Tag Archives: house buying

Real Estate & Rent

6 Year Plan for 20% of Networth in Home Equity

2 Comments

Even though it seems impossible, my goal is to keep my family networth with 20% of total AFTER TAX networth in home equity. This means I need to carefully stick to contributions and growth in my other funds (after tax values) to hit my savings goals (my goal is $5M of after tax networth by 50.) This assumes an increase of 5% in home value per year for next 6 years. This does not make any assumptions for stock gains, it just notes how much I would need to have in each bucket to keep the target asset allocation.

The first chart before is of my after tax goals for the next 6 years. Below this chart are my current actuals (and gaps that need to be fixed by end of 2020.)

The below notes that in order to be on track for 2021, I need the following adjustments/additions:

  • $35k more saved (allocated based on goals)
  • US bond fund and developed market fund need more investment

*note, this does not include emergency fund cash or expenses

1 2 3 4 5 6
37 38 39 40 41 42
2021 2022 2023 2024 2025 2026
Target Post Tax
Home Equity 20% $254,160 $303,036 $355,356 $411,292 $471,024 $534,743
Company Stock 10% $127,080 $151,518 $177,678 $205,646 $235,512 $267,372
Large Cap US 29% $368,532 $439,402 $515,266 $596,373 $682,985 $775,378
Small Cap US 4% $50,832 $60,607 $71,071 $82,258 $94,205 $106,949
Developed 24% $304,992 $363,643 $426,427 $493,550 $565,229 $641,692
Emerging 4% $50,832 $60,607 $71,071 $82,258 $94,205 $106,949
Bond US 6% $76,248 $90,911 $106,607 $123,387 $141,307 $160,423
Bond Int 3% $38,124 $45,455 $53,303 $61,694 $70,654 $80,212
$1,270,800 $1,515,180 $1,776,779 $2,056,458 $2,355,121 $2,673,717
Actual Post Tax
 TARGET GAP TARGET V DIFF
Home Equity 20.00% $254,160 20% 0% $254,160 $0
Company Stock 12.35% $156,887 10% -2% $127,080 $29,807
Large Cap US 29.02% $368,845 29% 0% $368,532 $313
Small Cap US 4.30% $54,601 4% 0% $50,832 $3,769
Developed 21.48% $272,924 24% 3% $304,992 -$32,068
Emerging 4.96% $63,003 4% -1% $50,832 $12,171
Bond US 0.87% $11,074 6% 5% $76,248 -$65,174
Bond Int 4.22% $53,665 3% -1% $38,124 $15,541
Missing 2.80% $35,641 0 -2.80% $35,641
$1,270,800
Networth, Real Estate & Rent

Cash Needed for Buying a Million Dollar Home

11 Comments

We just purchased a $1.6M home. That isn’t a huge home here in the Bay Area, but it’s also not the cheapest home we could buy–especially of the 3 bedroom / 2 bath variety. But it was large in terms of square footage and with an oversized lot in a neighborhood we wanted to buy in (or, well, a block away) I ran all the variables in my head and decided while this isn’t the one now it definitely can be with some work. It’s also in an up-and-coming area and I think the value will hold in 5-10 years time, if we do decide to sell.

Rules for Buying a Million Dollar Home

I have a few home buying rules that are a little nutty but they work for my oddly conservative financial brain.

  • 20% down + 3% closing costs
  • 6 Months of home and rent expenses (we will have 1-2 months overlap on rent and house to make the move smooth)
  • 6 months of basic living expenses outside of housing
  • Any taxes due within the next 6 months
  • $50k-$100k “first year fixes” fund (try not to spend all of this, but have available if needed esp when buying an older house)
  • 6 months additional in emergency fund (all monthly costs)

My one additional rule that I am going to stick to (but will be harder) is:

  • No more than 20% of networth in equity at any one time.

Home Equity =

+ Downpayment
+ Principal Paid
+ Any Realistic Gain on Home Value (if sold today)
– Any Realistic Loss on Home Value (if sold today)
– 10% current value of home (cost to sell)
– .30% of any gain over $500k+home maintenance fees

This means that right now, my home equity is worth:

+ $322k
+ $0
+ $0
– $0
– $161k
– $0k
=======
$161k

This means that my remaining AFTER TAX cash & investments should be $805k to have 20% of my networth in my home.

Buying a Million Dollar Home Doesn’t Have to be That Scary

This is what makes buying a $1.6M home less scary, but it also means that before buying a $1.6M home you not only should save a large downpayment, but also an additional $1.1M. Not everyone can do this, or wants to do this before buying a house. It’s possible I should have purchased a house 10 years ago for $800k, where now my mortgage would be $3500 a month, vs $7000 a month (give or take) and I’d have 20 years left to pay it off. But then I wouldn’t have the $1.1M, and I would have definitely gone into home ownership with way too much of my networth in home equity.

I prefer to build up that larger cushion and know that a chunk of my money still has access to the markets, which will likely outperform my house after you factor in lost opportunity cost with the downpayment, etc.

How much of your networth is in home equity?

Real Estate & Rent

I Think We Just Bought a House. OMFG.

10 Comments

It was bound to happen. After 2 years of on-and-off and very on and very off and very on again looking for a house to buy, we put an offer in and won. Or, at least I think we did. Our sellers supposedly picked us, and they’re signing their counter offer that we signed in the morning.

