How much home can I afford?

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arandomdude84
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How much home can I afford?

Post by arandomdude84 » Thu Jul 30, 2020 7:43 pm

Hi:

I am trying to figure out what home price range I can afford.

Here is my info:

- 35, single, never married, no dependents
- Live in San Francisco (Very high cost of living ... VHCOL)
- No debt at all.
- Income is kind of variable: $275k base salary + ~$350k in stock compensation + ~$200k from a side business = about ~800k in income for 2020 (my first year making this much).
- My current net worth is: 185k cash + 949k in taxable vanguard + 893k spread throughout ROTH/SEP/401k/tIRA = 2.0mm net worth
- Why I want to buy: my current apartment is super small, coin operated laundry in the basement, and I feel like I am living like a college student.
- Pre approved for a 7/1 ARM Interest Only at 2.125% with 20% downpayment (this is from Wells Fargo and Citi with a "relationship discount").

It makes no sense to me to pay down principal on real estate because it seems like such a terrible place to store cash. Plus Interest Only allows for much better cashflow and flexibility -- I can pay principal whenever I want to (or not at all).

Currently pay $2180 per month for a tiny, rent controlled apartment I moved into about 10 years ago.

I have been looking at 2bd/2ba condos in the $1.8mm - $2.3mm range because below that price point the places aren't nice enough and I'd rather just continue renting my current place until I can afford that range.

So: what do the bogleheads think is my affordable house price range?

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Thu Jul 30, 2020 7:59 pm

I think you’re limited mostly by your down payment.

What are the requirements from your lenders on the loan-equity ratio?

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Watty
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Re: How much home can I afford?

Post by Watty » Thu Jul 30, 2020 8:06 pm

arandomdude84 wrote:
Thu Jul 30, 2020 7:43 pm
Income is kind of variable: $275k base salary + ~$350k in stock compensation + ~$200k from a side business = about ~800k in income for 2020 (my first year making this much).
It is not "kind of" variable, your future earnings are unknown and things can change quickly with all the weird stuff going on

With your salary just having increased so much I would suggest holding off on buying for a few years to see how things go.

In the mean time you can rent a nicer place, it will be expensive but if you bought a place to live in you would have;
1) interest on the loan.
2) property tax
3) HOA fees
4) Mintenenace

and all those would be very expensive too when you add them all up.

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Thu Jul 30, 2020 8:16 pm

I just re-read your post and realized your lenders imposed a 20% down payment requirement.

So how much of your $1M cash + taxable are you willing to sink into the house?

Personally I wouldn’t go above $400k, which means a $2M place.

Annual costs:

Interest: $34k
Property tax: $24k
HOA (conservatively): $12k

Tax benefits:
37% Fed bracket deduction on $750k of interest: -$6k
12.3% CA bracket deduction on $1M of interest and full property tax deduction: -$6k

Total annual cost: $58k
Last edited by RocketShipTech on Thu Jul 30, 2020 8:24 pm, edited 1 time in total.

bltn
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Re: How much home can I afford?

Post by bltn » Thu Jul 30, 2020 8:20 pm

Agree with watty. With this being your first year with that income, and with the economic future unclear, I would rent for another couple of years and build up your Accounts. Owning a property is expensive. See how stable your income is over the next couple of years.

Topic Author
arandomdude84
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Re: How much home can I afford?

Post by arandomdude84 » Thu Jul 30, 2020 8:37 pm

RocketShipTech wrote:
Thu Jul 30, 2020 8:16 pm
So how much of your $1M cash + taxable are you willing to sink into the house?
Yea, this is what I am trying to figure out. I am trying to balance getting a nice place with being "house poor" as they say.

I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.

Seems like I would put ~400k down + pay ~4900 per month.

So, I would be moving 400k out of equities and into real estate and increasing my monthly "rent" from $2180 to ~$5300 (including HOA) for a 2.1mm place. Can't tell if this is a stupid idea or what.

wackerdr
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Re: How much home can I afford?

Post by wackerdr » Thu Jul 30, 2020 8:47 pm

arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
RocketShipTech wrote:
Thu Jul 30, 2020 8:16 pm
So how much of your $1M cash + taxable are you willing to sink into the house?
Yea, this is what I am trying to figure out. I am trying to balance getting a nice place with being "house poor" as they say.

I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.

Seems like I would put ~400k down + pay ~4900 per month.

