Profile picture for rock0218

does it make sense to live in a rental and buy a home elsewhere?

I live and work in San Jose - will never be able to afford a hom here - and will likely be looking at partial retirement in the next 5 years (current age 46). Would it make sense for me to purchase a home while I have high income (100k +), perhaps rent out the property with the hope of moving into that home in 5 years or so? And for the next 5 years or so, rent as I have been in San Jose?
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October 27 2010 - Santa Clara
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Answers (17)

Would it make sense? That depends on your financial situation. Remember for a buyer it has nothing to do with the price, all that matters is the cost.

What does that mean? It means you need to find out the monthly cost of owning a home such as mortgage, utilities, insurance and minus the deductions. If it makes sense financially then yes go for it if not then continue renting.

Have you ever heard of FHA loans or a lease to own option? FHA loans allow you to put down a minimum of 3.5% so this could be an option for you. Some landlords also allow you to do a lease to own option, this is pretty rare in the Santa Clara bay area but it is possible. This option allows you to put your rental payments towards the purchase of the home when you decide to buy.

Hope this helped answer your question rock0218!

For more first time home buyer resources in the Bay Area check out my blog http://BayAreaConnect.com
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May 23 2011
Please click on the following hyperlink to see the Rent Vs Buy...

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April 05 2011
Profile picture for creative destruction
Absolutely!  You can rent out the home and either move in at a later date or just keep it as a rental.

If you need the help of a top local agent, you should check out Agentleaf.com. It ranks local agents based on recent sales experience and offers commission rebates for choosing an agent thru the site.
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February 03 2011
I would say it may not be a bad idea if you can make the numbers work.  Rates are very very low and prices have dropped drastically.  It is almost the perfect storm to buy.  Have a Realtor research the rental rates for the type of property you are thinking of buying and then stack that up against the total mortgage payment: piti.  If you plan on holding real estate long term it historically is a great investment and will lock you into todays pricing on the home in the that "semi retirement" area.
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November 07 2010
I agree with the suggestion of talking with a financial planner regarding short and long term goals.  You could also consider buying a second home (no, you don't have to own a primary residence) in a destination area that you could use as a vacation rental and a get away for yourself.  I did exactly that when I lived in the East Bay.  Prices were crazy high and even on an income of well above 100K I could not afford to buy in the area.  I bought in the Yosemite area....I get to visit and I love it and I rent is out for $200 a day.  It does not garner enough income to support itself, but I didn't need to invest 20-25 down payment.
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November 02 2010

I understand your plight.  I to live in the bay area and real estate is on the higher side.  I agree that you want to choose a location that you are going to want to live in when you retire.  Right now is a great time to purchase since home values are down, rates are low and if you are in a position to purchase take advantage of these economic times. 

There are many quesitons you need to ask yourself:
1.  Where do I want to live when I retire
2.  What will my income be at that time, to make sure that you can afford the payment.
3.  How much can I put down on a purchase right now.
4.  The home I purchase, what is the rental market like?  Is it stable, how much rent will I receive.
5.  How do I choose a real estate agent?
6.  How do I choose a lender?
7.  What are the next steps that I need to take.

Just some questions to be thinking about in your decision making process.
Good luck and make it a great day!!

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November 02 2010
Of course it does. Real Estate is a great investment and having someone else pay off your mortgage debt is a great concept regardless of where you live and where the property is. Go for it as rates on investment property are in the 4's which I have never seen in my life... It is so easy with prices low and rate so low to achieve positive or even cash flow.

Go for it...

Michael Ciavarini

Guaranteed Rate, Boston MA.
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November 02 2010
Real estate can be a great investment that produces monthly income plus long term appreciation.  Rental property expenses are all tax deductible, regardless of whether or not you own or rent a primary residence.  I know several people who had all their money in real estate five years ago and planned to sell their properties to fund their retirement - they won't be retiring on schedule.  That's why I recommended in my previous response that anyone interested in real estate meet with a financial planner first - before meeting witha mortgage or real estate pro.  Real estate might not be the right investment vehicle for your specific situation.
On the other hand, I have several clients who rent the home they live in for a variety of reasons, such as:  they move often for work; they don't want to put money into a property that doesn't produce income; they aren't sure where they will retire, so they don't want to put down roots that can't be pulled up later without a loss.  
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November 02 2010
Profile picture for rock0218
Excellent thoughts - thanks to all for contributing. From a financial planning perspective - there are too many variables not mentioned and thus I may have offered an unweildy subject for folks to intelligently respond. 

