Buying A Home In The San Francisco Bay Area On $75,000 A Year

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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! 🙂

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  1. I think the key word here is “single” more so than “realistic”. We’re married with one kid and its much, much more difficult. (I realize, of course, that this difficulty is a consequence of the choices we’ve made.) Add a second bedroom onto that condo in the East Bay and things get more out of reach. Now add that in a neighborhood with a reasonable (not perfect) crime rate and decent (not perfect) public schools and it’s completely out of reach on $75,000 unless you want to commute for 90 minutes each way or save up a down payment for 20 years.

    We’re saving (and making a bit more than $75,000) but it’s still tough. Our goal is to use the higher salaries out here to build up our down payment, and then move out of state. We’ll be able to build equity almost as quickly and we’ll get more for our money (like 2,000 square feet in the suburbs). And we’ll be less likely to get burned (or at least, less severely burned) by a bursting bubble. Eventually we’ll move back with a very large down payment and higher earning potential.

  2. This hit strikingly close to home for me. My salary’s only 2k more than the example’s and the housing market here in Northern Virginia is in just about the same price range. I still have those big house dreams, but it’s more likely to be my 2nd or 3rd house I live in than my 1st.

    I’ve been renting since I moved here and had planned on doing so for quite some time ..longer than I really wanted too. Thanks for the write up, that 3-5 year savings sounds manageable and can definitely cut down on my house payments than the small amount that I have on hand now.

  3. My friends bought a house in the East Bay on even less. Their house was small, 2BR, and they rented one room out until they graduated. But not everyone can handle that commute, trust me!

  4. Thanks I enjoyed this case study. I’m graduating from college with an engineering this May and am trying to figure out the whole financial balance situation many graduates face. With student loan rates at 6.8% now, my goal is to pay all that off ASAP, then work on saving like crazy for 3-6 years, maintaining my frugal college-like lifestyle, to put down a huge chunk of money for a house. Sure it would be nice to not have to use my 4-year old college microwave but a little here and there helps.

  5. It’s a good, simple formula. One thing though – moving to the East Bay isn’t exactly a “downgrade”. It’s a beautiful, vibrant area with better weather and more parking than San Francisco! I moved 3 years ago and love it here.

  6. Didn’t mean to bash the East Bay 😉 It’s the only place I’ve lived down there, and the weather if you live nearish the bay is definitely better than chilly SF. Go 510!

    I meant that it’s a downgrade in terms of commute and living near friends and familiar territory for many people. The e-mailer worked in downtown San Francisco, and used to live in the city.

  7. Lukas,

    My wife and I have a kid (18 months) but we still live like shit. We live in a 1 bedroom + 1 den. We are saving up for the downpayment for a home. Suffer a little now, enjoy a little more later. My 27 inch TV came out of a dumpster.

  8. OK, Jonathan – you’re off the hook 😉

  9. i should post an entry on my experience buying my place. i just turned 30 and bought my place in 2005 in the mission district of san francisco. with assigned parking and + $60k equity. in response to lukas’ comments, i always thought couples had it easier b/c they had two incomes and could share one bedroom and could save that much faster. like he said, when you make the decision to have a child, you are making a conscious effort to impact your savings potential, losing an income for a while and having to pay for expensive child care. buying a home in the bay area (and san francisco proper) is realistic, it just depends on whether you’re being unrealistic.

    i set myself a goal when i was 21 to buy a place before i was 30. i had $22k in student loans and a $18k car loan. i put extra towards the loans and saved everything else. i got raises and maintained my frugal lifestyle sharing a house with 3 other housemates. paid off the loans while my friends got season passes in tahoe, went out to bars, surfed in costa rica, hawai’i, etc. by the time i was 28 i bought a studio for just under $400k and put 10% down, 30 year fixed and still qualified for an MCC (mortgage credit certificate) with my income.

    i get tired of hearing excuses and complaints about how it’s impossible. sure, i wish i could afford a bigger place, a better car, surfed the breaks around the world and go for fresh powder every weekend but i made the decision to buy a home in san francisco and other people made the decision not to. instead i maintain good credit, do pot lucks instead of expensive b-day dinners, go for hikes in the beautiful bay area, and surf local ocean beach. just don’t complain that you can’t have it all.

