Cashing out of the Bay Area

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Bungo
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Cashing out of the Bay Area

Post by Bungo » Tue Apr 24, 2018 12:50 am

Any other Bay Area homeowners thinking about cashing out? It feels to me like we may be near the peak of the current real estate cycle.

Moving to a cheaper state and buying a house for cash has always been a major component of my retirement plan. I have been targeting 2020 or 2021 for that milestone, in order to finish vesting a nice chunk of RSU shares, but housing has appreciated much more rapidly than I expected. I have crunched some approximate numbers and think I can afford to pull the trigger this year. I may even come out ahead if I sell now versus waiting a few years, if a housing downturn is on the horizon.

Does anyone care to offer their prognostication? Realtor recommendations would also be highly appreciated, if that's appropriate for this forum.

calisaver
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Re: Cashing out of the Bay Area

Post by calisaver » Tue Apr 24, 2018 12:56 am

I’m not close to retirement, but definitely considering cashing out for awhile as well. Seems like we’re nearing the peak.

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randomizer
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Re: Cashing out of the Bay Area

Post by randomizer » Tue Apr 24, 2018 1:01 am

I don't know how anybody could know this. Really know it.
87.5:12.5, EM tilt — HODL the course!

Thesaints
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Re: Cashing out of the Bay Area

Post by Thesaints » Tue Apr 24, 2018 1:02 am

I had a colleague who always bought his cars based on how little they depreciated. I tend to buy the cars I like to drive, instead.

Now, it is very possible that someone came to live in the Bay following a job and has found other places at least as pleasureable to move to.
It clearly comes as an added value to be able to make a profit on the house sale, in addition to the money accumulated by working and investing.
Yet, the correct consideration would be "if I sell now, do I have enough to retire the way I want ?". The fact that housing prices may go higher, or lower, should not come into play; that would be essentially market timing that all good BH-ers avoid like the plague.

Bungo
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Re: Cashing out of the Bay Area

Post by Bungo » Tue Apr 24, 2018 1:16 am

Thesaints wrote:
Tue Apr 24, 2018 1:02 am
The fact that housing prices may go higher, or lower, should not come into play; that would be essentially market timing that all good BH-ers avoid like the plague.
I am fully on board with the BH tenet that the stock market can't be timed. But I'm not sure I've seen any evidence that the real estate market can't be at least approximately timed. It's a slow-moving, inefficient, low-volume market which booms and busts with somewhat regular periodicity. Part of why I'm in the position I am now is because I waited until near the bottom of the last downturn to buy. We're about 7 years into the current upswing, which has been even sharper than the last one. My house is currently valued at about 2.3x what I paid for it. It seems rational to me to at least strongly consider locking in this gain.
Now, it is very possible that someone came to live in the Bay following a job and has found other places at least as pleasureable to move to.
That's me exactly. I've never had the slightest intention of staying here after retirement. After living in California for nearly 25 years, I'm quite looking forward to moving on.

HRPennypacker
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Re: Cashing out of the Bay Area

Post by HRPennypacker » Tue Apr 24, 2018 1:20 am

I'm on the market, looking to buy--made a thread about it and everything--and I can't tell whether this is the peak.

If you want to leave and think you can, I say go for it. Sounds like you're close enough that you don't have to get it perfectly to come out on top...

Thesaints
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Re: Cashing out of the Bay Area

Post by Thesaints » Tue Apr 24, 2018 1:23 am

Bungo wrote:
Tue Apr 24, 2018 1:16 am
My house is currently valued at about 2.3x what I paid for it. It seems rational to me to at least strongly consider locking in this gain.
That's absolutely rational, but it has nothing to do with whether in two years time your house will be worth 3x, or 1.5x.

Bungo
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Re: Cashing out of the Bay Area

Post by Bungo » Tue Apr 24, 2018 1:26 am

randomizer wrote:
Tue Apr 24, 2018 1:01 am
I don't know how anybody could know this. Really know it.
Obviously we can't, anymore than one can know anything about the future. But we have to play the hand we're dealt, and from a financial standpoint, choosing not to sell under the current circumstances seems at least as risky as locking in a windfall now. If I were in it for the long term, it would be almost a no-brainer to hold, but that's not my situation. For me it's a choice between now or sometime in the next 2-3 years.
Last edited by Bungo on Tue Apr 24, 2018 1:29 am, edited 1 time in total.

jpsc
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Re: Cashing out of the Bay Area

Post by jpsc » Tue Apr 24, 2018 1:27 am

Bungo wrote:
Tue Apr 24, 2018 12:50 am
Any other Bay Area homeowners thinking about cashing out? It feels to me like we may be near the peak of the current real estate cycle.

Moving to a cheaper state and buying a house for cash has always been a major component of my retirement plan. I have been targeting 2020 or 2021 for that milestone, in order to finish vesting a nice chunk of RSU shares, but housing has appreciated much more rapidly than I expected. I have crunched some approximate numbers and think I can afford to pull the trigger this year. I may even come out ahead if I sell now versus waiting a few years, if a housing downturn is on the horizon.

Does anyone care to offer their prognostication? Realtor recommendations would also be highly appreciated, if that's appropriate for this forum.
The SF Bay area housing is always in demand. Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.

