SF NYC real estate: Asset allocation for a (barely) millionaire

February 21, 2017 11:44 PM

I am a single, 40-year-old man and have about $1.1 million in assets. (About 35% is in pre-tax retirement accounts.) I also have a mortgage of $350k on an apartment in NYC and about $150k in equity in the apartment (not counted among my assets). But I would like to move to the Bay Area and buy a house.

I recently sold some equities and have about $150,000 in cash. I don’t want to be in NYC anymore and would like to buy a single-family home in the Bay Area, where my target property is roughly $1.1 million. I want more quiet and a yard and to be closer to family.

I think my expenses in the Bay Area would be lower than I currently pay in NYC because I could live in one room and rent out the bulk of the house. I don’t have enough money to cover a mortgage on a house that costs $1.1 million if I put down 20%, but I think could be comfortable putting down 50% on the right house.

Still, I think I’d have a hard time finding a lender for the remaining $600k. I might. My credit is stellar and I do have significant collateral. But I can also wait.

The questions I have now are:
1) How can I make the purchase of my dream house happen?
2) What should I do with my $150,000?

I’m tempted to keep the $150,000 in cash because I think a downturn may happen in the next year or two, and it would be good to have that cash for a downpayment if the chips fall correctly. If I reinvest it and there’s a downturn, I would have less money to use.

But most financial planners advocate investing for period of life you’re in. If I didn’t have this crazy ambition to buy a million-dollar house, I’d just put it back into equities, since I'm single, my other expenses are pretty low and my time horizon at 40 is still quite long.

I know I should be careful following free advice online, but I'm just putting this out there to get some ideas. If you can suggest other arenas where I can get help with my question, that would be great too!

posted by anonymous to Work & Money (8 answers total)

What time frame are you planning to buy a house in? Sorry if I missed that, but I read the question twice and didn't see it. That will have a huge impact on what you should do with your cash in the mean time.

A few other things to think about:

1. Have you looked at real estate in the parts of the Bay Area you want to move to? Can you actually get what you want for $1.1M? I know that is a lot of money, but it buys surprisingly little in many parts of the Bay Area, especially if you're looking for quiet and a yard. Every once in a while I look at housing up there because it would be much better for my career in tech, and I can never find houses that I actually would want to live in for the amount I'm willing to spend (similar to what you're talking about). But my needs and priorities are surely different than yours, so maybe you can do it — I'm just saying, make sure you've done enough research to know whether it's realistic or not.
2. You said you have $150K in cash and $150K in equity, which adds up to $300K. Where is the other $200K coming from for your down payment?
3. When calculating the cash you need don't forget about closing costs, moving expenses, immediately needed repairs (there always seem to be some), etc. Don't use all of your cash on the purchase.

posted by primethyme at 11:53 PM on February 21, 2017 [3 favorites]

No one can answer this question without knowing how much you make, and how much you are likely to make in SF assuming you can be employed there before you move out there. But certainly you have the capital to afford a home in that price range.

Wrt to the 150k in cash, I wouldn't sweat not having it invested in the equity markets while you decide what you want to do vis a vis this move. The rule of thumb is that if you think you might need the cash in ten years don't have it in equities, and it sounds like like the relating 850k or so is fully invested.
posted by JPD at 2:27 AM on February 22, 2017 [1 favorite]

Also assuming you have income to support a 600k mortgage finding a lender to write a 60 ltv mortgage is a layup. Hell it sounds like it would even be conforming.
posted by JPD at 2:29 AM on February 22, 2017

I could live in one room and rent out the bulk of the house.

It sounds like you can afford to do it, but this is the dream? Keeping your eyes on the prize is great, but you'll move across the country and spend a couple decades doing this? Let's say it's time for you to have a party and show off your awesome house, you'll give ten days notice to your tenants so you can hang out in your own kitchen?
posted by fixedgear at 3:45 AM on February 22, 2017 [6 favorites]

I'd keep expectations low for what you can get for $1m in SF right now, and how competitive the market may be. A former colleague just moved out there and ended up finding several $1m places she liked, got outbid on all of them, and only finally won on one when she bid $500k over asking, all cash.

I agree with JPD that you probably have no problem getting a mortgage--I think the issue may be with getting an offer accepted with any financing at all, since buyers will always prefer an all-cash offer.
posted by Admiral Haddock at 5:29 AM on February 22, 2017 [1 favorite]

It can absolutely be done. But.... How quiet and how much of a yard do you expect to get? You say you have family here so you must know the area well enough to know that 1.1 million is going to get you a house with a small yard and neighbors almost on top of you unless you are in a far exurb. Do you have a job? That seems to be the one thing that isn't defined... if you're putting 50% down getting a mortgage is a cakewalk *presuming you can prove the income to pay the mortgage*.
posted by CoffeeHikeNapWine at 9:18 AM on February 22, 2017

This should be pretty easy if you're prepared to live somewhere like San Jose.
posted by aramaic at 9:53 AM on February 22, 2017

Keeping your down payment in cash or similar while looking for a house is very reasonable. You want to be confident you have [$x] available, so you need to avoid as much volatility as you can--especially as, during a downturn, the stock market will most likely plummet, meaning that just as housing prices may freeze or drop, creating a good opportunity to buy, your funds available to make the purchase will be less, as well.

(In determining how much money you have available, make sure to do the math on the taxes you'll have to pay when you realize the gains on your investments...)
posted by praemunire at 11:10 AM on February 22, 2017