Some advice from the book: Never purchase a home that is 2x your total annual realized income. WTF?
That can't possibly work in California or New York or many other high-priced real-estate area in the U.S for that matter. For instance, let's just suppose your combined family income is $100,000 annually. This means, per Millionaire Next Door's advice, you should not consider purchasing a home with a price tag larger than $250,000 ($200,000 mortgage with a $50,000 down-payment).
Excuse me, but there are no houses anywhere in the state of California that could fit a family of 4 or 5 with a price tag of $250,000. If you are talking about the vicinity of the San Francisco Bay Area or Los Angeles County (or even central California -- Bakersfield, Modesto, etc.) you will be hard pressed to find a house over 1,000 square feet for $250,000.
The smallest houses in the San Francisco Bay Area (900 square feet or less) are in the area of $450,000! If we go by the recommendation of the Millioniaire Next Door, an individual would need an income of at least $280,000 a year to afford a "fixer" in the Bay Area.
Don't believe me? Take at look at what $275,000 will get you.
(Please note I used a ZipRealty Advance search - indicating ALL 9 counties of the San Francisco Bay Area, 3 bedroom 2 bath house (a family of 5 or 6 can squeeze into such a house), $280,000 maximum asking price.) The result:
A major Fixer - 3/2, 1,000 square feet for $180,000,
in Fairfield (2 hours from San Francisco)
A duet that needs work - 3/2, 1,154 sq ft. for $274,900
in Antioch (commutable to San Francisco)
I'm sure it's a nice home, but the picture just looks like you're buying a garage.
Fixer-upper, no garage (Sold as is) -
3/2, 1,577 sq. ft. for $260,500 - in Fairfield
Manufactured home in major crime area of Oakland
3/2, 924 sq. ft. for $269,900 - in East Oakland
Partially redone, needs only finish electrical and plumbing!
3/2 1,121 sq. ft. $249,900 - in San Pablo (25 minutes to San Francisco)
I doubt people making $100,000 a year would really go for these type of properties. So, the question is, what do you do with Millionaire Next Door Advice, when you live in areas like the San Francisco Bay Area?
Do you hold out for 5 or 6 years and hope that real estate prices fall back to fundamentals that will allow you to follow said advice?
Do you rent until you can raise your income up to the required $280,000 that will allow you to purchase a median priced house?
Do you change the formula to 3x, 4x or even 5x's the realized income because you live in a "special area"?
Do you give up your income and roots and move to a place that will allow you to work within those advised parameters?
What is the smart way to handle this situation?
