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I recall a thread discussing MBA's a while back. Many of us asserted that the value of the degree is not so much the academic content of the coursework (just look at ConfusedRenter - MBA and he's selling real estate now...); rather, it's (a) the "label" of the school you get to slap on your resume 2 years and $50-100K later, and (b) the connections you develop with other business types there, which are more valuable the more top-tier the school. So my non-first hand experience advice is, ask yourself, is going to a place like Santa Clara or any other place you're contemplating going to get you these things?

@Boston Transplant,

I guess we have opposing views on the "value" of the MBA.

allah said:
They will whore themselves to that occupation and America will hire them instead of their own.

Why would you consider someone training for a professional career to be 'whoring' themselves? Is it just because they can do the job for less money than you are willing to do?

Not trying to start a flame war, I just found your choice of phrase a little extreme.

SP

Boston Transplant,

you are talking about a nice home in the best area, of course you should not be able to afford one. My understanding of a nice home in the best area is a 4000 sf home on an acre lot in Atherton, why do you think just by having an MBA degree from the best schools entitle you to such a prize? There are 1000+ graduates from HBS each year, if all of them can afford such a home, how many Athertons should we have in the Bay Area?

OO,

As I understood Boston Transplant, his gross household income would be about $250-300K. Out of that, they would probably pay pretty substantial student loans. They could probably afford a $750K-1M house pretty comfortably...but that's not very much in all but the most ghetto South Bay neighborhoods.

But until the prices get cheaper, there's always renting as a option. Maybe one of those VC wives or the proverbial 30 yr long absentee landlord would agree to a 5 year lease with fixed rates of increase. That would be a pretty cushy deal while waiting for the RE market to deflate.

Beats me. I've always been lead to believe (except from the MBAs on this blog) that HBS was just one long grueling marathon network session.

astrid,

the operative word is "nice" and "best" :-)

I think for a family of 250-350K to afford a 1.2-1.5M is not unreasonable (not that I encourage their buying at this stage). 1.2-1.5M will get you something decent in the good parts of Saratoga, but not a "nice" home. It is probably a 50-year old 2200 sf home on a 1/4 acre lot, not "nice", which probably means a larger, newer home on a larger lot. Any "nice" home in the "best" neighborhoods in the bay area cost at least 5M+, and frankly nobody should be able to afford them except for those exceptions we talked about: CEOs, VC partners, IPO founders, successful HF managers, etc.

FAB, thanks for the info.

Boston Transplant,

is Boston cheaper than the Bay Area? Somehow I am always under the impression that Boston is even more expensive, because it is much smaller than SF geographically. When I was there over 15 years ago, Boston was decisively more expensive than the Bay Area.

Beacon Hill is very nice, I remember the rent of 15 years ago for a 2-bedder was higher than that of Pac Heights.

p.s. I apologize if my name has confused anyone. I am transplanted TO Boston FROM northern California. I do hope to return someday and it would be nice to buy a home (not a mansion) somewhere near Stanford or SF.

Also, using the 3X salary number that pops up here from time to time, we would not consider spending over $800k, and in reality our budget is much lower than that because one or both of us may work part time in the future. I know, we can't have 1 to 1.5 salaries and live near Stanford or SF. Sigh...

OO,

I think Boston is now less expensive than SF, but I'm not sure. Our apartment in Beacon Hill has 1000 square feet and rents for $2400/month. We even have a roofdeck with a view of the Charles. This same apartment would probably sell for $750k or more...

Ha Ha,

You stand on immigration and Democrats makes less sense with each new iteration. You can vote Republican or Libertarian if you like (since your vote means zilch in the coming election), but I don't think their platform would be less illegal immigrant friendly compared to Democrats. Perhaps you need to look up some of the more xenophobic third parties for something more amenable to your sensibilities.

