Your Overpriced Home or Your Life

When I was younger, I always imagined having a huge, beautiful house to call my own. However, as the years went by that dream started to fade. I started doing calculations and couldn’t quite understand why someone would sign up to be put in shackles for 30 years.

You see, in the Bay Area, homes are ridiculously expensive. For $600,000 you can get a starter home on a street where gun fire will be heard every few months. Seriously someone was stabbed to death and another shot to death on my street this year. So if I want to avoid getting shot, I’m looking at closer to $1,000,000+. Going a little north, the average home price in Palo Alto is $2.5 million. In my opinion, that’s too much to live in the nice part of San Jose.

After three years of extreme saving, we would have enough for the down payment. Our mortgage would then be close to $4,000 per month, plus $10,000 per year in property tax and don’t forget maintenance fees. This is a lot of money just for a place to sleep!

Is it worth paying $5,000 per month for 30 years for a house?

Hell no.

Even if you can afford this, why would you want to? The money can always dry up. Why survive when you can thrive?

So for the past few years it’s been decided that we will not buy a house in the Bay Area unless there is a huge drop in prices.

But should we buy a house at all?

My wife and I have gone back and forth on this since we first started saving for our early retirement. The last few years we have toyed with the idea of renting forever and living the perpetual traveler lifestyle. Our friends at Go Curry Cracker are big fans of this and it’s hard to poke many holes in their arguments.

How do you know if you should buy and when you should rent?

There are thousands of articles on this topic so I won’t cover in too much depth. But my summary is this: Buy only if it’s similar or cheaper than renting and you plan to stay in that area for many years. Having ample savings and a steady income also come in handy.

That takes San Jose completely out of the picture for us. Not only do we not plan to stay here forever; it’s also way cheaper to rent than to buy here. You can rent a small house for $2000 a month but you can’t buy one for that price! And in tech, you never know what day will be your last.

Much of the reason I live in San Jose is for the excellent job market. But would I live here if I didn’t have to work? Absolutely not!

I’ve been blessed to grow up with California weather. But there are many worldwide locations with incredible warm weather. Southeast Asia, much of Central and South America and parts of Europe to name a few. So without its’ amazing job market, the Bay Area isn’t all that impressive to me. It’s simply is a concrete jungle providing golden handcuffs.

So where would I live if I didn’t have to work? The answer may be, back in my home town of Jackson, CA.

It’s funny that many people hate where they grow up. I had a paddle boarding instructor in Santa Cruz tell me how growing up in Hawaii was so boring. I know people in Los Angeles who need to move to San Francisco and visa versa. A few friends of mine who grew up in Cupertino can’t stand going back. Meanwhile their parents’ home values shot through the roof from all the sheep flocking there for the “good school district” and proximity to Apple’s campus.

I also loathed my home town growing up. My entire county had a population that was less than my college. From high school, my dream was always to get away. And I went away. I’ve been away since I was 18. But I kind of miss it. And I want to go back.

The more we consider the lifestyle we want to live after early retirement, the more we realized we want a home base for 3-9 months a year and travel the rest. Jackson is perfect for this. The homes are inexpensive in comparison to the Bay Area. We could buy something respectable for $250,000 today. And with some patience and luck I think we could find something for around $200,000. I’ve also considered buying twenty acres right outside of town and building a house. A good way to guarantee peace and quiet.

This is also a sweet spot for The Millionaire Next Door type lifestyle. Many of these people buy a reasonably priced house and live in them forever. I never liked the term starter home. If I’m going to buy a house, I would like to keep it forever. And without plans for a big family or massive mortgage, this plan keeps our early retirement dreams alive.

This article has 11 comments

  1. getrichquickish Reply

    Hey, a new post!

    “The money can always dry up.” That prospect has me terrified of debt. I’ll buy a house again, but it won’t be in the Seattle area for the same reasons you mentioned. When we do buy, it will be a home that’s well below what the bank tells me I can afford. It will be a modest home that I can improve upon over the years, and will have a decent lot (although not 20 acres – that would be awesome!)

