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Where is everyone getting the money?


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2011 Jul 12, 5:04am   37,604 views  166 comments

by exfatguy   ➕follow (0)   💰tip ($0.10 in tips)  

So all of you cash buyers, and those that can afford high down payments in pricy areas, if you don't mind my asking, where are you getting the money? Sometimes it seems like everyone but me in the Bay Area has hundreds of thousands in cash to plunk down on houses. Am I really the only one that doesn't?

So, if you don't mind, enlighten me. Where did you get your money, especially those that can throw, say, $300K-500K (or more) on a house.

Is it...

1. You just worked hard and saved. All blood, sweat, and tears!
2. Worked hard, got a bit lucky with stock options, made out like a bandit.
3. Inheritance
4. Lottery
5. Bought homes at start of (or before) bubble, then wisely cashed out at peak.

So which is it? The only things I might ever have a chance at are (1) and (2), but if that's not enough, then perhaps I shouldn't even bother trying, at least in the Bay Area.

Thanks!

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1   edvard2   2011 Jul 12, 5:10am  

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.

2   thomas.wong1986   2011 Jul 12, 5:56am  

edvard2 says

They make mega-buxs at some big tech company.

Tech has been around in SV for a long time, yet like me it took time to actually save up to buy. And yes, dual incomes were also common back then. We are still have insanity in prices running amoke.

fatguy says

Sometimes it seems like everyone but me in the Bay Area has hundreds of thousands in cash to plunk down on houses. Am I really the only one that doesn't?
So, if you don't mind, enlighten me. Where did you get your money, especially those that can throw, say, $300K-500K (or more) on a house.

Im sure the IRS would like to know as well...

3   corntrollio   2011 Jul 12, 6:04am  

For a while, I knew some people who were using the Bank of Mom and Dad for a large part of their down payment, but that calmed down a bit when the Bank of Mom and Dad ran into liquidity issues and required bailout funds, and also realized that their dissolution plan might need additional assets.

Most of the people I know who cashed out big on a house then promptly sunk it into another house, so that didn't always work out the way intended.

A few rank and file Google types did end up with some cash from the stock grants and option grants, but certainly not $300-500K. Maybe more like $120-180K at most, which isn't bad.

For me, none of those have really been an option. It's only #1.

4   PasadenaNative   2011 Jul 12, 6:06am  

I've been wondering this myself! Homes in my town go on the market and are sold within a week. We're talking $800K+ homes.

5   fly solo   2011 Jul 12, 7:18am  

6. Male never married. Saved the alimony payments. Never had kids of my own. What does the government estimate it takes to raise one child two, three or more including college? Saved it.
No hermit here, I've led a full life so far on just less than the average annual wage. I'm not alone.

6   PockyClipsNow   2011 Jul 12, 8:01am  

I'm the same as 'fly solo'.
Saved Money PLUS:
5. Bought homes at start of (or before) bubble, then wisely cashed out at peak.

I will pay cash for a house at some point. Renting is making less and less sense as the Feds allow home prices to float down slowly.

7   Lazy Donkey   2011 Jul 12, 8:23am  

Sold my home at 2005, living for 18 years, bot a bigger and better one with less price, ALL CASH!

8   Michael D   2011 Jul 12, 11:04am  

We are saving up the 20% down payment ourselves. At our current pace, we will have it next year. Having no other debt payments, especially no car payments has allowed us to save a significant amount of money.

It seems like most people I know, around my age, were given money or borrowed money from their parents. Many of them bought during the bubble years. I really don't want to accept any money from my parents or my wife's parents to buy a place. I don't want to be 30+ years old and still relying on my parents, the feeling of financial freedom is important to me. I would certainly never borrow money from them, I think it's really dangerous to mix family and loans. My wife and I are at odds on this issue though, she sees it as the norm to accept money from the parents for help with a home. She thinks my view is jaded, because I think all money, given or loaned, comes with strings, no matter how initially genuine or generous the original intentions.

9   solver   2011 Jul 12, 2:19pm  

MAYBE WE SHOULD JUST ROB THE BANKS OF WHAT THEY ROBBED US OUT OF AND THEN WE'LL HAVE THE MONEY.

IT'S TO BAD OUR TAX DOLLARS BAILED EVERYONE BUT OURSELVES OUT.

OBAMA, his family and his cronies and the cronies who puppeteer him are living high on the hog because of our tax dollars. Reminds me of the Tzar Nicholas.

