Author Topic: When you should ask for less salary than you're worth  (Read 4250 times)

monstermonster

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When you should ask for less salary than you're worth
« on: August 09, 2016, 12:25:01 PM »
After years of getting paid poverty and below poverty wages, I make a good wage now - $49,000. I'm JUST under the cusp of 100% of median family income right now.

I'm considering switching jobs right around the time that I'm also on the market to possibly buy a house mid next year. The decision to buy a house is a long drawn out discussion with various pros and cons, and I don't want to get into it that discussion. What I AM curious about is if I should look into negotiating for a salary that keeps me below $50K (median family income) - even if market value is a little higher for the job (say $54K) - because it will mean I qualify for a lot of homebuying incentives that I get to keep for the life of the loan.

The Market: the bottom of the housing market in my city right now is very close to the top of my price range on $49,000 income - it's hard to get something for less than $250,000 right now. However, with our rental housing market crisis, buying still comes far ahead of renting. If I were to make more, I might theoretically be able to get a property with a yard that in the future could lead to more rental income (ADU). At current income level, I will not qualify for a property large enough for an ADU.
How Income is Calculated: It is based on gross pay stub, not W-2, so bonuses won't be calculated towards income. However, maxing out my 401K does NOT lower my calculatable income.

Incentives I get as a first-time buyer at below 100% MFI:
  • A mortgage credit certificate for the life of the loan that gets me 20% extra back on my mortgage interest tax credit even if I don't itemize. This is worth less and less each year due to amortization schedules.
  • Property tax abatement for 10 years (it really depends on where I buy how much this is worth, but around ~$2000/year)
  • I get a special subsidized 2.75% interest mortgage.
  • If I needed it, a silent, forgivable 2nd mortgage to get me to 20% down payment if I don't have it myself (I hope to have it, though, I'm on track to) - this is a 0% loan with .012% APR.
  • A 3-to-1 match on $2,000 saved towards a downpayment, so $6,000 of "free money".
All of these things are locked in after I close, even if then my income goes up.

So, should I try to "game" the system by negotiating for less than I might be worth at market value, and then after buying attempt to get a raise? Is this is a case where you shouldn't try to get the maximum compensation in straight salary?

Yes; I'm not counting my chickens before the eggs hatch; this is just a theoretical proposal, not a current negotiation. I'm just curious to wrap my head around the numbers.

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #1 on: August 09, 2016, 02:32:10 PM »
Close on your mortgage before you change jobs if at all possible. 

It's weird to open salary discussions with a new employer with unethical undertones.  If you do find yourself in salary negotiations before you close, I would not mention your motivation for a target salary that's less than what they are offering.  Consider accepting a lower salary in exchange for higher benefits like more vacation time, company car, etc.  The larger the employer, the less likely this is possible. 

Really the right solution is to close before you change jobs - if you miss this opportunity, you can still celebrate a new job with higher income and a new house.  Let someone more needy take the taxpayer funded subsidies.

(PS - this sort of thing annoys me because I'm a taxpayer that funds many programs like this that are subject to abuse).
As a low-income taxpayer, I've been subsidizing above median income people's choice to buy a house my entire working life with my taxes, even when I am earning poverty level wages. I have no qualms about taking advantage of tax optimization, just the same as rich people do. The vast majority of government program money for housing aid goes towards people in the top 10% through the mortgage interest tax deduction.

This isn't "abuse", by the way - I am legally under the income limit, and always have been. Do you consider utilizing the mortgage interest deduction abuse? Do you consider salary negotiation that factors in tax brackets abuse of the tax code? It might be abuse if I was using these benefits by lying about my income, committing fraud by not owner-occupying the property and renting it out instead, or lying about being a first-time homebuyer. None of those are true.

