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Ironically I grew up in the Bay Area and now live in Illinois. Definitely won’t be in Illinois forever, but when I move, I’m certain it won’t be back there.
What can I be doing different Financially??
Started by gaspusher
So OP is saving 100k in tax deferred and somewhere between 13-19k/mo into taxable so yearly savings/investing of 250k minimum while living in VHCOL in bay area??
I don't see what the issue is unless he is trying to FIRE in 10 years and he stated he has 25 years in the gas tank left.
I don't see what the issue is unless he is trying to FIRE in 10 years and he stated he has 25 years in the gas tank left.
Because he wants to buy a house burning 4 years of savings and then locking into a 30 year, $22k monthly payments, lowering his savings rate and locking him into his job for a loooong time. Hence his initial question about why it feels like he’s going to be a bit stuck.
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Big-city dwellers are better off renting than buying a home everywhere, analysis says
If you can't afford to buy a home right now, let it go. Renting is more cost-effective now in all 50 of the largest U.S. metro areas, data shows.
www.usatoday.com
Rent and invest the difference. If and when housing slumps buy a home.
Big-city dwellers are better off renting than buying a home everywhere, analysis says
If you can't afford to buy a home right now, let it go. Renting is more cost-effective now in all 50 of the largest U.S. metro areas, data shows.www.usatoday.com
Rent and invest the difference. If and when housing slumps buy a home.
Or never buy a house. It’s not a good investment anymore and a rental is a home too. Don’t believe realtor propaganda. They work for themselves not for you.
Big-city dwellers are better off renting than buying a home everywhere, analysis says
If you can't afford to buy a home right now, let it go. Renting is more cost-effective now in all 50 of the largest U.S. metro areas, data shows.www.usatoday.com
Rent and invest the difference. If and when housing slumps buy a home.
This is great advice. This is what i have been doing but mostly because i kept losing out on buying a house due to some cash offer coming up.
My landlord plans to come back but got delayed in Cali so i essentially have month to month starting next month for the next 3 years with no incr in rent. likely will grab a house somewhere in there.
Exactly. I don't have a house nor consider a future one in my retirement calculations. To me it only counts when you sell it otherwise its a money pit.
Id be paying 50% more than my rent right now had i bought the house i rent or something like it. Instead it goes into the market.
Another factor, having a landlord can suck. If you own nobody can kick you out of your home.
I agree renting and investing the difference is the better financial decision in some markets, especially California where property tax rates are held artificially low for long-term owners.
I also agree that renting can be super painful if your landlord sucks or you get kicked out. Also, you may not be able to make the necessary changes to the house to make it feel like your home.
At the end of the day, it’s a consumption item, which means you make your choice according to your taste and live with the consequences. You can have almost anything you want but not everything you want.
I also agree that renting can be super painful if your landlord sucks or you get kicked out. Also, you may not be able to make the necessary changes to the house to make it feel like your home.
At the end of the day, it’s a consumption item, which means you make your choice according to your taste and live with the consequences. You can have almost anything you want but not everything you want.
How stable is your job ? What if pe takes over or you want to leave your job ? don’t think I would be comfortable allocating that much of my take home pay to just mortgage payment.
Sacramento is not "really great". It's barely mediocre. Cost of living has basically doubled in the last five years, it's swarming with homeless and the jobs are below average.
Well
Never is a long time.
I think the forever-home we just bought on a 2.5% 30-yr mortgage is going to work out nicely as an investment (for our heirs).
Beyond that, there's no we we'd have been allowed to do the renovations we did if we were renters. Nor would we have really wanted to invest that time and money into someone else's property. We've planted dozens of trees that won't mature in a renter's horizon. Altered the floor plan and installed stuff that would freak out even the most permissive landlord.
And we don't have to worry about being told to leave, or getting our rent jacked up every year. 25 years from now we'll be paying the same payment for housing (actually far less in real money). There's a good argument for buying and getting a fixed long term housing payment, if you're going to stay there a long time.
Maybe.
To me all those renovations are just even more money that isn’t invested in the stock market.
