Investor · San Francisco, CA · Member since 2015 · 306 posts · 211 votes
Every single time I'm in any grocery store, walking the street, or anywhere in a posh neighborhood, esp. the Bay Area, I think:
* "Golly, gosh, gee, how do these people afford these wonderful homes?" * "What do I have to do in my career to make enough to buy this?" * "Is it even worth it suffer in a room packed like a sardine in order to invest?"
Then, I came across this little chart on Zillow from Q1 2017:
I highly respect all self-made folks who can afford what they get, but it was really helpful reminder for me.
Many times, one can think someone else is doing great; but perhaps they think the same about you.
Was wondering if thoughts like this have ever entered anyone else's mind?
Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
9y
@Alice K. All i see when i drive by houses like that are high income earners leveraged up to their eyeballs. I prefer to drive by the middle class neighborhoods and ask myself "How do i buy ALL of these?"
"The Millionaire Next Door" really changed my perspective on material possessions like that :)
Investor and RE Mentor · Miami, FL · Member since 2010 · 560 posts · 219 votes
9y
@Alice K. Interesting point, Alice, and yes, I think a lot of us have pondered that question! :)
The way I have always looked at it, there are a lot of people being able to afford higher end homes (there are all over the place, right?), therefore it must not be as hard as it seems. If they did it, why not you? :)
How do you make more money to afford the higher end home, the Bentley, etc.? Find what you do best (and enjoy) and do it on a larger scale!
So if it comes to real estate investing, and you are a wholesaler, for instance, wholesale 10+ deals a month in different markets around the country. Put a team in place to help you and delegate. And yes. You will make several hundreds of thousands dollars a month and you can buy the higher end home for cash very soon! You can also go into syndication - pull private money together for the purpose of buying, redeveloping or building real estate. That will also give you bigger profits.
In other words, think large. That is why I love real estate. You can take it as big as you want, scale it to what you wish and have fun in the process ... and buy the big expensive home and the Bentlley ;)
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Alice K. I think what's more relevant is to look at *when* people bought those $1M+ homes. Walk through the Bay Area, Los Angeles, San Diego, etc. and ask people if they could afford to buy their home today. More than you think will probably say "no way!" Play with a mortgage calculator and look at the difference in mortgage payments between a $700K purchase price at 3.8% and $1M at 5%. You can also look at Prop 13 and how much cheaper property taxes are. Then take a look at how much money (pre-tax) you'd have to earn to afford that additional (marginal) mortgage and property tax payment. It's probably going to end up as a decently high number.
But, hey, it's all a choice. Some would rather rent, lease a BMW, and chow down on glorious avocado toast. 😜
Real Estate Investor · Shelton, WA · Member since 2013 · 369 posts · 639 votes
9y
@Alice K. All i see when i drive by houses like that are high income earners leveraged up to their eyeballs. I prefer to drive by the middle class neighborhoods and ask myself "How do i buy ALL of these?"
"The Millionaire Next Door" really changed my perspective on material possessions like that :)
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
I think it's interesting how people let emotions override the math when it comes to owning a home. I can't tell you how many people I've seen max out their budget and destroy their savings just so they could have the experience of owning their own home.
I also find it so odd how people tell me about all this money I'm throwing away because I rent or how I'll never be able to capture the appreciation in RE because it never goes down.... yet I took what would be a very tiny down payment locally and put it to work OOS.
Maybe I don't own a nice home in the Bay Area, but I'm able to live in one for a fraction of the cost and put my limited capital to work. A compromise isn't always a bad thing, you can have a good quality of life and invest outside of where you live.
Rental Property Investor · Pasadena, CA · Member since 2016 · 164 posts · 149 votes
9y
At the end of the day it doesnt matter why or how they can "afford" the house. Every family has a different story, some make 500k+ a year, some inherited the house or money, some bought low and saw massive appreciation, etc. Either way they have their life you have yours, make the most of it and demand, through your actions, that you get what you want.
A lot of times the return on an investment like that, 1m+ sfr, is not worth it, from a purely numbers point.
There is no shortage of money or opportunity out there. In order to afford an expensive home, you need income. If you have enough income you can afford a $1,000,000 mortgage.
While I personally wouldn't want to use a significant portion of my income on my personal residence, it totally depends on how large an income you have and your personal goals.
Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
9y
maybe its cause I'm young and single...but I totally want a freaking big house and nice cars in a glamorous city. and Yes I'm totally hustling my A$$ off to get there haha. I mean lets say I make it there and I realize I don't care much for that stuff....
well I should have built a huge business/cash reserve then to use on whatever interests me.
San Diego, CA · Member since 2015 · 273 posts · 226 votes
9y
@Alice K. I'm with you! Those pangs of envy hit me every once in a while, and I just want to sell our investments and buy a nice house for our family. But then I remember that the price is more than $1M, its also 30+ years of life working for money to afford it.
@Steve Vaughan I love your labor camp line! It's so true when owning your home requires decades of mandatory labor for others.