This is a huge deal. I’m so tired of the entire process that it just feels like a huge relief to be “done” with it (even though our home ownership journey is just beginning.) In order to not totally get in over our head in Bay Area real estate (which is so easy to do) I made some simple rules about buying…

  • NO crazy bidding wars or unethical negotiations
  • Keep mortgage to under ~$7000 / month with space for FIL (who also will contribute to mortgage for a few years)
  • Buy in a neighborhood I can see us living in for many years
  • Buy a big enough lot to be able to expand the house if we want to stay
  • Buy in an area that, if not super close to current job, is close to a strong job market with future options
  • Buy a house that isn’t a fixer upper (ie nothing clearly falling apart, everything generally livable for 5 years without changes)

I think we got most of the above. I feel like we have been dealing with HUMAN sellers, which is nice. They apparently picked our offer over a higher bid because they really liked the heartfelt letter I wrote. I had heard of people winning house buying bids with letters but I wasn’t sure that was a real thing. Apparently, they liked us, because we’re real people, who want a real house to raise our family in. I guess that struck a chord with them. Or maybe my realtor is lying to us. In any case, I feel like while we’re paying A FUDGE TON for this house — both buyer and seller are winners here.

The risk I’m taking is that I am placing a bet on being able to sustain my current job for 15 more months, which includes 5 months of maternity leave (I can get laid off during maternity leave but it’s less likely than if I were working and at risk due to any performance issues — which isn’t a problem right now anyway as I’m finally kicking ass and taking names at work.) So that’s basically 10 working months to vest all my stock. I’ll sell it on vest, which will help me hit my other goals for next year:

  • superfund 2 529 accounts $75k each ($140k total)
  • max out pre-tax 401k, husband’s solo 401k, AND my after-tax account (~94k towards retirement)
  • max out ESPP plan (~$21k)

By doing this, I also can move towards my continuous goal to fix my portfolio diversification — the retirement funds are getting a lot of bond funds and international funds to move away from being too heavy in large cap US stocks. It will take a few years to balance that out, but I’m getting there. Avoiding selling my large caps because they are like 75% cap gains right now and my cap gains rate at the moment is close to 35% with state and fed.

We’re trying to get to $450k cash in hand for down payment, close, and emergency fund. I think after I sell off my upcoming RSU vest this month we’ll be about there.

It’s crazy to think that this is possible… going from basically $0 in 2005 to where I am now. I really don’t know how I got here (well, I do, I tracked it all on this blog) but it still feels like a dream.

Buying this house is terrifying. We are going in no contingencies, as one must do around here to win a house — and giving the owners a 30 day “rent back” (ie live free for 30 days gift.) This would not be a huge deal except I’m due in mid January, and this puts our move in date around end of November. While my husband has promised to do all the hard parts of moving and I can just sit and point to things (and despite what my friends think we don’t have THAT much stuff since we live in a 1 bedroom) it still gets a bit scary thinking of moving in late Nov/ early Dec. It’s possibly at that point something could go wrong with my pregnancy, and that will make moving very difficult for my husband — having to manage moving, kid, and me potentially in the hospital. I’ll be 32 weeks or so at that point, so hopefully it won’t be an issue. But really it’s cutting it close.

Even though owning a home is NOT an investment and is NOT a financially wise decision in a HCOL area like the Bay Area, I feel really good about this purchase. I feel good that the home isn’t perfect and it’s under $1.7M. Anywhere else in the country this sounds like a lot but here it’s really… well… it’s a lot but it’s not much in terms of what you can buy in a house. I like that I’m compromising and getting a 3 bedroom and my FIL will live in the big room and we’ll be living in the smaller 2 rooms. I like that it has room for improvement and that I will enjoy going for walks in the cute neighborhood everyday and love how the neighbors say hi to each other and how in a big sprawling city it has a similar vibe to where I grew up on the east coast. Sort of. At least enough of one where I look forward to meeting my neighbors and maybe even, gasp, making some new friends.

I could have moved to the east bay and spent even less, but that didn’t make sense for many reasons. This price point makes sense to us. I opted out of the peninsula because bidding wars were insane and — when I saw a total fixer mess that we looked at a year ago (that sold for $1.5M) listed at $2.2M with a half-decent flip job, I knew it was time to give up on that city dream. At least for now. Probably forever (I’m really into this 2.65% 30 year fixed loan so it will be hard to find a reason to leave unless rates are this low again and I am super wealthy in a few years.) This is a good, solid house. It has its quirks. The chimney may be slowly detaching from it (ok, that is something I’m worried about and need to get looked at.) But overall, it’s solid. I will feel happy coming home to it everyday. I will feel happy looking out the window at the cute house across the street that reminds me a little bit of the house I grew up in.

I’m glad we didn’t settle on the things that matter the most.

I am so fucking terrified but also excited. I’m turning 37 and buying a house and having my second kid (of maybe 3 kids?) and I’ve kept this job for 3 years as of next month and overall–for me especially–things are going pretty darned well. Sure, the world is falling apart, we have a sociopath for a president and may end up in a civil war come election season, and COVID is still lurking in every corner of air where someone might cough or laugh or breathe, but I feel strangely hopeful. Like, maybe it’s going to be alright for a little while. Like I am not just working and surviving for mere survival.

Seeing my son light up about the “green grass” in the home’s yard — “need to run! need to run in the grass!” he exclaimed — I knew this was the one. I want him to not be stuck inside a tiny one bedroom apartment all day. I want him to be able to run around the yard safely fenced in. To have a little swing set in the backyard and to one day, post COVID, have friends over. To have a house of our own. Life is so fucking short. I’m ready to start living it. For $7k a month. Or, you know, whatever it costs.

 

 

 

Networth, Real Estate & Rent

Still Shopping For a Home—Will We Ever Buy One?