OO,

I was being conservative since BT's wife probably had substantial student loans in addition to housing costs. Arguably, yeah, only the most successful/lucky will end up in an Atherton mansion, but it is a big cognitive dissonance for people who've been super performers all their life. Why can't they have the 3,500 sqft McMansion that their loser classmate in Austin lives in or own outright like the teachers next door to their rental?

Boston Transplant,

the rent to value ratio certainly sounds much better in Boston. Down in the south bay area, there is no way you can get 3.8% gross rental yield on the house or apartment, everywhere I look it is around 2.5%, some even as low as 2%.

Well, while I believe that the big correction will set in, I am not sure of how big the correction will be for certain prime neighborhoods (not Portola Valley or Atherton, just blue-ribbon areas with good schools). It just seems to me that there are quite a few 200-300K families targeting these locations (or are already rooted there), so when the correction happens, there still may be more demand than supply.

The odd thing is, these neighborhoods that we are talking about, Menlo Park, Palo Alto, Los Altos, Cupertino, Saratoga, etc or even Almaden, seem to have a stabilized number of SFH listings (except Los Gatos all other are below 100) at the moment. Let's say that the general market starts dropping a lot, all you need is just another 1,000 households with 200-300K income to jump in to pick up the slack. The problem for all of us here is, we are all looking at the same areas, so no matter how much east bay cracks, it is really not helping much.

If you are planning to come back, don't buy a house out on the east. I've been told many times before, and it seems to be true, those who left CA and bought elsewhere always found it very hard to buy back in, because when CA starts to pick up, it picks up much faster than the rest of the country, and it is always one of the most expensive spots in the world.

@Boston Transplant and OO,

Having gone to school in the BA, then moved to Boston for about 8 years, and then recently moved back to the BA, I can address the comparative housing costs questions. Simple answer: Boston is a LOT cheaper than the BA. Even in the nicest parts of downtown (Beacon Hill, Back Bay, South End), only the super-luxe full service condos go for anything close to $1000/sf. Compare that with your typical crappy POS condo/TIC in lower Pac Heights that is in need of a complete rehab. The "prime" suburbs (Newton, Wellesley, Brookline, Weston) are nowhere near as expensive as Atherton, Woodside, LAH, etc. $1M in prime Boston suburbs still gets you a lot. Try this: http://tinyurl.com/ska33

If you're looking for a downtown Boston place, have you looked at the South End? The housing stock is beautiful, there are lots of young professionals with kids (most move to the 'burbs by school age b/c of the city's lousy schools), you get more space than on the Hill, and you can often get a parking space out back.

Boston Transplant/BT Says:

> OO, I think Boston is now less expensive than SF,
> but I’m not sure. Our apartment in Beacon Hill
> has 1000 square feet and rents for $2400/month.
> We even have a roofdeck with a view of the Charles.
> This same apartment would probably sell for
> $750k or more…

I'm no expert on Boston (since I grew up, went to undergrad and grad school in N. Cal), but over the years I've got to know a lot of people that grew up, went to undergrad and/or grad school in Boston and it seems like home prices and rents on the Peninsula and SF have always been higher than similar Boston and Boston suburban areas. Today a 1,000 sf place in Pacific Heights with a view of the Bay and a roof deck would probably rent for at least $4K a month and sell for well over a million (I saw recent sale of a 1 br condo on Broadway in Pac. Hts. without any view that went for $1.1mm)...

I never rented in the city, my first rental was down in the South Bay near Palo Alto. Perhaps my perspective was skewed by the fact that I came to BA after the real estate crash right when the market was still sinking.

TO Lurker,

Again just my opinion which is worth what you paid...

In your specific situation, getting an MBA from a part time program, especially well ranked like Haas EWMBA, might serve you well if you think you'll have a career break for kids but want to return later. Re-engaging a career after a couple few years break is hard enough, but having an MBA should give you a leg-up on the competition; it will also give you a huge network you can draw on when time comes to find your way back into the workforce.

