Author Topic: Reader Case Study - Is a house too much to ask?  (Read 1921 times)

RidetheRain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 25
  • Location: Los Angeles
Reader Case Study - Is a house too much to ask?
« on: March 07, 2017, 03:39:13 PM »
Life Situation:
IRS filing: Single
Location: Orange County, California
Household:
  • 1 dog, 1 cat. Young and in good health.
  • Serious boyfriend. We have uneven salaries, he pays half of rent and the electric bill (I'm not fun to live with when I pay for electric) after his student loans and costs of going to work that's it for his income. I'm excluding his income and spending and treating him more as a dependent in this study. It seems most clear that way.

Money:
Gross Salary/Wages
Monthly Salary 9100
ESPP Sale665<-- Lump sum divided for monthly view, non-budgeted
Pre-tax deductions
Health Insurance:$100
401k:546 (w/ match = 1092)Rec. Increase: 910

Taxes:
  • Federal:  1544
  • State: 595
  • Other: 770
Other Deductions:
  • Employee Stock Plan: 624
    purchased at 15% discount every 6 mo
    I contribute 8% (max is 10%)

Budget:
CategoryCurrent BudgetedRecommended Changes
Housing1968
Rent 1048
Utilities85
Food380
Phone 40
Internet 50
Renter's Insurance 15 (required minimum coverage)
Medical 350
Supplies50
Auto255
Gas85
Insurance,Registration, etc170
Pet170
Food&Supplies90
Vaccines/Medical80
Entertainment528
Cable-Cutter13
Dining Out60
Fast Food130
Gifts25
Piano60
Misc200
Debt800
Auto Loan300
Student Loan500
Total Spending3731
Total Saving1190726 <-- from 401k update

Net Worth
Assets:
  • EF: 8000
  • Cash: 4000
  • Car: 10,000
  • 401k: 12000
Liabilities:
  • Auto Loan: 11,000 remaining (2.5%, 3 years)
  • Student Loan: 52,000 remaining (0% - parent loan)

The Bottom Line:
I'd like to buy a house as part of my overall RE plan. Having a predictable housing cost and a place where I can call the shots so far as energy savings and upgrades are really important to me since my rent has increased by about 7-8% per year. My plan is to move away from California to somewhere in the middle Southern states (Arizona, Texas, Oklahoma, etc) that have more affordable housing when I'm ready to purchase. Does this plan seem like a good idea, or should I be trying to up my 401k or something now and wait until I have a little more cash flowing? I don't even know what kind of dollar amount for a down-payment makes sense. I've thought about saving roughly 60,000 but I don't know if that's a lot or a little. Internet searches all assume I'm supposed to magically know what is normal. I'll be honest, math isn't my strong point so I barely know how I'm doing.

Also, face-punching is cool. I know there is some stupidity up there.
« Last Edit: March 09, 2017, 10:57:09 AM by RidetheRain »

farmerj

  • 5 O'Clock Shadow
  • *
  • Posts: 62
Re: Reader Case Study - Is a house too much to ask?
« Reply #1 on: March 07, 2017, 04:04:10 PM »
401k: 546 (w/ match = 1092) => That's a terrific match. You are contributing enough to get all of it, right?

Rent   $1048 =>  I'm assuming that's just your share of the overall rent because you're in California.

Do you qualify for an HSA/Health Savings Account?

"I'd like to buy a house as part of my overall RE plan."

Downpayment should be ~20% of the total price of the house, which depends on both your standards and your target area. Have fun browsing Zillow. You'll also want a buffer in case of untoward events immediately after the home-purchasing process.

