I got a marketing flyer few days ago from a property in Palo Alto which was advertising apartment rentals for $11,000 per month! Yes, you read that correctly. It’s eleven thousand dollars per month for apartment living on Hamilton Avenue in Palo Alto.
It got us wondering who would be crazy enough to rent for that kind of money when they can easily pay two mortgages on California homes at that pace. It also got us thinking about the miserable imbalance between Supply & Demand vs for rental properties.
Our conclusion is that with this kind of rent hikes, even $1m homes will cash flow easily. Here are some of the benefits of renting instead of selling:
1) Upside Protection: If you sell your home today, then you are out of the appreciation opportunity in the coming years. Granted there is no guarantee that the home prices will continue to rise and there is no other pending crash on the horizon; but selling it will remove all your chances of benefiting from the upside.
2) Cash Flow: If the market slows down dramatically then you can ride it out with your cash flow rentals in Silicon Valley. One way to protect yourself is to add 3-5% annual rent increase to cushion the impact of a serious market slow down. Keep in mind that the impact of a market slow down is on paper only since you are not selling it. Our Single family homes in Los Gatos are fetching as high as $6,000 per month for rent.
4) Deductions: You can deduct all the marketing and repair costs in getting your home ready to rent. In fact, you could hire a property manager to manage tenant screening, rent collection and repair supervision while deducting all the expenses. We recommend you consult your CPA if you need to know the exact impact of these expense on your taxes.
5) Huge Demand: Rental properties in Silicon Valley within good school districts are in huge demand. In fact, we are able to rent a 320 sqft detached Studio for a client that nets $1,100 per month. That’s absurd amount of rent for such a small space, but it shows the impact of demand for rental properties in towns like Los Gatos with great school district.
Finally, this strategy will allow someone else to pay your mortgage for you. So, call us if you are interested in renting your Los Gatos, Campbell, Saratoga or San Jose house.