Too much house???

jrhelp · Post by **jrhelp** » Sun Jul 17, 2016 6:57 am

Ok, this is a question for a friend

Background: 41 yr old female with 6m in investments split 60/40 stocks to bonds. Her yearly income is 250k between job and dividends. She spends about 150k/yr.

She has fallen in love with a house that is 1.5m. She is wondering if it would be a mistake to spend that much on a house. Her thought is that her income will drop to about 220k in the loss in dividends and her expenses will go up with home maintenance.

She asked me, is she being too conservative? Would you feel comfortable buying a 1.5m house in her shoes? And if not, how expensive of a how would you feel comfortable buying?

Thanks in advance for any and all opinions

jhwkr542 · Post by **jhwkr542** » Sun Jul 17, 2016 7:03 am

It depends on what her down payment would be, but I wouldn't feel comfortable spending that much. I like the rule of not having your mortgage more than 2x your salary. This would be 4-5x depending on down payment. Falling in love with a house leads to bad financial decisions. There are other fish in the sea.

TomatoTomahto · Post by **TomatoTomahto** » Sun Jul 17, 2016 7:12 am

Background: 41 yr old female with 4.5m in investments split 60/40 stocks to bonds. Her yearly income is 220k between job and dividends. She spends about 150k/yr. Would you feel comfortable moving into a 1.5m house in her shoes?

Unless property taxes are unreasonable, go for it.

Jack FFR1846 · Post by **Jack FFR1846** » Sun Jul 17, 2016 7:36 am

With $6MM in investments, she could buy the house with cash and still have enough to immediately retire. Seems like the easiest question to answer I've seen on BH ever.

ks289 · Post by **ks289** » Sun Jul 17, 2016 8:06 am

Jack FFR1846 wrote:With $6MM in investments, she could buy the house with cash and still have enough to immediately retire. Seems like the easiest question to answer I've seen on BH ever.

If you pay cash leaving $4.5M in investments you will probably not want to retire immediately.
Expenses were previously $150,000 annually and would rise according to OP (maybe not the case of paying in full with cash, although unclear if these assets are retirement accounts or if taxable whether capital gains would be an issue). Retiring at such a young age with ?25-30x expenses may be too aggressive.
She may wish to buy (which her assets allow her to afford) and work until she has accumulated close to 40x expenses if she is going to retire in her 40s.

SQRT · Post by **SQRT** » Sun Jul 17, 2016 8:07 am

I've been retired for 10 years and my personal use real estate represents about 20% of my total net worth. Looks like you friend will be in the same ball park as I am, but still be earning a salary. If she really wants it, go for it. Money' can only be spent or given away for someone else to spend.

fsrph · Post by **fsrph** » Sun Jul 17, 2016 8:18 am

With a few assumptions, like is her income secure and is she going to continue to work for awhile, I think she could easily afford the house. One question is in her current expenses of 150k how much of that is current housing costs? If she owns a house or is renting that is money to put in the new house.

Francis

Frisco Kid · Post by **Frisco Kid** » Sun Jul 17, 2016 8:31 am

Where is this home located? In many parts of the country housing costing 2x income is not realistic. In many HCOL areas, few of us have 4 times our house value in investments.

Mrxyz · Post by **Mrxyz** » Sun Jul 17, 2016 8:32 am

So quite confused here;
I am probably assuming too much and I am just dead wrong but..............

Too much house ? or should it be "Too much money?"
Can someone explain to me how can one reach age 41 with 6 M investments and 250k income not able to answer such a question and need a forum's help?
How do you define humble-brag?

My apologies for any hurt feelings.

technovelist · Post by **technovelist** » Sun Jul 17, 2016 9:05 am

I wouldn't do it, but it seems unlikely that it will ruin her if she does do it.

However, she should be very careful to be properly insured. If she is in California or another earthquake/flood hazard zone and she doesn't have the correct home insurance, then she is going to be risking far too much money.

cherijoh · Post by **cherijoh** » Sun Jul 17, 2016 9:23 am

jrhelp wrote: Background: 41 yr old female with 6m in investments split 60/40 stocks to bonds. Her yearly income is 250k between job and dividends. She spends about 150k/yr.

There is not enough information to say.