Rising rents will feel bad when they come, and they will come, but you could more than cover the rent increase with superior investment returns.
Most people don’t stay in a house that long, but it works out okay for some people. The more home equity you have, the greater the opportunity cost of not having that money in an investment with a better return.
I think there’s almost no chance of housing (all-in cost) outperforming the S&P, but I could be wrong.
Housing does well if you are the average American who treats house maintenance like doing it will start a chain reaction of nuclear war.
If you care about your house even a *little* and have pride of ownership, houses end up being expensive af.
I prefer owning for multiple reasons but saving money/investment isn’t really one of them.
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Cost of living has increased just about everywhere. It’s not just a Sacramento thing. It’s still rather affordable for good houses on tree lined streets.
Also breath of good options- pp, well paying academics, Kaiser… take your pick.
Homeless are present in certain parts of town, just like everywhere else in the country. Move out of east sac and you’ll probably be less perturbed with that aspect of life…
I see Sac as a good alternative to the bay, but some people just have their mind set on how and where life should be. And they grind to get that. Sometimes that line of thinking can be more of a cage than a vehicle to freedom.
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deleted1183938
This. Owning a house in some areas is such a scam if your housing market is not appreciating. The costs of owning a house in America are not good.
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deleted87051
Double income of 450K/yr take home which is alot of $$$$. That is about 38k/month.
Expense/mo
8k rent
4k His credit card
2.5K Her credit card
Lets be honest, you have other expenses that are not reflected in your CC like cash/checks/bank transfer payments for stuff lets put that at 5k/month.
You have one kid and lets assume you have 2 more. Why would you have a 4K sqft home for just 3 people?
Kids are EXPENSIVE. Rich people with rich tastes hang around with other rich people puts their kids in private school. 3 private school kids = 5k+/month. 3 kids in club sports or similar = 4k+/month. Kids grow, they eat alot, wear lots of expensive clothes. Lets add another 5k+/month for this. You haven't even hit the teenage/driving costs yet.
That is another 14k/month during their teen years.
Now your expenses are right at 34k/month. Now you have more expensive vacations with 5 people, college to fund, car payments/insurance.
Ask me how I know; because I am going through this now. I have 3 kids, all in private school & club sports.
BUT the difference is I have a higher income, own my 2M+ home, have higher net worth, and currently FIRE. I don't need to save anymore and can spend whatever I make.
If I were OP, I would have a heart to heart talk. Either you move to a cheaper place & cut down on expense OR you are going to be living check to check in the next 3-5 years. Some may think my math is wrong, but OP is sorely underestimating his current/future expenses.
Expense/mo
8k rent
4k His credit card
2.5K Her credit card
Lets be honest, you have other expenses that are not reflected in your CC like cash/checks/bank transfer payments for stuff lets put that at 5k/month.
You have one kid and lets assume you have 2 more. Why would you have a 4K sqft home for just 3 people?
Kids are EXPENSIVE. Rich people with rich tastes hang around with other rich people puts their kids in private school. 3 private school kids = 5k+/month. 3 kids in club sports or similar = 4k+/month. Kids grow, they eat alot, wear lots of expensive clothes. Lets add another 5k+/month for this. You haven't even hit the teenage/driving costs yet.
That is another 14k/month during their teen years.
Now your expenses are right at 34k/month. Now you have more expensive vacations with 5 people, college to fund, car payments/insurance.
Ask me how I know; because I am going through this now. I have 3 kids, all in private school & club sports.
BUT the difference is I have a higher income, own my 2M+ home, have higher net worth, and currently FIRE. I don't need to save anymore and can spend whatever I make.
If I were OP, I would have a heart to heart talk. Either you move to a cheaper place & cut down on expense OR you are going to be living check to check in the next 3-5 years. Some may think my math is wrong, but OP is sorely underestimating his current/future expenses.
Your question focuses on maximizing the return you can get on your investment but you are missing the fact that you could invest more by not spending so much.
Like emergentmd states above, I would focus more on cutting down on expenses. That $3M+ house will be $6M+ in principal and interest by the time your'e done paying it off, and it doesn't sound like you would pay that down early and hope to beat a 6-7% rate with your money elsewhere.
