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how much income to be able to live in an million dollar home
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PostPosted: Tue Apr 26, 2016 1:39 pm GMT    Post subject: how much income to be able to live in an million dollar home Reply with quote

As many of us quickly being put into current Boston home price reality, any decent SFH in decent town start price at $800,000, and you won't see anything that you really want to live in until you are willing to pay about million dollar.
So just try to get an idea of how much income does a family need to have, in order to afford an million dollar house, with current interest rate and tax rate?

From my rough calculation, beside the $200,000 down payment, you need about $5000 monthly mortgage, plus $1000 monthly for tax, plus $400 monthly for insurance. Then utilities(electricity, water, gas, cable, internet, phone, minor maintenance) will hit another $1000 for bigger house.
So in order to keep your milllion dollar home running, you need about $7000 cash.
That is just basic of the basic to keep your home, you still need to shelf out money for car, food, and other expenses. I feel like $1500 would be a fair amount.
Assuming you are in 25% ~ 30% tax bracket, with family health insurance and max 401k deduction taking place, you gross monthly income need to be at least $14000 ~ $16000 monthly, or around $180,000 annually to handle an million dollar house.

Is my calculation sounds reasonable?
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Richthofen



Joined: 02 Apr 2014
Posts: 69

PostPosted: Tue Apr 26, 2016 2:05 pm GMT    Post subject: Re: how much income to be able to live in an million dollar Reply with quote

Anonymous wrote:

From my rough calculation, beside the $200,000 down payment, you need about $5000 monthly mortgage, plus $1000 monthly for tax, plus $400 monthly for insurance. Then utilities(electricity, water, gas, cable, internet, phone, minor maintenance) will hit another $1000 for bigger house.
So in order to keep your milllion dollar home running, you need about $7000 cash.
That is just basic of the basic to keep your home, you still need to shelf out money for car, food, and other expenses. I feel like $1500 would be a fair amount.
Assuming you are in 25% ~ 30% tax bracket, with family health insurance and max 401k deduction taking place, you gross monthly income need to be at least $14000 ~ $16000 monthly, or around $180,000 annually to handle an million dollar house.


Your calculation sounds low. $180,000 is going to net you, with a full 401K, after taxes, health insurance and everything, $10,000 take home a month. Now, if you ask me, with a take home pay of $10,000, putting $6,000 a month into PITI is madness, that's 60% of your take home pay into housing. I think your utilities costs are high, I don't spend more than $500 and that includes cell phone bills.

You are also missing student loan costs, which while I never had student loans, a huge majority of the population does. That can be $1-$2,000 a month as well. AND DON'T FORGET CHILDCARE. That's at least $1500 a month for one kid and more likely $2000 a month

Also I am not sure how you make $180,000 a year and end up in the 25% tax bracket. You are at least in the 28% bracket.

I make $130,000 a year before bonuses as my entire household income for me and my wife. Our take home pay is $7,000. We are unusual in that we have ZERO debt. No car payments, (only one car), no student loans, no credit card debt. We also don't have childcare expenses as my wife is home full time. We take home after taxes, insurance, 401K max contribution $7200. We are attempting to keep our PITI on any potential house <$3000 (which is still a high % of our take home). We also do not have $200,000 to put down (where the hell were we going to get $200k?! ) We save $1250 of our take home pay towards a downpayment every month. That leaves us with $6000. We pay $2500 in rent, so that's $3500 to live on (Utilities, groceries, gas, commuting/T, restaurants, gym memberships, car insurance, etc etc etc). $3500 is a lot but in MA you can chew through that easily in a month. (Clothes, kids activities, diapers, utilities, housecleaners, landscapers... shit adds up).

