Net-worth rule of thumb for house purchase?

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bluebolt
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Re: Net-worth rule of thumb for house purchase?

Post by bluebolt » Thu Aug 15, 2019 12:01 pm

Klangfool - I assume your investing strategy assumes that the markets can/will go to zero.

Topic Author
rbaldini
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Re: Net-worth rule of thumb for house purchase?

Post by rbaldini » Thu Aug 15, 2019 12:03 pm

Admiral wrote:
Thu Aug 15, 2019 11:52 am
You seem to be moving the goal posts. Your OP (as I read it) was speaking of how much one needs to have AFTER the downpayment, not BEFORE.
Never meant to imply that; evidently I was unclear. The sale of the house itself pays down some or most of the remaining debt, so you don't need all that cash after the purchase has occurred. Just enough to cover the difference. That's why the downpayment size dropped out. That's what I mean when I say "If you want to buy a $500k house, you should be able to, right now, come up with $250k cash if you had to." "Right now" means at the moment of purchase, not after.
Admiral wrote:
Thu Aug 15, 2019 11:52 am
Are you proposing that this person should now be able to cover 50% of the debt in a downturn? (Or 50% of the home value, which is even more?) So ANOTHER $175k in liquidity?
No. It's like this:

I have $150k. I buy a house for $300k, say with $60k down (doesn't matter). I now have $90k in liquid assets, a $300k house, and a debt of $240k. (Ignoring other costs, of course.) All fine. Shortly thereafter the house drops in value by half to $150k. I can now sell the house for $150k, and that plus the $90k liquid assets is just enough to pay off the $240k in debt. If I had bought a $350k house and it had dropped 50%, I wouldn't be able to do this.

I mentioned originally that your liquid assets are likely to change during this interval, one of the main things ignored by this model. If house prices drop, your investments probably will drop too. Or, if this happens years later, you will probably have more savings and, having paid your monthly PITI, less debt. So, it's a simplification. Maybe too simple.
Last edited by rbaldini on Thu Aug 15, 2019 12:05 pm, edited 2 times in total.

KlangFool
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Re: Net-worth rule of thumb for house purchase?

Post by KlangFool » Thu Aug 15, 2019 12:04 pm

bluebolt wrote:
Thu Aug 15, 2019 12:01 pm
Klangfool - I assume your investing strategy assumes that the markets can/will go to zero.
bluebolt,

1) I assume that I know nothing. I am prepared for any possibility.

2) I have gold jewelry too. So, I am prepared for currency going to zero too.

KlangFool

bluebolt
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Re: Net-worth rule of thumb for house purchase?

Post by bluebolt » Thu Aug 15, 2019 12:06 pm

KlangFool wrote:
Thu Aug 15, 2019 12:04 pm
bluebolt wrote:
Thu Aug 15, 2019 12:01 pm
Klangfool - I assume your investing strategy assumes that the markets can/will go to zero.
bluebolt,

1) I assume nothing. I am prepared for any possibility.

2) I have gold jewelry too. So, I am prepared for currency going to zero too.

KlangFool
So your AA is 50% nonperishable food, 25% guns/ammo, 25% gold :D

Admiral
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Re: Net-worth rule of thumb for house purchase?

Post by Admiral » Thu Aug 15, 2019 12:08 pm

rbaldini wrote:
Thu Aug 15, 2019 11:43 am
Admiral wrote:
Thu Aug 15, 2019 11:39 am
But I don't believe it's necessary to have a giant pile of liquidity AFTER buying the home. That money is better put into retirement, if it exists in the first place.
Thought I'd clarify: my proposal regarded liquidity *at the time of* the purchase of the home, not after. E.g., if you want to buy a house for $300k, the 50% rule (again, pretty conservative) is that you should have $150k available before-hand. You might only have $90k of that after the downpayment - that's fine. A lot of that liquidity could come from the sale of a prior home, by the way. An easier standard might be 1/3, so $100k (you'll probably want at least $60k anyway to make that 20% down payment).

I do see how a family that wisely puts almost all their savings into tax-advantaged retirement accounts would have a hard time following this rule as I stated it. In that case, to make a down payment on a house they'd have to pull from the retirement accounts anyway, which is not exactly ideal unless the likely returns to owning exceed the hit to retirement investments. So I suppose it's a fair question to ask: should they really be buying anyway? How much?
Thanks for that clarification. To answer, let me ask you a question:

If this couple brings home $15,000 per month after taxes and retirement contributions, does is matter if they have $90k (or more) in the bank after their 20% down payment? They could pay their mortgage easily on one income.