Bungo
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Re: Cashing out of the Bay Area

Post by Bungo » Tue Apr 24, 2018 1:33 am

jpsc wrote:
Tue Apr 24, 2018 1:27 am
The SF Bay area housing is always in demand. Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.
Sure, it's always in demand, but we still get booms and busts like everyone else. The weather wasn't any different in 2010-2012 when houses were less than half what they are today. Prop 13 has helped, but my property tax bill will be substantially lower when I move out of state (and I'll have no mortgage :D ) (and I won't have to work :D :D :D :D )

VinhoVerde
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Re: Cashing out of the Bay Area

Post by VinhoVerde » Tue Apr 24, 2018 4:14 am

Bungo:
I have an acquaintance who moved from the Bay Area around 2004-2005 to Columbia South Carolina to retire. Sold their California 1700sq. Ft. 1960,s era ranch house for around 600k and bought a brand new 3000sq. Ft house for the low $300's.
They miss nether the high taxes and cost of living or the traffic. They do comment on the higher humidity but that's why God made AC.
VinhoVerde

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indexfundfan
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Re: Cashing out of the Bay Area

Post by indexfundfan » Tue Apr 24, 2018 6:48 am

It's hard to time it and there are many other moving parts in a move other than real estate prices. I cashed out my home in silicon valley last year, and it turned out to be too early.
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mmmodem
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Re: Cashing out of the Bay Area

Post by mmmodem » Tue Apr 24, 2018 7:28 am

Two weeks ago, we sold our 2000 sqft home in the outskirts of the Bay Area for a shocking to me mid $600k. Outskirts meaning 1 hour commute to San Francisco or 1.5 hours to the Silicon Valley. We traded it in for a 3000 sqft high $300k lakehouse. Sounds like a good trade but the snow falling on my head this last week was mildly irritating for April.

I'm not a speculator, though, and would return to the Bay Area if my company moved. I don't think you can time the housing market any more than you can time the stock market. I took my proceeds from the sale and put 20% down for my lake house. The remainder which again shocking to me very large went into my taxable account.

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hand
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Re: Cashing out of the Bay Area

Post by hand » Tue Apr 24, 2018 7:48 am

There's a big difference between knowing whether local real estate is at a peak and knowing whether selling a house an moving from a HCOL to a LCOL area will support your retirement or other financial requirements.

While I don't disagree that real estate is less efficient than the stock market, I'd argue that where we are in the real estate cycle is likely a bit of a red herring, and you are better off crunching the numbers (expected sale price, cost to buy in new area, amount leftover and retirement needs).

Being able to retire to a set lifestyle with a set margin of safety is binary - don't let the quest to sell at the absolute peak, or to make even more money delay or risk your ability to retire successfully (assuming that is your goal).

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JMacDonald
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Re: Cashing out of the Bay Area

Post by JMacDonald » Tue Apr 24, 2018 7:52 am

Yes, if you sell today the price of your home will probably go up, and you could have seller's remorse. However, if what you can get for your home now is enough to allow you to do what you want early, then do it. Just make sure the numbers work.
Best Wishes, | Joe

rebellovw
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Re: Cashing out of the Bay Area

Post by rebellovw » Tue Apr 24, 2018 8:46 am

We did it and couldn't be happier. House prices increase and traffic just gets worse.

It would be one thing if the lifestyle improved but it is just going down hill.

I'll take the Bay Area of the 90s on down any day. Now it is miserable. I hate having to go back.

Early 2000s were nice but man 90s 80s 70s as you go down lifestyle and livability improved.

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Watty
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Re: Cashing out of the Bay Area

Post by Watty » Tue Apr 24, 2018 9:22 am

Bungo wrote:
Tue Apr 24, 2018 12:50 am
I have been targeting 2020 or 2021 for that milestone, in order to finish vesting a nice chunk of RSU shares, but housing has appreciated much more rapidly than I expected. I have crunched some approximate numbers and think I can afford to pull the trigger this year. I may even come out ahead if I sell now versus waiting a few years, if a housing downturn is on the horizon.
Selling and renting for a few years is an option to consider.

When I lived in the Bay Area a long time ago I knew several people that managed to transfer with their company to a less expensive area and they did very well so you might aggressively look into that possibility even if it means taking a lower paying job in a different roll, like going from software development to software support. Some companies will be reluctant to do this since it will be difficult to hire a replacement for you in the Bay Area so you may need to be very aggressive in looking for these positions.

You really have three decisions that you should try to keep somewhat separate;
1) Should you sell your house.
2) Should you move.
3) Should you retire(or semi-retire).
jpsc wrote:
Tue Apr 24, 2018 1:27 am
... prop 13 make you keep your house longer for more efficient property tax than out of state.
My property tax on a pretty average house in Georgia was $605 last year(not a typo) but I am in an unusual situation where I get a senior exemption from school property taxes. Without that it would have been something like $2,200. It varies wildly and there are some places like Texas where they are very high but in much of the country property taxes are more in that range for an average house.
Bungo wrote:
Tue Apr 24, 2018 12:50 am
Does anyone care to offer their prognostication?
There are three big factors;

1) Bay Area market factors - totally unpredictable.

