Author Topic: Gifted money for DP on home, not sure if we should use it now (Bay Area)  (Read 2687 times)

ice_beard

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My wife and I were recently told that we have access too a significant sum that we can use for a down payment on a house.  Anywhere besides the Bay Area or New York, maybe DC and we'd be pretty much covered for a DP.  The issue is, we live in the Bay Area.

We have been peripherally checking out homes, we have stopped by a few open houses and after hemming and hawing for a few months we are actually getting pre-approved too.  However, I'm pretty hesitant to buy in the current market.  I actually think that long term, even if the market tanked somewhat, we would recover our investment simply because there is only so much housing here within a certain distance to the employment centers and that isn't going to change in any significant way any time too soon.  As a married couple, we have a savings rate of ~45%, we are in our late 30s and we can see ourselves staying in the Bay for 5-10 more years. 
 
Each month, rent is 50-60% of our spending.  I have done the NYT "rent vs buy" calculator and it always comes down to how much we can expect our house to appreciate.  If I base that on what has happened to the value of friends homes who purchased even a few years ago, then buying is certainly the correct option.  We have enough cash to make a down payment happen but we might be a bit limited on cash for a bit after purchase, for improvements, etc. if we did this now.  I am into buying a home that needs work and doing a fair amount of it myself.  I have worked as a carpenters assistant in the past and am all about DIY.  Unfortunately, these homes are prized targets around here and I'm not the only one looking for such a house. 

My personal interest is to continue renting, pocket cash (in a combination of accounts, conservative Vanguard brokerage acct, online savings, etc. after continuing to max out 401ks and IRAs of course.) 

An interesting side note to this question....  a family member who works in real estate for a company that flips houses all over the US received the same gift and they immediately purchased a primary residence property without much hesitation. 

Thanks for any thoughts. 
 

Tuskalusa

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #1 on: October 22, 2017, 02:43:42 PM »
We’ve lived in the Bay Area all our lives. We’ve purchased three homes, all of which appreciated significantly. Our “best practice” has been to wait for a downturn to purchase. While prices didn’t necessarily drop significantly, we avoided bidding wars and we got what we thought were fair prices. Also, once the economy improved, each house appreciated.

So, I’d agree that now is not the time to buy. Now is the time to identify neighborhoods you love, to hoard cash, and to wait. There will be an opportunity to jump in the next downturn cycle. Good luck!

ice_beard

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #2 on: October 22, 2017, 02:54:51 PM »
We’ve lived in the Bay Area all our lives. We’ve purchased three homes, all of which appreciated significantly. Our “best practice” has been to wait for a downturn to purchase. While prices didn’t necessarily drop significantly, we avoided bidding wars and we got what we thought were fair prices. Also, once the economy improved, each house appreciated.

So, I’d agree that now is not the time to buy. Now is the time to identify neighborhoods you love, to hoard cash, and to wait. There will be an opportunity to jump in the next downturn cycle. Good luck!

Great, good to hear. 
Thanks for the personal perspective. 

Another Reader

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #3 on: October 22, 2017, 03:29:37 PM »
We’ve lived in the Bay Area all our lives. We’ve purchased three homes, all of which appreciated significantly. Our “best practice” has been to wait for a downturn to purchase. While prices didn’t necessarily drop significantly, we avoided bidding wars and we got what we thought were fair prices. Also, once the economy improved, each house appreciated.

So, I’d agree that now is not the time to buy. Now is the time to identify neighborhoods you love, to hoard cash, and to wait. There will be an opportunity to jump in the next downturn cycle. Good luck!

+1000.  The downturn will come.  It's not possible to predict when, but it will be likely in the next few years.  No one knows what will cause it.  How much will prices go down?  The last downturn was the worst I have seen in over 60 years.  20 percent is more common.  In your shoes, I would do exactly as Tuskalusa suggests.

Tuskalusa

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #4 on: October 22, 2017, 03:47:59 PM »
BYW, very cool that you have been gifted a DP!  That will surely help, wherever you land!

ice_beard

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #5 on: October 22, 2017, 05:59:00 PM »
BYW, very cool that you have been gifted a DP!  That will surely help, wherever you land!

Indeed.  We are very fortunate.  Thank you for the advice and well wishes. 

affordablehousing

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #6 on: October 24, 2017, 11:25:52 AM »
Exact same situation! See you at the next open house in Dimond or Laurel;) Or not...

If you don't really care about home ownership, and it's just about missing an investment opportunity or not, renting might be easier to deal with. If you want to go back to your carpenter days, like tinkering with things, and maybe aren't jazzed about where you live now, I say go for it and join the fray.



jamesbond007

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #7 on: October 24, 2017, 02:52:48 PM »
My wife and I were recently told that we have access too a significant sum that we can use for a down payment on a house.  Anywhere besides the Bay Area or New York, maybe DC and we'd be pretty much covered for a DP.  The issue is, we live in the Bay Area.

