The ideal mortgage amount was $1,000,000 before the Tax Cut & Jobs Act was passed in 2018. Today, the ideal mortgage amount is $750,000, if your income can afford it.
The reason why $1,000,000 was ideal was because that was the mortgage limit for where you can write off the interest. Today, that ideal mortgage amount is $750,000 because $750,000 is the maximum mortgage you can take to be able to write off all the mortgage interest.
Back in 2002, a $1 million mortgage cost around $50,000 to $65,000 a year in interest expense given mortgage rates were 5%-6.5% for a 5/1 ARM or a 30-year fixed. Multiply the annual interest expense by three, and you get $150,000-$195,000, the minimum annual income recommended to take out such a loan.
In 2024, a $1 million mortgage costs around $65,000 a year in interest expense given mortgage rates are now 6.5% for a 30-year fixed rate mortgage. Interest rates plummeted to all-time lows in 2020 due to coronavirus fears. However, mortgage rates are now elevated after the Fed hiked 11 times since 2022 to counteract inflation.
Mortgage rates should decline again as inflation peaked in mid-2022. As a result, I'm still very positive on the housing market long term. If you plan to own a property for more than five years, I would buy as we're past the bottom.
Reasons Why The Ideal Mortgage Is $750,000
Here are the reasons why the ideal mortgage amount shouldn't surpass $750,000. You can obviously get a much large mortgage if you wish. It just won't be the ideal mortgage amount.
1) The law says so.
The maximum mortgage where you can write off the interest is $750,000 according to the IRS. In other words, if you have a $1.5 million dollar mortgage that costs $70,000 a year in mortgage interest, only ~$35,000 of the mortgage interest can be deducted from your income. Your tax savings is simply $35,000 X your marginal tax rate.
2) Maximum government subsidy.
The home mortgage interest deduction is one of the largest government subsidies available to all citizens. In an environment when all it seems like the government does is take, take, take, citizens get something tangible and immediate back from the government.
The government helps subsidize your lifestyle and lower your taxes. To not take full advantage of such subsidy is a shame, unless you love paying taxes! Just look at how much government subsidy there is during the COVID-19 pandemic. We've got stimulus checks, enhanced government benefits, PPP loans, and more.
Here's how to calculate the mortgage interest deduction if you have a mortgage amount over the maximum.
3) Keeps you disciplined.
For those who live in expensive cities such as San Francisco and NYC, keeping a $750,000 dollar mortgage limit helps keep you from going overboard and buying too much house. Plenty of regular 4-bedroom houses now cost over $2 million dollars in big cities. By keeping your borrowing to $750,000, you are forced to come up with a bigger down payment.
You might think going the standard 20% down ($400,000) and borrowing $1.6 million is fine, but it is not ideal. You start justifying what's an extra $850,000 in debt at that price versus the ideal mortgage amount of $750,000.
I can assure you that everything becomes more painful the more you borrow. You get less deductions, higher mortgage payment, and more stress.
This is why investing in completely passive real estate crowdfunding investments has gained so much popularity recently. Now investors can access property all over the country much more efficiently. Investors in real estate crowdfunding can earn income 100% passively in a diversified way.
4) Asymmetric risk and reward.
In America, when you borrow a ton of money from a bank and can't pay it back one day, you don't get stoned to death. Instead, you hand back the keys to the bank. After all, your bank agreed to take on your home as collateral in case of non payment.
If you are lucky to live in a non-recourse state, the bank can't go after your other assets! If you live in a recourse state, then a short-sale or foreclosure will temporarily slaughter your credit score for 3-7 years. Better your credit score then your private parts right?
Meanwhile, if you happen to invest in the right cycle, you can make a massive amount of money when you finally sell or rent the property out. Further, you don't have to give the bank any of the upside! Isn't America great?
5) You make closer to the ideal income.
In the past, how much mortgage interest you can fully deduct is based on how much money you make. Make too much, and your mortgage interest deductions get phased out. Make too little, and you will feel the strain of the mortgage payments.
If you or your household make between $250,000-$300,000, you are in the sweet spot to take on a $750,000 dollar mortgage. This is because you shouldn’t spend much more than 3X your annual income on a home after putting 20% down. This is my 30/30/3 rule for home-buying.
