I agree the 79k in the 401k for 42 year old seemed "low". I have my
own table I use and this suggests a 12+% return is needed to retire at
age 62 with a nest egg of one million dollars. I would consider trying
to have a goal of more than 1 million by age 62. A consistent 12%
return is hard to come by, I might suggest trying have around $500,000
by age 52 or 56 to improve your chances of retiring at age 62.

When you retire, then get a house in a cheaper location.

The budget is great.

The advice wrote about "pay expenses from one paycheck was good.

Renting is a great investment if you are willing to "work". There is
good money to be made, but it might require the 3am calls and aprtment
repaies for bad tenants.

I would consider finding a cheaper "home"- whether a condo, a ranch, a
smaller house or the vacation house idea. The house is an expense- to
some people it is a needed expense, to some people it is a "nice to
have". In either case making money off the house should not be the
ultimate goal, think of it as a side benefit.

Dear All,
Thank you for the wonderful responses. I'm amazed at the quality and
thoughtfulness. It's nice to see someone take the time to help a
complete stranger. I will sort through all this. God bless.

On 2006-02-08 05:00:00 -0500, rsill611[at]yahoo.com said:

- quote -

To my comfort level, yes, $3000/mo is way too much for you.

As far as I'm concerned, as a rule of thumb, your mortgage/tax/ins
payment should be no more than half of your monthly *after tax*
take home - and that's only after maxing out your 401k as well.

If you get two paychecks a month, your total monthly mortgage/etc
payment should be no more than one of them.

I'm much more conservative than the banks or the "lending
calculators" out there. But I sleep pretty easily at night. YMMV.

BTW, I assume you mean $60k/yr, which is $5k/mo, not $80k.

After taxes and maxing out your 401k, I'd guess that your total
after-tax, after-401k take-home paycheck is probably about $3k/mo,
(it's a little squishy, as once you get a mortgage, you'll be
adjusting your W-4 exemptions to raise your take-home pay a bit),
but that says to me that you can comfortably have a total payment
of about $1500/mo, which gets you about a $200k mortgage assuming a
30-yr fixed, and taxes and insurance in proportion. With your
$25k cash on hand, assume about half of that will go to closing
costs and other things you haven't though of, leaving you about
10-15k to put down and a total home price of maybe $215k.

You could probably lever up a little more than I figure above,
but I see no reasonable way for you to be buying a 400k+ house.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

That you know your current monthly expenses so well is exemplary. Anyone who
doesn't do this, take note of this gentleman's mini-spreadsheet below and
start. To John's and Andy's fine remarks I would add the following:

You should estimate when you want to retire, and how much you'll need to do
so. Your $79k nest egg strikes me, at first blush, as a little low given an
assumed retirement age of 65 or so. The web has many free online calculator
estimators for this. See for example http://www.fincalc.com/ (click on
"Consumer Calcs" on the left, then look for the "Retirement" section of
calculators on the right). I threw your posted numbers into the "Are my
current retirement savings sufficient... ?" calculator, and, with some
assumptions, it indicates you need to save around $554 a month /more/ right
now for retirement.

I would reduce the amount for the down payment by about a year of living
expenses, or about $12k. This is your "emergency fund," for when things do
go amiss, like suddenly needing a new car, losing your job, etc. Also, with
the Ponzi scheme that health care has become, if you have a very bad
accident or illness, you will need your savings, regardless of how good your
health insurance is. This leaves you with about $13k.

How much is the monthly "expense" of maxing out your 401(k) up to the
employee match, and has this been accounted for in your figures already? I
am guessing the expense would be around 6% of your salary, or about $400 a
month. I assume your income below of $80k is before taxes, and that the $5k
is after taxes.

Do you have a Roth IRA? I would start contributing the max allowed of
$4k/year ( = $333/month) right now.

Saving these amounts would seem to give you a margin of safety for
retirement and allow you to consider an earlier retirement.

I don't want to judge you, but living on $1000 a month (not counting rent)
strikes me as mighty frugal living these days, especially for Chicago. I'm
not sure what's up with that, but make sure you're enjoying yourself. Having
a stash of money invested or in the bank is wonderful for peace of mind, but
what memories will you have when you're 70 and decrepit? Take vacations. Go
to the theatre. Fly to bridge tournaments. Play golf. Or whatever floats
your boat. (Or reassure me that you do do these things... ) I'm going to add
on $300 a month just so you live a little higher.

With these assumptions, you have about $2033 a month of expenses, leaving
about $3000 a month for a mortgage payment. Below you do in fact assume
about $3000 a month, so it looks like you have built in a margin of safety.

