How much house can I afford?

I don't know what to say you all at this point. I thought that giving the advice to OP to buy after he had saved $600,000 -- an exercise which would take him a year, and which I thought he could succeed in because he was saving towards a concrete goal -- was prudent.

In the case of, say, a simultaneous job loss and a 15%-20% decline in the housing market, he would still be left with time to sell his apartment (because $100K would be liquid, in my scenario) and then he would unlock around $250K- $300K of equity. The combination of the two would be enough, given his previous income, to carry him for some two years.

I think the possibility of a two-year period of complete unemployment for someone in a valued field, who is married to someone who is also presumably able-bodied and could get some sort of job in a pinch, is extremely unlikely. We all lived through the 2008 crash, and everyone I know who's been hit by this recession (which I concede may be an unfair sample, somehow) has managed to find a new job, or at least find something, even for short stints of time, during longer-term unemployment. Needs must when the devil drives.

Living in a big city is a huge advantage here: it's not like we live in a Michigan factory town where there's only once source of jobs.

If we are looking holistically at the OP's financial picture, I could also point out that there's one much more likely financial catastrophe scenario than unemployment: divorce. No one thinks it will happen to them, but the rate in this country is around 50%. (As opposed to unemployment of around 10%). A divorce would have a devastating economic impact for anyone, but it would especially sack a high-wage earner with two kids, and OP should gird himself against it to the extent that he can.

Would settling down into homeownership help or hurt on that front? I would say yes, but the collective would clearly say no. And in general the hive mind clearly thinks that my advice was imprudent, and for that I've apologized already.

Thanks everybody who's at least being civil while they disagree with me.

ali r.
DG Neary Realty

"who is married to someone who is also presumably able-bodied and could get some sort of job in a pinch"

ali, just to let you know that the statement above is a great one for someone who is a citizen, not on a visa. i would bet that in the case of Andy, he has a visa to work and his wife does not. this is the typical arrangement with these kinds of visas. they are given to an individual, not the whole family.

1. There is no way the Andy can save $600K in a year.

2. The whole section about how "he would still be left with time to sell his apartment" only makes sense for a broker! Were you wearing your broker or financial adviser hat when you wrote that?

3. As for unemployment being unlikely for the OP, do you forget that he only made $160K in 2000 and 225K in 2008? Under-employed can be ugly too. What income level were you planning his life style for? Additionally, someone can become unemployed for reasons other than being laid off. They might be unable to work for whatever reason. $100K savings after closing would be incredibly inadequate for this family.

4. 50% divorce rate vs 10% unemployment? During someone's LIFE TIME, there's only 10% chance of being unemployed??? In any case, are you aware that financial related stress/arguments is one of the top two reasons for divorce?

Not to pile on the nitpicking, but i would like to add to ab-11218's point that divorce rates are NOT 50% and have never been. Although it is a much repeated falsehood, it's a fundamental misunderstanding of the statistics. The peak estimated rate of divorce is 40% but that's an extrapolation, not a firm number. Also, divorce rates peaked in the late 70's/early 80's and vary widely depending on race, religion, education and age. College-educated people have a much lower rate of divorce than high-school graduates.

I'm a HUGE fan of Ali but this guy has a fluctuating income & a history of financial lunacy. They earned $590K & didn't save 35 cents? He should learn to SAVE MONEY before he buys anything else.

ms. front porch---you need to consider whether all of these responses are due to the existence of what you term a hive mind or....

because your advice was fundamentally flawed and you've lost the ability to see past your increasing bias towards buy, buy, buy.

FP,

This will have $525K after 2 years if we take his claim if 50% taxes (presumably due to foreign status) at face value and his spending rate of $325K gross. More like $300K after the first year.

Putting that aside, $100K of liquidity is a joke for this guy. The average time for sale in Manhattan is currently at 12 months of inventory. Yeah, he might have $400K illiquid sitting inside the home after transaction costs assuming flat prices and a desire for him to downgrade his home from what he currently has, but that doesn't help a whole lot. When exactly after unemployment do you sell to tap into that equity? It takes 3 months to close, and even a motivated seller with a motivated price can take 3 months to find a buyer. So the day you find yourself unemployed, do you call your broker and list the place? Sounds stupid. Or do you wait 3-6 months hoping to find another job in the meantime, but leaving yourself seriously exposed if you don't get something at least at $325K? You're stuck between a rock and a hard place.

So I'm sorry, but your plan isn't great IMO. You've got this guy with 5-year gross income of $2.7 million living in South Harlem and worrying about how he's gonna pay his bills if he loses his job for a few months.

"Living in a big city is a huge advantage here: it's not like we live in a Michigan factory town where there's only once source of jobs."

