How Much House Can We Afford in HCOL Area?

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oldfort
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Re: How Much House Can We Afford in HCOL Area?

Post by oldfort »

joelly wrote: Thu Sep 03, 2020 7:48 pm I’m still confused as to how much your take home income is?

You mentioned $260K income. If this is it, then not only you can’t afford a $2M house, but also the $6K/mo rental. Do I miss something?

You also mentioned $800K-$1M income. If this is true then why are we even talking about your affordability.
I think they've had some RSUs pay off. Some company had massive stock price appreciation(10x) over the past few years.
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willthrill81
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

hereverycentcounts wrote: Thu Sep 03, 2020 7:34 pm
willthrill81 wrote: Thu Sep 03, 2020 4:00 pm In most HCOL areas, owning doesn't make sense.

Rent until you're ready to FIRE. Then move somewhere with a lower COL. It's called geographic arbitrage, and it can work very well. The problem is that many living in HCOL areas grow accustomed to doing so and refuse to move later on. That's still possible, but it will probably cost you years of additional work if you go that route.
What happens if we stay in the Bay Area when we retire? That is our plan. We want to stay here forever.
Even if you want to stay forever, renting can easily be the better choice. Have you heard of the New York Times rent vs. own calculator? I'm not sure if it's been referenced in this thread.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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geerhardusvos
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Re: How Much House Can We Afford in HCOL Area?

Post by geerhardusvos »

hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
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geerhardusvos
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Re: How Much House Can We Afford in HCOL Area?

Post by geerhardusvos »

willthrill81 wrote: Thu Sep 03, 2020 4:00 pm In most HCOL areas, owning doesn't make sense.

Rent until you're ready to FIRE. Then move somewhere with a lower COL. It's called geographic arbitrage, and it can work very well. The problem is that many living in HCOL areas grow accustomed to doing so and refuse to move later on. That's still possible, but it will probably cost you years of additional work if you go that route.
+1
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savingacorns
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Re: How Much House Can We Afford in HCOL Area?

Post by savingacorns »

Original poster . . .

It sounds like your in-laws own a house in the SF Bay Area (West Bay). Thus, they own land.

Have you considered potentially building an ADU (Accessory Dwelling Unit) on their land?

It is my understanding that CA law permits a homeowner of a single-family to build an ADU. So, you'd build a small house in your in-laws backyard (or an addition to their house, constituting a seperate housing unit and thus creating a 2-family house). If you are permitted to build an 800 sq. ft. ADU, that could be a 2 bed, 2 bath home. (Kitchen and open concept living room = 20 x 20 [400 sq. ft.]; Bedroom #1 = 10 x 10 [100 sq. ft.]; Bedroom #2 = 10 x 10 [100 sq. ft.]; Bathroom #1 = 8 x 8 [64 sq. ft.]; Bathroom #2 = 8 x 8 [64 sq. ft.]).

I believe from a quick spin on Google, you might be able to build an 800 sq. ft. ADU for $150k-200k. Let's even say $240k. That would be equal to 40 months of $6k/month rent.

The ADU would make childcare as convenient as it could be (your in-laws would live on the same piece of land). Since they don't drive, you and your husband would have space to park your cars. You'd have a brand new, but smaller house (but not land) in the most expensive market in the US for less than $250k - you'd be able to commute to your high-paying job and still save massive money. The only two downsides are: (1) lifestyle - a lot of people cannot handle their in-laws so close and so involved; (2) you wouldn't own CA land so you wouldn't get that appreciation; (3) you couldn't hold title to your ADU unless your in-laws put you on the deed for the whole property, I believe.

Personally, I also live in a VHCOL. I would do this for myself, but my state does not permit ADU's.

http://www.modative.com/adu-blog/the-12 ... california
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

geerhardusvos wrote: Thu Sep 03, 2020 8:15 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
How much in networth (assuming income stays the same) do we need to afford a $1.8M house?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

geerhardusvos wrote: Thu Sep 03, 2020 8:16 pm
willthrill81 wrote: Thu Sep 03, 2020 4:00 pm In most HCOL areas, owning doesn't make sense.

Rent until you're ready to FIRE. Then move somewhere with a lower COL. It's called geographic arbitrage, and it can work very well. The problem is that many living in HCOL areas grow accustomed to doing so and refuse to move later on. That's still possible, but it will probably cost you years of additional work if you go that route.
+1
But if our plan is to stay here until we die, will we be able to afford to do that if we never buy?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

oldfort wrote: Thu Sep 03, 2020 8:00 pm
joelly wrote: Thu Sep 03, 2020 7:48 pm I’m still confused as to how much your take home income is?

You mentioned $260K income. If this is it, then not only you can’t afford a $2M house, but also the $6K/mo rental. Do I miss something?

You also mentioned $800K-$1M income. If this is true then why are we even talking about your affordability.
I think they've had some RSUs pay off. Some company had massive stock price appreciation(10x) over the past few years.
As noted, it's my stock appreciation. My comp is $170k + 20% bonus and then around $50k RSU but stock has appreciated quickly. I'll be back to the $200k-$250k when my initial grant vests.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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willthrill81
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

hereverycentcounts wrote: Thu Sep 03, 2020 9:48 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:16 pm
willthrill81 wrote: Thu Sep 03, 2020 4:00 pm In most HCOL areas, owning doesn't make sense.

Rent until you're ready to FIRE. Then move somewhere with a lower COL. It's called geographic arbitrage, and it can work very well. The problem is that many living in HCOL areas grow accustomed to doing so and refuse to move later on. That's still possible, but it will probably cost you years of additional work if you go that route.
+1
But if our plan is to stay here until we die, will we be able to afford to do that if we never buy?
There's not necessarily anything financially wrong with renting for the rest of your life. And contrary to popular wisdom perpetuated by real estate agents looking for more commissions, it can absolutely make better financial sense to do that instead of buying. You aren't 'throwing away your money' renting. The $2 million you might need to buy a home could generate between $60k-$80k of inflation-adjusted retirement income for you. If that money is tied up as home equity, it's very unlikely to save you that much in implied rent in a HCOL area and especially in a VHCOL area. You might be able to rent an equivalent home for half that much or even less.

In most cases, there is a qualitative shift in the math underlying the buy vs. rent decision across HCOL areas and lower COL areas. In the latter, owning usually comes out ahead. In the former, renting usually comes out ahead.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
phxjcc
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Re: How Much House Can We Afford in HCOL Area?

Post by phxjcc »

hereverycentcounts wrote: Thu Sep 03, 2020 9:48 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:16 pm
willthrill81 wrote: Thu Sep 03, 2020 4:00 pm In most HCOL areas, owning doesn't make sense.

Rent until you're ready to FIRE. Then move somewhere with a lower COL. It's called geographic arbitrage, and it can work very well. The problem is that many living in HCOL areas grow accustomed to doing so and refuse to move later on. That's still possible, but it will probably cost you years of additional work if you go that route.
+1
But if our plan is to stay here until we die, will we be able to afford to do that if we never buy?
No.
You will not.

