Can we afford a $1mil home?

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Topic Author
dee789
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Can we afford a $1mil home?

Post by dee789 » Thu Apr 11, 2019 1:48 pm

Hi all, thanks in advance for the help. My fiance and I are first time home buyers in the bay area and are feeling overwhelmed. Ideally I think we'd like a condo, something low maintenance that we could eventually rent out if we decide to leave the bay. We are used to city living and a single-family home feels a bit overwhelming. No plans for kids. Following is our income/assets/expenses:

- Income is $340,000 a year gross, about $15,500 per month (after 401k contributions, which we are both maxing)
- Current rent $4,055 for a one bedroom, no parking
- I spend generally about $1500-2000 a month after that on food, utilities, our dog etc; he doesn't track his spending as closely as I do but estimates he spends about $2000/month on his credit card. So that should leave about $7500 left over each month. I invest around $2k/month, probably a little more, and he's likely investing more than that.

- Cash on hand about $215,000
- 401k balance $265,700
- Brokerage accounts $290,964
- Roth IRA $52,000
All of the above are combined except for the Roth (he doesn't have one). So total net worth around $800k.

The condos that we like in the areas we like seem to run around $1 million or so for a 1-2 bedroom. I was quoted an interest rate of 4% with 15% down, which would leave a mortgage payment of around $5,000/month (including taxes and insurance). I think that's around the upper end of our budget. But at the same time, we are able to invest a huge amount of money right now, and that seems like it will likely change if we buy a house of that cost. It's also definitely not something we could afford on one income, but I just don't think that's realistic in this market.

We like our current apartment OK, and we're on a month to month lease so not in a rush. At the same time, I don't love our neighborhood and I don't really want to live here another 3-5 years. I also would love some kind of outdoor space and a parking spot would be nice. I am hoping to go back to grad school next year so I don't want us to overextend as I may have to cut back my hours at some point temporarily. But if we wait to buy until after I graduate, that's another 3-4 years.

Any thoughts would be great. Thanks!

Thegame14
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Re: Can we afford a $1mil home?

Post by Thegame14 » Thu Apr 11, 2019 2:18 pm

Id build up that cash a little more or take from brokerage, I assume it is after taxes money there to make sure you can put down 20%, and then mortgage is $800K on an income of $340K so a little over 2X income, you can certainly afford that.

delamer
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Re: Can we afford a $1mil home?

Post by delamer » Thu Apr 11, 2019 2:25 pm

Don’t buy until you’ve made your decision about grad school.

Rent in a neighborhood that you like better. But don’t commit to a purchase when your finances could be changing in the near future.

I also would not buy a home with someone who wasn’t my spouse yet, but I understand that is a minority view.

sailaway
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Re: Can we afford a $1mil home?

Post by sailaway » Thu Apr 11, 2019 2:28 pm

Have you run a rent/own calculator? From what you are saying, it may not make much sense.

It also seems unwise to make a significant financial decision with grad school pending.

Dottie57
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Re: Can we afford a $1mil home?

Post by Dottie57 » Thu Apr 11, 2019 2:33 pm

delamer wrote:
Thu Apr 11, 2019 2:25 pm
Don’t buy until you’ve made your decision about grad school.

Rent in a neighborhood that you like better. But don’t commit to a purchase when your finances could be changing in the near future.

I also would not buy a home with someone who wasn’t my spouse yet, but I understand that is a minority view.
+1 to all points

trustquestioner
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Re: Can we afford a $1mil home?

Post by trustquestioner » Thu Apr 11, 2019 2:33 pm

Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.

RollTide31457
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Re: Can we afford a $1mil home?

Post by RollTide31457 » Thu Apr 11, 2019 2:36 pm

trustquestioner wrote:
Thu Apr 11, 2019 2:33 pm
Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.
This is the correct answer.

tampaite
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Re: Can we afford a $1mil home?

Post by tampaite » Thu Apr 11, 2019 2:46 pm

dee789 wrote:
Thu Apr 11, 2019 1:48 pm
No plans for kids.

- Income is $340,000 a year gross
- Cash on hand about $215,000

The condos that we like in the areas we like seem to run around $1 million or so for a 1-2 bedroom. I was quoted an interest rate of 4% with 15% down, which would leave a mortgage payment of around $5,000/month (including taxes and insurance).
Yes. You have 20% downpayment saved and if that's what you really want, go for it.

malbecman
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Re: Can we afford a $1mil home?

Post by malbecman » Thu Apr 11, 2019 5:25 pm

trustquestioner wrote:
Thu Apr 11, 2019 2:33 pm
Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.
Well, first off, you're prolly not going to get $340K/yr AGI in the midwest.

Also, I'm in Northern CA and aside from a few rain showers, we've been in the 50s at night and 68-70 degrees during the day with sunshine for the last couple of weeks. No blizzards here....

stoptothink
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Re: Can we afford a $1mil home?

Post by stoptothink » Thu Apr 11, 2019 5:33 pm

trustquestioner wrote:
Thu Apr 11, 2019 2:33 pm
Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.
What are the chances you think OP can manage compensation even remotely close to $340k/yr outside of the Bay Area or maybe Seattle?

dknightd
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Re: Can we afford a $1mil home?

