Would you pull a trigger on a home purchase or continue renting?

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Topic Author
tRacer4201
Posts: 15
Joined: Fri Jan 19, 2018 3:01 am

Would you pull a trigger on a home purchase or continue renting?

Post by tRacer4201 » Sun May 24, 2020 7:32 pm

Hi folks,

I'm a 30 year old female.

Here are my monthly obligations:

Rent: $2800 (including trash, water)
Food: $500 (groceries, essentials, eating out, occasional shopping)
Phone: $120
Internet: $80
Electricity: $40-$60/depending on the month
Amazon Prime: $11
Spotify: $10
Total expenses: $3500, but let's round it up to $4,000.

My salary is $155,000, and I also receive stock compensation (another $150,000). My compensation is just north of $300,000/yr. I max out my 401K with each paycheck, and I also save usually $3K-$4K each month on top of that. I've paid off student loans, and I don't have a car. I have no outstanding.

Current financial picture:

Liquid savings:
- Short term savings: $40K
- Longer-term (HYSA): $235K
- Another savings account: $72K

Stock Market:
- Mixture of MSFT, McDonalds, Apple: $10K
- VOO: $90K

Retirement:
- Roth: ~$5K
- 401K: ~$60K

So overall I have $100K in the stock market and ~$347K in liquid cash.

If you were in my position, how much would you be willing to spend on a home? The homes I'm looking are in the $700-$800K range. However, I don't want to purchase a home based on my current salary + stock compensation. It seems dangerous to factor in my stock compensation. And from looking over things from that lens, I don't think my $150K salary is "safe" to buy a $750K home. I don't want to be in a position where if I lost my job then it's game over.

The thing I don't like about renting is that it's expensive and it feels like money thrown away. I'd also like to redo the kitchen, mount the TV on the wall, etc. etc., which is either completely out of the question or will result in large fees when I move out.

I can continue renting for a couple more years while I save, and then reevaluate. Am I being overly cautious? What would you do?

mortfree
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by mortfree » Sun May 24, 2020 7:42 pm

With a home you would be throwing your money away on interest and property taxes (if not deductible), Home repair and maintenance, etc.

Great salary. Good cash savings.

Up your retirement contributions if you aren’t maxing out 401k

jakobox
Posts: 36
Joined: Sun Apr 05, 2015 6:33 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by jakobox » Sun May 24, 2020 7:48 pm

My situation wasn't TOO far off from yours at your age.

At first glance, it doesn't seem reckless.

To me, the most important numbers to keep the thought experiment moving would be:

1) How much cash do you anticipate having in short term/cash reserves AFTER the purchase? (mostly a factor of how much you plan to put down)
2) What do you expect your new monthly outlay to be on the home (Mortgage, tax, insurance, etc.)

jakobox
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by jakobox » Sun May 24, 2020 7:50 pm

mortfree wrote:
Sun May 24, 2020 7:42 pm
With a home you would be throwing your money away on interest and property taxes
As a renter you're throwing it away on your rent.

When it's financially responsible, I think the long term benefits of home ownership are pretty considerable.

TheDDC
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by TheDDC » Sun May 24, 2020 8:00 pm

I'm sure homes are not "700-800k" in your area. Real estate is way overpriced if that is truly the case. Consider moving to a lower COL area.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex

HEDGEFUNDIE
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by HEDGEFUNDIE » Sun May 24, 2020 8:03 pm

jakobox wrote:
Sun May 24, 2020 7:50 pm
mortfree wrote:
Sun May 24, 2020 7:42 pm
With a home you would be throwing your money away on interest and property taxes
As a renter you're throwing it away on your rent.

When it's financially responsible, I think the long term benefits of home ownership are pretty considerable.
Only if the home value goes up.

HEDGEFUNDIE
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by HEDGEFUNDIE » Sun May 24, 2020 8:04 pm

TheDDC wrote:
Sun May 24, 2020 8:00 pm
I'm sure homes are not "700-800k" in your area. Real estate is way overpriced if that is truly the case. Consider moving to a lower COL area.

-TheDDC
Would OP make $300k at age 30 in a LCOL area?

newyorker
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by newyorker » Sun May 24, 2020 8:06 pm

Id buy a home (i think you mean a condo since im assuming you are in ny or sf). 750k fits comfortably within your 150k base salary. Best of luck!

HEDGEFUNDIE
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by HEDGEFUNDIE » Sun May 24, 2020 8:07 pm

OP, you’re paying $34k a year in rent.

Have you run the numbers on how much a $600-700k mortgage would cost, plus property taxes? I’m guessing about the same (excluding principal)

Which kind of makes this a no brainer.

tashnewbie
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by tashnewbie » Sun May 24, 2020 8:11 pm

What are your plans for the $300k in liquid cash (which is above and beyond the ~$47k that represents 12 months of expenses)?

How long do you plan to live in your current area?

mortfree
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by mortfree » Sun May 24, 2020 8:14 pm

jakobox wrote:
Sun May 24, 2020 7:50 pm
mortfree wrote:
Sun May 24, 2020 7:42 pm
With a home you would be throwing your money away on interest and property taxes
As a renter you're throwing it away on your rent.

