Too much house, right?

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Utahdogowner
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Too much house, right?

Post by Utahdogowner » Fri Nov 24, 2017 6:06 pm

I think the answer to this is going to be a more resounding, "No!", but it seems to be a once-in-a-lifetime opportunity, so I am wanting to get some opinions.

We are rapidly outgrowing our current home due to our rambunctious 3yo and 18mo, and am looking to move within 1-2 years. We discovered a simply gorgeous acre lot on a little bit of a hill for 250k. Acres in the area we live are very, very scarce; I spoke w/ one developer who pointed out these have basically disappeared in our county. It is undeveloped, and would likely need ~15k in sewer/water/power access, an extra 20-30k in driveway, and 50-75k in landscaping (my guess? I've never done this . . . :shock: ). And then there's the house.

I'm a family doc making ~250-275k/yr, wife is SAHM w/ 2 kids. We don't have another kid on the way, but likely will have another 1-2 within 5ish years. DW would likely return to work as a nurse once they're all back in school. We've been putting ~75k / yr into retirement/investments since I finished training. We have about 150k left on our mortgage, in about a 300k home.

Cash on hand, ~80k, 30 of which is earmarked for some expected taxes April 2017.
Retirement assets: 300k
Short term savings / E-fund: 30k (not counted in cash on hand)
Debt: Mortgage only. Finally killed our student loans this year. No car loans or consumer debt.

New construction is pretty expensive here in Utah, between $150-200 / sq ft. If we put a 3500 sq ft home, that'd be a 525-700k home, in addition to the lot.

We can cut corners in the landscaping and perhaps not finishing the basement, but to my rough calculation this would be 250k lot + 100k in lot improvements + house (600k?) = 950k. Subtracting down payment leaves 750k mortgage, or 3x annual income. Our payment would be 4,207.18 based on a web calculator guessing what our taxes etc would add. I think we're relatively frugal people, but I really worry that this would leave us very house poor. Thanks in advance, but what say ye?

toomuchRE
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Re: Too much house, right?

Post by toomuchRE » Fri Nov 24, 2017 6:33 pm

You are stretching a little but you are doc and seem to have a handle on your finances and stable job. Go for it if you think the price is right AND you plan to live there for ever...

But remember building your own house is not for everyone...

delamer
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Re: Too much house, right?

Post by delamer » Fri Nov 24, 2017 6:59 pm

Is this home in a development with a HOA? If not, then you probably have a lot of leeway as to how much you put into landscaping initially. That cost could be spread out over time, rather than all of it upfront.

Don't know if you've looked at any house plans yet, but you might find that 3000 square feet will meet your needs. Unless you need large bedrooms or formal rooms, 3500 square feet is a lot to heat/cool/furnish/clean. Our kids had small bedrooms but a good size basement playroom. So they had private space as desired, but most of their activities ended up in the shared playroom. Five hundred less square feet could save you $100,000.

Just some things to think about in terms of reducing costs.

If you feel that you can save adequately for retirement and college (and have enough disability and life insurance for both of you), then the house is not out of line.

letsgobobby
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Re: Too much house, right?

Post by letsgobobby » Fri Nov 24, 2017 7:04 pm

Deleted
Last edited by letsgobobby on Wed Aug 28, 2019 11:00 pm, edited 1 time in total.

DavidRoseMountain
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Re: Too much house, right?

Post by DavidRoseMountain » Fri Nov 24, 2017 7:13 pm

If you are going to have a house built you might consider using geothermal energy, solar energy, and passive heating type design, so that at least your utility bills can be very low, to offset the mortgage payment.

boglegirl
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Re: Too much house, right?

Post by boglegirl » Fri Nov 24, 2017 7:34 pm

Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
...We are rapidly outgrowing our current home due to our rambunctious 3yo and 18mo, and am looking to move within 1-2 years. We discovered a simply gorgeous acre lot on a little bit of a hill for 250k....
I'm a family doc making ~250-275k/yr...
New construction is pretty expensive here in Utah, between $150-200 / sq ft. If we put a 3500 sq ft home, that'd be a 525-700k home, in addition to the lot...
You're a doctor making good money, and your wife has the potential for good money in a few years, too. So I don't have a problem with you buying whatever fits into your budget. But please don't pretend this is about "rapidly outgrowing" a house with 2 toddlers. This is more about the "simply gorgeous acre lot". 4 people don't need 3500 sq ft on an acre.

Edited to add: Sorry to sound like a curmudgeon. I'm not, really...Buy the house if it will make you happy (and it probably will be a lovely place to live for the rest of your life).

gclancer
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Re: Too much house, right?

