How can you ever afford to buy a home in the Bay?

MoBananas's picture
Rank: Senior Baboon | 183

I get paid decently, but still not enough to buy even a starter home.

I saw this post that pretty much describes my situation, so I'm shamelessly and lazily copy-pasting.

How do people afford a house in the bay?:

Let's say I want to buy a starter home in Sunnyvale for $1.4m, how do people pay for this??

Even with a 300k downpayment, the mortgage would be almost 8k a month, that's several thousand more than my take home pay a month after taxes..

I've always heard that housing shouldn't be more than 30% of your income, does that mean that everyone who owns a house here makes 25k a month?

PS: I live in Fremont but in the same situation.

Comments (63)

Nov 11, 2019

I'm an engineer inthe Bay, I feel you!

I rent a laundry room in someones home and am saving up. ;)

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Most Helpful
Nov 11, 2019

LA here, was in a similar situation to start from $0 and save up to buy a house $1.5mm+, you have to give up a lot to make it happen but it's doable with a partner and a lot of sacrifice.

First of all, very important to level set, are already tens of thousands of people in your area better off than you at the same age. Parents from the area that are wealthy themselves that are giving the down payment to their children or outright buying them a house, or own multiple properties already. People in their 20's who already have millions from a startup that has monetized and can buy the place cash outright. Foreign investors and foreign students who can pay cash. Older generations who are buying in the SF Bay Area who are execs already. People selling their home in CA and moving to another area i.e. paying from their existing home equity. You get the picture, you're at the back of the line.

Read: You as the high income single person (or even DINK) are lightyears behind from the get-go. What you'll have to do to afford a home if you're starting from scratch (like I had to do with my "principled" upper middle class parents who wanted me to do everything from scratch & not help out) is the following.
* First, cut down existing rental costs to the bare minimum. Anything you're spending on rent now is not going towards savings for your down payment.
* This means roommates upon roommates, slumming it down lower than how your colleagues are living, etc. Smaller spaces, full Marie Kondo / Japanese salaryman style. Get that rent low.
* Next, keep your savings rate as high as possible. You need at least 50% savings rate to have a chance. If you're making $150k a year, or roughly $80k after taxes, you need to be able to save $40-50k of that p.a. to stand a chance to keep up with housing inflation.

  • If you're doing this with a partner, i.e. operating leverage on your rent cost, DINK, etc., you might be able to save $80-100k p.a. this way.
  • Do that for 5-8 years and you'll have about $500k for your 25% down payment on a $2mm place which is where inflation will take your $1.5mm place in 5 years.
  • Your new $1.5mm loan on hopefully a combined $400k future salary (wage inflation, conservative assuming you keep the same exact job and partner), is about a $10k/month loan all-in cost.
  • Your $400k salary probably nets $20k/month after taxes which brings your housing cost to around 50% which is doable if you keep all of your other expenses at their minimum (used car paid off, etc.).

I had a 70% savings rate from age 22-28 in order to buy a condo and was married / combined income from age 25. Then continued to save 60%+ as a banker for the last 3 years with a wife in a similar spot, sold condo, bought house and got some benefit from the condo appreciation over ~5 years ownership. Will still need 5-10 years to pay off the house at max savings rate which is what I'm planning to do.

Is it worth it? Probably not, I mean, if I just moved to a lower COL area like Atlanta or Houston I would own my home outright and have a million+ in assets. I think going it alone in CA is a fool's game, it's rigged against us.

P.S. there are a lot of other areas where we have essentially scrimped/cut out. Our wedding was only like $5k in total when my colleagues' were 10x+ that #. Our rings were only like $3-5k in total as well and we haven't gotten new ones even after our salary went 5x what it was before. We drive Toyota & Honda, not leasing BMWs or Porsches. Really your results may vary. But that was a conscious choice on our part and we are happy to be in a place, now with a kid, that we own, with a yard, I can grill, no more rent, etc. The only other real area we spend money on is travel but still not luxurious travel (Economy+ to Asia every year for example to save $5k a trip over business class, over the last 10 years has saved $50k saved which is $250k of house at a 20% down payment).

The key is to treat your money as fungible, set priorities as a family unit and go all-out to reach your goals.

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Nov 11, 2019

Or you can move to Chicago and buy a 3000 sq. ft. single family home in the city for $800k or $500k in the suburbs, where you will get your money's worth enjoying every square inch of it, because our winters are 9 months long.

