Can we/should we afford a $2M house?

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Salmon
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Can we/should we afford a $2M house?

Post by Salmon »

First time, long time...

We are in a very HCOL area. Below are some details of our situation:

Age: 35 for both
1 very young child - 529 plan - put in 10K
Current Rent: $3000/month
Wife W2 income: $300K
Husband W2 income: $400K (this will likely increase - but cannot be 100% sure)
Consulting Business Income: Various from 200K to 500K
Debt: $130K student loans @ 4% now debt free 7/7
Retirement accounts total: about $500K spread out over multiple accounts
Cash savings: $500K about 430k ----- NOW ABOUT 525K -----
Property Taxes: about 2% or $40k/annum
HOA fee: $300/month


Never calculated expenses, but we don't spend on anything extravagant.

Wife may stop working a few/couple of years.

Home will be between $1.8M - $2M once all is added. The home will be semi-custom and we can provide input to the builder regarding many options. Home located in a very good school district and new community. Commute to work is also decent for both of us. At signing and agreeing to purchase, would probably need about $200k in cash to the builder and the rest can be mortgaged at/before closing. Will be ready in 9-12 months, so mortgage won't be needed for at least 6 months or so, which will also give time to save more and put a large chunk towards down payment to get a smaller mortgage (if this is recommended).

Added: Alternative would be a cheaper, already built home in the $1.2-1.5M, but this home would likely need some work. So far, nothing has surfaced on the market within this range that did not need updating.

Thoughts?
Last edited by Salmon on Wed Aug 23, 2017 3:38 pm, edited 7 times in total.
bluebolt
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Re: Can we/should we afford a $2M house?

Post by bluebolt »

You have 900K-1.2MM income including both of you with the consulting?
You can afford it.

Your savings are currently low relative to your income, but you will be able to afford your mortgage payment plus save a lot, assuming your spending is otherwise in check.

Considerations: Is the consulting income tied to you, your wife or both? If you, then her taking time out of the work force wouldn't change my recommendation. I would definitely model the budget for a $400K income and whether it would still be manageable. If so, then I really would have no hesitation.
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HomerJ
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Re: Can we/should we afford a $2M house?

Post by HomerJ »

bluebolt wrote:You have 900K-1.2MM income including both of you with the consulting?
You can afford it.
If that income continues for 5-10 years, sure. But kids, and maintaining the house, and expensive cars to go in the garage, and nice vacations, etc. etc. etc. may mean you'll need that income to continue for longer.

Lifestyle creep is dangerous. Hard to go backwards. Are those incomes fairly easy to maintain?
staythecourse
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Re: Can we/should we afford a $2M house?

Post by staythecourse »

We make less then you two and live in a house a bit cheaper then what you are looking for then with NO problems. I don't even notice the change in house expenditures. You can afford it ESPECIALLY If you are going to use the public, i.e. free school system.

The only worry is will this a factor that now will have to be considered if your wife can quit working if she decides? Run the numbers without her income (if she is serious of not working). If you feel comfortable with those numbers do it.

Many folks on here don't or won't allow themselves to get it, but it is okay to spend money on stuff you want. That is why you and your wife have worked so hard up to this point. As long as you know the implications on your financial future.

Good luck
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Shackleton
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Re: Can we/should we afford a $2M house?

Post by Shackleton »

Salmon wrote:First time, long time...

Property Taxes: about 2% or $40k/month
I really hope that is $40k/year... Although that would still make me gag a little everytime I paid the tax bill. I do love living in an area with very low property taxes.

Yeah, if you can't afford a $2M home, no one can.
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mac808
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Re: Can we/should we afford a $2M house?

Post by mac808 »

My opinion is that these cases come down to stability of jobs and income. Are you a vascular surgeon, or a biglaw attorney, or a senior engineer at a tech company with generous RSUs? Ditto for your wife - assume she will want to quit working when kids are little - how easily can she take 5-8 years off and then pick up working again? Income tells a very small part of the story here. I had many years where I made a high income but always knew that "this year could be the last". Conversely my brother who is a specialized physician can "clock in clock out" and make about $400/hour no matter how many hours he wants to work (from 10 to 80 hours/week), for as long as he wants to work (much less age discrimination in medicine).
aristotelian
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Re: Can we/should we afford a $2M house?

Post by aristotelian »

Many people in high cost areas use their house as part of their investment portfolio. I would be OK with that as long as you have some other investments. Only question is if one of you goes through a job loss or career change, but you could always sell the house at that point.

Also do you aspire to financial Independence/early retirement? Having a $2m mortgage might make that difficult, perhaps impossible if the housing market declines.

For what it's worth, my house costs 1/10 of yours but our income is about $120k.
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Watty
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Re: Can we/should we afford a $2M house?

Post by Watty »

A few things;

With a new custom built home you also need to be sure to budget for things like landscaping, curtains, and furnishing the home. That can vary wildly but for a $2M house that could easily be $50K or more.

With a large mortgage payment and property taxes you will need a very large emergency fund so a lot of the $500K in cash that you have could not be used for the home purchase without depleting your emergency fund. You may not have enough for a 20% downpayment.

You also do not know what the mortgage rate will be if the mortgage does not start for another six months so you need to be prepared for higher than expected payments if you cannot lock in the loan rate when the construction starts. As I recall you can only deduct the interest on a million dollars in mortgage. With your high income you might not be able to deduct much of the mortgage interest anyway because of the income based phase out. These combined make the mortgage rate more important to you than for most people.

One potential risk is that your disability insurance would likely not cover your consulting income.

If you will be having more kids a difficult pregnancy or a special needs kid may cause your wife to stop working sooner than expected.