Post by gclancer » Fri Nov 24, 2017 7:38 pm

DavidRoseMountain wrote:
Fri Nov 24, 2017 7:13 pm
If you are going to have a house built you might consider using geothermal energy, solar energy, and passive heating type design, so that at least your utility bills can be very low, to offset the mortgage payment.
+1 - obviously this all adds to the cost but you should probably consider finishing the basement as well if you ever plan to have it finished - much cheaper during the building phase.

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Watty
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Re: Too much house, right?

Post by Watty » Fri Nov 24, 2017 7:49 pm

If you do buy that lot then get a good real estate lawyer to write up the contract to be contingent on being able to get all the utilities and permits at a reasonable cost. I have heard of a situation where someone bought raw land only to find out that there was no way to get water. :oops:

I would not buy land like that and not build on it right away. I have heard of people buying land to build their retirement home on only to find out 20 years later that they could not get all the permits they needed because the rules had changed.
Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
I'm a family doc making ~250-275k/yr,.......

Our payment would be 4,207.18 based on a web calculator guessing what our taxes etc would add.
If your numbers are right then the payments would be well less than $60K a year. Taxes would skew it but in effect you would have to live like you were "only" making 190-215K a year. For most people that would be easy.
Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
Cash on hand, ~80k, 30 of which is earmarked for some expected taxes April 2017.
So you only have $50K. Even if you can tap your home equity I suspect that getting a building loan will be a challenge. Lenders tend to be cautious and want a large down payment since they don't want to get stuck with a half finished house if you default on the loan.
Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
I think the answer to this is going to be a more resounding, "No!", but it seems to be a once-in-a-lifetime opportunity, so I am wanting to get some opinions.
If you can find financing I think that this is doable. Don't kid yourself though about this being a once-in-a-lifetime opportunity to own a million dollar home on an acre. There are likely some houses like that for sale in your area now and this is a slow time of year. Typically homes are owned for an average of seven years so if there are houses like that in your area they will regularly come of the market.

A few things;
1) Check with several real estate agents to make sure that if you spend a million to build a house that you would be able to resell it for around that if you need to. You do not want to spend a million dollars to build a $750K house.

2) Check the schools to make sure that they are OK. Adding private school into the mix would likely make the numbers not work.

3) Check on home insurance costs. Sometimes property that is far from a fire hydrant and 20 minutes from the nearest fire station can be expensive to insurance

onourway
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Re: Too much house, right?

Post by onourway » Fri Nov 24, 2017 7:57 pm

It sounds like a big stretch to me, but we are extremely conservative when it comes to house/vehicle costs. With another couple of kids possibly on the way your wife is unlikely to enter the workforce any time soon. You don't mention any college savings for the current kids, not to mention any in the future. Is the nature of your job likely to keep increasing your income? At ~$250k/year a million dollar house would make me very nervous. Such houses have a lot of carrying costs both in maintenance and the lifestyle they engender.

Keep in mind that 'house-poor' doesn't necessarily mean you are in a house you can't afford. To me it means that your house significantly dictates how you live your life. To me a mortgage/income ratio like this would significantly impact my ability to live the rest of my life.
Last edited by onourway on Fri Nov 24, 2017 8:02 pm, edited 1 time in total.

aristotelian
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Re: Too much house, right?

Post by aristotelian » Fri Nov 24, 2017 7:58 pm

You current savings rate is 75k out of 250k, about 30%. That puts you on track to retire in about 28 working years. Back of the napkin, the new house payment would probably eat up about 25k and drop your savings rate down to 20%. That's not terrible but it will set you back about 9 years and put you on track to retire in 37 working years. Does that sound worth it to you?

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Smorgasbord
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Re: Too much house, right?

Post by Smorgasbord » Sat Nov 25, 2017 9:41 am

boglegirl wrote:
Fri Nov 24, 2017 7:34 pm
You're a doctor making good money, and your wife has the potential for good money in a few years, too. So I don't have a problem with you buying whatever fits into your budget.
It sounds like Mrs. UtahDogOwner won't be going back to work until the last kid is in school. If they are planning "another 1-2 [kids] within 5ish years" that means it could be another decade or so before Mrs. UtahDogOwner starts working again...and that's almost when their oldest will be getting ready to start looking at colleges.

Flashes1
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Re: Too much house, right?

Post by Flashes1 » Sat Nov 25, 2017 9:57 am

I say go for it. We built our dream home 5 years ago and couldn't be happier....although I wish I would have made certain rooms bigger like the Exercise room and Theater Room. You only live once.

