yet another how much house can we purchase?

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Topic Author
gips
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yet another how much house can we purchase?

Post by gips »

we're thinking $3.2mm on a new home....

ages: 65+58
total portfolio: $5.2mm, invested 40-60 in index funds
real estate:
- in contract to sell house in suburbs, should net ~$1mm
- current nyc co-op - will sell, should net ~1.2mm
- condo in fl, will keep: $500k equity, mixed use, $10k annual positive cash flow not taking into account opportunity cost of investment (paid cash)

so once we sell house in suburbs and co-op, total portfolio should be $7.4mm (we won't be subject to cap gains tax on sale of homes)

debt: none
employment: retired
ss: at 70.5, combined ss will be $4,700/month
expenses: we're thinking $150k per year should be plenty

so how much could we spend on a new home? we're thinking about purchasing a $3.2mm condo in nyc, leaving $4.2mm investable portfolio. back of the envelope is 25*150k=$3.75k which is kinda close to the edge and assumes a 4% swr. But not sure that model includes ss income of $56k and I suspect I'm overestimating expenses...probably $125k is plenty but tough to know until we're in new place.

thoughts?
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Watty
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Re: yet another how much house can we purchase?

Post by Watty »

gips wrote: Fri Jul 30, 2021 8:55 pm expenses: we're thinking $150k per year should be plenty
Does that include income tax and all the costs associated with the new property like property taxes and monthly fees?
gips wrote: Fri Jul 30, 2021 8:55 pm ages: 65+58
........
we're thinking about purchasing a $3.2mm condo in nyc, leaving $4.2mm investable portfolio. back of the envelope is 25*150k=$3.75k which is kinda close to the edge and assumes a 4% swr.
A 4% SWR is likely too high since the younger of you is only 58. The current low interest rates could be using a lower SWR too but there are all sorts of opinions about that.

The good news is that does not include your Social Security and the income from your Florida condo.
Grt2bOutdoors
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Re: yet another how much house can we purchase?

Post by Grt2bOutdoors »

Did you take into account NYC property taxes and HOA fee for condo? If you are spending that kind of coin, don't forget your annual ah-hem holiday tips for the front doorman, security and building manager.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
gips
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Re: yet another how much house can we purchase?

Post by gips »

thanks for the thoughtful replies, we're thinking of limiting maintenance+re taxes so $5k/month or $60k per year. So that leaves around $90k on $7.5k per month , which really should be more than sufficient. we'll probably travel twice a year using the annual expense budget. and we'll use the condo in fl as well...

I dunno, I've spent a lifetime of fairly conservative spending, I've been mostly retired for seven years with a goal of keeping the portfolio > $5mm but rn there seems to be an opportunity in the nyc market...
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winterfan
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Re: yet another how much house can we purchase?

Post by winterfan »

To me, the remaining amount seems like plenty to live on, but I guess it depends on your other expenses. You can get some beautiful condos at that price point. I took a quick look and found one on 5th Ave with a designated maid's room! I noticed some big price drops too.
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Watty
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Re: yet another how much house can we purchase?

Post by Watty »

gips wrote: Fri Jul 30, 2021 10:09 pm thanks for the thoughtful replies, we're thinking of limiting maintenance+re taxes so $5k/month or $60k per year. So that leaves around $90k on $7.5k per month , which really should be more than sufficient.
You might also have something like $20K(???) a year in federal, state, and local income taxes.

I have never lived in NYC but $70K of spendable income seems a bit low for living a fairly high end lifestyle there.

I did not crunch the numbers but when you add in your Social Security and rental income the numbers likely could work especially since you could sell the Florida condo at some point if you need to.
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gips
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Re: yet another how much house can we purchase?

Post by gips »

thanks again for the replies...while one could easily spend $7.5k a month in nyc, we are bogleheads in our day to day: We eat in neighborhood restaurants and cook, discount tickets for theater, public tennis courts and have museum memberships...not really sure what other expenses we'll have other than health care and travel. perhaps a garage and a gym membership if the place we purchase doesn't have a gym.

also, there's the possibility of defraying travel costs by renting the nyc condo...so if we wanted to live in france or italy (for example) for six months, could be cash flow neutral or positive.

Interestingly, our portfolio dipped to 4.4mm or so after the fl condo purchase and now, with recent market highs and my pt consulting, the portfolio has more than recovered. In some sense, I'm thinking of this as a natural way to take some money off the table...
Last edited by gips on Sat Jul 31, 2021 12:47 pm, edited 3 times in total.
BillWalters
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Re: yet another how much house can we purchase?

Post by BillWalters »

Seems like way too much to me.
Topic Author
gips
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Re: yet another how much house can we purchase?

