Buying a home in San Francisco

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riskitforthetriscuit
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Buying a home in San Francisco

Post by riskitforthetriscuit »

Hey everyone, I'm trying to buy a home in San Francisco and I'd appreciate advice from anyone who is or has been in a similar position as me. I'm looking for some feedback on how much home I can reasonably afford.

Please, only offer your opinion if you are familiar with the San Francisco market as the considerations & risk profile here is unique and perhaps foreign to those who are not in the area.

The financials:
- I'm 29 & make $230k base, $400k with RSUs working in tech
- Wife is 29 & is a contractor, makes an average of $80k working in graphic design
- Our net worth is $900k
- No kids, but want to have a couple in a few years
- Have $400k ready to go for a down payment
- We'd get a duplex, mother would live in lower unit & has $800k liquid to her name, but $12k income.

My question is:

How much home can we afford? What's the max you'd do with our financials in San Francisco (SF proper, not the greater bay area) and still be able to sleep at night?

Thank you!
stan1
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Re: Buying a home in San Francisco

Post by stan1 »

How much, if any, is mom contributing to down payment?

Around $1.5M (plus or minus). How far off is that from what a duplex like you want to buy would cost ?
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

stan1 wrote: Sat Jun 19, 2021 5:35 pm How much, if any, is mom contributing to down payment?

Around $1.5M (plus or minus). How far off is that from what a duplex like you want to buy would cost ?
Thanks for the response, she'd be contributing $200k, but could contribute up to $400k if need be. We're looking at homes that will end up costing $1.6MM to $1.9MM. What do you think of that?
TRC
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Re: Buying a home in San Francisco

Post by TRC »

Hard to answer without knowing what your monthly bills are. After you pay for food, transportation, insurance, entertainment, etc, how much is left over each month?
Topic Author
riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

TRC wrote: Sat Jun 19, 2021 5:53 pm Hard to answer without knowing what your monthly bills are. After you pay for food, transportation, insurance, entertainment, etc, how much is left over each month?
Excluding rent, we currently spend about $5k/month. Some of that could be trimmed if need be though.
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Raybo
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Re: Buying a home in San Francisco

Post by Raybo »

I live in a house in San Francisco. It is hard to imagine where or what kind of duplex you can find for that kind of money ($1.6 - $1.9 million). The house across the street from mine just went on the market for $2.75 million and they expect a bidding war. Admittedly, it is not a duplex and is a fully built-out house (=maze-like floor plan). I wonder if now is the best time to be looking for a house. I keep hearing of all cash offers way above the asking price.

You likely already know this, but property tax alone will be $1,500/month. Our home owner's plus umbrella policy is $2K/year. While it doesn't look like these bumps would put your cashflow in jeopardy, I wanted to mention them.

Have your tried to get pre-approved for a loan? If so, what amount are they committing up to?

Good luck. Who knows, maybe we'll be neighbors someday!
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
Tingting1013
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Re: Buying a home in San Francisco

Post by Tingting1013 »

If you have $400k for a down payment your budget should probably be $2M or less.
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Watty
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Re: Buying a home in San Francisco

Post by Watty »

Raybo wrote: Sat Jun 19, 2021 6:25 pm Have your tried to get pre-approved for a loan? If so, what amount are they committing up to?
You usually do not want to borrow as much as they will lend you but this is the first thing to do to see if buying is even possible with the type of price you would need to pay.

You have a couple of things that will make your loan application more complicated;

1) A lot of your compensation is RSUs.
2) Your wife is a contractor and they evaluate self employed peoples income differently.
3) There would be some sort of complicated co-ownership with your mother.

I have not used one but you might consider using a mortgage broker who might know which lenders are more likely to approve a complicated loan application like this.
Raybo wrote: Sat Jun 19, 2021 6:25 pm You likely already know this, but property tax alone will be $1,500/month. Our home owner's plus umbrella policy is $2K/year. While it doesn't look like these bumps would put your cashflow in jeopardy, I wanted to mention them.
Also budget for earthquake insurance. It was a long time ago but when I lived in the Bay Area I was looking at buying my first house so I researched the earthquake risk. There are lots and lots of variables but the best estimate(or more likely a semi-informed guess) was that if I bought a house there it might have significant earthquake damage maybe once in 200 years. That does not sound too bad until you consider that means that if you own a house there for 20 years then there is about a 10% chance of having an significant earthquake damage while you own it.

