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Put this hypothetical couple on the path to buy a house on the Peninsula

By BayArea follow BayArea   2016 Jun 21, 5:06pm 6,536 views   30 comments   watch   nsfw   quote   share    

Hi guys,

Let's take the following hypothetical scenario that so many of my friends living in the 650 are challenged with:

- Young married couple with no kids is living and working on the Peninsula
- Each makes $100K/yr
- Each just finished paying off their school loans and they have less than $50K of savings between them
- They pay >$3,000/mo in rent
- Moving out of the Bay Area is not an option since their jobs are here
- Moving to the East Bay and commuting 3hrs a day is not an option
- We can assume a 2% appreciation in annual salary

I was posed this question by one pair of friends recently who are in the situation above and I thought, what would the clever and creative Patrick.net members say?

What would YOU do (not what you can do)? Put yourself in their shoes and put yourself on the fastest path to home ownership on the Peninsula (say $1.2-1.5M home price which means at least a quarter of a million dollars of down payment). Please help me detail a plan to get them into a small house on the Peninsula.


1   Goran_K   ignore (3)   2016 Jun 21, 5:19pm     ↓ dislike (0)   quote   flag      

That's tough. Really tough. I don't see a path to ownership that doesn't take at least a decade. But my tips would be:

- Embrace austerity
- Delay having children as long as biologically possible
- Save every penny, nickel and dime.

Even then, to get to a $300,000+ down payment is going to take many years for this couple.

2   Philistine   ignore (0)   2016 Jun 21, 5:31pm     ↓ dislike (0)   quote   flag      

Goran_K says

to get to a $300,000+ down payment is going to take many years

Sad but true. The story of a lifetime, perhaps.

3   Heraclitusstudent   ignore (2)   2016 Jun 21, 5:35pm     ↓ dislike (0)   quote   flag      

No kids -> they don't need a house.
No equity income (RSU, stock options) -> they won't afford a house.

They should rent and save for now.

They might shoot for an apartment below the $700K level. For example:

Estimated mortgage $2500/month + ~$300 HOA . Let's say appreciation moving forward is eaten by taxes. Not much gain compared to rent.

Bottom line they are going nowhere here. The real shock would come if they had a family and started shelling out day care money.

They need to earn more to make it happen.

4   Ceffer   ignore (6)   2016 Jun 21, 5:50pm     ↓ dislike (0)   quote   flag      

Not enough down payment or reserve savings. Six months emergency reserve plus a 20 percent down payment without worrying about dipping into retirement savings (if they have any retirement savings).

They would also have to plan on staying in the house the standard minimum of seven years, presuming job, health and income security.

Unless Mums and Dads are able to front them major dough and cosigning, they need to stay put and save.

Great to have student loans paid off, but they are still in the "screwed" zone for anything livable on the Peninsula.

5   Strategist   ignore (2)   2016 Jun 21, 6:20pm     ↓ dislike (0)   quote   flag      

Seems like they have enough for a down on a condo.
2% annual increase in salaries for an upwardly mobile young couple seems kinda low to me.
They should be able to save until they buy based on their salaries. Only 15% of their gross going towards rent.
Hope they don't have car payments. Hope they don't splurge at the mall.
I think they should try and buy an entry level home now. I think it can be done.

6   Blurtman   ignore (1)   2016 Jun 21, 7:19pm     ↓ dislike (0)   quote   flag      

Fucking move. It may come as a surprise to many, but it may not be possible to buy everything that one wants.

7   Ironworker   ignore (0)   2016 Jun 21, 7:36pm     ↓ dislike (0)   quote   flag      

Get very creative with your living arrangements!

I used to live in a house in Montclair Oakland in illegal unit with 85 year lonely old lady - very sweet. I was taking care for her garden 2 hr per week. That's it. I paid $100 for energies per month. That's it.

Offer some work around the house to old lonely people who live in huge houses for little rent. There is plenty of them around.

Than save everything you can. Invest into diversified indexed world portfolio.

Never buy house in Bay Area. In 15 years when you have $1 million, get the hell out of Bay Area and live happily ever after.

