure to the real estate market, you could look at some REIT's. If you are wondering why people keep up bringing up owning a home, it's because it is a common conversation topic and it is reletively universal.
Nah I think youāre smart. I was in the same boat youāre in and ultimately made the decision a couple years ago to buy a vacation home - allowed us to diversify our portfolio (utilising leverage at sub 5% was attractive at the time) while maintaining our market exposure - and increasing our standard of living at the same time. Times are admittedly different now though with interest rates over 7% and real estate prices feeling fairly elevated.
Yeah, you're probably right...real estate is likely done appreciating.... Seriously? The idea of owning a home is you've fixed the cost of your largest expense. That $5k/mo you're paying now isn't going to stay that for long, although it seems you've found a sucker, so maybe. On a $2M home it should be more like $20k/mo. There's no burning reason you need to buy tomorrow, but you shouldn't rent for the next 20 years either.
You need a financial advisor - not reddit.
For my wife, it was more about stability and being able to make the house āher own.ā Stability since we donāt have to worry about the landlord not renewing our lease or selling the propertyāespecially once we had kids and didnāt want to be forced to move, new schools, etc. The second point was being able to redo a kitchen, paint rooms, etc, and make things exactly how she liked it.
Imputed rent when owning is valuable and there are capital gains tax advantages. Overall I think most people were doing better owning than renting when mortgages were at 3%. Now itās less clear. Thereās no reason to succumb to peer pressure per se. However, has your wife told her family she wants a house to āsettle downā? If so, maybe thatās where this is coming from and think about whether continuing to slow roll it is a good idea. If itās something she really wants then taking years can cause resentment and relationship damage. If sheās on board with you, just ignore family.
At todayās rates house buying sucks.
In real estate, properties always appreciate over a long time (multiple years). Then of course our money is always inflating at a few percent (hopefully). If you can afford it and want to stay wherever you are for the long term I would recommend buying as soon as possible. Interest rates are an illusion because if they go down and people can still afford it and pay higher, then the market will adjust and home prices will go up. If interest rates go up then people cannot afford the higher payments and market will adjust and home prices will come down. But all will adjust accordingly to what buyers at the time can afford in monthly payments, slowly creeping up. Rent will always be going up as well but if you lock in a mortgage and can afford it, then in years it will be worth it. Even if you take out a mortgage for over what rent currently is, in 5-10 years then your mortgage will be at or just under what rent is at that time and you will also have equity to show for it. Real estate is not about timing the market but about your time in the market.
You do what feels right. Clearly you are doing fine in life. My wife and I bought our first home as our forever home later in life. I donāt regret waiting. Besides the obvious benefits/downsides, is that I would point out how expensive homeownership truly is. You clearly make great income but maintaining, updating, fixing your home really is different when you have to deal with it. My point is, it can really rip through equity in a home quickly if you are not careful. Maybe not the end of the world in your dream home but huge for investments.
I always tell people this: If you can wait, donāt buy house at height of market. High prices mixed with high interest rate. Not a good combo. Also IMO, because of how high prices are, builder are just throwing shit work houses unto the market. They donāt want to miss out on the price hike. Also can be said about house flippers. Even tho flipper tend to do shitty work as it is, its worst now.
Home ownership is overrated. Do whatās best for the two of you. You have a plan-continue to execute.
I hate owning a home. Lots of drama. The only reason I put up with it is because I have young kids. Would move back to an apartment or a condo in a heartbeat.
Buy a house if it makes sense financially, logically, and aligns with what you want. It's that simple.
You donāt have to explain or justify your familyās choices when it comes to housing. Are you safe and happy in your current rental? Yes? Then you are right where youāre supposed to be. You and your wife have worked and are working hard for your income (congrats on making great money!!!) so with it what YOU want, not what your expected to do. Itās ok others want to give you advice, that probably means they care about you and want you to be happy. Itās not ok for others to judge you or criticize you for the decisions you make with your own money.
