Expensive house in HCOL area

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emdeefive
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Expensive house in HCOL area

Post by emdeefive » Sun Jun 03, 2018 6:39 pm

We're buying a house in a HCOL area and need advice. The main question is in bold, feel free to answer that and skip the bloviations surrounding it. Stats:

Me:
- 180k/yr base
- Stock-based compensation is an additional 100-200k/yr. It's a new/risky company that to me has an equal chance of being worth 4x as much in 5 years as it does of being bankrupt. It's listed on an exchange, so I can sell the stock as it vests every year. My comp package is *not* marked up based on company risk; I received comparable offers from significantly more stable companies.
- 401k: 160k
- roth ira: 50k
- taxable: 320k
- cash: 180k (high because it's for the down payment; usually I'd put most of this into taxable)
- no debt

Partner:
- 120k/yr base
- Stock-based compensation is an additional 5-figure amount, not sure of it exactly.
- Other account numbers are 50-100% of mine.
- only debt: <$2k/mo in debt payments on family investment houses in a LCOL area

My lender approved me (alone, without my partner) for a $1.1-1.3 million house (20%-30% down payment, respectively). My partner (alone, without me), was approved for 650k with 20% down. Presumably if we bought the house together, we'd be approved for 1.1+650=1.8 or something around there.

We're frugal people who live small, but I do want to start living slightly larger. We're both 30 yrs old, and planning on starting children very soon, so we'd like to get enough space to be comfortable for at least the next 5 years. The children situation might involve a grandparent or nanny living in a bedroom, so we're looking at 3BRs which should be just enough space. We've tossed around the idea of retiring in ~5 years, but the desire comes and goes; the cost of children might preclude that option anyway, so why not live in a great neighborhood?

There's three main ways for us to go:

1) Buy a house in a less desirable but gentrifying neighborhood for ~600k, which gets a 3br/2ba. Bad schools, slightly more dangerous, but eminently safe compared to the dangerous areas of most cities. Commute 45m-1hr by train. This was our #1 option but the prices here just don't seem to be a big enough discount from the nicer neighborhoods to make it worth it. We thought we could get a house here in the 400s but that turned out to be wrong.

2) Buy a house in a very desirable neighborhood with mostly $1m-5m houses. Great schools. We would get a $1.2m house which would be a well-maintained and updated 3br/2ba. Might be more architecturally interesting than option #1, but that's just a bonus. Commute 30-45 mins by bus.

3) Buy a house that's a ferry ride away. Commute is 45-75 mins by ferry+bus. Cost is 300k for 3br/2ba, and would have an acre or more of land (instead of 0.1 acres for option #1/#2). This is more rural, which is attractive because we've been in the loud city for over 5 years; hard to know if we'll like that permanently or whether we'll want to be back in the city after a few years of that. This option is more of a wildcard.

From a financial perspective, is it unwise for us to buy a $1.2m house? The risk there is that our combined income falls under 100k/yr and we have to foreclose on the house. I'm very risk-averse, but that seems unlikely. If we got a cheap house we would just be putting all this money into the stock market anyway; might as well take a large position in the housing market instead, right? The upside is that as long as I maintain my salary for 5 more years, I could pay the house off (which makes it seem not so expensive).

A big unknown with option #1 is the schools. They're bad enough I wouldn't send my (future) kids there, but the high prices are driving lots of families down there so they could be much better in 5 years. But they probably won't be, so we would have to move in 5-7 years to find better schools. I think we will have 3-4 kids, so the cost of private would cover almost a $1m mortgage anyway.

This housing market has gone up 10-20% every year since the recession (that recession that bottomed out 7 years ago, which is coincidentally the length of time it takes for a bankruptcy to disappear from one's credit history... wonder what all the defaulters are up to now?). The risk of not buying in the nice neighborhood is that in 5 years it might be beyond our means, whereas today it's barely within our means (or comfortably within our means according to the lender's $1.8m approval). Yes, there will always be other desirable neighborhoods, but not within 5 miles of downtown. I know it can't go up 10%/yr forever, but houses are still cheaper than comparable cities, so my guess is it still has at least a few more years of outsized gains left. I go to open houses and see lots of couples trying to buy, so there's authentic demand here, not just investors.

I'm also under the impression that in a market downturn, the 600k house in a non-desirable neighborhood would lose a significantly higher percentage of its value than a $1.2m house in a desirable neighborhood. Is that correct? This would only matter in a worst-case scenario where we're forced to sell at the worst time.

We'd also consider moving to other cities (just for fun), but we're both career-focused so it's not possible to coordinate such a move with two jobs in the mix. We're also in the best city for our work. Both our families are very far away; who knows if we'll want to change that once we have kids in a few years. That's another thing making me hesitate to go for the for-life house.

Happy to read any advice on any aspects of this question/monologue.

runner540
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Re: Expensive house in HCOL area

Post by runner540 » Sun Jun 03, 2018 6:51 pm

Lenders will approve a lot of things right now, so ignore what they are telling you and do your own math about what you can afford. Read this Bloomberg article if you don't believe me. https://www.bloomberg.com/news/features ... o-the-poor

What is your taxable $320k for? I'd suggest you use that for a bigger downpayment, to bring the monthly payment to something that is more manageable if your company goes under. Here's how I think about homebuying for higher compensated, but riskier job profiles: you can balance the risk to income, by making the payment smaller (or non existent) with a huge down payment. With $300k in household salary and another $150-250k in variable comp, you should be able to quickly increase your down payment.

Also, if you and partner are not married, you'll need to draw up documents to protect you both and the house in case of a split.

AlphaLess
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Re: Expensive house in HCOL area

Post by AlphaLess » Sun Jun 03, 2018 6:52 pm

It's a tough decision, as the numbers are close.

