What items are you willing to spending more than the asking price?

[disneysteve]

And 25% of 270K = $5625 so right on target.

Sure but when you factor in taxes, insurance, retirement, and everything else, that would be super tight.

I don't make 270K but I'm not all that far away from it and there's no way in hell I'd put myself in that situation.

[mumof2]

right now rent so we have a place to live!!!

[bjl584]

Of course if a house sells for 200K more than the asking price, that really just means the asking price was wrong. It didn't accurately reflect the value of the home in the current market.

Or it was purposely listed low to initiate a bidding war.
Looks like it worked if the price ran up to $200K over initial asking

[disneysteve]

Or it was purposely listed low to initiate a bidding war.
Looks like it worked if the price ran up to $200K over initial asking

Good idea. I hadn't thought of that. It could have backfired on them but I guess they knew it wouldn't.

[ua_guy]

Not in a market with bidding wars. Everything appraises. It's a catch 22. You price at least years price point but it goes above asking and resets the square ft marker. Thus resetting the market. Chicken and egg. Right? Someone wants something and pays more and resets the market value. Thus now everyone else has to pay more. The house in my neighborhood that sold more than what we paid reset the market value of our neighborhood. So now we are at a much higher price point. Will others appraise? Yes. Realtors have no clue when the market is changing under their feet constantly increasing the prices. Some of it has to also do with competition and type of people actually looking.

I'm not sure but say the mortgage is $5500/month on $1.25M They currently pay $4000 on rent on her salary and he pays for his condo out of his salary. So $4000/16666 = ~25% of her salary. And 25% of 270K = $5625 so right on target. Would I want to do it? Maybe. As you make more everything costs less. But I probably wouldn't just because they are 31/32 and heading in the most expensive years. They want kids and childcare on top of a big mortgage. I would say that there is no flexibility and savings. She's frugal otherwise and saves a ton.

But having kids is expensive. Looking back it's so much easier to have kids when you have less money and can't afford everything. Then everything just seems fine when you start making more money and realize that you can handle it since you grew into your income.

Been there, done that - not those exact numbers, but I know what it's like to be house-poor for many years while trying to get on top of things. It's the reality in HCOL areas and it's a total crucible. Would not recommend, certainly not with kids.
As much as I didn't like living in the Midwest, the middle class truly thrives there with much lower housing costs. It changes everything. Felt like everything was more relaxed in general, people were less pushed to the edge.

[LivingAlmostLarge]

Been there, done that - not those exact numbers, but I know what it's like to be house-poor for many years while trying to get on top of things. It's the reality in HCOL areas and it's a total crucible. Would not recommend, certainly not with kids.
As much as I didn't like living in the Midwest, the middle class truly thrives there with much lower housing costs. It changes everything. Felt like everything was more relaxed in general, people were less pushed to the edge.

I think what happens in HCOLA (mind you I've never lived anywhere cheap is the problem), so I only have one perspective is that people in HCOLA often times become dependent on their homes as part of their retirement plans. I know that you shouldn't but when your biggest assets is worth $1M+ or even a solid $750k for a home it's hard to not account for it. Maybe someone else can chime in but in HCOLA i feel like people put 401k/ira on the back burners because they are too busy trying to save to get into a house with a down payment then affording it. So then they miss years of 401k and then they are stuck trying to save but can't. So the paid for home or mostly paid for home becomes all their NW and is basically the item they end up selling to use as "Retirement" savings.

I agree with UAguy I have a strong suspicion that the lifestyle of the middle class is way nicer in a cheaper cost of living. That you can buy a home and save. I feel like people with above average incomes in the middle of the country get a lot of benefit from the COL that most people in HCOLA have no clue about. It's also why where I live now many people have gone back to where they came from pocketing the home equity and buying cash. The people we bought from moved back to New Orleans and paid cash with what they made. Same with our neighbors across the street they went to Montana and the ones couple of houses down went to Idaho, and our other neighbors went to arizona. They decide to pick up and move during covid and pocket the cash and run

[bjl584]

I agree with UAguy I have a strong suspicion that the lifestyle of the middle class is way nicer in a cheaper cost of living. That you can buy a home and save. I feel like people with above average incomes in the middle of the country get a lot of benefit from the COL that most people in HCOLA have no clue about. It's also why where I live now many people have gone back to where they came from pocketing the home equity and buying cash. The people we bought from moved back to New Orleans and paid cash with what they made. Same with our neighbors across the street they went to Montana and the ones couple of houses down went to Idaho, and our other neighbors went to arizona. They decide to pick up and move during covid and pocket the cash and run

Low cost of living guy here.
I bought my house for $155K in 2015.
It is a 3 bed, 2 bath, sitting on 2.5 acres.

Mortgage is cheap, and I am able to save lots and still have considerable disposable income.

I see housing prices in other areas and wonder how people can make it work

[srblanco7]

Sure but when you factor in taxes, insurance, retirement, and everything else, that would be super tight.

I don't make 270K but I'm not all that far away from it and there's no way in hell I'd put myself in that situation.

Agreed on including prop taxes and insurance in the calc. In addition, I base the calc on 25% of net (take home pay) rather than 25% of gross.