I understand your initial reaction but please consider this from a practical standpoint- 6 months ago I wouldn't even conceive that I would ever be pushing $50,000 in compensation. When I took this job in May I got a $10,000 salary bump that finally put me in spitting distance of owning a home. Rather than abusing the system, I have used it exactly as intended - I worked diligently, enrolled in most of these programs when I was at 60% of MFI ($15/hr, my wage 14 months ago), not 98% of MFI, and saved money and didn't buy a house before I was ready. The systems lock you in for the life of mortgage, regardless of a salary increase, because they're intended to be a boost up as you climb the income ladder. The reason that date has been getting further and further away for me is because of rich Californians coming into my city, driving up the real estate market by buying houses for 120% of list price in cash, and then flipping them to rent out on airbnb. I don't think middle class people like myself are the ones abusing the system.

I was at poverty level pay for 10 years, served 2 years in Americorps, and saved diligently for a down payment on a $11,000 annual wage, trying to get to 20% like a responsible person.

I'm still trying to get to 20% so it's possible I won't be able to close before I change jobs, but that would be the ideal scenario, of course.

JLee

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Re: When you should ask for less salary than you're worth
« Reply #2 on: August 09, 2016, 02:44:13 PM »
Close on your mortgage before you change jobs if at all possible. 

It's weird to open salary discussions with a new employer with unethical undertones.  If you do find yourself in salary negotiations before you close, I would not mention your motivation for a target salary that's less than what they are offering.  Consider accepting a lower salary in exchange for higher benefits like more vacation time, company car, etc.  The larger the employer, the less likely this is possible. 

Really the right solution is to close before you change jobs - if you miss this opportunity, you can still celebrate a new job with higher income and a new house.  Let someone more needy take the taxpayer funded subsidies.

(PS - this sort of thing annoys me because I'm a taxpayer that funds many programs like this that are subject to abuse).
As a low-income taxpayer, I've been subsidizing above median income people's choice to buy a house my entire working life with my taxes, even when I am earning poverty level wages. I have no qualms about taking advantage of tax optimization, just the same as rich people do. The vast majority of government program money for housing aid goes towards people in the top 10% through the mortgage interest tax deduction.

This isn't "abuse", by the way - I am legally under the income limit, and always have been. Do you consider utilizing the mortgage interest deduction abuse? Do you consider salary negotiation that factors in tax brackets abuse of the tax code? It might be abuse if I was using these benefits by lying about my income, committing fraud by not owner-occupying the property and renting it out instead, or lying about being a first-time homebuyer. None of those are true.

I understand your initial reaction but please consider this from a practical standpoint- 6 months ago I wouldn't even conceive that I would ever be pushing $50,000 in compensation. When I took this job in May I got a $10,000 salary bump that finally put me in spitting distance of owning a home. Rather than abusing the system, I have used it exactly as intended - I worked diligently, enrolled in most of these programs when I was at 60% of MFI ($15/hr, my wage 14 months ago), not 98% of MFI, and saved money and didn't buy a house before I was ready. The systems lock you in for the life of mortgage, regardless of a salary increase, because they're intended to be a boost up as you climb the income ladder. The reason that date has been getting further and further away for me is because of rich Californians coming into my city, driving up the real estate market by buying houses for 120% of list price in cash, and then flipping them to rent out on airbnb. I don't think middle class people like myself are the ones abusing the system.

I was at poverty level pay for 10 years, served 2 years in Americorps, and saved diligently for a down payment on a $11,000 annual wage, trying to get to 20% like a responsible person.

I'm still trying to get to 20% so it's possible I won't be able to close before I change jobs, but that would be the ideal scenario, of course.

I agree with the earlier comment - close on the house before you move jobs.  Your new salary will be your base from which you move up, so you want that as high as possible.

Please explain how a poverty level wage earner is subsidizing high income earners regarding taxes...

mskyle

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Re: When you should ask for less salary than you're worth
« Reply #3 on: August 09, 2016, 02:50:31 PM »
I think accepting a lower salary would do more harm than good. If you anchor yourself at a low pay rate there is no guarantee you will be able to get back to market rate in the near term, especially if you're planning to stay at the same employer for a while. Re-negotiating for a raise that has nothing to do with your performance or duties after a short time on the job is 1) unlikely to succeed and 2) likely to leave a bad taste in your employer's mouth.