8   BayArea   ignore (1)   2016 Jun 22, 9:11am     ↓ dislike (0)   quote   flag      

Thank you for all the responses. Let's do a little math:

Assumptions (which I think are far too frugal and disciplined to be followed by the average couple but for the sake of argument)
- The couple lives frugally and modestly
- 2% salary increase annually
- The real estate market doesn't change over the next X years (we'll get to X in a moment) - ridiculous assumption I know but lets go with it
- After taxes, social security, 6-10% of 401K contribution, medical/dental/vision/life insurance, 1st year take home on the $200K combined salary is $110,000 clear (or $9166/mo)
- Modest 650 rent is $3,000/mo
- Food, water, cable, internet, gas, two car insurances/maintenances, clothing, & misc expenses easily totaling $2,000/mo
- No debt, cars are paid off
- For the sake of argument I'm assuming no trips, no luxuries spending

With the couple making $9166/mo clear with 2% annual increase, spending $5,000 per month (let's assume the 2% annual increase is washed out by a 2% annual increase in cost of living), it will take them >5 years to accumulate the quarter of a million dollars to buy the little 2-bdrm house on the Peninsula. I guess that's not as bad as I thought. But reality says that there will be an expensive car repair, there will be a big purchase here and there, there will be some emergency that requires a big check to be cut, there will be unforeseen circumstances, they are 30 so there will likely be a kid or two in the next few years and like Goran estimated, it could turn into a decade really quickly. And what will the market look like in a decade as this couple chases that moving (likely growing) target they call 650 home ownership?

With a child or two, you take on that Peninsula "aristocracy" priced day care, and all of a sudden things don't look realistic anymore...

So then that begs the question. For those in their 30s, does anyone buy houses here who doesn't have inheritance, rich parents with disposable down payment money, or 1% level tech/medical/finance salaries or bonuses?

Maybe rather than focus only on saving and buying, maybe this couple needs to focus on creating some kind of equity income? Any ideas?

9   anotheraccount   ignore (1)   2016 Jun 22, 9:41am     ↓ dislike (1)   quote   flag      

At the current prices, they need to be pulling in 350-400K a year together to have a chance. 200K might have been good in 2004-2005.

10   anotheraccount   ignore (1)   2016 Jun 22, 9:42am     ↓ dislike (0)   quote   flag      

I would say, enjoy life, have kids, the house will work out some day.

11   BayArea   ignore (1)   2016 Jun 22, 9:50am     ↓ dislike (0)   quote   flag      

tr6 says

they need to be pulling in 350-400K a year together to have a chance

It makes me wonder, what fraction of 650 households are pulling in >$350K/yr? 5%, 3%, 2%?

I may be wrong, but it seems to me that most homeowners in the 650 are equity wave riders who had their heals planted before the insane real estate boom. The rest of us are just looking upward at them.

12   Ironworker   ignore (0)   2016 Jun 22, 9:54am     ↓ dislike (0)   quote   flag      

Exactly! Don't postpone having kids if you really want them. Also things you always wanted to do.

Do them! Fuck the houses!

Regret is way worst than not owning a house in peninsula.

Life is short. Once you're old and realize you can have kids anymore and it's hard to move around and that you can't take that house with you, you'll be more miserable than ever.

Save money, invest them, but live life like you are going to die tomorrow. That might also happen to all of us.

You won't take it with you!

I live in Bay Area and I meet people who live in Nebraska hanging out on the SF Bay Area beaches 10 X more than me.

I work all the time.

And they search good deals on hotels instead.

13   Shaman   ignore (2)   2016 Jun 22, 9:56am     ↓ dislike (0)   quote   flag      

I agree with tr6 and ironworker. Have kids and get creative. Or just move. Most jobs don't have to be there. You can accept a 25% pay decrease and live comfortably in most other places.
Fuck, maybe I should consider moving elsewhere. Orange County is getting too spendy also.

14   turtledove   ignore (0)   2016 Jun 22, 10:13am     ↓ dislike (0)   quote   flag      

We were faced with a mid-life restructuring. I won't bore you with all the details, but a job loss and contract dispute over severance forced us to reconsider expenses. We really dialed it all back. We moved to a nothing apartment and didn't spend anything for about two years. That's right: Two kids, two dogs, two cats, and two parents in a two bedroom, 1200 feet apartment. Within a year and a half, however, we had a lot of money saved. So, we bought a short sale in San Clemente (much cheaper than your area, but still pretty pricey). Of course, six weeks after we closed, the job that enabled us to save at such an accelerated rate disappeared... But that's another story and your question is about power saving. But my experience from the previous year and a half came in handy in surviving that situation, too.... Even more so because I now had a house I didn't want to lose, and I'm happy to report that it all turned out okay.

