Rent is not as much as a mortgage would be

[Federico Morales]

Hello guys,

I am curious if anyone else has had this experience: I have a property (SFR, 3bd/2bth, 1300sf, recently remodeled) in the Sunol neighborhood of San Jose which rents for about $3,800 per month.

Now, if I take a reasonable valuation of about $1.1m (the slightly smaller, less nicely renovated house literally two houses over sold for about $1m a year or two ago) and throw that into a mortgage calculator with 20% down and comparable taxes/insurance, I get about $4,500/mth. How paying a mortgage be more expensive than the rental rate?

Does that sound normal? Is it an indication that the rent is too low? Or else is it just the crazy SF Bay Area market with overvalued properties that naturally sell higher than the rental market can bare? Is it an indication I should sell that property and pick up other properties in cheaper markets?

I am hesitant to even consider a sale, as Google has just bought up a big chunk of land not ten minutes walking from the property and plans to build a campus, shopping, restaurants, etc. Also, there are plans to develop the train station into a transport hub (including eventual high speed rail). 

thanks for your advice :)

[Thomas S.]

A very large number of CA investors are faith investors. The have deep enough pockets to lose money on rent while waiting to benefit from appreciation. They are property rich and cash poor.

The biggest problem they face is actually accessing their money. They are all afraid to sell for fear they will miss out on another property value rise tomorrow. They are in a investment loop. They have no way to determine when enough is enough.

When their kids inherit the properties they will sell.