Another bay area housing thread..

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thepicard1
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Another bay area housing thread..

Post by thepicard1 » Sun Jul 23, 2017 9:41 pm

Hi bogleheads,

Have a question and would like some boglehead advice on how to value RSUs in the determination to buy a house in the bay area.

About us: Trying to figure out how to buy a house in the bay area, an astronomically high COL area. Our decisions are whether to buy now what we can afford, wait, or continue to rent.
  • we both work for a tech companies in the bay area (highly stable), both software engineers
  • income around 190k and 120k, plus around 15% bonus (~30k and 10k respectively). All in is approximately $350k before tax
  • 401k in various accounts - ~$200k total
  • Student loans, ~$150k total (paying off at approximately $2000/month)
  • Savings: ~$400k in cash
  • RSUs: At current valuation, ~$200k/year (after tax is ~$120k)
  • No kids, cars paid off, no other expenses or debts
  • Both husband/wife in early 30s
  • Both frugal
We are preapproved for $1.7m, which sounds like a lot, but in the bay area actually buys a pretty modest 3BR 2BA ranch style home from the 60s with decent school districts.

$1.7m sounds like a lot of money, and would definitely lock us into this lifestyle. There are a few things going on here - we have been renting in an area below our means for the past several years. We're tired of having to go to the laundromat to do laundry, find street parking, sweating it out in the heat of summer without A/C. We'd like to upgrade our quality of life, and we plan on staying in the bay area for the long term.

My question to the boglehead community is how to value RSUs with respect to our mortgage preapproval and buying power. If we consider only our salaries, the amount of house we can buy is probably in the low $1m range (max). Conservatively, this buys us jack in the Bay Area. Anything that would be a lifestyle upgrade is at least a million. Maybe it can get us a townhome, but we are unwilling to go there (I don't think we'd be happy in a townhome with HOAs and sharing a wall with neighbors), especially if we are close enough to buying a SFH.

If we value our RSUs, our buying power increases significantly, but obviously, RSU income is uncertain (though our company's are highly stable). What do most people do with respect to RSUs? Seems like in the bay area, it is a necessity to count some of this towards one's buying power given the price of housing. If we play it too conservatively, we won't really be able to buy. It will probably be 10 years before our base salaries reach the level of our current base salaries + RSUs. I don't want to be in our 40s by the time we buy our first starter home. If we value our RSUs now in the equation, we can buy something decent, but perhaps we're taking on too much risk in this boom time.

Any advice bogleheads? What have others in our situation done in the past?
Last edited by thepicard1 on Mon Jul 24, 2017 9:11 am, edited 1 time in total.

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Tyler Aspect
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Re: Another bay area housing thread..

Post by Tyler Aspect » Sun Jul 23, 2017 10:18 pm

I am familiar with San Jose California area. In this astronomical housing price area it is more sensible to rent. Perhaps your family have been too frugal; maybe the solution is to move to a more upscale rental.

I heard that many young families in San Jose area are moving to Colorado because of the housing condition in the Silicon Valley.
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runner540
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Re: Another bay area housing thread..

Post by runner540 » Sun Jul 23, 2017 11:21 pm

It sounds like some of the inconveniences of your current rental are burning you out on frugality. It also sounds like you are hesitant about "locking yourself into" a lifestyle/work that goes along with a $1.7MM home and student debt. There has to be a middle ground between the two. Why is a townhome a no-go? Sounds like it could be a big upgrade from what you are used to.

I want to gently point out that your phrasing that $1MM buys "jack" and you might get something "decent" for $1.7MM is pretty hard for me to read and not react to. I don't live there; you and many forum members do. If a couple with no kids and $350k+ in cash income each year cannot afford "decent" housing, that implies almost everyone else lives in hovels. Perhaps you meant $1.7MM would get you "the features that are important to you".

Hazel-Rah
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Re: Another bay area housing thread..

Post by Hazel-Rah » Sun Jul 23, 2017 11:54 pm

It sounds like you have a steep cliff imposed upon by yourself psychologically between rental and owning. If you "are unwilling to go there" for a townhouse that is within your salary range then you should simply upgrade to the cheapest luxury rental apartment you can find. You will have a real garage and gated/assigned parking. You will get washer/dryer inside the apartment. You can find a good school district.

While you repeated that your employers' are highly stable I'd like to remind you that your personal manager changes more frequently. S/He determines your continued employment with that stable company. Imagine one of you is let go. Can the salary + RSU schedule of a single person maintain that lifestyle until new employment is found? For how long? The new employer may not pay the same salary, nor offer RSUs. If RSU's are offered by a new employer they will have a vesting schedule that makes them less impactful for at least 2 years.

$1M can buy a nice house in the bay area, but apparently does not have the features you are expecting when going from apartment to house. That is the steep psychological cliff I mention. There are plenty of gray zones in between renting a place with off-street parking & no laundry & no AC to a $1.7M house.

I don't understand the comment about buying your first starter house in your 40s. It sounds like hubris. Many folks (across the country) can never afford a house throughout their lives. Maybe you think yourself better, more highly educated, more prepared to take this big step earlier in your life. I don't know where else that timetable comes from. But it is a personal decision so I'll try not to judge what you value at specific time frames in your own life. Maybe my sense of loss aversion is too high but I wouldn't want to lose my home because me or my spouse got sick or lost our job.

Why are you sitting on $400k in cash if you have $150k in student loan debt? I doubt the cash is earning more than the cost of the loan.
Last edited by Hazel-Rah on Mon Jul 24, 2017 1:42 am, edited 3 times in total.

rolandtorres
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Re: Another bay area housing thread..

