WatchCurrently in good job for past 2 years and have saved up plenty of cash. Bank interest and CD rates suck and maxxed out 401k. Rent is 2k a month and want a bigger place but not sure if it would be better to:
1. keep renting in bay area
2. buy house 2 hours away for half cost of RBA
work remote half the week and commute 1-2x a week for meetings
3. buy townhome in RBA
Ideas? I am in cramped 1 bedroom apartment right now
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Los Angeles, CA
Buying costs half what renting does now if you do it smart.
Put 20 percent down which allows you to get an intrest only arm at say 2.875 from union bank. Rate fixed for 5 yrs or 7 watever u want.
Im paying 1800 a month total after paying prop tax and figuring the tax write off on a 677k loan. Avoid a 30 yr fixed or any loan with principal payments. People think they are safe, opposite is true. If you had bought in 06 with a standard 30 yr fixed and made say 65k in principal pmts all that cash woulda been flushed/still under water. Of course there is always down payment at risk- but why pay principal down? With IO loan i can still choose to pay principal if i want ir not. And my small pmts dont blow up DTI ratio for more loans.
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I bought in the East Bay, which is about 1/2 the cost or more of the "RBA" and my commute is around 40-50 minutes each way. Not great, but better than paying a million bucks for a starter home in the RBA.
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Los Angeles, CA
Long commute will ruin your life long term IMO. Imagine instead you work out 2 hours a day vs 2 hours in traffic? You could be fit and healthy and happy vs fat stressed out and wore out car.
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Mountain View, CA
bmwman91's website
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Pocky, I'm not quite following your line of thought. What is the ultimate goal in your situation? It basically sounds like a way to do what is effectively renting, for a lot less than what an actual rental would cost, and with little/no equity you can walk if/when that time comes. It actually has some appeal now that I think about it. "Equity" always smelled like bullshit to me since you have to sell & move to actually get it back.
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I live in a 3br/2bath $650k house in the East Bay.
I have 2 roommates, and my share is $700 a month. This wouldn't pay PMI or taxes on the house if I owned it. Not to mention the interest on the loan, or the downpayment where ever that would come from. Did I mention that the kitchen and baths are badly in need of an update, but quite functional for a rental, however it would still be a multiple/over bid situation.
But suit yourself. I just read that reasonably priced homes in the bay area are getting 40 offers right now.
http://www.bayarearealestatetrends.com/2013/02/thinking-of-selling-in-san-jose-low-inventory-in-silicon-valley-offer-frenzy/
So if you want that awesome feeling of getting out bid, or questioning your decision, jump right in! The water's warm and filled with sharks!
It's never been a greater time to buy! Says the banks and the sellers!
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Dublin, CA
If you are paying this much for a 1 BD I sincerely hope that it's in a luxury apartment complex. Paying this match for some dump builit in the 50s or 60s with no central air/heat, washer dryer in unit and built in microwave is nothing short of grand theft larceny on the part of your landlord.
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SJ says
It's quite interesting what you said.
Saved for two years and have firepower to buy presumbly a 500K townhome. Imagine someone that doubled their net worth investing in the stock market, doubled up the income, saved for, gulp 5 years or have parents with money, etc..
There are plenty of people with money in SFBA. That's why a decent home fish around 40 offers and prices will continue to trend up.
My advice is never settle for second tier property. That's essentually what happened in 2003-2006 when buyer's had to venture far to buy their home. A SFH in the pennisula will always be the last to fall and the first to rise as have been proven already. Think of costs as permanent cost, temporatry cost and/or pass thru cost.
Traveling two hours to work makes 0 sense. and it makes even less financial sense. It sounds like you are a young man with solid education, find a way to double your income in 5 -10 years depending on where you are already. Workign two hours away remotely will kill that goal.
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Los Angeles, CA
bmwman91 says
my ultimate goal is build equity while living cheap in nice home.
I never care about paying off the house there is no way i will live here very long. I work in IT so the 'same job forever' is hopeless goal. When job moves i move. I will NOT commute long term. the house gets paid off when i sell it and pocket the profit if any.
