So, I probably drastically misunderstanding how rent control works, but I don’t see how it is going to help. I would argue it will push house prices even higher as you will have less people trying to rent places. Why?
I was reading a bit about renting as a business (plus I have 1 house in Bay Area I rent) and there is so-called rule of 1%, which means for cash flow to be positive you should rent your house for at least 1% of its market price. But it is just not the case in the SF area, you can get 0.3-0.4% at best. House with 1M price can be rented for 4K, which can’t even cover mortgage + tax, I’m not talking about repairs. Based on rule it should be 10k to make it interesting for the investors (buy and rent to make some profit). The only reason I didn’t sell it is the hope that prices will go up in x years, but right now I technically subsidizing people living there + waiting on possible rent increase in couple years. With rent control in place I would’ve been pressured to sell or live there myself. And as I moved out for an interesting opportunity, in a different market I would’ve just stayed in Bay Area.
Which will not lead to drop in prices, But to decrease of available housing.
In supply/demand problem, the only way to decrease price is by increasing supply, not caping the price.
And the reason I would’ve stayed in Bay Area is cause I can’t afford to rent a place for a true market price.
I’m right now paying 5k for the house which is around 1.5M (should be 15k, right?), which is mind blowing. The only reason it is possible is that the owner bought it long time ago and had the opportunity to pay it off. Buying it right now would require 300k in cash + 5.7k mortgage + 1.5k for taxes. + maintenance
So, to me, market rent control already there. And it is already on the verge of what financially feasible.
> Based on rule it should be 10k to make it interesting for the investors (buy and rent to make some profit). The only reason I didn’t sell it is the hope that prices will go up in x years, but right now I technically subsidizing people living there + waiting on possible rent increase in couple years.
Maybe the market is telling you that SF house prices are wildly overvalued. Maybe the best move is not to wait for ever higher prices, but sell now.
People seem to be programmed to buy high and sell low, making the old truism to do the opposite very difficult in practice. Your description isn't uncommon, but is very characteristic of the physiology of a top.
They are not overpriced. When eng with 10 years of expirience can make 250base + 500k in stock per year (or 4 years can get 1M in pre IPO lyft stock), it is hard not to see why Bay Area houses are so expensive. Area with money coming in will become more expensive to live in.
Housing price in SF are tied to valuation of tech companies. Valuation goes up, house prices go up.
Those companies have to pay this much only because otherwise employees wouldn't be able to live there. And even then, the 750k per year is an outlier even in SF. Divide it by 2 to get the more realistic pay.
That may be because you're competing against other owners who bought their houses for peanuts (relatively speaking) and thanks to Prop 13 also pay peanuts in property tax. They can depress market rents (below purchase prices) because for them rents are mostly profit. Even people who bought 5 or 10 years ago at previous prices can rent for less than you but keep the same margins.
I imagine you'd have to do the math. The 1% (or even 2%) rule only really applies to properties in areas where appreciation is minimal (or negative). A simplified view would be:
Total profit = (Rental cashflow + appreciation) - (Maintenance + other costs)
If you predict appreciation to be high, it may offset low net cashflow or even negative net cashflow. Especially if you use leverage (loans), and have appreciation of 5%+/year.
In Austin it's similar (maybe not as extreme): a $300,000 house may rent for $1,500/mo which probably doesn't even cover the mortgage. But 5%/year is $1250/mo. AND there are more than a few tax advantages to barely making money renting (or losing) but selling at a profit later. I am not an accountant or landlord, but I have run the math and it seems to make sense.
They say appreciation is icing on the cake + negative cash flow means that you are constantly investing and can’t pause. Not the best situation to be in.
Wait, but someone who could pay the 1% per month for rent could save the 20% downpayment in 20 months and easily afford the mortgage payments as they are less than 1% per month. The only thing that would stop them from saving money is not having a choice, but to pay the huge rent. It's taken me almost 10 years to save for downpayment for this reason: rent keeps climbing up and eats a good chunk of my income.
I was reading a bit about renting as a business (plus I have 1 house in Bay Area I rent) and there is so-called rule of 1%, which means for cash flow to be positive you should rent your house for at least 1% of its market price. But it is just not the case in the SF area, you can get 0.3-0.4% at best. House with 1M price can be rented for 4K, which can’t even cover mortgage + tax, I’m not talking about repairs. Based on rule it should be 10k to make it interesting for the investors (buy and rent to make some profit). The only reason I didn’t sell it is the hope that prices will go up in x years, but right now I technically subsidizing people living there + waiting on possible rent increase in couple years. With rent control in place I would’ve been pressured to sell or live there myself. And as I moved out for an interesting opportunity, in a different market I would’ve just stayed in Bay Area. Which will not lead to drop in prices, But to decrease of available housing.
In supply/demand problem, the only way to decrease price is by increasing supply, not caping the price.
And the reason I would’ve stayed in Bay Area is cause I can’t afford to rent a place for a true market price. I’m right now paying 5k for the house which is around 1.5M (should be 15k, right?), which is mind blowing. The only reason it is possible is that the owner bought it long time ago and had the opportunity to pay it off. Buying it right now would require 300k in cash + 5.7k mortgage + 1.5k for taxes. + maintenance
So, to me, market rent control already there. And it is already on the verge of what financially feasible.