Post by rolandtorres » Mon Jul 24, 2017 12:31 am

Are you planning to flip your RSUs as soon as vested? If it is automatically flipped, you can treat it more like steady income but with a discount due to fluctuations in your company's stock.

The question in part becomes, where is a better place to park your money- your company's stock, your housing, or other investments. All have different risks and liquidity, and of course quality of life factor when it comes to housing.

Personally, I wouldn't stretch your budget with or without your RSUs. Just because you're pre-approved for a certain mortgage doesn't mean you should take out a loan for that much. Follow your local housing market, find the right balance of value/price for you, save while living there, flip that house and upgrade homes in a few yrs when the time is right. You have time to not buy your "forever" house right away.

visualguy
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Re: Another bay area housing thread..

Post by visualguy » Mon Jul 24, 2017 12:38 am

If your jobs are highly stable, take the plunge and buy a decent single family home. You are unlikely to regret it, and it will most likely be one of the best financial moves you ever make. It is stressful, but that's life in Silicon Valley, and it does pay off eventually. The longer you wait before buying a house in the Bay Area, the worse it gets. Just do it.

visualguy
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Re: Another bay area housing thread..

Post by visualguy » Mon Jul 24, 2017 12:46 am

rolandtorres wrote:Follow your local housing market, find the right balance of value/price for you, save while living there, flip that house and upgrade homes in a few yrs when the time is right. You have time to not buy your "forever" house right away.
Climbing the housing ladder doesn't really work in the Bay Area. It's very hard to upgrade for various reasons. It's a crazy market. If you sell, you don't know if and when you can get back in. Also, property taxes shoot up because you lose your low Prop 13 assessment. People tend to stay in the first place they bought unless they suddenly come into A LOT of money. You need to stretch to buy a place you really like.

forevernaive
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Re: Another bay area housing thread..

Post by forevernaive » Mon Jul 24, 2017 12:55 am

Have you considered taking on a roommate or two for the first few years? Buying a house in the Bay Area often requires such compromises and it will soften the shock while you replenish your savings.

1.7M on 350K a big stretch. You didn't say what you can/do save toward a house each year. I am inclined to recommend you wait until you can put 700 down on 1.7M home with 350k in income.

I would suggest converting existing RSUs to down payment cash to have a lower mortgage over counting on future RSUs justifying a higher mortgage. (Edit: of course with RSUs this isn't possible right except as they vest. Never Mind--too late for my brain.) But I'd strongly recommend considering converting whatever has vested already.

itstoomuch
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Re: Another bay area housing thread..

Post by itstoomuch » Mon Jul 24, 2017 1:17 am

Your first house, secures the second house and beyond.
You are in race to accumulate the DP and rising home prices.
See a your local mortgage banker/broker for advice and pre-qual.
GL
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Valuethinker
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Re: Another bay area housing thread..

Post by Valuethinker » Mon Jul 24, 2017 4:06 am

thepicard1 wrote:Hi bogleheads,

Have a question and would like some boglehead advice on how to value RSUs in the determination to buy a house in the bay area.

About us: Trying to figure out how to buy a house in the bay area, an astronomically high COL area. Our decisions are whether to buy now what we can afford, wait, or continue to rent.
  • we both work for a tech company in the bay area (highly stable), both software engineers
  • income around 190k and 120k, plus around 15% bonus (~30k and 10k respectively). All in is approximately $350k before tax
  • 401k in various accounts - ~$200k total
  • Student loans, ~$150k total (paying off at approximately $2000/month)
  • Savings: ~$400k in cash
  • RSUs: At current valuation, ~$200k/year (after tax is ~$120k)
  • No kids, cars paid off, no other expenses or debts
  • Both husband/wife in early 30s
  • Both frugal
We are preapproved for $1.7m, which sounds like a lot, but in the bay area actually buys a pretty modest 3BR 2BA ranch style home from the 60s with decent school districts.

$1.7m sounds like a lot of money, and would definitely lock us into this lifestyle. There are a few things going on here - we have been renting in an area below our means for the past several years. We're tired of having to go to the laundromat to do laundry, find street parking, sweating it out in the heat of summer without A/C. We'd like to upgrade our quality of life, and we plan on staying in the bay area for the long term.

My question to the boglehead community is how to value RSUs with respect to our mortgage preapproval and buying power. If we consider only our salaries, the amount of house we can buy is probably in the low $1m range (max). Conservatively, this buys us jack in the bay area. Maybe a townhome, but we are unwilling to go there.

If we value our RSUs, our buying power increases significantly, but obviously, RSU income is uncertain (though our company's are highly stable). What do most people do with respect to RSUs? Seems like in the bay area, it is a necessity to count some of this towards one's buying power given the price of housing. If we play it too conservatively, we won't really be able to buy. It will probably be 10 years before our base salaries reach the level of our current base salaries + RSUs. I don't want to be in our 40s by the time we buy our first starter home. If we value our RSUs now in the equation, we can buy something decent, but perhaps we're taking on too much risk in this boom time.

Any advice bogleheads? What have others in our situation done in the past?
The first home you buy is always the biggest step. And moving costs money-- most especially in real estate agent's fees when you sell. You don't want to move too often.

I would say go for it.
If there's a housing price crash you'll regret that decision. You just have to bite your knuckles and hold on-- it's how our parents coped with the volatility of the 70s. With a long term fixed rate mortgage you can only be forced out if one or both of you lose your jobs.

