How much house can I afford?

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Topic Author
tomtoms
Posts: 339
Joined: Wed Mar 06, 2013 11:56 pm

How much house can I afford?

Post by tomtoms »

I am 35 and I think it is time for me to stop leeching from my family. I am embarrassed to say that I have been living in a family house for free (I live in the back house). I am thinking about buying a house and I need to ask for your advise.

How much can I afford? I live in the LA area and I am planning to buy around here.

Annual Income: 130 k + 55 k from my side business.
401 k: 102 k
Roth IRA: 10 k
Cash: 150 k
Company stocks: 50 k

Debt: 18 k in student loans with < 1% interest rate. I had graduated with 155 k.
Expenses: mainly gas, food, cell phone, clothes since my family paid for everything else
Car: I purchased a 35 k car a few years ago and it has been fully paid.

The side business is only a couple of years old. I made 35 k the first year and 55 k the second year (in profit). I was mainly doing it for fun and it just turned out to be something I can make money from. It is something I believe will generate a steady income for years to come. My 40 hour a week regular job is also stable.

Single. No kids

Honestly, I have never seen a house as an investment. I figure I would buy one once I have started a family. I am considering to buy one now because I don't feel comfortable putting more money in the stock market and I have too much cash on hand (in my opinion).

I am not looking for a big house. If you were in my position, how much would you spend on a house? Please advise.

**Updated to reflect the questions I have received.
Last edited by tomtoms on Sun May 25, 2014 7:02 pm, edited 6 times in total.
cmr86
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Location: Sacramento, California

Re: How much house can I afford?

Post by cmr86 »

tomtoms wrote:I am 35 and I think it is time for me to stop leeching from my family. I am embarrassed to say that I have been living in a family house for free.

Why? It's quite common in other parts of the world. It might be so hot for the love-life here, but I don't think it's something to be ashamed of (my girlfriend would completely disagree with me).

As for the rest, it sort of depends on what part of that region you're looking at, doesn't it?
KlangFool
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Re: How much house can I afford?

Post by KlangFool »

tomtoms wrote:I am 35 and I think it is time for me to stop leeching from my family. I am embarrassed to say that I have been living in a family house for free.
tomtoms,

The LOGICAL ANSWER would be start paying rent to your family instead of buying a house.

KlangFool
Topic Author
tomtoms
Posts: 339
Joined: Wed Mar 06, 2013 11:56 pm

Re: How much house can I afford?

Post by tomtoms »

cmr86 wrote:
tomtoms wrote:I am 35 and I think it is time for me to stop leeching from my family. I am embarrassed to say that I have been living in a family house for free.

Why? It's quite common in other parts of the world. It might be so hot for the love-life here, but I don't think it's something to be ashamed of (my girlfriend would completely disagree with me).

As for the rest, it sort of depends on what part of that region you're looking at, doesn't it?
The LA area.
cmr86
Posts: 236
Joined: Fri May 02, 2014 8:21 pm
Location: Sacramento, California

Re: How much house can I afford?

Post by cmr86 »

tomtoms wrote:
cmr86 wrote:
tomtoms wrote:I am 35 and I think it is time for me to stop leeching from my family. I am embarrassed to say that I have been living in a family house for free.

Why? It's quite common in other parts of the world. It might be so hot for the love-life here, but I don't think it's something to be ashamed of (my girlfriend would completely disagree with me).

As for the rest, it sort of depends on what part of that region you're looking at, doesn't it?
The LA area.
That's not exactly a "small" area.
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Raymond
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Re: How much house can I afford?

Post by Raymond »

Unless you can't stand the house or the surrounding area, why not just pay market rent to your family member (as mentioned above)?

Or you could buy the house itself, if the owner is willing.
"Ritter, Tod und Teufel"
MoonOrb
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Re: How much house can I afford?

Post by MoonOrb »

Can the side business be counted on to consistently produce the $55k? All you said is that it's "stable," and that could mean a lot of things.

Someone with an income of $185k and small monthly debt payments can take out a pretty big loan, so to answer your question you'll really just need to know how much disposable income you have left over each month after you invest whatever it is you want to invest and pay all of your other expenses.

You don't want to spend ALL of that amount on a house payment, obviously, and you're also going to need to consider things like having a budget for repairs, maintenance, furniture, decorating, insurance, and all the other stuff that you spend money on when you own a house. Plus, will your commute change? Will you need to buy a car/be able to take mass transit?

Your question's pretty vague, but you should also ask yourself, why do you want to own a home? If you don't want to feel like a leech, stop living for free: pay your family rent. If you want to have a place of your own, find the neighborhood where you want to live and rent there for a while. If you still want to buy after that, then you will have a better idea of where you want to live.

Owning a home is a fine thing to do, but of all of the reasons to buy a home, "because I want to stop feeling like a leech" isn't very high on that list.

