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help figuring out housing/life the bay area

Home Mortgages and Home Buying help figuring out housing/life the bay area

  • Avatar danesgod 
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    Panscan, one more thing, that might have been lost since these posts are two years old. I had a windfall event where I work in 2016. I’ve written about it before. It provided this down payment along with some cash on the side. Its not a ton considering we just spent a lot of it, but we still have some savings too. However, I don’t want anyone to think I’m hiding this extremely lucky event.

    StarTrekDoc, every time I cycle down Arastradero I shake my head.

    #182899 Reply
    Avatar StarTrekDoc 
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    Yeah, danes, you won the lottery and get to live the dream of the area — enjoy it.   There’s no way FLP would sniff out the insanity of the Bay Area, because it really is that insane.

    That said, what’s more insane are the prices 2 hours commute away from Silicon Valley like Morgan Hill, Pittsburg and Mountain House — if SV collapses.

     

    #182914 Reply
    Avatar soundsystem 
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    Status: Physician
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    It’s hard for people who live in LCOL areas understand the real estate prices in HCOL areas. Obviously the Bay area is probably the most extreme RE market (other than Manhattan/NYC?), but plenty of other HCOL areas have very high housing prices (thinking Boston, parts of LA, Miami, San Diego, etc). That being said, I do agree that it is quite a stretch to buy a 3 million dollar house.

    I wonder how the math works for the OP though. With a 900k, if you run one of the paycheck calculators, you’re probably getting 40k take home per month after taxes. With a 3 million dollar house assuming a 600k down payment, you’re probably paying in the 12k/month range, with taxes that goes to probably at least 17K/month. Add house expenses, child care, child activities, vacation, etc… these things add up, hard to think someone living in a 3 million dollar house will lead a very  frugal life. My point is, how much are you able to save per month? 10k? This can have a very tough impact on your long term savings and therefore could push significantly your retirement age.

    In any case, good luck, and hope things turn out well.

    #182948 Reply
    Avatar StarTrekDoc 
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    fact of life in Bay Area – House rich, excess budget poor

    #182959 Reply
    Liked by Tim
    Avatar dayman 
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    Status: Physician
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    The price is between 3-3.5MM, its on a 1/4 acre, excellent schools, cul-de-sac, the size we wanted (2000-2500 sqft – actually slightly larger than what my wife wanted), 

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    I live in a 0.33 acre lot in a 2200 sq foot home that I purchased for $175K and still worth only 225K or so. Property tax $1227.96/year. What a difference the zip code makes. Luckily the savings in money not spent, low property taxes and low maintenance has led us to sock away the income in investments that has produced great returns. I could never stomach $3.3M house on 600K income. But California is what it is.

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    problem with this story is that people end up accepting that “that’s just the way it is” and lose sight of the absurdity. Fatlittlepigs house is about 1 million and Fatlittlepig thinks its a rip off, (a paid off rip off at least). i bet kamban’s house is just as bit as nice as the rip off 3 mil. house.

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    Wait, this whole time you have been mocking everyone else’s spending, acting like Mr Frugal while living in a million dollar house? Classic.

    #182967 Reply
    Liked by Tim, BCBiker
    Avatar soundsystem 
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    Not to derail the topic, but how feasible is it to get a 2.4 million mortgage? I would imagine interest rate for such loan would be pretty high.

    #183024 Reply
    Liked by SLC OB
    Avatar Dont_know_mind 
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    Congrats danes, enjoy the house, you deserve it.

    I have thought about this question for a number of years. Here is my 2c:

    1. What you are doing makes sense in terms of lifecycle investing (Bernstein has a book on it which is worth a read). Practically I think one of the best things you can do is leverage your income into a growth asset (whether that be appreciating real estate, index funds or whatever). 3-4X income in a stable job such as medicine is about ideal but is hard to stomach for most people. There are many ways to Dublin and this is one of them. Many things could go wrong but usually do not. I would not be constrained by my fear of debt. Good on you for taking on some productive debt. Sounds like at least 2M is land value which is great. A bad investment to me would be say a 3M house where 2M was building value. At least you have a reasonable chance of return over time.

    2. I think what you are doing is normal in VHCOL. Whether that is optimal, is it a bubble, too undiversified these questions can perculate but if you live in a VHCOL you are left with the underlying practical choice of either buying a house, being short a house or renting forever. If you buy then you have to do it at some stage and if it is an appreciating asset, on average, better earlier than later (within loan limits).

    My BIL/SIL bought as their first house a 3M house based on a similar combined income. In addition they also spent 1M combined buying into private practices. They worked hard, increased their incomes, 2 years later they have paid off 500k loans early.

