What are the decisions that go into buying a home?

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gravlax
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Joined: Thu Aug 21, 2008 2:29 pm
Location: Cole Valley, CA

What are the decisions that go into buying a home?

Post by gravlax » Mon Apr 16, 2018 2:05 pm

I have often considered whether or not it made sense for me to purchase a primary residence

I live in a HCOL area (SF Bay) and am fortunate enough to be happy in my $2000/month rental apartment. I would estimate the market rate for the unit at $3500 to $4000 a month. Single family homes in the area tend to be about 1 million dollars.

I usually decide it does not make sense for me to purchase, but recently a friend of an acquaintance suggested that even with my current situation it would make sense to buy a home for the equity and tax write-offs. I started to question him, but could hardly understand his answers and then I decided to change the subject and to ask here instead.

So...what are the general factors to take into consideration when deciding whether or not to buy a home?

Wellfleet
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Joined: Sun Jan 26, 2014 8:18 pm

Re: What are the decisions that go into buying a home?

Post by Wellfleet » Mon Apr 16, 2018 2:20 pm

It seems to be that the general consensus on Bogleheads is that a house purchase should be for non-financial reasons and that any financial benefits are gravy that may or may not keep up with inflation. You might be able to time the housing market correctly and make a bundle or get a new job and need to sell at a loss.

chevca
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Re: What are the decisions that go into buying a home?

Post by chevca » Mon Apr 16, 2018 2:26 pm

gravlax wrote:
Mon Apr 16, 2018 2:05 pm
So...what are the general factors to take into consideration when deciding whether or not to buy a home?
Do you want to be a homeowner? It's really that simple. :happy

On a board like BH's, of course most are into what way the numbers work best and how to optimize $$. But, it really is more of a lifestyle choice than anything, IMO.

Lynx310650
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Joined: Fri Sep 15, 2017 1:33 pm

Re: What are the decisions that go into buying a home?

Post by Lynx310650 » Mon Apr 16, 2018 3:15 pm

You sound a lot like us. We are renters in the Bay Area. Our delta between what we pay in rent and market is not as high as you, but our landlord does keep it lower than market, which is a bonus.

I guess you can still get a SFH for $1M in certain areas, but I think they are starting to get higher in most desirable areas.

I've played with a lot of rent vs buy calculators, and it's almost impossible to determine because of the insane appreciation rates here, and whether that will continue or not. For example, there are places here where the annual rent on a property is about 1/50th what the purchase price would be. When I punched in such numbers and assumed rent and home appreciation matching inflation at around 3% annually (which I believe is the long term historical average), I literally never would come out ahead by buying. But I believe if I set appreciation to 10% annually, buying beat renting within about 10 years. So that is the huge variable in regards to making a purely financial decision on buying.

Because of this, I think the BH advice is the best one. If you find a house you like and can afford it, should buy it as purely a lifestyle/consumption decision rather than a purely financial one.

EDIT: I'll also add that in my personal opinion I think there will be a lot more residential development in the next 10 years rather than the last 10. The pro-development forces seem to be getting stronger, and Sacramento has passed various legislation in favor of development. But I believe the vast majority of this will be high density condo/townhouse type developments. There are certain high density Asian cities where even on an equal sqft basis, there is a huge price difference between a condo and a nearby SFH. I think that's the direction the Bay Area will go. As such I think on a financial basis if one can afford a SFH, that might be the much better decision. Again, just my opinion.

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