10   shazzy   2011 Jul 12, 2:32pm  

Wow, Patrick--you are awesome! I have been wondering the same thing. I would never come out and ask. Kudos. As to your question: Working very, very hard and living very, very small--the old fashioned way of earning the income: SAVING. What did it take?
~Two full-time working people with one child (at the time)
~High paying jobs (at the time)
~No student loans or other debt
~No asking mommy for money (neither side 'rich') (And it's not their life!)
~Saving the 20% down of 65,000 (at the time) on a 325,000 house in 1986
~Willing to pay 12% interest
~Willing to refinance when it made sense
~Paying down any principle when possible (paid off 6 years ago)
~All just in time for our kids to grow up as WE received steep declines in wages.
It is ridiculous to see the state of home ownership today in California's good neighborhoods. I don't know how people do it. If we have to, we'll rent out a few rooms in our old age--if we live so long!
Thanks for your site!

11   agrifolia   2011 Jul 12, 2:37pm  

For me it's about half inheritance from grandparents and half saved income from being longtime DINK (until recently).

12   Melissa   2011 Jul 12, 2:46pm  

Bought a house in 1994 (in SoCal), paid $200-500 extra on the mortgage almost every single month. Sold it in 2008 and cleared 150% more then the original cost of the house. That will be my down payment (expected to be 40-55% of the new house value, when I finally find something).

Other than that, I live a fairly frugal lifestyle. I take my lunch to work 4 days a week. I rarely eat out for any other meal (maybe once a week). I drive a 10 year old car. I do have an expensive hobby. Curtail my that shoe thing that women do. I'd love to have a closet of shoes (Why is that?!) A lot of my discretionary incomes gets converted into aircraft fuel, but I also save about 1/3 of my income every year and hope to be able to retire by 55.

13   Clara   2011 Jul 12, 3:03pm  

For me: 1, 2 & 5, not 3 & 4

1. Work hard and save. It actually works. I intensely save for 4 years before able to save up $60k for my 1st down payment.
2. Stock - buy low, sell high. Bought Netflix some oil company stocks did help.
3. N/A
4. N/A
5. Bought at 2002, sold at 2005. Cashed in and rented for 5 years. Waited for good price, then buy again. Pocketed 6 figures for my 2nd down payment.

14   Hysteresis   2011 Jul 12, 3:05pm  

my job as a european gigalo pays very well

15   investor90   2011 Jul 12, 3:14pm  

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.

KEEP THE EVIL away from your money. Keep the drugs away from the addicts = same thing.

Put it in a pillow...under a mattress...burn it...but keep it away from banksters. HOARD all cash or convert to silver or GOLD metal and watch the slime choke. Force the grifter banksters and Real-a-tors to WORK FOR A LIVING. NO MORE LIES.

16   investor90   2011 Jul 12, 3:18pm  

AND I CONTINUE TO RENT...until HOUSE prices return to 1997 prices in REAL terms...pay cash and NO REALTOR SCUM.

17   investor90   2011 Jul 12, 3:22pm  

When a seller---is spitting blood out of his mouth...and begging you to take the house for less than they paid in 1998 ...and no listing agreements..Now they may waste my time by discussing it ...plus I want a new car...new furnishings...as a SPIF to encourage me to buy. CASH IS KING...all else is talk ....so let the grifters choke on their own lies. And here is the front door...and here is the kitchen...LIES. For 6% off the top. NO WAY! NOT WITH MY MONEY.

18   WillyWanker   2011 Jul 12, 3:37pm  

For my first real estate purchase, I saved and worked hard for years, in the film industry. Living frugally, driving an older car, not traveling, not dining out much, not buying clothes for sh*ts and giggles. Then I used my money to buy a house in the Hollywood Hills at auction and put a big down~payment on it and continued to live frugally. The in the early to mid nineties I bought one, then two houses I fixed up and rented. Then I bought a house in Beverly Hills in '96. by '98 I owned several homes and a few duplexes. I became aware of the real~estate bubble in '03 and decided to start unloading in late '04. By '05 I had liquidated all my real~estate. I traveled around the world for a 2 years, living in Asia and South America (still frugally). I returned to the US and rented until the market collapsed and I've been picking up some real~estate here and there. I pay cash only.

19   Robber Baron Elite Scum   2011 Jul 12, 3:39pm  

Amen! I applaud and agree with everything you say.

It's good to see not everybody is a sheeple that accepts everything the so-called "professionals" say.

+1

investor90 says

AND I CONTINUE TO RENT...until HOUSE prices return to 1997 prices in REAL terms...pay cash and NO REALTOR SCUM.

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.

KEEP THE EVIL away from your money. Keep the drugs away from the addicts = same thing.

