Buying a House Straight out of Law School

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italianstallion

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Buying a House Straight out of Law School

Post by italianstallion » Fri Jun 19, 2020 12:34 am

So I just wanted to see what y'all thought about whether this was a good idea. If this is the wrong spot for this topic I apologize.

I live in the southeast and will be starting work at a firm in sept making 155k a year. My spouse makes 45k a year. I am already preapproved for a mortgage up to 515k. I have no debt.

We are looking to buy a house, and are thinking about placing an offer on a brand new construction house for 514k. Making this big of a commitment makes me nauseous. Do the financials make sense for us to do this? Should we hold off? Any and all feedback is appreciated.

Whatislaw

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Re: Buying a House Straight out of Law School

Post by Whatislaw » Fri Jun 19, 2020 1:16 am

The ratio of your income to likely insurance + property tax + mortgage (assuming 30 year) is not bad. My only suggestion would be to make sure you still have enough of a rainy day account after down payment to ensure at least 1 year's worth of payments in case something happens financially.

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Re: Buying a House Straight out of Law School

Post by BrainsyK » Fri Jun 19, 2020 2:09 am

Regardless of whether you intend to live in the house, I think that it's important that you either buy somewhere with good price appreciation or a house that has good rental cash flow potential. Since you don't like in a high-COL area, I think that the latter is the more valid option for you. That and get a good deal overall, which I don't think that new construction generally is, but that has to be balanced out with how much you'll enjoy living in new construction. Whether or not you like it, housing is an investment. You could rent and put the money in stocks and if you come out ahead of the latter in net worth, you're really just paying transactional costs to buy the headaches and lack of freedom associated with ownership. Housing typically won't match what stocks can offer, but in case you need it, it's nice to have the extra equity or rental cash flow.

Transactional costs screws with the returns on real estate a lot so it's best in theory to get steady cash flow out of it or if you need a lump sum, take a HELOC on it rather than to ever sell it. Since you make a lot of money for the southeast, it's probably better for you to just save another down payment and rent out your old houses than to ever pay the transactional costs associated with selling it.

I'm not saying treat your housing like a financial robot and keep it until you die just for the step up in tax basis. If you have to move to another part of the country or something like that, obviously sell it, but these are just some things related to the finances aspect of housing.

nixy

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Re: Buying a House Straight out of Law School

Post by nixy » Fri Jun 19, 2020 8:34 am

Just for a counterpoint, I don't really agree with the above take on home buying. If you already think you want to get into investing in real estate/being a landlord, sure. But it's also perfectly fine just to want to live in a house, and to buy one that you can afford without looking at it as something you will own and be managing forever. Make sure you can afford the mortgage payments without creating any issues for your other financial plans, save for the inevitable repairs/changes you will want/need to make (even in a new build), and make sure you have a sufficient emergency fund. But otherwise, to me, the point is really to be able to live in the kind of housing you want to live in, not creating some future income stream.

I'm not saying there's anything wrong with the above approach, if someone wants to take that path. Just that you don't have to approach a house that way.

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Re: Buying a House Straight out of Law School

Post by Neff » Fri Jun 19, 2020 9:34 am

Do you like your job? Can you see yourself doing what you do now (or something similar that pays as well) for the length of the mortgage (or however long it takes to you pay it off if you intend to pay it off earlier)? This is IMO the most important question. So if you haven't started working yet, you wouldn't know the answer to this question, so that's one risk if you are buying before you know what your daily life feels like supporting that income stream.

For another data point, I took out a 15-year $450,000 mortgage in TX on a biglaw salary of $280,000 (spouse doesn't work). Because it's a 15-year and due to high property taxes, monthly mortgage+interest+tax works out to just shy of $4,000 plus all of the utilities/lawn maintenance/etc that come with a 4 bedroom suburban house in TX and that's $4,500 a month at least. On paper that's a comfortable amount relative to my biglaw income of $18,000 a month post-tax, but that's still 25% of a giant paycheck for a job I don't like that much. Other jobs that I would like more pay half that, so if I quit, housing alone would be 50% of my paycheck. On certain rough days at work I feel like we splurged, even though on paper the mortgage to income ratio is very conservative.
Last edited by Neff on Fri Jun 19, 2020 9:47 am, edited 1 time in total.

