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Our Buy vs. Rent Situation

February 18, 2009 by Lazy Man 28 Comments

In 2006, I wrote about how my fiancee (my wife now) got a great job promotion in San Francisco. Somewhat reluctantly, I agreed to live more than 10 miles away from my birthplace for the first time in my life. I was 30 years old. I considered it a short-term move. After two years, we’d be eligible to move back and my wife would qualify for some of the top jobs in her field that Boston would have to offer. Sometimes it’s funny how life turns out.

Somewhere along the line, we began to love what is known as “the peninsula” – an area 10-15 miles south of San Francisco. When we first moved here, I remember having an application on my cell phone that would send me a text message of the week’s weather. It was convenient in Boston when you had to know whether it was going to snow or if you’d have a sudden heat wave. I deleted that application after about a month of living in the peninsula – I didn’t need to be reminded that it was going to be 75-85 and sunny every day.

Given the change of heart, we decided to look into whether it makes sense to rent or buy in the bay area. Real estate prices have dropped a lot recently. With mortgage rates low, it sure seems like the time to take advantage and buy. My wife thought it might be the right the time… how much could things continue to drop? I said, “I think I remember seeing some math on this once, let me see what I can dig up.” Fortunately, I remembered that Erica had written an article about whether it is better to buy or rent. In it she gave a couple of metrics:

  • The average house should cost between 100x-150x monthly rent
  • The average house should cost between 3-5x median annual income

Looking at the first metric, our $2100 rent now should buy a home between $210,000 and $315,000. However, in my area, it seems that townhouses equivalent to our apartment still run around $600,000. Granted that’s significantly less than the $783,888 asking price of this 1100 sq. ft. “fixer-upper” I found a year ago – it’s still not what I’d call a bargain by this metric.

Moving to the second metric… City-Data says my zip code has a median house $83,809 – projecting to a home price between $251,427 and $419,045. That’s a little closer to the $600,000, but it is still far from the national average. Again buying a house doesn’t make sense with this metric.

Why are these two ratios important?

If the cost of buying a house is much more than the cost to rent one, people will likely realize the value of renting. Some people have bought into the myth that “renting is throwing away money”, but I always say that I’d rent a mansion in my preferred location for one dollar a year without batting an eye. Throwing away that dollar allows me to save and invest my other dollars. I think it’s only a matter of time before everyone realizes that and discards the conventional wisdom.

The second metric could be an indication of how people potentially paid too much for a house that their income couldn’t support. In other words, if a $83,000 income in other parts of the country supports a $350,000 home, what makes my location in California different?

What about affordability?

There’s another ratio called the affordability index. From what I’ve found it measures the actual monthly cost of the mortgage to take-home income. A number over 100 typically means that people have more than enough money for a median price home. A number less than a 100 typically means that they don’t have enough. According to the California Building Industry Association San Francisco and the peninsula have an affordability index of 16.6 as of Q3 2008 (PDF). But it’s on an uptrend… and in about 20 more quarters of similar gains, it might approach “affordability.”

It’s very possible that the rent vs. buy in this area of California never get back to the national levels. It seems that people are simply willing to pay more to live in this area of the country. Nonetheless, I can’t see the value of buying in this local market – yet. I’ll continue to evaluate the numbers, perhaps using this handy calculator of Buy or Rent from the New York Times.

What about you? Did you do this kind of analysis before you decided whether it was worth buying or not? I realize in much of the country the exercise won’t lead to the big difference I found. It’s still good practice to run the numbers to make sure.

Filed Under: Real Estate Tagged With: bay area real estate, buy, buy vs. rent, mortgage rates, real estate prices, rent

Buying and Selling a Computer

August 1, 2011 by Lazy Man 16 Comments

Buying a Computer

buy-sell-computer.jpgIt’s been awhile since I bought a new desktop computer. Liv has been around for a few years. To really begin the story of Liv, I should start with my laptop, Sarah Michelle. Most of the time Sarah Michelle runs fine – after all she’s just a couple of years old. However, now and again my 754 open tabs in Firefox brings her to a screeching halt. In fact, in the last month, Sarah Michelle simply shut off on me in the the middle of my typing a sentence. She put her foot down. It wasn’t a slow shut down, she simply reacted as if there were no longer power going to the computer.

I’ve started to realize that I need to have a second computer – a fast one – and one where I can sit down and focus on my writing. Liv is old enough that she’s isn’t quite what I needed any more. She’s also takes up a little extra space compared to some newer computers (I’m always thinking small.) Newer computers also come with new fancy features like USB ports in the front.

I began the search for a new computer. I seriously considered this Shuttle PC, until I found a brand new, unopened Dell Vostro Slim on Craigslist. It was $330 and compared to Liv’s Athlon 1Ghz chip, it really flies. Scarlett has lots of memory, 2GBs and a processor that is fast in comparison to what I’m used to. I’m not going to set it up with World of Warcraft, so I’m happy with something “much better than I had before” vs “state of the art”. It was clear as soon as Scarlett was set up she was going to be of great value. She hides under my desk leaving me room to organize my thoughts in a zen of organization.

There was a problem though. With a new great computer, I realized I needed a monitor. My old 17″ LCD monitor is at least 6-7 years old now. It still works okay, but there are occasional signs of it starting to slow down. I went back to my friend Craigslist. I found a new 20″ Dell monitor that hadn’t been opened for $175. I could have spent another $70 and bought a 22″ monitor of similar quality, but again I was happy to have something better than before.

With this set-up, a $505 should keep me productive for the next 5 years. At that point, I may need to look for a quad-speed processor and a 24″ monitor. By that time, the prices on those should be close to another $505. At $100 a year, I have to marvel how much cheaper and better computers have become. You have to love Moore’s Law.

Selling a Computer

This is where I run into a bit of problem. I cleaned up Liv’s hard drive, using some great free software (Darik’s Boot and Nuke). (You always want to use software like that to avoid identity theft). I put an older operating system on it, and now Liv is running almost as good as new. I realize I could have done this before and avoided buying the new computer. However, as a part-time software engineer, I need a computer capable of larger tasks than e-mail.

So I have a computer that’s suitable for basic tasks. I tried to sell it on Craigslist for a price that was similar to other computers I saw for sale. I’ve had no bites yet. I could (and will) lower the price in hopes it attracts attention at some point. I would prefer to donate it, but it seems that few organizations take old computers. If anyone has any other ideas how I can keep a fine computer active and out of a recycling bin as long as possible, I’d love to hear them.

Photo Credit: jima

Filed Under: Spending Tagged With: buy, buying a computer, computer, liv, new computer, sarah michelle, scarlett, sell, selling a computer

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