Should we purchase $700k home?

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IndexFun
Posts: 11
Joined: Tue Jan 29, 2019 10:09 am

Should we purchase $700k home?

Post by IndexFun » Mon Mar 18, 2019 10:45 am

UPDATE: We have decided to pass on the house and remain patient for a smaller home in the neighborhood in the $300-500K range. Full detailed reply is on Page 2, thanks, everyone!

Hello Everyone,

My wife and I are contemplating upgrading our home, and want to get a second opinion as to whether this is a prudent/wise decision or not. Relevant info below.

Ages: 32 and 33 years old w/ 19-month toddler, and a second child due in June

Current net worth: $1.2 million

- $792k liquid investments (most tax-advantaged (401k, IRA, Roth, HSA; $115k liquid in after-tax brokerage); $73k cash value of an inherited whole life policy
-$80k cash
-$45k Private placement investment

Liabilities: Current home (Below) + Sailboat loan ($250k @ 3.9%) [Currently estimated resale, $350k, so roughly $100k in equity not included in the above net worth calculation - this is our weekend leisure and long-term goal to go cruising]

Income: Me - $200k in base and bonus, plus ‘phantom’ restricted stock in the company; wife; $180k in base and annual bonus, plus restricted stock in her company. Jobs are very stable.

Current home value (3 bedroom 1500 square feet): $275k - we owe $126k on this home @ 3.75% (3 bedroom 2.5 bath, 1600 square feet) - $620 per month mortgage

Current childcare expenses: $21k / year (starting in 2020 that will double)

~70% savings rate per year historically since 2015

New Home: 5 Bedroom, 3900 square feet - we would likely be able to purchase for around $700k - $140k down, 4.25% interest rate - $2800 roughly per month mortgage - Home market is great for appreciation due to demographics/population growth/limited supply

Advantages - new home has more rooms for home office/guest bedroom for in-law visits, and is walking distance to pre-school/park/amenities.

Convenience is a big factor for us with our busy ‘corporate’ lives, just don’t want to severely restrict our cash flow and ability to save for larger goals (financial independence).

Welcome any thoughts/opinions/questions from the group here!
Last edited by IndexFun on Wed Mar 20, 2019 11:09 am, edited 1 time in total.

JGoneRiding
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Re: Should we purchase $700k home?

Post by JGoneRiding » Mon Mar 18, 2019 10:56 am

At your income levels and job needs I would be looking at a nanny (said in the same child situation as you) we have been home a LOT with day care.

Have you priced one or is that 42k (seems right) the price for one? I would put that in my budget and then decide if I wanted to up grade the house. Unless this house is very unique i would wait one year till things settle after the arrival if the second

KlangFool
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Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 11:03 am

OP,

1) No. You do not need the space. But, you need the flexibility of losing one income if necessary.

2) The additional space would not help you. In fact, it will make it harder to take care of the 2 babies. You will close off most of the spaces if you buy the new house.

Spend money on your family instead of a house.

KlangFool

dg243
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Re: Should we purchase $700k home?

Post by dg243 » Mon Mar 18, 2019 11:08 am

I'm a big sucker for convenience, so that alone would be a big point in favor of the new house. Based on what you wrote, it also sounds like the new home, while more expensive/month, will also yield a larger return down the road when you decide to sell. Plus, depending on your relationship with your in-laws, a guest room for them could translate into help when baby #2 arrives, which seems to me to would be a major "asset." All in all, I say go for it!

stoptothink
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Re: Should we purchase $700k home?

Post by stoptothink » Mon Mar 18, 2019 11:09 am

Affordability isn't a concern, and you know that. The real question is if buying that much house is really going to make you happier or if using those resources for other wants would be more effective. I know my answer, but it might be different than yours.

letsgobobby
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Re: Should we purchase $700k home?

Post by letsgobobby » Mon Mar 18, 2019 11:20 am

Deleted
Last edited by letsgobobby on Thu Apr 18, 2019 12:54 am, edited 1 time in total.

ohai
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Re: Should we purchase $700k home?

Post by ohai » Mon Mar 18, 2019 11:26 am

I don't think you, or most people, need a 4000 square foot house, but it seems that you can buy it if you want. You'll just have less savings for other things.

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Cobra Commander
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Re: Should we purchase $700k home?

Post by Cobra Commander » Mon Mar 18, 2019 11:28 am

I'm surprised that a 3 bedroom / 1600 sq. foot house costs $275K and a 5 bedroom 3900 sq. foot house costs $700K unless the $700K house has really nice finishes or some other type of special upgrades not present in your current house. I am in a HCOL area but the price of the houses here doesn't seem to scale linearly with increases in square footage since most of the value of the house is in the land and most lots are the same size.

I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys. I just wonder if there isn't a larger house for around $500Kish available that would work for you guys.

abc132
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Re: Should we purchase $700k home?

Post by abc132 » Mon Mar 18, 2019 11:33 am

You can afford it with a house cost of 2 years income.