- If this were 2011, I would say, go for it, ceteris paribus.
- Ferry ride: is this NYC? Is the ferry ride going into Sandy Hook? They have some very good school districts there.
- 'My comp package is *not* marked up based on company risk. I received comparable offers from significantly more stable companies.' Why stay in a sub-optimal situation? Why not take it?
- conversely, if you can get offers $300-350K easily, then is your job situation fairly secure even in a downturn?
- 180K for a downpayment for a $1.2MM house? Or is partner also providing a similar amount? 180K Seems low. When you go jumbo, it is much more preferred to have 25-30% down.
- if you are running separate financial accounts, who is buying the house? Things can get tough in a 'divorce' (not sure if you are married or not).
"You can get more with a kind word and a gun than with just a kind word." George Washington

keepingitsimple
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Re: Expensive house in HCOL area

Post by keepingitsimple » Sun Jun 03, 2018 7:41 pm

I would go with option 3 and pay cash for the home with no loan involved. I like option 3 because I feel it provides the most options for your future:

- If all goes well with your and your partners career over the next 5 years, you'll both have substantial savings.
- Having money in the bank means you'll have more options for the direction and future of your family.
- A home on a 1 acre parcel that is paid for would mean you are able to expand the house if you need more space, and you'd likely be able to pay cash.
- If your company should go bankrupt, you'll at least have no foreclosure concerns.
- As children come into the picture, one or both of you may have an unanticipated desire to stay home and be with the children.
- Having minimal expenses and substantial savings may allow you and/or your partner to at least have the option of retiring in 5 years, should you decide.

I think you'll find your frugality serves you both well as you embark on a new familial direction. You can start living slightly larger, but I propose that perhaps a more costly home may not be the way to do this. Best of luck to you both.

schrute
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Re: Expensive house in HCOL area

Post by schrute » Sun Jun 03, 2018 7:47 pm

keepingitsimple wrote:
Sun Jun 03, 2018 7:41 pm
I would go with option 3 and pay cash for the home with no loan involved. I like option 3 because I feel it provides the most options for your future:

- If all goes well with your and your partners career over the next 5 years, you'll both have substantial savings.
- Having money in the bank means you'll have more options for the direction and future of your family.
- A home on a 1 acre parcel that is paid for would mean you are able to expand the house if you need more space, and you'd likely be able to pay cash.
- If your company should go bankrupt, you'll at least have no foreclosure concerns.
- As children come into the picture, one or both of you may have an unanticipated desire to stay home and be with the children.
- Having minimal expenses and substantial savings may allow you and/or your partner to at least have the option of retiring in 5 years, should you decide.

I think you'll find your frugality serves you both well as you embark on a new familial direction. You can start living slightly larger, but I propose that perhaps a more costly home may not be the way to do this. Best of luck to you both.
If his company goes bankrupt, he still owes property tax, which could be significant.

emdeefive
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Re: Expensive house in HCOL area

Post by emdeefive » Sun Jun 03, 2018 7:48 pm

> If this were 2011, I would say, go for it, ceteris paribus.

I tend to think the same, although now we know that was a trough. Would I/you have thought the same in 2011 without knowing whether that was only the halfway point of Great Depression 2?

> 'My comp package is *not* marked up based on company risk. I received comparable offers from significantly more stable companies.' Why stay in a sub-optimal situation? Why not take it?

The choice was to try to build a machine that prints money, or stand around and turn the crank on one that already exists. The former is more fun, and I didn't want to say "in a few more years when I'm more stable" for the rest of my life.

> 180K for a downpayment for a $1.2MM house?

The down payment and monthly payments would be split 50/50 with partner. I can also liquidate my taxable account to increase the payment.

> What is your taxable $320k for? I'd suggest you use that for a bigger downpayment, to bring the monthly payment to something that is more manageable if your company goes under.

A similar variable is whether to overpay the monthly payments. It's a question of leverage, given that the leftover money goes into the stock market. How much leverage is desirable via a mortgage when it's possible to liquidate everything and pay it off? That could be a whole thread in itself. My thinking is that putting an extra 100k towards the down-payment/early-payment is the same as keeping that 100k in an FDIC savings account, in terms of safety.

> if you are running separate financial accounts, who is buying the house? Things can get tough in a 'divorce' (not sure if you are married or not).
> Also, if you and partner are not married, you'll need to draw up documents to protect you both and the house in case of a split.

We're not married, and won't be marrying, for tax optimization reasons. I still haven't worked out whether it has any tax impact to have the house in both of our names or just one, but I've been leaning towards just putting it in my name for simplicity (but that's when we were aiming for 600k, at 1.2m we might have to do dual). If it's just one, we'll get something written up to cover dissolution, although I'm not too worried about it (famous last words).

> If your company should go bankrupt, you'll at least have no foreclosure concerns.

If my company goes under because of its own issues, I can easily get a job with similar comp (my comp would have to cut by half to get to the point that I couldn't make the payments; that's not even counting my partner's salary). My worry is if there's an industry-wide issue, that could put me out of work (I don't really know how to model this risk or how likely these things are).

> I think you'll find your frugality serves you both well as you embark on a new familial direction.

Getting a $1m house seems decidedly luxurious to me, which is what makes it hard given that we've both been frugal to this point. I think what makes it hard is that these houses tend to go up in value, so it's not like I'm spending this money on a consumable that will be worth nothing. There's even the chance that the house continues to go up at the rate it has in the past 5 years which would just make early retirement even more possible. That's really just a lottery though, so I'm trying not to think of it that way.

delamer
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Re: Expensive house in HCOL area

Post by delamer » Sun Jun 03, 2018 8:04 pm

Commute times are key when you have kids, particularly if both of you plan to continue to work.

If that is the situation, then go for option #2 which is affordable given your income(s).

That said, a 3-bedroom house is going to get pretty crowded with 3-4 kids plus a nanny/grandparent.

Not getting married for “tax optimization” reasons is one thing if you don’t have kids. But the kids add a level of commitment and complexity that cannot be quantified. Never make your plans based on everything going right; spouses have rights (and responsibilities) that partners don’t. Even something as basic as an inherited IRA plays out differently for a spouse versus a partner.

runner540
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Re: Expensive house in HCOL area

Post by runner540 » Sun Jun 03, 2018 8:12 pm

delamer wrote:
Sun Jun 03, 2018 8:04 pm
Commute times are key when you have kids, particularly if both of you plan to continue to work.