Post by dknightd » Thu Apr 11, 2019 5:40 pm

I think you can probably afford the home. The question is do you want to?
Sounds like it might be stretching things, especially if one of you wants to back to school.
My rule of thumb is you want to be in a house for at least 5 years. If you do not know where you will be in 3-5 years just keep renting. Perhaps move to a different rental if you do like the one you are in. YMMV

Unicorn1
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Re: Can we afford a $1mil home?

Post by Unicorn1 » Thu Apr 11, 2019 5:45 pm

Of the 340k gross income, how much do you bring in yourself? If you go to school, will your combined gross income decrease by 30k, 100k, 200k? For how long? This would be important to know before providing sound advice.

retire2022
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Re: Can we afford a $1mil home?

Post by retire2022 » Thu Apr 11, 2019 6:54 pm

Op

Would you and your significant other consider living in a RV/Trailer until you have a larger down payment? Best to cut expenses and increase savings.

Topic Author
dee789
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Re: Can we afford a $1mil home?

Post by dee789 » Thu Apr 11, 2019 7:05 pm

I make around $130k, so about 37% of our combined income. I would definitely work through school but would probably be unable to work full time for at least part of the program.
And yes, I agree we could easily move and afford a house somewhere else, but we wouldn't make anywhere near the income we make here. We moved from NYC two years ago and have significantly increased our income. We have some other reasons to stay in this area for now as well.

2marshmallow
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Re: Can we afford a $1mil home?

Post by 2marshmallow » Thu Apr 11, 2019 7:40 pm

It looks like the PITI for a $1M home with a 20% down payment is a very reasonable fraction of your income. You will have to judge how secure that income is.

Wife and I bought a $900K home in the Bay Area in 2012. That was a bit of a pill to swallow, having moved from out of the area. Today it is worth about $1.7M. Also our net worth during those years increased far beyond our expectations. For those who question life in such a HCOL, it is worth it if you participate in the job market that drives the HCOL.

Good luck to you dee789!

Unicorn1
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Re: Can we afford a $1mil home?

Post by Unicorn1 » Thu Apr 11, 2019 8:27 pm

Agree with previous comments. Looks like you can afford a home/condo, even if you back off a bit from your job during school.

Still, despite the best laid plans, there remains some unknowns.

Can you really back off just a little from your job during grad school? School hasn't started yet so its unclear how it will affect your work capacity and relationship.

Why not rent in a better neighborhood? Why do you feel you must buy?

You mention the possibility of leaving the Bay area down the road and just renting the place you purchase. This comment sounds nice in theory, but is more complicated in practice. Renting requires extra work (or extra $$ if using a property manager) and not necessarily a money maker, despite common perceptions.

Overall, I would recommend pulling the trigger on a new home if you both are inclined. Your view of the future sounds a bit idealistic to me and I hope things go as planned or better for you. Just recognize that there are many uncertainties that could disrupt your plans over the next few years.

But hey, that's life. No major red flags in my view.

Oakwood42
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Re: Can we afford a $1mil home?

Post by Oakwood42 » Thu Apr 11, 2019 8:39 pm

retire2022 wrote:
Thu Apr 11, 2019 6:54 pm
Op

Would you and your significant other consider living in a RV/Trailer until you have a larger down payment? Best to cut expenses and increase savings.
lol +1

patrocity
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Re: Can we afford a $1mil home?

Post by patrocity » Thu Apr 11, 2019 8:47 pm

Will grad school be paid for or will there be extra debt to take on from that?

And you can find many jobs in the midwest that will get you an AGI of $340K. Maybe not Silicon Valley type jobs, but you can.

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Misenplace
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Re: Can we afford a $1mil home?

Post by Misenplace » Thu Apr 11, 2019 8:57 pm

2marshmallow wrote:
Thu Apr 11, 2019 7:40 pm
It looks like the PITI for a $1M home with a 20% down payment is a very reasonable fraction of your income. You will have to judge how secure that income is.

Wife and I bought a $900K home in the Bay Area in 2012. That was a bit of a pill to swallow, having moved from out of the area. Today it is worth about $1.7M. Also our net worth during those years increased far beyond our expectations. For those who question life in such a HCOL, it is worth it if you participate in the job market that drives the HCOL.

Good luck to you dee789!
And if you had invested 900k in VTI in April 2012, with dividends reinvested it would be around $2.2 million. Also, the tax on the dividends would be far less than the property tax and upkeep on a CA home. Although if 2marshmallows are living in the house and MFJ they can still exclude a lot of the capital gains when they sell. Not so if it is rented out a certain amount of time.

Just wanted to put it in perspective for OP.

Leemiller
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Re: Can we afford a $1mil home?

Post by Leemiller » Thu Apr 11, 2019 9:02 pm

You might consider just renting a nicer place until things are more settled. At minimum, I would never ever buy a property with someone I was not married to. A two bedroom is likely a better investment long term, so that would be better. Personally, we can afford our house + a reduced lifestyle on one income and it would be hard for me to give that up for a more expensive house.

random_walker_77
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Re: Can we afford a $1mil home?

