I think these are fairly reasonable assumptions on the sort of home you could buy in Boston / Cambridge / Somerville / Brookline:

* Home value: $600,000

* Downpayment: 20%

* Mortgage interest rate: 4.5%

* Mortgage term: 30-year, fixed-rate

(For the home price, see, e.g., the Census Bureau’s Cambridge QuickFacts. Boston’s median home price is lower, apparently. Somerville’s is higher than Boston’s but lower than Cambridge’s.)

Then the mortgage you take out will be $480,000, and the monthly payment will be $2,432.09. Add in property taxes, a low estimate of monthly repair costs, and an estimate of the water bill. Subtract the mortgage-interest deduction. What I end up with, in Somerville, is a total monthly out-of-pocket expense of about $2,800.

The standard guideline seems to say that you should spend 30% or less of your income on housing. So to afford $2,800 a month, you need to earn $9,300 or more every month, or about $112,000 per year. Only about 5% of all Somerville tax returns claimed adjusted gross income of more than $100,000 in 2008. (Check ZIP codes 02143, 02144, and 02145 in that spreadsheet.) Now, granted, if you and your spouse both file separate returns, and you each earn $100,000, you really should count — for the purposes of this exercise — as a household earning $200,000; that’s certainly the unit that would be buying the home together. In 2010 about 95.5% of all married-couple tax returns were filed jointly, so it may be reasonable to assume that the tax statistics aren’t hiding much income across multiple tax returns.

So is that it? Do you have to be in the top 5% of incomes to even afford a home around here?

__P.S.__: The illustrious mrz, in comments, mentions the other part of the math that I worked out: homes around here are much more affordable, on a month-by-month basis, if you buy a multi-family building and rent it out. Figuring that your standard 1,200-square-foot unit rents for a couple thousand dollars per month, a triple-decker gains you $4,000 in rent every month. You lose some of that in income taxes; assuming you’re in the 28% bracket, for instance, that’s $1,120 in income taxes every month. But then, a multi-family home usually costs more than a single-family home, which means a few things:

1. Larger downpayment. I assume that around here the price of admission for a triple-decker is about $800,000. Again assuming you put down 20%, that’s a $160,000 downpayment.

2. Since the home is worth more, you pay more in property taxes. In Somerville, for instance, a home assessed at $800,000 would cost $427.47 every month. (I haven’t looked into whether the two units that you’re not living in are eligible for the residential exemption, so don’t quote me on this. The actual property-tax amount may well be higher than $427.47/month, because you may not be eligible for the exemption.)

3. Those property taxes are deductible on your Federal income taxes.

4. Since the home is worth more, your mortgage payment is larger, and in particular your monthly interest payment is larger, which means that you can deduct more interest every month on your Federal income taxes.

All told, I work out that the net out-of-pocket monthly expense for an $800,000 triple-decker is about $1000. Which is a whole lot less than the $2,800 you’d spend every month on a single-family home. But of course a multi-family means you’re a landlord, with all the badness that that implies.

I though triple decker ownership was cheaper/month.

Though how does this compare to a similarly kitted 2br condo?

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Good point, mrz. I’ve edited the post.

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“30% or less of your income” is a rule for moderate incomes. The more income you have, the greater percent of that you can spend on your house, assuming you continue to otherwise live as frugally as if you had a moderate income.

Doing some simple math here, if you make $100k/yr, pay $2800/mo net in housing, and pay net -25% in taxes/SS (would be much lower if married), you’re left with $3450/mo for other living expenses.

That’s a lot, and I’m not even using your $112k figure.

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