Ramit Sethi breaks down why buying a $900K house on a $100K salary is a mistake. He explains the income-to-price multiplier (historically 2.5x, now 3-5x) and warns against following friends into homes you can't afford. Run the numbers first.
making around, I think, $100,000 to $110,000. Why the hell would you buy a $900,000 house if you're only making $100,000? Again, need to run the numbers. Back in the day, people were buying houses 2.5 times their annual income. Okay, I know things are quite different now. 3 times, 4 times, people are doing 5 times. But just because they're doing it doesn't mean it's right. You need to be thoughtful for yourself, not just what your dumb friends are doing. Remember what your mom and dad used to say? Would you jump off a bridge if your friends did it? And yet we do the same exact thing as adults. Actually, you know what? That's what you need to tell your parents when they tell you, "Why aren't you buying a house?" You go, "Mom, would you jump off a bridge just because everyone else did?" And then she's like, "What?" And you go, "That's what you used to tell me. But right now, a lot of people are just doing this. And I think a lot of people are buying a house because everybody else is doing it." And then she's going to get extremely mad at you. And then you go, "Gotcha." And then you realize you probably should not use these techniques with your mom and dad. It's not nice. I use them with internet trolls, but don't use them with your parents.