Penalty-free withdrawals can be made from IRAs for qualified first time homebuyers, the actual description of which really stretches the definition of what a "first time homebuyer" is. There's a lifetime $10,000 limit. The Roth IRA is usually the best vehicle for this.

http://finance.zacks.com/tax-impact-ira-withdrawal-firsttime-home-buyer-2068.html 

Mikila

  • Stubble
  • **
  • Posts: 150
Re: Reader Case Study - Is a house too much to ask?
« Reply #2 on: March 07, 2017, 04:07:18 PM »
What is your timeline for buying and how much are you planning to spend?  Let's say you want to spend 150,000- it's in one of those cheaper housing states you mentioned, hypothetically, of course.  The math is 150,000 * .20 (assuming you want to put down 20%)/ the number of years before you will need the money/ 12 months = the amount you would need to save per month to reach your goal. This is very simplistic, not factoring interest or closing costs, but that should give you a starting place. 

Right now the best thing you could do for your future self is probably to max out your retirement accounts first.  401k, then IRA.  That should save you a pretty penny on taxes, so that your bottom line *net pay* will not drop by the full amount of your added 401K contributions.  There is a paycheck calculator out there somewhere.  Here is one I found in a quick google search, there are others, take your pick.  https://www.calcxml.com/calculators/pay02

PlainsWalker

  • 5 O'Clock Shadow
  • *
  • Posts: 18
  • Age: 32
  • Location: Oklahoma City, OK
Re: Reader Case Study - Is a house too much to ask?
« Reply #3 on: March 07, 2017, 04:20:58 PM »
Others have offered good advice on the financial side of things. Since you mentioned my home state I will pipe up on locations. It's always good to hear a Californian talking about moving to the central plains. A lot of Okies pulled up their stakes and headed off to the west coast during the dust bowl. Very few have moved back. There is a bit of a cultural difference between L.A. and OKC (managed to say that with a straight face). Oklahoma is a very red state in the buckle of the bible belt. Kind of the polar opposite of the west coast.
That 60k you're talking about saving for a down payment would outright buy a reasonable house out this way.
Neither snow nor rain nor heat nor velociraptors nor gloom of night stays these bicycle commuters from the swift arrival to and from their place of work.

RidetheRain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 25
  • Location: Los Angeles
Re: Reader Case Study - Is a house too much to ask?
« Reply #4 on: March 07, 2017, 04:29:57 PM »
There is a bit of a cultural difference between L.A. and OKC (managed to say that with a straight face).

No worries :) I grew up in a red household and you'll notice the student debt of an out-of-stater (Indiana). California only taught me one political lesson: keep your mouth shut!

My brother lives in OKC and the rest of the family is on that side of the Rockies too. I'd be able to visit!

seathink

  • 5 O'Clock Shadow
  • *
  • Posts: 88
  • Age: 35
  • Location: Los Angeles
Re: Reader Case Study - Is a house too much to ask?
« Reply #5 on: March 07, 2017, 04:34:28 PM »
I have a friend who did this just last year. Was out in Cali for 18+ years, moved back home to Western PA. The 3 bedroom 2 bath house he bought in his parents's town was $130,000.
“Keep what is of no use at the moment, and later you will find what you need, one of her grandmothers had told her, the water in which you soak them will also serve to cook them, and whatever remains from the cooking will cease to be water, but will have become broth. It is not only in nature that from time to time not everything is lost and something is gained.” ― José Saramago, Blindness

The stockmarket is the worst place you grow your money passively except for every other alternative.

RidetheRain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 25
  • Location: Los Angeles
Re: Reader Case Study - Is a house too much to ask?
« Reply #6 on: March 08, 2017, 12:00:32 PM »
I am getting my full company match, but I'm planning on increasing my contribution to 10%. I have updated the post to reflect that expectation.

I won't be maxing out my possible contributions at 10%. And I could theoretically contribute more. But, I'd like to start saving for a house. Right now, 826/mo will get me to roughly 60,000 in 6 years which is fine by me. Is that a bad idea? Should I be putting it all in my 401k? I would love to contribute more to my 401k (get to the magic 16% that will max my limit) or even beyond that to also contribute the max to an IRA. But, that means cutting my budget or scrapping my housing hopes.

