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Should I pull the plug and buy in a VHCOL area?

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  • #31
    Arguments about whether OP can afford this home on his salary are reasonable.

    Those that argue that he's spending too much on a home are not.  Housing prices here are simply different than they are in other parts of the country.

    As for how much he has saved at age 40, again, among physicians, that's going to be quite variable.  I didn't finish my residency, fellowship, fellowship, etc until age 37.  At age 40 I probably had a zero net worth.   I didn't buy a house until age 46.  I bought in the same VHCOL are OP is talking about.  My house plus renovations cost 1.6 million.  Family income at the time was around 500k .   I did fine.  OP will do fine.


    Even more amazing is that there are people able to buy houses here going for >2 million….how they do it is a mystery to us!
    Click to expand...


    Some of them cashed in stock options and paid cash.   Others eat ramen 3 times a day for 15 years.


    Plus, with the price of taxes, insurance, interest on the loan, repairs/maintenance, and upgrades, he could end up losing less if he rented.
    Click to expand...


    I believe that this is the case in the bay area ( I did the math in an earlier post ) , but there are intangible / life satisfaction benefits of home ownership seem to be worth a lot to most people.


    I have a hard time believing that the housing market on the west coast is truly sustainable at these prices long term.

    Substitute the word "stock" for the word "housing" in the quoted line and you'll see the error in that statement.


    I remember jokes about expensive California real estate as a child.   It may stop eventually, but at least in the Bay Area, it is not likely to slow down any time soon.   So far, every time a new big company goes public, the early employees get a few million dollars and all of them buy homes with cash, and pay hundreds of thousands or millions over the asking price.  Even if there are no Facebooks or Googles going public, smaller companies get bought up and their employees get millions.  Plus, the weather, the culture, and the amenities are still very desirable to many, independent of the economy.

    Comment


    • #32







      I don’t think it’s pushing it, I just think that this whole “what can you afford?” line of thinking has been set by the real estate industry and based on 30 year mortgages.

      4-5X is what they’ve sold us as being “necessary in places like NorCal”

      3X is what they want you to spend

      2X is what most WCI people seem to consider a max

      <2X is clearly more c/w things like FIRE.

      We’re quite frugal for our income and literally have never had a month where we spent more than we made, I just have a hard time seeing how 2X wouldn’t be a stretch even for us. It wouldn’t be if we dropped our savings rate or were committed to working full time until we were in our mid-60s. We are not going to do either of those things.

      If you make $500k then say you pay $100k in taxes. You commit to a 20% savings rate ($100k/year) you’re at $300k. So you’re taking home around $15k/mo after all said and done. Mortgage on a $1.2M home you can “afford” b/c you put down 20% and it’s only 2X is $7000/mo for P+I. That’s half of what you are taking home. Figure $10k/year in property taxes and $10k/year in maint, that’s more than a month’s take home out of pocket. Again these are round numbers you can quibble with them slightly but I don’t think majorly.

      And then you get into the factor that most people in $1M homes are not driving Honda, buying furniture at the Discount Warehouse, or vacationing at the local campground.
      Click to expand…


      How about less than 1X?  Because a 680K mortgage on a 700K income seems pretty ************************ easy to me.

      BTW your number dont add up.  First, if you are saying you save 100K a year, then you save 100K a year.  It shouldnt be counted as an expense.  Second, if you are at 300K after paying 100K in taxes (BTW your taxes are low, but I will use the numbers you provided) and 100K in savings, then you are taking home 25K/month not 15K/month.  Third the P&I on a 1.2M home after 20% down should be about 4850 a month at 4.5%, not 7000/month.  Even the PITI on a 1.2M house is not 7000/month (it should be around 6200-6300 a month).  Thus even the PITI would be about 1/4 of your take home pay.  Lets say you live a lavish lifestyle and spend another 10K a month on other living expenses, you are still saving nearly 9000 a month, on top of the 100K you already took out.  You will literally be saving over 200K a year still.

       

       
      Click to expand...


       

      Of course <1X is better than 2X if your goal is FIRE and not to be house poor. Inheriting a free mansion is ever better!

      You're right about the takehome I stand corrected. Not sure how I did that, can't blame lack of coffee.