In expensive big cities like San Francisco, New York City and elsewhere, you may have to stretch to 5X your annual income. However, if you do, just make sure you have rock-steady employment and a good financial cushion. Buying a home that's 5X your annual income is a function of low mortgage rates and future income growth.
The Ideal Mortgage Amount Differs For Everyone
If you live parts of the country which have wonderful $500,000 homes, then awesome! There is never a need to borrow $750,000. The standard deduction of $12,550 for singles and $25,100 for married couples in 2021 is probably good enough for most.
For those of you who live in expensive coastal cities, then consider $750,000 as the cap on how much you should borrow to purchase your primary residence.
Once done, consider taking advantage of investing in lower cost areas of the country through real estate crowdsourcing. You goal should be to diversify your real estate investments and take advantage of long-term trends. As a San Francisco property owner, I'm actively trying to buy heartland real estate.
Some of you reading this have liquid assets north of $1 million dollars. A $750,000 mortgage is therefore nothing to be afraid of because everything is just accounting.
Always Take Advantage Of Low Mortgage Rates
Your goal in this low interest rate environment is to minimize your debt interest expense by refinancing your mortgage. You should also maximize your government subsidies with the ideal mortgage amount.
Imagine refinancing your mortgage to 2.5% while making a 2.5% or greater return on your investments? You're essentially borrowing money for free and then some!
Don't be afraid of mortgage debt. Mortgage debt is one of the best types of debt there is. So long as you can take out the ideal mortgage amount that is right for you, you should do well.
The ideal mortgage amount may change with Joe Biden as president. Perhaps he will do away with the SALT cap deduction limit and raise the maximum mortgage indebtedness amount for deductions. However, we'll just have to wait and see.
Wealth Building Recommendations
1) Shop around for lower mortgage rates
Check out the latest mortgage rates online. You'll get real quotes from pre-vetted, qualified lenders in under three minutes. The more free mortgage rate quotes you can get, the more you can compare and make lenders compete for your business.
2) Invest In Real Estate Online
Real estate is my favorite asset class to build wealth. Take a look at Fundrise, one of the largest real estate crowdsourcing companies today. The platform has over 500,000 investors and runs over $3.5 billion. All you need is $10 to get started.
Real estate is a key component of a diversified portfolio. Fundrise offers diversified funds for investors who want exposure to real estate, mainly in the form of single-family home rentals.
The other real estate investing platform to check out is CrowdStreet. CrowdStreet is a real estate investment marketplace that focuses on individual real estate opportunities in 18-hour cities. 18-hour cities have faster growth and lower valuations.
If you are an accredited investor who likes to build their own portfolio, consider Crowdstreet. However, it's up to you to due extra due diligence on the sponsor before investing in any deal. Understand the sponsor's track record and know their management.
For most people, investing in a diversified fund like the ones offered by Fundrise is the way to go. I've invested $954,000 in real estate crowdfunding so far to diversify my expensive SF real estate holdings. I love being able to earn more passive income so I can spend time taking care of my family.
Both platforms are sponsors of Financial Samurai and Financial Samurai is an investor in Fundrise.
3) Read the best personal finance book
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The Ideal Mortgage Amount is an FS original post. In an inflationary environment, you want to be long real estate. Inflation eats away at the cost of your fixed-rate mortgage while boosting the value of your property.
Hey Sam – love your site and have followed you for many years. Would love your opinion on an upcoming home purchase. Some financial background on us…..my wife and I have a NW of ~ $1.7M, we’re both 36 y/o and I earn $350k/year (she stays home with kids). My job is high stress and I wouldn’t mind leaving some day, so I don’t bank on that level of income for my career. We’re building a $1.1M home in a top school district so that we don’t have to send our 2 kids to private school. We have $225k in home equity that we’ll roll over from our current primary residence, and we have an investment property with $175k of equity that we’ll also roll into the new home that we’re building. So, we’ll be left with a mortgage of $700k. My question to you is would you aggressively pay down that balance if the mortgage is at 3%? I struggle because we have no other debt, so this feels like a massive amount (it is!), but tax effected, it’s about a 2% rate. We have other “after tax” investment accounts with ~ $200k in them, and wondering if liquidate those investments and also apply to the mortgage. I’ve read your FS DAIR post, but would still love your thoughts here. Thanks, and keep up the good work, sir!
How did this workout for you?