Like emergentmd states above, I would focus more on cutting down on expenses. That $3M+ house will be $6M+ in principal and interest by the time your'e done paying it off, and it doesn't sound like you would pay that down early and hope to beat a 6-7% rate with your money elsewhere.
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OP will have the same issues in Marin. median home price in Marin COUNTY is 1.5 mill and rising (this includes cheaper areas like San Rafael, Novato). So a home in an area that most would actually want to live is more like 2-3 million (look up average homes in Mill Valley or Ross). Plus now you gotta factor a much longer commute to work. If he currently has housing in Los Gatos I’m to assume a Marin commute would be insanely long. Could he move jobs? Do the jobs in and around Marin pay enough compared to the cost of living there?
Plus- Marin is nice to visit for a weekend, or to take a bike ride. But grinding financially day in and day out to have the “honor” to live in a pretty but humdrum bedroom community that’s crazy expensive with neighbors who think they are better than you? Pass…
Around the house we've put in about 50 in the last two years.
15 black walnut. Lots of them here already, maybe 100, of which maybe 30 are mature / 80+ feet tall. They grow like weeds. Have to constantly pull saplings the squirrels plant too close to the house.
5 English walnut. They taste better, and hopefully they'll grow as well as the black walnuts. Black walnuts are definitely an acquired taste.
10 oaks
15 hybrid chestnut
A handful of persimmons and pawpaws
The new black walnuts are intended to replace ash trees that were killed by the emerald ash borer beetle. Saddest thing about our property is all the dead ash trees. Some 100' or higher and 50+ years old, just dead sticks now. Some still standing, most had already fallen. We had to cut down about 40 that were close enough to the house, driveway, or neighbor's horse pasture fence that they would've caused trouble when they fell.
The hybrid chestnuts should grow quickly. They're resistant to blight but only about 1/2 American Chestnut. We hope to get nuts out of them but mainly we planted them away from the house as food for deer and other wildlife. (Same with the persimmon and pawpaw trees.) We're also scheduled to get some seeds and will buy some seedlings from the American Chestnut Foundation next spring. Those are more closely related to the American chestnut but may not be quite as blight resistant. Their breeding program aims for 90%+ American genes that can survive blight.
We have about 3/4 acre that is protected by an 8' deer fence that has about 40 fruit trees. Peach, nectarine, cherry, apple, pluot, almond, plum, plum cherry, aprium, apricot. Most of those trees were planted this year.
The other tree project we have going is some citrus. We're growing Sumo mandarins from seed, which we'll eventually graft onto flying dragon root stock. We're a bit far north for citrus to survive the winter, even on cold hardy root stock. So these will be potted and moved indoors for part of the year. When the greenhouse gets built they'll live there but we've probably got 5 years before they'll be too big to easily move around.
Drought isn't an issue here. We have a small year-round spring, although it doesn't flow much in the summer. But we're on a well so we have essentially unlimited water.
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deleted87051
I was replying to @cchoukal who I believe is in Marin but says Sacramento is great. Marin>>>Sacramento unless you love cows, dirt, and >100deg summers.
I know we are talking big numbers so it kind of blends, but OP spending $2.5 on a house instead of the proposed $4m SIGNIFICANTLY improves his financial plan. Regardless if the pros and cons of the north bay, or spending that much on a house in general, OP certainly makes enough to justify a $2-2.5m house if he should choose. $4m is really pushing it.
I dont think OP stated his combined household income. I could be way off but maybe 750-800 is the OP combined household gross income so your saying that is enough to justify 2-2.5m house? I always thought 1-2x your income was ideal which would be a house 800-1.6 but obviously where he lives it needs to be closer to the 1.6 ?
The more you make, the less that ratio holds. It would personally make me feel uncomfortable spending that much on a house at OPs income, but I would categorize that in differences of preferences rather than financial missteps.
To put it in perspective: if OP still puts down $1m in either scenario, which he said was his intention. His payment is $20k (before escrow) with a $4m house and $10k with a $2.5m house. That’s night and day.