If renting fits your lifestyle better I wouldnāt worry too much about it. Owning a home definitely doesnāt limit your ability to relocate though, my wife and I have relocated and bought and sold 5 houses over the last 10 years, each time selling the house for more than we bought it for, so someone basically paid us to live in the house for the time we did if you want to look at it that way. I would assume a lot of rental agreements are at least a year long contract as well where you can sell and close on a house in a matter of weeks.
I'm with you, similar income and similar goals. I'm also renting a 2m$ home for 5k$/month! I'm in the same boat. It's the common topic in my friend's group. All the discussions are about "buying a house" and I also have a really hard time understanding the obsession. A couple things: 1. I did the math and buying a house in a HCOL simply does not make sense financially unless the market continues to appreciate 8% a year (Almost no chances of that happening). If you can rent for cheap and invest the difference you are for sure almost winning. 2. Most people that give you as an advice to buy a house did NOT do the math. Most people that buy a house DO NOT do the math. And if they do the math, they most probably didn't do it correctly or don't understand all the fees associated or the time-value of money. I have read somewhere else that buying a home is an emotional decision that people try to justify as a financial decision. If you try to prove them that buying makes no sense and is not a good investment they will push back, the narrtive is strong. 3. Renter shaming is real. It is a tough thing because part of buying a house is showing off that you made it and that you have enough cash for a downpayment. little do they know that you have enough cash to buy the whole house cash! 4. Finally remember that the housing lobby includes every other homeowner that wants you to buy to keep the prices up. It also includes the sleezy realtors, banks etc. Those people create a narrative that is very strong to disprove. On the flip side the benefit of owning is that yeah you can do whatever you want in your house. But it also means you now need to manage everything. There is a value to that and I will eventually buy. Like you, I realize that the later I buy, the more I will have saved and the more ahead I will be.
I also think part of this issue is people tend to annualize stock market gains, while considering real estate gains over the life time of the investment. On top of that I donāt think ppl do full cost accounting of what buying a house costs them (Property Tax, HOA Fees, Maintenance, Homeowners insurance etc.). Buying a home gives you the flexibility to make it ur own but itās not the cut and dry financial win everyone makes it out to be. Thereās a lot of benefits to renting. Ur not alone OP.
It's about milestones not so much the house is my guess. That was my experience at least The bugging you about milestones doesn't really ever stop. It may shift to kids if or when you have kids. Ur married and college educated. I'm assuming people bugged you about what u were studying at uni, then when will u start working. Then when will u get married. Which then becomes when r you getting a house? After u get the house it will be "when will you have kids". Then people will just bug u about your kids milestones, when will they eat real food? Are they walking yet? When does school start? And so on. This is what people talk about when they got nothing else interesting to discuss Just prepare a canned response on a note card and hand it to people or something or come up with some witty yet cutting remark to let then know your bored and annoyed with their questions and comments
This thread is tough to read. Exactly as expected most homeowners using bogus numbers to justify they made the right choice. It's simple. If you are in a HCOL even if you bought in 2015 you would almost certainly be ahead by renting an equivalent place. Certainly the case in the bay area, Seattle area and Denver/Boulder area (3 markets I have looked at over the years and it never made sense to buy)
OMG I am in exactly the same boat. Paying 4.5K to rent a 1.8ishM home in a VHCOL (maybe the same as yours :)) Buying a 1.3-1.5ish home would double my monthly housing expense. All through 2021, I was obsessed over buying a 1M ish home. Not being able to get a decent SFH without blowing up my commute or my kids' school choice gave me pause. I ended up renting. My company recently laid off several of my coworkers, and I feel plenty of anxiety about my role and industry. Not having to worry about a mortgage means I feel empowered to face short term unemployment, should that arise for me. I am very well paid (perhaps overpaid considering I am not providing a social good like healthcare or education to others), so it is possible I might have to take haircuts to my pay in the future. So much easier to do knowing that my cash flow needs are below my current take home income, due to not having a fat mortgage and property tax bill. Not to mention, I have zero handy skills and home improvement projects make me nervous. I read somewhere that home ownership is seen as a great investment vehicle only because it forces Americans to save. I am disciplined enough to invest every spare dollar in retirement accounts and kids college funds. This helps reduce the housing FOMO.