When it's financially responsible, I think the long term benefits of home ownership are pretty considerable.
Did you snip home repair and maintenance from my original quote to strengthen your argument?

Homeowner here.

sailaway
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by sailaway » Sun May 24, 2020 8:19 pm

Was planning home ownership your purpose when you chose to keep so much in cash equivalents?

We pay the same rent, although this townhouse would cost us slightly less to buy than what you are proposing. Salary is slightly higher, but RSUs are less. We could easily put down 20%.

We ran our own rent/own calculations in this neighborhood before we chose to lease. I know that I am actually saving money over the time frame that I plan to be here by renting, unless the property were to appreciate significantly more than the stock market. That wasn't a bet we were willing to take.

If you plan to go from $2800 rent to $750k home, you are either already getting a good deal or planning to upgrade your living situation. Be sure you actually understand the costs of ownership if you feel like you are throwing money away on rent. HOA, taxes, lawn maintenance... there are a lot of costs to home ownership that are never recovered, just like rent.

DH has owned previously, because he was raised to believe it is the done thing to be middle class. I have owned previously because I had a bad landlord in a state and city with few tenant protections. It wasn't really the best economic choice for either of us back then, either.

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cchrissyy
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by cchrissyy » Sun May 24, 2020 8:42 pm

I'm very happy being a renter and would be very uncomfortable having all that cash in a savings account rather than the total market.

That's probably because I don't think rent money is thrown away. I think it buys me one of the most important things I ever buy, which is the place i spend most of my time day after day plus the freedom to change situations whenever I find a better one. Also I know from the rent vs buy calculators that in my area I'm better off renting.


PS - you can afford the fee to mount the TV on the wall!

adamthesmythe
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by adamthesmythe » Sun May 24, 2020 8:46 pm

HEDGEFUNDIE wrote:
Sun May 24, 2020 8:03 pm
jakobox wrote:
Sun May 24, 2020 7:50 pm
mortfree wrote:
Sun May 24, 2020 7:42 pm
With a home you would be throwing your money away on interest and property taxes
As a renter you're throwing it away on your rent.

When it's financially responsible, I think the long term benefits of home ownership are pretty considerable.
Only if the home value goes up.
No, only if it doesn't go down. Or doesn't go down by much.

HEDGEFUNDIE
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by HEDGEFUNDIE » Sun May 24, 2020 8:50 pm

adamthesmythe wrote:
Sun May 24, 2020 8:46 pm
HEDGEFUNDIE wrote:
Sun May 24, 2020 8:03 pm
jakobox wrote:
Sun May 24, 2020 7:50 pm
mortfree wrote:
Sun May 24, 2020 7:42 pm
With a home you would be throwing your money away on interest and property taxes
As a renter you're throwing it away on your rent.

When it's financially responsible, I think the long term benefits of home ownership are pretty considerable.
Only if the home value goes up.
No, only if it doesn't go down. Or doesn't go down by much.
If the home value stays the same you could have invested that principal in the stock market and profited.

Topic Author
tRacer4201
Posts: 15
Joined: Fri Jan 19, 2018 3:01 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by tRacer4201 » Sun May 24, 2020 9:13 pm

TheDDC wrote:
Sun May 24, 2020 8:00 pm
I'm sure homes are not "700-800k" in your area. Real estate is way overpriced if that is truly the case. Consider moving to a lower COL area.

-TheDDC
This isn't an option. I like where I live, and I wouldn't change my career just to live somewhere cheaper.

Topic Author
tRacer4201
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Joined: Fri Jan 19, 2018 3:01 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by tRacer4201 » Sun May 24, 2020 9:14 pm

tashnewbie wrote:
Sun May 24, 2020 8:11 pm
What are your plans for the $300k in liquid cash (which is above and beyond the ~$47k that represents 12 months of expenses)?

How long do you plan to live in your current area?
I plan to stay here at least 6 months. In the meantime I was going to move all the liquid cash into a HYSA.

tashnewbie
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by tashnewbie » Sun May 24, 2020 9:21 pm

tRacer4201 wrote:
Sun May 24, 2020 9:14 pm
tashnewbie wrote:
Sun May 24, 2020 8:11 pm
What are your plans for the $300k in liquid cash (which is above and beyond the ~$47k that represents 12 months of expenses)?

How long do you plan to live in your current area?
I plan to stay here at least 6 months. In the meantime I was going to move all the liquid cash into a HYSA.
How long do you plan to live in your general area/city, not specifically your current residence (apartment etc)? If you plan to leave the area in 6 months, obviously it makes no sense to buy, but I assume you meant the lease on your current place ends in 6 months.

That’s a lot of liquid cash. Were you saving it for a home purchase or are you generally new to investing and had previously just saved a lot?
Last edited by tashnewbie on Sun May 24, 2020 9:33 pm, edited 1 time in total.

