we bought a house - are we housepoor now?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
bloom2708
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Re: we bought a house - are we housepoor now?

Post by bloom2708 » Mon Oct 30, 2017 10:43 am

I am not a fan of the "I want a recession...stocks are on sale logic".

Each recession is different. Entire sectors can disappear. Jobs go away. Housing melts down. Loans are called. They can last much longer than anyone expects.

One thing I often think of is the sheer size of the loans and how interest and risk come into play.

My parents mortgage was $5k on a $10k house. They earned $5k at the time. Say 1970. Interest on a $5k loan doesn't really make much of a difference if it is 5%, 10%, 15%.

My first mortgage was $120k on a $140k house. Our income at the time was about $60k ($30k/$30k). Say 1995 7.9% on a $120k mortgage. Starts to make a difference. Still not bad. I hated owing this much on our salaries. But it worked out as our salaries went up faster than housing costs.

Now people take out $500k, $750k, $900k mortgages on good incomes ($250k, $300k, $400k, $500k). Interest rates are still low, but those .1, .2, .5% interest bumps really make an impact.

Has the sheer size of mortgages upped the risk element? Or is a $5k, $100k, $900k mortgage no different, just add some zeros?

The OP already bought the house. I hope it works out great for him. I like the discussion because even a "slam dunk" has some interesting side angles. In the "I don't know what I don't know" realm.

Good discussion!
Last edited by bloom2708 on Mon Oct 30, 2017 10:46 am, edited 1 time in total.
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topofthebellcurve
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Re: we bought a house - are we housepoor now?

Post by topofthebellcurve » Mon Oct 30, 2017 10:46 am

Huh this thread is a kick in the pants.

Also in Boston, looking to buy closer in than OP (even more expensive!).

I had felt pretty confident about buying a $1MM place, but maybe I'll stick with my expensive rental ($3K/mo) a bit longer. It hurts to spend $36K/yr post-tax, but a similar-quality place is $900-$1.1MM in my area.

My details: 32, DW 31, 1st baby on the way. $300-400K/yr combined income depending on bonus. $1.4MM liquid NW, another $500K post-tax profit share expected over next 1-4 yrs.

I'd like to hit 2X home price in NW before buying (low end of Klang's requirement), but that'll take a couple of years. Perhaps not a bad idea given the HUGE change coming next year....

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Pajamas
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Re: we bought a house - are we housepoor now?

Post by Pajamas » Mon Oct 30, 2017 10:47 am

bloom2708 wrote:
Mon Oct 30, 2017 10:43 am

Has the sheer size of mortgages upped the risk element? Or is a $5k, $100k, $900k mortgage no different, just add some zeros?
I think so. It is one thing to gamble with $10 and another to gamble with $10,000, even though the odds are the same. I have also watched from within as a business failed because the owner did not understand that the consequences change with a change in scale, although the risks and even the outcomes are the same.

avalpert
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Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 10:50 am

panchilly wrote:
Mon Oct 30, 2017 10:17 am
Pajamas wrote:
Mon Oct 30, 2017 10:15 am
panchilly wrote:
Mon Oct 30, 2017 10:13 am
Higher risk == higher return.
I think you got that backwards.
the equality operator is commutative
Not in this case - see for example square == rectangle...

HornedToad
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Re: we bought a house - are we housepoor now?

Post by HornedToad » Mon Oct 30, 2017 10:51 am

You asked if you were house poor, not whether you can afford the house. Those are two very different answers. So don't get mad if people answer what you asked and not whether or not you can afford the house.

House-poor isn't a terrible thing; it just limits flexibility. Especially how SatuMedia define housepoor. In a non-boglehead setting, housepoor means you spend majority of income on housing and then don't have money remaining for vacations, cars, emergencies, etc.

You aren't there but you are much tighter than some would prefer when you consider kid costs.

an_asker
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Re: we bought a house - are we housepoor now?

Post by an_asker » Mon Oct 30, 2017 11:10 am

emoore wrote:
Sun Oct 29, 2017 6:59 pm
I don't know why people continue to argue with Klangfool about housing. I don't think he's going to change his mind. He is very conservative about house due to his experience and that's fine. Just because he has his rules doesn't mean you have to follow them. In that regard I'm not sure why the OP is asking if he is house poor. Doesn't matter what others think. Just enjoy your house.
+1! If others' opinion had mattered, this question would've been asked before the purchase was made.

Like Watty did earlier, I think this thread is more about humble brag. But on SatuMedia? OP's house value might still be in the 25th percentile! ;-)

panchilly
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Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 11:15 am

avalpert wrote:
Mon Oct 30, 2017 10:50 am
panchilly wrote:
Mon Oct 30, 2017 10:17 am
Pajamas wrote:
Mon Oct 30, 2017 10:15 am
panchilly wrote:
Mon Oct 30, 2017 10:13 am
Higher risk == higher return.
I think you got that backwards.
the equality operator is commutative
Not in this case - see for example square == rectangle...
Square == rectangle == false

Rectangle == square == false

Looks commutative to me

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bligh
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Re: we bought a house - are we housepoor now?

Post by bligh » Mon Oct 30, 2017 11:22 am

panchilly wrote:
Mon Oct 30, 2017 11:15 am
avalpert wrote:
Mon Oct 30, 2017 10:50 am
panchilly wrote:
Mon Oct 30, 2017 10:17 am
Pajamas wrote:
Mon Oct 30, 2017 10:15 am
panchilly wrote:
Mon Oct 30, 2017 10:13 am
Higher risk == higher return.
I think you got that backwards.
the equality operator is commutative
Not in this case - see for example square == rectangle...
Square == rectangle == false

Rectangle == square == false

Looks commutative to me
I believe Avalpert was intending to refer to a Quadrilateral.

A square is always a Quadrilateral.

A Quadrilateral is not always a Square.

Jags4186
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Re: we bought a house - are we housepoor now?

