San Diego, CA - Buy or Rent?

[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!

[Dan H.]

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.