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Noobvestor
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by Noobvestor » Sun May 24, 2020 9:31 pm

tRacer4201 wrote:
Sun May 24, 2020 9:13 pm
TheDDC wrote:
Sun May 24, 2020 8:00 pm
I'm sure homes are not "700-800k" in your area. Real estate is way overpriced if that is truly the case. Consider moving to a lower COL area.
This isn't an option. I like where I live, and I wouldn't change my career just to live somewhere cheaper.
Liking where you are favors ownership generally. As for 700K being expensive, I had a dark laugh when I read that one. Here in the Bay, 700K would get you a low-end house or small condo - when I set Zillow to '500K or less' it's basically blank. The lowest result I've seen recently was a house in a relatively bad East Bay neighborhood with the roof caved in for $450,000 - that, too, provided a dark chuckle. $3K/month in rent here gets you a decent one-bedroom apartment. I would suggest the standard NYT rent/buy calculator, but the point is: it's all relative.

https://www.nytimes.com/interactive/201 ... lator.html

It's really a personal decisions of course, but a lot rides on your ability to keep that high-income job. If you're confident you'll have it for even a few more years, a 700K home purchase seems very reasonable to me. If you're not sure, you could wait it out a little longer. I'd probably do the latter, but I tend to play these things rather conservative - last time I bought was during the last downturn, and only because things were cheap.

Right now, I'm renting again and waiting to see what happens. If prices stay high, I keep renting. If they drop, I may consider buying. That's another option to consider: wait and see, track the market and your savings, and make the call when one or both offer better options.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe

valuables
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by valuables » Sun May 24, 2020 9:41 pm

I like this approach: Compare the total unrecoverable costs of renting (rent), v.s. the total unrecoverable costs of buying (property taxes, maintenance, and opportunity cost of equity capital on your downpayment).

TLDR version:
Unrecoverable cost of an 800,000k house is:
800k x .05 / 12 = $3333.33 per month

Unrecoverable cost of an 700,000k house is:
700k x .05 / 12 = $2916.66 per month

Your unrecoverable cost of rent is:
$2800 per month

From this framework, it is still cheaper for you to rent your current place. Given that your guaranteed income is only 150k, I would make it a hard no on buying a home for more than 4x your salary. What I would do in your case is wait a few years until you earn more base salary, or when you are fully vested in your stock.

If it were me I'd invest the considerable cash pile at my desired AA (minus an emergency fund and minus your 160k downpayment) and buy a house with 20% down when the math changes.
Last edited by valuables on Sun May 24, 2020 9:56 pm, edited 1 time in total.

runner540
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by runner540 » Sun May 24, 2020 9:47 pm

tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
Hi folks,

I'm a 30 year old female.

Here are my monthly obligations:

Rent: $2800 (including trash, water)
Food: $500 (groceries, essentials, eating out, occasional shopping)
Phone: $120
Internet: $80
Electricity: $40-$60/depending on the month
Amazon Prime: $11
Spotify: $10
Total expenses: $3500, but let's round it up to $4,000.

My salary is $155,000, and I also receive stock compensation (another $150,000). My compensation is just north of $300,000/yr. I max out my 401K with each paycheck, and I also save usually $3K-$4K each month on top of that. I've paid off student loans, and I don't have a car. I have no outstanding.

Current financial picture:

Liquid savings:
- Short term savings: $40K
- Longer-term (HYSA): $235K
- Another savings account: $72K

Stock Market:
- Mixture of MSFT, McDonalds, Apple: $10K
- VOO: $90K

Retirement:
- Roth: ~$5K
- 401K: ~$60K

So overall I have $100K in the stock market and ~$347K in liquid cash.

If you were in my position, how much would you be willing to spend on a home? The homes I'm looking are in the $700-$800K range. However, I don't want to purchase a home based on my current salary + stock compensation. It seems dangerous to factor in my stock compensation. And from looking over things from that lens, I don't think my $150K salary is "safe" to buy a $750K home. I don't want to be in a position where if I lost my job then it's game over.

The thing I don't like about renting is that it's expensive and it feels like money thrown away. I'd also like to redo the kitchen, mount the TV on the wall, etc. etc., which is either completely out of the question or will result in large fees when I move out.

I can continue renting for a couple more years while I save, and then reevaluate. Am I being overly cautious? What would you do?
You are in an enviable position. If you really want to own a home, run the numbers and then make your decision. I agree that you should buy conservatively off the salary only. You can do that and still get a relatively expensive place since you've saved a big down payment. $250-300k down, $400k mortgage? How much are monthly costs of insurance, maintenance and taxes on the homes you're looking at?
What are you renting now? You could also try upgrading your rental or renting a home/condo instead of in a big apt building.
Expenses are probably light but maybe that's included in your $500 round up: do you have any medical, other insurance, travel, fitness/hobbies?