Post by Jags4186 » Mon Oct 30, 2017 11:25 am

A square is always a rectangle. A rectangle is not always square.

Grt2bOutdoors
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Re: we bought a house - are we housepoor now?

Post by Grt2bOutdoors » Mon Oct 30, 2017 11:28 am

Not house poor, until you lose your employment, then you will be house poor.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

avalpert
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Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 11:34 am

panchilly wrote:
Mon Oct 30, 2017 11:15 am
avalpert wrote:
Mon Oct 30, 2017 10:50 am
panchilly wrote:
Mon Oct 30, 2017 10:17 am
Pajamas wrote:
Mon Oct 30, 2017 10:15 am
panchilly wrote:
Mon Oct 30, 2017 10:13 am
Higher risk == higher return.
I think you got that backwards.
the equality operator is commutative
Not in this case - see for example square == rectangle...
Square == rectangle == false

Rectangle == square == false

Looks commutative to me
Now if you read the logic back into your original assertion maybe you will see where you went wrong

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sunny_socal
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Re: we bought a house - are we housepoor now?

Post by sunny_socal » Mon Oct 30, 2017 12:09 pm

Grt2bOutdoors wrote:
Mon Oct 30, 2017 11:28 am
Not house poor, until you lose your employment, then you will be house poor.
This.

And in that case, maybe you want to sell the house if you don't quickly find work. "The Economy Is Good" right now so maybe it's not much of a concern.

student
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Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 12:14 pm

avalpert wrote:
Mon Oct 30, 2017 11:34 am
panchilly wrote:
Mon Oct 30, 2017 11:15 am
avalpert wrote:
Mon Oct 30, 2017 10:50 am
panchilly wrote:
Mon Oct 30, 2017 10:17 am
Pajamas wrote:
Mon Oct 30, 2017 10:15 am


I think you got that backwards.
the equality operator is commutative
Not in this case - see for example square == rectangle...
Square == rectangle == false

Rectangle == square == false

Looks commutative to me
Now if you read the logic back into your original assertion maybe you will see where you went wrong
It seems that different readers are interpreting the symbol == differently. Since square and rectangle are not numbers, one cannot use the equal sign =. So how should one interpret ==? If one interprets it as "is equivalent to," then the two statements "a square is equivalent to a rectangle" and "a rectangle is equivalent to a square" are logically equivalent, and both statements are false. If you interpret == as =>, that is, an implication, then the statements are "a square is a rectangle" and "a rectangle is a square," which are not the same.

I would say nobody is wrong here, it is just a case of miscommunication.

N10sive
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Re: we bought a house - are we housepoor now?

Post by N10sive » Mon Oct 30, 2017 12:16 pm

Surprised I didn't see many posts about current expenses although I didn't read after page 3

This post has really been crazy and all a matter of opinion/speculation about job security, market downturns, kids etc.

Doing a really raw calculation with both of you saving 36k(total) in a 401k you should net around 150k a year based on your 262k(this was really quick calc and I know your bonus/rsu will be taxed differently). Subtract 30k in rent and you have 120k to live on. From that you state 30-40k in cash savings so that leads to 80-90k a year.

Having no other debt as you stated, that's a lot of money still that you could budget and save and essentially negate the whole house poor notion. It would be different if you came here saving 100k a year total(tax deferred and taxable).

My only advice would be to begin changing spending habits now as you plan to have kids and it will be an easier transition later. If you are spending 80k a year on food, traveling, dates, clothes, etc it will be very hard to change those habits once you have kids.

Again my numbers could be way off, but just something to think about.

avalpert
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Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 12:21 pm

student wrote:
Mon Oct 30, 2017 12:14 pm
avalpert wrote:
Mon Oct 30, 2017 11:34 am
panchilly wrote:
Mon Oct 30, 2017 11:15 am
avalpert wrote:
Mon Oct 30, 2017 10:50 am
panchilly wrote:
Mon Oct 30, 2017 10:17 am


the equality operator is commutative
Not in this case - see for example square == rectangle...
Square == rectangle == false

Rectangle == square == false

Looks commutative to me
Now if you read the logic back into your original assertion maybe you will see where you went wrong
It seems that different readers are interpreting the symbol == differently. Since square and rectangle are not numbers, one cannot use the equal sign =. So how should one interpret ==? If one interprets it as "is the same as," then the two statements "a square is the same as a rectangle" and "a rectangle is the same as a square" are logically equivalent, and both statements are false. If you interpret == as =>, that is, an implication, then the statements are "a square is a rectangle" and "a rectangle is a square," which are not the same.

I would say nobody is wrong here, it is just a case of miscommunication.
Not quite.

See, I agree the notation can be interpreted differently - but in all cases the equivalency between comparing rectangle/square is the same as the original comparison of high risk/high reward. Higher risk == higher return in the same way rectangle == square - that is they don't under any interpretation of the notation.

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DaftInvestor
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Re: we bought a house - are we housepoor now?

Post by DaftInvestor » Mon Oct 30, 2017 12:24 pm

panchilly:
Since you don't want to answer my question (and others) regarding why you started this post (I was just trying to make it actionable for you) let me summarize for others to be actionable:
To your original question: Yes you are house-poor. Over 4x property to dual-base-income-number is considered house poor by most measures.
To the extended question which essentially was: "Did I need to be house poor?" The answer is No.
With a quick 5 minutes research I have showed you examples were you could have bought a house at nearly half the price you did (with half the property tax payments) still meeting your basic criteria of a good school system. Yes - you can pick apart the data (Past-looking-Appreciation, difference in commute time, etc.) but the bottom line is you chose to put yourself in a situation be house poor. Others in your same income range (who buy smaller houses; houses in less exclusive towns; houses with slightly longer commutes) choose not to be house poor. Its a matter of priorities.

student
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Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 12:27 pm

avalpert wrote:
Mon Oct 30, 2017 12:21 pm
student wrote:
Mon Oct 30, 2017 12:14 pm
avalpert wrote:
Mon Oct 30, 2017 11:34 am
panchilly wrote:
Mon Oct 30, 2017 11:15 am
avalpert wrote:
Mon Oct 30, 2017 10:50 am

Not in this case - see for example square == rectangle...
Square == rectangle == false

Rectangle == square == false

Looks commutative to me
Now if you read the logic back into your original assertion maybe you will see where you went wrong
It seems that different readers are interpreting the symbol == differently. Since square and rectangle are not numbers, one cannot use the equal sign =. So how should one interpret ==? If one interprets it as "is the same as," then the two statements "a square is the same as a rectangle" and "a rectangle is the same as a square" are logically equivalent, and both statements are false. If you interpret == as =>, that is, an implication, then the statements are "a square is a rectangle" and "a rectangle is a square," which are not the same.

