Who Spends Over $100,000 A Year On Rent? Apparently All Types Of People!

Who Spends Over $100,000 A Year On Rent? Apparently All Types Of People!

Rents have been going up aggressively since 2020. And it always amazes me how much some people are willing to spend on rent. This article will discuss who spends over $100,000 a year on rent. I've been a landlord of multiple properties in San Francisco since 2005.

Once rent hit the $2,000 a month mark for where I wanted to live, I decided to buy property instead in 2003. Back then, spending more than $2,000 a month on rent felt too painful.

In 2001, I rented a crappy two bedroom, one bathroom apartment at the edge of Chinatown in San Francisco. The garbage truck would wake us the hell up at 4:30 a.m. twice a week. The paper-thin walls couldn't deaden the incessant arguing sounds of our neighbors either.

At $1,800 a month for two, the rent was cheap compared to the $2,100 a month studio + alcove apartment I rented with a colleague in Manhattan in 2000. $300 less a month and 25% more space felt good. What a steal in the world's cheapest international city.

Unfortunately, I think my roommate was a little schizophrenic. About once a week at around 10 p.m., I'd hear his head banging on the wall as he screamed nonsense for about 30 minutes in a row. I was too afraid to see if anything was wrong so I stayed in my room.

One evening, my roommate came home from his night shift at In N' Out Burger all bloodied. He had been whacked in the head with a bottle by assailants who stole his wallet as he traversed the Tenderloin district. The Tenderloin is still the most dangerous neighborhood in San Francisco 21 years later.

The trail of blood he left on our hallway floor jolted me into making a lifestyle change. I no longer wanted to save as much money as possible on my housing. Instead, I decided it was finally time to live a little.

As a landlord since 2005, I've been able to review some interesting rental candidates. Let me share who spends over $100,000 a year in rent.

Deciding To Spend More Money On Rent

As you may recall from my post about accumulating a million bucks, I had just moved to San Francisco from Manhattan after a promotion and a raise. Yet, instead of living it up, here I was spending 30% less on rent because I wanted to save as much money as possible in order to not have to work in finance forever.

Ever since I was a kid, I was always told that renting was flushing money down the toilet. Back in 1999-2001, spending more than $1,000 a month on rent felt like I was being financially mugged every month. But getting woken up by noisy garbage trucks and seeing my roommate get beat up encouraged me to stop being so parsimonious.

Instead of capping my artificial willingness to rent at $1,000 a month, I raised the amount to $1,800 a month. $1,800 a month bought me a place of my own in one of the nicest neighbors in San Francisco where I'd stay for another year. But once again, I had bad luck with my neighbor who enjoyed playing deep bass music until 2am almost every night. Then the landlord wanted to raise the rent, so in 2003 I finally decided to buy my own two bedroom place.

Until this day, I'm unwilling to pay much more than $2,000 a month or $24,000 a year on rent. It's just a mental limit I've drawn in my mind that I refuse to cross no matter how much I earn. Okay, now let's see who's willing to pay more than 4X that amount!

Who Spends Six Figures A Year On Rent? $100,000+ Is A Lot!

Before 2014, the most I ever charged for rent was $3,800 a month for my two bedroom, two bathroom condo in Pacific Heights. This was the condo I purchased when I just turned 26 years old back in 2003 for $580,000.

A 2/2 property is a highly coveted size due to its flexibility. It can be rented out to a widow, a couple of empty nesters, a couple of roommates, a small family, or a well-to-do professional who just wants more space. No wonder the place has received maximum occupancy since it first became a rental in June, 2005.

But my new rental is a four bedroom, three and a half bathroom house, which I purchased back in 2005. I originally thought I'd be lucky to get $7,000 a month ($6,500 realistically), but after doing research on the market comparables on Craigslist, I decided to test the market at $8,400 instead. To me, $100,800 a year is an unfathomable amount of money to spend on rent. I had my doubts the house would ever find new residents.

But within a day of posting my ad on Craigslist, I had three inquiries. After six open houses, I had three interested parties. The winning tenants decided they liked the place so much they agreed to pay $300 more a month to $8,700 a month instead! I accepted. The tenants ended up being four males with jobs in finance and technology, whose income totaled roughly $400,000 a year.

For my latest round of open houses, here are some of the prospective tenants who came:

* Professional baseball player making $7.5 million this year who was acquired by one of the MLB teams in the Bay Area during the off season. He and his family needed a place to rent for six months. They have a house in Tennessee during the off season. Given his large salary, I was surprised he'd even consider my house. Update 11/1/2015: Ben Zobrist was traded to the Kansas City Royals and just won the World Series! Just goes to show you that you never know what your future will hold. Hang in there! Update 11/3/2016: WHOAH! Ben just won another World Series withe the Chicago Cubs!

* Hedge fund manager of 10 years, his wife and high school freshman daughter. They just sold their 5,700 square foot house close by for $7.1 million dollars. One daughter is off to college this year, and another daughter is already in college. They are looking to downsize to a mid-2,000 sqft house for three years until their youngest daughter goes to college.