Leave a comment

Nine weeks pregnant with number two. Wide awake at 4am due to some pretty bad nightmares and a moderate amount of dehydration. I would go to the kitchen to get a water bottle but I can’t because I live in a one bedroom apartment my son sleeps in the living room, next to the kitchen.

I feel so ridiculous to consider my problems problems when the real problems in this world and in this country are so, so much worse. Anyone reading my story, especially without context, would think—man, what a crazy rich woman who is afraid of spending money. Maybe I am. Maybe I shouldn’t be. But my mental health issues make it really hard to know what my life will be like in a year let alone a day. So what do I do?

Looking at houses here that are under $2M and you wonder why anyone buys a house. If they cosmetically are acceptable then there is something wrong with their bones, if their bones are in good shape they are three bedrooms in a space only slightly larger than my current one bedroom apartment. With my husband’s mission to have his dad live with us (which I support IF we could find a place that worked), it makes it all the more difficult.

Part of me says — rates are so low right now, now is the time to buy your forever home. It will hurt financially for the first 5-10 years and then not be too bad. But that is if I can maintain employment for 30 years. I cannot imagine doing what I am currently doing for 30 more years. I desperately need a career change. Without a clear vision of what that is or the income on the other side, I really don’t know how to plan at all. And my husband mutters how I make unreasonable requests of him like try to earn $150k in 5 years (he is at about $80k now but works part time, and he is 38.) I try to tell him I don’t care about his income but if we are going to buy a house that changes things. I need to know we can afford the mortgage or at least most of it on one income—mine OR his.

I know many families have one SAH parent and buy a house. But around here the only families like that I know are one engineer households. If you are a good engineer at a good company you are pretty much set for life unless you massively fuck up. I’m not in a position like that. My job is a weird one that in some companies would be considered a junior role and in companies where it is paid anywhere near what I’m making it would require a lot more management experience.

So I am in this weird spot. I am earning more than I ever thought I would and my networth is climbing (it is realistic to think, if I can keep my job, I’ll have $2M in 2-3 years saved up pre tax, unless the stock market crashes) but I still don’t feel at all stable or accomplished. Yes living in the Bay Area is living in lala land — anyone reading this post from anywhere else would say leave! But my husband grew up here, our friends are here, I am better mentally without my typical seasonal depression in most of the country, and we really want to stay.

I just wish my husband would step up a bit. I know he is tired since due to COVID we lost our part time childcare and now he is watching our son all day while also working part time at night or whenever he finds time to do his work. So maybe I am asking for too much. I would like him to take an online class or something—just to move in the direction of building a career. Like my job, his doesn’t really make sense outside of his company. Some skills would translate but since he has worked for one small company his entire 13 year career, it’s harder to show variety or new learnings. I still think he could get a better paid full time job if he tried, but he never has been interested in having a career.

And some days I think—maybe I can just work my way up to VP and consistently earn, say, $300k a year. For others in my position, that might be doable. But I’m no VP. I do not like managing people or hiring or firing people. In my creative field, I find it very difficult to give feedback without redoing the work myself—and even then I don’t like what I’ve done so how am I supposed to guide someone else to do better?

All of this is to say, here I am, 36, pregnant with #2, with a good chunk of change in savings, and I feel more vulnerable and scared than ever. Up until now I’ve lived with no debts. Some of that is due to fortunately having parents who footed my bill for college (and I really want to pay my mother back for that one day!) But I’ve also bought my cars used with cash and live in small apartments that are less than I can afford based on any housing to income cost calculators.

It’s hard to go from NO debt to $1,500,000 in debt.

But isn’t that how wealth is acquired? My friends who 11 years ago paid $800,000 for a small house, probably with $180,000 down, now own a small house valued at $1,700,000. Maybe $2,000,000 in 10 years will sound as cheap as $800,000 sounds now? Though it’s hard to imagine these homes being worth $3M let alone the $2M they are going for today.

On top of all this, I dislike the real estate business as a whole. Sure, if you know what you are doing and buy the right investment properties you can do very well for yourself. But when you are buying a home for yourself, you are in it on your own while all the people who are supposed to help you don’t really have your back —

your lender — well they want you to be as low risk as possible and any small risk they say you have gives them a reason to charge you more for it. This makes sense for actual risks — but my latest finding from one lender is that we qualified for 3.125% 30 year fixed except when they realized my husband is self employed it jumped to 3.85% (clearly they don’t care that my husband has worked for the same one non profit for the past 13 years and has always made the same annual income with them plus raises while in that same time I’ve had six jobs. Whose income is more stable???)

Then, since you can’t do contingencies in the Bay Area if you want to buy a house, you apparently have to risk 3% of the price of the house (your “earnest money deposit”) and pray to god your loan closes in the allowable amount of time. If not, bye bye $30k! Well, none of these lenders are giving me much confidence our loan will close with no hiccups. With my husband’s self employment status and some new rules around that, not only will our rates be higher, they also will need to see some crazy things like a deposit within 10 days of close. Maybe that makes sense for someone with ongoing business income, but my husband gets paid four times a year for each quarter of work. That is not a big deal—to hold a check and deposit it, but only one lender told me this. What other weird rules will pop up during our closing process that we don’t know about?

your realtor — she drives a nice car, always. And she is an extrovert and smiles and sells you on why to buy a house. She may look at the disclosures and warn you of major risks, but she isn’t really an expert on that stuff, that’s what inspectors are for. But you don’t need an inspector to see that this house built 60+ years ago has issues. There are tiny cracks here and there. The floor is uneven. A tree looks like it’s roots might be going under the house. Everything creeks when you walk upstairs. The layout is nonsensical which is a cosmetic issue but still will you regret having to walk a weird way to get around for the hundredth time? What other issues are lurking in the foundation and in the walls?