The NPV of the proposition isn't so good though. You'd have to look at it as more of a "real option". That is, you're buying insurance in case you want to continue your career.

goober,

this only applies to very few suburbs. There are far more houses than 1000+ in the whole BA.

It all comes back to one theme - employment. If we encounter a 2001-style recession again, when an average GSB or HBS graduate of that year even had trouble finding a job, then even the best zip codes will suffer.

I have a friend who graduated from 2001 class of GSB, and we went to his commencement. Many graduates of that year were still struggling for an offer at commencement, some guys remained unemployed 8 months later.

However, whether there will be massive job loss is not determined by the housing stock of a few select suburbs. It is determined by too many things beyond the control of the US government or any government.

Did you meet lots of Chinese students at your Stanford class?

There are quite a few.

I believe they have a pretty good SJD program, if you choose to get one. ;)

But, if they are making $500K a year for say 3 years already, they could easily buy that $2mil condo.

How so?

You are either a troll or a subverter or both.

I think for a family of 250-350K to afford a 1.2-1.5M is not unreasonable (not that I encourage their buying at this stage).

More like 1M - 1.4M if they have 20% down...

4X income is already quite a stretch.

I am more concerned about the HOA fee and property tax on that 2M condo. These two added up can easily be around $50K a year, and all the outgoing will be after-tax since at $500K you are most definitely taxed at AMT.

Let’s say that the general market starts dropping a lot, all you need is just another 1,000 households with 200-300K income to jump in to pick up the slack.

They can only afford 800K to 1.2M. What can they get?

I have a friend who was preparing to spend 1.6M in PA. Everything was crap at that price.

I am more concerned about the HOA fee and property tax on that 2M condo. These two added up can easily be around $50K a year, and all the outgoing will be after-tax since at $500K you are most definitely taxed at AMT.

Exactly.

Where you live is secondary…How you live is primary!

Where you live is secondary…What you eat is primary!

Peter P,

just have to say your friend is looking at the wrong place. Palo Alto is the most overpriced (not just expensive, but overpriced) neighborhood in the South Bay.

Try Saratoga, 1.6xM can get you something like this: (Saratoga High)
http://tinyurl.com/yz3xdt

or this: (with Monta Vista High)
http://tinyurl.com/ybq3tq

@allah,
Thanks for the clarification that by 'whoring', you mean someone who is willing to do a job with equivalent competence for less money. Since you mentioned "swarms of Indians" in your example, I was curious whether your definition applies to only that group, or to say "swarms of Czechs" or "swarms of Angolans", for instance.
SP

flooded with rentals Says:

> The investment property/2nd homeowners are in a quandary.
> Do I take a negative cash flow every month and try to ride
> out the downturn or do I dump this 2nd home.

Very few flippers/investors have the ability to “ride it out”. A good example is our friend Casey, and he is not the only Sacramento Flipper in trouble:
http://flippersintrouble.blogspot.com/

> The mortgage on owner occupied home will adjust soon.
> In some cases the monthly mortgage will go up $700 or more.
> This puts time pressure on the decision of what to do with
> the 2nd home.

Here in SF I know lots of people that got in when rates are low and have $1mm mortgages that are going to go from about $3K a month to close to $7K a month when they go from IO to fully amortizing. As foreclosures continue to rise it will put upward pressure on MBS credit spreads (that are currently near the all time lows) and some of those $1mm loan payments may go as high as $8K a month (remember this is before property taxes and/or HOA fees that will add another $1K to 2K a month) by the end of 2007…

One thing I haven't seen mentioned in all this hypothetical speculation about highly-paid, two-income MBA couples is this - many of these jobs appear to be in the financial industry, and in highly specialized, exotic and risky niches.

In anything like a downturn, my guess is that these will be hit harder with cuts in headcount and/or reduced compensation. I don't have the inside data to confirm this, but am extrapolating from what I have seen with specialized, high-income roles in other industries.

SP

If you make 500K/yr for 3 years, you could save about $500,000 net after taxes.