2) Interest rates. My cloudy crystal ball is not worth a lot but it says that interest rates could be higher in the future between the big deficits and quantitative easing ending. The tax law changes already make it a lot more expensive to have a mortgage larger than $750K. If mortgage interest rates increase from 4% to just 6% then who will be able to afford to buy your house in 2021?

3) The stock market is still near an all time high and many tech stocks way up so the high RSU's and stock options make it a lot easier for people to buy expensive property. In a normal bear market a 30% decline would not be unusual and individual stocks could be down even more. That could make if much harder for people to be able to afford to buy your house if they were depending on their RSU's

In a lot of ways at some point it may not matter. I don't know if it is a true story or not but there is an old story,
At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller responds, “Yes, but I have something he will never have . . . Enough.”
https://www.vanguard.com/bogle_site/sp20070518.htm

Depending on the details it could be that you have "enough" now but if you stick around the house value and the RSUs could both decline and you might end up without "enough".

You may never have seen it but one thing to keep in mind is that if the housing market there gets bad then in addition to a lower price it might be much more difficult to actually sell the house without having to sell it at a distressed price. In a real slow market there will always be people that have to sell because of a death, divorce, financial problems, etc and those may be the only houses that are actually selling in a buyers market. This can especially be a problem if the house has some issues or is not in the best location or school district since potential buyers will have lots of better houses available.
Last edited by Watty on Tue Apr 24, 2018 10:45 am, edited 1 time in total.

ResearchMed
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Re: Cashing out of the Bay Area

Post by ResearchMed » Tue Apr 24, 2018 9:28 am

Bungo wrote:
Tue Apr 24, 2018 1:26 am
randomizer wrote:
Tue Apr 24, 2018 1:01 am
I don't know how anybody could know this. Really know it.
Obviously we can't, anymore than one can know anything about the future. But we have to play the hand we're dealt, and from a financial standpoint, choosing not to sell under the current circumstances seems at least as risky as locking in a windfall now. If I were in it for the long term, it would be almost a no-brainer to hold, but that's not my situation. For me it's a choice between now or sometime in the next 2-3 years.
It's understandable that if you are looking at a "now" profit that would make a big difference to you/your retirement... why risk it?
Could you sell and rent for a few years, and get that stock/etc., profit, too?
It means an extra move, obviously.

RM
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rebellovw
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Re: Cashing out of the Bay Area

Post by rebellovw » Tue Apr 24, 2018 9:29 am

Yeah Prop 13 is no reason to stay. It didn't help us much. We still payed over 10K per year. And in our town made up of Seniors - it hurt the schools most. By the time I left I think we had two parcel taxes.

I remember looking at my dads tax bill where Prop 13 helped - his house was on the tax notice as 82K and mine was 750K. We bought our house for 650K just a few years prior. At the time I looked at it - it wasn't too far off market value. Both of these houses are now at 1.3M - so it might help now - but as I've said the lifestyle really sucks - my commute was terrible.

My new tax bill is 1200 per year. My state income tax is reduced by a large amount. My insurance rates are cheaper - it has been a win win for us.

clar0097
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Re: Cashing out of the Bay Area

Post by clar0097 » Tue Apr 24, 2018 9:43 am

My family just relocated to the Bay Area last fall. We have been renting while we look to buy. After 6 unsuccessful offers, I'm wondering if it's a blessing in disguise and we should continue to rent. I'm worried the market could be overinflated and also about the earthquake risk. The recent release on the impact on the Haward fault line has me a little worried (we are in East Bay). When (although it could be 30 years) a big one hits, I worry it would have widespread effects on the market including to areas without damage. I sway between this fear and the fear of being priced out if we get it wrong and prices continue to increase.

DVMResident
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Re: Cashing out of the Bay Area

Post by DVMResident » Tue Apr 24, 2018 9:47 am

Bungo wrote:
Tue Apr 24, 2018 1:33 am
jpsc wrote:
Tue Apr 24, 2018 1:27 am
The SF Bay area housing is always in demand. Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.
Sure, it's always in demand, but we still get booms and busts like everyone else. The weather wasn't any different in 2010-2012 when houses were less than half what they are today. Prop 13 has helped, but my property tax bill will be substantially lower when I move out of state (and I'll have no mortgage :D ) (and I won't have to work :D :D :D :D )
FYI: >55 years old people can transfer prop 13 basis year once via prop 60/90 (prop 60 within a county and prop 90 between several counties).
Won't matter if you're leaving the state, but just pointing out prop 13 isn't a reason to stay put.

hicabob
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Re: Cashing out of the Bay Area

Post by hicabob » Tue Apr 24, 2018 9:55 am

DVMResident wrote:
Tue Apr 24, 2018 9:47 am
Bungo wrote:
Tue Apr 24, 2018 1:33 am
jpsc wrote:
Tue Apr 24, 2018 1:27 am
The SF Bay area housing is always in demand. Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.
Sure, it's always in demand, but we still get booms and busts like everyone else. The weather wasn't any different in 2010-2012 when houses were less than half what they are today. Prop 13 has helped, but my property tax bill will be substantially lower when I move out of state (and I'll have no mortgage :D ) (and I won't have to work :D :D :D :D )
FYI: >55 years old people can transfer prop 13 basis year once via prop 60/90 (prop 60 within a county and prop 90 between several counties).
Won't matter if you're leaving the state, but just pointing out prop 13 isn't a reason to stay put.

