San Diego, CA - Buy or Rent?

25 Replies

Hi BP Community,

From a financial perspective, should my fiancee and I plan to buy a home after our wedding or keep renting? I have been tinkering with this dilemma for some time now and understand it depends on a multitude of variables. Would love to get your thoughts.

Some background about me:

-Real Estate Tax CPA (combined income around $125k)

-Soon to be married (have $30K wedding to pay off that will deplete our savings and thinking about saving to purchase a SFH after wedding paid off)

-Currently paying $1,200 in total rent between fiancee and I in Vista, CA (Working in La Jolla) - We live with one roommate who takes on about 1/3 of the rent.

-Listened to all BP podcasts, read Brandon's books, etc. and they all seem to point to purchasing (for debt pay down, appreciation, etc.), however in San Diego, rent seems to be a lot less than a mortgage+expenses. Most 400K-500K condos/SFH in this area will require mortgage payments of $1,800+.

-Fiancee is tired of living with roommates so house-hacking is out of the question. 

Would really like to start investing sometime next year and my original plan was to buy a SFH that could potentially be a great rental in San Marcos, CA (near CSUSM).

Thanks and look forward to your thoughts!

It is hard to find SFR that cash flows when purchased as a rental but as owner occuppied you get to write off the interest and currently the property tax (the interest write off is rock solid but writing off the property tax is to be negotiated in the current tax reform). In addition, as owner occuppied you get a better rate on your loan. So while it is real tough to cash flow with a SFR at purchase as a rental it is easier to purchase an SFR for owner occupied at a total cost less than renting.

Now fast forward 10 years.  San Diego has historically been a high appreciation market long term.  This is rent and property appreciation.  So chances are that your purchased property has appreciated and that if you were renting your rent would be significantly higher than at the time of purchase.  In addition, due to prop 13, your property taxes have risen at a controlled rate and are likely significantly under market tax rate.  Finally you have 10 years of equity pay down.   This equity pay down adds up and 10 years into a loan will be significant.  

I understand not wanting to have roommates but there are other options other than having roommates to house hack. In my area of specialty a detached duplex sells for far less than the 2 units would sell for as a SFR. I will go even further that in my market specialty area a 3/1 vs a detached duplex 3/1 and 2/1 have only about $100k difference. This implies that the 2/1 detached unit in effect costs $100k. by the way I just closed on a detached duplex with that configuration.

In my view, the only down side of owning is the reduced flexibility to relocate.  In historically appreciating markets like San Diego, owning will virtually always be the better financial decision for a long term hold.  

Good luck.  

Buy is always better than rent.

Rent is paying mortgage for others.

Why not pay for the mortgage for yourself instead of others?

@Ron Trinh Am sure in a CPA perspective, you already know the benefits of tax shelters, however it will not offset your monthly payments to mortgage and all related expenses when owning an SFR. I’m pretty sure a lot will say owning, but in my opinion, SoCal is the among lowest paying cash flow vs anywhere, with that said, if I rent, I am getting the biggest bang for my buck. When renting, I don’t have to worry about saving for a broken water heater or roof leak or mold issues, whatsoever, if there’s something wrong, I give the owner a call and problem solved. Also as you know 125k combined translate to only 10k gross and should be around 7-8k when it hits the bank, a 500k mortgage will be around 3k/mo and two cara will go around 1k, utilities and fuel maybe another 1k, that alone is 5k that doesn’t leave a lot for errors and living expenses. If renting that’s only around 1.5k to 2k instead of around 4k when owning.

@Dan Heuschele Thanks Dan. I agree with your points. The long term write offs and loan pay down are the main reasons why I am leaning more towards owning than renting, despite how inexpensive my living costs are now. It is very difficult for me to ever see a reason to leave San Diego as I grew up here. So, thankfully relocating is not too big a concern for us. As a tax professional, I am really curious to see how the reform all shakes out. From my understanding, mortgage interest and charity will be here to stay. And thankfully, CA property taxes are not all that high to begin with.

I also did not know that there are detached duplexes here in San Diego at reasonable prices. Is this in Poway? I always thought this was only possible in other states as the duplexes I have seen online are out of budget or in not-so-nice areas. Would you happen to have a link to one I can check out? Would definitely consider a detached duplex to house hack. And congrats on the recent close!