  10. I don’t know the east bay market inside out, but I don’t think the prices there are not that much lower (if at all) than the south bay, where the majority of the jobs are. And the commute can be pretty bad.

    As for buying a place here, I know a number of people who went the interest only route. Which is probably how they’re able to afford the house in the first place. Anyone know of the pros and cons of this loan type?

  11. I’m sorry, I just have trouble with the idea that a tiny 1 bedroom “home” is worth Three Hundred Thousand dollars….. I guess San Fransisco just isn’t for me, eh?

  12. hello

    i think “realistic” is really key. i have a friend who is buying a home right now and it is incredibly frustrating for her and her husband. they are DETERMINED to buy in SF and nowhere else. i work in the real estate industry myself (i am a home stager) and listening to their price range i realize why they haven’t been successful in their searches… they want at least 2 br, 1 ba, a parking garage in the city with no more than $700,000 TURNKEY. that is just not going to work. the interesting thing is that her husband is actually a licensed broker (but working mostly as an attorney). i would think that they will have more reasonable expectation.

    i really like this case study because she consistently focus in and realizes what best suits her for her needs and abiliity. then she sets a goal and makes it happen.

    i personally used to want to buy a home in sf really really bad. but then i started my own business, now i am more focus on investing money on a warehouse space rather then a home. (worse, i can always live in the warehouse, haha) but i have say that it’s a bit more rocky for a small business owner since the income is not consistent, especially in the early stages, making consistently $75,000 right now is out of the question. (my little company is just turning 1 year old!) my goal in 5 years is to obtain a 2,500 square foot warehouse with a storefront. but obviously not in SF due to the insane high prices. probably somewhere in the peninsula…

    i used to not making any goals at all, but frankly having a goal makes the “dreaming” part easier. because you start to visualize what you want for yourself and start to map it out in your head how you are going to get there. then it doesn’t seem so abstract to reach for it.



  13. If you are making a decent salary, don’t blame marriage or kids for not having enough leftover money. The real reason is YOU SPENT IT ON SOMETHING ELSE! You may think the spending on XYZ is mandatory but it is rare the case where you can’t find an alternative that’s cheaper.

  14. Yes, kids are not cheap. But my experience has been that getting married and having 3 kids on only my income has made us prosper. When I was single I didn’t really care about money — that is no longer the case. Because of my wife’s nagging I bought that house in the burbs in 2002. Just finished building the house I really want to live in and thank God, my old rancher in Sac is in escrow!

    In short, some think kids mean nothing but sacrifice. It ain’t exactly a picnic but I have all the material things AND I have awesome kids -and would actually like to have more. I don’t see how anybody can claim to “have it all” without kids.

  15. Kids are expensive for a dual-income family, no doubt. $10,000 a year for childcare is what I’ve been told.

    Interest-only mortgages seem very risky to me, but I do know people who have used them. If you are very, very confident in big future increases to your earning power, I suppose they could work. I don’t plan on ever using one myself.

    The point of this article is really that there are options out there that may not seem apparent on the surface in today’s society – namely saving patiently and looking for cheaper yet acceptable options. They aren’t options that many people want to hear, but whaddya gonna do. Oh, and don’t give up 🙂

    Cindy, I agree with your point about visualization. I still want a house and not a condo myself, so now I just need to visualize how much home repair I am willing to do myself…

    Good luck on finding your warehouse!

  16. We’re looking at homes in Hawaii… We work in Honolulu, and have been saving to buy a home somewhere in the burbs. The median home price is $650K or so, similar to the bay area housing market. We’re looking at condos for $500 K and 1500 sq feet homes for 1 million. It’s amazing, but we’re willing to pay that price to live in paradise…

  17. As a homeowner in the Bay Area I have a couple observations:

    1. If you aren’t going to live here long-term, just rent – it’s way cheaper and you’ll probably live in better conditions.

