Background: Buyside job in NYC area. Finances include annual salary + net worth, liquid investment portfolio, and carry in a closed end fund that pays out ~5yrs from now.
For those who own or are thinking about buying your first house/apt: how did you think about the value of house/apt you could afford to buy? Interested in any helpful rules of thumb around total value to consider and what % to put as downpayment. There’s a very wide range of possibilities based on risk tolerance so curious how peers in similar situation have thought about it.
Based on the most helpful WSO content, here are some key considerations and rules of thumb for buying your first house or apartment:
Rules of Thumb:
House Value Relative to Income:
Down Payment:
Monthly Housing Expense:
Additional Considerations:
Example Calculation:
For a $600,000 house with a 30% down payment: - Down Payment: $180,000 - Mortgage Amount: $420,000 - Annual Maintenance: $12,000 - $18,000 - Annual Property Taxes: $6,000 - $12,000 - Annual Mortgage Interest: $12,600 - $16,800 (assuming a 3-4% interest rate)
Summary:
These guidelines should help you make a more informed decision about the value of the house or apartment you can afford.
Sources: What percentage of your after tax income is devoted to housing?, Plan on Buying a House in 3 Years - What to Invest in Until Then, Buying a ~$600k house at 25, Purchase Multifamily Property as first investment, The Last "what should I do with my money?" Thread (hopefully)
Best advice out there: "If you're not on the verge of bankruptcy after buying your first house, you did it wrong".
Any additional context to this? Made me laugh as I’m in the market right now and keep slowly increasing my budget
LOL at the quote above.
Bought pretty conservatively a year ago when rates were at peak (8%+). Refinanced in August when rates hit 6.3% again. The expense of closing, moving and renovating modestly really really hurts. After 11 months and a refi I'm net-net happy with the decision as the rental environment is still daunting.
The math i did was what i could reasonably afford in rent and find equivalent monthly payment in mortgage (+maintenance+taxes). I put down 20%. I didnt overthink the short-term math on PMI vs 7%+ rates. Costs of upkeep are kinda crazy even in an condo. I am not handy whatsoever - any unskilled or skilled labor is approach banker D/MD hourly rate. Securely hanging some mirrors + picture frames for 1-2 hours.. $300-$750, painting a room $750-$1k per room, bathroom remodel $12-$25k. I feel like I'm constantly peeling off $2-$3k that otherwise would have been swept into savings
Out of curiosity if you don’t mind answering, what does the total house value look like relative to your liquid net worth (eg stock portfolio/savings/etc)?
The math of matching total monthly expenses to rent makes sense, but it kind of ignores net worth in assessing affordability. I guess it’s all kind of correlated but matters more for people with more variable comp that may have a larger net worth saved up from a couple really good years.
wife and i are late bloomers that had a couple of very good years over the past 5 years. as such, we dont have a huge amount of NW to speak of. The vast majority of our assets were in retirement vehicles and we had ~40% of the purchase price in liquid stock/cash. we put 20% of that into downpayment and am close to other 10% into it between closing, refi, moving, renovation, furnishing. I dont have a ton liquid savings for a rainy day right now. Im desparately trying to replenish now.
I'm all-in right now but the trajectory of my comp is strong (hopefully) and i havent included any upside in my wifes career. It feels super tight right now but inch by inch it feels like we made the right decision.
it is wild how expensive handyman work can be. I wish I inherited that gene from my dad but never did. We fixed up a good portion of my current place together though, that was a good experience.
I really regret going in on a co-op sometimes. I'm really handy (get those gay jokes out now) and am happy to sweat copper and do my own wiring, but I've got to do it all on the down-low because technically I rent from the corporation that I own that owns the building.
It looks like you are at a HF. I am on the trading side and my comp is highly variable. Base is like 150-200 and no idea what bonus will be or if im even employed next year. This is unlike friends/gf in IB/doctor/law with higher bases and more predictable all in compensation and career trajectory. Although I have a good nest egg in liquid investments, my main concern is comp uncertainty... this makes it much harder to plan mortgage payment and know exactly what I can afford so I err on the conservative side and am waiting to have more $ in the bank before buying. All it takes is one or two good years in this job to be in a position to buy a fantastic place cash if i want to (though I never would)... Just my 2c
My base + cash bonus is slightly more “IB-like” than yours but share your same mindset on conservatism.
How are you thinking about total house value to buy relative to your net worth and how much you want to put down? In theory once could spend ~100% of net worth on a house and buy the whole thing in cash so lower monthly payments, but that seems like a suboptimal portfolio allocation..
House prices have a long term appreciation of about 4% with huge variability. They have great marketing with the realtor mafia though. The leverage you can get is also ridiculous. My brokerage would never let me do the 4:1 that's the gold standard for a down payment, and many will go far beyond that.
Buy the least you can comfortably get away with. Remember that the transaction costs are huge in this market though.
I splurged on a second BR (NW Queens) because it was worth it to not have to buy again. Moving sucks.
Assuming your comp is fairly variable, I think about a maximum payment as what expected half salary + 25% bonus in 1 yr. Leverage up to 5x or past depending on tolerance. Downpayment is pretty self explanatory, you either can come up with it or you can’t.
I’m pretty risky tolerant because I view comp as continuing to grow at a rate that makes whatever you buy now will be a relatively insignificant payment in 8 ish years when you likely sell. If you see comp growing at a less aggressive rate than adjust the leverage down accordingly and salary piece of your payment down to 1/3 from 1/2.
Don't bite more than you can chew I assume a 0% growth rate, so living in NYC on $500/wk after taxes and my extra mortgage payment (I'm gonna be done in less than ten years) works. I did this on $20/wk in HS.
Also, never assume on your bonus or LTI.
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