I've done a lot of budget-optimizing in the past few months, but I'm starting to need help. I'm feeling too good about my changes and am slacking on thinking of new ideas. I have a lot more detail in my YNAB budget if you have questions about what comes out of the categories.

Let me know about ideas?

Novik

  • Stubble
  • **
  • Posts: 124
  • Location: Ottawa, ON, Canada
Re: Reader Case Study - Is a house too much to ask?
« Reply #7 on: March 08, 2017, 02:40:20 PM »
A few thoughts for you.

Great job on increasing that 401k to 10%. With that space being one time use only, it's so important to take advantage as much as possible. I would really encourage you to try and max it out with 16%. Your annual income tax/FICA bill will drop about 4.5k, so adding an extra 900 a month only costs you ~500$/month really. (also consider maxing out your IRA if/when possible, given that you can take withdrawals to buy a house)

Can you give some more detail on the employee stock plan? You're paying 624$ a month into it. What's the return you're expecting, and in what timeframe? If you could divert that to savings, your house plans are 100% on track even with maxing out retirement accounts. More details please!

You need to get a better range of house prices (as one poster recommended, Zillow is your friend here). People have mentioned 60k could buy you anywhere from 50-100% of a house... or in some places, it might just be the downpayment. You could adjust your goal down if you're looking at houses costing <200k or are willing to pay PMI for a short while.

The boyfriend: I'm going assume that his work travel costs are relatively optimized, and he's considered if it makes sense to refinance his loans, and he's not earning an unreasonable low salary. Given those assumptions, what's the timeline for those loans being paid off? If it's shorter than the house buying timeline, there are some extra savings to be had when he's done and can shoulder an equal burden in the household. Similarly, you'll have an extra 300$/month in your budget in 3 years when your car is paid off.

A few clarifying questions on your budget:
  • What's the 85$ in utilities for (since it's not electric/phone/internet/insurance)?
  • How fixed is the 350$ medical, and does your insurance allow for an HSA to spend that pretax?
  • Dining out - is that the occasional nice meal or lots of fast food? (I think we can suggest ways to reduce it if we know how/why/when it's spent)
  • Same with the misc for 200$ - what kinds of things go in there?
Two pieces of good news. You already have 12k in cash, and some of that is EF, yes, but that counts towards the buffer you need when buying an house (ie. in case the water heater goes on day 1). Plus you can earn a bit of money on the savings if you invest them in longer term CDs and/or free high interest online savings accounts (especially ones with bonuses or promotional interest rates). This will cancel out or even slight beat inflation.

For the sake of demonstration, assume you realize you just need 50k on top of your current savings. With maxing your 401k, you would have about 1200$ left every month (and are currently spending more than half of it on your employee stock purchase). Making no changes, saving the remaining ~560/month for 3 years + 860/month for the next 3 years once your car is paid off gives you 51k after 6 years. With changes to the ESP/budget/boyfriend contributions/safe investments, it could be more and faster.

(I'm now terribly worried I screwed up the math somewhere in this, but I hope all the ideas help)
Brand new journal! Procrastinating my way to FIRE
If you're a dual American/Canadian citizen living in Canada and investing in index funds outside an RRSP, please PM me!

RidetheRain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 25
  • Location: Los Angeles
Re: Reader Case Study - Is a house too much to ask?
« Reply #8 on: March 09, 2017, 10:48:45 AM »
Thanks Novik! I've answered a bunch of your questions below and tried really hard not to whine about how much I need stuff. I became less successful the farther down you read :) but you blew my mind with the fresh take and I'm really grateful for the help!

so adding an extra 900 a month only costs you ~500$/month really. (also consider maxing out your IRA if/when possible, given that you can take withdrawals to buy a house)

This is a really good point. I'm not sure about raising to 16% yet, but I might try working my way up to it. I don't want to run out of cash! The IRA is a really good point. I didn't put the dots together about being able to withdraw for a house (despite having that information in my brain) until you pointed it out. Definitely a good idea! Especially if I need to delay buying for whatever reason.

