How much house should I buy? (young person with many assets)

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chameleon
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Re: How much house should I buy? (young person with many ass

Post by chameleon »

Gill wrote:OP posted this nine minutes after joining the board yesterday and hasn't appeared since. Anyone else beginning to wonder if we're being scammed?
Gill
Scam is the wrong word to use unless you plan on sending this guy money or buying swamp land from him. I suppose someone could be making up this hypothetical scenario for giggles but I actually have known early 20 somethings with a million + in net worth. It's not unheard of.
ajcp
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Re: How much house should I buy? (young person with many ass

Post by ajcp »

If nothing else, this topic has pushed me further into "I think I'm gonna be a lifelong renter" territory. Not because I don't think I could afford it if I really wanted to, but the more I read the more I don't really want to.
Gill wrote:OP posted this nine minutes after joining the board yesterday and hasn't appeared since. Anyone else beginning to wonder if we're being scammed?
Gill
People first join just to post a topic all the time and it hasn't even been 24 hours yet. Op may not even be from work for all we know.
Hilda
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Re: How much house should I buy? (young person with many ass

Post by Hilda »

The giveaway for me is the way the subject line is truncated on my screen... I got a laugh out of it.
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hockeyjunkie312
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Re: How much house should I buy? (young person with many ass

Post by hockeyjunkie312 »

OP here. Sorry in advance for the long reply.

First of all, I would like to thank you all for your replies. I am truly grateful that I have found the Bogleheads forum as it has allowed me to obtain opinions from so many people with different insights and wisdom.

With that being said, I was first initially shocked by how many negative responses I was getting. It seems many of you were answering the question of if I should rent or buy, when really I am asking if I have an unreasonable price range, assuming I do buy, which is likely. For the many of you that said I should rent, I certainly understand your rationale but also disagree with some of it. I'll attempt to explain below.

(By the way, there are a few other factors I should have mentioned. I am looking at two story condos, or townhouses, not sure what they are referred to as. They will have an HOA. I know there are pros and cons to this but it means I will not be responsible for landscaping or exterior maintenance. They are in the 1500 to 2000 sq foot range. Also, I'm currently paying about $500 in rent a month to my parents. Also, my RMD's currently are about 13k.)
Bacchus01 wrote:At 25, those assets seem like a lot. They aren't. Not when you are 40 years of inflation away from retirement.

Pulling funds from there will be just about the most disastrous financial decision you could make.

Save until you have a down payment.

I would rent. You also haven't accounted for the fact that buying a house now means furnishing it, taxes, insurance, repairs, etc. Where is that cash going to come from.

$200k is also a lot of house on a 48K salary.

Saying that withdrawing out of the Inherited IRA is a disastrous decision seems extreme. I don't agree with waiting until I have saved enough for a downpayment and the various other relevant expenses. I have been maxing out my Roth 401k and IRA which is otherwise money I would have used a downpayment. Essentially, I chose to max out retirement accounts which will lead to withdrawing from the Inherited IRA for the downpayment, instead of not contributing so much and accumulating funds in taxable. I'm not sure if this was the right decision, but it is how I look at it from a mental accounting point of view.
Retread wrote:Your heading referring to "many assets" reveals a great deal. You don't need a house at 25 and you'd be making a terribly foolish mistake to withdraw any more from this IRA than your RMD. A future spouse and a likely job opportunity will soon make you regret buying this house.
Bruce
True, I certainly don't need a house, but I would like one. Like I said, I am confident that a future job opportunity would not change my situation. I am in a very stable job at a company I love and they don't really have any other offices to relocate me to (if they did, we are talking about many years from now). My family lives in the area and this also heavily influences me to stay here. As for a future spouse changing the situation, it's certainly possible, but as I am single currently this is something that I feel is too unpredictable to heavily consider.
fposte wrote:What I'm missing in your description is a budget overview--as people upthread are noting, house payments and costs can take a huge bite out of 48k of salary. I differ from some here in that I could could see dipping into the IRA for $5-$10k to bump up a down payment a little (heck, RMDs might be getting you that right there), but the actual ongoing costs should be sustainable based solely on your income. I'm with the others in thinking over $200k sounds like a lot of house for a $48k annual income, and a lot of house to be a "starter home" for a single young person on his/her own.
Why should the ongoing costs be sustainable solely on my income? I have 800k in assets. I just can't comprehend why I wouldn't take that into consideration.
Retread wrote:
hockeyjunkie312 wrote:I have been maxing out Roth 401k and Roth IRA, but have recently brought this down to just the 3% contribution now that I am looking to buy a house.
This is another huge mistake. You are passing up the opportunity for those contributions to compound for as long as the next 60-75 years or so. Contribute the max and forget the house until you can afford it.
Bruce
I respectively whole heartily disagree with this statement. If I kept maxing my retirement account, I don't think I'd be able to afford a house anytime soon. Plus, I feel I would get to the point where my assets are so significant that I would look back and wish I enjoyed them earlier in life.
bottlecap wrote:Honestly, you should really rethink renting, unless maybe you can make a good case for houses being really depressed in your area right now because of the economy.

