Can I afford a 900K home ?
Base 170K. TC 310K. (Rest is bonus and stocks). Net worth a bit over 800K (stocks and cash). No debt. Researching how much of one's net worth should be in home - I see figures of around 30%. If I go around looking for homes for 270K in Bay Area then i might as well just keep renting. 🙄 What gives ? I'm 33. Thinking of going 30yr fixed with 20% down - if that matters.
Question: why don't you even want a home? "Might as well just keep renting" why is renting inferior in your eyes?
It's not. That is why I'm asking the question. I mean part of it is the emotional appeal of owning a house and one cannot put a number on it. But my question here is purely from a financial perspective. Would it be stupid for me to leverage myself to that extent (I'm very risk averse)
Those figures are for at retirement age, your home should at most account for 30% of your nest egg. My two rules of thumb for buying a home is max 3x my yearly TC and enough liquid to afford 20% down and 6 mo of float.
+1
Ah. Thanks. Very helpful.
Ask yourself how much further house price growth is realistic when checking the overall economy and what investment would give you a better growth. Generally I wouldn't invest in overheated real estate. You could rather look at acquiring some rental units in an affordable housing market and create some passive fallback money with your 800k...
I'm looking at very long term. I don't plan to sell. Of course no one has seen the future, but my plan is to dwell in it or may be rent out if i happen to move from Bay area. Good question on investment. I think stock market is overheated too. Frankly, i think real estate in underdeveloped areas of bay area is probably better than stocks at this point. Especially when thinking very long term (10-15 yrs). And you really just can never time the market. But this is just my thinking. Please feel free to poke holes in this theory. I'm looking for genuine feedback.
I'd rather look at areas that have more future growth potential than the second most expensive area in the US. Consider Portland or Austin or Anchorage. Those areas still have plenty more room for growth. Edit: the concern is, you might end up burning significant net worth when a market correction happens in hand with economic disruptions which I do believe will likely happen in the shorter term than your 10-15 years. Areas with more affordable housing have higher chance on more price stability and lower burn rate.
If you can almost pay for a home with cash then yes you can afford.
Yes
Buying a house with debt is always bad economics, unless of course, you need it. If you don't really need a house now, better save and invest it, and 10 years later you can buy the house with much lesser debt.
Buying a house with debt is very often good economics. As long as ROI is higher than your interest rate.
Let me correct myself. Buying your first house with debt, in which you intend to live, is always bad economics. The house you are living in is not an investment, it's almost always a liability. I agree with your point if the house is bought purely for investment.
What the heck is wrong with you? You have $800k in stock and cash, and $310k comp, which will only rise as you gain more experience, and you still don't own a home? If you are waiting for housing prices to drop, good luck. Minimally, you build equity, and part of your payment goes to principal. Heck, you can rent a room or two in the house and make some money while you live there rent free. Remember, you invested 20%, but if the housing market goes up by 10%, you gained 10% on the price of the house, not just on your 20%. That is a 50% return on your 20% investment. You can't get that type of return in the stock market. I know you are scared with such a big investment, but if you are truely risk averse, should you have all your money in stock and cash? Diversify further, you'll thank me later! 😇
Historically, housing prices don't go up by 10% and the returns seen in the last few years in coastal cities are pretty abnormal. Also, the returns you're talking about, that's just leverage... I can get the same returns by trading on margin or buying options. Consider what happens if the house goes down by 10 percent, in your scenario, you would lose 50 percent of your equity. It goes both ways
Yes, you are of course correct. It goes both ways. I would argue buying options is riskier though, just because of the time bound nature of it. There is also the other side, where you can re-invest in your home by fixing it up and increasing it's value, something you can't do with stocks. Bottom line, there is always risk in everything. Even in cash, due to inflation, granted less in US dollar than other currencies. But renting is not a form of investment.
Buy a house if it’s cheaper than renting. Rent if it’s cheaper than buying.
Where in bay area are you getting 900k sfh OP?
San Jose?
Bad school area?
You can.