seriously considering silicon valley and grind it out a few more years for the paycheck alone.
OK Boomer, Who’s Going to Buy Your 21 Million Homes?
- Thread starter trader99
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seriously considering silicon valley and grind it out a few more years for the paycheck alone.
Demographic and statistics proved you are correct and it is a profitable strategy for many. There are more opportunities to make it in SoCal, SF, San Jose, NYC, if you are willing to come, to take risks.
Although the net interstate migration for California is slightly negative, those that move in are younger, better educated and higher paid.
Can’t take it with you and the rental income won’t support the valuations as investment property when the heirs inherit. Prices plummet.
But the rental income doesn't need to support fantasy valuations, it just needs to pay off whatever loan is remaining, if any as well as property taxes. If you're in a shit area, property taxes will be low anyway.
The only way high valuations would change (IMO) is a rise in interest rates which is great for people with cash reserves who want to buy a home. So not millennials.
Too focused on numbers.
The average tech employee takes home around 120-140k a year gross (it's actually less for junior developers). After around 30% taxes (state, income, etc) you're left with around 84-98k to spend. The average rent I've gathered from friends in the area is around $3,000/mo. before utilities. Assuming you have one roommate (bad situation tbh) you're still looking at $1500 before utilities. Compound that with significantly more expensive gas, electricity, food, and putting away around $1200/mo. into a retirement account you're left with very little to spend on anything. All the money you could be saving to buy a house is going towards the rent, basically.
So you're in a situation where the only way you could grow your bank roll is to live in a commune with 4 other people in the same situation and deal with all the trouble that comes with that. There is no one that is fiscally conscious that I've talked to in tech that enjoys the lifestyle these places afford you and they all started with the same dream - I'll just be here temporarily for the salary. You'd actually probably be better off working for a bank in the midwest. I know 30 year olds in tech (with senior positions) that are still sharing bathrooms with 2 other people. It's pitiful, frankly.
Instead, you could move to somewhere cheaper, find a remote job and crush it that way. Can't do that? Move to some place with a small tech hub that pays average or above salaries for the area (70-100k) and sack away tons of cash while you can.
There is no math on the planet that makes the salaries in a silicon valley tech company sound great. I have friends that work at Google and Snap and all of them have room mates and money troubles. CA and NY are the worst, and the state taxes just keep rising. It's a losing equation for everyone except Nancy Pelosi and whoever is running NY into the ground currently.
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Two things you may not realize if you've never lived in one of those areas.
1. The cost of a mortgage greatly exceeds the cost of rent. In most places if you rent a home your rent is roughly on par with what your mortgage would be if you owned the home, taking into account the tax benefits involved. In the Bay Area, for example, that is completely out of whack and if you buy your mortgage will be something in the area of twice as much as if you rented the same house. Some combination of people sitting on houses they bought for much less so can afford to rent for less and an expectation of perpetual price appreciation I assume. In any event, it's far cheaper to rent there than buy for an equivalent property.
2. Salaries price in the cost of housing, plus the availability of certain types of jobs especially in the tech and startup world is simply far better in those areas. And unlike the boomers, everyone from Gen-X on expects to change jobs and move somewhat frequently. So with that and the transaction costs of real estate in mind, it makes little sense to buy a house in one of those areas if you're in your 20s or 30s.
numbers prolly don't look good for entry level/early mid-career anywhere you go... the idea is to climb quickly above 200k, or in expensive areas, above 300k... this can be done by ascending on the corp ladder, or working as independent on the hourly.
mobility is fairly good in this country, so any 'area advantage' tends to self-cancel if it is too obvious..
and by the way this is what I always advocate for most people wasting time on day trading..
If you're working for a bank in the midwest you're living in the midwest. If that floats your boat then you're lucky. If you want to live somewhere more cosmopolitan, and most people in the Bay Area are there for that reason, you have to live somewhere with a higher cost of living. We call that supply and demand in micro econ.
I think you also need to take a look at your numbers. Let's take the low end of your range, 120K is $10K per month, $7K after taxes. You take away $3K for rent, so no roommates, and $1.2K on savings, leaving you $1.8K for food and everything else. It's expensive there, but not $1.8K a month for food expensive!
Now move to the Nebraska for example, which is a fate worse than death for most folks who choose to live in the Bay Area but we'll ignore that part for now. That same developer is making $60K, or $5K per month. Effective state taxes are going to be similar, in the 5ish range given the steps in the marginal rate there and in CA for our sample developer, and federal doesn't go down by much, so let's say a 25% total tax rate to be generous. So that leaves him $3.75K. A quick scan of rent in Omaha looks like $1500 a month for equivalent so now he has $2.25K. He puts away the same $1.2K in savings, so he now has about $1K for everything else, vs the $1.8K in San Francisco. Having lived in very cheap areas in the midwest, and the Bay Area, I'd say that's pretty equivalent disposable income in PPP once you've taken away housing as we have.
One last thing to thing about, this is for a single developer. If you're married/living with your significant other you're both getting a salary that takes into account the high cost of living which is mostly housing costs....but paying only 1 housing cost. So the equation becomes really positive really fast if you're a couple both working.
The real problem is that there are lots of really fun ways to spend money in the Bay Area....Omaha not so much. And I can tell you that I absolutely loved living in the Bay Area when I was younger and wouldn't have traded any of it for a minute, and not so much living in the midwest even if I did save more money there. Since I value life experience over mindless accumulation of money, and since I'm doing just fine now in my 40s and will be for the rest of my life, I would be furious with my younger self if I'd gone to work for a bank in the midwest. But again, if working for a bank in the midwest is your thing then count yourself lucky.
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But the banks aren't in the the 'owning homes' business, so they will sell the units once the reverse mortgage is complete or the owners pass on. So still going to be sold.