I'd be pretty happy with 4.25% or 3.9% on a portion of my investments, so I would consider really paying down some of your debt if you do buy the house. (Consider paying off within 10 years)

Obviously the timing of the purchase is important with a baby on the way.

I would also recommend taking a read of some of the large home threads just to make sure you have considered all the aspects of owning a larger home, and that you are not going too big.

Best of luck!

daheld
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Re: Should we purchase $700k home?

Post by daheld » Mon Mar 18, 2019 11:35 am

As someone else said, financially you can likely afford the home. Do you really need 3900 SF? It seems as though you're in a relatively moderate cost of living location if you're able to get a 3BR 1500 SF home for $275k. It stands to reason that you could likely buy a 2000 SF home with a finished basement. If half of it were finished, you'd have 3000 livable SF for likely much less than the 3900 SF home you're looking at. Big difference in spending, say, $400k and the $700k you're thinking of spending.

Particularly considering that you've got a boat that'll cost you some money in maintenance over the years, I'm not sure I'd want to drop 3/4 of a mill on a home that has more room than I need.

apple44
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Re: Should we purchase $700k home?

Post by apple44 » Mon Mar 18, 2019 11:39 am

I understand why other people would caution you against buying the new home.

But I think it's OK to go for it! I'm in similar situation as you are -- two working parents with a toddler and a baby due in May, similar net worth, assets, liabilities (we don't have a boat but we have a mortgage on the $700k house), income and savings.

We have a 2500 square feet home. I think it's fine for two children and grandma who helps us from time to time, but I think 1500 square feet would be a bit on the small side for two children. Also, I think with your income and savings you could afford it, so why not make life easier?

I have to confess that I'm not in the "early retirement" camp -- I'm more in the "save for later but also enjoy it now" camp. So I think if your goal is to retire early, then don't buy, but if you also want it to be less tight at home, then go for it.

Another consideration is timing. On the one hand, baby is due in June, and I understand that with baby coming everything may be put on hold for a while -- you and your wife probably can't handle touring homes, negotiating, inspection, applying for mortgage, packing and moving when baby is little, so it makes sense that you want to buy now. On the other hand, housing price is expected to go down in a lot of the markets so you may want to wait for a while. But different markets function differently, in some markets, it won't go down much if at all (even in 2008!). So maybe this is not a big factor for you to consider.
Last edited by apple44 on Mon Mar 18, 2019 11:41 am, edited 1 time in total.

RollTide31457
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Re: Should we purchase $700k home?

Post by RollTide31457 » Mon Mar 18, 2019 11:40 am

Net worth looks a bit low for such high incomes.

BanquetBeer
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Re: Should we purchase $700k home?

Post by BanquetBeer » Mon Mar 18, 2019 11:41 am

We will be pretty similar to you but waiting until the 2nd kid goes to kindergarten to move. Our current house is a bit bigger and it wouldn’t make sense for you to have a intermediate house.

So long as the house you are looking at is new (likely) or redone by a reputable company (foundation issues?) and is in a good school district - I’d say wait for one you really like.

Where does most of your budget go anyways? Sounds like y’all are home bodies with kids. Spend it some place you enjoy. At house = 1.8x annual income you will be fine. Just consider the other costs of moving as well

Personally I’d go for something a bit cheaper if possible. We live comfortable in 2600 sq ft but will use a 600 sq ft bonus room as a game room when the kids are older (7 or 8+)

bloom2708
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Re: Should we purchase $700k home?

Post by bloom2708 » Mon Mar 18, 2019 11:44 am

That boat is a real anchor.

With 20% down you will owe ~$800k on the home and the boat. I do not know if a $350k boat appreciates or if they follow normal boat price trends and go south.

Even a $400k income doesn't stretch that far with that much debt and a $30k/$40k daycare bill or nanny.

You can do it. You are locking yourself into both having to work for a long time. Probably a traditional, work until 67 type horizon. I don't like it because it reduces your options down the road. Going to one income. Retiring at 55 instead of 67 or 70. Big decisions your future self doesn't like.

Your 45 or 48 year old selves that have been working steady for 22-25 years will not like your choices. Hard to fast forward and see the forks in the road.

With two very young kids I'm curious how much you will use a $350k boat. I had a $6k snowmobile that barely left the garage once we had the 2nd and 3rd kid. :annoyed Peaunts compared to that boat. (Bust Out Another Thousand). :wink:

Good luck with your decision.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

chevca
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Re: Should we purchase $700k home?

Post by chevca » Mon Mar 18, 2019 11:45 am

You can certainly afford it with your incomes and that huge savings rate.

Whether you should do it, or if it's prudent is going to be different from person to person on here. What do you and your family want? That's all that matters.

My wife and I bought a brand new 3000 sq ft house in 2017. Probably more than we need for our split families situation where it's just the two of us sometimes. But, also up to six of us at times. Key is though, we could afford it, we wanted it, and we haven't regretted it for a second. YOLO

Go for it, if it's what you guys want.

stoptothink
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Re: Should we purchase $700k home?

