Yet another "can I afford this house"?

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usuallytheanswerisno
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Yet another "can I afford this house"?

Post by usuallytheanswerisno » Mon May 25, 2020 1:42 pm

First, I want to say thanks so much for all the help the boglehead community has provided. Advice from this forum has been invaluable for my family in making life decisions.

Here are the stats:

I'm in my early 40s, married, with 8-10 years to a hopefully early retirement.
I live in a VHCOL area (median home price is >600k).

We have:
1.3M in liquid cash, set aside for home purchase
1.8 M in 60/40 boglehead-style portfolio, 70% taxable, 30% tax protected
100K emergency fund

We earn:
~600K per year, with upside over the next 3-4 years of 750-850k. This is split 65/35 with my income/my wife's income.

I spend:
~150K/year, all in.

I want:
The largest home I can buy with as much square footage as possible for our growing family.

I also want an early retirement in 8-10 years. I'm not interested in FIRE beforehand, unless forced, for which I estimate a 30% possibility over the next 10 years for me, and a 5-10% possibility for my spouse. I'm not averse to selling my home in a VHCOL area and moving to a MCOL area if my income is reduced.

The question:
Given these goals, how much home can I afford?

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leeks
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Re: Yet another "can I afford this house"?

Post by leeks » Mon May 25, 2020 9:49 pm

If the median house in your area is $600K, it sounds like you can afford one. Are you saying you want something more expensive? What is the cost of the houses you are considering with your desired square footage?

Miamilaw35
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Re: Yet another "can I afford this house"?

Post by Miamilaw35 » Mon May 25, 2020 9:58 pm

1.3 million in cash.

3x an income of 600k = 1.8 mill

1.8 + 1.3 = $3.1 million.

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Nate79
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Re: Yet another "can I afford this house"?

Post by Nate79 » Mon May 25, 2020 10:12 pm

Why is it always what is the max I can afford and not what is the least you can spend to make you happy?

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whodidntante
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Re: Yet another "can I afford this house"?

Post by whodidntante » Mon May 25, 2020 10:13 pm

You can "afford" a whole lotta house. I'll give you a number if you want. But you'll be better off if you get a house that meets your needs, and don't spend your whole life making the sacrifices that a 600k income requires.

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Watty
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Re: Yet another "can I afford this house"?

Post by Watty » Mon May 25, 2020 10:30 pm

usuallytheanswerisno wrote:
Mon May 25, 2020 1:42 pm
I also want an early retirement in 8-10 years. I'm not interested in FIRE beforehand, unless forced, for which I estimate a 30% possibility over the next 10 years for me, and a 5-10% possibility for my spouse. I'm not averse to selling my home in a VHCOL area and moving to a MCOL area if my income is reduced.
With that time frame I would take a real hard look at renting. Here is a calculator you can play with your numbers to see what might be best financially.

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

You might even be able to rent a much nicer house than you could buy.

One huge risk is that in bad housing market or a recession(or even a depression) a multi million dollar house can be very hard to sell.

With that much uncertainty in your jobs it would be to good to keep a couple of years expenses(including the mortgage) available in your taxable accounts.

Flyer24
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Re: Yet another "can I afford this house"?

Post by Flyer24 » Mon May 25, 2020 10:56 pm

Topic moved to Personal Finance.

OldAtHeart
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Re: Yet another "can I afford this house"?

Post by OldAtHeart » Mon May 25, 2020 11:24 pm

Title says “can I afford this house”, but your question is how much house you can afford?

If the median is 600k then why do you have 1.3m set aside in cash for a house? Do you really intend to buy something at the very top of the market in your area? That will really limit your options when you go to sell it as your buyer pool will be very small.

For me personally, I would look for something in the $1m range which would be significantly nicer than the median, and I would only put down 20% and take out a low fixed rate mortgage and invest the rest of that cash. When it comes time to retire then you can weigh paying it off or selling it and moving somewhere cheaper.

KyleAAA
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Re: Yet another "can I afford this house"?

Post by KyleAAA » Tue May 26, 2020 12:20 am

$600k doesn't sound VHCOL to me. You can afford $1.3mm cash plus 3x income of $1.8m = $3.1m house. You'll probably find it difficult to retire in 10 years with that mortgage. So maybe only borrow 1x your income = $1.9mm.

TropikThunder
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Re: Yet another "can I afford this house"?

Post by TropikThunder » Tue May 26, 2020 12:29 am

Sounds like a good candidate for an interest-only mortgage alá Hedgefundie.

anoop
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Re: Yet another "can I afford this house"?

Post by anoop » Tue May 26, 2020 12:30 am

You will qualify for a lot. Even if we disregard your savings, based on income, you can comfortably afford 2.5*600k=1.5M.

That said, if I were in your situation, I would just buy a house for cash ($1.3M tops) and live debt free.

katrid11
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Re: Yet another "can I afford this house"?

Post by katrid11 » Tue May 26, 2020 11:45 am

This is less about how much you can afford but how much do you want to borrow to get the space you want.

Around my home, $1.3M gets a new home about 3000sf on a tiny lot. Spacious open concept inside, $30-40k property taxes, and very tiny backyard. $2M gets closer to 1/2 acre with spacious older home no open concept. $3M gets you everything with a $60-70k property tax bill. The property taxes is what gets most people at retirement. They don't want to see that much going to taxes so they downsize. DO you want to downsize in 10-15 years?

IF it were me, I would first search for a $1m - $1.3m home I can have without getting any debt. IF that didnt work, I would look for something I could have fixed up and have a $400k 15yr mortgage that I could pay down quickly with the plan of entering retirement in 10 yrs with no mortgage.

I would NOT go hog wild at $3.1M and saddle myself with a larger mortgage despite the income availability. The world is changing and while the cost of a mortgage is low, the cost of moving is high. Find something that works without massive debt.

Shael_AT
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Re: Yet another "can I afford this house"?

Post by Shael_AT » Tue May 26, 2020 2:04 pm

You remind me of one of my family members.

He's late 30's, income is a stable 500k-850k (exec-level tech with industry wide reputation, at > 2 companies at this level, head hunted into both, thus stabilities), 1.something million in cash and 2.something million in "taxable and tax-exempt accounts".

We're in the Greater Seattle Metro area.

He and his family love space, the outdoors and did I say space? They ended up buying a large plot of land somewhere further east of the seattle east-side, but still close enough to pay and build out fibre internet and the like. Land was roughly 500-600k, and the house was in the 700's all up to build.

It's REMARKABLE. Stunning home and property. Him, his wife and 2 kids built a home and surrounding property development that is just stunning. To this day I can only compare it to the 3m-10m listings on Redfin, house wise, but all those listings fall short of having your own land and stream / lake running through it.

That's the level of wealth you are at. You can point at a multi acre plot in pristine wilderness up for sale, build out internet, utilities and gas to your plot and contract out a designer to build a 4000-5000 sqft home where every knob, door, surface, wall, light and stair railing feels and sounds high end at the 1.5-2m range.

Don't get too crazy, though. The process took them 2 years, but that was enough time to save up additional $'s. Is it a good financial idea? If you can cashflow the project E2E, it is. If you cannot, IMO, the adjusted risk is too high and you may want to take a step back.

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