How Much Income Do You Need To Buy A 1.2 Million Dollar Home

How Much Income Do You Need To Buy A 1.2 Million Dollar Home – A two million dollar house sounds like a lot, and it is in many parts of the country. However, in areas such as San Francisco, Menlo Park, Cupertino, San Mateo, Burlingame, San Carlos, Marin, New York City, and Greenwich, a two million dollar home is close to the median price home. We are talking about three or four bedrooms with two or three beds.

It is clear that the housing market is strong now and will likely remain strong for years to come. Therefore, buying a home of two million dollars or more makes sense IF you can afford it. In fact, inflation may continue to push up rents and prices.


How Much Income Do You Need To Buy A 1.2 Million Dollar Home

How Much Income Do You Need To Buy A 1.2 Million Dollar Home

A general rule of thumb is to not spend more than 3X your net worth on a house. It’s part of my 30/30/3 home buying rule to help people buy responsibly.

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Therefore, if you want to buy a $2 million house, you need to make at least $667,000 a year. You should also have enough for a 20% down payment, or $400,000, plus a $100,000 cash buffer in case you lose your job.

In this low interest rate environment, you can afford to buy a home for up to 5X your annual income. In other words, you can put down $400,000 to buy a $2 million home. However, you will feel stressed and a little anxious in the first year if you don’t have a lot of money left over.

When you have a $2 million house, EVERYTHING costs more. We’re talking $24,000+ a year in property taxes, high heating bills, high home insurance, high maintenance costs, high cleaning costs, high landscaping costs, bills high, etc.

Therefore, do not think of the cost of a two million dollar house as the first purchase price. Consider the ongoing costs of maintaining a two million dollar home. The opportunity cost of owning a $2 million home is also the cost of not renting it. If you have rooms that are not being used properly, then you are wasting money.

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I should know, because I bought a house in San Francisco for $1,525,000 back in 2005 and sold it for $2,740,000 in 2017. The house was too big and expensive for ‘ only have my wife at that time. It felt like a waste to have two unused bedrooms and bathrooms. Plus, there was no way we could afford to pay $8,800 a month to rent a house, so we rented it for three years.

We now live in a small house that is 50% cheaper and we love it. It is wonderful to have full use of the house, especially since we are stay at home parents to a baby boy. We bought the house for $1,250,000 back in 2014. Amazingly, it is now valued at over $2 million. However, since we bought it at a very low price, it doesn’t feel like a two million dollar house.

Below is a realistic estimate for a family of three living in an expensive city earning $350,000 a year. Their house is worth $1.8 million and they have an affordable loan of $900,000 at 3.15%.

How Much Income Do You Need To Buy A 1.2 Million Dollar Home

If they bought a new $2 million home and put $400,000 down, their $1,600,000 loan at 3.15% would be worth $6,854, or about $3,000 more per month. $3,000 more a month is $36,000 a year after taxes, or about $50,000 more in annual income.

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If you had a down payment, you would need to make at least $400,000 a year to get a $2 million home. In other words, you can stretch the mortgage amount to 5X your household income ($400,000 X 5) in this low interest rate environment. However, you need to be sure that your job and salary estimates are accurate.

The last thing you want to do is buy a two million dollar house and get fired. Many new home buyers did so after the 2008-2009 Global Financial Crisis.

I recommend that you do NOT overextend yourself in this real estate market. If you don’t have at least $400,000 with 20% down and an extra 5% as a cash buffer, I wouldn’t buy a $2 million house. Interest rates can rise as inflation rises.

If you have to buy a house of $2 million or more, reduce your income to 4X. Split the difference between the recommended 3X and the 5X bonus. In other words, try to get at least $500,000 in household income before buying a $2 million home.

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Here is a nice chart that shows the income needed to buy a $1 million, $2 million and $3 million home. The larger your payment, the lower the amount required. The chart below is more aggressive than my 30/30/3 home shopping rule. It shows that you need between $392,544 and $574,080 to buy a two million dollar home.

Home prices in many cities have far exceeded their previous peaks with estimates in many cities exceeding their highs. Meanwhile, the other cities in the upper right corner are seeing new listings coming. I would be careful about stretching in cities like Austin, Dallas, and Nashville.

The house I sold for $2,740,000 only produced $60,000 after all expenses. So, I reinvested $500,000 of the money I got into crowdfunding. As a result, my investment now earns an annual return of 8% without any investment. The investment is empty.

How Much Income Do You Need To Buy A 1.2 Million Dollar Home

Non-beach town properties are selling at very low prices with rental yields as high as 4–5X. In the past, we did not have access to these types of opportunities easily. Thanks to technology, now we can.

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While you are building your capital city and down payment for a new home, I would invest in real estate to match the market. Here are my two favorite platforms:

Fundrise: A way for accredited and non-accredited investors to turn to real estate through private eFunds. Fundrise has been around since 2012 and has been generating consistent returns, no matter what the stock market is doing.

CrowdStreet: A way for accredited investors to capitalize on real estate opportunities in 18-hour cities. 18-hour cities are secondary cities with lower prices, higher rental yields, and can be high growth due to the growth of human activities and habits.

Both platforms are free to register and explore. Home sales are the last hedge against inflation. Not only are rents expected to rise, so are property prices. So, I invested $810,000 in real estate.

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Good luck buying your $2 million home! It’s a bargain in America’s most expensive city. Once you buy it, enjoy it. In 15 years, it can become a $3 million home!

If you want to read the best book on how to find financial freedom fast, check out Buy This, Not That: How to Spend Your Way to Wealth and Freedom. BTNT is packed full of my insights after spending 30 years working, studying and writing about personal finance.

Building wealth is only part of the equation. Making the right decisions is one of life’s biggest challenges. My book helps you reduce regrets and live a meaningful life.

How Much Income Do You Need To Buy A 1.2 Million Dollar Home

It will be the best personal finance book you will ever read. I also have three chapters on real estate. You can buy a copy on Amazon today. The richest people in the world are always reading and learning new things.

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Financial Samurai is the world’s leading personal finance site. It started in 2009 and receives more than one million visitors per month. If you want to own a house worth 2 million dollars, it would be good to have your finances in order. The increase is particularly large in Florida.

A home buyer must earn $107,281 to cover the $2,682 monthly mortgage payment on the average U.S. home, up 45.6% from $73,668 last year. This is due to mortgage rates doubling in the past 12 months, combined with higher house prices.

The average hourly wage in America grew by about 5% during the same period, and inflation is also reducing the costs of potential consumers.

After remaining flat for several years, the annual household income needed to cover a monthly mortgage payment began to rise at the beginning of last year due to the housing boom and rapid rise in prices. Scroll to the end of this report for details on our approach.

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Demand for a home then rose in 2022 as mortgage rates rose at the fastest pace in history, reaching 7% at the end of October (although rates posted the biggest reduction ever of one day in Thursday’s report on the news that inflation has fallen). Home prices also continued to rise for most of the year, although they have now started to fall from their peak a year later.

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