Post by stoptothink » Mon Mar 18, 2019 11:45 am

RollTide31457 wrote:
Mon Mar 18, 2019 11:40 am
Net worth looks a bit low for such high incomes.
Did you see their ages or the $250k sailboat? I was thinking the exact opposite (and therefore assuming there was some inheritance involved).

KlangFool
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Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 11:48 am

apple44 wrote:
Mon Mar 18, 2019 11:39 am
I understand why other people would caution you against buying the new home.

But I think it's OK to go for it! I'm in similar situation as you are -- two working parents with a toddler and a baby due in May, similar net worth, assets, liabilities (we don't have a boat but we have a mortgage on the $700k house), income and savings.

We have a 2500 square feet home. I think it's fine for two children and grandma who helps us from time to time, but I think 1500 square feet would be a bit on the small side for two children. Also, I think with your income and savings you could afford it, so why not make life easier?
apple44,

OP is buying a 3,900 square feet 5 bedroom house. It is not 2,500 square feet. And, it is 2 babies with 2 adults. Are you still okay with that?

KlangFool

apple44
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Re: Should we purchase $700k home?

Post by apple44 » Mon Mar 18, 2019 11:50 am

stoptothink wrote:
Mon Mar 18, 2019 11:45 am
RollTide31457 wrote:
Mon Mar 18, 2019 11:40 am
Net worth looks a bit low for such high incomes.
Did you see their ages or the $250k sailboat? I was thinking the exact opposite (and therefore assuming there was some inheritance involved).
Exactly my thought! They are 32-33 year old couple with a net worth of 1.2m! That's considered a bit low?
Also, does "net worth" typically include the net worth of the house? i.e., house value - mortgage?
Last edited by apple44 on Mon Mar 18, 2019 11:52 am, edited 1 time in total.

apple44
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Re: Should we purchase $700k home?

Post by apple44 » Mon Mar 18, 2019 11:51 am

KlangFool wrote:
Mon Mar 18, 2019 11:48 am
apple44 wrote:
Mon Mar 18, 2019 11:39 am
I understand why other people would caution you against buying the new home.

But I think it's OK to go for it! I'm in similar situation as you are -- two working parents with a toddler and a baby due in May, similar net worth, assets, liabilities (we don't have a boat but we have a mortgage on the $700k house), income and savings.

We have a 2500 square feet home. I think it's fine for two children and grandma who helps us from time to time, but I think 1500 square feet would be a bit on the small side for two children. Also, I think with your income and savings you could afford it, so why not make life easier?
apple44,

OP is buying a 3,900 square feet 5 bedroom house. It is not 2,500 square feet. And, it is 2 babies with 2 adults. Are you still okay with that?

KlangFool
Yeah good point. The OP could go for a house a bit smaller and cheaper than the one proposed.

KlangFool
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Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 11:53 am

Cobra Commander wrote:
Mon Mar 18, 2019 11:28 am
I'm surprised that a 3 bedroom / 1600 sq. foot house costs $275K and a 5 bedroom 3900 sq. foot house costs $700K unless the $700K house has really nice finishes or some other type of special upgrades not present in your current house. I am in a HCOL area but the price of the houses here doesn't seem to scale linearly with increases in square footage since most of the value of the house is in the land and most lots are the same size.

I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys. I just wonder if there isn't a larger house for around $500Kish available that would work for you guys.
Cobra Commander,

<<I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys.>>

Do you have any kids? This does not sound like it. This kind of illusion only exists for folks that have no kids.

KlangFool

KlangFool
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Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 11:58 am

apple44 wrote:
Mon Mar 18, 2019 11:51 am
KlangFool wrote:
Mon Mar 18, 2019 11:48 am
apple44 wrote:
Mon Mar 18, 2019 11:39 am
I understand why other people would caution you against buying the new home.

But I think it's OK to go for it! I'm in similar situation as you are -- two working parents with a toddler and a baby due in May, similar net worth, assets, liabilities (we don't have a boat but we have a mortgage on the $700k house), income and savings.

We have a 2500 square feet home. I think it's fine for two children and grandma who helps us from time to time, but I think 1500 square feet would be a bit on the small side for two children. Also, I think with your income and savings you could afford it, so why not make life easier?
apple44,

OP is buying a 3,900 square feet 5 bedroom house. It is not 2,500 square feet. And, it is 2 babies with 2 adults. Are you still okay with that?

KlangFool
Yeah good point. The OP could go for a house a bit smaller and cheaper than the one proposed.
apple44,

Unless OP has a live-in nanny, the parents have to keep a watch on 2 babies all the time. With 3,900 square feet, there are too many spaces to cover. In general, folks with a big house tend to close off many rooms in order to reduce their burdens. So, they are paying for space that they will not use for a very long time. A smaller house is easier for parents with babies.

KlangFool

caffeperfavore
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Re: Should we purchase $700k home?

Post by caffeperfavore » Mon Mar 18, 2019 12:00 pm

Isn't there a happy medium somewhere in between?