This guy has a $325K life. It's not exactly as if those jobs are a dime-a-dozen here, and his 2008 and 2010 clearly demonstrate that the likelihood of sub-$325K years are high, even in our fabled city.

>What about a lawyer who spews false accusations for the purpose of harassing another person? Is that unethical? You bet your law license it is.

What law license?

Didn't read all the posts, but to respond to the OP I'd like to say: pay cash if you can.

A mortgage is a waste of money, all you have to do is look at the last number on the mortgage sheet; total amount paid.

Over 30 years, you will pay close to 3X the original cost of your property.

Do you really want to pay $1.5 mil for your $500K property? 30 years may seem like forever, but it will go by eventually.

So what if mortgage interest is deductible? At your income level, this deduction will phase out (except for 2010, new tax law). Even if it doesn't, what is the point of paying, say $15,000 in interest so you can "save" $5,000 in taxes?

We are a self-employed couple and bought our first couple of houses in the bad old days when they actually cared about credit, etc. We got through it just fine. A good (honest) mortgage broker is a big help and will work through it with you. That's if you really want a mortgage. Which you shouldn't.

Don't be greedy and spend all your money, but do get a nice 1 bedroom in a great neighborhood. Fix it up cosmetically. Have an eye toward resale at all times. Get a condo, so that if you have to return to your country, you can rent it out while you are gone. It could turn out to be a nice income producer in the future. Save the rest for a rainy day.

>A mortgage is a waste of money, all you have to do is look at the last number on the mortgage sheet; total amount paid.

I know. Between that, throwing away your money on rent, paying tolls and gasoline for the car, you have nothing to show for it all.

Yes, why didn't I think of that. Take your wife and two kids with private school at $70K, and put everyone in a 1BR. Thankfully, the stability of ownership will more than counteract any fallout.

And you can paint the walls any color you want.

I've already identified the cornerstone of Andy's new budget: lose the childrenses.

For those of you who are too challenged to understand this, I will lay it out. First, they will no longer need to be educated, fed, clothed, Wiied and amused on Andy's dime. Second, they will remit a good part of their coalmining or chimneyweeping wages to Andy for his benefit. It's a win-win.

And yes, Andy can paint the walls any color he wants, without the uninteresting input of childrenses' whingey demands. In fact, he can have them come back for a weekend day to do the painting. While he's in Bermuda.

Stop pickin' on FP. I'll rephrase a little. If andym can get it together to first SAVE 500k (always easier said then done), then he may have a different view on whether to buy or not buy. It's all very well to spend and fantasize about $ not yet saved and not yet earned (I don't know the nature of his contract).

Personally, I've found it hard to actually let go of cash to buy anything once I've accumulated said cash.

Thanks 23, I needed that.

Drdr, I agree this guy needs to learn how to save money..that's why I thought saving for a condo would be a good idea. Yes, I realize I've been outvoted.

Nada, I realize there's an overhang of stuff that isn't selling, which is distorting the numbers, but days on market in 4Q was 125, down from 205 a year ago. You need to get out from under a condo, especially one in which you've got significant equity, 3-4 mos. is not a crazy timeframe.

Everybody else -- I'll be back tomorrow. Mr. FP tugging on my arm to go to a party.

ali r.

so...now its all ok?

not for me.

i guess thats why i'm all grey.

its not OK.

Have a martini, Shaken on ice, not shilled

What's a good bar in midtownereast where someone could get a good martini?

CC - some lessons are better learned the hard way.

which ones, 10023? no, it would be nice if people with experience helped people learn without suggesting they court disaster.

Posted w/o thinking about what that really means. I suppose the lessons not worth learning the hard way are the ones that you really, really can't recover from (as in rigor mortis).

Seems to me that andy has had a big winning streak from X to 5X in 5 years. If he wants to spend that on an apartment in a scary market with huge potential downside, what's the worst that can happen (assuming enough intelligence to sell quickly should things go south), he goes back to X? On expectation.

Thats not the point. Of course Andy is free to be a financial fool. Who could reasonably disagree with that? We're talking about ms front porch.

not only that, but i am pretty sure that andy has actually agreed with the majority. and had done so many posts ago.

no, it seems to me andy scored a two-year contract. it's a good one, but he has no idea if he will be able to replicate it in three years.
he asked for our opinions, and he seemed to accept the majority rule.

CC - have I not told you that it's impossible to sell RE if you're not an optimist? You have to believe it to sell it. That's why I could never be a broker. Or sell anything.

Right now, it's impossible to justify buying RE in much of NYC with numbers - the only way you can do it as a salesperson is to bill it as a lifestyle choice. That's the way FP came across to me, just cut out all the stuff about divorce and employment probabilities.

Progress is only made by optimists.

