4 ms·

I remember 2002 and 2003. And 2008. You're right. These are real worries for real people in the real world. Let's ground this in more realistic numbers: you ca

by Kalium 6y ago

I remember 2002 and 2003. And 2008. You're right. These are real worries for real people in the real world. Let's ground this in more realistic numbers: you can reasonably buy a $500k residential property in the SF Bay on a single $140k salary. That's a salary that's very achievable for a senior engineer - which is to say five years of experience, which many will hit by 30. It's one that you can keep getting when you hit 35 or 40 if you don't move into management or technical leadership so long as you don't insist on working solely for startups founded recently by 20-somethings. It's a pay packet that will enable you to rid yourself of student loans in relatively short order, should you choose to do so. The nice thing about the "the tech industry" is that one name covers a shockingly diverse swath. I've seen personal finance, business finance, high finance, business services, medicine, consumer electronics, and more all under the name of "tech". They are not nearly are industry-correlated as calling it all "tech industry" might lead someone to think. Often they have little in common with one another except using a bit of Python or Ruby. With that in mind, and that any property appreciates in value over enough time (or at least is exceptionally unlikely to lose significant value in the SF Bay), we've got a scenario where of 0-4 concerns, only #2 is really a big one in this new world of remote work. 0 and 1 aren't big issues, as mentioned previously. 3 isn't a huge deal - you're sitting on an asset in which you have a non-trivial chunk of ownership that you can use. 4 is a universal issue that will arise in literally any scenario where you don't have 1%-grade resources, and no change of location (or income) will fix that. Your concerns are wise, and clear-headed. I applaud your foresight and caution! I think it just might be possible that grounding numbers in reality might change the calculations slightly.

TuringNYC 6y ago
Thanks for your very logic take on this. I'll admit that many in my "generation" 2000/2001 grads (and also 2009 grads in NY) gut burnt and have a different risk-reward outlook in life. I think that explains some of the differences. What you say is highly logical and models well with the current state of the world. However, it doesnt model unknown unknowns. The problem with modeling unknown unknowns is that you remain in a constant state of fear of what might happen, even though in the base case you would be OK -- so again your viewpoint makes sense. However, I myself, cant stop thinking of unknown unknowns. Two that worry me (not worry me crazy, just worry me enough not to buy an expensive home in SF) are: - What if tech jobs go remote and SF property prices stay constant? Now you dont get the appreciation you are expecting. Also, now, wages are stagnant or reduced with the large pool of workers across the US willing to work for less. - What if the "burn down tech industry" segment of politicians win power (or cabinet influence) and create all sorts of punitive laws? - What if we allow a lot more highly-skilled immigrants into the country (generally, i'm in favor of this coming from an immigrant family, but it cannot be denied that there would be a 3-5yr blip downwards in wages as the industry re-calibrates to more efficiently use all resources, including eventually creating net new jobs) I'll give you three examples of unknown unknowns: 1. A friend in NYC purchased a simple 2family home and rents out the below unit to help pay the mega-mortgage. This year, there was a law that in many cases renters can defer rent (unlikely to pay it later, since it will obviously be a huge number.) Also, there is a moratorium on evictions. Also, the homeowner has to continue paying property taxes, utilities, heating, gas, etc. The model just went out the window. 2. A friend in 2009 -- outstanding performer -- was fighting to keep his job (along with a dozen other folks.) Suddenly there was a sexual harrassment claim (no witnesses, he said vs she said.) One person desperately trying to keep their job was the accuser, one was the accused. The accused lost his job. Took him 9 months to find a new job. Burnt thru his 6mo savings buffer. Increasingly desperate for a job, lowered his salary expectations and no longer earning $250k 3. Company is doing well. You are doing awesome. Making great buck. Suddenly, a corporate acquisition. New overloads bringing in loyalists. Bonuses cut for a year or so. Market is bad, stock grants are below what you got (Happens all the time). Dont want to switch jobs and be LIFO. You just went from $250 TC to $170TC. My point is not that people cannot make ends meet. They can. Also, we in tech have it pretty good. BUT I would agrue that there are too many unknowns and stresses to "just pursue your passion" as the GP post was saying. I mean, sure, if everything was covered i'd love to pursue my passion. But it isnt. Finally, you cant easily sell a home. 1. 6% real estate commission (if you put 20% down, you just lost 30% of your equity) 2. Title Insurance (1.5% depending on state) 3. Lawyers, fees, transfer taxes. 4. Bid-Ask spread. All in, selling a home, especially under duress, exacts ~7-10% cost depending on your tax jurisdiction. If you put 20% down, you just lost 33 to 50% of your equity.
- Kalium 6y ago
  I think you're right - our key difference is in risk tolerance. You can choose to minimize your risks to maximize your resources for dealing with unexpected events. This is absolutely, completely, and in every possible way a valid life choice! Validity does not mean free of consequences, though. I have several friends who live this way. They do their best to minimize every risk in their lives and maximize their spare resources. One thing they all have in common is that they never have enough saved to feel secure - there's always a bigger and scarier scenario that they aren't prepared for. Some of them even struggle to tap their "unknown unknown" funds in the event of genuine emergencies, because there's more that could go wrong and they need to be prepared. Choosing to be maximally conservative is a perfectly reasonable and completely valid life choice. The catch, perhaps, is contextualizing it and accepting that you will pay a price for minimizing risk. Otherwise there's the real risk that a person winds up forever paralyzed by anxiety, sitting like the world's smallest dragon atop a horde of pennies in case you might need them. And I think it's fair to say that that's not a portrait of your average college student or the future they envision.
- oivey 6y ago
  At least addressing #1, I think people underestimate the fact that renting property is a business. If making your mortgage is contingent on both income from your job and your business, that’s a pretty risky position to be in. I’m not sure it’s fair to blame the law on this situation. If his tenant lost their job due to the pandemic they wouldn’t be able to make rent, either. He’d need to go through the time consuming and costly effort to evict that person over several months. The pandemic is the problem, and even the absurd real estate market is susceptible to that risk.