There is a good chance that the cost of building the house will go over the planned budget.

On the "should" side of the question unless you would be OK with a less expensive house I think you "should" push it out another six months or a year so that you can get the rest of your student loans paid off and save up some more money.
KlangFool
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Re: Can we/should we afford a $2M house?

Post by KlangFool »

OP.

You can afford a $2M house.

On the "should" side, how much is your life worth? You are trading the feeding and caring of a $2M house for more time with your family. Is it worth it?

Your spouse would stop work in a few years. How about you? With a job and consulting business, how much time do you get to spend with your child? They grow up very fast. Either you are there with them or you don't. With a job and consulting business, I doubt that you have much time for anyone.

Life is too short! Time with friends and families are precious. Do not trade that for a house.

Get a cheaper house or rent.

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mmcmonster
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Re: Can we/should we afford a $2M house?

Post by mmcmonster »

All I have to add is personal experience on buying vs. building a home.

When my wife and I were making $350k, we bought a $425k home (second owner) and paid it off in 4 years.

When my wife and I were making $600k, we sold our first home and bought a $850k custom home (closer to work, nicer neighborhood, good public school district).

On top of the $850k, the custom home took another $300k between front and back landscaping and basement being finished over the following 4 years. A lot more headaches, but at the end we got our dream house (probably not your dream house). The initial mortgage was paid down extremely fast (less than two years), but more time paying down the line of credit for the extras.

So I would just say to allocate 25% on top of price for 'incidentals'. If the price is worth it for you, go for it and then pay down the mortgage ASAP. Once the mortgage is paid off, you'll be essentially immune to moderate changes in income.

Given your income streams, anyone trying to sell you a home will try to sell you much more than you need. You have to decide how much is it worth to you. I personally looked for a house costing less than 1.5 years gross income. Your mileage may vary.
Ninnie
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Re: Can we/should we afford a $2M house?

Post by Ninnie »

letsgobobby wrote:
mac808 wrote:My opinion is that these cases come down to stability of jobs and income. Are you a vascular surgeon, or a biglaw attorney, or a senior engineer at a tech company with generous RSUs? Ditto for your wife - assume she will want to quit working when kids are little - how easily can she take 5-8 years off and then pick up working again? Income tells a very small part of the story here. I had many years where I made a high income but always knew that "this year could be the last". Conversely my brother who is a specialized physician can "clock in clock out" and make about $400/hour no matter how many hours he wants to work (from 10 to 80 hours/week), for as long as he wants to work (much less age discrimination in medicine).
I agree with this 100%.
+2

A few more details would be nice. Are you happy living in your current rental? Why now?

You can afford it, but with another year of savings you'd be in a much stronger cash position. Really depends on all of the above.
BigLaw Survivor
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Re: Can we/should we afford a $2M house?

Post by BigLaw Survivor »

Can you afford a $2 million home? Yes, probably.

Should you? To each his/her own. All I can tell you is that I could have afforded a $2 million home, or more, but it never even occurred to me to do it. And that's how I managed to retire at 54.
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Nate79
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Re: Can we/should we afford a $2M house?

Post by Nate79 »

Salmon wrote:First time, long time...

We are in a very HCOL area. Below are some details of our situation:

Age: 35 for both (started really working about 3 years ago)
1 very young child - will be starting a 529 plan very shortly
Current Rent: $3000/month
Wife W2 income: $300K
Husband W2 income: $400K (this will likely increase - but cannot be 100% sure)
Consulting Business Income: Various from 200K to 500K
Debt: $130K student loans @ 4% ( We had lots of high interest loans close to $400K, and these were paid off fast within the last 2 or so years and now we are just left with this one student loan)
Retirement accounts total: about $500K spread out over multiple accounts
Cash savings: $500K (we began saving for the house since Sept - this also includes EF)
Property Taxes: about 2% or $40k/month
HOA fee: $300/month


Never calculated expenses, but we don't spend on anything extravagant.

Wife may stop working a few/couple of years.

Home will be between $1.8M - $2M once all is added. The home will be semi-custom and we can provide input to the builder regarding many options. Home located in a very good school district and new community. Commute to work is also decent for both of us. At signing and agreeing to purchase, would probably need about $200k in cash to the builder and the rest can be mortgaged at/before closing. Will be ready in 9-12 months, so mortgage won't be needed for at least 6 months or so, which will also give time to save more and put a large chunk towards down payment to get a smaller mortgage (if this is recommended).

Thoughts?
I would pay those student loans off first. Should take you 3-6 months at most unless you have a spending problem.
Jim127
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Re: Can we/should we afford a $2M house?

Post by Jim127 »

Similar to other recommendations, I would push it out as well. For me, I would wait another 2 years. That will allow you to eliminate the remaining student debt as well as add to the savings a bit more.
jharkin
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Re: Can we/should we afford a $2M house?

Post by jharkin »

staythecourse wrote:
Many folks on here don't or won't allow themselves to get it, but it is okay to spend money on stuff you want. That is why you and your wife have worked so hard up to this point. As long as you know the implications on your financial future.

Ding Ding Ding Ding .... Winnner :sharebeer


Absolutely right. I may never make more than about 1/5 your income OP but for the you the numbers work pretty easy. You are talking about a house less than 2x income. you can buy it, and I bet manage to pay off the note in about 5 years without much hardship. The only question mark is the long term viability of that high income.


Lots of folks on this board are so terrified to spend I suspect many of them are going to make their descendants multi-millionares. Which is OK if that's your goal, but my goal is also to live well in my own lifetime. Enjoy it OP, you have earned it.
Last edited by jharkin on Sun Jun 25, 2017 4:03 pm, edited 1 time in total.
stan1
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Re: Can we/should we afford a $2M house?