The sellers, at least here, pay for their own inspections. I’ve read plenty of reports. Termites. Water damage. Fungus. Liquefaction zones. Flood zones. Seismic hazard zones. Environmental hazard zones. The list goes on. In any area where we are considering a $1.8M home (that will probably go $2.1M anyway) the ground water apparently is 0-10ft deep. That’s not in the inspection report, I found that online! But two “tanks” with one leaking(?) is in the report. What does that mean? My realtor said she would be comfortable with that risk. But we don’t know what’s leaking.

I’d feel so much better buying a 3/2 for under $1.4M. If it turns out to need work we would have the money to do that work. Husband refuses, wants a large home on a large lot with an in law where his 76 year old dad (who can pay $2000 a month until he goes into assisted living) can live. I want that too—but without me knowing I can maintain a mid-senior role in public tech companies every month for the next 30 years, well, that seems like a horrid idea.

your inspector — ok, they are going to try to find issues to help you out (that is their job after all) but given no inspection contingency is allowed in most cases, you won’t actually have your own inspector.

Ok, so maybe we should rent-forever. It is difficult to find rentals I want to live in (at a reasonable cost) and I can’t fight the nagging feeling that if we don’t buy now we will be priced out forever. I certainly know most people would recommend we rent for a few years then move to an area with a lower cost of living. But we really plan to stay here forever. At some point, into the far off future, buying becomes a better financial Option than renting. Emotionally, it is a better option day one.

The reality is that houses that really check all the boxes are around $2M-$2.5M. Y’all think I’m crazy but look at Bay Area listings on the Peninsula and in the nicer areas of San Jose. Can we get a house for less than that? Of course. It’s even possible to get a dump for $1M! But if we get what we want — 1800 sq ft, 4br/2ba with an in law or ADU on 7000 sq ft in actual good shape, in a half decent school district, that’s easily $2.2M. So then I question should we just wait until we can afford $2.2M? Will we ever be able to afford that? And by then I won’t that house be $3M and the mortgage rates will have gone up?

i know I know first world rich people problems. But most rich people have either trust funds or faith in their career and ability and skills and value, and often two parents who are earning a good income. What do I have? A few crazy good years of income thanks to RSU growth then back to earning $150k a year, if that?

I feel like I can’t buy a house until I figure out my career but at 36 that now seems like it’s never going to happen. I want my son and tbd child 2 to grow up in a house. It isn’t necessary, it is a want. But when I’m making $600k a year (what I will likely earn this year if I keep my job which is absolutely insane) I feel so confused about how I should think about my “class,” my risk tolerance, and my home purchase price. A few more years at this income and I can afford that $1.8M house. Heck, I can afford that $2.2M house. But in 2 years my income drops to $300k, then $210k, as my stock isn’t being refreshed enough since I am not a very valuable employee. I should get some small stick refresh this year so I’ll probably hover around $210k if I stay in this company in this role forever (last year I got a 1.7% raise so I’m not expecting any big salary growth here.) $210k isn’t bad either, but with my husband’s $80k that is not enough to afford $2.2M or $1.8M.

AND that $210k is IF i keep this job forever. It is good for now—I am going to stay at least to get all of my initial grant as long as I don’t get fired or let go, and maybe one more year, but then I need a change. Maybe I need to make $80k for a few years (or less) while I figure things out. Maybe I need to go back to school. Maybe I want to take some time off to spend with my kids while they are young and consult part time, I don’t know what I want but I know I don’t want to overbuy and close doors to whatever out there could make me happy, if such a career exists.

So this is where I am. We’ve agreed it we don’t buy a house by October we will rent a bigger place for a while. We are considering putting a $1.8M offer in on this 5br listed at $1.875, which I am fairly confident we wouldn’t get. I’d prefer to lose out on a bunch of bids then overpay. The house is far from my current job but I won’t have to go back to the office this year and in 3 years I can change jobs. But it’s also far from SF which most jobs I’m qualified for are. If I change careers, maybe that doesn’t matter. But it’s scary to think I might get stuck with some crazy San Jose to SF commute one day to not lose our house.

we are looking at another two coming up—not as nice, both $1.8-$2M, both with built in laws. The inspection report on one was pretty scary though most old buildings have issues so who knows.

I wonder at what networth I will be able to relax a bit and enjoy life. I have the $5M number in my head. It’s arbitrary, as all my numbers are, but I think that’s it. That’s enough for a $2.5M basic house and enough to stay in the stock market and grow as long as we keep working and at least pay our living expenses each year. That’s enough to pay my mother back for college and my wedding and help my sister out a bit if she is still earning minimum wage or close to it. And to start giving to charity in substantial ways. I mean, $10M sounds better, but more realistically I want to aim for $5M. I guess that’s my FAT FIRE number. I don’t know how I’ll get there (unless I manage to keep getting jobs at rocketship companies where my RSUs go up in value.) I mean, realistically I’m looking at $2M by 38 or so. If I don’t touch that and get 5% on it YoY, in 20 years we will have $5M. Of course, in 20 years $5M won’t be worth $5M today. The real question is how do I get to $5M by 45? That’s saving about $400k a year for 8 years in a mix of interest, stock growth, and new earnings. It seems impossible. But my first $100k also seemed impossible. So maybe it is possible. Maybe it’s only possible if I buy a house. Maybe it’s only possible if I don’t.