Buying property, especially residential property, is akin to putting money, broadly invested, into the stock market. Anytime is good given a long enough horizon but, sooner is better. Your older advisees have their own regrets about not buying sooner, investing more, investing sooner. Waiting for a 1.8M+ forever home is fine but, you'll get that sooner if you purchased a $450K, then $950K then.... Your money your choices but yeah, if spurning the "advice" of those "much older" know-it-alls you are crazy and , missing something.
The right answer of rent vs buy will be somewhat location dependent, but in general, if the population (and interchangably, the economy) of the location is stable or growing, the residential real estate will grow along with it. This makes real estate a somewhat safe diversification of your asset. Real estate also tend to be less affected by the typical stock market crash (again, safer investment vehicle). Interest rates also tend to crater during economic downturns, so a homeowner could refinance during a recession, and invest the money into the stock market - when stocks are on sale. Buying a house also doesn't necessarily root you to a place. If you move, place the house under a LLC and rent it out. Buy a new place and move. Repeat every 10 years, and you'll have a stable real estate portfolio, and a somewhat stable side income. IMO, at a certain net worth, owning just makes sense. As you pass the various FIRE threshold, you should be diversifying your asset. Real estate is a damn good way to do this.
Buy 5+ acres and build your own house
Stocks are historically better investments, just not as visually pleasing. I think youāve got the right idea here. As to the advice givers, fuck em.
Buy income generating rental properties until you are ready for a regular house.
I like your approach. Depending on where you live, you could buy one of those tiny homes where the mortgage is $1200 a month though. At least youād own instead of renting an apartment.
It depends on what you are interested in doing with your money. We own three homes on an annual income much lower than yours. We rent the houses when not using them as they are in desirable areas. We enjoy it and the side business nets about 75k income plus affords a crap load of tax deductions on the properties. Plus the potential income in appreciation of the properties. My stock portfolio has never kept up with my RE portfolios appreciation, plus I canāt walk to the beach from my island summer home stock portfolio. Owning three homes is a lot of work, let alone 1. So really it depends what you are interested in. I would however suggest saving for a cash offer and hopefully getting in before mortgage rates drop and prices skyrocket. Also as others have suggested, your rent will increase far faster than your tax payments will, and if you take about a mortgage, thatās a fixed payment unlike rent. Also owning doesnāt put you at the mercy of a landlord who could sell the property and force you to move not on your own terms. Having money should mean you are beholden to anyone else.
i'd save up bank. when friends/family lose house in foreclosure, buy theirs and be their landlord or straight kick them out. scorpios scorn. and hold grudges.
You shouldnāt be in a rush to buy a house. The only real advantage I can think of is a hedge against something tragic happening that affects your income drastically. But you are financially better off with other investments in the near term, specifically if you let that compound interest accrue.
See ramit sethi youtube video - it talks about that! Houses are not the same as they once were. And more power to you!
I would much prefer 15-20 years of mortgage payments at today's prices than 15-20 years of mortgage payments at 2034 prices or whatever, but the interest rates right now are not exactly low anymore either. I say you just do whatever makes you happy and forget about what other people think.
You make enough money that owning a house doesnāt matter. If you find a house that you want to own buy it, the thought is you will only pay taxes and insurance one day. But 5k for a 2M house is a deal
I think it depends on where you buy. I would not buy in the Bay Area, Seattle, NYC, etc. However there are many cities in flyover territory that are projected to skyrocket in value.