[ua_guy]

I think what happens in HCOLA (mind you I've never lived anywhere cheap is the problem), so I only have one perspective is that people in HCOLA often times become dependent on their homes as part of their retirement plans. I know that you shouldn't but when your biggest assets is worth $1M+ or even a solid $750k for a home it's hard to not account for it. Maybe someone else can chime in but in HCOLA i feel like people put 401k/ira on the back burners because they are too busy trying to save to get into a house with a down payment then affording it. So then they miss years of 401k and then they are stuck trying to save but can't. So the paid for home or mostly paid for home becomes all their NW and is basically the item they end up selling to use as "Retirement" savings.

I agree with UAguy I have a strong suspicion that the lifestyle of the middle class is way nicer in a cheaper cost of living. That you can buy a home and save. I feel like people with above average incomes in the middle of the country get a lot of benefit from the COL that most people in HCOLA have no clue about. It's also why where I live now many people have gone back to where they came from pocketing the home equity and buying cash. The people we bought from moved back to New Orleans and paid cash with what they made. Same with our neighbors across the street they went to Montana and the ones couple of houses down went to Idaho, and our other neighbors went to arizona. They decide to pick up and move during covid and pocket the cash and run

It's true, our home is a big piece of our net worth, and paying down such a pricy (because of HCOL) home has stifled retirement savings to a point. We can only put federal max into those accounts anyway, and what's leftover gets saved or invested - or put at the house, which has proven to be an appreciating asset. It's not that we're off-track, but it does force a move during retirement or in prep for retirement - which is our plan anyway. It may bring an additional blessing which, if we're able to retire early, it could cover the cash needed to easily buy somewhere much cheaper aka "retirement forever home" as well as bridge the gap between when we choose to retire and when we can draw retirement and collect SS. Over time, real estate has been a very safe place to keep money and build wealth.

If living in a HCOL area was entirely disadvantageous, I'm not sure so many people would be willing to endure it. The discussion isn't complete without also talking about the gains to be made in HCOL real estate markets, as well as the strides in income that can be made in HCOL areas. It's all about finding that niche, timing a sale, or sometimes just hanging on and waiting for things to change.

[LivingAlmostLarge]

It's true, our home is a big piece of our net worth, and paying down such a pricy (because of HCOL) home has stifled retirement savings to a point. We can only put federal max into those accounts anyway, and what's leftover gets saved or invested - or put at the house, which has proven to be an appreciating asset. It's not that we're off-track, but it does force a move during retirement or in prep for retirement - which is our plan anyway. It may bring an additional blessing which, if we're able to retire early, it could cover the cash needed to easily buy somewhere much cheaper aka "retirement forever home" as well as bridge the gap between when we choose to retire and when we can draw retirement and collect SS. Over time, real estate has been a very safe place to keep money and build wealth.

If living in a HCOL area was entirely disadvantageous, I'm not sure so many people would be willing to endure it. The discussion isn't complete without also talking about the gains to be made in HCOL real estate markets, as well as the strides in income that can be made in HCOL areas. It's all about finding that niche, timing a sale, or sometimes just hanging on and waiting for things to change.

Not really. If you are saving $47k into Mega Back door Roth 401k plus $6k per each person in a couple that's $106k/year. Then if you make enough to save that you should be paying probably $100k+ in federal taxes alone (plus state income taxes). Then living expenses for the HCOLA another $100k. There is $$ for saving but even paying off the house $1M will take a good ten years at $100k/year. Just my thoughts on numbers. And if you are making $300k+ saving the $47k shouldn't be a big deal. You just need to finangle the cash flow and you don't want to miss these years of stashing cash tax deferred. Not to mention HSA if you have it, etc.

[ua_guy]

Not really. If you are saving $47k into Mega Back door Roth 401k plus $6k per each person in a couple that's $106k/year. Then if you make enough to save that you should be paying probably $100k+ in federal taxes alone (plus state income taxes). Then living expenses for the HCOLA another $100k. There is $$ for saving but even paying off the house $1M will take a good ten years at $100k/year. Just my thoughts on numbers. And if you are making $300k+ saving the $47k shouldn't be a big deal. You just need to finangle the cash flow and you don't want to miss these years of stashing cash tax deferred. Not to mention HSA if you have it, etc.

I'm confused... maybe it's because it doesn't apply to our situation, and some of those numbers seem impossibly high.

Like I said...can't ignore the gains in HCOL real estate markets, either. If you bought a home in certain HCOL markets for $1 Million, ten years ago, it's likely to be worth $2 Million today. Sure, it might have taken 10 years to finally pay off if being aggressive, but now that home is worth $2 million.

In a low COL market, a $200k house might now be worth $400k, and you can see where a $200k increase is less than $1 Million. It's a different kind of investing and saving.

[LivingAlmostLarge]

I'm confused... maybe it's because it doesn't apply to our situation, and some of those numbers seem impossibly high.

Like I said...can't ignore the gains in HCOL real estate markets, either. If you bought a home in certain HCOL markets for $1 Million, ten years ago, it's likely to be worth $2 Million today. Sure, it might have taken 10 years to finally pay off if being aggressive, but now that home is worth $2 million.

In a low COL market, a $200k house might now be worth $400k, and you can see where a $200k increase is less than $1 Million. It's a different kind of investing and saving.

The home appreciation potential is something I find hard to quantify. I agree it likely will double in 10 years there is a lot of data but counting on it seems wrong because the people who downsize are those who didn't save. Then use the house as retirement account. Those who stay put often have a large untouchable asset since they don't want to move so they have a $2M home they can't cash in and use to live. I PM you a tack on the mega back door roth