Post by random_walker_77 » Thu Apr 11, 2019 10:00 pm

Buying a home together is arguably a bigger commitment than anything short of marriage, including engagement (btw, congrats)

OP, you can afford it, but is this something you really want to do? Especially if your income might change due to those plans for grad school?

Consider that rent isn't really throwing away money. You're paying $48K/yr in rent. Consider this hypothetical 1M home. At 4.5% for a jumbo, you're going to be paying:
45K for interest / opportunity cost
11K for prop taxes
3K for insurance & maintenance

That's 59K, and is more than your rent. Further, you have forced savings (payment into principal) which has effects on your cash flow. Normally, this is no big deal, but it is a constraint if either of you loses your income.

Cons of buying:
mobility -- given how bad traffic is, you can't move if one of you gets a job across the bay
You also can't easily walk away from problem neighbors, or a problematic condo, or a bad HOA
cash flow commitment / risk if there's a job loss(es)
risk of foreclosure / job losses tend to correlate with poor resale values, especially on condos
leveraged investment can leverage up losses if house depreciates

pros:
leveraged investment can leverage up profits if house appreciates
as an owner, you can make more customizations to your living conditions (but not as much as if you were in a single family home)
stability -- you won't be forced to move away due to landlord issues. This tends to be a big factor for those with kids, where there's a high value to ensuring you stay in the same school zoning. But OP doesn't plan on kids.
tax writeoff* : it used to be that the deductibility of interest meant that this portion of the cost was subsidized, but given the cap on SALT deductions and the higher standard deduction, I don't think this has any value to a CA home buyer in this sort of tax bracket.

random_walker_77
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Re: Can we afford a $1mil home?

Post by random_walker_77 » Thu Apr 11, 2019 10:16 pm

dee789 wrote:
Thu Apr 11, 2019 7:05 pm
And yes, I agree we could easily move and afford a house somewhere else, but we wouldn't make anywhere near the income we make here. We moved from NYC two years ago and have significantly increased our income. We have some other reasons to stay in this area for now as well.
(not for the OP, so much as for others)

This is probably highly industry/job dependent, but I've been shocked by how well-paying some tech jobs in Austin can be, compared to silicon valley. We definitely took a haircut on base salary, and I'm sure we gave up some equity compensation and career trajectory by relocating from Silicon Valley to Austin, but between the two of us, we're still mid-6 figures on base salary, and equity sometimes pushes that near the 7 figure mark. Given the 0% state income tax rate, and the relative quality of life, it was well worth it to us.

Silicon Valley pays very well, and there's definitely career benefits to living there, but I don't think many people appreciate how close the pay can be in other locales. And who knows, maybe I'm losing out on hundreds of thousands per year by not living in San Jose, but at this point, it's more than enough. On the other hand, changing jobs is certainly tougher out here.

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Re: Can we afford a $1mil home?

Post by HEDGEFUNDIE » Thu Apr 11, 2019 10:16 pm

Misenplace wrote:
Thu Apr 11, 2019 8:57 pm
2marshmallow wrote:
Thu Apr 11, 2019 7:40 pm
It looks like the PITI for a $1M home with a 20% down payment is a very reasonable fraction of your income. You will have to judge how secure that income is.

Wife and I bought a $900K home in the Bay Area in 2012. That was a bit of a pill to swallow, having moved from out of the area. Today it is worth about $1.7M. Also our net worth during those years increased far beyond our expectations. For those who question life in such a HCOL, it is worth it if you participate in the job market that drives the HCOL.

Good luck to you dee789!
And if you had invested 900k in VTI in April 2012, with dividends reinvested it would be around $2.2 million. Also, the tax on the dividends would be far less than the property tax and upkeep on a CA home. Although if 2marshmallows are living in the house and MFJ they can still exclude a lot of the capital gains when they sell. Not so if it is rented out a certain amount of time.

Just wanted to put it in perspective for OP.
The proper comparison is the home equity growth minus interest, taxes, transaction costs.

So something like 180k to 600k over seven years.

Only way you’re getting that in the stock market is if you do something crazy like my Excellent Adventure.

HEDGEFUNDIE
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Re: Can we afford a $1mil home?

Post by HEDGEFUNDIE » Thu Apr 11, 2019 10:22 pm

random_walker_77 wrote:
Thu Apr 11, 2019 10:16 pm
dee789 wrote:
Thu Apr 11, 2019 7:05 pm
And yes, I agree we could easily move and afford a house somewhere else, but we wouldn't make anywhere near the income we make here. We moved from NYC two years ago and have significantly increased our income. We have some other reasons to stay in this area for now as well.
(not for the OP, so much as for others)

This is probably highly industry/job dependent, but I've been shocked by how well-paying some tech jobs in Austin can be, compared to silicon valley. We definitely took a haircut on base salary, and I'm sure we gave up some equity compensation and career trajectory by relocating from Silicon Valley to Austin, but between the two of us, we're still mid-6 figures on base salary, and equity sometimes pushes that near the 7 figure mark. Given the 0% state income tax rate, and the relative quality of life, it was well worth it to us.