I would say buy a single family detached dwelling. As long as you don't need to move for work or school districts, after that, you can sit tight and extend the house if necessary. SFHs tend to hold their value unless the neighbourhood goes downhill due to crime or other issues. Even in a slump, they are easier to sell than other types of homes. When prices fall, new buyers "jump" over townhouses etc. and go for SFH.

Remember, best area you can afford. Location, location, location. Either a good area or one which is moving up due to location, access to work etc.

I would not buy a townhouse if I could avoid it. These come with a multitude of issues (neighbours, HOAs etc.) and you have less control over costs, etc. Also you'll be wanting to move on in a few years.

Valuethinker
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Re: Another bay area housing thread..

Post by Valuethinker » Mon Jul 24, 2017 4:08 am

visualguy wrote:If your jobs are highly stable, take the plunge and buy a decent single family home. You are unlikely to regret it, and it will most likely be one of the best financial moves you ever make. It is stressful, but that's life in Silicon Valley, and it does pay off eventually. The longer you wait before buying a house in the Bay Area, the worse it gets. Just do it.
+1 re buying a decent SFH.

I am not totally sanguine. In that a tech slump could drop housing prices 40%, it has before. However there's very little new supply that works as commutable to SV, I believe, and there are always buyers waiting in the wings. Good locations will probably drop by less than that.

If prices do slump, but one likes the house and the 'hood, then one just holds on. There was a bad housing slump in the 1970s, my parents just held on (this was in eastern North America). There was another one in the early 80s when interest rates went through the roof, but if one has a long term fixed rate mortgage, that too can be survived.

madbrain
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Re: Another bay area housing thread..

Post by madbrain » Mon Jul 24, 2017 4:33 am

forevernaive wrote: 1.7M on 350K a big stretch. You didn't say what you can/do save toward a house each year. I am inclined to recommend you wait until you can put 700 down on 1.7M home with 350k in income.
It's 4.8x income which is not that big of a stretch in the current rate environment. But interest on >$1M mortgage indeed won't be deductible, so putting $700k down would be preferable indeed.

If you count the RSUs, this would be only 3x income which is a really conservative multiple for the Bay area.

In your shoes, I would really not hesitate at all. You can always pay your mortgage down to $1M when your RSUs vest.

In 2010, I bought a home for in San Jose less than half of what you're looking at, on 1/3 the income. It's now worth more than the property you're looking to buy, and much larger (4700 sq ft mansion). Unfortunately, my income has not risen much, and really actually declined vs inflation. And my spouse does not work. I'd love to have your problem.

I bought and lived in a townhouse for 13 years previously. I also would recommend against buying it. You can afford to avoid the troubles of HOAs and close neighbors. Get an SFH.

madbrain
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Re: Another bay area housing thread..

Post by madbrain » Mon Jul 24, 2017 4:40 am

visualguy wrote:
rolandtorres wrote:Follow your local housing market, find the right balance of value/price for you, save while living there, flip that house and upgrade homes in a few yrs when the time is right. You have time to not buy your "forever" house right away.
Climbing the housing ladder doesn't really work in the Bay Area. It's very hard to upgrade for various reasons. It's a crazy market. If you sell, you don't know if and when you can get back in. Also, property taxes shoot up because you lose your low Prop 13 assessment. People tend to stay in the first place they bought unless they suddenly come into A LOT of money. You need to stretch to buy a place you really like.
Yes, or if there is significant market decline, like happened after 2008. If you sell your old property, of course, you will get less for it, but the difference will also be much less to upgrade.

I held on to my Santa Clara townhouse when I bought a beautiful foreclosed mansion in San Jose in 2010. I sold the townhouse in 2012 when prices started to recover. I could have gotten much more for it if I waited more, but homeowner capital gains exclusion would have expired. I had total debt >5x my income my income which wasn't very fun, and I would not have held on to that much debt over the long term.

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watchnerd
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Re: Another bay area housing thread..

Post by watchnerd » Mon Jul 24, 2017 10:43 am

thepicard1 wrote:I don't want to be in our 40s by the time we buy our first starter home.
I was 40 when I bought my first starter house in the Bay Area, put down 40%. I wanted to make sure that the mortgage payments were cheaper than rent and that my wife could afford them on her own salary alone, if need be. 3 BR 2 BA 1400 sq ft.

This week we're moving to Seattle (job), so selling the house next week, with quite a bit of equity in it.

No shame in being prudent.
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new2bogle
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Re: Another bay area housing thread..

Post by new2bogle » Mon Jul 24, 2017 10:50 am

OP, which part of bay area? Do schools matter?

You can get something in a nice area of San Jose for $1.5 mil and even less.

psychoslowmatic
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Re: Another bay area housing thread..

Post by psychoslowmatic » Mon Jul 24, 2017 11:19 am

I would compare the interest expense on a 80% mortgage to the expense of renting an identical property. I view the instability of renting vs. risk of house price decline as approximately a wash-it's not, but these are napkin-level calculations. If renting the money is cheaper than renting the house, buy. If not, don't. There's tons of things being left out like maintenance, interest deduction, location flexibility, small risk of a large earthquake, etc. My napkins don't have Excel on them.

Bungo
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Re: Another bay area housing thread..

Post by Bungo » Mon Jul 24, 2017 11:28 am

If you're OK with buying into a market at all-time high prices at the limit of your affordability, then go for it. Otherwise, continue to rent, save aggressively, and wait for the next crash. That's what I did in the mid-late 2000s (bought in 2012), no regrets.

cheapskate
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Re: Another bay area housing thread..

