What’s a reasonable range to spend on purchasing a home for a single ERE person?

[wolf]

there was also a discussion about it in another thread

However, for a wealth-perspective or ERE, the appropriate metric is asset-based rather than income-based. Specifically, the rule of thumb is that the value of your home (regardless of whether you're renting or owning) should generally be less than 15% of your NW.
...
PS: I note that most won't measure up to the ERE/Wealth standards outright. Instead, consider it a goal. If you're there or trying to get there, you'll be wealthy. If not, well ...

here

viewtopic.php?f=14&t=8150

[Dream of Freedom]

If you buy for $30k, you fail the 10% NW rule, unless you happen to have another $270k.

He needs 300,000 to have 30,000 as 10% of net worth. With a portfolio of 200,000 plus a 30,0000 dollar house he would only need 70K not 270k.

[Bankai]

Yeah, I thought these are two separate scenarios.

In fact, re-reading op, they still seem like that to me.

[sky]

In order to compare areas with different earning potentials and different housing purchase costs, comparing the cost to purchase a house with potential annual income in that location might be useful.

1:1 would be a good situation with housing at 50k and income at 50k.

2:1 would be less desirable with housing at 200k and income at 100k.

One could compare average wages of a desired job type to average cost of a 3 bedroom 2 bath house (for example) over a number of cities of interest.

[TopHatFox]

Okay, so the guideline has two parts:

1. 10% of income to be used on housing expenses
2. 10% of NW to be used to purchase a home to live in

That means that when you start the accumulation phase, to be in-line with the guideline is to just rent a room until one has a few hundred grand to buy a small house with cash? Either that or a house-hacking arrangement of some sort, right?

[Bankai]

Pretty much. Although I personally wouldn't stress too much about the 10% NW rule as it seems over the top.

[EdithKeeler]

That's great that houses can be so cheap. $50,000 for a house sounds great. Most of the houses around Miami are $200K, but it's probably simply for the proximity to Miami. But then there are the 1-10M dollar houses that make everyone feel inadequate and think 500K is reasonable. The houses themselves are nothing special I think. In a way I'm kinda sad that my parents spent a large part of the past two decades working to pay maybe 1/3 of a $250K mortgage on an annual combined salary of 40-50K, not to mention a 20K commercial van and a leased SUV. : (

Just to be clear, $50K is far from the average price in Memphis.

This is about equivalent to my current house, that I paid $52K for (inclusive of improvements at time of purchase) and in the same general neighborhood. Mine was in better condition, though:
https://www.realtor.com/realestateandho ... 8840552494

But in the same zip, for $300K, you could get this:
https://www.realtor.com/realestateandho ... 8812975697

These are both fairly close in-town, though not downtown.


It looks like you have some possible bargains in Miami. This one definitely needs some sweat equity:
https://www.realtor.com/realestateandho ... 5440924676

But this one looks pretty good:
https://www.realtor.com/realestateandho ... 5058911500


I wouldn't advise buying, though, if you don't plan to stay in Miami, though. Even if you pay cash and save on closings, etc. you'd have to sell it or rent it when you leave, and both cost $$.

[EdithKeeler]

1. 10% of income to be used on housing expenses
2. 10% of NW to be used to purchase a home to live in

That means that when you start the accumulation phase, to be in-line with the guideline is to just rent a room until one has a few hundred grand to buy a small house with cash? Either that or a house-hacking arrangement of some sort, right?

Mortgage companies calculate that you "should" spend about 28% of your gross income on housing expenses--mortgage payments, insurance, property taxes and condo or association fees. Personally, I've always thought that was stupid, since who has their gross to spend anyway? Why include money that you know you have to spend on social security, health insurance, etc. (Standard deductions from a regular paycheck).

So to really think about how to save money on housing, you can start there, and then think about reducing it. While you're earning money, maybe it makes sense to get a mortgage, but perhaps based on 20% of your NET salary. (So--say you make 50K a year, 28% of that would be $14,000, or $1166 a month. BUT.... if you use 20% of your NET, and let's assume your net after all deductions is around $40,000, so 20% of that would be $8000 or $666 a month. Then you get a roommate to pay for 3/4 of that and put it toward paying off your mortgage, along with what your regular payment would be--well, you'll have a paid off mortgage pretty quickly, mostly on someone else's dime.

To me, it makes sense to get your housing stuff squared away while you're still working, at least as much as possible.

[jacob]

The "get wealthy"-numbers are just a rule of thumb. If you have an unleveraged house, then the average ROI just matches inflation. The fraction that's put into your house is therefore just retaining real value (similar to gold)---the real ROI is 0%. The only way to get rich on real estate is to leverage inflation (nominal price increases) with a loan that you either pay yourself or get someone else to pay. Because of this, the less money is sunk into the RE part of your portfolio, the more there is to put into equity which tends to have higher ROI (positive real, about 3% yoy), since it, after all, is an actual productive enterprise.

