patrick.net

You are also ready to upgrade your 1. indebtedness 2. risk 3. lack of mobility
I wasn't aware that they had any little $1 million houses around Pacific Heights.
Taxes, utilities, fees, repairs, etc. will eat you to death.
Clog a toilet in Pacific Heights and that plumber will be drooling over you. He's got a nice bill you thought comes from a surgeon just for guys in Pacific Heights.
So will all of the other tradesmen. My old friend once painted those Pacific Heights houses and he got fairly rich from them.
Your wife is going to insist you "trade up". If you tell her you can, and you don't do it, she's gonna be unhappy. Then, you'll be unhappy. Either way, you can be 1. risking your financial neck 2. risk being unhappy.
See how it works? Who said women are not clever?

I understand the first part. On the 2nd though, my wife works hard for a living and is very good with money. She understands that we're not going to be trading up unless we move to the burbs one day, she likes having money vs being in debt.

Taxes are fairly low, utilities are not really an issue (there is no A/C in the city, for example). Repairs are something we need to consider, true, and a good point. There are condos available at my range, so I'm not looking at Single Family Homes.

Just not much inventory out there right now.

This is just my humble opinion, but to me SF is overpriced housing-wise even by Bay Area standards.

edvard2 says

This is just my humble opinion, but to me SF is overpriced housing-wise even by Bay Area standards.

No, it's not just your opinion! It's a measurable fact.

Houses in SF are almost all grossly overpriced compared to renting the same thing.

That is, you are guaranteed to LOSE far more money by overpaying for a house in SF than you would lose by renting the same thing in the same neighborhood over the same time period.

It's pretty easy to prove this. Try any of the various rent-vs-buy calculators on the web. Of course I recommend my own:

http://patrick.net/housing/

Rent control is only ONE REASON why its so crazy expensive.

Can anyone defend why someone making 400k a year needs a rent controlled apt? Crazytown!

edvard2 says

This is just my humble opinion, but to me SF is overpriced housing-wise even by Bay Area standards.

No, it's not just your opinion! It's a measurable fact.

As much as I think Bay Area housing is over-priced., think rent vs buy in SF comes pretty close. It is easily 3-4K for 2B2B, I was looking last year. So, if staying out of the city is out of question, I will consider buying too.

Houses in SF are almost all grossly overpriced compared to renting the same thing.

http://www.redfin.com/CA/San-Francisco/151-Galewood-Cir-94131/home/1996830

Overpriced at $800,000?

I get a $2200/mo average cost of ownership over 30 years, starting at $3300/mo and declining to $1000/mo as the loan is paid down.

With a DOM of 120+, it's overpriced perhaps, but another $50,000 price cut lowers the average cost of ownership to $2100/mo, not that big a deal in the scheme of things.

Shit, my LL had no issue throwing $100+/mo rent hikes at me.

PockyClipsNow says

Can anyone defend why someone making 400k a year needs a rent controlled apt?

Sure, the LL didn't earn it so why let him keep the rising ground rent. Ideally, we'd have a rent tax instead of rent control, but that has other issues too, so that's not exactly "ideal" I guess.

Some of my comments are intended also as humor since I know a few guys who were whipped into submission by their wives. So my apologies to your wife.
There are two schools of thought which I have running in my head simultaneously.
1. You can't take it with you. If you have no kids, and you buy something, you can always reverse mortgage it and get some money back.
2. A roof over your head is not where the most of anyone's money should be placed, and condo fees and taxes can bleed your cash.
If you can really afford it who's to say it's a bad thing?

Wow - with an income of $400k/yr, I'd probably buy a vacation place or two in another area that's much cheaper, and continue to rent in SF.

Keep banking your paychecks - SF will come down, just may take some time.

Coworker of mine bought in SF in 2007 for 1.2mil, now worth about 800k. Previously sold in 1999 for $398k.... for what it's worth.

Bellingham Bill says

http://www.redfin.com/CA/San-Francisco/151-Galewood-Cir-94131/home/1996830

Overpriced at $800,000?