DarthSage
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Re: Too much house, right?

Post by DarthSage » Sat Nov 25, 2017 10:35 am

I'm in the camp of "go for it", mostly because the lot, itself, sounds like a rare opportunity. A few things on the house itself:

It's not necessary to do all the landscaping at once. Obviously, if the lot needs to be cleared, most of that needs to come first. But even that wouldn't require clear-cutting right away, just around the area of the actual building site.

Along the same lines, the entire house doesn't have to be finished to your final vision right away. For example, finishing the basement might not be a priority while your kids are young, but a nice finished rec room or whatever would be great when they're older. You could maybe even find a plan where you could add extra bedrooms down the line--adding on a second floor or bumping out the back. Adding things like a porch/deck or pool don't have to come immediately, either.

Since you're starting from scratch, really think about any "special" things you might want. It's easy to put in a ton of outlets at the beginning, for example, or prep for a woodstove, even if you aren't putting one in right away.

KlangFool
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Re: Too much house, right?

Post by KlangFool » Sat Nov 25, 2017 10:46 am

OP,

Does that mean your kids will be taking the student loans because of this house? It is your money. If that is your goal, go right ahead.

KlangFool

chevca
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Re: Too much house, right?

Post by chevca » Sat Nov 25, 2017 10:53 am

I also don't think it's "too much". Seems do-able now and with the wife likely to go back to work as a nurse someday... should just get easier as time goes on.

I would be a little scared of having to get all the sewer, utilities, and all permitted and done. But, I've never gone through that, so may just be a fear of the unknown.

The good part would be, if you get the lot first you could always do the other parts in stages over a few years since you already have a home. I say, go for it.

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Top99%
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Re: Too much house, right?

Post by Top99% » Sat Nov 25, 2017 11:49 am

I would first look for opportunities to reduce the size of the house (along with the initial expense and ongoing maintenance and utility expenses) by being as efficient with space as possible. For example, you can use wall beds to double purpose an office or exercise room with a guest bedroom.
Also keep in mind by lowering your savings rate you are also increasing the importance of luck in your time to financial independence. This article gets posted a lot: https://earlyretirementnow.com/2017/11/ ... etirement/
Dropping your savings rate from 30% to 20% makes you very dependent on getting average or above average investment returns if you want to reach FI before your 70s.
Adapt or perish

edge
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Re: Too much house, right?

Post by edge » Sat Nov 25, 2017 12:07 pm

If you do this, don’t compromise on things that are very hard to change.

For example, the advice to shrink the house. Don’t do that and then spend 20 years regretting it.

You can afford it but think through each piece. For example, with kids we always wanted a neighborhood feel.

Uniballer
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Re: Too much house, right?

Post by Uniballer » Sat Nov 25, 2017 12:25 pm

Why is the lot vacant if these are in such great demand? Is there something wrong with it (floods seasonally, bad roads leading to it, hazardous waste, Indian burial ground :) , etc.)?

What utilities are available at the road? E.g. electric, natural gas, water, sewer, broadband cable/fiber Internet...

Is the property at the same level as the road, or higher or lower?

Maybe drag your favorite general contractor out to see the place. You may get an instant education from hearing his perspective.

hazlitt
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Re: Too much house, right?

Post by hazlitt » Sat Nov 25, 2017 10:44 pm

I don't think you have enough cash on hand for that size of a mortgage. When we were looking for a new house 5 years ago, I wanted to make sure we could afford it, but I also knew that trying to get my wife to agree to a budget would be a fool's errand. She would get pissed off at the limit and blow past it anyway. So I came up with something else: no budget (seriously), but two limitations. First, we had to put at least 20% down. Second, we had to have at least another 10% in cash (separate from investment accounts). Stay inside those two rules and get whatever house she wants.

Point is that expensive houses are also expensive to maintain. You need constant cash. And you need to have a lot of equity in it bc anything can happen and you might have to sell it in a down market.

Side note, we have a small business and she got really motivated to grow it so she could get her dream home. She did awesome and we ended up with a house far larger than I had planned on. But we kept the two rules and both ended up happy.

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Sandtrap
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Re: Too much house, right?

