VHCOL Home Buying Advice (Bay Area, where else?)

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HRPennypacker
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VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Wed Apr 04, 2018 11:42 am

Perfunctory VHCOL (SF Bay Area/Peninsula, CA) advice thread.
Looking for advice from other VHCOLers who struggle to maintain the balance between saving money and owning a home.

I'm 37 years old.
Total Household Income: $330K (me) + $80K (DW) = $410K, but we should assume $330-350K for at least a couple years while DW takes some time to take care of baby. My job is as secure as can be in tech, with 7 years at current employer and no performance issues, ever.

Cash: $340K
I-Bonds: $20K
Taxable VG: $330K
Retirement: $330K (Yes, there are a lot of 330K-ish figures in my numbers; not a typo)
Intangibles: Ultra-BH Mom (~$1.7M net) willing to be a safety net if I need someone to lean on. Want to avoid this at all costs, unless doing so threatens family.

VHCOLers, seeking your expert advice:
a) What's a not-completely-insane amount to spend on a house? What's the absolute maximum purchase price I should be looking at?
b) Better to buy something small and upgrade later, or bite the bullet now and never move?

adamthesmythe
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Re: VHCOL Home Buying Advice

Post by adamthesmythe » Wed Apr 04, 2018 11:50 am

Back when I lived in the Bay area (decades ago) people bought up to the limit they could afford. Partly because spending less meant driving even more; and partly because they anticipated increasing income. It was expected that you would have a period of near-privation while waiting for your salary to go up or for the bonuses to come in.

> Better to buy something small and upgrade later, or bite the bullet now and never move?

Look and see what you can get. Only then can you really decide. You may find you have no choice.

If your job is only stable (that is, no good prospect for strongly increasing income) you need to be more conservative.

HRPennypacker
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Re: VHCOL Home Buying Advice

Post by HRPennypacker » Wed Apr 04, 2018 11:51 am

Thanks. Job is not merely stable and I expect to be earning considerably more, but I didn't want to jinx it by telling everyone I'm a high performer--isn't everyone in the Bay Area a high performer?

I got 2 preapprovals for $2.2M, but that's far too expensive a house, I should think.

skteam
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by skteam » Wed Apr 04, 2018 12:03 pm

There are no easy answers here, but I'd advise against a "starter home" that will quickly be too small for your growing family. Many of my friends in the bay area bought condos or very small homes only to have to sell again very very soon. Even in rising market, all gains got eaten up on the transaction costs. And in a down market you will either be stuck in a place that is too small for you or forced to eat a big loss so that you can upgrade.

Prop 13 in California also makes regular home "upgrades" an expensive thing to do.

ThatGuy
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by ThatGuy » Wed Apr 04, 2018 12:07 pm

skteam wrote:
Wed Apr 04, 2018 12:03 pm
Prop 13 in California also makes regular home "upgrades" an expensive thing to do.
Listen to this guy. Prop 13 highly incentivizes buying one dream home and never moving. And then passing it on to your children/grandchildren so they can pay next to nothing in inflation adjusted property tax.
Work is the curse of the drinking class - Oscar Wilde

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by mrspock » Wed Apr 04, 2018 12:22 pm

HRPennypacker wrote:
Wed Apr 04, 2018 11:42 am
Perfunctory VHCOL (SF Bay Area/Peninsula, CA) advice thread.
Looking for advice from other VHCOLers who struggle to maintain the balance between saving money and owning a home.

I'm 37 years old.
Total Household Income: $330K (me) + $80K (DW) = $410K, but we should assume $330-350K for at least a couple years while DW takes some time to take care of baby. My job is as secure as can be in tech, with 7 years at current employer and no performance issues, ever.

Cash: $340K
I-Bonds: $20K
Taxable VG: $330K
Retirement: $330K (Yes, there are a lot of 330K-ish figures in my numbers; not a typo)
Intangibles: Ultra-BH Mom (~$1.7M net) willing to be a safety net if I need someone to lean on. Want to avoid this at all costs, unless doing so threatens family.

VHCOLers, seeking your expert advice:
a) What's a not-completely-insane amount to spend on a house? What's the absolute maximum purchase price I should be looking at?
b) Better to buy something small and upgrade later, or bite the bullet now and never move?
Very personal decision, however here’s my take.

I viewed this through the lense of keeping my housing expenses constant even when I purchased a home. This meant since my rents was $2100 I allowed my mortgage to be no more than $2100.

In other words, I wanted to prevent “lifestyle creep” which would kill my savings rate, which would be drag on my FIRE goals.

To accomplish this meant some sacrifices and compromise. For example, I ended up having a longer commute than some of my colleagues, but I don’t regret this one bit as I’m on target for FI (though let’s see how Mr Market does this year).

Again, personal decision but just try to avoid spending a boat load of money on a house crippling your good financial habits. And don’t limit your search to the absurdly expensive areas of the Bay Area (Palo Alto, Saratoga, Mountain View, Sunnyvale etc), there are more affordable places if you look: East Bay, Santa Cruz, South San Jose, West San Jose, Sunset district in SF, Pacifica etc.

+1 to not getting a condo or townhouse. HOA fees in Bay Area are punishing.

ThatGuy
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by ThatGuy » Wed Apr 04, 2018 12:32 pm

mrspock wrote:
Wed Apr 04, 2018 12:22 pm
I viewed this through the lense of keeping my housing expenses constant even when I purchased a home. This meant since my rents was $2100 I allowed my mortgage to be no more than $2100.
If you traded a rent of $2,100 per month for a mortgage of $2,100, then your housing cost went up. Things like property tax and paying for the furnace that just went out are usually included in the rent, but not the mortgage. Unless you are considering the PITI?
Work is the curse of the drinking class - Oscar Wilde

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simplesimon
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by simplesimon » Wed Apr 04, 2018 12:33 pm

A lot of this is subjective. Obviously the absolute max is going to require spending all your take-home pay less non-rent/mortgage fixed expenses on PITI. Just doing some back of the napkin math here...assuming 60% of $330k is take-home...$198k less other expenses of I dunno...$12k? Leaves you with about $15k/month to spend on PITI. That'll get you a $3m house with a 30-year mortgage. $0 retirement savings. Absolutely no wiggle room.

I'd start at $1m but I know that'll either make your commute really long or your house really small.

Good luck.

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Watty
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Watty » Wed Apr 04, 2018 1:17 pm

When you are looking at your numbers also consider what numbers would work for you to make it worth your while to move out of the Bay Area, especially if you don't have family there. In most of the country you could buy a McMansion for cash and have a lot more disposable income with the whatever the local salary range is. A lot of that is taxes since you likely pay a lot of your high income to taxes now.