    2. Buy sooner rather than later. The idea of “saving up” a down-payment in the Bay Area is very difficult to do given the price of housing often outpaces your saving rate. Although sharing a place and saving is a good suggestion. I definitely agree with the idea of setting realistic expectations, your first home is not going to be your dream home.

    3. Interest-Only loans. Fixed-rate of > 5 years can be a great tool. Why pay priciple, your house will appreciate whether you give money to the bank or keep it in your pocket. IMO the only time you should give money to the bank is when you are extremely wealthy and have a significant portion of your money in conservative assets that earn less than the interest on your mortgage. A more important cosideration is when the loan will adjust and whether you will be able to afford the increases, refinance, or sell the house before that happens.

    Tackmi: You should consider fully funding a 401(k) and Roth IRA before you worry about paying off a student loan, that money is cheap and credit-wise its good to have an installment loan being payed regularly on your credit report. I consolidated my student loan to lock in the rate and scheduled it for 10 year repayment.

    Low cost debt is a good thing, its a great tool to become wealthy by investing in your retirement and real estate. Everyone should become very comfortable with debt that they can service.

  18. Are you people in SF all insane? In Michigan for 500K I can have a 3500 sf brand new home on 5 acres with a pond and tennis court. And my commute to work will be about 20 miles which will take me 20 minutes. I will also have enough money left to visit SF when it is cold here in February.

  19. V – there’s a good chance that you won’t get the same salary in Michigan. Also, most people live in San Fran for the amazing and varying culture, so the cost is worth it to them. Obviously they aren’t all stupid, in fact, given the location of Silicon Valley, you could even say most of them are the smartest people on the planet ;o)

  20. sfmoneymusings says

    My aunt, her son and girlfriend bought a condo in an East Bay suburb for $330K. My aunt and her son combined make around $60-70K. They decided to buy because they were paying a similar amount renting in another suburb. And definitely the first purchase isnt going to glam … their condo is tiny and very run down but it’s a home.

    SF is an incredible place to live as some commenters have pointed out. The culture, the arts, the music and it’s a great walking city make it very desirable. As much as I complain about how expensive it is. you can’t beat the weather, well not right now with all the rain and hail. just don’t rent on a hillside where rain will make it prone to mudslides …

    But you have to really live below your means to survive … that means either eating out less or cut back on big ticket items. Or you can make more money …

  21. “2. Buy sooner rather than later. The idea of ?saving up? a down-payment in the Bay Area is very difficult to do given the price of housing often outpaces your saving rate.

    3. Interest-Only loans. Fixed-rate of > 5 years can be a great tool. Why pay priciple, your house will appreciate whether you give money to the bank or keep it in your pocket.”

    The date-stamp on your post says 2007 but your advice is straight out of 2005. The US housing market is starting to crash hard and a big part of the reason is interest-only loans and ARMs, which people got 3-5 years ago and are just now resetting. Foreclosures spiked last summer and prices have been declining ever since. I don’t know about the Bay Area specifically, but I highly doubt it will be immune to the correction since it is one of the least affordable markets in the country. If your house-buying strategy is dependent on prices going up 5-10% annually forever, you shouldn’t buy a house. The good times are coming to an end.

  22. In 1999, SF was such a great place to live with great weather, culture, food and median housing price was $375k

    In 2007, SF is still a great place to live with great weather, culture, food and median housing price is $750k

    Hmmm… i think it’s something else that caused doubling of price.

    Population growth? No, population declined from 776k to 740k
    Job Growth? Not really, 2006 job for SF Bay Area: 979k ,1999: 1,071k Source:
    Income Growth? Puny growth after inflation according to the census (Up from 55k to 57.5k)

    So why again does housing price double in the last 7 years?