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stupididiot

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Re: Buying a House Straight out of Law School

Post by stupididiot » Fri Jun 19, 2020 9:36 am

nixy wrote:
Fri Jun 19, 2020 8:34 am
Just for a counterpoint, I don't really agree with the above take on home buying. If you already think you want to get into investing in real estate/being a landlord, sure. But it's also perfectly fine just to want to live in a house, and to buy one that you can afford without looking at it as something you will own and be managing forever. Make sure you can afford the mortgage payments without creating any issues for your other financial plans, save for the inevitable repairs/changes you will want/need to make (even in a new build), and make sure you have a sufficient emergency fund. But otherwise, to me, the point is really to be able to live in the kind of housing you want to live in, not creating some future income stream.

I'm not saying there's anything wrong with the above approach, if someone wants to take that path. Just that you don't have to approach a house that way.
Yeah i'm going to second this. It is very easy to say "just rent a house instead of selling it because transaction costs for sales are high!!1!" but there is also a lot of cost and headache associated with renting, and a lot bigger risk. Especially if you are a biglaw lawyer billing hundreds of dollars an hour, it likely is not worth your hours that you will put into managing a rental (when you could be billing that time instead, presumably for bonus $$). (I rented houses for several years before going to law school, it is generally not 'passive income').

Do you live in the same city now ? I would not buy a house unless I was intimately familiar with the city and really believed in the location, especially if its in some type of new development. If its a new city for you, I would live there for at least 6 months first in order to get to know the neighborhoods before buying. Also, I would stay at your job at least 6 months to make sure you really like it before diving into a house.

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Re: Buying a House Straight out of Law School

Post by Anonymous User » Fri Jun 19, 2020 10:29 am

You seem to be in a good position to buy, but dam, I would not be buying a $500,000 house in this economy unless after the purchase I'd still have a massive cash fund. My wife and I just bought our first house and we made sure it was WAY under our budget. Most of my co-workers bought houses in the $450,000 - $600,000 range and ours was $330,000 a little further out of the really "good areas", and it was a great decision.

The stress and worry of what happens if I lose my job went away because our total payments are less than $1,700 a month, which is manageable even if I lost my job and my wife was the sole income provider at a salary of $80,000. While my house isn't as nice as other's we've spent time painting and planning projects to make it nicer and its honestly a great way to spend time working with your hands and getting away from the computer.

All this to say, for a first home, go small, don't go big. You can always "level-up" after working a few years if you'd like and you won't have the massive payments hanging over your head.

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Re: Buying a House Straight out of Law School

Post by Necho2 » Fri Jun 19, 2020 11:11 am

Neff wrote:
Fri Jun 19, 2020 9:34 am
Do you like your job? Can you see yourself doing what you do now (or something similar that pays as well) for the length of the mortgage (or however long it takes to you pay it off if you intend to pay it off earlier)? This is IMO the most important question. So if you haven't started working yet, you wouldn't know the answer to this question, so that's one risk if you are buying before you know what your daily life feels like supporting that income stream.

For another data point, I took out a 15-year $450,000 mortgage in TX on a biglaw salary of $280,000 (spouse doesn't work). Because it's a 15-year and due to high property taxes, monthly mortgage+interest+tax works out to just shy of $4,000 plus all of the utilities/lawn maintenance/etc that come with a 4 bedroom suburban house in TX and that's $4,500 a month at least. On paper that's a comfortable amount relative to my biglaw income of $18,000 a month post-tax, but that's still 25% of a giant paycheck for a job I don't like that much. Other jobs that I would like more pay half that, so if I quit, housing alone would be 50% of my paycheck. On certain rough days at work I feel like we splurged, even though on paper the mortgage to income ratio is very conservative.
Maybe I'm dumb but isn't the answer here to refinance to a 30-yr if you decide to switch to a more satisfying but lower paying job? If you cut your salary in half but also doubled your payment period, wouldn't that drop your mortgage to ~30% of your paycheck (obv property tax/insurance doesn't change and presumably you pay more interest, but that can't be a large sum given current rates).

