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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127587  
Subject: Is it crazy to try to buy in the Bay Area now? Date: 5/22/2005 10:39 PM
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In today's San Francisco Chronicle, there was an article about people deciding that it is better economically for them to rent than it is to buy in today's crazy market. The article, is available at http://www.sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2005/05/22/REGEJCSG8L1.DTL Significantly, a chart in the print version of the article indicate that renting in San Francisco cost only 45% of the cost of buying (not including potential income tax benefits buyers can gain by deducting mortgage interest). San Diego was the only city with a lower rent to buy ration at 40%. Nationally renting costs 92% of the cost of buying. This article addresses a key issue that has been on my mind. Should we try to buy a house here at this point?

As the days go by and we manage to save more money each month, we get less and less sure of whether we should try to buy or not. On the one hand, if the market keeps going up, we worry that we may get priced out and never be able to buy here. On the other hand, if the market goes south and we have to move, we may be stuck with a mortgage that is more than the house is worth and be forced to sell at a loss (you can't rent a house out here and cover the mortgage payments). I've been trolling this board on and off for months, and would appreciate any opinions folks here might have. So let me lay out our situation.

The basics on our current renting situation. We live in the San Francisco Bay Area where home prices are astronomical. We currently rent a gorgeous, 2 bedroom early 1900's Victorian flat for $1300 a month, which is way under market. It is about 1300 sq. ft., has a fireplace in the formal dining room, hardwood floors throughout, views of the east bay hills, and a shared backyard. Nevertheless, it has its problems and downsides that you would expect from a old house that hasn't been updated including an antiquated electrical system -- there are two 15 amp circuits for the whole house, so no hair dryers, or other high drawing devices, and old windows that let the cold air in during winter. Also, there's no washer/dryer in the building so we have our clothes done at the Laundromat which is a pain and terrible on our clothes. If it weren't for these issues though, the apartment would be ideal. Thus, it's not like we hate where we live, in fact, we like our apartment a lot and wouldn't move unless we found a place to buy. Nevertheless, there is this eternal urge to try to buy a home of our own, to start building up equity in a place. But would we be nuts not to stay put?

The low-down on us. We would be first-time homebuyers, and like typical young professionals trying to buy their first home (we're in our early thirties), we have very little in the way of assets compared to what we'd need to spend. However, we are fortunate in that our incomes are high enough that we could probably swing buying here (I say probably because we haven't tried to get financing yet, or spoken to a broker yet but I'll save my questions on those issues for another post). With good jobs and our rental situation described above, we've been saving roughly $3500-4000 a month to put toward a downpayment or other financial goals if we decide not to buy (that's after funding our IRAs and 401Ks). So, we clearly could “afford” to spend more on housing, the question is should we.

The buying conundrum. As I'm sure you all know, the market is nuts here. We would not be able to afford a place that is as nice as our current apartment. We've been going to open houses during the last couple months, and the places we've been looking at are generally between 900-1200 sq. ft. and go for 500-625K, and usually need some work. Thus, we'd be spending upwards of half-a-million dollars, for a smaller place that needs work. But, it would be our place, and we'd have our foot in the market. My gut tells me that we should keep renting, the fed chairman has started hinting at bubbles in some areas like California, and our rent is so cheap. My heart however, keeps telling me to buy if we can. What would you do if you were us?
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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84679 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/22/2005 10:43 PM
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Have you considered asking the landlord if you can purchase the house you live in on a lease option basis? If prices go down, you're no worse off and you continue to rent. If prices continue to go up, exercise your option and buy the place. While you're at it, ask if a portion of the rent can be counted toward your down payment.



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Author: montecfo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84680 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/22/2005 11:11 PM
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I would not rush to buy in SF right now. That cost of rent is half the cost of purchase is a clear signal: owning is not a good deal right now.

I would rent, and keep powder dry. No market is more speculative right now, unless it is San Diego.

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Author: feydom One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84686 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 12:44 AM
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yosandiego,

"We would not be able to afford a place that is as nice as our current apartment".

There is a great deal being said in that statement! You love your home--yes, it's rented, but it's "home". Consider that there are people who are homeowners who view their homes as nothing more than a place to sleep, shower, and eat... If you bought in this market but felt you didn't buy something comparable to what you are renting now, would you feel it was "home"?