The benefits of this particular first-time homebuyer program are great - probably like $80,000 worth of great (very rough back-of-envelope calculation). But you will still qualify for *other*, less-awesome first-time-homebuyer programs with a higher salary.

Meanwhile, if you suppress your income, you very well may end up earning 10% less for the rest of your working life. If you're only planning on working 5 or 10 more years, or if you're planning on changing industries again soon maybe that's NBD.

Imagine you average a 5% raise every year. After ten years, the difference between starting at $49K and $54K is $50,000 in income. After 20 years it's $150K in income. Even if you only get a 3% increase every year you're leaving $125K on the table over 20 years.


It's not *actually* that simple; you might get lucky and be able to make up the difference. Maybe the law recently passed in Massachusetts that prevents employers from asking about your salary history will catch on across the country. But you really might not ever make that difference up.

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #4 on: August 09, 2016, 02:50:55 PM »
Please explain how a poverty level wage earner is subsidizing high income earners regarding taxes...
Through the mortgage interest tax deduction which disproportionately goes to the high-income and makes up the majority of government housing aid. I have paid into the tax system, not getting a discount on my housing, the same as most poverty level people, while those that are at higher incomes who choose to own a home receive the mortgage interest tax deduction.



Okay- I'm still working on this theoretical. Let's assume I can't find a home I can afford before I switch jobs (current job is making me miserable and I'm working 75+ hours a week right now). Should I be negotiating for the maximum possible like usually encouraged or negotiating based on other tax factors, such as possible house?

Edit: Replied before I saw other posts! thanks Mskyle and bender! Lifetime salary deferential is what I was working off of. I'm used to nonprofits that don't usually come with a raise.
« Last Edit: August 09, 2016, 02:52:45 PM by monstermonster »

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #5 on: August 09, 2016, 03:01:14 PM »
I think accepting a lower salary would do more harm than good. If you anchor yourself at a low pay rate there is no guarantee you will be able to get back to market rate in the near term, especially if you're planning to stay at the same employer for a while. Re-negotiating for a raise that has nothing to do with your performance or duties after a short time on the job is 1) unlikely to succeed and 2) likely to leave a bad taste in your employer's mouth.

It's not *actually* that simple; you might get lucky and be able to make up the difference. Maybe the law recently passed in Massachusetts that prevents employers from asking about your salary history will catch on across the country. But you really might not ever make that difference up.
I was thinking about something closer to "I want to earn $49,000 but after 6 months, if I'd hit these performance targets, I'd like to talk about a bonus or a raise" - so tying it to performance.

I don't really think I *need* even what I'm making now and don't generally want to make a ton of money, just want to live simply and be comfortable to save 50% or more of my income, i.e. I'm making a dreamy salary at this point. But I suspect you're likely right regarding suppressing future wages versus the benefits of the homebuyers program. By taking current job ($10K salary bump job), I put myself out of the running for a TON of even better programs that are for people at 80% of MFI, but the salary bump plus things like full-paid healthcare seemed worth it.

I think it's unlikely I'll be able to close on a house before I leave this job, unfortunately. I'm miserable at this job and there's 0 time to house shop. Just trying to make it to the election. Honestly, if I close on a house before I leave this job, something bad is probably happening because it means I'm still in this terrible job.

JLee

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Re: When you should ask for less salary than you're worth
« Reply #6 on: August 09, 2016, 03:10:01 PM »
Please explain how a poverty level wage earner is subsidizing high income earners regarding taxes...
Through the mortgage interest tax deduction which disproportionately goes to the high-income and makes up the majority of government housing aid. I have paid into the tax system, not getting a discount on my housing, the same as most poverty level people, while those that are at higher incomes who choose to own a home receive the mortgage interest tax deduction.