Do your own research and come up with your own conclusions but don't just ignore the earthquake risk. You may very well decide to not buy earthquake insurance but you need to make sure that would be a well informed decision.
riskitforthetriscuit wrote: Sat Jun 19, 2021 5:10 pm Please, only offer your opinion if you are familiar with the San Francisco market as the considerations & risk profile here is unique and perhaps foreign to those who are not in the area.
Be very care when you hear people saying "This time is different."

You make $400K and you might be buying a $2 million dollar house. If you lop off a zero your situation may may not be as different as you would like to think compared to someone in the rural south who makes $40K a year and is thinking of buying a $200K house.
Californiastate
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Re: Buying a home in San Francisco

Post by Californiastate »

There are plenty of places in the Bay Area where I would choose to spend $2m on a home. SF isn't one of them. There are plenty of places in the Bay Area where I would choose to raise children. SF isn't one of them. GL
Ron Ronnerson
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Re: Buying a home in San Francisco

Post by Ron Ronnerson »

Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
Pessimist55
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Re: Buying a home in San Francisco

Post by Pessimist55 »

Was just.in SF today (I live in San Jose)
Man. Pier 39. Sunny and warm low 70s
Spreckle lake by gg park, freezing cold cloudy and windy like winter. Low 60s. Good thing I had a jacket in my car.

You know where in SF you want to live in? Don't get me started about parking. Fisherman wharf area meter parking after 12pm on a Saturday is now $5.50 an hr. Damn! $11+ for a clam chowder sourdough. Never seen so many cars parked along JFK Drive in gg park ( even for a crappy cold windy day)


I personally wonder why everyone wants to live in the city....
123
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Re: Buying a home in San Francisco

Post by 123 »

If you select a location on the west side of the city, generally in the Richmond or Sunset Districts, you can save quite a bit on air conditioning expense since virtually none of the homes in those areas have it. In those areas many homes have furnaces that run at least a little every day for maybe 8 months of the year. And if it gets over 70 degrees outside people cry "Heat Wave".
The closest helping hand is at the end of your own arm.
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William Million
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Re: Buying a home in San Francisco

Post by William Million »

I'm a bit confused by your post as you only want a financial assessment of how much you can afford to spend, but don't want commentaries on San Francisco housing. An analysis of your financials has nothing to do with where you purchase the housing.

At the high end, I think you could purchase a $2 million residence. The mother aspect is a complication as she would be unable to buy something similarly priced.
kir_royale
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Re: Buying a home in San Francisco

Post by kir_royale »

Ron Ronnerson wrote: Sat Jun 19, 2021 10:17 pm Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
I will add to the above, #3, if and when kids come along, will you need to move or your mom need to move out to make space?

5) Schools. San Francisco public schools are a crap shoot. If you don't get into the school you want, will you have the $$$ needed for private with this budget (and daycare/nanny/or take a pay cut for reduced hours for one of you)?
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

Ron Ronnerson wrote: Sat Jun 19, 2021 10:17 pm Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
Hello Mr. Ronnerson, thanks for responding.

1. It's $12k annually, and she'll earn this for the next 10 years. I shouldn't have mentioned this, it's hardly a factor into my decision. Yes she'll own the property as well. After the downpayment I'll be supporting her, but she's low maintenance and on disability so I'm not too worried about that. I'm currently supporting her right now actually.

2. $600k after tax, $300k in retirement accounts. My portion of the down payment is no problem.

3. I think the plan is currently to have both of us work full time when kids arrive. My mother will hook us up with free day care, however in the unfortunate even she passes away we'd either foot the bill $2k-$3k bill or have my wife work reduced hours. We mostly just sock away her income right now, it's not used for living expenses- so it's extra.

4. My job stability is as good as one could have without working for a government job. Should the very profitable company I'm at become unviable, I'm a software engineer and finding work elsewhere in the Bay Area shouldn't be too much of a problem, barring a worst case scenario where tech jobs are suddenly not in demand or pay a significant amount less.

Thank you!
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

kir_royale wrote: Sun Jun 20, 2021 1:02 pm
Ron Ronnerson wrote: Sat Jun 19, 2021 10:17 pm Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
I will add to the above, #3, if and when kids come along, will you need to move or your mom need to move out to make space?