      For purposes of talking about home buying I don't think it matters whether you call retirement savings an expense or not, you can call it gold plated wine glasses you still can't spend it on your house.

      That said, I own a property that is about 750 and the PITI is about 5k/mo.

      Comment


      • #33
        Having lived and schooled in norcal and socal, I know I wanted to be in Cali. I desperately tried to match in the bay area but ended up in SoCal. It's been fine.

        Comment


        • #34
          Very similar situation here, living in Bay Area and we just had an offer accepted last week.  Our numbers a little different, but close, and we are a bit younger (34).

          For us, we aren't' sure if its the top of the market or will continue to go up, but we were ready to buy for lifestyle reasons.  Our daughters have moved across country 3 times in 5 years for my training and we wanted to put down roots so it was important to us to find stable housing.

          We ended up deciding on public school after getting into a great school and knowing we would be there for 9 years between our two kids.  See my recent post about public versus private. https://www.whitecoatinvestor.com/forums/topic/public-versus-private-elementary-school-indecision-with-decisions-due-pronto/.  We chose to buy in the school neighborhood so its a 5 minute commute to school and a 10-15 minute commute to work.  Had $550,000 to put down (thanks to savings, parents, and 0% interest loan from my employer).  Have a good retirement nest egg building up already as well.  Ended up buying at $2M (yes, crazy, I know), mortgage of $1.45M with income of $450-500 which will increase.  We saved $90k last year, increasing to $100k this year.  We've paid off all student loans (finally done this month), have no car or credit card debt, and are frugal spenders.

          It really comes down to trade offs.  If you want to live in a VHCOL, you can have nice things, but you can't have everything.  Make sure you have school sorted out before you buy and make sure you love your job.  It took both of those before we could stomach taking out a mortgage 3x our income.  It still makes me queasy thinking about it, but if we decide we're in over our head in 10 years we'll just move back to a LCOL where we lived before and it probably won't be a very big setback because we're still saving a decent amount.

          Good luck with your decision, if I can be of any help let me know.

          Comment


          • #35





            I have a hard time believing that the housing market on the west coast is truly sustainable at these prices long term.

            Substitute the word “stock” for the word “housing” in the quoted line and you’ll see the error in that statement.


            I remember jokes about expensive California real estate as a child.   It may stop eventually, but at least in the Bay Area, it is not likely to slow down any time soon.   So far, every time a new big company goes public, the early employees get a few million dollars and all of them buy homes with cash, and pay hundreds of thousands or millions over the asking price.  Even if there are no Facebooks or Googles going public, smaller companies get bought up and their employees get millions.  Plus, the weather, the culture, and the amenities are still very desirable to many, independent of the economy.

            Click to expand...


            I get what you're saying and trust me I understand why that part of the country is so desirable (if I hit the lottery I'd be there in a heartbeat), but as a hard working physician who had to sacrifice so much to get where I am, that real estate market scares me.  The fact that there are tech companies and foreign investors doing so much of the buying and driving prices up so quickly and artificially is exactly the sort of thing that should make "normal" people wary.  A tech bro over-paying with cash for a house is not the same thing as a physician taking out a 30 year mortgage on an over priced house.  The physician has so much more to lose in terms of his/her financial freedom, time, and energy.  It's a drop in the bucket for the tech dude.  It's not for me personally, but maybe I'd be singing a different tune if I were already established out there with a job and family/friends, etc.  It's pretty hard to imagine a debt load like that though.

            Comment


            • #36
              A lot folk in vhcol in the same boat, including most tech folk. Few get the all cash pay level. But there's enough of those and foreign buyers in the market to drive the desirable areas up dramatically and trickle down effect is palpable for the rest of the workforce.

              Most Docs have a choice to joun the madness or not, like any service sector. But tech folk don't for a large swath of them.

              Few places like San Fran. I personally prefer San Diego and gladly pay my sunshine beach tax for it. It's our vice.

              Comment


              • #37


                The fact that there are tech companies and foreign investors doing so much of the buying and driving prices up so quickly and artificially is exactly the sort of thing that should make “normal” people wary.  A tech bro over-paying with cash for a house is not the same thing as a physician taking out a 30 year mortgage on an over priced house.
                Click to expand...