Every buiding in NYC, whether built in January, 2011 or the early 1800s, was built by an optimist. No pessimist ever builds a building. Hence, real estate is by and for optimists.

I don't know that Andy has, or even should, accept the majority rule. I think it's given him healthy food for thought, and perspective, and mostly confirmed his self-doubt about buying now.

And perhaps I'm putting words in Ali's mouth, but I think she was somewhat deliberately/deep-down trying to set up an impossible goal for Andy, one that would mean he'd never buy (in the next few years) because he'd be unable to come even close to meeting the savings threshold (inadequate though it may be).

But what kind of person goes to a party at Nine O'Clock on a school night? It's disgraceful, frivolous, the divvel's work.

what are the limits? can any broker come on and solicit with no restrictions?

You Methodist!

front_porch
3 days ago
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I disagree with the posters above, partly because I'm a real estate agent and I work with tough problems like this, & partly because I too am a freelancer and I'm writing this from the living room of a co-op that I own.

If you want to buy, you can probably buy a $1mm apartment by the end of the year. (This depends, of course, on your credit score). If you put $500K down you can probably borrow $500K. Since you have no savings, though, a better scenario is that you put $400K down, borrow around $450K, and have $100K liquid.

You'll need to focus on condos as co-op approvals are unlikely at this time.

If you're not working with an agent I'll be happy to work with you (I work for a boutique firm based in Chelsea). Step #1 is to start pushing up your credit score -- and I can help you do this.

ali r.
DG Neary Realty

ali [at] dgneary [dot] com

AR: absolutely! Gawd, this place would be SO boring w/o them. AgentRachel alone provided amusement for so many. I will buy her a drink if I ever run into her at a bar.

She'll be the one at the foot of the barstool.

Last week - S&M, this week - foot fetishes.

i'd buy ali a drink as well. but are you comparing ali to agent rachel? i'm not, i respect ali, but i've found her recent comments to be very different than those we saw a year or so ago.

Business is obviously bad.

Probably needs to create a web site and get advertising from developers like BrickUnderground.

Ok, CC because my slightly-Asperger-ish brain works like this:

1) Andy asks what he can afford, given X. He does not ask if it's wise, just what he can afford.
2) I immediately perceive this as a lifestyle choice - he's not asking about buy v. rent blabla. Wants to buy.
3) FP offers to help - as in how to get approval & financing. What's wrong with this? She ain't saying if it's good or not.
4) Posters before & after (3) posit that this is unwise from a financial perspective.
5) FP disagrees - this is where I think she muddles the lifestyle choice bit. I would have not commented on divorce/job loss.

Fp pretends to be a financial advisor.

She should stick to real estate broker.

nyc10023, your slightly-Asperger-ish brain should work like this:

1) Andy asks a question
2) Columbiacounty hates all brokers without exception
3) Frontporch is a broker and answers Andy
4) Columbiacounty attacks Frontporch, not because of her points of view, but because he hates all brokers without exception

10023, because i really do like fp i'm going to stop here, but i don't see things at all the way you do.

Brokers are brokers are brokers. Some are very intelligent, and present better than others. But I'll say it a million times over and over, hard to justify on a numbers basis, can only do it on a lifestyle choice.

And maybe, if you are truly good at frittering away spare $ on nothing, might as well fritter it away on owning.

10023, your last sentence defines why andy shouldn't be buying. he doesn't have any spare change and he has a lot to fritter away at in terms of spending.

I like locking horns with FP as much as anyone here, but I'd like to say that I don think she's being disingenuous in her advice. I think it is truly what she believes, and I think she actually practices what she preaches. I disagree with her on many matters, but I don't doubt her motives. Many people espouse similar financial perspectives, with Andy being such an example, and I appreciate her openness in discussing her viewpoint as it helps me get an understanding. I hope you don't think I'm picking on you, FP, just trying to understand....

This is simplistic, but say, we take someone who makes X/yr and doesn't have much discretionary $ left over. If he/she gets a large salary raise and it's a given that his/her spending will rise to match the pay raise, if part of the raise gets taken away and spent on housing bcs of mtge (in this market, will only buy similar, not better place but blabla lifestyle-decoration-you-know-what), is that better or worse than if that gets frittered away? Or does that never happen because a fritterer will just fritter away extra $ above and beyond that?

OK, back to arguing. I think you're right in the sense that you can find a buyer in 3 months if you price properly w/o a fire sale. But, how do you know when to take the plunge when you only have 6 months of runway when it takes 3 months to find a buyer and 3 months to close? I've never run that tight, but I imagine it is very stressful. I'm sure people do it all the time and cope somehow, but what decisions does one make when all is said and done?

more to the point, why do it when rentals are less expensive? and there's zero indication that prices will increase in the area that's being suggested? and you don't have any career certainty?