5) Schools. San Francisco public schools are a crap shoot. If you don't get into the school you want, will you have the $$$ needed for private with this budget (and daycare/nanny/or take a pay cut for reduced hours for one of you)?
No it's a duplex, my mother will be in the lower unit. We'll have space for kids in our unit. Regarding schools, I don't care so much about this. As long as they're in an average one they'll be alright. I went to average schools myself. If I'm dissatisfied with what they're learning, I'll pay for a tutor as needed to teach an additional curriculum.
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cchrissyy
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Re: Buying a home in San Francisco

Post by cchrissyy »

3. I think the plan is currently to have both of us work full time when kids arrive. My mother will hook us up with free day care, however in the unfortunate even she passes away we'd either foot the bill $2k-$3k bill or have my wife work reduced hours. We mostly just sock away her income right now, it's not used for living expenses- so it's extra.
you have a huge risk here - no matter if you buy a house or not - which is that the mother in law who you support becomes injured/sick/disabled and you face the trifecta of her medical costs, the loss of free childcare, and loss of your wife's income. i know this has nothing to do with SF or your house question except to note that you should always maintain plenty of savings, since it could happen at any time and could last a prolonged period, and becomes more likely with age.
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

cchrissyy wrote: Sun Jun 20, 2021 2:04 pm
3. I think the plan is currently to have both of us work full time when kids arrive. My mother will hook us up with free day care, however in the unfortunate even she passes away we'd either foot the bill $2k-$3k bill or have my wife work reduced hours. We mostly just sock away her income right now, it's not used for living expenses- so it's extra.
you have a huge risk here - no matter if you buy a house or not - which is that the mother in law who you support becomes injured/sick/disabled and you face the trifecta of her medical costs, the loss of free childcare, and loss of your wife's income. i know this has nothing to do with SF or your house question except to note that you should always maintain plenty of savings, since it could happen at any time and could last a prolonged period, and becomes more likely with age.
This is true. You don't think my left over $400k after tax mitigates this to a healthy extent? She'd also have her own $600k.
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luminous
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Re: Buying a home in San Francisco

Post by luminous »

riskitforthetriscuit wrote: Sun Jun 20, 2021 1:50 pm No it's a duplex, my mother will be in the lower unit. We'll have space for kids in our unit. Regarding schools, I don't care so much about this. As long as they're in an average one they'll be alright. I went to average schools myself. If I'm dissatisfied with what they're learning, I'll pay for a tutor as needed to teach an additional curriculum.
Agreed on schools. My kids are in public schools in SF and in my opinion there are very few bad schools.

Earlier you said you are spending $5k/month outside of rent. That seems really high, even with supporting your mom. I spend less than that with my family of four in SF.

I mention it because how much you can afford has a lot to do with your budget. Sure, you have a certain income now and can get a big loan. But when the heat is on in a bidding war and you pay a lot for that duplex, how much money will you have left over every month to live on? Your happiness with how much you spent on the house will likely depend on whether that amount feels meager or not.

I’d love to have a parent close to us, even in the same building. I hope your plan works!
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

luminous wrote: Sun Jun 20, 2021 2:17 pm
riskitforthetriscuit wrote: Sun Jun 20, 2021 1:50 pm No it's a duplex, my mother will be in the lower unit. We'll have space for kids in our unit. Regarding schools, I don't care so much about this. As long as they're in an average one they'll be alright. I went to average schools myself. If I'm dissatisfied with what they're learning, I'll pay for a tutor as needed to teach an additional curriculum.
Agreed on schools. My kids are in public schools in SF and in my opinion there are very few bad schools.

Earlier you said you are spending $5k/month outside of rent. That seems really high, even with supporting your mom. I spend less than that with my family of four in SF.

I mention it because how much you can afford has a lot to do with your budget. Sure, you have a certain income now and can get a big loan. But when the heat is on in a bidding war and you pay a lot for that duplex, how much money will you have left over every month to live on? Your happiness with how much you spent on the house will likely depend on whether that amount feels meager or not.