Okay- I'm still working on this theoretical. Let's assume I can't find a home I can afford before I switch jobs (current job is making me miserable and I'm working 75+ hours a week right now). Should I be negotiating for the maximum possible like usually encouraged or negotiating based on other tax factors, such as possible house?

Edit: Replied before I saw other posts! thanks Mskyle and bender! Lifetime salary deferential is what I was working off of. I'm used to nonprofits that don't usually come with a raise.

"Not receiving aid" is different than "subsidizing others."  Low income people don't pay enough taxes to subsidize anything of note; furthermore, if a poverty level household did have mortgage interest to itemize, they wouldn't get any extra money back from the government for it because they wouldn't owe any taxes to begin with (assuming a poverty level income with enough deductions to exceed the standard deduction, no federal tax would be owed at all).

Anyway, this is a different topic entirely.  :)

I would negotiate for as much money as you can get, and also (re)consider if you really do want to buy a house that's ~5x your annual income.  It's not something I could imagine doing, but of course you are more familiar with your situation than I.

I think accepting a lower salary would do more harm than good. If you anchor yourself at a low pay rate there is no guarantee you will be able to get back to market rate in the near term, especially if you're planning to stay at the same employer for a while. Re-negotiating for a raise that has nothing to do with your performance or duties after a short time on the job is 1) unlikely to succeed and 2) likely to leave a bad taste in your employer's mouth.

It's not *actually* that simple; you might get lucky and be able to make up the difference. Maybe the law recently passed in Massachusetts that prevents employers from asking about your salary history will catch on across the country. But you really might not ever make that difference up.
I was thinking about something closer to "I want to earn $49,000 but after 6 months, if I'd hit these performance targets, I'd like to talk about a bonus or a raise" - so tying it to performance.

I don't really think I *need* even what I'm making now and don't generally want to make a ton of money, just want to live simply and be comfortable to save 50% or more of my income, i.e. I'm making a dreamy salary at this point. But I suspect you're likely right regarding suppressing future wages versus the benefits of the homebuyers program. By taking current job ($10K salary bump job), I put myself out of the running for a TON of even better programs that are for people at 80% of MFI, but the salary bump plus things like full-paid healthcare seemed worth it.

I think it's unlikely I'll be able to close on a house before I leave this job, unfortunately. I'm miserable at this job and there's 0 time to house shop. Just trying to make it to the election. Honestly, if I close on a house before I leave this job, something bad is probably happening because it means I'm still in this terrible job.

Have you gone through the numbers for this?  If you're considering a $250,000 house, I don't see how you could possibly meet your savings goals.

I don't want to poke holes in your balloon, but I don't see the math working out in your favor.
« Last Edit: August 09, 2016, 03:12:49 PM by JLee »

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #7 on: August 09, 2016, 03:18:41 PM »
Have you gone through the numbers for this?  If you're considering a $250,000 house, I don't see how you could possibly meet your savings goals.

I don't want to poke holes in your balloon, but I don't see the math working out in your favor.
I've gone through the numbers about 10 times over, unfortunately. I am so sick of running the numbers.

Right now I share a studio with my SO that costs $1,530/month total. That's par for the course in Portland at this point. I can get a 2-bedroom for $250,000 and have a roommate and pay around ~$1200/month in PITI with around $700 in market rate rent for the second room making my housing costs around $500 between SO + roommates rent. A rental 2-bedroom is about $2,300/month at this point.

With my current housing costs at $550 (I pay proportional rent, SO makes more), I save around 60% of my post-tax income.
« Last Edit: August 09, 2016, 03:20:43 PM by monstermonster »

mskyle

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Re: When you should ask for less salary than you're worth
« Reply #8 on: August 09, 2016, 03:37:32 PM »
Have you gone through the numbers for this?  If you're considering a $250,000 house, I don't see how you could possibly meet your savings goals.

I don't want to poke holes in your balloon, but I don't see the math working out in your favor.
I've gone through the numbers about 10 times over, unfortunately. I am so sick of running the numbers.

