TO RENT OR TO BUY, THAT IS THE QUESTION
I am moving in approximately 2 months from now. I have been debating if buying a home now is a good option or if I should stick to renting. I am 23 years old and I am planning on moving with 4 close friends that are extremely dependable (includes girlfriend, and 3 other very close friends including business partner). For those of you who know the San Diego region, I am going to be living around Mira Mesa, Sabre Springs, Rancho Penasquitos, and we are probably going to paying around $2,900 a month for a 3-bedroom 2-bath ~1500 sqft home. This means I will be paying around $600 a month in rent. I would say the average home price in the area that we have to live in (this is a centralized location in the middle of where we all work, not very negotiable unless we found a very good deal) is around 600k for a 3-bedroom 1500 sqft home.
Obviously, the goal is to house hack and have my roommates help pay my mortgage, however, I do not want to buy a house if it means I will be paying a lot more on a monthly basis compared to renting. I have been looking at relatively cheaper houses <450k and the math does not add up. The best scenario I have come across so far was a smaller 3-bedroom 1.5-bath home for around 420k, and even then I was paying around $900 a month (this is $300 more than I would be paying to rent). I have considered all of the expenses including mortgage and down payment, I include around $2400 as income from my roommates, the only thing I do not count is appreciation. I realize most of the time houses in San Diego are going to appreciate but I'd rather not gamble on that.
Do you guys have any opinions on this whole idea? I am all about reducing my cost basis, and monthly rent is by far my biggest expense… Any ideas on how I can do this? One solution I have right now is just to get a year lease and wait to see how things work out in the housing market, we will have around 60k by the end of 2019 (saving around 50k/year cash after that) to use towards an investment (this may or may not be real estate), then I can reevaluate come 2020 and see if it makes sense to buy a home then. We want to find something that makes the most sense, and other than maybe an apartment complex, we can fund most deals, so if that's not an issue, whats our best move?
I greatly appreciate any feedback and I am looking forward to seeing what ideas you guys have!
Just to be clear - four unrelated people (to include your g/f) are going to share a 1.5 bath home? Do you really think that is a sustainable long term plan? For that reason alone I would suggest that you rent.
I agree there, I showed that house to my g/f and she told me no way... I was just trying to give an example of how I do not see it really working out.
As a Canadian, i was faced with the same issues as its on average $400k to buy a home in my market. I decided it was best to keep renting, so i could continue saving and put it towards rental properties and flips, overall building my passive income and networth. The only problem was Canada has extremely poor cash flow and ROI in the western provinces due to high buy in prices.
My solution; to invest in the states. By keeping my expenses low where i live in Canada by renting, i can save more in the short term and use my savings to compound in better markets within the US. (Daytons rental market for example;we just bought two SFH rentals for around ~+/-$42k and collecting $1,000/month rent. I couldn't dream of getting these numbers in my home town)
Now im investing with my family so our overall portfolio is much larger. Still, i decided to move home so i can save even more that will be invested into US real estate. All in all i am very happy with my decision as our savings work harder for us through acquiring rental properties then owning and paying down my personal residence. I wish i could have house hacked, but with my market and situation it just didnt make sense.
Hopefully this helped. Please feel free to reach out if you want to talk about out of state investing and how we manage to do it from Canada! Good luck.
Your negative cash flow seems optimistic if you were purchasing a SFR at retail. Did you make use of the 50% rule?
I invest in San Diego county and will state that if you do not want to count appreciation then it is far better to rent than to purchase at retail.
The problem with this logic is that you are discounting the return component that makes San Diego one of the best locations in the nation for buy n hold RE. San Diego makes every long term list of highest ROI locales.
For over 60 years San Diego has appreciated in the long term much faster than inflation. The rents the 3 years starting in 2015 increased on average $500/month for SFR (over $100/month annually). I suspect 10 years from now those who purchased a buy n hold in San Diego today will be happy they did. Why do I have this belief? Because no matter when you purchased in the last 60 years (including at the height just before the Great Recession) you would have experienced great appreciation 10 years later.
Do not ignore the appreciation. Make the decision on can you handle the negative cash flow? Are you planning on holding the RE at least 10 years? Can you make the down payment and still have the necessary reserves? Can you obtain reasonable (most conventional) financing? Do you think you will like be a landlord? Etc.