Investor · Carlsbad, CA · Member since 2012 · 73 posts · 34 votes
9y
In the Bay area, it's very easy to find a fresh grad in the high tech industry making $150k+ a year. So a couple making $250k+ is quite common. With high taxes in CA, would you rather give 40% of that to the governments or use mortgage and property tax deductions to bring that down to say 25-30%? Besides housing, the cost of living in the Bay area is not that much different from the rest of the country, eg. high ticket items like cars, electronics are about the same, food and gas are probably 25% higher. So paying 50% of $250k income towards mortgage is still more "affordable" than paying 20% of $150k.
Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes
9y
Good posts about people leveraging. Maybe over-leveraging.
Hmm. I drive by a $1M+ apartment that I (via my company) own and I say 'that's mine.' And it pays for itself. That's where I prefer to be. My tenants drive more expensive cars than I do. Way more. But my trucks are old and reliable... and paid for by my company. It's all about priorities. SF is expensive. Where I am isn't. I'll stay here. I hope to build some $1M+ apartments ... but only if they pay for themselves.
Good luck with your endeavors. If you can get in and hang on, SF is probably one of the best bets long (30-50 year) term.
Question to put things in perspective: Warren Buffet can live anywhere he wants. Where does he live and what does he drive?
Rental Property Investor · Oakland, CA · Member since 2014 · 730 posts · 1k+ votes
9y
@Alice K. I used to get jealous too. Then I woke up, and did something about it. I stopped watching Million Dollar Listing and House of Cards (lying, I still watch it) and spent that time educating myself (reading a book a week, podcasts during the commute, BP on my phone instead of Facebook) on how to become part of the 1%.
I rented in the Bay Area for 10 years, while amassing 21 rental units. I finally bought my primary residence just last year, by using my passive income for the down payment (20%) and also for the monthly payment. That is the smart way to do it. Rich Dad's books had a line in there that I'll never forget and still use to this day: Instead of buying an ATV, buy a rental property that will pay for the ATV.
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
9y
When I first moved to Irvine, CA back in 2002-ish I rented a 2 bedroom apartment in one of those leasable luxury communities, but was driving a beat up, oil leaking 1990 Jeep Cherokee. My downstairs neighbor had a very expensive BMW. He was quite fit (muscular) and I figured he played professional sports. His car was easily over $100K. After a few months I got to know him and one day asked what he did for work. He told me he was a manager at the 24 hour fitness.... Driving $100K+ car.
As time passed and I learned more and more about the fake *** people I was surrounded by, I realized most of them who drive very expensive cars lease them. Lots of them have untold credit card debt. Their homes are mortgaged to the rafters. It's all quite financially pathetic. Even my own buddy told me one time how he spent $150,000 on a custom landscaped backyard and pool. Then lost it all to foreclosure. The majority of the people you come across with expensive toys are all flash and no cash working their tail off to impressive people they don't know and who don't care.
Another example; my uncle always had all the toys; boats, jet skis, awesome camper, expensive truck to tow it all. Yet, he was a police officer. One day my mother asked him, "What do you make that lets you afford all these expensive toys?"
His response, "A lot of payments." (Best response ever in my book!)
My wealthiest friends, people well in to an 8 figure net worth, live in modest homes and for some reason, most of them drive Toyota pick up trucks.
I was at an educational seminar one time and during a break three guys were talking. I knew all three had very high net worths. My buddy points them out to me and says, "Take a look at their feet." They all were wearing plain khaki paints and simple dress shirts. You couldn't pick any of them out of a crowd of middle aged guys. The one thing they all had in common, there were all wearing brand new sneakers. We both thought that was funny for some reason.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Originally posted by @Account Closed:
@Alice K. I used to get jealous too. Then I woke up, and did something about it. I stopped watching Million Dollar Listing and House of Cards (lying, I still watch it) and spent that time educating myself (reading a book a week, podcasts during the commute, BP on my phone instead of Facebook) on how to become part of the 1%.
I rented in the Bay Area for 10 years, while amassing 21 rental units. I finally bought my primary residence just last year, by using my passive income for the down payment (20%) and also for the monthly payment. That is the smart way to do it. Rich Dad's books had a line in there that I'll never forget and still use to this day: Instead of buying an ATV, buy a rental property that will pay for the ATV.
Are you me? Nice work and thanks for the inspiration...
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
9y
How can 43% HTI (housing to income, which is DTI minus other consumer debt) be the average? That implies that half are above 43% HTI, half are below 43% HTI, but 43% DTI is the cutoff for the overwhelming bulk of jumbo loans, so it's odd to think that half are over that in the Bay Area. And this is pretending that car loans and student loans do not exist (DTI is generally higher than HTI). I'd wonder how they are doing their math in that chart.
@Account Closed it just funded stop blowing up my phone. :P
Investor · San Francisco, CA · Member since 2015 · 306 posts · 211 votes
9y
Was great hearing I'm not the only one out there thinking this!
Every day I interact with people making the same amount as myself and boy oh boy..
They have a posh car / live in the center of the universe in 2.5 - 4k apartments / go on fancy trips. Friend just spent $13,000 worth of points on a first-class flight to Asia.
