Question about CC/Bethesda real estate

[AgentX]

You can't look at your income of $650K of what you use to qualify off of. As an agent I'm also self-employed, they use our net to qualify us. So I have approximately the same take-home percentage as you, the total into my hot little hands is 1/3 of the gross commission income I make after splits, expenses, taxes, etc. The reality is that for buying real estate, having a W-2 job is just easier to make fly because the income numbers are the same year in, year out. No variances.

Your income they use to qualify you is the $20K take home x 12 months = $240K. And on a $240K salary, someone could purchase a home (roughly) up to $750K - $800K.)

Now, to answer your question, I have a lot of clients looking now in Bethesda, Chevy Chase and surrounds. They are all the same level of frustrated you are. There is a lot of parent money out there, even with buyers in their 30's and 40's. It's not just mom and dad helping with that first condo down-payment. And millennials have tons of money. It's amazing. Their bank statements show $400K - $500K cash. I have clients twice their age without that kind of cash.

One other thing we have here is the ability for foreign buyers to purchase and when you have a buyer with $1M cash who needs a place to bury it, it puts the house prices out of reach for the rest of us. It...sucks. I'm sorry. I'm the shoulder to cry on right now for a few people in the same boat. I think the answer is to move further out. Rockville / Olney.

[Anonymous]

I’m also a law firm partner and you’re looking at the cash flow issue entirely incorrectly. I agree it’s annoying/confusing.

You get a 20k/month draw, but you’re ignoring the fact that you get quarterly tax distributions and maybe a year end holdback payment. Factoring this in, you’re making 25-27k a month before bonus NET, and that’s how you should think about house affordability. You can afford a 1.5-1.8M house unless you have a unique situation (eg due to divorce finances or something).

[Anonymous]

AgentX wrote:You can't look at your income of $650K of what you use to qualify off of. As an agent I'm also self-employed, they use our net to qualify us. So I have approximately the same take-home percentage as you, the total into my hot little hands is 1/3 of the gross commission income I make after splits, expenses, taxes, etc. The reality is that for buying real estate, having a W-2 job is just easier to make fly because the income numbers are the same year in, year out. No variances.

Your income they use to qualify you is the $20K take home x 12 months = $240K. And on a $240K salary, someone could purchase a home (roughly) up to $750K - $800K.)

Now, to answer your question, I have a lot of clients looking now in Bethesda, Chevy Chase and surrounds. They are all the same level of frustrated you are. There is a lot of parent money out there, even with buyers in their 30's and 40's. It's not just mom and dad helping with that first condo down-payment. And millennials have tons of money. It's amazing. Their bank statements show $400K - $500K cash. I have clients twice their age without that kind of cash.

One other thing we have here is the ability for foreign buyers to purchase and when you have a buyer with $1M cash who needs a place to bury it, it puts the house prices out of reach for the rest of us. It...sucks. I'm sorry. I'm the shoulder to cry on right now for a few people in the same boat. I think the answer is to move further out. Rockville / Olney.

This is bad advice. I have a similar financial situation to OP and I was qualified based on my full salary (650k+), not my 20k/month draw.

[AgentX]

Anonymous wrote:

AgentX wrote:You can't look at your income of $650K of what you use to qualify off of. As an agent I'm also self-employed, they use our net to qualify us. So I have approximately the same take-home percentage as you, the total into my hot little hands is 1/3 of the gross commission income I make after splits, expenses, taxes, etc. The reality is that for buying real estate, having a W-2 job is just easier to make fly because the income numbers are the same year in, year out. No variances.

Your income they use to qualify you is the $20K take home x 12 months = $240K. And on a $240K salary, someone could purchase a home (roughly) up to $750K - $800K.)

Now, to answer your question, I have a lot of clients looking now in Bethesda, Chevy Chase and surrounds. They are all the same level of frustrated you are. There is a lot of parent money out there, even with buyers in their 30's and 40's. It's not just mom and dad helping with that first condo down-payment. And millennials have tons of money. It's amazing. Their bank statements show $400K - $500K cash. I have clients twice their age without that kind of cash.

One other thing we have here is the ability for foreign buyers to purchase and when you have a buyer with $1M cash who needs a place to bury it, it puts the house prices out of reach for the rest of us. It...sucks. I'm sorry. I'm the shoulder to cry on right now for a few people in the same boat. I think the answer is to move further out. Rockville / Olney.

This is bad advice. I have a similar financial situation to OP and I was qualified based on my full salary (650k+), not my 20k/month draw.