You can afford the house, but do you really want that much home? We ended up buying more house than we wanted as availability was tight, we needed home office space as teleworkers, and we wanted to be in a particular neighborhood. We have around 3400 sq ft with 5 bedrooms and 5 baths. With that much house there's always something to go wrong and fix. It's also a lot of cleaning. I look forward to downsizing.

JHU ALmuni
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Re: Should we purchase $700k home?

Post by JHU ALmuni » Mon Mar 18, 2019 12:02 pm

You can afford to do it, but I won't personally do it.

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knpstr
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Re: Should we purchase $700k home?

Post by knpstr » Mon Mar 18, 2019 12:05 pm

I don't always agree with Klangfool but, in my opinion, he is giving good advice here.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

sp0704
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Re: Should we purchase $700k home?

Post by sp0704 » Mon Mar 18, 2019 12:08 pm

I don't see a reason you couldn't afford it. What I don't understand is how you save so much with a $250k boat loan? How much is the boat payment per month and how do you save so much with that loan? Is it rented out/chartered to others? As others have said, the maintenance on that could catch up to you someday. I assume your car(s) are paid off?

KlangFool
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Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 12:15 pm

OP,

There are two separate questions here:

A) Can you afford to buy a 700K house?

B) Should you buy a 3,900 square feet 5 bedroom house with 2 babies?

In my opinion, the answer to (B) is a big no. You are busy enough just to look after 2 babies. You do not need additional effort and space to deal with. A smaller house is easier for young parents with babies. Even if you want a bigger house, 2,000 to 2,500 square feet is about the right size. In fact, your current 1,500 square feet house is perfect for 2 babies. You have fewer spaces to chase after the babies when they started crawling and walking.

Why would you spend extra money to make your life harder?

KlangFool

chevca
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Re: Should we purchase $700k home?

Post by chevca » Mon Mar 18, 2019 12:15 pm

sp0704 wrote:
Mon Mar 18, 2019 12:08 pm
I don't see a reason you couldn't afford it. What I don't understand is how you save so much with a $250k boat loan? How much is the boat payment per month and how do you save so much with that loan? Is it rented out/chartered to others? As others have said, the maintenance on that could catch up to you someday. I assume your car(s) are paid off?
I'm guessing it's similar to a mortgage and on a 15 or 30 year term. So, a $1000 or $1500 a month and a similar or slightly higher current mortgage payment... when they make about $30k a month. Don't know their take home, but there's probably plenty of room in there for saving, yes?

Flashes1
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Re: Should we purchase $700k home?

Post by Flashes1 » Mon Mar 18, 2019 12:21 pm

We built our dream home for our young family about 6 years ago and it was a great decision for us.

5,800 square foot - family of 4. I wanted a house that people drove by and said "I wonder who lives there."
Home theater, fire pit, putting green, golf simulator, etc. etc.
It's a lot of fun.

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Cobra Commander
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Re: Should we purchase $700k home?

Post by Cobra Commander » Mon Mar 18, 2019 12:21 pm

KlangFool wrote:
Mon Mar 18, 2019 11:53 am
Cobra Commander wrote:
Mon Mar 18, 2019 11:28 am
I'm surprised that a 3 bedroom / 1600 sq. foot house costs $275K and a 5 bedroom 3900 sq. foot house costs $700K unless the $700K house has really nice finishes or some other type of special upgrades not present in your current house. I am in a HCOL area but the price of the houses here doesn't seem to scale linearly with increases in square footage since most of the value of the house is in the land and most lots are the same size.

I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys. I just wonder if there isn't a larger house for around $500Kish available that would work for you guys.
Cobra Commander,

<<I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys.>>

Do you have any kids? This does not sound like it. This kind of illusion only exists for folks that have no kids.

KlangFool
I have two young children yes. The vast majority of their toys are in the playroom. There are a few toys that come out of the playroom and at night we just toss them back in before settling down to relax at night.

runner3081
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Re: Should we purchase $700k home?

Post by runner3081 » Mon Mar 18, 2019 12:28 pm

Who needs a house that big? Wow.

Big houses need to be filled with more stuff.

With that said, you can afford it.

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 12:28 pm

Cobra Commander wrote:
Mon Mar 18, 2019 12:21 pm
KlangFool wrote:
Mon Mar 18, 2019 11:53 am
Cobra Commander wrote:
Mon Mar 18, 2019 11:28 am
I'm surprised that a 3 bedroom / 1600 sq. foot house costs $275K and a 5 bedroom 3900 sq. foot house costs $700K unless the $700K house has really nice finishes or some other type of special upgrades not present in your current house. I am in a HCOL area but the price of the houses here doesn't seem to scale linearly with increases in square footage since most of the value of the house is in the land and most lots are the same size.

I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys. I just wonder if there isn't a larger house for around $500Kish available that would work for you guys.
Cobra Commander,

<<I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys.>>

Do you have any kids? This does not sound like it. This kind of illusion only exists for folks that have no kids.

