patrick.net

investor90 says

Save and don't spend it, and don't invest in the stock market. Keep the money that YOU earned and paid tax on away from the thieves, banksters, Real-a- tors and politicians who try to steal it from you.

And why not I ask? I only say that because for the past 100+ years stocks have paid around 7-8% a year over the long term. Do you buy toilet paper? Gas? groceries? Do you also own a car, a computer ( of course you do because you're on this site), or own a pair of shoes? Do you wear clothes, use a cellphone or walk on sidewalks and drive on streets? Does your living space have copper wiring, paint, light bulbs, and door hinges? If you answered yes to any of the above then a company made those things and they probably have stocks you can buy. The economy might go to hell in a hand basket but people somewhere are still buying cans of dog food, lipstick, and cereal. That's what its all about. Invest in what people buy- which is everything, and if you do so in a spread out, diversified manner, you'll make money. Nuttin' wrong with that...

Hysteresis says

my job as a european gigalo pays very well

Obligatory:

My wife and I always saved. But we didn't buy during the bubble either, we bought prior. Right now we have enough savings to buy more if we wanted to, but we are using it for our retirement planning and other means, not wasteful consumption.

Our kids on the other hand are completely screwed with the market though, government social engineering has raised the prices quite sky high lately, so even old crap is out of reach for them unless their parents cover the costs (which isn't happening).

It's kind of stupid to buy now, it's just too cost prohibitive and dumb in most cases. I hear some people who buy now are simply foreclosing their existing houses with bailout forgiveness and since they got a bunch of helocs during the bubble that they did not spend they are using those to buy new houses cash. Not sure how widespread that is, or it's just rare individual cases.

Yup. One of my friends who bought also received a fairly sizable chunk of cash for their down payment on a house in SF. Otherwise it wouldn't have been possible. This seems to be a fairly common occurrence in the Bay Area. One person I knew lived in a house their parents bought them. No kidding.

EMan says

Our kids on the other hand are completely screwed with the market though, government social engineering has raised the prices quite sky high lately, so even old crap is out of reach for them unless their parents cover the costs (which isn't happening).

I sort of wonder about the kids in my neighborhood. Prices are indeed still ridiculous. Yet part of it came from their parents who insist that their area should be turned into a museum and NO new houses should ever get built. As a result many households around us have college grads living with Mom-n-Dad. Sort of makes me wonder exactly what percentage of today's kids in the Bay Area will simply move away since home is too prohibitive for them anyway.

Well, I'm not a cash buyer yet. Enjoying living in my nice rental house for now, and planning on jumping in when the time is right. But I'll be able to, mostly because I bought modest a 2 bedroom 1 bath house in the Berkeley flats in 1992 and sold it in 2005 for a 3x gain.

We have 20% down for what we want to spend. We saved it when we were DINKs and avoided buying during the bubble. Now we're just sitting and waiting until we actually LIKE something in that price range.

In the circles I travel in, nobody has any money at all. There's much more foreclosures and bankruptcies than savings of any kind.

I have 7 figures in the bank. How did I get it?

When you were thowing spit wads in grade school, I was paying attention. I was that guy you called a "brain" before punching me.

When you were smoking dope in the parking lot in high school or playing sports, I was working full time AND getting good grades.

When you were at the frat drinking beer, I was working 40 hours per week to put myself though college with a 3.85 gpa.

When you got out of college and traveled around Europe, I was working 80 hours per week getting experience and paying off my student loans. I didn't get that new BMW and a nice apartment, I lived in a rat-hole studio and drove an old Mazda.

When you wanted security and benefits in your job, I took a commission only job and worked from 8am to 11pm seven days per week for six months before getting my first paycheck.

When I had extra money, you bought a ski boat and a nice vacation. I never took vacations for more than a couple days in my 20's and 30's and I invested any extra money in my own business.

When you missed payments occasionally and didn't work to protect your credit, I used my good credit to take out out loans for my business.

When you were avoiding risk, I put everything I had into my business and risked it all for 20 years.

Now that I am in my 40's I have some money in the bank. Go figure.

Good work Jonny. You forgot to thank the academy

So you spent your youthful years behind a wall making money. Now you are old and spend your money on getting that back? Everything is a trade off.

Worked for years and years as a programmer to get my 25% down that I intend to use to buy a multifamily (maybe - or I'll start a software company!). I'd have a lot more if I didn't invest in the stock market (probably lost about $100k) and didn't take 2 years off working.