Silicon Valley pays very well, and there's definitely career benefits to living there, but I don't think many people appreciate how close the pay can be in other locales. And who knows, maybe I'm losing out on hundreds of thousands per year by not living in San Jose, but at this point, it's more than enough. On the other hand, changing jobs is certainly tougher out here.
Edge cases aside, I know of nowhere other than Silicon Valley where ordinary middle managers can make so much.

DW & I are individual contributors in business (i.e. non-eng) functions making 250k each. And dozens of companies here offer this level of pay for Managers and Senior Manager levels.

Can’t get that in Chicago.

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Re: Can we afford a $1mil home?

Post by Grt2bOutdoors » Thu Apr 11, 2019 10:24 pm

Dottie57 wrote:
Thu Apr 11, 2019 2:33 pm
delamer wrote:
Thu Apr 11, 2019 2:25 pm
Don’t buy until you’ve made your decision about grad school.

Rent in a neighborhood that you like better. But don’t commit to a purchase when your finances could be changing in the near future.

I also would not buy a home with someone who wasn’t my spouse yet, but I understand that is a minority view.
+1 to all points
+2 to all points!!!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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whodidntante
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Re: Can we afford a $1mil home?

Post by whodidntante » Thu Apr 11, 2019 10:44 pm

You can, though I wonder what a return to 7% 30 year mortgage rates would do to a market that highly valued.

dred pirate
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Re: Can we afford a $1mil home?

Post by dred pirate » Fri Apr 12, 2019 2:55 pm

don't forget to calculate in the HOA's - I now some of them can be 500+ a month

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Re: Can we afford a $1mil home?

Post by KyleAAA » Fri Apr 12, 2019 3:04 pm

Consider HOA but financially, yeah, you can afford it. Your multiples will be within normal range, and that's saying a lot in SF where most people have to streeeetch. Don't forget your mortgage interest deduction and probably your SALT deduction will be capped, so don't rely too much on the tax deduction. You'll might feel pressure to cut back on eating out a bit ($4k per month for a couple with no kids is a lot) but it wouldn't be a deal breaker.

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Re: Can we afford a $1mil home?

Post by KyleAAA » Fri Apr 12, 2019 3:09 pm

HEDGEFUNDIE wrote:
Thu Apr 11, 2019 10:22 pm
random_walker_77 wrote:
Thu Apr 11, 2019 10:16 pm
dee789 wrote:
Thu Apr 11, 2019 7:05 pm
And yes, I agree we could easily move and afford a house somewhere else, but we wouldn't make anywhere near the income we make here. We moved from NYC two years ago and have significantly increased our income. We have some other reasons to stay in this area for now as well.
(not for the OP, so much as for others)

This is probably highly industry/job dependent, but I've been shocked by how well-paying some tech jobs in Austin can be, compared to silicon valley. We definitely took a haircut on base salary, and I'm sure we gave up some equity compensation and career trajectory by relocating from Silicon Valley to Austin, but between the two of us, we're still mid-6 figures on base salary, and equity sometimes pushes that near the 7 figure mark. Given the 0% state income tax rate, and the relative quality of life, it was well worth it to us.

Silicon Valley pays very well, and there's definitely career benefits to living there, but I don't think many people appreciate how close the pay can be in other locales. And who knows, maybe I'm losing out on hundreds of thousands per year by not living in San Jose, but at this point, it's more than enough. On the other hand, changing jobs is certainly tougher out here.
Edge cases aside, I know of nowhere other than Silicon Valley where ordinary middle managers can make so much.

DW & I are individual contributors in business (i.e. non-eng) functions making 250k each. And dozens of companies here offer this level of pay for Managers and Senior Manager levels.

Can’t get that in Chicago.
You can get that in Seattle and in most other big cities with a FAMAUNGO presence. Where I work, base is adjusted down about 10-15% depending on locale but equity is the same, which is where the big bucks are, anyway. Amazon will absolutely pay $250k for non-eng roles in Austin, for example. I'm in Seattle and the lack of state income tax is huge. And it's easy to change jobs since there's plenty of big tech here. But you are correct in that the number of employers offering that compensation is much smaller outside of SV and Seattle.

HornedToad
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Re: Can we afford a $1mil home?

Post by HornedToad » Fri Apr 12, 2019 3:35 pm

Most important consideration for buying a house in the bay area is your location relative to work and how long you are planning on staying at those jobs, as well as location relative to potential jobs.

Bay Area traffic has made it so you can't buy in the bay and commute to other suburbs/cities farther away without hating your life. So I would definitely focus primarily on location even if you can get better/nicer somewhere less optimally located.

Examples:
I had friends who bought in ~2012 when it was slow and the commute was reasonable. 4 years later it turned into ~1-2 hr commute each way so they had to sell or switch jobs
I've decided to stay in my current job primarily because other comparable/next step company's would be a 45-60+ commute or have to sell and move.

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Nate79
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Re: Can we afford a $1mil home?

Post by Nate79 » Fri Apr 12, 2019 4:20 pm

My general guidelines:
Get married
Have 20% down payment
Stable income/jobs
Debt free of consumer debt and student loans
Monthly mortgage payment no more than ~25% of after tax monthly pay not including retirement saving

Kmzizzle
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Re: Can we afford a $1mil home?

