Off-topic: Reminds me of "Half a mil in twenties like a billion where I'm from."
On-topic: that's misleading; once you pay fixed costs, you have a lot more latitude for discretionary income. Not everything is the same ratio more expensive in the Bay Area.
What happens when you have a family? A MacBook Pro costs the same but does childcare? How about a home with a reasonable commute, good schools, and is large enough for a single family?
If you have a family it’s not possible. Home prices average close to $1m. You’d have to save an entire years salary PRE tax to afford the down payment. That will take years and years to save.
If you’re raising a family you’ll likely need two $200k incomes to afford a house, and even then, it’ll take at least 2 years to save for the down payment.
The Bay Area is for college kids and millionaires. That’s it.
It's certainly possible. You just don't own a home, you rent. It's much like NYC in that regard - you don't own a detached home in NYC regardless of how rich you are, you rent a swanky loft or penthouse. At most you might buy a condo, but you can still find plenty of hedge fund managers or Google engineers that rent their permanent residence (and sometimes have over $1M in liquid assets).
In my wife's mom's group (which had a number of dual-tech-income couples working for places like Apple, Google, Palantir, Facebook, etc.), not a single parent owned their own home. I live in a small 13-unit townhome complex, and about 8 of the units have families with young kids.
Very interesting how affluent people still rent. I noticed the same in LA in a high end building. What is the reason? Having more money to invest in different asset classes instead of the biggest chunk being in real estate?
On an economic level, it makes sense to own other assets and rent your primary residence if the discounted cash flow from the investments available for the price of your home exceeds your rent. Typical returns on real-estate are about 3-4% (you pay the bank about that much to borrow the cash to buy a place, and if you own the place outright, you can make about that much in rent), but there's also the mortgage-interest tax-deduction, so it's equivalent to maybe 5.5% returns. The stock market typically gives about 7% returns, but with higher risk: if your risk-tolerance is high it makes sense to not spend money on a house but instead to invest it in stocks and use the cash spun off by that to pay your rent. (If your risk tolerance is very high, you can take out that mortgage, borrow the money for the house, and invest your savings in the stock market anyway.)
On a pragmatic level, high-income people who rent often have jobs that require a large level of geographic flexibility to get their maximum salary. Think of your professional skillset & network as an asset that various companies can "rent" for different rates, depending on how much value it adds to them. Different companies will pay wildly different amounts for that; it doesn't make sense to buy if you get a 50% raise by moving to a different city (or just a different area of your metro region) but costs of selling your house eat up several months salaries.
20% down is a rule of thumb, and a requirement to avoid mortgage insurance, but it is not a requirement for lending.
My credit union will do loans of up to 95% loan to value for $1.5M to first time homeowners or 90% loan to value up to $1.5M if you don't meet the first time qualifications. [1] I'm sure other volume lenders in the bay area have similar lending standards and programs.
It's a financial mistake to not put 20% down. Not only are you hit with $500+/month in PMI, you have almost negative equity into the house when you buy it. Meaning if you have to sell on short notice you're either completely underwater having to pay back cap gains, or you're just breaking even. That's not an ideal situation and if you don't understand the mechanics going in, you'll find yourself in a world of hurt in an economic downturn.
Sure, PMI costs money. If it gets you off of the housing inflation train years earlier than waiting, it might be worth it. If housing prices go down after you finance with PMI, it might not have been worthwhile, but it's hard to know what's going to happen.
It's worth at least looking down the path, and considering the details of your current situation, and not just not considering purchasing at all because you only have 10%, 15%, 18%, or whatever that isn't 20%.
I don't understand how you can be 'underwater' but yet have capital gains. Certainly, selling a house is expensive, and if you put down only 5%, the loan balance could be more than your net sales price.
If you truly don't have the money for the down payment, the math of mortgage+insurance+property taxes+pmi+deductions might still work out to be in your favor over renting
It's pretty unlikely in the Bay Area. There are fairly large distortions in the local market (because of Prop 13, zoning, wealth inequality, and small home supply in general) that usually make renting significantly more affordable than buying in general.