Post by stan1 »

Watty wrote:A few things;

With a new custom built home you also need to be sure to budget for things like landscaping, curtains, and furnishing the home. That can vary wildly but for a $2M house that could easily be $50K or more.
Well, you'll be lucky if its under $500K. Landscaping a new construction $2M home with nice covered patios, water features, planters, etc. in a HCOL area is going to run around $250K minimum (and that's without a pool). Some of our close friends just went through this and I think they probably put another $500K into their new home over the next 3 years after moving in. It costs a lot to furnish a 5000 square foot house.

Agree OP can do this.
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Pajamas
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Re: Can we/should we afford a $2M house?

Post by Pajamas »

You can afford it but it would be a good idea for your wife to continue working until it is paid off, if you plan to pay it off.
staythecourse
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Re: Can we/should we afford a $2M house?

Post by staythecourse »

Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million. That means the house is 2x their annual gross income. Does that mean everyone who said no and makes 100k in gross income lives in houses that are only worth 200k?

I think too many folks on here just don't want anyone to live in a nice house. Yet the same folks are more then happy to save a bundle, die with a bundle, and just give it to their offspring who will likely spend it as if it is free money on things like a 2M dollar house or worse. Doesn't make much sense. The same folks who are against purchasing such expensive material objects should not be giving ANY of it to their offspring to spend as they wish. Do the same folks write in their will that the money can only be used for education or their own retirement? Something doesn't add up to me.

Good luck.
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Pajamas
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Re: Can we/should we afford a $2M house?

Post by Pajamas »

staythecourse wrote:Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million.
Those people may be looking at the nature of the income, the wide range of consulting income given, the student debt still owed, and the relatively low current net worth compared to the income, and may be thinking that this is someone who lives beyond their means and does not make the "best" financial decisions. Going from $36k in rent to more than that just in property taxes is quite a step up in lifestyle.

Two people with an income of $50k each or $100k together and $100k in assets who buy a $200k house are in a much better situation if one loses their income vs. the same situation but multiplying all those numbers by a factor of ten, which is roughly what you have here.
BigLaw Survivor
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Re: Can we/should we afford a $2M house?

Post by BigLaw Survivor »

Pajamas wrote:
staythecourse wrote:Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million.
Those people may be looking at the nature of the income, the wide range of consulting income given, the student debt still owed, and the relatively low current net worth compared to the income, and may be thinking that this is someone who lives beyond their means and does not make the "best" financial decisions. Going from $36k in rent to more than that just in property taxes is quite a step up in lifestyle.

Two people with an income of $50k each or $100k together and $100k in assets who buy a $200k house are in a much better situation if one loses their income vs. the same situation but multiplying all those numbers by a factor of ten, which is roughly what you have here.
This. The couple in question make a million a year only because both make very large incomes in their own right. That raises a huge red flag for me. Take away or slash one of those incomes and affording a $2 million house might still be doable but wouldn't be easy. And here we are talking about many scenarios where that could easily happen. First, for example, the OP himself says the wife might want to take time off for kids. Second, the couple is in their 30s and presumably haven't been in the workforce making big money for too many years. Who's to say that illness, burnout, competing obligations, or something else won't become a serious issue for one or the other, or both? When a couple has to depend on two large incomes to support a lavish lifestyle, that doubles the risk.
KlangFool
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Re: Can we/should we afford a $2M house?

Post by KlangFool »

staythecourse wrote:Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million. That means the house is 2x their annual gross income. Does that mean everyone who said no and makes 100k in gross income lives in houses that are only worth 200k?

I think too many folks on here just don't want anyone to live in a nice house.
staythecourse,

How does caring and feeding a 2 million dollar house compare to FIRE at an early age and travel anywhere in the world?

Both of my older brother and sister FIREed at 49 years old. They travel everywhere for fun. I have to check their facebook pages in order to find out where they are for this week.

This is what a 2 million dollar house costs.

<< I think too many folks on here just don't want anyone to live in a nice house. >>

At what cost? 2 million dollar house in an HCOL area does not buy you a house at the beach. But, 2 million let you FIREed and live in many beaches.

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arsenalfan
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Re: Can we/should we afford a $2M house?

Post by arsenalfan »

KlangFool wrote:OP.

You can afford a $2M house.

On the "should" side, how much is your life worth? You are trading the feeding and caring of a $2M house for more time with your family. Is it worth it?

Your spouse would stop work in a few years. How about you? With a job and consulting business, how much time do you get to spend with your child? They grow up very fast. Either you are there with them or you don't. With a job and consulting business, I doubt that you have much time for anyone.

Life is too short! Time with friends and families are precious. Do not trade that for a house.

Get a cheaper house or rent.

KlangFool
I agree.
Objectively yes you can afford.
Subjectively I would not.
Our kids are now elementary school, and while we both love our jobs we have cut WAY back, to be around more.
Kids get older and need you around in different ways/unexpected times. Amazing what you overhear in carpools, etc, etc. You never know when the teachable moment will arise.
To make time, my wife basically went to 0.6 FTE and I went from 1.2 FTE (extra shifts/etc) to 0.75 fte.
We went from $800k W2 income down to $500k W2 income - easy to do so since our mortgage is our only debt, and is very manageable.
WL2034
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Re: Can we/should we afford a $2M house?

Post by WL2034 »

KlangFool wrote:
staythecourse wrote:Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million. That means the house is 2x their annual gross income. Does that mean everyone who said no and makes 100k in gross income lives in houses that are only worth 200k?