Post by cheapskate » Mon Jul 24, 2017 11:35 am

Bungo wrote:If you're OK with buying into a market at all-time high prices at the limit of your affordability, then go for it. Otherwise, continue to rent, save aggressively, and wait for the next crash. That's what I did in the mid-late 2000s (bought in 2012), no regrets.
+1

We bought our first home when I was 47 years old (in 2011) :)

We were happy renters until then. Then a home came along at the right price in the exact same location that we were looking. There is no shame in renting and waiting for the market to correct, which it will. California housing has always been boom and bust.

WhiteMaxima
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Re: Another bay area housing thread..

Post by WhiteMaxima » Mon Jul 24, 2017 11:50 am

just buy a SFH for your family. It is a shelter for you family. get a lowest APR mortgage (most probably ARM). In you mid-career, sell your house and move to a low cost area, paying cash for your 2nd SFH and done.

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Watty
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Re: Another bay area housing thread..

Post by Watty » Mon Jul 24, 2017 11:55 am

thepicard1 wrote:we both work for a tech companies in the bay area (highly stable), both software engineers
income around 190k and 120k, plus around 15% bonus (~30k and 10k respectively). All in is approximately $350k before tax
You are making fantastic money now but you cannot count on that for the next 30 years so be very careful about planning with a 30 year mortage. The job market for older software engineers can be brutal and you may already be hitting your peak earning years unless you can move into management.

With that in mind I would not buy anything in the Bay Area that you can't pay off with a 15 year mortgage and even that could be "iffy" since you cannot count on having high paying jobs into you are 45. That may very well mean that you can't afford anything or you have to wait until you are in your 40's and can buy it with a very large down-payment and a small mortgage.

You might go on and rent a better place though.

If you both work for the same company there is a lot of risk in that since even a good company can change.
thepicard1 wrote:income around 190k and 120k, plus around 15% bonus (~30k and 10k respectively). All in is approximately $350k before tax
401k in various accounts - ~$200k total
Student loans, ~$150k total (paying off at approximately $2000/month)
Savings: ~$400k in cash
RSUs: At current valuation, ~$200k/year (after tax is ~$120k)
No kids, cars paid off, no other expenses or debts
Both husband/wife in early 30s
.

Something does not seem to add up in your situation. Without the unvested RSU's your net worth is $200K - $150K + $400K=$450K

Since you are in your early 30's you have likely been working for around 10 years and even if you income was not as high starting out you were likely still making good money and have likely had well over two million dollars in income in the last ten years.

You claim to be very frugal but do you know where the rest of the money went?

ny_knicks
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Re: Another bay area housing thread..

Post by ny_knicks » Mon Jul 24, 2017 12:25 pm

What are you currently paying in rent and what would it cost to step up into a more suitable rental for the lifestyle you are looking for?

Engineer250
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Re: Another bay area housing thread..

Post by Engineer250 » Mon Jul 24, 2017 12:32 pm

Valuethinker wrote: The first home you buy is always the biggest step. And moving costs money-- most especially in real estate agent's fees when you sell. You don't want to move too often.

I would say go for it.
If there's a housing price crash you'll regret that decision. You just have to bite your knuckles and hold on-- it's how our parents coped with the volatility of the 70s. With a long term fixed rate mortgage you can only be forced out if one or both of you lose your jobs.

I would say buy a single family detached dwelling. As long as you don't need to move for work or school districts, after that, you can sit tight and extend the house if necessary. SFHs tend to hold their value unless the neighbourhood goes downhill due to crime or other issues. Even in a slump, they are easier to sell than other types of homes. When prices fall, new buyers "jump" over townhouses etc. and go for SFH.

Remember, best area you can afford. Location, location, location. Either a good area or one which is moving up due to location, access to work etc.

I would not buy a townhouse if I could avoid it. These come with a multitude of issues (neighbours, HOAs etc.) and you have less control over costs, etc. Also you'll be wanting to move on in a few years.
+1 great advice. Also worth doing the mental exercise of "how will I mentally handle things if home prices drop 50% after I buy it". Keeping in mind it won't change your situation, but I think it's good to be prepared the same way you would consider the same thing for your portfolio.
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unclescrooge
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Re: Another bay area housing thread..

Post by unclescrooge » Mon Jul 24, 2017 12:37 pm

I would say buy, with a large down payment.

But, if you're planning on having kids, how much does day care run?
If it's $2k per month, you should factor this in.

thepicard1
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Re: Another bay area housing thread..

Post by thepicard1 » Mon Jul 24, 2017 12:57 pm

Actually these responses are more positive than I thought I would hear from the boglehead community. Our hearts are set on buying a place, but the financial decision is daunting.

At ~$1.7m, if one of us lost our job, we wouldn't be able to afford the home. Simple as that. If RSUs decreased by 50%, we'd be stretched to our limit. This is a reasonable position to take to minimize risk, but then we would need to save for maybe 10 more years to get the mortgage to single income levels without counting RSUs. Not sure if it's too conservative to plan for every contingency.

We currently live and rent in the South Bay. The reason why we don't have large assets/NW because we were both in school getting advanced degrees for much of our 20s. So we're behind in terms of savings.
Last edited by thepicard1 on Mon Jul 24, 2017 1:01 pm, edited 1 time in total.

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randomizer
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Re: Another bay area housing thread..

Post by randomizer » Mon Jul 24, 2017 1:00 pm

Continue to rent. Be frugal. Save. Retire early, and not in the darn Bay Area.

ThatGuy
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Re: Another bay area housing thread..

