Bay Area house buying

Jul 24, 2021 123 Comments

I see everyone in the Bay Area buying a house as soon as they are able to.
I am not sure what I am missing. I am totally able to afford a house here, but the cons just seem to be a bit much.

Monthly payments are about 2.5x the rent in any area that I am seeing. A down payment of ~0.5 million seems to be required for a half decent place.

The way I see it
- House prices will never appreciate as much as my investments do. In fact, it won’t even get close to it (especially at current house prices). As I see it, it is taking a substantial loan to buy an expensive asset that will appreciate (if at all) less than what you will be liquidating.
- I not only lose the 1.5x monthly disposable income for investing, but also any appreciation I would have seen for the down payment money.
- Equity is not as much I imagined either. For a ~2 mil house, property taxes, interest, insurance, etc (stuff that doesn’t add to equity) is already around 2/3rd of rent.
- You lose any kind of flexibility. For instance, moving closer to a new job or renting a new place with an extra room for a year or two temporarily. Upsizing and downsizing becomes trivial.
- I need not be paranoid about good public schools turning bad in the 20-30 year timeframe. I can easily move when that happens.
- I have 0 intentions of retiring in this 💩hole of a state.

What am I missing that people want to buy a house and take such a huge bet and compromise so much in their young and productive ages for a couple of thousand bucks of equity (if at all) a month?

We all know the maxim to rent luxury and buy utility. The house prices here are definitely in the “luxury” range without actually being luxurious by a long shot.

It just seems so fiscally irresponsible to buy a house here. Any decent financial analyst will tell you this. And yet the demand is so high - I just don’t get it. What am I not seeing?

TC - 620K
Household - 950k

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  • You don't need to buy a house, its ok to rent. Why people do it:
    1) quality of life - a house you live in is not an investment, it's about not having neighbors, a landlord, or how.
    2) folks want to lock in their cost of living asap. Especially in CA we have prop13 which lockes your taxes for life so earlier you buy less you pay.
    3) appreciation doesn't matter. You never ever sell real estate. There is a fear that once people realize it is insane to sell real estate there will be fewer and fewer sales until one day almost nothing.
    4) you can still move, you retain the property as a rental with an extra advantage of a lower rate.
    5) You don't have to worry about local schools if you pick a good area
    6) If you don't plan to own in ca for life then don't buy but ca is the best state, hands down, to own real estate (see #2)
    Jul 24, 2021 8
  • I invested 140k down for 700k house in 2016.. sold it last week for 1.2 million.. and got 650k cash... Not sure if I would have turned around 140k into 650k with stocks in 5 years .. best part is 0 tax
    Jul 24, 2021 6
    • Google
      woman1fest

      Go to company page Google

      woman1fest
      How much interest, insurance, taxes and maintenance did you pay over the 5 years?
      Jul 24, 2021
    • I took 7 arm and rate was 3% (it's probably went lower during the 5 years but did not refinance ) monthly interest and principal together was $2300 definitely better than rent in Fremont for 3 bedroom house .. insurance etc was probably couple hundred dollars .. and to be honest I wish I stretched and bought a bigger 1.4m house at that time itself which are all now in 2.5m range
      Jul 24, 2021
  • Google
    woman1fest

    Go to company page Google

    woman1fest
    A lot of people want to get the milestone out of the way. Not everyone is a disciplined investor, and a house is a good way to slow the trigger finger.

    It’s good for people like you (and me)! Take the easy money!

    I ll consider buying here at some point. If I settle in the USA, California is a likely place for me to live, but I can afford to wait a long time.
    Jul 24, 2021 6
    • When you buy real estate you usually put down 20 to 25%. At 20% you get an assets worth 5x as much that starts appreciating. The cost to borrow 5x these days is less than inflation and if you are well qualified less than 2%, aka free money. There is nowhere else you can get so much leverage for so little.
      Sep 13, 2021
    • 🙌 thanks!
      Sep 13, 2021
  • Oracle
    vWc3aj

    Go to company page Oracle

    vWc3aj
    You are right. You are smart. Others aren’t. You do you. Let them be stupid.
    Jul 24, 2021 0
  • New
    wlb123

    New

    wlb123
    One word - leverage. Say you put down 0.5 million in a house worth $2.5 million (20%). The house appreciates 5% each year for the next 5 years. Using compounding, house is worth $3.2 million. That is a gain of $700K. If you invested the $500K in the stock market and made 10% annually, you would have made around $300K. So even with higher returns in the stock market, your net gains in housing are much higher because of leverage.
    Jul 24, 2021 6
    • Adobe
      toxicasian

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      toxicasian
      @wlb23 Thx for that. So cash flow in LCOL wouldn't compare to Bay Area appreciation you mean?
      Jul 27, 2021
    • New
      wlb123

      New

      wlb123
      Yes, at least that is how it has been historically
      Jul 27, 2021