 

 

 

Real Estate & Rent

Figuring Out How Much House We Can Afford with RSUs

6 Comments

We are going to buy a house. It is not the most financially wise decision, but life isn’t about always being financially wise–sometimes you have to splurge (within reason) and take risks. I accept that buying a house will reduce our total networth in the future, and I’m ok with that. After all, what is the point of making money if you can’t enjoy it, and what would I enjoy more than having a home of my own to raise my kids in? Sure I’d love to take lots of international trips and such, but with a toddler and one on the way (and maybe one more in 2-3 years), that’s not happening for a while. My house will be my Paris and Prague and Tokyo.

But one thing has been very difficult to figure out — how much we can afford. All home buying calculators assume you have a fairly consistent income that goes up by a consistent percentage every year. That isn’t reality for us. There are many ways to figure out how much you can afford, but one model that I’ve decided I like is 28% of pre-tax income (I’d prefer to do post-tax but if I do that I’ll never afford a home here.)

I worked out the chart below, which shows potential annual income (pre tax) with the amount of mortgage (PITI total) we can afford per month (on the right) and then on the let, I have the house price and the total amount of PITI with a 3.5% 30 year fixed loan. Our goal would be to afford a $1.7M home with an in-law, where my father-in-law would pay some rent. This means based on the chart below we need to make $320,000 per year, consistently, to afford a home at this price point. (*my insurance estimates are probably way off but I tried to figure out what home insurance would cost in California with earthquake insurance tacked on — if these numbers look wrong please let me know in a comment.)

Total Year Total Month Mortgage Max (28%) Total Monthly House Price Mortgage (3.5) Taxes Insurance Earthquake
$210,000 $17,500 $4,900 $4,872 $1,000,000 $3,412 $933 $167 $360
$255,000 $21,250 $5,950 $5,957 $1,200,000 $4,310 $1,120 $167 $360
$300,000 $25,000 $7,000 $6,862 $1,400,000 $5,029 $1,307 $167 $360
$320,000 $26,667 $7,467 $7,767 $1,600,000 $5,747 $1,493 $167 $360
$400,000 $33,333 $9,333 $9,936 $2,000,000 $7,543 $1,867 $167 $360
$500,000 $41,667 $11,667 $11,381 $2,200,000 $8,801 $2,053 $167 $360

 

Right now, I’m earning $170,000 in base income, and my husband makes $85,000. Based on our minimum income, that gets us to $1.2M of house… which isn’t enough here. To get to that $1.6M target (which is still a small house and a fixer upper), we need $320k in annual income. So either I need to consistently make $235k, or my husband needs to increase his income, or some combination of both.

What the above does not account for is that my annual bonus is $34,000. I have no idea if I will get a bonus this year or how much of it I will get. I have received my full bonus every year for the past 3 years BUT there is no guarantee I will receive a bonus in the future, or that future jobs will pay such a sizable amount in bonus. I’m not sure if I should include my bonus in my calculations or not. I’d rather not, because a bonus is nice to have for an extra vacation or gift for the kids vs worked into our planned home expenses. It would be nice if my base was $200k, so I could actually include that in the calculations. If I could get my base to $200k and my husband could figure out how to make $120k, we’d be in pretty good shape.

In addition to the base and bonus, I also receive a large amount of my income in RSUs. My refreshes have not been great, though. And if I lose my job, then I will not be able to obtain the same amount in RSU.

When I joined my company, my total compensation was as follows:

  • $165k (base)
  • $33 (bonus)
  • $56k (RSU/yr for 4 years) (*currently worth ~$350k+/yr)
  • TOTAL = ~$254k

My current compensation once I fully vest my first grant is:

  • $170k (base)
  • $34k (bonus)
  • $12k (RSU/yr)
  • TOTAL = $216k

So, that’s good, with bonus and RSU I’m still getting close to the $235k I need to make to afford a $1.6M home, but not quite, and that’s including bonus and RSU which are all variable.

What’s scarier is that if I lose this job, I have no idea if I will be able to do better than $150k salary with no bonus or RSU (I feel fairly confident I can find a job with $150k salary since before I started this job I had a few offers for that amount at startups that I turned down as they were way too low.) So do I base my home purchase off of $150k (me) + $85k (husband) = $235k/yr of income? Then we a afford a $1M house… so we can’t afford any house here and we’ll just continue renting. However, with my RSU growth, my income this year and next year are very high, and it “feels” like I should be able to afford more house. But can I?

Adulting, Pregnancy, Real Estate & Rent

Am I Having Another Baby?

1 Comment

Given it took months and $5000 of fertility treatments to conceive our first child, I was momentarily bewildered by a very faint pink line on a cheap-o pregnancy test I took two weeks after our first month trying for number two. I joked to myself, as I do, that of course my previously infertile PCOS-ridden womb would get pregnant the first month we tried. I’d be taking the test on Mother’s Day weekend, so it was only appropriate to find out that I was to become a mom – again.

I had taken a test two days prior and it was negative, but I figured I’d waste another cheap-o test and move on with my life. I was convinced that it was impossible to have conceived this month anyway, since my husband and I missed the time in the month I thought I was fertile. But then, as I blurred my eyes at the test, I saw not one, but two lines. I blinked. I waved the strip in the air. I walked away and came back. I took a picture of the strip and sent it to a close friend who knew I was hoping to get pregnant by fall. She responded, “you’re pregnant.”

I dug through my drawer of random things I never used and pulled out the more pricey early response tests I saved for when I might actually be pregnant. Took one. The positive line came back dark pink. “I’m pregnant.” My friend, with one more photo to document proof, confirmed.