Post by Sandtrap » Sat Nov 25, 2017 10:54 pm

As a builder and R/E developer. . . and homeowner.. . One of the most rewarding life and family experiences is building one's dream home. Many buy homes that are already made. You have the wonderful opportunity to create what you and DW envision for the future. And, because of your hard work and ambition, can afford it. The value of building your dream home goes far beyond what can be put down on a spreadsheet. Go for it. :D

But, be careful. Lot inspection as "Watty" pointed out. HOA, CCR's, etc, etc. Then architect design, plans and specs, then bidding by licensed n insured general contractors that are reputable and fully vetted. And, expect nearly all projected costs to mushroom a bit or more during the process.

Have fun. :D
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bottlecap
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Re: Too much house, right?

Post by bottlecap » Sat Nov 25, 2017 11:07 pm

That’s pretty tight. The only thing in the area with an acre is $950k+? If so, maybe you should wait.

JT

Topic Author
Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:17 pm

delamer wrote:
Fri Nov 24, 2017 6:59 pm
Is this home in a development with a HOA? If not, then you probably have a lot of leeway as to how much you put into landscaping initially. That cost could be spread out over time, rather than all of it upfront.

Don't know if you've looked at any house plans yet, but you might find that 3000 square feet will meet your needs. Unless you need large bedrooms or formal rooms, 3500 square feet is a lot to heat/cool/furnish/clean. Our kids had small bedrooms but a good size basement playroom. So they had private space as desired, but most of their activities ended up in the shared playroom. Five hundred less square feet could save you $100,000.

Just some things to think about in terms of reducing costs.

If you feel that you can save adequately for retirement and college (and have enough disability and life insurance for both of you), then the house is not out of line.
No HOA. We'd have a ton of leeway - the home we'd border on one side is actually an equestrian park w/ a small arena for training horses (not for rodeo etc), and the other two homes that border, one is a total eye sore and one is a gorgeous million dollar beauty. Your point about small bedrooms and more playroom is well taken. I'll remember that as we look at home options.

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:18 pm

letsgobobby wrote:
Fri Nov 24, 2017 7:04 pm
It's a stretch but you've been saving well and have a stable job. Maybe the biggest missing piece is college savings for 2-4 kids. That's a huge hole in your future budget.
I'd left that off, true. We've been putting 3K / year per child into a 529. Good point.

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:19 pm

DavidRoseMountain wrote:
Fri Nov 24, 2017 7:13 pm
If you are going to have a house built you might consider using geothermal energy, solar energy, and passive heating type design, so that at least your utility bills can be very low, to offset the mortgage payment.
Great points to consider. Thanks for the tip!

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:25 pm

boglegirl wrote:
Fri Nov 24, 2017 7:34 pm
Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
...We are rapidly outgrowing our current home due to our rambunctious 3yo and 18mo, and am looking to move within 1-2 years. We discovered a simply gorgeous acre lot on a little bit of a hill for 250k....
I'm a family doc making ~250-275k/yr...
New construction is pretty expensive here in Utah, between $150-200 / sq ft. If we put a 3500 sq ft home, that'd be a 525-700k home, in addition to the lot...
You're a doctor making good money, and your wife has the potential for good money in a few years, too. So I don't have a problem with you buying whatever fits into your budget. But please don't pretend this is about "rapidly outgrowing" a house with 2 toddlers. This is more about the "simply gorgeous acre lot". 4 people don't need 3500 sq ft on an acre.

Edited to add: Sorry to sound like a curmudgeon. I'm not, really...Buy the house if it will make you happy (and it probably will be a lovely place to live for the rest of your life).
Touche! The rapidly outgrowing is really only our family room/kitchen. We live in this split level home and it creates the entry floor space that we really can't use much and a small living room w/ the kitchen where 90% of the day is that is just cramped. You are absolutely right that 4 people don't need either 3500 sqft or an acre. We do plan to expand our family, though likely less now that we have actual kids. I have said a few times that theoretical children are a lot easier to deal with than real children. :shock:

I honestly think I posted this looking for people to reinforce that I should NOT buy the house - it feels like too much of a stretch to be comfortable to me, though we would love having a space to have a goat wander etc, but as someone commented elsewhere, our kids would probably be a lot happier w/ parents that aren't stressed about money and parents that aren't always working to afford the lovely home/lot. As my wife reminds me, we should do more of what makes us happy. And being at work to afford a gorgeous home probably isn't what makes me happy.

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:26 pm

gclancer wrote:
Fri Nov 24, 2017 7:38 pm
DavidRoseMountain wrote:
Fri Nov 24, 2017 7:13 pm
If you are going to have a house built you might consider using geothermal energy, solar energy, and passive heating type design, so that at least your utility bills can be very low, to offset the mortgage payment.
+1 - obviously this all adds to the cost but you should probably consider finishing the basement as well if you ever plan to have it finished - much cheaper during the building phase.
I've heard this exclusively from builders we've talked with, and partly chalked that up to the builder trying to get more money out of us. Do you have experience to say how much price difference it actually is to finish it later?

