What do you all think? Wait out the Bay Area market a few more years? We have two kids, jobs here and we are renting a 500 square foot home. Should we buy some crap hole under $400,000 in the area, or move to a place where we could have a nice home for $200,000? Should we invest? Please add your reasons why, and any solid data or links you have to help.
To buy, or not to buy...
By hrhjuliet Follow Wed, 29 Feb 2012, 2:40pm 19,814 views 226 comments
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Plant potatoes and teach the family hand to hand combat skills.
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That's cute. (: But really, I need some solid advice and numbers. Patrick.net saved our family from buying at the top, and we are ever grateful for his honest and educated site. We need advice.
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Gardening is always a very important skill to impart. You won't need much Mandarin except to curse at the Disney Helicopter Hunter tours that Chinese tourists will take to shoot at the surviving population of a bankrupted, looted and collapsed America.
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Laughter is the Best Medicine! as they say in Readers Digest.
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hrhjuliet : I know you've got the info you needed - personally I think you made the right decision - for now.
It's interesting to see someone hash out their thinking and personal situation in a public forum - to see how their thought processes work.
Personally, we are in a somewhat similar situation - we have money saved, are looking for a house, two kids etc. However, I personally would be scared spitless to have money in the markets right now (any markets). They are all a disaster just waiting to happen IMO - things like high frequency trading (HFT), MF Global and the like would make it impossible for me to sleep at night. A 100+ percent gain in 2+ years is NOT healthy functioning marketplace. But it's your money to lose. I sleep very well with all our money in cash, spread in several credit unions in non-money market funds. It's the safest and most liquid thing I can think of - return OF capital versus return ON capital. And you're talking to guy who has done a lot of high risk trading in the past - the kind where you lose 400k in 45 minutes LOL
No more. The stakes right now are too high.
The BA is a very odd place in that, as long as there is some tech presence there prices will always be skewed upwards. For someone like you, with your business you really have very little freedom to live elsewhere.
For my family, we are going the route discussed above - saving our money to buy a house outright in a decent weather area (very very important to me) and going into semi-retirement. That's a big lifestyle change, but I'm not willing to spend 20 to 40 years sitting in a cube, dreaming of being elsewhere.
It's my considered opinion that we as a society have been balanced on the edge of a cliff for years now, just waiting for a push into the abyss economically. Even when that happens, it almost certainly won't be an overnight thing. But when it does happen, those who are going to be hurt the least (and that is the best you can hope for at this point - to minimize the pain) are going to be those who have invested the least (emotionally and financially) in the religious belief called 'faith in the system / status quo'.
IMO Things are going to change (for the worse) in the next 5 to 10 years more than you could ever believe and a person's best efforts right now should be oriented towards mitigating the damage. Buying a house in one of the last true bubble RE markets in the USA is probably not the best way to accomplish that.
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I would advice to avoid spending money on something you'll end up hating over years. If you buy something you aren't happy with, you'll hate it even more after you spend thousands upon thousands in repairs and maintenance.
Silicon Valley bubble isn't going to last forever. Big companies like Google will stick around, but all this random little companies that provide less than marginal service will probably be going away sooner or later. Prices will drop just like they did during DotCom crash.
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hrhjuliet says
I think you answered your own question. Or are you looking for someone to talk you into an imprudent decision, and talk smack about how great it will be, and your kids, will sprout valedictorian graduation fezzes, and their skin will bare the mark of USDOE certified. But to enjoy your $400K 900 sqft bungalow.
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Guess its going to depend on your decision. But I have a few personal opinions only because I've been down the road you've been... still am to an extent. So take this with a grain of salt.
First of all, we too rent and in fact rent a pretty nice house and the rent is affordable. The same house would cost us a lot more to buy in regards to having monthly expenses. So as long as you don't mind renting, you can live comfortably here.
Secondly, when you say 400k buys a crap hole, well it depends on a lot of things. If you're one of those people that demands to live in the choicest areas only- as in San Fran, the peninsula, or other highly desirable work-centered locations then sure- 400k will probably be crap. But there are other areas, perhaps not as convenient in places like the East Bay for 400k that aren't bad.