How much of that is in taxable accounts vs. tax-advantaged? It makes a big difference how the money she would spend is currently allocated and whether she is looking at buying it outright or taking on a mortgage. (The rest of your post makes me think it would be a cash sale). If she has some money on the sidelines in cash that was intended to buy a less expensive house, that is cheap source of cash and 100% of it could be turned into home equity. If the money is invested in a taxable investment account, she needs to consider the added taxes on any capital gains, so she needs to know how much as-yet-unrealized capital gains would be realized. Depending on the amount of income that gets added to her AGI, she could be subject to a number of phase-outs and surcharges - not to mention a higher marginal tax bracket. If she gets pushed into the top tax bracket, then the capital gains tax rate is 20% not 15%. And that's just federal tax - many states don't have a favorable capital gains tax rate and tax capital gains at the taxpayer's marginal tax bracket. Is she subject to state income taxes and what is the top marginal rate?

FYI - if she would need to take money out of tax-advantaged accounts then I would say "NO WAY", since she would be paying taxes at the top marginal tax bracket and a 10% early withdrawal penalty to boot. I also wouldn't be comfortable if the transaction wiped out (or almost wiped out) my non-tax-advantaged accounts.

All in all, she might have to liquidate a lot more assets to get enough cash to buy the house and cover the additional taxes. This needs to be factored into the calculations. I would strongly recommend that your friend run some simulated tax returns before making a decision - either in tax software she used for her 2015 return or using TaxCaster.

jrhelp wrote: She has fallen in love with a house that is 1.5m. She is wondering if it would be a mistake to spend that much on a house. Her thought is that her income will drop to about 220k in the loss in dividends and her expenses will go up with home maintenance.

Does she have any equity in a current house that when sold could be rolled into this new house? If so, how much? It makes a big difference if she currently has $100K vs. $500K equity in her current home.

She should expect to see a net increase in property taxes, insurance, utilities (assuming the house is larger than her current one) and home maintenance. All that needs to be factored into the new monthly expenses. So she should estimate the amount before she buys. Has she considered how much she would need to spend in decorating, furniture, landscaping, etc.?

What is her goal relative to retiring? With her current investment portfolio and expenses, she could afford to retire now. I disagree with
Jack that this is a no brainer and that she could buy the house AND retire now. We don't have enough information to make that determination.

Jack FFR1846 wrote:With $6MM in investments, she could buy the house with cash and still have enough to immediately retire. Seems like the easiest question to answer I've seen on BH ever.

cherijoh · Post by **cherijoh** » Sun Jul 17, 2016 9:30 am

Mrxyz wrote:So quite confused here;
I am probably assuming too much and I am just dead wrong but..............

Too much house ? or should it be "Too much money?"
Can someone explain to me how can one reach age 41 with 6 M investments and 250k income not able to answer such a question and need a forum's help?
How do you define humble-brag?

My apologies for any hurt feelings.

One potential answer to your question is "Inheritance". If that is the case, OP's friend might want to review this article in the wiki.

jrhelp · Post by **jrhelp** » Sun Jul 17, 2016 10:16 am

Some more background information. It's all in taxable accounts but she has that much basis due to the fact that it was from a recent inheritance. She wants to retire at 50, 9 years from now, and her income is very secure at 250k, 130k salary and 120k dividends, until then. After that she will be living off just dividends, which she estimates at about 100-120k, and whatever she needs to sell to support a 150k lifestyle in today's dollars.

She has 250k in home equity so she'll be out of pocket 1.25MM. She's paying cash for whatever she buys.

She's sitting here and really appreciates all the insights and perspectives so far. It's very helpful. Her current question is if not the 1.5MM house, WHAT PRICE would you feel comfortable with in her shoes

Thanks again for your time and thoughts, it's very helpful

jhwkr542 · Post by **jhwkr542** » Sun Jul 17, 2016 10:27 am

I guess I was assuming that 6M was in tax advantaged. I say go for it if it's sitting in a taxable. Use the money on stuff you want. If it's a 1.5M house, sure. They can afford it.

tim1999 · Post by **tim1999** » Sun Jul 17, 2016 11:20 am

If I were her I'd hold off on this if I wanted to retire at 50 and maintain that level of spending.

goingup · Post by **goingup** » Sun Jul 17, 2016 12:13 pm

Of course she can afford it. This is kind of a silly question. She could afford to pay cash, or put enough down to have a very small mortgage.

