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We live in the PNW (Portland) and median home prices = ~ 550K
We love living in the PNW and Portland in particular
We make ~ 200K/year
Current savings = ~ 50K
No education loans.
Car loan 20K @ 2.9% ($400/month)
Can get a loan with 5% down (physician loan)
Current Rent = $2900
What do you think would be the intelligent thing to do:
- Continue renting? and potential wait for a bit of a downturn in the housing market?
- Buy a house?
- Move to the midwest/cheaper area and buy a house for a median cost much lower?
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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advice I give my kids in PNW inflated RE market (Same as I give others)
1) your capital investment in RE should yield ~ 10%, or simply... 1% monthly return on capital investment = $1000 income for each $100,000 in "capital investment" = $550k for a home... you best be paying $5,500 / month rent or getting $5,500 income (and renting for $2500 = $3000 towards bottom line income).
options:
a) invest in commercial properties and realize monthly gain while renting a personal residence for less than your commercial RE income
b) Invest elsewhere in Income RE (with high positive cash flows) and RENT (for less) while living in a high wage area.
c) Move (+/-, especially if giving up wages or lifestyle)
d) Sink the capital into a personal residence (which I NEVER consider an 'investment / asset', ALWAYS a liability / cash / equity / labor hog)
e) Find another 'investment' to drop in the equivalent $550k and get positive returns (and still rent)
f) Buy something cheaper
g) Buy something that cash flows (multi occupancy property that you ALSO live in) I don't like doing this...as you STILL are responsible for Maint and TIME and payments and renters...
Double income? you are in heaven... we (family) survived in PNW on a single hourly one earner income. Just how we choose to survive / raise family on single income (never exceeded $60k during 40 yr career, now frugally retired).
car payment? We bought our current car 18 yrs ago at a Portland towing auction. $35 (whole car) and it gets 50 mpg on free fuel. (waste cooking oil)
It's possible, and potentially preferred (by some).
Have a plan, work your plan...
We: (determined to retire early (happened at age 49)/ before we die (any day now))
Chose an income tax free domicile and employment (5 min north of Portland)
Invested in Income Tax free states (businesses and income property)
Lived reasonable but frugal (international work assignments for free travel and housing + homeschooled)
Did a lot of volunteering
Stayed relatively debt free (except small mortgage)
Survived (so far)
But I am not considering my RE purchase for the home as an "investment" (as you have pointed out also). Just interesting that I am losing out on building any equity as I continue to rent ~ 36K/year.
I think it will come down to personal priorities. Financially, you are a physician (??) so you will always have a job. So you are unlikely to ever have to sell your house at the bottom, because you lost your job, which is really the only way you can get hurt. In addition, with 5% down you will actually be risking very little and you will get a pretty decent interest rates, given how low rates are currently.
My parents bought at almost the peak last time. They had stable jobs and even though their value cratered they kept making payments and it eventually rebounded to where they were breakeven.
As far as the housing market, not that my opinion matters, but I think we are closer to the top than the bottom. But I don’t think it will be anything close to what we saw in 2007.
So if you wait 3 years for a 20% correction, you will have spent close to $100k in rent, to buy a house $100k lower. Seems like a toss up.
As far as personal preferences, only you can know that. My wife and I have had many discussion regarding that over the past years, but each time we decide that we love living in CA too much to move. If our circumstances change and we lose jobs, family issues arise etc., then things might change. But we would rather live in a small place in San Francisco than a big house in the Midwest/South.
Bottomline with housing: You only get hurt if you are forced to sell at the bottom due to job loss, transfer etc. Given your occupation you are unlikely to experience that. Based on the stats you posted, I think you can afford it and you will not struggle financially to do it. Beyond that, it is about personal preferences.
We live in the PNW (Portland)
We make ~ 200K/year ...
How much of that income requires being in Portland to receive?
If in Flyover City would it be appreciably less? How much less.
The difference is what you have as 'extra' to pay PNW real estate prices.
(extra beyond what 'makes sense' for Flyover City)
Quote:
...and median home prices = ~ 550K
Which is a greater increase beyond Flyover City prices than the income can cover alone.
Quote:
We love living in the PNW and Portland in particular
Can get a loan with 5% down (physician loan)
Current savings = ~ 50K
No education loans.
The Flyover City $150,000 gross x 2.5 = sensible purchase price range (+/- $375K)
PNW $200,000 gross x 2.5 = sensible purchase price range of +/- $500,000
So you're not all that far off.
$200,000 gross - 15% (IRA/401K etc) less FICA/SSA and Tax witholding ...is what? $136K?