So, I would be moving 400k out of equities and into real estate and increasing my monthly "rent" from $2180 to ~$5300 (including HOA) for a 2.1mm place. Can't tell if this is a stupid idea or what.
What would be the rent for that 2 million place? I would consider renting and treating as a lifestyle upgrade. Once cash flow becomes predictable over next 2 years, down payment would be smaller portion of total net worth.

If you don’t even need to be in that VHCOL area - assuming your job and side business permits, then it could be more palatable.
Last edited by wackerdr on Thu Jul 30, 2020 8:52 pm, edited 1 time in total.

SVT
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Re: How much home can I afford?

Post by SVT » Thu Jul 30, 2020 8:51 pm

arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
RocketShipTech wrote:
Thu Jul 30, 2020 8:16 pm
So how much of your $1M cash + taxable are you willing to sink into the house?
Yea, this is what I am trying to figure out. I am trying to balance getting a nice place with being "house poor" as they say.

I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.

Seems like I would put ~400k down + pay ~4900 per month.

So, I would be moving 400k out of equities and into real estate and increasing my monthly "rent" from $2180 to ~$5300 (including HOA) for a 2.1mm place. Can't tell if this is a stupid idea or what.
I'm in a similar dilemma, although with smaller numbers. I have a 1.1M net worth, including over 400k in stocks in taxable I could use for a downpayment and closing costs on a home. I'm also trying to figure out how much house to buy/I can afford. At a minimum I'd like to put down 20% to avoid PMI. I'd also like to have no more than a 510k mortgage, to escape jumbo territory because from what I've seen, the rates are quite a bit higher, so I'd probably want to put as much money down as needed to get down to a 510k mortgage. So my decision seems to be how much I want to spend on a house. I also don't like the idea of so much money being taken out of the stock market and into a house that usually earns much less and I don't want to be house poor.

I'm sorry I don't have much advice for you but I'm interested in this discussion.

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Watty
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Re: How much home can I afford?

Post by Watty » Thu Jul 30, 2020 8:55 pm

arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.
That is a bad way of looking at it.

You would be spending $2 million no matter what the down payment is.

It is sort of like if you swipe your credit card to buy a $1,000 cell phone. When you sign the sales slip the money is spent even though you will not actually pay for it until later.

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Thu Jul 30, 2020 9:02 pm

Watty wrote:
Thu Jul 30, 2020 8:55 pm
arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.
That is a bad way of looking at it.

You would be spending $2 million no matter what the down payment is.

It is sort of like if you swipe your credit card to buy a $1,000 cell phone. When you sign the sales slip the money is spent even though you will not actually pay for it until later.
It’s more accurate to say that OP would be $400k invested in the SF real estate market. It can go up if the house value goes up, and can’t go below zero (because CA is a non-recourse state). At no point would the OP ever have to add another dime in equity.

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Thu Jul 30, 2020 9:03 pm

arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
RocketShipTech wrote:
Thu Jul 30, 2020 8:16 pm
So how much of your $1M cash + taxable are you willing to sink into the house?
Yea, this is what I am trying to figure out. I am trying to balance getting a nice place with being "house poor" as they say.

I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.

Seems like I would put ~400k down + pay ~4900 per month.

So, I would be moving 400k out of equities and into real estate and increasing my monthly "rent" from $2180 to ~$5300 (including HOA) for a 2.1mm place. Can't tell if this is a stupid idea or what.
Take a look at the kinds of apartments that are renting fro $5k. If they are materially worse than the $2M condo then buy. I don’t think that will be the case, however.

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Sandi_k
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Re: How much home can I afford?

Post by Sandi_k » Thu Jul 30, 2020 9:22 pm

So you have $1.2M in cash and taxable/non-retirement funds. And you're currently spending $25k per year on rent.

Income is $275k base, $200k side gig, + stock options of $350k annually.

I would

- Rent someplace that was more like $4-5k per month for the next 18 months ($36k more per year than your current apt).
- Max out 401(k) and SEP-IRA from side gig
- Sell stock options once they're vested, set aside taxes, and add the cash to the downpayment fund.

In 18 months, you could easily have the cash on hand to buy a $1.5M place, and still have $600k in cash and $1M+ in retirement accounts.

Then it doesn't matter what interest rates are; it doesn't matter what the market is doing; and even if you go down to only your base income, you can afford the insurance and taxes on the place.

