Originally Posted by Zeros and ones
I live in cali and he is way off base.
a cheap shitty place with one bedroom, kitchen, a living room at $1200.
You start adding roommates it starts to go up from their. I have a friend that is living with 3 other room mates. Each room mate pays up 600 every month and that is a good part of town.
I pay only $200 dollars more every month and I have a house and I live in a very nice part of town in Southern California.
So follow me with this for a second. He said that he can afford a couple of M3s. So lets say 2 is a couple. We will assume afford is to lease. To lease and m3 for a term of 36 months, drive 15000 miles annually and put down 2500 come to $787 every month. So with two M3s is about $1574 every month. And lets assume he is also paying 600 every month cause he has roommates. That brings the total to $2174. This is a lot of money just for cars and rent.
But lets stick with one M3. If he takes his rent money, again assuming he is paying 600 (we don't actually know what he is paying very month) and re purpose that for mortgage and getting rid of California ago of, I can afford a couple of M3s and re-purpose that money to Mortgage, that brings that total to $1387. Hmmm... that is a nice chunk of money to be paying for mortgage. That is how much I was paying in California for my mortgage before the housing crisis.
However, if he is referring to owning a house on mount olympus in california, bell air, some parts of Beverly hills or just any house all up in the hills with a exceptional view, than I will agree with him. Till than, I can not say that I can agree with his statement.
Again... this are all assumptions based on information I know from my friends and, from myself being an actual home own for over 7 years, and the statements the OP made. I have no idea how much he actually pays for rent or his M3.
If you are smart about it you can purchase a very nice house with a very low interest rate right now and it would be much better than renting out.
My statement was not about roommates or even geared towards that. It was toward a particular comment that he made about renting is cheaper than owning a house and how he can afford a couple of M3s.
I do know one thing is us Californians have bigger egos and mouths than we can actually afford. I lost count how many people I know that have multiple fast cars yet they live in shitty places spouting off their mouths on how great they are cause they can smoke anyone on the road.
you don't need to buy or live in a 3.5 million dollar house unless you choose too. To each his own though. But if you are as money savvy as you say you are, wouldn't it be better to buy a house that is even $600,000 and than rent it out to three attractive women? But as you said, their is no point in buying a house unless you found a wife or anti-social.
But if you like throwing your money away on renting than that is your choice.
I don't disagree with your numbers, but just because one can afford a house from a cash flow
perspective doesn't mean he should buy one, as a matter of fact, it's a pretty dangerous thing to do.
It's interesting because the owner of the 3 bed townhouse I'm living in right now actually is kicking us out at end of our lease so he can sell the place (mkt price about $1mm). Market rent is about $4k, that's the owner's income, he also pays for maintenance (call it 500 a month) and property taxes (call it 1k) - I'm being super conservative about the last two numbers here. So if I were to buy this house based on those numbers, I'm looking at a less than 3% return on my investment per year unlevered. That to me makes no sense at all.
Of course you can say well I'm only putting say 20% down so my returns relative to my cash investment in the house is a lot higher. But the principal risk here is enormous, if your house goes down 4% then you basically lose your equity.
One thing I can never get comfortable yet with buying a house is that right off the bat you lose say 10% in broker fee when you buy and sell a place, so you are really stuck in it for the long term. But given that interest rates can only go higher from here and economy is only barely chugging along, I think they are reasons to be concerned as to how much appreciation potential there is. Obviously if you bought in 08 / 09 then you've absolutely killed it. But now is a totally different game.
Now lets say if you want to live in this townhouse I'm talking about, would you rather buy it, be stuck with it in the long term, make minimum returns from rent and hold the bag when sht potentially go south, or would you want to be the guy renting it for cheap and have the flexibility to actually buy a worthwhile property when it comes along? I think this applies to most properties I've seen, and I've seen quite a few. The point is one can't indiscriminately say buying a house is the right thing to do, without considering how much it cost, and how much it rents for.