Can I afford 1-1.5 million dollar mortgage if I am making 280k a year ? Before taxes
Economist Robert Shiller showed that the national single family home appreciation rate was 1% in real terms from 1890 to 2005. The stock market over the same period returned 6.5% in real terms.
If you invested $100,000 in equities at 6.5%, you would have $661,000 after 30 years. If you put down $100,000 as a down payment on a $500,000 house and that house appreciated at 1% per year, you would have $673,000 after 30 years. That does not take into account mortgage interest, property taxes, insurance, and maintenance costs which will reduce the return well below that of equities.
In addition, putting a lot of money into a single residence is not diversifying risk like investing in a market index. So even if you live in a place where real estate gains outpace equity gains, you are assuming more risk for the same return.
Houses should be treated as the inflation-protected cost of shelter and not an investment for most people. I don’t think your advice is suitable for even those making between $200,000 and $300,000 a year. Such a group would be better served buying less house and investing the rest in equities.
How did population and supply change after 1890-2005? Not comparing apples to apples in a changing landscape. Your message didn’t age well at all with real estate growth since 2018!
I love these updated older posts, the discussions are phenomenal Sam!
Our cost for both rental and primary were almost 1 mil, we put in sizeable down payments and hurled extra money in. It’s down to $650k borrowed now at 4% interest. We might have lost some optimization there haha, we also live in a non recourse state and make right in the sweet spot you exampled.
I wish I’m more of a risk taker! The bankers are having a tough time with such low rates.
If you have a substantial income, have great investments yielding more than you are borrowing, and aren’t concerned about covering your mortgage should things go south, the tax write-off of holding a million dollar mortgage may be good for you. Personally, I’m a fan of not having a mortgage if you can make it work and don’t have the need for a write-off based on the criteria I wrote.
While it might be possible that is one scary financial move. An $800,000 loan would have payments of around $4800 per month depending on taxes and insurances. If you make 100k per year your take home pay is around $6000 after taxes and health insurance. That doesn’t leave much money for food, gas, groceries, investing, etc.
This is ridiculous. It’s no wonder why the average american work until they’re 60s. Take this advice and you’ll surely regret it later as so many have. Among many issues, why in the world would someone spend after tax income only for a tax deduction? It doesn’t matter how much money you make, this is idiotic. I really hope this was for just amusement purposes.
That’s why he said 200K income.
Hi-
Id like to believe this is possible, however having a hard time making the numbers add up. HHI is $325k (including bonus). So about $10k takehome per month (not including bonus). We live in NYC area, and have 400-500k for a down payment. So if we took out a 1MM mortgage for a 1.5MM house, taxes are about 30k/yr. All in thats about 7-8k/month. That only leaves 2k for everything else. That doesn’t add up! Cars/transportation/train/food/insurance/savings list goes on. We’d be so far in the red. I know we’d save a bunch of money on tax breaks from property taxes and mortgage payments, and Im not factoring in the 50k bonus (although really only like 25k). What would make sense here? What size mortgage would be prudent?
Agree. The author is full of it. If I can’t afford such a house, nobody should be able to. And a million dollar house in Silicon Valley or NYC area is probably not much of a house either. A quick trip to Trulia is not very encouraging.
It is 2017 and Donald Trump is the president and the interest rates have inched higher. Does it still makes sense to take a $1 million loan in California?
Great question. Per the title, only if you can afford to carry a $1M loan and never default. Rates for a 30-year fixed are now around 4% – 4.5%, depending on credit, AFTER a 0.5-0.75% move after Trump won. If your total monthly liabilities is less than 33% of your total gross income, and you foresee good income visibility over the next five years, $1M is still the ideal mortgage amount.
That said, coastal city real estate prices are finally starting to weaken after 8 years of explosive growth. As a result, I’m NOT buying physical property now, and waiting for a 1-2 year fade into 2018-2019. Instead, I’m investing more surgically in the heartland of America through real estate crowdsourcing platform RealtyShares (free to sign up and explore). You can invest in higher yielding properties at much lower valuations for $5,000 – $10,000 minimums versus coming up with a $200,000+ downpayment and taking on $1,000,000 in mortgage debt for the median SF or NYC home price.
Fundrise, also another real estate crowdsourcing platform has a Heartland eREIT as well.