I’d love to have a parent close to us, even in the same building. I hope your plan works!
Thanks for the feedback. What's your rough expenditure break down on a monthly basis if you don't mind me asking? Also does your spouse work out of curiosity?
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luminous
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Re: Buying a home in San Francisco

Post by luminous »

My spouse doesn’t work. He’s been a stay at home parent since our kids were born 10+ years ago. Our non-rent expenses are about $4000 a month, give or take, on average.
67/12/21 US stock/international stock/bonds. Bonds capped at 10x annual spending. Semi-retired as of 2022.
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Re: Buying a home in San Francisco

Post by harrychan »

How are your monthly expenses? Personally, I think your income is too low to buy a $1.5m+ home. NW of $900k is on the low side and to think you'll put most of it into the down payment would be worrying. Do you expect to get more rsu? What are your earning outlook for yourself and your spouse?
This is not legal or certified financial advice but you know that already.
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

harrychan wrote: Sun Jun 20, 2021 5:29 pm How are your monthly expenses? Personally, I think your income is too low to buy a $1.5m+ home. NW of $900k is on the low side and to think you'll put most of it into the down payment would be worrying. Do you expect to get more rsu? What are your earning outlook for yourself and your spouse?
I think our earning outlook is pretty good. I get annual refreshers and the company is doing well. Beyond that, I'm relatively early in my career and I think there's more upside left. For my wife, she just started working in her field but it's hard for me to gauge how her income will grow. I get the impression that she'll likely top out at < $150k, unless she starts designing for a tech company in house (she's not into the idea).
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

luminous wrote: Sun Jun 20, 2021 5:14 pm My spouse doesn’t work. He’s been a stay at home parent since our kids were born 10+ years ago. Our non-rent expenses are about $4000 a month, give or take, on average.
What % of your meals are cooked at home?
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luminous
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Re: Buying a home in San Francisco

Post by luminous »

riskitforthetriscuit wrote: Sun Jun 20, 2021 6:03 pm
luminous wrote: Sun Jun 20, 2021 5:14 pm My spouse doesn’t work. He’s been a stay at home parent since our kids were born 10+ years ago. Our non-rent expenses are about $4000 a month, give or take, on average.
What % of your meals are cooked at home?
The vast majority. Eating out is a special occasion. We rarely get delivery. Probably cook meals at home for 95% of our meals?
67/12/21 US stock/international stock/bonds. Bonds capped at 10x annual spending. Semi-retired as of 2022.
Ron Ronnerson
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Re: Buying a home in San Francisco

Post by Ron Ronnerson »

riskitforthetriscuit wrote: Sun Jun 20, 2021 1:47 pm
Ron Ronnerson wrote: Sat Jun 19, 2021 10:17 pm Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
Hello Mr. Ronnerson, thanks for responding.

1. It's $12k annually, and she'll earn this for the next 10 years. I shouldn't have mentioned this, it's hardly a factor into my decision. Yes she'll own the property as well. After the downpayment I'll be supporting her, but she's low maintenance and on disability so I'm not too worried about that. I'm currently supporting her right now actually.

2. $600k after tax, $300k in retirement accounts. My portion of the down payment is no problem.

3. I think the plan is currently to have both of us work full time when kids arrive. My mother will hook us up with free day care, however in the unfortunate even she passes away we'd either foot the bill $2k-$3k bill or have my wife work reduced hours. We mostly just sock away her income right now, it's not used for living expenses- so it's extra.

4. My job stability is as good as one could have without working for a government job. Should the very profitable company I'm at become unviable, I'm a software engineer and finding work elsewhere in the Bay Area shouldn't be too much of a problem, barring a worst case scenario where tech jobs are suddenly not in demand or pay a significant amount less.

Thank you!
This additional information is helpful. I would recommend that you not purchase a home with your mom. If I’m understanding correctly, your mom and you would each put down $200k for the down payment. However, the reason she can come up with her portion is because you’re supporting her. So, you’re indirectly paying for her part of the down payment also. In the years ahead, you'll continue to support her and be responsible either largely or fully for the mortgage payments. So just skip the unnecessary complications that come with co-ownership.

I think it’s great that you want to help your mom and I also think it’s fantastic that she can live so close by you. However, I think she should put none of the down payment and have no ownership in the home. Instead, you should come up with the entire down payment yourself, fully own the home, and just give one of the units to your mom to live in if (and this is a big “if”) you decide to purchase a property.

To determine how much you can afford to spend on a house, I would do a careful budget and assume that childcare is not included. Your mom may not necessarily be able to take care of small children as she gets older and may herself require extra support. If your wife might reduce her hours, factor that in. When doing your projected budget, include however much money you’ll be directing toward supporting your mom, paying for child care, income and property taxes, and funding retirement/savings to adequately meet your goals. Then subtract all your other expenses. However much remains from your income each month is what you can likely afford to spend toward a mortgage. To be conservative, build in a bit of cushion.