See eg. this $1.9M home (estimated payment $9000/month, not including PMI) vs. this $4900/month equivalent:
(Also note that the $1.9M home is currently assessed at $170K, so the current owners are paying < 10% the roughly $15K/year in taxes that the buyer would be.)
I will say though, might not make the most sense to pick a house in Mountain View as an example. For a couple just starting out in the South Bay that don't have two high earners and want to own a house, Fremont/Union City/Milpitas/San Jose are more realistic.
Also because of prop 13, it can make sense to lose money on buying vs. renting in the short term if you anticipate staying somewhere for a long time, because of the potentially huge property tax savings. And for basically the same reason it can make sense to lock in a mortgage payment that doesn't look like a great deal on paper in the short term.
Yes but then you need to commute an hour instead of 15 mins. Meanwhile that $5k rental oftentimes is in a brand new luxury building with full amenities and is very nice, and also has the 15 min commute
Wow the Bay area is crazier and crazier, 2M for that dump... yeah 4 bedroom in Mountain View, but it's a 1964 and looks like it's going to fall down at the first gust of wind. Everything inside the house is to be remade too and in 2012 the property was worth 700K. That area is literally unliveable now.
It's a different lifestyle. You're just not in your house a whole lot in the Bay Area. My weekend involved a trip to a science museum & zoo; picnic lunch by the Bay; friend's kid's 2nd birthday party at a park; gymnastics class for my toddler; mom's group at the park; meeting up with mother-in-law; and a carnival. During the weekdays you're usually behind a computer screen most of the time, or you go for a hike, bike home, or take part in an organized activity (I took Krav Maga lessons after work from the former head of the IDF's counterterrorism training for a couple years). It doesn't make a whole lot of sense to spend a lot of money for a house or a lot of time to fix it up nicely when it's basically just a place to sleep. (Sometimes I wonder if folks who buy these $2M homes are just folks who have bought into the conventional idea of the American dream and absolutely must own a home.)
And then on the flip side, most of those folks own financial assets elsewhere - either they get stock options in their employer, or they sell those stock options and diversify among other stocks, or they buy 5 homes in the Midwest and rent them out as an absentee landlord.
The system is driven by the massive amount of money flowing into the region from all over the globe as software eats the world - this fills local municipalities with tax dollars that they can use to provide public goods, and it inflates the stock compensation that companies pay their employees, which gives them money to afford the exorbitant rents while still saving up a million or so. It's ultimately unsustainable - bad things are going to happen to Silicon Valley once software is not the engine of growth throughout the world - but that's probably a few decades off, and in the meantime people who partake in the system can afford to buy up whole city blocks in Detroit.
That does sound like a wonderful weekend. We are relatively new to the Bay and still trying to find out way and people. How did you get connected to everything / find things to do and people to hang out with? We have a few month old baby
I've been here a decade and my wife grew up here - I end up piggybacking on a lot of her friends and social activities, and I picked up a bunch more from coworkers and such. But for a whirlwind HN guide to the Bay Area:
Parks: check Google Maps for anything that's a splotch of green and just go to it. Local parks are free, county & state parks often charge a $5 admission (frequently not enforced). Most of them are pretty good. BAHiker.com has a good guide to state & county parks, Google Maps has pictures and reviews on local parks.
Events: Google [$city events] or check out EventBrite, Johnny Funcheap, or SFGate & the Mercury News's events sections. Also look for flyers when you visit your local downtown area, or check out the local library's website (they often sponsor a lot of fun stuff like storytime for kids or Star Wars Day). Many of the peninsula towns sponsor things like classes, swim lessons, outdoor movie nights.
