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Do I have to choose between buying home in HCOL and FIRE or can I have both?

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  • Do I have to choose between buying home in HCOL and FIRE or can I have both?

    Hello all,

    I posted this on bogleheads to get some advice but also wanted to pose the same question here to get more physician's advices. (WCI please let me know if not appropriate to post same thing on the different forums and I will not do it again)

    We live in an area with HCOL with an insane housing market . No kids but planning on it in the next 12-18 months. I am 31, wife is 36.

    I just started my first real job. Yearly income for the next 2.5 years will be around 300k. Afterwards, salary will increase to somewhere around 400-450k.
    Our current networth is around 150k. Only debt is aprox 35k (two car loans). No student loans anymore (yay!).
    We are currently renting (2600 a month). Other expenses aside from rent and car payment are in the vicinity of 6k per month.

    As many people out there, we would love to own our home. Homes in our preferred neighborhood are on the market for around 700-900k. And these are not mansions, just regular homes. The McMansions go for > 1.3 million.

    If we were to signup for this insanity and purchased a home for that price (700-800k), would I be ruining my chances of achieving Financial Independence early in my career (say within 15 years)? Would I be committing myself to an "ordinary" retirement age at 60 or 65? Or could I have it all - have "the house" and be financially independent in my late 40s?

  • #2
    PoF probably has a calculator for that: https://www.physicianonfire.com/calculators/.

    So Denver is HCOL too? Who knew?
    Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

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    • #3


      So Denver is HCOL too? Who knew?
      Click to expand...


      Yeah. And since we are not used to it, we both had sticker shock to see a "normal" house for 800k.

       

      I guess my question is, is that too much house? Is it doable? I'd be willing to delay FI for 2-3 years but don't want to have to be chained to a full time job until I'm 60.

      Does the guideline of 2x your yearly income for a house apply for HCOL areas? Anyone has experience with buying this much house and yet reaching the first million dollar net worth in, say, 10 years?

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      • #4
        You'll have to put your income, expenses, and return assumptions into a spreadsheet to learn the answer.
        Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

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        • #5
          House price doesn’t matter per se, what matters is how much you save. Saving $80k/year with a 5% return will get you to $1M in 10 years.

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          • #6
            I think you are in a good spot to spend money on the house that you want given that you are debt free.

            If you like the area and the job and can see yourself there for 5+ years, buy. Supply is very low nationally.

            My only advice is to try to maximize income, both you and wife.

             

            best of luck

             

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            • #7
              Hopefully you really like Denver and really like being a homeowner, because the odds are against you staying in your first job as an attending for the next five years.

              I bought my home a year into my first job, and two years later am finishing off my mortgage payments and can't wait to sell it.  There's a good chance I'll leave my job soon and move somewhere else in the next year as well.  I hate the maintenance and repairs, which along with the taxes, cost more than an adequate rental.  Though if I were married with a family, it might all be worth it.

              The home has appreciated nicely, but I'd probably be 100k richer if I'd put the mortgage principal into a taxable account instead.  That's something I only know in hindsight.

              I wouldn't suggest anyone buy a home unless they're otherwise debt free, can max out all retirement accounts, and they're pretty sure they'll stay put for the next five years.  It sounds like you earn enough to pay everything off and max out retirement accounts.  I think it comes down to how you feel about Denver.

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              • #8
                Denver is not insane try NYC or CA ... but Denver def not cheap either. 700-900K is for a decent sized home, so depends what you think you "need". The less house you buy the faster you'll get to FI. Don't forget all the other costs of home ownership - taxes, maintenance. Our place now in NYC is worth $1000/sq ft.

                Anyway, for you, I would wait.

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                • #9
                  First question -  Are you staying 3+ years.  If so, buy.

                  You'll always need a roof over your head.  If not ownership, then long term renting and have to factor in that cost into -RE.   In HCOL, the entrypoint hurts more, but the long term pays off for ownership.   The keyword -- Long term (ie >3 years).

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                  • #10




                    Denver is not insane try NYC or CA … but Denver def not cheap either. 700-900K is for a decent sized home, so depends what you think you “need”. The less house you buy the faster you’ll get to FI. Don’t forget all the other costs of home ownership – taxes, maintenance. Our place now in NYC is worth $1000/sq ft.

                    Anyway, for you, I would wait.
                    Click to expand...


                    Wow yeah that is much more than here.

