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The Rise of the Rich Renter

citylab.com

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Re: The Rise of the Rich Renter

#31

Post by rentcontrol »

efficax wrote: post #15

I make a decent living, way above median household income, but my wife and I rent in a dense urban center for the simple reason that even with our income we couldn't afford to own in this area. Even if we weren't paying student loans it would take several years to build up a down payment that would result in cheaper mortgage payments than our rent burden, which would be crucial since homeownership adds property taxes…

Is it actually too high? It sounds like it's just right to me. Clearly you're paying the premium to live close.

Re: The Rise of the Rich Renter

#32

Post by walshemj »

jeffdavis wrote: post #26
sidlls wrote: post #16

Earlier quoted context omitted.

I'd take 10 houses for $200k in the Midwest over one $2m house in the Bay Area. Appreciation is lower, but rents (as a percentage of cost) are much, much better. The shortfall in appreciation can easily be made up for in better rent yield.

Consider maintenance costs, vacancies, and management fees. Those can take a huge bite out of your rental income and easily drive you into the red.

not if you run it as a property company and not directly own them

Re: The Rise of the Rich Renter

#33

Post by closeparen »

Is anyone surprised? The fall of the private car has us contending for less and less land (near work, near transit stations, etc). Of course everyone’s housing situation moves down a few notches when we throw away the vast tracts of housing supply enabled by freeways and parking.

High rises and elevators could compensate, but so far no city is contemplating adding downtown luxury condos at anywhere near the rate it’s divesting from sprawl.

Re: The Rise of the Rich Renter

#34

Post by techisamix »

matt_wulfeck wrote: post #28
efficax wrote: post #15

I make a decent living, way above median household income, but my wife and I rent in a dense urban center for the simple reason that even with our income we couldn't afford to own in this area. Even if we weren't paying student loans it would take several years to build up a down payment that would result in cheaper mortgage payments than our rent burden, which would be crucial since homeownership adds property taxes…

7 years of saving I believe is the average for a down payment. It doesn’t sound like your story is too outside the range of normal.

I haven't heard that before, link?

Re: The Rise of the Rich Renter

#35

Post by rentcontrol »

nostrademons wrote: post #23

This is dual to "the rise of wealthy foreign landlords that buy homes site-unseen as investment properties." My wife and I, despite being able to afford a home, have chosen not to buy one. Why? Because home prices in our area run at $2.7M for a 3BR [1], while we're paying $2600/month to rent a 2BR townhome. People we know who have bought are now paying $6-7K/month on housing, for something not much better than what w…

The difference is that with average appreciation rates in California, when they sell they get all of their money back (minus fees, of course). You? Well, you had a place to stay.

As long as appreciation + inflation over the period you stay in a house you buy is greater than your interest rate, buying a house is effectively free (minus the downpayment). People bring up maintenance, however this is already taken into account with rental price increases, vs. a fixed 30 year mortgage. Maintenance is an overplayed expense, honestly.

EDIT:

I can't reply to the children comments, but I just want to say that the situation mention is absurd.

1. 2.7M worth of 1985 S.F. property would be entire neighborhoods and give you more than 6%. Forget houses, 2.7M in 1985 would buy you acres of prime real estate.

2. Even if it did not, it's not necessary to put down 20% on a house.

3. Investing and purchasing a house are not mutually exclusive strategies.

4. Overall, over 40 years buying will always be better.

Re: The Rise of the Rich Renter

#36

Post by noobermin »

walshemj wrote: post #30
noobermin wrote: post #11

Earlier quoted context omitted.

That does seem super weak sauce. Also, the "striking" 6.2% included 2008, who's to say that the even among the 1.2 X median people, that the economic hurt wasn't enough to explain the delta there?

120% of the median income is not "rich" in this day and age

Hmm, it's above the median, it is well off. But yes, it isn't well off enough to be sheltered from the effects of the great recession, I agree.

Re: The Rise of the Rich Renter

#37

Post by inuhj »

sidlls wrote: post #16
blackguardx wrote: post #12

Earlier quoted context omitted.

Rich people invest in property because they have enough money to view a million dollar condo as a diversification strategy. Property can be a good investment, but shouldn't be your only investment.

I'd take 10 houses for $200k in the Midwest over one $2m house in the Bay Area. Appreciation is lower, but rents (as a percentage of cost) are much, much better. The shortfall in appreciation can easily be made up for in better rent yield.

Less desirable areas always have higher cap rates. Most investors are NOT looking to make money on the cap rate though. If you're seriously investing in real estate you're looking into development projects, re-zoning, etc. You're buying because you know the local government has a 10 year plan to revitalize that part of the city or some other strategic bet.

Re: The Rise of the Rich Renter

#38

Post by htormey »

If you are in an apartment with rent control it really changes the rent/buy equation.

I’ve lived in a two bedroom rent controlled apartment in San Francisco for the last 7 years. I pay significantly below market rate for rent. I also have enough to afford a down payment on a house here.

Their is no incentive for me to purchase a house unless I lose my rent controlled apartment and even then I probably wouldn’t buy. I know many of my peers who are in similar situations. I’d say the same is true of NYC.

Re: The Rise of the Rich Renter

#39

Post by nostrademons »

rentcontrol wrote: post #35
nostrademons wrote: post #23

This is dual to "the rise of wealthy foreign landlords that buy homes site-unseen as investment properties." My wife and I, despite being able to afford a home, have chosen not to buy one. Why? Because home prices in our area run at $2.7M for a 3BR [1], while we're paying $2600/month to rent a 2BR townhome. People we know who have bought are now paying $6-7K/month on housing, for something not much better than what w…

The difference is that with average appreciation rates in California, when they sell they get all of their money back (minus fees, of course). You? Well, you had a place to stay. As long as appreciation + inflation over the period you stay in a house you buy is greater than your interest rate, buying a house is effectively free (minus the downpayment). People bring up maintenance, however this is already taken into a…

You can't count on that appreciation going up forever, though. Once the number of buyers or wealth of buyers declines, home prices will too. I look at a lot of the houses here and see Detroit in 50 years.

I moved here in 2009 and there was a big drop in house prices then, enough that everyone who bought in the boom years of 2004-2007 went underwater and many were foreclosed upon. Yes, I'm kicking myself for not buying then - though honestly, the money was in Google stock options instead and Google stock has gone up a lot more than Silicon Valley housing prices, so I probably still ended up ahead.

Re: The Rise of the Rich Renter

#40

Post by hammock »

matt_wulfeck wrote: post #28
efficax wrote: post #15

I make a decent living, way above median household income, but my wife and I rent in a dense urban center for the simple reason that even with our income we couldn't afford to own in this area. Even if we weren't paying student loans it would take several years to build up a down payment that would result in cheaper mortgage payments than our rent burden, which would be crucial since homeownership adds property taxes…

7 years of saving I believe is the average for a down payment. It doesn’t sound like your story is too outside the range of normal.

Seems to make sense, buy a house 3x your annual income, with 20% down you could get that in 7 years if you save away 8.5% per year. And you have a house at 29
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