How Much House Can We Afford in HCOL Area?

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av111
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Re: How Much House Can We Afford in HCOL Area?

Post by av111 »

hereverycentcounts wrote: Sun Sep 06, 2020 3:13 pm Thanks I just figured this out...

$28.7k income ($345k)
$4.7k pre tax savings = 50k
$9.4k taxes + health stuff = 110k
$10.6k Roth/529/ESPP savings = 127k
Clearly buying a 2m house means that you won't save 177k every year. :confused

Your distribution would be like
345k income
100k housing
110k taxes
50k retirement
60k living
25k for espp 529 whatever
AV111
av111
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Re: How Much House Can We Afford in HCOL Area?

Post by av111 »

hightower wrote: Sun Sep 06, 2020 3:06 pm
To be perfectly honest, I don't think you should consider anything bigger than a 540k mortgage (2X you annual salary). That means the price of the house could be in the $650-700k range before the 20% down payment.
hightower

Is this 2x suggestion backed by some numbers for high income LBYM families?
AV111
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Watty
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Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

ktd wrote: Sat Sep 05, 2020 11:20 pm Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
This is not intended to be another dump on the Bay Area but let me try to explain this.

One thing I have noticed that when people are talking about San Francisco, which has a lot going for it, they will usually say San Francisco and not Bay Area. I sort of assume that when people say Bay Area they are usually referring to the rest of the Bay Area other than urban San Francisco.

A huge problem is that much of the Bay Area, outside of San Francisco, is mainly suburban sprawl with very bad traffic. This was especially true in the South Bay which is where I lived and that may skew my perspective.

Other than the jobs I did not find the South Bay all that nice a place to live when I lived there.

You compared the Bay Area to other expensive cities but a big difference is that most of those are big urban cities that have a lot else going on but at least to me outside of downtown San Francisco most of the Bay Area is pretty bland.

You mentioned a few factors.

Weather

The weather here in Atlanta is also actually pretty nice for eight months out of the year so the weather factor may not be as big a deal as you might think. Summers can be bad here and there is a usually mild winter but those are just a few months out of the year.

Few places in the US don't have very pleasant weather for at least six months out of the year so you need to keep that in mind when you are comparing the Bay Area weather to other parts of the country. Of course some areas have real extreme weather which is a big issue like summers in Phoenix and winters in Minnesota but most areas don't have weather that is all that bad, or only have a short period of bad weather most years.

The climate in the Bay Area is nice but it isn't like Hawaii.

Natural Beauty

I do not recall there being a lot of natural beauty left in most of the developed parts of the the Bay Area.

It is true that you can drive to nice places with natural beauty like the coast or the Sierra Nevada mountains but it can take hours to actually get out of the Bay Area on a Friday evening or Saturday morning. They may also be very crowded when you get there. From most cities you can get to areas with some notable natural beauty with a few hour drive so that may not be a lot different than most other cities.
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geerhardusvos
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Re: How Much House Can We Afford in HCOL Area?

Post by geerhardusvos »

hereverycentcounts wrote: Wed Sep 02, 2020 8:18 pm Hello! I've been on kind of an informal FIRE journey since my early 20s. Of the networth info below, only about $100k of that is my husband's and the rest is my savings. :) We live pretty cheaply for this area ($2500/month for a 1 bedroom apartment with our toddler) but I'm pregnant and have saved "enough" and think I'm ready to buy a house.

The problem is that I don't want to buy a "starter home" because that means spending $1.5M on something horrible, or $1.2M on something with a really horrible commute. Right now we can get about 2.7% 30 year fixed w/ 20% down, so something tells me that's a good deal for our "forever home," even if it's... like... $2M. Ok, so I'm posting here to get some sense shook into me because I grew up in an area where you can get a compound for $2M. Here... not so much. (And before you recommend moving - we are not leaving the area. Have lots of family here and plan to stay for the long haul.)

Thanks for your thoughts!!! Can I buy a $2M (or $1.8M-$1.9M house?)
Hope this helps: viewtopic.php?p=5480265#p5480265
VTSAX and chill
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

Watty wrote: Sun Sep 06, 2020 5:38 pm
ktd wrote: Sat Sep 05, 2020 11:20 pm Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
This is not intended to be another dump on the Bay Area but let me try to explain this.

One thing I have noticed that when people are talking about San Francisco, which has a lot going for it, they will usually say San Francisco and not Bay Area. I sort of assume that when people say Bay Area they are usually referring to the rest of the Bay Area other than urban San Francisco.

A huge problem is that much of the Bay Area, outside of San Francisco, is mainly suburban sprawl with very bad traffic. This was especially true in the South Bay which is where I lived and that may skew my perspective.

Other than the jobs I did not find the South Bay all that nice a place to live when I lived there.

You compared the Bay Area to other expensive cities but a big difference is that most of those are big urban cities that have a lot else going on but at least to me outside of downtown San Francisco most of the Bay Area is pretty bland.

You mentioned a few factors.

Weather

The weather here in Atlanta is also actually pretty nice for eight months out of the year so the weather factor may not be as big a deal as you might think. Summers can be bad here and there is a usually mild winter but those are just a few months out of the year.

Few places in the US don't have very pleasant weather for at least six months out of the year so you need to keep that in mind when you are comparing the Bay Area weather to other parts of the country. Of course some areas have real extreme weather which is a big issue like summers in Phoenix and winters in Minnesota but most areas don't have weather that is all that bad, or only have a short period of bad weather most years.

The climate in the Bay Area is nice but it isn't like Hawaii.

Natural Beauty

I do not recall there being a lot of natural beauty left in most of the developed parts of the the Bay Area.

It is true that you can drive to nice places with natural beauty like the coast or the Sierra Nevada mountains but it can take hours to actually get out of the Bay Area on a Friday evening or Saturday morning. They may also be very crowded when you get there. From most cities you can get to areas with some notable natural beauty with a few hour drive so that may not be a lot different than most other cities.
I think the peninsula is pretty nice. It has an urban feel to it while being suburban enough for my tastes. I’m not in love with San Jose but it looks like if we can afford to buy anywhere it’s down there.

My husband would never move to Atlanta though I’m sure it’s lovely. I would consider Minnesota and some other areas in the Midwest.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
ktd
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Re: How Much House Can We Afford in HCOL Area?

Post by ktd »

Watty wrote: Sun Sep 06, 2020 5:38 pm
ktd wrote: Sat Sep 05, 2020 11:20 pm Not sure why people picking on the bay area. It's expensive but also come with nice weather, good paying jobs and natural beauty. Many high cost cities outside or in the US have either or none.
This is not intended to be another dump on the Bay Area but let me try to explain this.

One thing I have noticed that when people are talking about San Francisco, which has a lot going for it, they will usually say San Francisco and not Bay Area. I sort of assume that when people say Bay Area they are usually referring to the rest of the Bay Area other than urban San Francisco.

A huge problem is that much of the Bay Area, outside of San Francisco, is mainly suburban sprawl with very bad traffic. This was especially true in the South Bay which is where I lived and that may skew my perspective.

Other than the jobs I did not find the South Bay all that nice a place to live when I lived there.

You compared the Bay Area to other expensive cities but a big difference is that most of those are big urban cities that have a lot else going on but at least to me outside of downtown San Francisco most of the Bay Area is pretty bland.

You mentioned a few factors.

Weather

The weather here in Atlanta is also actually pretty nice for eight months out of the year so the weather factor may not be as big a deal as you might think. Summers can be bad here and there is a usually mild winter but those are just a few months out of the year.

Few places in the US don't have very pleasant weather for at least six months out of the year so you need to keep that in mind when you are comparing the Bay Area weather to other parts of the country. Of course some areas have real extreme weather which is a big issue like summers in Phoenix and winters in Minnesota but most areas don't have weather that is all that bad, or only have a short period of bad weather most years.

