Housing

New grad considering buying house in Bay Area

Google QNrQ72
Feb 10

New grad, 1 year in the area so far, TC 230k.

Currently renting for 1700/mo, living with two roommates in a nice apartment complex.

Been toying with the idea of taking out a mortgage, putting 10-20% down and buying a two or three bedroom place and renting out the bedrooms. Rent should hopefully be enough to cover mortgage payments, I don’t mind living with roommates, and I’m hoping the house value will appreciate. In 5-10 years I’d sell and either upgrade or keep it as a rental.

I’m looking at Sunnyvale / Santa Clara in particular, or areas nearby.

Can anyone tell me why this is a bad idea?

My reasoning:
- I have an upward career trajectory and expect to be earning more in several years (already been promoted once so far)
- I want leverage
- I’m currently paying $1700 to rent but getting no equity

Reasons why I’m a bit wary:
- housing is currently expensive and I’m scared we’re gonna go into a recession / housing bubble pops / etc

comments

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  • Microsoft UMbR31
    "I have an upward career trajectory", "expect to earn a lot". "1 yoe"... New grad Google job is commendable but I really think you should not be making leaps of faith like this at age 23.
    Feb 101
    • Pinger / Engcreate💻
      I have seen friends get disillusioned and quit after 2 years to go travel
      Feb 10
  • Google / Enghooli.xyz
    “I have an upward career trajectory and expect to be earning a lot in several years”

    How can you determine trajectory with only one year experience? Why are you so confident you will continue to be earning a lot? One bad manager or team defrag is all it takes.
    Feb 100
  • Google / DesignHvjkihgv
    I don’t think rent will be able to cover your mortgage payments. You’ll have a negative cash flow for sure. Also don’t forget the property tax - if you buy a 1.5 million house, thats $1400 every month
    Feb 104
    • Google QNrQ72
      OP
      I’d be looking at probably 800k-1.1M. Didn’t consider property tax tho - thanks for mentioning it
      Feb 10
    • Pinger / Engcreate💻
      Also HOA or maintenance, vacancy, non-paying tenants, theft / vandalism, insurance, utilities.. am I forgetting any?
      Feb 10
    • Google / Enghooli.xyz
      Property tax + home owner’s insurance + utilities + maintenance + possible HOA fees > $2000/month
      Feb 10
    • Cisco / Data
      ohno!

      CiscoData

      PRE
      Intel Corporation
      ohno!more
      + mortgage insurance if putting down < 20%
      7d
  • Google nlxS44
    I would be surprised if you could get a 1M+ loan with almost no work experience. Many lenders won’t consider RSUs. I would go to a bank and see what they’d offer you at what interest rate.

    Beyond that don’t forget property taxes and maintenance — expect to pay $7-8k/month all in for something mediocre.
    Feb 101
    • Better Mortgage WIRN87
      I can send you to a lender that’s great if you need to use RSU income. It’s very simple and a lot of lenders actually do use it.
      2d
  • Glu Mobile PQSK63
    I have done the math. For 800k place with 20% down, you are looking at $4200-4500 a month for mortgage + property tax + HoA + home owner insurance. You can get about $1k back a month from mortgage tax deduction. The 3.2-3.8k is then split between you and your roommate.

    Sunnyvale/santa Clara, u can probably get a 2 bedroom/1bathroom for 800-850k. Rent probably 1000-1400 depending on the location. So cost wise, you might see a increase from your current rent and move to much older/smaller building.

    If you are buying for the long run where real estate price will go up 30-50% in the next 5-10 years and you can afford the mortgage comfortably, def go for it.
    Feb 105
    • Pinger / Engcreate💻
      $1k back from mortgage interest tax deduction?? You have like $50k in itemized tax deductions, or how does that work?
      Feb 11
    • Glu Mobile PQSK63
      Assuming loan value of 640k at interest rate of 4%, your first year mortgage interest is at $25,600. You can deduct this against federal income, which means you will save roughly 10-13k a year depending on your tax income bracket. You used to be able to deduct your property tax too, but now because of SALT, you will get $0.
      Feb 11
    • Pinger / Engcreate💻
      I guess my point is, if you are married filing jointly and your deductions are let's say $10k SALT + $10k mortgage interest + $2k other, then you would still take the standard deduction, so the mortgage interest deduction doesn't save you any taxes.
      Feb 11
    • Glu Mobile PQSK63
      Mortgage interest alone is $25k. + Salt = 35k. Way better for op since he single filer, still save some money for joint.
      Feb 11
    • Pinger / Engcreate💻
      Ok, yea I guess the mortgage is so big that it does get you well over the standard deduction
      Feb 11
  • Amazon Sanchezos
    I think it’s a great idea. Especially if you’ve got roommates that are reliable. Of course rent won’t cover mortgage but you just need it to subsidize it. It beats throwing your money away paying for someone else’s property.
    Feb 100
  • Amazon VEoy51
    Don’t do it, you can wait another few years for a housing recession
    Feb 101
    • Facebook fsck it
      Recessions come from people making mistakes that seemed reasonable at the time...
      3d
  • Better Mortgage WIRN87
    Housing market is on a downward trend but this truly only applies to luxury real estate. $1.5MM might see a decline because it will be sitting on the market but doesn’t mean sellers will budge unless they need to get rid of it. I say wait until end of Q2 2019 and you’ll see in the summer homes going lower a little bit but not a whole lot. Rates aren’t really going to move much this year either.
    2d0
  • Pinger / Engcreate💻
    Familiarize yourself with property cash flow and cap rates before spending 5x annual income. I mean, in addition to learning the terms, check out the cash flow for single-family homes in the area and check the cap rates vs what they were years ago or are in other areas.
    Also check out the mortgage interest tax deduction which iirc is capped now.
    Feb 100
  • PG&E MaxaM
    The market is turning. You don’t want to be playing landlord this early, believe me.
    Feb 100
  • Housing peak to trough is 16-20 QUARTERS and we are very close to a peak ... https://fred.stlouisfed.org/series/CSUSHPINSA
    Feb 110

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