If that is the situation, then go for option #2 which is affordable given your income(s).

That said, a 3-bedroom house is going to get pretty crowded with 3-4 kids plus a nanny/grandparent.

Not getting married for “tax optimization” reasons is one thing if you don’t have kids. But the kids add a level of commitment and complexity that cannot be quantified. Never make your plans based on everything going right; spouses have rights (and responsibilities) that partners don’t. Even something as basic as an inherited IRA plays out differently for a spouse versus a partner.
+1

OP, your partner would be taking a huge financial risk to contribute to the down payment, and help pay the mortgage, on an asset not in their name legally. I would strongly caution any friend of mine against this. Also, think through scenarios for servicing the mortgage if one of you isn't working, for health/kid reasons.

emdeefive
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Re: Expensive house in HCOL area

Post by emdeefive » Sun Jun 03, 2018 8:21 pm

> That said, a 3-bedroom house is going to get pretty crowded with 3-4 kids plus a nanny/grandparent.

It's a good point. I figured that once the kids are in school we won't need a nanny, but there's some overlap period there I think where a 4th bedroom could be needed. I'll think about that.

> OP, your partner would be taking a huge financial risk to contribute to the down payment, and help pay the mortgage, on an asset not in their name legally. I would strongly caution any friend of mine against this.

I'm leaning more towards dual-ownership, assuming it works out the same on the taxes. I planned on having some legal doc to protect us both, but it seems like dual-ownership is basically that legal doc. I'll do more research on this; it's becoming more important given the increase in what we plan to spend.

> Also, think through scenarios for servicing the mortgage if one of you isn't working, for health/kid reasons.

From the beginning we were really keen on the idea of having a mortgage that just one of us could pay if necessary. $1.2mm really starts to test that (we could still do that on 120k/yr, but it would definitely mean we'd have to keep a close eye on the inflows and outflows).

> Never make your plans based on everything going right

Good idea. I'll consider it from that perspective too.

ThankYouJack
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Re: Expensive house in HCOL area

Post by ThankYouJack » Sun Jun 03, 2018 8:29 pm

Seems like you could easily afford the $1.2m house with your incomes - https://www.nerdwallet.com/mortgages/ho ... ordability

I would probably go for that

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Watty
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Re: Expensive house in HCOL area

Post by Watty » Sun Jun 03, 2018 9:16 pm

Be very careful when looking at commute times.

When someone says a commute takes 30 minutes(or whatever) they typically means 30 minutes on a good day. It will vary but often there will be a couple of not so good days out of the 10 commutes each week, terrible days every month, and a couple of times a year it will be a commute from hell. With a longer commute there may occasionally be days when you do not make it into the office, or make it home that night.

In most areas commutes are getting worse too. When I moved into my house I could pretty consistently get to or from work in about 30 minutes. By the time I retired about 14 years later it was much more variable(see above) and would take at least 40 minutes on a good day. Try to picture what your commute with each of the options will be like in 10 to 15 years.

In addition to the frustration and time of a variable commute if you have a job where you have to be in at work at a specific time like for an 8:00 AM appointment or meeting you will need to leave for work very early just in case it turns out to be a bad commute day. If you end up using daycare instead of a nanny or grandparent you will have a similar problem with getting there to pick up the kid on time. I have heard of people being dropped by their daycare provider because they were late in picking up their kids too many times.

With a long commute trying to do anything like going out to diner and a movie on a weeknight can be difficult since you will get home so late and you might be late because of the commute.

If you have a shorter commute now don't underestimate how burtal a long commute can be when you have to do it day after day. I would pretty much rule out the first and third option because of the long commutes.
emdeefive wrote:
Sun Jun 03, 2018 6:39 pm
There's three main ways for us to go:
I would add a fourth option, keep renting for now and wait to buy until your theoretical future kid is getting closer to starting school.

You could find out that it is much harder than expected to have or adopt a kid and when you do if the kid has even minor and temporary health issues having a stay at home parent might become very desirable since taking care of kid with special needs may be beyond what a typical nanny or grand-parent can do. You could also have twins or triplets which could change your housing needs.

If need the extra space you might rent a bigger place in one of the areas you mentioned to try out the long commute for a while.

keepingitsimple
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Re: Expensive house in HCOL area

Post by keepingitsimple » Sun Jun 03, 2018 9:17 pm

Aside from the commute and possibly tiring of rural life in the future, are there any additional downsides to the $300K house in option 3?

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Sandtrap
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Re: Expensive house in HCOL area

Post by Sandtrap » Sun Jun 03, 2018 9:46 pm

#2 Go for it.
#4 Continue renting and saving.

j :D

emdeefive
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Re: Expensive house in HCOL area

Post by emdeefive » Sun Jun 03, 2018 10:09 pm

> #4 Continue renting and saving.
> I would add a fourth option, keep renting for now and wait to buy until your theoretical future kid is getting closer to starting school.

The hard part of that is we've been renting and saving for several years now, and houses cost twice as much as back then. Despite the high prices, a house here is still a good deal compared to cities with a comparable job market (for my line of work). It'll be hard to stomach if we wait 5 years and that $1.2m house costs $2m. (The inverse scenario being we buy it and 5 years later it's worth 600k... that's not an easy one to stomach either).

> Aside from the commute and possibly tiring of rural life in the future, are there any additional downsides to the $300K house in option 3?

Not that I can think of. We've both lived in the heart of the city for several years now (20 min walk to work), so it's a pretty significant change for us. We could be mis-estimating how much we'll like/hate bus+ferry commute. I think the biggest risk there is that a few years pass and we want to go back to the city but get priced out of the good neighborhoods in that time. Regardless of price changes, moving after just a year or two will equal a five-figure loss in transaction fees, and this house shopping is painful enough that I'd like to not do it again for at least a decade.