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San Jose, CA
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PockyClipsNow says
Been there, done that, it sucked ass!
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Indeed the best thing where I live now is a 10 minute commute only 7 miles to work :)
I know tons of folks who suffer from the hellish commute from East Bay to Santa Clara since they bought cheaper homes there a while back. What I may do long term is find a job that lets me commute most of the time and only require once a week in the office for meetings so that I can not spend all my cash on a home.
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SJ says
Based on this alone RENT.
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Ok so when I have a few million bucks in the bank than it is ok time to buy?
I am getting killed on my taxes!
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SJ says
You are going to pay cash for your house?
If you can explain how paying a banker $1 of interest so you can save .33 cents in taxes is a good deal go for it.......
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PockyClipsNow says
You should rent close to your job if this is your goal. Flipping a house in 3 years is a huge gamble and has a significant opportunity cost.
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Buy at 50% or less of asking price(your decision). Do not give a damn about the seller, agent or bank. They don't give a damn about you.
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SJ says
Based on this remark, you probably should go out and buy the most expensive house your income supports. I have heard that there is a better chance of finding a deal in the $1million+ range of homes. Also if you are looking for the mortgage interest deduction on your taxes, the 3.5% rate contributes pittance to that in the lower ranges (like the townhouse you mentioned). Also you have a better chance of getting a $1 million dollar fixer. You could bring up the energy efficiency and get a bunch of tax credits while doing so, and also improve the resale and value of the home.
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Definitely not number 2. It's all about your quality of life. I've known people that thought they could handle similar commutes and were hating life within a year. It also increases transportation expenses that could approach 1K per month when you consider gasoline and auto maintenance. It sound to me that you are doing well.
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Redwood City, CA
SJ says
This seems like a lifestyle decision for which only you can weigh the intangibles.
You could do better than $2k/month for a cramped one bedroom apartment. If you are uncertain about buying, look for a cheaper rental and bank the savings.
If your job is telecommute friendly, look in outlying areas that are a 1-1.5 hour commute. A 4-6 hour total commute per week isn't bad.
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@ducsingle5313 thanks! Thats what I will do.
Long term my job allows for at least 50% telecommute so 1-2 hours away with a fuel efficient car is possible. Even better with a pilot license and plane even easier!
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PockyClipsNow says
Yes. That's your opinion. My parents have done commutes their whole lives and lo and behold they are just fine. I too have done it for years and I too am also fine and dandy.
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Dublin, CA
The whole commute issue is a test of wills - for example, would you drive extra 10 miles each way to save $100,000 plus whatever you have to pay in interest for it? I say yes, but many people can't handle it.
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dublin hillz says
I agree. If we lived closer to work, our mortgage would be 50% higher. Even if we rented- again its about 50% higher than where we live in the east bay.
The ironic thing is that if you live in say- Palo Alto, Atherton, and so on, its not like your commute will automatically neccesarily be shorter in time. Ever driven around any of those places in the mornings or afternoons? I used to. Since the schools are supposedly perfect there, a LOT of families have kids who live there and as a result from my experience the traffic was totally messed up in and around those places.
So sure- maybe my commute takes 40-45 minutes each way. But I'd bet many who paid 50% more to live in one of the Silicon Valley enclaves are spending at least 20-30 minutes just getting through all of the morning and afternoon school traffic.
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I know tons of folks who suffer from the hellish commute from East Bay to Santa Clara since they bought cheaper homes there a while back.
Is your company along the light rail or reachable by any of these commute shuttles for ACE?
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Pleasanton, CA
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Keep renting. 30 years is way too long to be in debt for a wooden structure. Save and invest your cash and buy a house with cash in 10 years. Don't believe all the hype about the current value of a home is normal. Today's home prices are grossly inflated. When the fed is not giving away cash, yours will have so much value and all the unemployed, over-educated bay area folks will be drooling over your doe. Keep it protected and safe and let it grow. Houses in the SFBA will drop further than anyone will think possible. Rent and be patient. I see cracks all over this place. They are just getting deeper as we move along.