I'm a left coaster, and a 1.5M house is not extraordinary. What is pretty great is having a 6M portfolio at 41, and a well-paying job. I'd encourage her to buy a home she loves!

Toons · Post by **Toons** » Sun Jul 17, 2016 12:15 pm

How many rooms need to be cleaned?
Less Is More.

Miguelito · Post by **Miguelito** » Sun Jul 17, 2016 12:20 pm

jhwkr542 wrote: I like the rule of not having your mortgage more than 2x your salary.

Wow, that is extreme. I mean, I can see that if one is super conservative, single and/or fluctuating income, etc. But in HCOL areas that would get you nothing even with a decent income of $150-200k.

I think most of the time 3:1 would be conservative enough.

Anyhow, too many variables to factor in, but at face value, why not? Heck she could pay it in cash - assuming at least 50% of the money is in taxable accounts. I would take a loan up to the maximum conforming limit (~430k?), and pay the rest in cash. She would still have the better part of 5M in savings/investments and the 200k+ income should handle such a loan with no problems. If anything gets funny, she can just pay it off.

Now, is it a brilliant move? I dunno, tough to tell, but there is nothing crazy about the idea.

EXH · Post by **EXH** » Sun Jul 17, 2016 12:42 pm

Why is there any question here? I'd jump on it in a heartbeat if I had 6m and a 1.5m house I loved (at least in my ridiculously expensive part of the world), with a good salary to boot. If she wanted to retire tomorrow maybe it wouldn't be the most prudent idea, but it sounds like she plans to keep working/saving for a little while yet. Most people I know are buying 1m homes with 0-500k net worth.

KlangFool · Post by **KlangFool** » Sun Jul 17, 2016 12:53 pm

OP,

1) She can afford the house.

<< She wants to retire at 50, 9 years from now, and her income is very secure at 250k, 130k salary and 120k dividends, >>

2) But, why would she do this? She could retire at least a few years earlier if she does not buy the house. Life is too short! When a person have ENOUGH money, time is more precious than anything else. She is young and healthy enough to do a lot of stuff. Save the money from buying the house. Work less. Retire early. Do more stuff that she likes.

3) My oldest brother passed full physical health exam with excellent result. A few weeks later, he fainted in the bath room and rushed to emergency room. They found a brain tumor inside his head. He died a few months later. We just do not know how much time that we had left.

KlangFool

delamer · Post by **delamer** » Sun Jul 17, 2016 1:15 pm

jrhelp wrote:Some more background information. It's all in taxable accounts but she has that much basis due to the fact that it was from a recent inheritance. She wants to retire at 50, 9 years from now, and her income is very secure at 250k, 130k salary and 120k dividends, until then. After that she will be living off just dividends, which she estimates at about 100-120k, and whatever she needs to sell to support a 150k lifestyle in today's dollars.

She has 250k in home equity so she'll be out of pocket 1.25MM. She's paying cash for whatever she buys.

She's sitting here and really appreciates all the insights and perspectives so far. It's very helpful. Her current question is if not the 1.5MM house, WHAT PRICE would you feel comfortable with in her shoes

Thanks again for your time and thoughts, it's very helpful

My only concern would be to make sure she has a really good handle on the carrying costs of the house -- property taxes, utilities, HOA fees, and the inevitable repairs -- so she doesn't end up with a monthly "house bill" that cramps her ability to retire at 50 and/or continue her current lifestyle. Although that sounds unlikely given her level of assets.

edge · Post by **edge** » Sun Jul 17, 2016 1:26 pm

If this is in a LCOL and 1.5MM house represents a high maintenance sprawling property then this is probably a bad idea.

If it is a really nice townhouse in an ultra HCOL then taking care of it may be easier. It is not necessarily something I would do but it's probably do-able.

