Advice on Buying a House

1. Financial Snapshot: Can You Afford to Buy Without Becoming House Poor?

In Los Angeles, a centrally located home often comes with a hefty price tag. Let’s assume a median home price of $1.5M in a desirable neighborhood. Here’s the math:

Down Payment (20%): $300,000
Loan Amount: $1.2M
Monthly Mortgage Payment: ~$7,500 (at a 7% interest rate for a 30-year fixed loan, excluding property taxes and insurance)
Property Taxes: ~$1,500/month (1.2% of purchase price annually)
Homeowner’s Insurance + Maintenance: ~$500/month

Total Housing Costs: ~$9,500/month

Compare that to your current $1,800/month rent. Owning would increase your housing costs by $7,700/month, or $92,400/year. Even with your $250k household income, this is a massive jump. It could severely restrict your ability to save, travel, dine out, or enjoy other aspects of life.

2. Pros and Cons of Renting vs. Buying

Renting (Your Current Setup)

Pros:
- Extremely low housing cost relative to income.
- More money for travel, dining, shopping, and saving/investing.
- Flexibility: No long-term commitment to a location or property.
Cons:
- No equity building.
- Subject to rent increases (though rent control mitigates this).

Buying

Pros:
- Builds equity over time.
- Tax benefits (mortgage interest deduction, property tax deduction).
- Long-term stability (not subject to landlord decisions).
Cons:
- High upfront costs: Down payment, closing costs, furniture, and moving expenses.
- High ongoing costs: Mortgage, property taxes, insurance, and maintenance.
- Less flexibility: Selling a home can take months and comes with costs (~5-6% of the home’s value).
- Potentially becoming house poor, sacrificing your current lifestyle.

3. Are You Throwing Money Away by Renting?

The idea that “renting is throwing money away” is overstated. Here’s why:

Cost of Homeownership: A significant portion of your mortgage payment (especially early on) goes toward interest, not principal. That’s money you’ll never get back—similar to rent.
Opportunity Cost: Your $300k down payment could instead be invested in the stock market or other opportunities, potentially growing at ~7% annually over time.

Quick Example:

Renting for $1,800/month for 10 years costs ~$216,000.
Investing the $300k down payment instead, earning 7% annually, grows to ~$590,000 in 10 years.

In many cases, renting while investing the difference can lead to greater long-term wealth than buying a home.

4. What Are Your Goals?

The decision to buy or rent ultimately comes down to your family’s goals and values:

Lifestyle vs. Wealth Building: If you value travel, dining out, and financial freedom more than owning a home, renting may be the better choice for now. If you’re prioritizing building equity or long-term financial stability, buying might align better.
Commitment to Location: If you plan to stay in your current area for 10+ years, buying becomes more financially viable. The upfront costs of buying (down payment, closing costs) are amortized over a longer period.
Future Plans: Do you plan to expand your family? If so, will a 2-bedroom home suffice, or would you need to upgrade later?

5. A Middle Ground: Invest in Real Estate Without Buying a Primary Residence

If you want to build wealth through real estate without sacrificing your current lifestyle:

Consider Investing in Rental Properties: Use your savings to buy an investment property in a more affordable market. The rental income can cover expenses and potentially generate cash flow, while the property appreciates over time.
Real Estate Investment Trusts (REITs): If you don’t want the hassle of being a landlord, invest in REITs for exposure to real estate without the upfront costs.

6. The Bottom Line

Unless you can comfortably afford a home in your desired area without significantly compromising your lifestyle, it’s okay to keep renting. You’re not “throwing money away”; you’re simply prioritizing flexibility, lower costs, and the ability to save/invest elsewhere.

Would you like help running numbers for specific scenarios or evaluating neighborhoods in LA? Let me know!