Can I afford a $1.5 million house?

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:08 pm

I'm thinking about buying a second home. The price is $1.5 million. My wife and I make ~1.3 million/year with potential growth to 1.5 million/year. We're in our mid 30s and have about $2 million net worth in stocks/bonds and a commercial property. About $1 million of the home will be paid for by my parents who will be living at that home (in their 60s). We will be frequently visiting them so it would act like a vacation house for my family too. It's in a very scenic area and homes in that area run about that price. Can we afford this?

sergeant · Post by **sergeant** » Mon Mar 18, 2019 2:15 pm

Probably, what is your other debt and income needs? Are you taking a mortgage or paying cash? You're responsible for 500k and your parents are paying a million, how will maintenance costs be split? Your income is very high, I would expect savings to be greater but there are many good reasons why you might be in this situation.

3funder · Post by **3funder** » Mon Mar 18, 2019 2:17 pm

sergeant wrote: ↑Mon Mar 18, 2019 2:15 pm Probably, what is your other debt and income needs? Are you taking a mortgage or paying cash? You're responsible for 500k and your parents are paying a million, how will maintenance costs be split? Your income is very high, I would expect savings to be greater but there are many good reasons why you might be in this situation.

+1

pdavi21 · Post by **pdavi21** » Mon Mar 18, 2019 2:20 pm

You can afford the house but not whatever is responsible for savings being less than twice income in your mid 30's (unless it's irregularly high income-that would be fine).

EDIT: It is irregularly high income; have at it.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:20 pm

sergeant wrote: ↑Mon Mar 18, 2019 2:15 pm Probably, what is your other debt and income needs? Are you taking a mortgage or paying cash? You're responsible for 500k and your parents are paying a million, how will maintenance costs be split? Your income is very high, I would expect savings to be greater but there are many good reasons why you might be in this situation.

We started earning money in our early 30s and have seen a significant growth in income over the past 2 years (physicians with practice growth).

DSInvestor · Post by **DSInvestor** » Mon Mar 18, 2019 2:24 pm

Disregarding the affordability issue. Let your parents buy the home. Visit them if you wish. It's less complicated that way.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:30 pm

DSInvestor wrote: ↑Mon Mar 18, 2019 2:24 pm Disregarding the affordability issue. Let your parents buy the home. Visit them if you wish. It's less complicated that way.

They can't afford to the buy the house by themselves.

DSInvestor · Post by **DSInvestor** » Mon Mar 18, 2019 2:31 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:30 pm
DSInvestor wrote: ↑Mon Mar 18, 2019 2:24 pm Disregarding the affordability issue. Let your parents buy the home. Visit them if you wish. It's less complicated that way.
They can't afford to the buy the house by themselves.

Gift them the extra money if they feel they can't live in a more affordable area and you can afford the gift.

ohai · Post by **ohai** » Mon Mar 18, 2019 2:34 pm

Is this a response to the $700k house thread? I look forward to the next threads on whether someone can afford a $3 million house, $7 million house, and subsequently, $20 million submarine, $60 million jumbo jet, and however it escalates after that.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:34 pm

DSInvestor wrote: ↑Mon Mar 18, 2019 2:31 pm
masonstone wrote: ↑Mon Mar 18, 2019 2:30 pm
DSInvestor wrote: ↑Mon Mar 18, 2019 2:24 pm Disregarding the affordability issue. Let your parents buy the home. Visit them if you wish. It's less complicated that way.
They can't afford to the buy the house by themselves.
Gift them the extra money. If they feel they can't live in a more affordable area and you feel that you can afford the gift.

The issue is that they can live in a more affordable house, just not that house. I do like the more expensive house though.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:35 pm

ohai wrote: ↑Mon Mar 18, 2019 2:34 pm Is this a response to the $700k house thread?

No

H-Town · Post by **H-Town** » Mon Mar 18, 2019 2:36 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:08 pm I'm thinking about buying a second home. The price is $1.5 million. My wife and I make ~1.3 million/year with potential growth to 1.5 million/year. We're in our mid 30s and have about $2 million net worth in stocks/bonds and a commercial property. About $1 million of the home will be paid for by my parents who will be living at that home (in their 60s). We will be frequently visiting them so it would act like a vacation house for my family too. It's in a very scenic area and homes in that area run about that price. Can we afford this?