The climate in the Bay Area is nice but it isn't like Hawaii.

Natural Beauty

I do not recall there being a lot of natural beauty left in most of the developed parts of the the Bay Area.

It is true that you can drive to nice places with natural beauty like the coast or the Sierra Nevada mountains but it can take hours to actually get out of the Bay Area on a Friday evening or Saturday morning. They may also be very crowded when you get there. From most cities you can get to areas with some notable natural beauty with a few hour drive so that may not be a lot different than most other cities.

There are many things to do in the South Bay without going to the Sierra Mountains just to name a few Sierra Vista Open Space Preserve, Quicksilver hike, Santa Teresa park, Big Basin Redwoods State Park, Santa Cruz, Point Reyes, Monterey, Carmel, Pepple beach....and many more. Hawaii is nice but it doesn't have high paying jobs. If people get the same values somewhere else, the South Bay wouldn't be so expensive.
I don't live in the bay area and I think the South Bay is underrated.
visualguy
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Re: How Much House Can We Afford in HCOL Area?

Post by visualguy »

ktd wrote: Sun Sep 06, 2020 8:59 pm There are many things to do in the South Bay without going to the Sierra Mountains just to name a few Sierra Vista Open Space Preserve, Quicksilver hike, Santa Teresa park, Big Basin Redwoods State Park, Santa Cruz, Point Reyes, Monterey, Carmel, Pepple beach....and many more. Hawaii is nice but it doesn't have high paying jobs. If people get the same values somewhere else, the South Bay wouldn't be so expensive.
I don't live in the bay area and I think the South Bay is underrated.
There are numerous gorgeous parks, hiking trails, and beaches within a 60-90 minute drive radius from the South Bay. In that respect, I don't know of any place like it. Many years worth of weekend explorations to cover it all. The towns themselves aren't of much interest, but nature offers an unparalleled embarrassment of riches.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

visualguy wrote: Sun Sep 06, 2020 9:28 pm
ktd wrote: Sun Sep 06, 2020 8:59 pm There are many things to do in the South Bay without going to the Sierra Mountains just to name a few Sierra Vista Open Space Preserve, Quicksilver hike, Santa Teresa park, Big Basin Redwoods State Park, Santa Cruz, Point Reyes, Monterey, Carmel, Pepple beach....and many more. Hawaii is nice but it doesn't have high paying jobs. If people get the same values somewhere else, the South Bay wouldn't be so expensive.
I don't live in the bay area and I think the South Bay is underrated.
There are numerous gorgeous parks, hiking trails, and beaches within a 60-90 minute drive radius from the South Bay. In that respect, I don't know of any place like it. Many years worth of weekend explorations to cover it all. The towns themselves aren't of much interest, but nature offers an unparalleled embarrassment of riches.
The outdoor options are indeed great! I personally like the towns. Each has a cute little downtown area and they all have their own vibe and are walkable, esp on the peninsula vs some of San Jose that sprawls a bit.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
mikeyzito22
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Re: How Much House Can We Afford in HCOL Area?

Post by mikeyzito22 »

hereverycentcounts wrote: Wed Sep 02, 2020 9:49 pm
fareastwarriors wrote: Wed Sep 02, 2020 9:44 pm Keep renting for a few years.
Grow income.
Save even more.
Good luck.
How much do I have to save to be able to afford a house?

What if housing prices keep going up 7% per year? Is it wrong to think that we will be forever priced out?

My husband's income is not going to increase and I don't see mine going up that much...
We recently bought on Election Day 2016. We have done a lot to the house but didn't need to. My advice is to buy something near what you are paying now and be prepared for lumpy expenses, I dont even care if its a dream house,. It's a property and it generally appreciates and you hopefully make more money in the process.
boomer_techie
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Re: How Much House Can We Afford in HCOL Area?

Post by boomer_techie »

hereverycentcounts wrote: Sun Sep 06, 2020 12:44 pm My husband seems to refuse to discuss any of these scenarios. I don't understand it. It puts a ton of pressure on me to continue earning a lot. I very well might. But there is absolutely no guarantee. And I feel quite alone in all of this, which isn't the best feeling. I feel shitty ... I feel shitty ... and shitty ... I feel shitty ... I feel shitty ... So yea I just feel generally shitty right now. :)
Let me bring up something the details of which are not allowed to be discussed on this forum:

What if you buy a house and then get divorced? With one fragile go-getter and one casual tinkerer, I could see the relationship getting torn asunder. If you bought a house assuming a "small" second income plus some "rental" income, could you swing it on just your own income?
hereverycentcounts wrote: Sun Sep 06, 2020 12:51 pm The plan would be to buy a stay in house on the peninsula.
That complicates things.

...

Here's what I see happening in the Valley:

All SFH's will end up as executive housing - i.e. for people who've reached the management level. Worker drones will be limited to apartments, condos, and some townhomes. These workers will arrive in the valley, stay about twenty years earning their fortune, and then move away to cheaper areas. Some will start families upon leaving, others will have kids while in the valley, but leave once the kids are old enough to benefit from large yards in which to play. A few worker drones will climb into management ranks and be able to afford a SFH.

The lucky few who get into an SFH will only stay there until retirement. At that point they'll grab the prize (price appreciation) and leave for other areas.

The end result is a valley full of people who won't establish a long term connection to the area. I expect this to have a major impact on social structures in the valley.

...

I'm so glad that decades ago I didn't locate in the valley itself, merely close by. (Hint, instead of posting here, I should be sweeping roasted leaves, little charred pieces of wood, and ash off my roof, gutters, deck, driveway and vehicles.) At least my area will for several more decades remain someplace that people make their forever home.

...

Forgot to add: For the next year or several, there are about 900 families who'll be looking for temporary housing. Many of these are techies. They may very well temporarily locate near their jobs in the valley. This will increase demand for housing.
hightower
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Re: How Much House Can We Afford in HCOL Area?

Post by hightower »

For the OP: I want to apologize if my posts sounded judgmental or added anymore stress to your situation. I think you guys have done an amazing job saving and earning at such a young age and want to assure you that you have a very bright financial future ahead of you if you continue to play your cards right. However, you're at a turning point in your lives where the desire to settle down with your children is strong (space and school options are important at that stage, I understand, I have a 2 year old). Yet, there are no great options in your part of the country. Many, many people around you are making somewhat risky, even foolish financial mistakes IMO with regards to buying homes, so much so that it becomes the norm. And the FOMO is strong I'm sure. And you're looking at your scenario and asking why you can't afford to buy a house when your net worth is $2 million dollars and probably better than many of your peers. And you've been working really hard to get there so you probably feel that you deserve some reward for all that hard work. I think you're justified in feeling that way.

