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But the rest of your expenses are not 9x in SV. If you saved 2k a month on housing someplace else, but got paid 48k less, you'd be losing big time, especially s

But the rest of your expenses are not 9x in SV. If you saved 2k a month on housing someplace else, but got paid 48k less, you'd be losing big time, especially since mortgage interest is tax deductible.

froindt 10y ago
The deduction also phases out based on your income, and if your mortgage is over $1,000,000. These are both more likely to be a reality in SV over most other places in the US. On the surface, you would be missing out with those numbers, but we have to look at the whole picture. There is no equity gained in a house if you're renting while saving up for a downpayment. Let's look at San Jose vs Des Moines and use the overall median downpayment for comparison. # Assumptions We'll go a bit conservative here. San Jose developer pay 2k/month more in rent than the Midwest developer. San Jose developer will earn double the base salary (not a mere 48k/year more as suggested above.) Outside of housing, the cost of living in both cities is identical at 20k/year. 20k will give you quite a good life in the Midwest as a single person. No idea about the valley. # Midwest developer living in Des Moines, IA: $80,000/year salary (about 57k after taxes) 2 bedroom apartment in a safe place can be found pretty easily for under $900/month. 1 bedroom for $750 or so. No roommates. Perhaps a 20 minute commute to work. Rent = $900/month = $10,800/year Other Living Expenses = $20,000/year Leftover money = 2,200/month = 26k/year 18 months of saving at that rate to get to the median down payment (39k). Money sunk into rent before getting any equity in a house: $39,000 # San Jose developer: $160,000/year salary (about 105k after taxes) Rent = 2,900/month = 34,800 Other Living Expenses = $20,000/year Leftover money = $4,183/month = $50,200/year 46 months until you have the $192,000 down payment ready, assuming housing prices stay the same. Money sunk into rent before getting any equity in a house: $133,400 # Result When the San Jose developer buys a home (assuming the median downpayment didn't go up in those almost 4 years of waiting), the Midwest developer stopped paying rent (11k/year) and was paying down their mortgage with that 11k and the leftover money of 26k/year, totaling 37k/year. Neglecting mortgage interest because I don't want to calculate that, the Midwest developer put 86k towards the 192k house after the downpayment. Total equity for Midwest developer: 86k+39k = 125k. Total equity for San Jose developer: 192k. Yes, the San Jose developer has more equity in the end, but we also assumed: * Identical cost of living * The housing prices in both cities stayed the same until San Jose developer had their 192k. That will be pretty true in the Midwest, but may not be in SV. San Jose may not have a huge commute, but other areas of SV would. We didn't even look at the fact that the Midwest developer isn't spending 1-2 hours each way going to work (numbers I see cited here frequently). After tax estimates are based on this calculator: https://smartasset.com/taxes/income-taxes#347zLoGvwJ https://smartasset.com/taxes/income-taxes#347zLoGvwJ
- sjg007 10y ago
  You can put 3% down. You get PMI for 2 years at the minimum but you can pay more to get to 20% down and then PMI is based on the value of the loan. In the Midwest this turns out to be very cheap. So you don't have to rent for very long.. if at all. That being said it may be difficult to get significant appreciation on your house like one gets in SV.
- jjeaff 10y ago
  You also have to add into that the fact that almost everything is in fact more expensive in SV. Not 9x more, but groceries are nearly double what they would be in the midwest. Restaurants are more than double for similar quality. So the other living expenses being the same would not be the case I think.

froindt 10y ago

The deduction also phases out based on your income, and if your mortgage is over $1,000,000. These are both more likely to be a reality in SV over most other places in the US. On the surface, you would be missing out with those numbers, but we have to look at the whole picture. There is no equity gained in a house if you're renting while saving up for a downpayment. Let's look at San Jose vs Des Moines and use the overall median downpayment for comparison. # Assumptions We'll go a bit conservative here. San Jose developer pay 2k/month more in rent than the Midwest developer. San Jose developer will earn double the base salary (not a mere 48k/year more as suggested above.) Outside of housing, the cost of living in both cities is identical at 20k/year. 20k will give you quite a good life in the Midwest as a single person. No idea about the valley. # Midwest developer living in Des Moines, IA: $80,000/year salary (about 57k after taxes) 2 bedroom apartment in a safe place can be found pretty easily for under $900/month. 1 bedroom for $750 or so. No roommates. Perhaps a 20 minute commute to work. Rent = $900/month = $10,800/year Other Living Expenses = $20,000/year Leftover money = 2,200/month = 26k/year 18 months of saving at that rate to get to the median down payment (39k). Money sunk into rent before getting any equity in a house: $39,000 # San Jose developer: $160,000/year salary (about 105k after taxes) Rent = 2,900/month = 34,800 Other Living Expenses = $20,000/year Leftover money = $4,183/month = $50,200/year 46 months until you have the $192,000 down payment ready, assuming housing prices stay the same. Money sunk into rent before getting any equity in a house: $133,400 # Result When the San Jose developer buys a home (assuming the median downpayment didn't go up in those almost 4 years of waiting), the Midwest developer stopped paying rent (11k/year) and was paying down their mortgage with that 11k and the leftover money of 26k/year, totaling 37k/year. Neglecting mortgage interest because I don't want to calculate that, the Midwest developer put 86k towards the 192k house after the downpayment. Total equity for Midwest developer: 86k+39k = 125k. Total equity for San Jose developer: 192k. Yes, the San Jose developer has more equity in the end, but we also assumed: * Identical cost of living * The housing prices in both cities stayed the same until San Jose developer had their 192k. That will be pretty true in the Midwest, but may not be in SV. San Jose may not have a huge commute, but other areas of SV would. We didn't even look at the fact that the Midwest developer isn't spending 1-2 hours each way going to work (numbers I see cited here frequently). After tax estimates are based on this calculator: https://smartasset.com/taxes/income-taxes#347zLoGvwJ https://smartasset.com/taxes/income-taxes#347zLoGvwJ

sjg007 10y ago
You can put 3% down. You get PMI for 2 years at the minimum but you can pay more to get to 20% down and then PMI is based on the value of the loan. In the Midwest this turns out to be very cheap. So you don't have to rent for very long.. if at all. That being said it may be difficult to get significant appreciation on your house like one gets in SV.
jjeaff 10y ago
You also have to add into that the fact that almost everything is in fact more expensive in SV. Not 9x more, but groceries are nearly double what they would be in the midwest. Restaurants are more than double for similar quality. So the other living expenses being the same would not be the case I think.