I would say nobody is wrong here, it is just a case of miscommunication.
Not quite.

See, I agree the notation can be interpreted differently - but in all cases the equivalency between comparing rectangle/square is the same as the original comparison of high risk/high reward. Higher risk == higher return in the same way rectangle == square - that is they don't under any interpretation of the notation.
You are still using == sign. Which of the following do you interpret Higher risk == higher return. I am saying == is not well-defined. It can be interpreted as

1) Higher risk is equivalent to higher return (that is, higher risk if and only if higher return)
and
2) Higher risk implies higher return

I am conjecturing that one of you means 1) and one of you means 2). I am not debating whether 1) or 2) is correct. I am saying that identify the statement that you want to debate.

PS: The equal sign is for comparing two numbers. Any extension of usage requires proper definition. I think here there were different interpretations by different readers.
Last edited by student on Mon Oct 30, 2017 12:35 pm, edited 1 time in total.

avalpert
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Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 12:34 pm

student wrote:
Mon Oct 30, 2017 12:27 pm
avalpert wrote:
Mon Oct 30, 2017 12:21 pm
student wrote:
Mon Oct 30, 2017 12:14 pm
avalpert wrote:
Mon Oct 30, 2017 11:34 am
panchilly wrote:
Mon Oct 30, 2017 11:15 am


Square == rectangle == false

Rectangle == square == false

Looks commutative to me
Now if you read the logic back into your original assertion maybe you will see where you went wrong
It seems that different readers are interpreting the symbol == differently. Since square and rectangle are not numbers, one cannot use the equal sign =. So how should one interpret ==? If one interprets it as "is the same as," then the two statements "a square is the same as a rectangle" and "a rectangle is the same as a square" are logically equivalent, and both statements are false. If you interpret == as =>, that is, an implication, then the statements are "a square is a rectangle" and "a rectangle is a square," which are not the same.

I would say nobody is wrong here, it is just a case of miscommunication.
Not quite.

See, I agree the notation can be interpreted differently - but in all cases the equivalency between comparing rectangle/square is the same as the original comparison of high risk/high reward. Higher risk == higher return in the same way rectangle == square - that is they don't under any interpretation of the notation.
You are still using == sign. Which of the following do you interpret Higher risk == higher return. I am saying == is not well-defined. It can be interpreted as

1) Higher risk is equivalent to higher return
and
2) Higher risk implies higher return

I am conjecturing that one of you means 1) and one of you means 2). I am not debating whether 1) or 2) is correct. I am saying that identify the statement that you want to debate.
I used the sign because it was what the OP used - personally I wouldn't have chosen it.

I assume he meant #2 - because #1 wouldn't make any sense. But in either case, the rectangle/square analogy holds.

The point I was trying to get across was that, while higher (expected) return does come from taking higher risk (all squares are rectangles), higher risk does not ensure higher (expected) return (as all rectangles are not squares).

student
Posts: 1321
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Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 12:46 pm

avalpert wrote:
Mon Oct 30, 2017 12:34 pm
student wrote:
Mon Oct 30, 2017 12:27 pm
avalpert wrote:
Mon Oct 30, 2017 12:21 pm
student wrote:
Mon Oct 30, 2017 12:14 pm
avalpert wrote:
Mon Oct 30, 2017 11:34 am

Now if you read the logic back into your original assertion maybe you will see where you went wrong
It seems that different readers are interpreting the symbol == differently. Since square and rectangle are not numbers, one cannot use the equal sign =. So how should one interpret ==? If one interprets it as "is the same as," then the two statements "a square is the same as a rectangle" and "a rectangle is the same as a square" are logically equivalent, and both statements are false. If you interpret == as =>, that is, an implication, then the statements are "a square is a rectangle" and "a rectangle is a square," which are not the same.

I would say nobody is wrong here, it is just a case of miscommunication.
Not quite.

See, I agree the notation can be interpreted differently - but in all cases the equivalency between comparing rectangle/square is the same as the original comparison of high risk/high reward. Higher risk == higher return in the same way rectangle == square - that is they don't under any interpretation of the notation.
You are still using == sign. Which of the following do you interpret Higher risk == higher return. I am saying == is not well-defined. It can be interpreted as

1) Higher risk is equivalent to higher return
and
2) Higher risk implies higher return

I am conjecturing that one of you means 1) and one of you means 2). I am not debating whether 1) or 2) is correct. I am saying that identify the statement that you want to debate.
I used the sign because it was what the OP used - personally I wouldn't have chosen it.

I assume he meant #2 - because #1 wouldn't make any sense. But in either case, the rectangle/square analogy holds.

The point I was trying to get across was that, while higher (expected) return does come from taking higher risk (all squares are rectangles), higher risk does not ensure higher (expected) return (as all rectangles are not squares).
Based on his/her response, I do think he/she meant #1. I will let you guys debate on the investing side as I am not trained in this area. However, I disagree with the claim that "But in either case, the rectangle/square analogy holds." because "is equivalent to" is commutative. (Actually, one would say that it is symmetric.) Another way to say "A is equivalent to B" is "A if and only if B." The statement "A square is equivalent to a rectangle" and "a rectangle is equivalent to a square" are logically equivalent, both are false statements. In logic, the symbol is <-->. Perhaps we are miscommunicating now.