Do the math.
Assume 5% increases in rent each year.
In 30 years, your $4k rent is now $16k.
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willthrill81
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

phxjcc wrote: Thu Sep 03, 2020 10:30 pm
hereverycentcounts wrote: Thu Sep 03, 2020 9:48 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:16 pm
willthrill81 wrote: Thu Sep 03, 2020 4:00 pm In most HCOL areas, owning doesn't make sense.

Rent until you're ready to FIRE. Then move somewhere with a lower COL. It's called geographic arbitrage, and it can work very well. The problem is that many living in HCOL areas grow accustomed to doing so and refuse to move later on. That's still possible, but it will probably cost you years of additional work if you go that route.
+1
But if our plan is to stay here until we die, will we be able to afford to do that if we never buy?
No.
You will not.

Do the math.
Assume 5% increases in rent each year.
In 30 years, your $4k rent is now $16k.
That's a big assumption that might not hold up. 30 years is an awfully long time. I'm sure that NYC landowners didn't expect rents to fall, but they have.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
pasadena
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Re: How Much House Can We Afford in HCOL Area?

Post by pasadena »

I didn't read the whole thread, but it all sounds like you're trying to justify the house by counting on money you don't have yet - and won't have in the future once you original grant is gone.

If it were me, I would rent a 2- or 3-bedrooms for a year, and reassess once the $400k have vested and are in your hands.

So you're in tech in the Bay Area and one of the companies that have seen such a big increase in their stock price - isn't it also one that has extended WFH until next summer? If so, maybe you could look at renting farther away, closer to your in-laws and without commute for a year.
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geerhardusvos
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Re: How Much House Can We Afford in HCOL Area?

Post by geerhardusvos »

hereverycentcounts wrote: Thu Sep 03, 2020 9:47 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:15 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
How much in networth (assuming income stays the same) do we need to afford a $1.8M house?
This is a personal decision, but I would think someone with $600,000+ per year of sustainable income would be someone who is reasonably in the market to buy a $2 million house if they desired. Net worth isn’t always the best way to think about house affordability, but I would say <20% of your net worth should be in your Primary residence.

Just rent... you won’t regret it...
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

pasadena wrote: Thu Sep 03, 2020 10:50 pm I didn't read the whole thread, but it all sounds like you're trying to justify the house by counting on money you don't have yet - and won't have in the future once you original grant is gone.

If it were me, I would rent a 2- or 3-bedrooms for a year, and reassess once the $400k have vested and are in your hands.

So you're in tech in the Bay Area and one of the companies that have seen such a big increase in their stock price - isn't it also one that has extended WFH until next summer? If so, maybe you could look at renting farther away, closer to your in-laws and without commute for a year.
All true. Thanks for the comment. That’s what I am trying to figure out. I will have $200k after tax by end of year and $400k after tax in RSU next year (I am assuming 50% tax on the vesting amount with it going down a bit. It could be more.)

After that I figure I’ll be back to 250k a year. I could put the 600k into my down payment so I put something like 900k down on a 1.8M house and take out a $900k loan. That seems like it would be more reasonable as it would keep our monthly costs down and be less than rent. But I’d also have a crap ton of my networth tied up in my house. Then I wonder if it’s better to do 20% down and invest that $600k (not in my company stock but diversify it properly) and let it grow and pull out a little each year if needed to cover some of the mortgage. Is this a horrible idea?

Or we can rent forever. But in 30 years I may regret that. Unclear.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
runner540
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Re: How Much House Can We Afford in HCOL Area?

Post by runner540 »

hereverycentcounts wrote: Thu Sep 03, 2020 11:31 pm
pasadena wrote: Thu Sep 03, 2020 10:50 pm I didn't read the whole thread, but it all sounds like you're trying to justify the house by counting on money you don't have yet - and won't have in the future once you original grant is gone.

If it were me, I would rent a 2- or 3-bedrooms for a year, and reassess once the $400k have vested and are in your hands.

So you're in tech in the Bay Area and one of the companies that have seen such a big increase in their stock price - isn't it also one that has extended WFH until next summer? If so, maybe you could look at renting farther away, closer to your in-laws and without commute for a year.
All true. Thanks for the comment. That’s what I am trying to figure out. I will have $200k after tax by end of year and $400k after tax in RSU next year (I am assuming 50% tax on the vesting amount with it going down a bit. It could be more.)

After that I figure I’ll be back to 250k a year. I could put the 600k into my down payment so I put something like 900k down on a 1.8M house and take out a $900k loan. That seems like it would be more reasonable as it would keep our monthly costs down and be less than rent. But I’d also have a crap ton of my networth tied up in my house. Then I wonder if it’s better to do 20% down and invest that $600k (not in my company stock but diversify it properly) and let it grow and pull out a little each year if needed to cover some of the mortgage. Is this a horrible idea?

Or we can rent forever. But in 30 years I may regret that. Unclear.
That is a very dramatic statement. There are a lot of options between buying a $2MM house right now, and renting forever. Please take a breath and pat yourself of the back for all you’ve done to get to this point. I really recommend renting a bigger/nicer place and commit to re-evaluate in a year when baby #2 is here, you’re back at work after leave, and have another chunk of RSUs vested.
Take the next year to clarify goals with your spouse (Early retirement, SAHP, location, schools for kids) and run some numbers not under the pressure that you are feeling right now.
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Re: How Much House Can We Afford in HCOL Area?

Post by joelly »

runner540 wrote: Thu Sep 03, 2020 11:38 pm
hereverycentcounts wrote: Thu Sep 03, 2020 11:31 pm
pasadena wrote: Thu Sep 03, 2020 10:50 pm I didn't read the whole thread, but it all sounds like you're trying to justify the house by counting on money you don't have yet - and won't have in the future once you original grant is gone.

If it were me, I would rent a 2- or 3-bedrooms for a year, and reassess once the $400k have vested and are in your hands.

So you're in tech in the Bay Area and one of the companies that have seen such a big increase in their stock price - isn't it also one that has extended WFH until next summer? If so, maybe you could look at renting farther away, closer to your in-laws and without commute for a year.
All true. Thanks for the comment. That’s what I am trying to figure out. I will have $200k after tax by end of year and $400k after tax in RSU next year (I am assuming 50% tax on the vesting amount with it going down a bit. It could be more.)

After that I figure I’ll be back to 250k a year. I could put the 600k into my down payment so I put something like 900k down on a 1.8M house and take out a $900k loan. That seems like it would be more reasonable as it would keep our monthly costs down and be less than rent. But I’d also have a crap ton of my networth tied up in my house. Then I wonder if it’s better to do 20% down and invest that $600k (not in my company stock but diversify it properly) and let it grow and pull out a little each year if needed to cover some of the mortgage. Is this a horrible idea?

Or we can rent forever. But in 30 years I may regret that. Unclear.
That is a very dramatic statement. There are a lot of options between buying a $2MM house right now, and renting forever. Please take a breath and pat yourself of the back for all you’ve done to get to this point. I really recommend renting a bigger/nicer place and commit to re-evaluate in a year when baby #2 is here, you’re back at work after leave, and have another chunk of RSUs vested.
Take the next year to clarify goals with your spouse (Early retirement, SAHP, location, schools for kids) and run some numbers not under the pressure that you are feeling right now.
Agreed. OP needs to go regroup with your thoughts. You have done so much so you deserve to have the house you desire. Spend the next few days to regroup and then decide.
pasadena
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Re: How Much House Can We Afford in HCOL Area?

