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For those of you who have not made the decision to buy your own home because of purchase prices, you might want to consider what is going to happen to the San Francisco Bay Area rental market in the next few years.
San Francisco -- and cities in the Bay Area -- already have rents that are among the highest in the country, with an average of $1,904 in the city itself. Rents have been rising and will continue to do so because California is expected to be one of the top three growing markets in the U.S. over the next couple of decades.
San Francisco Bay Area rents are expected to increase at the rate of 7% per year (and 8.6% in San Francisco) due as the demand for already limited space continues.
Current levels of rental production are insufficient to meet the growing demand and little new inventory is being added due to limited space, cost of business and developers' reluctance to dive into rent-controlled markets.
It's definitely worth a conversation with a tax consultant to find out just what a house would cost you after your tax deductions for interest payments and house taxes. Almost everyone new to the housing market is quite surprised at the difference mortgage payments make on a tax base . . . depending on your income level, your taxes can drop thousands per year and that money can be used to offset the cost of home ownership.
Example: A few years ago an associate's rent was going to be increased from $1200 to $1800 after the landlord completed a building remodel (which was desperately needed). That person's tax base was roughly 32% on a $75,000 income, meaning $24,000 was going to the government for taxes every year. Between that awareness, and facing a future of ever-increasing rents, she found the "house (actually a duplex) that no one wanted." Through that purchase, her tax base dropped to 12%, meaning an annual tax of $24,000 dropped to $9,000, for an annual savings of $15,000, along with $12,000 rent from the second unit. So this person went from a potential outlay of $1800 in rent with no tax break to an income of $23,000 from the tax break and rental income, which offset the additional cash outlay to cover the mortgage and tax payments on the duplex.
The equity gain also proved quite impressive over a 3-year period.
Purchasing your own home is worth considering and certainly worth taking time to meet with a tax advisor regarding benefits and strategies.
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