Only 10% of the population makes more than ~$113,000 a year, but if you live in the San Francisco Bay Area, it seems as if everybody is making six figures or more due to sky high housing prices. Let's hear from my friend Chris, who so happens to make a healthy income working at one of the world's most valuable companies. He also owns a mobile home!
Sam recently dropped by for a visit to Google, where I’ve been working for the past 4½ years, and we got to talking about the cost of living in Silicon Valley. All of my friends who live in other parts of the country are buying their first starter homes, and I earn good money at Google.
My wife and I really wanted to buy a house, a nice place with room for our growing family, but the thought of putting everything we’d saved into a million dollar fixer upper just didn’t make much sense to either of us.
Ownership Economics Of A Mobile Home
When we found out that we were expecting our second child in 2013, our 1100 sq ft apartment ($2400 per month) in Mountain View started to feel too small. But 3 bedroom apartments in Silicon Valley were $3500 or more per month ($42K+ per year after tax) and that would require us to save less while building no equity.
The choice was more space, but a significant hit to our finances or less space with an infant and toddler. Or, maybe we should move farther away from the office so that we could get something cheaper, but my commute time would go up, which would mean less time with the kids.
We started doing research and arrived at a non-traditional solution to the problem, which got us a bigger single family house with a yard, saved us money, and allowed us to build equity while not increasing my commute time. How?
We bought a trailer, AKA a mobile home, AKA a double wide.
Our house was delivered to a little plot of land in a mobile home park in North San Jose, direct from the factory in Sacramento, on the back of two semi-trucks. Each half was put on stilts, pushed together, and then the seams covered up and patched.
Are we nuts? Maybe, but here is the logic behind our non-traditional decision.
Why We Bought A Mobile Home
1) Our home is brand new, no one else has ever lived in it, and it came with an 18 month new home warranty. It’s also bigger, 1604 sq ft, with 3 bedrooms and 2 bathrooms.
2) We spent $225,000, which seems like a lot when compared with the home values across the country, but in Silicon Valley, $225,000 is cheap. It's hard to even find a studio for $500,000 these days. And we don’t need to do anything to it beyond the normal maintenance that any home requires.
3) We still have to rent the land, which at around $1000 per month is not cheap. But, when you combine our mortgage and rent payments (including utilities), we are still paying less than we were in Mountain View for a two bedroom rental for $2,400. And we are earning equity. Oh, and because we live in San Jose, we have rent control so we know how much our rent will increase each year.
4) Rising home values in Silicon Valley are also raising the values of mobile homes. We didn’t buy the home as an investment, but our realtor tells me that our home would list at $325,000 now, a gain of $100,000 in just 18 months.
5) When you walk into the house, you don’t know you are in a trailer. We have flat 9 ft ceilings, modern appliances, granite counters in the kitchen and both bathrooms, and the same plumbing, insulation, and windows that you find in a normal modern home. And, for the first time in our married life, we have laundry in our house which makes a huge difference when you have little kids.
6) We aren’t going to be here forever. Both my wife and I don’t want to permanently settle in California. If we were going to be here for another 10+ years it would probably make more sense to establish more permanent roots. But we don’t expect to be here longer than another 5 years, and probably even less than that. We plan to move to a cheaper part of America where we grew up.
7) And finally, we get to do whatever we want to our home. Want a different color paint on the walls? How about running some wires for surround sound up through the floor? Can we have a gas or charcoal BBQ grill on the patio?
We don’t need to ask anyone for permission to do these things anymore and we don’t have to worry about the kids making too much noise for the neighbors. Freedom is a great feeling.
Sam wasn’t convinced until I walked him through the logic. Most people I talk to about it still think I am crazy, but we are happy with our non-conventional solution. And we are spending a lot less per square foot than anyone I know.
RECALIBRATE YOUR EXPECTATIONS (Sam)
I first started this article with the approach that if a Google employee can only afford a mobile home, then everybody else is kind of SOL. But what I realize now is that life is about choices.
Perhaps the real reason why people can't afford to buy real estate in expensive areas is because people are shooting way too high. After only 5 – 10 years of work, some think they deserve the 2,300 square foot, 4 bedroom, three bathroom home on a quarter acre lot. Unfortunately, if you don't have at least $400,000 for the downpayment, you just can't afford a $2 million+ home in Palo Alto, CA. Shoot lower!
I admire Chris and his wife for choosing to keep lifestyle inflation under control. They bought a mobile home they could comfortably afford while shunning the trappings of a richer lifestyle. Surely, many of his colleagues are multi-millionaires living in multi-million dollar homes driving Teslas into the office every day. It's hard not to get influenced by others.
Invest In Real Estate Wisely
If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you're looking for strictly investing income returns.
Sign up and take a look at all the residential and commercial investment opportunities around the country Fundrise has to offer. It's free to look.
I also really like CrowdStreet, because it focuses on individual properties in 18-hour cities. 18-hour cities have lower valuations and higher growth rates. You can use CrowdStreet to build your own select real estate portfolio.
Shop Around For A Mortgage
Check the latest mortgage rates online through Credible. Credible has one of the largest networks of lenders that compete for your business. You can get free, no-obligation quotes in minutes. The more lenders compete for your business, the lower your rate. Mortgage rates continue to be near all-time lows. Take advantage before they go up further.
Living costs are going up, partly thanks to inflation and growing demand. Therefore, to keep living costs down, everybody needs to invest and keep their debt levels manageable.