Suddenly, my next year flashed before my eyes. I had imagined it all, but not quite so so soon. And with the coronavirus, everything became much more difficult and scary (I was aware of the pandemic when we were trying and decided at 36 with fertility problems and the hope to have at least one if not two more kids, we should get on with it — I figured we’d probably get pregnant in a few months and I’d be giving birth in spring 2021, maybe around the time a vaccine would be available–not exactly January 2021, in the middle of what could be a bad second or third wave.)

So the next year blur — a stomach growing bigger and bigger, being unable to sleep well and having all the horrible third trimester symptoms, not being able to travel to see my mother or sister or visit my childhood home that needs to be sold, the worst possible ways one might have to deliver with COVID-19 around–laboring with a mask and with full-blown corona symptoms unable to breathe, and then just the reality of now having 9 months to move from our one bedroom apartment (a needed impetus to stop being so frugal and get more space), I sat there and took in the reality of what this little pink line meant.

And despite all that worry, I felt really happy. I pictured my son, not able to interact with any other kids these days, having a sibling to grow up with. He has no cousins, and it’s unlikely he will have cousins (my sister is our only hope and if she does have kids it won’t be for quite a number of years), and I want to give him a family (this is also why I want 3 kids even though that’s kind of crazy… we’ll see how I do with two.) I pictured my kids growing up together and fighting and laughing and having fun and being silly.

I went to get my son out of his crib and he was the first to hear the news, and he kept my secret all day. We often jokingly ask him if he wants a brother and he exclaims “or sister!” so I asked him again and told him there is a baby in my stomach. He’s 22 months old so he isn’t going to understand but I made a cute video of telling him and planned to show it to my husband at some point. I knew he would be quite surprised.

That evening, as he was putting my son to bed, I sent him the video and told him I took a cute video of our son but it was too big to upload to instagram. I videoed him watching it. At the beginning I go “do you want a brother?” and so on. My husband, watching the video clueless looks at me and says “it’s a good thing you didn’t post this to instagram, people will think you’re pregnant” (classic) — a few seconds later, when the video reveals me handing a positive pregnancy test to my son as his “present” my husband figured out that he was right about one thing… people will think I’m pregnant.

But over the last weeks, I’ve had some reasons to think that this baby won’t stick. I won’t go into details, but I ended up having an early ultrasound and with only a gestational sac and a yolk sac seen, it’s possible the baby isn’t growing and isn’t viable. It’s also possible I’m just earlier than they think (which I know is true at least somewhat) and we just need to wait and try again in a few weeks. So I’m in wait mode now. I have another appointment on June 15 and will find out if there is a baby or I’ll have to make a horrible choice between getting a D&C, taking a pill to miscarry, or waiting for my body to handle it naturally. I’m hoping I don’t have to make that decision, but accept hat may be the case. I’m 36 now, and it’s just more likely that anytime I get pregnant we’ll hit a bad egg. I’m trying to tell myself that it’s good news either way–I’ve proven I can now get pregnant without fertility treatment, and I should be able to again. And if I am actually pregnant, well, that’s terrifying but amazing and I really can’t wait to have a baby again and grow my family and continue building the life I want.

I successfully achieved having $1M before baby #1 and I wanted $1.5M before baby #2 and I should get there, adding in my husband’s savings. And $2M before baby #3, if there is to be a baby #3, also seems possible. My personal capital account, which shows our pre-tax networth, is at about $1.4M right now. That seems insane to me, as I still remember looking at my mint account with about $10k to my name, wondering how on earth I’d ever save $100k. I have a good $350k sitting in cash for a downpayment (and soon will have another $50k more thanks to some strong performing company stock vesting soon) so everything is really just working out… somehow.

Why is it I still feel so out of control though… afraid to purchase a home… afraid to make any commitments or live slightly less frugally? I really want a home. I want a reasonably nice home, which seems to cost like $2M in the Bay Area, but I’m willing to settle for something a little cheaper, like $1.7M (sigh) and handle a house that isn’t perfect but that is a place to call our own… a place to make our memories. It’s time to leave this 800 square foot apartment and move on with our lives. I’ll miss it, but I won’t miss it that much. Not if we have a home of our own.

At this point, I’m waiting until my appointment next week to see how much we need to rush the moving situation. If there is no baby, then we have a little more time. If there is a baby, then we have less than nine months to move. Even if we wanted to, we can’t legally stay in a one bedroom with two kids. So here we are, family of 3 maybe about to become a family of 4, in the middle of a pandemic, having to buy a house and move and set up our life and figure out if we move south to have a little more house for our money or stay in the area we want to live and have a lot less house or who knows. I realize financially renting makes way more sense but I’m at this point where I feel like what is the point if we don’t have a home to put down our roots in… and a sense of stability and a place that is ours. I’ve saved $1.2M on my own and I know that’s not enough to really buy a house here… but on the other hand, having all that invested in the stock market is risky too and while it will probably perform well over time, why avoid buying the one thing I really want just to have a big number in the bank?

I hope I am pregnant and I hope this forces us to move and find a house and meet our neighbors and be grown ups and grow up. Life is so short and I can’t believe I’m almost 37 and really almost 40. I thought I’d be a lot more settled by this age, but I do think that my 40 I want to have some serious domestic accomplishments, not just financial ones. And I hope that when travel is possible again I can have a guest room for my mother and sister to come visit. I hope I can have a yard to have friends over and sit around a fire pit and maybe eventually buy myself a hot tub though that will probably never happen but it’s a thought. And a garage where I can store my bike and some other things so my living room doesn’t have to be my storage room and my living room and my son’s room with his crib and toys and slide and rocking horse. And my bedroom doesn’t also have to be my husband’s office.