That transfer of low prop taxes (prop 60/90) only works between a few California counties ...
Alameda,Orange,San Diego,Tuolumne,El Dorado, Riverside,San Mateo,Ventura,Los Angeles,San Bernardino & Santa Clara

quantAndHold
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Re: Cashing out of the Bay Area

Post by quantAndHold » Tue Apr 24, 2018 10:01 am

Is the market at the peak? No idea. Does it matter? Not really. My house is at 5x what I paid for it. Is it topped out? I have no idea. It topped out once before, in 2008, then in 2009, started going up again. Am I selling? No. I don’t need the money at the moment, and I enjoy living in it.

If you want to move, and the current price will get you to your goal, then sell and move.

quantAndHold
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Re: Cashing out of the Bay Area

Post by quantAndHold » Tue Apr 24, 2018 10:05 am

clar0097 wrote:
Tue Apr 24, 2018 9:43 am
My family just relocated to the Bay Area last fall. We have been renting while we look to buy. After 6 unsuccessful offers, I'm wondering if it's a blessing in disguise and we should continue to rent. I'm worried the market could be overinflated and also about the earthquake risk. The recent release on the impact on the Haward fault line has me a little worried (we are in East Bay). When (although it could be 30 years) a big one hits, I worry it would have widespread effects on the market including to areas without damage. I sway between this fear and the fear of being priced out if we get it wrong and prices continue to increase.
If there’s an earthquake and a lot of housing is unlivable, places without damage will go for a premium. The supply/demand imbalance will be even worse.

Irisheyes
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Re: Cashing out of the Bay Area

Post by Irisheyes » Tue Apr 24, 2018 10:06 am

I'm also looking to cash out of the Bay Area but can't for another 3 years while my child finishes high school. So I hope I don't miss the peak of the current cycle. Keeping my fingers crossed as it does feel quite frothy and close to the top.

I will say that we are in Sonoma County which lost 5000k housing units to the recent fires. That has put extreme pressure on the local housing market and, especially, pushed up the prices of entry level houses. It will take a long time to replace that stock and have supply/demand normalize somewhat. So I'm hoping that pushes out the timing of the next inevitable housing bust.

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HomerJ
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Re: Cashing out of the Bay Area

Post by HomerJ » Tue Apr 24, 2018 10:12 am

jpsc wrote:
Tue Apr 24, 2018 1:27 am
Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.
Heh, you can bring up good weather, but don't even TRY to spin taxes as a reason to stay in California.

How's the traffic, by the way?

TravelGeek
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Re: Cashing out of the Bay Area

Post by TravelGeek » Tue Apr 24, 2018 10:23 am

rebellovw wrote:
Tue Apr 24, 2018 8:46 am
We did it and couldn't be happier. House prices increase and traffic just gets worse.

It would be one thing if the lifestyle improved but it is just going down hill.

I'll take the Bay Area of the 90s on down any day. Now it is miserable. I hate having to go back.

Early 2000s were nice but man 90s 80s 70s as you go down lifestyle and livability improved.
We sold a few years ago and moved away. Locked in “insanely” high home price and bought a nicer new home for cash. Looking back, we probably could have gotten maybe $200k more if we had stayed put for another two years, but I am okay with our decision. We had / got “enough”.

I got to keep my job (and RSUs) and lost my commute, though being away from HQ certainly limited my upward career progression. I was okay with that since I was (still am) anticipating ER in the not too distant feature.

I still love the Bay Area, but I don’t really miss it. Life is a lot more relaxing now.

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Watty
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Re: Cashing out of the Bay Area

Post by Watty » Tue Apr 24, 2018 10:34 am

clar0097 wrote:
Tue Apr 24, 2018 9:43 am
My family just relocated to the Bay Area last fall. We have been renting while we look to buy. After 6 unsuccessful offers, I'm wondering if it's a blessing in disguise and we should continue to rent. I'm worried the market could be overinflated and also about the earthquake risk. The recent release on the impact on the Haward fault line has me a little worried (we are in East Bay). When (although it could be 30 years) a big one hits, I worry it would have widespread effects on the market including to areas without damage. I sway between this fear and the fear of being priced out if we get it wrong and prices continue to increase.
In addition concern about earthquake damage to your house you also have to worry about the impact on your employer. The building you work in could be damaged which could impact your job. After a big earthquake your employer might also be under pressure to move to a less risky area even if they don't have a lot of direct damage. It is a bit different but after a major hurricane people losing their jobs can be a major problem.

I lived in the Bay Area a long time ago when I was getting ready to buy my first house so I tried to research the earthquake risk. You would want to do your own research but the best I could come up with was that if I bought a house there it might have significant earthquake damage maybe once in 200 years but that would vary a lot with the specific location and soil type. That does not sound too bad but it means that if you live there for 20 years then there is around a 10% chance of that the house would have earthquake damage while I lived in it. The earthquake risk was not a major factor but it was a factor in me deciding to move to a lower cost of living area.