                Yes, you're 100% correct, but I have been here for a while, and I've read about the history of this area.  It's less like what you describe and more like Manhattan and the banking industry.  Yes, all the banks could leave, business can be done online, no one trades on the floor of the NY Stock Exchange anymore, but NY real estate continues to be expensive and to increase in value and isn't likely to drop in value any time soon, at least until global warming inundates Manhattan Island.  Silicon Valley started with Stanford as the seed.  Lockheed and the aerospace industry first fueled the high tech industries here.  That transitioned to transistors, then computer chips, then hardware and software.   I'm not exaggerating when I tell you that I can't go  outside without seeing a Waymo (ne' Google) self driving car ( but with driver at the wheel ) tooling around, usually 2 or 3 from other companies as well.  This place lives and breathes technology.  Everyone, everyone I meet works for Apple, Facebook, Google, or some other tech company, or a start up, unless they are a doctor like me.

                25 years ago there was still hardware manufacturing here.  It got displaced by California environmental laws, but that didn't hurt the local economy, maybe helped by pushing more into software.  So yes, it might stop, but it hasn't yet.  It's like medical specialties.  One disease goes away, but the specialty finds something else to do.

                Anyway, if the value of everyone's house goes down, it doesn't matter.  Pay your mortgage and live your life.  No reason to sell.  Actually, just like with stocks, it's a buying opportunity.  It would be a good time to buy up.

                Comment


                • #38










                  I don’t think it’s pushing it, I just think that this whole “what can you afford?” line of thinking has been set by the real estate industry and based on 30 year mortgages.

                  4-5X is what they’ve sold us as being “necessary in places like NorCal”

                  3X is what they want you to spend

                  2X is what most WCI people seem to consider a max

                  <2X is clearly more c/w things like FIRE.

                  We’re quite frugal for our income and literally have never had a month where we spent more than we made, I just have a hard time seeing how 2X wouldn’t be a stretch even for us. It wouldn’t be if we dropped our savings rate or were committed to working full time until we were in our mid-60s. We are not going to do either of those things.

                  If you make $500k then say you pay $100k in taxes. You commit to a 20% savings rate ($100k/year) you’re at $300k. So you’re taking home around $15k/mo after all said and done. Mortgage on a $1.2M home you can “afford” b/c you put down 20% and it’s only 2X is $7000/mo for P+I. That’s half of what you are taking home. Figure $10k/year in property taxes and $10k/year in maint, that’s more than a month’s take home out of pocket. Again these are round numbers you can quibble with them slightly but I don’t think majorly.

                  And then you get into the factor that most people in $1M homes are not driving Honda, buying furniture at the Discount Warehouse, or vacationing at the local campground.
                  Click to expand…


                  How about less than 1X?  Because a 680K mortgage on a 700K income seems pretty ************************ easy to me.

                  BTW your number dont add up.  First, if you are saying you save 100K a year, then you save 100K a year.  It shouldnt be counted as an expense.  Second, if you are at 300K after paying 100K in taxes (BTW your taxes are low, but I will use the numbers you provided) and 100K in savings, then you are taking home 25K/month not 15K/month.  Third the P&I on a 1.2M home after 20% down should be about 4850 a month at 4.5%, not 7000/month.  Even the PITI on a 1.2M house is not 7000/month (it should be around 6200-6300 a month).  Thus even the PITI would be about 1/4 of your take home pay.  Lets say you live a lavish lifestyle and spend another 10K a month on other living expenses, you are still saving nearly 9000 a month, on top of the 100K you already took out.  You will literally be saving over 200K a year still.

                   

                   
                  Click to expand…


                   

                  Of course <1X is better than 2X if your goal is FIRE and not to be house poor. Inheriting a free mansion is ever better!

                  You’re right about the takehome I stand corrected. Not sure how I did that, can’t blame lack of coffee.

                  For purposes of talking about home buying I don’t think it matters whether you call retirement savings an expense or not, you can call it gold plated wine glasses you still can’t spend it on your house.

                  That said, I own a property that is about 750 and the PITI is about 5k/mo.
                  Click to expand...


                  The PITI on your house seems high.  Assuming you put 20% down and have rates in the 3.5-4% range (which I suspect you do), then it suggests your prop tax rates are around 3%.   Seems crazy.

                   

                  Comment


                  • #39













                    I don’t think it’s pushing it, I just think that this whole “what can you afford?” line of thinking has been set by the real estate industry and based on 30 year mortgages.

