Don’t worry we are doing GREAT!

[The-Shoveler]

In the case of Irvin I think you have two things going on.

1) There are a lot of people with old house wealth (they originally bought in OC way back in the 80’s & 90’s)

2) Dual income families (each earning 6 figures), no way close to the national average (or even OC average, top 5-10 %).

[spdrun]

If you’re really making $500k/yr, you’re probably bringing home $300k/yr after taxes. That makes you able to afford at least one $100k down payment on a property per annum, say at 50% down. If each one makes $10k/yr, you’ll have a $100k/yr income in ten years. At that point you’d be using it to increase the pace of buying or start slowing down and stepping off the treadmill.

I bet’cha that your friends who got their extra fingers burnt weren’t putting 50% down 🙂

Have to say that’s one advantage of East Coast. Not having to keep up appearances as much. I grew up in a small city in NJ that was a mixed bag but had quite a lot of wealthy people living there. Went to public school with kids whose parents were bringing home several mil per year, yet still lived in the same house that was in the family for 100 years and drove 15 year old cars.

Excess income was either invested, saved for kids’ college, or used for travel to some very interesting places.

[no_such_reality]

[quote=spdrun]If you’re really making $500k/yr, you’re probably bringing home $300k/yr after taxes. That makes you able to afford at least one $100k down payment on a property per annum, say at 50% down. If each one makes $10k/yr, you’ll have a $100k/yr income in ten years. At that point you’d be using it to increase the pace of buying or start slowing down and stepping off the treadmill.
[/quote]

Not many people maintain $500K a year for 10 years running.

For Irvine, most are in the $150K to $250K with a decreasing set of outliers to $350K and an even smaller set above that range of income. By and large, it’s the $150K to $250K crew buying and living in the $800K to $1.2M homes.

So they making $250K, bringing home $175K and they’ve got $60K in PITI, another $30K/yr in cars and car insurance, $10K a year on dining and food, they’re spending another $20K a year on montessori/preschool/childcare, and smoking $5-$10K on gas to run to two jobs. you stuff some money in their 401Ks, take a vacation and add the cable bill and they’ve got a little cash left.

At $500K, you should be able to fatten your bank account, again 99%+ aren’t making that.

[quote=The-Shoveler]In the case of Irvin I think you have two things going on.

1) There are a lot of people with old house wealth (they originally bought in OC way back in the 80’s & 90’s)

2) Dual income families (each earning 6 figures), no way close to the national average (or even OC average, top 5-10 %).[/quote]

Yes, they’re dual incomes and they lose one of those incomes and they’re upside down.

[spdrun]

Need I ask how they’re spending $30k/yr on (I assume) two cars? For that kind of dough I can pay cash for a new car every year and crash one into a tree on alternate years.

Either that or cars in Irvine come with a free happy ending massage every week.

[no_such_reality]

You could, but they’re not.

They’re financing and it’s common to see BMW 5’s sitting on the driveway, or a Tahoe. Even the popular mini-vans runs $40K for the popular model levels. Pick any prevalent SUV and they’re running $45K.

Sure, there’s plenty of affordable Accords too, but there’s a lot of $40-$50K cars and they’re financed.

Take the car payment, add in the sales tax which is all their down payment will cover, take the license tab bill on a new car every 3 or 4 years, and take the insurance and it’s easy to run $1000+/month on a financed car before gas and maintenance.

Could you do it cheaper? Hell yes, many aren’t. Hence my point.

You’re thinking like a guy with cash on hand. They’re thinking monthly payments.

Working class stiffs. They live and their consumption is driven by what they can make payments on monthly.

[flyer]

Per the trend of this thread. A stat that still amazes me, is how few people have a million+ in net worth–especially in CA–where the “appearance of wealth” is so highly prized.

As a native, that’s why, IMO, CA tends to be a somewhat of a revolving door–few can sustain it here (in the lifestyle to which they have become accustomed) through retirement.

[The-Shoveler]

Very few natives stay past age 30, most everyone else is from somewhere else so they generally planned to go back from where they came from the beginning (even those who can afford to stay) at least that is what I have seen.

Once you leave (and get established somewhere else) it is incredibly hard and expensive to move back, even from somewhere like NY where it is even more expensive generally.

Most the natives I know who have stayed have long since paid off their homes before retirement and you can’t get them to move. maybe I run with a small crowd however.

That is actually a big complaint in San Jose, Retiree’s don’t want to sell and move!!! LOL

The Natives I am talking about are boomer’s who originally bought their homes in the 80’s and 90’s and did not take all the equity out to buy new BMW’s (yes there are many believe it or not).