My point is that it's all relative. They could have a low net worth (outside the home equity they've just received) and have no problem at all carrying this loan.

Now, should they have a sizeable EF at those incomes? Probably. But they should be able to save plenty every month with that mortgage.

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Re: Net-worth rule of thumb for house purchase?

Post by KlangFool » Thu Aug 15, 2019 12:10 pm

bluebolt wrote:
Thu Aug 15, 2019 12:06 pm
KlangFool wrote:
Thu Aug 15, 2019 12:04 pm
bluebolt wrote:
Thu Aug 15, 2019 12:01 pm
Klangfool - I assume your investing strategy assumes that the markets can/will go to zero.
bluebolt,

1) I assume nothing. I am prepared for any possibility.

2) I have gold jewelry too. So, I am prepared for currency going to zero too.

KlangFool
So your AA is 50% nonperishable food, 25% guns/ammo, 25% gold :D
bluebolt,

How does that protect against inflation? Deflation? Hyper-inflation? It is not diversified enough.

KlangFool

bluebolt
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Re: Net-worth rule of thumb for house purchase?

Post by bluebolt » Thu Aug 15, 2019 12:23 pm

KlangFool wrote:
Thu Aug 15, 2019 12:10 pm
bluebolt wrote:
Thu Aug 15, 2019 12:06 pm
KlangFool wrote:
Thu Aug 15, 2019 12:04 pm
bluebolt wrote:
Thu Aug 15, 2019 12:01 pm
Klangfool - I assume your investing strategy assumes that the markets can/will go to zero.
bluebolt,

1) I assume nothing. I am prepared for any possibility.

2) I have gold jewelry too. So, I am prepared for currency going to zero too.

KlangFool
So your AA is 50% nonperishable food, 25% guns/ammo, 25% gold :D
bluebolt,

How does that protect against inflation? Deflation? Hyper-inflation? It is not diversified enough.

KlangFool
I think you missed the emoji at the end of my post.

But seriously, can you post or do you have a link to your AA? Without vast resources, I find it hard to picture a portfolio that protects against housing values going to zero, equities going to zero, the bond market going to zero, the US government defaulting on its bonds, hyperinflation, deflation, stagflation, climate change and millennials.

KlangFool
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Re: Net-worth rule of thumb for house purchase?

Post by KlangFool » Thu Aug 15, 2019 12:56 pm

bluebolt wrote:
Thu Aug 15, 2019 12:23 pm
KlangFool wrote:
Thu Aug 15, 2019 12:10 pm
bluebolt wrote:
Thu Aug 15, 2019 12:06 pm
KlangFool wrote:
Thu Aug 15, 2019 12:04 pm
bluebolt wrote:
Thu Aug 15, 2019 12:01 pm
Klangfool - I assume your investing strategy assumes that the markets can/will go to zero.
bluebolt,

1) I assume nothing. I am prepared for any possibility.

2) I have gold jewelry too. So, I am prepared for currency going to zero too.

KlangFool
So your AA is 50% nonperishable food, 25% guns/ammo, 25% gold :D
bluebolt,

How does that protect against inflation? Deflation? Hyper-inflation? It is not diversified enough.

KlangFool
I think you missed the emoji at the end of my post.

But seriously, can you post or do you have a link to your AA? Without vast resources, I find it hard to picture a portfolio that protects against housing values going to zero, equities going to zero, the bond market going to zero, the US government defaulting on its bonds, hyperinflation, deflation, stagflation, climate change and millennials.
bluebolt,

You can look at some of the glory detail at this thread.

viewtopic.php?t=220234

KlangFool

SQRT
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Re: Net-worth rule of thumb for house purchase?

Post by SQRT » Thu Aug 15, 2019 1:09 pm

rbaldini wrote:
Thu Aug 15, 2019 8:45 am
SQRT wrote:
Thu Aug 15, 2019 8:12 am
No good rule of thumb here. Depends on personal circumstances, especially age and where you live. A 30 year old trying to break into the housing market in a VHCOL area will have a much higher percentage of his net worth tied up in his principal residence than a 65 year old retiree living in a VLCOL area.

As long as you can reasonably support the costs of the house, you are OK. Obviously, you would want a appropriate cushion based on your circumstances. Banks are pretty good (not perfect) at determining this.

