Is in an article published by a major magazine (can’t remember which one, most likely Fortune).
If you watch the video @hanera linked, the guy speaks of levels. At most companies, folks top out at senior and few make it to staff+. For senior, base tops out around 200k and total comp at ~500k. With this income, 1M mortgage is certainly doable (DTI ~40% with 5k mortgage + 2k tax, 200k base).
To get to that income level, typically takes 5~7 yrs out of college. These folks have been sitting on their RSU, so 500~1M down payment is doable. This is why so many people can afford 1.5M~2M houses.
Now, if you go over 1M mortgage, things start to get a bit sticky - I’ve worked with lenders who encourage taking on higher mortgage (saying they can account for RSU), but this scenario assumes you sell your RSU every month after vesting to make ends meet. I don’t think many techies are that irresponsible (after all, computer nerds aren’t that stupidly courageous). And I think this is exactly why 2M is the magic $ in South Bay: when Sunnyvale reached 2M, market stalled and moved to Santa Clara. Now it’s moving to Campbell / Cambrian / Milpitas.
For those who are buying into Cupertino / Los Altos / etc., they are not single income families. Even without kids, 2M+ is unattainable even with lenders counting RSUs. Instead, these are mid level dual income folks (with combined household income 800k~1.2M), one being staff+ level, the other senior+ level. These guys can definitely afford 1.5M mortgages, plus they have higher net worth (either thru stocks or first homes), so I’d say 2.5M (1M down, 1.5M mortgage) is a good starting point. And I think this is why the numbers in Cupertino / Los Altos / Palo Alto jump and start from 2.5M.
You’d think there can’t be that many dual income earners in the valley, but I’ve seen fair amount - definitely double the # of houses in CU/MV/PA/LA.
All in, I’m not too worried about RE market crashing in South Bay. But because the income tops out at that level, I don’t think the price will go up too much unless there’s a big inflation coming.
I think the prices could drop because what people can buy for the price (2M) is relatively low relative to what they can rent.
They CAN buy but the economics make them not want to.
E.g., I have friends who make around 320K base as a couple plus 100K or so in bonuses. They’re not buying because the kind of place they can rent for 4.5K/month way exceeds what they can buy.
The friends I know that bought in the 2.5-3M range are only taking out 1M loans and putting 2M down from RSU sales or savings. They don’t like the idea of having >1M loans. I’m guessing that’s probably the case for most. Save RSUs and cash for large down payment for a few years.
Yeah, my friend is also like this with such income, tried buying home, but could not compromise specification. They are missing the following.
One of them might be my tenants
Good read for BAGB. Stocks > RE & a shrewd renter > homeowner.
What do you guys think for the couple above who opted to rent, what if they bought investment property in Bay Area in lower 1M range (Fremont, Daly City, Santa Clara), maybe more than 1 instead of buying 2.5M house, they bought 2 x 1.25M home and kept on renting on say Palo Alto. I wonder how it will work out.
Financially it would be better. But most people are not material to be a landlord.
Landlord is not hard. But it requires some traits such as risk taking, persistence etc. it’s daunting for a person who never owned a property to become a landlord, only those who don’t mind taking risks
Financially, buying rentals is much better, especially if you can structure it to be close to cashflow neutral. But I think the high income people already have other investment going on, mostly likely stocks in the form of RSU. So it’s not like they are putting cash under their mattress.
I posted a similar question before Not same neighborhoods, was using Austin
Is a workable idea if not staying in Bay Area for more than 3 years.
Most people have this concept drilled into their heads that they first have to buy a primary for themselves before they can buy rentals. That’s very wrong. Renting in PA and buying in Newark is a winning strategy.
I was thinking that this might be true when I did a quick back of the envelope computation using data from East Bay visit and Austin rentals.
Yea, I want to keep in Bay Area for investment coz one of the push back could be BA’s appreciation. Given appreciation % in mid-range neighborhood could be better than high-end, might be winning strategy especially with the new tax reform. You just need to keep the same amount of property value if you can afford. Of course there is risk that your landlord might increase rent or kick you out coz they are selling the house. Maybe we should put that in spreadsheet and see what’s different. Maybe you just need to rent for 10-12 years for your kids go to school and if you structure right, you could be retiring after that 10 yrs and could be living mortgage free in Fremont or Dublin/Pleasanton area.
There is a upper limit in rent. For PA is it 5k or 7k? Can it be 10k? Using my super rough back of envelope calculation 10k x 200 that’s a 2M loan. That’s pretty crappy house you can buy with a 2m mortgage, definitely not something renting for 10k a month.
For Cupertino, seems to stuck at $5k. Higher is very hard to rent out. It seems there is always a cap for a neighborhood.
Now, I started another topic on this with some initial number. We all should be landlord and renter, that’s how you make it in BA.
As already bagb and manch stated financially it is better, but family wise the no-primary-home owner needs a home on his/her own to stay.
Still no-primary-home owner does not enjoy the possible potential (hidden) appreciation on primary home as he/she rents forever. Many in bay area sell their multi-million homes get retired.
Recent open house, the listing agent was telling us the current owners (retired age 65+) are selling the home (santa clara appx 1.5M) and moving to Salinas (appx 300k). The forever renter missing this appreciation.
A very apt analogy. Average techie age in the valley is what, 30?
Where are the older engineers? Hanera, wuqijun and Manch have all left tech at middle age. Is there an age discrimination or self burnout?
It would be frustrating that you have 30 years of flat pay when your earnings peaked at 35. Maybe you would leave the engineering job and become a flipper or landlord or stock investor
The problem with engineering career is that you peak early and the next generation can do an equally good job or even better job with less pay.