How do People in the Bay Area buy 2-3 million houses

[Anonymous]

With 300-400k HHI. People here think you could only afford a 1 million house with that income. Why is there such a disparity?

[Anonymous]

because you stretch way more than you intend to. We planned to spend 1.5 million but ended up spending 2.75. A lot of people do this. We had a huge mortgage and it made me nervous. We ended up selling it 3 years later for 400K more than we bought it for.

You also start looking in one area and then realize you have to look in another area. You have to compete with all cash offers and multiple offers.

[Anonymous]

All tech/finance rich people

[Anonymous]

good job = less risk of being jobless = high debt to income, this is the future of the DC area, the days of pussy footing around with debt are done

[Anonymous]

Anonymous wrote:because you stretch way more than you intend to. We planned to spend 1.5 million but ended up spending 2.75. A lot of people do this. We had a huge mortgage and it made me nervous. We ended up selling it 3 years later for 400K more than we bought it for.

You also start looking in one area and then realize you have to look in another area. You have to compete with all cash offers and multiple offers.

So you happened to have enough to put 20% down on a home that was nearly double your original budget? Or did you finance it differently?

[Anonymous]

People stretch more but it pays off because the appreciation is so high. People get cash from stock options or from selling their smaller home.

Its also popular for people to buy tiny houses below 2M and just remodel. If you don't tear down, your taxes stay closer to your purchase price. In CA your property tax doesn't change until the house is sold again or completely torn down/rebuilt. If you buy a tiny 9000 sq ft house that has never been upgraded for 1.5 M and wait a year, you will have 150-300K in equity. Wait two years, you have300-600K in equity. You also have more stock to sell so you can remodel your house and increase the size. If you go sell in a few years, you now have a 2-3M house.

Rents are astronomical here. In some areas, they can double in a year. If you have a family and are renting a house, you run into the owner wanting to sell or their relatives moving in so its even harder to find long term rentals. People renting see the skyrocketing appreciation and see that they keep getting farther away from owning so they pull everything together to get a house.

[Anonymous]

400K 'gifts' from parents who move into your third bedroom.

[Anonymous]

I live in SF. They are house-poor. It means they sank all their money into their house, so can't afford to do anything else.

[Anonymous]

Anonymous wrote:With 300-400k HHI. People here think you could only afford a 1 million house with that income. Why is there such a disparity?

they are not on 300-400k HHI

an engineering manager in early 30s at Airbnb can make near $1M in total compensation

300-400k HHI is like entry level package for people working at facebook/google

[Anonymous]

Stock options.

[Anonymous]

Same way 'people' in NYC are able to buy 2-3 million condos. Start off with a larger base income with all the lawyers and financiers present, otherwise the rest of the buyers are independently wealthy or the top 5% in their respective fields like fashion, publicity etc.

There's also the fact that 65% of the people living in New York City rent. That's roughly 5 million people renting for their entire lives. 1/5th of those renters have a household income over $150,000.

https://www.nytimes.com/2018/02/15/realestate/rent-increases-2017.html

https://www.rentcafe.com/blog/rental-market/new-york-high-income-renters/

All that to say - I believe people are vastly overlooking the fact that the broad majority of Bay Area dwellers or NYC dwellers just can't afford to buy at all.

[Anonymous]

Anonymous wrote:Same way 'people' in NYC are able to buy 2-3 million condos. Start off with a larger base income with all the lawyers and financiers present, otherwise the rest of the buyers are independently wealthy or the top 5% in their respective fields like fashion, publicity etc.

There's also the fact that 65% of the people living in New York City rent. That's roughly 5 million people renting for their entire lives. 1/5th of those renters have a household income over $150,000.

https://www.nytimes.com/2018/02/15/realestate/rent-increases-2017.html

https://www.rentcafe.com/blog/rental-market/new-york-high-income-renters/

All that to say - I believe people are vastly overlooking the fact that the broad majority of Bay Area dwellers or NYC dwellers just can't afford to buy at all.

Every person I know who is living in NY and hadn’t bought, can’t afford to do so. Even those making 500k plus. They live such fancy and high consumption lifestyles that they are unable to save the 20-50 percent needed for a downpayment. They act as though renting is easier:better deal but we know that’s not why they are still renting.

[Anonymous]

Anonymous wrote:People stretch more but it pays off because the appreciation is so high. People get cash from stock options or from selling their smaller home.

Its also popular for people to buy tiny houses below 2M and just remodel. If you don't tear down, your taxes stay closer to your purchase price. In CA your property tax doesn't change until the house is sold again or completely torn down/rebuilt. If you buy a tiny 9000 sq ft house that has never been upgraded for 1.5 M and wait a year, you will have 150-300K in equity. Wait two years, you have300-600K in equity. You also have more stock to sell so you can remodel your house and increase the size. If you go sell in a few years, you now have a 2-3M house.

Rents are astronomical here. In some areas, they can double in a year. If you have a family and are renting a house, you run into the owner wanting to sell or their relatives moving in so its even harder to find long term rentals. People renting see the skyrocketing appreciation and see that they keep getting farther away from owning so they pull everything together to get a house.

The game works fine as long as there is massive appreciation. But if you’re significantly levered and the music stops, you are stuck with a VERY expensive mortgage without the upside.

[Anonymous]

Anonymous wrote:I live in SF. They are house-poor. It means they sank all their money into their house, so can't afford to do anything else.

+1. Not everyone, but a lot.

[Anonymous]

Anonymous wrote:Stock options.

This. My sister's base income isn't that high but she's in her 30s and has worked at Facebook since she graduated from college, she cashed out some stock to buy her first home.