I guess if I were in your shoes I'd prioritize 2 things. First and foremost, you and your husband need to get on the same page. From what I'm reading, he doesn't seem to fully grasp the situation you're in. And he doesn't seem to fully grasp that you're truly worried about the future. That's not good. He can't keep avoiding answering these tough (but correct) questions you're asking him. You all need to make this decision together with the same vision for your future.
The second thing I would prioritize is protecting your nest egg. You have nearly 2 million dollars saved up at 36 years old. That's really incredible especially since it sounds like you earned it all (I'm assuming it wasn't gifted to you from parents?). That money is security for you and your family. If that remains invested and continues to grow for the next 20-30 years, you guys will have more money than you know what to do with in retirement or you could retire very early. Already as it stands now, you could retire in some parts of the country with that amount. Obviously, that's not what you want to do and that's fine. But, you need to carefully decide how to get what you want (or close to it) WITHOUT putting that nest egg at risk. Protect, protect, protect. Everyone is out to get your money and you need to prevent that from happening;)

It sounds like you're already convinced that buying a 2 million dollar home is not a wise decision at this point, which I think is smart. Though renting seems like a waste, in your market, I don't think it is. I think it's the wiser choice. I know it seems that everyone thinks that California real estate is going to continue to grow at the rate it has forever, but I wouldn't be so sure of that. I think for people like you, who are earning well, saving well, and waiting for the right opportunity, you could come out ahead if you're patient. There's a very good chance, IMO, that California could actually see a large decline in it's real estate prices in the future. No one knows, of course, so it's a gamble either way. But, if I were going to gamble in your scenario, I would rather gamble on the bet that prices will go down and hold on to my cash for that opportunity to buy later at a discount. Renting isn't a bad deal. You aren't on the hook for any repairs. You can pick up and move whenever you want/need to without the worry of needing to sell first (which is a big freedom that non-home owners don't think about enough). And all the risk of owning real estate falls on your landlord's shoulders. Meanwhile you and your family continue to save, your investments continue to grow, and in another 5-10 years you'll be in a completely different situation with regards to purchasing power. If you're lucky, homes could be more affordable at that point and you'll be able to buy something cheaper and nicer and it won't be a stretch to do. And if not, oh well, at least you'll still have your excellent savings/investments which gives you lots and lots of options. Plus, 5-10 years is a long time and anything can happen. You all might not even want to live there at that point for a whole host of reasons.
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

I have an old buddy who's been in the Bay Area for just over a decade.

Between his RSUs and household income, they are now worth $6 million.

They have a 10 year son, and they still rent an apartment in Cupertino.

Apparently, he had never felt the need to buy a house there despite being able to easily afford one.
Last edited by unclescrooge on Tue Sep 08, 2020 1:48 am, edited 1 time in total.
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Watty
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Re: How Much House Can We Afford in HCOL Area?

Post by Watty »

hereverycentcounts wrote: Sun Sep 06, 2020 7:49 pm
My husband would never move to Atlanta though I’m sure it’s lovely. I would consider Minnesota and some other areas in the Midwest.
I was not trying to suggest that you should move to Atlanta since it has lots of pros and cons(traffic!) but just for reference here is the type of house you could buy in the suburbs of Atlanta for $1.7 million dollars, and it has good schools. (Housing closer to downtown or in a prime area could cost a lot more.)

https://www.realtor.com/realestateandho ... 89?view=qv

Probably 80% of the country has housing priced more like this. Comparing houses like that to what you could buy in the Bay Area is why people think that the prices are so crazy there. It is not just that the housing is so expensive it is that you get so little house for your money.

That house was a bit extreme :D but in most of the country you could buy a McMansion for cash for $500K.

If your husband has not been out of the Bay Area much you might want to trying taking some trips to other parts of the country to see if you could find an area where he would want to move to in a few years after you get your RSUs.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

hightower wrote: Mon Sep 07, 2020 9:23 am For the OP: I want to apologize if my posts sounded judgmental or added anymore stress to your situation. I think you guys have done an amazing job saving and earning at such a young age and want to assure you that you have a very bright financial future ahead of you if you continue to play your cards right. However, you're at a turning point in your lives where the desire to settle down with your children is strong (space and school options are important at that stage, I understand, I have a 2 year old). Yet, there are no great options in your part of the country. Many, many people around you are making somewhat risky, even foolish financial mistakes IMO with regards to buying homes, so much so that it becomes the norm. And the FOMO is strong I'm sure. And you're looking at your scenario and asking why you can't afford to buy a house when your net worth is $2 million dollars and probably better than many of your peers. And you've been working really hard to get there so you probably feel that you deserve some reward for all that hard work. I think you're justified in feeling that way.

I guess if I were in your shoes I'd prioritize 2 things. First and foremost, you and your husband need to get on the same page. From what I'm reading, he doesn't seem to fully grasp the situation you're in. And he doesn't seem to fully grasp that you're truly worried about the future. That's not good. He can't keep avoiding answering these tough (but correct) questions you're asking him. You all need to make this decision together with the same vision for your future.
The second thing I would prioritize is protecting your nest egg. You have nearly 2 million dollars saved up at 36 years old. That's really incredible especially since it sounds like you earned it all (I'm assuming it wasn't gifted to you from parents?). That money is security for you and your family. If that remains invested and continues to grow for the next 20-30 years, you guys will have more money than you know what to do with in retirement or you could retire very early. Already as it stands now, you could retire in some parts of the country with that amount. Obviously, that's not what you want to do and that's fine. But, you need to carefully decide how to get what you want (or close to it) WITHOUT putting that nest egg at risk. Protect, protect, protect. Everyone is out to get your money and you need to prevent that from happening;)

It sounds like you're already convinced that buying a 2 million dollar home is not a wise decision at this point, which I think is smart. Though renting seems like a waste, in your market, I don't think it is. I think it's the wiser choice. I know it seems that everyone thinks that California real estate is going to continue to grow at the rate it has forever, but I wouldn't be so sure of that. I think for people like you, who are earning well, saving well, and waiting for the right opportunity, you could come out ahead if you're patient. There's a very good chance, IMO, that California could actually see a large decline in it's real estate prices in the future. No one knows, of course, so it's a gamble either way. But, if I were going to gamble in your scenario, I would rather gamble on the bet that prices will go down and hold on to my cash for that opportunity to buy later at a discount. Renting isn't a bad deal. You aren't on the hook for any repairs. You can pick up and move whenever you want/need to without the worry of needing to sell first (which is a big freedom that non-home owners don't think about enough). And all the risk of owning real estate falls on your landlord's shoulders. Meanwhile you and your family continue to save, your investments continue to grow, and in another 5-10 years you'll be in a completely different situation with regards to purchasing power. If you're lucky, homes could be more affordable at that point and you'll be able to buy something cheaper and nicer and it won't be a stretch to do. And if not, oh well, at least you'll still have your excellent savings/investments which gives you lots and lots of options. Plus, 5-10 years is a long time and anything can happen. You all might not even want to live there at that point for a whole host of reasons.
Thanks for this thoughtful note. I do agree with all of it. I wish my husband and I were on the same page. It would be one thing if he earned a high income and committed to earn more to pay for a home, but he has no interest in increasing his income. I know I did at some point tell him that I think we can afford a house because my RSUs were doing do well -- but then I realized that is pretty much meaningless here since EVERYONE's RSU's are doing so well (and a lot of people have two partners in a couple who have RSUs.) :/

I did save the money myself. I was fortunate my parents paid for my college so I came to the Bay Area with no debt and about $8000 to my name and no idea what I was going to do with my life in 2005 (I had an arts degree and was renting a $400 month room in an apartment on the Peninsula. I had no car. I bought a used car for $7000 when I got an internship I needed a car to get to.) Over the years I earned more money and began investing. I spent too much on some things but generally kept myself from lifestyle creep. This is why I have about $1.5M in savings now plus my husband's $200k plus whatever I manage to eek out of RSU in the next year. This is why at age 36 earning $600k a year I'm living in a one bedroom apartment with my husband and son. My career doesn't make any sense and it isn't stable at all. I don't think I'll get into upper management as that's not my personality type or skill--I'm more individual contributor. I've considered leaving tech to become a CFP because I like helping people manage their money. But then again, what do I know about that?

I agree buying now is a major risk. My husband doesn't get it and thinks housing prices will keep going up. He thinks if we don't buy now we'll never buy. Maybe we won't. I want to buy too but it just doesn't make sense. Esp with WFH right now. It will be over a year before I have to go back to my office probably. So we should just rent a house--probably with his father--somewhere close enough to drive to grandma's house but far enough we can get a big house with a yard for $4500-$5000 rent, with my in law paying about $2k a month or so. That can work well for a year or two. Then we can reevaluate.

