San Jose house purchase

[reazayt01]

We have been renting an apartment in San Jose (monthly rent at $4.5k). Now that we want to settle here for good, considering buying a 3B2B house. We see properties in $1.5-1.8M range that can meet our needs and budget in a good location. We have about $1.4M in cash and can also qualify for mortgage. Should we buy or continue renting? If to buy, should we put all $1.4M down in cash or less and finance the rest? Appreciate the advice.

[KlangFool]

We have been renting an apartment in San Jose (monthly rent at $4.5k). Now that we want to settle here for good, considering buying a 3B2B house. We see properties in $1.5-1.8M range that can meet our needs and budget in a good location. We have about $1.4M in cash and can also qualify for mortgage. Should we buy or continue renting? If to buy, should we put all $1.4M down in cash or less and finance the rest? Appreciate the advice.

You should rent.

If buy, you should go for zero down payment interest-only non-recourse mortgage. Then, you can walk away from the house if necessary. 1.4M in cash can pay the mortgage for many years.

KlangFool

[carminered2019]

You are almost there, pay cash for the house if you can. A mortgage free allows you to take more risk in investing.

[Monsterflockster]

San Jose is one of those rare places where your investment in a home will make money for you. Not to mention the big increase in quality of life going from an apartment to a home. Best of luck to you.

[RetiredAL]

You should rent.

If buy, you should go for zero down payment interest-only non-recourse mortgage. Then, you can walk away from the house if necessary. 1.4M in cash can pay the mortgage for many years.

KlangFool

I would not go as extreme as KF, but I would buy and do a Std 20% down and hold the rest of that $1.4M of cash as reserve, just for the reason that KF posted.

[snowday2022]

San Jose is one of those rare places where your investment in a home will make money for you. Not to mention the big increase in quality of life going from an apartment to a home. Best of luck to you.

This may have been true in the past but may not be true going forward, and even in desirable areas with rapid home appreciation it’s still a bad investment compared to stocks.

[Valuethinker]

We have been renting an apartment in San Jose (monthly rent at $4.5k). Now that we want to settle here for good, considering buying a 3B2B house. We see properties in $1.5-1.8M range that can meet our needs and budget in a good location. We have about $1.4M in cash and can also qualify for mortgage. Should we buy or continue renting? If to buy, should we put all $1.4M down in cash or less and finance the rest? Appreciate the advice.

Yes you should buy as long as you have a 5+ year time horizon. Things like schools do come into it, if you have a family or plan to. But you can move for better schools, at the right time. Is this home enough to meet your needs in 5 years time eg growing family? Because if not, you should think about stretching for more - you don't want to have to do this too often.

Unless the US tech industry goes into total meltdown, it's hard to imagine houses in [EDIT: for some reason I flipped San Jose and Palo Alto in my mind] doing worse than inflation. And historically they have done a whole lot better.

Mortgage is all about your comfort level, and the cost of the mortgage. I would tend to be c 50% mortgaged (ie $700k). There's certainly a case for 0.

There's never a case for below 20% equity, (almost never), given the associated additional costs.

Don't forget to factor in renovations and redecoration. Easy to spend $100k on a place without even blinking.

Basically a mortgage is an inflation hedge. Inflation will reduce the value of what you paid/ money you spend in repayment, in the long run.

[KlangFool]

OP,

What is the size of your portfolio?

KlangFool

[KlangFool]

Unless the US tech industry goes into total meltdown, it's hard to imagine houses in Palo Alto doing worse than inflation. And historically they have done a whole lot better.

Valuethinker,

In my opinion, it is melting down now.

https://layoffs.fyi/

KlangFool

[Shackleton]

Unless the US tech industry goes into total meltdown, it's hard to imagine houses in Palo Alto doing worse than inflation. And historically they have done a whole lot better.

San Jose is not the same as Palo Alto, not even close (regardless of physical proximity)

And IT is definitely going through changes.

[bombcar]

Houses can’t do greater than inflation in general for long periods of time or we end up with houses costing infinitely much.

