Ask the Readers: Which House Would You Buy?


In the last post, I touched on my personal residence conundrum. Although I’m currently on a leave of absence from work right now, I do plan on returning back once my health recovers.

Assuming I do, I should easily be able to qualify for a home loan to purchase my own personal residence. I could even go as low as 10% downpayment. I’m not saying that’s what I’m going to do, but let’s just entertain the idea for kicks and giggles.

If you were in my situation:

  • 30 years old
  • Single (would like to get married in the future, unsure about kids for now)
  • Wanting to early FI and travel the world within one year of today
  • $1MM+ in debt (mortgage loans)
  • Owned 2 local properties

To make simple, I’m going to select three options that all present reasonable commute times to my own work office. They are all located in equally good locations, central (enough) to Santa Clara.

Which of the following houses would you buy?

Option 1: The Bachelor Pad

Found on Redfin

1 Bedroom / 1 Bathroom
760 Sq. Ft.
$525/Sq. Ft.

Screen Shot 2015-02-22 at 10.17.10 AM

This condo would make for a great bachelor’s pad! It’s modern, spacious (but cozy), and just about turnkey ready. I could move in immediately, and there would be very little work to do. I would simply have to furnish the place with just the basics… Since it’s located in a pretty good area, property values should hold steady through the years, with a good chance for appreciation. And if the need ever arose to turn the unit into a rental, I imagine that it wouldn’t be too difficult to do.

But do the numbers work? Let’s find out… Since this unit would start off as a primary residence, I’m going to run the math with just a 10% downpayment, which is what I would most likely choose to do.


As a rental, this unit would be cash flow negative on Day 1, even without budgeting reserves for vacancy and maintenance…

But as long as I was living in the unit, I would be out about $2,500/month after PITI and HOA. That’s a pretty steep price to pay, even in the Bay Area!

Further, I could easily find myself in a bind in the future, since this unit is only 1 bedroom and 1 bathroom… There’s no room for expansion, so if I’m thinking about things like kids or family down the road…

On the other hand, this unit is perfect for someone like me who adheres to the ERE/early FI principles of being frugal and living below their means. For one, I don’t like to accumulate too much junk, so by reducing my living space, you leave me little choice!

This unit would make life considerably more simple… and oftentimes, simple is good! If I could just find an amazing early FI counterpart to go along with the plan, I think I could make things work in this unit. If we split the bill, the monthly rent of $1,250/month for each person then seems a lot easier to digest…

Option 2: The Dream House

Found on Redfin

3 Bedroom / 2.5 Bathroom
1,652 Sq. Ft.
$514/Sq. Ft.

Screen Shot 2015-02-22 at 10.46.37 AM

This is a dream home?!? Well, no one said it was going to be easy to have it all in the Bay Area… I like that this property is a newer construction single family home (SFH), built in 1998. Most of the single family homes in Santa Clara were built in the 1950’s, and those are pushing upwards of $800,000 now.. For around the same price, you can get one of these newer units, but of course you would have to sacrifice lot size in the process.

With this house, you can almost have it all… It’s big enough, so it leaves open the possibility for future expansion with kids in mind. The location, similar to the previous unit, is fantastic and very central to jobs, shopping centers, restaurants, etc.

The only real drawback with this house (outside of the price) is that the schools are not so great. But if you covet the best schools, be prepared to shell out over $1MM… and also be ready to continuing working for the next 20-30 years! 😉

Here are the cash flow numbers for the Dream House:


If I was going to occupy this property myself, paying out $4,800/month would obviously be out of the question. I make pretty good money, but my pockets don’t run that deep! The only way to make things work in the interim, would be to rent out the other 2 bedrooms.

Market rent, I’m guessing would be around $1,400/month, for a single bedroom that is shared and not its own unit. By renting out to two other people, I could reduce my own rent down to $2,000/month, which is not bad, and an improvement from the Bachelor Pad…

As you can see, this is why buying a “dream house” personal residence can be so difficult. The market is what the market is! So, just because a home is priced at close to $1MM, it does not necessarily imply that the rents will scale up accordingly. With that said, this home would offer much more potential for future price appreciation, as opposed to the Bachelor Pad, which is a condo.

In comparison, Rental Property SH #2 was purchased for $521,000 and it currently rents for $3,100/month, which is only $200/month less than this unit! Unfortunately, properties such as Rental Property SH #2 make for GREAT rentals, but probably not the best long-term personal residences…

Like most things in life, there’s always trade-offs…

Option 3: The Middle Ground

Found on Redfin

2 Bedroom / 2 Bathroom
950 Sq. Ft.
$595/Sq. Ft.

Screen Shot 2015-02-22 at 11.33.14 AM

Option 3 provides perhaps the best compromise between the other two options. Similar to the Bachelor Pad, this Middle Ground property is a condo located in the exact same complex. The price per sq. ft. is noticeably higher, but that’s maybe a small sacrifice to make to secure an additional bedroom and bathroom.

When in doubt, let’s run some numbers:


Another cash flow negative property? Well, it’s the Bay Area, what do you expect? 😉

To make things work, I would immediately find a roommate and rent out one of the rooms. Market rent for a 2 bedroom is about $2,600, so I think it would be reasonable to ask for $1,300/month. In the short-term, that would reduce my monthly expenses to $2,100/month.

For a person with an uncertain future, I like the compromise that this unit brings, when compared to the other units. It’s sort of like the goldilocks solution… It leaves room for expansion (unlike the Bachelor Pad), and the debt load wouldn’t be overwhelming (unlike the Dream House).

In the long-term, splitting the bills in half with a significant other would lower my own rent to about $1,700/month.