Post by Kmzizzle » Fri Apr 12, 2019 6:08 pm

Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area

HornedToad
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Re: Can we afford a $1mil home?

Post by HornedToad » Fri Apr 12, 2019 6:34 pm

Kmzizzle wrote:
Fri Apr 12, 2019 6:08 pm
Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area
Heavily dependent on various tradeoffs: kids in the near future, other major regular expenses (wedding, regular fancy vacations 20k+/yr, cars) and where they are in their career. If salary is still on the upswing in the late 20s to early/mid 30s then more room to go higher vs. if salary is relatively stable then less so.

Assuming no kids for 3-5 years, salary still on upswing with growth potential and no other main expensive hobbies then in ~$1.2-$1.3M range imo.

Kmzizzle
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Re: Can we afford a $1mil home?

Post by Kmzizzle » Sat Apr 13, 2019 1:07 pm

HornedToad wrote:
Fri Apr 12, 2019 6:34 pm
Kmzizzle wrote:
Fri Apr 12, 2019 6:08 pm
Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area
Heavily dependent on various tradeoffs: kids in the near future, other major regular expenses (wedding, regular fancy vacations 20k+/yr, cars) and where they are in their career. If salary is still on the upswing in the late 20s to early/mid 30s then more room to go higher vs. if salary is relatively stable then less so.

Assuming no kids for 3-5 years, salary still on upswing with growth potential and no other main expensive hobbies then in ~$1.2-$1.3M range imo.
Thanks for the response. Unfortunately any decent homes in Silicon Valley with good school districts cost $1.8M+. Our HH income cap is $50K higher probably but that would not come to fruition for 2-3 years. Not much more than that though. Current HH income is $375K. Wedding soon probably and kids much later. Late 20s. Current net worth is over $800K. I save about half my post tax earnings but obviously haven’t been making this income the entire time. If you were me, what would you do terms of buying a house? I just don’t want to overextend myself but I do like nice things.. ugh. $1.3M gets you nothing here and in a bad school systems. And life’s too short to commute 1.5 hours each way and live in an area without any amenities. Thanks!

dred pirate
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Re: Can we afford a $1mil home?

Post by dred pirate » Sat Apr 13, 2019 1:59 pm

Kmzizzle wrote:
Fri Apr 12, 2019 6:08 pm
Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area
I tend to be more conservative - but a normal rule of thumb is a mortgage that is no more than 3x your annual income (assuming no other debt) - which they meet. if there are significant HOA fees - this could change - think a 400k condo with 1000 a month HOA fees - in that case I would figure the $1000 into the mortgage payment and calculate what price of house with no HOA that is equivalent to.

Personally my mortgage amount was 110% of our combined income - 18% of our net income goes to it - but I realize that is not possible in many locations - I am not in a HCOL but my city is definitely NOT cheap - I just bought conservative.

Kmzizzle
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Re: Can we afford a $1mil home?

Post by Kmzizzle » Sat Apr 13, 2019 2:45 pm

dred pirate wrote:
Sat Apr 13, 2019 1:59 pm
Kmzizzle wrote:
Fri Apr 12, 2019 6:08 pm
Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area
I tend to be more conservative - but a normal rule of thumb is a mortgage that is no more than 3x your annual income (assuming no other debt) - which they meet. if there are significant HOA fees - this could change - think a 400k condo with 1000 a month HOA fees - in that case I would figure the $1000 into the mortgage payment and calculate what price of house with no HOA that is equivalent to.

Personally my mortgage amount was 110% of our combined income - 18% of our net income goes to it - but I realize that is not possible in many locations - I am not in a HCOL but my city is definitely NOT cheap - I just bought conservative.
So by that I can swing $1.4M. Still doesn’t get anything close to a good school system here (Cupertino, Los Gatos, Saratoga). Ugh sigh. Feel like I do very well in life but looking at homes here’s makes me depressed and think otherwise. I grew up here and know first hand how bad the other affordable public school systems are

BusterMcTaco
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Re: Can we afford a $1mil home?

Post by BusterMcTaco » Sat Apr 13, 2019 2:56 pm

Having been in an almost identical situation, my only 2 cents are buy something you want to live in for a long time. Upgrading from a starter condo later has a hefty transaction cost.

HornedToad
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Re: Can we afford a $1mil home?

Post by HornedToad » Sun Apr 14, 2019 3:07 pm

Kmzizzle wrote:
Sat Apr 13, 2019 1:07 pm
HornedToad wrote:
Fri Apr 12, 2019 6:34 pm
Kmzizzle wrote:
Fri Apr 12, 2019 6:08 pm
Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area
Heavily dependent on various tradeoffs: kids in the near future, other major regular expenses (wedding, regular fancy vacations 20k+/yr, cars) and where they are in their career. If salary is still on the upswing in the late 20s to early/mid 30s then more room to go higher vs. if salary is relatively stable then less so.