* A Berkeley PhD student, her friend who works at Facebook, and another couple friends who work in the energy sector. The PhD student drives a BMW convertible that costs $60,000 new. Not sure how she has the money. Perhaps family support.

* Multiple groups of four guys working in tech and finance. Common employers include Twitter, Amazon, Apple, and Google. Guys outnumbered gals looking for housing 10:1. The standard budget per roommate is $1,500 – $2,500 a month. Nice one bedroom apartments in San Francisco cost $3,200 – $3,600. Nice two bedroom apartments cost $3,900 – $5,500. Nice three bedroom apartments cost $5,500 – $7,500.

* A 44 year old private equity managing director, his ~28 year old wife, two labrador retrievers, and two live-in helpers (6 heartbeats)! I asked whether the two live-in helpers would be OK sharing the room downstairs, and they said the room downstairs is massive compared to the room they are living in now in Hong Kong. One helper is to be the wife's private driver. The other helper is to cook and clean. Talk about living large!

* A partner at a large law firm who owns a home but recently went through a divorce. Has a couple kids who will visit on occasion. Wants to move to a more urban area where there is better nightlife, bars, and restaurants to meet people.

* A managing director at a boutique investment bank and his pregnant wife and two kids. They have been renting for eight years, and have decided living in an apartment with only one bathroom is too difficult (agree!). Was the most nit-picky prospective tenant ever, asking why a door handle was loose, whether I'd repaint the walls, change the cabinets, etc. Then they played hard ball with me on price by offering $7,000 a month even though I have lots of demand over $8,500 a month. I can see why they didn't buy property any time in the past eight years, and missed another rental property: unrealistic expectations of the market.

* A 60+ year old couple relocating from Massachusetts. “Life is too short to live on the East Coast. The weather is dreadful. I went to school in Berkeley, have been away for 25 years, and want to come back to the Bay.”

* Co-founder of a bootstrapped startup with 10 million users a month. Was runner up for a TechCrunch award for best bootstrapped startup. Has a wife and son.

* A partner at a Venture Capital firm who invests in financial tech companies and his startup CEO wife who has an urban baby sitting business. They have three sons. I was surprised they hadn't bought yet.

* The President and CEO of an advertising agency from Bogota, Colombia who is relocating to SF. Daughter going to a private school north of the Golden Gate Bridge.

* Co-owners of a popular Italian restaurant in little Italy with over one thousand Yelp reviews averaging 4 stars. Was hoping they might be tenants so I could get some comped food and always a table.

In reality, spending lots of money on rent is wise in big cities. Check out my real estate investing rule called BURL. It stands for Buy Utility, Rent Luxury.

Rent growth in 2020 and 2021

Common Themes Of Prospective Tenants Willing To Spend Six Figures On Rent

There have been plenty of reports that San Francisco is the most expensive real estate market in America. I firmly believe Manhattan is at least 20% more expensive than San Francisco, but that's no consolation for those looking to rent or buy in SF. Here are some common themes I've observed from the people willing to spend so much money on rent.

* Everybody is shacking up after college. From ages 22 – 35 it is common for college graduates, master's graduates, and PhD graduates to all live with roommates. You can easily find a room for $1,200 a month, just not in the best neighborhoods. With Facebook engineers making $110,000 right out of college, and investment bankers now earning $85,000 base salaries + $25,000 bonuses, a lot of new graduates can afford $2,000 a month. New MBA graduates can usually spend up to $2,500 a month given they are earning $10,000 – $15,000 gross a month, or $6,500 – $9,750 net (based on a 35% effective tax rate).

* Empty nesters. One of the discussions about the future of housing is what will happen when the Boomer generation dies? Will there be a flood of housing that will suppress prices? The couple that sold their 5,800 square foot place sold the home to buyers who were downgrading from a 10,000 square foot place in Napa! I decided not to sell my 2,300 sqft home, but rent it out and downsize to a 1,900 sqft home with one less bedroom and bath. There seems to be an endless supply of people looking to rent or buy who are downgrading/right-sizing. Simplifying life as one gets older is a common theme.

* High cash burn rates. It's expensive to raise a family in San Francisco. Every parent had a high income job at some private equity, venture capital, investment bank firm, yet they were still renting. Two specifically mentioned their high cash burn rate at over $350,000 a year. If you're spending that much to support a family, either you're killing it or chances are high you'll have to work for a very long time.

Check out the posts:

Making $200,000 A Year And Not Feeling Rich

Why You Need To Make $300,000 A Year To Live A Middle Class Lifestyle Today

High Income + Lots Of Jobs = High Rents

Dream house overlooking the Pacific Ocean

I've always fantasized about buying a nice house in Honolulu with a lanai overlooking the Pacific Ocean. I'd spend the mornings doing yoga caressed by the ocean breeze before typing up new posts for Financial Samurai. Afterward, I'd walk down to the beach for a quick snorkel or surf session before taking my family out for a nice picnic lunch.

But I didn't fulfill my fantasy due to fear and economics. You either have to come from money, be an entrepreneur, or be a doctor to afford the $1.5 million+ home that I so desired. Given that I no longer had a full-time job, I felt the risk of buying in Honolulu was just too great. I would be comfortable buying a $800,000 home in Oahu, but sadly, you can't get much for that amount.