Since you enjoy the home space you have now, AND you are always comparing houses on the market to your rented home that don't measure up, I think you are right to stay true to your gut and continue renting. The longer you rent, the more savings you will accumulate for that nice home you will eventually buy while continuing to enjoy the home space you have now.

Suggestion for your current apartment home: How about negotiating a deal with your landlord: agree to make some of the basic improvements for either an extension of your lease or perhaps a percentage rebate/refund of the total cost of upgrading your home when you decide to leave? It's a win/win situation for you and your landlord: you get the upgraded amenities that you want and are compensated by a pro-rated percentage of the cost/use, and your landlord gets an updated apartment that can be rented at the high end of the market when you leave. As usual, get everything in writing, right down to the penny. Your agreement shouldn't allow for any guestimating!

About a 1 1/2 ago I was struggling with the same questions you have. I finally decided to wait out this sellers' market. I'm 48, will be a first-time home buyer in a couple of years, and I rent a fantastic one-bedroom apartment in a neighborhood I love (although due to the craziness of the current market, it has changed dramatically). My apartment home has lots of windows. My kitchen is so bright during the day that you would think you left the lights on! There are also peg and groove hardwood floors, a traditional fireplace in my living room, three multi-pained bay windows (living room, dining room, and kitchen), 8 to 10 foot ceilings, column crown molding everywhere, a chandelier in my dining room, two cedar-lined walk-in closets, utility room with washer dryer unit, and best of all, a real front door and a brick-lined walkway with a front lawn landscaped with my favorite plants--a rare White Bird of Paradise! I could go on and on, but you get my point. It's rented, but it's "home". Since I've lived here for so long (I'm a nester), I am embarrassed to tell you how cheap my rent is--thanks to local rent control ordinances. Comparable apartments in this area are going for $1,250-$1,650.

The quality and spirit of "home" is defined by the people who live in it; be it rented or deeded.

Mary

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Author: AporkalypseNow One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84687 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 1:15 AM
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9 of the 10 biggest jumps in price this fiscal year were in Florida and I think that is the area where I would be most reserved about buying but I wouldn't buy in San Fran or San Diego right now. If there is a bubble anywhere, that's it.


As an aside, who in the world is buying rental properties out there?

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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84689 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 1:33 AM
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who in the world is buying rental properties out there?

Well, I sure am. But I don't buy them "retail" under any circumstances.



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Author: AporkalypseNow One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84690 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 1:40 AM
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In the San Fran area?

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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84692 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:03 AM
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In the San Fran area?

I really don't care where they're located, as long as they're a relative bargain. Bargains are impervious to area.



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Author: AporkalypseNow One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84694 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:16 AM
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Untrue, some places have many more bargains than others.

If you are looking to purchase a rental property in the sub-$500k range in San Fran, you'd better believe people like this guy are scouring to find decent buys to put a little work into and make into usable homes, there is much competition to find a decent property. A place like Key West is even more that way. In places like Dallas, Houston, and New Orleans it is relatively easy to search the market and find steals and you'll get a higher return on the rental property for the money you put into it.


Of course, my grandparents were almost (but not quite) slum lords. They garnered a huge amount of rent out of properties that were relatively low in value. I guess you COULD do that anywhere.


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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84695 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:43 AM
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In places like Dallas, Houston, and New Orleans it is relatively easy to search the market and find steals and you'll get a higher return on the rental property for the money you put into it.

One of our Fools here on this board just got a steal in New Orleans. In any event, I tend to buy in my own back yard (southern CA). It's simpler that way.


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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84696 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 5:16 AM
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With good jobs and our rental situation described above, we've been saving roughly $3500-4000 a month to put toward a downpayment or other financial goals if we decide not to buy (that's after funding our IRAs and 401Ks).

From a financial perspective, this says a whole lot. You're putting away $40k or more a year on top of your 401k and IRAs. Continue that for 15 or 20 years, and you're done with the working life.

I'd say you need to weigh the ability to retire at 50 against your desire to own a house right now. Have you thought about where you would like to retire? If it's in the Bay area, perhaps taking the plunge into real estate might make some sense. Otherwise, I'd just keep on socking the money away. By the time you're ready to retire, you can probably pay cash for your retirement dream home.

