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Need Guidance on How Much House We Can Afford in a Expensive Area

We’re planning to move to a expensive housing town with top-tier public schools and low taxes. I’m trying to figure out how much home we can afford—not just in terms of making the payments, but considering the opportunity cost of tying up cash in real estate. Calculators don’t seem to account for our specific situation, so I’d appreciate advice.

Financial Details:

  • Cash: $2M
  • Investments (Stocks, 401k, IRAs): $1.5M
  • Current Home Value: $1M (owe $320K at 2.5% interest)
  • Current Annual Income: $200K (expect dual income of $300-350K in 2-3 years when my wife returns to work)
  • No Other Debt: Very low monthly expenses, living simply. Two young toddlers.
  • Rental Potential of Current Home: Could net ~$2,500/month after taxes, property management, and insurance if we chose to rent this home instead of sell it.

Key Factors:

  • We’re drawn to this area primarily for its excellent public schools and low taxes. The homes command about a 30% premium to surrounding areas.
  • I’m confident we can afford the bills, but I’m concerned about the opportunity cost of tying up cash in a high-priced home.
  • We are looking at homes in the $1M–$1.2M range (unsure what range makes sense).

What’s the best way to think about affordability in our situation? How much of our cash/investments should we realistically tie up in a home without overcommitting or missing out on other opportunities?

Any insights or experiences would be greatly appreciated!

submitted by /u/snakesontrain
[link] [comments]

source https://www.reddit.com/r/RealEstate/comments/1i2kght/need_guidance_on_how_much_house_we_can_afford_in/
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