WatchWell, we are fortunate enough to be in the upper bracket income earners (>350K a year) however, we have been prudent enough to sell our house back in 2004 and been renting ever since. However, the "situation" seems to have changed. Lemme explain.
1. We live in MD which is one of the highest tax states and on Wed this week, the MD house passed a new legislation raising the state taxes EVEN more. Especially for high earners. They completely eliminated exemptions in our income bracket. Ugh.
2. We have been looking to move to VA for a while and keeping on eye on things there. The state is running a surplus vs maryland which is runnng a huge deficit. The property values for the 1M+ properties "seem" to have come down enough and "seem" to be consolidating. I'm talking Mclean, Great Falls etc.
3. The difference in the tax bill by just moving to VA (all else remaining the same) would be over $10K a year (payroll taxes are lower in VA as well).
4. There is this house that we have been eyeing that is sitting at just the $1M mark. They probably would accept a 900-925K offer. It's been on the market for over a year.
In that price range and given our income, the PITI is ~15% of our income, and yet I'm scared to take on that big of a liability. We have enough savings, that's not the issue, but the fear facor is still there. However, there aint THAT many properties in those neighbourhoods that come around for sale and to find one at a decent price is pretty difficult. As a measure, houses like that usually rent for $4200 or so if they ever are offered for rent.
We are pretty much at that point where we WANT to buy (as a lifestyle decision) but still apprehensive.
Are we being too scared/conservative?
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If you are going to move, rent there for a year before deciding to permanently move. Last thing you want is to get into something you may end up regretting.
I've lived in several states in my life, you'll always end up paying in one way or another, if it's not taxes it's something else.
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All I am sayin is getting stuck with 900K is not a good option until you are settled down in the area then go for it.
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Rockville, MD
Rent4Ever says
er...I never said I have a job...I have my own company. :-) But I hear ya. Yeah, hence the conundrum.
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Rockville, MD
FortWayne says
The commute for both of us will actually be shorter from that location. And the tax benefits are much higher.
And I get to own guns. Can't beat that.
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Rockville, MD
skipatrolman says
Oh, been looking at Vienna really hard. That's option 2. But Vienna isn't that much cheaper. And all else being equal (at the same price), Cooper and Langley beat out Vienna schools like Madison.
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You mentioned a recent spike upward in your income – up to 250K. Taking a long term average of your earnings over the past ten years may provide a better estimate of your true income. How stable are your clients or customers? Is your income vulnerable to political or economic changes?
How much retirement and liquid emergency savings do you have? How much will you be saving for retirement if you buy this 900K home? Will you still be on track for retirement goals?
The ideal: pay all cash for a house – or 20% down, 15 year mortgage, paid off as soon as possible while living below your means (on one income just to be safe). All the while, putting aside ample reserves for the day you are too old and/or disabled to work.
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A little tangential, but a 1 million dollar house and a tract house are all built the same. The building code does not vary by price point. The only difference is the size and possibly the price point of some of the appliances (and remember, the appliance with the most complications usually breaks first). And the granite might be off the 'D' list instead of the 'A' list. A 1 million dollar house in a VA suburb of DC is going to be 5000 sf +/- while the 500,000 dollar house is going to be 2500 sf +/-.
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Fort Lauderdale, FL
"My perspective (and I could be wrong) is to much rather have the more expensive house"
Are you sure that's YOUR perspective? It sounds more like a spouse who's making 100k's perspective or a Realtor who is gong to make 6%'s perspective.
You're the one with the most skin in the game. Are you sure the voice that's saying, "buy now or forever be priced out of the market," is your own?
"If you are married, there is a 50% chance that your future will see the number's for net worth, yearly income etc cut by at least half (personally I hope not for your case, but a 50-50 chance is a risky one)."
Divorce? NEVER! We're in L O V E ! And who would ever leave a 1M nest... :)
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kapone says
I had a feeling that was the case. So you could continue working as long as you want, but it's your revenues that you need to be concerned about. Only you know the chances of that $$ being sustainable over a long period of time.
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Minneapolis, MN
kapone says
If it's been on the market that long, they'll take less than $900K. I'd say it's a great time to make a lowball offer. All they can say is no and you can always come back a month from now with a slightly higher offer. There's always a chance that someone else will get the house, but they will have paid too much.
In this market, keep an eye out for properties that have been sitting and make lowball offers.
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63 male
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bgamall4's website
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If you want to rent a house out for 4200 per month by a 400k house in Palm Springs. Just sayin.
I know you want to buy, but it seems like the top of the market is weak.
