Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
My situation .. Make $125k plus.. Dating and progressing towards starting a family .. Max my 401k every year (have since I started working) .. Trade/invest substantially w/ money that I save outside retirement accounts .. Rent in the valley.. Have a roommate which is already annoying given that I have a girlfriend that is over often and prefer my privacy.
Investing/trading - Getting very tired of paying California 9.xx% on top of federal 15% capital gains .. This is getting old very quick.
Don't own a home but could easily put a 20% down payment on one of these $700k shacks and pursue a 30 year mortgage...
Run an 8-9% return on my 401k annually (my company allows me to self manage) ... Retirement will be secure.
Why am I looking at exiting the rat race?
-> Getting tired of paying 9% capital gains on top of federal 15% for my investments
-> Getting tired of paying 9% on my income .. this will only get worse as my career progresses
-> Getting tired of paying 9% sales tax when I decide to enjoy my money on a purchase.
-> Getting tired of shelling out ~ $13,000 in rent a year for a very uncomfortable renting situation .. Refuse to throw away more on a better situation .. It's rent .. I am not a fan of shelling away premium dollars for something I will never own
-> Why work for 30 years for something I can buy in cash elsewhere w/ just as much to do/see/enjoy?
-> Renting your whole life at the rate of rent in California is absurd... For a home that I would find suitable for my family 3/2.5 (nothing absurd) - 1,330 pitiful square feet rent would be about be about $2,9995 .. That's $36,000 a year x 30 .. That's over $1 million dollars $1,080,000 to be exact .. that's beyond stupid.
-> A country/state full of people who want to raise taxes on people making a decent living .. Idea would be to lower your income needs (lower COL) and lower your tax exposure in these money grabbing times ahead..
So, yes.. Owning a home is a priority. I can afford one in cash in the place I am targeting... and be far ahead of the curve. Hard to justify throwing over a million dollars away in rent for the same suburban life I can find elsewhere.. or being a slave to a job for 30 years to afford what I can buy in cash elsewhere.
Rent your whole life, have nothing to show for it but a retirement account that will barely get you buy in the state you lived your life in ...
Not to mention nothing to give to your kids.. Doesn't sound like an optimal plan to me.
Damn. You should move to Pennsylvania or Ohio or something. Life's a lot less ****ing complicated there.
-> Getting tired of paying 9% on my income .. this will only get worse as my career progresses
You don't...~9% is the top tax rate.....California has a progressive tax system....
Quote:
Originally Posted by yeahthatguy
Rent your whole life, have nothing to show for it but a retirement account that will barely get you buy in the state you lived your life in ...
To say it again....a home is just one type of asset. There are many ways to accumulate wealth outside of home ownership....
Regardless, though some people may be able to leave the bay area and make the same amount in another, cheaper, area....that is not true for the vast majority. Indeed, if it was....the bay area wouldn't be so expensive.
The median household income in Miami is just $30,000, the median household in San Fransisco is more than double at....$65,000.
You seem to have a problem with supply and demand....
Location: where you sip the tea of the breasts of the spinsters of Utica
8,297 posts, read 14,161,809 times
Reputation: 8105
Just get a freakin' condo where you want to live now, near the high-paying job you won't find elsewhere, then when you retire with a zillion dollars sell it and buy your dream home.
Last week I drove into San Jose to catch a plane, we hit the morning rush hour traffic. It is appalling to me that millions of Americans subject themselves to rush hour every working day.
Why? ...
The theological place of eternal punishment must be experiencing sub-zero temperatures. Highnlite & I actually agree on something.
... As for people who are happily living in the bay area and avoiding the rat race, I'd say that only falls to a few buckets of people:
- the rich / and or wealthy - lots of these here
- established families (previous generations, bought homes when they were affordable)
- multiple families living in the same home / property (sharing COL expenses)
Unfortunately, for my generation (I'm in my late 20's), we're kind of left holding the bag, being Bay Area natives. ...
As a bay area native, what would you say constitutes "-rich / and or wealthy" for the bay area?
... To say it again....a home is just one type of asset. There are many ways to accumulate wealth outside of home ownership...
Yes and no. A home is just one type of asset -- but it has special characteristics.
I'm going to get a bit abstract, and the argument takes a while to develop, so please suspend your disbelief until the end.
The difference between owning a home & not owning a home is that when you own a home you accrue tax-free income in the amount of the fair market rental rate. Stay with me.
Let's say you & I own identical homes next door to each other. You live in yours while I live in mine. Let's say we have identical jobs with identical income, and identical investments. Each of us has income from those jobs & investments, and each of us has identical expenses associated with maintaining that home.
So far, so good. I know, this is a hypothetical.
Imagine our IRS form 1040s and CA form 540s. We each have the same tax obligation.
Now - and this is absurd in the real world, but follow me on this thought experiment - instead of me living in my own home while you live in your own home, imagine that I rent your house & live in it while you rent mine from me & live in that one.
Each of us pays the other rent in the dollar amount of the fair market rental rate. Just for grins, let's say the fair market rental rate is, say, $3000 per month ($36,000 per year). So, I pay you $36K and you turn around & pay me $36K (our homes are identical).
Imagine our IRS form 1040s and CA form 540s.
In addition to our income from jobs & investments, we each ALSO have $36,000 of extra taxable gross income in the form of rental income! We each have some other expenses (depreciation, etc) but at the end of the day, EACH OF US OWES EXTRA TAXES on the rental income!
Now, coming back to the real world and the notion that a home is just another asset, when you own a home & live in it, you "pay yourself rent". This income is not taxed (at least, not yet).
