San Diego real estate continues to skyrocket.
If we buy a home, it feels like we might be getting in at the top of the market.
If we rent, we are just paying someone else’s mortgage.
So, what’s the right answer?
Do we suck it up and buy a house in San Diego?
Or do we rent and wait for the market to cool down?
Before We Dive In, Pocket These Free Resources:
- Buy vs Rent: Custom Real Estate Calculator (Download Our Free Calculator)
- Cash Flow and Budget Worksheet (Download Template For Singles)
- Cash Flow and Budget Worksheet (Download Template For Couples)
- Homeownership is not as great of a deal that most people think
- Renting can be a fantastic option, even for high-net-worth individuals
- Just because you can buy, doesn’t always mean you should
- 60% of San Diego residents are homeowners in 2021
- 40% of San Diego residents are renters in 2021
- The average monthly mortgage payment in San Diego is $4,200 in 2021
- The average monthly rent in San Diego is $2,610 for a one-bedroom and $3,026 for a two-bedroom in 2021
Most people underestimate the hassle of owning and the benefits of renting because they are hardwired to do so.
We’re taught that homeownership equals success and renting is a form of failure – or even “settling.”
If you can’t afford to buy, you just rent because you need a place to live, right?
I think this line of thinking is dangerous, and I share this opinion with my clients often. I also share my personal real estate story of buying a home in San Diego with my wife and almost losing our entire life savings.
Give it a listen here:
Why You Shouldn’t Buy San Diego Real Estate Without a Plan
I bought my very first condo in 2007. The purchase seemed like a no-brainer.
I had the money for a down payment and I found the perfect condo in the perfect neighborhood.
Under those circumstances, renting no longer made sense.
I mean, San Diego real estate values will always go up and up, right?
We all know what happens next.
When the Great Recession hit in 2008, my condo lost half its value in a short amount of time. I held onto the condo regardless and continued living there until I found a reason not to.
When my girlfriend (now wife) and I talked about moving in together several years later, I desperately needed a bigger place.
Unfortunately, the condo building itself became embroiled in litigation. Because of this, selling my condo became an impossible feat.
So, what did I do? I became the world’s most reluctant landlord – mostly because that was my only option outside of losing money every month.
After two terrible tenants, I was finally able to sell the place and move on with my life. Finally.
While I did eventually break even on the condo, the amount of time and stress I poured into the process left me deep in the red. Not only did I pay for maintenance and upkeep all those years, but I endured years of hassle and many sleepless nights, too.
In the end, owning a home wasn’t even close to worth it.
This is why I tell clients they should never buy a home without having a plan in place first. Looking back, I never should have bought at that time in my life, nor should I have bought such a small place that couldn’t accommodate anyone but me.
Unfortunately, I was too caught up in the dream of homeownership to consider the reality. And in the end, the reality wasn’t anything close to what it was cracked up to be.
Rent vs Buy in San Diego: How to Decide
While the story I just shared hinges on an array of very specific factors, it still illustrates a major point I drive home to every client I see:
You shouldn’t buy a home without a plan. Period.
Beyond coming up with a plan, it’s also important to note why you’re buying in the first place.
If you’re considering a home purchase to appear successful, you’re setting yourself up for failure. If you’re shopping for a home because you feel like it’s a natural next step, you’re making a mistake.
It’s also important to look at the pros and cons of renting and buying for what they really are – not what you wish they were.
And if you don’t know what the numbers really are behind the San Diego real estate market, here are some interesting numbers to consider.
Housing Costs in San Diego [2021 Updated]
San Diego Homeownership Statistics 2021:
- 60% – Percent of People Who Are Homeowners in San Diego
- $825,120 – Median Home Price in San Diego
- $4,200 – Average Monthly Mortgage Payment in San Diego
- $15,555 – Gross Monthly Income Needed to Buy in San Diego
San Diego Renting Statistics 2021:
- 40% – Percent of People Who Are Renters in San Diego
- $2,610 – Average Monthly Rent in San Diego for One-Bedroom
- $3,026 – Average Monthly Rent in San Diego for Two-Bedroom
- $8,700 – Gross Monthly Income Needed to Rent (30% of Income)
The Benefits of Renting in San Diego
Renting may not feel like progress, but that doesn’t mean it’s not the right move at this point in your life.
