Buy vs Rent: A New Thought

We’re moving in together. For real this time. For better or worse, we found out the place he’s currently living in is not a legal dwelling and thus he must move out. We were planning on moving in together this year, but this also expedites the planning and upcoming move.

While it might be dumb to consider buying something together now, I have a few ideas that could make this concept be more logical than irrational. Even though I occasionally mention moving back east at some point, the reality is that I want to stay in The Bay Area. I want to live here forever and have my kids born and grow up here.

The good news is that jobs are plentiful, for now, and I assume for many years to come (I don’t think technology will be moving out of Silicon Valley anytime soon, and lucky for me, it’s the industry I work in.) As I spend more time building my career in tech, I find it easier to obtain work. It’s not at all easy today, but I couldn’t land interviews 4 years ago and now I’m getting to the final rounds. I assume a few more notches on my career belt and I’ll be fairly solid in terms of being able to pick up from future layoffs et al. Wishful thinking? Maybe. But tech companies need marketers and while I’m not betting on getting wealthy, I am confident that I can remain gainfully employed over the next 35 years of my life.

My boyfriend also wants to stay here. He’ll finally put into action his plan to become a high school English teacher. He’ll either go to the top teaching program he applied to (if he gets in) or a local credential program. Either will get his foot in the door. I’m not sure how difficult it will be for him to secure a job to start, but once he does he will probably have stable work. It won’t pay a lot (H.S. teaching gigs start out at $53k around here, which isn’t a lot when $1800 rents you an “affordable” 1br) but should be at least stable going forward. We both want to stay in this area and I can say after living here for 8+ years and waking up every morning happy that I do, I don’t want to leave.

But housing prices make this very, very difficult. We have the option now to find the seediest 1br to stay in a neighborhood near where we live now under $1600 a month, or move out to the boonies. This is when buying starts to look more attractive. It probably isn’t if we bought ourselves right now, but there’s more to the story though…

I recently wrote a post about how I feel about parents helping with buying a house. In short, I don’t like the idea of his mother gifting him any money for a house. Yes, in theory this money would one day be his in an inheritance (which a commenter noted) but I want to make sure she has the funds to better her own life as she continues to age. While she has lived in her mother’s house for her entire life and never owned property or a car, she is getting older and should keep her money for herself should she need additional care.

What’s saddest of all is how she views the world. She’s a bit delusional. After being informed that he needs to move out of his illegal in-law unit, and mentioning he’s going to move out of the property, she told him he should move into the current hoarder-central, cat pee-infested house. While the location is amazing (the dead-end street has many $2M+ homes) the idea of moving into the house filled with feral cats that pee and poop everywhere, along with his crazy hoarder grandmother who doesn’t shower and his mother who is extremely depressed and also doesn’t shower isn’t the best way to save money. She also suggested that I move in with him in this house. When he told her that he wouldn’t do that, she got quite sad. It’s a pretty depressing situation. They’re not close but I guess just having him live on the property makes her feel less alone.

That said, she will eventually have to move out. Her mother, now in her mid 80s, might live to 100, but that’s still just 15 years. Time happens. When her mother does pass away the property will likely be split up among her and two siblings, sold to the highest bidder and redeveloped (the neighbors will cheer for joy as the extremely overgrown forest next to their well-manicured landscaping will be gone for good.)

The question I have now is, would it make sense for her to buy a place with her savings and have us live in it to pay her rent. As far as I know she doesn’t invest her money either, so it’s probably sitting in very low-risk CDs that don’t even match the price of inflation. It could potentially be better for her to buy a 2br 2ba condo or house outright, have us rent it and pay her reasonable rent each year, so she’d make more on her money, have that money for her own retirement should she need it, and it would ultimately still be passed down to my boyfriend anyway if she remains as frugal as she is now for the remainder of her life. Win win?

That said, I don’t fully understand housing costs. I know in condos there are HOA fees that go up each year, and any property owned has taxes that can rise. There’s also the cost of fixing up the home. And it could go underwater should property values go down. I don’t think that will happen in The Bay Area, but it could. Maybe we’re in a bubble. Who really knows?

Renting, however, starts to scare me when I look at the numbers. I created a calculator in google spreadsheets which factors in both my and my partner’s expected income until 2033 (when we’re both about 50.) It assumes he becomes a teacher and makes basic teacher wage, and that I work either part-time or a less stressful job when I start to have kids. I’m using these numbers as I want to be conservative in our income estimates. As I told my partner, ultimately we always want to make more (a lot more if possible) but our bare living expenses (housing / food / general kid costs) should be covered by a conservative annual income estimate.

In this calculator I also put the full $17500 per person per year into 401k pre-tax. That’s not enough for retirement but it basically is the minimum I’d want us to be able to put into our retirement funds. It also gives us a bit of a cushion should one of us lose a job one year, as we wouldn’t have to max out those funds.

The numbers look a bit scary, given rising rental costs in the bay area. I’m assuming each child costs $10000 per year until they are ten and $15000 a year ever year thereafter. My boyfriend decided our kids are going to get scholarships because we’re both smart. Ha. We’ll see about that. Anyway, any extra income then would probably go towards college savings first. But those are the numbers I’ve used in this calculator.

I assume that my boyfriend goes to a two-year teaching credential program in 2015-2016. We get married in 2015. Have kid #1 in 2017 when I’m 33 and kid #2 in 2020 when I’m 36. After maxing out our 401ks and having kids, funds start looking a bit tight after kid #1 and especially in 2020 when we have kid #2. Until then with just one kid we have $2667 per month for housing, non-kid food, entertainment, travel, and anything else. In 2020 that drops to $1833 per month.

Of course we can always be more frugal. A kid doesn’t have to cost $10,000 per year. It can cost more or less. We’re using some basic estimates from the internet. I assume it’s more expensive to raise a kid in The Bay Area. It’s especially hard growing up in an area where many other kid’s parents are dual-income engineers and CEOs who can afford fancier lives. I’m trying to make sense of reasonable estimates. I could be way off. You guys tell me…

But if those numbers are anywhere near accurate (and I did drop my income to $50k per year when I have kids – I don’t plan on slowing down my career but I want to leave the door open in case I need to or for some reason I cannot get a higher paying job that provides me the flexibility I might need as a mother. I really have no idea how hard it is but I look at my friend with a six-month old who works part-time and she seems quite exhausted. I can’t imagine working my FT startup schedule with young kids. I’ll try. I want to leave room in my planned budget in case that doesn’t work out.

It’s not going to be possible to live in The Bay Area in 2020 on $1833 per month after taxes, 401k maxing out and the estimated $833 per kid per month. Or is it? When 2brs cost $2.2k+ today, what will they cost in 2020? I need some better cost estimates and more research, but what this is all leading me to is wondering if it’s better to buy property now. Either have his mother buy property and for us to pay her rent, or for us to somehow buy and get help later from our parents if needed. Buying does keep the monthly housing costs a “known” outside of HOA fees, which is nice. I just don’t know how much rent will go up, and am afraid that I’ll be priced out of the area where my job is. Last thing I want is to have two kids and have to commute 1.5+ hours each way because I can’t afford to live anywhere near my job. That’s probably what scares me the most.

 

 

 

 

 

 

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