It was a long time ago back in the 1980's but I lived in the Bay Area, which as already been expensive, and one thing I saw then was that some of my older coworkers had grown up kids that were well into their 20's that were still living with their parents. The problem was that even though the kids had jobs they could not afford to rent an apartment even with roommates. I am in Atlanta now which is still affordable and my son and his wife were easily able to buy a nice house about ten minutes away from me and it is really nice to be able to see them and my grand-kid regularly.

When I lived in the Bay Area I saw a number of people that were able to transfer with their company to a less expensive area and they did VERY well so you might keep an eye open for that.
HRPennypacker wrote:
Wed Apr 04, 2018 11:42 am
VHCOLers, seeking your expert advice:
a) What's a not-completely-insane amount to spend on a house? What's the absolute maximum purchase price I should be looking at?


The maximum amount for the mortgage interest deduction is now $750K so there is a lot to be said for keeping your loan amount below that.

HRPennypacker
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Wed Apr 04, 2018 1:23 pm

Thanks, Watty. I wrestle with this decision, but it comes down (for me) to the following:
a) Silicon Valley is still largely where it's at, especially for my field. ATL is up and coming, but I'm not sure there are enough employers there to make me feel comfortable. As crazy as it sounds, in my mind SV is still the safest place to be in the event of a downturn.
b) Working in a satellite office is possible, but those offices may get shut down--in large part because managers like me aren't doing much to save them. I see this happening--and I also notice my lack of advocacy to save them--and I wonder, "If I were there, I'd be s___ outta luck, wouldn't I?"
c) It may be that someday I'll have to leave the Bay Area, but if that happens I'd at least like to know I tried and failed. It's a lot easier to leave a place knowing you gave it a shot and failed, than to leave because you decided to not play. Granted, in my mind, even in the failure scenario I have enough money--at least 200k or so--to start anew somewhere else.
d) Don't tell my wife kids are allowed to stay with their parents; she might never let them leave!

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Hyperborea
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Hyperborea » Wed Apr 04, 2018 1:28 pm

I'm actually on my way out of the Bay Area (just sold, closing soon, starting free rent-back until the end of April). I've been here over 20 years now and a homeowner for about 16 of those years. So, my selling experience is pretty recent but my buying experience is a couple of cycles out of date.

I wasn't as strict as the suggestion above to keep my housing costs the same as renting but I didn't want to let them go too much higher. We were renting a pretty dilapidated apartment in an old small building at the time to save money and I wouldn't be buying similar. I used the costs of a rental more like what I would want to live in and used projections of rental increases over the next few years. My thoughts were that paying somewhat more at the start would be ok if I projected that over the years of living there my average monthly cost would be lower.

I also factored heavily the commute times to my job at the time I bought, likely locations for future jobs (I've worked at two other places since buying - one up and one down the peninsula from me), and access to freeways (though not close enough to hear them). That's a personal choice, but for me commute time was of more importance than size of the home. Commute times are not likely to get better in the short to intermediate term. Ex-colleagues who made the choice to buy bigger further out have seen their commute times skyrocket.

Also, I wanted somewhere that I wouldn't be moving from under normal circumstances. The move process here can be pretty trying and if the market stays tight (it might unless supply increases) you will have to buy before you sell. We bought big enough for our selves and for intermediate term expected needs (5-10 years). All of that's a bit of juggling act and you will have to compromise on one or more of the location, cost, and size of the home. After the raw affordability factor is crossed, it becomes a personal choice about where to compromise.

Winning offers in this market are no contingency offers. They are coming with at least 20% down and extra cash in reserve in case the house doesn't appraise so that they can make up the difference. Somebody above worked out your rough affordability based on salary but you might be more limited by downpayment. One suggestion to potentially help is a letter from your mother with an offer of a loan to cover the shortfall from appraisal if it happens with evidence of assets. Whether you need that will depend on how close you are to using up your cash reserves.

simplesimon wrote:
Wed Apr 04, 2018 12:33 pm
I'd start at $1m but I know that'll either make your commute really long or your house really small.
I'm afraid that $1M right now will barely get a condo apartment or smaller, older, in bad location townhouse in Sunnyvale or Santa Clara. For a house you are going to have to move much farther out.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

HRPennypacker
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Wed Apr 04, 2018 1:31 pm

My reasoning is similar to yours and I value commute time and proximity to potential employers. I already have preapproval for 2.2M, but I should think going that high, even with my income, is out of the question for Bay Area BHers. Right? (And if not: Presuming you were, what'd your ceiling be, Hyperborea?)

topofthebellcurve
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by topofthebellcurve » Wed Apr 04, 2018 1:44 pm

OP: While I do not have any particularly sage advice to give, I am going through this same issue right now with very similar demographics and income/savings. Thankfully, I'm only in Boston, the 3rd/4th most expensive city in the U.S. and not San Francisco :D

Here's my thread; it was very helpful: viewtopic.php?f=2&t=243243. I'm now closing on a $1MM home which is somewhat terrifying (plus baby on the way in the next few weeks...)

If I'm reading your post right, you've got about $1MM liquid and solid/secure income. What's your average monthly spend excluding housing? That's a big variable. If you're living well below your means, then I'd think about putting $500K down (maintain half your liquidity) and sizing the purchase price such that you could cover the mortgage plus your living expenses while maxing out retirement, etc. and still have a comfortable margin to spare. Not sure what that calculates to, but it's one way to think about it.

HRPennypacker
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Wed Apr 04, 2018 3:07 pm

Hyperborea wrote:
Wed Apr 04, 2018 1:28 pm
II'm afraid that $1M right now will barely get a condo apartment or smaller, older, in bad location townhouse in Sunnyvale or Santa Clara. For a house you are going to have to move much farther out.
1M will just barely get a condo in rougher parts of Santa Clara; Sunnyvale is out. Recent closures seem to be around $1200+ per square foot.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Carefreeap » Wed Apr 04, 2018 3:12 pm

simplesimon wrote:
Wed Apr 04, 2018 12:33 pm
A lot of this is subjective. Obviously the absolute max is going to require spending all your take-home pay less non-rent/mortgage fixed expenses on PITI. Just doing some back of the napkin math here...assuming 60% of $330k is take-home...$198k less other expenses of I dunno...$12k? Leaves you with about $15k/month to spend on PITI. That'll get you a $3m house with a 30-year mortgage. $0 retirement savings. Absolutely no wiggle room.

I'd start at $1m but I know that'll either make your commute really long or your house really small.

Good luck.
Lol, or both!

Cleaned up starter homes in my "middle class" (formerly known as "Blue Collar") town are about $1M. That buys you a 3/1 1000 sq.ft. 1959 house home on a 5,000 sq.ft. lot. Commute to Northern edge of Silicon Valley (Sand Hill Rd) during normal commute hours is about 1 hour.