Where is this area, just out of curiosity?

Commingling assets like that will create headaches down the road. It could work out, but it could get very ugly.

Either you buy it straight-up and charge your parents a fair rent, or you loan $0.5 million to your parents. All of this, of course, needs the consent from your wife.

Bobby206 · Post by **Bobby206** » Mon Mar 18, 2019 2:42 pm

In a way you are asking if you can afford a $500k vacation home. Sure you can but should you? Vacation homes, financially speaking, are a complete waste of money. Non-financially many people justify them because it's great family bonding time, yada, yada, yada. Others justify them because they make money renting them out though that's a part time job and would not be applicable here.

When investing with family you are ripe to create problems with other family members. Even if you have a written partnership agreement something will come up that you didn't consider.

I wouldn't do it.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:43 pm

Bobby206 wrote: ↑Mon Mar 18, 2019 2:42 pm In a way you are asking if you can afford a $500k vacation home. Sure you can but should you? Vacation homes, financially speaking, are a complete waste of money. Non-financially many people justify them because it's great family bonding time, yada, yada, yada. Others justify them because they make money renting them out though that's a part time job and would not be applicable here.

When investing with family you are ripe to create problems with other family members. Even if you have a written partnership agreement something will come up that you didn't consider.

I wouldn't do it.

Assume that there will not be any problems with family members. We have a very close family and very close bond with our parents. Actually my parents paid for my medschool.

delamer · Post by **delamer** » Mon Mar 18, 2019 2:47 pm

It doesn’t seem like affordability is the issue, although you haven’t mentioned what your existing debt load is.

What do you owe?

The issue is owning a property jointly with your parents. Aside from figuring out who covers maintenance and ongoing expenses, there are many scenarios that need to be worked out:

1. What happens when one of your parents dies — will the other be financially able or willing to stay in the house?
2. What happens if you and your wife divorce, or have a financial setback (like disability) that won’t allow you to pay your share of the mortgage/expenses?
3. Do you have siblings who would be entitled to a share of your parents’ estate?
4. What if your parents or you want to sell, and the other party doesn’t?

I am not saying these issues are insurmountable legally, just that they need to be accounted for.

Gill · Post by **Gill** » Mon Mar 18, 2019 2:47 pm

Lots of questions here. Can you afford to peel off half a million of your savings at this point? How will the house be titled? What happens if you predecease your parents? What if there is a divorce of either couple? How will the expenses of the house be paid, i.e., taxes, utilities, maintenance which could be substantial? I agree with the others who have suggested lending your parents the money. Maybe you could cosign a mortgage in their name. You don't seem to be in a position to give it to them and/or how would your wife feel about such a gift? All in all, many opportunities for a mess down the road.
Gill

WhiteMaxima · Post by **WhiteMaxima** » Mon Mar 18, 2019 2:52 pm

yes you can but taxes, up keep, lawn care. You can afford it. for how long money down the drain. Buy only you need and want. saving the money and invest it.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 2:53 pm

Gill wrote: ↑Mon Mar 18, 2019 2:47 pm Lots of questions here. Can you afford to peel off half a million of your savings at this point? How will the house be titled? What happens if you predecease your parents? What if there is a divorce of either couple? How will the expenses of the house be paid, i.e., taxes, utilities, maintenance which could be substantial? I agree with the others who have suggested lending your parents the money. Maybe you could cosign a mortgage in their name. You don't seem to be in a position to give it to them and/or how would your wife feel about such a gift? All in all, many opportunities for a mess down the road.
Gill

Honestly my main concern is the affordability and not the messes down the road (which to me would be a much bigger deal than 0.5 million dollars).