[flyer]

TS–you’re right in many ways. I was actually talking about the transplants. It seems many blow in and out with the wind, or they only last here as long as the job lasts.

It’s also true that many of the kids of natives and transplants have had to leave the state for financial reasons also. Most we’ve met who have left, wish they hadn’t.

[The-Shoveler]

Yea I have heard that story so many times from people I have known who have left and got established somewhere else, they always say how much they regret leaving SoCal, most of these left before age 30.

Maybe that’s what made me stay LOL.

[spdrun]

What I don’t get is that you can still rent a small place near the beach for under a grand a month if you’re lucky. Drive a cheap, paid-off used car or even a motorbike. Food is cheaper than on the East Coast or in the inland West. No tolls on most freeways. Free beach access, no use fees in summer.

Really the 1000-lb gorilla in the room is health insurance, which is covered if you have a job that provides it, and will become a lot cheaper for freelancers under Obamacare.

Living in SD can be surprisingly cheap if you’re single or a couple w/o kids, especially given that the natural beauty of the area that isn’t replicated in a lot of parts of the US.

[no_such_reality]

Maybe down in SD, up in OC, a beach sh*thole is $2000/month and anything nice is pushing three.

Shoveler, how many of those boomers will consume their house in retirement? For today’s generation of home buyers to replicate what happened, those $800K homes in Irvine will need to be ten million in 30 years. Maybe Cali will keep growing that way.

Personally, I think the boomers have simply benefited by the pig in python effect coupled with a happy timing of a real estate bubble currently being redriven by historically low interest rates. The next 30 years will be interesting as the boomers become net sellers.

There’s a reason most wealth managers look at assets outside of a primary residence. It’s in what you cited, they won’t sell, or more maybe, can’t sell. Can’t sell without massively changing their life, relocating usually out of the area. In effect, their house is a sunk cost.

[The-Shoveler]

[quote=no_such_reality]

Shoveler, how many of those boomers will consume their house in retirement? For today’s generation of home buyers to replicate what happened, those $800K homes in Irvine will need to be ten million in 30 years. Maybe Cali will keep growing that way.

Personally, I think the boomers have simply benefited by the pig in python effect coupled with a happy timing of a real estate bubble currently being redriven by historically low interest rates. The next 30 years will be interesting as the boomers become net sellers.

There’s a reason most wealth managers look at assets outside of a primary residence. It’s in what you cited, they won’t sell, or more maybe, can’t sell. Can’t sell without massively changing their life, relocating usually out of the area. In effect, their house is a sunk cost.[/quote]

It’s a small sample to be sure, but all my family has stayed in their SoCal homes until they passed.
That’s what prop-13 will do for you LOL.
The few friends I grew up with (who stayed) are planning to do the same and pass their home to their kids (who will likely sell in most cases, so it most likely won’t be these boomers who sell but their heirs).

Not a sunk cost I think, just an investment you live in.

I have to add, the current low inflation we have been living since 1990 or so, is very unusual (strange even), we have China to thank for that I think.

[spdrun]

NSR: the house isn’t an asset unless they have significant equity in it. If it’s paid off or nearly so, it’s not hard to tap say 50% of the equity in said house. A primary can still be an asset.

[no_such_reality]

Yea, not a true sunk cost, but I couldn’t think of a better term. It’s a rock and a hard place. You have to live some place. If you’ve paid off your place, then your expenses are lower, probably about 1% a year of the house value. If you move, you introduce more expenses and unless you move someplace out of area, the entire value of what you have will largely be used to replace the living expenses.

Traditionally, housing has run about inflation plus one percent in our metro-areas. Essentially, live in it, maintain it and break even on exit (with maintenance running about 1% a year). That’s a much better deal than rent.

sp, it is an asset, but it’s like a poison pill you can tap it if you really need to, but any tapping introduces real expenses. If you tap you’re paid off $600K home for a $300K new loan, you just pulled $300K out to do something, you’ve also saddled yourself with a monthly cash flow hit of $1400, nothing major but that’s in today’s low rate environment. A few years ago that would be $1800 a month unless you’re doing the loan juggle or an IO but that all has transaction cost.

Not major but those little expenses add up and more importantly drive you to realize income which then adds an additional tax expense.

[SK in CV]

[quote=no_such_reality]
Not major but those little expenses add up and more importantly drive you to realize income which then adds an additional tax expense.[/quote]

Unless I’m missing something in what you’re describing here, borrowing money doesn’t normally create any income or additional income tax expense.

[Author]

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