Should I buy an apartment in Silicon Valley? (My analysis of the situation)
Warning: This is a long post with some of my analysis of the whole situation. First of all a little background about myself. I am a 26 years old Masters student who is graduating this summer. I have 3 YOE before I started my Masters. I will be relocating to Silicon Valley for my full-time job, and my offer is 185K/150K/90K (Base/RSU/Joining). From various other blind posts, I know the refreshers are good at my company (~100K-~150K for my level). I am single, and I have no plans to get married in the next 18 months at least. I have 1K/month of student loan debt which I will continuously be repaying. Including my joining bonus, I will have around 70K liquid money in the next two months. I am trying to weigh in pro and cons of buying an apartment in Silicon Valley. I am considering either a one bedroom or a less expensive two bed - two bath under 750K. Assuming that I pay 60K downpayment (~8%) and keep another 10K for the closing amount(~1.2%), I will be paying $4,724 monthly to cover my overall payment for the property. This includes Principal, Interest, Property tax, PMI (Since less than 20% DP), HOA, Home Insurance (Zillow estimate with 4% interest). Now, if I am buying a two-bedroom apartment, I am planning to sublet one of the rooms in my apartment for ~1.3K (Usual rent in the area). Based on my calculation I will be saving around ~$900 every month in federal tax credit for Mortgage interest. Also, if I don't buy the apartment, I will be paying 1.8K as rent. Summing up them, the total is ~4K. So, if I buy an apartment, I will be paying ~$700 extra from what I would have paid otherwise, but I would build equity over time. I can afford to spend a lot more than this, but I am sticking to the minimum for the sake of this post. Also, paying the minimum will allow me to max out my ESOP, 401K and other investments too. Since we cannot time the market, I also tried to capture the scenario where the real estate market may crash in the future. Assume, I am considering this a long term investment (~8years), by the end of 8 years, I still need to pay around ~590K principal to my bank. Also, assume that the real estate didn't appreciate due to lousy market or whatsoever. After eight years I paid around 128K already (70K for DP and closing, ~58K for extra payment above my rent, i.e., ~700 monthly). If I would have invested this money and assuming a 4% interest in the worst market scenario, I should have ~175K. However, I will have around 160K equity which isn't a bad deal in the long term with a terrible market situation. Since it's a long term investment, I am expecting that prices will appreciate it anyway. Considering that apart from my investment in this property, I am investing ~35% of my base income in another portfolio, maxed out my 401K and saved all my RSUs for unfortunate circumstances, do you think it's a good idea for me to invest in real estate now? I will be paying ~700 extra every month with the initial payment of 70K. Please help me understand the points which I might have missed based on your experience. I will be adding some more explanations if required based on your input. PS: I have ignored a significant expense for maintaining the house, but I believe we need to pay some maintenance in rental properties also (Forfeiting the security deposit, other costs, etc.).
You seem to have a pretty good idea and well researched. If you know what you are doing then go for it. Buy
First of all, it's 2 bed-2 bath, 3 bed-2.5 bath and so on. Not sure what this BHK business is. Seems like you have done all the math. Don't over think it and fall into the paralysis by analysis trap. If you can buy and hold a home for 7-8 years, typically you can't go wrong with it in the Bay Area, even if there is a dip in the markets in between. Good luck!
One room in your apartment is 1.3K but if you are renting elsewhere you pay 1.8K, why?
I am renting close to my office and planning to take a master bed room. For buying, I don’t think I can afford anything close, and it’s not going to be a master bedroom, hence the low rent.
This guy fks, will be rich and retire soon
Have you considered the possibility that a housing crash may also mean you'd be out of a job ?
I am planning to save a good chunk of my RSUs money for these unfortunate circumstances. Moreover, I believe there is some risk involved with every investment. I guess this risk entails with every other homeowner in the country who bought home on the mortgage.
What is a bhk?
Sorry! I meant two bed - 2 bath. I have updated the post.
You use the term, BHK, a common term amongst Indians. Curious if you're from India and are on visa? If yes, you've to factor in the "visa" status.
Good catch! I am on a visa. In the worst case, I can rent it out or resell. It might hurt if the market is low and I am out of status at that time. But, I am only risking ~100K, and the odds are in favour I guess.
Let's factor in a few things then: 1. Have you considered your tax increase based on TC growth? 2. Have you considered tax increase based on H1B? 3. How good is your credit? Mortgage rate? 4. Are banks willing you give you a big loan on F1 Visa? 5. What happens if you don't get H1B?
Buy...worst case u can still rent it out and live elsewhere
Buy