I have plenty of money in a 403(b) for a down payment, or even a full cash buy. But tax law makes me a little reluctant to do so because of the hit I would take in that tax year for the withdrawl.

sf.irony says

Worked for years and years as a programmer to get my 25% down that I intend to use to buy a multifamily (maybe - or I'll start a software company!). I'd have a lot more if I didn't invest in the stock market (probably lost about $100k) and didn't take 2 years off working.

Very similar to me. Never had any stock options in the money, but I had a good salary as a programmer in Silicon Valley for about 10 years and saved a lot by renting instead of owning. I also lost some of it in the stock market (curse you Polycom!) but retained enough to take time off to work on Patrick.net. OK, I didn't really "take" time off at first. I got laid off. But now I've decided that Patrick.net is what I really like working on, and I'm squeaking by. Renting is what really made it possible.

Doing this via #1 is not difficult. A modest tech salary is $100k, then add $50k between bonuses and stocks. If you watch your expenses (use a tool like mint.com) and don't live extravagantly (I've had the same car since college), you can easily save $50k/yr. If you get married to someone doing the same, then that's $100k/yr. So in 5 years you can together save $500k for your downpayment. If you're not making even a modest tech salary in this area, consider moving :-).

Some people get fulfillment from spending money now and some people get it from saving and spend later. But you never know when you are going to die and the world may end tomorrow as we speak. You cannot bring debt or material wealth with you when you die, so to each of their own.

#1 and #6 (which I just made up) Patience.

We started our own business in 1991 with $1000 cash and a Mac. Spent the next 20 years building our company and avoiding paying interest. Bought our current house in 1996 and paid off the mortgage in 11 years.

I remember asking this same question back in the boom days when I watched tv shows with couples looking for their third and fourth homes. A nurse and a cop buying a third home? You have to be kidding me. I didn't make enough money to own three homes (or at least didn't think I did).

Now I'm grateful I stepped aside and let others jump into the boom. Some of them made a lot of money, a lot of them lost. But we're still plugging along. Now we have a large chunk of cash for a 30 percent down payment and can sell or finance our current house for the remainder.

I'm waiting for the right retirement property to come along...

JonnyG says

When I had extra money, you bought a ski boat and a nice vacation. I never took vacations for more than a couple days in my 20's and 30's and I invested any extra money in my own business.

When you missed payments occasionally and didn't work to protect your credit, I used my good credit to take out out loans for my business.

When you were avoiding risk, I put everything I had into my business and risked it all for 20 years.

Now that I am in my 40's I have some money in the bank. Go figure.

Good job. If 1/4 of the Americans were this industrious, we'd be in good shape. Unfortunately it's probably less than 1%.

Reading these posts makes me realize exactly why my wife and I will likely never buy here: Sounds like a LOT of people have cash saved up and are probably perfectly ok with spending 500k on a house at some point. As mentioned, we too have cash- but I'm not about to blow 300k-500k cash on a house either. There's simply too much competition from other people who have done the exact same thing we have done. Oh well.

My mother passed away in 2006 and I inherited her Southern California house and her Palm Springs house. Sold them both in 2006. Then took that money and bought two houses for 1/4 of that in Wisconsin. Knowing my mom, she must be smiling today knowing she passed away at the peak of the biggest housing bubble in history. Thanks mom. Crazy lucky if you ask me.

It is all about discipline.

I know a guy who saved up 160K. He is an ex-con that I hired to do handyman work for me. He works odd-jobs: dish-washer, prep-cook, yard hauler. He can't get a real job because of his past.

He saved up $160K in cash and put it in a CD. He has been looking for a house and plans to pay in cash in a few years.

This guy never goes out. Whenever we do odd jobs like moving a sofa or installing a water heater, he comes by with a water bottle he re-uses. He never eats out and doesn't even have a cell phone.

He is a perfect example of living under his means. I learned a few lessons of frugality a few years back. I started it out with zero and saved myself $60K in less than 8 months. And it started to grow and grow.

I stop buying frivolous stuff. I don't think I've bought a new pair of pants in 4 years now. I bring my lunch to work. It really does add up.

For me, I'll never be in that stratosphere with my upper 5 figure salary.

But I save around $15K/year so I'll be just fine.

For the upper end, I have some degree of knowledge here as my parents live in a wealthy enclave in Huntington Beach.

The community is a mix of retiree's, business owners, and upper class professionals.

Without fail the retirees are only those who bought when the development was brand new in 2001/2002. The average homes at that time sold for $640-850K. Currently the selling prices are 1.1-1.4 million. Most sold a home they owned outright and most had some substantial savings. As far as I know, all of the retirees own the houses outright, or have a ridiculously small mortgage under $250K.