                    4-5X is what they’ve sold us as being “necessary in places like NorCal”

                    3X is what they want you to spend

                    2X is what most WCI people seem to consider a max

                    <2X is clearly more c/w things like FIRE.

                    We’re quite frugal for our income and literally have never had a month where we spent more than we made, I just have a hard time seeing how 2X wouldn’t be a stretch even for us. It wouldn’t be if we dropped our savings rate or were committed to working full time until we were in our mid-60s. We are not going to do either of those things.

                    If you make $500k then say you pay $100k in taxes. You commit to a 20% savings rate ($100k/year) you’re at $300k. So you’re taking home around $15k/mo after all said and done. Mortgage on a $1.2M home you can “afford” b/c you put down 20% and it’s only 2X is $7000/mo for P+I. That’s half of what you are taking home. Figure $10k/year in property taxes and $10k/year in maint, that’s more than a month’s take home out of pocket. Again these are round numbers you can quibble with them slightly but I don’t think majorly.

                    And then you get into the factor that most people in $1M homes are not driving Honda, buying furniture at the Discount Warehouse, or vacationing at the local campground.
                    Click to expand…


                    How about less than 1X?  Because a 680K mortgage on a 700K income seems pretty ************************ easy to me.

                    BTW your number dont add up.  First, if you are saying you save 100K a year, then you save 100K a year.  It shouldnt be counted as an expense.  Second, if you are at 300K after paying 100K in taxes (BTW your taxes are low, but I will use the numbers you provided) and 100K in savings, then you are taking home 25K/month not 15K/month.  Third the P&I on a 1.2M home after 20% down should be about 4850 a month at 4.5%, not 7000/month.  Even the PITI on a 1.2M house is not 7000/month (it should be around 6200-6300 a month).  Thus even the PITI would be about 1/4 of your take home pay.  Lets say you live a lavish lifestyle and spend another 10K a month on other living expenses, you are still saving nearly 9000 a month, on top of the 100K you already took out.  You will literally be saving over 200K a year still.

                     

                     
                    Click to expand…


                     

                    Of course <1X is better than 2X if your goal is FIRE and not to be house poor. Inheriting a free mansion is ever better!

                    You’re right about the takehome I stand corrected. Not sure how I did that, can’t blame lack of coffee.

                    For purposes of talking about home buying I don’t think it matters whether you call retirement savings an expense or not, you can call it gold plated wine glasses you still can’t spend it on your house.

                    That said, I own a property that is about 750 and the PITI is about 5k/mo.
                    Click to expand…


                    The PITI on your house seems high.  Assuming you put 20% down and have rates in the 3.5-4% range (which I suspect you do), then it suggests your prop tax rates are around 3%.   Seems crazy.

                     
                    Click to expand...


                    5% down MD loan.

                    chicago baby.

                    Comment


                    • #40





                      The fact that there are tech companies and foreign investors doing so much of the buying and driving prices up so quickly and artificially is exactly the sort of thing that should make “normal” people wary.  A tech bro over-paying with cash for a house is not the same thing as a physician taking out a 30 year mortgage on an over priced house. 
                      Click to expand…


                      Actually, just like with stocks, it’s a buying opportunity.  It would be a good time to buy up.
                      Click to expand...


                      The stock market is not like the real estate market like you describe. If stocks go down, you aren't still priced in at buying stocks that are now worth a lot less than what you are buying them for. If the housing market goes down, you likely still have decades left on a commitment that you are grossly overpaying relative to the actual worth. I guess you could also purchase cheaper property (because you say real estate would be on "sale") but that would just be putting yourself deeper in debt.

                      Comment


                      • #41
















                        I don’t think it’s pushing it, I just think that this whole “what can you afford?” line of thinking has been set by the real estate industry and based on 30 year mortgages.

                        4-5X is what they’ve sold us as being “necessary in places like NorCal”

                        3X is what they want you to spend

                        2X is what most WCI people seem to consider a max

                        <2X is clearly more c/w things like FIRE.

                        We’re quite frugal for our income and literally have never had a month where we spent more than we made, I just have a hard time seeing how 2X wouldn’t be a stretch even for us. It wouldn’t be if we dropped our savings rate or were committed to working full time until we were in our mid-60s. We are not going to do either of those things.