Anyway, I speak from experience when I say that there are a lot of things on the list of necessities that aren't necessities. Things I never really thought about were pretty significant expenses that added up each year. For example, hair. I went to single process color (as opposed to highlights) and learned to color roots myself. To avoid haircuts, I grew it out. I went from spending about $300/month to $300/year on hair. We got rid of several unnecessary services: landline, cable, for example. That saved us about $200/month. When I had to go grocery shopping, I brought cash and made it a contest to see who could find the items on their list using the least amount of money. My grocery bill went from $1,200/month to $6-800/month. When you look at these things individually, they don't seem like they would be enough to make a dent in anything... But, the little things add up pretty quickly.

People don't realize how much they waste. I was one of those people. Just eliminating Starbucks/Pete's each day is $1,500/year. When you're in stockpiling mode, you have to think that way. After a while, it became second nature. After the changes, we were able to recapture $32,400/year in rent, $2,400/year in cable/phone, $6,000/year in groceries, $3,300/year in hair, and $1,500/year in coffee. That's $45,000. Without kids and pets, I might have doubled that.

My point is... Don't underestimate the waste caused by the little things. They really do add up. In retrospect, I wish I had realized all this earlier in life.... Perhaps when I wasn't in some kind of exigency situation. But better late than never.

15   BayArea   ignore (1)   2016 Jun 22, 10:13am     ↓ dislike (0)   quote   flag      

I definitely agree about the kids comments above.

Unless you are completing your degree, postponing having kids to save for a house when there is so much unpredictability ahead is borderline lunacy, especially for a couple in their 30s who want kids.

16   ch_tah2   ignore (0)   2016 Jun 22, 10:29am     ↓ dislike (0)   quote   flag      

BayArea says

- Modest 650 rent is $3,000/mo

This appears to be the biggest expense, and one that I do not believe needs to be set in stone. If they want a house, they need to sacrifice now. They should find a 1bd apt that is as cheap as possible - maybe it's a little further than they'd like or not in as great a neighborhood, but without kids, make the sacrifices now, so you can do what you want later. Before we bought our house, we were living in a 1bd apt with very low rent and were able to save a significant amount, in addition to investing in real estate elsewhere.

Plus, like people mentioned, having kids is very expensive. I think we paid ~$1500/mo for daycare for one child. That roughly doubled with #2. So, even if they could save enough to buy a house, they need to make sure they can afford kids too. Unless there is a major change in house prices, moving may be the best option. Without stock options, I'm not sure how people can afford a house in the area now. As sad as it sounds, I don't know if $200k is enough.

17   BayArea   ignore (1)   2016 Jun 22, 10:32am     ↓ dislike (0)   quote   flag      

I didn't want to go this route with my advice, but when the numbers are in, restructuring and moving away to a place with lower cost of living is making as much sense as anything.

18   Ironworker   ignore (0)   2016 Jun 22, 10:49am     ↓ dislike (0)   quote   flag      

I wouldn't give up. As long as you're still in line with your own values stay.

In my case it is not being too jerk around by bad bosses. And having plenty of time for my hobies - surfing

19   B.A.C.A.H.   ignore (1)   2016 Jun 22, 12:44pm     ↓ dislike (0)   quote   flag      

The real question to me: you wanna live in a community with neighbors and coworkers like that? Want your kids' classmates to be their spawn?

20   Ironworker   ignore (0)   2016 Jun 22, 12:50pm     ↓ dislike (0)   quote   flag      

Yes that's a great point. Some of the most miserable people I know in Bay Area are the ones living in paid of free and clear Mcmansions. They are set, rich have fake wife's, paranoid about everything, hard to please, never rode bart, hate people, all they care is to be ritcher. Have different values!!!!

21   Sharingmyintelligencewiththedumbasses   ignore (0)   2016 Jun 22, 1:18pm     ↓ dislike (0)   quote   flag      

save a bunch of fucking money, prepare for a different career, and move to somewhere that nice houses cost $300K or less.PERIOD. Thank me later.

22   Ceffer   ignore (6)   2016 Jun 22, 1:53pm     ↓ dislike (0)   quote   flag      

If they are on the Peninsula, they need to learn to capture, dress and roast Poodles, Bichons and Pomeranians and blame it on the coyotes.