I'm leaning away from staying here forever now. I agree with another poster that this area just isn't where people build social connections and stay long term. We have a few friends who will be staying because they are able to and bought at the right time. But I think most people will move out when they can. It's sad as I grew up in a neighborhood on the east coast where many people raise their kids and stay through retirement, or they move out but move close by and their kids move back to the neighborhood sometimes. I like having those social connections and roots. My husband is a total introvert so doesn't care about that.

I just don't know what to do. But if we don't find a house to buy in the next month, my husband is open to renting. I guess maybe I just have two hope we don't find anything...
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

Watty wrote: Mon Sep 07, 2020 10:45 am
hereverycentcounts wrote: Sun Sep 06, 2020 7:49 pm
My husband would never move to Atlanta though I’m sure it’s lovely. I would consider Minnesota and some other areas in the Midwest.
I was not trying to suggest that you should move to Atlanta since it has lots of pros and cons(traffic!) but just for reference here is the type of house you could buy in the suburbs of Atlanta for $1.7 million dollars, and it has good schools. (Housing closer to downtown or in a prime area could cost a lot more.)

https://www.realtor.com/realestateandho ... 89?view=qv

Probably 80% of the country has housing priced more like this. Comparing houses like that to what you could buy in the Bay Area is why people think that the prices are so crazy there. It is not just that the housing is so expensive it is that you get so little house for your money.

That house was a bit extreme :D but in most of the country you could buy a McMansion for cash for $500K.

If your husband has not been out of the Bay Area much you might want to trying taking some trips to other parts of the country to see if you could find an area where he would want to move to in a few years after you get your RSUs.
We did visit Portland and Seattle a few years ago and went to a bunch of open houses, just to get an idea of what we could buy there. We didn't love Portland but he was into Seattle. Seattle is still pretty pricey though, but we do get more for our money there. I'd like to do more trips to different areas to see what else is out there in the country (I have lived on the east coast and midwest in a major city) but still have a lot of smaller cities to visit. We may fall in love with one, who knows. COVID makes traveling impossible though... but maybe in a few years if we continue to rent..
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
TimeTheMarket
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Re: How Much House Can We Afford in HCOL Area?

Post by TimeTheMarket »

Stop even considering the stock. You could get fired. Yes, you could. Or the shares could crumble in value. Until it is money in-hand it is nothing.

So does a $2 M house make sense on $260k/yr income? Not without a lot more than 20% down.
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ray.james
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Re: How Much House Can We Afford in HCOL Area?

Post by ray.james »

OP, I really sympathize with you. What you are going through is something every family thinks through in bay area. We had enough to buy a town home since 2013 but did not buy until last year. There is a real buyers regret/remorse seeing our friends and their equities. But we have real estate investments that pay enough to cover half of our mortgage. In 2019 market was soft and we lucked out with 2017 prices. In life we cannot predict that.

My advice stills stands to rent for 2 years in a nice 3 bedroom town home/SFH. In peninsula, older town homes have backyards and space with greenbelts. Newer town homes get a lot of sqft, often 1800+ living but no yards. SFH gets huge yards but much less living space and often looking older. Depending on what type of kid you have; choose something that works for you. Since you have in-laws here, buying makes sense. Just not add stress during this already stressed time. Be on a lookout if you find something nice/under priced opportunity comes. If nothing, in 2-3 years your options will expand with added savings but not less.

In my company few people left to Austin, Minnesota(aging mother), Salt lake city, Reno and Phoenix(family). 2 people on visa are returning back to home country. This pandemic is changing a lot of things. If not for current interest rates, this is not sustainable. Remember, lower bond rates push both stocks and real estate. So you cash out inflated stocks and then leverage to buy inflated real estate. Sounds like something that happened before? We do not know how all of this will play out.
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Lee_WSP
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Re: How Much House Can We Afford in HCOL Area?

Post by Lee_WSP »

hereverycentcounts wrote: Mon Sep 07, 2020 5:38 pm
hightower wrote: Mon Sep 07, 2020 9:23 am For the OP: I want to apologize if my posts sounded judgmental or added anymore stress to your situation. I think you guys have done an amazing job saving and earning at such a young age and want to assure you that you have a very bright financial future ahead of you if you continue to play your cards right. However, you're at a turning point in your lives where the desire to settle down with your children is strong (space and school options are important at that stage, I understand, I have a 2 year old). Yet, there are no great options in your part of the country. Many, many people around you are making somewhat risky, even foolish financial mistakes IMO with regards to buying homes, so much so that it becomes the norm. And the FOMO is strong I'm sure. And you're looking at your scenario and asking why you can't afford to buy a house when your net worth is $2 million dollars and probably better than many of your peers. And you've been working really hard to get there so you probably feel that you deserve some reward for all that hard work. I think you're justified in feeling that way.

I guess if I were in your shoes I'd prioritize 2 things. First and foremost, you and your husband need to get on the same page. From what I'm reading, he doesn't seem to fully grasp the situation you're in. And he doesn't seem to fully grasp that you're truly worried about the future. That's not good. He can't keep avoiding answering these tough (but correct) questions you're asking him. You all need to make this decision together with the same vision for your future.
The second thing I would prioritize is protecting your nest egg. You have nearly 2 million dollars saved up at 36 years old. That's really incredible especially since it sounds like you earned it all (I'm assuming it wasn't gifted to you from parents?). That money is security for you and your family. If that remains invested and continues to grow for the next 20-30 years, you guys will have more money than you know what to do with in retirement or you could retire very early. Already as it stands now, you could retire in some parts of the country with that amount. Obviously, that's not what you want to do and that's fine. But, you need to carefully decide how to get what you want (or close to it) WITHOUT putting that nest egg at risk. Protect, protect, protect. Everyone is out to get your money and you need to prevent that from happening;)

It sounds like you're already convinced that buying a 2 million dollar home is not a wise decision at this point, which I think is smart. Though renting seems like a waste, in your market, I don't think it is. I think it's the wiser choice. I know it seems that everyone thinks that California real estate is going to continue to grow at the rate it has forever, but I wouldn't be so sure of that. I think for people like you, who are earning well, saving well, and waiting for the right opportunity, you could come out ahead if you're patient. There's a very good chance, IMO, that California could actually see a large decline in it's real estate prices in the future. No one knows, of course, so it's a gamble either way. But, if I were going to gamble in your scenario, I would rather gamble on the bet that prices will go down and hold on to my cash for that opportunity to buy later at a discount. Renting isn't a bad deal. You aren't on the hook for any repairs. You can pick up and move whenever you want/need to without the worry of needing to sell first (which is a big freedom that non-home owners don't think about enough). And all the risk of owning real estate falls on your landlord's shoulders. Meanwhile you and your family continue to save, your investments continue to grow, and in another 5-10 years you'll be in a completely different situation with regards to purchasing power. If you're lucky, homes could be more affordable at that point and you'll be able to buy something cheaper and nicer and it won't be a stretch to do. And if not, oh well, at least you'll still have your excellent savings/investments which gives you lots and lots of options. Plus, 5-10 years is a long time and anything can happen. You all might not even want to live there at that point for a whole host of reasons.
Thanks for this thoughtful note. I do agree with all of it. I wish my husband and I were on the same page. It would be one thing if he earned a high income and committed to earn more to pay for a home, but he has no interest in increasing his income. I know I did at some point tell him that I think we can afford a house because my RSUs were doing do well -- but then I realized that is pretty much meaningless here since EVERYONE's RSU's are doing so well (and a lot of people have two partners in a couple who have RSUs.) :/

I did save the money myself. I was fortunate my parents paid for my college so I came to the Bay Area with no debt and about $8000 to my name and no idea what I was going to do with my life in 2005 (I had an arts degree and was renting a $400 month room in an apartment on the Peninsula. I had no car. I bought a used car for $7000 when I got an internship I needed a car to get to.) Over the years I earned more money and began investing. I spent too much on some things but generally kept myself from lifestyle creep. This is why I have about $1.5M in savings now plus my husband's $200k plus whatever I manage to eek out of RSU in the next year. This is why at age 36 earning $600k a year I'm living in a one bedroom apartment with my husband and son. My career doesn't make any sense and it isn't stable at all. I don't think I'll get into upper management as that's not my personality type or skill--I'm more individual contributor. I've considered leaving tech to become a CFP because I like helping people manage their money. But then again, what do I know about that?