Surely this is self evident? Yet we will debate this for several hundreds of posts, no doubt.
Fair. I think the general idea, broadly speaking, is self evident: one shouldn’t buy too much house. Same as “one shouldn’t take on too high of a monthly payment” and “one should choose an appropriate stock and bond allocation”. But in actual applications, it seems to help to have quantitative guidelines to get people started. Hence we have the 28% rule, or “your age - 10 in bonds”, or “six months in savings”. These too might be inappropriate under some circumstances. My thought was to try to make something like that applying to net worth and house value. So far it’s not popular...
I think a reasonably practical rule of thumb is more difficult to arrive at in this circumstance unless it is age adjusted and adjusted for location (at least). Where a rule of thumb might make more sense is for retired people. They are more flexible, at about the same stage of life, and have their retirement assets already in place. Previous threads on this topic seem to point out that most retirees have less than 20% of their net worth tied up in personal use real estate.
Last edited by SQRT on Thu Aug 15, 2019 1:33 pm, edited 1 time in total.

H-Town
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Re: Net-worth rule of thumb for house purchase?

Post by H-Town » Thu Aug 15, 2019 1:13 pm

rbaldini wrote:
Wed Aug 14, 2019 2:32 pm
We get questions all the time about whether one should and could purchase a house of some price. There are general rules of thumb as regards PITI relative to income - e.g. recurring housing expenses shouldn't exceed x% of income, or that that total debt payments shouldn't exceed y% of income, etc.

But I don't know of any rules of thumb regarding net worth - e.g. don't buy a house whose value exceeds some factor of your net worth. One could imagine all sorts of formulas. Maybe those are around and I've just forgotten about them.

I have never actually sold a house before (bought our first two years ago), so I may be making some fundamentally flawed assumptions. Let me know. Thoughts?
Note that real estate markets are so different across the country. No advice can be applied to everyone. But I think we should stick to the rule that PITI shouldn't exceed x% of income.

Not like car, house is an appreciating asset. As long as you buy a house that you can afford with your income, you will slowly build your equity.

The advice that don't buy a house until your net worth is 2.5x greater than the house price is too far from reality. KlangFool must have projected his own situation to everyone else. You only need to follow one rule: live below your means.

getthatmarshmallow
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Re: Net-worth rule of thumb for house purchase?

Post by getthatmarshmallow » Thu Aug 15, 2019 1:15 pm

With respect to Klangfool, I don't think a networth rule makes a lot of sense for younger people who are at the beginning of their careers. We didn't have a lot saved when we bought our house, because I'd not been out of grad school very long, but we wouldn't have been served well by renting less for more money. And we bought near the bottom of the market, so it's worked out well as an investment. With the way prices have increased, I would be waiting until my 50s to buy. Instead, it will be paid off in my early 40s.

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Re: Net-worth rule of thumb for house purchase?

Post by LadyGeek » Thu Aug 15, 2019 1:59 pm

I removed an off-topic post. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

...At all times we must conduct ourselves in a respectful manner to other posters.
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KlangFool
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Re: Net-worth rule of thumb for house purchase?

Post by KlangFool » Thu Aug 15, 2019 2:23 pm

getthatmarshmallow wrote:
Thu Aug 15, 2019 1:15 pm
With respect to Klangfool, I don't think a networth rule makes a lot of sense for younger people who are at the beginning of their careers. We didn't have a lot saved when we bought our house, because I'd not been out of grad school very long, but we wouldn't have been served well by renting less for more money. And we bought near the bottom of the market, so it's worked out well as an investment. With the way prices have increased, I would be waiting until my 50s to buy. Instead, it will be paid off in my early 40s.
getthatmarshmallow,

So, it could have gone the other way too. And, if it is bad enough, you would not be in this forum to post about your experience.

KlangFool

bluebolt
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Re: Net-worth rule of thumb for house purchase?

Post by bluebolt » Thu Aug 15, 2019 2:26 pm

KlangFool wrote:
Thu Aug 15, 2019 12:56 pm
bluebolt wrote:
Thu Aug 15, 2019 12:23 pm
KlangFool wrote:
Thu Aug 15, 2019 12:10 pm
bluebolt wrote:
Thu Aug 15, 2019 12:06 pm
KlangFool wrote:
Thu Aug 15, 2019 12:04 pm


bluebolt,

1) I assume nothing. I am prepared for any possibility.

2) I have gold jewelry too. So, I am prepared for currency going to zero too.