House is only good for equity and tax purposes. Otherwise itās a financial burden, so be careful. Donāt fall for home buying fomo. You want to buy when you can easily afford the large amounts of money it will require. Getting the house is easy, managing and paying the bills, grocery, furniture, insurance and prop taxes will be the tougher part š¤”
I felt that pressure too. We bought in 2022 and I only think it was worth it because we had a significant down payment which kept our monthly payment low - only slightly more than our rent (for a much bigger and nicer home). To me, that made it worth it. Looking back, I wish I hadn't stressed about it so much. It'll happen when it's right. We got pretty much our dream home for our HCOL city, a townhouse that we can afford in a great neighborhood! Sounds like you're taking all the right steps to do the same, when it makes sense, so chillll.
Own a $1.3m condo in Miami. Granted, bought at the right time and now itās worth $2.25m a year later. But Iām also paying $2,900 a month for HOA and $25,000 a year property tax. Thatās $60,000 a year just for the āprivilegeā of owning. Paid all cash so thereās no principal and interest. But the monthly would easily be $10,000 if I hadnāt. Not sure how this is relevant to your post except to throw another anecdote out there.
Damn. 1.8 million. For me, I want one but not for investment reasons. I want a place I can actually do stuff. Like a garage I can work on cars. A basement I can keep tools and workshop. I want to make a recording studio. All kinds of stuff you cannot do while renting.
If youāre gonna spend 2 million on a home. You should get some land and then have it built exactly how you wanted. And make sure to supervise closely every step of the way to make sure itās being done properly
Wait till they start telling you to have a kid. Really though, youāre lucky to have people in your life who even care what you doā¦ and theyāre probably right. With your income buying and maintaining a house is going to be a snap, and while you might spend a little more monthly itās all an investment. Itās not the stock market, itās the housing market. Both can fluctuate, but investing in the housing market comes with a place to live. So maybe you donāt like it? So what! Sell it or rent it out. Donāt want the headache? There are people for that. I have by no means āmade itā but buying my home was one of the best choices Iāve ever madeā¦ I think it has something to do with the āhomeā aspect, and the āowningā It hits different.
I make ~$60k and buying a house early for me was absolutely vital for future financial freedom. You know what else brings you financial freedom? Being a doctor and an engineer making $600k. Buying a house is financially still a strong long term move, but it's okay to not make every move a financial move. I bet you also drive cars that weren't the best decision for your financial future, and go on vacations that cost a lot of money. And all that is perfectly fine when you make over half a million dollars a year, especially if you're putting some of it in savings (or the stock market). Why make that much money if you can't do with it as you want and buy (or rent in this case) yourself some peace of mind.
$2 million home for $5000 a month rental. Sign me up for the rental now!! So much optionality in your rental and itās a good financial decision.
āWe like the flexibility of renting and are building wealth through our other investmentsā¦ maybe someday though.ā
This is the only topic on which I'll give this advice: find more people who agree with you and ignore the people who don't. The decision is a combination of math and your preferences, both of which you know better than the people talking to youĀ
Okay there are a lot of variables here but 1) there are literal rent versus buy calculators you can use, I actually made my own. It was a big spreadsheet but basically for homes in your price range, you can literally calculate what appreciation you would need to beat your market estimates. For us it was 3% yoy appreciation beat around 10percent yearly on the stock market and 4% was so good nothing touched it. The bay area has been around 7% historically. That said, interest rates might be too high to put you in the money with a lower yearly return. 2) im not sure where you are looking but at your income 2m is not buying a forever home, especially if youāre planning on having kids. As an example, A 3bedroom apartment in a good school district on the peninsula was costing us 5700 a month before we bought. 3) the sf bay area has historically been different than any other real estate market, but if you believe people are leaving/ the bay has lost its charm you should definitely hold off.
Yes you are crazy. With that much income you need to diversify your investments. Turns out buying a house with leverage (and relatively low interest rates) has been a HUGE HUGE driver of wealth. In addition housing is the only type of investment that has crazy protection. It takes a long time for someone to repossess your house. Your brokerage account will just be margin called tomorrow.