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Pajamas
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Re: we bought a house - are we housepoor now?

Post by Pajamas » Mon Oct 30, 2017 12:48 pm

The possibility of higher return almost always entails higher risk, but higher risk does not necessarily mean the possibility of higher return.

In any case, the outcome could be favorable or unfavorable, regardless of the risk.

avalpert
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Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 12:58 pm

student wrote:
Mon Oct 30, 2017 12:46 pm
avalpert wrote:
Mon Oct 30, 2017 12:34 pm
student wrote:
Mon Oct 30, 2017 12:27 pm
avalpert wrote:
Mon Oct 30, 2017 12:21 pm
student wrote:
Mon Oct 30, 2017 12:14 pm


It seems that different readers are interpreting the symbol == differently. Since square and rectangle are not numbers, one cannot use the equal sign =. So how should one interpret ==? If one interprets it as "is the same as," then the two statements "a square is the same as a rectangle" and "a rectangle is the same as a square" are logically equivalent, and both statements are false. If you interpret == as =>, that is, an implication, then the statements are "a square is a rectangle" and "a rectangle is a square," which are not the same.

I would say nobody is wrong here, it is just a case of miscommunication.
Not quite.

See, I agree the notation can be interpreted differently - but in all cases the equivalency between comparing rectangle/square is the same as the original comparison of high risk/high reward. Higher risk == higher return in the same way rectangle == square - that is they don't under any interpretation of the notation.
You are still using == sign. Which of the following do you interpret Higher risk == higher return. I am saying == is not well-defined. It can be interpreted as

1) Higher risk is equivalent to higher return
and
2) Higher risk implies higher return

I am conjecturing that one of you means 1) and one of you means 2). I am not debating whether 1) or 2) is correct. I am saying that identify the statement that you want to debate.
I used the sign because it was what the OP used - personally I wouldn't have chosen it.

I assume he meant #2 - because #1 wouldn't make any sense. But in either case, the rectangle/square analogy holds.

The point I was trying to get across was that, while higher (expected) return does come from taking higher risk (all squares are rectangles), higher risk does not ensure higher (expected) return (as all rectangles are not squares).
Based on his/her response, I do think he/she meant #1. I will let you guys debate on the investing side as I am not trained in this area. However, I disagree with the claim that "But in either case, the rectangle/square analogy holds." because "is equivalent to" is commutative. (Actually, one would say that it is symmetric.) Another way to say "A is equivalent to B" is "A if and only if B." The statement "A square is equivalent to a rectangle" and "a rectangle is equivalent to a square" are logically equivalent, both are false statements.
Yes, but that is equally true for "higher risk is equivalent to higher return" and "higher return is equivalent to higher risk".
In logic, the symbol is <-->. Perhaps we are miscommunicating now.
I think you are focusing on the correct usage of the notation (which is admirable) while the OP intended it to appear sophisticated without much thought to appropriateness. I left the notation itself alone and focused on the relationship between risk/return and his mistaken belief that one always follows the other.

WhiteMaxima
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Re: we bought a house - are we housepoor now?

Post by WhiteMaxima » Mon Oct 30, 2017 1:06 pm

Save money and pay cash for house.

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simplesimon
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Re: we bought a house - are we housepoor now?

Post by simplesimon » Mon Oct 30, 2017 1:08 pm

When I define housepoor I look at cash flow rather than balance sheet.

To me, 30% of take home pay for housing is about my limit.

student
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Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 1:15 pm

avalpert wrote:
Mon Oct 30, 2017 12:58 pm
student wrote:
Mon Oct 30, 2017 12:46 pm
avalpert wrote:
Mon Oct 30, 2017 12:34 pm
student wrote:
Mon Oct 30, 2017 12:27 pm
avalpert wrote:
Mon Oct 30, 2017 12:21 pm

Not quite.

See, I agree the notation can be interpreted differently - but in all cases the equivalency between comparing rectangle/square is the same as the original comparison of high risk/high reward. Higher risk == higher return in the same way rectangle == square - that is they don't under any interpretation of the notation.
You are still using == sign. Which of the following do you interpret Higher risk == higher return. I am saying == is not well-defined. It can be interpreted as

1) Higher risk is equivalent to higher return
and
2) Higher risk implies higher return

I am conjecturing that one of you means 1) and one of you means 2). I am not debating whether 1) or 2) is correct. I am saying that identify the statement that you want to debate.
I used the sign because it was what the OP used - personally I wouldn't have chosen it.

I assume he meant #2 - because #1 wouldn't make any sense. But in either case, the rectangle/square analogy holds.

The point I was trying to get across was that, while higher (expected) return does come from taking higher risk (all squares are rectangles), higher risk does not ensure higher (expected) return (as all rectangles are not squares).
Based on his/her response, I do think he/she meant #1. I will let you guys debate on the investing side as I am not trained in this area. However, I disagree with the claim that "But in either case, the rectangle/square analogy holds." because "is equivalent to" is commutative. (Actually, one would say that it is symmetric.) Another way to say "A is equivalent to B" is "A if and only if B." The statement "A square is equivalent to a rectangle" and "a rectangle is equivalent to a square" are logically equivalent, both are false statements.
Yes, but that is equally true for "higher risk is equivalent to higher return" and "higher return is equivalent to higher risk".
Exactly. Based on his/her responses, I think this is exactly what the OP believes. I jumped in because it wasn't clear to me whether all sides are debating on the same statement. [Edit: I said the square/rectangle wasn't a good analogy in this case because it corresponds to his belief.]
avalpert wrote:
Mon Oct 30, 2017 12:58 pm
In logic, the symbol is <-->. Perhaps we are miscommunicating now.
I think you are focusing on the correct usage of the notation (which is admirable) while the OP intended it to appear sophisticated without much thought to appropriateness. I left the notation itself alone and focused on the relationship between risk/return and his mistaken belief that one always follows the other.
I agree with your conclusion that "higher risk" and "higher return" are not two-way implications. (One implies the other but not vice versa.) But I am not trained in the area, so I leave it to you to debate with the OP.
Last edited by student on Mon Oct 30, 2017 1:30 pm, edited 1 time in total.