Darth Xanadu · Post by **Darth Xanadu** » Mon Mar 18, 2019 2:55 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:53 pm
Gill wrote: ↑Mon Mar 18, 2019 2:47 pm Lots of questions here. Can you afford to peel off half a million of your savings at this point? How will the house be titled? What happens if you predecease your parents? What if there is a divorce of either couple? How will the expenses of the house be paid, i.e., taxes, utilities, maintenance which could be substantial? I agree with the others who have suggested lending your parents the money. Maybe you could cosign a mortgage in their name. You don't seem to be in a position to give it to them and/or how would your wife feel about such a gift? All in all, many opportunities for a mess down the road.
Gill
Honestly my main concern is the affordability and not the messes down the road (which to me would be a much bigger deal than 0.5 million dollars).

With your incomes, unless you have very high expenses and/or huge current debt load, then yes this should be easily affordable.

JGoneRiding · Post by **JGoneRiding** » Mon Mar 18, 2019 2:57 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:43 pm
Bobby206 wrote: ↑Mon Mar 18, 2019 2:42 pm In a way you are asking if you can afford a $500k vacation home. Sure you can but should you? Vacation homes, financially speaking, are a complete waste of money. Non-financially many people justify them because it's great family bonding time, yada, yada, yada. Others justify them because they make money renting them out though that's a part time job and would not be applicable here.

When investing with family you are ripe to create problems with other family members. Even if you have a written partnership agreement something will come up that you didn't consider.

I wouldn't do it.
Assume that there will not be any problems with family members. We have a very close family and very close bond with our parents. Actually my parents paid for my medschool.

Excellent! Consider the 500k repayment plus interest and a downpayment in staying with them in their house when you visit that area. Much less headaches!

masonstone · Post by **masonstone** » Mon Mar 18, 2019 3:03 pm

Darth Xanadu wrote: ↑Mon Mar 18, 2019 2:55 pm
masonstone wrote: ↑Mon Mar 18, 2019 2:53 pm
Gill wrote: ↑Mon Mar 18, 2019 2:47 pm Lots of questions here. Can you afford to peel off half a million of your savings at this point? How will the house be titled? What happens if you predecease your parents? What if there is a divorce of either couple? How will the expenses of the house be paid, i.e., taxes, utilities, maintenance which could be substantial? I agree with the others who have suggested lending your parents the money. Maybe you could cosign a mortgage in their name. You don't seem to be in a position to give it to them and/or how would your wife feel about such a gift? All in all, many opportunities for a mess down the road.
Gill
Honestly my main concern is the affordability and not the messes down the road (which to me would be a much bigger deal than 0.5 million dollars).
With your incomes, unless you have very high expenses and/or huge current debt load, then yes this should be easily affordable.

We have no debt, expenses are about 120k/ year.

Gill · Post by **Gill** » Mon Mar 18, 2019 3:06 pm

masonstone wrote: ↑Mon Mar 18, 2019 3:03 pm We have no debt, expenses are about 120k/ year.

Your income tax is much more than that.
Gill

Darth Xanadu · Post by **Darth Xanadu** » Mon Mar 18, 2019 3:07 pm

masonstone wrote: ↑Mon Mar 18, 2019 3:03 pm
Darth Xanadu wrote: ↑Mon Mar 18, 2019 2:55 pm
masonstone wrote: ↑Mon Mar 18, 2019 2:53 pm
Gill wrote: ↑Mon Mar 18, 2019 2:47 pm Lots of questions here. Can you afford to peel off half a million of your savings at this point? How will the house be titled? What happens if you predecease your parents? What if there is a divorce of either couple? How will the expenses of the house be paid, i.e., taxes, utilities, maintenance which could be substantial? I agree with the others who have suggested lending your parents the money. Maybe you could cosign a mortgage in their name. You don't seem to be in a position to give it to them and/or how would your wife feel about such a gift? All in all, many opportunities for a mess down the road.
Gill
Honestly my main concern is the affordability and not the messes down the road (which to me would be a much bigger deal than 0.5 million dollars).
With your incomes, unless you have very high expenses and/or huge current debt load, then yes this should be easily affordable.
We have no debt, expenses are about 120k/ year.

Then I fail to see what the conundrum is. You can come up with half a million before Christmas.