                        If you make $500k then say you pay $100k in taxes. You commit to a 20% savings rate ($100k/year) you’re at $300k. So you’re taking home around $15k/mo after all said and done. Mortgage on a $1.2M home you can “afford” b/c you put down 20% and it’s only 2X is $7000/mo for P+I. That’s half of what you are taking home. Figure $10k/year in property taxes and $10k/year in maint, that’s more than a month’s take home out of pocket. Again these are round numbers you can quibble with them slightly but I don’t think majorly.

                        And then you get into the factor that most people in $1M homes are not driving Honda, buying furniture at the Discount Warehouse, or vacationing at the local campground.
                        Click to expand…


                        How about less than 1X?  Because a 680K mortgage on a 700K income seems pretty ************************ easy to me.

                        BTW your number dont add up.  First, if you are saying you save 100K a year, then you save 100K a year.  It shouldnt be counted as an expense.  Second, if you are at 300K after paying 100K in taxes (BTW your taxes are low, but I will use the numbers you provided) and 100K in savings, then you are taking home 25K/month not 15K/month.  Third the P&I on a 1.2M home after 20% down should be about 4850 a month at 4.5%, not 7000/month.  Even the PITI on a 1.2M house is not 7000/month (it should be around 6200-6300 a month).  Thus even the PITI would be about 1/4 of your take home pay.  Lets say you live a lavish lifestyle and spend another 10K a month on other living expenses, you are still saving nearly 9000 a month, on top of the 100K you already took out.  You will literally be saving over 200K a year still.

                         

                         
                        Click to expand…


                         

                        Of course <1X is better than 2X if your goal is FIRE and not to be house poor. Inheriting a free mansion is ever better!

                        You’re right about the takehome I stand corrected. Not sure how I did that, can’t blame lack of coffee.

                        For purposes of talking about home buying I don’t think it matters whether you call retirement savings an expense or not, you can call it gold plated wine glasses you still can’t spend it on your house.

                        That said, I own a property that is about 750 and the PITI is about 5k/mo.
                        Click to expand…


                        The PITI on your house seems high.  Assuming you put 20% down and have rates in the 3.5-4% range (which I suspect you do), then it suggests your prop tax rates are around 3%.   Seems crazy.

                         
                        Click to expand…


                        5% down MD loan.

                        chicago baby.
                        Click to expand...


                        Its ironic...  Based on the posts you've written here, I wouldnt have expected you to put so little down on a house, while paying higher interest rates on a physician loan.

                        Comment


                        • #42



















                          I don’t think it’s pushing it, I just think that this whole “what can you afford?” line of thinking has been set by the real estate industry and based on 30 year mortgages.

                          4-5X is what they’ve sold us as being “necessary in places like NorCal”

                          3X is what they want you to spend

                          2X is what most WCI people seem to consider a max

                          <2X is clearly more c/w things like FIRE.

                          We’re quite frugal for our income and literally have never had a month where we spent more than we made, I just have a hard time seeing how 2X wouldn’t be a stretch even for us. It wouldn’t be if we dropped our savings rate or were committed to working full time until we were in our mid-60s. We are not going to do either of those things.

                          If you make $500k then say you pay $100k in taxes. You commit to a 20% savings rate ($100k/year) you’re at $300k. So you’re taking home around $15k/mo after all said and done. Mortgage on a $1.2M home you can “afford” b/c you put down 20% and it’s only 2X is $7000/mo for P+I. That’s half of what you are taking home. Figure $10k/year in property taxes and $10k/year in maint, that’s more than a month’s take home out of pocket. Again these are round numbers you can quibble with them slightly but I don’t think majorly.

                          And then you get into the factor that most people in $1M homes are not driving Honda, buying furniture at the Discount Warehouse, or vacationing at the local campground.
                          Click to expand…


                          How about less than 1X?  Because a 680K mortgage on a 700K income seems pretty ************************ easy to me.