What Would You Do?

Those are three like-options that I would consider, if I was thinking about purchasing a primary residence today. By no means are any of the above options affordable or a “killer” deal, but when considering an owner occupied home, I tend to place a higher emphasis on location than anything else.

I like Santa Clara for many reasons, and the main one being that it is very affordable relative to the surrounding cities: Mountain View, Cupertino, Sunnyvale, etc.

The location of any of those three homes outlined in this article would work for me; they all would provide a reasonably quick commute to and from work.

So far, I’ve been reluctant to pull the trigger on a perennial residence, because as you can see above, they all make for lousy rental properties! Selling in the future is not always an option either, because no one can predict where prices will be down the line… All it would take is another market crash to eliminate that possibly, and as we all saw last time, that can occur at any moment. Having the luxury of being able to convert a primary residence into a cash flow positive rental would do wonders for mitigating risks.

Regardless, the pure numbers show me that if I was to purchase a primary residence today, my monthly expenses for housing would look like the following:

Bachelor Pad: $2,500/month
Dream House: $2,000/month (rent out 2 units at $1,400/month each)
Middle Ground: $2,100/moth (rent out 1 unit at $1,300/month)

So, in any case, I would be out at least $2,000/month in rent. The reality is, it’s just not that easy buying a primary residence in Silicon Valley. Yes, I could compromise and buy something a lot more affordable, but then I would be sacrificing quality and location… Not to mention, I would be increasing my commute time considerably, which is something I really don’t want to do. If I was open to that idea, I would simply move into one of my own pre-exisiting rental units…

To me, the current numbers suggest that it makes more sense to be “that guy who is renting a room from a homeowner for $1,300/month”, as opposed to actually being the homeowner. And again, this has to do with the fact that rents don’t scale with purchase prices… even in the nicest locations. Otherwise, I would not have a personal residence conundrum.

Yes, owning a primary residence has its fair share of benefits (such as principal paydown and depreciation), but since I already have an ownership stake in 8 properties, that becomes less of an importance for someone in my situation.

But if I had to choose today, I think I would go with the Middle Ground solution; it provides the most flexibility and compromise between the three units.

Still, I’m not so certain that I should (or want to) be taking on even more debt…


If you were in my shoes, which home would you purchase and why? Or, would you also continue to do nothing?

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M. Idds
M. Idds
5 years ago

Wow…housing is extremely expensive where you live. Here in south central Pennsylvania, I can buy a 4 bedroom, 3 bath with about 2,500 Sq ft for around 250-300,000.

Done by Forty
5 years ago

Is renting an option that’s on the table? Seems like it might make sense to put the decision on pause until later, if and when a SO enters the equation. Plus, it sounds like you could invest that downpayment money.

Income Surfer
5 years ago

I’m with Done By Forty, Fighter. Why not just keep renting?! You have enough local real estate exposure to keep up with inflation, by virtue of your rentals. With so much up in the air, I don’t see why you’d buy at all. I wouldn’t have bought my house except that it was a couple hundred bucks per month less than renting. That said, I spent plenty on repairs and maintenance (new roof, appliances, etc). My two cents……keep the flexibility and try to be patient. Besides, you’re on the verge of FI…..if you work some geographical arbitrage 🙂

5 years ago

I get that you’ve posed just a hypothetical question here, but I’d still vote for continuing to rent, especially if you’re planning on retiring one year from now. In 2013, I did what you might call a mini-mini retirement, and took my own self-granted sabbatical (which ended up being ~18 mos long). I was working and renting an apartment in Portland, OR, so taking a break from my life to travel and see what else was out there meant just turning over the keys and putting my stuff in storage. This freedom allowed me to really explore exactly what I… Read more »

5 years ago

Considering you want to travel extensively in the near future, I don’t think it makes sense to buy. None of the calculations above account for property management, which makes already bad numbers look even worse. I think you are better off renting and seeing how it looks once you return from your trip around the world.

5 years ago

These are all terrible rentals and you want to travel soon. I wouldn’t buy any of these! It looks like places are about $100,000 more where you live than where I live, at which price point I would just keep renting.

5 years ago

The math looks terrible on all three of these options, I wouldn’t buy any of them if I were you.

Even Steven
5 years ago

I think if you are planning to stay in the area for a few years, I’d probably go with the least expensive home, with the amount of debt you have in the other properties, honestly I’d be hesitant to do any more, but a small place for yourself seems right.

5 years ago

Hmmm, iUnno this is a tricky one. I’d DEFINITELY vote against number 2. Number 1 + 3 seem kinda like a trade-off. Personally, I did something more similar to option number 1 because of the increased privacy. However, I also was looking at a lot of option 3s. My current gf really didn’t like the idea of sharing an apartment with anyone else – I imagine a lot of people when they live with their significant other would probably have similar sentiments. While not always possible, and personally I don’t think it’s too much of a problem. I’d typically advise… Read more »

5 years ago

Oof, rough calls all around. You’ve done a great job of illustrating just how expensive it is in your area to buy rather than rent. Renting also gives you the freedom pick up stakes and move as needed, I’d imagine.

5 years ago

IMHO, you didn’t give enough information on your situation. If you have $40k for the down payment and would rather put it into something tangible as opposed to stocks/bonds, and actually like the place and plan to stay there for at least 2 years, I would go with #1. You can’t treat everything in your life like a business and just crunch numbers, not everything is quantifiable. If #1 is no different than where you’re renting in terms of your happiness, then continue to rent. If #1 is an upgrade over where you’re renting and you’ll be happier there, #1… Read more »