Same type of house in San Carlos is about $1.5M.

OP is talking about a family of three. If he buys starter home of that size with an eye to add a family room and a second bath down the road he should be o.k. even with a second kid. The additional sq.ft. will get taxed at a new rate but the rest of the house will remain at the prop 13 rate. The new sq.ft. will also get a Prop 13 benefit as time goes on.

These kinds of houses actually make great investments. Not only are they starter homes but single level homes mean an opportunity to age in place for a long time. If the OP needs to relocate for a while (like we did for 9 years) they can be rented out.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by mervinj7 » Wed Apr 04, 2018 3:39 pm

ThatGuy wrote:
Wed Apr 04, 2018 12:07 pm

Listen to this guy. Prop 13 highly incentivizes buying one dream home and never moving. And then passing it on to your children/grandchildren so they can pay next to nothing in inflation adjusted property tax.
Yep, that's what many of our neighbors are doing. A few are cashing out their appreciated homes, retiring, and moving to cheaper pastures out of state.

OP, the typical BH advice for buying in the Bay Area is "no, nope, not at your income level, too much house, just rent" and that is VERY sound advice coming mostly from folks who live in LCOL areas. Instead, I would suggest you go for it. You have enough in assets that you can weather most downturns. Just get adequate term life and umbrella insurance policies.

HRPennypacker
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Wed Apr 04, 2018 4:10 pm

Yeah, the big theme from everyone I've spoken to/heard from on BH has been that it's a gamble, and you just have to dive in. Nobody ever says, for example, "I'd not spend above $1.5M." It's just binary: IN or OUT.

United2008
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by United2008 » Wed Apr 04, 2018 4:31 pm

Bay Area boglehead here -- to answer your questions directly:

1) With your income/assets, try to find a fixer-upper SFR in the $1.5-1.8m or so price range. Lenders are requiring a lot of cash/liquid assets on hand after closing (some up to 6 months). Utilities, maintenance and property taxes are all very expensive in the bay area, especially the Peninsula. Staying below your "max" will help you feel not as squeezed in these other areas. Kids are crazy expensive too (and prices for kid activities in the bay area are also nuts).

2) Consider approach of buying something that needs a bit of work (sweat equity for the future) and that has the potential to add square footage (up or out). Moving in this area is an expensive proposition. So.... keep school districts in mind for your purchase decision.

A few other thoughts--

Does your $330k pay salary include stock/bonus, or is that just your base? That's a fairly high but not unusual base for tech in my experience. If that includes stock and bonus, you may want to reduce the price expectations a bit.

Keep the impact of property taxes in mind. These really add up at this price range.

We've found that having nice outdoor space and proximity to parks, schools, other play areas really helps with the smaller house size that you're bound to get if buying on the peninsula. Also consider whether you can walk to various other amenities like restaurants. Being close to things (and avoiding traffic) makes all the difference and will also help maintain your home's long term value.

One other idea -- as someone else mentioned, offers without contingencies are most likely to be accepted. Consider whether you could use your mom's asset base as a way of demonstrating your ability to close without financial contingencies. This puts you on the same plane as a "all-cash" offer, which is still very common in the bay area.

We bought a few years ago and really had to stretch our budget to get into our place. Our extremely tight budget (with two kids) was pretty painful at first. While hindsight is 20/20, we're now very glad that we did this. Our income increased over time and this made the budget more comfortable. If you're in the same boat you may want to stretch but just know (and reach agreement with your spouse) that things might be quite tight for a couple years.

SeaToTheBay
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by SeaToTheBay » Wed Apr 04, 2018 4:37 pm

Bought in the Bay Area 1.5yrs ago, which ended up being a great decision. We bought a little more than we needed (3bd/3ba, in order to take care of Grandma-in-law and the kid we plan to have in the near future) which ended up being a good idea. It would be hard to afford even the same home now given the increases in prices and interest rates.

I don't have a specific $ amount in mind, but you do have a very good income and cash to sink into a DP. Keep in mind mortgage amounts over $750k are not tax-deductible. If you did $300k of your cash + $750k mortgage (which I think you could handle with your income) that's $1,050k... which I know, is actually not a ton in this crazy area.

One recommendation I would have is to do what we did and get a new construction townhouse. No, it won't have the character or yard of modest older SFH, and yes, it will have an HOA. But the expenses are a lot more predictable due to everything being new and the home warranty. Not saying unexpected repairs can't happen - they're just a lot less likely when you start out with brand new appliances, paint, flooring, roof, etc. That takes a lot of the guesswork out of making those tight first years work financially.

Another bonus to the above: no bidding wars. You get on the waitlist and when it's time, you pay X price plus whatever options you choose. I don't think I could stomach finding the perfect house and being outbid by six figures. Again, takes a lot of guesswork out of it.

We bought in Milpitas and while it's not the idyllic town with a bustling downtown, it has good schools, reasonably low crime, and an acceptable commute to much of Silicon Valley and up East Bay, especially once the BART station is complete in a few months. A lot of schools, stores, etc. going up near BART as well.
ThatGuy wrote:
Wed Apr 04, 2018 12:32 pm
mrspock wrote:
Wed Apr 04, 2018 12:22 pm
I viewed this through the lense of keeping my housing expenses constant even when I purchased a home. This meant since my rents was $2100 I allowed my mortgage to be no more than $2100.
If you traded a rent of $2,100 per month for a mortgage of $2,100, then your housing cost went up. Things like property tax and paying for the furnace that just went out are usually included in the rent, but not the mortgage. Unless you are considering the PITI?
I would counter by saying tax and repairs are counteracted by A) tax deductions, B) the portion of your mortgage payment going to principal vs. never seen again in the form of rent, C) your mortgage payment stays the same for 15-30 years while rent can increase every 12 months by an unknown amount, D) long-term appreciation.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Artsdoctor » Wed Apr 04, 2018 4:41 pm

I wouldn't just look at the selling cost of the house; that will come later. I'd first figure out your monthly payment is going to be. It's your first house so it's not unusual to over-extend yourself in a VHCOLA. When we bought our first house, we had 80% financing plus 10% financing at a slightly higher rate. It was a great deal that Chase was offering, but that was many years ago. You say that you've been approved for > $2M but do the numbers. See what different banks have to offer. Start by figuring out exactly what a $2M house is going to cost you with down payment, monthly mortgage payments, and property tax. You won't be able to deduct all of the mortgage interest but you'll be able to deduct some.