Yeah right. You assumed that people consume the same amount regardless of income. :)

Even if that is true. A 1.6M mortgage is the maximum limit for 500K income.

I attended a party this weekend at a Haas graduate's house - about a dozen guests were also Haas MBA's. Only two are in finance - one in corporate, one in IB. The rest are just grunts in product marketing.

Based on this anecdotal sample, it would be wrong to assume that all MBA's are raking in 150-200K each. Assuming that they will buy 2M condos is downright delusional.

CR is a troll, and probably a realtor. I don't have a problem since I don't think he has any credibility left on this forum anyway. However, if enough people want me to fumigate, I will take action.

SP

ConfusedRenter Says:
Not a troll Peter P. If you make 500K/yr for 3 years, you could save about $500,000 net after taxes. 2 mil.. you put 400K down and another 15K in closing costs leaves you 85K. Sure, that’s tight… but guess what? 12 months later, the couple will get another 150-200K net after taxes cash bonus etc, and then it’s all good.

Anyone who takes this stinking, steaming pile of advice and buys a house based on this reasoning truly deserves to be taken advantage of.

SP

CR,

The brutal truth facing the IB and consulting industry is, up or out. The 3-year-out-of-school salary is not indicative of the 10-year number. In other words, the ramp-up rate slows down tremendously.

The out ratio is 7:1 average, probably 10:1 in bad years and 6:1 in good years. 3 years out of school, you are still at a senior associate to a junior manager level, about another 5 years away from the junior partner level. Junior partners at a consulting firm make mostly 300-500Ks, with a lot of that tied up in the form of vesting equity so that they keep working their butt off until they become senior partners. Only the senior partners at top consulting firms (read: 3 firms in the world total) make more than 1M a year. My cousin is a junior partner at one of the 3 firms so I am just going to trust his words.

What happened to all those senior associates from IBs or consulting firms who don't make it to the next level? Come to industry and make our industry salary, and I can tell you that, your typical 5-year-outta-school MBAs, regardless of which school you are from, don't make higher than 150K, unless they hit the jackpot with IPO. Sure, you can go buy a lotto ticket every week, getting an MBA is not a pre-requisite of winning a lotto.

ConfusedRenter, who is most likely a realtor or a troll, said:
But, if they are making $500K a year for say 3 years already, they could easily buy that $2mil condo.

Perhaps. But would any unbiased, accountable professional actually advise them in good faith to do something this foolish?

A realtor surely would, because a realtor is neither accountable, unbiased nor professional - they are used-home salesmen who get paid on commission.

SP

Peter P said:
You assumed that people consume the same amount regardless of income.

I am probably an eccentric, but I have found that my appetite for consumption has actually fallen as my income went up. The more crap I can afford, the less crap I want to have. :-)

SP

I am probably an eccentric, but I have found that my appetite for consumption has actually fallen as my income went up. The more crap I can afford, the less crap I want to have.

Really? I do not think my appetite for food will fall any time soon. :)

Most people who are driven to earn higher income are driven by the desire to more consumption.

Perhaps you are right. It is difficult for anyone to consume more than $200 worth of food per day on a consistent basis without dropping dead. :)

Peter P Says:
Really? I do not think my appetite for food will fall any time soon.

I wasn't talking about food, although I correctly guessed that you would respond this way. :-)

I am famous for spending all day in a mall without feeling the slightest urge to acquire anything other than an espresso. I feel sorry sometimes - the retailers go to such great trouble to put together elaborate gimmicks to help me spend, and I just go strolling by like Chance The Gardener walking past Eve Rand.

SP

Are you voting DEMOCRAT?
Sorry, I like to keep my political preferences private.

so do i. i don't think i would ever talk politics in here normally.

however, maybe it is time for regime change...

I am famous for spending all day in a mall without feeling the slightest urge to acquire anything other than an espresso.

I can do that too. But there is not much to buy in the mall.