The property taxes on a $400k home are money thrown away, as far as your
personal needs are concerned. Property taxes have to be at least a few
hundred dollars a month in the Chicago area on such a house. I would aim
smaller, like condo as you say, if only to save this.

More house is more to keep clean and heat or air condition. (Maintenance is
definitely a consideration, too.) For me, that is a huge deterrent to buying
a huge house, even if I can afford one.

Do not trust a lender further than you can throw him/her to tell you how
much home you can afford. Home lending has become as bad as the used car
business. We have record bankruptcies and a record low (negative!) savings
rate right now in the U.S. I urge you buy only as much living space as you
need to feel comfortable. How big is your apartment now, anyway? How much
bigger would a $200k or so condo be? A $400k house? Apart from financial
features, would a $200k condo be a noticieable improvement in your current
housing? If so, how? (For me I'd want more space, quieter neighbors, more
say in how to operate my home.)

I don't think the two-flat idea is a bad one in your case, assuming that, if
you do get a bad tenant and have to evict him/her, you'll be fine without
the rental income for awhile. It could be, in part, that extra "hobby" of
which I spoke above and help grease the skids for an earlier retirement.
ISTM becoming a landlord is far more risky for someone who can't afford to
lose the rental income. I would give this more consideration and keep
researching it.

rsill611[at]yahoo.com wrote:
- quote -

John made some very good points in his post. Why would you saddle
yourself with $3,000 a month payment for something that you don't seem
to passionately desire? From your income and expenses statement you
can currently easily pay all your bills and save quite a bit each
month, i.e. you are financially comfortable. If you take on a $3,000
mortgage you will be just scraping by each month and not able to afford
much else. That may be worth it if owning a big home is your dream of
dreams, the one thing that will make you really happy, but if owning a
home is not your number one passion why burden yourself just to be a
homeowner like everyone else?

Andy

In article <1139370005.058074.179240[at]g14g2000cwa.googlegroups.com> ,
rsill611[at]yahoo.com wrote:

- quote -

The big question is what do YOU want to do?

First, lets get rid of the "everyone else" thing. If everyone
else had the clap, would you feel left out? No, you would
feel lucky. If the housing market bubble breaks badly, you
may very well do the best of any of your home-owning friends.

A house is a very expensive luxury. In many cases, you can
rent for far less money. Doing so could allow you to invest
your extra money, or spend it doing things that a normal
home owner could only dream of.

Rather than looking at this as a numbers game, think of it
in terms of what you want your lifestyle to be. Do you want
to spend your weekends fixing things around the house and
cutting lawn? Or do you want nothing to do with home repair,
outside maintenance, and fixing things? Do you really want
to be saddled down with a $3000 payment? Or would you like
the flexibility to take a year off to tour Europe or have
the ability to weather a year long layoff?

Figure out how you want to live your life, then arrange to
have the kind of housing that fits that lifestyle.

One plan to consider is buying a bit of land 2 to 4 hours
out of town. Build a vacation cottage, and use it for long
weekends and short vacations as your get-a-way. Invest in
that rather than investing in the city.

As far as landlording goes, think long and hard about that.
Do you enjoy seeing renters destroy a nice apartment? Do
you want to get those 3AM calls about having no hot water
or kids toys stuck in the toilet? It gets old very quickly.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708 john[at]johnweeks.com
Newave Communications http://www.johnweeks.com
================================================== ====================

Lenders tell me I can afford a $400k home however the financial
calulators say I can only afford to borrow $250k. I only have $25k for
down payment incl. fees. Should I buy a $400 house or go cheap and buy
a condo? Is $3000/mo mortgage/tax/insur payment too much to take on?
What is the wise financial move here? Seems like everyone my age owns
realestate except me. I'm also considering buying a 2 flat and renting
out the upper floor.

Here's the details:
Age: 42
Income: $80,000 ($5000/mo)
cash on hand $25,000
401k total: $79,000
currently rent $750/mo
no debt, steady job, single
Location: Chicago

Monthly expenses (total approx $1000):
cable tv 50
SBC DSL Bill 30
SBC Phone Bill 45
car ins 78 ( (464 x 2) / 12)
car oil change 10
car maint 50
car plt/sticker 9
car parking 100 (or metra ten rides 24.95 x 4)
car wash 20
car gasoline 80
dry cleaning 50
clothing 50 (600/12)
food/entrtmnt 200
misc 30
Nicor Gas 75
Com Ed Electric 30
health club 25

The calculators I used are here:
http://chicagotribune.interest.com/calculators.asp
http://chicagotribune.interest.com/c...ord-borrow.asp