Buy a house or not? Would I be house poor?

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sigmund.bogle
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Buy a house or not? Would I be house poor?

Post by sigmund.bogle »

Hello Bogleheads! Seeking advice on buying a house in the current housing market.

I'm single, 45, no children, renting (rent is currently $1,100 per month), making a bit under $100k per year. I'm thinking of moving to a higher cost of living location where I would make a bit over $100k per year (about $7k more per year pre-tax than now). Due to a high state income tax in the new higher cost of living location (no state income tax in my current location), my actual take home pay would be about the same as it is currently. Most or even all of that extra $7k would go to taxes. Salary increases in both current and new location likely only to keep pace with inflation. Job would be very stable in both locations.

I've managed to accumulate around $850k in investment accounts. I'm maxing my 401k and Roth IRA every year and I'm adding to taxable. I would like to be able to continue maxing out these retirement accounts and would prefer to let all the investment accounts grow and not dip into any of them to fund a house purchase. Additionally, I have about $87k in cash sitting around earning basically nothing. I'm not opposed to using some of this cash to buy a home. A decent house in the higher cost of living area would be at least $450k to $500k. If instead I rented in the higher cost of living area it would probably cost $1,600 per month for a worse apartment than now. I have no debt.

So, would it be a bad idea, financially, to make the move and buy a house? Can I afford a $450k or $500k house if I make the move or is that unwise on a ~$100k salary. Would I be "house poor?" Would it be financially wiser not to move and just keep renting and investing more into index funds? How much is advisable to spend on a house, 3x, 4x, 5x gross income? Is it unreasonable to spend anything less than 4x, or 5x gross salary given the increase in housing prices these days? I feel that the monthly house payment could be something like half of my take home pay if I keep on maxing out retirement accounts. This seems high. Or do I just need to buy and stop worrying? Thanks!
tashnewbie
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Re: Buy a house or not? Would I be house poor?

Post by tashnewbie »

Why do you want to move to the HCOL area? Is it closer to family or amenities that you want?

Although no one can predict the future, how long do you plan to stay in the HCOL area?

Personally, a $500k house or even a $400k one on $100k salary would scare me. But, I know house buying math can be different in HCOL places.
Golf maniac
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Re: Buy a house or not? Would I be house poor?

Post by Golf maniac »

From a financial perspective the move makes no sense. Your rent is increasing 60% with all the raise going to state taxes. Buying a home is a lifestyle choice not an investment choice. If you want to own a home in either location then develop a budget to see what you can afford. If you want to max out retirement accounts then the budget is post retirement savings. Then take out your monthly expenses to see how much is left for a home. Remember there are maintenance expenses to any home in addition to the mortgage payment and escrow. Plus, when most people move they need either new for additional furniture to fill up additional space.

There may be personal reasons to move to a new location, but if there are not I would recommend not moving. Good luck on your decision.
Flyer24
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Re: Buy a house or not? Would I be house poor?

Post by Flyer24 »

I can't see much sense in making the move. Your new income doesn't justify moving to a HCOL area. I think you are costing yourself more in the long run financially. Also, keep in mind additional expenses in a HCOL area such as higher property taxes. Unless there is some compelling family reason, I would stay where you are and keep saving money. By the way, you are doing excellent with your savings rate for your income. Keep it up.
LittleMaggieMae
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Re: Buy a house or not? Would I be house poor?

Post by LittleMaggieMae »

Don't forget that your HCOLA may come with higher expenses (utilities, commuter costs, insurance cost, car cost (stickers and such))

You'd be moving for 7K increase in income - which may or may not cover all the additional expenses of moving. And what happens in the 2nd year you are in the HCOLA - and expenses go up?

You are 45yo - do you see your career as being viable for another 20 years (til 65)?
What will you do with the house in 20 years? Buying or selling a house is a big expense - so it'd generally recommended to buy if your solid plan is to stay in the house for 7 to 10 years.

If you take such a large mortgage and do not expect your income to increase dramatically over the next 10 to 20 years - odds are the house will be a major expense in your retirement (mortgage, Taxes, insurance). How does that work with your "back of the envelop" retirement numbers?
(You should be thinking about/your retirement at this point)

Does the new job come with a career path that gets you to ever rising yearly income (beyond a yearly raise)?