  23. As a new East Bay home buyer here are my observations:
    – Bay Area home prices are very high in general. I have been saying this since I moved here in 04.
    – They have been correcting since fall 06.
    – New home builders have been offering good incentives lately. (About 75000 on a 875000 house [-8.5%], 10% on more expensive homes.)
    – My personal forecast is that they will remain flat to slightly lower for the next 5 years. But I dont think anyone can really predict anything with any accuracy.

    As with any home…only buy what you can afford with a 30-yr fixed mortgage.

    Jonathan, have you already moved here? Maybe we should meet up :-p

  24. People have been whining about how expensive the Bay Area is since the 60s and 70s… That is the long-term trend 🙂 Same thing in Manhatten, and other small regions of the country where people want to live.

    The weather is fantastic, the people are well educated and entreprenurial, crime is low, you can drive to the mountains to ski and to the beach to play in the sand, the schools are good, the universities are excellent, there is great diversity, culture, art, sports, there are a lot of positives!

    Has the housing market gone too fast too quick – Yes, definitely on a National level. Low Interest rates, Pay Option Arms (Neg Am Loans), and other factors have set people up for failure.

  25. NapoV – I have the answer to your question, it’s quite simple, and I’m sure you will agree. Why did housing costs double? Because generally speaking, there is a limited amount of housing, and… here it is… people are willing to pay it. People are WILLING to pay that amount, so naturally the market will accept that (gladly). After that, the discussion comes down to value (location, weather, culture, etc.).

    Why do tiny closets in the Upper East Side of Manhattan cost $1 million, when the same thing across the river will cost you less than 10% of that? Because there are people out there who have the money and are willing to pay it. If enough people couldn’t afford those 500k homes in SanFran, obviously they wouldn’t cost that much. C’est la vie. 🙂

  26. anonymous says

    75k doesn’t go nearly as far as it does in most other places in the country. On top of the insane housing prices, taxes are high. The bar for the highest marginal rate is set pretty low so most people are paying 9.3% for state taxes. (California also has no special provisions for long term capital gains, so you pay the full marginal rate.) Sales tax in the Bay Area is 8.25% in most places so you get dinged everytime you buy something. California also has stricter standards for fuel and virtually no refineries so we gouged at the gas pump (plus taxes on gas). And if you do manage to buy property at these astronomical prices, don’t forget about the fact that you will pay high property taxes and probably a lot in insurance costs. At these prices, in some cases, the cost of property taxes + insurance + maintanence costs will be equal to a year’s worth of rent. Higher salaries to (attempt to) compensate for the cost of living also tend to push you into a higher federal tax bracket. If you look at one of those cost of living tools online that show you what kind of purchasing power your salary really translates into for the Bay Area, the result is really sad.

  27. Sorry but most everyone I know makes between 85-110k. We are dual income 200k in MI and live like kings even with 3 kids. Love to travel with them at least every other month.

    Being mortgage-poor with 2 hours / day commuting public or car isn’t my idea of fun.

  28. Chris H. says

    My fiancee and I live in the Washington, D.C. area and we recently bought a 1BR condo. I know exactly where this discussion is coming from. At first we decided that we wanted something in the city close to the Metro that was at least 900 sq. ft. After looking around and finding nothing in a decent area for under 400K, we realized that we were being unrealistic. Instead we decided to look just a couple miles farther out in MD. We are able to find a 930 sq ft condo right on a metro line in a very good area for 340K.

    After that experience, I can say that buying a home is certainly a matter of having realistic expectations. We got almost everything we wanted by making a sacrifice of only 5 miles. I know that in relation to prices in SF that doesn’t seem like a lot of money, but keep in mind that we are only 23 years old! My hope is to move into a larger place by the time I am 30 or so. Where there is a will, there is way!

  29. fan,

    As I pointed out, there is no job growth in the Bay Area between 1999 and 2007. There is NO population growth in San Francisco (population actually declined in SF) and there is only minimal income growth. Assuming stable household size, that limited supply of housing in 1999 did not get any worse by 2007, but price still doubled.