I think too many folks on here just don't want anyone to live in a nice house.
staythecourse,

How does caring and feeding a 2 million dollar house compare to FIRE at an early age and travel anywhere in the world?

Both of my older brother and sister FIREed at 49 years old. They travel everywhere for fun. I have to check their facebook pages in order to find out where they are for this week.

This is what a 2 million dollar house costs.

<< I think too many folks on here just don't want anyone to live in a nice house. >>

At what cost? 2 million dollar house in an HCOL area does not buy you a house at the beach. But, 2 million let you FIREed and live in many beaches.

KlangFool
I agree with this. The original question was "Can we/should we..." and I think the answer to the first part "can we" is (quite obviously) yes. The "should we" part of the equation depends on the alternatives on which you can spend that money--and do those alternatives appeal to you. Things like working less, more time with kids, retiring earlier, more money for travel, cars, expensive jewelry, fine dining, etc. Those are personal decisions, so nobody can answer that for OP.

Our personal circumstances are not terribly far from yours, we are a couple of years younger, with a bit less income, but a bit more saved, only working and out of debt for 3 years now -- and we wouldn't want to be tied to a huge house at this point. "Caring and feeding" the house I think is an interesting way to put it. You won't be house poor, by any means. But at the same time, the property taxes, HOA, landscaping, furnishing, keeping up with the Joneses (you might become the Joneses actually? :D ) is not going to be cheap. If you love work and are planning to work until 60-65 with similar steady income, I don't think the house will affect any of those plans and you can still have whatever retirement you want. If you want to retire at 45-50 and travel the world, then it might be smarter to spend less for housing and prioritize retirement and liquid savings.
mnnice
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Re: Can we/should we afford a $2M house?

Post by mnnice »

We don't know the location either.

There are $2 million dollars homes in Palo Alto equally as modest as my own 900 square foot, mid century home in a LCOL area which was 130k.

I guess my question is if you have saved 500k in 10 months it might be less hassle to just to save another 30-35 months and buy the house outright?
Ninnie
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Re: Can we/should we afford a $2M house?

Post by Ninnie »

OP said very HCOL area.
Topic Author
Salmon
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Re: Can we/should we afford a $2M house?

Post by Salmon »

Thanks all for the varying input. Some additonal info:

Job Stability: stable, we are in healthcare business

Taxes: 40k/annum

Consulting income: 95% tied to me

Aspirations for financial Independence/early retirement: obviously FI would be nice, but that means something different to everyone. We have a very young child, and I don't plan to retire until kid is in college, but would like to work less eventually, which I think would be possible even with this purchase. Retiring early - again, I don't think I can sit around and do nothing and retire at 45. I wouldn't mind working less as the nest grows, but the "house" if purchased is also part of the nest. House can always be sold down the road i.e. 20years etc once the child or children head out, which will also bring in some $. Retiring @45 and traveling the world when my child is 11 is not an option. Retiring @ 55 - sounds about right or at least drastically cutting back.

Wife work: she genuinely enjoys what she does. From our conversations, she is open to working until the house is paid off majority or perhaps until the young one starts school. After that, she can work part time and still generate at least $100K.

My W2 income: right now its $400K, but will likely increase to $500K soon

DI insurance: I believe we are both maxed at 30k/month

Waiting longer to purchase: the community has only a handful of sites left. If we wait, we will definitely miss out. We have been looking since January, and this is the first time seriously considering.

Current Rental: we have outgrown the place with the recent family addition, very small place, but nice community

Landscape: well they provide landscaping in the front. Rear is additional, about 50K if one wants a deck, patio, etc.

Low current net worth compared to the income: Agree it is low, but we started making money not too long ago and the prior years it was 30-50% lower. I paid off the majority of the loans, and we really started saving since Sept for the house and have about $500k or saving at about 50K/month.

Time with family: I agree it is paramount to be with family. As mentioned prior, wife will cut down or stop when child in school or mortgage paid off at least 80%, whichever one comes quicker. I can also cut down hours/day as needed.
Student Loans: I can pay this off now, but just waited as saving for house. Actually, just paid about 30K, so now total is about $100K

Questions:
1. In these builder situations, when is the earliest I can lock in a mortage and should I lock in a rate now or wait? The builder's have their own mortage company, but, obviously, I want to shop around

2. Assuming our rate of savings at least 40K/month continues, we would have more cash at hand. Thoughts on how best to use? Options would be put towards student loan, make a bigger down payment, standard 20% down and accelerated monthly payment, keep fattening up emergency fund or combo thereof of the above?

3 (Added another question) How does one determine the "value" of a building site? Realize this may be personal as well. We are having a hard time deciding. One land lot is a rectangular shaped lot, with neighbors on both sides, along with a not-so-heavily traveled road in the backyard. There is a 100 feet buffer from the end of your property line to the road. The other lot is bigger, about 0.75x, although a little of it has an easement, but there is no road in the backyard at all and it only has land as far as one can see. The second lot is pricier by about $80k additional. Is it worth to pay the $80k premium for no road in the backyard, more land, and a bit more seclusion? (highly subjective but would like some opinions)
Last edited by Salmon on Sun Jun 25, 2017 4:14 pm, edited 3 times in total.
harrychan
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Re: Can we/should we afford a $2M house?

Post by harrychan »

Congrats on the success OP. The only feedback I can give is to account for delays in construction and cost for options and upgrades for your home. Just because you get to choose on materials and design, you will find that the developer will upsell you on everything way above market. And even so, you will find yourself taking bids on contractors and remodeling a "custom" home even after receiving the keys. So your $2 mil house will end up becoming well over $2M+.
This is not legal or certified financial advice but you know that already.
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unclescrooge
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Re: Can we/should we afford a $2M house?