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sergeant
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Re: we bought a house - are we housepoor now?

Post by sergeant » Mon Oct 30, 2017 1:24 pm

rebellovw wrote:
Sun Oct 29, 2017 3:41 pm
If you were in CA - the property taxes on a 900K house would be crazy- and you would likely be house poor.
They would be about $9000 a year. Now if he was in Texas he would be paying about $27,000 a year! :shock:
Lincoln 3 EOW!

schmitz
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Re: we bought a house - are we housepoor now?

Post by schmitz » Mon Oct 30, 2017 1:41 pm

wander wrote:
Sun Oct 29, 2017 10:03 pm
If you cannot take the advice you don't like, then you don't need to ask. It's after the fact anyway.
Agreed. This was my first thought as well.

Any opinion the OP didn't agree with, he argued against. Which is fine but what's the point of creating this thread?

cherijoh
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Re: we bought a house - are we housepoor now?

Post by cherijoh » Mon Oct 30, 2017 1:46 pm

slayed wrote:
Mon Oct 30, 2017 8:56 am
panchilly wrote:
Mon Oct 30, 2017 8:47 am
DaftInvestor wrote:
Mon Oct 30, 2017 8:41 am
panchilly wrote:
Mon Oct 30, 2017 8:37 am

Thats why we put 30% down instead of 20% ;)
Its not just the mortgage - its also your higher property taxes that will drag on you for years to come. That's why many folks run the numbers against property value - not simply the mortgage.

So why are you asking this question?
I'm still waiting for you to give me the name of the town where you can get a really nice house for 450k with a good school with reasonable commutes.
I've lived in the Boston area for 15 years and I'm pretty sure that town doesn't exist although "really nice house", "good school" and "reasonable commute" are all rather subjective.
I think the real question isn't whether OP could have gotten all three for $450K, but could he have gotten most of what he wanted for a lot less than $900K? Location addresses the "good school" and "reasonable commute" questions, but that still leaves a lot of leeway in the price for "really nice house". When it comes to the features they "need", I think some home buyers buy into the HGTV "dream house" mentality and lose touch with reality. The most expensive house in any given neighborhood will always have a smaller pool of potential buyers than a more moderately priced house in the same neighborhood. If the economy tanks and you need to move this can be an important factor.

jlcnuke
Posts: 305
Joined: Thu Mar 16, 2017 10:26 am

Re: we bought a house - are we housepoor now?

Post by jlcnuke » Mon Oct 30, 2017 1:52 pm

panchilly wrote:
Sun Oct 29, 2017 2:32 pm
Assets have changed slightly from my last post. Some illiquid assets recently became liquid so I am now counting them. Those assets played a role in the decision to purchase the house.

married couple early to mid 30s.

income:
salary1:150
bonus1: 22
rsu1: 30

salary2:60

total: 262k

house location:
metro west suburb with good schools ~ 15 miles west of downtown boston.

price: ~ 900k
down payment: 30% (270k)

asset breakdown after home purchase:

Regular:

550k mix of stock/bond

Tax Advantaged:
200k mix of stock bond

Home Equity:
270k

0 debt, 2 late model Hondas owned outright.

Total: 1.02m
PI for your mortgage is likely around $3k/month. Add in taxes and insurance and you're probably around $3,800-4,000/month in direct housing costs. Add in another ~$9k/year in home maintenance (using the 1% rule, I generally prefer using 2% but for HCOL areas I think 1% is generally more reasonable) and the house itself is probably running you around $4,750/month.

With $262k/year in income with $18k in 401k contributions for each of you, minus taxes (estimated $52k fed, 7,900 FICA, 4,300 medicare, 12,000 state) leaves ~$150k/year or $12,500/month in take home pay.

That leaves you paying right at 38% of your take home pay for just having and maintaining your housing itself, which I would "normally" call house poor. However, since "normally" we're talking 38% of an "Average" salary, that's normally only leaving around $2k/month to cover everything else in the budget. When it's leaving over $7k/month left over to cover everything else, it's a different story imo.

Did you "need" to spend that much on a house? I'm going to go ahead and agree with those saying "hell no".
Are you house poor because you bought it? Nah, not really. With $7+k/month left over you should be able to easily afford the house without having it prevent you from reasonably spending or saving in other areas of your life. Even if you pop out a couple kids and you lose 25% of your income to avoid daycare costs etc, you'd still have ~$4k/month to cover the non-housing budget items which "could" be tight but still *shouldn't* be a financial strain.

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 1:53 pm

Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"

In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"

By purchasing this house we are taking a higher risk profile for the near term. But if my pay can make or beat inflation for the next 10 years and i can avoid any major gaps in employment, I think the house will turn into a very good deal 10+ years out. I feel more comfortable increasing my risk since I have other assets.

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 2:05 pm

cherijoh wrote:
Mon Oct 30, 2017 1:46 pm
slayed wrote:
Mon Oct 30, 2017 8:56 am
panchilly wrote:
Mon Oct 30, 2017 8:47 am
DaftInvestor wrote:
Mon Oct 30, 2017 8:41 am
panchilly wrote:
Mon Oct 30, 2017 8:37 am

Thats why we put 30% down instead of 20% ;)
Its not just the mortgage - its also your higher property taxes that will drag on you for years to come. That's why many folks run the numbers against property value - not simply the mortgage.