Related post: Why I’m Investing In The Heartland Of America
Thanks for your comment and that kind of confirms my understanding too. However I am not just looking at it from an investment point of view. There are other things to consider as you are very well aware of in bay area like good school district etc. Also if you look at the other expensive locales around the world in terms of real estate like London , Sanghai, Singapore , HongKong, Mumbai, New York – don’t you think that the bay area is similar to those places (due to economic vibrancy and incoming migrant workforces) where the real estate prices can only go up and the median prices will be higher in 2018-19 than now? Yes, I know about 2007-2008 but that I consider an exception which banks probably will never repeat ever :)
Ok, getting ready to pull the trigger on a 1M home with 250K down. Income around 200K. Serious psychological barrier to get over. Property tax will be about $12,500/annually. That is until the house goes up in value. Yikes!
I get it. I guess I’m just having a hard time wrapping my head around a 675K+ mortgage being a good idea, or the one million dollar mortgage (if you can afford it) being an optimal…independent of the lifestyle boost (and with a 210K salary).
Purchased 1st home in 1996 for 140K@8.75%/30 year fixed..sold for 380K in 2006
Purchased 2nd home in 2006 for 497K on a 30year fixed…currently have 9.5 years left on 10 year fixed at 2.75. Owe 254K and worth 530K
Considering 900K+ home (675K mortgage) is 2016.
I’m a believer about constantly moving forward, but 2K currently going to principal every month is nice and comfortable. That said, we have outgrown our home and it’s starting to be dated/need money. Just trying to figure out if this is a logical progression? Track record indicates we stay 10 years, but this house would be a keeper unless we head someplace even more expensive like San Diego or Orange County. Just thinking about property tax, insurance and utilities on a 4,200 sq ft home and if a 10/1 ARM makes the most sense based on our history?
It has been said that the easiest way to make a million dollars is to borrow a million dollars, buy a million dollars worth of property, and pay it off.
Now obviously if that property is income producing which pays for your debt service for you, all the better… but buying a million dollar home and paying off a million dollar mortgage serves the same purpose.
I agree. You write the point very succinctly.
I had to write a whole post called, Buy Real Estate As Young As You Comfortably Can, to make this point!
If you pay off your $1M property, you will be a millionaire!
But then again, $3 Million Is The New $1 Million thanks to inflation.
Ok, trying to figure this all out. Wife and I are in early 40s. We currently have 9.5 years left on a 2.75/10 yr FRM down from 3.375 on a 15 year FRM. Currently $1950 of the $2580 (P&I) payment is going to principal. The refi was at no cost because we are with Fremont Bank. Love them! Owe 254K and house appraised for 518K. Wife and I have W2 income of 205-210K. 280K in 401K/503b and we will both have pensions through CalStrs in about 18 years. We work 185 days a year. 2K in principal, 2K towards pensions and 1800 goes to 403b per month. So I guess we are technically saving about 5,800/month. That said, lifestyle is just as important at this stage as building wealth. We also pay the IRS about 7K at tax time with both of us claiming 0. No debt but no cash reserve either. That said, was not prepared to find a dream home scenario in Cali on a hilltop (full acre) over looking a body of water. New construction and will run about 950K. The builder doesn’t sell on contingency. Need a 5% deposit to move forward which we would need to be creative to come up with without selling existing home. Would love to keep existing in home a perfect world, but a full 950K loan seems rediculous with our income. At the very least, we would like to make the dream home work after selling our existing home. What’s the play here?
PS Besides the house on the hill, we would also like to either ultimately live in San Diego or figure out how to have a vacation home there.
Maybe I’m just way too conservative so help me understand the math. I’m 39. I have about 400k in 401k. Looking to buy a new house and I have about 200k to put down on a house. I make 375k in salary at 100% of plan which is what I’ve hit 3 years running. I also get 180k – 300k PER year in RSU’s that best over a 4 year period. I don’t really have much debt at all. For some some reason my head hurts when I think about buying a house house for more than 650k which with property taxes in my area, with 20% down (130k) would be around 4500k p/ month. Reading this your basically saying I should stop being a wuss and go for a 1M mortgage?
Correct. If you are making $500-$700,000 a year in total compensation, then you can definitely afford a 1 million Dollar mortgage with today’s interest rates. Of course, don’t count your RSUs as part of your compensation.
