The 415 rule

Buy vs Rent in San Francisco

To some, renting feels like throwing your money away. But buying a home in San Francisco seems unattainable for most. Inevitably, we dwell and discuss and thrash indecisively while home prices creep up. How much can you really afford?

My clients know, I’m a big fan of the NYTimes Rent vs. Buy Calculator. It’s simple to use and provides a great deal of detail. Trouble is, it isn’t tailored to San Francisco. A realtor I know touts the “415 rule.” I recently reviewed his numbers and find it a pretty good rule of thumb.

It goes like this:

Multiply your current monthly rent by 415 to find the break even point of renting vs. buying.

For example:

Rent = $2500
415 x 2500 = 1,037,500

Bottom line: you're better off buying a house that's equal or lesser than $1,037,500.

Keep in mind, 415x is the approximate multiplier if you plan to live alone.

If you buy a 2-bedroom condo and share it with a roommate, the multiplier increases as you offset your cost with the additional rental income.

Currently, the average home price growth rate in San Francisco is 7.37%, this is the average annual appreciation from 1995-2016 according to the SF Association of Realtors.

As you know, past returns aren’t a guarantee of future performance. Rounding up the down payment for a $1,000,000 home is no small task. Taxes and maintenance increase the cost of ownership. But if you’re ready to put down roots, the 415 Rule is a good benchmark as you begin shopping for a home.

I’ve met many new clients during this transition from renter to home owner. A solid financial plan can provide clarity and confidence as you undertake this major decision.