So why are you asking this question?
I'm still waiting for you to give me the name of the town where you can get a really nice house for 450k with a good school with reasonable commutes.
I've lived in the Boston area for 15 years and I'm pretty sure that town doesn't exist although "really nice house", "good school" and "reasonable commute" are all rather subjective.
I think the real question isn't whether OP could have gotten all three for $450K, but could he have gotten most of what he wanted for a lot less than $900K? Location addresses the "good school" and "reasonable commute" questions, but that still leaves a lot of leeway in the price for "really nice house". When it comes to the features they "need", I think some home buyers buy into the HGTV "dream house" mentality and lose touch with reality. The most expensive house in any given neighborhood will always have a smaller pool of potential buyers than a more moderately priced house in the same neighborhood. If the economy tanks and you need to move this can be an important factor.

Regarding neighborhoods: Personally, I care more about the structure of the neighborhood (noise level, convenience to major routes, proximity to employers, amenities, value of the land, radial distance to downtown boston, lot sizes, etc.) The reason why I prefer western locations to southshore or northshore is that since Boston is surrounded by water on the eastern side and the major inner roadway (128) forms a semi circle around Boston, being due west is easier from a commute perspective to a greater variety of workplaces. Because of that, I am not surprised that most of the more expensive towns are due west. If you look on the trulia heat map you'll see that pattern.

In many of the hotter towns west of Boston there are a lot of home teardowns taking place. In needham and wellesley there have been 100+ homes torn down each year for the past 4-5 years in those towns. Some neighborhoods that were previously only "so so" with smaller homes have literally transformed overnight.

In another town, Newton, there is a street near the pike Auburn street which has been radically transformed in the past 4 years. It used to be dingy old multi families but now is filled with luxury 1.4m 3000sq foot townhomes. Previously this street had somewhat of a slummy feel to it but now it feels extremely luxurious. Because of this dynamic, I think there could be opportunity for neighborhood appreciation in towns/neighborhoods with strong fundamentals but have older smaller homes in them. Needham was particularly attractive since many homes were very small but decent lot sizes.

student
Posts: 1321
Joined: Fri Apr 03, 2015 6:58 am

Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 2:11 pm

panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"
I am totally confused. You don't think it is "if and only if"?
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
But then you say visa versa. I assume that this is a typo. You meant vice versa. But when you say if and then B, and vice versa. This means if and only if.
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
By purchasing this house we are taking a higher risk profile for the near term. But if my pay can make or beat inflation for the next 10 years and i can avoid any major gaps in employment, I think the house will turn into a very good deal 10+ years out. I feel more comfortable increasing my risk since I have other assets.

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 2:15 pm

student wrote:
Mon Oct 30, 2017 2:11 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"
I am totally confused. You don't think it is "if and only if"?
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
But then you say visa versa. I assume that this is a typo. You meant vice versa. But when you say if and then B, and vice versa. This means if and only if.
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
By purchasing this house we are taking a higher risk profile for the near term. But if my pay can make or beat inflation for the next 10 years and i can avoid any major gaps in employment, I think the house will turn into a very good deal 10+ years out. I feel more comfortable increasing my risk since I have other assets.
Do you know what "if and only if" means?

https://en.wikipedia.org/wiki/If_and_only_if

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 2:16 pm

Let me reiterate:

I do not feel comfortable making this assertion:

higher return if and only if higher risk.


I believe it to be on average true for many/most investment decisions but not true 100% of the time thus i do not feel comfortable making the above statement since I do not believe it to be globally true..

Does that make sense?

student
Posts: 1321
Joined: Fri Apr 03, 2015 6:58 am

Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 2:23 pm

panchilly wrote:
Mon Oct 30, 2017 2:15 pm
student wrote:
Mon Oct 30, 2017 2:11 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"
I am totally confused. You don't think it is "if and only if"?
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
But then you say visa versa. I assume that this is a typo. You meant vice versa. But when you say if and then B, and vice versa. This means if and only if.
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
By purchasing this house we are taking a higher risk profile for the near term. But if my pay can make or beat inflation for the next 10 years and i can avoid any major gaps in employment, I think the house will turn into a very good deal 10+ years out. I feel more comfortable increasing my risk since I have other assets.
Do you know what "if and only if" means?

https://en.wikipedia.org/wiki/If_and_only_if
Yes. I do. The question is do you know what vice versa mean? Vice versa means the other way around. When you say A implies B and vice versa. The vice versa part is a short hand way to say B implies A. So A implies B and B implies A together means if and only if. See https://english.stackexchange.com/quest ... spectively
In particular, the answer, "A if and only if B means if A then B and if B then A, that is, whenever A is true then so is B, and vice versa."

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 2:24 pm

panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"

In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
It isn't generally true - that's what others are trying to say. Most risks are not expected to be rewarded by the market - think any single-company risk for example.

Why would you expect higher return for taking on the higher risk of having ~90% of your net worth in a single residential home?

This isn't taking higher risk for higher return - if you are thinking about it that way you are deluding yourself. You are increasing consumption for increased utility (hopefully) - there is nothing wrong with that as long as you don't think it is somehow financially savvy or aren't confusing yourself into believing you are immune from getting into financial trouble because you chose to stretch yourself on housing spend.

Rashen
Posts: 24
Joined: Sat Oct 14, 2017 4:44 pm

Re: we bought a house - are we housepoor now?

Post by Rashen » Mon Oct 30, 2017 2:27 pm

randomizer wrote:
Sun Oct 29, 2017 2:40 pm
Doesn't seem house poor to me, although you could probably have bought much less house.
this is Boston MA, not Alabama :)
... I guess these are the prices near Boston if you want to be in a good school district.

Snuffycuts99
Posts: 27
Joined: Thu Apr 02, 2015 11:09 pm

Re: we bought a house - are we housepoor now?

Post by Snuffycuts99 » Mon Oct 30, 2017 2:33 pm

PI for your mortgage is likely around $3k/month. Add in taxes and insurance and you're probably around $3,800-4,000/month in direct housing costs. Add in another ~$9k/year in home maintenance (using the 1% rule, I generally prefer using 2% but for HCOL areas I think 1% is generally more reasonable) and the house itself is probably running you around $4,750/month.