Expensive Homes In Big Cities Are Safer Due To More Job Opportunities

Spending $1.5 million for a house in San Francisco or even $2 million felt much safer because there are so many more employment opportunities here than in Honolulu. As someone with 13 years of experience in finance, and six years of experience in online media, I don't fear not being able to find a six figure job even though many jobs in startup land pay like crap. Now my goal is to try and bring island paradise to San Francisco.

I never thought someone would ever spend over $100,000 a year to rent my house. But inflation is a powerful force.

It's important to accumulate assets that will inflate over time or produce income that inflates. Without being on the right side of inflation, it's hard to ever escape the rat race. But I also know that plenty of these prospective tenants aren't struggling at all. To them, $100K+ on rent is probably much cheaper than many alternatives!

Related posts:

The Case To Buy More Rental Properties Post-Pandemic

The Best And Worst Times To Find Renters

Invest In Real Estate Opportunities Wisely

If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today. Fundrise runs over $3.5 billion for over 500,000 investors with an investment minimum of only $10.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you're looking for strictly investing income returns.

Another great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside. Crowdstreet is a solution where you can build your own select real estate portfolio. I've met the people at Crowdstreet on two separate occasions and came away impressed with their product offerings.

Personally, I've invested $954,000 in private real estate since 2016 to diversify my exposure and earn more passive income. Both Fundrise and CrowdStreet are affiliate partners of Financial Samurai, and Financial Samurai is currently invested in Fundrise. 

Fundrise Due Diligence Funnel
Less than 5% of the real estate deals shown gets through the Fundrise funnel

Updated for 2024 and beyond. I ended up selling the rental property I mentioned in my post for $2,740,000 and reinvesting $500,000 of the proceeds in real estate crowdfunding to earn completely passive income.

81 thoughts on “Who Spends Over $100,000 A Year On Rent? Apparently All Types Of People!”

  1. anonymous2022

    Sheeezzz!!! You guys were paying this much in 2015? It’s 2022 now and wonder what you’re paying in rent now. My rent just went up from $550 to $620 for my one bedroom apartment. It sounds like to me that you a;; need to find a new state or a different location where the cost of living is cheaper with still decent areas to live in.

  2. Anyone who is stupid enough to pay that kind of money in rent instead of buying property is an idiot and won’t be rich for long.

  3. pokersensei

    I don’t think it makes much sense to have a cap on what you will pay to rent that is lower than your effective cost to own. The idea that renting is throwing money in the trash is a really unsophisticated way to look at it. It costs money to live somewhere and comfortable, convenient housing is a valid expense.

    By owning you are also spending money on housing and it could be more or less than renting depending on your situation. You have to consider buying/selling costs, property taxes, maintenance, mortgage interest, insurance, opportunity cost of capital, and time value.

    The biggest ones most people like to ignore are 1. Opportunity cost of tying up capital – other investments can and do generate higher returns than residential real estate in the long run. And 2. Time value – it take a lot of time to maintain a property and deal with buying/selling/plumbers/electricians, etc…

    In the end you if you say you are willing to pay $6,000/month to own and $2,000/month to rent that make no sense. The numbers should be the same and should depend on your monthly income.

      1. pokersensei

        I love your site Sam so no offense, but you said exactly that in your June 11 comment…

        ” I would never rent for more than $2,000 a month, nor would I pay more than $6,000 a month all-in to own a home. “

          1. Absolutely. Thanks for reminding me to respond! I was in NYC at the US Open for almost two weeks.

            Don’t confuse what you want to spend with what you can afford to spend. Can you share your housing situation and stuff as well?

        1. No offense taken. I guess I should explain myself clearer as you’ve taken the quote and not putting proper context around it.

          $2,000 a month was my personal limit for spending on rent. At $2,000, that would would only rent me a mediocre one-bedroom at the time in SF in 2001. I had a choice: 1) to continue living like a college student as I get older, or 2) finally pony up and spend more on an asset that could appreciate. So instead of paying more than $2,000 a month on rent, I bought. I could afford $2,000 – $5,000 a month in rent at the time, but I chose to cap it at $2K.

          The reason why I decided to rent out my house was because the market has demand at $8,800+. I would personally never pay that much for rent or to own. My limit for paying money to own is $6,000/month. Everybody’s limit is different. Since $8,800 is $2,800 beyond my $6,000/month limit, I decided to let the market take it and buy another property which has a total cost of under $6,000/month. Again, don’t confuse what I’d be willing to spend owning vs. how much I can afford to spend owning. I can afford much more than $6,000/month.

          Does this make sense? I’ve met so many people who had such low rent, that they continued to rent over the past 14 years I’ve been in SF. All of them highly regret not buying property instead. Now they are stuck renting, but rents are going through the roof here.

          Please share with us your housing situation, how much you pay, whether you own, age, net worth etc. It would be helpful so I can understand where you are coming from. I’d love to critique it!


  4. I got to thinking – what is he maximum you/one would/should spend on A STR whether it be a hotel or vacation rental, business or pleasure. I think my mental nightly limit is $80 business and $100 pleasure.

