How Much Liquid Net Worth Do I Need to Comfortably Buy a $3 Million Property in Cash?

When it comes to buying a house, numerous considerations come into play. Not only do you have to decide where, what style, how many bathrooms, size of the garage, etc., but you also have to be extra careful about how much you are spending. 

For one Redditor, there is a concern based on a post in r/fatFIRE that they don’t want to be cash poor after buying a multi-million-dollar home. The goal of this individual is to buy a co-op in a very high-cost-of-living environment, but they want to pay cash and prefer not to finance. 

Current Financial Situation 

What we immediately learn from this Redditor is that they are looking to purchase a co-op home in a very high-cost-of-living location. They specify that this high-cost-of-living location is Manhattan, which is one of the most expensive places to live in the country. 

At the moment, they are currently renting with two small kids and have been unable to find something in the suburbs that they are happy with. More importantly, they don’t want to get into bidding wars with other buyers in the suburbs. 

Their current financial situation allows them to earn around $100,000 to $125,000 per month after taxes. This is a combination of the base salaries of both parents, rental income, restricted stock units, and their bonuses.

While the Redditor shies away from indicating their specific net worth, they are trying to understand a liquid situation. More specifically, they are trying to understand what number of other Redditors believe is necessary to purchase a $3 to $4 million piece of property in cash, without severely impacting their lifestyle. 

How Much Do You Need

In their early 40s, there is no question that this family is in a better situation than most Americans. Even the idea of being able to afford approximately $6,100 in maintenance and HOA fees would be more than most Americans make monthly. 

While the Redditor’s wife earns more, he acknowledges that if either of them lost their job, the $6,100 alone would be equivalent to approximately 25% of their take-home salary. Ultimately, if the Redditor examines the comments on this, the 25% number isn’t out of the realm of possibility. 

In other words, the current recommendation is that the Redditor shouldn’t spend more than 20-25% of the family’s current net worth on a home. Not only do they need to set aside money for maintenance and property taxes, but also for any other unexpected expenses that may arise. The hope is that this isn’t the case, and any maintenance is general; however, they should have a financial buffer built in, just in case. Perhaps more concerning is that property taxes in such a high-cost area are more likely to increase than decrease over the next few years, or even the next decade. 

Talk to a Financial Advisor

Knowing that the family is looking to make such a significant purchase and already has considerable wealth, consulting a fiduciary financial advisor isn’t a bad idea. Since the Redditor isn’t providing us with exact numbers to work with, we can only hypothesize about what the best scenario might be. While no more than 25% of their net worth may seem like a solid recommendation, a financial advisor can be more precise. 

Additionally, as both the Redditor and his wife have considerable knowledge in their respective fields, can they do anything else to increase cash flow? How can they better optimize their investments to draw in more income or set aside more for retirement? These are the kind of questions they can work with a financial advisor on, who can set them up on a strong path toward early retirement and financial success.

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