Put it in a pillow...under a mattress...burn it...but keep it away from banksters. HOARD all cash or convert to silver or GOLD metal and watch the slime choke. Force the grifter banksters and Real-a-tors to WORK FOR A LIVING. NO MORE LIES.

investor90 says

When a seller---is spitting blood out of his mouth...and begging you to take the house for less than they paid in 1998 ...and no listing agreements..Now they may waste my time by discussing it ...plus I want a new car...new furnishings...as a SPIF to encourage me to buy. CASH IS KING...all else is talk ....so let the grifters choke on their own lies. And here is the front door...and here is the kitchen...LIES. For 6% off the top. NO WAY! NOT WITH MY MONEY.

20   American in Japan   2011 Jul 12, 3:47pm  

@WillyW

Where did you live in Asia?

21   Spelunker   2011 Jul 12, 3:51pm  

1 and 2 for me. Starting at Apple in 2001 was luck, saving and not spending was not (until last year my wife and I were dual income no kids but lived off of less than one of our salaries).

22   Katy Perry   2011 Jul 12, 4:00pm  

what money?

23   Yankee   2011 Jul 12, 4:06pm  

Saved 20% down in 1987, bought for 134000 in CT. Sold for about the same four years later in a down market but with an extra 20000 in equity due to a twelve year mortgage. Bought in a somewhat upper middle class area In 1992 for 215000 for about 2000 sq ft and stayed 18 years, paying that mortgage while living on one decent income raising two kids. Paid off house in about sixteen years. Sold it last November for 295000, rented for six mos. Bought the house we rented for 214000 for 1200 sq ft, downsized. Nice property but have about 30000 of work to do. We are financial ( and political ) conservatives who tend to live a little below our means and stay out of debt as much as possible. Been debt free for about three years. Kids decided college not for them after first year so that helped a lot. So, lots of saving and deferred gratification and financial discipline. Steady job, good income. The kind of things everyone counted on in the fifties. I don't know how you do it on the west coast, nor do I know how our kids will survive, let alOne thrive. My wife and I have a nice life now, but the country seems basically screwed for the forseeable future.

24   shazzy   2011 Jul 12, 4:51pm  

@WillyW
Amazing. I remember many So. Cal friends that faced ruin during the downturn of the early nineties. (Yes, there was a huge drop in price during that time.) Lots of foreclosures, etc. How did you parlay your one property into to several? And then more--? I admire honest, hard work and investment!

25   mdovell   2011 Jul 12, 9:04pm  

PasadenaNative says

I've been wondering this myself! Homes in my town go on the market and are sold within a week. We're talking $800K+ homes.

I wouldn't automatically assume just because a home is sold it means it is actually being paid for. Private sales can go back and forth to simply show volume.

On the same note I've personally seen condos that have been on the market for months..we're talking maybe 50 months that can taken off for a day and get put back on to reset that "days on the market". The sign selling it was so old it started to be bleached from the sun and the metal poles were rusting!

26   cleg   2011 Jul 12, 9:07pm  

Same as above. Through a habit of locking in small gains over a prolonged period of time. Buying things in a way to minimize dollars paid in interest to someone else. Buying a modest house and paying it off in 8 years. Driving base model cars and driving them for 10 years. Buying 2 more more properties and paying them off in 30 months. Avoiding putting money at risk in the stock market casino. Modest vacations, don't eat out much , etc. At 50 own 3 properties free & clear + over $500K cash ready to take advantage of opportunities. Best advice I ever got was from a friend in college. "never borrow money to buy anything that depreciates" i.e., cars, dinner on a credit card, vacations, furniture, pretty much anything. Debt is only for things that will gain value.

27   guruoracle   2011 Jul 12, 11:30pm  

Why should I struggle and live a sh*tty life just to "own" a home?? I've done it before - twice in Dallas. I remember the endless trips to Home Depot where the people knew me by name and said I should get a part-time job there. Why would I want to go back to this again after struggling for years to scrape up a down payment just to make some greedy ole boomer or a bank richer?? Both my husband and I were born at the wrong time and the wrong place (NE Ohio). Why should I live a crappy life just to "own" a home? Right now we pay $2500/mo. (same rent for 3 years) for a 2,000 sq. ft home in Danville on a 1/2 acre. My landlord is great and we can live on one income if needed (my husband was out of work 1 1/2 years - no extra debt after he finally got a job!). I can retire early in 13 years and get the hell out of this crazy state where everything is overpriced. We all can't hit the housing lottery!!