  5. Pingback: The True Cost Of Building A Luxury Master Bathroom | Financial Samurai

  6. It’s funny I was actually just looking at rent prices around me. I went with $1,500 because that would put me at the low end of the high end market where I’m currently living. I too am a former NYC resident (but not in the city – Queens). If I was still living there I’d probably move my budget up to $2,500. On the other hand I was recently living in SW Georgia and I thought my neighbors were crazy for paying $1,400 and would have said less then $1,000 was my limit.

  7. Nick Beltran

    i used to pay roughly USD120 monthly for rent and partly subsidizing my brother and sister which felt a bit wrong.

    So I right sized by rooming with college friends and and reduced it to usd30. The bad thing though is we we’re packed like sardines.

    I transferred again and now spends roughly usd60 in a one bedroom apartment but for share between four guys.

    Oh. Before I forget, it’s not Manhattan nor London.

    It’s in Manila.

      1. It is…thanks.
        I work for an airline and after about intensive saving –(at some point monthly expense was roughly less than 20%) I’m about ready to retire early next year at my early thirties.

        Thanks for maintaining a great site. My lifestyle has become quite private because people find it incredible (both in positive or on an raised-eyebrow way) when I tell them so I barely do. But it’s nice to know through fellows like you that it’s not that unusual.

  8. I work in NYC and had a similar experience as you. To save money, I lived in Newark paying $400/month rent (section 8 housing) and had horrible neighbors. Anything from stabbings to home invasions were common occurrences. After getting my car broken into twice, I finally moved to one of the nicest areas in Jersey City and quality of life has drastically improved.

    On a high note, I was able to pay off all my student loans from all the money I saved.

  9. Brad Johnson

    You’ll need to finish the story. Which potential tenant did you choose and why? How has that decision panned out?

  10. Wow – that is crazy collecting $100k annually for rent! I guess when you see some of the potential tenants and hear their stories it makes a little more sense.

    We must have been way undercharging for our 2 bedroom, 2.5 bath, 2 car garage condo in Alameda. It was located on the water with a 40 foot deep water boat slip and we collected $2635 per month! I wonder how many people from the east bay are doing the long commute to the city to safe those high rental costs?

      1. What are your total annual expenses on this $8700/mo rental? On BiggerPockets, we use a general number of 50% of rent for expenses, which includes taxes, insurance, maintenance, management, vacancy, capex, etc. However, we are usually talking about much lower rents.

      2. Excellent point Sam! My property taxes were around $7000 – quit a bit less than yours. Also our HOA was $375 per month. I am betting your property’s HOA is much higher?

          1. The assessed value last year for years 2014-2015 was $653,917 for the Factored Proposition 13 Base year value and $459,000 for the Assessed value ( as of July 14). We sold it in March of this year for $604,500.

            I guess the important consideration is that we were paying a 1.1342% tax rate. My last full year tax payment was $6,467!

  11. Wow. I am ten years older than the example tenants listed in the post, am a doctor, and still don’t earn more than the new-MBA grads! I certainly can’t afford that $1.5 million home (maybe not ever).

    Sam, what I’ve realized from your experience is that I really have to find ways to crank up my earnings. The interesting aspect of being a doctor is that I’d likely earn MUCH LESS in the Bay Area than I would in any other undesirable part of the country. Conversely, had I stayed in tech, I’d be gunning to be in the Bay Area or NYC to maximize my chances of finding a high paying job. Interesting dichotomy.

  12. Hi Sam,
    I came across your blog 4 months back and I check your blog every morning if there is anything new published :). The content you have here is great and being in Bay Area I can totally relate to everything. Thanks a lot for guiding us.

    Regarding this post – What do you think one should do in the following scenario. Family of 3 (2+1) single earner with income around 200K, paying rent around 2400 per month for 2 bed apartment in south bay. My mental limit was 1600, but bay area left me no choice :(. I looked at buying house for last 3 months and got outbidded by other buyers many times. Also I saw that prices today compared to last year (June 2014 to June 2015) are 30% to 40% more in south bay for some areas, I think market is too crazy for me to enter. I am planning to sit on cash now and wait (No other option). I was ready to put 20% down on 500k home. What do you think?

    1. Howdy Tisara!

      Nice to hear from you and thanks for checking out my site. Are prices for houses you’re looking for really 30%-40% higher? That seems like a bubble and totally unsustainable. Where in the South Bay specifically? Can you actually find a decent home for $600,000 nowadays?

      Rates have jacked higher this summer to around 2.45% on the 10-year yield. Still very low, but it was under 1.85% over the previous 12 months. So at the margin, I suspect the housing market MUST slowdown due to affordability issues exacerbated by rising prices and rising interest rates.

      As a result, I would NOT buy at this time and save ALL YOU CAN of your healthy $200,000 income. $2,400/month per rent to provide for 3 is not bad. Just think about it as only $800 a month! :)

      There is always a slowdown in the property selling marketing around Thanksgiving. Look intently then through the NY. Anybody listing then is motivated.