Suppose in 5 years we decided to move closer to family and have to sell this house. If the market doubled, I'd be disappointed to have missed $1m in profit on the expensive house. Of course if the market halves, I'd be delighted to only lose 150k with option 3. The positions have we have in the stock market are large enough that I do wonder whether it makes sense for us to also open a large position in the housing market.

> You could find out that it is much harder than expected to have or adopt a kid and when you do if the kid has even minor and temporary health issues having a stay at home parent might become very desirable since taking care of kid with special needs may be beyond what a typical nanny or grand-parent can do. You could also have twins or triplets which could change your housing needs.

Insightful, thank you. It's very uncomfortable for me to think about those scenarios, but pretending they can't happen is probably not the best way to handle it.

> In addition to the frustration and time of a variable commute

That's a hard one to measure. Option #2 is a bus commute, so traffic could get worse, although I don't think it would get much worse because this neighborhood is a dead-end and has minimal housing increases. Option #1 is mostly by train which should have a pretty consistent commute. The ferry option also should be consistent, but has a bus connection at the end which could get worse. I think the buses for #2 and #3 will have dedicated bus lanes usually because they're in main corridors.

I preferred a train commute to avoid variability but the train will always require a bus connection so the traffic variability can't be completely eliminated.

emdeefive
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Re: Expensive house in HCOL area

Post by emdeefive » Sun Jun 03, 2018 10:15 pm

Regarding the "continue renting" option: if we moved into an identical apartment our rent would increase by 30-50% (our rent increases haven't matched the market). To get a 2BR (not a requirement for a baby, but nice to have), would probably cost 75% more. That makes it a little tougher to continue to rent if we got a bigger apartment, but of course rent is significantly cheaper than the mortgage right now, even for the 600k house.

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Watty
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Re: Expensive house in HCOL area

Post by Watty » Sun Jun 03, 2018 10:29 pm

emdeefive wrote:
Sun Jun 03, 2018 10:09 pm
Not that I can think of. We've both lived in the heart of the city for several years now (20 min walk to work), so it's a pretty significant change for us. We could be mis-estimating how much we'll like/hate bus+ferry commute.
You could rent a place with a 45 minute commute for a week to try doing the commute.

keepingitsimple
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Re: Expensive house in HCOL area

Post by keepingitsimple » Sun Jun 03, 2018 11:17 pm

emdeefive wrote:
Sun Jun 03, 2018 10:09 pm

Suppose in 5 years we decided to move closer to family and have to sell this house. If the market doubled, I'd be disappointed to have missed $1m in profit on the expensive house. Of course if the market halves, I'd be delighted to only lose 150k with option 3. The positions have we have in the stock market are large enough that I do wonder whether it makes sense for us to also open a large position in the housing market.
I can empathize with the dilemma of potentially missing out on an increase in resale value. I suppose that's the dilemma with investing in general. One point to consider, which you likely already have, is that the money you aren't spending towards option #1 (by going with option 3, the $300K house) can be invested. So it's earning potential is not completely lost, though it may not increase in value like you are indicating with property values in your area. Additionally, one never knows how the housing market will do and how long it will take to sell a home. Some areas may have more certainty than others. Money invested/saved over 5 years would allow you to place a larger down payment on a house in the city, if you decided to return.

Since there is uncertainty at the 5 year mark, perhaps the way to arrive at the answer is for you and your partner to envision your ideal life five years from now. How many children might you have, do you feel your idea of retiring will have dissipated or accelerated, how will city life be with a child / children, are your jobs high stress with a high rate of burnout, will you likely have to move for work, if not retired will one of you desire to stay home with children, do you enjoy your work, would you like to travel more...? Maybe trying to work backwards from five years to today will help you assess if you are ready to invest in a more expensive vs less expensive home (relative to one another).

Lastly, investment potential aside, in which of the three options do you and your partner feel you'll be happiest with a growing family? I suppose that should count for something.
Last edited by keepingitsimple on Sun Jun 03, 2018 11:33 pm, edited 1 time in total.

KyleAAA
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Re: Expensive house in HCOL area

Post by KyleAAA » Sun Jun 03, 2018 11:30 pm

You should be able to save 30%+ of your income every year with the $1.2mm house at today’s interest rates. You aren’t at all borderline. I’m assuming you’re in tech on the west coast?

gcc32
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Re: Expensive house in HCOL area

Post by gcc32 » Mon Jun 04, 2018 4:55 pm

I'm in a similar situation to you. A couple years older, have looked at similarly priced houses in HCOL area, just had my first kid.

My wife and I have rented for a long time. We don't like renting and do want to own. We've missed out on a ton of gains in real estate. But I bet we've actually made more by being invested in the stock market and by renting a comparatively smaller place than we would end out buying. Because we have moved a handful of times and we always knew we "could move," we've felt no pressure to "buy into a place we can grow into," which I think is the standard move when you're around our age in that life and financial situation. A lot of our friends pay way more for housing costs or have brutal commutes because they chose differently than us.

I would STRONGLY caution you against trying to plan too much for what will happen when it comes to being able to have kids, how many you will have, and what your needs will be with kids. To me, that leads to the optimal decision being to rent until you have good information into your careers, amount of kids, and lifestyle with kids. AT LEAST I would wait until I actually had a kid on the way before buying. But that is because we purely looked at the decision from a financial perspective, there are other reasons to own a house.

One more thing for thought - you work at a company with risky prospects and you also tossed around the idea of early retirement. The outcomes you could encounter in the next 5 years, especially when you include kids, wife's situation, vary drastically. I would jot down a bunch of them and see how you think the mesh with all of your options.

Traveler
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Re: Expensive house in HCOL area

Post by Traveler » Mon Jun 04, 2018 6:17 pm

I'm trying to figure out how one can manage a $1.2M mortgage on a salary on only $120K (you said it could be done should one lose a job and variable pay goes away). I make more than $120K and wouldn't even consider a $500K mortgage.

kenoryan
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Re: Expensive house in HCOL area

Post by kenoryan » Mon Jun 04, 2018 8:34 pm

My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.