Bobby206 · Post by **Bobby206** » Mon Mar 18, 2019 3:14 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:43 pm
Bobby206 wrote: ↑Mon Mar 18, 2019 2:42 pm In a way you are asking if you can afford a $500k vacation home. Sure you can but should you? Vacation homes, financially speaking, are a complete waste of money. Non-financially many people justify them because it's great family bonding time, yada, yada, yada. Others justify them because they make money renting them out though that's a part time job and would not be applicable here.

When investing with family you are ripe to create problems with other family members. Even if you have a written partnership agreement something will come up that you didn't consider.

I wouldn't do it.
Assume that there will not be any problems with family members. We have a very close family and very close bond with our parents. Actually my parents paid for my medschool.

Let me just say I have heard this one about 1,000 times maybe more and in way less than 1,000 is it true. It's sort of like when people say "it's not about the money...." I am just saying I would expect the unimaginable to happen. You are young and haven't seen enough stuff happen that "could not possibly happen" but stuff happens. CRAZY stuff happens. Just in 2007-2012 there was a whole bunch of things happening that "could never happen." If I were you I'd approach with more caution than you are. I didn't even mention if you and your spouse get divorced. I know it won't happen to you but it does 50% of the time. Oh ya, and also, as a fellow high income earner, putting all the other stuff aside, just because you can afford it does not mean you should do it. Good luck to you.

Admiral · Post by **Admiral** » Mon Mar 18, 2019 3:33 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:08 pm I'm thinking about buying a second home. The price is $1.5 million. My wife and I make ~1.3 million/year with potential growth to 1.5 million/year. We're in our mid 30s and have about $2 million net worth in stocks/bonds and a commercial property. About $1 million of the home will be paid for by my parents who will be living at that home (in their 60s). We will be frequently visiting them so it would act like a vacation house for my family too. It's in a very scenic area and homes in that area run about that price. Can we afford this?

Give them the money, allow them to buy it, and then make sure it will be willed to you. Problem solved.

This isn't really "a second home" it's a retirement home for your parents that you plan to visit. I don't advocate the joint ownership. Either give them the $ and let them buy it, or have them give you their money, you buy it, and then let them live there and pay for the utils and upkeep/taxes.

Jointly owned homes are messy.

Fieldsy1024 · Post by **Fieldsy1024** » Mon Mar 18, 2019 4:50 pm

If I'm considering purchasing a home at that expense, I wouldn't have my advice be on a forum.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 5:35 pm

Fieldsy1024 wrote: ↑Mon Mar 18, 2019 4:50 pm If I'm considering purchasing a home at that expense, I wouldn't have my advice be on a forum.

Where would your advice be from?

r3t1r3 · Post by **r3t1r3** » Mon Mar 18, 2019 5:51 pm

You can afford this - clear and simple. But there are other considerations.

Sorry if I missed this aspect in the thread - but - any siblings involved? As others point out, join ownership can be messy and especially traumatic if there are siblings involved.

Best to keep things clean and simple - especially since you seem to have an excellent relationship with your parents. Preserve it by not having any complexifiers (to borrow a phrase from Mr Bezos) in the equation.

G12 · Post by **G12** » Mon Mar 18, 2019 6:36 pm

ohai wrote: ↑Mon Mar 18, 2019 2:34 pm Is this a response to the $700k house thread? I look forward to the next threads on whether someone can afford a $3 million house, $7 million house, and subsequently, $20 million submarine, $60 million jumbo jet, and however it escalates after that.

It's like the book "Where are the Customers' Yachts?"

RollTide31457 · Post by **RollTide31457** » Mon Mar 18, 2019 6:54 pm

Net worth is amazingly low for such high incomes.

playtothebeat · Post by **playtothebeat** » Mon Mar 18, 2019 6:59 pm

yes, you can afford it. and you know you can afford it

hell, just take some of the stocks and bonds and do it. or wait 4 months to get the cash in the bank from your income.
i'm guessing you're a new doctor family which is why the NW isn't that high relative to income (people here always focus on that, despite you saying that you're in the mid 30s and mentioning med school).