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You are correct, of course.
But the same thing can be said of any money that is spent and not invested.
When we bought this place, it was the second home we bid on. It cost several hundred $K less than the first one we wanted (which was an amazing house on 65 acres), but it needed some work. The renovations were sort of budgeted into our purchase price, with the bonus of getting exactly what we wanted in every detail.
We don't spend a lot on travel.
We eat out a couple times per month - but enjoy making great food in a kitchen that cost us near $100K to build. I can see how the city apartment dwellers who like having 9 Thai restaurants within 6 blocks would think that's dumb.
Some people want $10000 handbags, or pay private preschool tuition, or go for $900/night hotel rooms.
We're believers that you should aggressively save what you need to save, to conservatively fund the retirement you want. And then you should spend the rest on the stuff or people or experiences that create the life you want.
Debatable. Already it's impossible to rent a place like our house for even double our mortgage payment - and in 20 years the payment will be laughably less than comparable rent.
But it's a side point. The real problems with being a lifelong renter are that someone else can tell you to move, and that you can't do what you want with the place. That lack of stability and freedom are unacceptable to us.
Perhaps not important problems to the aforementioned city dwellers who like living in an apartment close to the things they like. But important to us.
yeah, we're in Marin, and my comment on Sac was in concert with another poster who was saying there are lots of other nice areas in CA. We obviously prefer Marin, since we live and work there. Doesn't really feel like a grind, but then I'm in a nice practice at a functional hospital. I suppose as the girls age and the associated overhead increases we'd feel squeezed, but I guess we'll see.
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deleted1183938
What’s the point of living in an expensive area with presumably an expensive public school system only to go ahead and fork out more money for a fancy private school?
And why do kids need expensive clothes as quickly as they grow?
That’s all true. It’s a judgement call. Financially you will most likely be worse off if you buy vs rent, but that doesn’t mean it won’t be worth the expense. It just depends on what matters to you.
It’s true you can be kicked out of a rental, but you can probably find another place to live easily enough. As you build up more and more cash with all the money you saved by renting and investing (vs buying), you will be able to afford nicer and nicer rentals while still coming out ahead vs buying. It’ll still never yours, but I’d rather more from a dated rental to one that has already been renovated than spend a fortune and live in a construction site.
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I feel like that is directed at me.
That is not even close to having an 8-10k/month mortgage.
I can choose not to spend that kind of money if I want to. But you have no choice once you sign on a dotted line for a 8-10k/month mortgage.
As I stated above, my mortgage is akin to a luxury car payment ($1300+). My take home pay is ~25k/month (1.6k real estate profit included). No car payment as Elon Musk has not delivered my Tesla Model Y yet 🙂.
I'm not judging how people spend their fun money. 🙂 Just making the point that I choose other stuff.
I learned basic finance from Graham Stephan during the Covid pandemic.
The OP needs to watch the You Tube video on why he/she should rent and not buy that multi million dollar home. I would advise waiting for rates to fall, and for his/her investments to grow over time so the mortgage is small. I would also suggest a lower cost of living area as the place to buy a $2 million home which will match that $4 million one.
Every market is different. The real estate market in certain pockets of Southern California is very different than metro areas of Texas for example.
I live in an area with a red hot housing market, largely due to very little inventory and lots of foreign cash buyers (mostly Chinese) scooping up houses above asking price. My house has appreciated about 25% in the past two years and that’s relatively low for the area. A friend of mine bought a new build for $2.5 million just two years ago and comparable houses in his area are now selling for $4-5 million.
The issue is that if rate falls, home price might go up because the top 5% (physicians included) will start speculating on the housing market again. OP will end up at the same place. He just needs to buy a home that is more affordable.
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OP:
1. Don't compare yourself to tech/fin bro next door. You are smart/hardworking enough to do what they do, but would you feel as fulfilled? BA is not a place for FOMO.
2. Skimming the thread, instead of ask strangers on the web, I didn't see what your conversation with your wife about your anxieties is like. Marriage was the biggest investment/gamble you made in your life, so it's best to make it successful.
