how much house to buy? math here; networth = (1.6x + 1) million

[whywork]

I am a FIRE aspirant and also a renter. I won't be able to afford a home in my current location and am neither able to leave my current high paying job as it will make my FIRE goal go much farther

Given this situation, I often wonder what will be an ideal equation or math that I can use to decide how much house I can afford or should buy. So after some thought I think I came up with one.

Once I buy a home for price "X", I will have other expenses like property tax, maintenance and home insurance. Per month these are:
    Property tax ~= "X/1000"
    Home Insurance ~= "X/4000"
    Maintenance ~= "X/1300"

To pay for these home expenses I need a invested networth of about 300 times these monthly expenses; that is roughly 0.6X. So to buy a home of price X, I need to keep aside networth of about 1.6X.

Now basic non rent expenses can be comfortably covered with an invested networth of an additional 1 million.

So essentially to buy a home of price X, we need a total of ( 1.6X + 1 ) million networth.

Does this sound reasonable? I think once I reach my FIRE goal, I will only have 1.3 million left (after I set aside 400k for kids college). That will allow me to buy a home of 300k / 1.6 which is like a 180k home.

On the other hand if I go ahead and lock myself in my current location with a 1.2m home (I need a minimum of that here),  then my FIRE target will shoot from current 1.7m to 1.2*1.6 + 1 + 0.4 (college) = 3.3m.

[RFAAOATB]

You only have to pay the 1.2 million house once, and paying rent is paying your landlord's property tax, insurance, maintenance, and profit.

Some other things you have to think about.  What square footage is your rental and what square footage is your house target?  Is the neighborhood quality comparable?  Who are you living with and what do they think?  If buying a house makes a happier spouse, then it could be a good deal.

What will your mortgage payment be compared to your rent?  What are the projected increases in each, and decreases when you pay off the mortgage?

Can you get a roommate for the house to offset some expenses at least for a while, making your net worth goal a bit closer.  If you add your roommate payments to your mortgage you can refinance for lower payments when you no longer have one.

[lutorm]

... how much house I can afford or should buy.

Those are two very different questions. From a FIRE point of view, I think it's clear that the answer to how much house you should buy is: as little as possible. Housing is an expense and any money going into it, either through rent or mortgage interest and property tax is not going towards your FIRE goal. In the end, like any expense, it comes down to how much you value housing vs FIRE.

Buying vs renting is a totally different question and is affected by a bunch of other factors.

[ericrugiero]

Your math is pretty sound but it looks like you are using it to back into what house you can afford rather than deciding what you want and then calculating what you need to support it.

Will a $180K home be OK for you in the area you are considering?  Some parts of the country that's a very nice home.  Other places you can't even buy a lot for that. There is no question renting a HCOL area and retiring to a LCOL area can be a quicker path to FIRE.  Would you be happy in that LCOL area?  Would you be OK with renting in your area after FIRE?  That could possibly be cheaper than buying. 

Basically, the math looks OK but we don't have enough information to say if that would be a good course of action for you. 

[whywork]

Your math is pretty sound but it looks like you are using it to back into what house you can afford rather than deciding what you want and then calculating what you need to support it.

Will a $180K home be OK for you in the area you are considering?  Some parts of the country that's a very nice home.  Other places you can't even buy a lot for that. There is no question renting a HCOL area and retiring to a LCOL area can be a quicker path to FIRE.  Would you be happy in that LCOL area?  Would you be OK with renting in your area after FIRE?  That could possibly be cheaper than buying. 

Basically, the math looks OK but we don't have enough information to say if that would be a good course of action for you.

Yes in a LCOL state, 180k would be plenty.

Buying a home earlier is in my view is one of the biggest mistakes on the path to FIRE. You get locked up with a bigger payment and that will make FIRE longer. In my case I don't know how much house I will buy. I am just putting FIRE ahead of home buying and when my body says no more working I'll quit. I will then evaluate how much house I can afford based on math above and buy it wherever I can afford. All other questions (will I like living in LCOL etc..) don't matter when I am suffering at work and still have to continue doing it.

[mozar]

400k for college, wow.

[jeroly]

I know this goes against the conventional thinking, but...
It doesn't really make any sense to me to allocate maintenance costs as a percentage of property value.
If you have a 2,000 sq. ft. house in a HCOL area, you may have spent $1.2 million.
If you have a 2,000 sq. ft. house in a LCOL area, you may have spent $200,000.
IT'S THE SAME HOUSE!
The difference is the value of the land on which the house sits.
Granted, there is usually a difference in the cost of repairs between HCOL and LCOL, but not by a factor of 6.  Say it's double, and I think that could be a stretch in most cases.
So I think the way to do this by formula would be Y (using a different variable name!) times square footage times regional cost adjustment factor.
Now I'd guess that $1.2mm/1300=$923/month is way too much to budget for maintenance.  I had a 2700 sq. ft. house in a HCOL area and over 20 years (1994-2014), with paying for a new roof, two new porches, new walls, new furnace, and miscellany, we averaged around $200-300/month in maintenance costs.

[Le Poisson]

I would suggest that the cost of repairs is in step with col.

Our primary residence in suburban Toronto needed concrete repair on the Garage this year. It cost us $17,000.

Our rental in  lcol town 90 minutes away had a full foundation excavation and waterproofing for $15,000

[2Cent]

Seeing the coming economic crisis there is a huge chance the housing prices will go down significantly. That will flip any equation to negative for buying. Especially in HCOL areas. If you have money on hand it would be wise to wait. Very likely there will soon be extremely good deals to be had. Also if you end up losing your job you're much better off renting as you can move to where ever the work is.