The current buyers are all wealthy income people...primarily doctors, many in which both husband and wife are doctors. I don't think there are any current exceptions to this.

And now onto the business owners...and this is where things get interesting IMO. While I'm sure many are on the up and up, I know of specific instances where things are not. I do know that many times these people actually cant document income sufficient to own at these levels and thats where the "shadow figure" comes in. I highly suspect this will be laundered money from criminal enterprises, but can't be sure. Anyway, this buyer will miraculously come up with additional loans, almost always with super shady terms(repayment with a very short term of usually a year or less along with very high interest rate, to be paid up front).

Anyway, if anyone wants to really know why the Armenian areas of LA are still at subbornly high prices(Burbank, Valley Glen, Glendale, Atwater Village, et al), you now have your answer.

JonnyG says

I have 7 figures in the bank. How did I get it?

When you were smoking dope in the parking lot in high school or playing sports, I was working full time AND getting good grades.

When you were at the frat drinking beer, I was working 40 hours per week to put myself though college with a 3.85 gpa.

When you got out of college and traveled around Europe, I was working 80 hours per week getting experience and paying off my student loans. I didn't get that new BMW and a nice apartment, I lived in a rat-hole studio and drove an old Mazda

JonnyG, There is a balance to everything you wrote. I would never give up my youth as you outlined. Travelling in my 20s was the greatest thing to enrich my life and instilled a great sense of humility.

Also, I don't disrespect the playing sports in High School either. I can forget the smoking dope part of your comment but sports is a good thing.

It is nice and all that you have all this money and brain you bragged about. But, I don't think for a minute, I, nor other people I know would ever give up their lives and trade it for yours. I nearly died a few years ago. I know people who died in their 30s and to me, I could at least said I lived a full life and saw the whole world. That nice apartment/Porsche in my 30s was also a nice bonus and motivator for me to work harder and make more money. You can't take all that money with you to the grave. I, at least, can remember my exotic sunsets on all continents of this world.

I don't need 7 figures. I can easily take my current (small 250K savings) and retire in a nice villa in Costa Rica and surf everyday.

burritos says

JonnyG says

When I had extra money, you bought a ski boat and a nice vacation. I never took vacations for more than a couple days in my 20's and 30's and I invested any extra money in my own business.

When you missed payments occasionally and didn't work to protect your credit, I used my good credit to take out out loans for my business.

When you were avoiding risk, I put everything I had into my business and risked it all for 20 years.

Now that I am in my 40's I have some money in the bank. Go figure.

Good job. If 1/4 of the Americans were this industrious, we'd be in good shape. Unfortunately it's probably less than 1%.

What was the point of life again?

fwiw I know a lot of people that have bought with significant down payments or with cash, and pretty much all of them got the money (or most of it) from mom and dad. Or from divorcing well.

Some got the money from selling during the bubble years, but they got the first house from mom and dad....

There is always some cash sitting on the sidelines waiting for the right opportunity. Of course, many putting down large amounts of cash are still losing money as the housing market continues to slide. The value of the dollar is dropping, so some of these losses are being mitigated by the dollar's declining purchasing power (inflation).

The important thing to remember, imho, is to look at how far the volume of RE transactions has fallen. There are far fewer deals happening for mant reasons.

I'm like this guy.

I don't have 300k+ to "plunk down" on a house. I do have enough to buy for cash in say- TX or NC. So I guess I'm sorta' one of those guys. My cash came from busting my ass for years. I make what I'd consider a good income. But that aside I've saved cash from renting cheap, driving the same worn-out ancient beater cars, rarely eating out, picking up furniture from the side of the road, not buying whatever latest gadget exists out there, and so on. So basically just old-fashioned scrimping and saving.

A lot of other people I know fit some of those categories above: They have rich parents who gave them money. They make mega-buxs at some big tech company. They sold a house earlier and have cash to spare from that sale. They're in their 40's or 50's and are just now getting around to buying a house, etc etc.

That said... I also know a lot of people who "own" a house and basically haven't a penny to spare as a result.

OH Come On!!! Where are all the folks who got 50k plus from bank of Mom and Dad. Plus the car Plus the school money,..and all the help to land that first job maybe. Is everyone here being 100% truthful and giving enough credit to their first big money break. I don't think so. I think some of you are not giving credit to that well placed well timed parental help. you may have earned some of it,.. but you also where helped big time. you know who you are.

I don't know one person that has a house that didn't get a big fat break from a parent or close relative some how,..in some way. I mean I'm talking about 100k plus in some situations that I know of,... the lowest being like 40k.