I would say that of the mortgage payment is decently lower than your rent with a 20% down you should go for it.

If it’s the same or higher (assuming similar house) maybe consider waiting.

Cash in hand is always better than cash in the house, and if you have trouble paying an 80% loan you probably can’t afford the house.

You can always pay down the mortgage later if you want, but getting cash back out is a heloc or refinance which can be hard to do when youn need the money.

[mrsbetsy]

I think this is a good time to buy. Interest rates have knocked lots of people out of the market and they are no longer on the hunt. The house we sold in spring 2023 in the Bay Area, which had 250 people come through the open house and 16 offers over asking, is already listed on Zillow 200K higher than we sold it.

Things are not cooling off in the Bay Area that's for sure. Too many here just don't understand this market.

But there aren't enough details to discern how you should buy it. What interest rates are you seeing? Are you interested in a 15 or 30 year loan? Do you think interest rates will be cut over the next year or so? If so, you can recast your mortgage. What's your tax bracket? How old are you?

I'd be tempted to buy and finance for at least a little while. We don't yet know what is going to happen to SALT. Keep your cash in reserve earning something.

All the best. Taking the step to own a home was big for us was so satisfying. It's not all about squeezing every last dollar out of an investment, but enjoying a certain type of life.

[CAsage]

Think about your overall portfolio, job security, savings for retirement, any college expenses? If you do buy, I would put down enough to ensure the entire mortgage is deductible ($750k or $1M). One can have appreciation and more privacy in a SFH, but then again stuff breaks and needs updating regularly. Right now, biggest issue vould be job security (which seems remarkably fluid in many fields this month) and unknown future tax changes - can you afford without the mortgage deduction?
Klangfool thinks everyone should live in one rented room and keep all the money in cash - never a recommendation to buy!

[samulta52]

Unless the US tech industry goes into total meltdown, it's hard to imagine houses in Palo Alto doing worse than inflation. And historically they have done a whole lot better.

Valuethinker,

In my opinion, it is melting down now.

https://layoffs.fyi/

KlangFool

Still unemployment rate is pretty low. It is not 2008 nor 2000 like.

[Valuethinker]

Unless the US tech industry goes into total meltdown, it's hard to imagine houses in Palo Alto doing worse than inflation. And historically they have done a whole lot better.

San Jose is not the same as Palo Alto, not even close (regardless of physical proximity)

And IT is definitely going through changes.

Right. I had a brain fud.

Thank you for the correction.

[GoldStar]

Are you relatively sure you will stay in San Jose long term? Or at least medium term (10 years)?
If the answer is yes you should buy a home and start building your own equity instead of helping your landlord build theirs. If the answer is no there is some risk you can lose money.

[samulta52]

OP you need to think of other things too like mentioned already like how you saving for retirement, other savings etc. At 1.5-1.8 mil your property taxes will be close to 20k/yr. Also I hope what you buying is a SFH with no HOA and is in a nicer school district. I had a friend buy 2.5 mil SFH in Milpitas last yr, it is now 3.2 mil. Another one bought 2 mil in San Carlos, it is probably 2.6mil now. Houses in the bay area have always been expensive. But do think thoroughly before buying. You can alway rent a nice SFH for 5k. To buy the same place it would cost 15-20k/month.

[KlangFool]

Valuethinker,

In my opinion, it is melting down now.

https://layoffs.fyi/

KlangFool

Still unemployment rate is pretty low. It is not 2008 nor 2000 like.

Good luck!

KlangFool

[samulta52]

Still unemployment rate is pretty low. It is not 2008 nor 2000 like.

Good luck!

KlangFool

Thanks. Economy is still pretty good here. Hiring/firing are a normal cycle. been through a lot of them in the last 30yrs.

[KlangFool]

Good luck!

KlangFool

Thanks. Economy is still pretty good here. Hiring/firing are a normal cycle. been through a lot of them in the last 30yrs.

If you believe that to be true, good luck to you.

