patrick.net

1/4 your income for the mortgage. That leaves 3/4 of your dough for:
1. chicks, cars, booze, travel, guns
2. savings/investments
3. goodwill/target for clothes, ross/payless for shoes, netflix/roku for entertainment, cheap vietnamese food and in-n-out burger fixes.
Did I leave anything out?
Oh, I did leave out "lose 1/2 of total net worth" and "pay 1/4 of income for 18 years for child support."
Buying a house is your #2 most risky financial decision. You can always reverse mortgage the dump someday.
No man yet has figured out how to "reverse mortgage" a divorce. When he does, he's gonna get the nobel price for economics.

Bellingham Bill says

Here's the numbers:

Price 900000.00
Down Payment 180000.00 20.00%
Loan Principal 720000.00

IO 2250.00 3.75%
PMI 0.00 1.15%
Prop Tax 937.50 1.25%
Tax Credit -1122.00 35.20%

Yeah.... only problem is that 20% of 900k is $200,000, or approximately 7 years worth of renting a $2,500 house- just for the down payment. Down payments just don't magically disappear. You would have still spent a wad of cash up front, which is important to consider in any long-term mathematical equation. Also- you had better have absolutely perfect, squeaky-clean, totally flawless credit in order to get a 3.75% interest rate.

So in other words, the scenario above is using the absolute Best scenario, and in the end... we're still talking about a million-dollar house, of which a similar one can easily be bought almost anywhere else in the USA for 200k or less.

The GOP says

What in the hell is so goddamn important about having to live in "the Bay" or Calicornholia for that matter?

Some of us grew up and were raised here with deep roots and extended family.
Others are hipsters who come here from all over the USA because The Bay Area is so Cool And Hip.
And others have their sites on The Fortresses along the Left Coast, including like The Fortress in the Bay Area:

like from Patrick's news links:
http://japanpropertycentral.com/2011/12/the-china-money-myth/?source=patrick.net#post-7306

".... The defining factor is that the top ranking countries can all provide permanent residency for foreigners who purchase real estate. A recent report by the Hurun Research Institute and the Bank of China found that 60% of China’s rich were either in the process of emigrating or considering doing so...."

"...A recent survey by Soufan, one of China’s largest real estate portals, showed that 50% of Chinese respondents want to invest in America. In second place was Canada with 11.4%..."

The GOP says

What in the hell is so goddamn important about having to live in "the Bay" or Calicornholia for that matter?

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

clambo says

No man yet has figured out how to "reverse mortgage" a divorce. When he does, he's gonna get the nobel price for economics.

How about Fake boobs and yoga classes for the ex so she can get married off. hehe

StoutFiles says

No. No no no. You do not buy a house saying "I can afford X in rent, so I can get a house with X mortgage. The mortgage should be considerably less, because you are taking on 30 years of debt while hoping that there are no financial hiccups. If you are paying the same to rent as you would to own, then continue renting.

Bingo Totally agree!! ha and you said BUY a house hahah! if you can Buy a house well then BUY the House ( I don't mean rent the money BTW.)
Renter= me
home borrower =you
Owner= my grandmother

If rent you can afford is $2500/mo. and PITI for the house is the same, is not enough with situation of declining/flat RE prices. You should also have some return on your money spent on down payment, closing costs, update, and differed maintenance.

Katy Perry says

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

Yup. And for the last few weeks I've woken up in the Bay Area to frost on the cars and on the back lawn. Meanwhile in Hawaii its around 75 degrees all day, every day.

StoutFiles says

justwantaniceplacetostay says

No. No no no. You do not buy a house saying "I can afford X in rent, so I can get a house with X mortgage. The mortgage should be considerably less, because you are taking on 30 years of debt while hoping that there are no financial hiccups. If you are paying the same to rent as you would to own, then continue renting.