      1. Thanks for your super quick, detailed reply.
        Yes some houses I looked at in Sunnvale and Cupertino are literally exploded they are 30 to 40% highter as compared to past year.
        For 600k now you do not get decent single family home.

        2400/3 = 800 per month is nice trick to stop worrying about rent which I cannot do anything about at the moment. Thanks :).

        Thanks for the tip, I will be on the lookout at the time of new year.

        I might change plans to buy Duplex at that time (1 for rental and 1 for myself), I heard that’s very good strategy to manage rental.

  13. As someone moving to the bay area from NYC, I was shocked that renting in the bay has become more expensive than areas of Manhattan. My mental cap is similar to yours (~$2000/mo.) and searching for a place that is close enough to the Financial District to accommodate my demanding work hours has been stressful.

    In your opinion as a long time resident of the area, where should one who is new to the area look to rent? I’ve currently been looking at North Beach and SoMa. Any input would be greatly appreciated!

    1. Is it possible for you to buy?

      North Beach and Telegraph Hill are fantastic neighborhoods close by to downtown. There’s also Marina, Cow Hollow, Pacific Heights on the North End and the Lower Haight / Duboce Triangle to the south.

      You can’t go wrong.

  14. I loved this post. What a fascinating summary of prospective tenants for your place. Isn’t it crazy how it sounds to spend $100k a year on rent but a lot of people actually do? That’s so much money!! If I had to rent an apartment by myself still in San Francisco, I’d probably aim to spend $1500 for a studio in a nice, safe neighborhood. That still sounds like a crazy lot of money but rents are high like that in SF.

    There are plenty of studios that cost $2000-2500 in SF, but that would just not be worth it for me. I’d rather try to go as low as I could and stay in an older place without amenities, without compromising my safety of course, in order to save aggressively in order to buy a property and stop renting. I’d rather save as much as I could on rent (perhaps rent outside of SF in a cheaper part of the Bay Area) to be able to buy a place later than to spend more a month indefinitely just to rent a fancy, fully remodeled place.

    1. Unfortunately, I donno if there is such a thing as a $1,500 studio in a nice, safe neighborhood. But actually, maybe there should be in Parkside, Outer Richmond, Ingleside areas.

  15. Dominic @ Gen Y Finance Guy

    Before we bought the house we live in now we were laying down $3,000/month in rent to live in a luxury high rise in the OC. And our unit was one of the cheaper ones. This was the absolute most I was ever willing to spend on rent.

    And in my defense this was a limbo of sorts. In 2013 we were putting offers in on houses in the $600-650K range. Compared to what we could buy an hour away where we owned an investment condo you didn’t get much. After coming in as the 15th+ offer on a few houses we didn’t love we decided to stop chasing and reevaluate.

    So we moved into a really nice place for a year. I tell everyone that it was the best $36,000 I ever spent. That’s because a year later we decided to pack up and move closer to family, our rental condo, and much cheaper housing.

    After a year in luxury we ended up buying a 3,300 sqft house on a 12,000 sqft lot for $370K. We got 4 times the house for half the money.

    $100K just sounds insane. My brain has a hard time processing that…


  16. For me, if I can buy something that fits most of my needs, I buy. Living in LA affords me many living options. With a wife and kid, I bought a house in the San Fernando Valley because I prioritized safety, schools and room over trendiness and weather (yes, even in the same city the weather can be drastically different). Now, if I were single and planning on being so for a long time, I still wouldn’t rent. I would buy a Studio or 1bdrm condo in an area that fits most my needs as a single person. The problem with renting is not just the rent, but the uncertainty of the situation. It’s an uncertainty that will always be there in spite of all the landlord/tenant laws that are implemented. I want consistency.

    1. That’s one of the reasons why there’s always a great desire to buy if a couple plans to start a family. Consistently of knowing the future if payments are paid rather than being asked to move by a landlord.

      1. Absolutely. And it’s especially unnerving with single family homes since rent control does not apply and they can so easily be sold to a new owner who may want to live there rather than rent it out.

  17. Fun in the sun

    Having a hard limit for what rent you would pay is tough to have. The landlord doesn’t set the rent, the tenant doesn’t set the rent, the market sets the rent. The market also sets your income.

    Wherever I have lived, I have placed a dollars per month value on;
    1) Safety – This is my number 1 consideration, and I am willing to pay a large rent difference for a safe area.
    2) Commute. How much is my time worth vs rental differences.
    3) Neighborhood amenities – Once again, value of my time to commute to grocer, restaurants, etc.
    4) Building amenities.

    The market sets the rents, I figure out what each is worth to me, and then the decision where to rent makes sense.

    As a landlord, I often get the “bargain hunter” tenants like your boutique investment bank MD. Can’t blame him for trying, he is a good credit risk, knows it, and is trying to extract value in case you are desperate. He just needs to find one landlord whose last tenant was a deadbeat who trashed the place, and he has a bargain.

    1. I guess I work a different way. I figure out what I can afford first, and then see what I can afford gets me and stick with it. I believe this is the more prudent way in order to live within one’s means.

      The banker was in the bottom 50% of creditworthy/wealthy clients. His industry is cyclical.