KlangFool

[samulta52]

Thanks. Economy is still pretty good here. Hiring/firing are a normal cycle. been through a lot of them in the last 30yrs.

If you believe that to be true, good luck to you.

KlangFool

Ready to bet a Costco hot dog? Maybe you were here in the valley during the 2000 bust or during 2008. It is nothing like it. This time a lot of companies are firing people for no reasons even with them making a lot of money. But they hiring at the same time.

[idc]

OP, this is mostly an emotional decision. In most cases, buying a house these days will not make financial sense, especially with higher interest rates, and the probable correlation between house values and stock market. It is hard to quantify really how much the difference between the two is financially, too many specific factors.

There is something to be said about what matters to you emotionally and how much that is worth to you and your family. Some people like stability, derive comfort from having their own property, might have a hobby requiring a larger and custom garage, etc. Again, hard to put an accurate number on how much is that worth to you. Not everything in life is driven by cold numbers.

Hard to predict anything about the future, layoffs, inflation, etc. That's why Bogleheads do not time the market. This is your decision alone to make, too many moving parts.

Personally, I bought my house with 20% down and paid off the mortgage 7 years later. In retrospect, it is likely I would have been better off continuing to keep the mortgage or not even buying at all. I don't know how much better off, probably not by a huge amount. Would I do it again, knowing what I know now? Absolutely, in a heartbeat, it brought me and my family a lot of joy and a good sense of stability. Does the same logic apply to you? Only you can tell.

[samulta52]

OP, this is mostly an emotional decision. In most cases, buying a house these days will not make financial sense, especially with higher interest rates, and the probable correlation between house values and stock market. It is hard to quantify really how much the difference between the two is financially, too many specific factors.

There is something to be said about what matters to you emotionally and how much that is worth to you and your family. Some people like stability, derive comfort from having their own property, might have a hobby requiring a larger and custom garage, etc. Again, hard to put an accurate number on how much is that worth to you. Not everything in life is driven by cold numbers.

Hard to predict anything about the future, layoffs, inflation, etc. That's why Bogleheads do not time the market. This is your decision alone to make, too many moving parts.

Personally, I bought my house with 20% down and paid off the mortgage 7 years later. In retrospect, it is likely I would have been better off continuing to keep the mortgage or not even buying at all. I don't know how much better off, probably not by a huge amount. Would I do it again, knowing what I know now? Absolutely, in a heartbeat, it brought me and my family a lot of joy and a good sense of stability. Does the same logic apply to you? Only you can tell.

Well said.

[KlangFool]

If you believe that to be true, good luck to you.

KlangFool

Ready to bet a Costco hot dog?

A) I am financially independent and semi-retired. It won't matter to me a bit. I am prepared.

B) In your case, it will affect you. So, good luck to you. I hope that you are prepared.

C) You are betting it one way or another depending on your level of preparation. It is more than a Costco hot dog.

KlangFool

[nanciT]

I want to mention rents are also going up. We have lived in San Jose, Dublin, San Ramon, Alamo and now live near Danville. Real Estate will go up and down...but with each transaction and move we did very well. Right now with rates higher, you will have more buying power because there are less buyers. I would be negotiating on the price. Yes, we have had recent lay offs but generally we see that once a year.

We have a new subdivision going in 4 miles from us that started two years ago.

I noticed recently the builder is now lowering the prices and also adding upgrades ( 100K-200K) which they are throwing in. These are not custom homes 4000-5000 sq ft on 1/4 acre going for 4-5 million.

Rents will continue to go up. Homes will continue to go up. I would consider that part of the equation and look to negotiate hard if you are buying. Always check days on market ( easy on Zillow or Realtor.com) and see how long they have been sitting.

[Monsterflockster]

San Jose is one of those rare places where your investment in a home will make money for you. Not to mention the big increase in quality of life going from an apartment to a home. Best of luck to you.

This may have been true in the past but may not be true going forward, and even in desirable areas with rapid home appreciation it’s still a bad investment compared to stocks.

Maybe. But can’t put a price on peace of mind. I hated having a landlord, so worth it for me.