KlangFool
I have two young children yes. The vast majority of their toys are in the playroom. There are a few toys that come out of the playroom and at night we just toss them back in before settling down to relax at night.
A) How old are your kids and how big is your house?

B) Do you have a stay-at-home spouse?

KlangFool

sp0704
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Re: Should we purchase $700k home?

Post by sp0704 » Mon Mar 18, 2019 12:30 pm

chevca wrote:
Mon Mar 18, 2019 12:15 pm
sp0704 wrote:
Mon Mar 18, 2019 12:08 pm
I don't see a reason you couldn't afford it. What I don't understand is how you save so much with a $250k boat loan? How much is the boat payment per month and how do you save so much with that loan? Is it rented out/chartered to others? As others have said, the maintenance on that could catch up to you someday. I assume your car(s) are paid off?
I'm guessing it's similar to a mortgage and on a 15 or 30 year term. So, a $1000 or $1500 a month and a similar or slightly higher current mortgage payment... when they make about $30k a month. Don't know their take home, but there's probably plenty of room in there for saving, yes?
Sure, that payment would be affordable. However, don't boats typically depreciate? So, if you build next to no equity annually, the current equity will likely deflate and the OP will eventually be upside down at some point, in addition to the maintenance costs, marina/storage fees, etc. This is likely getting off topic, but is a factor in the overall big picture. The costs on that have to be very significant.

FWIW, I have a $665k house acquired with a $417k loan and similar to higher HHI (varies based on commission), also with 2 kids and pay for day care/childcare. I don't think I could stomach the long-term impact of the boat. While the monthly payment may be "cheap," I would think it all eventually catches up.

Admiral
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Re: Should we purchase $700k home?

Post by Admiral » Mon Mar 18, 2019 12:31 pm

IndexFun wrote:
Mon Mar 18, 2019 10:45 am
Hello Everyone,

My wife and I are contemplating upgrading our home, and want to get a second opinion as to whether this is a prudent/wise decision or not. Relevant info below.

Ages: 32 and 33 years old w/ 19-month toddler, and a second child due in June

Current net worth: $1.2 million

- $792k liquid investments (most tax-advantaged (401k, IRA, Roth, HSA; $115k liquid in after-tax brokerage); $73k cash value of an inherited whole life policy
-$80k cash
-$45k Private placement investment

Liabilities: Current home (Below) + Sailboat loan ($250k @ 3.9%) [Currently estimated resale, $350k, so roughly $100k in equity not included in the above net worth calculation - this is our weekend leisure and long-term goal to go cruising]

Income: Me - $200k in base and bonus, plus ‘phantom’ restricted stock in the company; wife; $180k in base and annual bonus, plus restricted stock in her company. Jobs are very stable.

Current home value (3 bedroom 1500 square feet): $275k - we owe $126k on this home @ 3.75% (3 bedroom 2.5 bath, 1600 square feet) - $620 per month mortgage

Current childcare expenses: $21k / year (starting in 2020 that will double)

~70% savings rate per year historically since 2015

New Home: 5 Bedroom, 3900 square feet - we would likely be able to purchase for around $700k - $140k down, 4.25% interest rate - $2800 roughly per month mortgage - Home market is great for appreciation due to demographics/population growth/limited supply

Advantages - new home has more rooms for home office/guest bedroom for in-law visits, and is walking distance to pre-school/park/amenities.

Convenience is a big factor for us with our busy ‘corporate’ lives, just don’t want to severely restrict our cash flow and ability to save for larger goals (financial independence).

Welcome any thoughts/opinions/questions from the group here!
I assume you are aware of the adage that owning a boat is like standing under a shower while tearing up $100 bills?

Dump the boat. Yesterday. Then think about a bigger and more expensive home. It's very simple. You MIGHT be able to afford both. But you should not try to.

I also agree that few people require 4000sqft homes. I have two kids in a 2000sqft home and there's plenty of room, including one room that is (or was) a play room.

A key to wealth building is to buy just as much home and you need, at a price that is easily affordable, and no more.

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Cobra Commander
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Re: Should we purchase $700k home?

Post by Cobra Commander » Mon Mar 18, 2019 12:34 pm

KlangFool wrote:
Mon Mar 18, 2019 12:28 pm
Cobra Commander wrote:
Mon Mar 18, 2019 12:21 pm
KlangFool wrote:
Mon Mar 18, 2019 11:53 am
Cobra Commander wrote:
Mon Mar 18, 2019 11:28 am
I'm surprised that a 3 bedroom / 1600 sq. foot house costs $275K and a 5 bedroom 3900 sq. foot house costs $700K unless the $700K house has really nice finishes or some other type of special upgrades not present in your current house. I am in a HCOL area but the price of the houses here doesn't seem to scale linearly with increases in square footage since most of the value of the house is in the land and most lots are the same size.

I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys. I just wonder if there isn't a larger house for around $500Kish available that would work for you guys.
Cobra Commander,

<<I think you will appreciate the larger house with two kids if for no other reason than it feels wonderful to have their toys in one or two rooms and have another separate room for you and your spouse to relax in that isn't littered with toys.>>

Do you have any kids? This does not sound like it. This kind of illusion only exists for folks that have no kids.