Post by ThatGuy » Mon Jul 24, 2017 1:08 pm

thepicard1 wrote:We currently live and rent in the South Bay. The reason why we don't have large assets/NW because we were both in school getting advanced degrees for much of our 20s. So we're behind in terms of savings.
Think about how far you are willing to commute. And recognize that the commute will only get worse.

Depending on how far you are willing to commute you can buy in much nicer areas than San Jose for less, just take a look away from the 101 corridor.

When I worked in Santa Clara many of my coworkers lived in Santa Cruz, for instance. They would telecommute whenever a tree fell on 17 :D
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Bungo
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Re: Another bay area housing thread..

Post by Bungo » Mon Jul 24, 2017 1:39 pm

thepicard1 wrote:If RSUs decreased by 50%, we'd be stretched to our limit.
A couple of observations regarding this:

First, RSU income absolutely can decrease by 50% or more, as happened to many of us for a few years following the 2008 crash, due to a combination of general stock market performance, company stock performance, and in some cases lack of new RSUs being issued (e.g. my employer completely skipped performance reviews, raises, new RSUs, bonuses, etc. in 2009).

Second, even if your RSU income doesn't decline, if you put yourself in a position where you are dependent on that income, that could make changing jobs difficult since it can take a few years before a new RSU plan is generating the same or better income as an old one (you will have to negotiate with your new employer to match your old plan's unvested balance to avoid this). Inability to change jobs could negatively affect your career and ability to increase your income as much as you otherwise could. And forget about joining a startup unless you can negotiate a high enough salary to cover your old salary + RSU income.

Ron Ronnerson
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Re: Another bay area housing thread..

Post by Ron Ronnerson » Mon Jul 24, 2017 1:49 pm

Looks like this will be a stretch for you based on your last post.

Consider:
Increasing commuting time (within reason, of course) and buying a home like the one you want
Waiting to buy for another 2-3 years until you have more saved
Buying a townhouse or condo
Buying a less expensive single family home (likely to not be as nice or big as what you have in mind)
Renting a nice home
Some combination of the above

You have decent options. I would choose from those options than commit to an expensive home that could possibly cause big problems if life doesn't go exactly according to plan. Taking some chance is fine but you also need a decent margin of safety. Like with a lot of things, it's a balancing act.

We own in the Bay Area but live in a townhouse and I have a 45 minute commute. It's 4 bedroom/4 bathroom home with great schools in a great neighborhood. We made compromises based on what was most important to us: schools.

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boomer
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Re: Another bay area housing thread..

Post by boomer » Mon Jul 24, 2017 1:58 pm

thepicard1 wrote:Actually these responses are more positive than I thought I would hear from the boglehead community. Our hearts are set on buying a place, but the financial decision is daunting.

At ~$1.7m, if one of us lost our job, we wouldn't be able to afford the home. Simple as that. If RSUs decreased by 50%, we'd be stretched to our limit. This is a reasonable position to take to minimize risk, but then we would need to save for maybe 10 more years to get the mortgage to single income levels without counting RSUs. Not sure if it's too conservative to plan for every contingency.

We currently live and rent in the South Bay. The reason why we don't have large assets/NW because we were both in school getting advanced degrees for much of our 20s. So we're behind in terms of savings.
You mentioned school districts, so I am thinking maybe you may want to have a child? This is a life-changer that is difficult to plan for until it happens. One or both of you may want to cut back on hours. Maybe one of you will want to stay home for a period of time with your child. I like the luxury apartment idea that some have mentioned. If you buy a home you would need to stay there a number of years before it would make sense financially.

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Hyperborea
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Re: Another bay area housing thread..

Post by Hyperborea » Mon Jul 24, 2017 1:59 pm

ThatGuy wrote:
thepicard1 wrote:We currently live and rent in the South Bay. The reason why we don't have large assets/NW because we were both in school getting advanced degrees for much of our 20s. So we're behind in terms of savings.
Think about how far you are willing to commute. And recognize that the commute will only get worse.

Depending on how far you are willing to commute you can buy in much nicer areas than San Jose for less, just take a look away from the 101 corridor.

When I worked in Santa Clara many of my coworkers lived in Santa Cruz, for instance. They would telecommute whenever a tree fell on 17 :D

It gets worse and better in cycles but each up cycle gets worse than the last. There is no real public transportation for much of the Bay Area commute that people make. That said the other side is that there are company buses that do make the commute more bearable for many at the larger tech companies. You don't have to stress out over the drive and can use the time for something else - light work related or relaxation. I know folks coming in over 17 that only moved that far out because of the company bus.

I would however caution about moving too far out. When the next downturn comes (and it will but nobody knows when) it will hit the more outlying areas harder than the more central Silicon Valley locations. I would rather buy smaller and closer in than a larger place farther out. The usual excuse for moving farther out is a better quality of life but by being closer in my quality of life is vastly improved by a much easier commute. If you move too far out you limit your work options as the commute becomes impossible. If you live in the valley long enough you will likely work for multiple companies that will be in different locations. Also, try to have multiple commute options - pick a place with different routes that you can take is one is bad or if you are going a different way.

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Watty
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Re: Another bay area housing thread..

Post by Watty » Mon Jul 24, 2017 2:42 pm

thepicard1 wrote:The reason why we don't have large assets/NW because we were both in school getting advanced degrees for much of our 20s. So we're behind in terms of savings.
Even if you like your current employer and are doing well there is almost zero chance that you will retire from working for them at anywhere near a typical retirement age. There is also a pretty good chance that you will want to change jobs in a few years since you are just a few years out of college. Not owning a house would make changing jobs a lot easier since you would not have to worry about having a terrible commute if you job is on the other side or town or selling the house if you take a great job or promotion in a different city.