3. Proportionally, the rent is comparable to a mortgage with 3% APR. Since you can't get 3% mortgage these days, I think it's fair. The penalty you pay without equity is the freedom to walk away.
4. Your income is such, you can easily trim off 1-2K/mo, would you consider buy a house in a less expensive location? View it as investment, and you can be a landlord.
1. Don't compare yourself to tech/fin bro next door. You are smart/hardworking enough to do what they do, but would you feel as fulfilled? BA is not a place for FOMO.
2. Skimming the thread, instead of ask strangers on the web, I didn't see what your conversation with your wife about your anxieties is like. Marriage was the biggest investment/gamble you made in your life, so it's best to make it successful.
3. Proportionally, the rent is comparable to a mortgage with 3% APR. Since you can't get 3% mortgage these days, I think it's fair. The penalty you pay without equity is the freedom to walk away.
4. Your income is such, you can easily trim off 1-2K/mo, would you consider buy a house in a less expensive location? View it as investment, and you can be a landlord.
People choose schools not just based on test school ratings. Plus, not all affluent areas have great school systems. Kids outgrow clothes quickly during their teenage years and the cost just gets compounded when your affluent friends have expensive brands. Its social peer pressure. When you live/socialized with affluent people, spending creeps happens. Its hard when your friend's kids are in club sports to say no to your kids when they want to try club sports.
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deleted1183938
The great keeping up with the Joneses.
Not all affluent areas have good school systems. That makes no sense.
Yea this thread is full of **** takes. Talk to your wife, look at your budget and goals. Who cares if you aren't saving 90% of your take home to retire in 3 years if you don't want to do that or don't want the threat of having to uproot your family at the end of a lease while trying to stay in a school system etc?
I re read the OP after a few days
Here are my thoughts
1. OP is too much in a rush. The get rich scheme is always everyone dream. It doesn’t happen for 99% of people.
2. Financially they are saving a lot relatively to their income
3. The high cost living is a choice. If you have friends and family in area. It’s worth it. It’s sub clinically depressing (notice I say sub clinical) because I think too many people are over prescribed anti depression drugs). It’s sub clinically depressing to be living in a place like Roanoke Virginia (sorry. I know folks there (they did well financially in anesthesia) but still sucks (for me) if I lived there.
4. Have u considered full time locums? If u have no kids. Couple of my friends in very high cost living do 2 weeks hard at locums places and fly back home. They have kids older 16-20 so that makes it’s easier. U can make more and with more time off to subsidize ur housing costs.
Here are my thoughts
1. OP is too much in a rush. The get rich scheme is always everyone dream. It doesn’t happen for 99% of people.
2. Financially they are saving a lot relatively to their income
3. The high cost living is a choice. If you have friends and family in area. It’s worth it. It’s sub clinically depressing (notice I say sub clinical) because I think too many people are over prescribed anti depression drugs). It’s sub clinically depressing to be living in a place like Roanoke Virginia (sorry. I know folks there (they did well financially in anesthesia) but still sucks (for me) if I lived there.
4. Have u considered full time locums? If u have no kids. Couple of my friends in very high cost living do 2 weeks hard at locums places and fly back home. They have kids older 16-20 so that makes it’s easier. U can make more and with more time off to subsidize ur housing costs.
OC/Irvine?
LA is a good example. Cost of housing is very high but public schools are trash.
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Some parts of San Diego too. Low property taxes and relatively limited land to build on means housing isn’t a terrible investment long term.
In other parts of the country it’s much easier to build outwards. It’s simple economics — with less supply constraint, property values won’t appreciate as much. Dallas is a good example of this with so many newer suburbs popping up around the metro area.
If you gave me $2 million, I would much rather buy a house in Southern California even if it’s only a 2,000 sqft track house. Sure that same amount will get you a house three times as big elsewhere, but odds are property taxes will be higher, it’ll be in a suburb 30-60 minutes from downtown, and in five years another newer development will pop up right next to you.