Trout et al

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Re: Buying a House Straight out of Law School

Post by Trout et al » Fri Jun 19, 2020 11:34 am

Neff wrote:
Fri Jun 19, 2020 9:34 am
Do you like your job? Can you see yourself doing what you do now (or something similar that pays as well) for the length of the mortgage (or however long it takes to you pay it off if you intend to pay it off earlier)? This is IMO the most important question. So if you haven't started working yet, you wouldn't know the answer to this question, so that's one risk if you are buying before you know what your daily life feels like supporting that income stream.

For another data point, I took out a 15-year $450,000 mortgage in TX on a biglaw salary of $280,000 (spouse doesn't work). Because it's a 15-year and due to high property taxes, monthly mortgage+interest+tax works out to just shy of $4,000 plus all of the utilities/lawn maintenance/etc that come with a 4 bedroom suburban house in TX and that's $4,500 a month at least. On paper that's a comfortable amount relative to my biglaw income of $18,000 a month post-tax, but that's still 25% of a giant paycheck for a job I don't like that much. Other jobs that I would like more pay half that, so if I quit, housing alone would be 50% of my paycheck. On certain rough days at work I feel like we splurged, even though on paper the mortgage to income ratio is very conservative.
Agreed. You can't answer the most important question yet.

At 155k starting it sounds like you are going to large regional type firm. I'd give it a year and make sure you really like your firm, what you are doing, who you are working with, etc.

A wise person once told me that a young professional's most valuable asset is mobility and flexibility.
Last edited by Trout et al on Fri Jun 19, 2020 11:53 am, edited 1 time in total.

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nixy

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Re: Buying a House Straight out of Law School

Post by nixy » Fri Jun 19, 2020 11:38 am

Personally, I also agree with 1) waiting till you know you like/feel secure in your job and 2) not borrowing the max you qualify for. Although 2 especially is really about personal comfort level.

hdr

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Re: Buying a House Straight out of Law School

Post by hdr » Fri Jun 19, 2020 1:07 pm

IMO buying before you even start work is crazy. If the firm's work dries up between now and September, there's nothing stopping them from deferring your start date or rescinding your offer.

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Re: Buying a House Straight out of Law School

Post by tyroneslothrop1 » Fri Jun 19, 2020 1:12 pm

Yes, you should wait, save, and confirm that you like your job enough to stay for long enough to make the financials work and also ensure that you are not laid off due to the coronavirus.

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Re: Buying a House Straight out of Law School

Post by burritotaco » Fri Jun 19, 2020 2:08 pm

I would strongly advise you to work at the job for a year at the very minimum before buying. You could hate the job and want to get out ASAP, and may need to be open to taking a paycut. If you're really that intent on buying and settling down, at least buy something that you can rent out if necessary.

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Re: Buying a House Straight out of Law School

Post by Pomeranian » Fri Jun 19, 2020 2:33 pm

Also real estate prices haven’t really been impacted that much yet... I would hold off until the foreclosures hit.

italianstallion

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Re: Buying a House Straight out of Law School

Post by italianstallion » Fri Jun 19, 2020 3:44 pm

Thanks for the replies everyone. Putting aside for the moment not knowing if I like where I work, how would your answers change if I was looking at a 350k house, with the plan being to rent in a few years and moving on to another house?

There is also a 470k house we are looking at, so if you think that is a better option for where I am at right now let me know. FWIW, I am not too concerned about job security given how busy the practice group I am going into is.

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Re: Buying a House Straight out of Law School

Post by Neff » Fri Jun 19, 2020 4:49 pm

Everyone's risk tolerance varies, but I would agree that $350K relative to your income would be much safer and more reasonable. My own gut reaction was $500K seemed high for your situation. Even in a worse case scenario job-wise, a $350K mortgage would not be difficult to support regardless of your employment situation. In my TX firm a number of sr associates/young partners in my group started out in 250K townhomes in Houston (ten years ago when that was a thing) before upgrading to the mansions they are in now. Ah the luxuries of living in the south.

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Re: Buying a House Straight out of Law School

Post by Anonymous User » Fri Jun 19, 2020 5:56 pm

I wouldn’t do it.

I made the mistake of buying a house very early on in my time with my first firm. When something breaks in your house, you have to fix it. It adds a lot of unnecessary stress to an already stressful job. And my mortgage was only like $2000, but property tax, insurance, and utilities made that almost $3000. Then repairs in my first six months were north of $5000 (had to repaid AC).