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Scottsdale, AZ
Not sure if this was mentioned -- but have you considered doing a 10 or 15 year loan? My rule of thumb is if you don't feel comfortable at a 10 year loan after putting 20-30% down -- you're in a risky zone. Go with your gut (assuming you've run the numbers which it sounds like you have). Anyone following this and putting 20-30% down on a 10 year loan who bought in 2006 would have been in OK shape right now. I'm making this claim assuming you're buying a house to live there long term, absolutely through the life of the loan -- not as an investment.
In addition, doing some quick research on Zillow -- it appears there are a number of solid lots for sale in Great Falls. Have you considered buying the land in cash and building the house over the next several years in cash? This would keep you debt free.
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Rockville, MD
bgamall4 says
Well, there are no jobs or business in Palm Springs. The additional cost of buying a helicopter to commute to DC everyday might negate some of the differences.
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Rockville, MD
GUAB says
I have considered it and we might even be able pull that off. However, the price of the house doesn't change whether you're doing 10 year or 30 year loans. And with the cost of money for 30 yr loans this low, why would I not take that?
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kapone says
Lol, I get that. But Palm Springs gives a premium as a destination for New Yorkers and Snowbirds from Canada. And they pay. $4200 is actually low in some of the towns near PS.
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Belmont, CA
One percenters with "problems."
Funny.
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Rockville, MD
Mick Russom says
umm...I never said there's a "problem". It's about advice.
I still don't get the "funny" part.
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YourMoneycc's website
Have you heard of the Infinite Banking Concept (IBC) where you create your own banking system. It works very well. You use a very specifically structured dividend paying whole life policy(s).It does take a bit of time to capitalize your bank.
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kapone says
Assuming you are in the 1 percent, he is saying you are being funny. If you are in the 1 percent, a mistake on a house purchase would not likely destroy your financial balance sheet. Hence, it seems funny to him.
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Woah --- you should not be looking at million dollar homes. I don't know why you can't live on $100k and spread the rest of the money around to the 99% who can't work because we have 9 kids.
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Rent4Ever says
That was my thought too... is your company/income sustainable if the economy takes a crap?? Are you in a industry that can continue to do well if we really have major economic issues? Do you care if the house value drops another 10%, 20%, 30% after you buy. Are you going in for the long haul?
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Rockville, MD
Call it Crazy says
That's the idea.
Call it Crazy says
Well, I don't expect locations like these to drop that much (the foreign buyers would snap them up in a heartbeat), but if they do, I'd certainly feel bad a lil, but it won't make or break anything.
Call it Crazy says
I'd say the Federal govt aint "goung out of business" anytime soon, so it should be relatively stable.
Call it Crazy says
Well...my company does Federal contracting, so it's "relatively" stable.
Singlemom says
umm...ok....
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Hey, fellow Washingtonian here. I can agree with you wanting to get out of Maryland. I have a couple questions. Why are you picking McLean/Great Falls? Those zips are two of the most expensive zips in the entire country. There are plenty of nice areas around that don't cost as much. Vienna and Reston come immediately to mind. Also, if you were to spend $1 mil in those areas you'd get more bang for your buck.
Additionally, DC, especially inside the beltway, like the BA, has fanciful housing prices that do not appear to be effected by reality or rational behavior. Is geographical arbitrage a possibility for you? I've started working from home at my job, and will be getting out of this crowded and overpriced area later this year, and moving someplace $500k will buy a palace. If that is not a possibility, have you considered early retirement? Maybe work/rent for 5+ more years, cash out, and retire someplace much cheaper.
DC is crazy in so many ways. There are so many rich people here it is hard to feel that you've "made it". I never imagined that both my wife and I could make 6 figures and still feel so "poor".
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Rockville, MD
JonnyDanger says
100% agreed.
JonnyDanger says
Early retirement?? Why would I do that? I think I'm just entering my peak earning years! And to think of early retirement just because I'm potentially risking $200K on an "asset"? That seems weird. Am I missing something?
JonnyDanger says
Not really.
JonnyDanger says
I'm not really looking for "bang for buck". :-) I'm looking at a long term asset, and I want it to be the most "stable". If that means a smaller house in a top tier neighborhood, so be it.
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Baltimore, MD
I can understand why you would want to leave MD, but I figure at my income level is isn't worth it yet. That and the paying sales tax on your car every year in VA might make it a wash (and I don't pay much to live in Baltimore City). O'malley has ruined MD just like he did Baltimore City.
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Rockville, MD
zzyzzx says
Nah, the personal property tax on cars in VA is a few hundred a year at best. With the piggyback county taxes in MD, the differences are north of $10K a year. A few hundred, I'm ok with.
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Baltimore, MD
You probably should have mentioned that the new, higher state income taxes are for anyone making more then 100K per year. Apparently that's now considered "rich" in Maryland???
The elimination of deductions probably won't affect me much because I basically don't have any anyway.