I guess I’m tired of making smart financial decisions and want to make ones that make my life better now. I know I’m so fortunate to be where I am and have what I have. With all that is going on in the world right now, especially the injustices against the black community, I feel guilty being concerned with any of this mundane life stuff. But life still goes on, even as the world needs a big kick in the ass and a whole lot of fixing. I’d like to figure out how to contribute to fixing the world too, but I think part of that comes with my settling down and not having to spend a lot of my energy thinking about “what’s next” and instead focus on stability in my own life and how I can then give back to the world.

Anyway, lots going on right now. I very well may not be pregnant… but I could be. If I was 5w6d at my prior appointment, or even 6 weeks (which I think I was), then maybe it was just too early to see the fetal pole and heartbeat. Or maybe the doctor I saw (not my normal doctor) rushed the appointment and didn’t spend enough time looking because she knew if she found it or didn’t, it didn’t really matter at this point… she was just confirming the pregnancy was not ectopic, which it wasn’t. She did say maybe it’s just earlier than we think and gave me a glimmer of hope pointing to a little speck on the screen saying “maybe something is growing there” so there’s nothing I can do but wait.

…And even if my next appointment, where I think I’ll be 8 weeks and some-odd days, shows a healthy embryo and heartbeat, I can still miscarry at any time or have other complications before a healthy baby is actually born. So I don’t want to get my hopes up. My last pregnancy was relatively smooth, but my childbirth was not. I am trying to just have not expectations here other than hoping that I remain healthy and safe through whatever happens. And that maybe all of this leads to purchasing our home and really starting our life as a family together–I realize that owning a home is not a requirement to do that, but it still feels like something that needs to happen before I feel like I’ve made it as an adult.

 

Real Estate & Rent

Should We Buy a Home or Rent a Home in the Bay Area?

6 Comments

East Bay. North Bay. South Bay. Peninsula (Bay). So many–unaffordable–options where to live!

Sane people would take this pandemic situation and pack their bags and head to any reasonably blue part of the country that doesn’t cost $1000 per square foot.

But we’re crazy and want to stay. And there is no reasonable way to calculate how much house we can afford because our income is SO variable. This year we might make $700k (yes that’s crazy and like double our best year ever)! Two years from now, we might be lucky if we make $200k. How on earth do we figure out what we can afford?

28% of Lowest Income Earner After Tax
The safest way to figure out how much you can afford is to plan on spending 28% of the lowest income earner’s income after tax. My husband makes $90,000 but since that doesn’t include benefits I’m going to say that’s $75,000. If we as a family made $90,000, our taxes would be lower. That would be $7500 a month pre tax or maybe $6000 after tax. We could afford $1680 on rent or mortgage per month.

Well, that’s not going to work… we’re already spending too much at $2600 per month on renting our one bedroom. I guess we can’t plan based on this conservative model.

28% of dual income assuming minimum earning potential
If I assume my husband can keep his $90k a year job even and I can manage to make $150k on average, that gets us to $240k a year. I think I can probably make more than $150k but I don’t feel comfortable committing to more than that (my base is now $170k.) So At $240k a year that’s $20k a month pre-tax, or $10k after tax. So we should spend $2800 on housing a month.

That’s about what we spend now. :/

36% pre-tax dual income minimum earning potential
Same numbers as above, but I’ve read some more risky plans suggest 36% of pre-tax income. That gets us to $3600–still not going to buy us a house in the Bay Area!

Ok, so none of these models work. So how do we figure out what we can really afford?

  • Downpayment & Emergency Fund: $380k
  • Pre-Tax Taxable: $197k ($98k after tax)
  • Taxable Accounts: $294k ($205k after tax)
  • Retirement Accounts Pre Tax: $346.5k ($242k after tax)
  • Retirement Accounts Post Tax: $70k
  • 529 College Fund: $52k
  • TOTAL NETWORTH AFTER TAX = $1M
  • Potential earnings next 1.5 years = $710k pre-tax ($355 post tax) + ~$100k savings from bonus and income (if we stay in our current apartment)
  • TOTAL NETWORTH AFTER TAX IN 1.5 years = ~$1.45M

So if I can maintain employment until January 2022, and my husband keeps his job, and the stock market doesn’t totally tank (which it could) we will have about $1.45M after tax, with $1M of that being in non-retirement and non-529 accounts (or maybe little less if we put more into 529 which we probably will.)

So let’s say in 1.5 years we have $1M in cash and after-tax taxable funds. But our income ratios say we cannot afford a home that costs more than $2800 a month.

Do we put down a large downpayment?

One way to reduce the monthly cost of a home is to put down a giant downpayment. Do we wait until we put down 50% or more on a $1.7M home? Does that work…

$1.7M home
55% downpayment = $935k!
$3875 monthly payment

Ok, so we put down almost $1M and we still have a $3875 monthly payment, which according to above calculations is still more than we should be spending on a mortgage based on our income!!!

And I don’t think we should $1M into a house probably, but it seems to be the only way to get our monthly costs down to something within a reasonable range.

How does anyone afford a house here?

Even though my income is good now, I cannot assume this will go on forever. I already know I need to change jobs in two years to get another stock grant, and it’s highly unlikely my next job will see growth at the same rate my current company has over my tenure here. I’ve been very fortunate to be part of this growth, but that’s not the reality of my future jobs. I already want to take on less stressful roles so I can actually see my children grow up. This shelter in place situation has made me realize just how important that is.

