Bay Area Home Purchase guidance

[Yash Desai]

Happy new Year folks!

My goal this year is to purchase my first property. I currently live in the bay area and want to buy something to live in. However, decent houses that are 2/3 bedroom are close to $1.2m. I am wondering rather than buying a house if I should buy a rental property outside of San Francisco and live in my currently rent controlled unit until my wife and I absolutely have to move out. The goal would be to build some equity in the rental unit which then I can use it towards my own house.

I would love to hear your thoughts or if someone has a similar experience.

Thank you,

[Darius Ogloza]

The answer to your question lies in running the numbers.  How many years out do you intend to rent? How much rent will you pay over that number of years?  What kind of property can you afford to buy?  How much will that property rent for and what expenses will you regularly incur?  Finally, what makes you believe that the property you buy has realistic prospects for appreciation/growth?  

Do not lose sight of the principle that growth rates magnify with the size of your investment.  For example a $1.2 million house in the Bay Area will be worth $24,000 more with a 2% increase.  A $100,000 house in  the Midwest will be worth only $2,000 more with the same increase.  If there is constant growth in the Bay Area and in the alternative market (say, both markets grow by 10%/year), then you will be losing out by waiting longer to buy in the Bay Area rather than gaining an advantage.

If you have the means, I would recommend that you bite the bullet and buy where you want to live.  I am sure others will have different opinions.