But don’t buy a more expensive house if you’re happy with the way you’re living now. I’m just saying for Max lifestyle and tax deduction purposes, a 1 million Mortgage is ideal for high income earners eho get taxed to hell.
You may enjoy this post:https://www.financialsamurai.com/buy-real-estate-as-young-as-you-possibly-can/
Thanks for the reply. Yeah, my average is 360k (not including RSU’s but they are starting to vest so income could be generated yearly). So even at 360k to be on the safe side, technically I could do it. Current home I would sell is worth about 370k and I owe 320k. The houses my wife and I are interested in the 800-850 range so with 200k down that’s only a 600-650 mortgage. I’m sort of comfortable there so maybe I’ll pull the trigger :)
What advice would you give someone with a financial windfall of multiple millions in order to minimize the tax fallout? I have heard charitable trust, charitable foundations but I am also interested in real estate, living well in retirement and philanthropy.
Hi- my husband and I are considering a $1m mortgage. We own a home, which we will not be able to sell for what we bought. We may just try and rent it if we decide to move, since we’d be losing money by selling it.
My question is about taxes- we get hit with AMT every year! We live in NY, make @ $450K a year and pay $14K a year in RE taxes. All our RE taxes and NYS income tax get taken away on AMT- ugh! We paid an extra $7K in AMT in 2014. Our mortgage interest was also phased out on our itemized dedcutions. We paid $105K in federal taxes and $27K in State in 2014- WTF!
The home we are looking at has $30K in taxes :o
My concern is I’ll never get the tax deduction for RE taxes and my mortgage interest will continue to be phased out the more we make. This makes it hard to believe we can afford this home. Please let me know your thoughts. I’ll also check out your taxes article.
How on earth is someone making $80k a year supposed to afford mortgage interest AND PROPERTY TAXES on a $2M home?
Even at a modest property tax rate of 1.25%, on a $2 M home that is $25,000/year in property taxes. Add that to $26,000 in interest on a 2.6% mortgage of $1 M, this adds to $51,000/year.
This means our $80,000/year earner has just $29,000/year for everything else, including payroll taxes of about $6,000/year and fed and state income taxes of at least $3000/year or so. This leaves $20,000/year for food, home maintenance, insurance, transportation, utilities, and everything else.
You think someone earning $80k annually should basically buy so much house they live paycheck to paycheck on basically 1/4 of their income. You are nuts!!!!!!!!!!!!!!!!
Thank you for the only sane comment on here! Maybe I am just not the right audience for this guy’s “tips”, since it seems like I need to make 300k+ to even consider his advice!
$250,000 is probably good enough with rates this low.
But if you are confused, just re-read the last part of the title.
Get motivated to earn more, or not. The analysis is based on my experience with multiple income and mortgage permutations.
Loved your article on the $1M mortgage! I am building spec homes on Sanibel Island, which will be worth approximately $1-1.5M when complete. I have a cash backer, whose only worry is not selling it before completed. (Which is NOT going to happen!) But, let’s say it does….
we have super upscale vacation rental programs here, and this home would rent for $5-6,000.00 per week in season and $4-5,000.00 out of season. (A lot of the homes don’t even reduce rents for the summer months, but I’m trying to be conservative). We have about an 85% occupancy rate. So, let’s say he finances $1M, what would a likely monthly payment be with taxes and interest? I am putting together a business plan for him, and he is a “numbers cruncher”, so I want to have as many facts and projections as possible in my presentation to him.
Let’s say the interest rate is 3%, then that’s $30,000 of interest a year or $2,500 a month if interest only. But usually it’s PMI, so you’re probably talking close to $4,000 a month total payment.
Good luck and subscribe to my site to keep in touch and check out more real estate articles here.
There a lot more lending programs for buyers withthe right income and assets for properties over $1 million dollars. Why? Lenders use stats and the stats show that this segment of buyers defaults the least so they are aggressively going after them. 90% financing up to $1.5M and no mortgage insurance are just some of the programs being offered. I know since I work in the industry.
Great website, lots of valuable info but my situation is a little different.
Just married no children annual salary 600k Looking to buy 1st home. Looking at homes that cost 1.4M Property taxes about 35-40k a year! … Can I really afford this? I Have 10% to put down through special loan and still have another 75k. Cash in the bank.