Be careful of taxes. In VA taxes are low and that house might be 20k/yr in taxes maximum. In NY taxes could be 40k/yr. just the house price isn't enough to answer the question.

edge · Post by **edge** » Sun Jul 17, 2016 1:34 pm

Only the wealthy would have homes if your rule was followed or people would have very little homes. In some ways they would be ok but it would seriously change the landscape.

jhwkr542 wrote:It depends on what her down payment would be, but I wouldn't feel comfortable spending that much. I like the rule of not having your mortgage more than 2x your salary. This would be 4-5x depending on down payment. Falling in love with a house leads to bad financial decisions. There are other fish in the sea.

Mrxyz · Post by **Mrxyz** » Sun Jul 17, 2016 1:57 pm

jrhelp wrote:Some more background information. It's all in taxable accounts but she has that much basis due to the fact that it was from a recent inheritance. She wants to retire at 50, 9 years from now, and her income is very secure at 250k, 130k salary and 120k dividends, until then. After that she will be living off just dividends, which she estimates at about 100-120k, and whatever she needs to sell to support a 150k lifestyle in today's dollars.

She has 250k in home equity so she'll be out of pocket 1.25MM. She's paying cash for whatever she buys.

She's sitting here and really appreciates all the insights and perspectives so far. It's very helpful. Her current question is if not the 1.5MM house, WHAT PRICE would you feel comfortable with in her shoes

Thanks again for your time and thoughts, it's very helpful

Okay, that makes more sense.
Price - 1.5 M is affordable if she wants to spend 150k/year with her 4.5 M remaining portfolio, having paid house in full. Using http://www.firecalc.com, there is zero chances of failure over 30 years. And this is ignoring her 250k salary or any SS monies.

Does this help?

Shallowpockets · Post by **Shallowpockets** » Sun Jul 17, 2016 2:37 pm

Too much house?
That was the question. It is not too much house for her income and savings, but surely too much house for one person? No family was mentioned so I am assuming she is single.
Where does she live now? It appears that she fell "in love" with this particular house. In a big way this an emotional dilemma supported by her excellent financial situation. A rarified problem for the other 98%.
I say, she can afford it and then some as noted by others. She should buy it and see if the dream house holds its own through the years. She can always sell it.
Is the OP going to direct her to read this thread or just paraphrase or filter the replies posted here?

Lynette · Post by **Lynette** » Sun Jul 17, 2016 2:41 pm

.....

Toons · Post by **Toons** » Sun Jul 17, 2016 2:53 pm

Lynette wrote:
Toons wrote:How many rooms need to be cleaned?
Less Is More.

I agree entirely with Toons. She can afford probably afford to buy the 1.5 million house but we don't know the maintenance cost as we don't know the size of the house. I have a small, older house in a neighborhood where my type of house is being torn down and replaced by mansions. I have a whole fleet of contractors and a cleaning lady to help me. It costs more to replace a roof on a large house, more to maintain the yard, remove snow - if applicable, put down fertilizer, mow the lawn, trim the branches/trees. I'm replacing fences that need repair etc. etc. If it is in a LCOL and she has a large extended family that visits and she wants to entertain, that is another issue. But if she wants a quieter life, .. why burden herself with a large sprawling house - unless she is a gardener. We don't have enough information.

+1
As the clock ticks,
who needs More to take care of

absolutFinance · Post by **absolutFinance** » Sun Jul 17, 2016 3:23 pm

i see no issue. we will be into a 2M home with 50% less NW than OP's friend. we are also younger (mid 30's) with retirement further out and live in a very HCOL area.

retirement being further out gives assets more time to grow before we consider drawing down.

OP's 150k/yr living expenses includes a current mortgage or no?

KlangFool · Post by **KlangFool** » Sun Jul 17, 2016 4:09 pm

https://www.bogleheads.org/wiki/Managing_a_windfall

OP,

Suggest your friend read above before making a huge house purchase.

KlangFool

Billionaire · Post by **Billionaire** » Sun Jul 17, 2016 7:42 pm

Here and now, on my bended knee, I would like to propose marriage to your friend. I will clean, cook, balance the checkbook and perform any other tasks she requests. Please inform her of my proposal.

Pharmacist · Post by **Pharmacist** » Sun Jul 17, 2016 10:51 pm

How is her income that low with 4.5m invested? At 4% (which is conservative) she should be pulling in $180,000 which means that her paycheck is only $70,000? How did she end up with $4.5m if she is spending 150k a year and only making 70k at work?

