stostech wrote: ↑Thu Dec 02, 2021 4:09 pm
I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following
assumptions:
- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What is the
lowest total net worth that
you would be comfortable purchasing a $3MM house?
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in property tax and $1200/month in insurance)
Interesting question.
Based on tax return data, the average person who owns a $3M house (as a primary residence) has a net worth above $30M.
Based on jumbo lender criteria, the minimum broke-as-a-joke, house-poor wealth needed to qualify for a $3M home is the downpayment of $600k and ~18 months reserves, or another $200k or so, for a net worth of $800k (more if the reserves is all in a retirement plan as the lender will haircut them).
And they also need to have a gross annual income of ~$450k and no debt (base+bonus -- if RSU/LTI is in there they'll haircut the crap out of it or not count it at all unless it's been 3 years paid out consistent & documented 3 years into future).
So that's the bookends.
What *I* would feel comfortable with I wasn't sure, so I went back in time and compared my net worth (excluding primary residence) and income to my home purchase prices -- I've moved house a lot -- and it looks like:
When I had a negative net worth, I was buying at ~4x my gross income... but that was a duplex and I rented half, so I suppose I was buying at 2x. I felt very comfortable with that though because my tenant's rent payment fully covered the mortgage (O.G. I was house hacking before it was co-opted by the millennial movement! haha).
Since I've had a positive net worth, I appear to feel comfortable purchasing at 80% of my net worth (investible assets only - no cars or jewelry or guns or anything). Also, it appears to be growing over time, creeping very slowly toward the 100% mark.
I suppose if I ever reach a "far more than enough" net worth and I'm only working for entertainment value and to avoid mental decline, I'd be comfortable spending all of my net worth over my net worth threshold - maybe $10M? who knows what it will be if I ever get there) and whatever my salary supports that will get financed...
You can do anything you want in life. The rub is that there are consequences.