I would not advise buying a home that you can't last more than 3-4 years in. We've had our home for over 20 years and have done extensive remodelling, all with appropriate permits. Prop 13 is not a disincentive to remodelling at all. We pay more than if we had never remodelled but far, far less than if we would have traded up. Those remodelling costs also defray the capital gains by increasing your home's cost basis--which you'll almost certainly need when you sell if you stay in your house long enough.

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Pajamas
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Pajamas » Wed Apr 04, 2018 4:42 pm

This is a time to be patient before buying in a high cost of living area.

https://www.bloomberg.com/news/articles ... -push-back

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Hyperborea » Wed Apr 04, 2018 5:03 pm

HRPennypacker wrote:
Wed Apr 04, 2018 1:31 pm
My reasoning is similar to yours and I value commute time and proximity to potential employers. I already have preapproval for 2.2M, but I should think going that high, even with my income, is out of the question for Bay Area BHers. Right? (And if not: Presuming you were, what'd your ceiling be, Hyperborea?)
If I was in your situation then I would feel comfortable going to the $2.2M max if needed to get the home closest to the center of the action that met my needs (and maybe had some room to grow if that was expected). The homes in the main area of Silicon Valley have weathered the last few downturns far better than homes outside the center. The commutes will likely only get worse. You don't want to have to move again (for a variety of reasons).

Also, as you mentioned in your reply to Watty above, it's the job density in Silicon Valley that makes this place. There are tech jobs elsewhere (heck, even in Atlanta) but there isn't the density of jobs in those other locations. I lost my job about 8 months after buying my home in 2002. It was a well known mid-size tech icon that went "life boat" (due to bad business decisions they laid off all but the most junior from each team). I found a job in one of my specialty areas at another company within a week and was hired a week or so after that. That wouldn't happen in many other places. That sort of distributed job security and high wages are what you are buying by purchasing a home in the Bay Area.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by rolandtorres » Wed Apr 04, 2018 5:04 pm

Agree with the poster recommending ~$1.8M budget which is basically blowing out all your cash reserves on a downpayment. Seems your mother is going to be your emergency reserve in this plan. I'd buy in one of the better school districts on the Peninsula for optionality.

Biggest question you have to answer is if you'll stay in the house longer than 7-10yrs as that helps you decide if you want an ARM or fixed rate mortgage which affects your cash flow. Depends on how many kids, what kind of schooling you want, your career prospects (in terms of both would you stay at a bigger co or look at smaller startups with less cash but more equity, as well as staying ahead of COL inflation in the area- remember, there are still lots of new millionaires about to be minted with Dropbox, Uber, Airbnb IPOs).

At end of 7-10, you can either stay as-is for another 5-10 yrs (and probably refinance if a ARM), maybe ask your mother to help fund construction to update/upgrade the "starter" house, trade-up to a nicer house (assuming your career stays ahead of COL), or just leave the area entirely.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by BusterMcTaco » Wed Apr 04, 2018 5:06 pm

We bought 2.5 years ago in SF, and here's my summary:

*We are happy we live where we do. We were unhappy in our rental. I would prefer to trade up now that income has risen, but transactions costs definitely make this prohibitive. My best bet right now is to wait for a housing bust and buy a new house without having to sell this condo, then rent this one out until everything recovers.

*If you are planning to "trade up" in a few years, factor transaction costs into your cost of ownership when comparing against renting. When we sell we're probably looking at ~$100k in closing costs + broker fees, so if we only end up living here for 4 years, that's another ~$2k/month amortized that I did not factor in!

*Don't over-estimate the tax benefit from the mortgage interest deduction under the new law. Unless you have massive deductions like charitable donations, you'll be hard pressed to see much benefit from the interest on $750k principal with the $10k SALT cap. Ballparking at today's rate I'm guessing you'd have about $25k in interest deductions each year, plus $10k SALT, for about $35k deductions (only $11k more than the standard deduction!) Even at 32% federal which you might hit (plus 9.3% state, and I think it also saves 2.35% medicare?), that only saves you about $4800/year, or maybe $400/mo. I definitely would have done different math if I knew my SALT deduction would get capped.

Ultimately, I agree with the suggestions to buy what you want and not go for a starter home. We bought a condo (2 unit building, reasonable HOA with good neighbors), but there's nowhere to build, and I already wish we'd bought better. Do not assume you'll be able to just trade up in 5-7 years.

Edit: I guess it's worth saying, that had I been a Boglehead at the time, I might have not let my wife convince me to offer what we did for this condo, and maybe just continued renting. It's even more likely I'd have done that today under the new tax law.

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Watty
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Watty » Wed Apr 04, 2018 5:50 pm

HRPennypacker wrote:
Wed Apr 04, 2018 1:23 pm

a) Silicon Valley is still largely where it's at, especially for my field. ATL is up and coming, but I'm not sure there are enough employers there to make me feel comfortable. As crazy as it sounds, in my mind SV is still the safest place to be in the event of a downturn.
Be sure to also consider the earthquake risk when weighing the overall risk of different areas. When I was there I was thinking of buying my first house there and when I looked into the risk of earthquake damage the best I could come up with was that if I owned a house there then it might have significant earthquake damage once in two hundred years. (Be sure to do your own research). That does not sound too bad until you consider that if you live there 20 years then that would be about a 10% chance of having significant earthquake damage.

You could likely afford a $50K+ repair bill but getting a contractor after a big event like that will be very difficult. I know someone that has family where Hurricane Andrew hit in Florida that had significant roof damage. They had insurance that would cover it and could afford a new roof but it took the about three years to actually get a roofing company to replace the roof.

The risk of earthquakes was not a major factor in me moving when I was ready to buy but it was a factor.

Atlanta has its merits but there are better places. It would depend on you preferences but college towns have always looked tempting to me.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by ThatGuy » Wed Apr 04, 2018 6:50 pm

Watty wrote:
Wed Apr 04, 2018 5:50 pm
Be sure to also consider the earthquake risk when weighing the overall risk of different areas. When I was there I was thinking of buying my first house there and when I looked into the risk of earthquake damage the best I could come up with was that if I owned a house there then it might have significant earthquake damage once in two hundred years. (Be sure to do your own research). That does not sound too bad until you consider that if you live there 20 years then that would be about a 10% chance of having significant earthquake damage.

You could likely afford a $50K+ repair bill but getting a contractor after a big event like that will be very difficult. I know someone that has family where Hurricane Andrew hit in Florida that had significant roof damage. They had insurance that would cover it and could afford a new roof but it took the about three years to actually get a roofing company to replace the roof.