Assuming no kids for 3-5 years, salary still on upswing with growth potential and no other main expensive hobbies then in ~$1.2-$1.3M range imo.
Thanks for the response. Unfortunately any decent homes in Silicon Valley with good school districts cost $1.8M+. Our HH income cap is $50K higher probably but that would not come to fruition for 2-3 years. Not much more than that though. Current HH income is $375K. Wedding soon probably and kids much later. Late 20s. Current net worth is over $800K. I save about half my post tax earnings but obviously haven’t been making this income the entire time. If you were me, what would you do terms of buying a house? I just don’t want to overextend myself but I do like nice things.. ugh. $1.3M gets you nothing here and in a bad school systems. And life’s too short to commute 1.5 hours each way and live in an area without any amenities. Thanks!
I've noticed that people who grow up in the Bay Area have a completely negative few of other schools and aren't very willing to change that. My wife has the same problem when we look at homes and I think it partly comes from school rivalry in high school. Part of this might also come from those who went to private schools or the highest rated high schools, whereas parents who went to public schools in other parts of the state are more willing to concede that at the honors/AP level, kids can generally be successful anywhere if the parents are involved.

Secondly, there's plenty of good homes in Silicon Valley with good school districts for under $1.8M. $1.8M would get you are 5 year old 4bed, 4bath 2400 sq ft home in Almaden that feeds into Los Gatos School District. If you go down to the $1.5-1.8M range you can get older homes in Almaden that go into the Almaden schools which are also very highly rated. I don't consider a 4/4 with 2400 square feet that's only 5 years old as only a "decent home". In the 1.2M-1.5M range, either the house or the school district takes a knock but it's definitely in the realm of possibility to find something that works. The bigger question is if you have to commute up to Mountain View/Palo Alto/etc then trying to live in San Jose or East Bay or other locations are unworkable. But for Sunnyvale and south employers it can be workable.

More actionably, if you don't have kids or plan for kids for awhile I'd either continue renting or consider a condo/town home centrally located that would also be big enough to have 1 kid without being overly crowded. Best of luck.

Kmzizzle
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Re: Can we afford a $1mil home?

Post by Kmzizzle » Sat Apr 20, 2019 11:18 am

HornedToad wrote:
Sun Apr 14, 2019 3:07 pm
Kmzizzle wrote:
Sat Apr 13, 2019 1:07 pm
HornedToad wrote:
Fri Apr 12, 2019 6:34 pm
Kmzizzle wrote:
Fri Apr 12, 2019 6:08 pm
Curious - what do you guys think would be a comfortable max amount they could buy with their numbers? Asking as I am in the same boat with nearly identical figures and in Very HCOL area
Heavily dependent on various tradeoffs: kids in the near future, other major regular expenses (wedding, regular fancy vacations 20k+/yr, cars) and where they are in their career. If salary is still on the upswing in the late 20s to early/mid 30s then more room to go higher vs. if salary is relatively stable then less so.

Assuming no kids for 3-5 years, salary still on upswing with growth potential and no other main expensive hobbies then in ~$1.2-$1.3M range imo.
Thanks for the response. Unfortunately any decent homes in Silicon Valley with good school districts cost $1.8M+. Our HH income cap is $50K higher probably but that would not come to fruition for 2-3 years. Not much more than that though. Current HH income is $375K. Wedding soon probably and kids much later. Late 20s. Current net worth is over $800K. I save about half my post tax earnings but obviously haven’t been making this income the entire time. If you were me, what would you do terms of buying a house? I just don’t want to overextend myself but I do like nice things.. ugh. $1.3M gets you nothing here and in a bad school systems. And life’s too short to commute 1.5 hours each way and live in an area without any amenities. Thanks!
I've noticed that people who grow up in the Bay Area have a completely negative few of other schools and aren't very willing to change that. My wife has the same problem when we look at homes and I think it partly comes from school rivalry in high school. Part of this might also come from those who went to private schools or the highest rated high schools, whereas parents who went to public schools in other parts of the state are more willing to concede that at the honors/AP level, kids can generally be successful anywhere if the parents are involved.

Secondly, there's plenty of good homes in Silicon Valley with good school districts for under $1.8M. $1.8M would get you are 5 year old 4bed, 4bath 2400 sq ft home in Almaden that feeds into Los Gatos School District. If you go down to the $1.5-1.8M range you can get older homes in Almaden that go into the Almaden schools which are also very highly rated. I don't consider a 4/4 with 2400 square feet that's only 5 years old as only a "decent home". In the 1.2M-1.5M range, either the house or the school district takes a knock but it's definitely in the realm of possibility to find something that works. The bigger question is if you have to commute up to Mountain View/Palo Alto/etc then trying to live in San Jose or East Bay or other locations are unworkable. But for Sunnyvale and south employers it can be workable.

More actionably, if you don't have kids or plan for kids for awhile I'd either continue renting or consider a condo/town home centrally located that would also be big enough to have 1 kid without being overly crowded. Best of luck.
I looked at Redfin last week and no house 5 even 10 years old in Almaden is under like $2.8M. $1.8M gets you something but there are close to zero homes in or under the $1.2M range unless you exit Almaden and go into Blossom Valley/Santa Teresa area, then you are in a much worse school zone (Leland vs. Gunderson/Branham/Santa Teresa etc is night and day!)

Sam1
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Re: Can we afford a $1mil home?