Post by gips »

BillWalters wrote: Sat Jul 31, 2021 12:44 pm Seems like way too much to me.
thanks, math please?
BillWalters
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Re: yet another how much house can we purchase?

Post by BillWalters »

You probably won’t run out of money, especially if your spending is as low as you say. However, I think you might be lowballing your carrying costs. Taxes alone could easily be $5k per month, to say nothing of common charges, insurance, etc. Also, if you’re living in a $3m+ apartment it’s super easy to slide into a much more expensive lifestyle, especially if you become friends with your neighbors. Finally, I personally wouldn’t want that much of my NW tied up in highly illiquid residential real estate, especially in a market correlated with the performance of financial markets.
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gips
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Re: yet another how much house can we purchase?

Post by gips »

BillWalters wrote: Sat Jul 31, 2021 1:59 pm You probably won’t run out of money, especially if your spending is as low as you say. However, I think you might be lowballing your carrying costs. Taxes alone could easily be $5k per month, to say nothing of common charges, insurance, etc. Also, if you’re living in a $3m+ apartment it’s super easy to slide into a much more expensive lifestyle, especially if you become friends with your neighbors. Finally, I personally wouldn’t want that much of my NW tied up in highly illiquid residential real estate, especially in a market correlated with the performance of financial markets.
thanks, the real estate tax is included in the maintenance, which is about $4-$5k all in. lifestyle creep is def concern but we've been able to largely avoid it where we live now... I do share your concern on the illiquidity of real estate...not as much concerned with the correlation to markets, this will be the last home we purchase so our heirs will deal with valuation when we pass. we're not looking at this as an investment...
PharmerBrown
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Re: yet another how much house can we purchase?

Post by PharmerBrown »

gips wrote: Fri Jul 30, 2021 8:55 pm (we won't be subject to cap gains tax on sale of homes)
How so if you're selling two houses?
Topic Author
gips
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Re: yet another how much house can we purchase?

Post by gips »

PharmerBrown wrote: Sat Jul 31, 2021 2:35 pm
gips wrote: Fri Jul 30, 2021 8:55 pm (we won't be subject to cap gains tax on sale of homes)
How so if you're selling two houses?
the cap gain on the house in the suburbs will be less than the $500k exclusion, we expect to break even or lose money on the sale of the coop. We're ok with a small loss as it's usually desirable to trade up in a buyers market.
NewBog21
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Re: yet another how much house can we purchase?

Post by NewBog21 »

Great topic and thoughtful advice! We are also struggling on what to do in this market with home buying. We live in FL on the Gulf coast and our current 8-year-old home is now maybe inflated by 50% with agents calling to see if we will sell. The tourist influx is so bad we have thought about leaving and would like a bigger city. Home prices in our focus city are incredibly inflated and terribly limited. Also, I recently inherited a very large amount for which we had no need. It is way too easy right now to overpay for a house that will decrease in value if we have another 2008 recession. What would you do?
PowderDay9
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Re: yet another how much house can we purchase?

Post by PowderDay9 »

I think you can afford a $3.2M home. You'll still have a $4.2M portfolio with social security not too far away as well. I think 40-60 has very low risk as well. Enjoy the new home!
Topic Author
gips
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Re: yet another how much house can we purchase?

Post by gips »

NewBog21 wrote: Sat Jul 31, 2021 6:05 pm Great topic and thoughtful advice! We are also struggling on what to do in this market with home buying. We live in FL on the Gulf coast and our current 8-year-old home is now maybe inflated by 50% with agents calling to see if we will sell. The tourist influx is so bad we have thought about leaving and would like a bigger city. Home prices in our focus city are incredibly inflated and terribly limited. Also, I recently inherited a very large amount for which we had no need. It is way too easy right now to overpay for a house that will decrease in value if we have another 2008 recession. What would you do?
the real estate market is cyclical, over the course of our lifetime we've made decisions based on need rather than looking at it as an investment. So my advice would be that if you want to leave your market, lock in a profit and can easily afford "overpaying" in another market, why not? we're at a time in our lives when we should enjoy the fruits of our labor...
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gips
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Re: yet another how much house can we purchase?

Post by gips »

just a short update, we were out looking this weekend for the first time, seems like we can achieve what we need for around $2.5mm. additional spend doesn't seem to buy us anything except extra bedrooms which we don't really need. that leaves a $4.8mm portfolio which I'm thinking should be just fine.

best,
Last edited by gips on Tue Aug 03, 2021 10:27 am, edited 1 time in total.
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Meg77
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Re: yet another how much house can we purchase?

