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Clarification- we need to save a lot in a high COL area. What good is it to live the life of luxury if you cannot buy a house *and* pay off the mortgage before retirement? My goal is to pay off a mortgage by age 60, even in the Bay Area. Good luck paying rent on your posh apartment when you retire.
The down payment alone is 150,000 to 200,000. That's why I am saying no to international travel.
*My income is above the median. Only friends who are lawyers/doctors make substantially more.
My point is that not everyone cares to purchase a house and pay off a mortgage before retirement. That's why I'm wondering why you care so much about what they want to do rather than focus on what you want to do. I have to say if I need to put down at least 200K toward a d/p, one or two trips abroad aren't going to set me back that much.
Perhaps they will live a life of luxury while saving for retirement and then move to a very low COL place once they retire where their rent is almost nothing compared to rent in SF now. Not everyone can or should own a home.
OP, I think your friends just have different priorities. I live in a high cost area too and graduated just a few years ago. As much as I'd love to save more towards buying a home, I just don't think life would be as fun if I couldn't take a nice vacation once a year or eat out at nice restaurants every once in a while. I'm personally not big on electronic gadgets. I do talk to my friends about savings and retirement on occasion. Some really just don't care and say that we're too young to think about those things. Others are way more together than me and do an excellent job at managing money....I try to learn from them.
facebook newsfeed? sounds like you need to get out more lol. for all you know their companies are paying for these things. these are not your close friends- who cares
I've also been saving 30% or more since I've been working when I don't have some sort of long term emergency (like medical care for a dying pet) and I still eat out few times a week and go oversea once every few years. I'm cutting back on the overseas vacations as I don't enjoy 4+ hour flights at all and 13 hour flights to the other side of the world along with a day or two spent packing and preparing to me is just not worth it. I could experience same level of enjoyment with a vacation somewhere domestic and nearby. There's pleny of other room to cut back on and throw in a treat here and there.
I have been saving at least 25% of my after-tax income every year since college ended. Some of my friends and acquaintances spend a lot, judging by my facebook newsfeed. We are talking about:
- International travel
- Fine dining
- Electronic gadgets
- Domestic travel to resorts like Las Vegas or Cancun
I spend very little on these things and hope my discipline will pay off long-term when it comes to home ownership. I am not a doctor or lawyer and never desired to be either one, so my income is not going to be in the top 5%. A typical house in SF is 700K and I really want to stay here. Anybody in my shoes who are well along in years want to comment?
Why do you want to own a home? If you pay $1,800/month in rent compared to paying 20% down on a $700k home with a 30 year mortgage with an APR of 4%, assuming for 2% inflation rate, 1.69% property tax and 0.8% annual maintenance/renovation costs, the 30 year cost of renting vs buying breaks down like this:
Renting: $642,321
Buying: $785,795
If you take into account the hidden fees of buying a home (maintenance, insurance, taxes, etc.), renting is over $100k cheaper for San Francisco, speaking simply in terms of average prices. Are you sure the most frugal option is to buy?
Why do you want to own a home? If you pay $1,800/month in rent compared to paying 20% down on a $700k home with a 30 year mortgage with an APR of 4%, assuming for 2% inflation rate, 1.69% property tax and 0.8% annual maintenance/renovation costs, the 30 year cost of renting vs buying breaks down like this:
Renting: $642,321
Buying: $785,795
If you take into account the hidden fees of buying a home (maintenance, insurance, taxes, etc.), renting is over $100k cheaper for San Francisco, speaking simply in terms of average prices. Are you sure the most frugal option is to buy?
Appreciate the napkin analysis, but rent for a 3-bedroom apartment isn't 1,800. It is closer to 4,000-4,500 for something modest. Here you are comparing a 1-bedroom apartment in a mediocre part of SF to a single family house in a mediocre part of SF. Not apples to apples at all.