I think for a million dollars you should Gross $250K household, at least. That puts you at 4X your income as a house price.
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PostPosted: Tue Apr 26, 2016 2:24 pm GMT    Post subject: Reply with quote

As always, personal expenses make or break these calculations. I have household income over $260K, no way would I go for a $1M house. That's insane. But then, I also have a kid in daycare ($2000/month) and I'll probably have a 2nd kid in daycare in less than 2 years. And don't forget retirement investing, $18,500/year to max out one 401(k). I just bought an $800K house with $340K down.
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Richthofen



Joined: 02 Apr 2014
Posts: 69

PostPosted: Tue Apr 26, 2016 2:40 pm GMT    Post subject: Reply with quote

Anonymous wrote:
As always, personal expenses make or break these calculations. I have household income over $260K, no way would I go for a $1M house. That's insane. But then, I also have a kid in daycare ($2000/month) and I'll probably have a 2nd kid in daycare in less than 2 years. And don't forget retirement investing, $18,500/year to max out one 401(k). I just bought an $800K house with $340K down.


Just curious, where did you get $340K to put down?
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PostPosted: Tue Apr 26, 2016 3:30 pm GMT    Post subject: Reply with quote

Quote:

You are also missing student loan costs, which while I never had student loans, a huge majority of the population does. That can be $1-$2,000 a month as well. AND DON'T FORGET CHILDCARE. That's at least $1500 a month for one kid and more likely $2000 a month


Richtheofen,
I thought about student loan and childcare, and I skip to mention them for the reason that I don't expect people who would buy million dollar home as their first starting home. I think people who can afford million dollar home, mostly not only need to have necessary large enough take home pay, but also need to be in well established financial situation. Student loan and early age child care normally indicates the family is relatively young, and they are better off by renting and saving for downpayment like you are doing, or buying starting home that is way below million dollar price tag.

Quote:

I think for a million dollars you should Gross $250K household, at least. That puts you at 4X your income as a house price.

While I think $250k is great income to have, I am not sure how many % of MA family would have that kind of take home gross. That could be top 1% or 2% percent of income bracket we are talking about.
What kind of jobs in Boston would pay $250k annually? Surgeon doctors and Corp. Lawyers?
The fact is million dollar price tag is everywhere now a day, and if only the top 1% or 2% of MA residents can afford it, then there is definitely something doesn't add up here.
With your add on, I also feel $200,000 annual gross is minimum for dealing with million dollar home, because you can't just live paycheck to paycheck while dealing with a $800,000 mortgage.


Beside the top 2%, another large population group who can afford million dollar home now, are those families who already had an paid for home, with relatively low debt to income rate to deal with. Like someone who own a home for 20 years, with mortgage all paid off. The owner can sell that for $600,000, and roll that equity into the million dollar home, and carry the rest of $400,000 as 30 year fix loan. They need to pay much higher tax and insurance with the new purchase, but that is the price tag to suck up with, when you try to improve the quality of your living condition.
There are many of those families out there like that, and trading up is relatively easier to do for them.
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Richthofen



Joined: 02 Apr 2014
Posts: 69

PostPosted: Tue Apr 26, 2016 4:53 pm GMT    Post subject: Reply with quote

Quote:

While I think $250k is great income to have, I am not sure how many % of MA family would have that kind of take home gross. That could be top 1% or 2% percent of income bracket we are talking about.


First of all, if its the top 1% or 2%, that sounds like a small amount but probably less than 1% or 2% of the housing stock is rolling over these days, and because of that, its only the top incomes who can buy SF houses right now.

I don't know percentages, but $250K income for a household is two $125K earners, not an outrageous assumption. Most software engineers in Massachusetts with at least five years experience are making $100K a year. So you have a husband who is a bit-shifter at Hubspot and a wife who is a Senior Marketer at MGH, or a pharma company in Kendall, or whatever, that could easily be a six figure job if not more. You don't need to be a lawyer or a surgeon (in fact, there's a big glut of lawyers).