You really don't want to be a homeowner at 25, even if you can afford it. When you rent, you're responsible for basically nothing but rent. When you buy, you are responsible for insurance, upkeep, taxes, assessments, landscaping, premises liability - you name it.JT
As far as renting goes, I just can't see how the math works out in it's favor (except for testing out the waters for a year, see comment further below). The cheapest condos I would realistically consider sell for about 125k. Renting them would be about $1100. When I adjust the default settings in the NYT rent buy calculator according to the suggestions on this board, it heavily favors buying, even if I only stay for three years. Note that this is partially because the Penfed 5/5 ARM is at 2.875 and no closing costs.
Retread wrote:SnapShots as said it all. I spent my career administering decedent's estates, often handing out large checks to beneficiaries who hadn't expected to receive the money. They often told him how they had so many needs for the money, and I then wondered to myself how they would have managed if they hadn't received the inheritance. I can't imagine the OP "needed" this house before he inherited the IRA and he sure doesn't need it now. It would be a mistake he'll regret the rest of his life.
Bruce
You're absolutely right, it's a want, not a need. But I don't see anything wrong with "reasonable" wants, and I am trying to figure out if this is a reasonable want.
Dale_G wrote:Jeez, what a bunch of grinches :annoyed

Pat, if you want a modest house, go ahead and buy it. And if you take the down payment from the IRA (take enough to pay the taxes too) that is just fine. Someone probably left the money to you because they thought you would get more joy from it than they would get by spending on themselves. Because the IRA amounts to a big "emergency" fund you can tap at any time, you can well afford a house in the $200,000 range. $500,000 - no, no ,no.

Much of the focus on this forum is saving for retirement. And to a man with a hammer, everything looks like a nail. You are young and have plenty of time to take care of retirement needs. Among other things the RMDs from the inherited IRA can help fund your own 401k or other investments in the future. That is probably a good idea.

And tapping the inherited IRA in the future for new desires - a nice boat, motorcycle, sports car, multiple trips to Vegas - not such a good idea. I say, "not such a good idea" because I am a man with a hammer too!

But good luck, and enjoy your new home.

Dale
A contraction is among us, finally, haha. I tend to agree with your line of thinking.
cmr79 wrote:That being said, how confident are you that these "houses you can see yourself living in for at least 5 years" are actually places you'd want to live for any length of time? Assuming you've spent a few years living in college-style housing and apartments and then moved back in with your parents, buying a house is going to be a big jump.

Why not test the waters for a year by renting a house? Even if you feel like you're throwing away money that could be going towards principle on a purchase, treat it like you're paying to find out what's really important in a house for you. Or what's important in an area/neighborhood. If you nail it, great--you know what to look for and the purchasing process will be that much easier. If not, you've saved a ton of money and angst.
This does make a lot of sense, I hadn't thought about it this way. I am going to seriously consider this.
Dale_G wrote:
IMD801 wrote:I wouldn't buy a house at all, as others have said. A house when you're single and 25 is a big boat anchor. Keep your load light. Save/invest for another five years and re-assess at age 30.
I disagree. Pat wants to buy a house and has done some cost benefit analysis. There are a lot of anchors in life; an ill-chosen spouse, unplanned children, student loans, or go nowhere jobs. But if a home is an anchor, Pat has a big power winch. It is called money, He can pull the anchor and be away at any time - and it won't be a big deal.

And if it turns out to be a mistake, so be it. He (maybe) will never know unless he tries.

Dale
This also makes sense to me.
Devil's Advocate wrote: IMO using the inherited IRA is inflating your lifestyle when your income would not support it. In other words you may be setting yourself up to spending down your nest egg.

If you are adamant about buying then go for it, but just know this is most likley not the best way to maximize your net worth.

DA
Yes, I would be spending part of my nest egg. By as I am 25 with a stable job, I feel I still have many years to keep building up a nest egg.
HardKnocker wrote:It makes no sense to buy a house with a 5 year time horizon.