Some other questions to ponder. Are you going to continue to save this kind of money indefinitely? Or are there plans (children, job/career changes) that would impact your ability to save? How stable are your jobs? Is there any chance either of your employers could go out of business in the forseeable future?

--Peter

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84697 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 6:29 AM
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a front lawn landscaped with my favorite plants--a rare White Bird of Paradise!

I bought one of these without carefully reading the tag. When it was home, I read that these things grow to 20 feet tall! Is that for real? This one will have to stop at 12' or die outside in the cold.

IP,
wondering if we'll ever see flowers

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Author: montecfo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84698 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 7:27 AM
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As an aside, who in the world is buying rental properties out there?

Mainly novice speculators, expecting appreciation to bail out negative cash flow. Lotsa luck to them.



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Author: feydom One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84704 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 11:01 AM
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IP,

Yes, and it is about 20 feet tall! I live in Los Angeles, so it's thriving. It's so tall that it's bending towards the neighbor's property. It's still blooming like crazy

Do you have extreme weather?

Mary

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84706 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 11:41 AM
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Do you have extreme weather?


We live in PA, so hot and muggy in the summer with cold damp freezing winters. Not the best of both worlds, but fall and spring are wonderful.

IP,
wondering if I'll have to give this plant to my niece in FL


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Author: feydom One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84707 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 11:47 AM
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IP,

I think the niece in FL and the plant will be happy!

Mary

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84708 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 12:36 PM
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Another consideration.

I lived in the Bay Area in the mid 1980's and one of the many reasons that I did not buy there was because of the possibility of getting wiped out financially by an earthquake. I don't recall the exact numbers but to the best of my recollection I estimated that there would be an earthquake that would do major damage to my house roughly about every 200 years or so which does not sound too bad until you consider that if you own a house there for 30 years, then there is about a 15% chance of being financially clobbered by an earthquake. Even back then earthquake insurance was not very affordable.

The possibly of an earthquake was not one of the main reasons that I moved, but it was a consideration.

Greg


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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84709 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 1:05 PM
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The possibly of an earthquake was not one of the main reasons that I moved, but it was a consideration.

An earthquake isn't as devastating as one might think.

My home would probably appraise for around $650k right now.

6000 ft^2 lot is $500k
1100 ft^2 house is $150k (to build a new one)

My house could receive devastating earthquake damage tonight and I would still have a $500k+ asset.

It would still suck, but the value doesn't go to zero.

This is not accounting for the temporary massive depreciation in land values after a 9.0 earthquake. :-0

--

whyohwhyoh

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Author: sailrmac Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84720 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:25 PM
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What would you do if you were us?

If the electrical can handle it, I'd buy one of those small washer over dryer combo's that fit in a closet and keep renting.

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84722 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:29 PM
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Thanks for the many responses and suggestions. The responses thus far illuminate a few points I should make with respect to our current and future situation. Although our current apartment is wonderful for the two of us, it will not be ideal in a few years once we have kids. So inevitably, we imagine that we will need more space in two to three years whether we decide to buy or continue to rent. This fact may impact people's impression of what's the right thing for us to do. Some of the small places we've looked at that need work do have expansion potential-- such as a convertible garage or a large enough lot to add an addition to the back of the house.

Also, although we are saving roughly $4000 a month at this point, we will not be able to continue doing so once we do have kids (plan to sometime in the next 2-3 years). While we haven't worked out the numbers on the expense of children, we're certain that we'll have less money to save than we do now. Also, although my current job provides a high income, it also requires a lot of hours. So at some point I may want to transition into something that gives me more time for less pay. I don't want to end up with the "golden handcuffs" and feel forced to continue to work as hard to support our lifestyle. So the option of continuing to save $40K a year and retiring around 50 sounds great, but probably isn't going to happen for us.

That being said, the recommendation regarding trying to see if our landlord would be willing to sell to us on a lease option basis is a good one. I doubt he'd go for it (I get the impression he has no desire to sell), but it's worth asking. In terms of working out a deal regarding the improvements we'd like, we'd have to figure out the cost and whether it makes sense given the relatively short timeframe we're likely to stay in the apartment.

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84723 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:31 PM
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**If the electrical can handle it, I'd buy one of those small washer over dryer combo's that fit in a closet and keep renting.**


Unfortunately, I don't think the electrical can handle it.