With $262k/year in income with $18k in 401k contributions for each of you, minus taxes (estimated $52k fed, 7,900 FICA, 4,300 medicare, 12,000 state) leaves ~$150k/year or $12,500/month in take home pay.

That leaves you paying right at 38% of your take home pay for just having and maintaining your housing itself, which I would "normally" call house poor. However, since "normally" we're talking 38% of an "Average" salary, that's normally only leaving around $2k/month to cover everything else in the budget. When it's leaving over $7k/month left over to cover everything else, it's a different story imo.

Did you "need" to spend that much on a house? I'm going to go ahead and agree with those saying "hell no".
Are you house poor because you bought it? Nah, not really. With $7+k/month left over you should be able to easily afford the house without having it prevent you from reasonably spending or saving in other areas of your life. Even if you pop out a couple kids and you lose 25% of your income to avoid daycare costs etc, you'd still have ~$4k/month to cover the non-housing budget items which "could" be tight but still *shouldn't* be a financial strain.
+1....this is perfect and exactly how I feel about it. Now if a recession sets in and your employment is affected, obviously you've got a different set of circumstances.

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 2:38 pm

student wrote:
Mon Oct 30, 2017 2:23 pm
panchilly wrote:
Mon Oct 30, 2017 2:15 pm
student wrote:
Mon Oct 30, 2017 2:11 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"
I am totally confused. You don't think it is "if and only if"?
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
But then you say visa versa. I assume that this is a typo. You meant vice versa. But when you say if and then B, and vice versa. This means if and only if.
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
By purchasing this house we are taking a higher risk profile for the near term. But if my pay can make or beat inflation for the next 10 years and i can avoid any major gaps in employment, I think the house will turn into a very good deal 10+ years out. I feel more comfortable increasing my risk since I have other assets.
Do you know what "if and only if" means?

https://en.wikipedia.org/wiki/If_and_only_if
Yes. I do. The question is do you know what vice versa mean? Vice versa means the other way around. When you say A implies B and vice versa. The vice versa part is a short hand way to say B implies A. So A implies B and B implies A together means if and only if. See https://english.stackexchange.com/quest ... spectively
In particular, the answer, "A if and only if B means if A then B and if B then A, that is, whenever A is true then so is B, and vice versa."
I believe the following:

"on average most investments that have higher risk also carry the potential for higher rewards"

"on average most investments that carry high rewards often come with higher risk"

BUT that is casual english and what i personally believe.

i do NOT believe the following statement is true:

higher risk if and only if higher return.

get it?

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 2:41 pm

avalpert wrote:
Mon Oct 30, 2017 2:24 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"

In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
It isn't generally true - that's what others are trying to say. Most risks are not expected to be rewarded by the market - think any single-company risk for example.

Why would you expect higher return for taking on the higher risk of having ~90% of your net worth in a single residential home?

This isn't taking higher risk for higher return - if you are thinking about it that way you are deluding yourself. You are increasing consumption for increased utility (hopefully) - there is nothing wrong with that as long as you don't think it is somehow financially savvy or aren't confusing yourself into believing you are immune from getting into financial trouble because you chose to stretch yourself on housing spend.
can you explain how 90% of my net worth is in a single home? How do you figure that?

I've got a net worth of about 1m but equity of only 270k

only 27% of my net worth is derived from housing.

ebrasmus21
Posts: 132
Joined: Tue Nov 29, 2016 6:06 pm

Re: we bought a house - are we housepoor now?

Post by ebrasmus21 » Mon Oct 30, 2017 2:41 pm

... A train wreck I cannot look away from.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 2:46 pm

panchilly wrote:
Mon Oct 30, 2017 2:41 pm
avalpert wrote:
Mon Oct 30, 2017 2:24 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"

In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
It isn't generally true - that's what others are trying to say. Most risks are not expected to be rewarded by the market - think any single-company risk for example.

Why would you expect higher return for taking on the higher risk of having ~90% of your net worth in a single residential home?

This isn't taking higher risk for higher return - if you are thinking about it that way you are deluding yourself. You are increasing consumption for increased utility (hopefully) - there is nothing wrong with that as long as you don't think it is somehow financially savvy or aren't confusing yourself into believing you are immune from getting into financial trouble because you chose to stretch yourself on housing spend.
can you explain how 90% of my net worth is in a single home? How do you figure that?

I've got a net worth of about 1m but equity of only 270k

only 27% of my net worth is derived from housing.
You have an asset that is worth $900k and a net worth of ~1m.

It doesn't matter that you have $630k in debt secured by that asset - if that asset declines by $100k your net worth declines by $100k. If that asset declines by $400k your net worth declines by $400k even though you have more debt secured by the asset than it would be worth. That's how leverage works.

panchilly
Posts: 105
Joined: Sat May 14, 2016 9:57 am

Re: we bought a house - are we housepoor now?

Post by panchilly » Mon Oct 30, 2017 2:53 pm

avalpert wrote:
Mon Oct 30, 2017 2:46 pm
panchilly wrote:
Mon Oct 30, 2017 2:41 pm
avalpert wrote:
Mon Oct 30, 2017 2:24 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:
higher risk == higher return
I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"

In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
It isn't generally true - that's what others are trying to say. Most risks are not expected to be rewarded by the market - think any single-company risk for example.

Why would you expect higher return for taking on the higher risk of having ~90% of your net worth in a single residential home?

This isn't taking higher risk for higher return - if you are thinking about it that way you are deluding yourself. You are increasing consumption for increased utility (hopefully) - there is nothing wrong with that as long as you don't think it is somehow financially savvy or aren't confusing yourself into believing you are immune from getting into financial trouble because you chose to stretch yourself on housing spend.
can you explain how 90% of my net worth is in a single home? How do you figure that?

I've got a net worth of about 1m but equity of only 270k

only 27% of my net worth is derived from housing.
You have an asset that is worth $900k and a net worth of ~1m.