@Mary L. - Good point Mary.

Hi Ron,
Congratulations on your wedding! I used to debate this as well. Then I stared looking at the cost of homes in San Diego where I wanted to live. I realized a few things:
1) I was unable to buy what I wanted in the location I wanted to live.
2) if I were to settle a little on location and get something a little smaller than what I wanted I would not be able to rent it and cash flow in at least the first 5 years.
3) I could rent in these locations for less than the amount of “throw away money” per month. Throw away money is a term that I think I made up but I define in as anything that’s not going to principal paydown: property taxes, interest, maintenance that doesn’t increase the home value.
So I rent and I buy cash flowing MF property in Kansas City.
Many will tell you that you have to buy in San Diego (insert other high priced market here) or you’ll never be able to get into the market. They will also say you’re missing appreciation. They say it will cash flow but it will take 5-7 years. Maybe they are right but I’m also not putting down a huge down payment and my throw away money is less. To me, if I can’t move out of a house and rent it out without losing money, I don’t want it. People buy houses for emotional reasons and those reasons are valid, I don’t want to move my kids school, I want to know no one can kick me out, I want to build equity, I want to cash in on appreciation.
So if you’re looking for less money out of your pocket each month, rent. If you’re looking for any of these other things, maybe buy. I couldn’t be happier renting. I like to think it makes me a good landlord and I love a fixed amount of throw away money going out the door every month! That fixed amount is certainly not true of my rentals, some cost is always coming up! And my tenants are happily paying their fixed amount monthly.

@Manolo D. Exactly! The low cost of living while renting is what is making me hesitant. You are right. At our income level, our finances would be be tight once locked down with a mortgage and maintenance. Considering this, we are renting now to help us put more money away each month. Seems like we would be house poor once we buy a place for at least 3-5 years. Definitely something to consider. The more I think long-term though, it may work out better to buy. Thanks Manolo.

@Lee Ripma Thanks Lee! I have actually considered renting here and owning property out-of-state as well. @Vickie Yang knows about this as she rents and owns property in AZ. I admit, I have not done much research about other markets yet. With the pressure of the wedding, family members naturally start to put pressure on us to "buy a home" to start our family. Thankfully, we do not plan on having children for at least 4 years. 

May I ask about how you got started in Kansas City? Feel free to PM me if you are more comfortable discussing there. Really appreciate your response as well as the others I have received thus far!

@Ron Trinh look at my profile for my area of expertise.  In my area of expertise there are many detached duplexes but significantly less than sfr.  If you PM me I can refer you to some detached duplexes/ triplexes (some of my properties).  

@Lee Rimpa is definitely not correct on not being able to cash flow in San Diego but they may not be the areas that she chooses to live.  That means that you do not need to invest out of the area.  Also if she purchased 5 years ago in any area in San Diego not only would she be cash flowing today but she would have ~60% to 70% property appreciation and 25% to 35% rent appreciation.  

The purchase I completed this month easily cash flows (even with what most consider conservative maintenance/cap expense numbers) and is in a fairly nice neighborhood.  

Note if you purchased a detached duplex as a house hack you would get a better loan rate and not need to put as much down as a non owner occuppied investor.  

@Ron Trinh It will work better if you look at a multiplex instead of single fam, Since househacking is out of the picture. A less intrusive approach is a househack but with a separate entrance say a full studio/1-bed/ADU above garage under the single family lot. Owning a single family is hard on that income range no matter where metro area in CA you buy. In my opinion, I would rather live loosely and not worry too much about money reserves and mortgage but keep funds healthy vs that of live frugally but own a house and flat broke every month. The world is hard to predict, and within that 30 years, there will be a couple of recessions in there, and when I think about it, I have lived frugally AND I lose a house if I let my guard down on the wrong time.

@Ron Trinh It was tough getting started in Kansas City but now I know and like the market. It takes having a deal and some trial and error to get a local team that you trust. I think to be successful at out of state investing you have to really know your market and go there. It takes a lot of time and effort.

In San Diego I choose to live in Ocean Beach and Mission Hills. I don’t like commuting and I won’t settle on location to buy. In those neighborhoods I found prices too high 5 years ago and now. I use my money to travel instead of saving it for a massive down payment followed by a massive mortgage payment. Travel, not commuting more that 10 minutes, and staying near the cost for the moderate weather are worth not owning in San Diego to me. I also just don’t want to be tied to a home that I can’t rent, I want flexibility. Everyone has different goals and mine are achieved by renting in San Diego. There are those that criticize this and say I’m missing out on appreciation. But I don’t care because I’m achieving MY goals! Others have different goals and want to buy, awesome, go for it!