KlangFool
I have two young children yes. The vast majority of their toys are in the playroom. There are a few toys that come out of the playroom and at night we just toss them back in before settling down to relax at night.
A) How old are your kids and how big is your house?

B) Do you have a stay-at-home spouse?

KlangFool
The toddler is about 2.5 years old and the baby is about 7 months. Toddler has limited clean up skills at the moment but is learning; I am sure her ability to clean up will continue to improve. Our house is about 3800 sq. feet above grade and 5700 sq. feet including the basement. It's very non-BH but I love having a lot of space.

DW and I both work.

cherijoh
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Re: Should we purchase $700k home?

Post by cherijoh » Mon Mar 18, 2019 12:35 pm

RollTide31457 wrote:
Mon Mar 18, 2019 11:40 am
Net worth looks a bit low for such high incomes.
They have a sailboat that undoubtedly cost more than their current house - houses appreciate (usually), boats depreciate (always or almost always). The high savings rate is clearly a recent thing.

katrid11
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Re: Should we purchase $700k home?

Post by katrid11 » Mon Mar 18, 2019 12:36 pm

Can you afford the house? - Technically yes.

Should you buy it - not so sure.

As a parent of 2 kids now 8 & 6 - we moved from 1600sf to 2700sf last summer. It was nice to have the smaller space when they were toddlers - easier to keep abreast of where they were. Now, I want them to roam the house and give some peace and quiet to us :) I am 100% into convenience though. Living walking distance to schools and the train is amazing with elementary aged kids. Makes everything easier.

That said, I think financially you maybe happier with a $450-500k upgrade house. 4000sf is alot of space to furnish, heat/cool, and clean - very costly. Are you sure you want to spend that type of cash monthly to keep up with the larger house? IMO, I would rather put the $$ into travel with the kids when they get older AND the expensive summer camps and sports that are inevitable.

Dont forget, that nanny/daycare bill will decrease but not disappear until the kids hit middle school. Most families I know go from a FT nanny to PT afternoons once the kids hit school.

smitcat
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Re: Should we purchase $700k home?

Post by smitcat » Mon Mar 18, 2019 12:40 pm

cherijoh wrote:
Mon Mar 18, 2019 12:35 pm
RollTide31457 wrote:
Mon Mar 18, 2019 11:40 am
Net worth looks a bit low for such high incomes.
They have a sailboat that undoubtedly cost more than their current house - houses appreciate (usually), boats depreciate (always or almost always). The high savings rate is clearly a recent thing.
Interesting since we have had homes that depreciated and boats that appreciated.

carol-brennan
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Re: Should we purchase $700k home?

Post by carol-brennan » Mon Mar 18, 2019 12:43 pm

IndexFun wrote:
Mon Mar 18, 2019 10:45 am
Should we purchase $700k home?
No! That's an insane amount of money to spend on a home.

Most people live in 2 or 3 rooms and don't need any more space. Many can live fine in just one room, plus a kitchen and bathroom.

Less is more. Houses are boring--and expensive.

Flashes1
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Re: Should we purchase $700k home?

Post by Flashes1 » Mon Mar 18, 2019 12:51 pm

carol-brennan wrote:
Mon Mar 18, 2019 12:43 pm
IndexFun wrote:
Mon Mar 18, 2019 10:45 am
Should we purchase $700k home?
No! That's an insane amount of money to spend on a home.

Most people live in 2 or 3 rooms and don't need any more space. Many can live fine in just one room, plus a kitchen and bathroom.

Less is more. Houses are boring--and expensive.
Where do you live where most people live in 2 or 3 rooms? I live in a medium-sized city, but most people around me who live in a 2 or 3 room house live in a very poor part of town, not where a physician and banker live (my wife and I). I've always been told that bigger is better and more is more.

Just curious how other people live.
Last edited by Flashes1 on Mon Mar 18, 2019 12:53 pm, edited 1 time in total.

DesertDiva
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Re: Should we purchase $700k home?

Post by DesertDiva » Mon Mar 18, 2019 12:53 pm

Do you plan on saving for retirement? Kid's education? Will you potentially have another child? While you may be able to afford a large house, is it compatible with your priorities? Are you willing to pay more for insurance, property taxes, utilities, furnishings, and other ancillary costs?

If you were my kid I would say: See what you can afford on 1 income; also consider how much you can afford with a 15-year mortgage. Then invest the difference.

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corn18
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Re: Should we purchase $700k home?

Post by corn18 » Mon Mar 18, 2019 12:54 pm

OP,

You have been accused of being __________ for buying a 3,900 sq ft house (fill in the blank with insane, stupid, opulent, off your rocker). I just want to support your insanity with my even greater insanity. We are empty nesters and we just spent $725k on a 4,600 sq ft house and it is just the two of us! Oh, the horror! 5BR/6B mcmansion of crazy.