It's not bad advice, it's how it works when you're self-employed which OP is. Unless you have a magical lender, those in the 1099 world live by different rules.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don’t understand the following and would love insight. I’m a divorced mom of two “stuck” in a house in a school district where I’ve had less than good experiences. I’ve been looking at Kensington (closer to Connecticut), CC, Bethesda for years. From everything I read on here, it seems like my annual income is in alignment with much of the socio-economic demographic who lives in those areas. However, there is no way I could buy a $1.5M house and stay within an affordable monthly mortgage since even an $800K house would be well above $5K/month. Besides people’s parents giving them a down payment, how are others making this work? I pay for everything for the kids so please be kind as I am also trying to reduce my commute now that I have to come to the office more.

Current annual comp: $650K
Monthly gross income: $18-20K
28/36 rule: $5Kish / month mortgage
Current home value: $590K
Remaining mortgage: $470K
Current monthly mortgage: $2800

How is your “gross” monthly comp 20k if you make 650k a year? Even net should be like 30k/month. If so, you can afford more than you think. The 28/36 rule is also about gross, not net comp.

In a word, taxes. I’m a partner (lawyer) so I write very big checks to the government quarterly. $20K is the absolute max I can make if I am not maxing out 401(k), which I’d prefer to do as compared to putting that towards a mortgage.

If you are paying quarterly taxes you are not W2 and unless you are making a huge contribution to a defined benefit plan you are doing something wrong tax wise to be losing that much to the govt. Talk to a CPA. I make 1/3 what you do and bring home half your after tax income after all deductions as a W2.

Agree with others that you can easily afford a 1.5 house. You have a 35% DP and a huge monthly income.

[Anonymous]

AgentX wrote:

Anonymous wrote:

AgentX wrote:You can't look at your income of $650K of what you use to qualify off of. As an agent I'm also self-employed, they use our net to qualify us. So I have approximately the same take-home percentage as you, the total into my hot little hands is 1/3 of the gross commission income I make after splits, expenses, taxes, etc. The reality is that for buying real estate, having a W-2 job is just easier to make fly because the income numbers are the same year in, year out. No variances.

Your income they use to qualify you is the $20K take home x 12 months = $240K. And on a $240K salary, someone could purchase a home (roughly) up to $750K - $800K.)

Now, to answer your question, I have a lot of clients looking now in Bethesda, Chevy Chase and surrounds. They are all the same level of frustrated you are. There is a lot of parent money out there, even with buyers in their 30's and 40's. It's not just mom and dad helping with that first condo down-payment. And millennials have tons of money. It's amazing. Their bank statements show $400K - $500K cash. I have clients twice their age without that kind of cash.

One other thing we have here is the ability for foreign buyers to purchase and when you have a buyer with $1M cash who needs a place to bury it, it puts the house prices out of reach for the rest of us. It...sucks. I'm sorry. I'm the shoulder to cry on right now for a few people in the same boat. I think the answer is to move further out. Rockville / Olney.

This is bad advice. I have a similar financial situation to OP and I was qualified based on my full salary (650k+), not my 20k/month draw.

It's not bad advice, it's how it works when you're self-employed which OP is. Unless you have a magical lender, those in the 1099 world live by different rules.

You (and OP) don’t understand how law firm comp works. Yes, a good lender (Citibank, JPM) will understand and give her credit for 650k in income. At a very basic level, even if her 20k monthly draw is all she was taking home on 650k goes (it’s not), that’s net and after taxes (so akin to 400k gross). But she’s not paying a 65% effective tax rate and is netting a lot more than $20k a month (even if she doesn’t realize it!)

[Anonymous]

Hi OP - I think the reason you’re struggling to get answers is that the question doesn’t seem to make much sense. At $650k, even with a ton of taxes, you should be able to afford a house in these neighborhoods.

To answer your question, we live in a house purchased for $1.6 in Bethesda on $325k HHI. We did it with 50% down that was a family gift and a 2.75% interest rate so the payments are low in comparison to what they would be now.

[Anonymous]

Anonymous wrote:Hi OP - I think the reason you’re struggling to get answers is that the question doesn’t seem to make much sense. At $650k, even with a ton of taxes, you should be able to afford a house in these neighborhoods.

To answer your question, we live in a house purchased for $1.6 in Bethesda on $325k HHI. We did it with 50% down that was a family gift and a 2.75% interest rate so the payments are low in comparison to what they would be now.

$800k is a helluva gift!