There will also be periodic reorganizations, projects being canceled or finishing, etc that will will cause some people to be laid off even if they were doing a good job. If that happens to one of you then they would likely lose the RSU's so it is very risky to count on those.

With just being a few years out of college waiting a few more years to buy could be a good choice to get your student loans paid off and to build up more savings. Right now if you buy a $1.7 million dollar house and it declines in value by a bit more than 20%(which is not at all extreme) then you would have a net worth of virtually zero or even negative.

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Re: Another bay area housing thread..

Post by watchnerd » Mon Jul 24, 2017 2:51 pm

Bungo wrote:If you're OK with buying into a market at all-time high prices at the limit of your affordability, then go for it. Otherwise, continue to rent, save aggressively, and wait for the next crash. That's what I did in the mid-late 2000s (bought in 2012), no regrets.
Ditto, bought in 2010. House has appreciated >80% in the last 7 years.
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Re: Another bay area housing thread..

Post by mrsbetsy » Mon Jul 24, 2017 3:29 pm

I would consider a starter home for less than 1.7M. They are definitely available, but you might have a bit of a commute.

We bought our first Bay Area home in 1992 for 205K, sold it in 2000 for 350K and put all of that down on a larger home for 525K. Today it's worth about 1.3-1.4M on a third of an acre and paid for. It can be done, but you can't necessarily start at the top.

I'd knock out those student loans before I did anything though. The housing market is HOT and you will feel the squeeze if things cool off or some major life event happens.

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Re: Another bay area housing thread..

Post by InKirkWeTrust » Mon Jul 24, 2017 3:41 pm

randomizer wrote:Continue to rent. Be frugal. Save. Retire early, and not in the darn Bay Area.
+1

Also, why not use your cash savings to pay off your student loans? If I woke up in your shoes, I would rent until I had enough saved so that we could afford the mortgage on one salary. I could not sleep at night if I knew a job loss could lead to losing my house as well.
Control the controllables

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Re: Another bay area housing thread..

Post by Carefreeap » Mon Jul 24, 2017 3:53 pm

InKirkWeTrust wrote:
randomizer wrote:Continue to rent. Be frugal. Save. Retire early, and not in the darn Bay Area.
+1

Also, why not use your cash savings to pay off your student loans? If I woke up in your shoes, I would rent until I had enough saved so that we could afford the mortgage on one salary. I could not sleep at night if I knew a job loss could lead to losing my house as well.
One of the best pieces of advice I got from my MIL was to live on one salary and bank the other.

We did this both times when we bought our Bay Area houses. In 1990 we had just relocated from the Washington DC area and I had to give up my job. Got one in the Bay Area the day escrow closed.

In 1995 we bought our "Move Up" house. Strange situation whereby even though the market was dead we found ourselves competing with our across the street neighbors for a house four doors up the street. :!: We were able to go non contingent on the sale of our house because of our better financial situation.

That worked again in our favor when the dot bomb hit and we relocated out of the area for a while in 2003. House could cash flow and we were able to buy without needing to sell our house and with me not having a job. I was afraid we would never be able to move back if we sold. House is now 5x what we paid in 1995.

We never got RSUs but always banked the bonuses. We never wanted to rely on something that could fluctuate wildly.

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Re: Another bay area housing thread..

Post by watchnerd » Mon Jul 24, 2017 3:58 pm

mrsbetsy wrote:I would consider a starter home for less than 1.7M. They are definitely available, but you might have a bit of a commute.
Yes, they are definitely available. Mid-peninsula in my neighborhood 3BR-4BR/2A 1300-1500 sq ft go for 1.2M - 1.4M.
InKirkWeTrust wrote:I would rent until I had enough saved so that we could afford the mortgage on one salary. I could not sleep at night if I knew a job loss could lead to losing my house as well.
That's what we did -- waited until we had enough saved to make a big down payment and could afford the mortgage on 1 salary. The other salary becomes to "boost our after tax savings" source.
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Re: Another bay area housing thread..

Post by FloRidaRocky » Mon Jul 24, 2017 5:22 pm

I know of a few people that bought right at the peak of the last housing bubble in 2007 or so. They bought modest single family ranch homes for $800k-900k. They lost 30-40% value when the housing bubble busted. They were upside down for 10 years and just recently regained value so they are back in the black again. Their only options were to sit put and wait on for the underwater house anchor value to recover, or walk away from it, lose the down payment and deal with foreclosure and credit score getting obliterated.

But yeah, "house prices will keep going up" just like everyone says, just like they said 10 years ago. "Better buy now before you get priced out. Housing prices will never fall."

I'd strongly advise weighing the scenario if you bought a $1.7 million house, what would happen if you lost 30% value and you lost your job. Personally, I'd take the down payment and move to another part of the country and buy a nice house with cash and live a stress free life.

Also, I can only imagine how expensive property taxes are on a $1.7 mil house.

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Re: Another bay area housing thread..

Post by watchnerd » Mon Jul 24, 2017 5:57 pm

FloRidaRocky wrote: Also, I can only imagine how expensive property taxes are on a $1.7 mil house.
In my part of the Bay Area, 1.01-1.02% is typical property tax, so ~$17k.
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Re: Another bay area housing thread..