The other side of that argument is that you are "fixing your house payment at $2500 by buying, while rents will rise over that 30 years".
I personally am able to pay down principal, so the actual monthly payment reduces every time I re-fi. After 4 yrs into a 30 yr mortgage, my monthly payment is below equivalent rent and the original mortgage is 50% paid off.

edvard2 says

Katy Perry says

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

Yup. And for the last few weeks I've woken up in the Bay Area to frost on the cars and on the back lawn. Meanwhile in Hawaii its around 75 degrees all day, every day.

bet there is more work in the Bay area though.

Katy Perry says

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

Its 65 degrees Day and 43 degrees in Night now in Dallas, big deal…

I'm not sure if it has been said yet, but "should pay" and "would be loaned" are two different things.

From a bank's perspective, they will generally loan you some amount where the monthly mortgage payment does not exceed 45% of your gross monthly income.

It's debatable what you "should" pay. "Should" has very different meanings in different parts of any city, county, state, or country.

Katy Perry says

bet there is more work in the Bay area though.

I thought we were comparing weather? Besides- given the choice between tropical paradise and the Bay Area... how many people do you think are gonna raise their hands for the Bay Area?

Jimbo in SF says

The other side of that argument is that you are "fixing your house payment at $2500 by buying, while rents will rise over that 30 years".
I personally am able to pay down principal, so the actual monthly payment reduces every time I re-fi. After 4 yrs into a 30 yr mortgage, my monthly payment is below equivalent rent and the original mortgage is 50% paid off.

As if renting and a mortgage are a straight up comparison for monthly costs. On the flip side, renters can usually fix their rent costs per year, and if the rent rises too much, then go somewhere else, or then take a look at the housing market, which isn't going anywhere anytime soon.

justwantaniceplacetostay says

Say I am willing to pay $2,500 to rent a place. Is there a good calculator that can take into account tax savings from MI+PT deduction given income level and factor in the approx mortgage costs so I can see what amount of house I could get for $2,500 pm.

A good starting point is what 417K in borrowing can get you as that will yield the cheapest rates. About 1,950 in mortgage and 600 with 500 principle and 1400 interest strating off.

MID depends on your tax situatiion. The sweetspot for MID is around 150K level-220K gross level which would easily pay your property tax and maintance reserve and P&C insurance.

So without anymore facts, anything between 450K - 600K appears doable based on your 2,500 parameter.

When you buys things, you must consider incremental value

First, ditch the Avalon BS. I used to live in a nice, large professionally managed complex that was aimed at high-tech workers & families. Rent WAS reasonable (1100SF 3BR, 2nd floor, end unit, next to pool...$2300/mo). A 700SF 1BR was also about $1500 in the same complex (I was in the 3BR with roommates). NOW, the same 3BR goes for $3400, and the same 1BR units for $2300 or more. Google's 2011 hiring binge, along with hordes of people that want to wait & save before participating in the (obviously) ailing housing market, have driven rents up by incredible amounts in the Bay Area, particularly around Mountain View.

So, faced with a big rent increase (Prometheus was going to be "nice" and only crank it up to $2600 from $2300), my fiancee & I moved 2 blocks away (same zip code). We are renting a 1000SF 2BR, 2 story townhouse apartment in a 12-unit building for $1775/mo (plus all utilities). The building itself is nicer, and generally quieter than hoity-toity Central Park @ Whisman Station was.

I looked into south bay Avalon complexes wen my lease at CP was expiring, and all of the reviews of them that I read were horrendous. Basically, Avalon markets themselves as being high-end communities, charges correspondingly high prices, and then you get to live in a mediocre cage with paper-thin walls. With the exception of one of the newer complexes, the Avalon places in the South Bay all look like run-down dumps that were build 30+ years ago (because they are). They pull a bait-&-trap on tenants with relatively low intro lease rates, and then crank it up when renewal comes around.A lot of reviews mentioned cockroaches, too (although to be fair, that is usually the tenant's fault as much as the landlord's).

Find a smaller complex to rent in. They cost less, and the management is generally a lot better since one unhappy customer can actually hit their bottom-line hard. Avalon and places like that don't give a flying fuck about one, or even a half-dozen tenants packing up & leaving.

