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Sunday Insight I'm making a killing in the housing market -- as a renter. After 15 years as a homeowner in the Bay Area, I've cashed out and taken advantage of a bizarre situation: Homes that sell for a fortune are avai lable to rent for as little as $1,500 a month, less than half the cost o f ownership, even after factoring in the tax benefits from the federal m ortgage-interest deduction. Of course, homeownership remains the American Dream, but the reality is t hat renting is a better deal, especially in the Bay Area, where the cost gap between being an owner and being a renter is probably the largest i n the country. The disparity stems from an unprecedented occurrence: As home prices have soared in the Bay Area over the past four years, rents have fallen an a verage of about 15 percent and sometimes much more. Selling your house in order to reap the benefits of renting isn't for eve ryone. But people who have a lot of equity in a home or are approaching retirement age might want to lock in their ownership gains by selling no w I loosely fit the profile. I'm 49 and had to sell my 50 percent stake in a spacious Berkeley home as a part of divorce settlement. In April, I so ld my share (valued at $455,000) and weighed my options. I could spend my proceeds, about $250,000, on a down payment for a new ho use, lock in sky-high property taxes and then groan under a mammoth mort gage. Plus, if the housing bubble bursts, I could watch the value of the investment fade into thin air. Or I could rent a house and become a premier customer at Wells Fargo. The decision to rent seemed wonderful until I starting looking for a plac e I have two children who live with me part time and a new spouse, so I wanted an entire house with at least three bedrooms. That made me ineligible for the best deals in Berkeley: one- and two-bedr oom apartments, many of which are going at deep discounts from the rents of five years ago, chiefly because the city has a 5 percent vacancy rat e after years of being one of the toughest places in America to find an apartment. They range from $1, 800 to $2,500 a month, with the best properties even higher. Still imbue d with a homeowner's attitude that rental money is thrown away, I wanted my rent to be as low as possible. In the rush to buy Bay Area real estate, nearly all the "good" renters -- people with cash flow and assets -- are gone, having become property owners themselves. What's left for landlor ds are young singles, poor families and eminently presentable folks who are, alas, recovering from a financial calamity. When I described myself to landlords and showed them some of my financial records, they threate ned to become friends for life. My goal was to make a killing as a renter, not find the best possible house to rent, damn the price. I needed a stand-alone house in a decent neighborh ood near a BART line. So after two solid weeks of hunting in Berkeley, I began looking in El Ce rrito, Albany and Richmond, three cities just to the north of Berkeley w here rents are generally less and BART runs. Once again, I ran into the problem of size and landlord deceit. Many of t he homes in these communities have two bedrooms, but landlords will pres ent them as three-bedroom houses, fudging the stubborn fact that the thi rd room lacks a closet or is indeed a closet. I was now nearing the end of three intense weeks of house hunting with no thing. Then I got an exciting lead: A house was available a few blocks w est of San Pablo Avenue, just outside the boundary of El Cerrito on a qu iet street, overlooking the bay and Interstate 80 in the Annex neighborh ood of Richmond. Because the owner lives in a rear cottage, the tenant would share the yar d and the utilities (because the main house and cottage shared a meter) but have full use of the driveway. The owner described the house as beau tiful and promised hardwood floors, a working fireplace and a hot tub in the backyard. I quickly arranged to see the house and went for a visit with my wife. Wh ile small, the house had three true bedrooms and was in stunningly good condition. From my knowledge of real estate prices, I knew I'd pay at least $500,000 to buy the place. My monthly paym ents, if I put no money down and got an ultra-attractive 51 percent int erest rate over 30 years, would total $2,700. With $500 a month for main tenance and another $150 for insurance, my total carrying costs would be close to $4,000 a month. That's not bad, but I can rent the whole place for $1,600 a month. Even when you budget nothing for maintenance -- zero -- the carrying cost of owning a home is more than double. If I put down, say, $200,000 on a house, I can no longer invest t his money in T-bills or the stock market. That same $200,000 in a 4 perc ent certificate of deposit earns me $8,000 a year. So the lost gains and the reduced interest essentially cancel each other out. Even if the mortgage deduction saved me $1,000 a month in taxes (an d that's only possible if I paid the highest state and federal rates), I still save more than $1,400 a month by renting. To some degree I will, but will price s continue to rise? Most experts say that the days of soaring appreciation are over and that there is an increasing chance of a price decline. One respected real est ate analyst, the PMI Group of Walnut Creek, ranks San Jose, the East Bay and San Francisco among the 10 US housing markets most likely to suff er a broad decline in home prices over the next two years. The best part of renting the house with the hot tub didn't become apparen t until my wife and I met the owner, a charming Buddhist born and raised in India. The woman and my wife got on well, which pleased me, but selfishly I was thinking how I might benefit by living near a Buddhist. A native of New York, I'd spent more than 20 years in the high-stress fie ld of daily newspapers only to decide several years ago that I needed mu ch more balance between the personal and the professional. I had not wanted to share a property with anyone, but the idea of rubbing shoulders with Buddhists -- famous for honesty, tranquility and infinit e patience -- looked attractive. I was ready to sign a lease (so ready that I'd brought along my 11-year o ld daughter, who performed splendidly; Alas, renting and buying homes have one thing in common: You don't always get what you want. The Buddhist landlord told me I was among 10 prospec tive tenants, but she'd whittled the number down to two. Another couple, who happened to be Buddhists, were also interested, and s he needed to see them again before making her decision. So I am now living the American Dream -- renting a home prettier than any I ever owned. Of course, I live with the small fear that our one-year lease won't be re newed after it expires. In the meantime, though, the Buddhist landlord m aintains the yard and the hot tub, and I get the benefits of both. There's also the peace of mind I gain from watching my Wells Fargo accoun ts grow. I'm prone to telling my friends that they should sell their hom es, too, and sometimes I don't even add the words "before the market cra shes." The windfall from selling after years in the market and then rent ing is too good to pass up. Just the other day, one of my best friends succumbed to rental fever. He sold a one-bedroom apartment in Pacific Heights for an obscene amount of money and moved into an apartment in Noe Valley. In a couple of weeks, he 's coming over to try my hot tub. G Pascal Zachary is a senior writer for Business 20 magazine and a jour nalism fellow at the German Marshall Fund.
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