It doesn't matter that you have $630k in debt secured by that asset - if that asset declines by $100k your net worth declines by $100k. If that asset declines by $400k your net worth declines by $400k even though you have more debt secured by the asset than it would be worth. That's how leverage works.

so looking at it that way, i have the following assets:

900k - real estate
750k - stocks / bonds

total: 1.65m

debt: 630k

assets (after a few years of savings) trending toward 50/50 real estate / investments

current debt as percentage of assets: 38%

how does 38% look to you? If i had 0 stocks it would be 70% !!

The 750k liquid assets is what is making the balance sheet look OK here. As i said, without that balance sheet booster i would not have made that decision.

User avatar
bogleblitz
Posts: 406
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Re: we bought a house - are we housepoor now?

Post by bogleblitz » Mon Oct 30, 2017 2:59 pm

I'm also in tech with similar salary, mortgage and networth. I'm like a clone of you.

We are fine. Enjoy the house.

student
Posts: 1321
Joined: Fri Apr 03, 2015 6:58 am

Re: we bought a house - are we housepoor now?

Post by student » Mon Oct 30, 2017 3:02 pm

panchilly wrote:
Mon Oct 30, 2017 2:38 pm
student wrote:
Mon Oct 30, 2017 2:23 pm
panchilly wrote:
Mon Oct 30, 2017 2:15 pm
student wrote:
Mon Oct 30, 2017 2:11 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:



I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"
I am totally confused. You don't think it is "if and only if"?
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
But then you say visa versa. I assume that this is a typo. You meant vice versa. But when you say if and then B, and vice versa. This means if and only if.
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
By purchasing this house we are taking a higher risk profile for the near term. But if my pay can make or beat inflation for the next 10 years and i can avoid any major gaps in employment, I think the house will turn into a very good deal 10+ years out. I feel more comfortable increasing my risk since I have other assets.
Do you know what "if and only if" means?

https://en.wikipedia.org/wiki/If_and_only_if
Yes. I do. The question is do you know what vice versa mean? Vice versa means the other way around. When you say A implies B and vice versa. The vice versa part is a short hand way to say B implies A. So A implies B and B implies A together means if and only if. See https://english.stackexchange.com/quest ... spectively
In particular, the answer, "A if and only if B means if A then B and if B then A, that is, whenever A is true then so is B, and vice versa."
I believe the following:

"on average most investments that have higher risk also carry the potential for higher rewards"

"on average most investments that carry high rewards often come with higher risk"

BUT that is casual english and what i personally believe.

i do NOT believe the following statement is true:

higher risk if and only if higher return.

get it?
This set of statements show your belief in a clear way. However, this set of statements is very different from your original usage of the symbol == and your earlier statements involving the term vice versa. Here you have "on average," which has a definitive scientific meaning. I am not qualified to comment on the validity of your set of statements so I have no comments on them.

Going back to your original post, I think you are "rich enough" and making a good living that any "reasonable action" on your part is fine. Congratulations on your success.

avalpert
Posts: 6193
Joined: Sat Mar 22, 2008 4:58 pm

Re: we bought a house - are we housepoor now?

Post by avalpert » Mon Oct 30, 2017 3:03 pm

panchilly wrote:
Mon Oct 30, 2017 2:53 pm
avalpert wrote:
Mon Oct 30, 2017 2:46 pm
panchilly wrote:
Mon Oct 30, 2017 2:41 pm
avalpert wrote:
Mon Oct 30, 2017 2:24 pm
panchilly wrote:
Mon Oct 30, 2017 1:53 pm
Regarding the statement:



I believe people are confusing the equality operator (==) with if/else relationships. I think folks were confused and thought by == i meant "if and only if"

In fact, I was making a casual statement to explain that generally speaking, higher risk investments have higher return. and visa versa. I think that is generally true, but I would not go as far as to use "if an only if"
It isn't generally true - that's what others are trying to say. Most risks are not expected to be rewarded by the market - think any single-company risk for example.

Why would you expect higher return for taking on the higher risk of having ~90% of your net worth in a single residential home?

This isn't taking higher risk for higher return - if you are thinking about it that way you are deluding yourself. You are increasing consumption for increased utility (hopefully) - there is nothing wrong with that as long as you don't think it is somehow financially savvy or aren't confusing yourself into believing you are immune from getting into financial trouble because you chose to stretch yourself on housing spend.
can you explain how 90% of my net worth is in a single home? How do you figure that?

I've got a net worth of about 1m but equity of only 270k

only 27% of my net worth is derived from housing.
You have an asset that is worth $900k and a net worth of ~1m.

It doesn't matter that you have $630k in debt secured by that asset - if that asset declines by $100k your net worth declines by $100k. If that asset declines by $400k your net worth declines by $400k even though you have more debt secured by the asset than it would be worth. That's how leverage works.

so looking at it that way, i have the following assets:

900k - real estate
750k - stocks / bonds

total: 1.65m

debt: 630k

assets (after a few years of savings) trending toward 50/50 real estate / investments

current debt as percentage of assets: 38%

how does 38% look to you? If i had 0 stocks it would be 70% !!
What's the interest rate on the debt?
The amount of debt isn't your big problem - the big problem is how concentrated your assets are in a single house because you have chosen a high housing consumption level.
The 750k liquid assets is what is making the balance sheet look OK here. As i said, without that balance sheet booster i would not have made that decision.
Well that depends on what you do with those stocks - if you take the same sort of concentrated risks you are with your other asset it doesn't look good at all. Without that $750k your decision wouldn't be just high consumption choice it would be patently reckless - with it you are just prioritizing spending on housing over other expenditures and savings rate - again, nothing wrong with that as long as you aren't deluding yourself into thinking it is somehow a wise financial choice.

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Re: we bought a house - are we housepoor now?

Post by LadyGeek » Mon Oct 30, 2017 3:25 pm

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