Well if so, then this net of $136,000 ÷ 52 = $2,615 per week.
Can you cover the mortgage loan (PITI) with that?
If so then you can cover the utilities as well.
(Oregon property tax rates ...)
---
If not... then how much would you need to net WEEKLY to cover these MONTHLY housing costs?
And how long will it take a PNW physician to earn at that level?
We bought a house as we were renting a Mobil home lot for our paid for mobile home, but had all the costs incurred in owning a home.
We bought at a stable point in our time and place.
I could not see throwing money away on lot rent(which included property taxes), and it *magically went up* every month by at least $25/m for nothing extra. Yes, property taxes go up, but lot rent went up by more than the amount the comparative taxes did.
The mobile home was also worthless, it had lived it's useful life.
Our home has gone up in value in 2.5 years by about 20%. Our neighbors house is larger than ours, but just sold at about 35%, and they bought the same time we did.
If you are, as noted by a previous poster, going to shell out $100k in rent, you might as well buy, if you can swing the mortgage, which it sounds like you can.
If you are a doctor, and are in steady job, I'd buy, but I'd buy reasonable. Our house, for example is a starter home, which is really all the two of us need. We'd love a monster house, but picked one that suited our needs, not our wants. If you do the same, you should be alright.
If you are still in residency and may move, you might want to wait til you move.
Also remember that if you move to a lower cost of living area, you may also face a reduced wage or salary income. So keep that in mind.
If your job is steady and you want to stay, buy a modest house that suits your needs, and you're right, you won't be throwing $36k away on just renting.
Key words here to buy are: want to stay, steady job, suits your needs.
We ultimately can't tell you what to do, the decision must be yours. We can help with some guidelines, but they can also be meaniless to your situation.
Assuming you can pull that income anywhere, I would move. Oregon has a pretty high state income tax rate as well. Assuming you can live without water nearby here are a couple of options...
Denver area.. state income tax rate is 4.63% and housing although inflated is not as expensive as where you are. Rocky Mountains nearby. Very nice 4 seasons climate, among the best in the country thanks to "chinook winds." Legal marijuana. Plenty to do, as it's a fairly large city that is fairly cultured.
Rapid City.. you could live like a king there. No state income tax, much cheaper housing prices, and a just plain beautiful area in my opinion. These semi-arid climates in the great plains don't get nearly the mosquitoes and other bugs in the summer, plus you have the Black Hills right there and the Badlands are not far away. Cons of Rapid City: It's a smaller city so if you need a LOT to do, museums, concerts, etc. it would not be the place for you. It can also be a bit of a tourist trap in the summer, and especially during Sturgis.
Other honorable mentions: Milwaukee metro area, around the Kenosha area. You could live like a king there. Housing is affordable and there's a lot of development going on, with a big Foxconn plant being built in that area. Lake Michigan is nice to have around. Proximity to Chicago and Milwaukee. There's still some actual countryside and farmland there.. it's not a totally developed mass of homes. Wisconsin is great if you love to road bike.. virtually every road in the SE part of the state is paved. Stay in the Wisconsin side of the border to avoid the financial issues going on with Illinois. Though real estate in Zion IL is cheap, property taxes are EXTREMELY high. In Wisconsin you're looking at a 6.27% state income tax rate on most of your income.
Des Moines is also very nice but it doesn't have the mountains or water that had me picking the choices I picked. Minneapolis is another obvious choice but I don't like how cold it gets in the winter months personally. It might not seem like a lot of distance, but Kenosha is MUCH warmer except in the summer if you are within a mile or two of the Lake Michigan shoreline.
We've been looking in that area as well, tons of homes for sale in the $300's. You don't need to spend anywhere near half a mil on a house there.
Live in Vancouver, and avoid the $20,000 a year in OR income tax as well. Plus the schools are better.
This is some good ass advice. Isn't Vancouver and Portland right next to each other but just in different states? To avoid the income tax alone would be worth it.
$2,900 a month for rent. Jeez christ, that's most people's take home salaries.
I would advise moving to Southern Washington to save SIGNIFICANT amount of money. Look for an apartment in an area that you THINK is ideal, pay off your car loan, save up 20 percent for your downpayment to avoid PMI. But make sure you rent in an area before you buy. I would use some of your savings to pay off your outstanding car loan and replenish your savings ASAP. You're paying interest for a depreciating asset. (albeit a small amount)
You make great money and Vancouver WA has a lower COL and has no income tax. It's right next to Portland. I would look into that.
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