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Scottsdale, AZ
kapone says
Is this a serious statement? I surely hope not... if it is -- you need to do more homework -- and run, don't walk away, from buying anything.
Go calculate what you pay for the home on each loan... you're in for a treat.
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Rockville, MD
GUAB says
It sure is. Please expand on yours.
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Rockville, MD
GUAB says
Is this a serious statement?? Do you REALLY think anybody holds a house for the entire term of the mortgage? And that nobody ever pays more than the mortgage? And that nobody CAN pay it off a few years down the line, without waiting for the full term to be over?
If that's the case, I have a bridge somewhere....
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kapone says
Additionally, a good portion of the vehicle taxes are waived due to some "tax relief act". I pay about $100 a year in property tax for my car (it is a $7000 car, though), which is waaay less than the difference in MD's income taxes.
kapone says
Sorry, I may be superimposing my personal goals in your situation. Although I enjoy my job, I still look forward to the day that I don't have to do it anymore. And if I was making your income I could do achieve that goal a bit quicker.
DC fosters an especially toxic "keep up with the Joneses" mentality, especially among high earners, that is hard to avoid. Even though you might have a high income, by buying a $1 mil home and not buying it outright, you're not too far away from the wage-slavery that average people endure. Personally, if I had that kind of money available I would invest it in rental property, stock, growing my business... anything that would generate positive cash flow rather than a single, possibly depreciating asset such as an awesome house. But then again, my priorities are different from yours. And your goals are fine, I'm not disparaging them in any way.
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Save up a million and move to a country South Asia, set up a business that caters to Australians or other English speaking expats.
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Rockville, MD
CaptainShuddup says
I guess you guys haven't been to South East Asia lately...A million doesn't go too far there either.
And on a personal note (applies only to me) - A million is certainly not enough to retire on. And I say that "knowing" that I have an inheritance coming in the next few years, that is north of $5M. But I'm not taking that into account for these decisions.
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kapone says
Man! why are you even on this forum. You are asking advice from people much poorer then you on this forum. LOL.
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Rockville, MD
bubblesitter says
But, that's the thing. Your net worth should have no effect on your decision on "when" to consider housing a good decision. That's dpendent on the typical ratios, and the ratios remain the same whether you make 50K a year or 500K.
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kapone says
Not true at all. If you are in line to inherit 5M, you have almost no risk!!
This whole time I've been asking about your networth, if you are expecting to inherit 5M dolllars, a 1M dollar house with your income is a non issue. No wonder you haven't felt the need to save more.
End of story.
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kapone says
Except, someone making $350k per year, 5x the median, probably doesn't spend 5x as much on food, gasoline, clothes,etc. I make more than the median income but I bet I spend less than average on gas, due to driving less in a car with better than average mpg. The average new car price is about $25k, but someone making $350k won't necessarily spend $125k on a new car.
Also, as was pointed out, there's more buffer in case of a loss, for the same reason. if a 1%er loses 50% of their savings, they still have enough to eat. If a 95%er loses 50% of their savings, they will be hungry.
Kapone, it is great that you are in this position. I'm actually in a similar position and chose to pull the trigger on a house. but, if it makes you uncomfortable, or petrified, then don't do it. If it makes you (and spouse) happy, then it would be worthwhile. It's not all about minimizing expenses, otherwise we'd all rent 1 bedroom apartments.
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Rockville, MD
SiO2 says
Yeah, I'm having a tough time deciding if the so called fortress neighborhoods are a good buy right now, or not. I'm willing to spend er...leverage the money, but confidence is still a bit low.
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It's fun to boast.
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Scottsdale, AZ
kapone says
"And with the cost of money for 30 yr loans this low, why would I not take that?"
Your statement seemed to imply that a 30 year loan was so cheap that it was no big deal -- but in reality, even if you carry that only 10 years -- it's not really that cheap, and you're wasting a ton of money (low-mid $XX,XXX). I'm not implying you can't figure that out yourself -- but it sure sounds like you were not aware of that... thus I was encouraging you to run the math as you would be surprised (if you believed what you wrote).
Also, yes -- lots of people carry mortgages to the full term. I know several of them. And yes, if you take a loan you pay more than mortgage. The longer term you take, the more you are going to pay for the house. Thus your statement that the house price doesn't change is not correct. And yes, people pay it off in a shorter period -- again, wasting money by not simply taking the shorter term in the first place.
The only thing the longer term does for you is give you flexibility when you need it -- at a price that isn't worth the cost.
Sorry, wasn't trying to be a dick. You asked an honest question and I was giving you an honest answer. Your 30 year comment does scare me a bit though but perhaps you weren't being serious or had another concept in mine -- I'm not sure. Regardless, the math doesn't lie.