Originally posted by @Ron Trinh :

Hi BP Community,

From a financial perspective, should my fiancee and I plan to buy a home after our wedding or keep renting? I have been tinkering with this dilemma for some time now and understand it depends on a multitude of variables. Would love to get your thoughts.

Some background about me:

-Real Estate Tax CPA (combined income around $125k)

-Soon to be married (have $30K wedding to pay off that will deplete our savings and thinking about saving to purchase a SFH after wedding paid off)

-Currently paying $1,200 in total rent between fiancee and I in Vista, CA (Working in La Jolla) - We live with one roommate who takes on about 1/3 of the rent.

-Listened to all BP podcasts, read Brandon's books, etc. and they all seem to point to purchasing (for debt pay down, appreciation, etc.), however in San Diego, rent seems to be a lot less than a mortgage+expenses. Most 400K-500K condos/SFH in this area will require mortgage payments of $1,800+.

-Fiancee is tired of living with roommates so house-hacking is out of the question. 

Would really like to start investing sometime next year and my original plan was to buy a SFH that could potentially be a great rental in San Marcos, CA (near CSUSM).

Thanks and look forward to your thoughts!

 If you can afford to buy and plan on staying in San Diego it could make sense to buy vs rent. I am not familiar with CSUSM areas but sounds like a good idea. The lowest of the lows for apartments could be near 1800 a month for 2b in SD soon so owning at $1800 at least locks in expenses and like many SD owners feel today, will seem cheap compared to rent down the timeline road. Later you could rent that one out for top dollar and or cash out, heloc, repeat? 

Good luck! 

Originally posted by @Mary L.:

Buy is always better than rent.

Rent is paying mortgage for others.

Why not pay for the mortgage for yourself instead of others?

 That is too broad of a statement. If he said he would consider moving for the right job opportunity, or his new spouse was from Texas and wants to be close to their family, it would not make sense to buy right now. But since he intends to stay where he is, and will be starting a family in the future, buying sounds like the right choice.

@Dan Heuschele Cool, will PM you Dan. Curious to see your properties.

@Manolo D. Good points. I agree that house hacking with a separate unit would be ideal. Will have to keep looking for those deals.

@Lee Ripma Right, I think getting the "boots on the ground" in an out-of-state market is my current barrier to entry. I grew up in north county and suburbs are my thing. Hopefully I can find something up here that lets me own in SD and maybe out-of-state down the road! And living for your own goals, love it. Keep up the good fight.

@Matt R. After all of these responses, I am definitely leaning more towards owning now. The CSUSM area has been growing rapidly for the past 5 years and is turning into a bit of a college town. If I am up to the student rental idea, I could have a decent long-term strategy there. My apartment now is $1,774 a month for a 2bd/2ba. I figure if my monthly expenses with owning a home is slightly over that, we could make it work. Thanks for your thoughts!

@Paul B. Given my situation, buying seems like the smarter choice now too. Thanks!

I think the first question you both need to ask is what are your financial goals in 1, 5, 10 years.  It sounds like you need to save up a down payment whatever you decide (invest in SD or OOS) so you'll have some time to work on those goals if you haven't already.

Second question, which ties into the first, is what kind of lifestyle do you want?  That will dictate your house hack decision, home location, home type, etc.

My husband and I are house hacking a 4 unit in Pacific Beach; buying into SD real estate was the right move for us, and we have learned and grown tremendously in the year we've owned this place.  But it only works because this decision is aligned with our financial goals; we are willing to make lifestyle concessions to achieve those goals.

Finally, if you decide to buy a house with plans of building an ADU in order to generate income, please take your time to look into the feasibility, cost, loan options, future sell-ability, etc of that property. I don't know about anyone else in CA but I suspect a lot of people are buying properties that would make terrible rentals, at the top of the market, with some poorly thought out plan to build an ADU and 'get into real estate.'

@Sarah D. True. Since we are both only a couple of years out of school, we have not really given lifestyle design much thought yet. Definitely something we need to work on.