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84724 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:35 PM
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who in the world is buying rental properties out there?

Well, I sure am. But I don't buy them "retail" under any circumstances.


CatherineCoy,

How are you buying rental properties in the bay area where you can recoup your costs? With rent being 45% of the cost of owning, how do you make a profit even if you don't by "retail"? I understand that as a professional you can find better deals than I could, but can you get places at less than 1/2 their value? If so, how?

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Author: sailrmac Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84726 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 2:40 PM
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Kids in 2-3 years

2-3 years is fairly nebulous and can easily be 5 years. Once your pregnant you can start looking if you want. You will still have plenty of time before you'll actually need the extra space, as babies do just fine in small spaces.

I'd still rent.

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Author: tashina One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84729 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 3:26 PM
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I am fellow Bay Area renter, and my advice is this. Rent for about 2 more years and keeping saving as much as possible. At the end of 2 years (or whatever time period you set yourself) look at housing prices.

If they have gone down, and are reasonable with respect to rent, then buy. Do not buy any place smaller than where you are now if you are planning on having kids. Set a price limit in advance. For example, tell yourself that it in 2 years if you can buy a 1700 sq ft place that you like for $xxx then you will buy. Make it either a strict dollar amount or make it a multiple of income.

If house prices are still out of reach, put all your efforts into finding one decently paying job elsewhere in the country not in a bubble market. Take a whole year with a headhunter if you need to. There are good jobs all over the country. The cost of living in some parts of the country is such that you could take a big pay cut and still be living far better. At 3.75k a month in savings for 3 years, you could have $135,000, enough to buy a house outright in some areas and be living with no mortgage - you might even be able to live easily on one salary when the kiddies came.

Sure the Bay Area has some culture and some people like the weather, but how much of your long term freedom are you willing to give up to live there?

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84730 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 4:01 PM
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Tashina,

I think your advise makes a lot of economic sense. You along with several others have counseled us to keep renting, which seems to be the right thing to do despite my desires to do otherwise.

The only part of your post I'd quibble with is the idea of moving elsewhere to be able to afford buying a house. You are correct that we could easily afford to buy in other places, even taking a pay cut. The thing is, we have no desire to move somewhere else unless we have to. We've lived in several other places over the last 10 years and nowhere feels more like home to us than here! So, unless renting becomes unaffordable here, we wouldn't consider moving due to cost of living.

You say: "Sure the Bay Area has some culture and some people like the weather, but how much of your long term freedom are you willing to give up to live there?" Good point. On the other hand, Is it really worth leaving the place you love living just so you can buy a house? If we can continue to rent and save $ (even though it will be less savings per year after having kids), are we really giving up our "long term freedom" by deciding to stay?

I don't know the answer and truthfully haven't thought it out completely. I suspect if home prices do continue to rise sharply as we look to buy, I will have to face the issue of potentially leaving one day head on.


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Author: dove29 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84732 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 4:18 PM
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put up a clothesline? Move somewhere where you can buy a house and still have kids and a life? I don't understand how anybody can spend 625K on a house that small & still have any nerves left if the economy goes south or one person isn't working for awhile.

IMO San Francisco isn't exactly a normal economy.

- dove
been there, shoulda left faster

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84738 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 5:11 PM
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**IMO San Francisco isn't exactly a normal economy.**

Dove - What do you mean by "not a normal economy?" Are you just talking about the housing market or something broader?

There's one thing we're absolutely 100% committed to, that's making sure buying a house doesn't prevent us from still having "kids and a life." We won't buy if those things are at risk.

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84740 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 6:17 PM
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… What do you mean by "not a normal economy?" … still having "kids and a life." We won't buy if those things are at risk.

There are at least two problems that I saw the high housing prices causes with the economy in the Bay Area even back when I lived there.

1) The people that are needed for the infrastructure will have difficulty living in the Bay area because of the housing prices. If you have kids, where will their teachers be able to afford to live in the Bay Area? How about the janitor that cleans the school? The receptionist at the doctor's office?

2) Once your kids grow up, they will probably not be able to afford to live near the Bay area and be forced to move away.