Renting is at least $1.4 million over 30 years even on fixed rent. Buying is significantly cheaper- close to $1.1 million over 30 years. Plus, a mortgage is fixed and hedged against inflation while with rent control, rent still goes up aligned with inflation. That $1.4 million assumes no rent rises over 30 years so the real figure is much higher at 2% inflation.
Appreciate the napkin analysis, but rent for a 3-bedroom apartment isn't 1,800. It is closer to 4,000-4,500 for something modest. Here you are comparing a 1-bedroom apartment in a mediocre part of SF to a single family house in a mediocre part of SF. Not apples to apples at all.
Renting is $1.4 million over 30 years. Buying is significantly cheaper- close to $1 million over 30 years. Plus, a mortgage is fixed and hedged against inflation while with rent control, rent still goes up aligned with inflation. That $1.4 million assumes no rent rises over 30 years so the real figure is much higher.
Property tax is closer to 1.17% luckily.
I don't know the area, but I was just throwing it out there that it is worth doing the math, but it looks like you have done so, so you are farther along than most people.
Your friends more than likely value travel/living it up more than saving that extra $400,000. The question to ask is do you think that having a lifetime of fun (eating out, traveling, etc.) is worth not having the extra $400,000 in assets 30 years from now? Many people would say that it is.
I don't know the area, but I was just throwing it out there that it is worth doing the math, but it looks like you have done so, so you are farther along than most people.
Your friends more than likely value travel/living it up more than saving that extra $400,000. The question to ask is do you think that having a lifetime of fun (eating out, traveling, etc.) is worth not having the extra $400,000 in assets 30 years from now? Many people would say that it is.
Except the savings from buying is much greater than 400,000. Try doing the math with 4,000 rent and 2% annual increases. Rent goes past 5,000 monthly in year 11. Live for instant gratification or become financially sustainable by middle age. That's the choice.
I have been saving at least 25% of my after-tax income every year since college ended. Some of my friends and acquaintances spend a lot, judging by my facebook newsfeed. We are talking about:
- International travel
- Fine dining
- Electronic gadgets
- Domestic travel to resorts like Las Vegas or Cancun
I spend very little on these things and hope my discipline will pay off long-term when it comes to home ownership. I am not a doctor or lawyer and never desired to be either one, so my income is not going to be in the top 5%. A typical house in SF is 700K and I really want to stay here. Anybody in my shoes who are well along in years want to comment?
You have no control over other people and how they spend their money. And you have no real knowledge of their finances, either. Maybe they make a lot more money than you think they are making and are able to both save and spend big money (this probably applies to more people than you realize). Maybe they are being helped out by wealthy relatives. Maybe they are getting some incredible deals on their travel, dining and other high priced entertainment. Maybe they are reaping the rewards of some really good investments.
Bottom line is, you don't really know what their bank accounts look like and whether or not they intend to buy a home or live in a tent on a mountain top or a cardboard box behind 7-11. Maybe they just aren't the types to worry about such things. Maybe they have high confidence in their ability to work and bring in big incomes for the rest of their lives..
And when you see them spending their $$ like it's going out of style, be glad that their bills aren't coming to you - lol. No need to fret about it if they aren't, IMO.
We had a 3-BR apartment in the Richmond in San Francisco a few years ago. We paid $2450 for it, and if we'd moved in just a few years earlier (or even a year earlier!) we'd have been paying a lot less. If we hadn't moved we'd be covered by rent control and yes, it can still rise, but it's only a small amount. Some of your friends may have stellar deals on their rent, especially if they've lived there for awhile, deals that would make continuing to rent a more desirable option than buying a house at current prices. I certainly wouldn't assume everyone in the city is paying current market rate prices.
There are other costs associated with buying, too. And, of course, many of your friends may not want to permanently stay in San Francisco. Just because they enjoy taking vacations doesn't mean that they aren't also securing their own financial future. Maybe they don't want to own a house in SF, or at least not enough that they're willing to make all the sacrifices that doing so would require. There is more than one road to financial stability.
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