Which goes further- 90K in San Jose or 45K in Bakersfield? (Fresno: for sale, real estate)

[DwightOnFireE]

I read the threads about how much more income is required to live well in Silicon Valley as opposed to other areas so I created another unscientific poll to see what you think?

Which goes further in terms of buying housing for a family of three with one income? Costs including renting or buying a home in a neighborhood with high achieving schools, food, insurance, car payments, clothing, entertainment, and emergency money.

[NoMoreSnowForMe]

A thread after my own heart lol! Okay, I will take the challenge. Let's assume a family of 3 with child around 3 years old. Mom stays at home.

I used an online calculator to figure payroll deductions, not scientific, but this is what i got:

$45,000 / 12 = $3750 monthly gross.
Payroll deductions = $702.96

This leaves $3047.04

2 bedroom in Bakersfield per Craigslist. Looks like rents for 2 bedrooms start at around $750. So, here's a townhome 2/2 with garage and W/D hookups inside for $850.

$850.00 Lovely 2 Bed 2 Bath Townhome

This leaves $2197.

Utilities probably more as it's hotter/colder there, so PG&E $200
Payroll deduction included Medicare deduction, so not sure if more deduction needed for healthcare. To be safe $300?
Internet/Cable $200
Groceries $400
Car payment $500
Student loans $500
Kid's college fund $500
Gas - 2 tanks $100

$2700 to here = $-503.

So, again, you get rid of the car payment, the college fund (kid gets to go to community college and state university).

Now you've got plus $497.
Get rid of cable = plus $647.00

Oh, I forgot phones = $200, So, now you've got $447.00

If you're only making $45,000, do you have a total of $500/month in student loans? Some room to wiggle there.

Say you have no student loans, now you've got $947/month. Can you save $500 of that for a downpayment? Get FHA financing?

Here's the clincher, though. They can afford to buy a house in Bakersfield.

This is very unscientific, but let's say they can afford a home 3 x their annual salary = $135,000 home.

This is completely do-able in Bakersfield.

Here's a 4/3 SFH for $130,000

3213 Joshua Ct, Bakersfield, CA 93301 - Home For Sale and Real Estate Listing - realtor.com®

I used the calculator on realtor.com to figure monthly payments with 5% down (FHA would be 3.5%, but wasn't an option on the calculator). Payment would be $865. 3.5% down would be $4725 that they need to save up to buy.

And there are lots of homes way cheaper:

2-Bedroom Bakersfield, CA Homes for Sale - realtor.com®

I have no idea what neighborhoods are good, or what schools are good.

But, my unscientific analysis has determined that you'd be better off in Bakersfield (if you want to be a homeowner) at $45,000 income. Budgeting would be tight, but you could buy where you work.

I guess it depends on what you are using to determine quality of life. You could live in Cupertino and rent and have more spending money. You could buy a home in Bakersfield and have to pinch pennies. Personally, I'd rather buy my home. So, I'm voting Bakersfield.

[ccm123]

Someone would never be able to buy a home in Silicon Valley with high achieving schools (even with moderate achieving schools) at a 90K income, unless they had a huge down payment, or paid all cash for the home.

[countofmc]

Originally Posted by ccm123

Someone would never be able to buy a home in Silicon Valley with high achieving schools (even with moderate achieving schools) at a 90K income, unless they had a huge down payment, or paid all cash for the home.

Yea, but are there any high achieving schools in Bakersfield, period?

[MtnSurfer]

Originally Posted by countofmc

Yea, but are there any high achieving schools in Bakersfield, period?

That's a good question. It looks like the best of the lot are in the north western side of town. Take a look here and zoom in: California School Performance Maps

The OP is just picking a hypothetical Central Valley city it sounds like. If someone were to really select a town in the CV Valley with better schools they would do much better in the Clovis/Northern Fresno area for example over Bakersfield. Or move further south to Santa Clarita. But again this is just a random selection it appears as a cheaper SJ alternative. I would suggest better, cheaper housing alternatives within the state including places like Temecula/Murrieta.

But the other question which really goes along with this is the cost of lost opportunity or chance to advance in one's profession. The OP set two static numbers as snapshots in time. The big assumption is the families' income would remain a constant. I would suggest that a person with untapped skills especially technical in nature could potentially grow more professionally in the SV, thereby increasing one's earnings and marketability. Finding similar opportunities in Bakersfield could prove much more challenging thereby limiting longer term career growth. Thus the lower wage would remain more static. This of course depends on one's profession which would change the earning opportunity cost projection.

