A Silicon Valley down payment could buy you an entire house in much of the U.S

I have a family friend who moved there perhaps a decade ago and built a really nice house. Few years later, the house wasn't for sale, but someone knocked on the door and wanted to buy it for $1,000,000. Then they wanted it furnished, so the price went up a bit higher. They probably made at least 250k in a handful of years.

My friend wanted to downsize anyway, so when someone literally arrived at their doorstep and offered 1M+, it was an easy decision.

He bought a model home for 770k about 4 years ago. Someone wanted to buy it off of him in 2015, and he wanted to downsize again, so they made a deal. The purchaser put a large sum of earnest money down, and they would get the house after my friend built himself a new house. The old house sold for 820k about 10 months after the earnest money was put down.

The earning potential in Vancouver is a joke compared to SF.

In all seriousness, that is not a typical salary for the vast majority of people in the Bay Area. Not everyone is a software developer working for a company with money to burn.

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[0]: In spite of the smiley, this is also true.

I work for one of those, from home, with the same salary as bay area coworkers, but a 200K 4 bedroom house.

There was a recent article here in HN about how Silicon Valley was hiring physicists. Oscar, the main name in that story, is a coworker of mine and he isn't working from the Bay area: he is working from Hawaii.

Living in San Francisco is a legitimate choice, but the whole idea that you have to go live there to get the good salaries and work at the good companies is less and less true every year.

I estimated at $2,900/month rent in the valley and $900/month in the Midwest. Valley earned 160/year, Midwest at 80/year. My conclusion was that if everything froze and you could save all non-rent money (minus 20k for misc. other expenses), the end result would be pretty close. You'd have to commit to working in the valley fairly for about 4 years to save up for the downpayment (assuming you started at 0).

After the valley developer gets the house, the numbers may swing substantially in their favor, however it's a long timeline for that to happen, and the housing prices have a fair chance of continuing to rise or for the housing bubble to burst.

Full math: https://news.ycombinator.com/item?id=13424430

With a significant fraction of your salary.

I sat next to a SF attorney on a plane a year or two ago. She said she and her husband were putting 75% of their take-home pay towards their mortgage when they purchased their first home. Their incomes rose which made things a bit better. After a few years, they sold it off, made a fair bit of money from appreciation, and got a place outside of SF city limits where they had at least a very small yard.

It's only a matter of time before home prices drop in a bubble and thousands have lost a giant chunk of their net worth which was held up in a single undiversifiable asset.

hint: they're not local engineers. buying a house like this is like going down to the porsche dealership and buying a couple of cayennes as graduation presents for the kids.

Oh and access to great surfing? And quick access to excellent skiing? Oh and an award winning, internationally renowned wine country?

Now you guys do have cheaper maple syrup, that's probably worth it. And the fog in the summer here definitely ruins those awesome summer evenings that are so plentiful in NY.

(Btw, these are the things I repeat to myself to be ok with the cost of living here)

Me and my partner are paying the same amount for a 1BR in Campbell as my buddy pays for a high-rise, swanky 1BR in downtown Hollywood. It's surreal.

Georgia Tech grad by any chance?

BTW, I see mostly 6000-7000 sq ft lots, which is 1/6 or 1/7 of an acre. But how do you replace those with 3-8 story buildings? Those people have lived there for 20-30 years. Do you declare a housing crisis and evict them?

For example in Los Gatos, appreciation has been 5% on average for many years, and so the 200k you put down on a 1m house will typically appreciate by 50k. 25% roi in year 1, increasing each year. Of course, property appreciation doesn't happen in a straight line, and houses cost money to maintain (property taxes, etc) but the larger point is valid.

While concentration of risk is a factor, 2% per annum in essentially 'free yield' is very hard to justify walking away from.

When using normal real estate investment vehicles, investors are also able to deduct the interest as a business cost.

I don't think it's that easy to "live big" in the midwest too. Where is the nearest Ferrari service center if you live in Iowa? What's the equivalent of The French Laundry?

If I want cheaper cost of living I'd most likely move to Berlin.

Midtown SJ is cheaper, and hopefully on the up-and-up. East SJ is cheap but sketchy. Downtown is getting nicer but is definitely on the more expensive side unless you want to live under a freeway.

For the record, I spent part of my childhood in the Bay Area, I graduated from high school in SF, most of my closest childhood friends were made during my time in SF/Oakland, some of my best childhood memories were made there, and I could not reasonably afford to live there today if I were to move back. So, in many ways I am very sympathetic to the human toll that increased housing costs result in as they keep me from ever moving back.

With that being said, SF and the Bay Area as a whole have been underdeveloping housing for decades, this is not a recent trend related solely to tech. I have a very hard time feeling sorry for a group of voters who vote down any sensible housing and density initiatives and then years later complain about increased housing costs. It doesn't take a policy expert to predict what will happen here. I particularly don't have much sympathy when those same voters who are incredibly adept at holding back high density development are perfectly fine greenlighting corporate parks and commercial development. It seems to me that many Bay Area municipalities, and by extension their voters, love the added tax revenue that large employers bring in but don't want to adapt the environment to house said employees. So no, in short I'm not buying the argument that they didn't ask for the tech companies to take over their cities. In fact, they wanted exactly this. They also wanted some other municipality to shoulder the cost of housing those employees. They are now realizing that they probably can't have it both ways.

With regards to congestion, this is just as much the fault of a population increase as it is the fault of communities in the Bay Area being unwilling to make the necessary investments in housing and transit. And of course it's been long time Bay Area residents who have fought those investments.

>So can't capture the gains on their homes either.

They can't capture those gains right now. I'm sure they'll be more than happy to capture those gains in the future when they sell or pass on their houses to their kids. This is what really bothers me about Prop 13.

If CA voters are truly worried about grandma being forced out of her house due to tax increases, then sure, lets have some mechanism to insure that doesn't happen. Personally, I think the result of such programs is that you end up with grandma living alone in a 4 bedroom house on a 7,000 sq ft lot in Palo Alto, not exactly an efficient use of land. But I get it, people don't want to downsize later in life.

Maybe instead we could have a system were the property taxes are capped at a predefined rate while owning the home, as currently happens under Prop 13, but the difference between the capped taxes and the current taxes are accrued and held as a lien against the home so when it is sold the back taxes are paid off. The current system were long time homeowners are subsidized by newer owners but are allowed to reap the rewards of increased real estate prices seems terribly unfair.

If we're going to have rent control, I'd also like to see that it's means tested so we don't have upper income renters holding on to SF property as pied-à-terres.

Ultimately, the only real long term solutions will be to build far more dense housing, and the transit to go along with it, or make the Bay Area a less desirable place to live. If the residents of the Bay Area want to preserve it as it currently is, that's fine by me, but then they don't get to complain when they can no longer afford to live there.

>They were here first, living peacefully.

This argument to me basically boils down to "I got mine, so screw everyone else". Sorry if I'm not too sympathetic to it. If Bay Area residents are so against other Americans moving to their cities, perhaps they should organize politically to introduce a Constitutional amendment that forbids "non natives", good luck defining that, from living there. They could even set up border checks when entering the cities. Of course, other cities may then similarly choose to ban Bay Area residents from moving in. I'm going to take a wild guess and say that Bay Area NIMBYs will suddenly think that this is horribly unfair.