Post by unclescrooge »

Salmon wrote: Questions:
1. In these builder situations, when is the earliest I can lock in a mortage and should I lock in a rate now or wait? The builder's have their own mortage company, but, obviously, I want to shop around

2. Assuming our rate of savings at least 40K/month continues, we would have more cash at hand. Thoughts on how best to use? Options would be put towards student loan, make a bigger down payment, standard 20% down and accelerated monthly payment, keep fattening up emergency fund or combo thereof of the above?
Check out bank of America. They have great rates for jumbo physician loans. Your builder will probably offer to match them once you show them a quote, and then you can tell them to pound sand.

I'm currently quoted 2.75% for a 7/1 ARM, no points.

You can't really lock until you're close to completion. Most rate locks last 60 days, and then you'll need an extension (which usually costs money).

I'm going with ARMs as I'm not worried about mortgage rates going up. We'll see a recession within the next 7 years, and rates will fall, and at that point I'll just refinance again.
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Salmon
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Re: Can we/should we afford a $2M house?

Post by Salmon »

harrychan wrote:Congrats on the success OP. The only feedback I can give is to account for delays in construction and cost for options and upgrades for your home. Just because you get to choose on materials and design, you will find that the developer will upsell you on everything way above market. And even so, you will find yourself taking bids on contractors and remodeling a "custom" home even after receiving the keys. So your $2 mil house will end up becoming well over $2M+.
Isn't there provisions built into the initial contract to prevent these type of delays or unscrupulous behavior?
unclescrooge wrote:
Salmon wrote: Questions:
1. In these builder situations, when is the earliest I can lock in a mortage and should I lock in a rate now or wait? The builder's have their own mortage company, but, obviously, I want to shop around

2. Assuming our rate of savings at least 40K/month continues, we would have more cash at hand. Thoughts on how best to use? Options would be put towards student loan, make a bigger down payment, standard 20% down and accelerated monthly payment, keep fattening up emergency fund or combo thereof of the above?
Check out bank of America. They have great rates for jumbo physician loans. Your builder will probably offer to match them once you show them a quote, and then you can tell them to pound sand.

I'm currently quoted 2.75% for a 7/1 ARM, no points.

You can't really lock until you're close to completion. Most rate locks last 60 days, and then you'll need an extension (which usually costs money).

I'm going with ARMs as I'm not worried about mortgage rates going up. We'll see a recession within the next 7 years, and rates will fall, and at that point I'll just refinance again.
Ah ok. So the keys have to be ready to be handed over within 60 days prior to mortgaging. Builder estimated 11 months, so that would provide additional 9 months to save more cash. This may be good or bad, esp. if the mortgage rates rise in the future.
jharkin
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Re: Can we/should we afford a $2M house?

Post by jharkin »

arsenalfan wrote: To make time, my wife basically went to 0.6 FTE and I went from 1.2 FTE (extra shifts/etc) to 0.75 fte.
We went from $800k W2 income down to $500k W2 income - easy to do so since our mortgage is our only debt, and is very manageable.

At the risk of a major thread derail, might I ask what types of careers pay 500k but allow part time/shift work?? Where I live those kinds of incomes say- MD at a major hospital, partner of a big city law firm, senior VP to c-suite executive of a small/mid size coproration, etc.. i.e. not careers conducive to part time arrangements.

But then again for all I know in the valley even janitors make 6 figures...

Feel free to decline to answer this of course, back on thread.
Ninnie
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Re: Can we/should we afford a $2M house?

Post by Ninnie »

OP already said Doctor.
WL2034
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Re: Can we/should we afford a $2M house?

Post by WL2034 »

jharkin wrote:
At the risk of a major thread derail, might I ask what types of careers pay 500k but allow part time/shift work?? Where I live those kinds of incomes say- MD at a major hospital, partner of a big city law firm, senior VP to c-suite executive of a small/mid size coproration, etc.. i.e. not careers conducive to part time arrangements.

But then again for all I know in the valley even janitors make 6 figures...

Feel free to decline to answer this of course, back on thread.
Many healthcare positions (physician likely for this salary range) will hire partial FTE, especially for W2 employee positions. 0.8 FTE could be a clinic based specialty who prefers 4 days/week of clinic with a 3 day weekend or a hospital based shift specialty who prefers working 12 shifts/month instead of 15, for example (depending on what counts as 1.0 FTE). It's pretty common.

Note that this particular scenario was mentioned by someone else, I believe. The OP said they are in healthcare but nothing about specific FTE.
WL2034
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Re: Can we/should we afford a $2M house?

Post by WL2034 »

Salmon wrote:
Retiring @ 55 - sounds about right or at least drastically cutting back.

Wife work: she genuinely enjoys what she does. From our conversations, she is open to working until the house is paid off majority or perhaps until the young one starts school. After that, she can work part time and still generate at least $100K.
Based on this info, I would just buy it if I were in your position. It sounds like you both love the house. You aren't going to retire super early, so you have time to pay off the house and save plenty for retirement. Plus, if you are in a very HCOL area, your minimum alternatives are likely in the $1.2M range, so perhaps this isn't really a $2M question as much as a $500,000-800,000 question.

Your wife's desire to continue working for now is a nice bonus for the current time. Perhaps putting her salary completely towards the house (after tax deferred savings, of course) and setting up the rest of your finances just based on your salary would be a good plan. That way, you get a feel for living off of just your salary (including paying the mortgage and taxes) and her salary for the next few years goes completely toward the house until she stops working. The house could be nearly paid off by the time she stops working.

If she can go part-time (or even independent contractor in the future for more tax-deferred savings), that is just an added bonus.