Even if taking the earthquake risk is financially OK with you then one thing to also consider is how difficult it will be to get a contractor to do any needed repairs. I know someone that has family where Hurricane Andrew hit that had significant roof damage. They had insurance and could afford the new roof but it still took them about three years to find a contractor to replace their roof.

quantAndHold
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Re: Cashing out of the Bay Area

Post by quantAndHold » Tue Apr 24, 2018 10:36 am

HomerJ wrote:
Tue Apr 24, 2018 10:12 am
jpsc wrote:
Tue Apr 24, 2018 1:27 am
Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.
Heh, you can bring up good weather, but don't even TRY to spin taxes as a reason to stay in California.

How's the traffic, by the way?
As a retiree in CA, my taxes are fine. Prop 13, no tax on Social Security. Income tax rates are progressive. My 2017 state income tax was $0, and the property taxes on my $1M+ house were $3k (we bought in the 90’s). I don’t really deal with traffic anymore, since I don’t work. So there’s that. I worked in WA for the last few years of my career and we were considering staying there. Washington has no income tax, but our overall tax situation as retirees is better in CA. WA was much better when I was making pots of money, but when I quit working, our taxes didn’t go down at all. Property taxes on a similar house in WA were 2x our CA tax and continuing to rise as property values rose, sales tax is now over 10%, etc.

Overall taxes in CA are in the middle of the pack nationwide, and the tax system is very progressive. Which helps retirees, like OP is thinking about becoming.

rebellovw
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Re: Cashing out of the Bay Area

Post by rebellovw » Tue Apr 24, 2018 10:37 am

TravelGeek wrote:
Tue Apr 24, 2018 10:23 am
rebellovw wrote:
Tue Apr 24, 2018 8:46 am
We did it and couldn't be happier. House prices increase and traffic just gets worse.

It would be one thing if the lifestyle improved but it is just going down hill.

I'll take the Bay Area of the 90s on down any day. Now it is miserable. I hate having to go back.

Early 2000s were nice but man 90s 80s 70s as you go down lifestyle and livability improved.
We sold a few years ago and moved away. Locked in “insanely” high home price and bought a nicer new home for cash. Looking back, we probably could have gotten maybe $200k more if we had stayed put for another two years, but I am okay with our decision. We had / got “enough”.

I got to keep my job (and RSUs) and lost my commute, though being away from HQ certainly limited my upward career progression. I was okay with that since I was (still am) anticipating ER in the not too distant feature.

I still love the Bay Area, but I don’t really miss it. Life is a lot more relaxing now.
Yep - same exact situation. I'm very lucky in that I can work from home. And also - my house increased in value since sold - but at the same time we were paying down a 450K mortgage - that with taxes and cost of living was killing us. We were breaking even but not saving much - so though the house increased further in value since we moved- we are now much better off finanacially.

I would only stay in the Bay Area if:
- I worked in the town I lived - no chance for me - High Tech
- Owned my house outright - it was an amazing house - but our Mortgage just wasn't going down fast enough.
- Locked in with a home value very low - ours was 650K from 2001 - that would be too high for me - huge tax bill in retirement

Yes - My HQ is very far - very limited career progression - I'm ridding it out till retirement.

Bungo
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Re: Cashing out of the Bay Area

Post by Bungo » Tue Apr 24, 2018 10:45 am

Watty wrote:
Tue Apr 24, 2018 9:22 am
In a lot of ways at some point it does may not matter. I don't know if it is a true story or not but there is an old story,
At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller responds, “Yes, but I have something he will never have . . . Enough.”
https://www.vanguard.com/bogle_site/sp20070518.htm

Depending on the details it could be that you have "enough" now but if you stick around the house value and the RSUs could both decline and you might end up without "enough".
This is exactly the risk that concerns me; you've nailed it on the head. I have done some number crunching and I estimate that if the value of my house and my unvested RSUs were both to decline by about 25% over the next 2-3 years, I would be in almost exactly the same spot financially then as I am today. So I would have effectively worked for free (well, for health insurance I guess) during those years. A 25% drop in housing is certainly possible (it dropped more than that in 2008-2010), and a 25% drop in my employer's stock may even be likely as it's a high-flyer. Even with more modest declines, my effective income over the next few years would be significantly less than the nominal numbers would suggest.

And that doesn't even attempt to quantify the personal cost of 2-3 more years of rather annoying, high-stress work versus being able to do whatever I want with my time!
You may never have seen it but one thing to keep in mind is that if the housing market there gets bad then in addition to a lower price it might be much more difficult to actually sell the house without having to sell it at a distressed price. In a real slow market there will always be people that have to sell because of a death, divorce, financial problems, etc and those may be the only houses that are actually selling in a buyers market. This can especially be a problem if the house has some issues or is not in the best location or school district since potential buyers will have lots better houses available.
Indeed I have seen exactly this phenomenon. I bought my house from a distressed seller - not a foreclosure, but an older couple who had to move out for financial reasons. They had to sell at what turned out to be nearly the market bottom, and in the slow season as well (January). I was the only one who made an offer on the house, and I was able to extract significant concessions from the seller and negotiate the price downward. They got substantially less for their house than they would have a few years earlier or later, and that will have real consequences for the remainder of their retirement. I obviously want to avoid that situation.