Right now I share a studio with my SO that costs $1,530/month total. That's par for the course in Portland at this point. I can get a 2-bedroom for $250,000 and have a roommate and pay around ~$1200/month in PITI with around $700 in market rate rent for the second room making my housing costs around $500 between SO + roommates rent. A rental 2-bedroom is about $2,300/month at this point.

With my current housing costs at $550 (I pay proportional rent, SO makes more), I save around 60% of my post-tax income.


Are you sure you don't have to include your SO's income as part of your household?

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #9 on: August 09, 2016, 03:40:25 PM »
Have you gone through the numbers for this?  If you're considering a $250,000 house, I don't see how you could possibly meet your savings goals.

I don't want to poke holes in your balloon, but I don't see the math working out in your favor.
I've gone through the numbers about 10 times over, unfortunately. I am so sick of running the numbers.

Right now I share a studio with my SO that costs $1,530/month total. That's par for the course in Portland at this point. I can get a 2-bedroom for $250,000 and have a roommate and pay around ~$1200/month in PITI with around $700 in market rate rent for the second room making my housing costs around $500 between SO + roommates rent. A rental 2-bedroom is about $2,300/month at this point.

With my current housing costs at $550 (I pay proportional rent, SO makes more), I save around 60% of my post-tax income.


Are you sure you don't have to include your SO's income as part of your household?
Yea, we're not married. He's nowhere near any process for this, I started way before I met him. I'm not even including him in my calculations on if I can afford the place, with the idea I want to be safe if we break up (hence not getting a 1 bedroom it would be harder to rent half of a 1 bedroom to a roommate than a second bedroom).

JLee

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Re: When you should ask for less salary than you're worth
« Reply #10 on: August 09, 2016, 08:08:22 PM »
Have you gone through the numbers for this?  If you're considering a $250,000 house, I don't see how you could possibly meet your savings goals.

I don't want to poke holes in your balloon, but I don't see the math working out in your favor.
I've gone through the numbers about 10 times over, unfortunately. I am so sick of running the numbers.

Right now I share a studio with my SO that costs $1,530/month total. That's par for the course in Portland at this point. I can get a 2-bedroom for $250,000 and have a roommate and pay around ~$1200/month in PITI with around $700 in market rate rent for the second room making my housing costs around $500 between SO + roommates rent. A rental 2-bedroom is about $2,300/month at this point.

With my current housing costs at $550 (I pay proportional rent, SO makes more), I save around 60% of my post-tax income.

Make sure to account for worst case situations, i.e. if you aren't able to find a good tenant and if you and your SO break up, would you still be able to keep the house? If you have 20% down, that makes it easier.

I bought a $140k house when I was making $40k and it was tight. I did get a roommate at $500/mo and that made it tolerable, but I was still not saving nearly as much as would've been ideal.

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #11 on: August 09, 2016, 08:38:15 PM »
Have you gone through the numbers for this?  If you're considering a $250,000 house, I don't see how you could possibly meet your savings goals.

I don't want to poke holes in your balloon, but I don't see the math working out in your favor.
I've gone through the numbers about 10 times over, unfortunately. I am so sick of running the numbers.

Right now I share a studio with my SO that costs $1,530/month total. That's par for the course in Portland at this point. I can get a 2-bedroom for $250,000 and have a roommate and pay around ~$1200/month in PITI with around $700 in market rate rent for the second room making my housing costs around $500 between SO + roommates rent. A rental 2-bedroom is about $2,300/month at this point.

With my current housing costs at $550 (I pay proportional rent, SO makes more), I save around 60% of my post-tax income.

Make sure to account for worst case situations, i.e. if you aren't able to find a good tenant and if you and your SO break up, would you still be able to keep the house? If you have 20% down, that makes it easier.

I bought a $140k house when I was making $40k and it was tight. I did get a roommate at $500/mo and that made it tolerable, but I was still not saving nearly as much as would've been ideal.