Of course, for people like me, who have a good singular income but my wife never really made any money here in Boston, welp we're screwed. If you are making $50K a year or less you're better off being a stay at home parent if you consider daycare costs.
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PostPosted: Tue Apr 26, 2016 6:41 pm GMT    Post subject: Reply with quote

Richthofen wrote:
Anonymous wrote:
As always, personal expenses make or break these calculations. I have household income over $260K, no way would I go for a $1M house. That's insane. But then, I also have a kid in daycare ($2000/month) and I'll probably have a 2nd kid in daycare in less than 2 years. And don't forget retirement investing, $18,500/year to max out one 401(k). I just bought an $800K house with $340K down.


Just curious, where did you get $340K to put down?

I started my first real job after grad school in 2006. $70K salary. Slow increases until a new job and $100K salary in '09. Slow increases until a new job and $150K salary in '13. Now at about $165K. I live humbly and save a lot. Several gifts from family amounted to about $15-$20K. Wife has had a humble income as a postdoc first, and recently a nice bump to about $100K with bonus, working in industry.

Basically, we saved for 10 years.
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Richthofen



Joined: 02 Apr 2014
Posts: 69

PostPosted: Tue Apr 26, 2016 8:01 pm GMT    Post subject: Reply with quote

Quote:

I started my first real job after grad school in 2006. $70K salary. Slow increases until a new job and $100K salary in '09. Slow increases until a new job and $150K salary in '13. Now at about $165K. I live humbly and save a lot. Several gifts from family amounted to about $15-$20K. Wife has had a humble income as a postdoc first, and recently a nice bump to about $100K with bonus, working in industry.

Basically, we saved for 10 years.


Where did you keep the money while you saved? Cash? Stocks/Bonds? Other investments?
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PostPosted: Tue Apr 26, 2016 9:58 pm GMT    Post subject: Reply with quote

Richthofen wrote:
Quote:

I started my first real job after grad school in 2006. $70K salary. Slow increases until a new job and $100K salary in '09. Slow increases until a new job and $150K salary in '13. Now at about $165K. I live humbly and save a lot. Several gifts from family amounted to about $15-$20K. Wife has had a humble income as a postdoc first, and recently a nice bump to about $100K with bonus, working in industry.

Basically, we saved for 10 years.


Where did you keep the money while you saved? Cash? Stocks/Bonds? Other investments?


Some stocks & bonds until maybe 2011 or so, mostly cash afterward. Not sure of my total return on that money, but I didn't lose any during the downturn that I didn't later gain back.
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PostPosted: Fri Apr 29, 2016 3:00 pm GMT    Post subject: Reply with quote

https://www.redfin.com/MA/Newton/132-Central-St-02466/home/11440413


The above SFH is priced close to the million dollar, in decent location of newton, easy commute to downtown with turn key move in condition. Decent home with yard and space for family with 2 to 3 kids. The bad things I can see are , it is kind of close to the major highway and roads, so highway white noise and dusty environment could be issues. Also no garage. it is not perfect, but something similar to this should trigger my urge to own.


My family is not earning above the $200,000 gross annually yet, about 35% below that mark currently at $150,000.
And coming up with 20% down payment for something like this for first time home buyer is hard, unless you win lottery or get large gift from parents. so it is not something I can afford for the time being.

With the $15 minimum wage coming in the next few years, I assume that will create inflationary affect over all income trends. Assuming the average income increase for all income levels would be about 20% when all settles in. Which means the slump dog got 50% income increase from 10 bucks to 15 bucks an hour, while an average dude who earn 20 bucks an hour might get increase pay to 25 bucks an hour etc...

The biggest dilemma for me, and would be for a lot of others out there as well is, the educational guess tells how your income buying power will be greatly reduced, given no major economic downturn, while 50% increase of minimum wage going to bite into existing saving in the coming few years. Should people just bite the bullet and borrow beyond means now and lock similar SFH down with today's seems expensive price, with still low interest rate; Or should people block all the noises out there and close eyes and keep saving and rent with relatively low expense. And later option is basically hoping something will trigger interest rate hike quickly down the road, to subside home price to be more affordable condition than currently is.
I don't know how and when the FED would dare to raise interest rate, even though it has been saying it for the past year or so, but see no incentive for the FED to do so. If FED is not acting for the next 2 or 3 years, then I can only see it helps push average home price upward even more. And by the time my family income level finally hits $200,000, the same freaking home will sell for 1.4 million, then I will just keep kicking myself for not acting 'irresponsiblely' back in 2016 to score myself a fine piece of American dream/nightmare.