Anyway, figure out how much cash you have each month that you could spend on housing expenses. Then you can start figuring out how much house you can afford.
island
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Re: How much house can I afford?

Post by island »

You said you're living in "A" family home, meaning living with your parents or in another home that they own?
freebeer
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Re: How much house can I afford?

Post by freebeer »

What matters isn't how much house you can afford, it's how much house it's a good financial decision to buy. I may be in the minority of responderes but IMO it could be a good financial decision for you to buy say a $450K house with 10% down or even 15%, if you have the time and inclination to make a smart purchase (not top dollar, something with good appreciation prospects) and feel reasonably confident you'll stay for 5 years. You are young enough so in the worst case if the market tanks and you lose your down payment you can make it up and restore your credit (and California is a non-recourse state... had to double-check that). Since you have leveraged up, if the house appreciates by 20% you will make over 100% return on your down payment. Being single you don't get too much from the standard deductions so the interest deduction will be positive and interest rates are still near historic lows so even if the property only appreciated with inflation you will do OK.

I have owned 5 homes in total starting in my early 30s... the first I did a bit worse than break even, the 2nd & 3rd I made extremely large returns, the 4th was only a bit better than break-even but that was buying before the bubble and selling after so that was still lucky, and the 5th and current is up at least 25% from the price paid 3 years ago. OK maybe I would have done better if I had just put all this money in S&P 500 and rented but it was a very good forcing function for saving and all told I'm not sure I could have gotten the same returns w/out leverage (and that would not come with the downside protection of a no-recourse mortgage).
ajcp
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Re: How much house can I afford?

Post by ajcp »

What are your expenses like now? Because one thing that jumped out that me is you make 185k and only have 312k saved. Considering your circumstances, unless you only recently got a huge raise, that seems really low to me.
Last edited by ajcp on Sun May 25, 2014 6:28 pm, edited 1 time in total.
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Wildebeest
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Re: How much house can I afford?

Post by Wildebeest »

You can afford a $800 k house. And if have your heart set on it, somebody will loan you the money to get a million dollar home.

But that does not seem to be issue. If you can post here, you could have googled it. Why buy a house?

As an investment? Then you should run the NYT calculator rent versus own.

Not to be leech? Offer to pay market rent or rent somewhere else.

The only reason to buy IMHO is when you get want you want and unless you present more data Bogleheads will be of little help.
The Golden Rule: One should treat others as one would like others to treat oneself.
Topic Author
tomtoms
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Re: How much house can I afford?

Post by tomtoms »

Thank you everyone for your opinions so far! I have updated my original post with answer to the questions I have received.
cmr86
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Location: Sacramento, California

Re: How much house can I afford?

Post by cmr86 »

tomtoms wrote:
Honestly, I have never seen a house as an investment. I figure I would buy one once I start a family. I am considering to buy one now because I don't feel comfortable putting more money in the stock market and I have too much cash on hand (in my opinion).
That statement seems contradictory.
I am not looking for something big. If you were in my position, how much would you spend on a house? Please advise.
If you're buying just to buy, then don't. But if you're mind is set, then I would look for something that was 1200-1500 sq. ft. That's 2-3 bedrooms, maybe 4 bedroom if they're small. The price range for that can vary neighborhood to neighborhood. It's all dependent on where you want to live.
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Wildebeest
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Re: How much house can I afford?

Post by Wildebeest »

cmr86 wrote:
tomtoms wrote:
Honestly, I have never seen a house as an investment. I figure I would buy one once I start a family. I am considering to buy one now because I don't feel comfortable putting more money in the stock market and I have too much cash on hand (in my opinion).


That statement seems contradictory.

I am not looking for something big. If you were in my position, how much would you spend on a house? Please advise.


If you're buying just to buy, then don't. But if you're mind is set, then I would look for something that was 1200-1500 sq. ft. That's 2-3 bedrooms, maybe 4 bedroom if they're small. The price range for that can vary neighborhood to neighborhood. It's all dependent on where you want to live.



I am with cmr86. Do not buy. Wait till you and your future spouse/ family agree on what you want. Put in your cash in CD's or the bond market.
The Golden Rule: One should treat others as one would like others to treat oneself.
denovo
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Re: How much house can I afford?

Post by denovo »

I'd say go for it, up to about $500,000 loan, putting 20 percent down, so a total of 625,000 should be what you are looking for, conservatively.
"Don't trust everything you read on the Internet"- Abraham Lincoln
Topic Author
tomtoms
Posts: 339
Joined: Wed Mar 06, 2013 11:56 pm

Re: How much house can I afford?

Post by tomtoms »

Thank you for the advise ! Any additional advise would be greatly appreciated.
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wander
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Re: How much house can I afford?

Post by wander »

Not sure about you Op, but I bought the house because I wanted to be independent so I bought a house small enough for me. The payment was low that I didn't think about payments too much each month. When I got married, my spouse liked the house and we decided to stay. When our kids come, we will consider moving.
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