As many Americans are currently evaluating decisions they have made. I am currently evaluating a number of decisions that I will make in the future.
Owning a home might be one of those decisions. Right now I am working out the math on the topic. And it seems to me that owning a home allows one who has earned income to potentially do two main things.
- move retirement income into a hard asset with fewer rules.
- allow you to take a portion of your income and stash it in a hard asset.
The math is preliminary, but let’s just say that 1 year worth of rent in SF is about
$20k
So far is seems like the rent on a mortgage + taxes and stuff for the same type of place would require I buy a $500-650k condo.
The net year cost on that would be
~$30k + possible association fees.
The income tax code says that I can write off the interest on my income, and since it’s a new home most of that mortgage payment can be written off.
Right now the government says that I can write off about $7-11k per year.
This means that my post tax cost for the home is
$20k a year again.
some portion of that $20k that get’s spent is actually principle.
let’s say $5k
As that principle grows, I can use that equity, even though it’s trapped in a home, to take out an SBA Loan with only 25% of the total covered.
So that means with a 5% down ( yes this is still allowed on some homes ), in 5 years turns into
$50k. ($25k down payment + $25k in new equity )
This should allow for an SBA loan of up to $200k that you can use to buy hard assets. Now this does not get you that much if you plan to do software start-ups like i do, but it does provide you leverage on those hard assets. My point being is that just because money is at work in one place, it doesn’t mean that you can’t still get leverage other places.
So, there is a case for moderate leverage. But, what about buying pressure?
As people pay off their mortgage, more principal is paid off and less of that payment is interest. Over time they get less and less back from the government. I think this creates a sort of pressure to be on a new mortgage. I wonder if this has anything to do with why people tend to move every 7 years on average. There are also some interesting rules around selling a home and saving on taxes if you have lived in the home for 2 of the last 5 years. I also think that people get board, and want to move for various reasons, more kids, fewer kids, etc…
Heck I’d like a *maker* room for crafts, electronics hacking extra. In fact at maker faire one of the exhibits was for a company called the 100k garage. So yeah, i’d like to *paint* the walls but i’d also like to continue playing the *start-up* game a bit longer and it seems more and more like they are mutually exclusive if I am going to be really good at either one of them.
It seems to me that buying a home is only good if you have earned income, and secondly if you don’t expect to have to move in 3-5 years. Out here if your company get’s acquired by google or facebook, you might have to start driving to a new office 30 miles away. It’s been a pain for some people I know and it’s been part of the reason they shed the golden handcuffs a bit early.
If I bought a home out here, i’d have to make some major decisions about what my life is going to look like for 3-5 years. It would limit my job choices or my time, which can already be a 60+hr work week, before transit. I’d have to decide between living in the city ( san francisco ), on the peninsula near FB and Google ( where prices are 30% higher ), in the north bay ( very pretty and better schools, no public transit to the city ), around berkely/ oakland. Each has their advantages and their disadvantages.
I’m just not sure what needs to happen to maximize all of my options, and secures a future. I’m just not sure earning an extra $5k in home equity a year is worth it.
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