28   burritos   2011 Jul 12, 11:51pm  

I usually pay 20-25% down for rental properties. Did not receive any monies other than saving money after our expenses. We actually consider our cash savings as an expense and automatically save 2k every 2 weeks(plus whatever bonuses we may get). Of course this is after we max out our SEP IRA/KEOGH/401k plus 1400 every month in DRIP stocks.

29   Mathen   2011 Jul 13, 12:00am  

I do jhave to say there are a lot of ways people are coming up with cash.. I recently decided to get back into the market buying multi units. I have saved and have enough for 25% down for the properties I am buying.

One of the options thrown my way is private party lenders who will lend you cash in instances where the properties are in need of decent amount of work.. If you can show that once the work is done you can refinance at a higher price, they will lend you the money.
I suspect the cash buyers i have encountered in the last 2 offers I have made fall into the category I listed above.. I may be wrong and they may just have 100K in cash siting around.

30     2011 Jul 13, 12:02am  

The people I know that have bought 1.5 to 2 mil houses with 300-500k down have pretty good jobs. VP of something or other, partner in a consulting or investment firm, etc. I would guess they make 2-300k per year, all with advanced degrees, and shockingly a stay-at-home spouse.

One friend that bought with parental help, plus equity on a previous sale out of state, and some savings.... but the mortgage was too much and they sold at a loss and left.

My husband & I are hoping to buy this year or next with about 300k down, and that is all savings from decent jobs & promotions for 10+ years, 1 good sized performance bonus, and small gains on stock investments. Our savings would definitely be higher without $2,000 in childcare costs every month the past several years, and a period of underemployment for one of us. We are living in a cheap rental too. Kids cost tons of money, but are the best investment ever!

31   dex248   2011 Jul 13, 12:06am  

I don't consider myself rich by any means (quite the opposite in fact) but back in 2000, when I was 40 years old, I had 80,000 to my name. Now I am 50 and have somehow amassed about 700k. A bit less than half of that is in my 401k, the rest in equities. However I feel poor because I think I should have at least twice that.

Anyway, none of that will go into real estate any time soon.

For my situation, there were several key events. First, I got promoted and my salary finally went beyond covering my basic needs - I was making about 65k and it rose to 90k, then up a few percent a year along plus small annual bonuses. Although I had more than I needed, I did have debt, so my priority was to pay it off.

Next, I got married, and we banked my wife's salary - about 40k/year take-home.

Then we moved to Asia, so my wife lost her job, but I was making slightly more...then suddenly the dollar got super-weak, and the cost of living in Asia is lower than the US, so I was able to save a lot, and all of it went into dollars.

I used to get mad at my wife for spending so much money here and there on sales, trinkets, etc. but after I tallied our spending habits, I realized I was the problem- so I cut back.

We have since moved back to the US and both of our salaries are way down, but we still have our savings.

BTW my boss (who makes a helluva lot more than I do) was telling me that he had to pay for his car repair with his credit card. He's a diehard believer in owning your home, but is always struggling with money and has no retirement savings. I suspect a lot of it has to do with mortgage payments.

32   edvard2   2011 Jul 13, 12:38am  

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...

33   zzyzzx   2011 Jul 13, 12:40am  

Hysteresis says

my job as a european gigalo pays very well

Obligatory:

34   FortWayne   2011 Jul 13, 12:44am  

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.

35   Envious Renter   2011 Jul 13, 1:02am  

Funny since my wife and I were having the same conversation this weekend. We both live in the city and make decent incomes. But over the years we've met a lot of people who own in the city and work very little, have low paying jobs or seem to be lifetime students but they somehow have afforded a 1M+ home. The math doesn't add up for an art teacher to own a 1.5M home. (unless they bought in 1975, even then it would be a stretch).Out of my friends that own in the city, 80% were helped (Some much more than others) by Mom and Dad. I had a friend who bought into a 5 unit TIC about 10 years ago. I was curious to see where everyone got the down payments since only 2 of them had jobs that paid over 55K/year (poverty level for SF). All of them I later found out,except my friend who saved(high earner), received money $150-200K from Mom and Dad. I would place money that at least 70% of home buyers in at least the city of SF that are under the age of 40 have received loans/gifts, etc from the parents or trusts set up by Mom and Dad to purchase. Yes there are stock purchases but many of the Googlers, other younger techies (Under 30) are choosing to rent.

36   edvard2   2011 Jul 13, 1:10am  

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.

37   tclement   2011 Jul 13, 1:18am  

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.

38   Wanderer   2011 Jul 13, 1:39am  

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.

39   JonnyG   2011 Jul 13, 1:41am  

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.

40   Envious Renter   2011 Jul 13, 1:55am  

Good work Jonny. You forgot to thank the academy

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