Should I buy? Have access to cheap(ish) living.... (San Francisco: for sale, apartment)

[Ryusei]

My wife and I are from San Francisco, combined income ~$200k. My parents live in SF, W’s parents in East Bay. I work in SF, my wife in Oakland. We have approximately $180k of liquid savings, can comfortably put away ~$40k per year (student loans….)

Our parents have 4 rental properties:
Daly City
Richmond SF
Parkside SF
Oakland Chinatown, where we are currently renting ($1,000/month). I like the location a lot, may even buy it in the future.

We want to start a family this few years, and my parents (in Sunset) are willing to help with the childcare.


My plan for the short-medium term (1-6 years) is:

Once we have kids, move back to peninsula, either live with my parents at in-law or rent out parents’ rentals or rent a 3rd-party apartment in Sunset/Daly City. Save furiously in the meantime ($60k, is this even enough?).

Once both kids are ready for school: Go to the East Bay (Walnut Creek or Montclair or Castro Valley). If the Bay Area housing bubble busts, maybe go to Redwood Shores.

Basically, I want to leverage the fact that we have access to below-market (or zero) rent and childcare.

The amount of debt it would take to get even a marginal property ($600k?) is outsize of my comfort zone. Furthermore, given the fact that it will be at least 5 years before my children will go a public school, I’m not sure if it’s worth it to buy an expensive house in a neighborhood for the school benefits. And yes, I know I’m not a real man until I have my own house. I’m willing to live with the shame from my peers if it means I have financial flexibility.

Is there anything I’m missing?

[sliverbox]

To me it sounds like you have a good financial sense and are thinking things logically. And no- just because you rent doesn't mean you're not a "real man". If it makes you feel any better, we saved for over 12 years before we bought. I wouldn't feel comfortable with a 600k mortgage either. We settled for a 500k one. But we rented cheap for 12 years, rented the same house, and saved a lot of cash. Renting isn't the end of the world. We got to know our neighbors really well, went to neighborhood parties, and it felt like 'our' house. I actually miss it sometimes.

Right now the market is being weird. We bought a year ago and I'm not sure we would buy now. Its crazy. The interest rates got so low that for us the cost to buy was the same as renting. But now any house that comes up for sale gets sold immediately for over asking. I've lived here long enough to see that these cycles come and go regularly. If prices get too high the market will crash. It seems like we might be entering yet another new bubble.

But anyway, do what's best for you and what makes you feel comfortable.

[Ruth4Truth]

I think it's smart to try to live rent-free, or low-rent and save like crazy. I know a couple who lived with her parents for a few years, so they could save and pay cash for a house. That's smart. Your peers are clueless, don't listen to them. How sad that people have friends who don't support their (very sensible) vision. You're not the only ones in this type of situation who get flack from friends. But you'll be laughing them all the way to the bank when the time comes.

The only possible hitch in the plan is: would your kids qualify for a "good" kindergarten if they're coming in from outside the area? How does that work? Maybe in WC and Montclair, it's not a concern, maybe they're all good. So you're planning to live in the Richmond, so you can drop the babies off with mom and dad in the Sunset every day? Sweet deal.

Is it cost-effective to pay down the student loans ahead of schedule, so you can eventually save more? Save as much as you can, because housing prices have a way of skyrocketing. What are you doing with that chunk of liquid savings to hedge against inflation? Consider your options there, you may be able to get some good growth out of it. Good luck, great plan.

[Ryusei]

Originally Posted by Ruth4Truth

I think it's smart to try to live rent-free, or low-rent and save like crazy. I know a couple who lived with her parents for a few years, so they could save and pay cash for a house. That's smart. Your peers are clueless, don't listen to them. How sad that people have friends who don't support their (very sensible) vision. You're not the only ones in this type of situation who get flack from friends. But you'll be laughing them all the way to the bank when the time comes.

The only possible hitch in the plan is: would your kids qualify for a "good" kindergarten if they're coming in from outside the area? How does that work? Maybe in WC and Montclair, it's not a concern, maybe they're all good. So you're planning to live in the Richmond, so you can drop the babies off with mom and dad in the Sunset every day? Sweet deal.

Is it cost-effective to pay down the student loans ahead of schedule, so you can eventually save more? Save as much as you can, because housing prices have a way of skyrocketing. What are you doing with that chunk of liquid savings to hedge against inflation? Consider your options there, you may be able to get some good growth out of it. Good luck, great plan.

Thanks for your comments.

1. School: Having gone to school in SF, I find the whole busing thing ridiculous. I don't plan to have my kids in SF schools until middle school at the earliest, only because my wife and I are Lowell grads and I think it'd be cool for them to go to Lowell. I'm willing to pay for private school, especially early on.

2. Re: Student loans. Wife has one Stafford unsubsidized loan with an interest rate of 6%. I've reviewed our tax return and my wife and I are right at the edge of AMT, so property taxes are simply 100% cost against us. Mortgage interest is deductible too, but will is also limited due to the return of Sch. A itemized deduction limits.

3. Good advice re: hedges. I have my funds in a money market now; maybe I should put it into something more risky? On the other hand, I'm glad I didn't drop $10k into AAPL at November!

[Ruth4Truth]

Originally Posted by Ryusei

Thanks for your comments.

1. School: Having gone to school in SF, I find the whole busing thing ridiculous. I don't plan to have my kids in SF schools until middle school at the earliest, only because my wife and I are Lowell grads and I think it'd be cool for them to go to Lowell. I'm willing to pay for private school, especially early on.

2. Re: Student loans. Wife has one Stafford unsubsidized loan with an interest rate of 6%. I've reviewed our tax return and my wife and I are right at the edge of AMT, so property taxes are simply 100% cost against us. Mortgage interest is deductible too, but will is also limited due to the return of Sch. A itemized deduction limits.

3. Good advice re: hedges. I have my funds in a money market now; maybe I should put it into something more risky? On the other hand, I'm glad I didn't drop $10k into AAPL at November!

But the private kindergartens and nursery schools have waiting lists, that's what I meant. You can't even get on the waiting list and be in the running if you don't live in the community you plan to move to when your oldest hits 4 or 5. You can't always simply buy a place in a private school, it's not that simple.

Wouldn't it make more sense to pay off the loan, which is accumulating at 6%, and THEN put everything possible into savings, than allow the loan to run its course, while trying to save, when that savings would be earning less than 6%? See what I mean?

There are investments you can make that can give you some growth as well as kick out regular dividends (which you can re-invest), but if you don't know much about the stock market and aren't comfortable with it, it may be best to skip that. But if you want to check it out, make an appointment to see someone at a couple of the brokerages in SF. You wouldn't have to invest the whole amount, if you want to play it safe. Ask some questions on the Economics/Investing forum, if you're concerned about safety.