      1. fun in the sun

        How do you figure out what you can afford? It really comes down to what life stage you are at, do you have more time than money, or more money than time?

        Even in your early 20’s, you seemed to have more money than time.

        I could save about $600 per month by living a 15 minute additional commute each way to work. That would mean valuing my time at about $55 an hour. My time is worth more than that, so my budget is higher living in the current neighborhood. There are so many side hustle opportunities, it isn’t worth saving too much on where you live, to the detriment of your time, unless your income is very low.

        1. Pretty easy. I look at my income and expenses, and make a decision. For me, it’s $2,000 or 10% of my monthly net income, whichever is lower. I can write a post about this if you’d like. Do you think many people don’t know how much they should spend on rent or homeownership?

          1. Well if you didn’t own you’d be a roommate with 2-3 people to keep it at $2000. And at age 33, who the hell wants to do that? 24 ok. 33…not so much.

            Look, if you want to live in a world class city you either pay the price or get the F out. Manhattan, London, HK, etc., etc. are all expensive. I’m tired of cheap asses whining about SF rents. A significant reason for SF’s high rents is due to rent control: so many loser-lifer tenants skating by on low rents from the 80-90’s at a fraction of current market rents. It makes the marginal rent for newly vacated units sky high, since turnover is so low. It’s also speculated that between 10,000-20,000 rental units are purposely left vacant by owners who don’t want to get stuck with a lifer tenant. And other LL’s rent via airbnb. All further constricting supply of available rentals. But SF city gov keeps passing law after law further restricting LL rights and building of new housing. Smart, real smart!

            Of course, for smart and experienced property owners such as moí all these restrictions are a tremendous benefit! I avoid low rent lifer tenants like the plague. Most of my rentals are off RC as well, which is basically like printing money in SF. So sorry to all you renters paying through the nose, but blame a “progressive” city gov stuck in a 60’s/boomer regressive mentality, that restricts supply like crazy around here. (I actually hope the recently proposed building moratorium for the mission district passes. I own property there, and this guarantees that my assets will go up in value even faster. Thanks gov progressives, you guys are the best :)

  18. I’m paying $1400 a month to live a block from the beach in La Jolla, CA. I used to live alone but now I have the GF with me. It’s a 1/1, pretty old building, coin laundry. Together the woman and I make $150k so we’re saving tons of money. We’re looking to buy but the lifestyle of renting this place is hard to get away from. Owning in La Jolla isn’t gonna happen (Mitt Romney lives a few blocks away) so we’d have to move inland. I’d rather buy than rent a bigger/better place so I suppose my mental limit is $1400.

  19. Though few and far between, good rent deals are out there. With some luck, they can be found unless you don’t have the time to research or don’t need to worry as much about money.

    In my experience renting in northern Virginia, I’ve been able to pay roughly half what I would have otherwise by renting a room in a friend’s house, and (for my current place) by having a landlord who values responsible tenants over maximizing rental income. The landlord of another property I was considering offered to cut the rent by $400 if I took care of her dogs while she traveled–though this was of questionable value.

    The point is rental prices aren’t always tied exclusively to quality and location. In some cases, you can take advantage of other variables and end up saving several thousand per year.

  20. There are a lot of people willing to pay a lot of $$ to rent your place! It is almost shocking. I rented for a year when I moved to a new city, and I’m glad I did because it allowed me to make a really informed decision about where to buy, but just one year of that drove me crazy. Whether or not it’s entirely rational, I just feel better seeing the balance on my mortgage go down each month and having a tax deduction at the end of the year. I actually pay more for housing now than when I rented, but that’s because the only way I could get a rate at just below 3% without a 20% down payment was to get a 15-year mortgage. The PMI goes away as soon as I pay it down to 80% LTV, which isn’t taking long. To me that is the solution to not having enough cash for a down payment, not renting. If you move in the future for a job or lifestyle change, then you have a rental and can start all over again somewhere new. Real estate rocks! :)

    1. And here’s the funny thing I realized in opposite mode. I would never rent for more than $2,000 a month, nor would I pay more than $6,000 a month all-in to own a home. Hence, why would I continue to live in my house that rents for ~$9,000 a month then, b/c by staying, that means I’m willing to pay $9,000 to live, which just seems silly for me.

      Hence, I moved. Thought process and financial situation aligned. Problem solved.

      1. Hmm, this thinking might force you to move again before you are ready. How much would your current home rent for? After you are finished with the improvements?

  21. Prof. Services Consultant

    Wow, and here I was wondering what if moved to the Bay area in the future to raise my income…

    I’d hate to be one of those 4 guys making merely $100,000 each and paying $2000 on rent alone when I make just as much as they do and spent an average of $1,000/month on everything combined this year in SE Michigan.

    At least the weather’s nice in Cali lol.

      1. Prof. Services Consultant

        I’m 24 :) Though I might as well be a 26 year old since I graduated college at 20

        1. If you have experience at that level, then you wouldn’t accept a lateral move then would you? Experienced workers with advanced degrees here make more in line with $175-$200k or more.

