Should I build a house in the bay area?
“Probably not unless you have most of the cash ready to part with”
Absolutely and well put! “On the house” thoughts are below.
I think at a minimum you need more hard available cash in the budget and some very strong calculations on monthly costs. The financing portion is particularly scary as it is predicated on a lot of factors such as your continual employment, rates, and bank willingness to lend.
The costs of the build also extend to your costs prior to your “COO” certificate of occupancy / when you can move in. To further calculate things, you need to factor in opportunity cost as well, in the form of the time value of money (TVM). A building project also costs your time and energy.
Also absent from the conversation is the cost of furnishing a home which is another cost creeper. Some blinds, few pieces of furniture, and a wooden Pottery Barn bowl can get to $20K pretty quick. Insurance, water, sewer, electric, gas, trash, internet, and minimal average maintenance cost (whether it is you or someone else) can easily hit $1K a month on a 2,000 FT place.
I also feel a lot of clients in the $500K income range with a big mortgage are not in a happy place. Reliance on dual income for 20 to 30 years is depressing, particularly with kids involved.
A “hack” is to compromise on location or finishings. Not an option for you at this point, but you can always be open to it. Starting with a low property base assuming no major improvements that warrants a reassessment is helpful. For example if you get a $1Mil property, the tax is about 1% + so around $11,000 a year. You could fix it up a bit without an assessment. Contrast that with a turn key $1.5 Mil new house = $16,500 in taxes alone.
Finding an angle or hack is very much unique to the purchasing family. Some people are handy and can make more time. Some have rich family to help make it work (“must be nice!”).
The key is likely fit for what you and your wife value. And have it to be sustainable with a calculation grounded in the reality of property costs and everything else.
The high relative monthly payments and taxes on a turn key can really be crushing unless the numbers and lifestyle shake out.
I would hate for you to go alllll in just to have a massive monthly cost. Going all in is all cash, stress, and maybe some family help.
Now, the flip side is that if you don’t do anything you risk being priced out for good, particularly if your incomes plateau should inflation continue to go up up up. So if you know where you want to live for (in my opinion) at least 5 years, then looking for affordable (to you) homes makes sense. You also get one big shot at CA family home ownership with preferential rates thanks to our financial system, so people buy. People also buy for the stability of schools.
When the cost to sell a home can easily be 5% (realtor, fixes, paying for closing cost) that fact alone tends to keep (trap) people into owning the same place for a while, particularly when prices are staying pretty flat.
I would recommend to work this all up as a financial model so you are confident in your decision. A home can be a bit of a forced savings account where people forget about all the costs along the way, so it really can work out in that sense. Should you go the no ownership route there is a much higher level of discipline required to make the math work that revolves around the family budget / saving / lifestyle.
In other words, home ownership tends to force people to eat at home more, travel less, etc… due to the costs. An amortized loan is also reduced with each payment so equity can build generally speaking.
Keep working the figures and let me know how things go!!!
It is amazing the different factors of location, style, size, quality, lot size, and even ceiling height. For us we are close to a busy road so noise can be a concern and we don’t have a sidewalk! One foot in the countryside with septic. And a fire hazard zone. Just some things! But hey, we do have our yard and proximity to surf.