A 10% chance of a quake does not translate to a 10% chance of personal injury or property damage. I have doubts that you can even quantify earthquake risk in such a fashion, but with a cursory search I found a couple references to the damage from the '89 quake:
John Martin wrote:The estimated cost of earthquake-related damage ranges from five billion dollars to more than ten billion dollars. Most of the damage, however, was concentrated in relatively few areas and much of the Bay area was relatively unscathed. Damage was generally limited to locations near the epicenter, where ground shaking was severe, and to areas underlain by poorly consolidated deposits or artificial fill, particularly where ground settling and liquefaction occurred.
Wikipedia wrote:Casualties 63 killed, 3,757 injured
The USGS seems to think we have a 72% chance of a big quake in the next ~30 years. However, that looks like it's most likely in the near East Bay.

The Big One will hit at some point. The Bay will not always and forever be more expensive than the rest of the country. From what I've seen, I don't expect a reversion to the mean at any time in the near future.
Work is the curse of the drinking class - Oscar Wilde

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Frisco Kid » Wed Apr 04, 2018 6:57 pm

Do yourself a favor and take a serious look at traffic patterns so you have an idea what your commute time will be. What city will you be working in? Typically traffic ANY direction in/out of SV is brutal during normal commute hours. That adds stress and expense............ I would not buy a fixer upper UNLESS you can do most of the repairs yourself. Many purchases here waive inspections which I think is nuts if you are paying market value. Also during your purchasing process run some tax scenarios, as others have said mortgage interest and SALT caps are going to be real eye openers. Only you can decide how much to spend, you might find $2.2M buys the house you want requiring roughly $440K down. Your income gives you options, you may end up asking yourself how bad do you want it. Lastly, if you do buy here and see huge appreciation over many years as many of us have, transaction costs to sell and capital gains here are KILLER as California has no preferential treatment for capital gains. Do the math on this as well........ You can do it if you want it bad enough. Good luck with your decision!

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by random_walker_77 » Wed Apr 04, 2018 7:36 pm

What's your annual budget look like? How much do you spend, and what how much can you afford to spend on this house in PITI?

Is $330K your base, or average total compensation? i.e. Do you have another $300K in RSUs coming in? Or is your based more like $200K and it's been about $330K due to equity compensation?

Sounds like you could have $600K for a downpayment, and $100K for an emergency fund. One approach is to put down the minimum possible. This preserves cash flow in case of a liquidity crisis (recession/job loss) and minimizes your losses if you have to walk away from a house that's underwater, if contrary to expectations, bay area housing ever drops. Also, it provides a buffer against inflation as inflation would shrink a fixed-dollar debt.

Be sure to run "what-if" scenarios to understand the worst case. But don't let that scare you -- consider the probability of these happening. The goal isn't to scare oneself, but to fully understand what could happen, and think about what you'd do and what might happen. A lot of people lost their houses in '08 b/c they didn't consider what would happen when their low-payment ARMs lost their teaser rates.

Don't count on the tax deduction given the new 10K cap on SALT (state and local taxes). Your property taxes on 1.5M are alone going to be over 16K. Then again, rates are still historically low.

With young kids, beware of long soul-sucking commutes. If you're counting on housing prices to continue rising, then it's likely that traffic will only get worse.

Of course the best way to buy a home in the bay area is to cash out $4M in equity, pay half to taxes, and then buy a house with cash.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Wed Apr 04, 2018 8:17 pm

Thanks for the responses, all. $330K includes cash bonus and RSU ($225K base + $40K cash bonus + $65K RSU, per annum). I expect those to rise steadily in the coming years, and possibly sharply if I leave for another employer. I don't really want to leave. I have criminally good work-life balance that's largely the result of busting my ass for the last few years creating new v1 products that have gone on to sell well.

Up till now I've been targeting cheap (ie, $950k) properties and bidding around $1.25M. This has not been working (I keep losing!), so I thought I'd sanity check my strategy here. My thinking was that I'd get into a tiny place, and upgrade later. I see now that that's probably not the right way. I was hoping there'd be a way to be a fiscally conservative homeowner, but the feedback I'm getting pretty consistently--both on BH and from colleagues and friends--is that they're mutually exclusive, at least at my income level. Wow.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HornedToad » Wed Apr 04, 2018 8:52 pm

HRPennypacker wrote:
Wed Apr 04, 2018 8:17 pm
Thanks for the responses, all. $330K includes cash bonus and RSU ($225K base + $40K cash bonus + $65K RSU, per annum). I expect those to rise steadily in the coming years, and possibly sharply if I leave for another employer. I don't really want to leave. I have criminally good work-life balance that's largely the result of busting my ass for the last few years creating new v1 products that have gone on to sell well.

Up till now I've been targeting cheap (ie, $950k) properties and bidding around $1.25M. This has not been working (I keep losing!), so I thought I'd sanity check my strategy here. My thinking was that I'd get into a tiny place, and upgrade later. I see now that that's probably not the right way. I was hoping there'd be a way to be a fiscally conservative homeowner, but the feedback I'm getting pretty consistently--both on BH and from colleagues and friends--is that they're mutually exclusive, at least at my income level. Wow.
One thing to keep in mind is you are at the point that your salary won't be rising as much now as it has in the past. Mid 30s to early 40s is when it is typically more steady state. After all, 50-60 year olds aren't making $500k/year regularly. That can be a mental adjustment when one is used to 5-10%+ raises each year.

Personally, I'd be comfortable in your situation up to around 1.5M, depending on other spending habits. I also agree with you that solid Worklife balance is worth a somewhat lower salary, especially considering after tax impact from the raise.

random_walker_77
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by random_walker_77 » Wed Apr 04, 2018 9:16 pm

Another thing to keep in mind is that companies prefer to keep their payroll flexible and bonuses and RSUs are a way to do that. The vesting schedule are another way to do this as it spreads costs out over time, and helps minimize undesired attrition.

It's been a while since we've had a downturn, but remember that when revenues plummet during a recession, bonuses and RSUs tighten up accordingly. My point being, no matter how confident you are, it's generally a bad idea to count on these to meet your annual cash flow obligations.

Also, beware that the higher up you go in the tech seniority pyramid, the harder it is to get a comparably compensated job, or any job for that matter. Tech companies generally love candidates at the sweet spot of 4-6 years of experience, where people have enough experience to be highly productive, but are still young and flexible with relatively cheap salary requirements.

You haven't stated it here, nor do you need to, but make sure you understand for yourself why you want to buy a house. Is it for financial reasons? Stability reasons? Lifestyle reasons?

Given how crazy things are, from a financial standpoint, it's not completely crazy to just pay $70K/yr to rent a house. If you figure the cost of funds is 5% (what it'd cost you to invest your money instead, or cost to borrow money), $1.5M costs you $75K. Plus another $15K in property taxes, so 90K. That makes renting look reasonable.