REpro says

If rent you can afford is $2500/mo. and PITI for the house is the same, is not enough with situation of declining/flat RE prices. You should also have some return on your money spent on down payment, closing costs, update, and differed maintenance.

I take all that into account in my calculator, which I should probably make free again.

Anyway, the answer is $386,994 if you can afford to pay $2,500 a month, assuming no housing depreciation or appreciation, a 25% marginal income tax rate, 20% down, 7 year ownership term, and some other common assumptions.

So you can afford about a $400K house.

clambo says

/4 your income for the mortgage. That leaves 3/4 of your dough for:
1. chicks, cars, booze, travel, guns

this boys got the right stuff here

Nomograph says

NEWSFLASH: If you buy your clothes at Goodwill and eat cheap fast food burgers, you won't have to worry about getting any chicks.

Jeez, you'll get WAY more play with a Nissan Leaf.

Nomograph: you have a point here. living cheap is all right but be carefull as you will get the sugar diabetes eating junk food and sweets all the time

In my experience: LAdies do not care about your clothes. they want a strong dominating man with $$$ and good with kids.

justwantaniceplacetostay says

ay I am willing to pay $2,500 to rent a place. Is th

I done the math. you could afford to rent almost four of my 2200 square feet homes all at once for that kind of money. i would have never dreamed of paying so much to rent a place to live in all my year

B.A.C.A.H. says

Some of us grew up and were raised here with deep roots and extended family.
Others are hipsters who come here from all over the USA because The Bay Area is so Cool And Hip.

That I can understand the later, not so much.
I mean when South Beach got all hipster dufus on us, back in the early 90's, all of the COOL people bailed.

Katy Perry says

It's 70 degrees today in my town( Temecula Murrieta CA) and 63 degrees in SF Bay Area Today oh and in SF This week the lowest Night temp is 48 degrees.

Well there's other places with great weather.
I haven't needed long sleeves all year long.
It was supposed to get 50 degrees last night.
But it never did.
But if it all went to pot tomorrow... er I mean if things got more screwed up, than they all ready are, well I mean worse than the hell hole south Florida is now, I'd be out in a minute.

Now if you'll excuse me, I've got home invaders at the door.

StoutFiles says

As if renting and a mortgage are a straight up comparison for monthly costs. On the flip side, renters can usually fix their rent costs per year, and if the rent rises too much, then go somewhere else, or then take a look at the housing market, which isn't going anywhere anytime soon.

In my experience, property tax is a wash with the mortgage interest write off, so there is not a 'huge' difference in renting versus owning a house (diff maybe for an apt, where utilities are included).

But ask yourself in all honesty, will you be able to "go somewhere else" if the "rent rises too much" in 20, 25 or 30 yrs .. while the homeowner still has a mortgage payment of $2500? (or less with principal paydown and re-fi)

My guess is that typical rents in that timeframe (20, 25 or 30 yrs) could be $5k, $7k or even more. Using math, you can see a $2500 rent that raises by 3.5% a year will be at $7k in 30yrs.

Jimbo in SF says

But ask yourself in all honesty, will you be able to "go somewhere else" if the "rent rises too much" in 20, 25 or 30 yrs .. while the homeowner still has a mortgage payment of $2500? (or less with principal paydown and re-fi)

If you can guarantee you'll stay there 30 years and there aren't any financial hiccups along the way, then yes, it's a better deal to get a house. However, all these people foreclosing never thought it would happen to them but it did. Because of this, I never advocate that people buy a house based on what they can afford month-to-month, as many people do, and what it sounds like the OP is doing.

