Buy in HCOL??? (San Francisco)

[Tezz24]

Bumping this from the Seattle thread to get some more opinions-

SO and I debating buying a house in San Francisco. We contemplated leaving the area, but SO’s job is awesome and has room for growth, and mine is stable. We also have a solid amount of family (childcare help) and friends nearby. After having kids a few years ago, the thought of keeping them in the city is appealing. We would be in it for the long haul though, assuming our jobs are intact. As everyone knows, home prices here are crazy. This may be dumb, so I'm looking for any advice.

Approximate Numbers:
Combine annual income: 300k
401Ks: 450k
Roth/HSA: 80k
Taxable accounts: 480k
(SO also has about 100k of equity that vests on a 4 year schedule. We basically ignore this and think of it as free money)

Rent: 3,100 /month (3BR, 2BA apt)
Spending Avg: 3,300 /month
Mid 30s with 2 kids (0 and 3)
Solidly mustachian (lots of bike riding, walking, make 95% of our meals, have a really old car we never drive, etc.)

Our situation is slightly different in that we also have an investment property out of state. We had bought it with the thought of moving, but are rethinking that option. It does NOT cash flow, but has a significant amount of equity in it. (Worth 600k, we owe 325k) Potentially selling this house kick started the idea actually. Additionally we have the potential for a free “loan” of 100k from our parents. Houses in SF could be at least 1.2M-1.3M. This seems quite crazy, but when I factor in we may not need to touch our invested stache to put in a down payment, I rethink the idea.

Anyway, we are open all ideas. Just looking for some smart advice. Thanks!

[ysette9]

Long time Bay Area native who just recently bit the bullet and bought a small house on the peninsula here:

Ultimately I think the most important question is whether you intend to stay in evades. If yes, then I think the numbers come down on the side of buying. In our case the break even mark was around ten years but you can run your own numbers in The NY Times rent versus buy calculator (just google it).

Separately if your investment property is not adding up then the right thing to do is sell and make that equity work harder for you. If the right thing to do is to use it for a down payment on a long-term home here, then so be it.

[Dicey]

^^This may or may not have been the person on the Peninsula I referenced on the Seattle thread ;-)

[meatface]

Tezz,
If your $3100/mo place is working for you guys and is in an acceptable school district, I would NOT buy a house. Save your stache and keep renting. The rent/buy ratio is so messed up in the Bay Area. I lived there for 10 years before moving to New England; it was messed up then, and it's even worse now. And if you need to move for schools, then see what sort of rental you can get first.

[waltworks]

If you want to stay long term, you guys make so much money that you won't hurt yourselves much by buying a house.

On the other hand if you think you want to live somewhere else someday (there are an awful lot of former bay-area folks here in Park City these days...) then just rent. $3100 a month is peanuts compared to buying a $1.3 million house! I thought buy/rent ratios were way out of whack here (our $850k house would rent for like $4k/mo) but the Bay Area is just another level of silly.

-W

[Tezz24]

Thanks everyone. Appreciate the advice. It really is crazy here.

It seems like we really need to decide where we want to be for the long haul. (The evergreen question we've had for years)

At least we know the status quo works fine.

[jac941]

I live in the East Bay and we own our house, but I would never consider buying in your situation (or frankly in this market right now).

1. You have a screaming deal on rent right now if you're in SF.
2. The rent vs buy is crazy - it's way cheaper to rent.
3. Your monthly housing cost will be double on a 1.3 mil house than your current rent. That's a lot less cash to invest every month.
4.  On top of that, housing stock is old which often means lots of maintenance and renovations required. Not the kind of project I'd recommend taking on with kids that age. We did it -- it isn't fun. And it's expensive.
5. Large salaries aren't a guarantee, even here. Not owning an expensive house means you can take 6 months off of work to travel, not stress about quitting a job, etc. To me that flexibility is pretty priceless, but it may not be a priority for you.

I'm really impressed with your spending. Our childcare alone for 2 kids is more than your total non rent spending every month. Is there a chance that you'd ever have to pay for full time childcare? Factor that into your decision.

Good luck deciding. There are nice things about owning a place, but it comes at a huge financial cost around here.

[hucktard]

I think you could go either way. I come down pretty firmly on the side of buying for most situations, but I am very into real estate investing. Could you buy a house with a mother in low suite or an extra bedroom or apartment above a garage and then rent that out to help cover the cost of the mortgage? Rental prices are so high in the Bay Area that it seems you could cover a good portion of your mortgage by house hacking. The thing I love about real estate is that you can make extra income with it if you are creative.

[Tezz24]

@Jac - good points.

We do have a great deal on rent, and we know it. The salary part is key. Wife's salary is absolutely the driving force in being able to even think about this. While definitely not guaranteed, she is in as good a position as you can be.

As for our spending, we have had free childcare from the grandparents. It wasn't expected but it's another great reason to stay in the area. They plan to watch the younger one once preK starts for the older. We will have to pay for that though.

Really, the fact that we have a lot of equity in our rental, and could get some gift money is the main factor even making this thought possible. otherwise we'd probably stay the course until something big happened.


@huck- I keep my eye out for all types of places. You're right, ideally we'd have an in-law or something to rent out. Although that may be used for the grandparents short term, but could help offset costs in a downturn.

[Tezz24]

Thanks again for all the responses.

After some good discussion with the SO, we're going to keep the status quo. There's no reason to leave our situation. We can keep building our stache at an enormous rate, and then take advantage of whatever comes next.