Let the flogging continue.

Corn
Don't do something, just stand there!

KlangFool
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Re: Should we purchase $700k home?

Post by KlangFool » Mon Mar 18, 2019 1:01 pm

Flashes1 wrote:
Mon Mar 18, 2019 12:51 pm
carol-brennan wrote:
Mon Mar 18, 2019 12:43 pm
IndexFun wrote:
Mon Mar 18, 2019 10:45 am
Should we purchase $700k home?
No! That's an insane amount of money to spend on a home.

Most people live in 2 or 3 rooms and don't need any more space. Many can live fine in just one room, plus a kitchen and bathroom.

Less is more. Houses are boring--and expensive.
Where do you live where most people live in 2 or 3 rooms? I live in a medium-sized city, but most people around me who live in a 2 or 3 room house live in a very poor part of town, not where a physician and banker live (my wife and I). I've always been told that bigger is better and more is more.

Just curious how other people live.
Flashes1,

<<but most people around me who live in a 2 or 3 room house live in a very poor part of town, not where a physician and banker live (my wife and I).>>

1) I would assume there is a large population of folks between very poor versus a physician and a banker household.

2) To each its own. By the way, I would not live in your kind of neighborhood. It is a lousy environment to raise my children.

<< I've always been told that bigger is better and more is more.>>

3) Precisely the kind of neighborhood that I do not want to be in. Aka, the Jones.

KlangFool
Last edited by KlangFool on Mon Mar 18, 2019 1:06 pm, edited 1 time in total.

cherijoh
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Location: Charlotte NC

Re: Should we purchase $700k home?

Post by cherijoh » Mon Mar 18, 2019 1:05 pm

IndexFun wrote:
Mon Mar 18, 2019 10:45 am
New Home: 5 Bedroom, 3900 square feet - we would likely be able to purchase for around $700k - $140k down, 4.25% interest rate - $2800 roughly per month mortgage - Home market is great for appreciation due to demographics/population growth/limited supply
What demographics are those? Reports about an aging population with insufficient retirement savings (many of whom likely current living in luxury homes) suggests that there will be less demand for this type of home in the future as they all try and downsize when they realize they need to trim their budgets. Also the new tax law favors people who want to continue to rent by subsizing less of home ownership costs. This could also impact the pipeline of people looking to move up to high end houses. Don't confuse recent price appreciation with long term trends.

What is the median home price and affordability in your city? The further away you get from the median, the more limited the pool of people willing to buy the house. And during periods of economic turbulence the greater the drop in value.

I live in the smallest house in a very nice desirable neighborhood. I regularly get cold calls from realtors saying that they have a client who wants to move into a house like mine. I have even had someone knock on my door a few years ago. This wasn't an investor looking for a cheap sale. One of my neighbors down the street( in the same model) sold their house to him and I see him out mowing his lawn.

With a second child on the way at your income, you could definitely justify upgrading your house, but you are looking to skip several steps.

You also might find it difficult logistically to sell one house and purchase another. Many homeowners blithely think that they'll just rent their current house without realizing that lenders will count both mortgages (plus in your case the boat loan) against debt load, but won't count rental income until you can show proof of stable rental income - the period may vary but i'm fairly certain it is at least 6 months.

With a new mortgage of that size, paying two mortgages for any length of time would be brutal. Do you really want that stress along with a new baby?

chevca
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Re: Should we purchase $700k home?

Post by chevca » Mon Mar 18, 2019 1:19 pm

sp0704 wrote:
Mon Mar 18, 2019 12:30 pm
chevca wrote:
Mon Mar 18, 2019 12:15 pm
sp0704 wrote:
Mon Mar 18, 2019 12:08 pm
I don't see a reason you couldn't afford it. What I don't understand is how you save so much with a $250k boat loan? How much is the boat payment per month and how do you save so much with that loan? Is it rented out/chartered to others? As others have said, the maintenance on that could catch up to you someday. I assume your car(s) are paid off?
I'm guessing it's similar to a mortgage and on a 15 or 30 year term. So, a $1000 or $1500 a month and a similar or slightly higher current mortgage payment... when they make about $30k a month. Don't know their take home, but there's probably plenty of room in there for saving, yes?
Sure, that payment would be affordable. However, don't boats typically depreciate?

I don't think I could stomach the long-term impact of the boat. While the monthly payment may be "cheap," I would think it all eventually catches up.
Not sure on the depreciation part. I would never own a boat either.

Although, we do own a travel trailer for the family and that does depreciate. But, we're talking under $30k for our toy and the family fun and memories are priceless. To each their own, I suppose.

chevca
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Re: Should we purchase $700k home?

Post by chevca » Mon Mar 18, 2019 1:25 pm

KlangFool wrote:
Mon Mar 18, 2019 1:01 pm
Flashes1,

2) To each its own. By the way, I would not live in your kind of neighborhood. It is a lousy environment to raise my children.

<< I've always been told that bigger is better and more is more.>>

3) Precisely the kind of neighborhood that I do not want to be in. Aka, the Jones.