I get a $2200/mo average cost of ownership over 30 years, starting at $3300/mo and declining to $1000/mo as the loan is paid down.

Yes, definitely overpriced. Thanks for the chance to show off my calculator:

http://patrick.net/housing/calculator.php?uaddr=151+Galewood+Cir%2C+94131

Actual value for that place is about $509K.

With my assumptions (1% pa appreciation, 3% 15 year loan, 10% down):

House Value Calculator
151 Galewood Cir Actual value is $999,284.
It's OK to pay $799,000.

Bellingham Bill says

With my assumptions (1% pa appreciation, 3% 15 year loan, 10% down):

What appreciation?? Quite the opposite.

prices are dropping in SF. i'd wait until they stopped dropping unless you're okay with paying more than you need to.

Hysteresis says

prices are dropping in SF. i'd wait until they stopped dropping unless you're okay with paying more than you need to.

BUT BUT BUT ZYNGA FACEBOOK [INSERT SOCIAL MEDIA COMPANY] IPO!!!!!!!!!!!!!!!1111one

the mortgage interest deduction may well save you $1000 per month. but you have expenses for home ownership that you don't have renting. big ticket items like replacing a roof. a furnace, or the more mundane things like appliances or getting the place painted.

the exact numbers will depend on the specific property, but in my neighborhood, for the types of places i'm looking at, the MID is pretty much cancelled out by the property maintenance expenses. (factoring in a new roof, new furnace).

so you are spending an extra 12,000 in tax every year. In 5 years, you are out 60,000. In 1 day, a 500 K place will lose 30,000 plus between title fees and commissions. Factor in a few years of 10% declines in the market, and you will be out north of 100,000, and that's not even accounting for the thousands you will have spent at at home depot. I'd hang onto that rent control place, forever.

I would buy if I were you. I think SF is a good investment so I'd buy with plan to either pay off the house and own it outright or pay it down enough so you can hold long term even if you move somewhere else.

That way you get to impove your lifestyle while you're making the big bucks and not throw away a ton of money in rent.

Well, I took a look at several places this weekend. There was one really beautiful place, but it was a fractional TIC, so the interest rates weren't all that great, and it was out of my price range.

One broker was nice enough to include a rate sheet, and I forgot about property taxes, currently at about 1.164%, which adds another $1,000 to the monthly.

I'm going to sit tight until I find something in my range. Currently these rates are at 5.5% with a 5/1 ARM for TIC's. And I don't even like ARM's.

The market here is soft over $1M, from what I'm seeing anyway. Everybody 30-40 years old is looking for something in the $700-900K price range. Over that and the interest really starts to drop off.

Calculate the 800K mortgage payment, taxes, maintenance, loss of income from downpayment, etc. and go rent yourself an even better house! Simple solution that even makes you wife happy. ;)

A comparable place (3BR flat with 2000+ sq feet in Pac Heights) rents for between $7,000 and $9,000.
For example:
http://sfbay.craigslist.org/sfc/apa/2825733785.html

So the difference comes down to the money down. $200K cash out the door and a payment of about $4,500-$5000 a month.

Still pricey, but in this case "go rent yourself a better house" doesn't work in my hood.

jdubbs29 says

Still pricey, but in this case "go rent yourself a better house" doesn't work in my hood.

But you are just taking one day of looking at the rentals. Generally houses stay on the market much longer than comparable rentals. In my experience if you are serious about renting they take a month and check the sites daily. The minute you find a house that fits be ready to take the morning off work and hightail it over there to check it out. The value rentals only stay up for 1-2 days because the first few people that meet the landlord that is not really interested in greed and more in a decent family looking to rent jumps on the deal.

Rule of the road: be patient but quick when you find it. One day is not a good sample size.

jdubbs29 says

A comparable place (3BR flat with 2000+ sq feet in Pac Heights) rents for between $7,000 and $9,000.

For example:

http://sfbay.craigslist.org/sfc/apa/2825733785.html

So the difference comes down to the money down. $200K cash out the door and a payment of about $4,500-$5000 a month.