On the other hand, the leverage you get from a mortgage means that your 10-20% down, could allow you to double your money in a year!!! (If that year is like any of the last few years. What an amazing deal! :twisted:
Of course, leverage works both ways, and it means you could lose 200% of your down payment if everything goes against you, though with CA being a non-recourse state, that's probably capped at [100% - imputed rent until completion of foreclosure].

Eyes wide open, my friend.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by random_walker_77 » Wed Apr 04, 2018 9:27 pm

HRPennypacker wrote:
Wed Apr 04, 2018 8:17 pm
...is that they're mutually exclusive, at least at my income level. Wow.
The problem is supply and demand. And right now, on the demand side, there's too many people with "too much money." Dual-engineer households w/ a $400+K base and another $400K in RSUs. Engineers whose equity lottery tickets have paid out handsomely (like 7 figures). And of course, there's also the foreign money getting parked in Bay Area housing.

That's why you keep losing the bidding wars by only overbidding 0.3(M).

Some people argue that this is sustainable and prices will keep rising, because the bay area is such an incomparably valuable place to be.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by visualguy » Wed Apr 04, 2018 9:40 pm

random_walker_77 wrote:
Wed Apr 04, 2018 9:27 pm
Some people argue that this is sustainable and prices will keep rising, because the bay area is such an incomparably valuable place to be.
I think it's the opposite. Not incomparable, but rather comparable to other major economic centers around the world where prices have been rising rapidly and pretty consistently over time. The Bay Area actually has a way to go to catch up with some of them...

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by random_walker_77 » Wed Apr 04, 2018 10:57 pm

visualguy wrote:
Wed Apr 04, 2018 9:40 pm
random_walker_77 wrote:
Wed Apr 04, 2018 9:27 pm
Some people argue that this is sustainable and prices will keep rising, because the bay area is such an incomparably valuable place to be.
I think it's the opposite. Not incomparable, but rather comparable to other major economic centers around the world where prices have been rising rapidly and pretty consistently over time. The Bay Area actually has a way to go to catch up with some of them...
Thank you, that's an interesting point. Curious, I just looked it up, and you're right. SF is certainly in the same ballpark, by rent, though it still has a ways to go to catch up to Manhattan.

by rent:
https://www.rentcafe.com/blog/rental-ma ... the-globe/

By price, there is a definite gap behind some other leading cities.
https://ny.curbed.com/2017/8/21/1617992 ... foot-price
https://www.worldatlas.com/articles/the ... state.html

Whether you think the bay area is going to catch up to NYC and especially Manhattan... I've no idea.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by boglebill2015 » Thu Apr 05, 2018 1:11 am

my thoughts as someone who's lived on the Peninsula for last 14 years

currently its a real hassle to do expansions, I' watch my neighbors houses sit half finished for months and months. Who knowz what that market will look like in 5 years, but the high volume of old housing stock here and the difficulty finding good labor probably means that major house renovations will continue to be an expensive and unpleasant process

trading up is also tough. We bought our mid peninsula 2200 sq foot house in 2013 for 1.55M, and its now worth about 2.3M. So if I want to trade up meaningfully I am looking at at $2.8 to $3M. Which means my (undeductible) property tax just rose to ~35K a year from 19K. Thats 1300 extra a month, prop 13 makes you want to just stay put. Its also hard to upgrade once your kids start school, because if you want to keep them in teh same school, you may not have much choice.

I dont know where you are shopping but any house that lists at 900K has major compromises in location AND size if you work on the peninsula. Be glad you didnt win, because you'd have been cursing yourself within a few years.

In light of above rationale, suggest you go as big / costly as you think you can handle somewhat uncomfortably. I wish I had spent an extra 300K or so in 2013 and had a bit more space now.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by pekkle » Thu Apr 05, 2018 1:36 am

HRPennypacker wrote:
Wed Apr 04, 2018 8:17 pm
Up till now I've been targeting cheap (ie, $950k) properties and bidding around $1.25M. This has not been working (I keep losing!), so I thought I'd sanity check my strategy here. My thinking was that I'd get into a tiny place, and upgrade later. I see now that that's probably not the right way. I was hoping there'd be a way to be a fiscally conservative homeowner, but the feedback I'm getting pretty consistently--both on BH and from colleagues and friends--is that they're mutually exclusive, at least at my income level. Wow.
In the bay area also and this pricing segment seems to suggest entry-level housing, which also is the most competitive (from what my realtor has been telling me). Witness the recent Sunnyvale home that sold for $2 million (and so houses coming up for sale in the same area are now expecting similar sale prices(!)) ... =( $1.5 million might get you a response from sellers in parts of San Jose (and with news about Google's expansion there, I'm sure interest has been rising in anticipation of the increased housing need).

I am currently in a townhome and have been looking to move up (and am being greedy by wanting to retain the townhome as a rental) and like you have been outbid on every place I've placed a bid. Your note on work-life balance is important; long commutes (both distance and time-wise) can suck a lot of time and energy, more so if you want or have kids. If you feel very stable at your job and your employer offers a shuttle service, taking the shuttle might mitigate the energy drain a bit, but not the time aspect (some return commutes to the East Bay last year for some of my colleagues lasted up to 4 hours!).

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by visualguy » Thu Apr 05, 2018 1:37 am

boglebill2015 wrote:
Thu Apr 05, 2018 1:11 am
currently its a real hassle to do expansions, I' watch my neighbors houses sit half finished for months and months. Who knowz what that market will look like in 5 years, but the high volume of old housing stock here and the difficulty finding good labor probably means that major house renovations will continue to be an expensive and unpleasant process
Indeed, it's extremely hard to find good construction labor in the Bay Area. There's a tremendous shortage of such people there in general, and an even greater shortage of people who do relatively small jobs like expansions and renovations. Prepare for long waits, and very high costs.

The most frustrating aspect is that they take on many jobs at the same time, and more than they can handle, so they start something and then disappear on you for a while to do another job, and then come back, and then someone with a needed skill isn't available for a long time, etc. It makes everything drag for crazy long. It is truly a nightmare to undertake such projects there these days.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by cupfire » Thu Apr 05, 2018 1:48 am

Another recommendation for buying near the top of your scale close to your work and gutting it out for a year or two.