When I lived in Sunnyvale I saw this happen a number of times with older coworkers. Ask your older coworkers where their kids that are in their 20's are living now. Sure lots of kids will go to college and naturally move away but there are lots that either will not go to college or only make it part way through before dropping out. From what I have seen these are the kids that end up most needing ongoing support until they get established. I am not just talking about financial support, the emotional support and being a safety net is difficult enough when they live nearby but if they have to move 500 miles ways to be able to afford a shared apartment on a waiters salary (in a town they do not know), things get risky. It is also not usually a good situation(for them or you) to have them still living at home when they are 25 because they can't afford a place of their own.

Greg


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Author: JBeauty Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84741 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 6:32 PM
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I have gone through my own debate about whether a housing bubble exists, and if so what would be it's potential impact.

A lot of my worry about buying a house goes away if I am buying something that on my salary I could afford, even if I went through a 6 month layoff, and doesn't exceed 30% of my takehome pay for ALL housing expenses (not just PITI, but also utilities and maintenance).

I can't predict the future, but it seems that any of the following could happen
A. housing in my area could go up 10% next year
B. housing could remain flat and not appreciate for many years
C. a bubble could burst here, and houses could lose 10% of value

If a bubble exists, and I do end up having to sell my house for unforeseen circumstances (like losing my job in another downturn of the economy or health issues) some time less than 5 years, then I need to be prepared to deal with worst case scenario, option C.

Say a hypothetical house costs $100,000. You put 20% down plus pay $2000 in closing costs. Then later you sell the house for $90,000 and pay $5400 in closing costs. You've paid 27,400 plus whatever mortgage payments and maintenance costs along the way, and you get back roughly $10,000. OK, so you lost $17,400 on the deal which hurts, but if you are OK with losing that much as a worse case scenario, then you shouldn't be as worried. It is not like stocks that can drop 60%. Plus there are protections for homeowners, like the homestead act, and many times whatever bad thing happened that might make you consider selling is over in a year or two, so holding out and tightening the belt can let you stay in your home and wait for the price to rise again.

Now, use the same math on a $600,000 home. Me, I can deal with losing $17K, but get weak in the knees at the worse case scenario with bigger numbers. But I could never qualify for a $600,000 home so that may be why the figures are daunting to me.

Numbers alone don't answer all of the questions about Rent vs. Own. It is cheaper for me to rent, but I did just buy. I bought at less than 30% of my takehome, and I got a place twice the size of my apartment. I am so overwhelmingly happy about that.

If you can't afford the home you want, wait and you might get it 10% off when prices drop, and continuing to save will make those mortgage payments less and less.

It is OK to rent. It is even SMART to rent, in strange economic times when rents haven't risen as fast as house prices. Ultimately, think about what will make your family the happiest. It isn't just a money decision. Buying a house isn't a guaranteed move to improve your net worth. Weigh the options and decide what is best for you.

JBeauty

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84742 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 6:50 PM
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Thanks for the clarification. I agree with you that these are serious concerns with the cost of living here. Atleast as of now though, I think teachers and others earning a similar wage can still afford to live here. In fact, excluding buying, the area is more affordable now than it was during the late 90s craze. Rents are reported to be down something like 20-35% since 2000.

As for the low-wage workers work supporting the infrastructure here, the cost of living is a serious problem. They either: a) continue to move further or further away from the city taking on monstrous daily commutes, or b) live in more questionable (i.e. dangerous) areas than they would have to in other cities. Obviously at some point these options become unsustainable, but I don't have any idea where that point is.

As for your second point and the kids, I hope that my kids will both chose to and be able to stay close by when they are ready to go out on their own. At this point those in their 20s can often still manage to afford a shared place to rent here. I have friends that are students, and musicians (and one waitress believe it or not) who have managed this even during the latest housing boom. Furthermore, as you mentioned, many kids chose to move away even from more affordable places anyway (we did). I think where housing here becomes trickiest is when you have a family of your own and no longer want roommates.

That being said, I agree it would be a bad situation for all if my children had to live with us at 25 (or beyond) because they couldn't afford a place of their own. I suspect if we found ourselves in that type of situation, 25+ years from now, my wife and I would seriously consider moving someplace less expensive in order to be closer to our adult children. I guess we'll cross that bridge when we get there.