Grt2bOutdoors · Post by **Grt2bOutdoors** » Mon Mar 18, 2019 7:02 pm

RollTide31457 wrote: ↑Mon Mar 18, 2019 6:54 pm Net worth is amazingly low for such high incomes.

They are paying high taxes too. The OP can afford $500K, but after that really needs to buckle down and save save save.

benway · Post by **benway** » Mon Mar 18, 2019 7:26 pm

Yes, you can. The question in my mind is should you and only you can answer that question.

aspirit · Post by **aspirit** » Mon Mar 18, 2019 7:34 pm

I’ve always bought ‘distressed’ assets.
Some can afford lifestyle inflationary ‘costs’.
How about you?
Good luck!

Random Musings · Post by **Random Musings** » Mon Mar 18, 2019 7:35 pm

Unless $1MM is slumming it, why not just buy a house that they can afford unless the house being purchased is undervalued. Do you feel compelled on the expected returns on the property/area and that's why you want to invest as well?

What about her parents if they are in the picture. Do they get a half mil as well?

RM

iamlucky13 · Post by **iamlucky13** » Mon Mar 18, 2019 7:37 pm

H-Town wrote: ↑Mon Mar 18, 2019 2:36 pm Commingling assets like that will create headaches down the road. It could work out, but it could get very ugly.

It seems to me like the taxes on a $500,000 gift make it worth considering, although I don't know what the best way to achieve joint ownership is for purposes of tax efficiency, estate settlement, etc.

HomerJ · Post by **HomerJ** » Mon Mar 18, 2019 7:45 pm

masonstone wrote: ↑Mon Mar 18, 2019 5:35 pm
Fieldsy1024 wrote: ↑Mon Mar 18, 2019 4:50 pm If I'm considering purchasing a home at that expense, I wouldn't have my advice be on a forum.
Where would your advice be from?

Yeah where else are you going to find a thousand millionaires in one place to ask for advice?

Personally, I'd almost say no, since the OP haven't saved that much yet (for their income)... But they have saved a good amount compared to their expenses, so that leans me towards yes.

This seems a lot like new doctors blowing all their money because they've been poor so long.

But it's not quite that... Is your wife okay with you guys GIFTING (because, really, it will end up being a gift) $500,000 to YOUR parents?

What are you getting HER parents for Christmas?

trustquestioner · Post by **trustquestioner** » Mon Mar 18, 2019 7:46 pm

Seems like a train wreck waiting to happen.

Each individual thing that could cause a major problem may be low probability, but in the aggregate there is a reasonable to good chance the “unthinkable” will occur.

Summit111 · Post by **Summit111** » Mon Mar 18, 2019 8:08 pm

My nephew and his wife are both physicians and are in a similar situation and ages as the OP. However, the both have bad cases of “Doc Itis”. Student loan balance of $500K, $1.3M home, 3 kids in extremely expensive private schools, 2 expensive high end SUV’s, private club memberships, etc. and vacations....

How do I know this ? Nephew asked me privately how I handle my finances...Mentioned the Boglehead approach which he quickly dismissed. He has a “Money Man” that specializes in young physicians. Asked him about fees, expenses, loads, investment types and allocations and he gave me a confused look. He and his wife are extremely intelligent in the medical world, but....I wished him well!

Summit

Nate79 · Post by **Nate79** » Mon Mar 18, 2019 8:13 pm

No, you can't afford it unless you pay cash. This is major lifestyle creep, where your income has just hit this high level and you are already spending it on the next major expensive item. Your net worth is very low compared to your income yet you want to buy a house that is half your net worth. Sounds crazy to me.

Gill · Post by **Gill** » Mon Mar 18, 2019 8:34 pm

Ten months ago you stated your combined income at $900k but that it might drop to 600K - $700k. It appears your income is quite volatile. Also, you were contemplating buying a Porsche, buying an airplane and sending your children to private schools. You already have a house, a Tesla and a commercial building. Earlier you stated you live on $120k. Your income tax has to exceed that. It doesn’t appear you have a good handle on your finances. I would urge you to forget this latest idea. You can’t afford to do everything.
Gill

abc132 · Post by **abc132** » Mon Mar 18, 2019 8:49 pm

I would recommend setting a financial goal, and have you and your wife each gift each of your parents 15,000 until you reach that goal. Something like 4 million in investments, with them (likely) buying a house in 2-3 years. At that point, you would only be giving them a small part of your assets, and will be better prepared for whatever life deals you.

