Am I Nuts? [Purchased "forever house," planning addition]

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sgocke
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Am I Nuts? [Purchased "forever house," planning addition]

Post by sgocke »

Did I make a huge mistake? Just bought a home in a very desirable Chicago suburb and location with the intent of putting an addition to the house. This is our 'forever house' We paid $570k for the house. The proposed addition is 150-200k. Our gross income is about 275k. We maximize our 53k/year in retirement accounts. We have a $455k mortgage @4.125% 30yr fixed, plus looking into a home equity lime of credit for any cash needed. Looking at about 3500/month payment. I appreciate all input.
DualIncomeNoDebt
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Re: Am I Nuts?

Post by DualIncomeNoDebt »

Am I Nuts?
Yes.
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ray.james
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Re: Am I Nuts?

Post by ray.james »

What do you intend to do with your house; based on public opinion/sentiment?

Is the mortgage part of the current house or prior one?
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littlebird
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Re: Am I Nuts?

Post by littlebird »

I don't think you're nuts at all, but I would advise living in the house for a while before making any alterations. :sharebeer
livesoft
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Re: Am I Nuts?

Post by livesoft »

Not enough info to tell if you are nuts. Please provide a link to the past 5 years of your tax returns along with the address of the house, so that we can figure this out for you.
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FrugalInvestor
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Re: Am I Nuts?

Post by FrugalInvestor »

For whatever it's worth, my experience suggests that 'forever houses' typically exist only in one's imagination, unless of course we're referring to subterranean dwellings in which case your expenditure is definitely excessive.

Edited for grammar.
Last edited by FrugalInvestor on Thu Jun 26, 2014 6:51 am, edited 1 time in total.
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MrManlyMister
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Re: Am I Nuts?

Post by MrManlyMister »

sgocke wrote:Did I make a huge mistake? Just bought a home in a very desirable Chicago suburb and location with the intent of putting an addition to the house. This is our 'forever house' We paid $570k for the house. The proposed addition is 150-200k. Our gross income is about 275k. We maximize our 53k/year in retirement accounts. We have a $455k mortgage @4.125% 30yr fixed, plus looking into a home equity lime of credit for any cash needed. Looking at about 3500/month payment. I appreciate all input.
How old are you and your significant other?
Can you afford the $3500/mo payment?
Why do you need a home equity line of credit?
Will improving the house this much put it out of character/ out of the price range with the rest of the neighborhood?
How much do you have saved in an emergency fund?
What are your retirement goals?

Most importantly - do you think you are nuts? Are you having buyer's remorse, or is someone questioning your decisions?
Last edited by MrManlyMister on Thu Jun 26, 2014 7:06 am, edited 1 time in total.
The Wizard
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Re: Am I Nuts?

Post by The Wizard »

You'll have property taxes and insurance as well, but you'll get a break on your income taxes via deductions.
So yes, I'd go a full calendar year in the new place first to see how the finances work out before expanding...
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rustymutt
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Re: Am I Nuts?

Post by rustymutt »

You sir are anything but nuts. Nothing in life is more satisfying than owning your own home. If you and your spouse have enough steady income to reach your goals, and still live in this house, then go for it. It's a commitment to this piece of property. Make the home better with each passing year, by doing little maintenance jobs early. Build wealth within the home by keeping it up to date, clean, and well painted inside, and out. Remember that saying: Location, location, location. Have fun.

After looking at new homes ourselves, we're convinced we've got a winner right where we're at. But's it's still for sale, at the right price. Many don't keep up home maintenance, and it's easy for me to spot now.
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Grt2bOutdoors
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Re: Am I Nuts?

Post by Grt2bOutdoors »

I went through a home addition last year, here is my two cents: Wait!! You just bought the house and you are heavily leveraged. Second, take the 150-200 budget and add in another 25 percent to account for work change orders and unforseen alteration issues associated with modifying an existing structure. Unless you have 250k in cash lying around to undertake your project and maintain liquidity, my advice is to wait! If you do march ahead with this project, to answer your question - yes, you are nuts.
Last edited by Grt2bOutdoors on Thu Jun 26, 2014 7:41 am, edited 1 time in total.
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Crimsontide
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Re: Am I Nuts?

Post by Crimsontide »

rustymutt wrote: Nothing in life is more satisfying than owning your own home.
True, but HE doesn't own it. The bank "owns" it, to the tune of a 30 year mortgage...
rkhusky
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Re: Am I Nuts?

Post by rkhusky »

Our neighbor planned to die in her house, so she did an expensive remodel that she would never be able to recoup the cost of, because the house was not worth that much and the remodel was a bit unusual. The market cratered, she lost the house, and moved to another state where the bank couldn't go after her. Moral: don't cast your plans in concrete, foretelling the future is difficult.
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Don Christy
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Re: Am I Nuts?

Post by Don Christy »

Forever house...

A neighbor once told me that "this is our forever house, they'll carry us out of this house." I insensitively pointed out that "that is exactly what happened to the previous owner."

Anyway, unrelated to this conversation, a job change prompted a move 1 year later.

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FrugalInvestor
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Re: Am I Nuts?

