I personally think that more people should read these articles, whether they follow the recommendations discussed or not, because of their thought provoking content. More people should follow your blog as us oldies are in great danger of financial disaster. Thank you so much for educating us all. Compared to Manhattan, yes it is cheap.
Monthly maintenance doubles the carrying costs. I personally would not want to buy this house unless I had at least 10 million in liquid net worth, ideally at least million.
The carry costs of that home, and the possible hit to my net worth in a downturn would be very stressful. Not to mention all the expensive trappings that go with this house, like private school, luxury cars, another vacation home or two in Tahoe and Hawaii, tennis and fencing lessons for the kids, luxury family vacations to Europe!
Talk about a hamster wheel — no thanks! There is always someone richer than you and has more than you. Same with your child. Compared to Manhattan, San Francisco is dirt cheap.
But, not cheap enough for me. Presidio Heights is one of the most expensive areas in SF if not the most. I would live in a mega mansion if I could afford it, because I would justify it. We are rebuilding. My great grandchildren should arrive if they inherit tribal values and most of them will. So, keep having children feeding the endless treadmill of college, drinks, corporations, condos, dogs, marriages, houses, babies, debt, repeat. Then blame my family because you think it was given to us, when we worked it for generations.
Basically, can you dumb your comment down for me. If you are really after financial freedom, you may need to first achieve location freedom.
From what I can see of it, you could have a house like that in a lot of places for a tenth the price. So why do people choose to live in expensive locations? After that would be safety, taxes, and proximity to activities culture, parks, skiing, golf, beach, whatever. First off, be retired, have a job that allows you to work remotely, or job that is in demand a lot of places.
Secondly, extended family? See them a lot, now? How much? Would travelling further and making your visits into overnights be acceptable?
So, safety? Safety against what, specifically? Taxes, again, many options, but certain places can be avoided, although these tend to be places with lots of jobs. I live close enough to Broadway to go for dinner and a show any night of the week.
And so on. Climate is the tough one. Not many places in North America have a climate as nice as coastal Southern California. But lordy, what drawbacks! The carry costs on something like that would be astronomical. With the rate of taxation in CA, expect those costs to increase in the future too. I feel safe to say that the majority of people have the dream of owning that mansion, in an upscale neighborhood.
We then proceed to look at dream houses online and start talking ourselves into how we can afford it. The reality is there is so much that goes into it, then just the mortgage payment. Nonetheless, it is important we look at all aspects of home buying before making the purchase. Looking at taxes and opportunity costs are what really matters in the math of home buying and preparing for a scenario with economic downturn would be a must.
My boyfriend and I downsized from 2, sqft to sqft but we moved to a high cost of living area so our mortgage expenses remained about the same. Our mortgage is a very low by US standards 1. Having said that, it does force you to over-save, which, while bad, is not the worst thing in the world. Large homes are a waste. I say this as my daughter has a sqft bed room. I moved from a 1, sqft house when I had my 3 kid, into a much larger house.
I thought the home size was reasonable, but learned quickly that its about space distribution. Large bed rooms are a huge waste, if you want something large make it a walk in closet or a kitchen. But at the same time, space gives people more room for stuff. I follow some minimal type sites, most of the people have no kids or 1 kid, 3 is quite a bit different.
Dang, a sqft bedroom is HUGE! Do you think as a result of living large, she will require living in a big house when she is an adult and has to purchase one herself? I bought too big of a house a decade ago. It definitely made my FIRE number a lot higher than it needed to be. Do you have a post where you explain how you do your calculations? Like how do you calculate the cost of the home after the mortgage was paid off in this example?
I live in MN. Please call them and ask what they are overcharging you for. Got it. Alternatively, San Francisco might be cheaper than people think in terms of insurance and property tax rates. Think about it this way. Depends on the part of the country. Remember parts of the US have tornadoes and many also experience hail storms that frequently destroy roofs.
Some areas also have foundation issues. It really varies. When we bought our first house 20 years ago we were astonished at how much money the bank was willing to throw at us. Things have obviously changed a bit since then, and we have made money on all the houses we have bought over time. Great post. Thanks for sharing:. Worst case scenarios begin to form for buyers, given most buy property with debt.
Real estate is like a ship. Stocks are more like jetskis. As you included, the cost of NOT having the money invested is an absolute must. Add on significant illiquidity, cost to sell, stress related to those items etc. Yeah, very few homes have AC in SF. Our average year around temp is 62 degrees or so. Natural AC. But again, who knows for sure. Something always comes up. Interesting thoughts. Yes, I think many people at this price range and actually do stretcg quite a bit and hope they continue to make big money for Many years to come.