No debt other than student loans 1500 a month everything else paid off.
I’m getting taken by Uncle Sam because I currently don’t have anything to deduct. Will a big mortgage and property taxes even make a difference at 600k?
Any advice would help
Is this to much debt to handle for A 1st home?
600k is a great income. What about buying when you have at least 20% down plus a 10% buffer? I think you’ll feel better and you should be able to save that much soon.
What do you do?
$1.1 million mortgage isn’t a lot with rates below 4% for a mortgage and a 600k income.
Thanks,
Yes it should not take long to save but hate leasing for another 12 months. Would rather do something sooner than later to cut payed taxes if that’s worth anything and I hate throwing money away renting. I have no children and no property so no deductions. It’s painful. I practice medicine… I know very little about finances as most physicians. I also trust noone other than myself with my money and financial planing so that also makes it difficult for us.
Read a few good books (millionaire next door, die broke ect.)that reccomend buying your 2 home 1st!
What best way for someone like myself to pay less in taxes?
Thanks
https://www.financialsamurai.com/how-to-pay-little-to-no-taxes-for-the-rest-of-your-life/
Hi Sam,
I really have enjoyed reading through your website for the past few hours. I wanted to see if you have any thoughts on the following:
I am a 29 year old male that is married and my wife is planning to stay at home so we will just go off of my salary. I make 125K salary a year and earn about 100-125K in commission in my business development role. The past two years, I’ve made about 250K each year.
I have about 150K saved (15K in checking and about 135K in brokerage). Also, I have only 15K in debt (from a car purchase and it’s 2% APR). I paid off about 100K in tuition for my undergrad and graduate education and my wife’s graduate education.
Based on my salary of 125K and the fact that I could make as little as 150K a year (likely 200-275K), do you think it’s silly to look at 700K houses?
Also, I am moving from Chicago to a much less expensive area with low home taxes and zero sales tax. I like to factor that into my decision.
Please let me know if you think 700K right now with a 4.25% 30 year fixed loan is a good decision and/or if you think it would be smarter and safer to hold back and/or to look at 400-600K range.
Thanks in advance!
$700k is in the ballpark for your income. I say go for it.
Read this too: https://www.financialsamurai.com/the-best-time-to-buy-property-is-when-you-can-afford-it/
Hi Sam,
I’ve enjoyed spending the last several hours on your site reading through some of your articles. Very interesting stuff!
I wanted to get your opinion on my situation.
I am 29 years old and married and my wife plans to stay at home once we have kids (which we plan in the next year or two) so I want to base it 100% off of my salary. I have been with the same firm for 7 years and am now in a position where I make $125K salary and about $125K in bonus each year. It is a business development role so technically I could make as little as $150K in a year.
After paying off my undergraduate, my wife’s graduate, and my MBA over the past few years, I have zero debt outside of about 15K left on my car.
My savings are about 150K and I keep roughly 15K in my checking and the other 135K in a pretty stable mix of ETFs in my brokerage account.
I also have about 150K in my 401K. Other than that, I have no real assets and have rented for a while.
I am in a situation where I plan to move from Chicago to an area out East that has much lower taxes (i.e. ~$6K/year for a 700K house instead of about $12K/year for a 700K house in Chicago). Additionally, living expenses for the area are much lower.
Based on my situation above, do you think that I would be smart to put in an offer on a 700K house that we like. We have been looking all around at places and got preapproved for 1M+ but feel like a 400-600K house is more appropriate given our current positioning.
Also, we have been preapproved for 4.25% 30 year fixed piggy-back loan for really any price range that we would realistically look at.
Thanks in advance and I enjoy your site!
Kevin
Sam,
I’ve just now stumbled across your site – great stuff so far. A topic I’d love for you to address is what will happen when the interest rates inevitably go back up to 5-10%. Obviously, if you financed at 2% and love your house, life is great. What about those looking to sell when the converse of what you describe above happens? i.e., when mortgage payments double and no one can qualify for a loan on $1 million+. I’ve spun this scenario out with several people with different views. Love to hear your thoughts.
Thanks,
Scott
Hi Scott,
Is 5-10% interest rates really inevitable? We’ve seen a 35 year decline in the 10year yield. What makes you think we’re suddenly going to shoot up 2-4x?