Meanwhile, I'm blowing thousands on a basement and furnace. I figure "even though this isn't the best ROI it must be better than a 13k flight to asia?!"
@Account Closed "Houses are just labor camps we sleep in." <-- I need to print your words of wisdom. LoL
How can 43% HTI (housing to income, which is DTI minus other consumer debt) be the average? That implies that half are above 43% HTI, half are below 43% HTI, but 43% DTI is the cutoff for the overwhelming bulk of jumbo loans, so it's odd to think that half are over that in the Bay Area. And this is pretending that car loans and student loans do not exist (DTI is generally higher than HTI). I'd wonder how they are doing their math in that chart.
@Account Closed it just funded stop blowing up my phone. :P
Good point, I bet they did just take the average or something. Probably weighted heavily towards those who had to take out 10% loans that probably shouldn't really be buying to begin with?
The rent-income % number as a few believe, is also 43% in this Q1 report so they're probably taking just looking at those paying for high priced rentals as well.
I was thinking this was helpful sheerly for my sanity.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
I think you need to stop comparing yourself to other people... things aren't always as they seem. You can get "expensive" cars cheap, you can get expensive flights cheap, hell you can even fake spend money to rack up points on a credit card easily.
Just as we are here to invest in RE there are people that put the same kind of energy into finding a deal elsewhere as you or I put into RE. There are also people that live way beyond their means and buy stuff they can't afford... but unless you were to audit someone you'd likely not really know the difference.
Investor · Denver, CO · Member since 2016 · 736 posts · 582 votes
9y
Every day during the week, I take an hour walk at lunch. There are trails here that go through the neighborhood. Every house in the area is about $1.2 million plus. I constantly see work getting done on these houses - rehabilitating the tennis court, tearing out and replacing the back "sitting area", etc., etc. I don't know if this is something the HOA makes them or not. It's an awesome area.
I keep asking myself "how can I?"
Ten or 15 years ago, these were $300,000 homes. I suspect since Denver (and the Bay Area) has been such an appreciating market, a lot of these folks "catch the wave". They start with a smaller home, then they trade up, trade up, trade again, and keep at it that way.
Then there are the folks that are in occupations where they need to entertain so they buy these homes to entertain and try to get ahead.
Then there are the folks that have the money and always have. They're the ones I see walking around in Rockport shoes, faded jeans, and t-shirts. These are the folks I wonder about...and always ask myself - "how did they?"
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
9y
Compare yourself to yourself. People will always talk about you or be jealous. Who cares. If I want an expensive house and can truly afford it, I am buying it. Not going to apologize for being successful.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
Everyone has to keep up with the Jones. Me, I will live in my sub 500K house, and provide nice rentals to families that live paycheck to paycheck. The only difference between them and myself is I live rental income check to rental income check:)
As far as the Ferraris, etc I just make sure I have friends that have those so I can look cool in the passenger seat.
Make no doubt about it: some of those people in the 1M houses lose sleep wondering how they are going to pay their bills.
Investor · Anchorage, AK · Member since 2016 · 222 posts · 294 votes
9y
@Account Closed Yeah man, every time I see those people I think "what idiots" lol. The Millionaire next door also changed my perspective as well... awesome read!
Rental Property Investor · Cleveland, OH · Member since 2016 · 653 posts · 769 votes
9y
If you've got the money then do whatever you want. Right on @Peter Tverdov , no need to apologize for being successful.
It's not a problem that I've had to deal with yet, but I like the idea of actually renting high end property. You can rent a respectable mansion in many cities for 10k a month. If it's got a 2M price tag then you're probably still be spending about the same in interest and taxes. Not to mention those houses are much harder to sell when the time comes.
Seems like a lot of folks I've come across would rather rent, even if it's 10-20k a month to not tie up their money and deal with the headache. As always in REI, just depends on what your goals are!
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
9y
Not all are investor minded. If you want to live a frugal life just to pocket a few hundred a month cash flow, it's your choice. Others are happy with earning 200k combined income. A 1M is only 5-6k a month with a 3.5% down. Instead of throwing it all into taxes and rent, they get tax shelter benefit along with Prop 13. After all, they get 100% retirement match, so their 200k income at 6% + 6% match comes to 24k/year in savings, plus tax savings and equity build. At end of 30 years, they could have already gotten the house free and clear, plus the 750k plus whatever they saved, to live the next 20-30 years, if they are smart, they will simply start taking equity from the house to live a normal life. They are of course living like clockwork normal, get to travel as they please, and not get stressed when a water heater blows up (maybe a $600 fix ticket) on a rental thousands of miles away earning 100/month and half year income is gone. I'm pro risk big and earn big, it doesn't matter to me what route i take, and normally i have a total 10-20 hour work a week, as long as I make my 120k a year, I'm happy. No rent income/investment at my level of investment will yield that. Mind you I started with 20k and no credit 3 years ago. Nurses and other high risk/high pay jobs already have enough stress at work, they don't need the additional stress of a rental.