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:28 pm

DarthSage wrote:
Sat Nov 25, 2017 10:35 am
I'm in the camp of "go for it", mostly because the lot, itself, sounds like a rare opportunity. A few things on the house itself:

It's not necessary to do all the landscaping at once. Obviously, if the lot needs to be cleared, most of that needs to come first. But even that wouldn't require clear-cutting right away, just around the area of the actual building site.

Along the same lines, the entire house doesn't have to be finished to your final vision right away. For example, finishing the basement might not be a priority while your kids are young, but a nice finished rec room or whatever would be great when they're older. You could maybe even find a plan where you could add extra bedrooms down the line--adding on a second floor or bumping out the back. Adding things like a porch/deck or pool don't have to come immediately, either.

Since you're starting from scratch, really think about any "special" things you might want. It's easy to put in a ton of outlets at the beginning, for example, or prep for a woodstove, even if you aren't putting one in right away.
I have to say, I've been surprised to hear how many say go for it, but I appreciate the advice. Good ideas for trying to make this work by phases.

kjvmartin
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Re: Too much house, right?

Post by kjvmartin » Sat Nov 25, 2017 11:29 pm

Utahdogowner wrote:
Sat Nov 25, 2017 11:19 pm
DavidRoseMountain wrote:
Fri Nov 24, 2017 7:13 pm
If you are going to have a house built you might consider using geothermal energy, solar energy, and passive heating type design, so that at least your utility bills can be very low, to offset the mortgage payment.
Great points to consider. Thanks for the tip!
A relative built the dream house and lived there less than a year before being offered the dream job opportunity halfway across the state. Many of the very energy efficient design choices he made were not recouped in the same of the house. Make very certain you will be staying in the area for a very long time.

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:30 pm

KlangFool wrote:
Sat Nov 25, 2017 10:46 am
OP,

Does that mean your kids will be taking the student loans because of this house? It is your money. If that is your goal, go right ahead.

KlangFool
KlangFool, always with the cut to the chase. And I love it!
We've been putting away ~3k / child per year for college. I do anticipate possibly cash-flowing additional support at time of need, but I also expect them to either work a bit or get scholarships to help, as well.

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:36 pm

Watty wrote:
Fri Nov 24, 2017 7:49 pm
If you do buy that lot then get a good real estate lawyer to write up the contract to be contingent on being able to get all the utilities and permits at a reasonable cost. I have heard of a situation where someone bought raw land only to find out that there was no way to get water. :oops:

I would not buy land like that and not build on it right away. I have heard of people buying land to build their retirement home on only to find out 20 years later that they could not get all the permits they needed because the rules had changed.
We'd toyed w/ the idea of buying it and waiting a few years, but in the end it ties up our cash too much to do that. That is a scary thought, too.

If your numbers are right then the payments would be well less than $60K a year. Taxes would skew it but in effect you would have to live like you were "only" making 190-215K a year. For most people that would be easy.
I hadn't thought to simplify it that much. Thanks for that analysis.
Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
Cash on hand, ~80k, 30 of which is earmarked for some expected taxes April 2017.
So you only have $50K. Even if you can tap your home equity I suspect that getting a building loan will be a challenge. Lenders tend to be cautious and want a large down payment since they don't want to get stuck with a half finished house if you default on the loan.
We do have a home we could move in to immediately for the next year while my parents are out of the country. We thought that would give us fairly easy access to home equity to secure the financing.

If you can find financing I think that this is doable. Don't kid yourself though about this being a once-in-a-lifetime opportunity to own a million dollar home on an acre. There are likely some houses like that for sale in your area now and this is a slow time of year. Typically homes are owned for an average of seven years so if there are houses like that in your area they will regularly come of the market.

A few things;
1) Check with several real estate agents to make sure that if you spend a million to build a house that you would be able to resell it for around that if you need to. You do not want to spend a million dollars to build a $750K house.

2) Check the schools to make sure that they are OK. Adding private school into the mix would likely make the numbers not work.

