Yet Another Housing Sanity Check

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Jsdi7873hd
Posts: 3
Joined: Tue Sep 10, 2019 11:43 pm

Yet Another Housing Sanity Check

Post by Jsdi7873hd » Tue Sep 10, 2019 11:53 pm

Hi all,

I’ve been a boglehead for a very long time and am about to possibly make a giant financial purchase in a townhouse.

Me: Married 34/31 - NW $1 mill among taxable + retirement accounts. Have a Condo in Southern California worth ~750K, 320K left in mortgage.
Income: 290K FANG job + 110K Wife with more much variable income = ~400K.
Thinking about purchasing a town house for 1.1m that includes a $650 a month HOA - Includes EQ insurance, cable + internet, club house, gardening, trash. Ideally we’d sell the condo, take the money and use it as a down payment so we wouldn’t have to touch any of our actual investments.

Can we afford this? It’s in a hot area of Southern California and I understand housing prices are cooling, but who really knows? Thoughts before I put in an offer. Thanks!

student
Posts: 3704
Joined: Fri Apr 03, 2015 6:58 am

Re: Yet Another Housing Sanity Check

Post by student » Wed Sep 11, 2019 6:10 am

Jsdi7873hd wrote:
Tue Sep 10, 2019 11:53 pm
Hi all,

I’ve been a boglehead for a very long time and am about to possibly make a giant financial purchase in a townhouse.

Me: Married 34/31 - NW $1 mill among taxable + retirement accounts. Have a Condo in Southern California worth ~750K, 320K left in mortgage.
Income: 290K FANG job + 110K Wife with more much variable income = ~400K.
Thinking about purchasing a town house for 1.1m that includes a $650 a month HOA - Includes EQ insurance, cable + internet, club house, gardening, trash. Ideally we’d sell the condo, take the money and use it as a down payment so we wouldn’t have to touch any of our actual investments.

Can we afford this? It’s in a hot area of Southern California and I understand housing prices are cooling, but who really knows? Thoughts before I put in an offer. Thanks!
Clearly yes.

HEDGEFUNDIE
Posts: 3262
Joined: Sun Oct 22, 2017 2:06 pm

Re: Yet Another Housing Sanity Check

Post by HEDGEFUNDIE » Wed Sep 11, 2019 7:37 am

See here where I do the math to show that a $4M house is affordable on $500k income:

viewtopic.php?f=2&t=289034&start=50#p4719228

So yes, you can definitely afford $1.1M on $400k

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Sandtrap
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Re: Yet Another Housing Sanity Check

Post by Sandtrap » Wed Sep 11, 2019 7:57 am

1
Affordability: yes
2
Sequence: is your existing condo in an area where it will sell quickly and assuredly?
3
How would you feel if you bought the new condo, moved, and the old condo did not sell quickly?
Yes. You can afford it. But how would you feel? Would you rent it out until it sells?

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

Topic Author
Jsdi7873hd
Posts: 3
Joined: Tue Sep 10, 2019 11:43 pm

Re: Yet Another Housing Sanity Check

Post by Jsdi7873hd » Wed Sep 11, 2019 9:10 am

Sandtrap wrote:
Wed Sep 11, 2019 7:57 am
Sequence: is your existing condo in an area where it will sell quickly and assuredly?
j :happy
2 - I'm pretty sure it will sell quickly if priced correctly. The realtors keep saying the market is in a weird state right now where some things are starting to sit on the market / price drops are happening. That's why I'm not sure I should buy now or wait. If priced "correctly", it should sell quickly.
Sandtrap wrote:
Wed Sep 11, 2019 7:57 am
How would you feel if you bought the new condo, moved, and the old condo did not sell quickly?
Yes. You can afford it. But how would you feel? Would you rent it out until it sells?
I wouldn't feel great. I really don't want to be a landlord. One of the big reasons we're moving is that this is a small building and I'm basically the HOA which is tiresome. The new townhome has over 100 units and is professionally managed. I did some due diligence, called the property management company and talked with someone that lives in the complex. It seems well run and I can step away from HOA duties.
HEDGEFUNDIE wrote:
Wed Sep 11, 2019 7:37 am
See here where I do the math to show that a $4M house is affordable on $500k income:

viewtopic.php?f=2&t=289034&start=50#p4719228

So yes, you can definitely afford $1.1M on $400k
I'm kind of wary of taking into account the full 400K. My wife's income is very cyclical and variable, going from 100K down to 50K. FANG jobs are also paid in stock so I'm thinking what happens in a recession? Am I being too conservative?

