Another SF/Bay Area housing question

[Tim]

https://www.magnifymoney.com/blog/in...g-beat-stocks/
https://fred.stlouisfed.org/series/SFXRSA

-that doesn't even take into account of leveraged 4:1 mortgage -- capital investment.

Interesting the real estate peaked in 2006. Steady as she goes. Surely foreclosures weren’t the issue. Revision to mean? Please educate me. I’d love to rationalize that.

[VentAlarm]

Mod has the picture. It's one heck of a bass! Comment was "That house is pretty amazing".

Your experience has to do with your understanding of the math. I did disclose accumulated cash reserves. OP can also have more reserves than you think - automatic assumption that a home at 3x+ income is not doable is inaccurate. OP can also free up $10K/month. Read the comments in this thread from those who have lived in the Bay area - 3x+.

Sure. A 3x income mortgage is doable with 1-2x income cash in the bank. Helpful advice.

[fatlittlepig]

Sure. A 3x income mortgage is doable with 1-2x income cash in the bank. Helpful advice.

I put that user into my block list, it makes for a better forum experience

[StarTrekDoc]

As usual this forum skews heavily away from real estate. Doesn't mean it's wrong either side.

What's discouraging is people dismissing it altogether, or worse spewing near vitriol at those who dare want to live there despite sound reasons and ability to swing it financially.

It's been said in the past that our forum tends to tread a bit heavy on intolerance. An earlier post today on the PSLF mentioning reddit being more supportive that here was a bit telling.

I hope we want to reverse some of that perception and be more welcoming and inclusive instead of pushing folk out the door. Just my $0.02 on the overall mood.

[VentAlarm]

As usual this forum skews heavily away from real estate. Doesn't mean it's wrong either side.

What's discouraging is people dismissing it altogether, or worse spewing near vitriol at those who dare want to live there despite sound reasons and ability to swing it financially.

It's been said in the past that our forum tends to tread a bit heavy on intolerance. An earlier post today on the PSLF mentioning reddit being more supportive that here was a bit telling.

I hope we want to reverse some of that perception and be more welcoming and inclusive instead of pushing folk out the door. Just my $0.02 on the overall mood.

That’s funny you say that. I got a kick in the pants when I first asked a question here and it encouraged me to save more. Also, I feel like the mods are super strict here, frequently shutting down threads that drift at all off topic.

I think RE is great, particularly with the special tax considerations, I just don’t have the capital to invest in it right now. I just don’t think that anything with significant leverage is smart.

[eyecandy]

StarTrekDoc Agree w above post.

The poster asked a question for those who know about Bay Area real estate. 8 pages later I can count on 1 hand those of us who gave out useful advice. The other 7.5 pages were chock full of opinions on why the Bay Area Sucks —or some version of that.

Honestly people, I know it’s a forum but why bother responding when you don’t have applicable useful advice. Just like I don’t admonish my high-achieving friend who lives within Zone 3 of London and lives in a 700sqft condo with her family of 4 for the bargain price of 630,000£ back in 2012. Tokyo and Dubai are probably twice that, real estate is local

Go to any first class world city and prices are high. If everyone is so upset about the Bay Area being so expensive are you also upset about your VTI/VTSAX performance?? VTI Rank/Largest Holdings 4/10 based in Bay Area: 1. Apple, 4. Alphabet, 5. Facebook, 6. Tesla
So what do you expect?

[Dont_know_mind]

As pointed out; it's an investment in SF Bay area land with a home on top of it. While > x3 mortgages are psychologically taxing; the data does reflect that IF one is determined to stay in the SF Bay area; it's quite reasonable to get a SFH instead of condo or renting. The pure appreciation of real estate of SFH out paces SP500. Take into account that 20% down and 80% leveraged by the bank; the returns are amplified that much more.

Think of Bay Area real estate is equivalent to margin investment or options calling.

Yes, having a 70% LVR on Bay Area RE probably did as well as TQQQ.

There’s no doubt it has performed very well in the past.

2 sides of the argument:
1. Lightning rarely strikes twice in the same place (boom followed by boom).
2. Sometimes it does in RE, in the instances I’ve seen mainly when a city moves from state/national to global city status.

[Dont_know_mind]

StarTrekDoc Agree w above post.