Rents go up. And up. And up.
When we first started renting in the 1980's, our rent was $700. (small 3 bedroom, 1 bath, SF Bay Area)
By 2011, our rent (small 3 bedroom, 2 bath, SF Bay Area) had gone up to $2,200. From what I hear, rents are skyrocketing throughout the Bay Area.
We looked at the situation and said, "We need to lock in a payment now. How high will rent be in another 30 years?" If it triples again, that will be $6,600 a month. Not so good, since we would like to retire, and the pension will be a fixed income.
We found a nice little place (nicer than what we were renting) in the Santa Cruz mountains near Boulder Creek for $315k. We only had to put 5% down. Our mortgage, taxes, and insurance put together are less than $1,800, a monthly savings of $400 compared to what we were paying for rent. That doesn't even count the mortgage interest deduction, which my husband calculates should be about $400-500 a month.
We can count on our payment not going up ever. And after 30 years, no more payment at all (except taxes, insurance, and maintenance, of course.)
So, if you can afford $2,500 a month now, take some time to think about what you will be able to afford in the future. Are you planning to retire? Is your job fairly secure? Don't forget to figure in taxes, insurance, and maintenance. Best to lock it in now while interest rates are so low. I'm guessing you can probably afford something under $400k, which you're not going to find in the Bay Area unless you go a little further out. (Unless you want to live in a bad neighborhood.)
Or you can stay where you are and watch the rent go up...

Rents go up and rents go down but unlike real estate rent HAS to be priced where real wages can afford them. So yeah. they'll go up. But only to an extent. Wages have barely budged. We've been renting the same house for 8+ years. In those 8 years our rent has gone up once- by $100.

Los Angeles Owner says

A majority here think home prices are going to crash and be flat for the next 20 years. If that's the case... All those getting foreclosed on in the next 5 years can just get back into the market when people like BubbleSitter and KatyPerry decide to buy a house...(what 10-20 years from now?).

Count me out of that group. If anything I would counter by suggesting that a lot of people here are simply wanting the housing market to go back to just being normal. Real estate has for the last 20-30 years been increasingly characterized as an investment- that of which it typically is not. As long as that attitude exists there will probably continue to be dramatic swings, booms, and busts. Let's face it- the only reason people aren't going out and spending 110% of their incomes on a mortgage is because lenders won't let them. If they could they gladly would. No lessons have been learned.

Indeed my rent situation is a bit unique. But I also know tons of others in our boat. There is a major difference between apartment complexes- especially those owned by large real estate firms- and single family houses and property owned by either older owners or individual owners. In the case of the apartment complexes, many simply automatically raise rent systematically. On the other hand a individual owner is probably more inclined to keep rent the same if they find good renters- of whom we are. As a result the landlord doesn't have to worry about his property and we in turn save 45% of our incomes.

Bellingham Bill says

Your housing cost after the loan is paid would be around $1063.75.mo.

Still way too fucking expensive for a paid off house. I figure with property taxes, insurance, and utilities, I'm paying close to $250/month. Maintenance is extra.

robynfrog says

Rents go up. And up. And up.

NOT ALWAYS. nothing goes up forever and ever. not even house prices.

Los Angeles Owner says

it will be like a old battle scar... a sign of living life to the fullest taking a chance with fate and losing).

sounds like some one trying to make poetry out of a cruddy decision.

zzyzzx says

Still way to fucking expensive for a paid off house.

definitely, people are warped tho when it comes to the price of things, perception has been warped by all the $$$ games

I live in Fairfax, Marin CA and rents are going up pretty quickly around here. It is next to impossible to pick up a 2 bedroom house that is not a run down shack for less than $2,500 per month. And I am not talking about some modern state of the art house, I mean your basic 2 Bd 1 Ba. But what are the alternatives? Leave Fairfax, go where? Back to SF and pay $3,000+ for a 2 bed apartment? Move to a part of the Bay Area where I can rent at a more reasonable rate but live outside of my community, both professionally and culturally, and commute like a rat on a treadmill? I chose to live in Fairfax because of the community. I go to the grocery store to buy milk and it may take me 2 hours to get out of there because I will meet so many friends. To some of you Fairfax/Marin may sound like a nightmare....so many psychotherapists, yoga teachers, massage therapists, spiritual teachers and students, dancers, etc... but to me, it is paradise to be surrounded by a like minded community.