Now I also know of some hard working hard saving friends who also got a big break from their hard working hard saving parents. so did they earn it? yes. did they earn all of it,...no.

Katy Perry says

OH Come On!!! Where are all the folks who got 50k plus from bank of Mom and Dad. Plus the car Plus the school money,..and all the help to land that first job maybe. Is everyone here being 100% truthful and giving enough credit to their first big money break. I don't think so. I think some of you are not giving credit to that well placed well timed parental help. you may have earned some of it,.. but you also where helped big time. you know who you are.

I don't know one person that has a house that didn't get a big fat break from a parent or close relative some how,..in some way. I mean I'm talking about 100k plus in some situations that I know of,... the lowest being like 40k.

Now I also know of some hard working hard saving friends who also got a big break from their hard working hard saving parents. so did they earn it? yes. did they earn all of it,...no.

I know many who did not get help from mom and dad.

However, they do not live in the weathly areas. Instead they live in blue collar areas, or in the new middle class latino enclaves...Whittier, West Covina, Hacienda Heights, etc.

All are professionally employed with familiy incomes in the $80-140K range. I don't think any paid more than around $375K for the home, and in some cases as low as $225K.

I don't know anyone who bought a $600K+ home who did not get help from their parents or from selling off an outright owned home.

Mom did not help us. We bought within are affordable range. If you can't afford it, umm don't buy.

I'm guessing those who didn't/won't have to pay for their own house don't frequent forums like this.

But I'll freely admit my parents did pay for my college education. Mind you it was in-state tuition, so it wasn't the kind of money you seem to be talking about.

Katy Perry says

OH Come On!!! Where are all the folks who got 50k plus from bank of Mom and Dad. Plus the car Plus the school money,..and all the help to land that first job maybe. Is everyone here being 100% truthful and giving enough credit to their first big money break. I don't think so. I think some of you are not giving credit to that well placed well timed parental help. you may have earned some of it,.. but you also where helped big time. you know who you are.

My company is earning more, thanks to low corporate tax.
My investment is also doing great. The return is more like
20% annually. I was able to lay off a few people,
because the business volume went down. But with the
tax break I am getting, I am actually saving more money
than ever.

I can pay for the whole house right now, but why?
The return on my other investment is much better than
6% interest which I will be paying on my loan.

Oh, and I sold my house 4 years ago and kept the
money. I have a year before I have to buy a property
for tax purpose.

If you have the money to begin with, the recession,
although it looked pretty bad at first, was very
profitable. And I can only thank you for FED's QE
and government bail out. My net worth is 40%
more now than 4 years ago with less work (since
my work volume went down..)

My only gripe is that my money does not seem to
go far when I am in Japan or Europe. I used to be
able to get a bottle of coke for a buck, now, I have
to pay more like $1.5...

dodgerfanjohn says

OH Come On!!! Where are all the folks who got 50k plus from bank of Mom and Dad. Plus the car Plus the school money,..and all the help to land that first job maybe. Is everyone here being 100% truthful and giving enough credit to their first big money break. I don't think so. I think some of you are not giving credit to that well placed well timed parental help. you may have earned some of it,.. but you also where helped big time. you know who you are.

Hear, hear. Maybe people aren't considering trust funds or inheritances as "parental help."

I've saved up $250k in non-retirement accounts and about $60k in retirement accounts simply by living on about 1/4 of my pre-tax income. I've been working and saving since 1998. During 1998-2001 I also actually got paid for overtime, but not since then. Unfortunately, about 1/4 of my income goes to federal income tax. And then a significant percentage goes to other taxes including the inflation tax.

It's not actually difficult to save. You just have to say no to instant gratification. Most Americans will spend at least as much as they take home regardless of their income. Take a person from $45k/yr to $80k/yr and their "essential expenses" will rise as much as their income.

But as long as your willing to live within your means, saving isn't rocket science. And over the years, it can really add up. I started my first IRA when I was 20 years old and have been contributing the max amount ever since. I'd strongly advise everyone else to do the same. The amount of time you have before retirement is the most important aspect of retirement investments, and when you're young time is on your side. Unfortunately, most young people don't realize this.

Saving up for a house is essentially the same as saving up for retirement, except you have more flexibility and no tax deductions or deferments.

I don't mind working hard for my money since I like what I do for a living, software development. However, I wouldn't consider throwing my money away for an overpriced house. That money represents a significant proportion of my finite life and as such is unrecoverable. Since I worked hard and spent a good part of my life building that wealth, I would not squander it bailing out some lazy real estate speculator who "needs" a high sale price to cover his loses. To waste money is to waste that part of your life you spent earning that money, and wasting life is the worst thing you can do.