    • 7
Nov 11, 2019

Fair but I put on a jacket when it drops below 65 degrees

Nov 12, 2019
Alt-Ctr-Left:

Or you can move to Chicago and buy a 3000 sq. ft. single family home in the city for $800k or $500k in the suburbs, where you will get your money's worth enjoying every square inch of it, because our winters are 9 months long.

Or move to Houston and buy double for half by that same logic

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

    • 1
Nov 12, 2019
Alt-Ctr-Left:

Or you can move to Chicago and buy a 3000 sq. ft. single family home in the city for $800k or $500k in the suburbs, where you will get your money's worth enjoying every square inch of it, because our winters are 9 months long.

Might wanna re-check that new formula @WallStreetOasis.com No doubt I will win Most Controversial for most of my comments, but this ain't it.

    • 3
Nov 12, 2019

rather live in 100sq ft bathroom than move to Chiraq

What concert costs 45 cents? 50 Cent feat. Nickelback.

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Nov 12, 2019

Chicago's not as cheap as people think. Property taxes (and other taxes in general) in general are a BITCH.

Nov 11, 2019

Woah!

This is very helpful!

    • 1
Nov 12, 2019

I'm curious - what are the usual areas most bankers/PE folk live when working in CC in LA? I might be moving there from NY for a PE gig and wanted some advice. I was thinking of making the commute from Thousand Oaks but the 405 seems like a nightmare.

Nov 12, 2019

Oh my god please for the love of all that is holy don't attempt to commute from Thousand Oaks. Common to live in Brentwood, Santa Monica, Venice, WeHo, Culver City. Senior folks can live in Manhattan Beach or Hermosa Beach but that's a bear of a commute.

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Nov 20, 2019

This is crazy man. You shouldn't have to live on food stamps to afford a down payment on a house. The bay is a bubble, its already starting to come down but the moral of the story is you are probably going to have to move somewhere with a cheaper cost of living when you want to start a family. Unless of course you want to raise your kid in a 1-bedroom which is fine, to each his own.

Nov 20, 2019

Well, the coasts of the US should no longer compare themselves to the interior. We have an outsized idea in the USA of what/how big our dwelling should be. Nearly all other places in the world are space constrained and so people's idea of a good home is a 70 m2 apartment, not a 500 m2, 3 story house with giant yard and room for the boat.

One major problem is the existing supply of housing in CA is very much built for 100 years ago, and not today's demographics.

Nov 11, 2019

Either make $300k+ by yourself or $500k+ combined with a partner if you plan on having a kid. But since you'll probably have to wait until 37 to have that first kid you better hope luck is on your side and that he/she is not autistic.

Have fun OP!

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Nov 11, 2019

You don't. Someone up above already mentioned why - so many others already have money which is why it's so expensive. Why kill yourself to own what ends up being a relatively modest home?

Nov 11, 2019

I asked my best friend, who does about $100 million of single-family loans in the D.C. area each year, the same question about greater D.C. He said a disproportionate number of buyers in the $1+ million range inherit/are gifted substantial sums of the down payment. Most of the rest are high-income two-income households, of which in the D.C. area a disproportionate number are composed of at least 1 attorney. There is another group of people who get really lucky. In both the Bay Area and D.C. area, about 10 years ago housing was still expensive but within reach of higher-income 20- and 30-somethings. They happened to get married sometime around 2009-2012 and subsequently bought a house which appreciated and then they used the equity to flip into a more expensive house; now they are late-30s-to-early-40s, normal people with an expensive house due to timing.

As others have described in this thread, it's possible but extremely difficult to save up for one of these houses with taxes and cost of living pressing against your cause. Those who can save from little or nothing are the exception, not the rule. I actually for once agree with Alt-Ctr-Left--most people end of moving to other areas with better COL

Edit: I don't mean to come off as bitter and "class warfarey" as I am a beneficiary of the inherited down payment and my brother the beneficiary of ridiculous market timing (he bought at the very bottom of the market with his new wife and our parents' help).

Nov 12, 2019

What is your best friend's niche in the DC market? You've said most of his business comes from real estate agents. How long did it take him to build those relationships? Was persistence what did it for him? Was he visiting offices, open houses, etc.?

Nov 12, 2019
Mortgage Bond:

What is your best friend's niche in the DC market? You've said most of his business comes from real estate agents. How long did it take him to build those relationships? Was persistence what did it for him? Was he visiting offices, open houses, etc.?

He doesn't really have a purposely targeted niche but 95+% of his business is conventional or VA. He doesn't have many referrals that are lower income and/or using VA loans.

All of his biz are agent referrals or past business. To go from 0 to $100 million took him from 2011 to 2019. Agent relationships were built through the force of his incredible personality and teaching training courses.