You are single. Rent.
I have longer than a 5 year time horizon if I buy the type of house I am considering. If I suggested otherwise, my mistake.
bottlecap wrote:
Dale_G wrote:Jeez, what a bunch of grinches :annoyed
There are always people that think sound advice is too limiting, but I don't think anyone is being a "grinch." I'm speaking from experience. Being a homeowner at 25 is rarely a good idea, for all of the reasons mentioned by various posters above. The OP will have to give up his time and money - both of which could be used to have experiences (travel and such) at this age - to maintain a home he doesn't need. Does he really "want" a home? I don't know and neither does anyone else. The use of the New York Times rent vs. buy calculator suggests he's on the fence or is doing this for financial reasons, not because he is dying to own a home.

And add to this:

1. No emergency fund;
2. Tapping retirement assets and possibly paying penalties to get down payment;
3. $3,500 to $4,000 in taxes per year (not to mention insurance);
4. A five year time horizon; and
5. Use of a 5 year arm so he can afford payments.

These are a lot of red flags if a 40 year old were proposing to buy a home. And those telling a 25 year old with a "few thousand" in a checking account to be cautious are grinches!?! At this point he's tapping retirement accounts to pay for home furnishings!
JT
1. I consider the Roth IRA my emergency funds, as it is funds that I would have otherwise kept in taxable. Also, I consider the Inherited IRA a "secondary" emergency fund.
2. I have issue with the phrase "tapping retirement assets", if referring to the Inherited IRA. Yes, technically they are retirement assets in name. But if I inherited 500k (roughly adjusted for taxes) in taxable, would you still consider them retirement assets necessarily?
4. Longer than 5 years, sorry if I suggested otherwise.
5. I am attracted to the Penfed 5/5 ARM because it is at 2.875 with no closing costs. That seems like a good deal, especially considering my time horizon is likely not more than 10 years, so only one rate adjustment. I am open to suggestions on this though.
killjoy2012 wrote: - Does spending a good portion of your weekends and vacation on home maintenance sound like fun? Why not rent something decently nice and not have to worry about cutting the lawn, shoveling snow, fixing the sink, renovating the kitchen, etc.?
I should have mentioned I am only looking at condos. Thus, I feel time spent on maintenance will be greatly reduced.
Twins Fan wrote:I also don't see it as dipping into retirement for the down payment. Meaning I wouldn't touch your Roth accounts. I see it as dipping into an inheritance for the down payment. I would think someone left you that money to help you get a head start, or have some fun, or whatever. No, I don't mean blow it all ASAP. But, I don't think someone left you that money just to sit on it for 40 plus years. As with anything, find a balance there. Shoot, you could take out enough to pay cash for a house and still be at $500k plus at 25 years old. So you end up not as much a millionaire as you could have been. You're still a millionaire someday. There's worse problems to have. :D ... That would bump you up quite a bit in tax brackets and give quite a tax hit. I'm not recommending that, just saying.
Makes sense to me.


Overall, these are my thoughts at this point. I don't mean for my comments to be argumentative and I appreciate the debate that is happening. Please feel free to continue to post your thoughts. I appreciate your time in sharing your insights with me.

Regards,
Pat
Last edited by hockeyjunkie312 on Fri May 23, 2014 6:03 pm, edited 5 times in total.
retiredjg
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Re: How much house should I buy? (young person with many ass

Post by retiredjg »

Had not noticed that. Tee hee... :D
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bottlecap
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Re: How much house should I buy? (young person with many ass

Post by bottlecap »

Pat:

A condo is a bit of a different story, although you will still tie yourself down for more than 5 years (less than 10, I assume). Make sure you know what you will be responsible for as far as maintenance, of course.

I don't know whether you should reduce your retirement contributions or tap the inherited IRA (I would consider inherited non-IRA assets as my retirement money, though, but perhaps you wouldn't - that's fair), because I don't know what your plans are. I can tell you that you are unlikely to do better in a condo, even after paying rent, because you will be paying a condo fee, assessments, taxes and insurance as well.

The best advice is probably to use a small portion of your inherited assets (hopefully tapped without penalty) to do with what you want and leave it at that. If that's buy a condo, so be it. I do think you should buy something you can afford on your salary alone, even if you use some inherited money as all or part of a down payment. The ARM probably isn't the smartest idea, either, as it exposes you to risks you don't need to take.

Do you have any idea how much you'll need in retirement? That's probably your starting point. How much do you anticipate making in your career? Do you plan on marriage or kids? How much do you have to withdraw out of the inherited IRA? Knowing what I know now at 41, I would do everything I can to hold onto any inherited cash I received. That equals freedom later in life. Age 25 is an extremely young age and money can't be unspent (especially penalties paid). Wives will want to sell your old place and buy a new one that they can call there own, so if you plan on getting married in the next 2-3 years, for example, you won't spend 5 years in your new place, no less 7 or 10.