Yes I have avoided Debt Slavery (thank you Patrick :)) but I am not about to give up living in a community of like minded, well educated, psychologically minded people. So guess that means I am stuck paying exorbitant rent and avoiding a mortgage like the plague. All your numbers and calculations cannot account for the value of living with one's chosen tribe.

SF offers the highest concentration of experts/visionaries/teachers in all of my areas of personal and professional interest. It is like paradise. I am pissed the rents are too damn high! But my quality of life just wouldn't be the same elsewhere.

For some of us leaving for cheaper rent or for the possibility of buying a house at a reasonable price elsewhere in the US, or beyond, just doesn't outweigh what one would lose by not being here in the bay area.
Oh and btw, I am from Ireland and have lived and traveled all over the world. When I first moved to SF as a young Irish lad all of us Irish immigrants agreed that the biggest problem with moving to San Francisco right off the boat is that you'll never want to try living anywhere else. For the past 17 years I lived btn Big Sur, Santa Cruz, SF City, and Marin. Where else compares in the US?

Guess I will continue to live in shacks to enjoy the Bay Areas riches!

figalito says

I live in Fairfax, Marin CA and rents are going up pretty quickly around here. It is next to impossible to pick up a 2 bedroom house that is not a run down shack for less than $2,500 per month. And I am not talking about some modern state of the art house, I mean your basic 2 Bd 1 Ba.

crazy talk! unless there is a maid that comes with the place no man should pay over a buck a sq ft. and i say this as a property manager

you got jockeys racing each other to be millionaires jacking up the market is what it is. Renters will pay whatever the landlords demand because they do not want to move a bunch if they have children in schools or close to work. if you can stay lose and move arond the board you are not gonna get rooked as easy. best bet is to move to the desert and sit this inning out. i have a 1870 sq ft home coming up for lease. its built in 2002 with a new granite top counter stainless steel fridge ans ceiling fans for less than fifty cent a sq ft.

figalito says

Yes I have avoided Debt Slavery (thank you Patrick :)) but I am not about to give up living in a community of like minded, well educated, psychologically minded people.

that is another problem there. too many people need positive re-inforcement. it;s as expensive as a tithe! it is good to be a member of the community but do not get to attached. it is expansive!

Being trendy does have its drawbacks hahaha. From the East Village in NY. To Palm Beach in Fla. (I never really cared about S. Fla beaches are much nicer anyway) So the message is intown, trendy meeting spots. These places are made in many ways. Not so much by residential developers (houses are older in many cases) But by near location commercial developers. Condo's, Lofts (my personal favorite. Not new build however ancient, simple large space lofts.)

The mansions to me are like concert halls or train stations. Grand Central, Broadway play houses. People are impressed. I would rather say what a nice conference center and hotel. When does the convention get here?

So trendy appears to be made by the locals. Sometimes it is in many cases it is not. Trendy can cost out the ass. However it is really, really nice to have a champagne breakfast with your date in a quiet breakfast spot. Investors of course come in like the invasion of Normandy beach by the allies. There are even ways of discouraging others. You can't make trend only expand on it (laughs). Just don't hit the wrong street hahaha.

Now if the locals did make the trend where would the commercial shops, condos, retail businesses be. See it goes hand in hand. How do you price bust? Thats the question. Would you even want that to occur? The other question might be did the commercial people see a good thing in many California towns. Decided they wanted in way back when. MAKE the market in the trendy.

Thereby exacting more out of its people. Makes one wonder a little bit. Possibly a more free spirited people. I guess I'm one of that Ilk though not. However more of a people person.

I like my little greenhouse Icon. I look at that and wonder about infrustructure. I'm not communal AT ALL. However I think of things like oh, S. Fla open air bars and eating places. A vegetarians delight! Communities that revolve around co-op food exchanges or a co-op where food is brought and sent to the co-op food stores. Slaughterhouses etc. After all my thought is America is a co-op anyway by the people for the people. Complete with night life. Swimming pools. Recreation centers. All done without the puppy liner you have to put on your wooden floors so they aren't ruined. Singular or co-op. Its just a thought. Then again it might not work as most think all the land up and down the coasts must certainly be taken. Thing is it's not. Oh I forgot fishing. Have a good New Year.