TheMadEph
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Re: Expensive house in HCOL area

Post by TheMadEph » Mon Jun 04, 2018 11:54 pm

I made a similar choice in housing, though not married. We chose the Ferry commute (though ended up spending a lot more than $300) and it is <1hr door to door, with biking on both ends. I think the key of all commuting is minimizing transfers. If you can find something like that with the Ferry situation, a longer commute is not terrible (very pretty and you can work many times). Plus ferries are rarely late or delayed or stuck in traffic. (Seattle at least). I assume you are thinking of Seattle maybe? Although finding an acre for $300K seems difficult around here too (probably harder down in Marin).

Also, I agree with the waiting until you have the kid on the way, even with out the kid, my wife and I probably pulled the trigger too soon on the house, as she got a new job that she loves shortly thereafter and our house is not perfectly set up for her....

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Re: Expensive house in HCOL area

Post by TravelGeek » Tue Jun 05, 2018 12:22 am

emdeefive wrote:
Sun Jun 03, 2018 6:39 pm
There's three main ways for us to go:

1) Buy a house in a less desirable but gentrifying neighborhood for ~600k, which gets a 3br/2ba. Bad schools, slightly more dangerous, but eminently safe compared to the dangerous areas of most cities. Commute 45m-1hr by train. This was our #1 option but the prices here just don't seem to be a big enough discount from the nicer neighborhoods to make it worth it. We thought we could get a house here in the 400s but that turned out to be wrong.

2) Buy a house in a very desirable neighborhood with mostly $1m-5m houses. Great schools. We would get a $1.2m house which would be a well-maintained and updated 3br/2ba. Might be more architecturally interesting than option #1, but that's just a bonus. Commute 30-45 mins by bus.

3) Buy a house that's a ferry ride away. Commute is 45-75 mins by ferry+bus. Cost is 300k for 3br/2ba, and would have an acre or more of land (instead of 0.1 acres for option #1/#2). This is more rural, which is attractive because we've been in the loud city for over 5 years; hard to know if we'll like that permanently or whether we'll want to be back in the city after a few years of that. This option is more of a wildcard.
In what environment would you want your future potential kids grow up?

If I was one of them, I would probably choose #3 based on my personal experience.

random user 320
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Re: Expensive house in HCOL area

Post by random user 320 » Tue Jun 05, 2018 9:07 am

kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up.
Heh, this is SO much easier to believe in your 30s than in your 50s, after you've seen a couple of recessions. And it's wise to note that such belief often leads people into dependence. Fall for it hard enough, and you can never afford to stop working for the Googles and Ciscos of this world. As Antonio Garcia Martinez writes about a similar class of workers: "Without that number, your privileged place in the New York hierarchy goes away. Gone is the house in the Hamptons. Gone is the duplex on the Upper West Side. Gone is your kid’s $30,000 preschool. And that’s why Wall Street has that roach-motel quality: people check in, but rarely check out."

(Context: I have worked for Google and made enough money to stop working. I have also worked for Sun Microsystems and saw its stock price dive to near zero, invalidating all my assumptions about appreciation and income growth. Ah, to be young and dream again. :D )

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Re: Expensive house in HCOL area

Post by TomatoTomahto » Tue Jun 05, 2018 9:26 am

kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
[snip ...]But the property will appreciate and the incomes will go up. Buy the house and enjoy!
From your lips to God’s ears. What you say is true . . . until it’s not. I am (reluctantly) long real estate, and my brother-in-Law is voluntarily long real estate. I just hope the music keeps playing a little longer.
Zero Net Carbon by 2019.

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Re: Expensive house in HCOL area

Post by HomerJ » Tue Jun 05, 2018 9:46 am

kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.
Ah, what a lovely world to live in, full of guarantees. :)
The J stands for Jay

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Watty
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Re: Expensive house in HCOL area

Post by Watty » Tue Jun 05, 2018 9:51 am

HomerJ wrote:
Tue Jun 05, 2018 9:46 am
kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.
Ah, what a lovely world to live in, full of guarantees. :)
That is pure "bubble talk" which would scare the heck out of me if I was looking at buying there.

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Re: Expensive house in HCOL area

Post by TravelGeek » Tue Jun 05, 2018 9:55 am

Watty wrote:
Tue Jun 05, 2018 9:51 am

That is pure "bubble talk" which would scare the heck out of me if I was looking at buying there.
This time it is going to be different. :D

random user 320
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Re: Expensive house in HCOL area

Post by random user 320 » Tue Jun 05, 2018 10:16 am

Wow, lots of people having the same gut reaction to the bubble talk. To be fair, I'm not saying don't buy the expensive house, just like I'm not saying don't buy VTI because the valuations are rich right now. I'm only pointing out that relying on ever-increasing income and wealth is naive.

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Re: Expensive house in HCOL area

Post by Pajamas » Tue Jun 05, 2018 10:28 am

random user 320 wrote:
Tue Jun 05, 2018 10:16 am
Wow, lots of people having the same gut reaction to the bubble talk.
Yes, same here.

Of course the crazy housing prices were an increasingly popular topic of discussion for several years before the last crash. It's easy to see the signs of a frenzy but timing the peak and subsequent bottom can be difficult. It's best to proceed cautiously with such a significant commitment to a single asset no matter the current state of the economy and housing market. It's best not to count on increasing income or even continued employment and rising housing prices and to consider worst-case scenarios.

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Re: Expensive house in HCOL area

Post by breeks » Tue Jun 05, 2018 10:41 am

There has to be a decent option in between 600k and 1.2M, right?