Post by pasadena »

runner540 wrote: Thu Sep 03, 2020 11:38 pm
hereverycentcounts wrote: Thu Sep 03, 2020 11:31 pm
pasadena wrote: Thu Sep 03, 2020 10:50 pm I didn't read the whole thread, but it all sounds like you're trying to justify the house by counting on money you don't have yet - and won't have in the future once you original grant is gone.

If it were me, I would rent a 2- or 3-bedrooms for a year, and reassess once the $400k have vested and are in your hands.

So you're in tech in the Bay Area and one of the companies that have seen such a big increase in their stock price - isn't it also one that has extended WFH until next summer? If so, maybe you could look at renting farther away, closer to your in-laws and without commute for a year.
All true. Thanks for the comment. That’s what I am trying to figure out. I will have $200k after tax by end of year and $400k after tax in RSU next year (I am assuming 50% tax on the vesting amount with it going down a bit. It could be more.)

After that I figure I’ll be back to 250k a year. I could put the 600k into my down payment so I put something like 900k down on a 1.8M house and take out a $900k loan. That seems like it would be more reasonable as it would keep our monthly costs down and be less than rent. But I’d also have a crap ton of my networth tied up in my house. Then I wonder if it’s better to do 20% down and invest that $600k (not in my company stock but diversify it properly) and let it grow and pull out a little each year if needed to cover some of the mortgage. Is this a horrible idea?

Or we can rent forever. But in 30 years I may regret that. Unclear.
That is a very dramatic statement. There are a lot of options between buying a $2MM house right now, and renting forever. Please take a breath and pat yourself of the back for all you’ve done to get to this point. I really recommend renting a bigger/nicer place and commit to re-evaluate in a year when baby #2 is here, you’re back at work after leave, and have another chunk of RSUs vested.
Take the next year to clarify goals with your spouse (Early retirement, SAHP, location, schools for kids) and run some numbers not under the pressure that you are feeling right now.
This.

Don't count your chickens before they've hatched. What if we have another market crash and widespread lockdown ? At this point anything could happen. Your unvested RSUs are a single point of failure in your plan, especially being all tied in one company, in a sector that has seen historic growth these past few months. I hope it keeps going (I also have tech RSUs :)) but I wouldn't bet a 2MM house on that, and I sure wouldn't make decisions on today's value.

Once they're vested and you know *exactly* how much money you *have* then you can run real numbers and make a sound and safe decision. Including whether to do jumbo with 20% or a smaller mortgage with 50% down. Incidentally, it will also be in a time where you're not pregnant up your eyes anymore, when you have settled in your life as parents of two babies, and you will have a better idea of your actual needs, and when rough waters will hopefully be behind us.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

runner540 wrote: Thu Sep 03, 2020 11:38 pm
hereverycentcounts wrote: Thu Sep 03, 2020 11:31 pm
pasadena wrote: Thu Sep 03, 2020 10:50 pm I didn't read the whole thread, but it all sounds like you're trying to justify the house by counting on money you don't have yet - and won't have in the future once you original grant is gone.

If it were me, I would rent a 2- or 3-bedrooms for a year, and reassess once the $400k have vested and are in your hands.

So you're in tech in the Bay Area and one of the companies that have seen such a big increase in their stock price - isn't it also one that has extended WFH until next summer? If so, maybe you could look at renting farther away, closer to your in-laws and without commute for a year.
All true. Thanks for the comment. That’s what I am trying to figure out. I will have $200k after tax by end of year and $400k after tax in RSU next year (I am assuming 50% tax on the vesting amount with it going down a bit. It could be more.)

After that I figure I’ll be back to 250k a year. I could put the 600k into my down payment so I put something like 900k down on a 1.8M house and take out a $900k loan. That seems like it would be more reasonable as it would keep our monthly costs down and be less than rent. But I’d also have a crap ton of my networth tied up in my house. Then I wonder if it’s better to do 20% down and invest that $600k (not in my company stock but diversify it properly) and let it grow and pull out a little each year if needed to cover some of the mortgage. Is this a horrible idea?

Or we can rent forever. But in 30 years I may regret that. Unclear.
That is a very dramatic statement. There are a lot of options between buying a $2MM house right now, and renting forever. Please take a breath and pat yourself of the back for all you’ve done to get to this point. I really recommend renting a bigger/nicer place and commit to re-evaluate in a year when baby #2 is here, you’re back at work after leave, and have another chunk of RSUs vested.
Take the next year to clarify goals with your spouse (Early retirement, SAHP, location, schools for kids) and run some numbers not under the pressure that you are feeling right now.
Thanks. I know. It has been very hard in this area. I am not an engineer. I’ve managed to make a career for myself on the business side but I’m not intelligent enough to feel like I will ever have stable employment. I have no particular skills—just some luck and tenacity. I am incredibly fortunate to have my current job but I have no reason from historical data of my life to think this is at all sustainable. My husband doesn’t want a career or to get more clients—at the moment that works for us because he can watch our kids and earn a pretty good amount for part time work. I do want one more kid but I’ll be 39 at that point so unsure if that will happen. Part of me wants to pick up and move most anywhere else where we could afford a house and I would be ok in a job where I don’t have to try to convince people I’m worth $250k a year. But I also love it here for all the reasons everyone else does, and it would be extremely hard to convince my husband to leave (let alone convince myself.) So here I am. Seeing $600k in my own AGI this year made me falsely think I could afford to buy a home for my family. Clearly I can’t. I can wait a year and rent, no problem. But then what? Situation won’t change, I’ll just have another $600k. My income isn’t going to change.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

savingacorns wrote: Thu Sep 03, 2020 9:38 pm Original poster . . .

It sounds like your in-laws own a house in the SF Bay Area (West Bay). Thus, they own land.

Have you considered potentially building an ADU (Accessory Dwelling Unit) on their land?

It is my understanding that CA law permits a homeowner of a single-family to build an ADU. So, you'd build a small house in your in-laws backyard (or an addition to their house, constituting a seperate housing unit and thus creating a 2-family house). If you are permitted to build an 800 sq. ft. ADU, that could be a 2 bed, 2 bath home. (Kitchen and open concept living room = 20 x 20 [400 sq. ft.]; Bedroom #1 = 10 x 10 [100 sq. ft.]; Bedroom #2 = 10 x 10 [100 sq. ft.]; Bathroom #1 = 8 x 8 [64 sq. ft.]; Bathroom #2 = 8 x 8 [64 sq. ft.]).

I believe from a quick spin on Google, you might be able to build an 800 sq. ft. ADU for $150k-200k. Let's even say $240k. That would be equal to 40 months of $6k/month rent.