KlangFool
So your AA is 50% nonperishable food, 25% guns/ammo, 25% gold :D
bluebolt,

How does that protect against inflation? Deflation? Hyper-inflation? It is not diversified enough.

KlangFool
I think you missed the emoji at the end of my post.

But seriously, can you post or do you have a link to your AA? Without vast resources, I find it hard to picture a portfolio that protects against housing values going to zero, equities going to zero, the bond market going to zero, the US government defaulting on its bonds, hyperinflation, deflation, stagflation, climate change and millennials.
bluebolt,

You can look at some of the glory detail at this thread.

viewtopic.php?t=220234

KlangFool
Doesn't that thread show that you didn't follow your own net worth/housing price ratio?

KlangFool
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Re: Net-worth rule of thumb for house purchase?

Post by KlangFool » Thu Aug 15, 2019 2:28 pm

bluebolt wrote:
Thu Aug 15, 2019 2:26 pm
KlangFool wrote:
Thu Aug 15, 2019 12:56 pm
bluebolt wrote:
Thu Aug 15, 2019 12:23 pm
KlangFool wrote:
Thu Aug 15, 2019 12:10 pm
bluebolt wrote:
Thu Aug 15, 2019 12:06 pm

So your AA is 50% nonperishable food, 25% guns/ammo, 25% gold :D
bluebolt,

How does that protect against inflation? Deflation? Hyper-inflation? It is not diversified enough.

KlangFool
I think you missed the emoji at the end of my post.

But seriously, can you post or do you have a link to your AA? Without vast resources, I find it hard to picture a portfolio that protects against housing values going to zero, equities going to zero, the bond market going to zero, the US government defaulting on its bonds, hyperinflation, deflation, stagflation, climate change and millennials.
bluebolt,

You can look at some of the glory detail at this thread.

viewtopic.php?t=220234

KlangFool
Doesn't that thread show that you didn't follow your own net worth/housing price ratio?
1 million net worth with a house at around 400K. That is 2.5 times.

KlangFool

deikel
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Re: Net-worth rule of thumb for house purchase?

Post by deikel » Thu Aug 15, 2019 2:43 pm

I find it both too complicated AND to conservative

The too conservative part is not a financial problem, other then it blocks many younger folks from getting a house and the whole idea of 30 year loans is to stretch it into the (unknown) future. But I think 30 year fixed loans have quite a positive history for transitioning people from lower class to middle class - so I think this rule would not help.

I would argue that you should always have 20% down on any house purchase, that is a tried and true value over time, it eliminates mortgage insurance and does put up some barrier to save for a house purchase. Going below 20% is leveraging a lot of risk and going to zero during the housing crunch did certainly not help (neither did NINJA loans)

Whatever banks approve you for, I would take off 30-50% of that. When we got approved in 2009/10 (right after the housing crash mind you), the banks insisted on 20% down, but the amount they were still willing to loan at the time based on income was obscene - if we would have taken their word for it, we would have been screwed and not be able to contribute to retirement accounts for years to come, the mortgage payments would have eaten it all (plus maintenance, plus utility, plus tax, plus improvements, plus fun stuff in house and garden) - it would have become the only lifestyle.

I believe banks are still irresponsible to this date in what amount they loan out to folks, partly driven by the rather idiotic trend to 3500 sqft McMansions vs the standard 60s 1200 sqf ranch
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getthatmarshmallow
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Re: Net-worth rule of thumb for house purchase?

Post by getthatmarshmallow » Thu Aug 15, 2019 3:11 pm

KlangFool wrote:
Thu Aug 15, 2019 2:23 pm
getthatmarshmallow wrote:
Thu Aug 15, 2019 1:15 pm
With respect to Klangfool, I don't think a networth rule makes a lot of sense for younger people who are at the beginning of their careers. We didn't have a lot saved when we bought our house, because I'd not been out of grad school very long, but we wouldn't have been served well by renting less for more money. And we bought near the bottom of the market, so it's worked out well as an investment. With the way prices have increased, I would be waiting until my 50s to buy. Instead, it will be paid off in my early 40s.
getthatmarshmallow,

So, it could have gone the other way too. And, if it is bad enough, you would not be in this forum to post about your experience.

KlangFool
We would have been fine under most likely scenarios. If markets had stayed the same, we'd be fine. If they'd dropped again, we'd also be fine.. But even if I wasn't, that doesn't mean your rule is good, any more than the fact that our house was less than twice our total income means that it's a practical rule for everyone else.

RobLyons
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Re: Net-worth rule of thumb for house purchase?