Out of curiosity, what is the main factor behind wanting to stop work once the child starts school? I feel like it is more common that people think about going back to work when the child starts school, rather than the other way around. You mentioned the good school district, so I'm assuming it isn't for home schooling.
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HomerJ
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Re: Can we/should we afford a $2M house?

Post by HomerJ »

staythecourse wrote:Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million. That means the house is 2x their annual gross income. Does that mean everyone who said no and makes 100k in gross income lives in houses that are only worth 200k?

I think too many folks on here just don't want anyone to live in a nice house. Yet the same folks are more then happy to save a bundle, die with a bundle, and just give it to their offspring who will likely spend it as if it is free money on things like a 2M dollar house or worse. Doesn't make much sense. The same folks who are against purchasing such expensive material objects should not be giving ANY of it to their offspring to spend as they wish. Do the same folks write in their will that the money can only be used for education or their own retirement? Something doesn't add up to me.

Good luck.
I don't begrudge anyone spending their money.

But guess what, the OP doesn't have $2 million yet. And $900k - $1.2 million incomes aren't exactly a dime a dozen. There's a ton of $50k jobs out there (your hypothetical $100k couple buying a $200k house). The situations aren't exactly equal.

And how many hours a week does the OP have to work to make that kind of money?

There's nothing wrong with asking a few questions (which is different than saying "No") to someone who JUST RECENTLY starting making huge money. It's actually the responsible thing to do when someone asks you financial advice.
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Salmon
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Re: Can we/should we afford a $2M house?

Post by Salmon »

WL2034 wrote:
Salmon wrote:
Retiring @ 55 - sounds about right or at least drastically cutting back.

Wife work: she genuinely enjoys what she does. From our conversations, she is open to working until the house is paid off majority or perhaps until the young one starts school. After that, she can work part time and still generate at least $100K.
Based on this info, I would just buy it if I were in your position. It sounds like you both love the house. You aren't going to retire super early, so you have time to pay off the house and save plenty for retirement. Plus, if you are in a very HCOL area, your minimum alternatives are likely in the $1.2M range, so perhaps this isn't really a $2M question as much as a $500,000-800,000 question.

Your wife's desire to continue working for now is a nice bonus for the current time. Perhaps putting her salary completely towards the house (after tax deferred savings, of course) and setting up the rest of your finances just based on your salary would be a good plan. That way, you get a feel for living off of just your salary (including paying the mortgage and taxes) and her salary for the next few years goes completely toward the house until she stops working. The house could be nearly paid off by the time she stops working.

If she can go part-time (or even independent contractor in the future for more tax-deferred savings), that is just an added bonus.

Out of curiosity, what is the main factor behind wanting to stop work once the child starts school? I feel like it is more common that people think about going back to work when the child starts school, rather than the other way around. You mentioned the good school district, so I'm assuming it isn't for home schooling.
Good point. I did not mention the alternatives, but I will update the original post. Alternatives range from 1.2M-1.5M. First, there aren't many to choose from. Second, The lower end i.e. $1.2-$1.4M houses need work and fixing up, so that would be additional.

Wife gets excellent benefits. Healthcare coverage is very thorough for the family and there are multitude of options for tax deferred accounts with a healthy match. The biggest boon is full paid maternity leave. So if we decide on additional children, which we likely will, working affords 3 months paid off for each along with healthcare and tax deferred accounts. Once she/we decide no more children, she can stop working or go part time.
HomerJ wrote:
staythecourse wrote:Just curious to the folks who answered no what income do they think should be able to afford 2M house value? The OP income is 900-1.2million. That means the house is 2x their annual gross income. Does that mean everyone who said no and makes 100k in gross income lives in houses that are only worth 200k?

I think too many folks on here just don't want anyone to live in a nice house. Yet the same folks are more then happy to save a bundle, die with a bundle, and just give it to their offspring who will likely spend it as if it is free money on things like a 2M dollar house or worse. Doesn't make much sense. The same folks who are against purchasing such expensive material objects should not be giving ANY of it to their offspring to spend as they wish. Do the same folks write in their will that the money can only be used for education or their own retirement? Something doesn't add up to me.

Good luck.
I don't begrudge anyone spending their money.

But guess what, the OP doesn't have $2 million yet. And $900k - $1.2 million incomes aren't exactly a dime a dozen. There's a ton of $50k jobs out there (your hypothetical $100k couple buying a $200k house). The situations aren't exactly equal.

And how many hours a week does the OP have to work to make that kind of money?

There's nothing wrong with asking a few questions (which is different than saying "No") to someone who JUST RECENTLY starting making huge money. It's actually the responsible thing to do when someone asks you financial advice.
Appreciate all of the input from everyone, even if it varies. In terms of hours, I would guess I work 40-45hrs/week and similar for wife I believe.
aqan
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Re: Can we/should we afford a $2M house?

Post by aqan »

Shackleton wrote: Yeah, if you can't afford a $2M home, no one can.
+1
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Hawaiishrimp
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Re: Can we/should we afford a $2M house?

Post by Hawaiishrimp »

Yes, you can. Easily. Go and buy it, make us proud. :D
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
Nearly A Moose
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Re: Can we/should we afford a $2M house?

Post by Nearly A Moose »

To OP's question about building sites: in the second location, you say land as far as the eye can see. What does that mean? Who owns it, and what's going to happen with it? Unless there's an easement or restrictive covenant, I have to assume its going to become another neighborhood in the soonish future. Not necessarily bad, just pointing that out.