The ADU would make childcare as convenient as it could be (your in-laws would live on the same piece of land). Since they don't drive, you and your husband would have space to park your cars. You'd have a brand new, but smaller house (but not land) in the most expensive market in the US for less than $250k - you'd be able to commute to your high-paying job and still save massive money. The only two downsides are: (1) lifestyle - a lot of people cannot handle their in-laws so close and so involved; (2) you wouldn't own CA land so you wouldn't get that appreciation; (3) you couldn't hold title to your ADU unless your in-laws put you on the deed for the whole property, I believe.

Personally, I also live in a VHCOL. I would do this for myself, but my state does not permit ADU's.

http://www.modative.com/adu-blog/the-12 ... california
In laws unfortunately do not own property. They are unmarried. One rents an apt for $2000 a month. The other lives in the home she grew up in and will need to move out when her 96 year old mother passes away (house is a mess and very expensive, not worth buying.)

They both are open to moving into an ADU on our property, but thus far we haven’t been able to find anything in our Target area that fits our needs and has an ADU. Have been quoted $200k+ for a garage conversion, so even if we got a $1.7 we would still need to shell out another 200k for the ADU build. Or more. Doesn’t seem to make sense.

We are looking possibly to buy a house my FIL can live with us in — so he can put that $2k rent to the mortgage for a while.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

hereverycentcounts wrote: Fri Sep 04, 2020 12:03 am
savingacorns wrote: Thu Sep 03, 2020 9:38 pm Original poster . . .

It sounds like your in-laws own a house in the SF Bay Area (West Bay). Thus, they own land.

Have you considered potentially building an ADU (Accessory Dwelling Unit) on their land?

It is my understanding that CA law permits a homeowner of a single-family to build an ADU. So, you'd build a small house in your in-laws backyard (or an addition to their house, constituting a seperate housing unit and thus creating a 2-family house). If you are permitted to build an 800 sq. ft. ADU, that could be a 2 bed, 2 bath home. (Kitchen and open concept living room = 20 x 20 [400 sq. ft.]; Bedroom #1 = 10 x 10 [100 sq. ft.]; Bedroom #2 = 10 x 10 [100 sq. ft.]; Bathroom #1 = 8 x 8 [64 sq. ft.]; Bathroom #2 = 8 x 8 [64 sq. ft.]).

I believe from a quick spin on Google, you might be able to build an 800 sq. ft. ADU for $150k-200k. Let's even say $240k. That would be equal to 40 months of $6k/month rent.

The ADU would make childcare as convenient as it could be (your in-laws would live on the same piece of land). Since they don't drive, you and your husband would have space to park your cars. You'd have a brand new, but smaller house (but not land) in the most expensive market in the US for less than $250k - you'd be able to commute to your high-paying job and still save massive money. The only two downsides are: (1) lifestyle - a lot of people cannot handle their in-laws so close and so involved; (2) you wouldn't own CA land so you wouldn't get that appreciation; (3) you couldn't hold title to your ADU unless your in-laws put you on the deed for the whole property, I believe.

Personally, I also live in a VHCOL. I would do this for myself, but my state does not permit ADU's.

http://www.modative.com/adu-blog/the-12 ... california
In laws unfortunately do not own property. They are unmarried. One rents an apt for $2000 a month. The other lives in the home she grew up in and will need to move out when her 96 year old mother passes away (house is a mess and very expensive, not worth buying.)

They both are open to moving into an ADU on our property, but thus far we haven’t been able to find anything in our Target area that fits our needs and has an ADU. Have been quoted $200k+ for a garage conversion, so even if we got a $1.7 we would still need to shell out another 200k for the ADU build. Or more. Doesn’t seem to make sense.

We are looking possibly to buy a house my FIL can live with us in — so he can put that $2k rent to the mortgage for a while.
Also the only way to make this work would be to buy out MIL siblings for property (that is falling apart), for $1.4M or something top of her third, then build ADU. We have thought about it, but the main house is a tear down basically. We could build new ADU and leave main house for a while but I don’t think that house is safe. And then we are mixing all our money together and I don’t like that idea at all. The property is huge though and could easily fit a great ADU.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

hereverycentcounts wrote: Fri Sep 04, 2020 12:03 am
In laws unfortunately do not own property. They are unmarried. One rents an apt for $2000 a month. The other lives in the home she grew up in and will need to move out when her 96 year old mother passes away (house is a mess and very expensive, not worth buying.)

They both are open to moving into an ADU on our property, but thus far we haven’t been able to find anything in our Target area that fits our needs and has an ADU. Have been quoted $200k+ for a garage conversion, so even if we got a $1.7 we would still need to shell out another 200k for the ADU build. Or more. Doesn’t seem to make sense.

We are looking possibly to buy a house my FIL can live with us in — so he can put that $2k rent to the mortgage for a while.
It would also be good to consider what assisted living or a nursing home would cost in the Bay Area if that is needed and the in laws do not have a lot of funds to pay for it themselves.

https://www.genworth.com/aging-and-you/ ... -care.html
(And before you recommend moving - we are not leaving the area. Have lots of family here and plan to stay for the long haul.)
I am one of the people that often recommends looking at that as an option but didn't say anything so far. Just for completeness though I will throw something out about that.

I lived in the Bay Area(Sunnyvale) back in the 1980s and it has always been expensive. Even back then one thing I saw was that some of my older coworkers had grown up kids that were well into their 20s and they were still living with their parents. The problem was that the kids did not have high paying jobs so they could not afford an apartment even with roommates. I have moved around since then and I ended up in Atlanta and I am retired now. Housing is still fairly affordable here and I have a grow up son who is married and has two kids. He is doing well in his career and they were able to easily afford to buy a nice house that is about 10 minutes from us. That works out well for us since we frequently get to see son and our grandkids.

Virtually all of my sons high school and college classmates that stayed in the area were able to afford to buy nice homes when they were in their 20s. We even have some friends who have a son who is severely dyslexic and barely graduated from High School. At one point he was working in a chain muffler store which was a good honest job but I am sure that it did not pay a lot. Even on his income he was able to buy a small older house that was in a marginal but not terrible area.

Family is obviously very important to you which is great, but in your planning you might also consider what it will be like for your kids to try to afford to live there when they grow up.

You are making fantastic money right now which makes it worthwhile to live there now but if that tapers off then you might keep an open mind about eventually moving. I'm not saying that you should move to Atlanta but when you are traveling for business or vacations you should keep an eye out to see if you can find an area that you would be excited about moving to.
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

Watty wrote: Fri Sep 04, 2020 12:42 am
hereverycentcounts wrote: Fri Sep 04, 2020 12:03 am
In laws unfortunately do not own property. They are unmarried. One rents an apt for $2000 a month. The other lives in the home she grew up in and will need to move out when her 96 year old mother passes away (house is a mess and very expensive, not worth buying.)

They both are open to moving into an ADU on our property, but thus far we haven’t been able to find anything in our Target area that fits our needs and has an ADU. Have been quoted $200k+ for a garage conversion, so even if we got a $1.7 we would still need to shell out another 200k for the ADU build. Or more. Doesn’t seem to make sense.