The poster asked a question for those who know about Bay Area real estate. 8 pages later I can count on 1 hand those of us who gave out useful advice. The other 7.5 pages were chock full of opinions on why the Bay Area Sucks —or some version of that.

Honestly people, I know it’s a forum but why bother responding when you don’t have applicable useful advice. Just like I don’t admonish my high-achieving friend who lives within Zone 3 of London and lives in a 700sqft condo with her family of 4 for the bargain price of 630,000£ back in 2012. Tokyo and Dubai are probably twice that, real estate is local

Go to any first class world city and prices are high. If everyone is so upset about the Bay Area being so expensive are you also upset about your VTI/VTSAX performance?? VTI Rank/Largest Holdings 4/10 based in Bay Area: 1. Apple, 4. Alphabet, 5. Facebook, 6. Tesla
So what do you expect?

Which is more overvalued QQQ or Bay Area RE. Hard to say.

Another problem for the OP is that if they buy the house, they maybe double leveraged to tech. It’s not an insurmountable problem, but boils down to : is the risk worth the benefit and potential return. The answer may vary depending on the individuals involved and subjective assessments of risk, return and intangible benefits.

[fatlittlepig]

StarTrekDoc Agree w above post.

The poster asked a question for those who know about Bay Area real estate. 8 pages later I can count on 1 hand those of us who gave out useful advice. The other 7.5 pages were chock full of opinions on why the Bay Area Sucks —or some version of that.

Honestly people, I know it’s a forum but why bother responding when you don’t have applicable useful advice. Just like I don’t admonish my high-achieving friend who lives within Zone 3 of London and lives in a 700sqft condo with her family of 4 for the bargain price of 630,000£ back in 2012. Tokyo and Dubai are probably twice that, real estate is local

Go to any first class world city and prices are high. If everyone is so upset about the Bay Area being so expensive are you also upset about your VTI/VTSAX performance?? VTI Rank/Largest Holdings 4/10 based in Bay Area: 1. Apple, 4. Alphabet, 5. Facebook, 6. Tesla
So what do you expect?

So only posts that agree with a premise or fit a certain narrative are considered useful advice?

[Hatton]

That’s funny you say that. I got a kick in the pants when I first asked a question here and it encouraged me to save more. Also, I feel like the mods are super strict here, frequently shutting down threads that drift at all off topic.

I think RE is great, particularly with the special tax considerations, I just don’t have the capital to invest in it right now. I just don’t think that anything with significant leverage is smart.

Sometimes threads do get shut down if they drift into politics or in some way are trying to sell something. I just try to interject a dose of reality into some young posters who want to buy a house way too early in their career. As far as bay area real estate goes I will admit to being dumbfounded by the prices. I prefer a lower cola area but the beauty of this country is it is big with a large diversity in real estate prices and types. I think it behooves people to get out of their respective boxes and check out the country.

[Random1]

If you want some useful advice, I would consider it a poor purchase.

As a life long conservative investor with 6 million saved up so far by the early 50s, I could not possibly in my own mind justify the purchase. This is one of reasons as a physician I chose a middle to lower cost place to live in life. Being a physician your salary is some what determined by your work ethic and business structure. HCOL areas do not specifically equate to higher salaries or better take home income for the most part unless you have a specific niche or specialty market which can demand a cost differential. If like the rest of us, and your salary is some what dependent upon insurance reimbursement, certain HCOL have a high saturation of phsyicians and the opposite can be true.

That being said paying off high mortgage costs along with everything else in a HCOL in my mind can not be justified. You are not in the tech industry where you can see your salary going up exponentially, most likely with the change in possible governmental policy it may very well go the other way.

Trying to justify a 3 million dollar mortgage making 400k a year is somewhat of a gamble, that everything goes right and you end up on top. Buying a 400k house in a LCOL with a salary of 400k if much more of sure bet, and will lead to many nights being able to sleep alot better. It may not be as exciting, life other places can be just as enjoyable.

[EntrepreneurMD]

VentAlarm and the one liner "that's dumb because I don't do it" poster are throwing this post off coming in with a position of inexperience and ideologue. I'm sure OP knows to skip over one line posts with 0 likes coming from those with limited assets to backstop an undertaking of this magnitude, and have never done a 3x+ property, trying to give advice on a $3M property. I'm sure those of us who have done it successfully while mitigating it's collateral impact have given the good advice, and will continue with the valuable insight of experience. The youngsters should stick to threads about paying of their student loans, cost effective vehicles, work schedules, etc. where they have some experience and therefore something of substance to offer.

