Buying a home in the East Bay may be the biggest financial decision of your life. Then again, you don’t want to wake up one day after 8 years of being at UC Berkeley and realize you’d spend $250,000 on rent without once considering buying.
Count me as one of the people who wishes she had bought in the 1980s. Or in the 1990s. Back then “The Big One,” the big earthquake was often heralded in the media as a force that would render real estate worthless. “I’ll wait for the Big One to buy” is something everyone has said often. (As opposed to no one said, ever.)
Seriously, that phrase doesn’t seem to come up as much now that the drought and fires have become more present-day dangers.
But The Big One in conjunction with super low rents, if you could score a rent-controlled apartment, made owning a home seem more like an albatross — “I can’t be tied down, man. — rather than a smart financial decision.
Oh, if I knew then what I know now…So please, allow me to share my wisdom!
It’s never too early to start asking a few questions:
- How do you know if it’s the right time to buy a home?
- Can you afford to buy a home? (There are many creative ways to buy!)
- How do you know when it’s the right home?
- Are you up for being a real estate investor, property manager or house hacker?
- Where is the right place to buy a property?
Choosing whether to rent or buy in Berkeley and choosing the right property depends on a few factors.
Your finances are important. But you need to consider your personal goals and limits as well as the situation around a particular Berkeley property — the location, the price, if it has tenants, what the HOA is if it’s a condo, and so much more.
So should you rent or purchase a home, investment property, or condo in Berkeley rather than rent? Start by asking yourself the following questions. (If you’re ready to go, give me a call and we’ll work through this together!)
What are your 3-5 year plans?
In the short term, renting is always cheaper. There are substantially fewer costs involved in renting. Aside from your first and last months’ rent and deposit, there are just utility bills.
If you decide to purchase a home in Berkeley there are a number of costs involved.
In addition to a 5% or 20% deposit, you will need to save an additional amount to pay the costs of buying the home; gifts from relatives and even as wedding presents toward a down payment have become very commonplace. Your lender can tell you more about the rules of downpayment gifts.
Other costs include property transfer taxes, possibly lawyers fees and closing costs for the title company and escrow process. And once you do move in, your monthly bills will likely be more than if you were renting.
Berkeley has costs for a BESO environmental analysis.
Interestingly, Berkeley has a program to incentivize homeowners to make seismic improvements such as bracing and bolting a house to the foundation. They will give new home buyers a partial rebate on the transfer tax for making improvements (following their program guidelines).
By the way, you don’t need to memorize all of this! I’ll hand-hold you through the whole process of buying in Berkeley.
Scenarios where buying in Berkeley makes more sense than renting:
When buying in Berkeley, there is a chance that the market could go up substantially in a couple years time, in which case you would have made money. But no one knows for sure what the market is going to do, so it is best to take the risk you feel most comfortable with.
It makes sense to buy a house in Berkeley that you might sell in a few years in the following scenarios:
- It’s a cosmetic fixer, and you’re up for fixing it up before eventually selling. (In 2022, there have been houses that parents bought for their student kids and improved with hundreds of thousands of dollars. They had trouble recovering those upgrades.)
- There is room to make rental income to offset the mortgage.
- The house is located in a highly desirable area that would be easy to rent out if need be.
Caveat: Before you rent out property in Berkeley, or buy a tenant-occupied property, be very familiar with Berkeley’s rental laws.
If it’s a condo you’re purchasing, be sure to factor the HOA fee into the rent to figure out if you’ll be able to break even, and hopefully profit, on your investment!
Calculate how long you plan to stay where you are and if you want to rent out when you’re no longer there.
If you plan to own indefinitely, then purchasing is your best decision. If you plan to stay for only a few years, then renting may make more sense not only financially but for ease.
#GoBears ! 🙂