It depends on how much personal property damage, and rebuilding cost etc. Am I missing something? That is, the SALT tax deduction cap is already in place. Beautiful home, but damn you get so little for your money there.
It feels nice to have a spectacular forever-type home at the end of peninsula with my boat parked in the back with sunset views over the water and sunrise views over the water in your front yard…but I totally agree with your analysis on costs and it does make me think from time to time. We live in Oakland County in Michigan…one of the wealthiest areas in the country.
Lots of old money, lots of new money, lots of people who like to make it appear as if they have money as well which is essentially everywhere lol. Admittedly the only things that makes it tolerable from January through April is the living on the water where the best summers in the world occur and an international airport with direct flights pretty much anywhere you want to go.
Keep the current home and rent that too?! Oohhh boyy…lookout real estate empire. Buying a home, living in it, renovating it, then buying another home and renting the old one out was the way I purchased three properties in SF until I finally sold one in When I was growing up I dreamed about living in a huge house when I grew up. There comes a point when a house just gets too big to comfortably and manage stress-free due to the mortgage payments, property tax, repairs and maintenance, and way too many rooms to clean and vacuum.
Plus moving is such a pita. Excellent article Sam! Thanks Sam! Now I live in Bucharest Romania and I pay only a nominal fee in property taxes. I have no interest in owning a huge home though that house is a beauty and living in San Francisco would be a dream. Of course, ideally, I incur no debt, but I also understand that sometimes things happen.
I think the Bay Area is one of the hardest places to live. I lived there for 4 years. I felt like people judged my personal worth almost entirely on my net worth while I was there. And unless you make it big, specifically from founding and selling a high-tech company for millions of dollars, you are not deemed truly successful.
With so many highly-educated, successful people striving in such a concentrated space, living in the Bay Area is incredibly stressful. I think it must be particularly difficult for children to grow up there, who feel like they can only go downhill from where they started.
If you are willing to move to other parts of the country or even other areas of CA , you can still find highly-compensated jobs where the dollar goes a lot farther, particularly with real estate.
Of course there are opportunity costs— we put down a hefty down-payment that could have earned more money in investments—and the upkeep definitely takes more time. While we still enjoy visiting the Bay Area for the cultural events and for the fine dining, we love living in a more low-key area.
Bought a brand new sq ft house on a quarter acre not my dream house but one that is very nice for the time being. It felt like a weight lifted moving here, and knowing that while we were buying a huge brand new house, the budget was much easier to manage. I work from home — writing proposals and managing social media for a small consulting firm. My wife is in medicine and due to her specialization can get a job pretty much anywhere.
Sam, you seem to give contradictory advice. Many people who have lived in San Francisco for 10 years or more are in rent-controlled apartments. That is a disaster. At least follow through and by utility by investing in lower price property elsewhere around the country. I typed out a whole comment, so of course a bad Internet connection would cause the whole thing to get lost.
Pound for pound, owning is better than renting. And month to month, renting tends to be cheaper than owning. And I own it. They just depend on the local housing markets. Different people in different areas will have different housing needs. IN this piece you said. In my newsletter , I discussed aggressively buying the selloff in October for a year-end recovery. I believe a China-US trade deal will be finalized by year-end as well, as this is best for both sides.
Further, bond yields are pretty attractive now. The house is fantastic. The layout, location, and look really draw the buyers in. And then the price tag hits you. The supplemental costs to purchasing the home sink you.
Best to dream through open house visits or luxury rentals as you suggest. I have a fear of overextending ourselves on our first home purchase together. I can't in good conscience support a decision which puts our financial security in such jeopardy. Nice housing is wonderful to have, but nice housing within your means is the goal. Mostly, I don't want the headaches of out-sized property taxes, maintenance and upkeep, lifestyle inflation, and furnishing the bigger house. I don't want an expensive house to ruin our path to financial independence.
If I may ask, what are the reasons for you continuing to stay in SF, where property overall is so expensive? You could probably find an awesome home maybe even waterfront — i. Was just curious. But, I am aggressively investing money there. When you say elementary school lottery, you are talking about public schools yes?
It makes sense to apply to all the schools and see if you can get into a good public school. If so, it seems worth it. What has emerged are a small number of staggeringly rich buyers who will pay once-unimaginable sums for the home of their choice.
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