Derek

[ccm123]

Bingo! That's why people pay the high costs of living in SV, the higher chance to advance your career, if you work in technology or associated fields.

Originally Posted by MtnSurfer

But the other question which really goes along with this is the cost of lost opportunity or chance to advance in one's profession. The OP set two static numbers as snapshots in time. The big assumption is the families' income would remain a constant. I would suggest that a person with untapped skills especially technical in nature could potentially grow more professionally in the SV, thereby increasing one's earnings and marketability. Finding similar opportunities in Bakersfield could prove much more challenging thereby limiting longer term career growth. Thus the lower wage would remain more static. This of course depends on one's profession which would change the earning opportunity cost projection.

Derek

[bentobox34]

As soon as you say "in terms of buying housing" you have already fixed the answer. The fact is, the person earning 45k in Bakersfield will be able to buy a house, while the person earning 90k in Silicon Valley probably will not (at least, not without a horrendous commute from out of county).

If they are able to give up the emotional attachment to homeownership, they will probably be better off in San Jose. The salary increase is much higher than the increased rent. If we assume there's a pension plan or 401(k) match - those will be calculated off twice the salary, which huge implications for their financial situation in retirement.

[NoMoreSnowForMe]

This and the Cupertino challenge thread has been really fascinating. I've really learned a lot. There is so much more to consider than I realized regarding home ownership vs. career advancement, etc.

There's a young software engineer who rents an inexpensive one-bedroom apt from me, and has been for about 8 years now. He told me he has absolutely no interest in buying a home. He makes great money, and is saving it up for retirement. In the meantime, he's changed jobs here a couple of times. I think he now works for Samsung? One of the cell phone companies in San Jose.

So, I guess the American Dream is morphing. I always thought owning your own home was like a savings account. In theory, the guys in Bakersfield who buy their home for $130,000 will not lose value in their home, maybe it will even increase in value. But, even if the value stays the same, they got tax write-offs while paying for it, and it's rent money that they will get back. In theory, the $130,000 comes back to them. Whereas rent money just disappears forever.

But, if a software engineer was able to sock away that $130,000 into retirement savings, he's just as well off, albeit without the tax write-offs home-ownership would have given him. He's also much more mobile as a renter.

Then, if he could sock away much more than that, he's definitely ahead.

Interesting. This has been really enlightening for me.

[jbunniii]

Originally Posted by NoMoreSnowForMe

So, I guess the American Dream is morphing. I always thought owning your own home was like a savings account. In theory, the guys in Bakersfield who buy their home for $130,000 will not lose value in their home, maybe it will even increase in value. But, even if the value stays the same, they got tax write-offs while paying for it, and it's rent money that they will get back. In theory, the $130,000 comes back to them. Whereas rent money just disappears forever.

The guy who owns the house also has to pay property tax, insurance, and maintenance, so he also pays money that "just disappears forever." A fair comparison needs to take this into account. Maintenance can be pretty expensive, and it would be even worse (proportionally) on a $130k house because (1) cheap houses often have lot of deferred maintenance and (2) contractors aren't going to charge you a lower rate just because you paid less for your house.

I'm a homeowner, and it certainly has its advantages, but I'm not convinced that it's necessarily any cheaper than renting, even long term.

[bentobox34]

Originally Posted by NoMoreSnowForMe

So, I guess the American Dream is morphing. I always thought owning your own home was like a savings account. In theory, the guys in Bakersfield who buy their home for $130,000 will not lose value in their home, maybe it will even increase in value. But, even if the value stays the same, they got tax write-offs while paying for it, and it's rent money that they will get back. In theory, the $130,000 comes back to them. Whereas rent money just disappears forever.

Don't forget to compare the tax write-offs for homeownership to the standard deduction of $12,200. For a $130,000 home, you would pay an estimated $5,000/year of tax-deductible interest near the beginning of the mortgage. Unless you can come up with $7,200 more in tax-deductible expenses, the mortgage interest deduction is worthless to you.

At Bay Area home prices, the tax deduction is a huge benefit, but it doesn't do much good at Bakersfield prices.