We are looking possibly to buy a house my FIL can live with us in — so he can put that $2k rent to the mortgage for a while.
It would also be good to consider what assisted living or a nursing home would cost in the Bay Area if that is needed and the in laws do not have a lot of funds to pay for it themselves.

https://www.genworth.com/aging-and-you/ ... -care.html
(And before you recommend moving - we are not leaving the area. Have lots of family here and plan to stay for the long haul.)
I am one of the people that often recommends looking at that as an option but didn't say anything so far. Just for completeness though I will throw something out about that.

I lived in the Bay Area(Sunnyvale) back in the 1980s and it has always been expensive. Even back then one thing I saw was that some of my older coworkers had grown up kids that were well into their 20s and they were still living with their parents. The problem was that the kids did not have high paying jobs so they could not afford an apartment even with roommates. I have moved around since then and I ended up in Atlanta and I am retired now. Housing is still fairly affordable here and I have a grow up son who is married and has two kids. He is doing well in his career and they were able to easily afford to buy a nice house that is about 10 minutes from us. That works out well for use since we frequently get to see our Grandkids.

Virtually all of my sons high school and college classmates that stayed in the area were able to afford to buy nice homes when they were in their 20s. We even have some friends who have a son who is severely dyslexic and barely graduated from High School. At one point he was working in a chain muffler store which was a good honest job but I am sure that it did not pay a lot. Even on his income he was able to buy a small older house that was in a marginal but not terrible area.

Family is obviously very important to you which is great, but in your planning you might also consider what it will be like for your kids to try to afford to live there when they grow up.

You are making fantastic money right now which makes it worthwhile to live there now but if that tapers off then you might keep an open mind about eventually moving. When you are traveling for business or vacations you should keep an eye out to see if you can find an area that you would be excited about moving to.
Hmm.

MIL will be able to self insure re: LTC. FIL at other end, he would be on Medicaid, he has nothing. Either way I think they are fine staying — except FIL may get priced out at some point (he is in a 55+ apt and somehow hasn’t had rent raised in years.)

In terms of moving, I grew up in the northeast, lived in the middle of the country for college, travel fairly extensively for work, have been in Bay Area 15 years. I can honestly say there is no where else I would rather live. I like being near an ocean, moderate climate, lots of parks nearby. Liberal political area. Northwest is too rainy and grey, I need sun. Husband hates heat so south is out. NY is a possibility but it would be very hard to get his parents to move there. He will not move without his parents. I’ve thought maybe Minnesota though I’ve never been. His parents wouldn’t move anywhere with winter. Maybe southern CA but again husband hates heat and it’s not much cheaper. Seattle is on the list, I wouldn’t be happy there. Can’t figure out where else to go. Maybe central coast CA but then no jobs...
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

hereverycentcounts wrote: Fri Sep 04, 2020 12:51 am I like being near an ocean, moderate climate, lots of parks nearby. Liberal political area.
Except for the relatives Hawaii might be and option to add to your list. Parts of it would likely cost less than the Bay Area.
hereverycentcounts wrote: Fri Sep 04, 2020 12:51 am Maybe central coast CA but then no jobs...
If you can keep your income up until your oldest kid is ready to start middle school then you could likely retire by then.
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Re: How Much House Can We Afford in HCOL Area?

Post by Tingting1013 »

Watty wrote: Fri Sep 04, 2020 12:42 am
I am one of the people that often recommends looking at that as an option but didn't say anything so far. Just for completeness though I will throw something out about that.
Even if this does become a problem for the OP and her kids, I don’t see why this kind of drastic life change needs to happen now, long before we know whether (1) the OP and her kids prefer to live near each other in adulthood, (2) the kids can get suitable jobs in the Bay Area, and (3) how the OP and her husband’s preferences might change in 20 years.
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Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

Tingting1013 wrote: Fri Sep 04, 2020 4:43 am
Watty wrote: Fri Sep 04, 2020 12:42 am
I am one of the people that often recommends looking at that as an option but didn't say anything so far. Just for completeness though I will throw something out about that.
Even if this does become a problem for the OP and her kids, I don’t see why this kind of drastic life change needs to happen now, long before we know whether (1) the OP and her kids prefer to live near each other in adulthood, (2) the kids can get suitable jobs in the Bay Area, and (3) how the OP and her husband’s preferences might change in 20 years.
I totally agree that now is not the time to do anything since they are earning such high income. That make staying in the Bay Area an easy choice while their income is high.

If they keep making such high income for the next 20 years they could even help their kids buy houses near them.
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Re: How Much House Can We Afford in HCOL Area?

Post by random_walker_77 »

cacophony wrote: Thu Sep 03, 2020 4:20 pm
random_walker_77 wrote: Thu Sep 03, 2020 1:24 pm Yes, the labor is expensive because everyone has high costs to find a place to live in commuting distance. But I challenge you to look at these pictures and again state that service workers are likely to add a wealth surcharge when they drive up to these properties. Instead, they'll go by address. If your address is Palo Alto, Los Altos, etc, then you've clearly paid a lot to live there.
If you mean that a Los Altos address house will be charged more than the exact same house relocated to Redwood City (assuming both are same distance from the repair place) then that's not the case, at least for anywhere reputable.

Also remember that people living in modest homes in expensive areas are not necessarily wealthy (well besides real estate value). Many of them just bought a long time ago and the property tax stays low due to prop 13.
Perhaps. I can believe that a larger firm with fixed pricing won't charge extra. I've also heard of small contractors that will bid what the market will bear, and they'll adjust their bids based on various factors. If they're extra busy, or they don't particularly want that job, they'll bid higher. Not sure if it's true, but I'd be shocked if some contractors take into account obvious signs of wealth...

On that second point, a lot of expensive areas in the bay area have been relatively expensive for a long time. Los Altos wasn't always all 2M+, but it has been one of the "richer" areas for at least 30 years now.
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Re: How Much House Can We Afford in HCOL Area?

Post by random_walker_77 »

hereverycentcounts wrote: Thu Sep 03, 2020 11:56 pm I am incredibly fortunate to have my current job but I have no reason from historical data of my life to think this is at all sustainable.

Seeing $600k in my own AGI this year made me falsely think I could afford to buy a home for my family.
A mortgage is a long-term bet on stability. You're betting that you can afford the payments, through good times and bad, and what you're betting with is your home equity and your good name (i.e. credit record).

For many in the bay area, and to some extent for you as well, results will be bimodal. Either things go very well, allowing you to acquire and save hundreds of thousands over the next several years, or they'll go poorly. If the latter scenario materializes, you don't want a giant mortgage obligation.

If the former happens, you're a winner. You're probably going to save more then the house prices will rise. Sure, that hasn't been the case in the past, but I'd note that it's a lot easier for a house at 750K to get to 1.5M then for a house at 1.5M to get to 3M. (And as we discussed earlier, inflation and opportunity cost compared to the stock market erode the perceived benefit of home price appreciation)
Worst case, the market is crazy, you've got 1.5M in after-tax cash, and homes are all 3M -- well, does that make you a loser? Of course not. You still won. Take your 1.5M in cold hard cash, transfer to Reno or Austin, pay for childcare, and come back to visit often.
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

random_walker_77 wrote: Fri Sep 04, 2020 9:06 am
hereverycentcounts wrote: Thu Sep 03, 2020 11:56 pm I am incredibly fortunate to have my current job but I have no reason from historical data of my life to think this is at all sustainable.