So, while a home is just another asset, it has some special characteristics. We each have to live somewhere... by living in the home we own, we accrue tax free income in the amount of the fair market rental rate.
Yes and no. A home is just one type of asset -- but it has special characteristics.
... So, while a home is just another asset, it has some special characteristics. We each have to live somewhere... by living in the home we own, we accrue tax free income in the amount of the fair market rental rate.
Yes, that is one advantage to home ownership. I don't think anyone disagrees with that. Unfortanately there are many more variables to the equation, especially in CA right now. There is home ownership in the lofty sense which realtors and elderly folks will tell prospective younger buyers such as:
1. Its always a good time to buy a home
2. Why pay someone elses mortgage when you can pay your own?
3. This is a good investment for your future
4. You will have a place to live when you retire
5. It may be hard at first but it will get easier over time
6. Regardless of what the market does it will eventually go up
etc...
Then reality strikes in the form of a free falling housing crisis and all those lofty ideals go in the crapper for millions of Americans. How could that possibly be with such a great and sure investment? Yeah, yeah, I know they should have known prices were too high. They should have planned better, etc... Bottom line is that RE investment is not always a good place to put your money. It can be depending on a number of factors. And it can also be a very bad investment when some of those variables change such as:
1. Job loss
2. Company moves
3. Market continues to tank
4. Unexpected illness/ financial hardship
5. Divorce
6. Injured on the job
7. Need to sell for a number of other reasons while upside down
8. Hidden repair costs simply due to age, geographic (earthquake, flood, storm damage) or environmental factors (asbestos, lead paint, radon, etc...).
One of the big problems most first time buyers don't consider is the fact that they while they take out a 30 year loan they will most likely not live in that house for the next 30 years. American society is much more transient today than it was even 20 or 30 years ago. The average number of years someone actually lives in one residence is much lower. The statistic I saw was ~ 6 years. And the first several years of ownership is paying interest on the loan. Then when the surprise comes that it is time to move and sell the shocker hits that the Seller pays all the buying and selling agents fees among other closing costs, fees, and repairs. Suddenly this wonderful 'investment' becomes a wash at best and many time a net overall loss compared to renting during that same period. Think this same thing doesn't happen repeatedly across America today? How many first time or even second time buyers stay in that same home until it actually becomes more than a wash financially? And how much of that occured because of dumb luck and market timing vs. a well thought out plan? The ones who made out like to think its the later. However it is never that cut and dry. Foreclosures continue to flood the market which represent a bad investment for all parties involved. And as much as smug folks like to think it was all 'their' fault, sometimes its just life which happens to decent people. IOW, a family member gets cancer, job change forces move, etc...
Derek
Last edited by MtnSurfer; 12-11-2011 at 12:39 AM..
Well, unfortunately, due to all of the foreclosures since the housing bubble, it's forcing all of these displaced wannabe home owners into renting - which in turn increases demand, and there is a limited supply of housing, so rents go up.
Believe it or not, he's actually giving a discount with $300 / mo increase. He could easily do $500 and be right in line with all the other single family homes in the area.
I'll have to do some more research about homes in CO - I have a relative in Idaho, and when I visited and saw the home prices and how clean and nice the city was I was like...wow! Compared to CA...
Only thing that keeps me in the bay area is that all of my extended family, on both sides, lives nearby...which will probably play a factor in whatever I choose.
Wife and I bought a 1 bedroom condo, the monthly bill (mortgage, taxes, HOA) is cheaper than renting where we live - and that's before the tax write off. Although, my wife was in Texas on business and her coworkers there were shocked at how much we paid for a 1 bedroom house - why, you could get a 4 bedroom house with an inground pool in a really nice neighborhood for that!
Yes and no. A home is just one type of asset -- but it has special characteristics.
Umm....every asset has "special characteristics" so that isn't saying much. You are just pointing out some particular income tax ramifications, but in isolation that doesn't mean much. You're are also ignoring that homes have a number costs, that is, property taxes, insurance, maintenance, and some one time transaction costs.
One has to calculate that "dividend rate" one is receiving from their home minus all the costs, unless home costs are very favorable (not so in coastal California) then your "dividend rate" is going to be pretty low....a few percent. Most savvy investors will have no trouble betting that rate of return even after they pay taxes on it. But there are a number of investments that can limit your tax exposure, indeed, even tax-exempt California bonds are likely to bet the "yield" you are getting on your home...
Owning your home, in general, is a pretty poor investment. But the average Joe is a pretty poor investor....so it can make sense for him to own so long has he lives in the home long term (10+ years) and buys when prices are decent.
Anyhow, so yeah....a home is just one type of asset and its not a particularly attractive one either....
Done this.
I owned a business in Southern California, and for years put up with the stress a headache that comes with success.
I am 51 years old, and had no other income, other than my own business.
After my Daughter got robbed and beat by blacks in San Bernardino. I decided to pull out, and close my doors, just for the safety of my kids.
I never left California, I am a Native Californian, And refuse to let the morons that move here from other states push me aside.
I did move to a secluded area in the Shasta County Mountains.
Easier living and cheaper to live, my stress in gone, and my kids are very happy.
My wife loves it, She cans fruits and makes jams from the wild berries, And She landed a great job working for the Forrest service.
I guess I can consider myself retired, And if I don't go crazy and spend tons of money, I can live good for the next ten years.
But someday I will see a opportunity to start up something easy and relaxing for extra income.
Good luck to you.
I wish you all the best.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Compared to CA...