Funniest
Nov 11, 2019

BDSM with San Francisco elite. When it's your turn to tie them up, do it and then just steal all the money from their house and leave.

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Nov 14, 2019

don't leave without POUNDING THEM IN THE ASS first

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Nov 12, 2019

5% down on $1M = $50K - Not a problem
Debt service on a $950K 30-year mortgage at 4.25% is $4,700 - Also presumably not a problem if you're making area-appropriate income (especially dual income)

Now why one would want to buy a home in that shithole is beyond me. But if you got in bed with all those leftie shitbrains, go ahead and live that life. Just understand this situation is totally unnatural and you're in no way entitled to be able to afford a home in every bubble everywhere on earth.

Or be like that Google employee and buy a U-haul with some space heaters and live in the parking lot.

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

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Nov 12, 2019

Who is lending 5% down on $1 million?

Nov 12, 2019
real_Skankhunt42:

Who is lending 5% down on $1 million?

It's not FHA. I don't see a problem. Even the FHA limit in San Fran is like $700K for a SFR.

heister:

Look at all these wannabe richies hating on an expensive salad.

https://arthuxtable.com/

Nov 13, 2019
Nov 12, 2019

Are you sure you want to buy a home in the bay anyways? I understand the perks of SF - weather, city, tech scene etc. But it seems crowded and I've heard the city has become increasingly disgusting (trash, used needles, human shit, etc)

Curious to hear what RE people think about the SF housing market. Is it at a peak?

"Out the garage is how you end up in charge
It's how you end up in penthouses, end up in cars, it's how you
Start off a curb servin', end up a boss"

  • Analyst 1 in IB - Gen
Nov 12, 2019

Curious as well!

Nov 18, 2019

The Bay Area still has some up and coming neighborhoods. For example mission bay SF was warehouses ten years ago and now its a premium area. Oakland is a gem for development so long as the democrat run city and state governments don't ruin everything.

"Truth is like poetry. And most people fucking hate poetry."

Nov 13, 2019

Buying a house makes no sense to me. Your IRR is usually higher investing the capital elsewhere and renting. The only way I'd buy real estate to live in is essentially if I had too much cash and didn't know where else to park it...

Nov 13, 2019

Rental protection laws aren't great, from my understanding. Its also not a financial decision (at least I hope people aren't convincing themselves that its an "investment" when its really consumption), usually its more like a pride of ownership thing

Then again, if you don't have any skills and connections to leverage to create wealth for yourself (i.e. all of th middle and some parts of upper middle class), a home is the best chance you have to do so (at least that's how they think). People will argue in favor of index funds, and I agree, but they're pretty adamant about buying property

Nov 13, 2019

Billion dollar question -Where would you invest?

No pain no game.

Nov 14, 2019

I'd invest exactly where I invest now - my own deals. I know not everyone has access to deals like that but if you work in PE for a decent fund you should be taking full advantage of co-invest. Even the biggest shithead PE firms have way way way better IRR than buying your own home lol

Nov 14, 2019

IMO it only makes sense if you can a) add a large amount of value through accretive renovations and/or b) you can own at least 1 AC in an area that should see substantial future growth whereas the future value of the land will be a multiple of the current value of the home.

    • 1
Nov 13, 2019

I don't make a bank, but I'd say i make more than I thought I'd be making when I was 15.

Turns out after my Rent + Utils + Groceries + Frozen Meals + Student loans + 4 drinks + Saving for INT trip are paid for I barely try to beat the single comma. Which means I wouldn't be able to afford to buy home for the foreseeable future.

Nothing against Indians but, I feel like if theres a concentration of them in one region the housing prices go up 2-3 fold in a decade. I have an Indian brother-in-law, who lives in Fremont in a 1/2 Million dollar apartment.

Well the Bay Area is a Bubble but Fremont in specific is rapidly bloating the bubble. Try investing elsewhere. Try East coast perhaps,... Durham/Raleigh, Atlanta, Charleston...

    • 1
Nov 13, 2019

Bitcoin.

    • 1
Nov 13, 2019

I used to think similarly about Manhattan, who can afford these places? If you're at a good firm for a couple of years. You should have enough income, especially with a spouse.

Nov 14, 2019

$200k can you get a brand new luxury condo on a beach in Southeast Asia or Latin America just saying..l

Nov 14, 2019

You can get a standalone home not just a condo! ;)

Nov 14, 2019

I'm saving up with my wife to retire early in Bali or something

Nov 15, 2019

Um No

Nov 15, 2019
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Nov 16, 2019
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Nov 20, 2019