    One thing that debt makes you do is work harder and increase your income. I think this is a positive about debt. Although I always worried about it, I performed and earned way better when I had 2-3M compared to zero debt now. I had no problems with debt payback and other fears I had. My main mistakes were when I felt certain and overconfident of myself. Debt made me fearful and kept at bay cognitive tendencies towards hubris and overconfidence. Debt tended to make me extremely careful. I stayed humble, hungry, open to finding out if I was wrong and extremely competitive when I had 2-3M debt and few assets. I couldn’t afford to be complacent. Now not so much. There is no way I could compete against you or a younger version of myself now. I wouldn’t even try, the incentives are just not there anymore.

    3. What’s the worse that can happen – you could die. Having debt does not affect the probability of you getting run over by a bus tomorrow or being diagnosed with terminal cancer. There is a lot of good in the FIRE movement, but I think the narrative that being financially independent puts you in complete control of your life is not quite true. There will always be uncertainty. Not being able to pay off debt is probably not the worst thing in the world. It is a mistake that can generally be overcome if it happens.

    4. You are taking on a significant but not crazy amount of debt, which can be a growth experience. Some people avoid this and never experience the personal growth that can be learnt. I it teaches you two things that I think are important to develop muscles in with regard to investing: a) how to hold onto appreciating assets and grind through difficult markets (e.g a recession – you will be browning your pants, but it will probably be fine) and b) how to tolerate risk/uncertainty/fear with regard to negative outcomes. One approach to life is not to make mistakes by missing out on opportunities. I would not advocate this. My life has been lead by taking risk, losing at times, learning from it and picking myself up after setbacks. Fortune favors the brave generally. Be driven by hopes and prepare for fears but don’t live your life overestimating the probability of fears.

    5. Prepare to cope with negatives, like house goes down 30% after you buy it, job hiccups, maintenance problems, tech having a downturn.

    6. As humans we create narratives. Be careful of narratives where the person always wins. People will tell you that you have taken on crazy debt and bought a rip off house. Maybe this is the case for them. You decide what is right for you. There are guidelines or rules about investing but nothing is set in stone. What works in practice is individual. Eventually you have to kill your idols and do what you think is right. At a deep level, investing is a lonely business. You make your decisions.

    What I find somewhat deafening is the Mr Money Moustache type advice that index investing, frugality and riding a bicycle are the only correct way. Well ok, if it works for them, that is a great narrative. I have a great respect for index investors and have researched it thoroughly. I don’t think it is optimal for me given my personality style, but it is my default risk position. That is the puzzle and paradox in investing, how do you find what fits your personality and will work for you, but also be grounded enough that you can accept the actual limits and accept when you have made a mistake and learn from that ? It’s easy to go into either extreme of becoming too dogmatic or falling into poor discipline and solipsism.

    7. The narrative of the index investment as being some sort of incredible, unstoppable freight train is strong at the moment. Yes, well if this helps them invest that is fine. I guess with diversification there is a cost too. You have undiversified risk in your one asset. I don’t think this is neccessarily a killer. You can mitigate that risk over time. What you gain is the power of 4:1 leverage and very little risk of margin call on your asset. If indexes continue at 8% return over time, you will do better than the unlevered index investor if your house appreciates at a rate of 2% over the home loan rate over the next 20 years. The property taxes and maintenance costs basically defrays the owner equivalent rent in my mind. It is not hard to imagine SF property appreciation equaling the home loan rate in the next 20 years. What actually happens no one knows.

    8. No one talks about the risk of being underlevered and the opportunity cost of this on performance. On a second level, the main benefit of a physician job is being able to lever the job security for greater gain over time. Very few advocate this because the noise from people who lose money from making mistakes in this is so loud. Yes, there are risks and yes you could lose money. I think they are about both equal errors in terms of total return. Being undiversified can cost you some return and so can being underlevered.

    9. These debt levels may make some people want to puke up, but I think it is quite reasonable compared to your income and I think it will help you develop. But that is just me.

    10. I actually disagree that being frugal does much. Lavish and wasteful spending is not good but an extra 20-30k in expenses per year on your income may not make that much difference over decades. I think it is BS that you have to be frugal to do well. You could just increase your income a bit more. I could be wrong there, but it didn’t make much of a difference for me. But there it is with personal finance, people can be different.

    11. Personal finance is not actually mathematics and there is no epistemic certaintly. I enjoyed the book by Nassim Taleb, fooled by randomness. He is actually not a good investor. But this is something that will always be on your mind – could I be wrong ? Even if you succeed, there will always be the question – was it luck ? That is because good investing usually boils down to one thing – you were right on your big position. Now whether you choose to put the majority of your position on index funds or a single house it is still going to be a risk. In 20 years you will find out whether you won or lost and so will the index investor.

