Besides shopping at Whole Foods or Trader Joes, it seems like one of the major hobbies of young professionals in cities like Los Angeles or San Francisco is to complain that we can’t afford a house given our mere $50,000-$100,000 salary. It’s true. Housing is pricey. But every time I hear this lament, I think of the e-mail I got from a single woman who made it happen on $75,000 per year in the Bay Area. How did she do it?
She saved for a few years, and made it a priority. Sure, rent is high, but there is still a lot of fat in a $75,000 salary. By far, the easiest way to save money is to get a roommate. Your rent goes down by at least a third, utilities are cut in half, and if you get along you can save a lot in food. Even if you live by yourself, I would say that saving $10,000 a year should be possible, even on top of saving 10% towards retirement. If you think I’m insane, I would definitely take a look at your definitions of “needs” and “wants”.
She got realistic. If you grew up in the suburbs, you’ll may feel like living in anything but a 2,000 square foot ranch home is just not acceptable for a hard-working educated person like yourself. Nope. Homes like that cost $1 million here. First step, downgrade your size requirements. Her sights moved down to townhouses, and then to condos or even studios.
She got even more realistic. Still too pricey in the trendy areas. Time to give up? No, time to downgrade your location requirements. The East Bay is filled with workers that commute to either to San Francisco or San Jose every morning. She finally found a nice $300,000 1-Bedroom condo in the East Bay for which she paid $30,000 down. Since it was near public transportation, her total commute is a reasonable (for the area) 45 minutes door-to-door.
She’s got almost $100,000 in equity now. Fast forward to today, and her $300,000 condo is worth more than $350,000. Add in her down payment and the small bit of her mortgage payments that goes toward principal, and she’s got a good chunk of equity built up. If her career (and boyfriend) keeps moving in the right direction, her next property just might be that 2,000 square foot ranch home in the suburbs…
It won’t happen overnight, but from her I know that the now seemingly bizarre idea of saving for 3-5 years for a down payment really does work. There is light at the end of the tunnel. At least these days people are less likely to think “dude, I have to buy now or I’ll be forever priced out of the market”. You can save without pressure under the guise of waiting the market out… with me!