by Kalium 6y ago

TuringNYC 6y ago

Thanks for your very logic take on this. I'll admit that many in my "generation" 2000/2001 grads (and also 2009 grads in NY) gut burnt and have a different risk-reward outlook in life. I think that explains some of the differences. What you say is highly logical and models well with the current state of the world. However, it doesnt model unknown unknowns. The problem with modeling unknown unknowns is that you remain in a constant state of fear of what might happen, even though in the base case you would be OK -- so again your viewpoint makes sense. However, I myself, cant stop thinking of unknown unknowns. Two that worry me (not worry me crazy, just worry me enough not to buy an expensive home in SF) are: - What if tech jobs go remote and SF property prices stay constant? Now you dont get the appreciation you are expecting. Also, now, wages are stagnant or reduced with the large pool of workers across the US willing to work for less. - What if the "burn down tech industry" segment of politicians win power (or cabinet influence) and create all sorts of punitive laws? - What if we allow a lot more highly-skilled immigrants into the country (generally, i'm in favor of this coming from an immigrant family, but it cannot be denied that there would be a 3-5yr blip downwards in wages as the industry re-calibrates to more efficiently use all resources, including eventually creating net new jobs) I'll give you three examples of unknown unknowns: 1. A friend in NYC purchased a simple 2family home and rents out the below unit to help pay the mega-mortgage. This year, there was a law that in many cases renters can defer rent (unlikely to pay it later, since it will obviously be a huge number.) Also, there is a moratorium on evictions. Also, the homeowner has to continue paying property taxes, utilities, heating, gas, etc. The model just went out the window. 2. A friend in 2009 -- outstanding performer -- was fighting to keep his job (along with a dozen other folks.) Suddenly there was a sexual harrassment claim (no witnesses, he said vs she said.) One person desperately trying to keep their job was the accuser, one was the accused. The accused lost his job. Took him 9 months to find a new job. Burnt thru his 6mo savings buffer. Increasingly desperate for a job, lowered his salary expectations and no longer earning $250k 3. Company is doing well. You are doing awesome. Making great buck. Suddenly, a corporate acquisition. New overloads bringing in loyalists. Bonuses cut for a year or so. Market is bad, stock grants are below what you got (Happens all the time). Dont want to switch jobs and be LIFO. You just went from $250 TC to $170TC. My point is not that people cannot make ends meet. They can. Also, we in tech have it pretty good. BUT I would agrue that there are too many unknowns and stresses to "just pursue your passion" as the GP post was saying. I mean, sure, if everything was covered i'd love to pursue my passion. But it isnt. Finally, you cant easily sell a home. 1. 6% real estate commission (if you put 20% down, you just lost 30% of your equity) 2. Title Insurance (1.5% depending on state) 3. Lawyers, fees, transfer taxes. 4. Bid-Ask spread. All in, selling a home, especially under duress, exacts ~7-10% cost depending on your tax jurisdiction. If you put 20% down, you just lost 33 to 50% of your equity.

Kalium 6y ago
I think you're right - our key difference is in risk tolerance. You can choose to minimize your risks to maximize your resources for dealing with unexpected events. This is absolutely, completely, and in every possible way a valid life choice! Validity does not mean free of consequences, though. I have several friends who live this way. They do their best to minimize every risk in their lives and maximize their spare resources. One thing they all have in common is that they never have enough saved to feel secure - there's always a bigger and scarier scenario that they aren't prepared for. Some of them even struggle to tap their "unknown unknown" funds in the event of genuine emergencies, because there's more that could go wrong and they need to be prepared. Choosing to be maximally conservative is a perfectly reasonable and completely valid life choice. The catch, perhaps, is contextualizing it and accepting that you will pay a price for minimizing risk. Otherwise there's the real risk that a person winds up forever paralyzed by anxiety, sitting like the world's smallest dragon atop a horde of pennies in case you might need them. And I think it's fair to say that that's not a portrait of your average college student or the future they envision.
oivey 6y ago
At least addressing #1, I think people underestimate the fact that renting property is a business. If making your mortgage is contingent on both income from your job and your business, that’s a pretty risky position to be in. I’m not sure it’s fair to blame the law on this situation. If his tenant lost their job due to the pandemic they wouldn’t be able to make rent, either. He’d need to go through the time consuming and costly effort to evict that person over several months. The pandemic is the problem, and even the absurd real estate market is susceptible to that risk.