Houses come with more expenses than just the "mortgage PITI payment'. I may be biased - I wouldn't not want to take on a 450K mortgage on a 110K income. Well, maybe if I was in my 30's and had more time to recover from a "mistake".
Onlineid3089
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Re: Buy a house or not? Would I be house poor?

Post by Onlineid3089 »

I wouldn't want to move to a HCOL area for anything short of a massive raise, and definitely not a tiny one that is eaten up by additional taxes.

The good news for you, is that it appears you can easily do it if that is what you'd really like to do. With your current savings and no spouse/kids you probably don't really need to save much beyond getting a company match due to expected portfolio growth over another 15-20 years if you plan to work that long.
LittleMaggieMae
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Re: Buy a house or not? Would I be house poor?

Post by LittleMaggieMae »

Would you be buying a Single Family Home? Or would you be buying a "duplex" or a two or three flat - or some type of housing where you will be getting rent from a 2nd or 3rd unit?

I MIGHT consider that kind of arrangement for a 450K mortgage.

(I may be biased again -- because there are some reasonably located and sized 2 and 3 flats in my neighborhood that are selling in the same range as single family homes. A local bank offers attractive interest rates on owner occupied multi family properties. )
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Nate79
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Re: Buy a house or not? Would I be house poor?

Post by Nate79 »

There must be something more to this move because financially it is a really bad idea. Generally I recommend 2-3x mortgage size to income. I know some people go above the 3x but the higher you go the less you can save for retirement.
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sigmund.bogle
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Re: Buy a house or not? Would I be house poor?

Post by sigmund.bogle »

Yes, the move would put me very close to some family. The conveniences and amenities of a large metro area would be nice too, although the commute would be a lot worse. Telework might be possible to a degree, but not all the time or even half the time probably. I would likely stay in the HCOL area for the foreseeable future. $400k or less for a house doesn't seem to go very far in this day and age for what you get. I guess I missed the boat by not buying earlier. Seems to only be getting more expensive. It could be possible to buy in the HCOL area for somewhere in the $300k range, but it would be an older, smaller, shabbier place in a worse neighborhood, no yard. Something other than a detached house.

So yes, the move is mainly for family, personal, lifestyle reasons and would have the unfortunate side-effect of making me somewhat worse off financially. It's a trade-off. I guess there's no way around that. I've been trying to save and invest as much as I can, but maybe I'm being unreasonable thinking I can keep it up. Maybe pull back on the 401k saving a bit. I have visions of future financial freedom, but maybe the here-and-now should be more important.

Appreciate the perspectives. With home prices going up and up, and interest rates so low, I just wonder what people consider to be reasonable or safe to spend now on a house and what would be considered absurd or dangerous.
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Watty
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Re: Buy a house or not? Would I be house poor?

Post by Watty »

With a big move like that rent for a year and then decide if you want to buy or not.

That will give you a chance to see if you like the new area and the new job is working out well.

It will also give you a chance to learn the local housing market better.

I once did a corporate relocation where I had to fly in and quickly buy a house since the company paid relocation expenses were only good for a limited time. One of the things I found was that when a better house can on the market it sold quickly so that when we flew in for a house hunting weekend there were only a limited number of new listings so mostly our home choice was only the slower selling home that did not sell quickly. We did OK but I am sure that we could have done a lot better if we were in no hurry to buy and could have just waited for a great house to be listed then quickly bought it.
hi_there
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Re: Buy a house or not? Would I be house poor?

Post by hi_there »

Personally, I don't see why a 45-year-old single person would even want to buy a house. Life mobility would be much more important to me than "putting down roots", especially at this great financial disadvantage. Even today, being a renter gives you great flexibility, as is evident from this thread to begin with.
Olemiss540
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Re: Buy a house or not? Would I be house poor?

Post by Olemiss540 »

Have you shopped the apartment/condo/townhouse market to see if there is anything in the 225-250k range?

The flipside of this housing "boom" has been the driving of urbanites into the burbs from what I read. So this should have lightened up the market for the urban sprawl areas making them more affordable I would think.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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Tamarind
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Re: Buy a house or not? Would I be house poor?