I'm honestly not trying to discourage you and hope it doesn't come across that way. Actually, compared to many people on this forum, I consider myself fairly liberal when it comes to spending money on a home. However, you do need to be careful so as not to spread yourself too thin. Otherwise, you could find yourself struggling to get by and that's, of course, not a good position to find yourself in.
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riskitforthetriscuit
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Re: Buying a home in San Francisco

Post by riskitforthetriscuit »

Ron Ronnerson wrote: Sun Jun 20, 2021 8:10 pm
riskitforthetriscuit wrote: Sun Jun 20, 2021 1:47 pm
Ron Ronnerson wrote: Sat Jun 19, 2021 10:17 pm Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
Hello Mr. Ronnerson, thanks for responding.

1. It's $12k annually, and she'll earn this for the next 10 years. I shouldn't have mentioned this, it's hardly a factor into my decision. Yes she'll own the property as well. After the downpayment I'll be supporting her, but she's low maintenance and on disability so I'm not too worried about that. I'm currently supporting her right now actually.

2. $600k after tax, $300k in retirement accounts. My portion of the down payment is no problem.

3. I think the plan is currently to have both of us work full time when kids arrive. My mother will hook us up with free day care, however in the unfortunate even she passes away we'd either foot the bill $2k-$3k bill or have my wife work reduced hours. We mostly just sock away her income right now, it's not used for living expenses- so it's extra.

4. My job stability is as good as one could have without working for a government job. Should the very profitable company I'm at become unviable, I'm a software engineer and finding work elsewhere in the Bay Area shouldn't be too much of a problem, barring a worst case scenario where tech jobs are suddenly not in demand or pay a significant amount less.

Thank you!
This additional information is helpful. I would recommend that you not purchase a home with your mom. If I’m understanding correctly, your mom and you would each put down $200k for the down payment. However, the reason she can come up with her portion is because you’re supporting her. So, you’re indirectly paying for her part of the down payment also. In the years ahead, you'll continue to support her and be responsible either largely or fully for the mortgage payments. So just skip the unnecessary complications that come with co-ownership.

I think it’s great that you want to help your mom and I also think it’s fantastic that she can live so close by you. However, I think she should put none of the down payment and have no ownership in the home. Instead, you should come up with the entire down payment yourself, fully own the home, and just give one of the units to your mom to live in if (and this is a big “if”) you decide to purchase a property.

To determine how much you can afford to spend on a house, I would do a careful budget and assume that childcare is not included. Your mom may not necessarily be able to take care of small children as she gets older and may herself require extra support. If your wife might reduce her hours, factor that in. When doing your projected budget, include however much money you’ll be directing toward supporting your mom, paying for child care, income and property taxes, and funding retirement/savings to adequately meet your goals. Then subtract all your other expenses. However much remains from your income each month is what you can likely afford to spend toward a mortgage. To be conservative, build in a bit of cushion.

I'm honestly not trying to discourage you and hope it doesn't come across that way. Actually, compared to many people on this forum, I consider myself fairly liberal when it comes to spending money on a home. However, you do need to be careful so as not to spread yourself too thin. Otherwise, you could find yourself struggling to get by and that's, of course, not a good position to find yourself in.
What are the complications that come with co-ownership? I had full intent to service the mortgage payments on my own either way.
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Raybo
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Re: Buying a home in San Francisco

Post by Raybo »

riskitforthetriscuit wrote: Mon Jun 21, 2021 12:15 am
What are the complications that come with co-ownership? I had full intent to service the mortgage payments on my own either way.
Liability would be one. Does your MIL drive, have people over, engage in any activities where someone might have a loss?

Should your MIL need any state assistance, her ownership of the house would affect it.

Refinancing or selling the house would require her to participate.

While things are all neat and tidy now, that is no guarantee that they will be in the future.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
Ron Ronnerson
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Re: Buying a home in San Francisco

Post by Ron Ronnerson »

riskitforthetriscuit wrote: Mon Jun 21, 2021 12:15 am
Ron Ronnerson wrote: Sun Jun 20, 2021 8:10 pm
riskitforthetriscuit wrote: Sun Jun 20, 2021 1:47 pm
Ron Ronnerson wrote: Sat Jun 19, 2021 10:17 pm Some things are a little bit unclear from your post. I'll try to separate some of the issues:

1) Mother - Your mother has $800k liquid along with an income of $12k. Is this $12k annually and how long will she continue to earn this? Will your mother be an owner of the property as well? She is contributing $200k-$400k toward a down payment which leaves her with $400k-$600k after this purchase. Can she live on that over the long term or will you be partially supporting her?