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Watty
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Re: Cashing out of the Bay Area

Post by Watty » Tue Apr 24, 2018 11:40 am

Bungo wrote:
Tue Apr 24, 2018 10:45 am
I have done some number crunching and I estimate that if the value of my house and my unvested RSUs were both to decline by about 25% over the next 2-3 years, I would be in almost exactly the same spot financially then as I am today. So I would have effectively worked for free (well, for health insurance I guess) during those years.
You have not mentioned a spouse or kids. If you are single without kids then renting a place near where you work until you get the RSUs might make the numbers work better so be sure to crunch the numbers for that too.

One thing to watch out for is that even with a 25% decline having the RSUs and selling the house in the same year could put you into a very high high tax bracket so be sure to do your calculations in after tax dollars, including the state taxes.

How did that compare to working the same 2-3 more in a less expensive area where you could buy a house for cash? With no mortgage payment and a few more years of income that should put you ahead if where you are at today.

I am in Atlanta now and was a software developer before I retired and my son is now a software engineer so I am somewhat familiar with those tech salaries. I have moved around the country a couple of times and my impression is that while there are some regional differences in these salaries it is not as large as you might think if you are near a major city. It is the various types of stock options that typically make the Bay Area income so high.

Bungo
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Re: Cashing out of the Bay Area

Post by Bungo » Tue Apr 24, 2018 12:12 pm

Watty wrote:
Tue Apr 24, 2018 11:40 am
You have not mentioned a spouse or kids. If you are single without kids then renting a place near where you work until you get the RSUs might make the numbers work better so be sure to crunch the numbers for that too.
Married, no dependent kids. Agree that this scenario would be worth considering if feasible, but my wife would veto this option for sure. It would also be challenging as we have numerous pets and I know all too well the limitations this imposes in terms of rental availability in an already tight market.
One thing to watch out for is that even with a 25% decline having the RSUs and selling the house in the same year could put you into a very high high tax bracket so be sure to do your calculations in after tax dollars, including the state taxes.
Yes, I already get hammered every year in taxes/AMT due to the RSUs alone (a batch vests every six months between now and 2022). A house sale on top of that will make things worse, even with the $500k exclusion. I've made my best attempt to model everything in after-tax dollars, including both federal and state taxes.
How did that compare to working the same 2-3 more in a less expensive area where you could buy a house for cash? With no mortgage payment and a few more years of income that should put you ahead if where you are at today.
I have no doubt this would push me ahead, even assuming lower income and stock grants in a lower COL area. I've chosen a retirement city that has a decent and growing tech sector with this in mind, to keep my options open post-"retirement."

Isabelle77
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Re: Cashing out of the Bay Area

Post by Isabelle77 » Tue Apr 24, 2018 1:59 pm

We have good friends who recently left Oakland after 15yrs. Made a million dollar profit from selling their house. Moved to North Carolina, bought a house in cash for 500K, the husband comes home now every day at 5pm, the wife is now staying home with their children. My friend misses fresh produce, her friends, and the weather but overall life is great. They're in their early 40s, not necessarily the same decision making as someone in their 20s or 30s.

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Re: Cashing out of the Bay Area

Post by Thesaints » Tue Apr 24, 2018 2:10 pm

Isabelle77 wrote:
Tue Apr 24, 2018 1:59 pm
the wife is now staying home with their children.
Just because they netted a 500k profit ?

Isabelle77
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Re: Cashing out of the Bay Area

Post by Isabelle77 » Tue Apr 24, 2018 2:15 pm

Thesaints wrote:
Tue Apr 24, 2018 2:10 pm
Isabelle77 wrote:
Tue Apr 24, 2018 1:59 pm
the wife is now staying home with their children.
Just because they netted a 500k profit ?
No. Because their expenses are so much lower they can afford to have her stay home, which is what both of them want.

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celia
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Re: Cashing out of the Bay Area

Post by celia » Tue Apr 24, 2018 2:50 pm

hicabob wrote:
Tue Apr 24, 2018 9:55 am
That transfer of low prop taxes (prop 60/90) only works between a few California counties ...
Alameda,Orange,San Diego,Tuolumne,El Dorado, Riverside,San Mateo,Ventura,Los Angeles,San Bernardino & Santa Clara
That is what it currently is, but we have a chance to change it later this year, from what I've been reading. Check your mail (or the news) as we get closer to the elections.

Now, the chance of the BIG ONE hitting could really make your property value decrease if you don't have earthquake insurance. If you don't carry it, you should cash out now. Not only are we over-due for for the "big one" but it is also almost time for the "big one" after that.
Last edited by celia on Tue Apr 24, 2018 2:53 pm, edited 1 time in total.

TravelGeek
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Re: Cashing out of the Bay Area

Post by TravelGeek » Tue Apr 24, 2018 2:51 pm

Isabelle77 wrote:
Tue Apr 24, 2018 1:59 pm
My friend misses fresh produce, her friends, and the weather but overall life is great.
The weather in the Bay Area (Peninsula, specifically, in my case) is pretty awesome, even though there can be very rainy winters, too.