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Author: yosandiego One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84743 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 6:59 PM
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JBeauty,

Thanks for the great post. You boiled the issues down to their simplest elements. These are the things I really need to think about and figure out what we should do. One thing is for sure, everyone who has responded has convinced me that it is SMART for us to continue renting in this market. If we buy at all, it seems it should only be because we can find a place that we really want and that we wouldn't need to move from if the market (or our life circumstances) went sour.

Thank you to everyone for your advise. I really appreciate it!

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Author: whyohwhyoh Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84744 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 7:09 PM
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The people that are needed for the infrastructure will have difficulty living in the Bay area because of the housing prices.

There are 3 families living in the house catty-corner to ours. Makes it much more affordable for those needed for infrastructure. $600k/3=$200k.

--
whyohwhyoh

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Author: TruthSeeker101 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84753 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 8:54 PM
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yosandiego:

<<<The only part of your post I'd quibble with is the idea of moving elsewhere to be able to afford buying a house. You are correct that we could easily afford to buy in other places, even taking a pay cut. The thing is, we have no desire to move somewhere else unless we have to. We've lived in several other places over the last 10 years and nowhere feels more like home to us than here! So, unless renting becomes unaffordable here, we wouldn't consider moving due to cost of living.

You say: "Sure the Bay Area has some culture and some people like the weather, but how much of your long term freedom are you willing to give up to live there?" Good point. On the other hand, Is it really worth leaving the place you love living just so you can buy a house? If we can continue to rent and save $ (even though it will be less savings per year after having kids), are we really giving up our "long term freedom" by deciding to stay?>>>

Yes-the eternal dilemna for those of us living in California. I realize that I could live in flyover states at a fraction of the cost, but as a native Angelino, Southern California is 'home'. If we could truly reduce our decisions we make to 'A over B' purely on the basis of Vulcan-type logic, they would not be so agonizing sometimes. Ahh, the joys of being a human emotional creature!

PS-Not meant to be a 'Westside is the best side' type post. I'm sure that many folks here feel the same way, whether they live in Kansas or New York City. Home is home!

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Author: CatherineCoy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84762 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/23/2005 9:35 PM
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Yes-the eternal dilemma for those of us living in California. I realize that I could live in flyover states at a fraction of the cost, but as a native Angelino, Southern California is 'home'. If we could truly reduce our decisions we make to 'A over B' purely on the basis of Vulcan-type logic, they would not be so agonizing sometimes. Ahh, the joys of being a human emotional creature!

I hang out with investors, and they're still finding relative bargains in CA--southern and northern. For example...

My friend/mentor found a vacant lot on a hillside in Chatsworth, a small community north of Los Angeles now undergoing gentrification. He paid $25,000 for the lot--an absolute steal. He put $350,000 in construction costs into it and is now selling it for $950,000. The lot has a stunning panoramic view of the valley. He wants the guy next door to remove the rusted cars from his lot, so he's going to incent him to do so; maybe a keg of beer.

He was passing by someone's property one day and noticed that it was packed with succulents. He stopped and asked the homeowner if she could spare some cactus. She said, "sure, take what you want." He figures he got about $1,000 worth of cacti for free. He's like that. He knows he has to A-S-K to G-E-T.

Not too far from this property, he found another vacant lot and is doing the same thing, although this property doesn't have a view. He thinks Chatsworth is a relative bargain at this time, so he's still buying.

Can anyone do this? Yes, sure, if you're willing to do the research he did, hire subcontractors, supervise construction, etc. After he purchased the lot, he spent about three months doing the necessary due diligence, pouring over plans, samples of wood, tile, brick, windows, working with an architect, etc.

It's not rocket science.





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Author: xtn Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84801 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 11:46 AM
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Up until last Summer, my wife and I lived in our 1,490sqft, 2-bed, 1-bath home, built in 1927, with our two todlers. It was fine.

xtn

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Author: catscanner Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84813 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 3:25 PM
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As an aside, who in the world is buying rental properties out there?
----------------
5 years ago I decided that rental property purchase in the Bay Area was not worth it. I would have had to tie up 40%-50% money down to make the payments cover the mortgage. For me, that not only wasn't a fiscal ability it seemd wrong to have that much capital tied up. Essentially, I want to have as little of my money encumbered by the mortgage.