My wife and I make about 100k more base than you and your partner (but with small cash bonuses). We bought a 875k house (in a HCOL area) last year and surprisingly feel slightly more cash-strapped than we expected. Granted, we have two kids, pay for a full-time nanny, and still have 150k or so of low-interest student loan debt. We're still comfortable, but we're not able to pay down debt and build wealth as quickly as I'd hoped.
Last edited by breeks on Tue Jun 05, 2018 11:24 am, edited 1 time in total.

gcc32
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Re: Expensive house in HCOL area

Post by gcc32 » Tue Jun 05, 2018 11:17 am

kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.
As others have said, this is true until it's not. That whole area has benefitted from unprecedented growth in the tech sector + housing policy that severely limits supply of new constrution / increased density. I'm not informed enough to predict exactly what will happen, but if either tech growth stumbles or housing density is relaxed (or perhaps self-driving vehicles increase the commutable range), prices will NOT appreciate as they have in the past.

I think the most likely thing to happen is lots of tech companies can't easily retain employees once they have kids -- many have enough money to live a better life elsewhere -- so they end out building more satelllite campuses across the country. This in turn creates a halo effect around those areas with startups being built, investment capital, etc.

You won't see a crash, but you'll see a gradual decline in apprecation in this area, and those who have a huge chunk of net worth in their houses are going to wish they didn't.

With all of this said, if OP can actually liquidate for cash most of his stock options on an annual basis and he stays with his current partner, he can easily afford a $1.2mm home. The question really is is that how he wants to spend his money.

kenoryan
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Re: Expensive house in HCOL area

Post by kenoryan » Tue Jun 05, 2018 11:41 pm

Watty wrote:
Tue Jun 05, 2018 9:51 am
HomerJ wrote:
Tue Jun 05, 2018 9:46 am
kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.
Ah, what a lovely world to live in, full of guarantees. :)
That is pure "bubble talk" which would scare the heck out of me if I was looking at buying there.
God hates a coward. 😂

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Re: Expensive house in HCOL area

Post by pascal » Wed Jun 06, 2018 12:24 am

gcc32 wrote:
Mon Jun 04, 2018 4:55 pm


My wife and I have rented for a long time. We don't like renting and do want to own. We've missed out on a ton of gains in real estate. But I bet we've actually made more by being invested in the stock market and by renting a comparatively smaller place than we would end out buying. Because we have moved a handful of times and we always knew we "could move," we've felt no pressure to "buy into a place we can grow into," which I think is the standard move when you're around our age in that life and financial situation. A lot of our friends pay way more for housing costs or have brutal commutes because they chose differently
Unless you put all your stocks on FANG how did you make more in the stock market?

Everyone tries to validate the decisions they have done. Even though in hindsight they would have done otherwise.
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

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Re: Expensive house in HCOL area

Post by ScroogeMcDuck » Wed Jun 06, 2018 1:25 am

pascal wrote:
Wed Jun 06, 2018 12:24 am
gcc32 wrote:
Mon Jun 04, 2018 4:55 pm


My wife and I have rented for a long time. We don't like renting and do want to own. We've missed out on a ton of gains in real estate. But I bet we've actually made more by being invested in the stock market and by renting a comparatively smaller place than we would end out buying. Because we have moved a handful of times and we always knew we "could move," we've felt no pressure to "buy into a place we can grow into," which I think is the standard move when you're around our age in that life and financial situation. A lot of our friends pay way more for housing costs or have brutal commutes because they chose differently
Unless you put all your stocks on FANG how did you make more in the stock market?

Everyone tries to validate the decisions they have done. Even though in hindsight they would have done otherwise.
We bought in the SF bay area a few years ago. Last month I did the math and was blown away to see how far it outpaced our portfolio during that period - nearly 30% per year (less expenses and including imputed rent). Clearly not a sustainable situation.

hightower
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Re: Expensive house in HCOL area

Post by hightower » Wed Jun 06, 2018 8:10 am

This sort of thread is becoming very common these days on here and over at WCI. People are way over-extending themselves on home purchases and rightfully feeling very nervous about it, so they make threads like this hoping to get consolation from the masses.
There's no debating this...a 1.3+ million dollar house is not "affordable" on a 300k/year salary (with or without stock options). As you stated, the company you work for is risky and could go belly up in the next 5 years. Why would you sign up for a 30 year mortgage in that situation? Come back down to reality and stop even considering this kind of purchase. Rent. Save as much as you can now while the company is still doing well. In 5 years if the company is still alive and you're sitting on millions in stock options, then you can consider buying a millionaires house. Until then, it's foolish.
Best of luck to you though;)

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Re: Expensive house in HCOL area

Post by goodenyou » Wed Jun 06, 2018 8:33 am

At $1,000+/sq. ft., let's hope it continues to go up. Unfortunately, the "commoners" that service these people will have longer and longer commutes. You are brilliant (lucky) if you know when to get out and realize all those gains.
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Re: Expensive house in HCOL area

Post by onourway » Wed Jun 06, 2018 8:46 am

No, not affordable on your incomes, especially with the higher earner's job being extremely uncertain. All the less so when you factor in the cost of 3-4 kids in a HCOL urban environment.

Rus In Urbe
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Re: Expensive house in HCOL area

Post by Rus In Urbe » Wed Jun 06, 2018 8:47 am

I could not agree more strongly. Houses can be very seductive! Don't ruin your future by overextending now. :oops:
As hightower said: This sort of thread is becoming very common these days on here and over at WCI. People are way over-extending themselves on home purchases and rightfully feeling very nervous about it, so they make threads like this hoping to get consolation from the masses.
There's no debating this...a 1.3+ million dollar house is not "affordable" on a 300k/year salary (with or without stock options). As you stated, the company you work for is risky and could go belly up in the next 5 years. Why would you sign up for a 30 year mortgage in that situation? Come back down to reality and stop even considering this kind of purchase. Rent. Save as much as you can now while the company is still doing well. In 5 years if the company is still alive and you're sitting on millions in stock options, then you can consider buying a millionaires house. Until then, it's foolish.
Best of luck to you though;)

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Re: Expensive house in HCOL area

Post by HomerJ » Wed Jun 06, 2018 10:42 am

gcc32 wrote:
Tue Jun 05, 2018 11:17 am
kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.
As others have said, this is true until it's not. That whole area has benefitted from unprecedented growth in the tech sector + housing policy that severely limits supply of new constrution / increased density. I'm not informed enough to predict exactly what will happen, but if either tech growth stumbles or housing density is relaxed (or perhaps self-driving vehicles increase the commutable range), prices will NOT appreciate as they have in the past.