Post by RobLyons » Thu Aug 15, 2019 4:32 pm

deltaneutral83 wrote:
Thu Aug 15, 2019 9:24 am
RobLyons wrote:
Thu Aug 15, 2019 8:43 am

Reality check time.
No offense but that sounds completely unrealistic and unreasonable for 99.999% of home buyers.
Most first time home buyers (that don't run into financial trouble/foreclosure) can't even afford 20% down
There are 13,000 millionaire households in this country so at least for them it has to be in the realm of realistic or possible (regardless of one's beliefs on the "KF theory" itself), also some low cost areas where $200-250k gets you a lot of house so a $600k net worth would do it there too. Probably more in the 85-90% range though, which is substantial but not quite the 99.xxx% number which is essentially fatalistic.

As to the last part, people choose not to put 20% down which basically adds another 75-100 bps on your rate until you're under 80 LTV. Have to be careful about what's a fact and what's a choice.

Oh so you were looking to split hairs in this debate?
Ok

13,000 millionaire households in a country of 127.59 M households = 1% of the population

And how many of those households are buying houses?
If 25%, then that is 0.25% so I will give you the benefit of the doubt and say that the calculation is completely unrealistic and unreasonable for 99.75% of home buyers.

Feel better?


Secondly, most people choose not to put down 20% because they simply do not have it, especially considering how costly it is to close, buy new furnishings, etc.


Sorry but I live in reality of the 99%.

Have to be careful what's reality and what you THINK is reality.
"Great parenting sets the foundation for a better world"

RobLyons
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Re: Net-worth rule of thumb for house purchase?

Post by RobLyons » Thu Aug 15, 2019 4:35 pm

getthatmarshmallow wrote:
Thu Aug 15, 2019 1:15 pm
With respect to Klangfool, I don't think a networth rule makes a lot of sense for younger people who are at the beginning of their careers. We didn't have a lot saved when we bought our house, because I'd not been out of grad school very long, but we wouldn't have been served well by renting less for more money. And we bought near the bottom of the market, so it's worked out well as an investment. With the way prices have increased, I would be waiting until my 50s to buy. Instead, it will be paid off in my early 40s.

Thank you. This is an accurate post for most Americans.

The "rule of thumb" here represents what BHs think based on their own high incomes and standards of living...
"Great parenting sets the foundation for a better world"

DoctorPhysics
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Re: Net-worth rule of thumb for house purchase?

Post by DoctorPhysics » Thu Aug 15, 2019 10:34 pm

KlangFool wrote:
Thu Aug 15, 2019 8:02 am
DoctorPhysics wrote:
Wed Aug 14, 2019 11:47 pm
If I followed some 2.5x net worth rule before buying a house I would still be waiting to enter the housing market 7 years later in my VHCOL area.

It can really depend on your circumstances, needs, job stability, housing area, and ability to take a risk.
DoctorPhysics,

And, why would that be a bad thing? Over the next recession, you will be able to buy a foreclosed house from those overstretched themselves financially.

KlangFool
I am already in the thick of it now. :sharebeer

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Re: Net-worth rule of thumb for house purchase?

Post by DoctorPhysics » Thu Aug 15, 2019 11:00 pm

rbaldini wrote:
Thu Aug 15, 2019 8:07 am
KlangFool wrote:
Thu Aug 15, 2019 8:02 am
DoctorPhysics wrote:
Wed Aug 14, 2019 11:47 pm
If I followed some 2.5x net worth rule before buying a house I would still be waiting to enter the housing market 7 years later in my VHCOL area.

It can really depend on your circumstances, needs, job stability, housing area, and ability to take a risk.
DoctorPhysics,

And, why would that be a bad thing? Over the next recession, you will be able to buy a foreclosed house from those overstretched themselves financially.

KlangFool
To be fair to DoctorPhysics, home ownership at a given PITI is *often* superior to renting at the same price. The risks that we talked about are there, and should be taken into account, but one should also consider the full spectrum of outcomes, including the up side. My wife and I benefitted greatly from purchasing our house (so far), and we certainly did not have 2.5x the house's value in net worth when we purchased.
Agreeing with this. Rent is 50% more expensive than my mortgage where I am now.

When I bought my house at 4.5x income with just 5% down payment, I was negative net worth but with lots of human capital. Fast forward 7 years and the remaining mortgage is less than 2x my income and my net worth without the house is about 1.5x the mortgage.

PMI was dropped through a refinance later.