          1. Prof. Services Consultant

            Now $200K would be worthy of my consideration :) That way I can probably increase the amount I invest compared to now despite the increase in the cost of living. Even better if I can continue my current road warrior type job (I travel on business 80% of the time). My extremely low utility bills and near lack of food spending go a long way toward making my COL at $1,000/month and under. Would I be expected to work more than 40-45 hours a week? My current job is really laid back due to the nature of my responsibilities.

            I once craiglisted Bay area rentals out of curiousity and found a studio guest house in someone’s back yard pretty darn cheap. Would’ve been perfect since I stay at hotels alot anyway. Just need somewhere to sleep when I’m “home”

  22. $2500 would be my max. Keep in mind that I have a wife and 2 kids. Today we are renting for $2000 a month.
    It feels expensive though, back in Japan, our mortgage was about $1800 a month, and we would have ended up owning the place.
    The thing is, we don’t know how long we’ll be in the US, so what’s the point of buying if you feel you’re going to be out in a handful of years?

    Families around here seem to be willing to go up to $3800 for a townhouse. We’re a household with single income, I couldn’t afford that, and that would critically impact our date for financial independence.

    1. Yes, makes sense NOT to buy if you can’t envision yourself in the area or owning for five years or more.

      Three years isn’t long enough to buy. We can partially thank the ridiculous 5% selling commission for that, and transfer taxes.

      1. I’m just finishing up my first 18 month rotation and will be moving to do another 18 months in a new town. I will be renting for the foreseeable future. Especially since I’m hoping to do an expat assignment after this. I’m going to be spending just over $1k for a nice 2/2 apartment with tons of extras (free gym, coffee and fruit, and more). Bonus is I’m only 1.5 miles from work!

  23. I remember when my sister moved to San Diego. They rented a house (3 or 4 bedrooms) in a nice quiet residential neighborhood for $2,500. I gaped and said I would never ever understand how one could pay that much.

    Fast forward 5 years and I also moved in the US. I live in LA and my ~900sqft 1 bedroom + loft apartment is costing me $2,222 a month + $50 pet rent. It hurts. But then, I had no money saved up (I’ve wised up now) so no way to buy anything, and the same apartment would cost between $350,000 and $400,000 to buy.

    I *could* get something for a few hundred less if I were willing to living in a crappy place or a studio or with roommates. I’ve thought about it. Turns out I’m not there yet.

    1. Crazy about inflation yeah? Do you agree then, that paying $2,222 a month for your place is a lifestyle choice then? And that given it is a choice, there’s no reason for others to complain about high rents?

      1. I don’t think it’s a lifestyle choice by any means. I’m about to move to Houston for a set period of up to 5 years. I can buy a house for $420,000 or rent the exact same house for $2,800/month. When you actually run the numbers and include all the expenses of buying a house (including buy/sell fees, property tax (2.8%), opportunity cost, maintenance, insurance, etc..) the breakeven period for both choices is close to six years. This means that buying the house only starts to pay-off after year 6. As you can see renting for 5 years at $2,800 is the best financial choice in this case.

        The actual amount of the rent payments is in fact irrelevant, if I was willing to buy an $800,000 house and made the same comparison with a $5,500 monthly rent I would arrive at roughly the same conclusion: Renting is better in this case.

        Renting has one added benefit, there is no risk of principal loss, for these calculations I have assumed an annual appreciation of 3%, but what if instead the house lost 3% annually during the five year period (we know this can and will happen). With renting I have peace of mind that my enter/exit strategy is set and it will not be affected by market forces.

        You can clearly see that all your prospective tenants seem to be financially successful people, so why would these people pay $8,700 in rent? Because renting makes financial sense in lots and lots of different scenarios.

        There are about 8 million people in the US still underwater six years after the financial crisis bottomed, I bet these people don’t think buying a house is such a hot idea.

        1. I’m not sure if 6 years is the break even point, but there are definitely a lot of benefits to renting no doubt.

          And without renters, there’s no ability to make rental income.

          Do you never plan to own your primary residence?

          1. “I’m not sure if 6 years is the break even point”
            You can run your own numbers using this nice calculator from realtor.com:

            “Do you never plan to own your primary residence?”
            I’m a Sr. Reservoir Engineer working for “Big-Oil” so I’m constantly moving, I usually never spend more than 4-5 years in the same city, let alone the same country.
            The last time I was in Houston back in 2008 I was about to buy a condo for $180,000, then I ran a buy vs. rent forecast and decided to rent since I would only stay until 2011 or so. When I was leaving Houston in 2011 that same condo was worth $140,000 while my investment portfolio had increased by 35% during the same period.
            I would buy a home once I settle down in a place where I plan to spend at least ten years, but I don’t think I would ever buy real estate as an “investment”. If real estate is all you now I guess is ok, but there are many investment alternatives with similar returns and a lot less hassle.

            1. Dontlikebeinganeng

              Disclaimer: I also work for big oil.

              I purchase homes because most oil companies (E&P, not services) will pay you to sell your home, they will cover closing cost, if you’re underwater they will cap lost at $100k, give you a bonus to sell your home, and also factor in relocation as homeowner versus renter.