I now have to occasionally shovel snow in the winter, but I can also enjoy winter sports. And the rest of the year I get to enjoy more of the good weather because I am not tied to my corporate office anymore. Today is a warm and sunny day and I plan to take some of my work conference call from the patio. And then I’ll take a walk through the neighborhood to get a coffee, and make up for it tonight when I get to talk with my coworkers in India during their daytime hours.

rebellovw
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Re: Cashing out of the Bay Area

Post by rebellovw » Tue Apr 24, 2018 3:26 pm

Having been born and raised in the Bay Area - and left it - at age 46 - I'd say the weather is boring. If you like every day to be pretty much the same - then that is the Bay Area.

I didn't know I loved weather so much until I left - wow four seasons - monsoons - dramatic rain/thunderstorms - light snow. Now that is weather.

Nearly A Moose
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Re: Cashing out of the Bay Area

Post by Nearly A Moose » Tue Apr 24, 2018 4:24 pm

Isabelle77 wrote:
Tue Apr 24, 2018 1:59 pm
We have good friends who recently left Oakland after 15yrs. Made a million dollar profit from selling their house. Moved to North Carolina, bought a house in cash for 500K, the husband comes home now every day at 5pm, the wife is now staying home with their children. My friend misses fresh produce, her friends, and the weather but overall life is great. They're in their early 40s, not necessarily the same decision making as someone in their 20s or 30s.
I recall being able to find fresh produce on occasion when I lived in North Carolina. :P
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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HomerJ
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Re: Cashing out of the Bay Area

Post by HomerJ » Tue Apr 24, 2018 4:57 pm

quantAndHold wrote:
Tue Apr 24, 2018 10:36 am
HomerJ wrote:
Tue Apr 24, 2018 10:12 am
jpsc wrote:
Tue Apr 24, 2018 1:27 am
Where else can you get great weather, prop 13 make you keep your house longer for more efficient property tax than out of state.
Heh, you can bring up good weather, but don't even TRY to spin taxes as a reason to stay in California.

How's the traffic, by the way?
As a retiree in CA, my taxes are fine. Prop 13, no tax on Social Security. Income tax rates are progressive. My 2017 state income tax was $0, and the property taxes on my $1M+ house were $3k (we bought in the 90’s). I don’t really deal with traffic anymore, since I don’t work. So there’s that. I worked in WA for the last few years of my career and we were considering staying there. Washington has no income tax, but our overall tax situation as retirees is better in CA. WA was much better when I was making pots of money, but when I quit working, our taxes didn’t go down at all. Property taxes on a similar house in WA were 2x our CA tax and continuing to rise as property values rose, sales tax is now over 10%, etc.

Overall taxes in CA are in the middle of the pack nationwide, and the tax system is very progressive. Which helps retirees, like OP is thinking about becoming.
Ah, I stand corrected. If you bought your house many years ago and you are retired (with therefore low adjusted income), it does sound like you are getting an incredible deal. Take advantage while you can.

Thesaints
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Re: Cashing out of the Bay Area

Post by Thesaints » Tue Apr 24, 2018 5:04 pm

rebellovw wrote:
Tue Apr 24, 2018 3:26 pm
Having been born and raised in the Bay Area - and left it - at age 46 - I'd say the weather is boring. If you like every day to be pretty much the same - then that is the Bay Area.

I didn't know I loved weather so much until I left - wow four seasons - monsoons - dramatic rain/thunderstorms - light snow. Now that is weather.
True dat! One can only appreciate joy through suffering pain :)

hicabob
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Re: Cashing out of the Bay Area

Post by hicabob » Tue Apr 24, 2018 5:10 pm

celia wrote:
Tue Apr 24, 2018 2:50 pm
hicabob wrote:
Tue Apr 24, 2018 9:55 am
That transfer of low prop taxes (prop 60/90) only works between a few California counties ...
Alameda,Orange,San Diego,Tuolumne,El Dorado, Riverside,San Mateo,Ventura,Los Angeles,San Bernardino & Santa Clara
That is what it currently is, but we have a chance to change it later this year, from what I've been reading. Check your mail (or the news) as we get closer to the elections.

Now, the chance of the BIG ONE hitting could really make your property value decrease if you don't have earthquake insurance. If you don't carry it, you should cash out now. Not only are we over-due for for the "big one" but it is also almost time for the "big one" after that.
Other prop13 stuff coming up is the possible loss of it applying to commercial property. Divide and conquer?

My sister just moved to the Pacific Northwest from the midwest. The fabled PNW "subduction zone" big one estimates make our local San Andreas "big one" look like a walk in the park.

Quakes are expensive, but in the US it seems hurricanes are the larger problem.
https://en.wikipedia.org/wiki/List_of_disasters_by_cost

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HomerJ
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Re: Cashing out of the Bay Area

Post by HomerJ » Tue Apr 24, 2018 5:11 pm

Nearly A Moose wrote:
Tue Apr 24, 2018 4:24 pm
Isabelle77 wrote:
Tue Apr 24, 2018 1:59 pm
We have good friends who recently left Oakland after 15yrs. Made a million dollar profit from selling their house. Moved to North Carolina, bought a house in cash for 500K, the husband comes home now every day at 5pm, the wife is now staying home with their children. My friend misses fresh produce, her friends, and the weather but overall life is great. They're in their early 40s, not necessarily the same decision making as someone in their 20s or 30s.
I recall being able to find fresh produce on occasion when I lived in North Carolina. :P
And of all the places in U.S., North Carolina has probably the mildest weather next to California. Winters do not get that cold, summers are not that humid.

