Can we afford a house in 2 years?

[bjl584]

If you like LA, then stay.
But, if I worked remotely, and it was going to be permanent, then leaving CA would be appealing to me.
We're back to the post I posted a few years ago.
Your down payment would buy a decent house in full where I live. Or at least be more than half down depending how much house you wanted.

Steve is right.
The rule of thumb still applies.

$600K is a starter home in some places, and nearly a mansion in others.
Now that you have the freedom to live anywhere, I'd be tempted to move.

[Leo]

Yeah, it's great that we have this privilege of working from home but we want to stay in Greater LA area.
LA is our home, we basically grew up here, we have our families and extended families here as well.
Las Vegas is another option since homes are a lot cheaper but of course there are pros and cons in that area as well. (Also my sister just bought a house in Temecula, a nice town 2 hours away from LA is also cheaper)

Is 4X annual income going to be tight? I'm just crunching numbers here but let say our take home is around 11K a month from 200K combined income. A 800K house 30 years mortgage with a 20% downpayment would give you a monthly payment of around $3300 per month which is about 30% of take home. I'm not saying we should or we will buy a 800K house but it doesn't seem bad mathematically. Maybe a little bit of wiggle room to 700K is okay especially if we have no other debts? (And yes, I understand that owning a home comes with a lot of expenses as well including maintenance. Our current rent is about $2300 which is 21% of our current take home and since we have a small apartment, utilities, AC etc. are cheap)

[disneysteve]

Is 4X annual income going to be tight?

That all depends on the rest of your budget. There's the old 50/30/20 plan: 50% to needs, 30% to wants, 20% to savings. You can play with those first two numbers a bit, as long as they still add up to 80%. So if you spend 60% on needs, that leaves you 20% for wants. I don't think the savings figure should be up for grabs, though, so don't go down that road.

Basically, if you spend more than recommended for housing, then you're left with less to spend on other things, but you might be perfectly fine with that. Some people don't mind being "house poor". They take less costly vacations, don't buy a lot of high end tech, and cut back in various other ways because having the house is more of a priority for them.

Best advice is to sit down and run the numbers and make sure you're happy with how much is going to savings and how much is available for discretionary spending if you take on that 800K home.

[Jluke]

The standard rule of thumb doesn’t really apply in California.

you can try to adhere to it but it’s probably more challenging to stick to that.

find a monthly payment on a 30 year loan that you can afford and see what that can buy you. Hopefully real estate will continue to increase so you “make money” when you sell.

[Leo]

There's the old 50/30/20 plan: 50% to needs, 30% to wants, 20% to savings. .

Our current breakdown right now around 11K take home per month.

NEEDS - TOTAL = 39.97%
Housing/Supplies - 23.10%
Utilities - 4.31%
Insurance - 0.75%
Transportation - 2.81%
Food - 7.80%
Pet/Others - 1.20%

WANTS - TOTAL = 18.16%
Personal - 12.31%
Gifts/Charity - 4.59%
Misc - 1.26%

SAVINGS - TOTAL = 41.87%
IRA - 9.18%
Savings - 32.69%

So hypothetically if we buy a house of 800K today with 20% downpayment, and we add 1K to our current rent, that would be our mortgage payment and it would change the numbers to NEEDS 50% WANTS < 20% and Savings 30%. It doesn't seem a bad scenario?

[disneysteve]

So hypothetically if we buy a house of 800K today with 20% downpayment, and we add 1K to our current rent, that would be our mortgage payment and it would change the numbers to NEEDS 50% WANTS < 20% and Savings 30%. It doesn't seem a bad scenario?

I don't think that sounds bad at all.

[amarowsky]

Kinda crazy to think you guys have the option, to only work a little while longer and save. And then you could turn all of that saved high income, into an entire life retired anywhere but the coasts....

It really is like a different country on the costs to the center of the states.

I live in Michigan, where it is discustingly cheap to live compared to the coasts. And it's Crazy expensive in Michigan (SE Area) compared to when I lived in Indiana (back in 07, for 1 year)....

Just did a quick look on Zillow. If you moved to Indiana, you have no problems buying a 3500+ sq foot house for $200k. You can get one built within 5 years for under $400,000. And likely get close to an acre+ of land.

Granted.... it's Indiana. There is ZERO draw to that state, unless you really into Amish folks, RV's, Corn agriculture, or Meth production/consumption. But it is a wonderfully quiet state in most cases, as nothing goes on. The big benefit you guys would get.... Is you would not have to work much longer (unless you prefer working+income, over doing what you wish with your time). You guys could probably hit F.I. within 5 years! Then have the luxury of flying back to L.A. as often as you wish (hell you may see you family MORE, if you weren't working at higher capacity jobs). <--- Not sure how good your work/life balance is.

I'd Imagine there are similar options for you closer to home in other neighboring states, that are not such high property costs (tourism areas). But that is the reason there is a draw there.... But by your explanation, it seems the people are the main thing keeping you in LA, as a lifer. People are unable to be subtituted..... same reason i'm stuck in Michigan.....