                    I just was not used to the prices here until we started looking.

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                    • #11




                      Hopefully you really like Denver and really like being a homeowner, because the odds are against you staying in your first job as an attending for the next five years.

                      I bought my home a year into my first job, and two years later am finishing off my mortgage payments and can’t wait to sell it.  There’s a good chance I’ll leave my job soon and move somewhere else in the next year as well.  I hate the maintenance and repairs, which along with the taxes, cost more than an adequate rental.  Though if I were married with a family, it might all be worth it.

                      The home has appreciated nicely, but I’d probably be 100k richer if I’d put the mortgage principal into a taxable account instead.  That’s something I only know in hindsight.

                      I wouldn’t suggest anyone buy a home unless they’re otherwise debt free, can max out all retirement accounts, and they’re pretty sure they’ll stay put for the next five years.  It sounds like you earn enough to pay everything off and max out retirement accounts.  I think it comes down to how you feel about Denver.
                      Click to expand...


                      Thank you for the advice. We are taking our time to explore the city and at least give it one full year here before deciding to purchase.

                      I hope we make the right decision when the time comes!

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                      • #12
                        If you're currently spending 8600/month, that's 103,200/year which means to be considered financially independent you'd need at least 2.58 million.  That's to maintain your current lifestyle.  Sit down with your wife and play with some investment calculators to see how much you'd need to set aside each month to get to that number in a certain period of time.  Plug in what your budget would look like with a 600k mortgage, a 500k mortgage, an 800k mortgage, etc.  See how those decisions change your outlook.

                        It's possible to do both if you're careful about what you buy, but if you sign up for an expensive mortgage on top of your other spending (which seems a little high to me), you're going to make saving pretty hard.  If you love where you live and work and you can see yourself staying there for quite some time, then go ahead and buy.  But, realize that the more you spend, the less likely early FI will happen.  Which is okay if you are enjoying life.  You just need to decide what's more important.

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                        • #13
                          Would definitely agree with waiting for 1-2 years before buying. We bought a home 1+ year after we moved and started my attending job, and right around the time my oldest turned 2. We realized later, that public school district does matter, and moved again. While the first home is still in a high demand (it is close to the hospital) and we have it rented out, in retrospect, I should have waited longer or consider a home in the best school district in my area.

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                          • #14
                            you can have financial independence and HCOL.  retire early depends on what you decide early means. 

                            as I read a lot of the posts from younger physicians, I am encouraged by their desire to really optimize opportunities.  however, I think you will find that while a plan helps, there will always be a lot of choices that you will encounter.  it's easy to project out what happens if life is perfect and opportunities abound.  harder to manage upheavals, like illness and children and special needs that may dramatically alter the spreadsheet.

                            it sounds like you have made a lot of good decisions.  personally I think you will give up a lot of flexibility spending that much on a house.  you don't miss it now, and in some ways, you never know what you may have missed out on, but add 2-3 kids and the budget seems a lot tighter.

                            good luck.  my wife would never let me have that much say in the house we live in anyways, so I'm more at the mercy of her decision than able to comment on whether the finances make sense supporting a house purchase.  that said, we have never had more than 1x our gross income in any of our six homes.  much of the time it was like 0.2x.

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                            • #15





                              So Denver is HCOL too? Who knew? 
                              Click to expand…


                              Yeah. And since we are not used to it, we both had sticker shock to see a “normal” house for 800k.

                               

                              I guess my question is, is that too much house? Is it doable? I’d be willing to delay FI for 2-3 years but don’t want to have to be chained to a full time job until I’m 60.

                              Does the guideline of 2x your yearly income for a house apply for HCOL areas? Anyone has experience with buying this much house and yet reaching the first million dollar net worth in, say, 10 years?
                              Click to expand...


                              I put about $650,000 into our first house. I later sold it for $450,000. Tack on realtors' fees and the carrying costs for the years it sat on the market, and we easily lost over $250,000. Still, we became FI on one income (similar to your projected combined income) in about a decade.

                              As long as you don't overpay for a home, you might actually profit off the house you buy, or at least not lose as much as we did. As others have pointed out, renting could be a viable option, too, even for the long haul. I don't think Denver is terribly HCOL in other respects though, is it? Either way, you could always move to a lower cost of living area once you've earned and saved enough money.

                              Best,

                              -PoF

                               

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