Cycle
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Re: How much home can I afford?

Post by Cycle » Thu Jul 30, 2020 9:50 pm

you could buy a condo here in minneapolis with the cash between your couch cushions.

I would sincerely consider renting a nicer place vs. buying a 2M+ condo. I am a condo dweller, but people live in phases and if u end up needing to move in 5 years, the per/month cost of that condo could be astronomical. 7% lost in sellers fees alone, not to mention anything about the housing market (which is mainly uberinflated in SF due to restrictive zoning and neighborhood associations).

Also, can you not just hire a cleaning person to come clean your place and do your laundry? That might fix the current symptom you have. A nd if size is an issue, go to some minimalist meetups. I have 4 people, 5 including the nanny, in our 1000sqft condo.

they've been building apartments like crazy here and rents are dropping. supply and demand. ALSO, it's not bc people are moving out, minneapolis metro is densifying, the 7th ranked city in the us that is densifying (vs. sprawling, sf is sprawling fyi, ie population growth is happening in the exurbs)
Never look back unless you are planning to go that way

Normchad
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Re: How much home can I afford?

Post by Normchad » Thu Jul 30, 2020 9:56 pm

Cycle wrote:
Thu Jul 30, 2020 9:50 pm
you could buy a condo here in minneapolis with the cash between your couch cushions.

I would sincerely consider renting a nicer place vs. buying a 2M+ condo. I am a condo dweller, but people live in phases and if u end up needing to move in 5 years, the per/month cost of that condo could be astronomical. 7% lost in sellers fees alone, not to mention anything about the housing market (which is mainly uberinflated in SF due to restrictive zoning and neighborhood associations).

Also, can you not just hire a cleaning person to come clean your place and do your laundry? That might fix the current symptom you have. A nd if size is an issue, go to some minimalist meetups. I have 4 people, 5 including the nanny, in our 1000sqft condo.

they've been building apartments like crazy here and rents are dropping. supply and demand. ALSO, it's not bc people are moving out, minneapolis metro is densifying, the 7th ranked city in the us that is densifying (vs. sprawling, sf is sprawling fyi, ie population growth is happening in the exurbs)
Wow, that is an amazing income, and an amazing price for a modest condo. Holy cow, I had no idea real estate was *that expensive*; oh my goodness.

I have no advice to give you, but wish you good luck.

Impatience
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Re: How much home can I afford?

Post by Impatience » Thu Jul 30, 2020 9:59 pm

I know we are all against “timing the market” here ... but it seems like an awfully bad time to sink a lot of equity into San Francisco. Wait and see how this work from home business impacts prices in the area.

BergeronsBuddies
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Re: How much home can I afford?

Post by BergeronsBuddies » Thu Jul 30, 2020 10:03 pm

Sometimes it feels Bogleheads is a parody of itself.

kimura king
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Re: How much home can I afford?

Post by kimura king » Thu Jul 30, 2020 10:04 pm

I like that you are making 800k and paying 2150 a month in rent in SF. That is winning. Anyways, I think 800k to 1million is around the right place to be on a house for now.

How would this be? 800k for 1500 square feet? https://www.movoto.com/san-francisco-ca ... /for-sale/

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Thu Jul 30, 2020 10:11 pm

kimura king wrote:
Thu Jul 30, 2020 10:04 pm
I like that you are making 800k and paying 2150 a month in rent in SF. That is winning. Anyways, I think 800k to 1million is around the right place to be on a house for now.

How would this be? 800k for 1500 square feet? https://www.movoto.com/san-francisco-ca ... /for-sale/
Terrible neighborhood

kimura king
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Re: How much home can I afford?

Post by kimura king » Thu Jul 30, 2020 10:20 pm

I guess 1500sq feet for that price is too good to be true. Good to know. I did a google street view, it was from 2015 and all new construction all around there. Tough place to buy for sure.

jarjarM
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Re: How much home can I afford?

Post by jarjarM » Thu Jul 30, 2020 10:31 pm

arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
RocketShipTech wrote:
Thu Jul 30, 2020 8:16 pm
So how much of your $1M cash + taxable are you willing to sink into the house?
Yea, this is what I am trying to figure out. I am trying to balance getting a nice place with being "house poor" as they say.

I guess I could part with 400k, but having never spent that much money before, it feels "hard" to part with hundreds of thousands of dollars, hah. I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.