It's not like she moved to Texas (blazing hot summers) or Maine (3 feet of snow winters). :)

curmudgeon
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Re: Cashing out of the Bay Area

Post by curmudgeon » Tue Apr 24, 2018 5:56 pm

People cash out of the bay area all the time, and have for many years. One thing I've learned in life is to not try to get the absolute lowest (or highest) price when buying or selling. There are just way too many factors that can't be fully predicted. I try to buy or sell at advantageous prices, and then move on.

We owned two bay area houses, neither fully paid for, when I retired. We sold one, which reduced risk, but also reduced return (waiting another year would have brought in at least another $100K). That was a good tradeoff in my mind. We will likely move out of the bay area in a few years, but having taken a big chunk of my RE profits off the table, I'm not so worried about the rest; we'll sell and move when it fits our purposes. For the OP, it's a bit trickier. Cashing out the RSUs as they vest and investing them in a balanced manner helps a bit, but the single large block of house equity can't be easily hedged.

One less obvious factor for early retirement in this can be the health insurance situation. Quite a few of the lower cost areas have much more tenuous and/or expensive insurance options under ACA. It's worth understanding that issue before jumping.

Tech
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Re: Cashing out of the Bay Area

Post by Tech » Tue Apr 24, 2018 7:42 pm

OP look like you are good to cash out. Or may be wait. really very hard to say.
https://www.sfgate.com/business/networt ... 14635f3842

nova1968
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Re: Cashing out of the Bay Area

Post by nova1968 » Wed Apr 25, 2018 6:31 am

TravelGeek wrote:
Tue Apr 24, 2018 2:51 pm
Isabelle77 wrote:
Tue Apr 24, 2018 1:59 pm
My friend misses fresh produce, her friends, and the weather but overall life is great.
The weather in the Bay Area (Peninsula, specifically, in my case) is pretty awesome, even though there can be very rainy winters, too.

I now have to occasionally shovel snow in the winter, but I can also enjoy winter sports. And the rest of the year I get to enjoy more of the good weather because I am not tied to my corporate office anymore. Today is a warm and sunny day and I plan to take some of my work conference call from the patio. And then I’ll take a walk through the neighborhood to get a coffee, and make up for it tonight when I get to talk with my coworkers in India during their daytime hours.
The coldest winter I ever spent was the summer in San Francisco

mrsbetsy
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Re: Cashing out of the Bay Area

Post by mrsbetsy » Wed Apr 25, 2018 8:47 am

We think about it every week. We've been in this house since 2000 and it has increased dramatically. In fact, way beyond the 500K we can protect.

But, where will we go next? That's the question.

One of our thoughts is to rent the house out and slow travel for the next 2 years and 10 months. We could live on the rent alone, but we don't have to depend on it. This would allow us to decide where we want to be. Come back, sell and be done.

But what will the housing market be like in 2 years and 10 months?

Just got to get the SO to pull the trigger. I'm ready.

GAAP
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Re: Cashing out of the Bay Area

Post by GAAP » Wed Apr 25, 2018 9:48 am

Sold a few months ago, moved to Washington.

I'm lucky enough to be able to work from anywhere in the country -- not tied to a specific location. Sounds like you're thinking of retiring or at least quitting.

I wouldn't bet on the future direction of any stock -- but you're effectively doing that by waiting for RSUs to vest. Would you be better off doing it now or in 2 years if the market drops 25%? How much would you lose if it goes up 25% instead?

We didn't even consider potential future housing prices -- that's a sucker's bet. If it makes sense in the current environment, do it -- don't count on future growth that may not happen. Same-house sales prices pretty much match inflation over longer terms. If they didn't nobody could buy a house. "Housing Prices" typically combine all houses, making a meaningful comparison difficult -- features, amenities, style preferences, etc. all change over time...

TL;DR: Make decisions based upon what is known now -- don't predict the future (you'll be wrong).

Hulu
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Re: Cashing out of the Bay Area

Post by Hulu » Wed Apr 25, 2018 10:19 am

Different land-locked coast but in Boston I missed out on the first peak, waited for years and then sold too early by 20% and two years (and counting).

To me timing stocks is different because you can't rent or build stocks if the price to buy is too high. But it's really hard to predict. I look at how in line house prices are with rent and building costs. If all three are up then it's more sustainable. Rents are more sticky than prices in turns of down trend. However if rent vs cost to own are out of line then I'd say that buyers will turn into renters which decreases demand.

Also, the new tax law of doubling the standard deduction will drive up the cost of owning for people with low mortages as it's better to take the deduction for a ton of folks. Not sure home buyers care or realize this.

Also foreign investment is a huge factor that is often not considered. To me, that's the hardest thing to predict in your area.

And as someone mentioned, the zoning laws need prediction as well.

Home building innovation could also be a game changer if anyone figures out how to build homes more efficiently. Hard to believe the current model is still in operation. Imagine if we built cars the same way.

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