    Good luck with it and again, congrats

     

     

     

    #183025 Reply
    Liked by kdeva, eyecandy, Zaphod
    Zaphod Zaphod 
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    Status: Physician, Small Business Owner
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    Joined: 01/12/2016

    If everything goes right you will be fine.  I wish you the best and hope you enjoy your new home.

    Worst case scenario is a severe tech recession, the market falls 30% in your area, and one of you loses your job.  You are stuck in the house and cannot sell because you are underwater owing more on the mortgage than the house is worth, plus the real estate market is more or less frozen due to others in a similar situation.  And you cannot afford to pay the mortgage and property taxes on only one income.  You walk away and have to begin the bankruptcy process to start over by renting in a lower cost, new area.  The bank goes after your income and assets to satisfy the unpaid mortgage.

    Be sure you have good disability and life insurance.

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    at least in California that doesnt happen. Foreclosure process isnt as bad as other places.

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    What do you mean? I’m not familiar with this.

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    Most CA foreclosures are non-judicial and dont allow for deficiency judgements. Even though thats true most lenders still use it as its much faster and cleaner.

    #183029 Reply
    Liked by SLC OB
    Avatar danesgod 
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    Status: Spouse
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    Joined: 09/12/2017

    Not to derail the topic, but how feasible is it to get a 2.4 million mortgage? I would imagine interest rate for such loan would be pretty high.

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    I don’t know, this is my first house – its seemingly common around here. Its called a jumbo loan. This one was high salary + 20% down. Some of the others we looked at were 25% down.

    #183156 Reply
    fatlittlepig fatlittlepig 
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    Status: Physician
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    Joined: 01/26/2017

    @dayman

    House was paid off in 3 yrs.
    no debt
    NW north of 6
    Yearly Spending <<100 Yearly saving>300

    #184364 Reply
    Avatar dayman 
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    Status: Physician
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    Joined: 12/09/2017

    @dayman

    House was paid off in 3 yrs.
    no debt
    NW north of 6
    Yearly Spending <<100 Yearly saving>300

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    I get it, you are rich. You have a top 1% household income and your career has spanned the greatest extended bull market ever.

    Don’t take this the wrong way, it’s your money and you can do what you want, but surely you understand the humor of the FLP persona sitting back in his million dollar house while attacking other people’s spending choices

    #184688 Reply
    fatlittlepig fatlittlepig 
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    Joined: 01/26/2017

    @dayman

    House was paid off in 3 yrs.
    no debt
    NW north of 6
    Yearly Spending <<100 Yearly saving>300

    Click to expand…

    I get it, you are rich. You have a top 1% household income and your career has spanned the greatest extended bull market ever.

    Don’t take this the wrong way, it’s your money and you can do what you want, but surely you understand the humor of the FLP persona sitting back in his million dollar house while attacking other people’s spending choices

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    except for house, you would be hard pressed to find a more down to earth and frugal physician pig than fatlittlepig.

    #184694 Reply
    wonka31 wonka31 
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    Joined: 03/24/2018

    @dayman

    House was paid off in 3 yrs.
    no debt
    NW north of 6
    Yearly Spending <<100 Yearly saving>300

    Click to expand…

    I get it, you are rich. You have a top 1% household income and your career has spanned the greatest extended bull market ever.

    Don’t take this the wrong way, it’s your money and you can do what you want, but surely you understand the humor of the FLP persona sitting back in his million dollar house while attacking other people’s spending choices

    Click to expand…

    except for house, you would be hard pressed to find a more down to earth and frugal physician pig than fatlittlepig.

    Click to expand…

    I think I like you. Vegas 2020???

    #184747 Reply
    Avatar soundsystem 
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    Status: Physician
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    Joined: 12/14/2017

    @dayman

    House was paid off in 3 yrs.
    no debt
    NW north of 6
    Yearly Spending <<100 Yearly saving>300

    yearly spending <100 is very impressive. Any kids? Private school for 3 kids is already close to 100k/year!!!

     

     

    #184749 Reply
    fatlittlepig fatlittlepig 
    Participant
    Status: Physician
    Posts: 1203
    Joined: 01/26/2017

    @dayman

    House was paid off in 3 yrs.
    no debt
    NW north of 6
    Yearly Spending <<100 Yearly saving>300

    yearly spending <100 is very impressive. Any kids? Private school for 3 kids is already close to 100k/year!!!

     

     

    Click to expand…

    spending less than 100K a year is not impressive.

    it’s impressive that people spend 1500 a month on groceries. that’s impressive. my monthly grocery bill is probably closer to 300 (can’t say for sure, but i do grocery shopping and i’m estimating that’s what it is)

    #184751 Reply

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