              Purchased a 4 bedroom, rent out 3 bedrooms and covers most of my mortgage. My share is less than if I were to rent out somebody else’s bedroom ($400 versus $500-550). Also get around $1500 a month from my 3 roommates.

              Texas property taxes varies as it’s much higher (2-3% I believe) so YMMV.

  24. That is the most fascinating profile of potential renters. I would love to have heard all of their stories.

    Unless you’re in a hot market. I am not convinced that owning your primary residence is the best thing. But, obviously, there is a threshold beyond which it makes sense to own. So many variables to this.

  25. It’s still a lifestyle choice to pay the high rents.

    With the exception of twitter, all those tech companies you mentioned have offices in Silicon Valley. Choosing to live in an expensive city and pay twice the rent is because you want to live in the city.

    Personally, I’d rather live in the ‘burbs and save my money, and share discs with roommates to save even more…

    1. I think you’re right it is a lifestyle CHOICE. There are plenty of lower rent places, just have to commute a little longer.

      So the question is: Is rent really too high if rents keep on going up and there’s so little vacancies? Or is rent actually too low because rents keep on going up?

      1. Bingo. Why do you think Google and Facebook send luxury buses INTO the city to ferry workers down to Silicon Valley? People want to live in the city, and love the lifestyle.

        1. And many more buses like Apple too. Apple is the behemoth of the employer in the Bay Area.

          I just saw six year old kids in Siem Reap, Cambodia walk an HOUR each way in 100+ degree heat to school. If you just drive in a nice air conditioned car for 45 minutes, you’ve got a lot of options that are 50% less than comparable rents in SF.

          If you are a newish resident, you have a choice.

          It’s those who are being blatantly kicked out after so many years, which is the big problem that hopefully the city can help solve.

          1. Why should private landlords in SF subsidize low rent tenants with lifetime rent control? That’s why property owners do everything imaginable to rid themselves of low rent/lifer tenants, including owner move in evictions, capital improvement evictions, Ellis act evictions, airbnb-ing their rentals, leaving units empty, only renting to wealthy tenants, buy outs, etc., etc. that’s the game in SF if you want to be a successful landlord.

      2. Mysticaltyger

        Rents are too high due to constrained supply as a result of NIMBYism and overly restrictive zoning (which is also favored by NIMBYs).

  26. I am in the later part of my career and was recently offered a senior role at a public company in a high cost market. I have a 3 year employment agreement with a compensation package that includes cash compensation of just over $600k per year and equity of $900k+ per year. At this point, I don’t see myself staying longer than 3 years and it doesn’t make sense to buy a house. Rents are high and we are about to sign a lease on a home for $5200/mo. there were a few that were cheaper, but the homes were in terrible condition.

    1. Big bucks! Congrats on your package. Looking to hire a hardworking and appreciative person with immense content marketing knowledge? :)

      $5,200/month is pretty cheap for your compensation level don’t you think? What’s your mental rental limit you won’t go above? Mine is $2,000 a month before I will either buy, or just suck it up and live in a $2,000 a month place until I figure something out.

      1. I do need a good transactions person!

        Before the home search, my mental limit was $4000. My perspectives changed quickly after seeing what was available and the limit went out the door. It is a low percentage of my income, but it did take me a bit to get comfortable with spending that much.

        I am close to hitting my retirement number and this new job puts me past the target. I doubt I will fully retire after year 3. Instead, I will likely move to a lower cost area and do some consulting work.

        1. Cool. I’m in!

          Isn’t it funny how our willingness to pay more rent doesn’t increase as much as our income?

          It’s very hard to walk away from work, or interesting work even after achieving the target nut.

  27. I’m also from the “renting is just throwing money down the toilet” upbringing, until I did the maths and saw that renting and investing the difference far beats the owning and not investing options. In my area rental costs are about half ownership costs for the same property, so it just makes sense.

    That said, I can’t ever imagine spending to live large in someone else’s property. I’d much rather have the minimum house I can live in comfortably than the maximum I can afford.

    1. If renting is half the cost of ownership w/ 20% down, that probably makes sense. But, after 10 years, it will probably stop making sense due to inflation of rent and assets.

  28. John C @ Action Economics

    For me in my current area if I was not a home owner I think around $900 a month would be the max I would pay to rent a house, but even then I would be focused on getting in the position to buy. I could get a decent 4 bedroom house around here for that. When I was 18 and 19 I was paying $550 in rent for a 2/1 800 sq. ft apartment in an 8 unit building. While earning $5.50 an hr, even living with my girlfriend it felt like I was being mugged making that payment every month too. Once I ran some numbers on mortgage costs I realized I could buy a house in the area and pay around the same amount with taxes and insurance included, I just needed to save up a 20% down payment. It took a little over a year of a focused effort to save up the cash, but we were able to escape the rent payments.

    1. I can see how paying $550/month on earnings of $5.5 an hour were tough. But, I bet you appreciate that experience now.

      What I’ve found interesting is that the willingness to rent or pay for a hotel room doesn’t scale UP with a rise in income, which is good. Otherwise, we’d all get crushed by lifestyle inflation.

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