3) Check on home insurance costs. Sometimes property that is far from a fire hydrant and 20 minutes from the nearest fire station can be expensive to insurance
You're right this isn't a once-in-a-lifetime million dollar home on an acre lot, it's more that we could build our custom house and do what we wanted w/ the land because there aren't acres that haven't been developed around much, anymore. This is all land that 20 years ago used to be cow pastures where we'd go pheasant hunting. Now it's row upon row of tract homes. Your additional points are very well taken. I do not know about resale of the homes in this range. And the insurance cost is a great idea, too. The schools are among the best in the state, though, so thankfully no worry about private schools.

msk
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Re: Too much house, right?

Post by msk » Sat Nov 25, 2017 11:38 pm

My decades old rule of thumb has been that a home should not cost more than 3x single income (or 2.5x dual incomes). So if you can keep things down to $750k total, great! If not, you can still 'justify' it as follows: the building lot, since it's rare can be considered as an 'investment'. You will be very unlucky if its value does not both keep up with inflation and increase beyond that. The house is probably a so-so investment. Building costs keep up with inflation, but you will have maintenance costs and you will be consuming all rental value by living in it. By building new, you are in fact skipping the profit margin by a developer. Good. Overall, will this 'investment' do better than in stocks? Depends very much on your judgement as to whether it is indeed such a desirable building lot. If you are truly convinced of that then I would still be wary of exceeding $750k total by much. You can always build a small house that is ready for future expansion by adding a wing or whatever. Remember, the land may well be a great investment but the house is no better than bonds (keeps up with inflation, barely). Speaking as somebody who has steadily upgraded over decades to my current, extremely silly but fun, 14,000 sq ft home.

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Utahdogowner
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Re: Too much house, right?

Post by Utahdogowner » Sat Nov 25, 2017 11:40 pm

Top99% wrote:
Sat Nov 25, 2017 11:49 am
I would first look for opportunities to reduce the size of the house (along with the initial expense and ongoing maintenance and utility expenses) by being as efficient with space as possible. For example, you can use wall beds to double purpose an office or exercise room with a guest bedroom.
Also keep in mind by lowering your savings rate you are also increasing the importance of luck in your time to financial independence. This article gets posted a lot: https://earlyretirementnow.com/2017/11/ ... etirement/
Dropping your savings rate from 30% to 20% makes you very dependent on getting average or above average investment returns if you want to reach FI before your 70s.
I love your idea. I hadn't considered that - my wife has wanted a dance studio at times and the idea of putting a murphy bed in there makes that seem so much more functional.

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Watty
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Re: Too much house, right?

Post by Watty » Sun Nov 26, 2017 12:48 am

It would be good to have a real estate agent take you to see any similar houses that are for sale. There is a chance that you will find one that you fall in love with or at least you will see things that you would want or not want in a house you build. .

I would suspect that many of the lots that were developed first were chosen because they were even better than the one you are looking at so by buying an existing home you could get a much better lot.
Utahdogowner wrote:
Sat Nov 25, 2017 11:17 pm
No HOA. We'd have a ton of leeway - the home we'd border on one side is actually an equestrian park w/ a small arena for training horses (not for rodeo etc), .......
Be cautious about buying next to undeveloped land. It was a long time ago buy when I was a kid my parents bought a house in the middle of a subdivision that had a private golf course and driving range on one side. The golf course was not directly affiliated with the subdivision but the lots that were on the golf course sold for a significant premium.

About thirty years later the golf course was bought by the city and became a municipal golf course. The problem was that they build a municipal pool where the driving range was which was bad for the people that had the premium lots that now back up to the municipal pool.

With the area changing I would suspect that the equestrian park will be developed into something else at some point.

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celia
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Re: Too much house, right?

Post by celia » Sun Nov 26, 2017 3:33 am

Utahdogowner wrote:
Fri Nov 24, 2017 6:06 pm
I think the answer to this is going to be a more resounding, "No!", but it seems to be a once-in-a-lifetime opportunity, so I am wanting to get some opinions.
You had me sold at this point. If it is really a once-in-a-lifetime opportunity, go for it!