I'd suggest the corner lot. I actually like having neighbors, but on a corner lot, no need to worry about getting a bad one. BUT, make sure you understand what the corner lot does to your privacy in the backyard. Sometimes the layout gives you privacy, sometimes you're on display. Also, depending on what types of restrictions are in place, the latger lot might allow you to build an outbuilding - studio, extra detached garage / workshop, pool house, etc - down the road. Just a thought. I don't think anyone ever complained they bought the biggest lot in a subdivision.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
Nearly A Moose
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Re: Can we/should we afford a $2M house?

Post by Nearly A Moose »

Also, yes, you can afford this. OP has "low" savings because he must have just started his real doctor job and paid down loans (I assume). FWIW, we make half of what you do and will probably be buying a house for this much in a couple years (it's in the plan at least)....
Pardon typos, I'm probably using my fat thumbs on a tiny phone.
Grt2bOutdoors
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Re: Can we/should we afford a $2M house?

Post by Grt2bOutdoors »

Buy it!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
scubadiver
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Re: Can we/should we afford a $2M house?

Post by scubadiver »

Salmon wrote: 1. In these builder situations, when is the earliest I can lock in a mortage and should I lock in a rate now or wait? The builder's have their own mortage company, but, obviously, I want to shop around

2. Assuming our rate of savings at least 40K/month continues, we would have more cash at hand. Thoughts on how best to use? Options would be put towards student loan, make a bigger down payment, standard 20% down and accelerated monthly payment, keep fattening up emergency fund or combo thereof of the above?

3 (Added another question) How does one determine the "value" of a building site? Realize this may be personal as well. We are having a hard time deciding. One land lot is a rectangular shaped lot, with neighbors on both sides, along with a not-so-heavily traveled road in the backyard. There is a 100 feet buffer from the end of your property line to the road. The other lot is bigger, about 0.75x, although a little of it has an easement, but there is no road in the backyard at all and it only has land as far as one can see. The second lot is pricier by about $80k additional. Is it worth to pay the $80k premium for no road in the backyard, more land, and a bit more seclusion? (highly subjective but would like some opinions)
First, you should max out all possible tax advantage space, to include 529 plans.

Next, you should wipe out the student loan. It's just nuisance debt.

After that, I would dump as much as possible on the mortgage. You'll still want to be investing in the market, but I would favor putting more towards the mortgage than the market. If there were a major 2008-9 market crash, I might revisit that.

Yes, I would strongly consider the "no road in the backyard" option.

Overall, you're in great shape. My only word of caution would be that you avoid lifestyle creep at least until you got to the point where you are financially independent and could retire to a lower cost of living area. I know that's not your goal and I'm certainly not trying to convince you that it should be. I'm just saying that life sometimes has other plans for you. Build up enough of a cushion to insulate yourself from those black swan type events and then, by all means, enjoy the fruits of your labor. You will have earned it.

Scubadiver
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Pajamas
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Re: Can we/should we afford a $2M house?

Post by Pajamas »

The larger lot may be more desirable, especially for a $2 million house, but you don't necessarily know what might end up in back of it instead of a road. I have seen duplexes or apartments built adjacent to nice homes after the fact, but it might be a protected green space in your case. A minor road with a 100 foot buffer and appropriate landscaping sounds fine.

Some people like corner lots, but there can be negatives such as having easements on two sides for the roads that can't be utilized but have to be purchased and maintained, noise from vehicles stopping and starting and/or turning, pedestrians taking shortcuts, and less privacy. Some of those may not be a problem in a gated neighborhood with large lots.
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Salmon
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Re: Can we/should we afford a $2M house?

Post by Salmon »

Nearly A Moose wrote:To OP's question about building sites: in the second location, you say land as far as the eye can see. What does that mean? Who owns it, and what's going to happen with it? Unless there's an easement or restrictive covenant, I have to assume its going to become another neighborhood in the soonish future. Not necessarily bad, just pointing that out.

I'd suggest the corner lot. I actually like having neighbors, but on a corner lot, no need to worry about getting a bad one. BUT, make sure you understand what the corner lot does to your privacy in the backyard. Sometimes the layout gives you privacy, sometimes you're on display. Also, depending on what types of restrictions are in place, the latger lot might allow you to build an outbuilding - studio, extra detached garage / workshop, pool house, etc - down the road. Just a thought. I don't think anyone ever complained they bought the biggest lot in a subdivision.
Pajamas wrote:The larger lot may be more desirable, especially for a $2 million house, but you don't necessarily know what might end up in back of it instead of a road. I have seen duplexes or apartments built adjacent to nice homes after the fact, but it might be a protected green space in your case. A minor road with a 100 foot buffer and appropriate landscaping sounds fine.

Some people like corner lots, but there can be negatives such as having easements on two sides for the roads that can't be utilized but have to be purchased and maintained, noise from vehicles stopping and starting and/or turning, pedestrians taking shortcuts, and less privacy. Some of those may not be a problem in a gated neighborhood with large lots.

I added a picture of the lots available (excuse the sloppiness). These are approximate to size:

Image


Starred lots are what is available.

Some info on the lots:
1. We will call this base price
2. +$15K - this is in addition to the base ie additional $15,000
3. +$30K
4. +200K
5. +100k
6. +325K
7. +245K
8. +120K


Orientation of Lots:

Lot 2: 298 degree NW
Lot 4: 35 degree NE
Lot 5: 119 degree SE
Lot 8: 255 degree W



Lots 4,5,6,7 have easement in their backyard but no road. Lots 4,5,6 actually have easement on their property. Lot 8 is corner, so has the road.


We initially considered Lot 3, but there is a walkway in between along with backyard to both roads, including the busy road.

Right now, we are between Lot 2 vs Lot 5. Lot 2 is cheaper, still on cul-de-sac almost and has only the slow road in the back. Lot 5 has no road in the back, but easement takes up about 40% of it and it is $100K more.