The fact is, there are a ton of huge benefits that come with renting – including the fact you’re not tied down to a property or how your local real estate market performs.
Here are some of the underrated benefits of renting that most people sweep under the rug:
- Flexibility. Maybe you prefer to move around, seeing new neighborhoods and cities. It’s hard to put a dollar value on that experience and enjoyment. Or if you anticipate a career or job change, renting might suit you better. Buying a home in San Diego (or any location) can hinder your flexibility to pick up and move in the near future.
- Avoiding homeownership costs. Homeowners are painfully familiar with unforeseen (and often hefty!) costs in addition to paying the mortgage. For example, HOA fees can hover between $400 and $800 per month in San Diego. The median San Diego property tax bill is roughly $6,000 per year or $500/month. And don’t forget about furnishing costs, decorating, leaky pipes, landscaping, and general maintenance. As a renter, you enjoy the perks of your home without the financial burden of maintaining it.
- Liquidity. Generally, you can’t turn a house into cash overnight. Many people invest a lifetime’s savings into a home, putting the bulk of their net worth into an illiquid asset. There’s a risk in tying up a large portion of your wealth in such an asset. Renting allows you flexibility and other investment options.
- Building credit. Everyone needs a healthy credit score for pretty much all we do, from getting a new cell phone plan to buying a car. While renting doesn’t boost your credit rating the same as owning a home, creating a history of on-time rental payments can, in some cases, help build your credit to qualify for a mortgage down the road. This history begins when (and if) your landlord reports your payment data to credit agencies. Third-party services can help you report this information on your behalf, too.
The Benefits of Buying a Home in San Diego
Still thinking of buying?
A home provides a place to live, which can equate to stability for you and your family.
When you own a home, you are no longer at the mercy of a landlord who changes terms or, even worse, sells the property. With each mortgage payment, you also inch closer to owning the property outright.
Some other benefits of buying include:
- No surprises. While a leaky roof or broken water heater might catch you off guard, your monthly payment won’t change or fluctuate much at all over the years. This helps with budgeting, cash flow, and other aspects of a comprehensive financial plan.
- Tax benefits. As a homeowner, you can deduct many related expenses from your taxable income. And unless you owe more than $750,000 ($1 million if you’re grandfathered into the old limit), all the interest in your mortgage payment is deductible. In addition to lowering your tax bill, deducting expenses like mortgage interest can help you avoid IRMAA surcharges.
- Diversification. Just as you commonly invest in stocks, bonds, cash, certificates of deposit and the like through brokerage and retirement accounts, you can use real estate as another asset class that can help diversify your portfolio. Plus, as a tangible asset, real estate appeals to many other potential buyers and investors.
- Equity building and retirement planning. Along with a rise in real estate prices, you can also build equity by paying down your mortgage over the years. If successful, you will likely enjoy a lower cost of living in retirement.
Final Thoughts: Renting vs Buying in San Diego
It seems like everyone has an opinion as to whether you should rent or buy in our area these days, but you have to decide for yourself.
Just remember, renting can make a lot of sense depending on where you are in life, what kind of lifestyle you expect to have in five or ten years, and your long-term financial goals.
And even more importantly, keep this in mind: just because you can buy, doesn’t always mean you should.
Trust me, it’s much better to rent while you decide what you really want in life versus buying and learning the hard way. If I had rented instead of buying my first place, I could have avoided a world of stress and heartache – and yes, the financial losses I incurred as a homeowner, too.
Hey there! I’m the founder of Define Financial, a commission-free retirement planning firm ranked #2 in the U.S. by Investopedia. We specialize in helping people over age 50 reduce their tax bill, invest smarter, and make work optional in retirement. I’m also the host of the Stay Wealthy Retirement Show, a Forbes Top 10 podcast. When I’m not helping retirement savers reduce their taxes, you can find me traveling with my family, searching for the next best carne asada burrito, or trying to master Adam Scott’s golf swing.