I agree buying now is a major risk. My husband doesn't get it and thinks housing prices will keep going up. He thinks if we don't buy now we'll never buy. Maybe we won't. I want to buy too but it just doesn't make sense. Esp with WFH right now. It will be over a year before I have to go back to my office probably. So we should just rent a house--probably with his father--somewhere close enough to drive to grandma's house but far enough we can get a big house with a yard for $4500-$5000 rent, with my in law paying about $2k a month or so. That can work well for a year or two. Then we can reevaluate.

I'm leaning away from staying here forever now. I agree with another poster that this area just isn't where people build social connections and stay long term. We have a few friends who will be staying because they are able to and bought at the right time. But I think most people will move out when they can. It's sad as I grew up in a neighborhood on the east coast where many people raise their kids and stay through retirement, or they move out but move close by and their kids move back to the neighborhood sometimes. I like having those social connections and roots. My husband is a total introvert so doesn't care about that.

I just don't know what to do. But if we don't find a house to buy in the next month, my husband is open to renting. I guess maybe I just have two hope we don't find anything...
Your husband should have a proportionate say in what you can afford as to how much he's putting in. Which in the case of a 2 million dollar home is less than five maybe ten percent.
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mmmodem
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Re: How Much House Can We Afford in HCOL Area?

Post by mmmodem »

Watty wrote: Sun Sep 06, 2020 5:38 pm A huge problem is that much of the Bay Area, outside of San Francisco, is mainly suburban sprawl with very bad traffic. This was especially true in the South Bay which is where I lived and that may skew my perspective.

Other than the jobs I did not find the South Bay all that nice a place to live when I lived there.

You compared the Bay Area to other expensive cities but a big difference is that most of those are big urban cities that have a lot else going on but at least to me outside of downtown San Francisco most of the Bay Area is pretty bland.

You mentioned a few factors.

Weather

The weather here in Atlanta is also actually pretty nice for eight months out of the year so the weather factor may not be as big a deal as you might think. Summers can be bad here and there is a usually mild winter but those are just a few months out of the year.

Few places in the US don't have very pleasant weather for at least six months out of the year so you need to keep that in mind when you are comparing the Bay Area weather to other parts of the country. Of course some areas have real extreme weather which is a big issue like summers in Phoenix and winters in Minnesota but most areas don't have weather that is all that bad, or only have a short period of bad weather most years.

The climate in the Bay Area is nice but it isn't like Hawaii.

Natural Beauty

I do not recall there being a lot of natural beauty left in most of the developed parts of the the Bay Area.

It is true that you can drive to nice places with natural beauty like the coast or the Sierra Nevada mountains but it can take hours to actually get out of the Bay Area on a Friday evening or Saturday morning. They may also be very crowded when you get there. From most cities you can get to areas with some notable natural beauty with a few hour drive so that may not be a lot different than most other cities.
Interesting perspective. I grew up in the South Bay. Most of my friends and family abhor going to downtown SF. We actively avoid SF precisely because of bad traffic downtown and issues with parking. It's a short 45 minute drive into SF from SJ. But can double to park and walk to the front door. In suburbia, parking in front of the establishment is normally plentiful.

I haven't been to Hawaii but friends and family have commented on the high humidity. They'd much rather have the dryer air in the Bay Area. It's sunny "everyday" in Hawaii just like in CA.

We moved out of the Bay Area 2 years ago for a job. I could not find one that paid well. I'm not in tech. DW disliked New England so much she pretty much made it an ultimatum that we move back. And so, that's what we're going to do. The Bay Area is just beautiful and you get all 4 seasons within a maximum 4 hours drive. I love it here in New England as well but the diversity of people, culture, and food is quite limited.

Oh and because of taxes, a family member renovated their tiny $1M dump of a home. It's $1M because it is walking distance to spaceship Apple in case those are wondering. They maintained some of the original structure in order to comply with rules to keep their existing property tax rate. It looks like a brand new house to me. I can barely see any original left. It is probably north of $2M with taxes based on their original purchase price. Prop 13, don't know if I like it but wow, what a way to game the system.
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

mmmodem wrote: Wed Sep 09, 2020 9:41 am Oh and because of taxes, a family member renovated their tiny $1M dump of a home. It's $1M because it is walking distance to spaceship Apple in case those are wondering. They maintained some of the original structure in order to comply with rules to keep their existing property tax rate. It looks like a brand new house to me. I can barely see any original left. It is probably north of $2M with taxes based on their original purchase price. Prop 13, don't know if I like it but wow, what a way to game the system.
I complained about the inequality of prop 13 for years, mainly to my spouse. My retired neighbor, who we nicknamed hugh Hefner due to his penchant for silk robes, paid a third of the taxes we did.

But then I decided to use that to my advantage. I bought a dump, doubled its value through renovation and keep my property tax base.

I also found out out old neighbor passed, and his home just got sold. The new owners will be paying considerably more in taxes.
jarjarM
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Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

unclescrooge wrote: Wed Sep 09, 2020 11:27 am
mmmodem wrote: Wed Sep 09, 2020 9:41 am Oh and because of taxes, a family member renovated their tiny $1M dump of a home. It's $1M because it is walking distance to spaceship Apple in case those are wondering. They maintained some of the original structure in order to comply with rules to keep their existing property tax rate. It looks like a brand new house to me. I can barely see any original left. It is probably north of $2M with taxes based on their original purchase price. Prop 13, don't know if I like it but wow, what a way to game the system.
I complained about the inequality of prop 13 for years, mainly to my spouse. My retired neighbor, who we nicknamed hugh Hefner due to his penchant for silk robes, paid a third of the taxes we did.

But then I decided to use that to my advantage. I bought a dump, doubled its value through renovation and keep my property tax base.

I also found out out old neighbor passed, and his home just got sold. The new owners will be paying considerably more in taxes.
Yup, that's the way to take advantage of the prop 13 system. Since it's closely tie to the initial purchase price, lowering initial purchase price is paramount, this make a fixer upper more valuable in the long run. We did the same thing and feel much better when compare to our neighbor's tax basis :sharebeer
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ray.james
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Re: How Much House Can We Afford in HCOL Area?

Post by ray.james »

jarjarM wrote: Wed Sep 09, 2020 11:30 am
unclescrooge wrote: Wed Sep 09, 2020 11:27 am
mmmodem wrote: Wed Sep 09, 2020 9:41 am Oh and because of taxes, a family member renovated their tiny $1M dump of a home. It's $1M because it is walking distance to spaceship Apple in case those are wondering. They maintained some of the original structure in order to comply with rules to keep their existing property tax rate. It looks like a brand new house to me. I can barely see any original left. It is probably north of $2M with taxes based on their original purchase price. Prop 13, don't know if I like it but wow, what a way to game the system.
I complained about the inequality of prop 13 for years, mainly to my spouse. My retired neighbor, who we nicknamed hugh Hefner due to his penchant for silk robes, paid a third of the taxes we did.