Post by Meg77 »

gips wrote: Tue Aug 03, 2021 10:07 am just a short update, we were out looking this weekend for the first time, seems like we can achieve what we need for around $2.5mm. additional spend doesn't seem to buy us anything except extra bedrooms which we don't really need.

best,
That's great news. I think you'd be OK to push it to around $3MM though based on what you've said. With no debt the numbers add up. The only (and big) issue to address is if - when - one of you needs skilled nursing care. Hopefully that is at least a decade away, but given you're male and 7 years older than your spouse, it's bound to be you who needs a nursing home or part time or full time in home care first. That can easily cost 6 figures for a decent to nice facility, or maybe half that for the in home care. Often what happens is the first spouse to age or get sick drains the portfolio somewhat and the surviving spouse ends up with a lot less spending power or forced to sell the family home. May not be a huge deal given your portfolio size - I definitely think you have enough to self insure versus buying long term care insurance - but just something to consider.

Regardless of health care issues, the worst case you'll face ultimately is having to sell one or both of your properties if the market tanks and/or your spending rises over time. Not the end of the world. I say go for it.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
gips
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Re: yet another how much house can we purchase?

Post by gips »

Meg77 wrote: Tue Aug 03, 2021 10:23 am
gips wrote: Tue Aug 03, 2021 10:07 am just a short update, we were out looking this weekend for the first time, seems like we can achieve what we need for around $2.5mm. additional spend doesn't seem to buy us anything except extra bedrooms which we don't really need.

best,
That's great news. I think you'd be OK to push it to around $3MM though based on what you've said. With no debt the numbers add up. The only (and big) issue to address is if - when - one of you needs skilled nursing care. Hopefully that is at least a decade away, but given you're male and 7 years older than your spouse, it's bound to be you who needs a nursing home or part time or full time in home care first. That can easily cost 6 figures for a decent to nice facility, or maybe half that for the in home care. Often what happens is the first spouse to age or get sick drains the portfolio somewhat and the surviving spouse ends up with a lot less spending power or forced to sell the family home. May not be a huge deal given your portfolio size - I definitely think you have enough to self insure versus buying long term care insurance - but just something to consider.

Regardless of health care issues, the worst case you'll face ultimately is having to sell one or both of your properties if the market tanks and/or your spending rises over time. Not the end of the world. I say go for it.
thanks meg, I've looked into the cost of long-term care insurance and concluded it's just too expensive. Our friend's mom is in assisted living close by, $18k/month, so yes, very concerning but not sure what we can do about it...

best,
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Meg77
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Re: yet another how much house can we purchase?

Post by Meg77 »

gips wrote: Tue Aug 03, 2021 10:31 am
Meg77 wrote: Tue Aug 03, 2021 10:23 am
gips wrote: Tue Aug 03, 2021 10:07 am just a short update, we were out looking this weekend for the first time, seems like we can achieve what we need for around $2.5mm. additional spend doesn't seem to buy us anything except extra bedrooms which we don't really need.

best,
That's great news. I think you'd be OK to push it to around $3MM though based on what you've said. With no debt the numbers add up. The only (and big) issue to address is if - when - one of you needs skilled nursing care. Hopefully that is at least a decade away, but given you're male and 7 years older than your spouse, it's bound to be you who needs a nursing home or part time or full time in home care first. That can easily cost 6 figures for a decent to nice facility, or maybe half that for the in home care. Often what happens is the first spouse to age or get sick drains the portfolio somewhat and the surviving spouse ends up with a lot less spending power or forced to sell the family home. May not be a huge deal given your portfolio size - I definitely think you have enough to self insure versus buying long term care insurance - but just something to consider.

Regardless of health care issues, the worst case you'll face ultimately is having to sell one or both of your properties if the market tanks and/or your spending rises over time. Not the end of the world. I say go for it.
thanks meg, I've looked into the cost of long-term care insurance and concluded it's just too expensive. Our friend's mom is in assisted living close by, $18k/month, so yes, very concerning but not sure what we can do about it...

best,
The facilities near your Florida property are likely substantially cheaper. NYC is one of the priciest places for many things, including long term care. But regardless, I wouldn't sweat it too much. The average stay is fairly short, and you have the resources to consider many options including in home care which is both cheaper and usually preferable.
"An investment in knowledge pays the best interest." - Benjamin Franklin
Topic Author
gips
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Re: yet another how much house can we purchase?

Post by gips »

just wanted tp post an epilogue to this thread, we ended up netting $1.1 for our house, $1.3 for our co-op (bidding war) and spending $2.6 for a new place, so $300k out of pocket. Monthly maint including re taxes is $4k.

remaining portfolio is around $5, 3% withdrawal seems like plenty and I'll take ss in 5 years. Also, I may get the itch to do some more consulting which covers a lot of sins..

thanks again for all the replies.

best,
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