Seems like I would put ~400k down + pay ~4900 per month.

So, I would be moving 400k out of equities and into real estate and increasing my monthly "rent" from $2180 to ~$5300 (including HOA) for a 2.1mm place. Can't tell if this is a stupid idea or what.
Given your income, you can replenish that 400k in a few years. I don’t think $2+ mil places is a stretch for you so it’s a matter of if you want to diversify a bit to real estate or not. Since your pay and maybe even your side gig is likely associated with tech, a bit of diversification to real estate is not a bad idea. Of course SF real estate correlation to tech stock is likely quite strong. But you’re well on your way to early retirement so why not treat yourself a bit with a nice condo for the next 10 years.

One caveat, how secure is your side gig’s 200k income?

Outer Marker
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Re: How much home can I afford?

Post by Outer Marker » Thu Jul 30, 2020 11:56 pm

arandomdude84 wrote:
Thu Jul 30, 2020 8:37 pm
I've seen pretty nice places priced around 2.0mm-2.1mm that are very enticing.

Seems like I would put ~400k down + pay ~4900 per month.

So, I would be moving 400k out of equities and into real estate and increasing my monthly "rent" from $2180 to ~$5300 (including HOA) for a 2.1mm place. Can't tell if this is a stupid idea or what.
A place for less than 3x income is reasonable and won't make you house poor. (Assuming you don't have outrageous HOA fees). As others have pointed out, the big question is how stable/predictable is that income . . .

neverpanic
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Re: How much home can I afford?

Post by neverpanic » Fri Jul 31, 2020 1:32 am

Real estate values in SF are only going to increase over the next 20 years. I don't believe the posters warning you of what a dangerous investment it would be have been closely observing the Bay Area since ~2000. Even Oakland has condos selling north of $1M.

If you're at all uncertain about the prospect of continuing to earn $700,000+, I would probably hire a wash-and-fold service and bank cash for the next year. But if you feel good about your cash flow moving forward - I must say, you have the BEST side gig ever! - then you can comfortably afford something in the low 2's.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.

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Re: How much home can I afford?

Post by flaccidsteele » Fri Jul 31, 2020 8:09 am

arandomdude84 wrote:
Thu Jul 30, 2020 7:43 pm
Hi:

I am trying to figure out what home price range I can afford.

Here is my info:

- 35, single, never married, no dependents
- Live in San Francisco (Very high cost of living ... VHCOL)
- No debt at all.
- Income is kind of variable: $275k base salary + ~$350k in stock compensation + ~$200k from a side business = about ~800k in income for 2020 (my first year making this much).
- My current net worth is: 185k cash + 949k in taxable vanguard + 893k spread throughout ROTH/SEP/401k/tIRA = 2.0mm net worth
- Why I want to buy: my current apartment is super small, coin operated laundry in the basement, and I feel like I am living like a college student.
- Pre approved for a 7/1 ARM Interest Only at 2.125% with 20% downpayment (this is from Wells Fargo and Citi with a "relationship discount").

It makes no sense to me to pay down principal on real estate because it seems like such a terrible place to store cash. Plus Interest Only allows for much better cashflow and flexibility -- I can pay principal whenever I want to (or not at all).

Currently pay $2180 per month for a tiny, rent controlled apartment I moved into about 10 years ago.

I have been looking at 2bd/2ba condos in the $1.8mm - $2.3mm range because below that price point the places aren't nice enough and I'd rather just continue renting my current place until I can afford that range.

So: what do the bogleheads think is my affordable house price range?
Personally I use % of NW. So if NW is $2m the most I would pay for a consumer item like shelter is $500k. I prefer my capital in investments when I have the runway

Some use 3x multiple of gross, which is $2.4m
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

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Watty
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Re: How much home can I afford?

Post by Watty » Fri Jul 31, 2020 8:15 am

neverpanic wrote:
Fri Jul 31, 2020 1:32 am
Real estate values in SF are only going to increase over the next 20 years.
It is time to be very careful when people talk like this.

Outer Marker
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Re: How much home can I afford?

Post by Outer Marker » Fri Jul 31, 2020 8:19 am

flaccidsteele wrote:
Fri Jul 31, 2020 8:09 am
Personally I use % of NW. So if NW is $2m the most I would pay for a consumer item like shelter is $500k. I prefer my capital in investments when I have the runway

Some use 3x multiple of gross, which is $2.4m
$500K is not much house in the Bay area. I'd live a little and use the 3x income number.