HEDGEFUNDIE
Posts: 3262
Joined: Sun Oct 22, 2017 2:06 pm

Re: Yet Another Housing Sanity Check

Post by HEDGEFUNDIE » Wed Sep 11, 2019 9:14 am

Jsdi7873hd wrote:
Wed Sep 11, 2019 9:10 am

I'm kind of wary of taking into account the full 400K. My wife's income is very cyclical and variable, going from 100K down to 50K. FANG jobs are also paid in stock so I'm thinking what happens in a recession? Am I being too conservative?
Your income could drop to $300k and you would still afford the house

victw
Posts: 119
Joined: Sat Feb 20, 2016 4:07 pm

Re: Yet Another Housing Sanity Check

Post by victw » Wed Sep 11, 2019 11:12 am

Jsdi7873hd wrote:
Wed Sep 11, 2019 9:10 am

I'm kind of wary of taking into account the full 400K. My wife's income is very cyclical and variable, going from 100K down to 50K. FANG jobs are also paid in stock so I'm thinking what happens in a recession? Am I being too conservative?
I'm in tech - non FANG. Could you get a non FANG job that paid that much? If you are mostly paid in stocks - do you consider your salary inflated along with stock prices? I'm thinking CASE SHILLER being high right now? Personally - I would devalue your salary to a comparable job outside of FANG. And I would only count the non-variable income. Unless you have a healthy emergency fund.

How do you handle your current variable income situation? Will it work to have a higher mortgage? Or be stressful?

If you don't like your current HOA situation. Have you considered a non HOA home?

I've been watching Redfin for our area. Lots of small price reductions. Why not sell and rent?

Vic

Topic Author
Jsdi7873hd
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Re: Yet Another Housing Sanity Check

Post by Jsdi7873hd » Wed Sep 11, 2019 7:34 pm

victw wrote:
Wed Sep 11, 2019 11:12 am
Jsdi7873hd wrote:
Wed Sep 11, 2019 9:10 am

I'm kind of wary of taking into account the full 400K. My wife's income is very cyclical and variable, going from 100K down to 50K. FANG jobs are also paid in stock so I'm thinking what happens in a recession? Am I being too conservative?
I'm in tech - non FANG. Could you get a non FANG job that paid that much? If you are mostly paid in stocks - do you consider your salary inflated along with stock prices? I'm thinking CASE SHILLER being high right now? Personally - I would devalue your salary to a comparable job outside of FANG. And I would only count the non-variable income. Unless you have a healthy emergency fund.

How do you handle your current variable income situation? Will it work to have a higher mortgage? Or be stressful?

If you don't like your current HOA situation. Have you considered a non HOA home?

I've been watching Redfin for our area. Lots of small price reductions. Why not sell and rent?

Vic
I don't think I could get a non FANG job that pays this much. Maybe 200K is probably a realistic non FANG job. I got lucky in that my stocks were priced in December 2018 so even if the stocks crash 20%, I'm actually at 290 versus I have a 20K buffer right now. Unfortunately, FANG pay is 50% in stock, so even with my base salary, I wouldn't qualify for the loan.

I handle the current variable income by being a boglehead :). I purchased when my income was at 140K and have mostly kept our lifestyles the same, with minor lifestyle inflation. Most of the money goes straight to VTSAX, so the variable income hasn't been an issue. It just means less money goes to VTSAX. Luckily, our incomes have kept going up (who knows how long), but our expenses have mostly stayed the same, so our NW goes up instead.

I tried a non HOA home, but we can't afford it. Or I guess we could, but it's stretching more than I'd like. I've done the due diligence on this HOA and it seems like its well run in a quiet community. So far, nothing I've heard has been bad.

My SO doesn't like renting, I've tried to convince her but she wants to own. NYTimes buy vs rent calculator, which I don't know if its skewed because of the SALT deduction no longer applies, says that if we can rent a place for 3.5K, we should do that. I think this place would rent for 5-6K.

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