Aquifer:

http://en.wikipedia.org/wiki/Aquifer

Thanks for the discussion folks. I have been anti-owning since I started working 4 yrs ago thus just maxed out 401k each yr and paid off student/car loans. Feels good to be debt free in early 30s so I am very cautious about getting into the big debt needed for this. Its just that the thin walls, callous management, parking for friends coming over, hard to have parties... is making me think about moving to the dark side.

edvard2, Dan: its been tough finding a good 3br, 2ba without going to the 2500 level. Probably possible in Milpitas, East San Jose, Very South San Jose but schools may be an issue there. Rentals are in high demand in south bay and pen with the large immigrant population and swarms of interns. All our interns this year were given apartments in upscale communities in the south bay.

clambo: for 2011, I think this would leave 3/4 after tax income for chicks, cars and booze. But who know what happens next year. In fact, one of my concerns is if bonuses go down next year then fun will be limited by the mortgage payment.

Maybe if I can find something like bmwman, its worth remaining a renter. Its crazy how everyone in my workplace (mostly tech PHDs) gets sucked into this and are all getting homes around 4X-5X income. I know several people with salaries in $120k range using FHA loans and going to 4X income mortgages. Then they have to stress out and make sure they get good bonuses. I hit a high number for the first time this year but dont want to rely on that happening every year to make the mortgage payment.

I also wonder what will happen to demand and prices in the Fortresses with all the IPOs hitting and FBook expected to come through in 2012

justwantaniceplacetostay says

have been anti-owning since I started working 4 yrs ago

well here is the problem yall. four years in the working world and ready to put it all on red! and you wonder why prices are screwed up. I WANT EVERYTHING NOW. My two daughters are no diffrent. The one hit 6 figures and decides she can not live with her pop no more and goes and gets herself a 350 thousand dollar condo. Ok. Two years later a five guys opens up in the retail space underneath her place and no all her clothes smell like hamburgers!

JodyChunder says

i have a 1870 sq ft home coming up for lease. its built in 2002 with a new granite top counter stainless steel fridge ans ceiling fans for less than fifty cent a sq ft.

Was that sarcasm? Every time I hear "granite counter tops" and/or "stainless steel appliances" as the main selling point of a house I throw up in my mouth a little.

robynfrog says

When we first started renting in the 1980's, our rent was $700. (small 3 bedroom, 1 bath, SF Bay Area)

When I started renting in SF about 20yrs ago, an individuals share of rent was about $400 a month ($800 for a 2 bed apt, for example). That individual's share now seems to be in the $1000 - $1250 range?

justwantaniceplacetostay says

edvard2, Dan: its been tough finding a good 3br, 2ba without going to the 2500 level. Probably possible in Milpitas, East San Jose, Very South San Jose but schools may be an issue there. Rentals are in high demand in south bay and pen with the large immigrant population and swarms of interns. All our interns this year were given apartments in upscale communities in the south bay.

But then again you seem to only be looking in areas that are also some of the highest-priced rental markets in the Bay Area. Like I said- we rent in the East Bay and pay a lot less. What does that translate to in regards to commuting? Well, I work in the Peninsula. I leave the house a bit early and also get off work a bit early too. On a typical day in the morning the commute is about 35-40 minutes. In the afternoons its about the same or a bit longer. An hour at most. To me its totally worth it because not only do I pay a lot less in rent, but I rent a nice house with a big yard and a garage to work on my stuff. Sure- if we lived closer to work we would maybe have a 10-15 minute commute. Then again we would be paying probably 35-50% more, and for that get a smaller place. To me the extra commute is worth it. For others its not. Everyone has their own requirements and targets they feel is important and worthwhile and thus worth the added expense/commute/compromise. So its your call. Good luck.