Post by Sam1 » Sat Apr 20, 2019 11:37 am

trustquestioner wrote:
Thu Apr 11, 2019 2:33 pm
Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.
What you don’t get is some people don’t want to have to get on an airplane to enjoy a unique, beautiful location with walkability, a nice climate and plenty to do. Some of us want to LIVE where others vacation. Get it?

I walk out my front door and can see and access so much. Or simply drive less than 2 hours and reach the mountains, beach, charming small towns etc.

I grew up in a suburb and we traveled a great deal. Looking back it’s easy to see that we were simply escaping the bland and boring place we resided.

monsterid
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Re: Can we afford a $1mil home?

Post by monsterid » Sat Apr 20, 2019 1:45 pm

trustquestioner wrote:
Thu Apr 11, 2019 2:33 pm
Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.
You got a job for me on my current income? If so sign me up and I'll move to wherever in the Midwest you are!

But seriously, I think that's the point, for the types of jobs many people are doing in Bay Area or NYC, either the pay or the roles don't exist in the Midwest.

A-Commoner
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Re: Can we afford a $1mil home?

Post by A-Commoner » Sat Apr 20, 2019 1:51 pm

Come to Los Angeles. Lots of tech jobs here....also has lower cost of living, cheaper homes (relative to Silicon Valley), nicer beaches warm enough you can actually swim in while taking a break from your tech job (aka Silicon beach), sunnier skies. There are areas with good schools (Granada Hills/Porter Ranch) in northern San Fernando Valley all the way up to the Santa Clarita valley. Or you can go northeast to Glendale, La Canada Flintridge or San Marino. If you want to live closer to Silicon beach, your $1.8 million will buy more house in Santa Monica than in Silicon Valley.
Last edited by A-Commoner on Sat Apr 20, 2019 1:57 pm, edited 1 time in total.

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Watty
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Re: Can we afford a $1mil home?

Post by Watty » Sat Apr 20, 2019 1:55 pm

delamer wrote:
Thu Apr 11, 2019 2:25 pm
Don’t buy until you’ve made your decision about grad school.
I would expand that to waiting until you are through grad school if you go to grad school. A big concern is that once you graduate you are likely to find a new job, even if you stay with your current employer, and that might be at a different location. Even if that is only on the other side of town that might leave you with a terrible commute.
random_walker_77 wrote:
Thu Apr 11, 2019 10:16 pm
Silicon Valley pays very well, and there's definitely career benefits to living there, but I don't think many people appreciate how close the pay can be in other locales.
+1

Even in Atlanta where I live it is not hard for ordinary Software Engineers with in demand skills to get well over $100K which goes a long way when you can buy a McMansion for $500K in many of the suburbs.

HEDGEFUNDIE
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Re: Can we afford a $1mil home?

Post by HEDGEFUNDIE » Sat Apr 20, 2019 2:00 pm

A-Commoner wrote:
Sat Apr 20, 2019 1:51 pm
Come to Los Angeles. Lots of tech jobs here....also has lower cost of living, cheaper homes (relative to Silicon Valley), nicer beaches warm enough you can actually swim in while taking a break from your tech job (aka Silicon beach), sunnier skies. There are areas with good schools (Granada Hills/Porter Ranch) in northern San Fernando Valley all the way up to the Santa Clarita valley. Or you can go northeast in Glendale, La Canada Flintridge or San Marino. If you want to live closer to Silicon beach, your $1.8 million will buy more house in Santa Monica than in Silicon Valley.
Nope.

I graduated with my MBA in 2017, got job offers in Silicon Valley and in LA. The SV job paid $210k all in, the LA job paid only $130k. Both were comparable corporate strategy roles. And the delta only increases as time goes on. The rent differential between the two areas is only $15k/yr for comparable housing, all other costs are the same.

There is another gold rush going on in Silicon Valley right now. If you are young and ambitious, there is literally no better place in the world for you right now. And hence the high costs.

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Watty
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Re: Can we afford a $1mil home?

Post by Watty » Sat Apr 20, 2019 2:24 pm

HEDGEFUNDIE wrote:
Sat Apr 20, 2019 2:00 pm
There is another gold rush going on in Silicon Valley right now. If you are young and ambitious, there is literally no better place in the world for you right now. And hence the high costs.
I agree, but gold rushes don't last forever.

Pretty much by definition the game plan for a gold rush is it make your fortune and then move on to somewhere else.

If the OP was making enough to easily pay cash for a condo that would be one thing but to taking on a 30 year mortage implies that the party will go on for a long time.

A-Commoner
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Re: Can we afford a $1mil home?

Post by A-Commoner » Sat Apr 20, 2019 3:05 pm

HEDGEFUNDIE wrote:
Sat Apr 20, 2019 2:00 pm
A-Commoner wrote:
Sat Apr 20, 2019 1:51 pm
Come to Los Angeles. Lots of tech jobs here....also has lower cost of living, cheaper homes (relative to Silicon Valley), nicer beaches warm enough you can actually swim in while taking a break from your tech job (aka Silicon beach), sunnier skies. There are areas with good schools (Granada Hills/Porter Ranch) in northern San Fernando Valley all the way up to the Santa Clarita valley. Or you can go northeast in Glendale, La Canada Flintridge or San Marino. If you want to live closer to Silicon beach, your $1.8 million will buy more house in Santa Monica than in Silicon Valley.
Nope.