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Nestegg_User
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by Nestegg_User » Sun May 24, 2020 10:17 pm

I'm gonna disagree with many and say "continue renting "

you really haven't really converted much of your income into wealth with your low level of assets (relative to stated income).
I didn't get any tone in your post that said that you hated your current digs, but your statement that you might move (presumably to another apartment) wasn't clear if you wanted something different or something more permanent.

clearly, by renting one has geographic arbitrage... especially given the current conditions. The salary and options indicate a HCOL area, so the inventory of housing at the lower level (for the area) might be challenging. The increases in property tax, costs for upkeep, etc would really need to be addressed; obviously, in renting those costs are added in your total costs but they would have to be added to that of a SFH (and how "handy" are you vis-a-vis home projects?). The ability to easily move to better opportunities, due to renting, is an overlooked consideration.

bostonboglehead123
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by bostonboglehead123 » Sun May 24, 2020 10:32 pm

There's any number of rent vs buy calculators that can do spending analysis, accept a bunch of parameters that folks here aren't covering. I'd default to that. The NYTimes one is pretty good but it's a little dated and some of the assumptions there like the interest deduction need to be tweaked.

There's several questions to which having opinions from various folks here might help but the crowd will mostly just say the answer is unknowable.

1. Buy now vs buy later: will covid impact drag on into the next year or will we be done by the end of this year like markets predict?

2. What will happen to home prices over the medium term (2-3 yes)? Zillow economists predict a small drop next year followed by a rebound. Does it matter if you plan to buy and stay in a house for the next 5-7 yes?

3. Does the budgeting add up? ($150k base + $150k RSU for a 750-800k house)

4. 30 yr jumbo vs 15 yr vs ARM (if you intend to move to a new place before the fixed interest portion of the AM is up)

Possibly more along these lines.

srt7
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by srt7 » Sun May 24, 2020 10:44 pm

TheDDC wrote:
Sun May 24, 2020 8:00 pm
I'm sure homes are not "700-800k" in your area. Real estate is way overpriced if that is truly the case. Consider moving to a lower COL area.

-TheDDC
How is this useful advice? OP's question and provided data were for rent/buy, not for relocation. What's next? Ask them to get married to another high earner so their income doubles? :confused
I can't think of anything more luxurious than owning my time. - remomnyc

bayview
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by bayview » Sun May 24, 2020 10:46 pm

Stay light on your feet, and continue to rent. Upgrade your current apartment if it makes sense.

Mobility and flexibility are priceless in “interesting times”.
tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
Hi folks,

I'm a 30 year old female.

Here are my monthly obligations:

Rent: $2800 (including trash, water)
Food: $500 (groceries, essentials, eating out, occasional shopping)
Phone: $120
Internet: $80
Electricity: $40-$60/depending on the month
Amazon Prime: $11
Spotify: $10
Total expenses: $3500, but let's round it up to $4,000.

My salary is $155,000, and I also receive stock compensation (another $150,000). My compensation is just north of $300,000/yr. I max out my 401K with each paycheck, and I also save usually $3K-$4K each month on top of that. I've paid off student loans, and I don't have a car. I have no outstanding.

Current financial picture:

Liquid savings:
- Short term savings: $40K
- Longer-term (HYSA): $235K
- Another savings account: $72K

Stock Market:
- Mixture of MSFT, McDonalds, Apple: $10K
- VOO: $90K

Retirement:
- Roth: ~$5K
- 401K: ~$60K

So overall I have $100K in the stock market and ~$347K in liquid cash.

If you were in my position, how much would you be willing to spend on a home? The homes I'm looking are in the $700-$800K range. However, I don't want to purchase a home based on my current salary + stock compensation. It seems dangerous to factor in my stock compensation. And from looking over things from that lens, I don't think my $150K salary is "safe" to buy a $750K home. I don't want to be in a position where if I lost my job then it's game over.

The thing I don't like about renting is that it's expensive and it feels like money thrown away. I'd also like to redo the kitchen, mount the TV on the wall, etc. etc., which is either completely out of the question or will result in large fees when I move out.

I can continue renting for a couple more years while I save, and then reevaluate. Am I being overly cautious? What would you do?
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

srt7
Posts: 437
Joined: Mon Sep 29, 2014 12:19 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by srt7 » Sun May 24, 2020 10:48 pm

OP,

Considering that your earnings are far above average for your age, savings are considerably good especially since you've paid off all your debts, most importantly you have the smarts to leave out the bonuses in your home buying calculations and lastly are truly desiring the freedom of home-ownership, I would say you are totally ready to pull the trigger and buy one.

Best of luck!
I can't think of anything more luxurious than owning my time. - remomnyc

sharp1aarohead
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by sharp1aarohead » Sun May 24, 2020 11:03 pm

Knowing that you are thinking of staying in your current situation for 6 months, I think it makes perfect sense to consider buying for a couple of reasons.

1. You can get a better idea of the stability of your own job and what implications the pandemic might have on it
2. Right now buyers are expecting a large discount due to the recession while sellers aren't strapped enough that they are desperate to sell. Consequently, there is a gap between what buyers and sellers are expecting. I think that by waiting 6 months, we'll see each party's exceptions get a lot closer to each other.
3. Finally, I think there's a good chance properties will be more affordable in 6 months, so you might just get a house that's 1 million today for 800k in 6 months.

