24/7 Wall St. Key Takeaways:

• When deciding whether to rent or buy a home in a VHCOL area, it’s important to consider your financial situation and the potential opportunity costs. 
• Renting provides flexibility that homeownership doesn’t provide, but it can be more expensive in the long term. 
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

Living in a Very high-cost-of-living (VHCOL) city can be challenging, especially when you’re trying to buy a home. A recent Reddit post I came across highlights this common dilemma. Does it make sense to purchase a more expensive home with space for grandparents to help with childcare, especially when faced with increasing rent costs?

In this article, I’ll explore exactly what I think about this scenario, including the benefits and potential downsides of buying versus renting in a VHCOL area. Please note that this is my opinion, and working with a qualified financial advisor can help you develop a more personalized financial strategy.

1. Evaluating the Cost of Renting vs. Buying

First, you need to carefully consider how much renting and buying actually costs. In the post, the Reddit user outlines an existing rental cost of $4.3k per month, which is set to increase to $7k by the end of 2025. Plus, the family will likely need a larger space, and their rent could easily reach $10K monthly (or more). 

In VHCOL cities, this kind of rental increase is typical. However, these high rental costs are still often lower than the total monthly expenses associated with a high-value mortgage. Plus, renting typically means that you don’t have to pay for housing repairs and maintenance.

For example, purchasing a $3M–$3.5M property would likely come with high mortgage payments, property taxes, and maintenance fees. These extra costs can outweigh the equity you have in the home in the short term. 

Since the Reddit user is considering putting down as much as 80%, it’s wise to weigh the monthly costs of buying versus renting; you also have to consider the opportunity cost. Could that money be used elsewhere with better effect?

2. Potential Childcare Savings of Family Proximity

One reason the Reddit user is considering a home purchase is to accommodate parents who would help with childcare. Childcare can easily cost thousands of dollars a month, and having family available to offset this cost can be huge. 

Plus, by having a living space for the parents to stay long-term, you can offset future costs of caring for aging parents. 

However, it’s important to be realistic with these estimations. Are the retired parents really planning on staying regularly enough for the savings to be substantial?

3. Diversifying 

In the Reddit post, the user mentions that a significant portion of their net worth is tied up in employer stock. Their net worth is not diversified in the least. Selling some of this stock and funding a home with it could provide diversifying benefits by converting high-risk stocks into real estate. 

That, in itself, could make the move beneficial. 

Real estate in a VHCOL area is generally a stable investment, but it’s not without risks, of course. Still, it’s far less risky than having it in a single stock. 

4. Opportunity Costs and Long-Term Goals

We’ve gone over this briefly, but it’s important to mention it again. Selling appreciated stocks and purchasing a high-value property does offer stability, but it also ties you to a home. Career changes or future moves are much more challenging with a home than they are when renting. 

Furthermore, lots of cash would be tied up in a home purchase, and you have to consider if that cash would be better off somewhere else. Redirecting funds into the stock market or retirement accounts may be a better option than purchasing a home. Real estate investing can be lucrative, but it’s much more illiquid. 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.