@Ali Boone Thanks Ali. Just finished the blog post. It is not necessarily a dream of mine to own my own home one day, however, I would like to be able to stay in one place for a while (without rents going up). Since coming out of school, my fiancee and I have been moving every year and it has been exhausting. I will definitely not buy during the top of the market (as we are in now) as you make/lose money when you buy. The depletion of our funds for the wedding will force us to wait a few years, thankfully.

I may be going a bit backwards by considering to buy a personal residence before investment property, but I have to keep myself and more importantly, my future wife, happy. Appreciate your thoughts!

Sounds like you've already made up your mind, so now it'll just be a matter of finding what you want when you're ready.

The only last thing I'll add/note...you mentioned your wife is tired of roommates so house-hacking won't work. House-hacking doesn't give you roommates...it gives you tenants in separate units. Just wanted to make sure you're clear on that option. I mean it won't cash flow you, but it can still be better than buying a primary SFR for yourself.

@Matt R. Not thinking like an investor, but I think if I rent 1,800 for a 2b, it is much more beneficial than buying a 2b with a 1,800 mortgage. I mean in my opinion, my 1,800 will eventually pay my landlord's mortgage, but it will not pay for estate taxes, leaky roof, maintenance, and all other depreciation that could eat everything up.  To me rentals aka cash flow in CA are the worst, ergo if I rent, I get the best deal. Disadvantage though, is if I make a lot of money, I won't have tax shelter, but on a combined income of 125k, there's not much tax to shelter.

@Ali Boone Just thought I would clarify, she does not like the idea of living with anyone other than me in the same living space i.e. sharing common areas like bathrooms/kitchen/etc.  As Dan mentioned, I think if I were able to find a detached 2 unit, my fiancee would not mind as the tenant would be living in a separate unit. I have not made up my mind just yet since I plan to be renting for the next 2-3 years. A lot can happen in that time.  

@Manolo D. Good point Manolo. If the numbers work out when I am ready to buy property (investment or SFH), I may choose to rent in SD and invest out of state for cash flow. Lot more to consider with all of these differing opinions.

Originally posted by @Manolo D. :

@Matt R. Not thinking like an investor, but I think if I rent 1,800 for a 2b, it is much more beneficial than buying a 2b with a 1,800 mortgage. I mean in my opinion, my 1,800 will eventually pay my landlord's mortgage, but it will not pay for estate taxes, leaky roof, maintenance, and all other depreciation that could eat everything up.  To me rentals aka cash flow in CA are the worst, ergo if I rent, I get the best deal. Disadvantage though, is if I make a lot of money, I won't have tax shelter, but on a combined income of 125k, there's not much tax to shelter.

 I hear ya. Maybe if it was more long term than the difference rent vs own becomes more clear. If you are in a non rent controlled unit the rents can go up quick too. Bit of a gamble to rent in SoCal long term non rent controlled and before you know it buying is not an option for some who end up priced out for good. Now you are renting not by choice. 

@Ron Trinh I’d never go out of state for an investment, if that, I’d play the stock market, a much more safer bet. I believe someone at a large bank offered me a 5% guaranteed growth, so if I invest out of state, I’d imagine it’s a lot riskier.

@Matt R. Maybe true, I don’t want to look at anything more than 5 years though, maybe i’ll change my mind if i hit my golden years. hehe.

Ron, we have all been here and done that and I'd say you should definitely buy. Buying will ALWAYS have higher hurdles than renting but you are young and your $125k has the potential to double and tripe over the next 10 - 15 years. Buying a home will mean you will be putting money in your own pocket, building equity, taking tax breaks and finding stability for your family. My only recommendation is to stretch a bit and buy in a desirable area. Let the area be a bigger driver for your decision than the home itself.

Very true. The best thing to do is use that time to keep getting educated. Whatever route you choose is good, assuming you have educated yourself enough to know exactly what you are taking on...whichever way you go. 

For the househacking, even if a second unit wasn't detached (i.e. duplex with adjoined units), there shouldn't be any shared spaces, other than maybe the walkway.

@Sam Josh Thanks Sam. I agree the area definitely plays a stronger factor than the property itself. More to keep in mind!

Thank you to everyone that shared. As @Ali Boone mentioned, I have a lot more self-education to do while I save up. Excited to see where this journey takes me.

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