Can you give some more detail on the employee stock plan? You're paying 624$ a month into it. What's the return you're expecting, and in what timeframe? If you could divert that to savings, your house plans are 100% on track even with maxing out retirement accounts. More details please!

I'll add more detail above, but here are the cliffs notes
Every six months (November and May) my stocks vest and I get a 15% discount on company stock. Boom 15% return. I generally sell right away. The company does well so I can wait if it's unusually low, but I haven't encountered that yet. I can only change my contributions at these two times too so I'm locked in until May.

I use $100/mo of the last period's take as budget supplement (unnecessary now that I'm saving) and the rest was squandered prior to finding MMM. So to clarify: $100 of savings is "extra" from this fund and every six months I get a windfall of $4000. I don't know how to make that clear on my top chart, but I'll do my best. Probably have to remove that 100 from "savings"...

The boyfriend: I'm going assume that his work travel costs are relatively optimized, and he's considered if it makes sense to refinance his loans, and he's not earning an unreasonable low salary. Given those assumptions, what's the timeline for those loans being paid off? If it's shorter than the house buying timeline, there are some extra savings to be had when he's done and can shoulder an equal burden in the household. Similarly, you'll have an extra 300$/month in your budget in 3 years when your car is paid off.

He takes the bus at the moment and I'm teaching him to ride a bike. So travel is almost optimized, but the $70/mo for the pass isn't a huge dent. The loans (for both of us) still have 8 years. So not getting paid off too soon. So only expected change is an inflow of $70.

A few clarifying questions on your budget:
What's the 85$ in utilities for (since it's not electric/phone/internet/insurance)?
Water: 60, Gas: 25. Clarified up top. Gas doubled when we started cooking at home more often. We have a gas stove. Water is a division of apartment water so I don't have control over that.

How fixed is the 350$ medical, and does your insurance allow for an HSA to spend that pretax?
I was too dumb to properly look at my insurance this past time around. I know my company offers a plan with HSA. I'll make a note for next time. $350 is fixed unless medication prices go down. I expect them to rise.

Dining out - is that the occasional nice meal or lots of fast food? (I think we can suggest ways to reduce it if we know how/why/when it's spent)
This is a bit of both. Generally, one or two nicer meals out per month ($30/ea) and the rest is lunches. We bring sack lunches to work, but weekends are bad. We really like Chipotle. The two of us there skate just above $20 per meal. That happens almost every weekend - it's on the way home from the dog park so we walk past it every Saturday. Maybe we should just go to the park after lunch!

Same with the misc for 200$ - what kinds of things go in there?[
Various misc: clothing (work and casual), hobby spending (I do needlepoint and quilting), and the big one: household items that we just haven't acquired yet. Since we're both two years out of school, a lot of the big things aren't bought yet. So when we needed bath towels instead of the two beach towels it came out of this, or when we started cooking at home more and needed a knife and pan. We limit that kind of spending to $100/mo, but it's hard to cut this because there's always something else. For example, once boyfriend learns to ride a bike consistently we'll use this money for a bike, helmet, etc for him too (my mountain bike isn't great for commuting).

The biggest concern here is that the spending will move from life-necessities to lifestyle drift. It's easy to make excuses.

Making no changes, saving the remaining ~560/month for 3 years + 860/month for the next 3 years once your car is paid off gives you 51k after 6 years.

This is the most beautiful thing I ever read. I completely forgot to add in savings after loans are paid off in my calculations. And I forgot that my EF counts as cash on hand which I had added in my "Need for house" calculations.

ysette9

  • Handlebar Stache
  • *****
  • Posts: 1046
  • Location: Bay Area, CA
Re: Reader Case Study - Is a house too much to ask?
« Reply #9 on: March 09, 2017, 11:22:34 AM »
It sounds like you are on a good track with savings. Since you have time on your side to reflect, I'd recommend adding in a few more things to ponder. Why do you want to buy a house? Is it because it is something people do or you feel it is an important part of FIRE plans (can go either way), or because it would be cheaper wherever you end up? Are you looking at other places because that is where you actually want to live or just because housing is cheaper outside CA? Do you have a feel for how much less you would earn out of state? What are your plans for the boyfriend? No need to rush with that, but I strongly recommend against buying a house with him or otherwise intermingling your finances in any significant way unless married because you put yourself at a lot of risk. There was one thread in particular I remember from the last month where a guy was potentially getting big-time screwed on a house he co-purchased with a girlfriend when she decided she "needed a break" and he had nothing in writing protecting his investment in the house.