Lastly, yes- moving out of the area is also a possibility. Trust me- we've thought about it for years and looked at a number of other viable cities like Austin, Raleigh, and so on. Problem is that a LOT of other people had the same idea and thus there were a few surprises I got when I was laid off almost 3 years ago an figured I'd just get a job in Austin, buy a nice 200k house or less, and wallah- be done. For starters, the job market in my field ( tech) was TIGHT. As in getting a job was really, really difficult it would seem. Secondly, the salary was less. A lot less. Wouldn't be a big deal if you had money already, but still- its not as easy as just relocating and assuming you'll get a job there. I came away from that experience realizing that if I did decide to move to a city like Austin then it would probably be wise to have a sizable chunk of money in advance. That way let's say I got some sorta lower middle class income job. What if the house was already paid for with my "California Money"? The cost of living would be a lot less. Also- while there were a lot of 100-200k houses in Austin, all of the "cool" areas- aka, non-cookie cutter type neighborhoods were often a lot more. Many have become miniature San Franciscos loaded with lofts and hipsters. As in 300k or more, which doesn't sound like much until you figure in that their property taxes are set at anywhere from 2-3% and that rate goes UP as the value of your house does.
Still another option is to hold out for longer, save up a LOT of cash from your supposedly cushy, well-paying California job, and basically semi-retire somewhere else. My folks live in Semi-rural NC and they own a large piece of land, a decent house, and so on and the value of all of it is well under 200k. Where they live a normal house in say- an acre of land- is still easily less than 150k. I have even seen some for under 100k. So figure you save up lots of dough and go to someplace like that, buy a house for cash, stick the rest into various savings and retirement accounts, get some crappy joe-job that at least pays for your insurance, and call it a day. Sure- it would be a huge shift in lifestyle. I grew up that way. For others it would be a real shocker.
Anyway, Nobody can make a decision for you, and as mentioned, these were my opinions, but good luck to you!
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I am in a similar position sans kids. But we have a moveable veggie/fruit tree garden and a big dog, so jumping from one top notch rental in great neighborhoods to another takes a lot of work. For a while, I rented a friend's place at a third of market in the Berkeley Hills, but she sold at the peak and we had to move. We are now planning our 7th move in 10 years and it's finally wearing out its charm. I am getting sick up and fed with spending my PTO moving and setting up house.
What exasperates me is the wildly out of sync list prices. Even in the same neighborhood, two houses of similar quality and upgrades can be 100K apart in list price. I really don't think all the sellers have come to terms with the market. I guess I'll spend a week looking, put in a few offers to delusional sellers and then pick up the pace on looking for a rental. Blurgh!
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Anyone who pays more than $200k for a house is signing up for voluntary serfdom. Unless they can afford to pay cash.
If you absolutely must stay in the Bay Area, choose the cheaper of the following options:
1) rent the house
2) rent the money to "buy" a house (i.e. have a mortgage).
Don't forget to add property taxes, insurance, and maintainance when considering option 2.
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TMAC54 says
Not for housing unfortunately. I wish it did. When you have trillions of dollars being injected into an industry, you are actually trying to stop the supply/demand from working properly. It happened on the way up (corruption from the realtors all the way up to Fanny/Freddie), and it is happening on the way down. The last time we had a supply/demand market for housing was when the realtor was the few beers you had during the negotiations. Add realtors, who obviously have a one sided view on if the transaction should happen or not, and you manipulate the supply/demand relationship. Force realtors back into the workforce and we will be much healthier IMHO. Our unemployment rate would rise, but they have tricks to stop that from happening (more manipulation). ;)
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rajeevam says
I've been a renter in the BA for almost 15 years now. I have loved each of my rentals, they were awesome. Loved where they were, the type of accommodations, and the ability to get anything fixed asap with no out of pocket from me.