2) Down Payment - Where are you going to get your portion of the down payment? You said you have a net worth of $900k. How much of this is in cash or a taxable brokerage account vs. retirement accounts?

3) Kids – You said you plan to have kids in a few years. Will you and/or your wife continue to work full time when that happens? If not, how much of a pay cut should be factored in? If so, do you expect to incur daycare costs and how much do you think that might cost?

4) Job stability and income – do you both have stable jobs and how much income can you count on with a relatively high degree of certainty? I ask this because a big portion of your income is RSUs.

By the way, congrats on accumulating so much before even turning 30.
Hello Mr. Ronnerson, thanks for responding.

1. It's $12k annually, and she'll earn this for the next 10 years. I shouldn't have mentioned this, it's hardly a factor into my decision. Yes she'll own the property as well. After the downpayment I'll be supporting her, but she's low maintenance and on disability so I'm not too worried about that. I'm currently supporting her right now actually.

2. $600k after tax, $300k in retirement accounts. My portion of the down payment is no problem.

3. I think the plan is currently to have both of us work full time when kids arrive. My mother will hook us up with free day care, however in the unfortunate even she passes away we'd either foot the bill $2k-$3k bill or have my wife work reduced hours. We mostly just sock away her income right now, it's not used for living expenses- so it's extra.

4. My job stability is as good as one could have without working for a government job. Should the very profitable company I'm at become unviable, I'm a software engineer and finding work elsewhere in the Bay Area shouldn't be too much of a problem, barring a worst case scenario where tech jobs are suddenly not in demand or pay a significant amount less.

Thank you!
This additional information is helpful. I would recommend that you not purchase a home with your mom. If I’m understanding correctly, your mom and you would each put down $200k for the down payment. However, the reason she can come up with her portion is because you’re supporting her. So, you’re indirectly paying for her part of the down payment also. In the years ahead, you'll continue to support her and be responsible either largely or fully for the mortgage payments. So just skip the unnecessary complications that come with co-ownership.

I think it’s great that you want to help your mom and I also think it’s fantastic that she can live so close by you. However, I think she should put none of the down payment and have no ownership in the home. Instead, you should come up with the entire down payment yourself, fully own the home, and just give one of the units to your mom to live in if (and this is a big “if”) you decide to purchase a property.

To determine how much you can afford to spend on a house, I would do a careful budget and assume that childcare is not included. Your mom may not necessarily be able to take care of small children as she gets older and may herself require extra support. If your wife might reduce her hours, factor that in. When doing your projected budget, include however much money you’ll be directing toward supporting your mom, paying for child care, income and property taxes, and funding retirement/savings to adequately meet your goals. Then subtract all your other expenses. However much remains from your income each month is what you can likely afford to spend toward a mortgage. To be conservative, build in a bit of cushion.

I'm honestly not trying to discourage you and hope it doesn't come across that way. Actually, compared to many people on this forum, I consider myself fairly liberal when it comes to spending money on a home. However, you do need to be careful so as not to spread yourself too thin. Otherwise, you could find yourself struggling to get by and that's, of course, not a good position to find yourself in.
What are the complications that come with co-ownership? I had full intent to service the mortgage payments on my own either way.
I’ll begin by sharing a personal experience. When I first bought my house (in 2010), my mother lived with my wife and me. A few years later, the stairs got to be too much, we had a baby at home, and she decided she wanted to live in a nearby apartment instead. So she simply moved there. If she had owned part of the property (which had appreciated since the purchase), it would have been much more difficult figuring out what to do.

Other situations can come up too. What if you or your wife gets a great job opportunity in some other place but your mother doesn’t wish to go there? The home doubles in value by the time this happens and your mom owns half of it. Do you give her $2M to buy out her portion even though you made all the mortgage payments for the past x number of years?

Also consider scenarios you may not necessarily want to think about such as your wife and you getting a divorce. How would you split the value of the asset if your mom owns part of it? To make things fair to your wife, should one of her parents own the property too? If you (certainly hope not) happen to die at a young age and have a couple of kids too, what happens in that case between your wife and mom? What happens to your house if your mom dies and leaves everything she owns to another family member or a charity?

There are lots of things that can come up. Why are you even considering co-ownership since you’re basically putting up all the money yourself? Your mom could simply live with you and you could continue to support her but maintain ownership and control of this very expensive asset that has a good chance of appreciating.
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