With her age and net worth I see no problem with it but when I see her income and yearly spending I'm a bit more hesitant.

whodidntante · Post by **whodidntante** » Sun Jul 17, 2016 10:59 pm

I don't count on appreciation in housing, even in currently hot markets. You can count on paying tax, insurance, upkeep, and possibly interest. When it comes to building wealth, keep housing costs low.

sdsailing · Post by **sdsailing** » Sun Jul 17, 2016 10:59 pm

Toons wrote:How many rooms need to be cleaned?
Less Is More.

About three if it's in the bay area

Watty · Post by **Watty** » Sun Jul 17, 2016 11:10 pm

goingup wrote:Of course she can afford it. This is kind of a silly question. She could afford to pay cash, or put enough down to have a very small mortgage.

I think the key is to go ahead and pay cash for it. If she is not willing to pay cash for it then that is a red flag that she could be getting in over her head because of the ongoing costs.

Between property tax, insurance, HOA fees, landscaping, redecorating, etc that could be $40K a year or more especially if it is a large place or has acreage.

That is pretty significant but that is in after tax dollars so if she is in a high tax bracket and has high state taxes then she could need $70K a year in income to have $40K in after tax income to pay the bills.

ralph124cf · Post by **ralph124cf** » Mon Jul 18, 2016 2:21 am

This all depends on the location. $1.5M buys a two bedroom ranch on 1/6 acre in LA or SF, or a two bedroom condo in YNC. It buys a six bedroom mansion on several acres in Colorado or Northern Illinois. The maintenance, taxes, and utilities are much lower for the smaller house in the VHCOL areas. To give a helpful answer answer requires more information.

Ralph

jrhelp · Post by **jrhelp** » Mon Jul 18, 2016 4:58 am

Thanks for all of your opinions and insightful things to think about when buying a more expensive house. She's reading this thread and it's helping her contemplate what she wants to do.

More background to provide on her if anyone else has any comments. The house is in a medium COL area. It's 4000 sf which is more than she needs as she's just one person but she wants a quality house with charm and solid construction. She also wants the perfect location for her lifestyle. There are houses in the 1MM-1.3MM range that fit this category too, so she's starting to think she might be reaching buying a 1.5MM house. She would keep her asset allocation the same 60/40 and pay cash. She wants to keep working until she's 50 so her income of 250k, salary plus current dividends, will be steady other than a slight reduction in dividend income for the next 9 years. She is creative and enjoys her work.

Thanks for all the perspectives

KlangFool · Post by **KlangFool** » Mon Jul 18, 2016 8:21 am

jrhelp wrote:Thanks for all of your opinions and insightful things to think about when buying a more expensive house. She's reading this thread and it's helping her contemplate what she wants to do.

More background to provide on her if anyone else has any comments. The house is in a medium COL area. It's 4000 sf which is more than she needs as she's just one person but she wants a quality house with charm and solid construction. She also wants the perfect location for her lifestyle. There are houses in the 1MM-1.3MM range that fit this category too, so she's starting to think she might be reaching buying a 1.5MM house. She would keep her asset allocation the same 60/40 and pay cash. She wants to keep working until she's 50 so her income of 250k, salary plus current dividends, will be steady other than a slight reduction in dividend income for the next 9 years. She is creative and enjoys her work.

Thanks for all the perspectives

jrhelp,

<< She wants to keep working until she's 50 so her income of 250k, salary plus current dividends, will be steady other than a slight reduction in dividend income for the next 9 years. She is creative and enjoys her work.>>

1) How long had she received the inheritance? Is it long enough that she know she would not change her mind in 6 months. Please note that with 6 millions, she has a lot of options that was not possible before. Has she explored those options fully?

2) She was living with her 130K of salary. Now, she has annual dividend of 120K. Effectively, she is Financially Independent now if she does not increase her lifestyle expenditure.

3) Please note that at high income / high expense level, she is paying a lot of taxes. So, at 130K salary + 120K dividend = 250K, she does not get to spend all those money.

KlangFool

Watty · Post by **Watty** » Mon Jul 18, 2016 9:21 am

jrhelp wrote:The house is in a medium COL area. It's 4000 sf which is more than she needs as she's just one person but she wants a quality house with charm and solid construction. She also wants the perfect location for her lifestyle.

