The Pros and Cons of Renting versus Buying in San Diego, California
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Buying vs. Renting
Renting
Renting has advantages for most people at some point in their lives.
This is especially true when you are starting out on your own as a
young, single adult. As we noted above, renting an apartment involves
no responsibility for repairs, maintenance, and other aspects of home
ownership that can be both costly and time-consuming. Rental complexes
may also provide many of the recreational facilities you would like,
such as a swimming pool and tennis court. Apartments and other rental
units often provide laundry facilities, which would save you the initial
expense of purchasing laundry equipment.
Another advantage of renting is that it provides more mobility
or flexibility. As a young person, you are more likely to move rather
frequently due to job changes and family changes (getting married,
having children), etc. It is easier to move quickly when you are
renting, because leases for rentals are easier to get out of than
selling a home. A lease is a contract between the landlord and the
tenant indicating that the tenant has the right to use a particular
living unit for a period of time, such as one year. For this right,
the tenant promises to pay the landlord a specified amount of rent
over the period of time of the rental. Most leases will allow you
to "buy out" of the lease by paying a penalty (often an
additional 1-2 month's rent) if the lease is not up when you want
to move. In some cases, the landlord will require no additional
rent when you move out early if another renter suitable to the landlord
is found who will assume your lease. Selling a home when you decide
to move is usually a much longer process-taking months and sometimes
years. The length of time depends on a number of factors including
the available supply and demand for homes in an area and the relative
demand for the type of house that you put on the market. For example,
if you own a two bedroom older home, and that type of house is not
currently popular in your area, your house will likely not be sold
very quickly.
Another major advantage of renting is that it doesn't require a
large outlay of cash. Most rentals require a security deposit (usually
equal to 2-3 month's rent), but that is much less than is normally
needed for a down payment when buying a home. Monthly cash costs
may also be reduced, as utilities may be included in your rent payment.
There are, of course, disadvantages to renting. Some were mentioned
in the section on "housing needs." Can you identify those?
List them here:
A major disadvantage of renting is lack of control over the property.
The owners/managers of the property are responsible for repairs
and general upkeep; if they do not do this well and promptly, you
might be stuck with unpleasant (or even unsafe) living conditions
(from leaking faucets to broken windows) for some period of time.
Property owners can raise the rent (with proper notice), making
your costs higher. They can also put restrictions on the property,
such as not allowing children or pets, and not permitting you to
do redecorating.
Buying
Mortgage Payment Example:
Cost of Home (purchase price): $300,000.00
Down Payment: $25% (many non-conventional loans require
less)
Year of Mortgage: 30yr
Interest Rate: 7%
Payment: $1995.91 (This does not include the items below)
Total housing expense includes:
· Principle & Interest
· Taxes
· Insurance
· Homeowner Fees
· Maintenance
· Principle & Interest
When people come to visit San Diego, they usually go to La Jolla
or Del Mar, and pick up a flier outside a house for sale. They're
shocked at how expensive San Diego is! But let me assure you, there
are many affordable neighborhoods in San Diego, and those expensive
beach areas are not typical prices. In fact, our average prices
look higher than they really are because of the very high priced
real estate we have in some areas. The principle & interest
on your loan is determined by the price of the house, the interest
rate, and the down payment used.
· Taxes
· 1.1 % - 1.2% Property Tax
· 1% Proposition 13
· Voter Approved Bond Issues
· Mello - Roos = Special Assessment for New Infrastructure
Proposition 13 limited property taxes to 1%, plus any voter approved
local bonds. Typically, taxes are around 1.2%, so it's easy to calculate.
A $300,000 house would have taxes of $300 a month, for example.
Prop 13 did not provide enough revenue for cities to develop infrastructure
for new areas. Two Democratic congressmen, Mello & Roos, figured
out a way to pay for new roads, fire stations, parks, & schools.
It's called the Community Facilities Act, but we just call it a
Mello-Roos. Usually a 30 year bond, a MeIlo-Roos will show up on
your tax bill in addition to the 1.2%.
Most new areas like Eastlake, Aviara in Carlsbad, Carmel Valley,
Sabre Springs/Scripps, etc. will have a Mello-Roos. It varies with
each area, but I've seen it range from $50 to $200 a month.
So if you're considering new construction, you can't just look
at the price only! You have to ask what are the homeowner fees or
Mello-Roos assessments.
· Insurance
Fire insurance is not hard to get. Some companies are limiting
their risk by writing only a certain amount of policies in any one
area. So you might not get the company you want, but it's no problem
to get insurance.
· Homeowner Fees
Some areas have homeowner fees, which are not tax deductible. These
fees average around $50 for a neighborhood with some common landscaping,
to around $150 for a gated area with private streets and a community
pool. Beach areas tend to run higher because the salt air increases
the maintenance required.
· Maintenance
· Painting - $0
· Roofing - $0
· Frozen Water Pipes - $0
· Snow Removal - $0
A stucco house with a tile roof and metal roll-up garage door requires
no painting or maintenance. You can live in it 10 years and then
sell it, never having lifted a finger. Maybe you would have to paint
the fascia boards, but that's usually the only wood on the outside
of the house.
The stucco color is mixed right in the concrete, so it never needs
to be painted. Some people paint it to change the color, and then
you have to continue to paint it. The correct way to change the
color is to do a fog coating, which is spraying on another thin
color coat of stucco.
San Diego's climate is very mild. There are no freezing problems,
or snow blowers anywhere. No storm windows. Palm tree leaves don't
clog the gutters. In fact, our average rainfall is only 9 inches
per year, so many houses don't even have gutters. It's as easy as
it gets.
Food
Food is abundant and cheap. We have fresh fruits and vegetables
year round, at very good prices since most of it is grown in California
or nearby Mexico.
Sales Tax
Sales tax is currently 7.75%, but there is no tax on food.
State Income Tax
2001 California Tax Rate Schedules
Schedule Y
Use if your filing status is Married Filing Joint or Qualifying
Widow (er)
With Dependent Child. $ 0.00 $11,496 $ 0.00 + 1.0% $0.00
$11,496 $27,250 $114.96 + 2.0% $11,500
$27,250 $43,006 $430.04 + 4.0% $27,250
$43,006 $59,700 $1060.28 + 6.0% $43,006
$59,700 $75,450 $2,061.92 + 8.0% $59,700
$75,450 AND OVER $3,321.92 + 9.3% $75,450
You can look up the California Tax Rate Schedules by going to www.ftb.ca.gov
for further information.
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