If you put 25% down, you'd still only be at 200,000 which means that if you save aggressively between now and then, you could still have over 200,000 in cash laying around for a rainy day. Suddenly you're getting new tax breaks, paying down your mortgage and all sorts of other intangible rewards. Makes perfect sense to me.

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Watty
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by Watty » Sun May 24, 2020 11:14 pm

tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
and I don't have a car.
If you buy a house I would assume that you would also need to buy a car and then have the costs for things like car insurance, gas, etc so be sure to budget for that.
tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
If you were in my position, how much would you be willing to spend on a home?
.....
The homes I'm looking are in the $700-$800K range.
With a large enough down payment you can afford a pretty expensive house.

A $750K home with a $350K down payment would mean a $400K mortgage.

You would have about a $2,000 a month mortgage payment plus property tax and insurance.

You would still also still have about $100K in a your taxable accounts.

You should be able to handle that just fine with just your $150K salary.

You could save like crazy for the next 6 months too.

Can and should are two different questions though.

A big question is how hard it would be to get another similar job if you needed to and it you might need to move for the new job.

Another is what your local housing market is like, many housing markets are pretty bubbly now and if there is a bad recession some housing markets could get ugly.

I would wait and see what happens with the pandemic and the economy, there is no hurry.

CurlyDave
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by CurlyDave » Sun May 24, 2020 11:46 pm

tRacer4201 wrote:
Sun May 24, 2020 9:14 pm
...I plan to stay here at least 6 months. In the meantime I was going to move all the liquid cash into a HYSA.
1. I don't think HYSAs exist right now.

2. At my age (74) I can look back on 45 years of home ownership in HCOL and VHCOL areas, and tell you that I have never lost money on a home.

Also, money invested in Real Estate has, in general, done better than money invested in stocks.

So I would go for the home purchase. The only caveat is that I have mostly invested in SFHs, not condos. With an SFH I have a lot more latitude over when and how maintenance is done, and if times get tight, I can defer maintenance. Not quite the case with a condo. My dad bought a condo once and lost quite a bit on it...

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geerhardusvos
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Re: Would you pull a trigger on a home purchase or continue renting?

Post by geerhardusvos » Sun May 24, 2020 11:55 pm

tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
Hi folks,

I'm a 30 year old female.

Here are my monthly obligations:

Rent: $2800 (including trash, water)
Food: $500 (groceries, essentials, eating out, occasional shopping)
Phone: $120
Internet: $80
Electricity: $40-$60/depending on the month
Amazon Prime: $11
Spotify: $10
Total expenses: $3500, but let's round it up to $4,000.

My salary is $155,000, and I also receive stock compensation (another $150,000). My compensation is just north of $300,000/yr. I max out my 401K with each paycheck, and I also save usually $3K-$4K each month on top of that. I've paid off student loans, and I don't have a car. I have no outstanding.

Current financial picture:

Liquid savings:
- Short term savings: $40K
- Longer-term (HYSA): $235K
- Another savings account: $72K

Stock Market:
- Mixture of MSFT, McDonalds, Apple: $10K
- VOO: $90K

Retirement:
- Roth: ~$5K
- 401K: ~$60K

So overall I have $100K in the stock market and ~$347K in liquid cash.

If you were in my position, how much would you be willing to spend on a home? The homes I'm looking are in the $700-$800K range. However, I don't want to purchase a home based on my current salary + stock compensation. It seems dangerous to factor in my stock compensation. And from looking over things from that lens, I don't think my $150K salary is "safe" to buy a $750K home. I don't want to be in a position where if I lost my job then it's game over.

The thing I don't like about renting is that it's expensive and it feels like money thrown away. I'd also like to redo the kitchen, mount the TV on the wall, etc. etc., which is either completely out of the question or will result in large fees when I move out.

I can continue renting for a couple more years while I save, and then reevaluate. Am I being overly cautious? What would you do?
Nice work. Would suggest:
-dramatically increasing investments in taxable account (vtsax)
-not buying a house, keep renting. if you do, buy house that’s 3x base salary (no more than 500k and put nothing down). Seriously.

Same age as you. Less income than you. Have $800k in portfolio, good EF, we rent, save about $100k/year. You should invest about $200k+/year.

Keep it up
VTSAX and chill

MedSaver
Posts: 93
Joined: Sun Jul 02, 2017 5:33 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by MedSaver » Mon May 25, 2020 12:13 am

CurlyDave wrote:
Sun May 24, 2020 11:46 pm
Also, money invested in Real Estate has, in general, done better than money invested in stocks.
This can't be true.

orhkaf
Posts: 81
Joined: Tue Feb 13, 2018 12:39 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by orhkaf » Mon May 25, 2020 12:19 am

I would wait 12-18 months to see what happens to the housing market and economy in general really.

Worst case housing goes up a bit but you end up beefing up your savings by a lot.

Good luck.

CurlyDave
Posts: 1707
Joined: Thu Jul 28, 2016 11:37 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by CurlyDave » Mon May 25, 2020 1:02 am

MedSaver wrote:
Mon May 25, 2020 12:13 am
CurlyDave wrote:
Sun May 24, 2020 11:46 pm
Also, money invested in Real Estate has, in general, done better than money invested in stocks.
This can't be true.
Sure it can be, and it is.