One last thought: can you sell that car and get something cheaper that doesn't come with an under water loan? That would free up that much more to save monthly.
"It'll be great!"

Novik

  • Stubble
  • **
  • Posts: 124
  • Location: Ottawa, ON, Canada
Re: Reader Case Study - Is a house too much to ask?
« Reply #10 on: March 09, 2017, 12:11:47 PM »
Making no changes, saving the remaining ~560/month for 3 years + 860/month for the next 3 years once your car is paid off gives you 51k after 6 years.
This is the most beautiful thing I ever read. I completely forgot to add in savings after loans are paid off in my calculations. And I forgot that my EF counts as cash on hand which I had added in my "Need for house" calculations.

That makes me so happy! I'm so glad you found my comment helpful. It was a fun one to make, given that you're (somewhat unknowingly) in an amazing situation.

Sounds like the budget items I brought up are super reasonable (I figured it might be, but worth laying it all out there to be sure). Always room for more tweaks (split something at Chipotle, or after lunch as you point out), but you don't need to deprive yourself when you're in such a strong position.

Completely understand about the misc household items... boyfriend and I are < 1 year out of school and super lucky to have gotten so many hand me downs from parents and still buy things regularly (casserole dish!). If you're tracking more specific categories in YNAB,  then over the long term you can watch for lifestyle inflation trends (ie. shifts from household misc to all hobbies).

As for medical, definitely take a deeper look at your insurance next time you can switch, but if you've got consistent medical needs it's possible switching to an HSA eligible plan may increase your costs (higher deductible or something). Honestly I live in Canada so I'm not an expert, and who knows what healthcare options will look like in 2018 so good luck.

The big ticket items are still 401k and ESP -

This is a really good point. I'm not sure about raising to 16% yet, but I might try working my way up to it. I don't want to run out of cash! The IRA is a really good point. I didn't put the dots together about being able to withdraw for a house (despite having that information in my brain) until you pointed it out. Definitely a good idea! Especially if I need to delay buying for whatever reason.

...

Every six months (November and May) my stocks vest and I get a 15% discount on company stock. Boom 15% return. I generally sell right away. The company does well so I can wait if it's unusually low, but I haven't encountered that yet. I can only change my contributions at these two times too so I'm locked in until May.

I use $100/mo of the last period's take as budget supplement (unnecessary now that I'm saving) and the rest was squandered prior to finding MMM. So to clarify: $100 of savings is "extra" from this fund and every six months I get a windfall of $4000.

By my math you save 8600$ a year through the ESP (paying it to your paycheque and then selling it @ 15% gain). This also totally counts as money you have towards your house fund now that you're not longer going to squander it when it lands in your lap!

Downside: you're probably/possibly paying higher rate capital gains on that if you're selling quickly to minimize risk, and you're using after-tax money to do so. I'd keep doing it at some level, but at your marginal tax rate, 401k money is a much better deal (although less cash in hand).  (I'm guessing you can't do the ESP inside your 401k and just sell quickly and buy index funds?? That would be the best compromise).