KlangFool
That's pretty judgmental on a personal matter. No need to inject your opinion on someone else's preferences. Especially when you don't even know where they live and right after saying, "to each its own". "Its", they way? Some of the things you get away with posting on here, Klang... :oops:

Admiral
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Re: Should we purchase $700k home?

Post by Admiral » Mon Mar 18, 2019 1:26 pm

corn18 wrote:
Mon Mar 18, 2019 12:54 pm
OP,

You have been accused of being __________ for buying a 3,900 sq ft house (fill in the blank with insane, stupid, opulent, off your rocker). I just want to support your insanity with my even greater insanity. We are empty nesters and we just spent $725k on a 4,600 sq ft house and it is just the two of us! Oh, the horror! 5BR/6B mcmansion of crazy.

Let the flogging continue.

Corn
As I recall from your previous posts your income is in the $1.2 million range. So...duh. Not relevant.

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corn18
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Re: Should we purchase $700k home?

Post by corn18 » Mon Mar 18, 2019 1:28 pm

Admiral wrote:
Mon Mar 18, 2019 1:26 pm
corn18 wrote:
Mon Mar 18, 2019 12:54 pm
OP,

You have been accused of being __________ for buying a 3,900 sq ft house (fill in the blank with insane, stupid, opulent, off your rocker). I just want to support your insanity with my even greater insanity. We are empty nesters and we just spent $725k on a 4,600 sq ft house and it is just the two of us! Oh, the horror! 5BR/6B mcmansion of crazy.

Let the flogging continue.

Corn
As I recall from your previous posts your income is in the $1.2 million range. So...duh. Not relevant.
I thought the discussion was how many square feet = ludicrous?
Don't do something, just stand there!

chevca
Posts: 3053
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Re: Should we purchase $700k home?

Post by chevca » Mon Mar 18, 2019 1:31 pm

corn18 wrote:
Mon Mar 18, 2019 1:28 pm
Admiral wrote:
Mon Mar 18, 2019 1:26 pm
corn18 wrote:
Mon Mar 18, 2019 12:54 pm
OP,

You have been accused of being __________ for buying a 3,900 sq ft house (fill in the blank with insane, stupid, opulent, off your rocker). I just want to support your insanity with my even greater insanity. We are empty nesters and we just spent $725k on a 4,600 sq ft house and it is just the two of us! Oh, the horror! 5BR/6B mcmansion of crazy.

Let the flogging continue.

Corn
As I recall from your previous posts your income is in the $1.2 million range. So...duh. Not relevant.
I thought the discussion was how many square feet = ludicrous?
It just depends on what point people want to make. :happy

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White Coat Investor
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Re: Should we purchase $700k home?

Post by White Coat Investor » Mon Mar 18, 2019 1:33 pm

IndexFun wrote:
Mon Mar 18, 2019 10:45 am
Hello Everyone,

My wife and I are contemplating upgrading our home, and want to get a second opinion as to whether this is a prudent/wise decision or not. Relevant info below.

Ages: 32 and 33 years old w/ 19-month toddler, and a second child due in June

Current net worth: $1.2 million

- $792k liquid investments (most tax-advantaged (401k, IRA, Roth, HSA; $115k liquid in after-tax brokerage); $73k cash value of an inherited whole life policy
-$80k cash
-$45k Private placement investment

Liabilities: Current home (Below) + Sailboat loan ($250k @ 3.9%) [Currently estimated resale, $350k, so roughly $100k in equity not included in the above net worth calculation - this is our weekend leisure and long-term goal to go cruising]

Income: Me - $200k in base and bonus, plus ‘phantom’ restricted stock in the company; wife; $180k in base and annual bonus, plus restricted stock in her company. Jobs are very stable.

Current home value (3 bedroom 1500 square feet): $275k - we owe $126k on this home @ 3.75% (3 bedroom 2.5 bath, 1600 square feet) - $620 per month mortgage

Current childcare expenses: $21k / year (starting in 2020 that will double)

~70% savings rate per year historically since 2015

New Home: 5 Bedroom, 3900 square feet - we would likely be able to purchase for around $700k - $140k down, 4.25% interest rate - $2800 roughly per month mortgage - Home market is great for appreciation due to demographics/population growth/limited supply

Advantages - new home has more rooms for home office/guest bedroom for in-law visits, and is walking distance to pre-school/park/amenities.

Convenience is a big factor for us with our busy ‘corporate’ lives, just don’t want to severely restrict our cash flow and ability to save for larger goals (financial independence).

Welcome any thoughts/opinions/questions from the group here!
The home is probably fine. I wouldn't buy a sailboat on a loan though.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Wricha
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Re: Should we purchase $700k home?

Post by Wricha » Mon Mar 18, 2019 1:36 pm

The book “The next millionaire next story” she talks about how one of the major factors of determining wealth was the value/cost of one’s house. In other words a modest house was a big contributor in determining one’s wealth later in live. Given that your house is working I would stick with it.

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