I have also never had a landlord do a rent adjustment on me. I moved only because I wanted a change and glad I did every time. Instead of looking at it like a choir, it was a great time to do spring cleaning and assess why I was holding onto some junk. :)
You missed the single biggest benefit of renting. Not being locked into a particular job and city. The world is huge, and who knows where the opportunities will take you. Mine have taken me to Canada, Switzerland, Brasil, etc. and if I had been an owner I would have had to turn each of them down. Instead I just stop renting, put stuff in storage and go for it.
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russell says
Unfortunately, history shows that doesn't happen.
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Once upon a time, what you could afford matched the money in hand. That proved to be an insufficient means for growing the amount of money some people wanted. So a system was devised to redefine what you could afford so that people would spend almost all of their lifetime net earnings in an instant by agreeing to occupy a house and pay that money in monthly payments.
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1sfrenter says
You're already renting all property from the 1%. The rent is called 30 years of "mortgage interest." Renting money to "buy" property isn't much different than just renting the property.
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RentingForHalfTheCost says
And that assumes it's still standing. There's an awful lot of shitty run-down housing in the BA. Even if it's a relatively new house, houses aren't built to last anymore. They're made of vinyl, particle board, and glue.
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BTW - We have an organic garden, with potatoes no less, and my son IS learning Mandarin and I think the Mandarin is going to be more useful for self-defense when he is an adult. China owns us, no matter what fairy tale we tell ourselves at night. That aside, we would like to own a home, and we work here. My business, and long built stellar reputation in my field is unfortunately here in the Bay Area. The Bay Area is a crap hole where everything is priced way to high, but I can't leave my job, and we need the medical with two kids. We live in a tiny house with land enough around the house to garden. I home school, since the school district we live in is pretty bad. My question is: Should we stick it out in the tiny house, bid on the $400,000 crap hole in the good school district, invest, or move.
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True.
Okay, no advice, but at least you're making me laugh. (:
I need to laugh right now.
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hrhjuliet says
You asked some questions and people gave you some opinions. Where we think the market is going is a guess and nothing more. If you want to know basic info about the stock market,It is suggested that one needs to have 1 million dollars worth of retirement savings by the time you retire. 2 million if you live in an expensive metro ( like the Bay Area). So the later you wait to invest, the more money you'll have to invest in order to reach that goal. The overall stock market ( as in BROAD and diversified investing) has performed at a long-term annual return of 7-10% respectively for the past 100+ years. Some people disagree and point to more recent performance. Having a 401k isn't a bad idea. It doesn't take "sexy" stocks either. Mutual funds and many 401k's are setup with different levels of risk, types of stocks and funds, as well as even some that expose you to international markets. So in other words many are setup so the investors of those funds don't have to do the dirty work of looking up individual stocks and instead they're blended together to hopefully deliver maximum performance. But nevertheless any form of investing comes with risk and so too do stocks.
There are not any right answers here. Like I said- these are merely opinions...
* NOT financial advice.
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Do you mean invest in mutual funds as an alternative to buying a house?
RE: Mandarin. I've been to China and know some Chinese people. The international language of both business and science is and will be English.
Mandarin has too many homonyms to be a useful spoken language, it's tonal so not easy to any foreigner to learn.
E.G. "Did mom scold the horse?" Mama ma ma ma?"
All of my educated Chinese acquaintances and friends speak English. You should teach your son French so he can at least use that when traveling to a great country.
The "housing market" = prices of houses, in *most places* they are dropping. But you said Bay Area and this may be an exception.
The stock market is going up. How fast and how soon nobody knows.
When interest rates are low or falling, stocks are even a better idea. The point about stocks is that if the economies all over the world slow down, the profits may fall for some companies and their stocks may drop or slow down their rise.
My view for economic success, pay cheap rent and invest in stock mutual funds, e.g. Vanguard Dividend Growth, T.Rowe Price Small Cap Value, Capital Appreciation, Fidelity Contrafund, etc.
But owning a place is attractive for families so this is what is probably what makes sense for your case.