The Total-Cost Framework
Annual cost of holding a Bay Area home breaks down into six line items: mortgage payment (principal and interest), property tax, homeowner's insurance, maintenance and repairs, HOA where applicable, and the opportunity cost of the down payment. The worked example below uses a $3M single-family home with 20% down on a 30-year fixed at 6.5%.
Line by Line
Mortgage payment: On a $2.4M loan, the monthly payment is roughly $15,170, or about $182K per year. This is the largest single line item.
Property tax: California's Prop 13 sets a base rate near 1%, and local Special Assessments push the effective rate to 1.1–1.4% of assessed value. On a $3M purchase, that is $33K–$42K per year. The upside: Prop 13 caps annual increases at 2%, so long-term holders see their tax burden fall relative to market value.
Homeowner's insurance: Standard Bay Area coverage runs $3K–$6K per year depending on square footage, year built, and dwelling coverage. In high-fire-severity zones such as Los Altos Hills and Woodside, premiums can double — and in some pockets, carriers have stopped writing new policies entirely.
Maintenance and repairs: The industry rule of thumb is 1–2% of home value per year. On a $3M home, that is $30K–$60K annually. New construction sits at the low end; homes 20+ years old sit at the high end. Major line items: roof replacement every 15–25 years ($20K–$50K), HVAC every 10–15 years ($10K–$20K), exterior paint every 5–7 years ($10K–$20K), and landscape maintenance averaging $500–$1,500 per month.
HOA: Single-family homes typically carry no HOA. Townhomes and condos run $300–$800 per month.
Opportunity cost: A $600K down payment, invested in an S&P 500 index fund at the historical 8–10% average annual return, would generate $48K–$60K per year. Real estate appreciates too, but the risk-return profile is different — both belong in a household's overall asset allocation, not viewed in isolation.
First-Year Total Cost
Mortgage $182K + property tax $36K + insurance $4K + maintenance $40K = roughly $262K per year, or about $21,800 per month. That is 44% above the bare $15,170 mortgage payment. Add opportunity cost and the true economic cost is higher still. Run this full calculation before you close, and confirm that monthly cash flow covers the carrying number comfortably — not just the mortgage.
Kevin Mo on Managing Carrying Costs
When MK Group founder Kevin Mo (DRE# 02127623) underwrites a purchase with a client, he builds a 5-year carrying-cost table rather than anchoring on the monthly payment. His framing: the mortgage is only 60–70% of true carrying cost, and the remaining 30–40% is what most buyers discover after move-in. A few of his operational notes follow.
First, property tax has to be looked up city by city. Santa Clara County and San Mateo County run different effective rates, and Mello-Roos varies by community — newer master-planned subdivisions can carry an extra 0.3–0.5% over older neighborhoods.
Second, fire insurance has repriced sharply. Premiums in Los Altos Hills and Woodside have moved from roughly $5K to $10K–$15K per year, and some addresses cannot find a standard carrier at all. Confirm insurability before removing the contingency, not after.
Third, maintenance is the line item buyers underestimate most. Marie Wang (DRE# 02110980) notes that the 1970s–1990s housing stock that dominates Peninsula and Silicon Valley inventory typically needs one major intervention — roof, plumbing, or HVAC — within the first three years of ownership, in the $30K–$80K range. New owners should pull every "functional but near end of life" item from the inspection report and build a 3-year maintenance plan against it. The MK Group team maintains a vendor list for post-close systems audits and can arrange a full walk-through within the first weeks of ownership.
Common Mistakes
Mistake 1: Treating the mortgage payment as the budget
PITI accounts for only 60–70% of true carrying cost. The remaining 30–40% is what most owners discover after move-in — and the line most underestimated is maintenance. The industry rule of thumb is 1–2% of home value per year, which on a Bay Area $3M home is $30K–$60K annually. New construction sits at the low end, but Marie Wang notes that the 1970s–1990s housing stock that dominates Peninsula and Silicon Valley inventory typically needs one major intervention within the first three years of ownership — roof ($20K–$50K), HVAC ($10K–$20K), exterior paint ($10K–$20K), or plumbing replacement — running $30K–$80K per intervention. Ignore this layer and Year 2 cash flow gets very tight. Pull every "functional but near end of life" item from the inspection report and build a 3-year maintenance plan against it.
Mistake 2: Assuming Prop 13 has permanently locked in the property tax
Prop 13 caps annual assessed-value increases at 2%, but the protection is not permanent. Several events trigger reassessment to current market value: transfer of ownership (including transfers to non-spouse / non-direct-child relatives, sales to extended family, and contributions to certain types of trusts), new construction (added rooms, ADUs, additional stories), and remodels that exceed "ordinary maintenance." A 1995-purchased Cupertino home with a current Prop 13 assessed value of $1.4M (purchased at $800K), if expanded with 800 sq ft of new construction, will see the new portion reassessed at the current market rate of $2K–$2.5K per square foot — instantly adding $1.6M–$2M of assessed value and roughly $18K–$28K to the annual property tax bill. Before any major remodel, model the reassessment impact and, when in doubt, confirm directly with the County Assessor.
Mistake 3: Assuming insurance premiums stay roughly stable year over year
That assumption was fair before 2020 and is no longer valid. In high-fire-severity zones — Los Altos Hills, Woodside, Portola Valley, the Peninsula's western foothills, Saratoga Hills — annual fire insurance premiums have moved from roughly $5K to $10K–$15K in recent years, and at some addresses the major carriers (State Farm, Allstate) have stopped writing new policies entirely. Owners in those pockets are pushed to the California FAIR Plan (capped at $3M of dwelling coverage, well below most luxury home values, and typically paired with a Difference in Conditions policy to fill the gap) or to surplus-lines carriers like Lloyd's of London, with annual premiums running $20K–$50K. CAR data shows premium increases of 15–30% per year in some high-risk ZIP codes between 2023 and 2025. Kevin Mo's standing rule: before removing the inspection contingency, confirm that the specific address can be insured and obtain a formal quote in writing — not an assumption, not "what the neighbors pay," because underwriting decisions are made address by address.