I graduated with my MBA in 2017, got job offers in Silicon Valley and in LA. The SV job paid $210k all in, the LA job paid only $130k. Both were comparable corporate strategy roles. And the delta only increases as time goes on. The rent differential between the two areas is only $15k/yr for comparable housing, all other costs are the same.

There is another gold rush going on in Silicon Valley right now. If you are young and ambitious, there is literally no better place in the world for you right now. And hence the high costs.
I reread the OP. She didn’t really say what industry she and her fiancé are in. I assumed they are in tech but that could be wrong or I may have missed the part where she stated her industry. In our case, my wife and I are physicians. We were offered the same base salaries in Los Angeles as in the Bay Area. It was a no brainer for us: we picked the city with lower cost of living, nicer weather, awesome beaches, which equate to better quality of life. We have family in both areas so we are familiar with both.

HEDGEFUNDIE
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Re: Can we afford a $1mil home?

Post by HEDGEFUNDIE » Sat Apr 20, 2019 6:52 pm

A-Commoner wrote:
Sat Apr 20, 2019 3:05 pm
HEDGEFUNDIE wrote:
Sat Apr 20, 2019 2:00 pm
A-Commoner wrote:
Sat Apr 20, 2019 1:51 pm
Come to Los Angeles. Lots of tech jobs here....also has lower cost of living, cheaper homes (relative to Silicon Valley), nicer beaches warm enough you can actually swim in while taking a break from your tech job (aka Silicon beach), sunnier skies. There are areas with good schools (Granada Hills/Porter Ranch) in northern San Fernando Valley all the way up to the Santa Clarita valley. Or you can go northeast in Glendale, La Canada Flintridge or San Marino. If you want to live closer to Silicon beach, your $1.8 million will buy more house in Santa Monica than in Silicon Valley.
Nope.

I graduated with my MBA in 2017, got job offers in Silicon Valley and in LA. The SV job paid $210k all in, the LA job paid only $130k. Both were comparable corporate strategy roles. And the delta only increases as time goes on. The rent differential between the two areas is only $15k/yr for comparable housing, all other costs are the same.

There is another gold rush going on in Silicon Valley right now. If you are young and ambitious, there is literally no better place in the world for you right now. And hence the high costs.
I reread the OP. She didn’t really say what industry she and her fiancé are in. I assumed they are in tech but that could be wrong or I may have missed the part where she stated her industry. In our case, my wife and I are physicians. We were offered the same base salaries in Los Angeles as in the Bay Area. It was a no brainer for us: we picked the city with lower cost of living, nicer weather, awesome beaches, which equate to better quality of life. We have family in both areas so we are familiar with both.
Congrats on working in the one profession that actually pays you *more* in lower cost areas.

For my wife and me, it was $300k in LA or $500k in SF. A no brainer (the other way) for us.

A-Commoner
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Re: Can we afford a $1mil home?

Post by A-Commoner » Sat Apr 20, 2019 7:46 pm

https://www.google.com/amp/s/www.bloomb ... u-s-cities

Speaking of “gold rush”, LA’s economy is booming. Anyone who wants a job can get one. In healthcare, there are just too many patients here that any physician who wants to
practice medicine here will thrive. We have had to turn away patients who unfortunately can’t be accommodated in our clinic schedules.

Starfish
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Re: Can we afford a $1mil home?

Post by Starfish » Sat Apr 20, 2019 9:54 pm

trustquestioner wrote:
Thu Apr 11, 2019 2:33 pm
Every Bay Area housing thread leaves me staring at the post hoping there was a typo or something.

Unless you absolutely have to live there, I don’t get it. You can move to the Midwest, live a much better quality of life on half the income and have plenty left over for multiple luxury trips back, should you so desire.
I have exactly the same opinion about Midwest.
Unless you absolutely have to live there, I don't get it.

Starfish
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Re: Can we afford a $1mil home?

Post by Starfish » Sat Apr 20, 2019 10:02 pm

Misenplace wrote:
Thu Apr 11, 2019 8:57 pm
2marshmallow wrote:
Thu Apr 11, 2019 7:40 pm
It looks like the PITI for a $1M home with a 20% down payment is a very reasonable fraction of your income. You will have to judge how secure that income is.

Wife and I bought a $900K home in the Bay Area in 2012. That was a bit of a pill to swallow, having moved from out of the area. Today it is worth about $1.7M. Also our net worth during those years increased far beyond our expectations. For those who question life in such a HCOL, it is worth it if you participate in the job market that drives the HCOL.

Good luck to you dee789!
And if you had invested 900k in VTI in April 2012, with dividends reinvested it would be around $2.2 million. Also, the tax on the dividends would be far less than the property tax and upkeep on a CA home. Although if 2marshmallows are living in the house and MFJ they can still exclude a lot of the capital gains when they sell. Not so if it is rented out a certain amount of time.

Just wanted to put it in perspective for OP.
Nobody buys a house with 900k down. People put 20%, 180k, down. Return is >3X. Yes, there is property tax, maintenance, interest rate, but also no rent.
I don't know the future but for last decades RE in Bay Area was a very good investment.

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