before tax Income in the range of 200 to 250 k per year
Current rent - 2250 in 2 bed apt
Rent History - (Bay Area)
2012 - 1450 per month 1 bedroom
2013 - 1600 per month 1 bedroom
2014 (first 6 months) - 1650 per month 1 bedroom (current market price for this rented condo is 430k (crazy!))
2014 (last 6 months) - 2250 per month 2 bedroom
2015 (current) - 2250 per month 2 bedroom
Down payment - can pay down payment upto 100 to 120k
Duration of stay - minimum 5 years - can go upto 15 years (currently working in IT, bay area is place to be)
Age - 31 years
House I am looking for - 2 Bedroom condo/house/townhome is the minimum we are looking at. 3 Bedroom is also fine.
I work in south bay and live in south bay area, I love it here. (can do east bay as well)
Currently I max out my 401k and also do other investments on monthly basis, I have no issues in case of paying 3k or 3.5k as morgage.
I ask tax consultant and he recommended me to buy house asap, because of my income levels, But I am really concerned to buy house at this time in bay area where rates are very high.
One part of me says its not good time to buy where prices are at maximum point and
Another part is like - interest rates are so low, that we can lock it for 30 years.
Also another aspect is about inflation - monthly morgage payment remains same for 30 years if I get fixed rate but because of inflation actual monthly payment value keeps going down.
Any advice? Thanks in advance.
Sat Jan 10, 2015 3:58 am
oldguy Senior Member
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Joined: 21 May 2006
quote: 2014 (first 6 months) - 1650 per month 1 bedroom (current market price for this rented condo is 430k (crazy!))
The landlord was getting only 4.5% gross on $430k. After property taxes, repairs, etc, s/he might be netting 2% (if that). So your market is clearly skewed in favor of the renter.
If you got a $500k place w/ a $375k 4% loan, the interest write-off would be $15,000 - if you're in the top bracket, 39.6%, that would be a $6000/yr tax savings. But you have to spend about $2500/m ($30,000/yr) to get that $6000 break. I would caution you to not let the "taxtail wag the dog".
But there are other things to be aware of - renters often spend their income stream, no housing bills so they buy/lease new beemers, etc. A better approach (mathematically) is to invest that 'delta' between rent/own into a SP500 11%/yr index - $5000/yr @ 11%/yr = about $1.1M in 30 yrs. And then you can use that to buy anything you like, anywhere you like it. That's the endgame, you retain the option to use that fund to buy a condo/house anytime you want to.