Post by FrugalInvestor »

rkhusky wrote:Our neighbor planned to die in her house, so she did an expensive remodel that she would never be able to recoup the cost of, because the house was not worth that much and the remodel was a bit unusual. The market cratered, she lost the house, and moved to another state where the bank couldn't go after her. Moral: don't cast your plans in concrete, foretelling the future is difficult.
And along those lines, always consider resale when purchasing or remodeling a home.
Have a plan, stay the course and simplify. Then ignore the noise!
rustymutt
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Re: Am I Nuts?

Post by rustymutt »

Crimsontide wrote:
rustymutt wrote: Nothing in life is more satisfying than owning your own home.
True, but HE doesn't own it. The bank "owns" it, to the tune of a 30 year mortgage...
Point well made.
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Retread
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Re: Am I Nuts?

Post by Retread »

He's 31 and self employed taken from an earlier post. Yes, a bit nuts also...
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user5027
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Re: Am I Nuts?

Post by user5027 »

In my experience a remodel will require permits and permits trigger real estate tax re-appraisal. Be prepared.
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JamesSFO
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Re: Am I Nuts?

Post by JamesSFO »

sgocke wrote:Did I make a huge mistake? Just bought a home in a very desirable Chicago suburb and location with the intent of putting an addition to the house. This is our 'forever house' We paid $570k for the house. The proposed addition is 150-200k. Our gross income is about 275k. We maximize our 53k/year in retirement accounts. We have a $455k mortgage @4.125% 30yr fixed, plus looking into a home equity li[n]e of credit for any cash needed. Looking at about 3500/month payment. I appreciate all input.
Probably not nuts, but probably worth taking a breather and seeing how the home works for you as does the neighborhood, etc. It looks like you put almost exactly 20% down, so you may have a hard time getting a favorable loan for the remodel and on top of that the remodel will end up costing more and impacting taxes, etc.

Good luck with your new home and enjoy.
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Re: Am I Nuts?

Post by Grt2bOutdoors »

user5027 wrote:In my experience a remodel will require permits and permits trigger real estate tax re-appraisal. Be prepared.
In my experience, a re-model requires one to either live in the home during such construction which I assure you will take a toll on the OP, OP's family or to re-locate somewhere else costing you even more money. Contractors as good as they may be, will not be working at the home from start to finish, they'll be breaks in between for building inspections and the contractor will have other jobs that they'll be juggling besides your own. My addition last year was supposed to take 6 weeks, it took 4 months!! So look very carefully before you leap.
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an_asker
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Re: Am I Nuts?

Post by an_asker »

DualIncomeNoDebt wrote:
Am I Nuts?
Yes.
No.
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Cottons
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Re: Am I Nuts?

Post by Cottons »

As a Chicagoan I'm curious, which suburb did you pick? This will help to determine nutty-ness.
investingdad
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Re: Am I Nuts?

Post by investingdad »

I don't see enough info for me to give advice on the finances, so I won't.

But having just converted half of our basement into a finished game room, I will advise that you live in the house for a few years before doing any work. We built our place in 2010, coming from another home we'd built and sold. By living there for 3.5 years before embarking on the basement remodel, we had a very good understanding of the ebb and flow of the home, what would and wouldn't work for us, how we'd use the new space, how we'd make do with the reduced storage, etc.
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TomatoTomahto
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Re: Am I Nuts?

Post by TomatoTomahto »

FrugalInvestor wrote:
rkhusky wrote:Our neighbor planned to die in her house, so she did an expensive remodel that she would never be able to recoup the cost of, because the house was not worth that much and the remodel was a bit unusual. The market cratered, she lost the house, and moved to another state where the bank couldn't go after her. Moral: don't cast your plans in concrete, foretelling the future is difficult.
And along those lines, always consider resale when purchasing or remodeling a home.
Yes and no. We did 2 major remodels and a major landscaping also. Both were done without consideration of resale; we have lived here nearly 20 years, and we wanted what we wanted.

Most of the sought after hones in this area are McMansions that we call Tony Soprano homes (double high ceilings, foufy kitchens, lawns cut with a nail clipper, etc. Our house is anything but that, however, we only need to find one buyer who likes it. If someone wants to raze it to the ground, fine, our memories are portable and don't require the house to remain standing.

OP, I don't know if you're nuts (I was out that day of med school). However, I would have been nervous buying 3x gross income worth of house. I might be nuts in the other direction. In any case, postpone renovations until you've lived there for at least a year; things you want changed will reveal themselves over time.
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sgocke
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Re: Am I Nuts?

Post by sgocke »

Thank you or the advice. I am not at all worried about the resale value due to the location (Western Springs- great schools, proximity to downtown chicago). Plus our house will be far far below many of the larger and more upscale homes in the neighborhood so it's not like we have the most expensive home on the block- far from it. We do have about 150k set aside for the project. But waiting is not a bad approach either.
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HomerJ
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Re: Am I Nuts?

Post by HomerJ »

sgocke wrote:plus looking into a home equity lime of credit for any cash needed.
This tells me you can't afford it.
We do have about 150k set aside for the project
This tells me you can.