Post by TheAncientOne » Mon Jul 24, 2017 6:11 pm

First, let me respond to your initial question. RSUs are like owning the stock except that they come to you each month or year (depending on the company) that you work there. You also can't trade them for a low cost index fund. You have stock market risk, sector risk (you mean tech stocks can't outperform forever?) and company risk, not to mention the risk of one or both of you losing your job and the future flow of vesting them. You can't plan your life on all the things that could go wrong, however, so I would arbitrarily give them a 20-30% haircut from today's value. Pick a different number if you think I'm either too optimistic or pessimistic.

As you can see by the previous posts, there is a wide range of views as to what will happen to house prices in the Bay Area. There is no question that buying a home is a huge commitment, even at the townhouse level if you're looking to be in the Peninsula or South Bay, and in a good school district to boot. Over the weekend in Palo Alto I saw a listing at $550K in the paper. A 1BR/1BA condo in East Palo Alto.

Unless you think there's a good chance for one or both of your careers to rocket upward, I would seriously talk over getting a tech job outside the Bay Area. Yes the salaries are lower and in case of job loss, it's not like there are a 1000 employers within a ten mile radius of your current job. However, the housing costs, state income tax, and other miscellaneous items such as gas and auto insurance makes the cost of living adjusted salaries here lower for most professionals, at least for those who are not superstars.

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Re: Another bay area housing thread..

Post by Hyperborea » Mon Jul 24, 2017 6:41 pm

FloRidaRocky wrote:I know of a few people that bought right at the peak of the last housing bubble in 2007 or so. They bought modest single family ranch homes for $800k-900k. They lost 30-40% value when the housing bubble busted. They were upside down for 10 years and just recently regained value so they are back in the black again. Their only options were to sit put and wait on for the underwater house anchor value to recover, or walk away from it, lose the down payment and deal with foreclosure and credit score getting obliterated.

But yeah, "house prices will keep going up" just like everyone says, just like they said 10 years ago. "Better buy now before you get priced out. Housing prices will never fall."
I don't think anybody has ever said that except for real estate agents in every city on the planet. If the people that you know of bought a place in Santa Clara county (ground zero for Silicon Valley) then the median detached home price in 2007 ranged from about $750k to $850k depending on when in the year it was. Median prices crossed that mark again in 2013. Current median home sales prices are about $1.2 million. The people you know may have bought in the outer fringes of the bay where nobody really wants to live if they commute to work in Silicon Valley. Prices in less desirable locations take longer to recover and may not even then.

The last drop in housing prices was a doozy but it was probably a one time event that was not limited to the bay area but was driven by a systemic crisis in the US lending standards. Housing on average across the bay area and across prices had a 27% drop in the last one. The previous two (dotcom bubble and recession of Bush the Elder) were about 10% each. Those drops were also not equally distributed. More desirable locations dropped less and different segments of the market behaved differently.
FloRidaRocky wrote:Personally, I'd take the down payment and move to another part of the country and buy a nice house with cash and live a stress free life.
Sure, two folks with grad degrees likely in CS are going to move to a small city and work for something like the Applebee's headquarters writing software for tracking store sales and average number of ribs eaten by bearded men. The money is just not worth it and the job satisfaction is likely minimal to non-existent. Plus, if they lose that job there isn't much else in town.

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Re: Another bay area housing thread..

Post by watchnerd » Mon Jul 24, 2017 7:03 pm

Hyperborea wrote: Sure, two folks with grad degrees likely in CS are going to move to a small city and work for something like the Applebee's headquarters writing software for tracking store sales and average number of ribs eaten by bearded men. The money is just not worth it and the job satisfaction is likely minimal to non-existent. Plus, if they lose that job there isn't much else in town.
Not to mention terrible resume fodder.

"Oh, you worked as a software developer for the DMV of Salina, Kansas for 10 years, eh...?"

Next.
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Re: Another bay area housing thread..

Post by greybus » Mon Jul 24, 2017 7:09 pm

I know the BH are trying to be helpful, but the OP didn't ask for advice on where to live, but how to value his RSUs. I wonder how many who are stuck on his $1.7m price actually looked on Zillow or Redfin in the SF Bay Area? I did a quick search on Redfin in Palo Alto (one of the priciest areas to be sure) and only 2 SFHs came up less than $1m, and both were in East Palo Alto, which (at least to my memory from 20 years ago) is a higher crime neighborhood. The cheapest SFH otherwise in Palo Alto was a $1.8m. It's a 2 bed, 1 bath, 1130sf home built in 1940 on a 5000sq lot.

https://www.redfin.com/CA/Palo-Alto/477 ... ome/658352

To be sure, there are townhomes and condos for (a little) less, and the OP could look in other areas. OP could also rent a nicer place/SFH. Or commute 1-2 hr one way (but the frugality may kill you earlier). I agree with the comments about housing in general being expensive as well.
Hyperborea wrote:Sure, two folks with grad degrees likely in CS are going to move to a small city and work for something like the Applebee's headquarters writing software for tracking store sales and average number of ribs eaten by bearded men. The money is just not worth it and the job satisfaction is likely minimal to non-existent. Plus, if they lose that job there isn't much else in town.
That being said, I agree that two software engineers working in Silicon Valley for stable large tech companies would find it difficult to find the work they want for the pay they want elsewhere in a lower LCOL area. Besides the job component, there might also be cultural, family, lifestyle, job satisfaction, food, networking, etc at play

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Re: Another bay area housing thread..

Post by greybus » Mon Jul 24, 2017 7:19 pm

I think it would also be instructive for people to look up going rental rates in the Bay Area. In Palo Alto (yes, a very HCOL area), the cheapest SFH rents for $6000 for 1500sq and goes up to $15k... I agree with the poster who said you may want to reconsider townhomes or condos.