Post by Tamarind »

sigmund.bogle wrote: Mon May 17, 2021 2:59 pm$400k or less for a house doesn't seem to go very far in this day and age for what you get. I guess I missed the boat by not buying earlier. Seems to only be getting more expensive. It could be possible to buy in the HCOL area for somewhere in the $300k range, but it would be an older, smaller, shabbier place in a worse neighborhood, no yard. Something other than a detached house.

So yes, the move is mainly for family, personal, lifestyle reasons and would have the unfortunate side-effect of making me somewhat worse off financially. It's a trade-off.
I think you would be house poor spending that much. If I were in your shoes and had no choice but to move I would want to rent initially in the HCOL area so I could:
1) Be sure I was actually going to stay in the new area
2) Get to know the new area and its housing options, basically do some neighborhood shopping
3) Do some very focused saving to increase cash cushion for down payment

I would also think really hard about what you consider sufficient housing. In a big city, a detached home may not be the best choice or necessarily "better". It usually takes time to get to know the neighborhoods and find hidden gems - more affordable homes that meet your personal needs rather than ticking the boxes for the average Joe. You're a single person with no kids or pets mentioned - what are you gonna do with a yard?
ajcp
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Re: Buy a house or not? Would I be house poor?

Post by ajcp »

I bought last year and my numbers are/were across the board proportionally lower than your proposed ones. I made that choice for 2 reasons - first, cheaper places were significantly worse and houses are way too expensive to live somewhere you're not happy and are looking to move on from asap. And second, I'm due for a decent promotion by the end of this year, so I knew my numbers would be short term.

While that 2nd factor was a big one and I would not have been willing to go that high if I didn't know it was temporary, I've been surprised by how easy it's been. It's been extremely easy. I'm on track to save ~30% of my income towards retirement this year and have even been building up some extra to save for a couple mid term planned expenses (e.g. my car is 12 years old and I'm getting due for an upgrade in the next year or two). I've just been living my life as normal and haven't had to make any tough decisions to do so. I don't feel the slightest bit house poor, and have been shocked at how easy it would be to carry on like this for the next 30 years. I'd be interested to see if anyone who's sure you'll be house poor has actually lived with your numbers.

Now, can doesn't necessarily mean should. It's very likely a bad decision financially vs. a worse apartment, but the counterpoint to that is then you have to live in the worse apartment. You have to decide how to balance your other desires. Have you been hoping to retire around your mid 50s, or are you planning to stick around to 65? Can/will you make up the difference between your current rent and the mortgage by contributing less or nothing to taxable, or will you have to cut other expenses? Will you miss the those expenses more or less than the joy you'll gain by being closer to family? Those are the choices you'll have to weigh.
phantom0308
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Re: Buy a house or not? Would I be house poor?

Post by phantom0308 »

Could you be a bit more specific? What states are you moving between? Surely that’s vague enough that you’re not risking your privacy. Some states with seemingly high income taxes have progressive income taxes (CA) that are lower than many people assume.
What is the purpose of the move?
I strongly prefer renting if the reason isn’t, I’m going to live here for the foreseeable future. Even for people that plan to stick around, they often stick around for a shorter period of time than expected. Mobility is very, very valuable for your career, relationships, etc unless you already are in a location with lots of opportunities, family, and friends.
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Re: Buy a house or not? Would I be house poor?

Post by IMO »

OP, I honestly wonder if this is simply a FOMO in the current housing market?

Seems like the housing market is really an unknown beyond the next year, as well as things like one's WFH type of situation. Why not just keep saving and re-evaluate things in a year or so? FOMO makes for the mad rash decisions right now.
DidItMyWay
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Re: Buy a house or not? Would I be house poor?

Post by DidItMyWay »

sigmund.bogle wrote: Mon May 17, 2021 2:59 pm Appreciate the perspectives. With home prices going up and up, and interest rates so low, I just wonder what people consider to be reasonable or safe to spend now on a house and what would be considered absurd or dangerous.
I agree that you are doing great with your savings and also agree that spending this much on a house may make you house poor, depending on how much of a downpayment you are considering.

My guideline is to keep mortgage to no more than aroun 25-30% of your net income. So I agree with you that 50% of your takehome pay would be high (too high).

I would maybe sit out for a bit to see if housing prices settle down if you are flexible and willing to wait a while. In the meantime, put some more $ away for a higher downpayment to keep the mortgage affordable. Or rent in the new area for now if you really want to be there.