In that regard 15% is twice as good as 30% and 10% is three times as good, etc.

Conversely, spending over 30% is likely to lead to a situation of being house poor. These are dangerous high-risk customers to other lenders. In between those two are the 25-30% customers from which banks and lenders can extract maximum profit from consumers with minimum risk.

There's not much more to it than that.

[Dream of Freedom]

The only way to get rich on real estate is to leverage inflation with a loan that you either pay yourself or get someone else to pay.

Well only can be a strong word. That is really only true of capital gains, but real estate can be a cashflow investment too. So if you buy a duplex live in one unit and rent the other you would be getting 1: rent and 2: the spread between your cost of living there and the cost to live somewhere else.

[TopHatFox]

@Edith, wow! What a beautiful brick house in a nice neighborhood for so little. I bet people bring pies around and everything.

I don't plan on living here for longer than 1-3 years, so I don't think I'll buy. But it's good to think about it since I do foresee buying a small house at some point. It's nice to have a home to bring someone to, and the finances can work out well if you live somewhere for a while.

[Jean]

At the time ,I put all my net worth into my house, but:
The downpayment (30'000.-) was about 1 year of saving
I couldn't find any rent bellow 500. (at the time, I was paying 1000.- and subleting one room for 500.-), and interest for the mortgage were about 100.- per month with a fixed rate for 3 years (the time I estimated I would need to save enough pay it back completly if interest rate were to spike again).
So for me, I saw it as investing 30'000 to get about 4800.- per year. I don't know if there is a fallacy.
Now, my FI is based on this property. Had I followed the 10% rule, and not bought this house, I'de be dead or an academic.
What I mean, is that you should run the number and the worst case scenario for any property you ponder buying. It's not at all the same if the house is were you would live without obligation, than if it's an investment or are likelly to want to sell it.

[Kriegsspiel]

I don't plan on living here for longer than 1-3 years, so I don't think I'll buy. But it's good to think about it since I do foresee buying a small house at some point. It's nice to have a home to bring someone to, and the finances can work out well if you live somewhere for a while.

Live in flippers generally buy a fixer-upper, and repair it, then sell 2 years later, tax-free, if you want to go that route.

[Stahlmann]

...

[Bankai]

The average Pole can buy 1/4 to 1/3 square meter of real estate for his monthly salary. In Western European countries, the average monthly salary allows you to buy even 3 or 4 square meters.

Yeah, it sucks big time.

Although, it's still a massive improvement compared to how it was under commies, where all you could do was put your name on a 'waiting list' and after you 'waited' enough (5-10-15years?), preferably had 2-3 or more children and ideally signed up to the commies party, you were 'rewarded' with a stinky 1-bed that was not even yours.

[7Wannabe5]

I wouldn't spend more than $20,000 plus a bit extra for a wood lot. Then I would get a house-husband* and assign him a bunch of chores. Obviously, chopping wood, slaughtering the meat rabbits, building the sauna from scratch...**

I will work a day or two every week during the school year to pay the property taxes and buy coffee.

*I will cut his hair myself and dress him in used overalls.

** My new online dating ad is practically writing itself!

[Jin+Guice]

I wouldn't spend more than $20,000 plus a bit extra for a wood lot. Then I would get a house-husband and assign him a bunch of chores.

Finally the voice of reason. Owning a house blows, unless you really enjoy cleaning and fixing shit.

In my experience it is almost always cheaper in time and money to rent. I think this is because you can generally find smaller and/ or weirder places to rent, you retain flexibility and you don't have to fix shit when it breaks. If you can fix shit, you can often trade your landlord work for reducing your rent.

This may break down if you demand a lot of space, demand to live alone, live in a place with super high rent or super low housing (should be correlated but the relationship does get skewed sometimes) or if you are really tied to living in one particular place (like a particular house or neighborhood). Also, if you are a pro house flipper or landlord or something, I could still see being a landlord and renting though.

If you are somewhat minimalist and can therefore move easily if you have to and don't mind living with other people then I don't see the advantage of buying.

[7Wannabe5]

@Jin+Guice:

Nope. I really do want a mini-homestead. It suddenly became apparent to me after reading another thread earlier today that there must be a huge number of men just longing for somebody to finally give them the option of being financially supported in this manner.

[Jin+Guice]

@7w5: What thread could you possibly mean?!? What kind of man will you keep?

[7Wannabe5]

@Jin+Guice:

The house will look something like this:



and my kept man will look something like this:



However, if the cruel, cruel world is so unfair as to not grant me that such as I deserve then...well, I suppose I will just have to join my local chapter of OWGTOW.