Don't forget, if I start with 20% down I have 5 to 1 leverage on the invested money. There are all the tax advantages over the years, and don't forget the imputed rent from having a place to live.

If you rent, you are paying the landlord's mortgage, and taxes for him. You are also paying for maintenance although he is assuming the risk of the spending being "lumpy" at times.

Say I put $100 k down on a $500 k house. even a modest 5 % appreciation increases my equity to $125k -- a 25% increase.

MedSaver
Posts: 93
Joined: Sun Jul 02, 2017 5:33 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by MedSaver » Mon May 25, 2020 1:27 am

Well, you’ve done half the calculation. But if your house drops 5% you lose 25% of your equity. Funny thing, leverage.

IowaFarmBoy
Posts: 781
Joined: Fri Jan 22, 2010 8:19 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by IowaFarmBoy » Mon May 25, 2020 9:28 am

a few thoughts and questions to ponder....
  • People talk a lot about rent being money that is "thrown away" but I prefer to reframe the question as "do you prefer to rent your home or your money (via mortgage)" Either way you are renting something.
  • Do you feel stable in your life situation (employment and personal)? I've know several younger people (20s and early 30s) that buy and a year later are getting married or making a big change. Our daughter was one of them. Fortunately, she hit a market right and made money for her 2-3 years in the townhouse.
  • It seems like the rent/buy calculators frequently come out about even for similar properties. One advantage for buying is that you frequently can buy something nicer/better than a typical rental property. For example, the supply of nice, single-family rentals is pretty limited. Are you able to rent a property that you are happy with?
  • Would you be interested in renting a room to a roommate? Maybe buy a 3 BR instead of a 2 and take on a roommate. This is what the above-mentioned daughter did- she bought a 3 BR townhouse and had two roommates. They got along well and they covered the majority of her payment. It was a nice deal financially.
Good luck!

New Providence
Posts: 246
Joined: Fri Mar 27, 2020 7:10 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by New Providence » Mon May 25, 2020 10:01 am

tRacer4201 wrote:
Sun May 24, 2020 7:32 pm

I don't want to be in a position where if I lost my job then it's game over.
I don't believe in renting, it is a waste of money. You can afford buying a house.
Having said that, you should map out how losing your job would play out. Not only financially but all the implications and limitations due to the home ownership.
Keep in mind that owning a house brings about a number of known and unknown financial commitments. Read the posts around here: water in basement, electrical problems, sloping/slanting floors, moving foundations, falling trees. You might be lucky and never have any problems, but you must be prepared to roll with the punches if you do.

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galawdawg
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Location: Georgia

Re: Would you pull a trigger on a home purchase or continue renting?

Post by galawdawg » Mon May 25, 2020 10:03 am

You've done a great job being debt free, living below your means and saving for your goal of purchasing a home!

Here are a few recommendations:

1. Assuming you are single or the sole income source in your household, plan on no more than your $150lk being used to qualify you for a mortgage.
2. Following the traditional rule of thumb of no more than 28% of your gross income ($150k annually) towards housing expenses, you should be able to afford a house in the price range you are considering with a 20% down payment. So if you purchase an $800,000 house and put 20% down, that leaves you with a mortgage of $600k. If you can get a thirty year rate of 3.25%, your monthly payment for just P&I would be $2,611. But then you have to add taxes, insurance, HOA fees, maintenance, repairs, utilities, etc.
3. If you purchase a house, keep at least $100k of your savings set aside as an emergency fund. Don't be tempted to spend that on furniture, remodeling and all of the other temptations of a "new" home.
4. As you realize your additional stock compensation each year, perhaps earmark at least $50k for investing and the remainder after taxes for your renovations, home improvements, etc. That way you are paying cash for everything other than the mortgage itself and if your compensation decreases due to economic issues, you haven't already "spent" that money by borrowing for home improvements or other house expenses.
5. Strive to maintain a savings rate of at least twenty percent of your gross compensation to invest for retirement.

Good luck!

CurlyDave
Posts: 1707
Joined: Thu Jul 28, 2016 11:37 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by CurlyDave » Mon May 25, 2020 10:55 pm

MedSaver wrote:
Mon May 25, 2020 1:27 am
Well, you’ve done half the calculation. But if your house drops 5% you lose 25% of your equity. Funny thing, leverage.
But lets be honest about this. The long term trend is up.

Even if I only get back inflation, my equity is increasing at 5x inflation.

OldAtHeart
Posts: 35
Joined: Sat Jun 11, 2011 4:38 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by OldAtHeart » Mon May 25, 2020 11:35 pm

geerhardusvos wrote:
Sun May 24, 2020 11:55 pm
tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
Hi folks,

I'm a 30 year old female.

Here are my monthly obligations:

Rent: $2800 (including trash, water)
Food: $500 (groceries, essentials, eating out, occasional shopping)
Phone: $120
Internet: $80
Electricity: $40-$60/depending on the month
Amazon Prime: $11
Spotify: $10
Total expenses: $3500, but let's round it up to $4,000.