That's why I went to the Palm Springs area.

cat

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Author: catscanner Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84817 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 6:18 PM
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Say a hypothetical house costs $100,000. You put 20% down plus pay $2000 in closing costs. Then later you sell the house for $90,000 and pay $5400 in closing costs. You've paid 27,400 plus whatever mortgage payments and maintenance costs along the way, and you get back roughly $10,000. OK, so you lost $17,400 on the deal which hurts.....
-----------------
I believe that the $17k "loss" is not accurate. You have to remember that the bulk of you monthly payment on new loans is interest...deductable interest. So, what is the tax benefit you acquired during that time?

cat

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84820 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 6:31 PM
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So, what is the tax benefit you acquired during that time?

Not enough to be worth talking about. On an $80k loan at 8%, that's $6400 in interest at most. Standard deduction for a married couple is $10,000, so unless there are other deductions totaling more than $3600, the tax benefit from the mortgage interest is ZERO. Zilch. Nada. Nothing.

Besides, he left the whole of the mortgage payments out of the equation entirely. To wit:
You've paid 27,400 plus whatever mortgage payments and maintenance costs along the way
So it really doesn't matter anyway.

--Peter

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Author: pirategraham Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84821 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 9:20 PM
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The people that are needed for the infrastructure will have difficulty living in the Bay area because of the housing prices. If you have kids, where will their teachers be able to afford to live in the Bay Area? How about the janitor that cleans the school? The receptionist at the doctor's office?

I can tell you that a certified teacher in the San Francisco USD with 10 years experience is only going to make $44,349 this comming school year. I wouldn't want to try and raise a family on that kind of money.

Alan


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Author: pirategraham Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84823 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 9:47 PM
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Say a hypothetical house costs $100,000. You put 20% down plus pay $2000 in closing costs. Then later you sell the house for $90,000 and pay $5400 in closing costs. You've paid 27,400 plus whatever mortgage payments and maintenance costs along the way, and you get back roughly $10,000. OK, so you lost $17,400 on the deal which hurts.....
-----------------
I believe that the $17k "loss" is not accurate. You have to remember that the bulk of you monthly payment on new loans is interest...deductable interest. So, what is the tax benefit you acquired during that time?


Don't forget to subtract off the rent you would have been paying to live elsewhere.

Alan

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Author: pirategraham Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84824 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/24/2005 9:55 PM
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A bit trickier on the custodians, but it appears that a starting custodian is currently making $33,276.20 Without promotions, his/her salary will top out at $40,272.60

Alan

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Author: catscanner Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84934 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/26/2005 3:10 PM
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A bit trickier on the custodians, but it appears that a starting custodian is currently making $33,276.20 Without promotions, his/her salary will top out at $40,272.60

Alan
---------------------
OK. If you are willing to go to school for 2 years, assuming you are accepted to the training school on your first try, the starting base pay for a 40 hr/wk xray tech at my hospital is $60k a year. Job security is fantastic and the skill can be taken nationwide. With my current base I'm at $80k. With OT I broke $100k last year. Not bad for a 2 year training program. Still, to afford a home in the Bay Area it still takes a salary of close to $150k.

cat

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Author: chrisstankevitz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84941 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/26/2005 5:24 PM
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> a bubble could burst here, and houses could lose 10% of value

A 10% loss would set housing back six months.

In 1996 houses were set back 9 years. What kind of loss (percentage-wise) would that be?
Chris


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Author: pirategraham Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 84942 of 127587
Subject: Re: Is it crazy to try to buy in the Bay Area no Date: 5/26/2005 5:25 PM
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A bit trickier on the custodians, but it appears that a starting custodian is currently making $33,276.20 Without promotions, his/her salary will top out at $40,272.60

OK. If you are willing to go to school for 2 years, assuming you are accepted to the training school on your first try, the starting base pay for a 40 hr/wk xray tech at my hospital is $60k a year. Job security is fantastic and the skill can be taken nationwide. With my current base I'm at $80k. With OT I broke $100k last year. Not bad for a 2 year training program. Still, to afford a home in the Bay Area it still takes a salary of close to $150k.

I was replying to the post that mentioned infrastructure jobs.

The people that are needed for the infrastructure will have difficulty living in the Bay area because of the housing prices. If you have kids, where will their teachers be able to afford to live in the Bay Area? How about the janitor that cleans the school? The receptionist at the doctor's office?

Alan

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