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Pleasanton, CA
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HEY YOU says
If your offer is 50% then you will beat me. ;)
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Redwood City, CA
SJ says
Another thing to consider is social opportunities in outlying areas where the ratio of white collar to blue collar workers is lower than on the Peninsula. Of course this could work to your advantage if you are a single professional and don't have hangups dating non-professional types. Not as much of an issue if you are married.
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RentingForHalfTheCost says
Really? Care to put that in nominal terms? For example, in March 2009, Case Shiller for SFBA hit 117.71 alot of people here said to "wait" because we were nowhere near the bottom.
Today, that same index for the SFBA is 146.23
So do you really believe the SFBA is going to smash below those March 2009 lows (nominally) so as to justify further waiting? If so by how much? 110? 100? 80?
I ask because I am just curious if you really believe this, or if this is just more of the breathless hyperbole this site seems to relish.
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Scottsdale, AZ
robertoaribas's website
KarlRoveIsScum says
I find it amazing that people will do this. I used to commute 2 hours a day to work, from Tempe to Scottsdale, but that was on my freaking bicycle. If I drove it was 20 minutes or so, and I even hated that. (there is a very nice bike path most of the way, away form roads but it added a few miles) To me, bicycle or walk commuting doesn't count, because you get exersize and I actually like it.
Consider if you work 8 hours, and commute 10 minutes each way, compared to working 8 hours, and commuting 60 minutes each way.
option 1: work + commute = 500 minutes a day
option 2: work + commute = 600 minutes a day.
You are in a sense working 20% longer each day to get the same pay. PLUS gasoline, higher car insurance, more frequent oil changes, tire replacement, and more frequent car replacement.
value your time more, and your home less. buy a smaller crappier home near your job! fix it up cool!
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Pleasanton, CA
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CDon says
Absolutely, I believe it. Prices have at best around here gone up 10-20% even though rates have been cut in half. The demand is not there. The lack of sales confirms that. Low inventory here is not a good thing. It means that many don't want to or can't sell into the prices.
Cash will be king again. Currently now it is taking a bath because what is a few more hundred billion to bail out the greedy. That money train will have to end at some point. The banks and gov't just love it when people lock into 30 years of foolishness. Screw them, keep your hard earned cash and buy when the tide goes out and then we realize who is swimming naked.
All the positive indicators you can post here are all heavily manipulated by NAR, banks and the gov't. Haven't we learned anything from the crash? How quick we forget. What? Everyone got some morals all of a sudden? B.S.
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Pleasanton, CA
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robertoaribas says
option 3: sleep at work = 480 minutes a day + no debt. I did it in the SFBA for 2 years. Awesome commute.
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RentingForHalfTheCost says
Actually, that is the thing to remember...while all these indicators are indeed artificial, there is absolutely no hint that they will be relaxed anytime soon.
And herein lies the problem. The entity you are attempting to "wait out" has the lowest carrying costs in the world (and no, thats not hyperbole). Certain sectors have been manipulated for multiple human lifetimes - and all those who elected to "wait" are now dead.
On an unlimited timescale, yes absolutely, you will be right. However, IMHO, there is a certain arrogance to suggest you will see it all come crumbling down on your watch - and enough so that it warrants you to "wait" for it to happen.
In any event, it will be interesting how long you maintain that the March 2009 CS value of 117 was not the nominal bottom. The current value of 146 has not done it as you seem resolute as ever. Will 150 change your mind? 160?
Further, even if it does come crashing all the way back down, what of all the intervening years of rent payments? Whatever nominal value you see happening, it better smash the 2009 bottom to justify 3, 4, 5 years of rent payments that otherwise would never have happened. Put another way, if one was ready to buy in 2009, why would they pass on CS 117 only to rent for 4-5 years AND THEN buy when the index fell back down to 117 say in 2014?