Seeing $600k in my own AGI this year made me falsely think I could afford to buy a home for my family.
A mortgage is a long-term bet on stability. You're betting that you can afford the payments, through good times and bad, and what you're betting with is your home equity and your good name (i.e. credit record).

For many in the bay area, and to some extent for you as well, results will be bimodal. Either things go very well, allowing you to acquire and save hundreds of thousands over the next several years, or they'll go poorly. If the latter scenario materializes, you don't want a giant mortgage obligation.

If the former happens, you're a winner. You're probably going to save more then the house prices will rise. Sure, that hasn't been the case in the past, but I'd note that it's a lot easier for a house at 750K to get to 1.5M then for a house at 1.5M to get to 3M. (And as we discussed earlier, inflation and opportunity cost compared to the stock market erode the perceived benefit of home price appreciation)
Worst case, the market is crazy, you've got 1.5M in after-tax cash, and homes are all 3M -- well, does that make you a loser? Of course not. You still won. Take your 1.5M in cold hard cash, transfer to Reno or Austin, pay for childcare, and come back to visit often.
I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

hereverycentcounts wrote: Thu Sep 03, 2020 9:47 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:15 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
How much in networth (assuming income stays the same) do we need to afford a $1.8M house?
At least 2 million plus income able to maintain the house.

You keep asking the wrong question. It is not about how much net worth you have. It's all about cash flow if you finance; how much maintenance you can afford if you pay cash.
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Re: How Much House Can We Afford in HCOL Area?

Post by random_walker_77 »

hereverycentcounts wrote: Fri Sep 04, 2020 9:21 am I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
First off, don't forget about inflation and the time value of money. 1.03^30 * 6K is indeed 14K in 2050 dollars. You know what else is 14K in 2050 dollars?
$7800 of today's dollars, which after 30 years of 2% inflation. So that rent, after 30 years of growth, will finally catch up to the mortgage payment you'd have if you bought today.

If you rent, and invest the difference, you'll be able to afford future rent increases.

If you buy, you risk losing if you can't keep up with payments after job losses or a market crash. You win if housing keeps going up. If housing really goes up 7% a year (which, you'll note, is more than people are expecting from the stock market), you'd win big. After 30 years, that 1.8M house would be worth 7.7M in today's dollars (or 13.7M in 2050 dollars). Woohoo!

But come one, there's limited real estate in the bay area, but are salaries going to increase so much that people are going to be able to afford to buy that house from you for 7.7M?
Last edited by random_walker_77 on Fri Sep 04, 2020 9:46 am, edited 1 time in total.
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Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

hereverycentcounts wrote: Fri Sep 04, 2020 9:21 am
random_walker_77 wrote: Fri Sep 04, 2020 9:06 am
hereverycentcounts wrote: Thu Sep 03, 2020 11:56 pm I am incredibly fortunate to have my current job but I have no reason from historical data of my life to think this is at all sustainable.

Seeing $600k in my own AGI this year made me falsely think I could afford to buy a home for my family.
A mortgage is a long-term bet on stability. You're betting that you can afford the payments, through good times and bad, and what you're betting with is your home equity and your good name (i.e. credit record).

For many in the bay area, and to some extent for you as well, results will be bimodal. Either things go very well, allowing you to acquire and save hundreds of thousands over the next several years, or they'll go poorly. If the latter scenario materializes, you don't want a giant mortgage obligation.

If the former happens, you're a winner. You're probably going to save more then the house prices will rise. Sure, that hasn't been the case in the past, but I'd note that it's a lot easier for a house at 750K to get to 1.5M then for a house at 1.5M to get to 3M. (And as we discussed earlier, inflation and opportunity cost compared to the stock market erode the perceived benefit of home price appreciation)
Worst case, the market is crazy, you've got 1.5M in after-tax cash, and homes are all 3M -- well, does that make you a loser? Of course not. You still won. Take your 1.5M in cold hard cash, transfer to Reno or Austin, pay for childcare, and come back to visit often.
I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
https://www.nytimes.com/interactive/201 ... lator.html

Find out.
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

Lee_WSP wrote: Fri Sep 04, 2020 9:35 am
hereverycentcounts wrote: Thu Sep 03, 2020 9:47 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:15 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
How much in networth (assuming income stays the same) do we need to afford a $1.8M house?
At least 2 million plus income able to maintain the house.

You keep asking the wrong question. It is not about how much net worth you have. It's all about cash flow if you finance; how much maintenance you can afford if you pay cash.
Thank you. So this is $2M after tax savings (not including retirement) + 20% down + income to maintain house (approx $18,000 a year)?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

Lee_WSP wrote: Fri Sep 04, 2020 9:37 am
hereverycentcounts wrote: Fri Sep 04, 2020 9:21 am
random_walker_77 wrote: Fri Sep 04, 2020 9:06 am
hereverycentcounts wrote: Thu Sep 03, 2020 11:56 pm I am incredibly fortunate to have my current job but I have no reason from historical data of my life to think this is at all sustainable.

Seeing $600k in my own AGI this year made me falsely think I could afford to buy a home for my family.
A mortgage is a long-term bet on stability. You're betting that you can afford the payments, through good times and bad, and what you're betting with is your home equity and your good name (i.e. credit record).

For many in the bay area, and to some extent for you as well, results will be bimodal. Either things go very well, allowing you to acquire and save hundreds of thousands over the next several years, or they'll go poorly. If the latter scenario materializes, you don't want a giant mortgage obligation.

If the former happens, you're a winner. You're probably going to save more then the house prices will rise. Sure, that hasn't been the case in the past, but I'd note that it's a lot easier for a house at 750K to get to 1.5M then for a house at 1.5M to get to 3M. (And as we discussed earlier, inflation and opportunity cost compared to the stock market erode the perceived benefit of home price appreciation)
Worst case, the market is crazy, you've got 1.5M in after-tax cash, and homes are all 3M -- well, does that make you a loser? Of course not. You still won. Take your 1.5M in cold hard cash, transfer to Reno or Austin, pay for childcare, and come back to visit often.
I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
https://www.nytimes.com/interactive/201 ... lator.html

Find out.
I have run the numbers there before. It is a good calculator. But I don't believe it takes into account the $500,000 tax free gains from a property, or the $12k a year in reduced tax for the high interest years.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

hereverycentcounts wrote: Fri Sep 04, 2020 9:21 am I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
The answer is to make investments that are likely to have long-term returns significantly greater than 3% over the next 30 years.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

hereverycentcounts wrote: Fri Sep 04, 2020 9:56 am
Lee_WSP wrote: Fri Sep 04, 2020 9:35 am
hereverycentcounts wrote: Thu Sep 03, 2020 9:47 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:15 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
How much in networth (assuming income stays the same) do we need to afford a $1.8M house?
At least 2 million plus income able to maintain the house.