24   Ceffer   ignore (6)   2016 Jun 22, 6:57pm     ↓ dislike (0)   quote   flag      

Get some veggies and make up some yummy Yapper Hobo Stew.

25   MisdemeanorRebel   ignore (3)   2016 Jun 22, 6:59pm     ↓ dislike (0)   quote   flag      

Band together with like minded people and take up a "Struggle Suggestion"

26   FortWayne   ignore (4)   2016 Jun 22, 9:13pm     ↓ dislike (0)   quote   flag      

There is no free lunch, you got to sacrifice something. Either find lower paying jobs where you can afford to live, or figure out a better commute. Delaying children is a horrible, horrible decision. Worst decision a couple can make. Don't wait too long, nothing will ever make up for that.

27   turtledove   ignore (0)   2016 Jun 22, 9:20pm     ↓ dislike (0)   quote   flag      

FortWayne says

There is no free lunch, you got to sacrifice something. Either find lower paying jobs where you can afford to live, or figure out a better commute. Delaying children is a horrible, horrible decision. Worst decision a couple can make. Don't wait too long, nothing will ever make up for that.

Dude.... Shut up.... you're not supposed to tell them. That's the crux of my business, duh...

28   curious2   ignore (0)   2016 Jun 22, 9:58pm     ↓ dislike (0)   quote   flag      

1) Found a startup to Collect Underpants
2) Get Big Fast
a) hire underpaid millenials as temps to dive in Dumpsters and as many other trash bins as possible gathering as many underpants as possible,
b) extoll the environmental benefits of donating soiled underpants for reuse instead of washing them
3) IPO

After that, the OP hypothetical couple should be able to buy a mansion in Atherton, with enough left over for a pied-a-terre in SF.

29   FortWayne   ignore (4)   2016 Jun 22, 10:06pm     ↓ dislike (0)   quote   flag      

turtledove says

Dude.... Shut up.... you're not supposed to tell them. That's the crux of my business, duh...

The way this society is going, you are gonna have more business than you can handle. People these days don't value what they should until it's too late.

30   SFace   ignore (0)   2016 Jun 22, 10:07pm     ↓ dislike (0)   quote   flag      

"What would YOU do (not what you can do)? Put yourself in their shoes and put yourself on the fastest path to home ownership on the Peninsula (say $1.2-1.5M home price which means at least a quarter of a million dollars of down payment). Please help me detail a plan to get them into a small house on the Peninsula."

The peninsula is not a market for young couple. Most are in their late 40's. It's too competitive with the way way way way too few supplies. The mountain and bay(narrow as heck) and economic viability is all you need to know that peninsula price will be the last to fall and first to rise.

* The SFBA is home of 35 years old directors and 40 year old VP's and 45 year old execs. If you are thinking 2% annual salary appreciation, just throw the peninsula dream out the window. Think double salary in 5 years and triple in 10. short term bonus, long term bonus are the needed windfalls. I've seen way too many professionals do contract work for $125-150 bucks an hour and they'll laugh at your 100K employee salary. Think 200K or 400K total.

* save on cost you can control. For two people, live in a one bedroom apartment and keep it under $2000 a month. There are some leverage when couple live together. cook more and do recreational activities like hiking. Go to Mexico, not Hawaii. Eat free food and office perks. If you are too busy, its hard to spend money.

*An up and coming couple should be able to save 6K -10K a month or 70K to 120K a year. That's not including windfall if you work for the right company and you get a six digit cash bonus. Most young couple whom receives a nice RSU payout or stock options are signing up for buying agent next week. Couples that have 250K in cash and renting are basically in the market.

* If use have bank of mom and dad, use it. Young buyers are probably backed by rich parents whom worked for Facebook or other legacy company and can supply every kid with 500K cash down payment. It is what it is. If you want to be a young buyer, you'll need money from mom and dad to compete. That's how it is in the rest of the world. As a parent, saving for a downpayment is unproductive, If my kids are able to pay their mortgage at say 28, I'll send them half the down payment ((with them the other half) so they can skip the five year wait. It's not because Im rich, it just passing the money before I die. If I die at 80 and my kid is 50,, there is no point of the inheritance as they are 50 already, wtf. I believe in giving kids inheritance when they are mature enough and find it useful as young adults /p>

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