    Hmm, methink is the lack of lending standard (Stated Income Loan ie Liar Loan), agglomeration of exotic loans ($600/month Option ARMS loan) and low interest rate (Greenspan cut to 1%) didnt hurt.

    People who had no business buying a house bought one. How could someone at $75k afford a $750k house without a big DP or the help of exotic loans. (and Big DP means opportunity loss of interest earnings)

    Everyone is making lots of money in SF!! False, affordability is less than 10% using the standard 28% mortgage payment to income ratio at 20% DP

    They are not making anymore land! False, everyone can always build UP. Look at the condo building craze in the city.

    RE Price never go down! False again, look at Japan between 1990 – 2005. They did have a similar exotic loan, the 100-yr 3 generational mortgage during the peak of their real estate market.

  30. Referring to the OP, what’s missing is PITI calculation vs. renting

    For Apple to Apple comparison,
    The cost of interest, loss interest from Downpayment, Prop Tax, Insurance, HOA fees and Maintenance, offset by tax benefit, is money going down the toilet.

    (and I am ignoring closing cost for now, which could be substantial, and thus needs to be amortized over the life of the homeownership)

    Rent is money going down the toilet

    That $300k (now $350k) 1 bed condo is probably renting btw $1000-$1200 in the East Bay

    Do you think her cost of ownership is lower than $1200? Doubt it.

  31. Many people today live beyond their means, or want to live in an affluent area without sacrifice. I have known several friends who had no problem with living near areas like San Francisco who have had the same or less salary than the above. How can this be done? Impossible you say? Not in the least. It’s how you look at the situation. They bought nice RVs with slideouts, and commute via their car to work from the RV park. No mortgage, no expensive rent. These are not cheap looking trailers, some can range well over a million dollars. This won’t work for many, especially those set in their ways or that have to have a house.

  32. Hey, me too. I bought a 1300sf 2br 2ba condo in suburb-tastic Sunnyvale as a single woman, and I paid $415k on $82k salary.

    The gotcha is this was 4 years ago, and I wouldn’t be able to afford this exact place today on that salary since it’s now worth around $600k. But you can definitely take on a pretty decent debt load with a “low” salary (for this area) if you pay a good chunk down. You just have to hold your breath through the first year of “Why on earth did I pay $415k for this place?” until your place appreciates enough to make you feel smug…

  33. To the newly minted engineering grad, who wants to pay off his student loan first-DON’T. The interest is tax deductible up until a certain salary level. Just pay the minimum and continue to reap the tax benefit on the interest, as long as you can. Use the extra that you would normally plan to pay toward your student loans towards saving for a house. This way you will leverage this tax advantaged debt to save for a house.

  34. WOW… came across this in my research, I bet this case study person is kicking herself now, it’s 2010, the bubble burst and that condo is probably worth half of what she paid!
    I made the mistake of buying an “investment” property back in 2004 in West Sac as a means to build equity for a home in the Bay Area, HA! that house is worth more than 100g’s less than what I paid in 2004 and the rent doesn’t cover the mortgage. And since i don’t live in it I can’t refi-or restructure. So I’m stuck with it… Now of course I’m married and have an 19 month old and we’re paying someone else’s mortgage in rent. We are starting to look at homes now that the market is down in semi-affordable range. But even with a budget of 450-500,000 we still find that it’s hard to find anything worth buying. The Bay Area sucks, plain and simple. It’s family hostile and only for the super rich or the super independent single who’s focus is on work and not family life.
    I make almost twice what your example makes but have the responsibility of a family, which means the considerations of a home are beyond an ‘investment’ (which doesn’t really exist anymore) but things like crime, schools, weather, commute, neighborhood, air quality, parks, plus insurance, school funds, childcare (or my wife not working) etc…
    All that said I am saving for a down payment, and cutting back where we can, even paid off our cars to put those payments into savings etc..
    But it is by NO means an easy task in the Bay Area. In fact the ONLY people I know who own homes are ones who’s parents either helped them buy or they bought them from their parents…

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