It can be tough trying to save money while still figuring out how to get out of debt. It’s especially hard when you have to worry about making sure your rent is paid. Budgets are great, but how do you really know what is a good balance between the money used to save and the money necessary to get out of debt? There are ways to save money on rent while you dig yourself out of debt.
Save Money on Rent in the Bay Area With Danny Haber of oWOW
Danny Haber, real estate developer and co-founder of oWOW talks about rent, saving, and optimal budget management below:
Save Money on Rent Using 30%?
‘The Bureau of Economic Analysis (BEA) has conducted an extensive analysis of housing services vis-a-vis:
It is generally accepted that you should budget 30% of our income towards housing expenses. While this specific figure varies between banks and mortgage lenders, too much of a rent burden places undue pressure on your personal finances and quality-of-life.
Truth be told, the 30% figure is a fallacy for most of us.
This is particularly true in the greater San Francisco Bay Area where sky-high rentals and property prices are too expensive for most people. A Harvard report suggests that low-income earners ($30,000 – $45,000) typically spend more than 30% of their gross income on housing costs. Wealthy people tend to spend 10% of the gross income on housing costs and they are enjoying the benefits of luxury housing.
The Price of Your Home VS Your Income
It is safe to say that low-income earners will spend more per unit gross income on rent than higher-income earners. As your income increases, your preference for better quality accommodation increases too. However, the median percentage of income spent on rent drops substantially for people earning $30,000 or less (30% – 70% rent component of gross income), to 10% or less with people earning upwards of $300,000.
At income levels like this, even a standard San Francisco Bay Area two-bedroom apartment rental price of $4,500 is ‘insignificant’. Consider, for a moment, that the median home price in San Francisco is $1.4 million, and a 20% down payment for a standard mortgage broker to avoid points would be $280,000. Further afield, in places like San Jose, the average home price is $991,000, and a two-bedroom apartment rents for $2,936 a month.
In Oakland, most of my projects are based on:
The average home price is $732,000, and two-bedroom apartments rent for $3,024 per month. It can get pretty expensive to pay rent for low-income earners.
How oWOW Can Help
Given the problems that currently exist in the Bay Area, I don’t think you can apply the 30% rule. However, my company oWOW is working feverishly to try and mitigate the effects of high rentals by constructing apartments that are:
- built with luxury
They can comfortably accommodate, 2, 3, or 4 people within a small area (approximately 800 ft.²) at prices well below market price. This is what we do as a company because we understand that people cannot afford to pay what amounts to a hellish amount of money simply for wanting to live in the area.
Much of this problem has been attributed to the dramatic increase in employment through Silicon Valley companies. Rapid growth rates with start-ups and established high-tech enterprises have seen a massive influx of highly-skilled tech people to the area. The mayors of San Francisco, Oakland, and San Jose simply cannot keep up with the demand and a housing lag has ensued.
What Does This Mean For You?
With such high demand in the Bay Area, any cost save money on rent can really help you to reduce your overall debt burden. This can allow you to divert funds to other areas. For example, if you can reduce your debt burden by 15% – 30%, you can allocate those finances towards things like:
- student loan repayments
- retirement savings
Or, perhaps, any other type of investment.
My company has already completed work on multiple projects across Oakland, including 674 23rd Street, where we leased 24 units within 4 weeks. We bought an old building, completely remodeled it, and owing to high demand rented all the units out. The diversity of tenants was noteworthy; teachers, academics, entrepreneurs, artists, and pretty much every other vocation you can think of was represented. This tells me our luxury living apartments appeal to the entire demographic.
Also, thanks to reduced cost structures, we can provide affordable MacroUnits, even in the Bay Area. Other projects that we have worked on include 1919 Market Street, 960 Howard Street, and 316 12th Street.
Save Money on Rent – In Conclusion
I think it’s high time we look beyond fixed numbers like 30% and focus on specific realities where we live.
Areas that are notorious for their high rentals include:
- San Francisco
- San Jose
It is not inconceivable that regular people could spend upwards of 70% of their gross income on rentals. Clearly this is a rent burden and that’s precisely why developers need to look at alternative means of providing affordable housing to working families, and individuals. The industry needs to be reinvented in a way that satisfies us. We cannot provide shoddy housing at astronomical prices. At oWOW, the buck stops with us.
AUTHOR LaTia Longuemire
My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.