I've already run the numbers in a post I made months ago on a comparable $3.3 million dollar home. It becomes a no brainer to buy in this area (in my humble opinion) if:
1) the housing market finally flattens in the next 5 years
2) interest rates go down below 4% again
3) we plan to stay here 20-30 years
This is just for 15 years, if the conditions above are met, buying becomes more prudent. Note numbers a little different as we moved since that post (but still the principal doesn't change).
Scenario 1 - Rent the house:
-I rent the house for $6850 a month for 15 years. With utilities I pay $7500. Cost of living adjustment 3% a year. I spend $1,4000,000 to rent this house for 15 years.
-We take that $600,000 down payment and put it in VTI/VOO. Each month, I take the rest of the money I would have been paying the mortgage with ($21,000 - $7500 = $13,500) and just invest that too. In an ideal world I get 8% ROI in the market. That is $6,500,000 after 15 years.
=>So we netted $6,500,000 - $1,400,000 = $5,100,000.
Scenario 2 - Buy the house:
-I take every call shift possible, 1099 side gigs, wife inherits money and somehow we piecemeal our way to buying this house for $3,000,000. We put 20% or $600,000 down and take out a $2,400,000 mortgage at 7.2%.
-After $600,000 down, I am paying $21,000 a month for mortgage, utiliteis, property tax, and insurance. We live extremely uncomfortably paycheck to paycheck.
-If we sell in 15 years with a 5% return on investment each year the house should net $6,200,000.
-We will owe the bank $1,800,000 to pay off the rest of the mortgage and the realtor 5% ($300,000) for selling the house.
=>So we netted $4,100,000 (not including any maintenance, repairs, renovations during that 15 years).
So the difference is $1,000,000 over 15 years (probably closer to $1,500,000 once you factor in repairs/renovations).
1) the housing market finally flattens in the next 5 years
2) interest rates go down below 4% again
3) we plan to stay here 20-30 years
This is just for 15 years, if the conditions above are met, buying becomes more prudent. Note numbers a little different as we moved since that post (but still the principal doesn't change).
Scenario 1 - Rent the house:
-I rent the house for $6850 a month for 15 years. With utilities I pay $7500. Cost of living adjustment 3% a year. I spend $1,4000,000 to rent this house for 15 years.
-We take that $600,000 down payment and put it in VTI/VOO. Each month, I take the rest of the money I would have been paying the mortgage with ($21,000 - $7500 = $13,500) and just invest that too. In an ideal world I get 8% ROI in the market. That is $6,500,000 after 15 years.
=>So we netted $6,500,000 - $1,400,000 = $5,100,000.
Scenario 2 - Buy the house:
-I take every call shift possible, 1099 side gigs, wife inherits money and somehow we piecemeal our way to buying this house for $3,000,000. We put 20% or $600,000 down and take out a $2,400,000 mortgage at 7.2%.
-After $600,000 down, I am paying $21,000 a month for mortgage, utiliteis, property tax, and insurance. We live extremely uncomfortably paycheck to paycheck.
-If we sell in 15 years with a 5% return on investment each year the house should net $6,200,000.
-We will owe the bank $1,800,000 to pay off the rest of the mortgage and the realtor 5% ($300,000) for selling the house.
=>So we netted $4,100,000 (not including any maintenance, repairs, renovations during that 15 years).
So the difference is $1,000,000 over 15 years (probably closer to $1,500,000 once you factor in repairs/renovations).
Yes, we both understand that our spending has been astronomical by our standards for the past year or so. The thing is, we moved, we have a baby that needs child care, medical bills, we needed tons of furniture, we donated money, we finished paying off wedding expenses and honeymoon expense, we bought items you typically buy once and last your 10-15 years, car payments. It was a crazy year (keep in mind I'm saying about $6500 averaged over the year so not necessary each month, some months were bare bones nothing and some were high) and I'm typically much much tighter in my spending. But this is what I have to work on and I know it. My spending will get cut in half and my wife's will too going forward.
You need to add the maintenance, repairs, and renovations to the cost of buying and to the returns of investing. It’ll cost you way more than your estimate once you add in the return on investment of all that money you didn’t spend renovating/repairing.
