How Much House Can We Afford in HCOL Area?

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

Post by socialforums2019 »

cchrissyy wrote: Sun Sep 20, 2020 10:45 am
socialforums2019 wrote: Sat Sep 19, 2020 11:00 pm To me, scenario 2 isn't comfortable to me even though I have $800K in cash. If I put that $700K in the market and then keep $100K in emergency funds, that would only grow to be $11,400/year ($950*12). Seems like one major home repair or unseen circumstance would wipe out a significant portion of that emergency fund for quite some time and it would take a long time to build that buffer back up with just $950/mo.

Is my logic flawed? Am I going about this the wrong way?

In scenario 2, you're not accounting for the earnings of the $800k you held on to and invested
if it returned just 3%, that is $24k per year
mentally, maybe you consider this as growing your EF by $2k monthly in addition to the $950 you mentioned. Or you could think of the benefit as long term compounding. Or you could directly spend it on the mortgage. Perhaps that's your preference.

Which brings me to the other blind spot in scenario 2, which is that you still have the 800k. Don't artificially constrain it to 100k in your head to make the scenarios more similar than they rally are. The whole amount is still in our possession and not locked up in the house so when it comes to emergencies or ongoing mortgage payments, you are free to pay the entire amount from these funds.
I agree and see where you are coming from with having the $800K being liquid for emergencies vs tied up in a house.

My hope was to keep that $800K invested and pull from it when I couldn't cash flow it from the $11.4K savings a year. For example, if there is a $30K new roof expense or need for a new car or pay for kids college tuition, etc.

My only worry is that when saving just $11.4K a year, pending no freak surprises, it'd take a significant amount of years to build that back up. For example, 3 years for that $30K new roof.
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