Have you considered condos or townhomes? Maybe you can get something small but nice if you really want to be in the area.

Best of luck!
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sls239
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Re: Buy a house or not? Would I be house poor?

Post by sls239 »

What is a bad idea is buying a house in a city that you haven't lived in.

What you need to do is go live there. Rent. Get a feel for what your lifestyle will be like there. You can see the neighborhoods - learn the advantages and disadvantages as they apply specifically to you.

Yes, you might be paying a little extra for this, but it is well worth doing it before dropping half a million.
Prahasaurus
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Re: Buy a house or not? Would I be house poor?

Post by Prahasaurus »

Strongly recommend renting in the town first. I made a huge mistake once buying a house in a very nice area, but soon realizing that it just wasn't a great cultural fit for me and the family.

Just recently we bought a house in another country. We rented for over 2 years before settling on the right spot for us. Had we bought right away, I can almost guarantee you we would have been unhappy. We were convinced one town here was perfect for us, but after renting there for a year, we knew it just wasn't a good fit. Something we couldn't have learned right away, it really took a few months. It wasn't bad, just wan't great. Why settle for just OK?

We then found another place to rent in a different town - a place we were traveling to often during that first year - and loved it. We spent six months house hunting in that same town with no pressure, were able to find the perfect house in a great location, and couldn't be happier.

Renting is the way to go!
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Fierce Escape
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Re: Buy a house or not? Would I be house poor?

Post by Fierce Escape »

hi_there wrote: Mon May 17, 2021 3:26 pm Personally, I don't see why a 45-year-old single person would even want to buy a house. Life mobility would be much more important to me than "putting down roots", especially at this great financial disadvantage. Even today, being a renter gives you great flexibility, as is evident from this thread to begin with.
This is good life advice.

Consider all the positives you mentioned about where you're at now. Could always travel more to visit the area you're talking yourself into moving to, have an adventure instead of a mortgage. Why deal with a mortgage when you may be retired in a decade, may want to travel more, etc. Your investments are superb, stay the course on investing the next decade. Sit back and watch everyone buy a house and thank yourself often while planning to get out of the rat race🙂
Ilikesparklers
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Re: Buy a house or not? Would I be house poor?

Post by Ilikesparklers »

sls239 wrote: Tue May 18, 2021 12:39 pm What is a bad idea is buying a house in a city that you haven't lived in.

What you need to do is go live there. Rent. Get a feel for what your lifestyle will be like there. You can see the neighborhoods - learn the advantages and disadvantages as they apply specifically to you.

Yes, you might be paying a little extra for this, but it is well worth doing it before dropping half a million.
+1

It sounds like if you decide to buy a more affordable house ($300k range), you'll likely have a long commute. Don't underestimate the impact a long commute can have on your life. It can be terrible. And if you are single, think about the areas you'll want spend time in. If the $300k homes are filled with families in the suburbs, that might not be a great fit if you prefer to be around other singles, good bars and restaurants, shopping that's not a strip mall, concert venues, etc.

You should absolutely rent first. If this HCOL city is large, you really need to get a feel for the city before you commit to a house. You've done a great job saving, and paying a few hundred more for rent is much better than locking yourself into a $500k house in a new city with a new job. Right now you have a lot of financial freedom. Buying a house would really limit your options, and I think paying a little bit more in rent is a great tradeoff to keep you financially flexible. $1.6k on your salary is very reasonable for an apartment in a HCOL area, and that amount will still make the buy vs. rent calculation favor renting. You could even consider spending a little more to rent a nicer place or rent in a better location. If I were in your shoes, I'd find a rental in the best location possible. (Personally, I currently pay $1,675 for a 1br/1ba bungalow in Santa Monica that's walkable to the beach, restaurants, grocery stores, etc. every day of the week because the weather is always pretty great. I make a smidge under $100k (pre-bonus), and I max out all retirement accounts. Saying this because I think there are really great places to rent if you put the time into finding them, and the access to the surrounding areas in unbeatable and can make it completely worth spending that $1.6k in rent)

I also think right now is a terrible time to buy if you don't need to. Inventory is at an all time low. I wonder -- are those $300-500k houses routinely selling above list price?
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