Golf maniac
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Re: How much home can I afford?

Post by Golf maniac » Fri Jul 31, 2020 8:31 am

I agree with look to upgrade your rental. See what 4K a month can get you and you can come out ahead. Life events happen fast which can make you regret being saddled with RE. Just looked at rentalsinsf.com and looks like some nice places under 4K.

EnjoyIt
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Re: How much home can I afford?

Post by EnjoyIt » Fri Jul 31, 2020 8:40 am

You are doing great regarding income and savings. If your income is stable a $2million home is something you should be able to handle with very little effort.

If your not too sure about that income I would sit tight or rent a nicer place for another year or two.

Lastly, me personally, if I was single, I would not want to own an expensive house. Once you own, you will find yourself needing to deal with repairs and will be doing upkeep that will take your very precious and valuable time. Rent and let those issues be someone else’s problem while you get to concentrate on your career, health, and social life.

We own a 5,000 sqft home and I find myself constantly fixing things, working on the yard, or calling repair services instead of enjoying my free time. I have a family and we live in a great school district so there is that. I often times miss the ease of renting.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

smitcat
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Re: How much home can I afford?

Post by smitcat » Fri Jul 31, 2020 8:45 am

neverpanic wrote:
Fri Jul 31, 2020 1:32 am
Real estate values in SF are only going to increase over the next 20 years. I don't believe the posters warning you of what a dangerous investment it would be have been closely observing the Bay Area since ~2000. Even Oakland has condos selling north of $1M.

If you're at all uncertain about the prospect of continuing to earn $700,000+, I would probably hire a wash-and-fold service and bank cash for the next year. But if you feel good about your cash flow moving forward - I must say, you have the BEST side gig ever! - then you can comfortably afford something in the low 2's.
"Real estate values in SF are only going to increase over the next 20 years."
Interesting - so are your thoughts that incomes will locally keep up with the prices and that interest rates will also comply?

as9
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Re: How much home can I afford?

Post by as9 » Fri Jul 31, 2020 8:46 am

You don't seem that excited about owning real estate, so I'd probably go with one of the options shared here:

- Stay where you are, hire laundry service and anything else to improve QOL while hoarding cash for home purchase
- Spend an extra couple thousand a month to rent a bigger place

flaccidsteele
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Re: How much home can I afford?

Post by flaccidsteele » Fri Jul 31, 2020 11:38 am

Outer Marker wrote:
Fri Jul 31, 2020 8:19 am
flaccidsteele wrote:
Fri Jul 31, 2020 8:09 am
Personally I use % of NW. So if NW is $2m the most I would pay for a consumer item like shelter is $500k. I prefer my capital in investments when I have the runway

Some use 3x multiple of gross, which is $2.4m
$500K is not much house in the Bay area. I'd live a little and use the 3x income number.
Just get the NW to $12m and shelter can be $3m
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat

Topic Author
arandomdude84
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Re: How much home can I afford?

Post by arandomdude84 » Fri Jul 31, 2020 1:06 pm

Thanks all for the input.

I should mention that the $350k in stock compensation for 2020 has not vested yet, but the full amount will vest in 2 weeks. This amount was not included in the NW I mentioned in the original post.

I found a great property, in a location I love, with all the amenities I want for 1.975mm:

- 20% down would be $395k. I don't actually need the $395k in cash right now for anything... I would just end up letting it sit in VTSAX.
- At 2.25% interest (7/1 or 10/1 interest only ARM): $2,962.5 interest + $1,975 property tax + $400 hoa = $5,337.5 per month (vs my current rent of $2180, not including quarters for laundry).

Most places renting for this amount are much, MUCH less nice either in amenities or location.

My current portfolio with Vanguard includes ~85k in VGSLX (the vanguard REIT). I think I'd convert this to equities (VTSAX) if I did buy a place because now I would have real estate exposure with the purchase.

This seems like a relatively good deal to me, but I am cautious because I have never bought any big ticket item in my life, ever. I have literally never even bought a car before.

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Fri Jul 31, 2020 1:10 pm

arandomdude84 wrote:
Fri Jul 31, 2020 1:06 pm
Thanks all for the input.

I should mention that the $350k in stock compensation for 2020 has not vested yet, but the full amount will vest in 2 weeks. This amount was not included in the NW I mentioned in the original post.