4803 · Post by **4803** » Mon Mar 18, 2019 9:50 pm

If you have siblings, I would strongly recommend against this.

If you are an only child, well, I am not positive either, but many of the concerns are gone. Still, this will likely change relations with your parents over time and may, at some later point, put some strain vis a vis relations between your spouse and your parents.

Good luck!

Best wishes,

4803.

masonstone · Post by **masonstone** » Mon Mar 18, 2019 10:21 pm

Gill wrote: ↑Mon Mar 18, 2019 8:34 pm Ten months ago you stated your combined income at $900k but that it might drop to 600K - $700k. It appears your income is quite volatile. Also, you were contemplating buying a Porsche, buying an airplane and sending your children to private schools. You already have a house, a Tesla and a commercial building. Earlier you stated you live on $120k. Your income tax has to exceed that. It doesn’t appear you have a good handle on your finances. I would urge you to forget this latest idea. You can’t afford to do everything.
Gill

My income has significantly increased due to the significant growth in both my wife and my income. My wife (a physician) now employs physicians and was able to triple her earnings due to opening practices and employing doctors, and I was able to receive a very big promotion which has doubled my income. Both of these are thankfully in a positive trajectory and my conservative figure was earnings of 1.5 million/year where the real figure is likely 2 million/ year. I own the commercial building now with cash and it’s generating an additional 50k/ year. I have a very good handle on my finances (as most would agree with someone earning 10X expenditure).

J295 · Post by **J295** » Mon Mar 18, 2019 10:36 pm

Limited information as it must be in this environment, but from 30,000 feet I’d say yes you can afford it.

Rather predictable that there are a number of posts giving you issues and answers to items you didn’t present for dialogue.

Here’s the cool thing about this venture… You get to own something with your parents and provide a little payback for all the kindness and guidance they’ve provided you. Moreover, it probably gives them joy to see your financial and other successes.

Best of luck, and if you do this and hit speed bumps along the way down the road, as frequently happens, that’s life and you’ll navigate them.

drk · Post by **drk** » Mon Mar 18, 2019 10:37 pm

Is this different than your interest in real estate?

sf_tech_saver · Post by **sf_tech_saver** » Mon Mar 18, 2019 10:51 pm

What's your tax rate? If you live in California like I do even a $1-2M a year income can get gobbled up by the top bracket where this incremental income will be coming from.

I'd make the affordability and opportunity cost explicit by attempting to save up and pay cash for at least your portion. Never make a payment on a 'nice to have' if you want to stay disciplined. Take the pain now.

Bacchus01 · Post by **Bacchus01** » Mon Mar 18, 2019 11:00 pm

masonstone wrote: ↑Mon Mar 18, 2019 2:30 pm
DSInvestor wrote: ↑Mon Mar 18, 2019 2:24 pm Disregarding the affordability issue. Let your parents buy the home. Visit them if you wish. It's less complicated that way.
They can't afford to the buy the house by themselves.

They can put $1M down on the house, but they can't afford to buy it? What?

DonIce · Post by **DonIce** » Mon Mar 18, 2019 11:55 pm

Of course you can afford it, but it's probably a bad use of money.

masonstone · Post by **masonstone** » Tue Mar 19, 2019 5:59 am

sf_tech_saver wrote: ↑Mon Mar 18, 2019 10:51 pm What's your tax rate? If you live in California like I do even a $1-2M a year income can get gobbled up by the top bracket where this incremental income will be coming from.

I'd make the affordability and opportunity cost explicit by attempting to save up and pay cash for at least your portion. Never make a payment on a 'nice to have' if you want to stay disciplined. Take the pain now.

I live in a tax free state, the house though is in California