4000 sf is way to big for one person and I doubt that she will ever feel cozy(for lack of a better word) there. I would keep looking to find a house she likes that is half that size. If she can't find one then she can have one built exactly like she wants for a lot less.

When people have kids that grow up and move away they often will downsize to a smaller house largely because the house is no longer "cozy" and they feel like they are rattling around in it.

I knew a single woman that ended up in large house after a divorce(long story) and she choose not to move. The house had a full basement that she almost never went into because the laundry was upstairs. One time she went into the basement only to find that there had been a water leak that had been going on for six months or more. Fortunately it was an unfinished basement and she did not have much stored down there but it was a mess. If she does buy that house then she should do a monthly walk through of it, inside and out, looking for small problems before they become big problems.

Bigger is not better.

stoptothink · Post by **stoptothink** » Mon Jul 18, 2016 9:41 am

Anybody who says she can't afford it is off their rocker. She can buy it in cash, never work another day in her life, and maintain a higher standard of living than 99% of the people on this planet. But 4000 sq. ft. for a single person? That's sounds more like a nightmare than a dream home. She'll have plenty to do during her early retirement - cleaning and maintenance on a really big house.

lthenderson · Post by **lthenderson** » Mon Jul 18, 2016 9:43 am

From my perspective where I live, it would be nuts because you would never be able to sell the thing or it would significantly extend your timeline for moving if you have to sell your house first. We have houses priced around $400k that have been on the market for a decade and haven't sold. I always look at what houses are selling in the area I'm trying to buy a house not only to make sure I get a good deal but also to figure out if I can unload the thing in the future should I need too without taking a bloodbath. If other houses in the neighborhood are selling in the $1.5million range and on a decent timeline so if you need to move quickly you can, then there should be nothing stopping you.

Raymond · Post by **Raymond** » Mon Jul 18, 2016 9:53 am

As mentioned, certainly she can afford the big house, but would she want to?

Are there other things she wants to do (now and in retirement) that involve travel?

If so, why own a big house if she's gone a lot, especially with the accompanying expenses?

As above, why not buy a smaller, well-built house, or even rent a townhouse?

---

I hope she hasn't told all her friends, coworkers, etc. that she has come into money.

Otherwise, all sorts of long-lost relatives and brand-new "friends" will pop up to help her spend it, borrow it, or steal it

furnace · Post by **furnace** » Mon Jul 18, 2016 9:57 am

lthenderson wrote:From my perspective where I live, it would be nuts because you would never be able to sell the thing or it would significantly extend your timeline for moving if you have to sell your house first. We have houses priced around $400k that have been on the market for a decade and haven't sold. I always look at what houses are selling in the area I'm trying to buy a house not only to make sure I get a good deal but also to figure out if I can unload the thing in the future should I need too without taking a bloodbath. If other houses in the neighborhood are selling in the $1.5million range and on a decent timeline so if you need to move quickly you can, then there should be nothing stopping you.

It's hard to hold back when someone has just hit a jackpot - in this case an inheritance. Today it's $1.5m house. Tomorrow is a trip around the world in a private yacht. Even if the person can "afford it," they would be prudent to pretend the new money "isn't there" for some time, to allow the euphoria to pass.

KyleAAA · Post by **KyleAAA** » Mon Jul 18, 2016 10:02 am

Your friend can EASILY afford this house. A 3% withdrawal rate for $4.5 million would be $135k and that doesn't even take into account income from her job. I'd probably put at least 50% down in her shoes and finance the rest with cheap debt. Since your friend intends to work (and presumably continue saving money) for the next 9 or 10 years, it's entirely possible she could have over $7-8 million by the time she retires so long as the markets don't tank.

fourkids · Post by **fourkids** » Mon Jul 18, 2016 10:55 am

Bigger house means bigger problems.
-My house is about that size and I feel like it's too big, even though there are 6 of us in it. I can't wait until my kids go to college, so I can downsize into a nice 2000sf home.
- Also, contractors like to attach the "big house" premium. Seriously, they come out for an estimate and price quote double what something should cost. I know because I used to live in a nice 3000sf house in town a couple years ago. It's annoying.