Loved my time in the Bay Area. Sad to see the fires in Sonoma and Napa, as well as other areas of the state. I remember sitting so peacefully outside at the wineries, under the warm sun and the perfect blue sky with the perfect July breeze, enjoying the aged cheeses and wine selection overlooking a perfectly manicured landscape. How unique this alluring experience was. Hope cooler and more humid climate comes in soon to help get a handle on this.

[hightower]

After many years of deciding and trying to buy a house, we are starting to look into the market again. Our current income is $800k combined and we don't expect it will raise in the near term. We have a nanny and a kid in preschool and we spend about $5.5k in childcare total, and we currently rent for $4.5k. So, if we buy, in 2-3 years, we will have at least the $10k from childcare and rent that can directly go into the house and a little more. My husband and I are arguing about upper limit of how much we want to spend. He is insisting on an upper limit of $2M for the home price. I am trying to get him to budge a little since in the areas we are looking, Palo Alto, Los Altos, Mountain View, Sunnyvale, there are hardly any SFH in good school districts in that price range. Sunnyvale will be our only option in the $2M price range. So, I am trying to persuade him and say that we can put a limit of $2M in Sunnyvale, and say $2.3 in MTV, and $2.7 in Palo Alto/Los Altos. At the rates I have listed, we will only get "decent" houses with say 1500 sq. and we will need to upgrade in a few years whichever location we choose. I know this forum is probably going to freak out a bit about these numbers, but the people who live in the bay area I am sure understand the situation well. Should I settle for a less preferred neighborhood or should I get a decent house in the best neighborhood? Either way, we need to upgrade for say $300k in a few years. Historically home prices in Los Altos/Palo Alto have managed recession very well and MTV/Sunnyvale not so much. So, I am arguing the premium we pay in some neighborhoods will be worth it.

Ah yes, the infamous Bay Area How Much Can I Afford question! IMHO it doesn’t matter where you are buying, a good rule to follow is 2X your income for the size of your mortgage. With a proper 20% down that would put you right in the 2 million range for home
prices (1.6 million dollar mortgage). If you feel confident your income is stable and that the area/market is going to be a good place to put down roots, you can go ahead and start shopping.
I personally wouldn’t feel good about spending that much on a house. Especially in an area that I expect to see a housing crash in the near future (climate change driven wildfires, the end of the tech boom, political unrest, etc). But now we’re getting into personal opinions, so it’s not my place to tell you what to do in that regard.

[hightower]

That's right, we are not physicians, hubby is a mathematician and I am a physicist turned engineer. Bay area does pay very well and our jobs are tied to this location unlike medical doctors on this forum who earn handsome money even in small cities.

That’s incredible. Congratulations to you both on finding such high paying jobs with that background. Here in the midwest a PhD gets you a 50k-80k/yr job usually. I can’t relate to your situation at all. I love SF and would absolutely love living there, but the thought of that much debt in such uncertain times makes me too uncomfortable.

[StarTrekDoc]

If you want some useful advice, I would consider it a poor purchase.

Totally agree having large amount of net worth tied down into a single asset is akin to putting one's retirement fund all into Tesla stock - a risky move. Any single large event can wipe out the value. The good thing is land is hard to devalue significantly once it's reached a certain cache status. Parts of the Bay Area have reached that.

I believe the surrounding supporting cities are actually much shakier investments in their own right. eg: Owning middle commute suburban houses in the TriValley Bay Area was hit dramatically and very slow to recover in 2006. Same with Gilroy/Salinas area and Central Valley. All saw 40%+ drops in prices and took nearly a decade to recover.

It's a hard decision for those wanting to stay in the SF Bay Area on putting down the amount of capital for own home. Many become house rich, cash poor because of this during their time staying in there. It's even harder to justify renting there despite rent control attempts.

Joshua said it best "Best not to play the game" if one can avoid the trappings of what the Bay Area offers. But to the OP's question -- yeah, aim for a higher price point for the areas you're seeking. It hurts, but if you're in it -- do it right.