But then I decided to use that to my advantage. I bought a dump, doubled its value through renovation and keep my property tax base.

I also found out out old neighbor passed, and his home just got sold. The new owners will be paying considerably more in taxes.
Yup, that's the way to take advantage of the prop 13 system. Since it's closely tie to the initial purchase price, lowering initial purchase price is paramount, this make a fixer upper more valuable in the long run. We did the same thing and feel much better when compare to our neighbor's tax basis :sharebeer
Great point. For fixer uppers do they use the contractor cost as the addition to the basis? Do they even add for non structural upgrades?

This is also the precise reason why in California higher interest rates are good for buyers if one has higher income for mortgage DTI ratio. It lowers the selling price to some extent due to less competition. This locks the lower tax base for years(like in 2018/2019). When a realtor says, rates are low, I explained it to them and they just thought I was crazy! In our street there are tax payers from the $900 to $18,000 - all for the same size of town home!
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ThatGuy
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Re: How Much House Can We Afford in HCOL Area?

Post by ThatGuy »

ray.james wrote: Wed Sep 09, 2020 12:28 pm
jarjarM wrote: Wed Sep 09, 2020 11:30 am
unclescrooge wrote: Wed Sep 09, 2020 11:27 am
mmmodem wrote: Wed Sep 09, 2020 9:41 am Oh and because of taxes, a family member renovated their tiny $1M dump of a home. It's $1M because it is walking distance to spaceship Apple in case those are wondering. They maintained some of the original structure in order to comply with rules to keep their existing property tax rate. It looks like a brand new house to me. I can barely see any original left. It is probably north of $2M with taxes based on their original purchase price. Prop 13, don't know if I like it but wow, what a way to game the system.
I complained about the inequality of prop 13 for years, mainly to my spouse. My retired neighbor, who we nicknamed hugh Hefner due to his penchant for silk robes, paid a third of the taxes we did.

But then I decided to use that to my advantage. I bought a dump, doubled its value through renovation and keep my property tax base.

I also found out out old neighbor passed, and his home just got sold. The new owners will be paying considerably more in taxes.
Yup, that's the way to take advantage of the prop 13 system. Since it's closely tie to the initial purchase price, lowering initial purchase price is paramount, this make a fixer upper more valuable in the long run. We did the same thing and feel much better when compare to our neighbor's tax basis :sharebeer
Great point. For fixer uppers do they use the contractor cost as the addition to the basis? Do they even add for non structural upgrades?
They use the value on the permit that was filed. If you get someone to redo your kitchen without a permit, then the county doesn't increase taxes. Just a reminder, permits are for your benefit as they ensure the work is performed to code.

This also means you can game the system if you inherit a tear-down and actually tear-down the house. You inherit a basis for the land separately from the house, so when you build a mansion only the basis for the house goes up, not the land.
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

ray.james wrote: Wed Sep 09, 2020 12:28 pm
jarjarM wrote: Wed Sep 09, 2020 11:30 am Yup, that's the way to take advantage of the prop 13 system. Since it's closely tie to the initial purchase price, lowering initial purchase price is paramount, this make a fixer upper more valuable in the long run. We did the same thing and feel much better when compare to our neighbor's tax basis :sharebeer
Great point. For fixer uppers do they use the contractor cost as the addition to the basis? Do they even add for non structural upgrades?
Unless you add square footage, nothing really changes.

I added a half bath and they increased the valuation of the house by $10k.

I pulled builder-owner permits, and they never asked the cost of anything.

Overall, I spent nearly $400k rebuilding thre house. Every thing from thre roof down to the sewerline is almost new. We kept the footprint and part of thre framing the same.

Taxes went up $120 based on new assessed value.
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Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

unclescrooge wrote: Wed Sep 09, 2020 12:49 pm
ray.james wrote: Wed Sep 09, 2020 12:28 pm
jarjarM wrote: Wed Sep 09, 2020 11:30 am Yup, that's the way to take advantage of the prop 13 system. Since it's closely tie to the initial purchase price, lowering initial purchase price is paramount, this make a fixer upper more valuable in the long run. We did the same thing and feel much better when compare to our neighbor's tax basis :sharebeer
Great point. For fixer uppers do they use the contractor cost as the addition to the basis? Do they even add for non structural upgrades?
Unless you add square footage, nothing really changes.

I added a half bath and they increased the valuation of the house by $10k.

I pulled builder-owner permits, and they never asked the cost of anything.

Overall, I spent nearly $400k rebuilding thre house. Every thing from thre roof down to the sewerline is almost new. We kept the footprint and part of thre framing the same.

Taxes went up $120 based on new assessed value.
Yup, we did something very similar, renovation cost ~$300k and barely increase the tax basis. As long as there's no significant increase in sq ft, there is limited effect on property tax. Of course, this is somewhat county dependent, and remember some counties charge significant $$$ for permit (10% of renovation cost so just be aware).
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

jarjarM wrote: Wed Sep 09, 2020 1:24 pm Of course, this is somewhat county dependent, and remember some counties charge significant $$$ for permit (10% of renovation cost so just be aware).
:shock:
That's insane. More like a money grab.
I think I paid $100-200 for each permit.
jarjarM
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Re: How Much House Can We Afford in HCOL Area?

Post by jarjarM »

unclescrooge wrote: Wed Sep 09, 2020 5:47 pm
jarjarM wrote: Wed Sep 09, 2020 1:24 pm Of course, this is somewhat county dependent, and remember some counties charge significant $$$ for permit (10% of renovation cost so just be aware).
:shock:
That's insane. More like a money grab.
I think I paid $100-200 for each permit.
I think my county used to charge $1000 for each permit but now jacked up to 10% of project. The link below is on new housing construction permits but it shows some trend on expensive the permits got recent years.

https://kcbsradio.radio.com/articles/ho ... tion-costs
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Re: How Much House Can We Afford in HCOL Area?

Post by ray.james »

jarjarM wrote: Wed Sep 09, 2020 6:33 pm
unclescrooge wrote: Wed Sep 09, 2020 5:47 pm
jarjarM wrote: Wed Sep 09, 2020 1:24 pm Of course, this is somewhat county dependent, and remember some counties charge significant $$$ for permit (10% of renovation cost so just be aware).
:shock:
That's insane. More like a money grab.
I think I paid $100-200 for each permit.
I think my county used to charge $1000 for each permit but now jacked up to 10% of project. The link below is on new housing construction permits but it shows some trend on expensive the permits got recent years.

https://kcbsradio.radio.com/articles/ho ... tion-costs
WOW, I just checked my city. It is at 1200 per 50K upgrades. But hidden is the hourly rate of inspectors. Fire is at 150, police at 230 etc., Not sure how much all of this adds up to. No wonder people do un-permitted work. But 10% is crazy!
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

jarjarM wrote: Wed Sep 09, 2020 6:33 pm
unclescrooge wrote: Wed Sep 09, 2020 5:47 pm
jarjarM wrote: Wed Sep 09, 2020 1:24 pm Of course, this is somewhat county dependent, and remember some counties charge significant $$$ for permit (10% of renovation cost so just be aware).
:shock:
That's insane. More like a money grab.
I think I paid $100-200 for each permit.
I think my county used to charge $1000 for each permit but now jacked up to 10% of project. The link below is on new housing construction permits but it shows some trend on expensive the permits got recent years.

https://kcbsradio.radio.com/articles/ho ... tion-costs
:shock: :shock: :shock:
This is a scam, plain and simple.
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Re: How Much House Can We Afford in HCOL Area?