So again, keep inching up on those 401k/IRA contributions, then see how much you have to throw at taxable savings (ESP included... it might even be  the full 10%, because you'll have a large EF so you won't need lots of cash leftover each month). As per my earlier math, 560$ a month now, which is really 560+624 = ~1200$ a month (and more when your car loan is gone). Since you're worried about cash flow, I'd plan to have contributions change in May, and use your May cash infusion as an extra comfort buffer as you adjust. So that way you're living on the last windfall (like YNAB live on last month's money).
Brand new journal! Procrastinating my way to FIRE
If you're a dual American/Canadian citizen living in Canada and investing in index funds outside an RRSP, please PM me!

jessicat

  • 5 O'Clock Shadow
  • *
  • Posts: 34
Re: Reader Case Study - Is a house too much to ask?
« Reply #11 on: March 10, 2017, 06:58:24 AM »
why are your loans going to take 8 more years?  Can't you pay them off faster?

RidetheRain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 25
  • Location: Los Angeles
Re: Reader Case Study - Is a house too much to ask?
« Reply #12 on: March 10, 2017, 10:01:13 AM »
why are your loans going to take 8 more years?  Can't you pay them off faster?

For myself, I have basically no incentive to pay off my loan early. For one, I have an interest rate of 0% since the loan is to my parents and they have the freedom to not charge me inflation. Also, they generally forgive some of the debt as Christmas presents which they can't do if I pay it all off. So the $ I lose from opportunity cost after it's paid off is made up for in generous forgiveness and lack of interest. I have no promise that they will keep with the current forgiveness schedule, but they have generally knocked off 6000/yr or 10%-ish.

For the boyfriend, I honestly stay out of his loan business. I know he pays the minimum and can't afford to pay more at his current job. So far as interest rates, I have no idea. He didn't get a credit card as early as me so his credit is still young and better interest rates are unlikely if he tried to refinance.

There was a warning somewhere above about some bad situations for people dating and mingling finances. I hear you! If we aren't married by the time we buy a house (unlikely) then it will be the house of the person who buys it or a contractually shared property based on percentage equity. I am reasonably familiar with this type of real estate wrinkle since my extended family enjoys sharing property. Everything from legal financial holdings to setting up contractual rules for the use of the property has been talked and beaten to death at dinner tables through my life. But, I do appreciate the warning. It's easy to be trusting or fear offending.

ChpBstrd

  • Bristles
  • ***
  • Posts: 257
Re: Reader Case Study - Is a house too much to ask?
« Reply #13 on: March 10, 2017, 10:02:07 PM »
If you move away from Cali, you can unfortunately say goodbye to that excellent $109k/year salary. Check Salary.com to find your new likely salary. After you wake up from the fainting spell, redo your budget using mortgage expenses estimated from Zillow.

I'm doing the math the opposite way. I could earn about $20k more in California than here in the deep south, but almost all that would go into housing expenses. There's no free lunch unless you can trick a California employer into letting you work your six-figure job from your $140k home in Oklahoma City.

frugal_c

  • Stubble
  • **
  • Posts: 124
Re: Reader Case Study - Is a house too much to ask?
« Reply #14 on: March 12, 2017, 03:15:44 PM »
If you move away from Cali, you can unfortunately say goodbye to that excellent $109k/year salary. Check Salary.com to find your new likely salary. After you wake up from the fainting spell, redo your budget using mortgage expenses estimated from Zillow.

I'm doing the math the opposite way. I could earn about $20k more in California than here in the deep south, but almost all that would go into housing expenses. There's no free lunch unless you can trick a California employer into letting you work your six-figure job from your $140k home in Oklahoma City.

I agree with this.  Make sure you factor in your wage difference along with the real estate difference.  It is possible you are better off moving but you need to take both sides of the equation into account.   I would also consider what impact renting part of the home would have in either case. 