CFM300
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Re: Net-worth rule of thumb for house purchase?

Post by CFM300 » Thu Aug 15, 2019 11:15 pm

KlangFool wrote:
Thu Aug 15, 2019 7:04 am
This number allows a person to take a 50% stock market drop and still have enough money to pay off the mortgage and move elsewhere.
KlangFool wrote:
Thu Aug 15, 2019 7:04 am
The goal of the rule is to make sure that even if the house worth noting, it would not matter to you.
You've now given two different justifications for your 2.5x rule, but neither make sense to me vs. rbaldini's 1.5x hypothetical.

Let's run some numbers.

A and B both have $250,000. A follows your rule and buys a $70,000 house with 20% down ($14,000) and invests the remaining $236,000 in a 50/50 portfolio. B follows rbaldini's hypothetical and buys a $100,000 house outright and invests the remaining $150,000 in a 50/50 portfolio.

Let's say the day after both purchases, the stock market drops 50% and so does the housing market.

How is A in a better position than B? B is living in a paid-off house. A still has a $56,000 mortgage, on a house now worth just $35,000.

If both have to sell their house and move, A will end up with $35,000 from the home sale and just $121,000 invested after paying off the $56,000 mortgage, for a net worth of $156,000. B will end up with $50,000 from the home sale, plus a $112,500 portfolio, for a net worth of $162,500. So B comes out ahead of A.

If you run the same scenarios starting with $1,000,000, B still comes out ahead of A, with a net worth of $650,000 vs. $626,250.

What am I missing?

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Re: Net-worth rule of thumb for house purchase?

Post by KlangFool » Fri Aug 16, 2019 7:24 am

CFM300 wrote:
Thu Aug 15, 2019 11:15 pm
KlangFool wrote:
Thu Aug 15, 2019 7:04 am
This number allows a person to take a 50% stock market drop and still have enough money to pay off the mortgage and move elsewhere.
KlangFool wrote:
Thu Aug 15, 2019 7:04 am
The goal of the rule is to make sure that even if the house worth noting, it would not matter to you.
You've now given two different justifications for your 2.5x rule, but neither make sense to me vs. rbaldini's 1.5x hypothetical.

Let's run some numbers.

A and B both have $250,000. A follows your rule and buys a $70,000 house with 20% down ($14,000) and invests the remaining $236,000 in a 50/50 portfolio. B follows rbaldini's hypothetical and buys a $100,000 house outright and invests the remaining $150,000 in a 50/50 portfolio.

Let's say the day after both purchases, the stock market drops 50% and so does the housing market.

How is A in a better position than B? B is living in a paid-off house. A still has a $56,000 mortgage, on a house now worth just $35,000.

If both have to sell their house and move, A will end up with $35,000 from the home sale and just $121,000 invested after paying off the $56,000 mortgage, for a net worth of $156,000. B will end up with $50,000 from the home sale, plus a $112,500 portfolio, for a net worth of $162,500. So B comes out ahead of A.

If you run the same scenarios starting with $1,000,000, B still comes out ahead of A, with a net worth of $650,000 vs. $626,250.

What am I missing?
CFM300,

<<If both have to sell their house and move, A will end up with $35,000 from the home sale and just $121,000 invested after paying off the $56,000 mortgage, for a net worth of $156,000. B will end up with $50,000 from the home sale, plus a $112,500 portfolio, for a net worth of $162,500. So B comes out ahead of A>>

A can move without selling the house. A has 177K. And, if A is in a non-recourse loan state, he can just let the bank foreclose the house.

As for B, he has 112.5K. Even after selling the house, he has only 162.5K.

In the time of crisis, liquidity is king. A can last longer than B. I been through the Asian Currency Crisis. In those cases, you cannot sell the house. Nobody is buying.

I have another rule associated with buying the house. The PITI needs to be 20% to 30% lower than renting. So, the housing expense of ownership is actually lower than renting. There is no reason to pay off the mortgage.

KlangFool

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LadyGeek
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Re: Net-worth rule of thumb for house purchase?

Post by LadyGeek » Fri Aug 16, 2019 8:43 am

This thread has run its course and is locked (topic exhausted). See: Locked Topics
Moderators or site admins may lock a topic (set it so no more replies may be added) when a violation of posting policy has occurred. Occasionally, even if there are no overt violations of posting policy, a topic (or thread) will reach a point where the information content of the discussion has been essentially exhausted and further replies are much more likely to cause distress to the community than add anything of value.
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