It's still less than 30% of my gross, which is the affordability factor. Unlike renting a 1-bedroom, which is more than 30% of my gross. THe main reason to buy is how crazy rental growth is right now. My rent has doubled in the past 3 years and I'm the norm now. There's no rent growth protections and no-cause evictions are becoming par for the course. Half of my coworkers in an office of 8 have been no-cause evicted this year and then the properties flipped for more rent or to cash buyers.. I am sick of that instability.

I wish there were any houses for $140,000 around here anymore. Even at $250, there's only one or two on the market a month, and usually they have 11 competing offers and a cash offer wins.

I miss my town back when $300/month rent was normal.

</sad rant>

mozar

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Re: When you should ask for less salary than you're worth
« Reply #12 on: August 10, 2016, 10:20:58 AM »
If its that competitive you might not be able to buy a house anyway.

mm1970

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Re: When you should ask for less salary than you're worth
« Reply #13 on: August 10, 2016, 10:23:32 AM »
Please explain how a poverty level wage earner is subsidizing high income earners regarding taxes...
Through the mortgage interest tax deduction which disproportionately goes to the high-income and makes up the majority of government housing aid. I have paid into the tax system, not getting a discount on my housing, the same as most poverty level people, while those that are at higher incomes who choose to own a home receive the mortgage interest tax deduction.



Okay- I'm still working on this theoretical. Let's assume I can't find a home I can afford before I switch jobs (current job is making me miserable and I'm working 75+ hours a week right now). Should I be negotiating for the maximum possible like usually encouraged or negotiating based on other tax factors, such as possible house?

Edit: Replied before I saw other posts! thanks Mskyle and bender! Lifetime salary deferential is what I was working off of. I'm used to nonprofits that don't usually come with a raise.
If it makes you feel any better, I lost my mortgage interest deduction years ago because of the AMT.

I would recommend that you do: house first, then job.  Decouple the two.

Funny story.  I live in So Cal, and it's really expensive here.  Our town/ county has a number of subsidized homes, some for rent, some for purchase.  The purchaseable homes include those for people at poverty level, "middle class", and executives, with appropriate price tags.  There are requirements that include:
1.  Home must be lived in by the owner
2.  If sold, it must be sold to someone who qualifies, and can only be sold for a certain amount above the purchase price (i.e., not market rate)
3.  It does not become a market rate unit for 40-45 years.
4.  You cannot own any other property.

I had a coworker who was a single mom, who would apply for one of these condos whenever they came open.  There would be hundreds of people applying, maybe only 100 who met the financial eligibility.  Give her credit for trying.  She was living in Section 8 subsidized apartment already.

So they built a new condo development downtown.  A lot of high end condos (one purchased by Lance Armstrong), with 8 "middle income" subsidized units intermixed.  These were obviously smaller than the $1M to $2M condos in the development.  There were a couple of 1BR and the rest were 2BR/ approx 1000 sf.

An engineer who worked for me decided to apply.  The upper income requirement for a single person was $57,000.  This was...2007?  Around there.  We were only paying him about $51k.  100 people were eligible.  They start picking names.  He's number 5.  He gets the condo ($180,000).

Two months later he accepts a new job for $72,000.

That's the way to do it.

monstermonster

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Re: When you should ask for less salary than you're worth
« Reply #14 on: August 10, 2016, 10:39:12 AM »
If its that competitive you might not be able to buy a house anyway.
Yes, that's definitely a risk. This is part of the reason I'm concerned I can't get a "house first" before I quit this soul-sucking job. Once I'm at 20%, I'm likely going to be on the housing market for 6+ months before I get something.

I'm hoping that buying in the slower winter, my persuasive "love letter" writing skills (professional grant writer experience to the rescue!) and the programs I have access to will help me out. But yes, still a gamble.

But it's worth trying. The rental market is even more tight than the homebuying market at this point with a .5% vacancy rate. I'd rather go through hell once to buy than the terror every single time my lease is up, unsure if I'll get no-cause evicted or have my rent go up by 30% (which has happened every year the past 3 years to me).