[Anonymous]

Anonymous wrote:

Anonymous wrote:Hi OP - I think the reason you’re struggling to get answers is that the question doesn’t seem to make much sense. At $650k, even with a ton of taxes, you should be able to afford a house in these neighborhoods.

To answer your question, we live in a house purchased for $1.6 in Bethesda on $325k HHI. We did it with 50% down that was a family gift and a 2.75% interest rate so the payments are low in comparison to what they would be now.

$800k is a helluva gift!

Yep! It was. Came with strings attached but here we are.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Hi OP - I think the reason you’re struggling to get answers is that the question doesn’t seem to make much sense. At $650k, even with a ton of taxes, you should be able to afford a house in these neighborhoods.

To answer your question, we live in a house purchased for $1.6 in Bethesda on $325k HHI. We did it with 50% down that was a family gift and a 2.75% interest rate so the payments are low in comparison to what they would be now.

$800k is a helluva gift!

Yep! It was. Came with strings attached but here we are.

What kind of strings?

[Anonymous]

Millennial here. We purchased a house in Bethesda/CC at 1.2 when interest rates were 3% and below. No other way we could have made it work. We have no family help but had some savings and the student loan pause helped. But we still were only able to put 12% down. As a result our monthly payment is high but we sacrifice on other things to make it work. We knew the location was good for our commutes and school district. Hopefully having a decent public school will pay off in the long run…no way we could afford private.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP here. Hope this will clarify. As a self-employed person, my cash flow works differently than an employee. I get quarterly distributions, which are used to in its entirety to pay federal taxes, and I also lay a lot of state taxes due to individual and partnership circumstances. It’s apples to oranges to some extent, but the $18-20K is my gross monthly distribution before retirement contributions, 529, healthcare premiums), etc. Keep in mind there’s no match. That is why I used that number. Hopefully that helps.

In any event, a $10K mortgage on $20K still seems untenable?

So you don’t make $650k..

There is no way you are paying 60% + in effective taxes, even in a multi state partnership.

Sigh. I have no incentive to lie. I’m just a tired single mom not understanding real estate in this area. I’d welcome feedback on the question though, which said in another way are people paying $10K+/month for mortgages to live in Bethesda/CC/Kensington? Or is it that I actually don’t make enough to live in those areas comparatively?

most people aren't paying 10k.

If you are truly making $650k, then a PITI in the 7-9k isn't horrendous. If you are actually only netting 18-20k (effective taxes of 60% +...) before retirement savings, health care, etc, then you clearly can't afford the 10k mortgage.

There are plenty of very nice homes in Beth/CC for 1.5M - 1.7M that, depending on your down payment, would get you a reasonable mortgage.

[Anonymous]

Anonymous wrote:OP here. Hope this will clarify. As a self-employed person, my cash flow works differently than an employee. I get quarterly distributions, which are used to in its entirety to pay federal taxes, and I also lay a lot of state taxes due to individual and partnership circumstances. It’s apples to oranges to some extent, but the $18-20K is my gross monthly distribution before retirement contributions, 529, healthcare premiums), etc. Keep in mind there’s no match. That is why I used that number. Hopefully that helps.

In any event, a $10K mortgage on $20K still seems untenable?

DP. She also pays the entire Social Security tax, so 12.4% not 6.2% of income like employees do.

[Anonymous]

The above realtor response is correct.
We sold our CC home to a couple in their mid 30s whose parents fronted the cash funds for the house to close the deal.
DC is also transient so it’s possible that some people come with equity from precious house sales.

For us, we had previous equity, bought a CC foreclosure, fixed it up, sold and left the area. Even though we had to buy back in to a hotter and more inflated market, we still cleared a huge profit. If you do it enough, you get the equity or the cash to make the deal.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here. Hope this will clarify. As a self-employed person, my cash flow works differently than an employee. I get quarterly distributions, which are used to in its entirety to pay federal taxes, and I also lay a lot of state taxes due to individual and partnership circumstances. It’s apples to oranges to some extent, but the $18-20K is my gross monthly distribution before retirement contributions, 529, healthcare premiums), etc. Keep in mind there’s no match. That is why I used that number. Hopefully that helps.

In any event, a $10K mortgage on $20K still seems untenable?

DP. She also pays the entire Social Security tax, so 12.4% not 6.2% of income like employees do.

This isn't much in the scheme of things - it amounts to $9,000 of Social Security and maybe $13,000 of Medicare.

I think what is happening is she is only considering her monthly draw but not other quarterly payments. I'm in a similar siuation as OP (make about $850-$950k as a law firm partner) and take home about half of my salary. So OP should be taking home $25,000-30,000, I would think.