HHI 350k to 400k, how much house can we afford keeping in mind our circumstances.
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Anonymous
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Here are the stats and some background: HHI 350k to 400k, I am 40, he is 43. 200k in retirement ( nowhere it should be), 200k in home equity, 50k emergency fund, 50k kids college. We had a long and emotional struggle with infertility, I was in and out of the workforce, out of pocket expenses and we were on a roller coaster for 8 yrs, God has been kind, we have twins( boy/girl 4yr old). Kids go to Montessori based preschool, we are planning to move to a good school district in Bethesda, Rockville, Potomac so kids can go to public school. We plan to contribute 70k each year for next 6 yrs to retirement to compensate for missed retirement contribution( I work for the state govt. I can contribute 35k, DH has his own company he can contribute 35k too, employee/ employer). We would like to pay for kids college, for kids the plan is to buy a condo in DC/Bethesda/Arlington for 400-500k ( down payment of 150k), rent it out, don't expect any income as long as rent can carry the property for 15 yr mortgage, property+ appreciation hopefully can address the college tuition. Keeping our financial situation in mind, what should be the maximum end of the range for a house?
I have pension ( VRS) but I don't count on those things much. Any constructive advice and feedback will be much appreciated. |
Anonymous
Sounds like you have no other debt. The problem is you say youd like to contribute $70K a year but you dont tell us what you've assumed would allow you to do that. Self employment income is higher-risk and can be more cylical. Risk tolerance matters here. Its also not clear to me whether you would be depleting those savings to get that condo, and/or another downpayment or if that money is coming from elsewhere. That said, $70k a year should be enough. Interest 5% Current $200,000 Age Current Added Sub Interest Total 40 $200,000 $70,000.00 $270,000 $13,500 $283,500 41 $283,500 $70,000.00 $353,500 $17,675 $371,175 42 $371,175 $70,000.00 $441,175 $22,059 $463,234 43 $463,234 $70,000.00 $533,234 $26,662 $559,895 44 $559,895 $70,000.00 $629,895 $31,495 $661,390 45 $661,390 $70,000.00 $731,390 $36,570 $767,960 46 $767,960 $70,000.00 $837,960 $41,898 $879,858 47 $879,858 $70,000.00 $949,858 $47,493 $997,351 48 $997,351 $70,000.00 $1,067,351 $53,368 $1,120,718 49 $1,120,718 $70,000.00 $1,190,718 $59,536 $1,250,254 50 $1,250,254 $70,000.00 $1,320,254 $66,013 $1,386,267 51 $1,386,267 $70,000.00 $1,456,267 $72,813 $1,529,080 52 $1,529,080 $70,000.00 $1,599,080 $79,954 $1,679,034 53 $1,679,034 $70,000.00 $1,749,034 $87,452 $1,836,486 54 $1,836,486 $70,000.00 $1,906,486 $95,324 $2,001,810 kids hit college 55 $2,001,810 $70,000.00 $2,071,810 $103,591 $2,175,401 56 $2,175,401 $70,000.00 $2,245,401 $112,270 $2,357,671 57 $2,357,671 $70,000.00 $2,427,671 $121,384 $2,549,054 58 $2,549,054 $70,000.00 $2,619,054 $130,953 $2,750,007 59 $2,750,007 $70,000.00 $2,820,007 $141,000 $2,961,007 60 $2,961,007 $70,000.00 $3,031,007 $151,550 $3,182,558 61 $3,182,558 $70,000.00 $3,252,558 $162,628 $3,415,185 62 $3,415,185 $70,000.00 $3,485,185 $174,259 $3,659,445 63 $3,659,445 $70,000.00 $3,729,445 ($149,178) $3,580,267 drawdown at 4% 64 $3,580,267 $70,000.00 $3,650,267 ($146,011) $3,504,256 65 $3,504,256 $70,000.00 $3,574,256 ($142,970) $3,431,286 66 $3,431,286 $70,000.00 $3,501,286 ($140,051) $3,361,235 67 $3,361,235 $70,000.00 $3,431,235 ($137,249) $3,293,985 68 $3,293,985 $70,000.00 $3,363,985 ($134,559) $3,229,426 69 $3,229,426 $70,000.00 $3,299,426 ($131,977) $3,167,449 70 $3,167,449 $70,000.00 $3,237,449 ($129,498) $3,107,951 71 $3,107,951 $70,000.00 $3,177,951 ($127,118) $3,050,833 72 $3,050,833 $70,000.00 $3,120,833 ($124,833) $2,995,999 73 $2,995,999 $70,000.00 $3,065,999 ($122,640) $2,943,359 74 $2,943,359 $70,000.00 $3,013,359 ($120,534) $2,892,825 75 $2,892,825 $70,000.00 $2,962,825 ($118,513) $2,844,312 76 $2,844,312 $70,000.00 $2,914,312 ($116,572) $2,797,740 |