I found a great property, in a location I love, with all the amenities I want for 1.975mm:

- 20% down would be $395k. I don't actually need the $395k in cash right now for anything... I would just end up letting it sit in VTSAX.
- At 2.25% interest (7/1 or 10/1 interest only ARM): $2,962.5 interest + $1,975 property tax + $400 hoa = $5,337.5 per month (vs my current rent of $2180, not including quarters for laundry).

Most places renting for this amount are much, MUCH less nice either in amenities or location.

My current portfolio with Vanguard includes ~85k in VGSLX (the vanguard REIT). I think I'd convert this to equities (VTSAX) if I did buy a place because now I would have real estate exposure with the purchase.

This seems like a relatively good deal to me, but I am cautious because I have never bought any big ticket item in my life, ever. I have literally never even bought a car before.
Don’t forget the tax benefits which cut your net outlay by $1k/month

bloom2708
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Re: How much home can I afford?

Post by bloom2708 » Fri Jul 31, 2020 1:12 pm

Rent in a nicer building with the amenities that you want. Splurge, but rent.

If you buy, your future partner (marriage?) will want something different.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

Outer Marker
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Re: How much home can I afford?

Post by Outer Marker » Fri Jul 31, 2020 3:00 pm

arandomdude84 wrote:
Fri Jul 31, 2020 1:06 pm
I found a great property, in a location I love, with all the amenities I want for 1.975mm:

- 20% down would be $395k. I don't actually need the $395k in cash right now for anything... I would just end up letting it sit in VTSAX.
- At 2.25% interest (7/1 or 10/1 interest only ARM): $2,962.5 interest + $1,975 property tax + $400 hoa = $5,337.5 per month (vs my current rent of $2180, not including quarters for laundry).

Most places renting for this amount are much, MUCH less nice either in amenities or location.

My current portfolio with Vanguard includes ~85k in VGSLX (the vanguard REIT). I think I'd convert this to equities (VTSAX) if I did buy a place because now I would have real estate exposure with the purchase.

This seems like a relatively good deal to me, but I am cautious because I have never bought any big ticket item in my life, ever. I have literally never even bought a car before.
This sounds nice and well within your means if you think that income level is sustainable. I think you'd be fine making anything north of $500K. That said, I don't like interest only loans, and I don't think you'll find many BHs using them. Your 50 year old self will look back with thanks on your 28 year old self if you do a 30 year fixed. Do some more reading on investing. REITS are equities and very different from owning a house. If you don't fully understand them and have a reason for deviating from market weight (they already part of VTSAX) then you are better off staying with VTSAX.

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Watty
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Re: How much home can I afford?

Post by Watty » Fri Jul 31, 2020 3:22 pm

arandomdude84 wrote:
Fri Jul 31, 2020 1:06 pm
At 2.25% interest (7/1 or 10/1 interest only ARM):
Going with an interest only ARM happened a lot in the last housing bubble when people just wanted to keep their payments low.

If you buy it then get it with a 15 or 30 year fixed rate mortgage unless you are sure you will have the loan paid off by the time the ARM unlocks.

Even if you can afford it paying $2 million for small condo is a bit extreme even if it is bigger than what you are renting now. Getting it with an interest only loan is a red flag that an inexperienced person may be getting themselves into trouble.

A 30 year mortgage would also likely work a lot better if you keep it as a rental property if you move some day.

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Nate79
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Re: How much home can I afford?

Post by Nate79 » Fri Jul 31, 2020 9:36 pm

Interest only loan is another way of saying you can't afford it. Price it as was mentioned on a 15 or 30 year fixed and see how that hits ya. Even a 30 year fixed would add about $4k per month to your equation (~$10k per month total). Plus don't forget now you are responsible for at lease some maintenance, appliances, etc.

EnjoyIt
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Re: How much home can I afford?

Post by EnjoyIt » Fri Jul 31, 2020 10:14 pm

Nate79 wrote:
Fri Jul 31, 2020 9:36 pm
Interest only loan is another way of saying you can't afford it. Price it as was mentioned on a 15 or 30 year fixed and see how that hits ya. Even a 30 year fixed would add about $4k per month to your equation (~$10k per month total). Plus don't forget now you are responsible for at lease some maintenance, appliances, etc.
Not necessarily, some like to maximize leverage to invest. I personally would not do this but I can understand one’s decision to do so.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Fri Jul 31, 2020 10:54 pm

Nate79 wrote:
Fri Jul 31, 2020 9:36 pm
Interest only loan is another way of saying you can't afford it. Price it as was mentioned on a 15 or 30 year fixed and see how that hits ya. Even a 30 year fixed would add about $4k per month to your equation (~$10k per month total). Plus don't forget now you are responsible for at lease some maintenance, appliances, etc.
By the same token I can argue that anyone who needs a mortgage can’t afford their home.

wackerdr
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Re: How much home can I afford?