To narrow my information-seeking a bit - is it ever sensible to invest in a home while simultaneously renting - what are the rules for taxes if I'm not an occupant of my only real estate property?
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November 01 2010
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FHA loans are for your principal residence, so if you are thinking of a rental you'll need >20% down.    "first time buyer" doesn't make any difference. 
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November 01 2010
Your question is more of a financial planning question than a real estate question - no agent can answer it properly.  I recommend you meet with a financial planner to look at all sides of the question - income, tax, and most importantly... retirement.  Once you have a good idea of how much you could and should spend on housing, either as a residence or as an investment, talk to an agent who can find a property that fits the numbers that you and your planner have agreed on.
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November 01 2010
Good questions and there are many implications.
Generally speaking with a 20% down payments and at 5% interest rate, its is cheaper to be a renter in the Silicon Valley than a home owner. Obviously there are other considerations for being a home owner that are significant and to lots of people are more important than just the financial consideration.
The key question is do you know where do you plan to retire? If you do, it will make a lot of sense to buy a house now and let the renter pay for it for the next 5+ years. In addition, you also may have tax benefit that currently as a renter you do not have. Talk to your tax advisor about them.
As someone who is a great believer in real estate investing, It may work for you both financially as well as eventually living in your own house.
You should also be aware that there may be issues associated with being a landlord. Especially if the place you thinking about retiring is over 60 min drive from your current residence. In this case you should hire a property management company to mange it for you.
Best regards and good luck
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October 29 2010

As a first timer look at Fannie Mae's Home Path at Homepath.com
3% down and until Dec 30 a 3.5% buyer incentive for owner occupants.
The home are often in very good condition and newer (in my area).  You don't need an appraisal and there is never mortgage insurance.  However with the 3% down comes the risk based pricing.  You do want to go thru the "pre-qualify" process.  These Home Path loans should close quickly as there is NO appraisal.

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October 27 2010
Profile picture for rock0218
Thanks all for the helpful thoughts. Couple items - never bought before, so as 1st time buyer (even as a rental property), should I look closely at FHA or ??
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October 27 2010

You need to take a very long look at the numbers.  I understand the rent now VS. Owning it later question however there is more to put into the equation.  Interest rates will never be this low again.  If you buy an investment property you will be asked to put down 20-25%.  If you buy you can put down as litttle as 3% (Fannie Mae Home Path loans).  If you have never been a landlord you need to have a plan for management of the "investment".  Maybe it is you and your wife or a management company.  Do you have savings to put down on an investment property?  If so what is the $$$ currently yielding compared to what a new home loan interest rate will be.  In my market area there just aren't 90% loan to value investment property loans unless you go with a Fannie Mae Foreclosure known as Home Path.
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October 27 2010
Make sure you can afford the home you plan to buy after you retire. While you are making good money now, that will change of course! I always think that real estate is a good long term investment and even if you are retiring, you are still young!
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October 27 2010
 I think you've already answered your own question, the San Jose market is crazy expensive.  Some things to think about before you take this step...

In regards to retirement living (even as a younger retiree)...
Find an area that's a good match for retirement (or other endeavors) and do your research.  Will you have easy access to medical services?  Does the community offer what you are currently accustomed to?  How about a university nearby for a variety of entertainment?  What about the weather?  Are you going to want to be close in so you can take advantage of public transport or do you prefer to be out on your own?

In regards to being a landlord...
Does the area have a consistent rental market or will you be straining to keep it rented?  Will the mortgage be covered?  What about taxes and insurance and regular maintenance?  Do you have cash for emergency repairs?  Will you be close enough to do the rental screening yourself, if not, would you consider a rental agency?

Bear in mind too, rentals do get a beating so if you decide to go this route, you'll want to save aggressively for a major renovation before you move in.
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October 27 2010
 
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