Anonymous
| OP here: Thanks for the reply. Out of 400k, only 50k is subject to change, rest is good ( god willing). No, the plan to buy the condo for kids college is from separate savings ( 50K from kids funds + additional savings hopefully at the rate of 2500/month), retirement won't fund any of these other accounts. The assumption is that we continue to hold our jobs and stay healthy, no other debts. |
Anonymous
| Is the 50k in a fund right now , like a 529 or true cash? Why do you want to buy a condo versus another investment vehicle? |
Anonymous
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wow first PP. It's like magic even though I suspect it's just excel. I'm so tempted to give you my states but I expect my DH can do that magic thing you did up there.
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Anonymous
| 50k is in cash.fvf |
Anonymous
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You should definitely reconsider your idea of investing in a condo. Stocks historically have much higher returns (plus are much less work). See http://pragcap.com/robert-shiller-dont-invest-in-housing and http://www.minyanville.com/trading-and-investing/personal-finance/articles/4-Reasons-Not-to-See-Real/4/24/2014/id/54710
Plus, you can invest in stocks for college through a 529 plan and get tax benefits. All this is probably worth a few hundred dollars and a few hours with a financial planner. |
Anonymous
| Ignore fvf, typo. |
Anonymous
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Am I right in reading that you want to buy a condo for college savings/investment AND get a house?
If so, I'm not sure I understand why you want to buy a rental property as a college investment for your kids. Rentals have overhead and are much more inflexible than a 529 or an investment account. Also, if anything were to happen to the property, you'd be SOL for the college savings. I know some people who are doing this, but it's because they lived in the condo and then couldn't sell it for a profit because of the housing downturn. You have options and this one doesn't make sense to me, especially since you could put that $150k to better use. If you just saved in 529s and did the max for a few years of $14k/kid you should be in good shape after a while. In the meantime, that would free up your home equity to use as a down payment for a house. For affordability, I'd use one of those online calculators where they count your income and subtract debts. I'm sure you can afford a house that's $900k +. |
Anonymous
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Re: stocks return, be careful! Published returns do not take inflation into account, so the actual "spendable" returns are much lower. |
Anonymous
| OP here: 16:13 you have a point, it's just that we thought a property would be far more reliable than stocks for college tuition ( I know it can sound crazy), ESP if its a property bought in an area which will appreciate well. |
Anonymous
| I think the biggest issue I would have with real estate is that it's a wholly binary investment. You are either in it or not. If stocks go south you can elect to harvest some tax loss or you can react quickly. If a market locks up the illiquidity of the asset hurts. |
Anonymous
| I too am questioning why you would choose real estate for college planning. Have you really sat down and figured out the cost of this invesemt compared to a traditional 529 or other investment choice ? Taxes, rental management fees if applicable , upkeep, repairs, maintenance , months without rental income between tenants, etc. Also consider fees to sell and what you would do of you could not sell, could not get $$ out of the condo when you needed it? What if you were sued and there was a lien placed on the property ? All things to consider |
Anonymous
| I'd think a house from $1.2M to $1.5M no problem. |
Anonymous
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condo=college?
I don't get the connection. If you're going to pay for college, pay for college. Don't mess it up. |