My salary is $155,000, and I also receive stock compensation (another $150,000). My compensation is just north of $300,000/yr. I max out my 401K with each paycheck, and I also save usually $3K-$4K each month on top of that. I've paid off student loans, and I don't have a car. I have no outstanding.

Current financial picture:

Liquid savings:
- Short term savings: $40K
- Longer-term (HYSA): $235K
- Another savings account: $72K

Stock Market:
- Mixture of MSFT, McDonalds, Apple: $10K
- VOO: $90K

Retirement:
- Roth: ~$5K
- 401K: ~$60K

So overall I have $100K in the stock market and ~$347K in liquid cash.

If you were in my position, how much would you be willing to spend on a home? The homes I'm looking are in the $700-$800K range. However, I don't want to purchase a home based on my current salary + stock compensation. It seems dangerous to factor in my stock compensation. And from looking over things from that lens, I don't think my $150K salary is "safe" to buy a $750K home. I don't want to be in a position where if I lost my job then it's game over.

The thing I don't like about renting is that it's expensive and it feels like money thrown away. I'd also like to redo the kitchen, mount the TV on the wall, etc. etc., which is either completely out of the question or will result in large fees when I move out.

I can continue renting for a couple more years while I save, and then reevaluate. Am I being overly cautious? What would you do?
Nice work. Would suggest:
-dramatically increasing investments in taxable account (vtsax)
-not buying a house, keep renting. if you do, buy house that’s 3x base salary (no more than 500k and put nothing down). Seriously.

Same age as you. Less income than you. Have $800k in portfolio, good EF, we rent, save about $100k/year. You should invest about $200k+/year.

Keep it up
How do you expect someone grossing $300k a year to invest $200k/year? Taxes are probably ~30% ($100k), and her living expenses are ~$50k. That only leaves $150k at most (which is great, don’t get me wrong)

MedSaver
Posts: 93
Joined: Sun Jul 02, 2017 5:33 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by MedSaver » Tue May 26, 2020 12:34 am

CurlyDave wrote:
Mon May 25, 2020 10:55 pm
MedSaver wrote:
Mon May 25, 2020 1:27 am
Well, you’ve done half the calculation. But if your house drops 5% you lose 25% of your equity. Funny thing, leverage.
But lets be honest about this. The long term trend is up.

Even if I only get back inflation, my equity is increasing at 5x inflation.
There’s lots of research on this. Broad stock funds beat housing over long periods - every time.

CurlyDave
Posts: 1707
Joined: Thu Jul 28, 2016 11:37 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by CurlyDave » Tue May 26, 2020 1:13 am

MedSaver wrote:
Tue May 26, 2020 12:34 am
CurlyDave wrote:
Mon May 25, 2020 10:55 pm
MedSaver wrote:
Mon May 25, 2020 1:27 am
Well, you’ve done half the calculation. But if your house drops 5% you lose 25% of your equity. Funny thing, leverage.
But lets be honest about this. The long term trend is up.

Even if I only get back inflation, my equity is increasing at 5x inflation.
There’s lots of research on this. Broad stock funds beat housing over long periods - every time.
When people touting stocks do the study that is the case. When people touting RE do the study, RE comes out on top.

Figures don't lie, but liars figure.

Mental
Posts: 2
Joined: Thu Feb 20, 2020 11:22 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by Mental » Tue May 26, 2020 2:41 am

If the cost and percentage of my leverage were equal, wouldn’t equities come out ahead?

CurlyDave
Posts: 1707
Joined: Thu Jul 28, 2016 11:37 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by CurlyDave » Tue May 26, 2020 7:11 am

Mental wrote:
Tue May 26, 2020 2:41 am
If the cost and percentage of my leverage were equal, wouldn’t equities come out ahead?
That is a very, very big if.

1. Margin rates are typically higher than mortgage rates.

2. If you margin equities to 80%, even a minor drop in the market will produce a margin call. 80% LTV on a house is considered normal and even conservative. If the housing market, and therefore your equity falls by 20% your loan is not called. In fact, if you keep the payments up, absolutely nothing happens.

So, the bottom line is that a highly leveraged equities investor gets wiped out in even a minor correction. much less a bear market. A long term RE investor, leveraged to an even greater extent, sees these as minor bumps in the road.

If strategy E causes bankruptcy once a decade and strategy R doesn't have that feature, strategy R will be the long term winner. And it makes very little difference what fancy studies say.

Now, I personally put money into both strategies. And over a lifetime I have more or less accidentally reached a "Talmud" portfolio. !/3 stocks, 1/3 RE and 1/3 capitalized value of SS and pensions. I have put less money and far more sweat equity into the RE than into stocks.

whereskyle
Posts: 847
Joined: Wed Jan 29, 2020 10:29 am

Re: Would you pull a trigger on a home purchase or continue renting?

Post by whereskyle » Tue May 26, 2020 8:02 am

tRacer4201 wrote:
Sun May 24, 2020 7:32 pm
Hi folks,

I'm a 30 year old female.