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Re: Another bay area housing thread..

Post by Ron Ronnerson » Mon Jul 24, 2017 7:35 pm

Do not move out of the Bay Area. You said you're in your early 30s and work for tech companies as software engineers making $550k/year if you include your pay, bonuses, and RSUs. You have saved $600k in your 401k and cash in a short amount of time since you were in school through much of your 20s. All this indicates that you're in the right place.

Personally, I would just move to a nicer apartment for the time being and then purchase a house after having kids. You could probably increase your savings quite a bit in that time considering you're frugal, even if you do move to a nicer (more expensive) apartment for a little while.

The Bay Area seems crazy to a lot of people. There is a focus on the 1.7 million dollar home price. Yes, that's insane for just about anywhere. However, your income and savings are insane too. Look what you already have accumulated after working for such a small amount of time! Just be patient with the house. I understand being eager to purchase but houses will still be around in a couple of years. There is even a chance they could be less expensive than they are now.

My wife was really pushing me to buy a house when we were in our early 30s. I was able to convince her to hold on for a bit. Then, in 2010, the stars aligned. We were 35 by then and our income had gone up during the past few years and prices had come down substantially fairly quickly. We were able to purchase a home we really like. I work in Silicon Valley too, but as a school teacher. Our combined income is $150k. If we are able to do well here, I'm confident you'll be more than just fine. You really don't have to pack your bags and move unless you'd like to do so.

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Re: Another bay area housing thread..

Post by madbrain » Mon Jul 24, 2017 7:59 pm

Bungo wrote:If you're OK with buying into a market at all-time high prices at the limit of your affordability, then go for it. Otherwise, continue to rent, save aggressively, and wait for the next crash. That's what I did in the mid-late 2000s (bought in 2012), no regrets.
Many other assets are also at all-time high in terms of prices. Nobody knows when the music will stop.
There is no easy answer. Housing is a need whereas you can't live in most other assets.

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Re: Another bay area housing thread..

Post by itstoomuch » Mon Jul 24, 2017 8:44 pm

The problem for RSU and other Options, is that they are Options that have no real value until exercised.
And when you do exercise the Option(s) they must be bought with cash or immediately sell some of the RSU's to finance the remainder RSUs.
Now once in possession, you may have to sell the stock to realize the value. Selling the appreciated stock is now a STCG :| :beer .
It is a problem that DS had when he wanted to buy a home in Seattle.

Redmond WA:
Zillow
"Market Report
Here's a monthly local update based on homes you have viewed.
98052 is a good place
to be a seller

See the full report

Forecasting Values
The median home value in 98052 is now $778,300, compared to $650,753 one year ago. Home values in this area are expected to increase 9.2% one year from now.
Follow the trends"
A 19.6% price increase from 2016 to 2017 :( :confused
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Re: Another bay area housing thread..

Post by hoops777 » Mon Jul 24, 2017 9:20 pm

You can buy a very nice house in a good school district in the Bay Area for a lot less than 1.7 M.It is called commuting within 35 miles give or take.If you want to live in the most expensive areas really close to work that is your problem.Welcome to the Bay Area.You say you are both frugal and living in a crappy rental.I think you would survive commuting.You can buy a nice 2000 sq ft home in Pleasanton way under your budget and it is a nicer place to live.
K.I.S.S........so easy to say so difficult to do.

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Re: Another bay area housing thread..

Post by Bungo » Mon Jul 24, 2017 10:17 pm

madbrain wrote:
Bungo wrote:If you're OK with buying into a market at all-time high prices at the limit of your affordability, then go for it. Otherwise, continue to rent, save aggressively, and wait for the next crash. That's what I did in the mid-late 2000s (bought in 2012), no regrets.
Many other assets are also at all-time high in terms of prices. Nobody knows when the music will stop.
There is no easy answer. Housing is a need whereas you can't live in most other assets.
Housing is a need, but house ownership isn't. But I agree that nobody knows when the next bust will occur (only that it will occur eventually). The best advice I can offer is to wait until it's possible to buy without overstretching, whether that is due to a price drop or an increase in savings, or both. In the worst case, house prices will climb even farther out of reach while they save for a bigger downpayment, but then they'll be able to buy a nice house for cash almost anywhere else in the U.S., so it's a win-win scenario. :D

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Re: Another bay area housing thread..

Post by madbrain » Mon Jul 24, 2017 11:29 pm

Bungo wrote:In the worst case, house prices will climb even farther out of reach while they save for a bigger downpayment, but then they'll be able to buy a nice house for cash almost anywhere else in the U.S., so it's a win-win scenario. :D
It would only be a win-win if you actually wish to live anywhere else in the US.

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Re: Another bay area housing thread..

Post by watchnerd » Tue Jul 25, 2017 12:08 am

madbrain wrote:
Bungo wrote:In the worst case, house prices will climb even farther out of reach while they save for a bigger downpayment, but then they'll be able to buy a nice house for cash almost anywhere else in the U.S., so it's a win-win scenario. :D
It would only be a win-win if you actually wish to live anywhere else in the US.
Right. People who have graduate degrees in CS usually want to be were the technology action is, and there are only a handful of comparable choices, all of which are also HCOL (Seattle, Austin, Boston, NYC).

This week I'm moving from one of those (SF Bay Area) to another (Seattle) for job reasons.

I'll move to a LerCOL when I'm ready to get out of the game. But for the time being, my human capital is still worth a lot so I need to capitalize on it while I can.

I'll move to a cheaper place when my human capital is diminished and maximizing my retained earnings is more important.
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