Before you say WHY DON’T YOU LEAVE THE BAY AREA just know that my husband refuses to. I don’t WANT to but every time I run these numbers I think what we need to do is rent here for another 1.5 years so I can vest my stock and then we need to GTFO of this HCOL area and live a slower, better life somewhere else. We’ve talked about moving to maybe Seattle, but I’m not a fan of the Pacific Northwest. I’m not sure where we’d move. He likes rain and grey skies, I like sun and heat. I like oceans. He likes being close to the Bay Area because his family is here. My family is in PA and FL. I feel comfortable with the job situation here–I don’t know if I could get a job or have job stability elsewhere. Maybe New York. I’d move to New York, not sure he would.

So we’re kind of stuck in this dilemma. I want to buy a house because to me that feels like I’ve made it. I want to settle down and meet the neighbors and really feel like we have a place for our kids to grow up. It also feels so not worth being in a career I don’t love and being so stressed (though less so not having to go into the office) and making $600k a year right now to not be able to afford a house because that $600k is meaningless in the grand scheme of things. And I know I sound like I should be thrown in the looney bin because $600k is a fucking lot of money–especially when a huge chunk of the country isn’t even getting a paycheck right now. I know it. It doesn’t change the math. We can’t afford a house. Not here. Not if we’re being remotely risk averse about it.

It is more challenging in that my husband is requiring us to live with his father-in-law. His father-in-law does provide part-time childcare, so I am supportive of this–and he can contribute to the monthly mortgage–but it makes it even harder to find a house that  is within the ballpark of reasonable for our projected income levels. I can’t expect my husband to get raises as he never asks for them. I got a shitty 1.7% raise last year so I’m just estimating I’ll stay flat for the foreseeable future, esp given the state the world is in today. We really need to find a $1.5M house with an ADU and put 50% down ($750,000) and then his father can contribute $2k a month and we’d be ok.

I don’t know what to do. I feel like until I have $5M in networth, I won’t feel like we’re in a good place to buy a house. But with one toddler and a kid on the way, I feel like it’s the right time to buy. What do we do?

Real Estate & Rent

Just a bit terrified of making decisions…

1 Comment

I wish my husband and I could have a straightforward conversation about why I feel uncomfortable with buying a house with gift money from his mother, and then with her living there as well (in an in-law unit.) Financially it is not a horrible idea (as long as we never get divorced) but emotionally it’s really weighing on me. It isn’t even the living with her that is making me uncomfortable, I just don’t want to merge our finances.

His mother also is being put in a bad situation, even though in her nativity she may not know it. What if she gives us $1M and a few years down the road my husband is hit by a bus, and I want to sell the house and move closer to my family across the country? Even if I wanted to give her back the $1M at that point after selling the property, I couldn’t do this without having to pay taxes on this. There’s no clean way to give her the money back. So then I’d be stuck.

Now hopefully my husband won’t die… and all of the other 10,000 equally awful scenarios won’t actually come to fruition (i.e. I get a brain tumor and go batshit, or get in a car accident that is my fault and creditors come after our house and take it away, etc etc.) There are just SO many things that could go wrong and my husband is all like THIS IS FINE it’s NOT A BIG DEAL. It is a big deal. It’s a very big deal and a very big amount of money and maybe I’d be more comfortable with it if he treated the situation as such. I’m reaching out to lawyers to make sure that if we’re going to move forward we have everything clearly in writing regarding the what ifs. He gets upset at me for being concerned. It’s frustrating.

He also is really having 2000 sq ft house envy, which is partially my fault as we’ve been house shopping for over a year now and I’ve shown him some bigger homes in the area so that the ones we can (barely) afford(?) that are 1200 square feet seem too tiny to consider. I get it. I want a house with big rooms and space to grow and just space overall. But without his mother’s money, we should be spending no more than $1.5M on a house and really less than that (if you want to go for the 2x income, we should be spending $500k-$600k on a house, but that will not get us a studio apartment out here.)

I’m starting to lean towards buying something in a “lower cost” area — San Bruno, Pacifica, South San Francisco, Daly City — maybe even Hayward. I’ve also finally accepted that what we buy today may very well not be our forever home, and if it is then we’ll learn to love it (yes, it’s hard to be willing to compromise so much when still spending $1.3M-$1.5M, but that’s the reality of life in the Bay Area.)

I knew going into my marriage that my husband and I don’t see eye-to-eye financially. He’s perfectly happy making $90k 1099 per year, never asking for raises, working in the same non profit for the last 10+ years. I was also making $90k at some point, but that was a long time ago as I’ve moved jobs and received raises and bonuses and such. I do believe that marrying him was the right thing to do–we love each other and that’s what matters. We also both entered the marriage with no debt, which helped. We pay for our used cars in cash. We still save more than we spend. We’re not from totally different planets when it comes to money management.

But looking forward over the next 10 years, I want to have 1 to 2 more kids, and I just don’t see how it all works…

As some of my readers have suggested, we could and probably should continue renting, get a bigger place as a rental and we’ll still be better off than buying. But my husband now is opposed to renting a bigger place! He really wants to buy. With his mom. He doesn’t want to deal with moving and having to move again (and again and again.) I get it. But right now, maybe it’s not the right time to buy. Or maybe it is — mortgage rates are low, we have $1M in net worth, we’re both employed, we have one 1 year old and may have another or two in the next 2-3 years…

I am sad that I don’t have a husband who I can talk to about my concerns and be heard. I wish we could be in this together but it doesn’t feel like we are. He will pay up to $2500 a month in mortgage so my only option is to find a house I can personally afford where the rest of the mortgage is on me. I haven’t figured out how to make that work, especially given my job stability is always non existent and my mental health continues to be a train wreck.

In better news, I finally applied for term life insurance and submitted all my tests/paperwork… (guess what, my husband is putting off submitting his!) — anyway, that’s the subject for another post. I’ll find out if I’m accepted at all and what my rates will be next week. Until then…