Basically, you didn't give us hardly any data and then asked for our opinion. Without data, I can't really tell if you're nuts.
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Re: Am I Nuts?

Post by abuss368 »

What's done is done. No chance feedback here on the forum can undue it. The time for feedback would have been before making the purchase.

I would enjoy the home.
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Watty
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Re: Am I Nuts?

Post by Watty »

Am I Nuts?
Maybe, but you can likely afford to be a bit nuts on your income.

You are at an income level, within reason, you can pretty much do anything you want, just not everything you might want to do.

You have pretty much used up your splurge quota for the next five+ years so if you keep all your other financial decisions reasonable you should do just fine.
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tc101
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Re: Am I Nuts?

Post by tc101 »

Am I Nuts?
Most people are nuts. Life is short. Don't worry. Be happy.
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Ldevelopment
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Re: Am I Nuts?

Post by Ldevelopment »

Am I Nuts?
Yes. If the home was already renovated then I would say no. But, putting another roughly 200k on top of that is somewhat nuts.
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Re: Am I Nuts?

Post by Jack FFR1846 »

We love our $23,000 well planned for addition and remodel. New kitchen countertop and stove, floor, backsplash and converted a former solar room into a real room extension of the master bed and bath with new floors all around. Our $23,000 addition only cost about $50,000 by the time we were done.
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freddie
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Re: Am I Nuts?

Post by freddie »

A 700-800k is perfectly affordable for a couple making 275k. It is up to them if they would rather spend the money on housing or on things like cars, clothes, or early retirement. Obviously you can inflate you lifestyle to the point where nothing is affordable. If you make 1 million/yr and spend 700k, you can't afford to upgrade from your 300k house to a 500k one as you are spending about as much as you take home (heck your probably spending more than you take home). Change your spending to 100k/yr and you can look at buying a 6 million dollar house (not really sane but with 400k+ cash to spend you could in theory carry a huge mortgage.).
Ldevelopment wrote:
Am I Nuts?
Yes. If the home was already renovated then I would say no. But, putting another roughly 200k on top of that is somewhat nuts.
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Meg77
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Re: Am I Nuts?

Post by Meg77 »

I don't think you're nuts, especially if you have the money set aside for the project and can continue maxing out retirement accounts as well.
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Re: Am I Nuts?

Post by user5027 »

Jack FFR1846 wrote: Our $23,000 addition only cost about $50,000 by the time we were done.
You're lucky. For laughs watch The Money Pit (1986). :twisted:
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Re: Am I Nuts?

Post by island »

Are you nuts? Which part are asking about, buying the home or the addition?
Only think I think would be nuts is to do the addition right away. I'd live in it a while before doing that.

"Forever house"? Yeah I don't know how anyone can predict that. I never thought of our home as our forever home, but we're in it since 1988 so forever enough! For years thought I'd want something bigger than our 2500sqft one with a bigger yard and now just the opposite would be Ok with me.

Regarding your addition. Yeah that's a big number, but considering I just got the same quote (repeatedly) for remodeling our small kitchen, small downstairs bath, our master bath and new flooring and painting throughout the interior without moving any walls or adding on, yours sounds like a bargain! I haven't pulled the trigger on that yet, but would love to know where people live that they can get an addition for 25-50K?
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Re: Am I Nuts? [Purchased "forever house," planning addition

Post by davebo »

sgocke wrote:Did I make a huge mistake? Just bought a home in a very desirable Chicago suburb and location with the intent of putting an addition to the house. This is our 'forever house' We paid $570k for the house. The proposed addition is 150-200k. Our gross income is about 275k. We maximize our 53k/year in retirement accounts. We have a $455k mortgage @4.125% 30yr fixed, plus looking into a home equity lime of credit for any cash needed. Looking at about 3500/month payment. I appreciate all input.
I used to live in Western Springs so I’m very familiar with the area. I’d definitely hold off on the addition and (not sure if you have kids) and wait to see how things play out over the next couple years. While Western Springs can certainly support the higher price points, I’d be a little reluctant to dump $200K into a house for fear of how much my taxes would jump and how it would compare to other $800K houses on the market. I think that you’d be looking at a minimum of $14K for taxes and maybe as high as $16K.

Personally, I would've upped my budget a bit and see what you can get in the $650-$750K range and save yourself the headache of a remodel. And actually, I’d probably go a little further and look on the outskirts to see if you can do a teardown. I know people are very high on Western Springs because it has the name value, but there is a definite premium attached to living in the town. Parts of Western Springs feed into the Highlands school system and those houses are considerably more expensive than living in Lagrange Highlands itself (same exact school system). The upside of Lagrange Highlands is that it is unincorporated (low taxes), the houses are no-brainer knock downs @ $150-$200K, and they sit on very large lots. Personally I think it’s a bit of a better long-term play there since there is already major teardown activity happening as Western Springs and Lagrange is pretty limited.

But that’s kinda personal preference too. Highlands is sleepier and, depending on where you are in Western Springs, there might be more going on. But given your situation, I’d stay put. You might think it’s your forever house, but I think people settle into that house when they are in their mid 30’s
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