Still pricey, but in this case "go rent yourself a better house" doesn't work in my hood.

Here are a couple more reasonable not that far away from Pacific Heights.

http://sfbay.craigslist.org/sfc/apa/2811807811.html

http://sfbay.craigslist.org/sfc/apa/2823561988.html

Just use www.housingmaps.com for a month and something will surface.

I promise you I can post ads for the next several months and they will all be in this range. 2,000+ sq feet is going to run at least $7-10K a month in this neighborhood.

Believe me, I've looked and looked. In fact, that was the plan initially, just move into a rental. And then I thought, well if I'm dropping $4K a month on a rental (for a modest upgrade from my current situation) I really should think about buying.

So that's where I am now. Unfortunately there isn't much inventory so places for sale are very few and far between.

We put an offer on this house last week, 1 day after it went on the market.

http://www.redfin.com/CA/San-Francisco/539-Holyoke-St-94134/home/1430916

15 offers in 4 days (before they even had an open house). I suspect it went to Chinese investors with all cash/no contingencies.

This isn't even anywhere near Pac Heights, just a quiet, working class neighborhood in the southeast part of the city. Sheesh.

1sfrenter says

We put an offer on this house last week, 1 day after it went on the market.

http://www.redfin.com/CA/San-Francisco/539-Holyoke-St-94134/home/1430916

15 offers in 4 days (before they even had an open house). I suspect it went to Chinese investors with all cash/no contingencies.

This isn't even anywhere near Pac Heights, just a quiet, working class neighborhood in the southeast part of the city. Sheesh.

Yeah at the lower end (and no disrespect meant, because $500K is still a huge amount) there are multiple bids and places don't stay around long.

Anything up to about $900K gets a ton of interest if it's staged nicely and in a good hood.

Once you get over that, its much less competitive but then you have to wonder if it's overpriced.

The brokers I ran into at the 1.2M-2M places that were open were very friendly, and very lonely. Not much traffic.

jdubbs29 says

So that's where I am now. Unfortunately there isn't much inventory so places for sale are very few and far between.

Well, here's one way you can search:

http://patrick.net/housing/forsale.php?uaddr=94123

That's a very nice zip code in SF.

Unfortunately nearly nothing in that zip code is cheaper to own than to rent. It's all badly overpriced. Renters win in that zip code, big time.

Your calculator is setup with a -1% inflation, meaning in 20 years after real inflation, you're looking at like -80% value to todays prices. That isn't going to happen.

1% maintenance, is way too high, and it should be based off the size of the house and what is within it. You've got like 55K in maintenance over a 7 year period. Most people aren't dumping that kind of money into maintenance. If it's upgrades and reno's, then that will directly effect resale value as well. Not on a 1:1 basis, but definitely not a full write off either.

I'm with sface here. He's unlikely to rent a place as nice as the place he buys. Even at $3500/month he's likely to find nicer places to purchase. The best houses aren't setup for rentals, they're sold as homes. Rentals are usually the bottom of the barrel stuff.

Tell that first one to the Japanese. Real nominal price declines for more than 20 years running!

1% maintenance is a standard figure.

The difference between a rental and a house sold to live in is almost entirely costmetic. Polish the floor, paint, put down sod, done.

Housing prices should be based off what people in that neighborhood can afford, not what we wish them to be.

If you're in a neighborhood that is filled with doctors making 500K/year, housing will be whatever they can afford and not less because you're a lowly burger flipper "hoping" to get into that market.

Japanese realestate got so high that no one could afford to buy. At current interest levels, inflation and wages around the bay area, a family of 2 engineers can afford a house worth over a million. While some might bawk at spending that much, it's those who go out and buy those houses who sets the prices.

1% for maintenance should be based on the house value, not the land value. A 8000sq house in texas is going to cost a lot more to maintain than a small rancher in palo alto, even though they cost the same amount.

toothfairy says

I would buy if I were you. I think SF is a good investment so I'd buy with plan to either pay off the house and own it outright or pay it down enough so you can hold long term even if you move somewhere else.