Lot 4, 6 and 7 are just way too expensive. Lot 8 - expensive and not sure if good idea as corner lot and open on two ends.

Any thoughts? Would be good to hear from people who may have actually through such an experience picking and choosing a lot as well.
Last edited by Salmon on Tue Jun 27, 2017 10:20 pm, edited 1 time in total.
J295
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Re: Can we/should we afford a $2M house?

Post by J295 »

We have purchased a lot and built, and purchased existing and did a complete renovation ..... as for choosing the lot, work with a great architect that is a great fit for you/your spouse and have him/her help guide you through this process. As you well know, all professionals are not created equal so find a the right one and leverage his/her expertise.
aqan
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Re: Can we/should we afford a $2M house?

Post by aqan »

Salmon wrote:
Nearly A Moose wrote:To OP's question about building sites: in the second location, you say land as far as the eye can see. What does that mean? Who owns it, and what's going to happen with it? Unless there's an easement or restrictive covenant, I have to assume its going to become another neighborhood in the soonish future. Not necessarily bad, just pointing that out.

I'd suggest the corner lot. I actually like having neighbors, but on a corner lot, no need to worry about getting a bad one. BUT, make sure you understand what the corner lot does to your privacy in the backyard. Sometimes the layout gives you privacy, sometimes you're on display. Also, depending on what types of restrictions are in place, the latger lot might allow you to build an outbuilding - studio, extra detached garage / workshop, pool house, etc - down the road. Just a thought. I don't think anyone ever complained they bought the biggest lot in a subdivision.
Pajamas wrote:The larger lot may be more desirable, especially for a $2 million house, but you don't necessarily know what might end up in back of it instead of a road. I have seen duplexes or apartments built adjacent to nice homes after the fact, but it might be a protected green space in your case. A minor road with a 100 foot buffer and appropriate landscaping sounds fine.

Some people like corner lots, but there can be negatives such as having easements on two sides for the roads that can't be utilized but have to be purchased and maintained, noise from vehicles stopping and starting and/or turning, pedestrians taking shortcuts, and less privacy. Some of those may not be a problem in a gated neighborhood with large lots.

I added a picture of the lots available (excuse the sloppiness). These are approximate to size:

Image


Starred lots are what is available.

Some info on the lots:
1. We will call this base price
2. +$15K - this is in addition to the base ie additional $15,000
3. +$30K
4. +200K
5. +100k
6. +325K
7. +245K
8. +120K

Lots 4,5,6,7 have easement in their backyard but no road. Lots 4,5,6 actually have easement on their property. Lot 8 is corner, so has the road.


We initially considered Lot 3, but there is a walkway in between along with backyard to both roads, including the busy road.

Right now, we are between Lot 2 vs Lot 5. Lot 2 is cheaper, still on cul-de-sac almost and has only the slow road in the back. Lot 5 has no road in the back, but easement takes up about 40% of it and it is $100K more.


Lot 4, 6 and 7 are just way too expensive. Lot 8 - expensive and not sure if good idea as corner lot and open on two ends.

Any thoughts? Would be good to hear from people who may have actually through such an experience picking and choosing a lot as well.
I would have gone with 8 or 2.
8 provided you can have some privacy hedges/fencing.. also i'd pay attention to sunlight (east cost you don't get as much sun so you need to) north/south facing gives you good sun in the backyard .
the ones with easement look much larger, they are worth considering due to the extra privacy, provided you have enough backyard. Eventually you'll be able to sell it for more money.. if you can afford them you should take a serious look.
Ninnie
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Re: Can we/should we afford a $2M house?

Post by Ninnie »

Without knowing about sun orientation, which indeed is very important, I would pick lot 5. Having conservation buffer behind your house is priceless.
lazydavid
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Re: Can we/should we afford a $2M house?

Post by lazydavid »

I would go for lots 5, 2, and 8, in that order.
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Pajamas
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Re: Can we/should we afford a $2M house?

Post by Pajamas »

All of those lots have two or three immediately adjacent neighbors and have similar usable areas. All but #8 also have a buffer or conservation easement adjacent. I would not want to pay very much for a larger lot if there were also a conservation easement on the extra area since it is so expensive and use is restricted. Depending on the landscape and plant cover in the 100 foot buffer, I would not necessarily prefer the conservation easement over the buffer. Neighbors to the rear infringe on privacy more than those to the sides as they can look directly into your backyard and house whereas there are usually fewer windows and possibly in rooms used less often on the sides of the house.

Out of the available lots, I would only reject #8 immediately as it is on a corner. The pedestrian traffic on the dog walk is would bother me some, as would backing up to the main road and having to site the house at an angle on the lot, so I would then reject #3.

Pricing would then come into play. You didn't give the base amount so the percentage increases are unknown but I'm guessing it's about $300k.

I would probably choose #1, #2, or #5 as the house would roughly sit squarely on the lot with neighbors only on the sides and a buffer or conservation area to the rear. #5 might get slightly less traffic and is farther from the external roads and so it might be worth the extra $100k, but #1 is significantly less expensive. #6 would then be a fourth choice.
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JaneyLH
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Re: Can we/should we afford a $2M house?

Post by JaneyLH »

You can address the road issue with your landscaping plan. In our case, we bought a lot that has about 200' wide undeveloped common area owned by the HOA behind our lot bordered by another housing development. We constructed a raised planted area incorporating two waterfalls and small trees/shrubs at the rear part if our property that completely masks the homes behind us, as well as noise from a highway 1 mile away. Our backyard is spectacular and we get a lot of enjoyment from it.
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