Post by Wannaretireearly »

Live in the east bay. OP - look out for a great flat lot, even if the house is small. Be patient, prices already dropping in SF. Who wouldn't bet against price drops everywhere in the bay. Good luck. Your asking the right questions.

Key is being ready to jump when that rough diamond surfaces. For $1M ish you should be happy. Just gotta compromise on location a bit.

Given covid/more wfh, I would look at Pleasanton/Livermore/Walnut Creek (I don't live at any of these - but admire them, great downtowns etc).

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

Post by hereverycentcounts »

Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
Tingting1013
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Re: How Much House Can We Afford in HCOL Area?

Post by Tingting1013 »

Congratulations.
hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity
Unless you have an interest only mortgage (which it looks like you do not), you will also need to add ongoing principal payments to the equation
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
Congrats!
Where are you getting the loan from? I'm not seeing rates like that for super jumbo loans.
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hereverycentcounts
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Re: How Much House Can We Afford in HCOL Area?

Post by hereverycentcounts »

Tingting1013 wrote: Tue Sep 15, 2020 2:46 pm Congratulations.
hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity
Unless you have an interest only mortgage (which it looks like you do not), you will also need to add ongoing principal payments to the equation
Yes - you are right. I was saying as of now, this is the value. As I add principal, I will need to add that as well. The goal is to keep the ratio to 20% of total wealth.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

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

Post by hereverycentcounts »

unclescrooge wrote: Tue Sep 15, 2020 2:58 pm
hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
Congrats!
Where are you getting the loan from? I'm not seeing rates like that for super jumbo loans.
This is at Wells Fargo with $1M in assets held at their bank (3.125 + .5% discount for the assets held there.) I have it locked.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
marcopolo
Posts: 3501
Joined: Sat Dec 03, 2016 10:22 am

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

Post by marcopolo »

hereverycentcounts wrote: Wed Sep 16, 2020 1:40 pm
unclescrooge wrote: Tue Sep 15, 2020 2:58 pm
hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
Congrats!
Where are you getting the loan from? I'm not seeing rates like that for super jumbo loans.
This is at Wells Fargo with $1M in assets held at their bank (3.125 + .5% discount for the assets held there.) I have it locked.
Congratulations on the new home.

I am not familiar with Wells Fargo as a place for investments. Banks have typically been expensive places to hold investments. What is the fee structure there, and does any added costs work out to less than the .5% savings on the mortgage?
Once in a while you get shown the light, in the strangest of places if you look at it right.
Tingting1013
Posts: 435
Joined: Mon Aug 24, 2020 5:44 pm

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

Post by Tingting1013 »

marcopolo wrote: Wed Sep 16, 2020 4:07 pm
hereverycentcounts wrote: Wed Sep 16, 2020 1:40 pm
unclescrooge wrote: Tue Sep 15, 2020 2:58 pm
hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
Congrats!
Where are you getting the loan from? I'm not seeing rates like that for super jumbo loans.
This is at Wells Fargo with $1M in assets held at their bank (3.125 + .5% discount for the assets held there.) I have it locked.
Congratulations on the new home.

I am not familiar with Wells Fargo as a place for investments. Banks have typically been expensive places to hold investments. What is the fee structure there, and does any added costs work out to less than the .5% savings on the mortgage?
Self-directed brokerage is likely as cheap as any other broker these days.
Topic Author
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

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

Post by hereverycentcounts »

marcopolo wrote: Wed Sep 16, 2020 4:07 pm
hereverycentcounts wrote: Wed Sep 16, 2020 1:40 pm
unclescrooge wrote: Tue Sep 15, 2020 2:58 pm
hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
Congrats!
Where are you getting the loan from? I'm not seeing rates like that for super jumbo loans.
This is at Wells Fargo with $1M in assets held at their bank (3.125 + .5% discount for the assets held there.) I have it locked.
Congratulations on the new home.

I am not familiar with Wells Fargo as a place for investments. Banks have typically been expensive places to hold investments. What is the fee structure there, and does any added costs work out to less than the .5% savings on the mortgage?
Brokerage is free. Only needs to be there at close then I can move back wherever. It was PITA the move my Vanguard and eTrade funds over (mostly my fault I have too many accounts so good to consolidate anyway.) Anyway it's totally free so def worth the .5% -- we're teetering on the $1M total needed and trying to get my Sept RSU grant in since some stocks went down to make sure we hit the $1M threshold - I think we'll do it but it will be close!
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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cchrissyy
Posts: 182
Joined: Fri May 05, 2017 10:35 pm

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

Post by cchrissyy »

another way to mentally estimate your equity
current market value
times 0.9
minus current mortgage balance


the 0.9 is my factor to say costs of sale will be 10% not just the realtor but legal fees, staging, landscaping, whatever

this way you don't have to keep track of the down payment amount, monthly principal paydown, or occasional extra payments. those things are all covered by logging in to see your remaining balance.

I wouldn't agree that the implied capital gains tax reduces your equity. Certainly it will influence your decision of if/when to sell, but, the tax is never owed if you never sell, such as if you still own the house when you die, and also the tax rates depends on your other earnings that year as well as the possibility of rules changing between now and then. so that's why i don't prefer to include it. That said, if you DO want to include it please notice the gain is not simply the difference between buy price and sell price but also certain expenses increase your basis. https://www.nolo.com/legal-encyclopedia ... basis.html
av111
Posts: 106
Joined: Mon Jan 26, 2015 1:27 pm

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

Post by av111 »

hereverycentcounts wrote: Tue Sep 15, 2020 2:39 pm Quick update.

We decided to buy.

We purchased a 3/2.5 home for 1.6M.

We will be putting 20% down and have a 30 year fixed locked at 2.65% (around $7k a month).

My FIL will be temporarily paying $2k / mo to the mortgage and living the master bedroom suite.

I decided $5k for us a month makes sense vs the rentals we were looking at which would be around $5k-$6k.

I am ok locking up the 20% in down payment. I am focused on keeping my home equity at 20% of our (estimated after tax) networth.

I calculate home equity with the following formula =

+ downpayment
+/- gain/loss in value ($0 when bought) - cap gains tax on over $500k in gains if applicable
- 6% of current cost of home (cost to sell)
= home equity

This may be the worst financial decision of our lives but I feel good about it.
OP

Just wanted to congratulate you on the purchase of your home. I understand why you say this might be the worst decision but remember you are making the best decision for you at this time and no one knows nothing

This thread has brought up a lot of understanding into the stickiness of bay area inspite of high rents, high prices and high loan ratio. Contributors have analyzed the decision to purchase from different perspectives.

I vote for a sticky on "Should I buy this house in a VHCOL market" where we can link to the this thread.
AV111
Topic Author
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

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

Post by hereverycentcounts »

Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
socialforums2019
Posts: 117
Joined: Sun Aug 25, 2019 10:12 am

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

Post by socialforums2019 »

hereverycentcounts wrote: Sat Sep 19, 2020 12:49 am Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
Congrats on the purchase! It seems as though you could afford to live mortgage free on $1.6M house. Why didn't you go down that route?

I only ask because I am in a similar boat. Located in the Bay Area, looking for a 4 bedroom place and trying to stay in/around the $1.6-$1.7M range but will be putting $1.4M down to keep monthly payments low/non-existent.
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

socialforums2019 wrote: Sat Sep 19, 2020 9:25 am
hereverycentcounts wrote: Sat Sep 19, 2020 12:49 am Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
Congrats on the purchase! It seems as though you could afford to live mortgage free on $1.6M house. Why didn't you go down that route?