I think the most likely thing to happen is lots of tech companies can't easily retain employees once they have kids -- many have enough money to live a better life elsewhere -- so they end out building more satelllite campuses across the country. This in turn creates a halo effect around those areas with startups being built, investment capital, etc.

You won't see a crash, but you'll see a gradual decline in apprecation in this area, and those who have a huge chunk of net worth in their houses are going to wish they didn't.

With all of this said, if OP can actually liquidate for cash most of his stock options on an annual basis and he stays with his current partner, he can easily afford a $1.2mm home. The question really is is that how he wants to spend his money.
You don't even need a housing crash or a tech crash... All that needs to happen for demand to go down is for interest rates to go up. Less people can afford a $1.2 million house with a 6% mortgage.

Rising interest rates aren't exactly a crazy black-swan event.
The J stands for Jay

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HomerJ
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Re: Expensive house in HCOL area

Post by HomerJ » Wed Jun 06, 2018 10:43 am

kenoryan wrote:
Tue Jun 05, 2018 11:41 pm
Watty wrote:
Tue Jun 05, 2018 9:51 am
HomerJ wrote:
Tue Jun 05, 2018 9:46 am
kenoryan wrote:
Mon Jun 04, 2018 8:34 pm
My nephew works for Google and his wife works for Cisco. They just bought a house in mountain view for 2.3M. They are both 30 and make a little more than you guys. But the property will appreciate and the incomes will go up. Buy the house and enjoy! Your stock options will build up to a nice retirement nest egg.
Ah, what a lovely world to live in, full of guarantees. :)
That is pure "bubble talk" which would scare the heck out of me if I was looking at buying there.
God hates a coward. 😂
Man plans, and God laughs. :)
The J stands for Jay

ssquared87
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Re: Expensive house in HCOL area

Post by ssquared87 » Wed Jun 06, 2018 10:59 am

If you think Seattle is a loud city, definitely don’t move to a real city.

Bainbridge island is a tough commute. My colleague was thinking the same thing as you, move from Ballard to bainbridge to have more space and more relaxation. His commute on the bus and ferry over the past 2 years have basically negated any amount of relaxation he thought he was going to get. He says he doesn’t spend nearly as much time with his kids anymore, and he gets stressed trying to work around the ferry schedule at times.

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Re: Expensive house in HCOL area

Post by ssquared87 » Wed Jun 06, 2018 11:02 am

hightower wrote:
Wed Jun 06, 2018 8:10 am
This sort of thread is becoming very common these days on here and over at WCI. People are way over-extending themselves on home purchases and rightfully feeling very nervous about it, so they make threads like this hoping to get consolation from the masses.
There's no debating this...a 1.3+ million dollar house is not "affordable" on a 300k/year salary (with or without stock options). As you stated, the company you work for is risky and could go belly up in the next 5 years. Why would you sign up for a 30 year mortgage in that situation? Come back down to reality and stop even considering this kind of purchase. Rent. Save as much as you can now while the company is still doing well. In 5 years if the company is still alive and you're sitting on millions in stock options, then you can consider buying a millionaires house. Until then, it's foolish.
Best of luck to you though;)
Actually there is debating this. 2.5-3x salary is a good conservative number when considering housing affordability. Stretching to 4x isn’t nearly that bad in a HCOL area. On top of that, it’s not entirely fair to completely ignore bonuses. Can’t rely on the bonuses, but the OP’s household base income alone is enough to pay 4x income.

The OP is also only 30 and his comp is pretty easily attainable from many companies in the Seattle area where I presume he is living.

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Re: Expensive house in HCOL area

Post by WhiteMaxima » Wed Jun 06, 2018 11:29 am

Buy the cheapest house in a high priced desirable location. typically a short commute, low prime and good school district. Seattle is a desirable place to live and raise kids. Est side (I mean Kirkland, Bellevue or Samamish) is more desirable for a young family than Seattle city. Buy a place near future light rail station. For dual earners, no problem to leverage to 1.0 mil.

hightower
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Re: Expensive house in HCOL area

Post by hightower » Wed Jun 06, 2018 1:24 pm

ssquared87 wrote:
Wed Jun 06, 2018 11:02 am
hightower wrote:
Wed Jun 06, 2018 8:10 am
This sort of thread is becoming very common these days on here and over at WCI. People are way over-extending themselves on home purchases and rightfully feeling very nervous about it, so they make threads like this hoping to get consolation from the masses.
There's no debating this...a 1.3+ million dollar house is not "affordable" on a 300k/year salary (with or without stock options). As you stated, the company you work for is risky and could go belly up in the next 5 years. Why would you sign up for a 30 year mortgage in that situation? Come back down to reality and stop even considering this kind of purchase. Rent. Save as much as you can now while the company is still doing well. In 5 years if the company is still alive and you're sitting on millions in stock options, then you can consider buying a millionaires house. Until then, it's foolish.
Best of luck to you though;)
Actually there is debating this. 2.5-3x salary is a good conservative number when considering housing affordability. Stretching to 4x isn’t nearly that bad in a HCOL area. On top of that, it’s not entirely fair to completely ignore bonuses. Can’t rely on the bonuses, but the OP’s household base income alone is enough to pay 4x income.

The OP is also only 30 and his comp is pretty easily attainable from many companies in the Seattle area where I presume he is living.
I don't disagree that there is room for debate. I personally think 2X should be the max. I wouldn't feel comfortable with anything more than that. But, maybe that's just me? For the record, my mortgage is less than 1X my annual income. And I want to get rid of my mortgage early. Maybe I'd feel different if I lived in a HCOL area. I know I'd think long and hard before moving to one of those cities for that reason. I'd love to own a home in Southern California, but I don't want a 1 million dollar mortgage. I guess if I really loved my job, felt like I was really secure in that job, and had family/friends already in the area, I'd be maybe okay with that kind of mortgage. But, it would be a hard pill to swallow.