Guide2003

  • 5 O'Clock Shadow
  • *
  • Posts: 56
  • Location: Mobile, AL
Re: Reader Case Study - Is a house too much to ask?
« Reply #15 on: March 12, 2017, 06:56:25 PM »
People have already hinted at this, but I'd add the obvious point that when you ask if a house is too much to ask, you should iron out what kind of house you are looking for. If you're expecting a turnkey house up to the standards that your parents provided before you left for college, the answer is likely that you need to keep saving for a while. On the other hand, if you're looking to rehab something or catch the first wave of gentrification like this (https://granolashotgun.com/2017/01/24/re-inhabitation-of-small-town-america/) you could be much closer than you think. There's a lot of great info on various blogs about the pure math behind owning vs renting, but if you enjoy doing the work, a fixer-upper can be a good side hustle. We hit the market just right, but in three years of working on our first house I profited the equivalent of ten years of our then modest savings rate. Then sitting there with all this newfound money I was like "holy crap, what do I do" and in my googles found MMM. We knew all along that that house wasn't our dream and in fact was tough to squeeze in to, but from the get-go it was about making money and leveraging the advantages behind a primary residence.

Meg77

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Reader Case Study - Is a house too much to ask?
« Reply #16 on: March 14, 2017, 11:49:02 AM »
Just another comment to help you feel better: you're not factoring in any raises or promotions to the equation.  You're 24 and earning great money.  That means if you stay on the track you're on, you will one day be 30 and earning amazing money.  I'm 33 and I laugh now - literally out loud - when I go back and read my financial budgets and projections from my 22-25 year old self.  My income has almost quadroupled since my first very decent salary out of college, if you include bonuses.  I got married 3 years ago to a guy earning a bit less than I do, and his income has risen in spurts with 2 job changes in the last 4 years.  He's now earning well over what I do.

My point is - income is hard to predict, but it won't stay the same.  Usually it goes up; I don't know any 30-somethings who are making what they did when they were 24, regardless of career choice.

I am a real estate junkie so in general I'm fine with you putting 10% in a 401k, maxing out a Roth IRA and putting the rest in cash for a home.  But I'd caution you to not think too much about that for now.  You have no idea where your career or relationship may take you in the next 5 years, and flexibility with regard to housing will make your life much easier.  You could have 3 kids over the next 6 years - or you could end up single.  You could get a great job opportunity out of state, or you could just decide to move closer to your family due to an illness.  You have plenty of time to own real estate.  See where your 20's take you first.  I would AVOID buying a home until you either get engaged to or break up with your BF.  Breakups happen, but so do unexpected deaths and disabilities.  Lots of potential legal headaches can be mitigated by delaying any joint ventures until you're under the contract of marriage (including paying each others debts and bills or acquiring assets).  Or if possible, buy a home and get a mortgage in your name only if you must own prior to getting married. 

RidetheRain

  • 5 O'Clock Shadow
  • *
  • Posts: 39
  • Age: 25
  • Location: Los Angeles
Re: Reader Case Study - Is a house too much to ask?
« Reply #17 on: March 15, 2017, 10:50:17 AM »
Thanks for the thoughts everyone!

I know that I'll take a hit on the income by moving out of California. But, I live in a very high COLA area so I'm definitely going to do the math on any place I consider. Part of the reason I want to save up for the deposit now is because I know I'm earning a lot in an area that causes extra high salaries. It's hard to speak for future me, but current me would take a cut just to get out of this city and away from the state. If my job offer out of college hadn't been contingent on a move to California I would never have moved here. Someone questioned my expectation for raises. This is obviously something I haven't allowed for in my calculations, but any extra cash would just speed up the timeline really. I don't think forecasting raises beyond COLA is prudent. I've already doubled my salary since I started working so it's certainly not out of the question.

So far as what I'm looking for in a house. I haven't spent much time on a wish-list but the below are some ball-park ideas people have questioned.
  • Suburbia. Out of the city, but let's not get too far away now. I'd like to be within an hour or two of a good sized airport. It was a pain to live in Indiana where the closest airport was hours away.
  • Bigger lot, smaller house. Depending on location this can be both more or less expensive. So cost neutral?
  • Fixer-uppers acceptable. My childhood home always had something needing done so I learned a lot - I'd enjoy it too. Lowers cost
  • Two stories. I like stairs. Raises cost.
  • No concerns about schools or anything. Children aren't in my future.