                          BTW your number dont add up.  First, if you are saying you save 100K a year, then you save 100K a year.  It shouldnt be counted as an expense.  Second, if you are at 300K after paying 100K in taxes (BTW your taxes are low, but I will use the numbers you provided) and 100K in savings, then you are taking home 25K/month not 15K/month.  Third the P&I on a 1.2M home after 20% down should be about 4850 a month at 4.5%, not 7000/month.  Even the PITI on a 1.2M house is not 7000/month (it should be around 6200-6300 a month).  Thus even the PITI would be about 1/4 of your take home pay.  Lets say you live a lavish lifestyle and spend another 10K a month on other living expenses, you are still saving nearly 9000 a month, on top of the 100K you already took out.  You will literally be saving over 200K a year still.

                           

                           
                          Click to expand…


                           

                          Of course <1X is better than 2X if your goal is FIRE and not to be house poor. Inheriting a free mansion is ever better!

                          You’re right about the takehome I stand corrected. Not sure how I did that, can’t blame lack of coffee.

                          For purposes of talking about home buying I don’t think it matters whether you call retirement savings an expense or not, you can call it gold plated wine glasses you still can’t spend it on your house.

                          That said, I own a property that is about 750 and the PITI is about 5k/mo.
                          Click to expand…


                          The PITI on your house seems high.  Assuming you put 20% down and have rates in the 3.5-4% range (which I suspect you do), then it suggests your prop tax rates are around 3%.   Seems crazy.

                           
                          Click to expand…


                          5% down MD loan.

                          chicago baby.
                          Click to expand…


                          Its ironic…  Based on the posts you’ve written here, I wouldnt have expected you to put so little down on a house, while paying higher interest rates on a physician loan.
                          Click to expand...


                          I would have loved to. Various things made what we did the right move at the time.

                          Mortgage amount was <<2X so we're ok with it.

                          Comment


                          • #43
                            Another bay are MD here.  Mid 30s. 3 kids under 5. We recently bought our house for 1.8M.  We picked the best neighborhood/school district we could find in our area.  We put 400 down.  It was a major Reno project.  We spent $550k. Our total mortgage is around 1.9M.  We make around 600k / year combined and have no other debt.  Hoping once wife makes partner we get an extra 30k/year which will go directly to housing costs.  I am planning to work an extra few shifts / month to help pay down mortgage.  Yes things are tight.  Yes the idea of retiring by 50 is gone.  We still manage to do plenty of things we enjoy.  We go to Tahoe, take cross country family trips, etc. Do I sometimes think about this at night?  Of course.  We still save $120k/year tax deferred.  I love my job. I love our house. I love living here.  I wouldn't trade this for anything.  As is often quoted here, you can have anything you want but not everything.  We aren't big travelers.  We have no other debt other than mortgage.  I would not buy in California if I had 6 figures of medschool debt.  I would not buy here if I hated my job and wanted out of medicine by 40.  Aside from housing, I don't find this area particularly more expensive than any other area that we would live.  It's not logical to compare cost of living here to Kansas City, MO...we wouldn't move there.  Aside from housing, I doubt financial burden is really any different in Austin, Denver, Portland, DC, NYC, Chicago, etc.

                            Comment


                            • #44
                              Have you compared the taxes in Austin, Vancouver, WA, Northern Virginia, or Denver to the taxes in the Bay Area? If you’re a business owner instead of a W-2 employee, have you compared the regulatory burden and cost of dealing with state and local agencies? Heck, have you compared the cost of filling up your car with gas?

                              I agree that New York, San Francisco, and DC offer some of the best cultural amenities in the country. However, if you’re crossing the bridge to live in Piedmont, Marin (or the suburbs of New York) then the more apt comparison for cost of living and taxation would be Montgomery County or Northern Virginia, not necessarily NW DC. It’s possible as a doctor to live in or next to a major metro area with first rate cultural amenities for less than the cost of the Bay Area.

                              San Francisco definitely has New York, Chicago, and DC beat on weather. Better air quality and public transportation than LA too.

                              You guys should be fine. You’re young, debt free, socking away $10K a month in qualified funds, and in a good public school district (paying more for mortgage instead of private school tuition). The house / location is your major luxury item and you’re spending deliberately on what makes you happy.

                              Comment


                              • #45
                                Just came back from SF Bay area. The QOL cannot be beat. Amazing weather, things to do etc. I don't care, you should go for happiness. Its reasonable that you can service the debt. This whole 2x income are all guidelines, not cancer marker. With AlexxTT. Go for it.

                                Comment

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