OnTrack2020
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Re: Expensive house in HCOL area

Post by OnTrack2020 » Wed Jun 06, 2018 3:22 pm

Option #3. This is probably going to be the best way for your to accumulate wealth. Also, if you have children in the future, this may be the best way for one of you to stay home with the child/ren for a period of time if desired or needed. Also, think about that one acre of land. We live on an acre, and love the size of the lot. It's nice space-wise. You will probably not like the commute over the long-term, but then with a paid off less expensive property, you may be able to retire much earlier than thought. If things don't work out over the next few years, you can always reassess and move closer.

If you are that risk averse, I would not be buying a house worth over $1 million.

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Re: Expensive house in HCOL area

Post by ssquared87 » Thu Jun 07, 2018 10:43 am

hightower wrote:
Wed Jun 06, 2018 1:24 pm
ssquared87 wrote:
Wed Jun 06, 2018 11:02 am
hightower wrote:
Wed Jun 06, 2018 8:10 am
This sort of thread is becoming very common these days on here and over at WCI. People are way over-extending themselves on home purchases and rightfully feeling very nervous about it, so they make threads like this hoping to get consolation from the masses.
There's no debating this...a 1.3+ million dollar house is not "affordable" on a 300k/year salary (with or without stock options). As you stated, the company you work for is risky and could go belly up in the next 5 years. Why would you sign up for a 30 year mortgage in that situation? Come back down to reality and stop even considering this kind of purchase. Rent. Save as much as you can now while the company is still doing well. In 5 years if the company is still alive and you're sitting on millions in stock options, then you can consider buying a millionaires house. Until then, it's foolish.
Best of luck to you though;)
Actually there is debating this. 2.5-3x salary is a good conservative number when considering housing affordability. Stretching to 4x isn’t nearly that bad in a HCOL area. On top of that, it’s not entirely fair to completely ignore bonuses. Can’t rely on the bonuses, but the OP’s household base income alone is enough to pay 4x income.

The OP is also only 30 and his comp is pretty easily attainable from many companies in the Seattle area where I presume he is living.
I don't disagree that there is room for debate. I personally think 2X should be the max. I wouldn't feel comfortable with anything more than that. But, maybe that's just me? For the record, my mortgage is less than 1X my annual income. And I want to get rid of my mortgage early. Maybe I'd feel different if I lived in a HCOL area. I know I'd think long and hard before moving to one of those cities for that reason. I'd love to own a home in Southern California, but I don't want a 1 million dollar mortgage. I guess if I really loved my job, felt like I was really secure in that job, and had family/friends already in the area, I'd be maybe okay with that kind of mortgage. But, it would be a hard pill to swallow.
No I mean, I'd rather spend as little as possible as well and would rather keep a mortgage at 2-3x my income if I were purchasing. But after living in NYC, Seattle, and LA, I know that its not realistic for many people to do that, while balancing a reasonable commute, decent house, safe neighborhood and good schools.

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Re: Expensive house in HCOL area

Post by 2m2037 » Thu Jun 07, 2018 12:44 pm

ScroogeMcDuck wrote:
Wed Jun 06, 2018 1:25 am
pascal wrote:
Wed Jun 06, 2018 12:24 am
gcc32 wrote:
Mon Jun 04, 2018 4:55 pm


My wife and I have rented for a long time. We don't like renting and do want to own. We've missed out on a ton of gains in real estate. But I bet we've actually made more by being invested in the stock market and by renting a comparatively smaller place than we would end out buying. Because we have moved a handful of times and we always knew we "could move," we've felt no pressure to "buy into a place we can grow into," which I think is the standard move when you're around our age in that life and financial situation. A lot of our friends pay way more for housing costs or have brutal commutes because they chose differently
Unless you put all your stocks on FANG how did you make more in the stock market?

Everyone tries to validate the decisions they have done. Even though in hindsight they would have done otherwise.
We bought in the SF bay area a few years ago. Last month I did the math and was blown away to see how far it outpaced our portfolio during that period - nearly 30% per year (less expenses and including imputed rent). Clearly not a sustainable situation.
When/how do you plan to realize the gains you've made on your house purchase? The only way I can think of pocketing that profit is if you sold and moved. Move where? Into another purchase? Will reassessment of your property tax base on your new purchase play into the decision? How about rent? I'm genuinely interested in what people's (who are in this situation) thoughts are.

WhiteMaxima
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Re: Expensive house in HCOL area

Post by WhiteMaxima » Thu Jun 07, 2018 12:54 pm

Study shows in SF and SEA, people made more money from their home appreciation than their annual wages during last couple of years.

pascal
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Re: Expensive house in HCOL area

Post by pascal » Thu Jun 07, 2018 2:36 pm

I think the posts about "should I buy a house here's my financial situation" is bound to merit responses such as these.

There isn't a general metric to go buy because as in most life decisions, you are taking a bet. A bet in the belief of US stock market succeeding, a bet that there wouldn't be an earthquake, a steady stream of high income earners, tech always entering new dimensions, local city ordinances not changing, employment, economics, tax reform, Washington etc.

Somehow one has to balance people's successes (perceived or real) having taken the risk, people's failures(perceived or real) having not taken the risk.

As long as indicators are within a certain risk level, you should take the risk - knowing that there is room for failure and what you would do if you failed. Thats how risky decisions are taken.

When I bought my house 2 years ago and posted the same question here (without the insight I now have) - I was dissuaded similarly by a lot of folks and assured by a few and eventually took the bite. It was my biggest risk and now it doesn't seem to be as much of a risk given the appreciation and my changed finances.

However, that cannot be a basis for people investing on an equivalently sized risk at the prices today. Take your own risk. Its unlikely that Bogleheads can convince you one way or the other unless there is an obvious mistake in your assessment.
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

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