Bottom line, be very careful with your advice to wait. Everyone knows the maxim - the market can remain irrational longer than one can remain solvent. The corrolary should be - the govt can play kick the can longer than one can remain alive.
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Los Angeles, CA
Don is right. Human lifespan is short compared to an empire/currency regime.
All you can count on short term is inflation and perma zirp.
Its really shocking how they lower rates to nothing stealing retirement from all savers counting on CD or bond income. Of corse gov pensions guarantee 8% return. Slowly we turn into cuba - gov employees and welfare recipients are ever larger groups. Anyway you can still buy with low down and walk away if it crashes!
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The commuter times discussion is strictly down to personal opinion. Again- I hear a lot of people whine about commuting to and from work. Many choose to live closer. If that's in the Bay Area that means you're gonna' pay more... a LOT more to do so. In other words, if commuting is a sacrifice in some people's eyes, then so too is paying a lot more money to live closer. Both are not exactly stellar outcomes.
Commuting doesn't bother me. If it does others, then that's there issue and I have no issue if they make the decision to live closer and pay more. That's not my preference.
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Pleasanton, CA
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CDon says
I hear you Don. And it very well could outlast me. However, the fear of being part of the masses that run into the fire is much greater to me than the fear of renting for life. I don't see any difference in being a renter verses and owner. Maybe it is just me, and I have been extremely lucky with landlords. Right now in the SFBA I even feel the benefit of renting verses owning financially. I sleep well at night knowing that if we do have major adjustments (which are long overdue IMHO) then I have many great choices.
1) move out of the area altogether
2) downsize to a smaller rental if rents rocket
3) wait for the correction and buy when everyone else is selling
I am one of the lucky married guys that actually have more drive to buy a house than my wife. If it was up to her, we would just rent forever if needed.
Now, that is not without saying that we have two lots outside of the SFBA that we could start building at anytime. That and a few houses/condos that we rent. I am not allergic to real estate, my beef is only with the SFBA.
Also, without saying that my focus in life to make it quickly to retirement is through my investments and my job. I was fortunate to ride the tech wave with one company and now trying to do it again. These are things I can control and play a valuable part. What happens with the interest rates is at best just a guess. This could take decades I know and it won't really bother me if it does.
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Everyone has their own unique situation and position when it comes to buying or renting. In the end it comes down to what makes financial sense ( for you) and not everybody. For us buying made sense because interest rates got so low and we had been saving for 12 years. For others its not the best time. Do what makes you happy.
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Pleasanton, CA
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edvard2 says
Try, but in the end as history will be my witness. Many many people of my generation will overpay for a house. That realization will suck and cause a spike in depression drugs. Just saying...
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RentingForHalfTheCost says
If someone can afford the payments and they are following basic economic principles then they aren't overpaying. If someone buys and can't afford the payments or stretches themselves thin, the yes- they are overpaying. I didn't buy for an investment. I bought a house to live in. If it goes down in value I don't really care. I have retirement accounts for my investments. I waited for a very long time to buy and after I did, there are definitely some nice aspects to owning. Its been great so far. It isn't for everyone. But ultimately its down to the individual because its either always a good time to buy or a bad time to buy- on an individual basis.
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SJ says
My advice would be never spend more than 300K on a house you can't afford to buy out right, even if you do finance it.
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San Jose, CA
I think this very much depends on the nature of your commute. I commute 1 1/2 hr one way b'cos I live at Santa Clara/San Jose while working in SF. But, about 50 min of my commute is on caltrain, so it doesn't bother me. I get the time to read the morning news & stocks, and evening to relax/listening to music before reaching home. But, if I have to drive for 1 1/2 hr one-way, I would move.
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Scottsdale, AZ
robertoaribas's website
my commute today was a brisk 35 degree 20 minutes by bike; I had to go on the roads, as all the rain will have made my trail across the desert too muddy, and I'd be too splattered with mud to teach! Also, I had to ride by a post box and mail some letters. LOVE not driving to work!