That way you get to impove your lifestyle while you're making the big bucks and not throw away a ton of money in rent.

You seem to excel at making statements with absolutely no quantifiable data to back them up. You should consider a career in politics.

jdubbs29 says

I am married, no kids, with most likely no plans to have them. I have $450K in the bank with another $200K in retirement. I've made most of my money in the last 8 years so that's why it's a bit skewed. I max out my 401K and IRA every year. Annual income is about $400K, but I'm in sales, so it can be quite variable. I would say worst case I would be at $250K annually combined with my wife.

You seem very certain about your career prospects, but you should consider what would happen if you and/or your wife got laid off. An expensive mortgage greatly increases your cash burn rate when times are bad.

jdubbs29 says

Should I buy in SF?

Hells Yeah!!!!!

Thanks for the input everybody.
It's a very tough decision, because I love having money in the bank and not have a big mortgage hanging over me. And the places that I really like are in the 1.2M+ range so far.

I think I'll wait until I can get a place I can safely afford, more in the 700-800K range. That's an affordable mortgage. That means I probably won't be in my neighborhood, but I'll find something eventually.

joshuatrio says

Wow - with an income of $400k/yr, I'd probably buy a vacation place or two in another area that's much cheaper, and continue to rent in SF.

Keep banking your paychecks - SF will come down, just may take some time.

Coworker of mine bought in SF in 2007 for 1.2mil, now worth about 800k. Previously sold in 1999 for $398k.... for what it's worth.

ditto this. Keep the rent controlled apartment in SF and buy yourself a nice wine country cottage.

JDubbs,
with $400k in annual income, and $650k in savings, you may be spending a lot - given that people live on $100k or less, you could save more if you chose. So if owning a place is important, you could look at what you are spending money on and see if it's a good tradeoff. Or you may decide that the restaurants, vacations, etc are more important; that's a personal choice.

You should consider the tax implications. With a $400k income, you will have some MID phase-out; it won't be as much as you think. You may or may not have AMT at that income level. If you have AMT, you still get MID but not property tax deduction. But if you don't have AMT, the property tax deduction is really valuable because you would reduce prop taxes by 35%. You could either get turbotax and play with numbers, or book some time with a tax advisor. It could be a difference of thousands of dollars.

A lot of calculators don't really work for SF housing. Insurance is not 1% of the house price when most of the value is land. e.g. a 2000 sq ft Fortress house will cost about $1.25 m or so, but insurance will be about $1000/yr, not $12,500/yr. (not earthquake insurance). Same with maintenance; typically the land doesn't require maintenance, beyond yardwork, so the land value shouldn't be included in the part that needs maintenance. If the place is on the edge of a cliff the situation may be different.

A roof is around $20k but lasts 25 years. Painting costs $3000 and lasts 5-10 years. One can definitely spend more on painting if they want, or could DIY and spend less, but this is for a normal paint job. $12,500/yr for the above example would mean that the owner is constantly doing significant work; maybe building a Winchester Mystery House, but not the normal case.

Bellingham Bill says

http://www.redfin.com/CA/San-Francisco/151-Galewood-Cir-94131/home/1996830

Overpriced at $800,000?

I get a $2200/mo average cost of ownership over 30 years, starting at $3300/mo and declining to $1000/mo as the loan is paid down.

Yes, definitely overpriced. Thanks for the chance to show off my calculator:

http://patrick.net/housing/calculator.php?uaddr=151+Galewood+Cir%2C+94131

Actual value for that place is about $509K.

calculator, epic fail.

expensive and overpriced are completelty different things.

Jdubbs, what happened to your 1600 2BR apartment in pacific Heights? Buyout?

Yesterday, you lived in the Marina in a 2BR for $4500/mo. Today you're in Pac Hts for $1600/mo?

http://patrick.net/?p=1241743

Your assets also halved in between (that's a bad day!), and your income seems to have gone up by a good bit, while your potential buying target price got cut by a lot.

Trolling?

this post was 2012. the other one was April 2014