‘My First Home’ (or More California Real Estate Insanity)
I’ll admit that San Francisco is a neat place. But the average home cost is $750,000!?!?!?!??! Holy Crap. This particular example gets even worse. The new HGTV show called ‘My First Home’ features people going through the actions of picking out AND buying their first place. That’s neat, I guess.
This couple in San Fran decide to buy. They pick out a condo. Now I don’t hate condos, I just don’t like living that close to people. This was a nice place… 2 bed, 2 bath, wood floors… nice. All for the low price of $739,000 dollars!!!!!!!!!!!
Now the wife is a Spanish teacher in a high school ( I now about how much she makes… sigh) and the husband is a post doctoral fellow (about $50,000 / year or less). So they decide to go for an interest only loan? What the heck?!?!? They only pay the interest for the first five years, then they start paying on the principle. At that point their payment will probably double or better.
If you flipping a house, this would be an awesome deal. If not, it’s a great way to throw money away. Interest at 6% on 3/4 of a million dollars. Actually, less because to get the interest free loan, they have to 20% down. So they put about $160,000 down! Still that translates to (using simple interest) almost $36,000 per year for the first five years. So they will have paid another $180,000 and they still haven’t gotten any more equity in the condo.
Now, in my neck of the woods, a $160,000 will buy a really nice place. If you don’t sweat the neighborhood, you can get 4 bedrooms and a 3 car garage. Or you can get some land, say two acres or so and a nice 3 bed, 2 bath place. Alternately, a brand new 3 bed, 2 bath in a ritzy new subdivision. And you would own it, free and clear.
I’d spend the next $150,000 in commuting to San Fran and telecommute the rest of the time. We need Spanish teachers here and we have some pretty good research universities. Not Stanford, but Texas A&M is here.
Some people… wow.
Edit: You know, I could buy every house on my entire block. And not just one side of the street either. There are 7 houses on the strip of land bounded by streets. For $750,000, each house would be about $110,000. I know most of these people would taken $110 thou and run.