Socializing: the Bay Area has a thriving Meetup scene, but tbh I've never made a friend that stuck through public Meetup groups. Had much better luck with staying friends with former coworkers, and with paid activities (gyms, courses, music lessons, kid stuff, etc.) Google is your friend here; Google [$activity near me] and you're almost certainly going to find something. Because the Bay Area is both wealthy and densely populated, it's a magnet for really good instructors: aside from the aforementioned Krav Maga gym (KravZone in Sunnyvale), there are 3 world-class gymnastics gyms (West Valley, San Mateo, Airborne); a mandolin orchestra (SF Mandolin); some hardcore cyclists (have seen them riding over the mountains in a group occasionally); and many other activities.
For mom's groups: there're some that are just organized over Facebook (oftentimes by invitation - if you get plugged into the parent networks you often find out all sorts groups), some that are public, and some that are organized through local non-profits (eg. Blossom Birth or El Camino Hospital). I'd probably start with a for-pay class to meet people (folks are often more committed in the for-pay classes, and it draws from a social class that is more tightly networked) and then ask them if they know of other resources.
Museums & amusement parks: the big science ones are the Exploratorium and Cal Academy in SF, the Tech in San Jose. Smaller science ones include Chabot Space & Science Center in Oakland, Monterey Bay Aquarium, SF Aquarium, and Seymour Marine Discovery Center in Santa Cruz. Kids ones are CuriOdyssey in San Mateo, Happy Hollow in San Jose, Junior Museum in Palo Alto, the Discovery Museum in San Jose, and Gilroy Gardens in Gilroy. Amusement parks: Great America in Santa Clara, Raging Waters in San Jose, Children's Fairyland in Oakland, Santa Cruz Beach Boardwalk, and Six Flags in Vallejo. History & general interest: Egyptian Museum in San Jose, Hiller Aviation Museum in San Carlos, Computer History Museum in Mountain View, Maritime Museum in SF, the Hornet in Alameda, and probably a few others. There are also 3 railroads that my kid loves (Billy Jones @ Vasona Park, which also has a carousel; Roaring Camp @ Henry Cowell Park; and the seasonal Train of Lights between Fremont and Sunol), and most of the local parks have splash pads that he really enjoys.
I have no idea how that is possible. I made $100k in the bay area and it was just my wife and I.
Here's how it worked out:
$100k salary = $74k after tax, so that's about $6k per month take home. $3000 per month for rent leaves $3000 for everything else.
My wife and I have $1000 per month on our student loans. So we're down to $2000 per month. Health insurance and medication was $600 a month for the two of us, down to $1400. Groceries worked out to about $600 a month as well, down to $800. We got around via muni, so that takes off $200 per month for passes, down to $600. Electricity, water, internet, and cell came to about $200 per month. That left $400 for entertainment, incidentals, and savings.
And that was for 2 of us. I can't imagine 5, but kudos for doing it.
I think your issue is SF. In most of the Bay Area (including desirable parts of the South Bay like Mountain View & Sunnyvale) you can get 1BRs for $2000/month or 2BRs for about $2600. Less in the East Bay. My family of 3 spends about $300/month on groceries - knowing the local immigrant grocers can shave off a lot on fresh produce, our vegetable bill is usually about $13/week for about 20 lbs. of fresh vegetables. We get meats at Costco for pretty cheap.
I would also highly recommend paying off the student loans before having kids. My parents borrowed close to $100K to send my sister and I to college, and 4 years after graduation it was paid off completely, after saving 80% of my income and contributing it back to them. Because of compound interest, a few extra contributions towards the principal shorten the term of the loan dramatically, because it means that the loan balance shrinks, the amount of interest owed each month shrinks, and so a greater percentage of each payment is applied to the principal, which speeds up repayment even more.
Haven't gone too much into financials (given that it was my dad who was making the salary).
But I know it was right around 100k and rent is exactly 3k(live in Cupertino) a month. Not sure what other strings had to be pulled, but I'm glad I lived a decent life in SV.
Kind of ridiculous part is we don't even qualify for financial aid for some colleges/application fees.
https://en.wikipedia.org/wiki/List_of_California_locations_b...