We have been peripherally checking out homes, we have stopped by a few open houses and after hemming and hawing for a few months we are actually getting pre-approved too.  However, I'm pretty hesitant to buy in the current market.  I actually think that long term, even if the market tanked somewhat, we would recover our investment simply because there is only so much housing here within a certain distance to the employment centers and that isn't going to change in any significant way any time too soon.  As a married couple, we have a savings rate of ~45%, we are in our late 30s and we can see ourselves staying in the Bay for 5-10 more years. 
 
Each month, rent is 50-60% of our spending.  I have done the NYT "rent vs buy" calculator and it always comes down to how much we can expect our house to appreciate.  If I base that on what has happened to the value of friends homes who purchased even a few years ago, then buying is certainly the correct option.  We have enough cash to make a down payment happen but we might be a bit limited on cash for a bit after purchase, for improvements, etc. if we did this now.  I am into buying a home that needs work and doing a fair amount of it myself.  I have worked as a carpenters assistant in the past and am all about DIY.  Unfortunately, these homes are prized targets around here and I'm not the only one looking for such a house. 

My personal interest is to continue renting, pocket cash (in a combination of accounts, conservative Vanguard brokerage acct, online savings, etc. after continuing to max out 401ks and IRAs of course.) 

An interesting side note to this question....  a family member who works in real estate for a company that flips houses all over the US received the same gift and they immediately purchased a primary residence property without much hesitation. 

Thanks for any thoughts. 
 

I live in the east bay and I am hoarding cash for the next downturn. If it happens, I will buy. If not, I have the money. I am sure it will happen just don't know when.

badassprof

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Re: Gifted money for DP on home, not sure if we should use it now (Bay Area)
« Reply #8 on: October 24, 2017, 07:58:05 PM »
We are in the Bay Area too. My partner bought our house in 2005, so at the top of the (then) market. It is today worth more than double what my partner paid for it.

I think the key in the Bay with real estate too is (if you can) not being in a place where you have to sell during a downturn. So, maybe consider how long you'll be in the bay. If you can just ride out a downturn, you'll be in good shape. That said, the downturns many people experienced in the bay were very different in the last two cycles then those in other places in the country. Our house price never dropped below what was paid for it. That could change, of course, if the economy here dries up, although being by a huge university probably helps shield us a bit.

ice_beard

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Update....

We bought a house. 
Honestly, I feel like we absolutely lucked into this house.  It came out of contract (for unknown reasons) and we looked at it on a Wednesday evening, decided to submit an offer, as did one other couple.  We were given a counter offer which we agreed to and from what we were told, our love letter was the deciding factor and the house was sold to us.  Amazingly it appraised for a significant amount more than we paid and we feel so lucky to have pulled this off. 
Also, we absolutely love OUR house.  After having rented for 20+ years it feels amazing to have a home that is my own.  No more $hitty appliances, we can paint/update however we like and can consider some furniture that isn't hand me down/cheap.  There is a bit of room for improvements, yard and some minor things indoors but it was a move in ready home in a neighborhood we know and really like and in a very good school district.

We weren't being particularly aggressive in our home search, this one just kinda fell in our lap.  We were at the right place at the right time.   I fully expect the economy to go into the toilet immediately now, but even then, we are well positioned for the future. 



Tuskalusa

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Fantastic news!  Congratulations! Is your new home in the Bay Area?

ice_beard

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Yes, in the neighborhood we have been living in for the past 2.5 years. 

jamesbond007

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Update....

We bought a house. 
Honestly, I feel like we absolutely lucked into this house.  It came out of contract (for unknown reasons) and we looked at it on a Wednesday evening, decided to submit an offer, as did one other couple.  We were given a counter offer which we agreed to and from what we were told, our love letter was the deciding factor and the house was sold to us.  Amazingly it appraised for a significant amount more than we paid and we feel so lucky to have pulled this off. 
Also, we absolutely love OUR house.  After having rented for 20+ years it feels amazing to have a home that is my own.  No more $hitty appliances, we can paint/update however we like and can consider some furniture that isn't hand me down/cheap.  There is a bit of room for improvements, yard and some minor things indoors but it was a move in ready home in a neighborhood we know and really like and in a very good school district.

We weren't being particularly aggressive in our home search, this one just kinda fell in our lap.  We were at the right place at the right time.   I fully expect the economy to go into the toilet immediately now, but even then, we are well positioned for the future. 




Congratulations!

ysette9

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Fantastic! Congratulations. Sometimes good deals happen even in crazy markets. We got lucky and had a similar situation buying in a neighborhood we had been living in for a while. It feels less risky to buy in a known area. A bit like you, we had been waiting because my husband felt the market was overpriced, and in the time we waited the prices went up at an insane rate. Still are, even after we bought, and we have weekly discussions on how crazy the prices are. It feels good to not be priced out of our neighborhood, which we pretty much would be now, a year after buying.

May the market winds ever be in your favor. But if not, as long as you can make the mortgage and hang on for the long haul I think you will be just fine.