If rates go up that much, I’ll take it because assets are inflating like crazy.
Sam
Property taxes ruin this strategy for some states like in Texas. However, you can buy that awesome $500k house here.
What are prop tax rates now in TX? At least there is no income tax.
You are right, there is no income tax in Texas. Property tax depends on which school district you live in and it changes a little every year, but 2% is a fair estimate. $20k a year extra in taxes is huge. However, property taxes helped contribute to Texas real estate fairing well during the bubble because residents prefer cheaper appraised homes.
how much should a $1mm mortgage cost? that is, if the gross amount is $1mm, what should you clear? would you have any suggestions on whose fees are the cheapest?
Jeff, it depends on your income, but I’d check Quicken Loans for a free, no obligation quote. Given they don’t have the overhead as the bricks and mortars banks, I’ve found the to offer some of the lowest rates.
I’ve seen 5/1 ARM Jumbo $1 million mortgages go for as low as 2.375% now. 30-year is closer to 3%.
Sam,
No worries; rookie mistake. I know now for future posts.
As far as Prosper………I did some what risky, bullish investments with no real historic data to back it up. Basically, in 2010 I invested huge amounts per loans (up to $15K on some loans) and locked in old prosper rates of 30-35%. I cherry picked loans, conversed with the lenders who were mostly military and if I thought it was a good risk, I’d go for it. Then I started including repeat borrowers and did the same. Luckily for me, MOST of the large loans are current. Now, I automate the investments at $100 a loan or so with some pre set filters that in prosper’s short history have produces a 10-15% ROI. I am trying to be smart about it now and not just got with my gut (which ironically paid off this time) but all it takes is a few of the large ones to go bad and my ROI plummets.
When I filed for taxes this year that $45K which was not net because I took $10K in losses but you know how the IRS does it…I had to report $45K as total income and could only write off $3K. This is how I found your blog…I have been looking for ways to pay less taxes.
Thoughts so far:
1- Open a business and invest into Prosper. This way I can write off all my losses and expenses it takes me to invest.
2- Buy a house. At first I was going to go modest like most Americans with the best intentions but now I have been schooled by your articles and the comment threads and will get the best property location wise I can afford.
3- ROTH IRA…WAS a thought until I got schooled (again) by some of your older articles. The comment thread was excellent and pretty funny at times; the numbers made sense though.
My question would be should my wife and I max out 401K and the TSP (in my case for military)? I never opened one because I have always been drawn to real estate and having my money accessible as opposed to getting them at 55+. Is that the wrong mindset? I rather have real estate and other investments such as P2P. Although P2P now has IRA options, but again….same argument about age.
My income is safe and will only go up with promotions (one coming in a few months). Yes, I will get a 50% of my taxable income or more depending on how many more years after 20 serve. In the field I am in, I can easily make substantially more after I retire (age 37) than I am now but who wants to keep working, right?!
Ok, so your comments make me reflect and think I am worried too much about max’ing my deductions as opposed to getting the best property. Ok, so I am good affording my first property. When calculating for a second property, do you take into account your first mortgage as a monthly expense? I am confused whether I should get the best property under VA loan limits ($0 down) and shortly after purchase a second in Oahu with 20% down from my savings. Not planning to sell but just buy, hold and rent.
When do you start moving on to more properties? When you build equity or are just when you have enough saved to cover mortgages 6-12 months?
Where or what area do you have your property in Oahu at if you don’t mind me asking? In your experience which has been a sounder investment: SFH, condo or multi-family? Do you have a Realtor you recommend? I’ll be in paradise starting end of March this year.
Sorry for the unload of questions. I have learned a lot just in the past two days on your site. Look forward to learning more. I am going to open a Personal Capital account to start tracking my current and future financial moves.
Thanks for any input you wish to provide.
-Jay
Hi Jay,
Sounds like you are doing great. Your questions go beyond the scope of the comments section. If you’d like to work 1X1, feel free to check out this page on my services. But before you decide, definitely spend a good amount of time on the site.
Thanks,
Sam
Sam,
Yea they are some loaded questions! Thank you for your input and opinions so far. I will continue to familiarize myself with your site and look further into your services.
Would you mind sharing what area of Oahu you purchased in? How long have you owned? Any periods of vacancy?
Thanks again for the input and the knowledge you share on your blog.
-Jay