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Can I afford a 3M+ house

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  • #46
    Originally posted by StarTrekDoc View Post
    The adages of rent vs own and cost get skewed with bay area and Manhattan locations. Likewise on asset appreciation

    Most leverage primary home and that with land appreciation that's leverage, outpaces most funds, even with the rampup of sp500.

    Single company tech can leave, others take their place. HP goes, Tesla leaves, still silicon valley remains.
    ​​​​​
    It's actually pretty ridiculous. If you play with a rent vs. buy calculator, if appreciation continues at 3-4% (historically it's much higher), You break even on buying after 2-3 years.

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    • #47
      Originally posted by TheTodd View Post

      It's actually pretty ridiculous. If you play with a rent vs. buy calculator, if appreciation continues at 3-4% (historically it's much higher), You break even on buying after 2-3 years.
      Does that take into account keeping the down payment invested in the market along with investing the difference of rent vs mortgage/taxes into the market? So in the OP situation, ~ 650 K down payment along with ~ 15 K extra monthly in a taxable account? Seems unlikely the house would come out ahead, but I haven't played with any calculators.

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      • #48
        Originally posted by Sampter View Post

        Does that take into account keeping the down payment invested in the market along with investing the difference of rent vs mortgage/taxes into the market? So in the OP situation, ~ 650 K down payment along with ~ 15 K extra monthly in a taxable account? Seems unlikely the house would come out ahead, but I haven't played with any calculators.
        I haven’t played with the calculators either but OP has said they can still save $10k/mo in their taxable account in addition to retirement accounts even after the mortgage. Coming out ‘ahead’ could just mean leaving more $$$ to heirs or charity when they die.

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        • #49
          Originally posted by ObgynMD View Post

          I haven’t played with the calculators either but OP has said they can still save $10k/mo in their taxable account in addition to retirement accounts even after the mortgage. Coming out ‘ahead’ could just mean leaving more $$$ to heirs or charity when they die.
          Makes me wonder if that's entirely accurate as they would have to pull their child out of private school.

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          • #50
            Originally posted by Sampter View Post

            Makes me wonder if that's entirely accurate as they would have to pull their child out of private school.
            Two kids in private school can easily be 80k/year+ 😬 It’s painful…

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            • #51
              Originally posted by ObgynMD View Post

              Two kids in private school can easily be 80k/year+ 😬 It’s painful…

              True, but just shows how buying this house makes them lose flexibility with other financial decisions.

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              • #52
                Originally posted by Sampter View Post


                True, but just shows how buying this house makes them lose flexibility with other financial decisions.
                I agree this with. If they didn’t live in the Bay Area, they could ‘have it all’ (as in private school, private chef, boat, butler)

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                • #53
                  Originally posted by CalMD View Post

                  The bidding war has been the case since the 1980's. From recollection, even during the 2008-2009 downtime, the price only stabilized and decreased a little, then became even more unaffordable.
                  Not a prediction by any means.
                  "Past performance is not necessarily indicative of future results. All investments carry significant risk and all investment decisions of an individual remain the specific responsibility of that individual. There is no guarantee that systems, indicators, or signals will result in profits or that they will not result in a full loss or losses All investors are advised to fully understand all risks associated with any kind of investing they choose to do."

                  If you rely on long term alpha of property prices anywhere, you have risks. I had any uber rich client that owned coal mines. Real estate as an investment is different than a residence. That in itself is a risk to rely on appreciation. Exit strategy on a house needs to be considered. Just saying, this is actually a "middle class housing choice" in some areas.

                  A ton of assumptions based on the past Alpha. It works until it doesn't.

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                  • #54
                    Another downside of living in an uber-expensive area is now if the kids want to live where they grew up and/or where family is they're going to have to deal with the ridiculous costs too.

                    i'm sooooooooo glad im not from the bay!

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                    • #55
                      Short answer: Yes. We did it in 2019 on substantially lower NW and salaries. I feel like I've responded to you before

                      Figure out your budget and you'll be fine.


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                      • #56
                        With OP's income and savings, buying a 3m dollar house is akin to a family with $100,000 income buying a $300,000 house. The schools in Palo Alto are good that one should not need private school. It is doable.

                        For us, living in the Bay Area is not just the weather. The proximity to the Pacific Rim, trade, industry (in addition to tech), exchange of ideas, etc, are difficult to find elsewhere.

                        Yes, past performance is not predictive of future, albeit this has been the case for past 40+ years in the Bay Area. Depending on the situation, Bay Area real estate often yields higher return than SP500. We also have to live somewhere, and the rent only keeps increasing. To mitigate the risks of real estate, when the securities and real estate market were high just prior to COVID19, we sold a property and some stocks and paid off the mortgage. Now looking back, we sold too early!

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                        • #57
                          You make $1,100,100 per year and a $180,000 mortgage is going to make you send your kids to private school? Assuming $550,000 in taxes (which is your marginal applied to all income, what the heck are you doing with the other $370,000? In reality you'll probably have $500k in spending after taxes and mortgage.

                          What was the house you're looking to buy worth 12 years ago when you began to rent? What would be remaining on your mortgage if you'd bought 10 years ago?

                          If you buy the house now with a 20 year mortgage, continue making your same income with no raises, and pay 45% tax, then over the next 20 years you'll have after tax spending ability of about $11,000,000 and at the end of that period you'll have whatever you saved and a paid off house worth roughly $5M.

                          I don't know if you should buy a $3M house, but you sure as heck should buy a house.

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                          • #58
                            If I was in the same position , I would have bought the house .

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                            • #59
                              Originally posted by TheTodd View Post

                              It's actually pretty ridiculous. If you play with a rent vs. buy calculator, if appreciation continues at 3-4% (historically it's much higher), You break even on buying after 2-3 years.
                              I plugged the numbers into nerd wallet and it said:
                              “Buying will never be cheaper than renting “

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                              • #60
                                Same Nerdwallet calculator. make the 5% appreciation. with 20% down with the adjustments to mirror the income brackets.

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