Post by wackerdr » Fri Jul 31, 2020 11:02 pm

Why bother with house purchase, unless rental is more expensive? I don’t sense an emotional motive for home ownership. Whether intended or not, it really is a bet on the upside of SFO real estate appreciation. In such case, transactional cost of selling need to be considered and do a classic rent vs buy for 5-7 years and see if it makes sense.

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Nate79
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Re: How much home can I afford?

Post by Nate79 » Sat Aug 01, 2020 9:19 am

RocketShipTech wrote:
Fri Jul 31, 2020 10:54 pm
Nate79 wrote:
Fri Jul 31, 2020 9:36 pm
Interest only loan is another way of saying you can't afford it. Price it as was mentioned on a 15 or 30 year fixed and see how that hits ya. Even a 30 year fixed would add about $4k per month to your equation (~$10k per month total). Plus don't forget now you are responsible for at lease some maintenance, appliances, etc.
By the same token I can argue that anyone who needs a mortgage can’t afford their home.
That's not the same token. That's apples and turnips. An interest only loan isn't even buying the asset. It's just renting.

RocketShipTech
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Re: How much home can I afford?

Post by RocketShipTech » Sat Aug 01, 2020 9:29 am

Nate79 wrote:
Sat Aug 01, 2020 9:19 am
RocketShipTech wrote:
Fri Jul 31, 2020 10:54 pm
Nate79 wrote:
Fri Jul 31, 2020 9:36 pm
Interest only loan is another way of saying you can't afford it. Price it as was mentioned on a 15 or 30 year fixed and see how that hits ya. Even a 30 year fixed would add about $4k per month to your equation (~$10k per month total). Plus don't forget now you are responsible for at lease some maintenance, appliances, etc.
By the same token I can argue that anyone who needs a mortgage can’t afford their home.
That's not the same token. That's apples and turnips. An interest only loan isn't even buying the asset. It's just renting.
Why would the OP feel the need to fully buy the asset?

And he would own $400k of it. Why is that not enough?

EnjoyIt
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Re: How much home can I afford?

Post by EnjoyIt » Sat Aug 01, 2020 2:03 pm

RocketShipTech wrote:
Sat Aug 01, 2020 9:29 am
Nate79 wrote:
Sat Aug 01, 2020 9:19 am
RocketShipTech wrote:
Fri Jul 31, 2020 10:54 pm
Nate79 wrote:
Fri Jul 31, 2020 9:36 pm
Interest only loan is another way of saying you can't afford it. Price it as was mentioned on a 15 or 30 year fixed and see how that hits ya. Even a 30 year fixed would add about $4k per month to your equation (~$10k per month total). Plus don't forget now you are responsible for at lease some maintenance, appliances, etc.
By the same token I can argue that anyone who needs a mortgage can’t afford their home.
That's not the same token. That's apples and turnips. An interest only loan isn't even buying the asset. It's just renting.
Why would the OP feel the need to fully buy the asset?

And he would own $400k of it. Why is that not enough?
Some might even say it is good diversification and not putting a lot of your wealth into one single asset. Some may even think it is a smart and safe thing to do. Some.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

neverpanic
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Re: How much home can I afford?

Post by neverpanic » Sun Aug 02, 2020 1:41 am

wackerdr wrote:
Fri Jul 31, 2020 11:02 pm
Why bother with house purchase, unless rental is more expensive? I don’t sense an emotional motive for home ownership. Whether intended or not, it really is a bet on the upside of SFO real estate appreciation. In such case, transactional cost of selling need to be considered and do a classic rent vs buy for 5-7 years and see if it makes sense.
Provided one has the down payment, reserve assets, and continued employment and high earnings - AND would like to live in SF - it's a no-brainer to take that bet. What's the worst that could happen? Earthquake insurance going to be about $10K/year for full value on a $2M home. Many people who have earthquake insurance only have partial.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.

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