So, she can afford it obviously, but ask her why she really wants a huge house? Has she ever lived in a place so big?
Big houses complicate your life.

SRenaeP · Post by **SRenaeP** » Mon Jul 18, 2016 12:32 pm

Watty wrote:
jrhelp wrote:The house is in a medium COL area. It's 4000 sf which is more than she needs as she's just one person but she wants a quality house with charm and solid construction. She also wants the perfect location for her lifestyle.
4000 sf is way to big for one person and I doubt that she will ever feel cozy(for lack of a better word) there. I would keep looking to find a house she likes that is half that size. If she can't find one then she can have one built exactly like she wants for a lot less.

When people have kids that grow up and move away they often will downsize to a smaller house largely because the house is no longer "cozy" and they feel like they are rattling around in it.

I knew a single woman that ended up in large house after a divorce(long story) and she choose not to move. The house had a full basement that she almost never went into because the laundry was upstairs. One time she went into the basement only to find that there had been a water leak that had been going on for six months or more. Fortunately it was an unfinished basement and she did not have much stored down there but it was a mess. If she does buy that house then she should do a monthly walk through of it, inside and out, looking for small problems before they become big problems.

Bigger is not better.

+1

We're DINKs who bought a similar sized house for largely the same reason. We also factored in hosting extended family, as another poster mentioned. However, several years in, I realized our folly and have been wanting to move. That much house (financially and physically) is too much. In hindsight, it would be cheaper and easier to pay for family to stay at a hotel when they visit.

-Steph

cherijoh · Post by **cherijoh** » Mon Jul 18, 2016 12:59 pm

jrhelp wrote:Thanks for all of your opinions and insightful things to think about when buying a more expensive house. She's reading this thread and it's helping her contemplate what she wants to do.

More background to provide on her if anyone else has any comments. The house is in a medium COL area. It's 4000 sf which is more than she needs as she's just one person but she wants a quality house with charm and solid construction. She also wants the perfect location for her lifestyle. There are houses in the 1MM-1.3MM range that fit this category too, so she's starting to think she might be reaching buying a 1.5MM house. She would keep her asset allocation the same 60/40 and pay cash. She wants to keep working until she's 50 so her income of 250k, salary plus current dividends, will be steady other than a slight reduction in dividend income for the next 9 years. She is creative and enjoys her work.

Thanks for all the perspectives

If she pulls 1.5 MM out of her portfolio, won't her current dividends take a substantial hit? She would be selling off 1/4 of her total portfolio to purchase the house!

4000 sq. feet for one person? Yikes! Unless your friend does a lot of entertaining that sounds like serious overkill. I certainly wouldn't be comfortable in a house that big and wouldn't want to deal with it as I got older. But then having a showy house isn't one of my top priorities - if I were in her shoes I would be planning to retire soon and travel first class to all the places still on my bucket list while I was healthy enough to enjoy it.

How big is her current house? Many people could make good use of some additional space - but if this house is significantly larger than her current space, it will simply end up being more space to heat and cool. Has she factored in the utilities, upkeep, and money to purchase furniture and window treatments, etc. for a house that size?

Bottom line IMO - she can probably afford the house, but that doesn't mean that it would be a smart decision for her - especially since she recently received a huge windfall. IMO, it has the potential to lead to serious buyer's remorse. And bad real estate decisions turn out to be expensive to correct.

Will do good · Post by **Will do good** » Mon Jul 18, 2016 1:23 pm

Big house requires lots of work and if she hire people to do the work would she wants people to know she's wealthy and live in a big house by herself?
Live under the radar is not a bad idea.

Toons · Post by **Toons** » Mon Jul 18, 2016 1:28 pm

sdsailing wrote:
Toons wrote:How many rooms need to be cleaned?
Less Is More.

About three if it's in the bay area

Excellent!

Will do good · Post by **Will do good** » Mon Jul 18, 2016 1:35 pm

How about a nice Penthouse apt with a doorman?
Much less maintenance and more security.

malabargold · Post by **malabargold** » Mon Jul 18, 2016 1:44 pm

Economic freedom is worth more, to me, than any
other possession.

Every time one gives in to the buying temptation, not just some money, but some freedom is also surrendered.