I have been in the Bay Area for 20+ years and had the misfortune or bad judgment to buy my first house about a month before the start of the dot com bust of 2000. I overpaid a ridiculous amount of money ($750k) for a 3/2 1200sqft starter home in Cupertino on a combined salary with DW of $200k at that time. We both had short commutes (12 miles for me, 5 miles for DW) to peninsula offices because of the location. I was laid off during the summer of 2001 at the depths of the the dot com crash, but was able to find another job within 3 weeks of the layoff even at that time. The house was under water for a couple of years because I had overpaid, but gradually crept up in value. Two kids arrived after that, and we outgrew that house because of the need for senior care and needed to either expand that house or buy another one. We managed to scrape together every penny that we had and bought an absolute fixer upper in the same area for $1.9M in 2014. As you know, it is far easier to sell here than to buy, so when the opportunity to buy arose, we jumped in. I remodeled and renovated the previous house adding 500 sqft and sold it about a year later for $1.9M. The fixer upper is now being renovated, but has already appreciated by $1M if Zillow is to be trusted. My personal salary has not exceeded $200k in all this while. DW has had 2+ years of being unemployed, but gets paid between $100 - 150k when employed. But because we were able to get in to the housing market, and because I have kept up with my skills, we have been able to not only weather these storms, but also thrive. The house values in my area have not fallen much during downturns and have appreciated a lot during the good times. As long as either one of us is employed, we will do fine.

During all this time, we had no fallback other than the emergency fund. We don’t really have a large taxable portfolio, but have accumulated a decent amount of money in our retirement accounts. You have a great fallback option with your Mom and you have a whole highly paid career ahead of you. If you can be very frugal for about a year or two after purchasing your house, you will end up doing fine.

I know that this is not a very BH-like advice, but you will need to take a bit of a risk and a leap of faith. Do not buy a house far away from work and get into a thankless commute that will keep you away from your family. Do buy a house in the Peninsula in a good school district if at all possible. This is where the action is, and if you were to lose your current job, as long as you have kept your skills up to date, you should not have a problem finding another pretty quickly. Houses in these desirable areas don’t lose much during recessions, if at all, but appreciate a lot when the economy picks up. You will also have less of a need to move or upgrade if you buy a house that can accommodate a growing family.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HongKonger » Thu Apr 05, 2018 2:23 am

Having purchased in UHCOL Hong Kong, the rule of thumb there is that monthly mortgage payments equal no more than 40% of your monthly gross pay.
Average apartments of around 700sq ft there go for roughly 18x average annual salary.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by mrspock » Thu Apr 05, 2018 3:30 am

ThatGuy wrote:
Wed Apr 04, 2018 12:32 pm
mrspock wrote:
Wed Apr 04, 2018 12:22 pm
I viewed this through the lense of keeping my housing expenses constant even when I purchased a home. This meant since my rents was $2100 I allowed my mortgage to be no more than $2100.
If you traded a rent of $2,100 per month for a mortgage of $2,100, then your housing cost went up. Things like property tax and paying for the furnace that just went out are usually included in the rent, but not the mortgage. Unless you are considering the PITI?
A fair point. I gave myself a bit of wiggle room here at the time as there principal being paid here as well. As for repairs, I have always stuck with new construction, so I’ve rarely had any major repairs which were not under warranty.

Another tip I have for Bay Area folks, is simply commute after 9:30am & 7pm if at all possible. This easily cuts your commute by 40-50%, and opens up housing options which are much cheaper. Assuming a commute to the Peninsula, a nice newer house for 1-1.25M is completely doable within a 40-45 min drive during these commute hours, less new and smaller under 30 min. If you must commute at prime hours, then you are going to pay dearly for similar housing options/commute times :( .

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by madbrain » Thu Apr 05, 2018 4:01 am

HRPennypacker wrote:
Wed Apr 04, 2018 11:42 am
b) Better to buy something small and upgrade later, or bite the bullet now and never move?
As others have posted, Prop 13 encourages you strongly to buy what's right for you in the long term and stay put.
I bought something relatively small in 1997. I didn't move up until 2010, when the real estate market crashed. It wasn't that easy.
But moving up in times of rising prices is much more difficult.

Can't answer what amount is reasonable for you to spend - only you can. Your income could likely support something in the $3M range. It all depends how much of your income you want to spend on housing.

If you don't want small but don't want to pay $3M, look in some lesser appreciated neighborhoods.

For example, in my neck of the woods, you can get a home built in 1990, 3693 sq ft, on 1.18 acre lot, and beautiful views :
https://www.mlslistings.com/property/ml ... 27/8764612

My home is fairly similar to this, though the sq ft on mine is higher, and lot is smaller. Market value is in the same ballpark. I paid less half this listing price during the financial crisis and staying put.

The views I have are very similar to the ones in the photos in this listing. Downside is the public schools (we have no kids so don't care) and non-walkability (walkscore of 0, same as mine). Feels more like living on the countryside than a city, yet the commute to my tech job in Santa Clara is only 20 minutes at off-peak hours (peak is much worse, but I have flexibility).

You may be able to find something around 2000-2500 sq ft in the $1M range too (I didn't look hard). Probably not with that kind of view.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Valuethinker » Thu Apr 05, 2018 4:50 am

HRPennypacker wrote:
Wed Apr 04, 2018 11:42 am
Perfunctory VHCOL (SF Bay Area/Peninsula, CA) advice thread.
Looking for advice from other VHCOLers who struggle to maintain the balance between saving money and owning a home.

I'm 37 years old.
Total Household Income: $330K (me) + $80K (DW) = $410K, but we should assume $330-350K for at least a couple years while DW takes some time to take care of baby. My job is as secure as can be in tech, with 7 years at current employer and no performance issues, ever.

Cash: $340K
I-Bonds: $20K
Taxable VG: $330K
Retirement: $330K (Yes, there are a lot of 330K-ish figures in my numbers; not a typo)
Intangibles: Ultra-BH Mom (~$1.7M net) willing to be a safety net if I need someone to lean on. Want to avoid this at all costs, unless doing so threatens family.

VHCOLers, seeking your expert advice:
a) What's a not-completely-insane amount to spend on a house? What's the absolute maximum purchase price I should be looking at?
b) Better to buy something small and upgrade later, or bite the bullet now and never move?
OK I live in London, England which is also insane. Metrics here:

- you put 10-20% down (10% is more normal) - take 5x your down payment and you get $1.7m. But remember you will spend c. 5% of the value of the house on closing costs and small repair & upkeep, probably

- you can borrow say 4x your main income + 1x second income - disregarding latter, that.s c $1.4m

that takes you to $1.7m. On London metrics you should be able to do 1.7m. Our property taxes are low, but we pay 5% of the value of the house up front in purchase taxes.

So I would say c. $1.7m. Figure you are going to spend $50k in other costs-- closing costs, immediate repairs & redecoration, first year property taxes + utilities

That's not that useful BUT

the underlying logic is perhaps useful. You buy as good a location as you can, and a house you can live with/ fix up. It's all trade-offs, and the market is efficient-- you are unlikely to find a bargain.

Other parts of financial planning go out the window until you have bought a "keeper" property- -10+ years time horizon. That gives you time to ride the next downturn which always comes-- whether in securities industry (London) or tech industry (Silicon Valley).