When you get right down to it, I guess the amount of house you can afford depends on how much you want to risk. Based on your comments, it would be plausible to withdraw all of the money from the IRA and buy a house outright. To me, it would be a risk you shouldn't take, but you could do it.

JT
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Toons
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Re: How much house should I buy? (young person with many ass

Post by Toons »

I bought at age 26 ,800sq ft.
I would consider buying if I were you no more than 1500sq ft. :happy
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fposte
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Re: How much house should I buy? (young person with many ass

Post by fposte »

hockeyjunkie312 wrote:
fposte wrote: I differ from some here in that I could could see dipping into the IRA for $5-$10k to bump up a down payment a little (heck, RMDs might be getting you that right there), but the actual ongoing costs should be sustainable based solely on your income.
Why should the ongoing costs be sustainable solely on my income? I have 800k in assets. I just can't comprehend why I wouldn't take that into consideration.
Because you're 25, and you've got a "get out of massive lifetime worries free" card. You've got an "I can take care of my special needs kid" card. You've got an "I can see my parents not having to stint themselves when they're old and infirm" card. You've got an "If my job gets outsourced I can feed my family safely for some time" card. And you're talking about that being worth less than nicer faucets and a fancier kitchen. Why does this have to happen right now?

I'm a house person, and I don't see owning as necessarily a bad idea, and you've demonstrated some good savings tendencies. But you're also showing signs of being willing to toss your prudent practices away when a short-term possibility looms in front of you, and you haven't seen what kind of life you want or expenditures you make when you run and pay for your own household. So overall you've got no real track record, and you've got ambiguous indicators, and therefore I'm not inclined to encourage you to take a bigger risk right now and commit to spending your good fortune unnecessarily.
cmr86
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Re: How much house should I buy? (young person with many ass

Post by cmr86 »

fposte wrote:
Because you're 25, and you've got a "get out of massive lifetime worries free" card. You've got an "I can take care of my special needs kid" card. You've got an "I can see my parents not having to stint themselves when they're old and infirm" card. You've got an "If my job gets outsourced I can feed my family safely for some time" card. And you're talking about that being worth less than nicer faucets and a fancier kitchen. Why does this have to happen right now?

I'm a house person, and I don't see owning as necessarily a bad idea, and you've demonstrated some good savings tendencies. But you're also showing signs of being willing to toss your prudent practices away when a short-term possibility looms in front of you, and you haven't seen what kind of life you want or expenditures you make when you run and pay for your own household. So overall you've got no real track record, and you've got ambiguous indicators, and therefore I'm not inclined to encourage you to take a bigger risk right now and commit to spending your good fortune unnecessarily.

+1.
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LowER
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Re: How much house should I buy? (young person with many ass

Post by LowER »

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Last edited by LowER on Sat Nov 01, 2014 11:14 am, edited 1 time in total.
tj
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Re: How much house should I buy? (young person with many ass

Post by tj »

I really don't see why people are freaking out here. The guy has 800k in assets and wants to buy a 125k condo. Frankly I don't know why he wants to bother with a loan, just withdraw the $$ for the condo and the taxes, and then he'll have ZERO HOUSING COSTS, except HOA fees and utilities, and he will be easily able to replenish his retirement and general savings accounts. If I was gifted 800k, I would have no issue spending 15% on i for a place to live by myself, if I was absolutely sure that I wanted to live in that location for several years.
EnjoyIt
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Re: How much house should I buy? (young person with many ass

Post by EnjoyIt »

There is very little good reason to buy when you are single with no kids. It seams like a good idea, but all it does is tether you. If you don't believe your freedom is worth something, then go ahead and buy. You can definitely afford a 200K home.

I would do the exact opposite. Rent, live on your own for a while. Enjoy your life with minimal fixed payments. Spend some money on dating, and enjoying life. You have no idea what kind of freedom you inherited and you are looking to spend a chunk of it on a chain.

Believe me, you might think you know what you want at 25 but like everyone else here, you really don't. I promise you that your views on life will change. don't squander your freedom.

If you do nothing but invest that money for 20 years, you will retire with over 3 million. You can easily withdraw 90K-100k a year to live off of for the rest of your life. I could only imagine being 45, no debt, and making 90K/year as investment income.

Back to your question:
Yes you can afford a 200K home. You can probably afford a 300K home and still have 500K to grow and retire with. But now you will need to work till you are 55-60 for a similar 90k-100k a year retirement.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
tj
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Re: How much house should I buy? (young person with many ass

Post by tj »

If for some reason he wants to move after a few years, he can sell it. It's a risk, but he can afford to take it.
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HardKnocker
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Re: How much house should I buy? (young person with many ass

Post by HardKnocker »

We've all given our best advice.