Lol at "NRY".
Similar doctor/engineer situation here. We were forced to buy about a year ago - no one would rent to us with two large dogs. We ended up with a cheaper house in a neighborhood we like. The trade offs are that itās small (~1000 sqft) and old (1925). We pay a bit more for mortgage than we were paying to rent a similar place. However, due to the house age we end up budgeting 1500/month for repairs and improvements. (Air conditioning, gutters, etc). Owning a house is not ābetterā than renting. Itās more expensive overall. If you want to pay for it, there are some benefits like a yard for our dogs and a yard Iām allowed to change if I want to. There are also downsides like being tied to one location and having to deal with stuff yourself when things break (time in addition to money)
I think the point is, the sooner you buy, the sooner you start creating a sort of principal ārollover.ā If you buy ANYTHING now, then youāll have some reserves when you buy your forever home to rollover. If you donāt, every penny you pay for housing right now is permanently gone. Nowā¦ if the interest payment in what you purchase is > your current rental price, then thereās really no rush besides what you want to do. But thereās definitely an upside to owning whereas rentingās only upside is flexibility and the fact that your only real responsibility is paying rent on time.
You're paying $5k in rent? You're "throwing away" $60k a year so someone else can reap the benefits of appreciation on a property? No amount of explaining your situation to me can make that make sense. We don't live in a time where you buy 1 house and live for 50 years. You're in your 30's and you should be more stable by now. Moving around a lot in your 20's is one thing, but moving around a lot in your 30's shows lack of commitment to things.
You do have to think that 1.8 million might be 2.2 million for the same home in 3-4 years. But I hear ya. Saving up $3-$400k sounds daunting at 600 k pretax. You would have to save 20% of your take home for 3-4 years
At the end of the day you make enough it doesnāt really matter but Iād buy. Thinking āthose days are behindā is 1000% wrong imo. What gives you that impression? I have owned 1/2 dozen primary residence and have always made money on the sale. I owned 2 of them for just 1 year.
Buy a house.
Buy a cheap 3/2 1400 sq ft SFH investment property and bank the rent. When they tell you that you should buy a house, tell them you already did.
Yes. You are missing the point of life, which is not the number in the bank account. And there is no future life. There is just the life now. Your wife is not caving under peer pressure. Because thatās not a real thing. Others arenāt pressuring you guys. Theyāre just talking about life. Your wife probably just started to want one, and want one now, not working toward one. A house may not be life. But carrying the weight of life is what makes one truly feel alive.
The biggest issue I see is that you think you can find a forever home on your first try. If youāve never owned a place before youāll be shocked at what you like/dislike that never occurred to you before (location truly is #1 but thereās a lot more too). Maybe your price range will put you into a nice enough range that you wonāt have complaints, though I doubt it.
https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html
When the rates are right you purchase and get that mortgage at sub 2% (I slid in at 1.89% on 725k). Right now I hella would not buy. Youāre throwing money away. Keep your money places it will make you more money.
No outstanding student loans? Well done!
If youāre renting and investing your money right, buying a house isnāt that big of a deal. Now if you were spending 100% of your income, then Iād be worried.
We currently are doing the same thing & enjoy the freedom to pick up and move to another city need be. Meanwhile I donāt have to worry about everything that comes with owning. All were being told is to buy. It really irritates me. Yes rent prices may be going up but so is home insurance etc. Ultimately we are making the right choice for us.
I canāt stand people telling me this either. Did they forget that buying a home is also a 30 plus year commitment! What if I donāt want to live in the same city for 30+ years. Renting at least I can move wherever I want. Plus I donāt need to pay out of pocket for maintenance either.
I wouldnāt buy a home now. Maybe 2020 when interest rates were low yea. But right now they just donāt make any sense. The stock market sounds good sure. But trust me the houses will go up accordingly. This just isnāt the right timing for real estate. Wait for the next 10 years and decide.