You keep asking the wrong question. It is not about how much net worth you have. It's all about cash flow if you finance; how much maintenance you can afford if you pay cash.
Thank you. So this is $2M after tax savings (not including retirement) + 20% down + income to maintain house (approx $18,000 a year)?
Correct, after tax. You'd need to either pay cash or be able to pay cash for it. Then, you'd need enough cash flow from the additional investments or work to maintain the property and your lifestyle.

After that, the choice between mortgage and pay cash comes down to whether you want to lever the house and go for broke on the stock market (not a bad idea if you're earning more than enough) or be conservative.

Edit: I haven't run the maintenance cost numbers. FYI. So no comment on the eighteen thousand.
Last edited by Lee_WSP on Fri Sep 04, 2020 10:18 am, edited 1 time in total.
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willthrill81
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

Lee_WSP wrote: Fri Sep 04, 2020 9:35 am
hereverycentcounts wrote: Thu Sep 03, 2020 9:47 pm
geerhardusvos wrote: Thu Sep 03, 2020 8:15 pm
hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
You can afford around $800,000 for a home purchase. It looks like you should be renting in this area. We do the same thing in a VHCOL. Similar income and net worth. We rent a $1.2 million house for $3k. You can’t afford a house in the area you live in. That’s fine, there’s a ton of benefits to renting. Don’t buy the house!
How much in networth (assuming income stays the same) do we need to afford a $1.8M house?
At least 2 million plus income able to maintain the house.

You keep asking the wrong question. It is not about how much net worth you have. It's all about cash flow if you finance; how much maintenance you can afford if you pay cash.
Bingo.

This reminds me of a story that Thomas Stanley, author of The Millionaire Mind, recounted. A father was considering buying a very pricey home for his adult son and DIL, a home valued at around 10 times their annual income. Stanley asked the man whether his son could afford it. The man said 'No, you don't understand. I want to give him the home.' Stanley said that he understood that and was interested in whether the son could afford owning the home and its associated lifestyle. He began adding up all of the expenses, and it was clear that there was no way that they could the home, even with it being gifted to them.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: How Much House Can We Afford in HCOL Area?

Post by sailaway »

hereverycentcounts wrote: Fri Sep 04, 2020 9:56 am income to maintain house (approx $18,000 a year)?
Just the taxes are going to be $20,000 - that doesn't account for utilities or actual maintenance.
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

OP, there's something else to consider with buying such an expensive home. What if local real estate prices decline significantly over the next 30 years? That is absolutely possible. What if the home that you buy for $2 million is only worth $1 million in 30 years, adjusted for inflation? What would happen to your finances if you lost $1 million of net worth over the next 30 years?

Many landowners in NYC probably thought a short while ago that property values and rents couldn't go down, but all of that changed in a matter of months. The 30 years you are concerned about represent a very long time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: How Much House Can We Afford in HCOL Area?

Post by regularguy455 »

Fascinating thread. I didn’t believe people wanted to live in the Bay Area this bad. I always thought it was due to the work opportunities and they just accepted the extreme COL. With the pandemic normalizing remote working, I’d imagine you would have the world at your fingertips. If you can get over the mental hurdle of relocation, you could dramatically increase the quality of life for you and your family.
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Re: How Much House Can We Afford in HCOL Area?

Post by willthrill81 »

regularguy455 wrote: Fri Sep 04, 2020 10:21 am Fascinating thread. I didn’t believe people wanted to live in the Bay Area this bad. I always thought it was due to the work opportunities and they just accepted the extreme COL. With the pandemic normalizing remote working, I’d imagine you would have the world at your fingertips. If you can get over the mental hurdle of relocation, you could dramatically increase the quality of life for you and your family.
If I owned property in the Bay area, I'd be really nervous about the movement toward working at home resulting in a long-term decline in property values. The tech industry that built the area may well move beyond it in fairly short order. And that's apart from the exodus of people who've left the area in recent years for other areas, like Las Vegas, western Washington, and others.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

hereverycentcounts wrote: Fri Sep 04, 2020 9:57 am
Lee_WSP wrote: Fri Sep 04, 2020 9:37 am
hereverycentcounts wrote: Fri Sep 04, 2020 9:21 am
random_walker_77 wrote: Fri Sep 04, 2020 9:06 am
hereverycentcounts wrote: Thu Sep 03, 2020 11:56 pm I am incredibly fortunate to have my current job but I have no reason from historical data of my life to think this is at all sustainable.

Seeing $600k in my own AGI this year made me falsely think I could afford to buy a home for my family.
A mortgage is a long-term bet on stability. You're betting that you can afford the payments, through good times and bad, and what you're betting with is your home equity and your good name (i.e. credit record).

For many in the bay area, and to some extent for you as well, results will be bimodal. Either things go very well, allowing you to acquire and save hundreds of thousands over the next several years, or they'll go poorly. If the latter scenario materializes, you don't want a giant mortgage obligation.

If the former happens, you're a winner. You're probably going to save more then the house prices will rise. Sure, that hasn't been the case in the past, but I'd note that it's a lot easier for a house at 750K to get to 1.5M then for a house at 1.5M to get to 3M. (And as we discussed earlier, inflation and opportunity cost compared to the stock market erode the perceived benefit of home price appreciation)
Worst case, the market is crazy, you've got 1.5M in after-tax cash, and homes are all 3M -- well, does that make you a loser? Of course not. You still won. Take your 1.5M in cold hard cash, transfer to Reno or Austin, pay for childcare, and come back to visit often.
I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
https://www.nytimes.com/interactive/201 ... lator.html

Find out.
I have run the numbers there before. It is a good calculator. But I don't believe it takes into account the $500,000 tax free gains from a property, or the $12k a year in reduced tax for the high interest years.
Yes it does, but it probably doesn't calculate the LTCG & CA tax on the alternative investment (stocks). But if you want to go deeper into the weeds, use this calculator:

https://michaelbluejay.com/house/rentvsbuy.html
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Re: How Much House Can We Afford in HCOL Area?

Post by delamer »

My grandmother had an expression — “Her eyes are bigger than her stomach.”

You’ve indicated these goals/desires:

1. Reduce work hours and income to spend time with kids.
2. Have another kid.
3. Have bigger house with great schools.
4. Husband does not want to increase his income.
5. Not increase your commute.
6. Not interested in increasing your income.
7. Not wanting to do renovations on house.
8. Live near in-laws.
9. Good luck as much as skill have gotten you to your current financial place.

It seems to me that you live in a housing environment where you are competing with families with higher incomes (consistently $500,000+), plus the RSUs, and more highly valued technical skills than yours. That makes you the underdog, and you’ve burdened yourself with a lot of conditions that make it even harder to overcome the income hurdle.

So figure out what you really value, and arrange your life accordingly.

To end with another quote — from the Rolling Stones, instead of my grandmother —

“You can't always get what you want
But if you try sometimes, well, you might find
You get what you need”
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

delamer wrote: Fri Sep 04, 2020 10:37 am My grandmother had an expression — “Her eyes are bigger than her stomach.”

