A five million dollar house is big bucks in every single city in America. Once you cross the $5 million mark, it is classified in the luxury territory, even for cities such as San Francisco and New York. Therefore, I thought it would be fun to calculate the minimum income necessary to own a five million dollar house.
When it comes to buying a home, a good rule of thumb is to spend no more than 3X your gross income on the price of a home house. It is part of my 30/30/3 rule for home buying to help people buy responsibly.
In other words, if you want to buy a five million dollar house, then you should earn about $1.67 million a year. In addition, you should have at least a $1,000,000 down payment and ideally another $500,000 buffer in the form of cash or liquid securities. The buffer is just in case you lose your job or something bad happens to your house.
Does needing a $1.67 million income to buy a $5 million home sound like too high a hurdle? After all, once you make over $1 million a year, you have a lot more disposable income. Just know that in the past, people would buy their homes with all cash. So the minimum income to buy a $5 million home also depends on your net worth and cash balance.
I understand very few people can afford to buy a $5 million home. But it’s always fun to dream as home prices get higher and higher over time. Further, it’s always good to plan ahead. For those of you who currently own a $1-$3 million dollar home, $5 million may be the next step if so desired.