Last week I had the privileged opportunity to go on a trip I have been dreaming about for years when I lived on the west coast, but somehow never found the time to do. I guess it took moving back to the east coast to make me realize how quickly time flies – and how there is no better time than the present to start checking things off the bucket list.
What was this trip you ask? It was an epic California road-trip. While we didn’t get to do all of California (I had no idea how BIG California actually is!), we did get to hit some key spots that I’ve always wanted to visit. Our route?
San Francisco – Big Sur – Sequoia National Park – Yosemite National Park – Napa/Sonoma – back to San Francisco. In a short 5 days.
We were lucky to have friends who live in San Fran, so we spent a couple of days on both ends of the road trip visiting with them in the heart of ‘the city’ (Travel tip: refer to San Francisco as ‘the city’ or ‘SF’ and you’ll fit in with the locals much better… :)
Our friends took us into the Mission district for the best burritos I’ve ever had; riding electric scooters along the bay; and of course, on a walking tour of all the touristy sight-seeing attractions you must visit while in SF. Now, no walking tour in a new city is ever complete without me asking, “How much do you think that house costs?”
I can’t help it, I can’t turn my real estate brain off. And if no one knows the answer, I’m going to find out.
Cue me arriving back at their apartment and jumping on my laptop to check out Zillow, a real estate website often used in the United States. And cue me spiralling into the real estate market that is San Francisco...
“Is that the real price?”
“How does that condo cost THAT much?”
“How do people afford to live here?”
“You pay WHAT in rent?!”
Now, I knew that SF was an expensive city, but I don’t think I really knew how expensive. I have previously lived in a relatively expensive city (Victoria), and am semi-familiar with the Vancouver and Toronto rental markets. However, those high price tags were still nothing in comparison to San Francisco prices. Which begged the question of, how do people afford to buy houses in this city? And does it make sense to buy, or to simply continue renting?
As most of you know, I am always an advocate of buying over renting. However, if the monthly rent is significantly lower than the monthly mortgage, it doesn’t necessarily make sense to purchase property only to be ‘house poor’ and constantly stressed about defaulting on your mortgage. Plus, the massive down payment just to acquire the house in the first place could equate to your entire savings account being drained down to zero. Is this stress really worth it?
Let’s check out a SF property and run the basic analysis to see whether it makes sense to buy or to continue renting.
Purchase Price: $799,000
Mortgage rate: 4.5%
Monthly Mortgage payment: $3,257.00
Down payment: $ 159,800 (20%)
Insurance: $280/month
Taxes: $446/month
HOA: $297/month
Total monthly carrying cost (without heat + lights): $4,280/month
***Estimated value of home: $1.48 million
One thing I don’t know about SF is whether houses usually sell for the approximate listing price, or whether they go for significantly above or below asking price. This would be important to find out because it could dramatically change the above math. For now however, I am going to use the list price as the purchase price.
In case you click on the listing link above, here are a few photos to show you what the condo looks like:
Hi Golden Gate Bridge! That's the view from the kitchen....
Here are those numbers again, in case you got distracted by the pretty pictures like I did....
Purchase Price: $799,000
Mortgage rate: 4.5%
Monthly Mortgage payment: $3,257.00
Down payment: $ 159,800 (20%)
Insurance: $280/month
Taxes: $446/month
HOA: $297/month
Total monthly carrying cost (without heat + lights): $4,280/month
***Estimated value of home: $1.48 million
I'm sorry, did you catch that estimated value?!?
One thing I really like about Zillow that our real estate sites in Canada don’t do for us is include foreclosure houses. In the states these houses tend to be significantly cheaper. Bank foreclosure properties exist in Canada as well however they are much more difficult to actually find in Canada than they are in the US. If you actually checked out the Zillow listing of this property you may have noticed they give an ‘estimated’ house value as well as the listing price. This property in particular, priced at $799,000, is estimated to be worth $1,480,213.00 almost $700,000 above the asking price. In fact, it was the cheapest 2-bed, 1.5-bath condo I could find, as most condos this size were in the $1.2-$1.6 million dollar range. Actually, since finding this place last night and re-visiting it today (less than 24hrs later), it already has a pending offer.
From what I can tell for average rent in San Francisco for a similar 2 bed, 1.5 bath unit, it would cost about $5,000 – $5,500 per month. If we compare that to the total costs to carry this particular mortgage, the rent you would pay ($5,000) is actually slightly more than the mortgage + carrying costs ($4,280). At this particular price point of $799,000 I would say it makes more sense to buy than rent. However, that’s assuming you have the $160,000 (20%) to throw down for the down payment, AND assuming you don’t pay it’s actual value of $1.4 million. At this high of a price tag, the banks won’t allow you to put less than 20% down on a property. This 20% is in stark contrast to the 5% down we can do in Canada for our first owner-occupied property.
So, what do you think? If you lived in an expensive city like San Francisco, would you opt to buy or continue renting and invest your money elsewhere?
Okay, now what you’ve all been waiting for… photos of the road-trip! Don’t mind the masks, we happened to be in SF just as the forest fires broke out and the air quality was horrendous (apparently the worst air quality in the world at the time!).
Taking cute photos while wearing a mask is pretty difficult to do... though I think I nailed it with this first photo ;)