You are going to stretch to do this, and it's going to hurt. And you might get your cycle timing very wrong-- that will also hurt. But these are the realities of buying in an area where the supply is limited and the demand almost infinite.

You may have to reach. I probably would not go above $2m (mortgage 5x base income). But try to buy the "keeper" home-- 10+ year time horizon.

Your logic of working at corporate HQ, and staying in the Valley, is eminently sensible. People at satellite offices are more vulnerable- -that's a given. Hopefully you will be able to work from home 1 day per week BUT when the downturn hits, that's also a dangerous strategy-- you need to be quite visible by the boss (who will be in to be visible by their boss, all the way to the C-Suite). If you lose your job, the Valley is where you will find the next one.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by 18_bank_accounts » Thu Apr 05, 2018 11:00 am

Can you transfer to an office in SF? We bought in Alameda 5 years ago, where prices are much more reasonable. Door to door cummute times to any job in the city is right around 1 hour, including a very pleasant ferry ride.

Many of the top companies now have satellite campuses in the city, and are allowing distributed teams where people work from either location.

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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by WhiteMaxima » Thu Apr 05, 2018 11:14 am

Buy what you need (right location, size and budget). Live there and improve it. Market is efficient and Bay Area is a major job hub.

BusterMcTaco
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Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by BusterMcTaco » Thu Apr 05, 2018 11:42 am

I will just emphasize one option that's been only skirted:

Keep renting for a few more years.

I wish I'd done this and bought a bigger house from the get-go. Your income, if it holds, will let you build up assets very quickly, which will translate into a safer purchase of a bigger house. You'll also have that much more data about what happens to your salary in 1, 2, 3 years.

If you're looking to buy a starter home or compromise on what you want, then why buy at all?

Strummer
Posts: 52
Joined: Thu Dec 28, 2017 4:15 pm

Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Strummer » Thu Apr 05, 2018 12:20 pm

skteam wrote:
Wed Apr 04, 2018 12:03 pm
Prop 13 in California also makes regular home "upgrades" an expensive thing to do.
Just to clarify this: If I were to add, say, a bedroom and bathroom to my California home, the whole property would be reassessed to current market value? If so, that's a tremendous disincentive for those of us who've owned their homes for 20+ years.

Thanks in advance for your reply!

mervinj7
Posts: 550
Joined: Thu Mar 27, 2014 3:10 pm

Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by mervinj7 » Thu Apr 05, 2018 12:35 pm

Strummer wrote:
Thu Apr 05, 2018 12:20 pm
skteam wrote:
Wed Apr 04, 2018 12:03 pm
Prop 13 in California also makes regular home "upgrades" an expensive thing to do.
Just to clarify this: If I were to add, say, a bedroom and bathroom to my California home, the whole property would be reassessed to current market value? If so, that's a tremendous disincentive for those of us who've owned their homes for 20+ years.

Thanks in advance for your reply!
No, that is incorrect. You will only be accessed the current market value on the newly constructed additions to your property.
https://www.boe.ca.gov/proptaxes/faqs/n ... ction.html
How would my property taxes change if I enlarge the square footage of my family room and kitchen, add a patio, and replace my shake roof with a tile roof?
Any addition to your existing home, including outdoor additions, such as patio covers, pools, spas, decks, sunrooms and flatwork, would cause a reassessment of the portion of the property that was newly constructed. The assessed value of any existing portion of your property, whether land or improvements, would not be affected by the addition, and thus, would not be reappraised. The increased tax amount based upon the new construction will be determined by the estimated market value of the new construction and will not necessarily be the cost of the new construction.

HRPennypacker
Posts: 70
Joined: Thu Oct 19, 2017 2:44 pm

Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by HRPennypacker » Thu Apr 05, 2018 12:39 pm

Thanks all for the continued replies. Some additional info:
a) Move to SF: Can't move to SF, because the office is in San Jose, near Santa Clara. Also, excrement on sidewalks.
b) Keep renting: This is the fallback plan, but my fear here is that home price appreciation will continue unabated, faster than my savings rate. Just an impression; I haven't done the math or collected data. Obviously, the opposite could be true. I...have no idea.
c) WFH: Can't WFH regularly, because I manage a medium size (<100) engineering org and I want to be visible. Leadership by example and all that.
d) Working later hours to ameliorate commute: This is currently possible for me; my commute is currently about 15-20m on average, with a worst case of 45m. But it may not always be possible, and I'd hate to find out that I'm locked in to the morning grind.

boglebill2015
Posts: 83
Joined: Mon Aug 03, 2015 5:11 pm

Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by boglebill2015 » Thu Apr 05, 2018 7:47 pm

Strummer wrote:
Thu Apr 05, 2018 12:20 pm
skteam wrote:
Wed Apr 04, 2018 12:03 pm
Prop 13 in California also makes regular home "upgrades" an expensive thing to do.
Just to clarify this: If I were to add, say, a bedroom and bathroom to my California home, the whole property would be reassessed to current market value? If so, that's a tremendous disincentive for those of us who've owned their homes for 20+ years.

Thanks in advance for your reply!
no, I meant upgrade as in move to a new upgraded place. Not very clear. Moving to a new, more expensive place does reset your taxes (seniors can keep their lower rate in some instances)

Lynx310650
Posts: 57
Joined: Fri Sep 15, 2017 1:33 pm

Re: VHCOL Home Buying Advice (Bay Area, where else?)

Post by Lynx310650 » Thu Apr 05, 2018 7:58 pm

HRPennypacker wrote:
Thu Apr 05, 2018 12:39 pm
b) Keep renting: This is the fallback plan, but my fear here is that home price appreciation will continue unabated, faster than my savings rate. Just an impression; I haven't done the math or collected data. Obviously, the opposite could be true. I...have no idea.
There are homes here where the purchase price is FIFTY or more times the annual rent one could collect on the home. That is one heck of a price-to-rent ratio. I played around some rent vs buy calculators for such homes, and if you use the usual long-term real estate assumptions (rent and home values both going up basically tracking inflation), it literally never made sense financially to buy. But if you used the assumption of say the last 5 years of double digit appreciation, you were ahead of renting within 10 years.

My point here is that I've come to the opinion that if you are looking to buy a home in the Bay Area or a similar VHCOL area, the oft-given advice here on BH of "a home is a lifestyle decision" is 100% correct. I think one will drive themselves crazy trying to guess what home prices will do, if appreciation will continue to be astronomic, what will rents do, etc. I think the calculus can be much simpler. Does one WANT a home, and can one AFFORD that home currently? If yes, just do it. Basically the same type of calculus that would go into deciding whether to buy a luxury automobile.

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