But it sounds like you really want to buy it and are looking for others to talk you out of it. However, I agree with others that you should consider a completed house you like in the area as well as check that the property can get all the utilities. And have you considered who your children will play with if they live in this more-rural(?) area?
We discovered a simply gorgeous acre lot on a little bit of a hill for 250k. Acres in the area we live are very, very scarce; I spoke w/ one developer who pointed out these have basically disappeared in our county. It is undeveloped, and would likely need ~15k in sewer/water/power access, an extra 20-30k in driveway, and 50-75k in landscaping (my guess? I've never done this . . . :shock: ).
This sounds contradictory to me. A "gorgeous" lot, to me, has fully grown and nice-looking landscaping. Why would you then have to spend so much for landscaping? Take advantage of what is already there naturally and avoid putting in a lawn, which only uses a lot of water and needs to be mowed all the time. For a play area, find a level place and pull out the weeds/ground cover and put pea gravel or some tiny rocks, like pea gravel or decomposed granite to keep it from getting muddy and washing away.
aristotelian wrote:
Fri Nov 24, 2017 7:58 pm
You current savings rate is 75k out of 250k, about 30%. That puts you on track to retire in about 28 working years. Back of the napkin, the new house payment would probably eat up about 25k and drop your savings rate down to 20%. That's not terrible but it will set you back about 9 years and put you on track to retire in 37 working years. Does that sound worth it to you?
I would assume they will sell their existing house after they move in, so the costs are not as much as you project.

Olemiss540
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Re: Too much house, right?

Post by Olemiss540 » Sun Nov 26, 2017 7:20 am

I say to wait. Financial stress can cause havoc in personal relationships around the house and with tour current nest egg, I say you need to buckle down for a few more years. I am in a similar situation and doing my best to enjoy our undersized house as long as possible to be able to loan <2x income on our dream house.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

aristotelian
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Re: Too much house, right?

Post by aristotelian » Sun Nov 26, 2017 7:47 am

celia wrote:
Sun Nov 26, 2017 3:33 am
I would assume they will sell their existing house after they move in, so the costs are not as much as you project.
True, but they appear to be relatively young so I am assuming not much equity built up. He does state that they currently have a mortgage. Perhaps the new house would require 8.5 additional years of working. Need more details. He can certainly afford it. The question to me is whether it is worth it.

wilked
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Re: Too much house, right?

Post by wilked » Sun Nov 26, 2017 8:50 am

I would feel better about saying “go for it” if you had more savings. For something of this magnitude having only $50k liquid seems like a bad idea. I know you have some home equity too which helps but still worry it comes up light.

mouses
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Re: Too much house, right?

Post by mouses » Sun Nov 26, 2017 9:03 am

I hope the OP and Mrs. OP have life insurance up to their gills for both of them, regardless of whether they go for this house.

The OP says he is not comfortable with this house idea, so I say absolutely do not do it. Another opportunity will come along.

In the meantime, think about what you actually want and need. That is not necessarily a gigantic house. I know nowadays people think they need 1000 sq ft a person, but really, years ago families got by on much less than that and I think were closer because they were not all off in their own areas.

Also, that is a heck of a lot of money for landscaping. Just because one has an acre doesn't mean it all has to be manicured. A mini woods at the back...

Lynette
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Re: Too much house, right?

Post by Lynette » Sun Nov 26, 2017 9:14 am

.....
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onourway
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Re: Too much house, right?

Post by onourway » Sun Nov 26, 2017 9:28 am

I'm a bit surprised by the general response here. We have a similar salary with 3 kids and I can't imagine owning this much house.

They have only $50k cash in hand for the house, and $30k for emergency fund (less than 3 month's expenses with high risk with a single earner).

They would be 100% reliant on that one income to make this work.

New construction nearly always goes over budget. Often considerably.

They are adding more kids, which will further increase expenses. $3k/year per kid for college savings is on the low end.

2% of home value for maintenance is another $1,700/month. That brings monthly housing costs to more like $6,000.

Assuming $250k annual income, they maintain their $75k annual retirement investing, and $6k annual college savings, and 20% effective tax rate on the remaining taxable income (this is totally off the cuff - tax experts please advise), that leaves a monthly positive cashflow of about $11,000. Of that they'd be spending $6k of that on the house. To me, that leaves very little flexibility for doing anything else.

Maybe my numbers are off. @utahdogowner have you run this kind of analysis with more specifics?

Dandy
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Re: Too much house, right?

Post by Dandy » Sun Nov 26, 2017 9:31 am

That wouldn't be me but everyone is different. Almost everyone I know found the building of a new house or even extensive remodeling of their current house to be a major stress emotionally and financially. Delays, permits, time spent on making decisions on the smallest details e.g. type of tile for the back splash behind the stove, etc.

For some people this can be exciting --i.e. building a home exactly the way you want it. For others it was a stressful nightmare. Try to figure out which type you and your family are because the next year or so might be all consuming. You need to be able to make decisions as a couple quickly - can't spend too much time deciding about the back splash tile or your project will last forever.

For me I'd buy an existing home that has some remodeling opportunities to get the close to dream house you desire.

Good luck.

chevca
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Re: Too much house, right?