You guys do realize that andym seems to have signed off about three days ago, so this debate is really not doing him much good (unless he is lurking). I am not saying you should stop, but just noting that he left the room!

No, andym didn't sign off 3 days ago.

actually, yes, andy was long ago convinced that buying wasn't a great idea.

AR: Why do people buy? Because they don't care that it's more expensive. Because they don't care if prices will increase. Because life is uncertain and they feel more comfortable if they own the pieces of sheetrock around them and the toilet (sorry!) that they sit on. I'm not being facetious. Generally, people are very bad at making decisions involving $.

People buy because they want to live in a neighborhood that is available to them if they buy. They buy because they want certain characteristics not available among rental opportunities. They buy because they want longer-term stability. They buy because owning gives comfort. They buy because sometimes they can make money by owning. They buy because they view themselves as long-term rather than transient.

i agree with you, 10023, but this is a very specific thread with a very specific set of circumstances. he didn't ask what would i spend if i don't care if it's more expensive. the thread is how much home can he afford. and given the details i'd say buying is a spectacularly bad idea right now. and the OP doesn't really seem to disagree. so i'm not quite sure what your point is here, or why you continue to support FP. love her to bits, but this was a horrid call.

>love her to bits, but this was a horrid call.

Now how do you really feel?

HSB -- The last anydm post was from three days ago and he said:

"Sound advice, inonada. I guess it makes sense to save/invest as much as possible over the next two years and re-evaluate.
Worst case, prices have gone up in the meantime, but then I am at least standing on more solid ground financially going into it."

Sounds like a goodbye. Does time stand still when you are grayed out?

"1) Andy asks what he can afford, given X. He does not ask if it's wise, just what he can afford. "

I think this is the major disconnect. With his 2008-2010 income and spending, Andy cannot afford to spend much of the $500K he will be banking. Unless he reduces his spending, or is willing to shift it on a dime (yank kids out of school), or can reasonably count on a stable longer-term income of $400K, he's cannot afford it. Will someone lend to him at a low enough LTV? Sure, but that does not mean he can afford it.

Now you may argue that if he takes the $500K and buys someplace cash, then he can afford it. I agree, but in doing so he has effectively cut his spending on housing to something much less valuable.

How are you able to read grayed out posts?

Um, you hit "unhide." Did you seriously not know that? Seems like you are a bit off your meds tonight, even for you.

All this talk about "afford", I think we should settle it by having Andy call Suze Orman.

>Um, you hit "unhide."

Thank you for taking extra steps to read what I write.

>All this talk about "afford", I think we should settle it by having Andy call Suze Orman.
:)

Inonada, I think you had him at hello. You're better than Suze Orman.

Update: I thought it might be interesting to give an update on this discussion from a few years ago. I did buy shortly after this thread was active. There were a lot of nay sayers, but I went with my gut, as I felt owning my own place would force me to save more money than I had previously been able to. I bought a 1.7 mill condo with a 500k downpayment. I am now leaving the country, and recently sold my apartment for 2.4 mill. I am glad I didn't get carried away with the negativity that existed on this forum at the time. I have in effect been paid good money to live in an amazing apartment for a few years.

You found the greater fool in the game of musical chairs! Congratulations, mixed metaphor though it be. And perhaps you set the children loose as well?

The New York Times calls buying a home in New York today a "perilous investment":
http://www.nytimes.com/2014/05/22/upshot/rent-or-buy-the-math-is-changing.html

Congratulations. Glad you didn't buy in Q4 2007 and sell in 2010 or 2011.

Or lose your job.

Big deal. So you gambled and won. I guess this means we should all go to Atlantic City!

Congrats Andy! From what I have learned (luckily not personally, at least not yet) there is no job security anywhere. It may actually be better to be a freelancer skillful/valuable enough where a number of companies are willing to pay you $1M to consult for them (and still be able to get jobs in 2008/2009 to make $200-500K) vs. having a "stable" job with one firm paying a $500K salary, and being let go at the exact same time hundreds of other similar formerly "stable" positions get cut. Frankly, all of us take a gamble when we buy without having a very sizeable cash cushion, because no one’s income is safe and can be gone in a heartbeat. Even with some savings, counting on one’s job to pay mortgage is still a gamble..

> I bought a 1.7 mill condo with a 500k downpayment. I am now leaving the country, and recently sold my apartment for 2.4 mill.

Did you have to pay any capital gains tax?

well good luck- I'm a nyc arch- also do work -design in westchester/ct custom homes- if you are in need of an architect/designer/project manager- let me know i love to design and can work with all all budgets - i see projects from concept to move in/..i have a lot of very good general contractors connections as well.
best email me at swarths@me.com anytime
scott