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graphic depicting the battle between renting and owning your home
Erik HaydenSep 28, 2023 12:38:08 PM15 min read

The San Jose metro’s rent-to-own gap is the widest in the nation

In January, we published a blog about how the San Jose metropolitan area has the largest disparity between the cost of owning and renting in the nation. At the time, the median monthly rent in San Jose was about $2,454 compared to the median monthly cost for homes with a mortgage of $3,760, a 34.5 percent difference, according to a LendingTree survey. The $1,300 cost difference was 38 percent higher than the average difference in the country’s top 10 metro areas, the December 2022 survey found.

Fast forward to now, and not only is the San Jose metro’s rent-to-own gap still the widest in the nation, but monthly homeownership costs have continued to balloon. The average 30-year fixed mortgage rate has increased by 129 percentage points since December 2022, to 7.78 percent as of Sept. 27, according to TheStreet and Bankrate. The latest analysis of the metro’s rent-to-own gap, from a Redfin report updated in June, found that the typical home in San Jose is 165 percent more expensive to buy than rent, the highest “homeownership premium” in the nation’s 50 most populous metro areas.

The rent-to-own gap, as defined by Redfin, compares a homeowner’s estimated monthly mortgage payment on a single-family home, a condo/co-op, or a townhome with an estimate of what the monthly rent would be on those same homes. Redfin used a 6.5 percent mortgage rate, the average rate in March, to calculate the rent-to-own gap in the U.S.’s 50 most populous metro areas. In the San Jose metro, the estimated median monthly mortgage cost is a little over $11,049, while the estimated median monthly rent is $4,176, Redfin’s report said. The area’s median mortgage cost is over three times higher than the national average, and its rent-to-own premium — calculated by dividing the median mortgage cost by the median monthly rent — is over six times higher than the average premium in the U.S.’s 50 most populous metros, Redfin found.

Moreover, if you’re looking for any properties in the San Jose metro with a monthly homeownership cost that's lower than monthly rent, you’re out of luck since there are none, Redfin found. That’s the case in the San Francisco and Oakland metros, too, the company’s data show.

“San Jose and San Francisco are the No. 1 and No. 2 most expensive places to rent in the country,” Jeff Tucker of real estate listings website Zillow said to the San Francisco Chronicle in June. He continued: “But $3,000 for rent suddenly seems like kind of a bargain compared to five, six, $7,000 on a mortgage. The cost of homeownership there is just mind-boggling, really.”

Although 11 consecutive rate hikes from March 2022 to June have more recently fueled the San Jose metro’s rent-to-own gap, several factors playing into the disparity have been apparent for years — namely, a severe lack of new apartments and median home price values exceeding average rent growth. Since 2010, the number of new multifamily units in the San Jose metro represents less than 1 percent of existing inventory, according to CBRE. And between 2010 and 2019, median home prices in the area spiked by 124 percent, well ahead of the 74 percent jump in average rents during that time, according to RentCafe.

The upshot of the San Jose metro’s huge rent-to-own gap is that it creates a built-in incentive for apartment developers like us to pursue projects in the region, aided by the fact that San Jose’s housing crisis was recently deemed the worst of any major U.S. city. Our Aquino and Echo development projects would collectively add 667 apartments to the city’s apartment inventory, while our planned Gifford Place >facility would bring 169 senior housing units within walking distance of Downtown San Jose.

rendering of The Aquino building

You can learn more about those three projects and the rest of our development portfolio by filling out a form on our “Contact Us” webpage.

Important Disclosures

The contents of this communication: (i) do not constitute an offer of securities or a solicitation of an offer to buy securities, (ii) offers can be made only by the confidential Private Placement Memorandum (the “PPM”) which is available upon request, (iii) do not and cannot replace the PPM and is qualified in its entirety by the PPM, and (iv) may not be relied upon in making an investment decision related to any investment offering by an issuer, or any affiliate, or partner thereof ("Issuer").

All potential investors must read the PPM and no person may invest without acknowledging receipt and complete review of the PPM.

With respect to any performance levels outlined herein, these do not constitute a promise of performance, nor is there any assurance that the investment objectives of any program will be attained. All investments carry the risk of loss of some or all of the principal invested. Assumptions are more fully outlined in the Offering Documents/ PPM for the respective offering. Consult the PPM for investment conditions, risk factors, minimum requirements, fees and expenses and other pertinent information with respect to any investment.

These investment opportunities have not been registered under the Securities Act of 1933 and are being offered pursuant to an exemption therefrom and from applicable state securities laws. All offerings are intended only for accredited investors unless otherwise specified.

Past performance are no guarantee of future results. All information is subject to change. You should always consult a tax professional prior to investing. Investment offerings and investment decisions may only be made on the basis of a confidential private placement memorandum issued by Issuer, or one of its partner/issuers. Issuer does not warrant the accuracy or completeness of the information contained herein. Thank you for your cooperation.

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- There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
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- Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings.
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UCME Disclosures:

THIS PRESENTATION IS neither an offer to sell nor a solicitation to buy securities. The offering and sale of interests in uc multifamily equity i llc (“ucme”) is only being made and can only be made by delivery of ucme’s private placement memorandum (“ppm”), CERTAIN ORGANIZATIONAL DOCUMENTS, SUBSCRIPTION AGREEMENT AND CERTAIN OTHER INFORMATION TO BE MADE AVAILABLE TO INVESTORS (“OPERATIVE DOCUMENTS”) BY UCME’S SPONSOR.

This Presentation is for informational and discussion purposes only and is not, and may not be, relied on in any manner as legal, tax, investment, accounting or other advice or as an offer to sell or a solicitation of an offer to purchase any securities of the Fund.  Any such offer or solicitation shall only be made pursuant to the final confidential PPM (as amended or supplemented from time to time, and including the subscription agreement attached thereto, the “Subscription Package”) and the Fund’s Operative Documents, which will be furnished to qualified investors on a confidential basis at their request and should be reviewed in connection with any consideration of an investment in the Fund.  This Presentation does not constitute a part of the Subscription Package and no person has been authorized to make any statement concerning the Fund other than as will be set forth in the Subscription Package and any representation or information not contained therein may not be relied upon. The information contained in this Presentation must be kept strictly confidential and may not be reproduced (in whole or in part) or redistributed in any format without the express written approval of Urban Catalyst Manager IV LLC (the “Manager”). By accepting this document, the recipient agrees that it will, and will cause its representatives and advisors to, use the information only to evaluate its potential interest in the Fund and for no other purpose and will not, and will cause its representatives and advisors not to, divulge any such information to any other party.  Neither the Fund nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein should be relied upon as a promise or representation as to past or future performance of the Fund or any other entity. Any potential investor considering an investment in the Fund that is on behalf of an employee benefit plan or individual retirement account (or governmental, church, or foreign plan subject to laws similar to those governing employee benefit plans and individual retirement accounts) is strongly encouraged to consult with its own legal and tax advisers regarding the consequences of such an investment. A prospective investor may only invest in the fund if such person is an accredited investor as defined in rule 501 of regulation d. Investing in the fund will involve significant risks, including possible loss of such person’s entire investment.

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Erik Hayden

Responsible for developing more than $3.5 billion in real estate projects, including over 2,300 residential units in the California Bay Area, Mr. Hayden has experience in acquisition, contract negotiation, due diligence, risk assessment, financing, construction, and disposition of multifamily, single family and large mixed-use and master planned developments. He maintains relationships with a broad network of property owners, enabling him to identify and acquire prime investments. Mr. Hayden also has expertise in navigating projects through the entitlement process by working with elected officials, community groups, and political organizations to gain support and get projects approved.

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