A certain demographic along with restaurant and small business owners generally tend to hide income from the IRS which allows them to really bulk up on cash.

This is where they are getting the money for big cash downs.

Please take note that most of those who post of their savings achievements are male, possibly single or divorced with no kids, and live outside of coastal California.

~Misstrial

Dan8267 says

It's not actually difficult to save.

Oh, I should also mention that I have no debts or kids. I hear that your finances go to hell once you have kids.

Misstrial says

Please take note that most of those who post of their savings achievements are male, possibly single or divorced, and live outside of coastal California.

male... checked
single... checked
outside coastal CA... checked

However, I live in south Florida which is by no means a cheap area. It used to be, but then somebody invented air conditioning and the cost of living has skyrocketed since. Part of what used to make FL attractive to retirees was that is was a low cost state, but that's simply not true anymore.

I doubt at least south Florida will be a Mecca for retirees like it was in the past. Since 2005 many retirees have been relocating to places like Georgia and the Carolinas. The locals call them "displaced Floridiots".

Dan8267 says

The amount of time you have before retirement is the most important aspect of retirement investments, and when you're young time is on your side. Unfortunately, most young people don't realize this.

yup. The simple explanation is to just add up each annual interest rate over the years. The lack of compounding probably balances out the inflation losses.

So if I hadn't blown half my paper route money in 1980, I'd have 3X the money now, since the sum of 10 year treasury rates since 1980 is 200% or so.

If I'd put it in an index fund, I'd have a lot more I guess.

Going forward though, we may no longer be in the age of 3% risk-free real returns.

http://illusionofprosperity.blogspot.com/

Dan8267 says

Misstrial says

Please take note that most of those who post of their savings achievements are male, possibly single or divorced, and live outside of coastal California.

male... checked

single... checked

outside coastal CA... checked

However, I live in south Florida which is by no means a cheap area. It used to be, but then somebody invented air conditioning and the cost of living has skyrocketed since. Part of what used to make FL attractive to retirees was that is was a low cost state, but that's simply not true anymore.

I doubt at least south Florida will be a Mecca for retirees like it was in the past. Since 2005 many retirees have been relocating to places like Georgia and the Carolinas. The locals call them "displaced Floridiots".

South Florida has never been as expensive as California for comparable residences in any zip code. Ever.

~Misstrial

Yeah, I live in a 2bd apt in an art deco building 3 blocks from the water in North Miami Beach, where you can swim pretty much every day of the year, no wetsuit needed.

I pay $900/month. There is also no state tax on wages and the sales tax here is slightly less than the average for California.

Find me a place in a 1M+ city in California where it is over 70 degrees and sunny most of the year; that is 5 minutes walking distance from the beach in a 2Bd for $900/month.

An apartment in my 1930's era, well maintained art deco 20-unit building just sold for $70k.

It fronts directly on the Intercoastal with a pool and a beautiful courtyard with orchards and palm trees. There are 4 boat docks. There are 3 supermarkets within walking distance and uncountable restaurants and shops.

Katy Perry says

OH Come On!!! Where are all the folks who got 50k plus from bank of Mom and Dad. Plus the car Plus the school money,..and all the help to land that first job maybe. Is everyone here being 100% truthful and giving enough credit to their first big money break. I don't think so. I think some of you are not giving credit to that well placed well timed parental help. you may have earned some of it,.. but you also where helped big time. you know who you are.

I don't know one person that has a house that didn't get a big fat break from a parent or close relative some how,..in some way. I mean I'm talking about 100k plus in some situations that I know of,... the lowest being like 40k.

Now I also know of some hard working hard saving friends who also got a big break from their hard working hard saving parents. so did they earn it? yes. did they earn all of it,...no.

Hi Katy (lol) -

May want to have a look at this article from the NY Times - the reporter interviews several couples and individuals who, without any help from family, saved for a 20% down and bought their first residences in NYC:

http://www.nytimes.com/2007/07/29/realestate/29cov.html

This article is one of my most favorite of all time on the topic.

btw, for those of you who live on the coast or here in the BA, if you are a renter like me, rent at 1% or less of your annual gross in order to save.

~Misstrial

Misstrial says

South Florida has never been as expensive as California for comparable residences in any zip code. Ever.

If you are comparing absolute dollars, then that is true for the coastal regions. However, Florida is also a low-wage state compared to CA and that's excluding retirees. So relatively, housing is quite expensive.