    Hope you keep posting – you write well!

  2. Ms. Montana Reply

    We love to travel, but with little kids, it’s great to have a home base. We live in a great area to sublet our house if we wanted to be gone 3-6 months. Beings we paid cash for our house, it’s an affordable and easy option for now. But I am totally with you in that I will never take on a mortgage so big that I HAVE to work for 30 years. At this point, if I can’t pay cash, or pay it off in 5 or so years, I’m not really interested.

  3. Penny @ She Picks Up Pennies Reply

    We bought one town over from where we intended but in a subdivision zoned for the original town’s school district. Schools are consistently ranked as some of the best in the state so our property values have been consistently strong. But because we’re technically one town over, our house is decades newer for at least $100k less. Housing is weird. And really important to understand. I’m so glad we don’t have to contend with the prices in California. After ripping out tile and baseboards ourselves, I told my husband I intend to die in our house…if it doesn’t kill me first 😉

  4. OB @ Out of State Investor Reply

    Great post Steve! Living near the beaches of LA, I can completely relate. Right down my street, new town homes just sold for a million! One can rent for far less around here as well instead of buying an over priced property. The only houses I own at this point are actually investment properties out of state. They cash flow, bringing in passive income each month so that one day my wife and I will be able to travel abroad.

  5. Fervent Finance Reply

    I would only own a home in a lower COL area for many of the reasons you mentioned. I like the idea building on 20 acres. I grew up in a really rural area of New England and that hits home. If you get lonely, go travel for a month or six and that’ll get out of your system real quick 😉

  6. her every cent counts Reply

    As you know, I share many of your thoughts on cost of housing in the bay area. Mr. HECC and I plan to have children so we have to keep that in mind regarding location – if we weren’t having kids (and who knows, maybe we won’t) then we can move anywhere. But with kids you have to think about a stable job / good job market if you get laid off and good school districts. Even though one can get laid off in tech at any time if you have skills you can also get a new job at any time. It may not pay as much as the last one – but there’s always a company desperate for experienced talent. Once you get in you can keep yourself employed unless you’re really just awful at your job. Even if you can’t get full-time you can surely land a consulting gig for a while. I’m trying to help my sister find jobs in another part of the country and the job market is pretty dire. I also don’t think the bay area is a concrete jungle – I love living here because any given weekend I can go to Big Sur, Monterey, Santa Cruz, Tahoe, Carmel, Point Reyes, Sausalito, Berkeley, SF, Oakland, or any of the local parks that are more impressive than many of the state parks back east where I’m from. Yes, there are other places in the world that have a lot going on – but this is a special area, at least for me. I don’t want to move away but I may have to. I’m trying to find a place where I can move and haven’t found one yet. Subject for another blog post of my own. Thanks for sharing your thoughts!

  7. Steve @ Think Save Retire Reply

    Though I bought my first home in a very low cost of living area, I still regret that dreadful decision. I lost nearly $100,000 over the years on that house, money that I’d have in my pocket today if I had rented instead. Of course, I had rented apartments for years prior and I wanted to try something different. I did, and I lost big time. Of course, I also happened to buy a house right before the mortgage crisis…or whatever the hell that all was.

    We did buy our Airstream outright with cash, but we don’t plan on owning another piece of property for a long, long time – perhaps ever. Homeownership is much, much more expensive than most people think, and it’s just a headache that I don’t want. Unless I’m buying an investment property that I can rent out or something, I don’t see homeownership in my future.

    Nice post!

  8. Megan Reply

    Steve, I’m loving all of your posts! Isn’t it funny how you miss home after a while. Look towards Amador City if you want to move back, that’s where we’d like to retire someday. Congratulations on all of your success!

  9. Why I Don't Own Real Estate - Steveonomics Reply

    […] Real estate is simply too expensive of a decision to make in my younger years. I love to travel and haven’t found a place I would willingly settle down in for more than say, five years. This is also why my wife and I don’t own any pets. Where would we stick Fido and Fluffy when we decide to move to Madrid to study Spanish for six months? […]

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