My wife and I are living in Silicon Valley and are fortunate to have a very high combined household income. I am a physician and she works in tech. Combined we should make approximately $500,000 per year pretax (this is an estimate because I just finished training and need to see how much my total compensation works out to). With her income we have paid off most of my medical school debt ($30k left at low interest), saved approximately $180,000 (mostly in stocks and index funds), and have $90,000 in a 401k.
We rent a two bedroom townhouse right now ($4250 per month) and are interested in buying. The trouble is, to get a three bedroom place in the areas that work for us costs around $1,500,000. Presuming a 20% down payment, we need $300,000 on hand. In this area, with overbidding and the general craziness of real estate, it would be better to go into bidding with more than just that minimum amount, though. I anticipate we can save something like $200,000 per year of our income, even without investing gains, meaning we could reach $500k on hand in about a year and a half (probably enough to start serious bidding).
The real estate market has also been going up drastically here, with an expected 10% increase total this year alone. In two years, the $1.5 million places may well be $1.8 million.
I'm curious about what strategy makes the most financial sense, if we plan to buy. Should we try to get a loan with the smallest down payment possible and try to buy ASAP (if someone will even give us such a loan)? Should we save a few years, even though prices may well go up by that time? If we do save a few years, and if we really intend to buy in 2-3 years, should we invest that money in something like an index fund or should we let it sit in a bank account? I feel bad missing out on the investing earnings, but I worry that if the market turns down we will either have to forego buying or risk selling at a large loss. I also think that if, as MMM recently posted, a recession comes soon then we would be extremely well-positioned by having cash in an account that would be unaffected by a downturn.
Thanks all for any advice you have! We are finally making money, but our educational paths have been long and for the first ~29 years of our lives neither of us had even a positive net worth, so we're interested in hearing some more experienced perspectives!