Think about it. A whole bunch of financially successful people with decades of life experience have given their wisdom.

Now the OP can ignore it and put his foot in the bucket.

:D
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Dave1
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Re: How much house should I buy? (young person with many ass

Post by Dave1 »

I agree with the posters that if you never lived on your own so far, you may not have a good idea of exactly what you want and don't want in a place of your own. If you don't want to rent, maybe consider a rent to buy option in the same neighborhood or in a comparable part of town.
killjoy2012
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Re: How much house should I buy? (young person with many ass

Post by killjoy2012 »

hockeyjunkie312 wrote:
killjoy2012 wrote: - Does spending a good portion of your weekends and vacation on home maintenance sound like fun? Why not rent something decently nice and not have to worry about cutting the lawn, shoveling snow, fixing the sink, renovating the kitchen, etc.?
I should have mentioned I am only looking at condos. Thus, I feel time spent on maintenance will be greatly reduced.
Be careful with the HOA/condo fees then. My sister bought a condo in a brand new subdivision, with a stated $xxx per month for the HOA fees. Over the course of 5 years, the HOA fees tripled and she had no recourse. It also made it incredibly difficult to sell, since prospective buyers looked at the current HOA fees and ran.
Dandy
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Re: How much house should I buy? (young person with many ass

Post by Dandy »

I don't think it is especially wise for a single 25 year old to buy a house. Houses are time consuming to own lots to clean and outside work. New home owners often feel that the house owns them since they work 5 days and spend the weekend doing chores. It is more expensive than you think especially if you outsource cleaning and landscaping. Maintenance costs are lumpy - can go years with minimal then have to replace furnace, roof, air conditioner or appliances. Houses are not super investments either - sometimes boom and sometimes bust and sometimes hard and expensive to sell.

I would rent an apartment or condo vs buy until marriage/kids were in the plan
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Re: How much house should I buy? (young person with many ass

Post by MoonOrb »

Gill wrote:OP posted this nine minutes after joining the board yesterday and hasn't appeared since. Anyone else beginning to wonder if we're being scammed?
Gill
Maybe he's just a little annoyed? Or maybe you're right and someone's having fun with us.

OP, you can afford a house. Buy a house if you want a house. But your post suggests to me that you think buying a house is a good financial investment--if this is the primary reason you want the house, don't buy it. You're set. You have a huge pile of assets and a stable job and good habits. You don't need a house to improve your financial position.

But if you WANT the house? Like, for real? Buy it.


I
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Re: How much house should I buy? (young person with many ass

Post by Twins Fan »

Did you guys read the thread?? The OP came back and made a lengthy post replying to lots of comments. He also said he's looking at condos or town homes, so the maintenance would be minimal. And, what if he never gets married or has kids... should he never buy a place??

A lot of naysayers in this one making blanket statements. This is a very situational deal and to each their own, right?
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Re: How much house should I buy? (young person with many ass

Post by Wildebeest »

If you want to buy, please buy. You can afford a $ 300 K condo/town house easily, however the less you spend the better the financial decision it would be. I would suggest to put 20 % down.

Please note that that a condo may not be a good investment and that is what most posters remarked on.
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hockeyjunkie312
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Re: How much house should I buy? (young person with many ass

Post by hockeyjunkie312 »

OP here.
HardKnocker wrote:We've all given our best advice.

Think about it. A whole bunch of financially successful people with decades of life experience have given their wisdom.

Now the OP can ignore it and put his foot in the bucket.

:D
I agree that I have gotten a lot of great advice from posters with many different experiences and insights. I'm not sure what I am going to do, but this thread has at least given me a lot to think about. One thing I will say is I am second-guessing if I really want to spend so much if I do decide to buy. I am now looking in the 120k-160k range, and am considering renting also.

Thanks for the advice everyone, I certainly do appreciate it!

Thanks,
Pat
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Re: How much house should I buy? (young person with many ass

Post by Chrysalis »

OP, I think you sound sensible, and I think you have got a wide range of views from a whole bunch of wise and successful people. I'm not going to add my advice as I come from the UK where the property market is very different.
I am interested though in hearing a little more about your inheritance, how long you've known about it and how it has changed your outlook.
My children will inherit a similar sum in ££ when they are 25. It will be totally jaw dropping to them (I myself still find it hard to get my head around it after more than 2 years. I never imagined my kids would be rich trust funders, and I really hope they can continue to appreciate their good fortune).
So, my question to you, is what would you advise me? How can I best help my kids to handle this kind if windfall?
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