I only ask because I am in a similar boat. Located in the Bay Area, looking for a 4 bedroom place and trying to stay in/around the $1.6-$1.7M range but will be putting $1.4M down to keep monthly payments low/non-existent.
Why so much down?
Is 2.75% such a high hurdle that you aren't confident you can beat that investing elsewhere over 30 years?
socialforums2019
Posts: 117
Joined: Sun Aug 25, 2019 10:12 am

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

Post by socialforums2019 »

unclescrooge wrote: Sat Sep 19, 2020 10:43 am
socialforums2019 wrote: Sat Sep 19, 2020 9:25 am
hereverycentcounts wrote: Sat Sep 19, 2020 12:49 am Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
Congrats on the purchase! It seems as though you could afford to live mortgage free on $1.6M house. Why didn't you go down that route?

I only ask because I am in a similar boat. Located in the Bay Area, looking for a 4 bedroom place and trying to stay in/around the $1.6-$1.7M range but will be putting $1.4M down to keep monthly payments low/non-existent.
Why so much down?
Is 2.75% such a high hurdle that you aren't confident you can beat that investing elsewhere over 30 years?
That is where I am trying to figure out if it is better to put as much down as possible to have the lowest mortgage payment I'm or not.

With $1.4M down, a $200K mortgage, I would be able to save around $54K/year. If I put just 20%, I'll have a $1.28M mortgage and ironically would break even with income/bills and therefore would not have any additional savings. The only "growth" would then be the return on the $1.08M you kept. You would need a 5% return to match the $54K/year savings in putting $1.4M down if my math is accurate.
Tingting1013
Posts: 435
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Re: How Much House Can We Afford in HCOL Area?

Post by Tingting1013 »

socialforums2019 wrote: Sat Sep 19, 2020 5:52 pm
unclescrooge wrote: Sat Sep 19, 2020 10:43 am
socialforums2019 wrote: Sat Sep 19, 2020 9:25 am
hereverycentcounts wrote: Sat Sep 19, 2020 12:49 am Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
Congrats on the purchase! It seems as though you could afford to live mortgage free on $1.6M house. Why didn't you go down that route?

I only ask because I am in a similar boat. Located in the Bay Area, looking for a 4 bedroom place and trying to stay in/around the $1.6-$1.7M range but will be putting $1.4M down to keep monthly payments low/non-existent.
Why so much down?
Is 2.75% such a high hurdle that you aren't confident you can beat that investing elsewhere over 30 years?
That is where I am trying to figure out if it is better to put as much down as possible to have the lowest mortgage payment I'm or not.

With $1.4M down, a $200K mortgage, I would be able to save around $54K/year. If I put just 20%, I'll have a $1.28M mortgage and ironically would break even with income/bills and therefore would not have any additional savings. The only "growth" would then be the return on the $1.08M you kept. You would need a 5% return to match the $54K/year savings in putting $1.4M down if my math is accurate.
Putting a huge amount of equity into your CA house is a terrible idea. In the worst case scenario if house prices drop 50% (and stay there), you’ve just lost most of that equity.

If you had a large mortgage instead, you can just hand the keys back to the bank and walk away.
Topic Author
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

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

Post by hereverycentcounts »

socialforums2019 wrote: Sat Sep 19, 2020 5:52 pm
unclescrooge wrote: Sat Sep 19, 2020 10:43 am
socialforums2019 wrote: Sat Sep 19, 2020 9:25 am
hereverycentcounts wrote: Sat Sep 19, 2020 12:49 am Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
Congrats on the purchase! It seems as though you could afford to live mortgage free on $1.6M house. Why didn't you go down that route?

I only ask because I am in a similar boat. Located in the Bay Area, looking for a 4 bedroom place and trying to stay in/around the $1.6-$1.7M range but will be putting $1.4M down to keep monthly payments low/non-existent.
Why so much down?
Is 2.75% such a high hurdle that you aren't confident you can beat that investing elsewhere over 30 years?
That is where I am trying to figure out if it is better to put as much down as possible to have the lowest mortgage payment I'm or not.

With $1.4M down, a $200K mortgage, I would be able to save around $54K/year. If I put just 20%, I'll have a $1.28M mortgage and ironically would break even with income/bills and therefore would not have any additional savings. The only "growth" would then be the return on the $1.08M you kept. You would need a 5% return to match the $54K/year savings in putting $1.4M down if my math is accurate.
I want to keep my home equity about 20% of my total after tax networth. The rest I want to keep in other investments as they will likely outperform my home value increase. I also would only have about $1.2M total after tax and less than that as some is in IRA/401k.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
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unclescrooge
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Re: How Much House Can We Afford in HCOL Area?

Post by unclescrooge »

socialforums2019 wrote: Sat Sep 19, 2020 5:52 pm
unclescrooge wrote: Sat Sep 19, 2020 10:43 am
socialforums2019 wrote: Sat Sep 19, 2020 9:25 am
hereverycentcounts wrote: Sat Sep 19, 2020 12:49 am Thanks! I feel good about this decision. I feel good about it because I did not spend $2M or $1.8M or even $1.7M. I felt like $1.2M was all I could stomach but because of where I live and wanting to buy something that COULD be our forever home I went up to $1.6M. It's still 20% of our after tax networth when it comes to equity, which feels somewhat safe, despite being scary. I am most afraid of the costs of fixing the house -- esp in the first years as we uncover what we can't see on first glance. I'm expecting that to be quite expensive, and I want to invest in quality work for now so if we ever do go to sell we won't have to worry about crazy things popping up in the inspection report. We're starting with putting in a new electrical panel.
Congrats on the purchase! It seems as though you could afford to live mortgage free on $1.6M house. Why didn't you go down that route?

I only ask because I am in a similar boat. Located in the Bay Area, looking for a 4 bedroom place and trying to stay in/around the $1.6-$1.7M range but will be putting $1.4M down to keep monthly payments low/non-existent.
Why so much down?
Is 2.75% such a high hurdle that you aren't confident you can beat that investing elsewhere over 30 years?
That is where I am trying to figure out if it is better to put as much down as possible to have the lowest mortgage payment I'm or not.

With $1.4M down, a $200K mortgage, I would be able to save around $54K/year. If I put just 20%, I'll have a $1.28M mortgage and ironically would break even with income/bills and therefore would not have any additional savings. The only "growth" would then be the return on the $1.08M you kept. You would need a 5% return to match the $54K/year savings in putting $1.4M down if my math is accurate.
It doesn't have to be all or nothing.

You can put $700k down and get a $900k mortgage.

Is there any reason you think you won't get over 5% return over the next 30 years?
socialforums2019
Posts: 117
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Re: How Much House Can We Afford in HCOL Area?

Post by socialforums2019 »

Here are the two scenarios I'm seeing. Let's use example #s

Scenario 1: $1.6M purchase, $1.4M down, $200K loan, $100K remaining in savings.
Assuming income and bills stay constant the next 30 years, I would have ~$5K cash/mo "left over" to be used for whatever (investing, kids education, extra retirement)

Scenario 2: $1.6M purchase, $700K down, $900K loan, $800K remaining in savings.
Changing just the mortgage payments, that $5K cash/mo "left over" now becomes $950/mo.

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

Post by unclescrooge »

socialforums2019 wrote: Sat Sep 19, 2020 11:00 pm Here are the two scenarios I'm seeing. Let's use example #s

Scenario 1: $1.6M purchase, $1.4M down, $200K loan, $100K remaining in savings.
Assuming income and bills stay constant the next 30 years, I would have ~$5K cash/mo "left over" to be used for whatever (investing, kids education, extra retirement)

Scenario 2: $1.6M purchase, $700K down, $900K loan, $800K remaining in savings.
Changing just the mortgage payments, that $5K cash/mo "left over" now becomes $950/mo.

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?
Maybe it's too much house based on your income?
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cchrissyy
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Re: How Much House Can We Afford in HCOL Area?

Post by cchrissyy »

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.
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