Here are my monthly obligations:

Rent: $2800 (including trash, water)
Food: $500 (groceries, essentials, eating out, occasional shopping)
Phone: $120
Internet: $80
Electricity: $40-$60/depending on the month
Amazon Prime: $11
Spotify: $10
Total expenses: $3500, but let's round it up to $4,000.

My salary is $155,000, and I also receive stock compensation (another $150,000). My compensation is just north of $300,000/yr. I max out my 401K with each paycheck, and I also save usually $3K-$4K each month on top of that. I've paid off student loans, and I don't have a car. I have no outstanding.

Current financial picture:

Liquid savings:
- Short term savings: $40K
- Longer-term (HYSA): $235K
- Another savings account: $72K

Stock Market:
- Mixture of MSFT, McDonalds, Apple: $10K
- VOO: $90K

Retirement:
- Roth: ~$5K
- 401K: ~$60K

So overall I have $100K in the stock market and ~$347K in liquid cash.

If you were in my position, how much would you be willing to spend on a home? The homes I'm looking are in the $700-$800K range. However, I don't want to purchase a home based on my current salary + stock compensation. It seems dangerous to factor in my stock compensation. And from looking over things from that lens, I don't think my $150K salary is "safe" to buy a $750K home. I don't want to be in a position where if I lost my job then it's game over.

The thing I don't like about renting is that it's expensive and it feels like money thrown away. I'd also like to redo the kitchen, mount the TV on the wall, etc. etc., which is either completely out of the question or will result in large fees when I move out.

I can continue renting for a couple more years while I save, and then reevaluate. Am I being overly cautious? What would you do?
Same situation as you (except for much less income and much less savings, but proportional to our situation) and we're looking to take the plunge. We can buy a house for a lower monthly payment (including taxes and insurance) than our rent. We could do what we want with the place and at the very least we get some equity out of it or we turn it into a rental. When rents are as high as they are now, the only benefit to renting is not having to pay for repairs. When the difference between rent and a mortgage payment creates room that I could use for repairs, I know I can improve a house and still be paying less than rent. That makes the choice a no brainer, so we're looking.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle

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geerhardusvos
Posts: 640
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Location: heavenlies

Re: Would you pull a trigger on a home purchase or continue renting?

Post by geerhardusvos » Tue May 26, 2020 9:03 am

OldAtHeart wrote:
Mon May 25, 2020 11:35 pm
geerhardusvos wrote:
Sun May 24, 2020 11:55 pm
Nice work. Would suggest:
-dramatically increasing investments in taxable account (vtsax)
-not buying a house, keep renting. if you do, buy house that’s 3x base salary (no more than 500k and put nothing down). Seriously.

Same age as you. Less income than you. Have $800k in portfolio, good EF, we rent, save about $100k/year. You should invest about $200k+/year.

Keep it up
How do you expect someone grossing $300k a year to invest $200k/year? Taxes are probably ~30% ($100k), and her living expenses are ~$50k. That only leaves $150k at most (which is great, don’t get me wrong)
With the amount of cash the OP has, and with raises, it’s a reasonable goal. 50%+ of take home should be doable here and getting some cash off the sidelines
VTSAX and chill

User avatar
Watty
Posts: 19656
Joined: Wed Oct 10, 2007 3:55 pm

Re: Would you pull a trigger on a home purchase or continue renting?

Post by Watty » Tue May 26, 2020 10:33 am

CurlyDave wrote:
Mon May 25, 2020 10:55 pm
MedSaver wrote:
Mon May 25, 2020 1:27 am
Well, you’ve done half the calculation. But if your house drops 5% you lose 25% of your equity. Funny thing, leverage.
But lets be honest about this. The long term trend is up.

Even if I only get back inflation, my equity is increasing at 5x inflation.
Not for a specific house.

The long term trend for a specific house is for it to go to zero(or just the value of the land) because houses gets older, dated, and eventually torn down.

Few of the houses being built today will last 100 years and most of the ones that do will be pretty tired by then. Track homes built after WW II typically are not build to last for generations. There will be exceptions of course but even if an individual home is well maintained the other houses in a neighborhood may not be well maintained and the neighborhood may not age well.

In some cases the cost of tearing down the house will be more than the value of the land so it could eventually even have negative value.

The OP is only 30 now so if she buys a 40 year old house, which was built in 1980, today she could easily live to see it be torn down some day.

When I was dating my wife she was living in a nice but older part of a downtown area in an apartment in a house that was probably 50 years old. One time I was at the local historical society and there was a pictorial map of the city from the middle of the 1800's and it showed her street and you could see a different house on the lot where her house was. It did not take much research but I figured out that the house she was living in was actually the third building to be built on that lot. Some houses in that neighborhood are now being torn down and replaced so a fourth house could be built on that lot in the near future.

That is not to say that a house a bad investment, it is just that over the long term most of the value of a home comes from the ability to live in it or rent it out.

There is also a limit in how much future people will be able to pay for a house. If she buys a house for $750K and it doubles in real(inflation adjusted) dollars not may people will be willing or able to pay $1.5 million for it in a few decades.

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