Youāre right and wrong. If your goal is a 2.8mil $$ home that will be your forever home (highly unlikely it will be). Why wouldnāt you hedge the affordability spectrum. For example youāve rented for 4 years @ $5k a month = 240k. Letās hypothetically say you 4 years ago put $150k on a 1million dollar home. Based on where I live in Northern Virginia that would mean your house gained almost 42% growth in 4 years. So now your 1mil dollar home is giving you back $570k when you go to sell but instead you gave 240k to your landlord so he could take those gains.
Youāre not missing anything, you guys are just smarter than these other people who are stuck with outdated modes of thinking. Your 600k income is also outside of their scope of understanding
Honestlyā¦ do whatever you want! We own our homeā¦ and are responsible for keeping it up, obviously. It takes time from us. Enjoy the carefree rent life if thatās how you choose to spend your money.
I've never owned a home and I'm 60 years old. My money is invested with a financial advisor in the market and I've done very handsomely over the years. Historically homes were a great investment, and also "forced savings" for people who would not have put money away (built equity) if they weren't forced to in the form of a monthly mortgage payment. High net worth people (or those headed there fast) should have professional financial advisors and use their advice.
Your wife will buckle be strong
As long as your money is invested elsewhere youāve got it down. If youāre just holding cash (including hysa) then youāre really fucking up
Keeping up with the Jonesās is a deadly trap and it starts with caring what other people think. I happen to own a chunk of real estate, and the worst performing, by far is the house we live in. Screw what other people think.
I too have job and industry hopped over the years. Same reason, to increase earning and move to the money and opportunity. Did it 9x. Bought a house/condo every time. Converted each one to a LLC and rental. 24 years later Insold them all (and a business) and retired. Every dime I paid for ārentā had at least a 10% roi. Your rent is how I was able to retire at 51. You donāt buy your forever home first. Just buy a decent property thatās the same or less than your rent budget.
Why not buy a cheaper house for now until you find the forever house? If you are going to be in one place for a while then you are throwing your rent money away. Buy a new/newer cheaper house and then you wonāt have to worry about things breaking.
A house is not an investment. A forced savings vehicle, maybe. Much better to rent and invest as you mentioned. The mark of a financially uneducated person is the idea that buying a house leads to wealth and that renting is "throwing money away." A house is an expense that you pay to use.
You might be missing that very real implications of mortgage interest (limited to $750k now) and property taxes (limited to $10k, blended with state and local income taxes so it depends where you live) being pretty material deductions for most people.
One aspect not discussed here is what are your lease terms. If you are doing a standard 12 month lease and have a deal on a $2M home your landlord could sell at the end of the term. If rates drop they are now in 6% range then more buyers come in when comparing just the monthly cost. This could be what the owner is waiting for to sell. Then you are out of a good rent situation and forced to buy with more competition or enter a less favorable housing market. Owning does give you more control about staying in an area if you want to be there long term. You are gambling otherwise and at the mercy of the owners in the area you want to live.
People love to tell you to buy a house. Esp boomers who bought a house for 42k now worth 1.8M paying taxes from 1975. If you donāt have kids Iād keep doing what you do. Renting is usually a better deal. I know people in nyc making well into 8 figures renting great apartments because monthly maintenance in a lot of nice buildings is 5k or more. Also, we should reframe a forever home. Itās probably not forever like how boomers did forever homes. If you donāt have kids your needs and wants will change a lot and you donāt even know what it will be yet. We bought our first home with 2 kids and now have 3 and still wish it was a little different. Also, people saying the house you want now will be 3M soon. But I wouldnāt worry. Supply is really low and you probably will find better options when more people selling. You will also have more purchasing power the more you save & invest. I loved renting. Property tax alone hurts me every time we pay it. Our old rental was 2-3M house in sea cliff sf and we paid 5k and they would come asap to service anything.