On top of all this, I ended up hating my first job and sold my place after a year. Paying for my new apartment while my place SAT ON THE MARKET for a year was great, too. Paying my rent and mortgage/tax/utilities was almost $5000.

It’s a headache I don’t think anyone should deal with as a first year associate.

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Re: Buying a House Straight out of Law School

Post by sparty99 » Fri Jun 19, 2020 6:10 pm

I would wait a year. Rent first or at the very least buy the 350k house. There is no reason why you need a 500k starter home. You also said nothing of your student loan debt. You would be stupid to buy a 500k house. Also, buy a house in the upcoming area.

nixy

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Re: Buying a House Straight out of Law School

Post by nixy » Fri Jun 19, 2020 6:26 pm

sparty99 wrote:
Fri Jun 19, 2020 6:10 pm
I would wait a year. Rent first or at the very least buy the 350k house. There is no reason why you need a 500k starter home. You also said nothing of your student loan debt. You would be stupid to buy a 500k house. Also, buy a house in the upcoming area.
Actually, the OP said they have no debt.

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Re: Buying a House Straight out of Law School

Post by kaiser » Sun Jun 21, 2020 11:29 am

As a former biglaw associate, I strongly suggest renting for the first few years of your biglaw career. People don't tend to stay in their first biglaw job very long, and things are unlikely to remain static for you. So you want a living situation that can adapt just as easily. Also, as others mentioned, law firm law can be all-consuming at first, and you will have limited time and energy to devote to other things. And owning a home will inevitably involve issues that will take up time and energy. The first year or 2 of biglaw is the worst time to have those distractions.

And to the extent you do decide to purchase now, I would second the suggestion that you look for something a bit more affordable. You can't count on having that big firm salary for the long-term, and it is entirely possible that your salary will actually go down if you move onto other things. It is best to purchase a home once you have a better idea of what your long-term income projection is going to be. Also, I would think $350k could get you a great home in the southeast, but I'm totally unfamiliar with the region, so that is just my assumption.

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Re: Buying a House Straight out of Law School

Post by The Lsat Airbender » Sun Jun 21, 2020 12:23 pm

kaiser wrote:
Sun Jun 21, 2020 11:29 am
Also, I would think $350k could get you a great home in the southeast, but I'm totally unfamiliar with the region, so that is just my assumption.
Depends on school district, commute tolerance, etc.—$350k isn't a huge pile of money in Atlanta, Charlotte, or Nashville nowadays. You can of course get a nice house in a decent neighborhood, especially for a couple with no kids, but you're nowhere near "permanent/dream home" territory for people with biglaw salaries and aspirations.

I agree that OP should either buy a $300-400k home, and leapfrog later, or just rent until they can genuinely afford (and commit to) something more expensive.

(A third option for some people is to buy a fixer-upper in a nice neighborhood and then upgrade the actual house over time. But you really don't want to combine fixer-upper stresses with biglaw.)

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Re: Buying a House Straight out of Law School

Post by nealric » Mon Jun 22, 2020 9:46 am

I'd be wary of buying a house near your maximum approved loan amount. The purchase will likely make you feel very "house poor" at the beginning. While a new house shouldn't have too much maintenance/repairs to worry about, there's tons of little expenses when you go to owning a house most renters don't even think about. For example, you'll either need to pay a yard crew or buy all of the equipment needed to do your yard (lawnmower, weed whacker, leaf blower, etc.). Little things like drapes are expensive and add up. Don't forget property taxes, which can be almost 50% of the mortgage in some places.

Also, houses are only new once, and buyers tend to pay a premium for them. If things don't work out at the firm after two years, you'll be selling a "used" house and may not get what you put into it unless you are lucky to see strong a appreciation. A lot of new houses these days are built with extremely poor quality materials with only the things you see looking nice. For example, you might get granite counter tops and shiny stainless steel appliances, and the cheapest POS a/c and hot water heater known to man that will fail on you one day after the new home warranty expires.

At your stage, I'd rent for a year or two and look to buy once you are more confident in your job stability. It's also a good idea to live in your intended neighborhood before committing to buy.

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