You’ve indicated these goals/desires:

1. Reduce work hours and income to spend time with kids.
2. Have another kid.
3. Have bigger house with great schools.
4. Husband does not want to increase his income.
5. Not increase your commute.
6. Not interested in increasing your income.
7. Not wanting to do renovations on house.
8. Live near in-laws.
9. Good luck as much as skill have gotten you to your current financial place.

It seems to me that you live in a housing environment where you are competing with families with higher incomes (consistently $500,000+), plus the RSUs, and more highly valued technical skills than yours. That makes you the underdog, and you’ve burdened yourself with a lot of conditions that make it even harder to overcome the income hurdle.

So figure out what you really value, and arrange your life accordingly.

To end with another quote — from the Rolling Stones, instead of my grandmother —

“You can't always get what you want
But if you try sometimes, well, you might find
You get what you need”
All true except #6. I am interested in increasing my income, I'm just not sure how to. This is always a goal. At the moment I cannot beat my gross with RSU so there is no point in looking outside of my current role. In a few years, I will look again. I'm unclear if I can increase my income enough to make much of a difference unless I start my own business and try to build that up over time, but that's super risky, and probably impossible with kids I have to pay for etc.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
BlackcatCA
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Re: How Much House Can We Afford in HCOL Area?

Post by BlackcatCA »

You may want to work on #4. Husband needs to be an equal partner in this. Especially when further upstream you noted a number of requirements and many are his or his side of family. If your FIL moves in, husband really needs to step up.
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Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

BlackcatCA wrote: Fri Sep 04, 2020 11:27 am You may want to work on #4. Husband needs to be an equal partner in this. Especially when further upstream you noted a number of requirements and many are his or his side of family. If your FIL moves in, husband really needs to step up.
+1, unless the husband is truly SAHD so that you can remove child care from expense list and with that, allow you to move to slightly less expensive places (not pennisula), he should step up. He can't have the cake and eat it too. It's an equal partnership (not so much in income but in contribution to the family and the sacrifices).
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Re: How Much House Can We Afford in HCOL Area?

Post by ScroogeMcDuck »

hereverycentcounts wrote: Fri Sep 04, 2020 9:57 am I have run the numbers there before. It is a good calculator. But I don't believe it takes into account the $500,000 tax free gains from a property, or the $12k a year in reduced tax for the high interest years.
I'm curious - why do you care about the $500k tax free gains if this would be your "forever" house? I'm from the area as well and the older people in my family don't care about the $500k exclusion because they're so far past it and because they can't afford to move anyway due to prop 13.
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Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

willthrill81 wrote: Fri Sep 04, 2020 10:25 am
regularguy455 wrote: Fri Sep 04, 2020 10:21 am Fascinating thread. I didn’t believe people wanted to live in the Bay Area this bad. I always thought it was due to the work opportunities and they just accepted the extreme COL. With the pandemic normalizing remote working, I’d imagine you would have the world at your fingertips. If you can get over the mental hurdle of relocation, you could dramatically increase the quality of life for you and your family.
If I owned property in the Bay area, I'd be really nervous about the movement toward working at home resulting in a long-term decline in property values. The tech industry that built the area may well move beyond it in fairly short order. And that's apart from the exodus of people who've left the area in recent years for other areas, like Las Vegas, western Washington, and others.
As a near life long resident of the bay area and a home owner, I'm not too worry. We never consider equity in the primary residence as part of our retirement portfolio (though I know many here who do) so if it goes away after a 50-80% drop, it just means that we got imputed rent out of it. We have seen many ups and downs in the bay area and know full well that there's a risk associated with owning SFH here. There were 3 real estate recessions here and I fully expect there will a 4th one.

https://www.bayareamarketreports.com/tr ... and-a-baby

One thing to note though, the whole WFH anywhere maybe a bit exaggerated by the media. After the initial phase, even tech companies are noticing slow down in product delivery and release time line. They notice productivity is dropping and do plan on bring most of the employees back in the office. Apple has always being a office-only company, GOOG/FB always encourage ppl to be in the office when possible as well. I don't think there will be a mass exodus from bay area but if it does, so be it. At least I get less commute and less student per class room. Don't mind things go back to 2010 before all the craziness happened.
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Re: How Much House Can We Afford in HCOL Area?

Post by hoffse »

willthrill81 wrote: Fri Sep 04, 2020 10:11 am
hereverycentcounts wrote: Fri Sep 04, 2020 9:21 am I guess my biggest question is, if rents raise 3% a year, and we live in a $6000 a month rental, then in 20 years our rent is $10,000 a month, in 30 years it is 14,000 a month. What if they go up more than 3% a year? How do I retire when my rent is $14,000 a month? Isn't it better to lock in $7000-$8000 a month, and then in 30 years I would have $0 in mortgage because it would be paid fof?
The answer is to make investments that are likely to have long-term returns significantly greater than 3% over the next 30 years.
This.

Or you move.

Limiting your search to this one very narrow geographic location is the critical problem. I get it, the Bay area is nice. My dad grew up there, but he escaped (his words), and his siblings all bought homes in Atherton and Palo Alto in the late 70's and early 80's before real estate became so hot. They hit the geographic jackpot with their housing choices. But every single one of them feels locked in and unable to move due to the massive tax hit they would take if they sold their houses and bought something else.

Similarly, my husband's grandmother has a really old house with an ocean view near Half Moon Bay. She also owns the lot in front of her to preserve the view. The house is a tear down, and she is in her 90's on a fixed income. She really needs to go to a nursing home, but she has no assets other than her house. The family doesn't want to sell the house because she has no basis in it, and they will get a stepped up basis when she dies. So even though she needs nursing home care, she is stuck in her tear-down house (with stairs!) living mostly on her own due to the tax situation.

It's nuts, and I don't envy it at all.

Truly, with your savings and income you could easily buy a very nice house cash most anywhere in the country, except for the most expensive locations. Then pay for childcare and visit the Bay area a few times per year. You are considering vastly overextending yourself for the next 30 years in order to stay in this one very small location.
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Re: How Much House Can We Afford in HCOL Area?

Post by Kookaburra »

Tingting1013 wrote: Wed Sep 02, 2020 11:17 pm For Federal taxes, the mortgage interest deduction is not gone, just limited to $750k in loan balance.

$750k * 2.7% * 37% = $7k in federal tax savings
Not necessarily savings. Remember the 10K SALT cap?

750k x 2.7% = 20,250. Plus 10K SALT. Equals 30,250. But standard deduction is 24,800, so the net savings is only 5,450 x 37% = 2,016. Yippee skippy!
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Re: How Much House Can We Afford in HCOL Area?

Post by Tingting1013 »

Kookaburra wrote: Fri Sep 04, 2020 12:09 pm
Tingting1013 wrote: Wed Sep 02, 2020 11:17 pm For Federal taxes, the mortgage interest deduction is not gone, just limited to $750k in loan balance.

$750k * 2.7% * 37% = $7k in federal tax savings
Not necessarily savings. Remember the 10K SALT cap?

750k x 2.7% = 20,250. Plus 10K SALT. Equals 30,250. But standard deduction is 24,800, so the net savings is only 5,450 x 37% = 2,016. Yippee skippy!
I’m assuming someone who is earning $600k is donating at least $15k to charity.
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