Post by chevca » Sun Nov 26, 2017 9:43 am

onourway wrote:
Sun Nov 26, 2017 9:28 am
Assuming $250k annual income, they maintain their $75k annual retirement investing, and $6k annual college savings, and 20% effective tax rate on the remaining taxable income (this is totally off the cuff - tax experts please advise), that leaves a monthly positive cashflow of about $11,000. Of that they'd be spending $6k of that on the house. To me, that leaves very little flexibility for doing anything else.
Only $5k a month in spending money?! I'd like that problem. :happy

johnubc
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Re: Too much house, right?

Post by johnubc » Sun Nov 26, 2017 9:47 am

so - to build, you will be spending 2 years of aggravation and 900k.

What can you buy in the area for 900k - is it worth the 2 years of aggravation?

letsgobobby
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Re: Too much house, right?

Post by letsgobobby » Sun Nov 26, 2017 9:51 am

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Watty
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Re: Too much house, right?

Post by Watty » Sun Nov 26, 2017 9:55 am

Dandy wrote:
Sun Nov 26, 2017 9:31 am
That wouldn't be me but everyone is different. Almost everyone I know found the building of a new house or even extensive remodeling of their current house to be a major stress emotionally and financially. Delays, permits, time spent on making decisions on the smallest details e.g. type of tile for the back splash behind the stove, etc.
There is an old joke that the final step in building a custom home is to file the divorce papers.

tampaite
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Re: Too much house, right?

Post by tampaite » Sun Nov 26, 2017 9:56 am

Deleting my messages on this forum
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Goinganontoday
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Re: Too much house, right?

Post by Goinganontoday » Sun Nov 26, 2017 10:26 am

onourway wrote:
Sun Nov 26, 2017 9:28 am
I'm a bit surprised by the general response here. We have a similar salary with 3 kids and I can't imagine owning this much house.

They have only $50k cash in hand for the house, and $30k for emergency fund (less than 3 month's expenses with high risk with a single earner).

They would be 100% reliant on that one income to make this work.

New construction nearly always goes over budget. Often considerably.

They are adding more kids, which will further increase expenses. $3k/year per kid for college savings is on the low end.

2% of home value for maintenance is another $1,700/month. That brings monthly housing costs to more like $6,000.

Assuming $250k annual income, they maintain their $75k annual retirement investing, and $6k annual college savings, and 20% effective tax rate on the remaining taxable income (this is totally off the cuff - tax experts please advise), that leaves a monthly positive cashflow of about $11,000. Of that they'd be spending $6k of that on the house. To me, that leaves very little flexibility for doing anything else.

Maybe my numbers are off. @utahdogowner have you run this kind of analysis with more specifics?
+1

Here's how I would lay out the numbers:
$250,000 gross income
-$35,000 in taxes, assuming 20% effective rate on gross income minus retirement savings (I'm assuming it's pretax savings)
-$75,000 retirement savings
-$12,000 college savings ($3,000 per child per year with the plan to have 4 kids within the next couple of years)
-19,000 annual maintenance (2% of $950,000)
-$54,000 annual mortgage payments on a $950,000 mortgage (between costs related to moving, selling costs, going over budget on building a home, buying furniture to fill the larger home, etc, I wouldn't plan on the mortgage being much lower than your estimated $950,000...it might be, but I prefer to be conservative in these estimates)
-?? Property taxes

Total income remaining per year: $55,000 (minus property taxes)

mouses
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Re: Too much house, right?

Post by mouses » Sun Nov 26, 2017 10:32 am

Property taxes, insurance - homeowners, car, umbrella liability, perhaps flood or earthquake -, medical and dental costs, utilities, food, clothing, those will make mincemeat of that $5K a month.

onourway
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Re: Too much house, right?

Post by onourway » Sun Nov 26, 2017 10:33 am

chevca wrote:
Sun Nov 26, 2017 9:43 am
Only $5k a month in spending money?! I'd like that problem. :happy
That's not $5k/month in spending money. They have to pay all other expenses other than the house out of that. Food, entertainment, utilities, kid costs, general household expenses, health care (?), cars, insurance, clothing, gifts, pets, vacations, etc. etc. I suspect they spend a lot on these categories already given their income to free cash ratio, and that number is not likely to go down owning a million dollar house and adding a couple more kids.

chevca
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Re: Too much house, right?

Post by chevca » Sun Nov 26, 2017 10:37 am

Maybe, maybe not. We have no idea how much all of that would cost, nor if they pay for all the things mentioned.

It is definitely something OP should consider though.

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