Any opinion guys?
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PostPosted: Fri Apr 29, 2016 5:55 pm GMT    Post subject: Reply with quote

There are no easy answers, and good luck to you. I had my fair share of good luck in my career and that's part of the reason that I was finally able to buy. Had I not been able to save as much as I did, I'd have considered moving to a less expensive place, like Watertown, which I believe will continue its rapid gentrification. Medford, too.
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Dudeman
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PostPosted: Mon May 23, 2016 4:44 pm GMT    Post subject: Reply with quote

Quote:
http://www.trulia.com/blog/trends/million-dollar-homes-2016/


Very good map. Check out the Boston one.
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Elrond



Joined: 27 Feb 2013
Posts: 48
Location: Boston, MA

PostPosted: Mon May 15, 2017 7:19 pm GMT    Post subject: Reply with quote

Quote:

I think for a million dollars you should Gross $250K household, at least. That puts you at 4X your income as a house price.
While I think $250k is great income to have, I am not sure how many % of MA family would have that kind of take home gross. That could be top 1% or 2% percent of income bracket we are talking about.
What kind of jobs in Boston would pay $250k annually? Surgeon doctors and Corp. Lawyers?


I think you might be surprised by what people actually earn in the Boston area. Lots of households earn that amount, especially for a dual income family.

Look at this article about the Boston police department:
https://www.bostonglobe.com/metro/2017/02/14/police-detective-tops-boston-payroll-with-total-over/6PaXwTAHZGEW5djgwCJuTI/story.html

I know lots of people who earn 150k+ at their jobs who are not doctors and lawyers. 250k HHI is definitely not top 1 or 2@.
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bsg61
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PostPosted: Tue May 16, 2017 8:43 pm GMT    Post subject: Reply with quote


I think for a million dollars you should Gross $250K household, at least. That puts you at 4X your income as a house price.[/quote]
While I think $250k is great income to have, I am not sure how many % of MA family would have that kind of take home gross. That could be top 1% or 2% percent of income bracket we are talking about.
What kind of jobs in Boston would pay $250k annually? Surgeon doctors and Corp. Lawyers?



Some surgeons (e.g. orthopedic, with experience, cardiac) make more like 500K and up. I would assume some corporate lawyers make 250K and way up.

200K-250K seems like a ton of money to me yet I have a feeling it is not that unusual and that I know more than a few people who make that kind of $$$ and more; naturally, no one talks about how much money they make. That topic is still a bit taboo.
Quote:
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PostPosted: Wed May 17, 2017 8:27 pm GMT    Post subject: Reply with quote

bsg61 wrote:

I think for a million dollars you should Gross $250K household, at least. That puts you at 4X your income as a house price.

While I think $250k is great income to have, I am not sure how many % of MA family would have that kind of take home gross. That could be top 1% or 2% percent of income bracket we are talking about.
What kind of jobs in Boston would pay $250k annually? Surgeon doctors and Corp. Lawyers?



Some surgeons (e.g. orthopedic, with experience, cardiac) make more like 500K and up. I would assume some corporate lawyers make 250K and way up.

200K-250K seems like a ton of money to me yet I have a feeling it is not that unusual and that I know more than a few people who make that kind of $$$ and more; naturally, no one talks about how much money they make. That topic is still a bit taboo.
Quote:
[/quote]

Seems like ~9.6% of households earn more than $200K locally.
http://statisticalatlas.com/metro-area/Massachusetts/Boston/Household-Income
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