Can I afford this 2.3 million dollar home?

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rascott
Posts: 1248
Joined: Wed Apr 15, 2015 10:53 am

Re: Can I afford this 2.3 million dollar home?

Post by rascott » Fri Jun 07, 2019 9:20 am

Not sure why this is really a 4+ page debate, other than the numbers are exponentially higher than most people.

If incomes are as stable as claimed (I'm also incredibly curious how a $1m+ income is stable, but that's none of our business), there is really nothing here to debate. Get going with it so your family can enjoy some of your fabulous income. Building a home like this is going to be a part-time job for the next year.

protagonist
Posts: 6081
Joined: Sun Dec 26, 2010 12:47 pm

Re: Can I afford this 2.3 million dollar home?

Post by protagonist » Fri Jun 07, 2019 12:08 pm

z3r0c00l wrote:
Wed May 29, 2019 6:29 pm

Here in NYC 2.3 million gets you a nice 2 br 2 ba in Manhattan so I don't think the number is automatically obscene. But if you are buying a giant home in the suburbs for that much, I might question the need for all that space.
That depends on the neighborhood. My friend owns a 2 br 2 ba right on Central Park in E Harlem...I'm not sure of the square footage but I would guess maybe 1400 plus? It is not luxurious but it has a very good layout, and is what I would define as a "nice" apartment in a "nice" building. I think apts. like hers are selling for around $800K these days (at least that is what she tells me). The neighborhood is mixed income, slowly being gentrified.

Another friend bought a place in Riverdale- I haven't seen it but I have seen photos and I was surprised how nice it looks. They paid , I forget....somewhere between 150-175K? Of course it is a long haul from there to midtown via public transportation, whereas from E Harlem it is only 4 express subway stops from Greenwich Village...15- 20 min. on the train.

z3r0c00l
Posts: 1533
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Can I afford this 2.3 million dollar home?

Post by z3r0c00l » Sat Jun 08, 2019 6:59 am

protagonist wrote:
Fri Jun 07, 2019 12:08 pm
z3r0c00l wrote:
Wed May 29, 2019 6:29 pm

Here in NYC 2.3 million gets you a nice 2 br 2 ba in Manhattan so I don't think the number is automatically obscene. But if you are buying a giant home in the suburbs for that much, I might question the need for all that space.
That depends on the neighborhood. My friend owns a 2 br 2 ba right on Central Park in E Harlem...I'm not sure of the square footage but I would guess maybe 1400 plus? It is not luxurious but it has a very good layout, and is what I would define as a "nice" apartment in a "nice" building. I think apts. like hers are selling for around $800K these days (at least that is what she tells me). The neighborhood is mixed income, slowly being gentrified.

Another friend bought a place in Riverdale- I haven't seen it but I have seen photos and I was surprised how nice it looks. They paid , I forget....somewhere between 150-175K? Of course it is a long haul from there to midtown via public transportation, whereas from E Harlem it is only 4 express subway stops from Greenwich Village...15- 20 min. on the train.
Nice/new construction 2/2 runs over 2 million in Brooklyn let alone nicer parts of Manhattan. Harlem is cheaper, that is true!

masonstone
Posts: 511
Joined: Thu Feb 01, 2018 4:01 pm

Re: Can I afford this 2.3 million dollar home?

Post by masonstone » Sat Jun 08, 2019 7:09 am

rascott wrote:
Fri Jun 07, 2019 9:20 am
Not sure why this is really a 4+ page debate, other than the numbers are exponentially higher than most people.

If incomes are as stable as claimed (I'm also incredibly curious how a $1m+ income is stable, but that's none of our business), there is really nothing here to debate. Get going with it so your family can enjoy some of your fabulous income. Building a home like this is going to be a part-time job for the next year.
I agree for incomes of $1m+ stability of income is an issue which is why I would wait until your net worth is higher.

retire2022
Posts: 1025
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Can I afford this 2.3 million dollar home?

Post by retire2022 » Sun Jun 09, 2019 3:24 am

all, a nice visual on how your state economic ranks

https://www.visualcapitalist.com/wp-con ... large.html

2commaBH
Posts: 76
Joined: Mon May 29, 2017 9:23 am
Location: SFBA

Re: Can I afford this 2.3 million dollar home?

Post by 2commaBH » Sun Jun 09, 2019 11:29 am

Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...

Topic Author
cmoney2011
Posts: 42
Joined: Thu Aug 20, 2015 9:10 pm

Re: Can I afford this 2.3 million dollar home?

Post by cmoney2011 » Sun Jun 09, 2019 11:49 am

2commaBH wrote:
Sun Jun 09, 2019 11:29 am
Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...
Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.

2commaBH
Posts: 76
Joined: Mon May 29, 2017 9:23 am
Location: SFBA

Re: Can I afford this 2.3 million dollar home?

Post by 2commaBH » Sun Jun 09, 2019 3:39 pm

cmoney2011 wrote:
Sun Jun 09, 2019 11:49 am
2commaBH wrote:
Sun Jun 09, 2019 11:29 am
Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...
Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.
Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this 2.3 million dollar home?

Post by KlangFool » Sun Jun 09, 2019 4:12 pm

2commaBH wrote:
Sun Jun 09, 2019 3:39 pm
cmoney2011 wrote:
Sun Jun 09, 2019 11:49 am
2commaBH wrote:
Sun Jun 09, 2019 11:29 am
Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...
Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.
Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.
2commaBH,

In order to provide a complete picture, you may want to provide your net worth excluding the house. For example, is it 2X, 3X, 4X?

KlangFool

2commaBH
Posts: 76
Joined: Mon May 29, 2017 9:23 am
Location: SFBA

Re: Can I afford this 2.3 million dollar home?

Post by 2commaBH » Sun Jun 09, 2019 5:02 pm

KlangFool wrote:
Sun Jun 09, 2019 4:12 pm
2commaBH wrote:
Sun Jun 09, 2019 3:39 pm
cmoney2011 wrote:
Sun Jun 09, 2019 11:49 am
2commaBH wrote:
Sun Jun 09, 2019 11:29 am
Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...
Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.
Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.
2commaBH,

In order to provide a complete picture, you may want to provide your net worth excluding the house. For example, is it 2X, 3X, 4X?

KlangFool
Sorry, but I don't quite understand?

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this 2.3 million dollar home?

Post by KlangFool » Sun Jun 09, 2019 5:17 pm

2commaBH wrote:
Sun Jun 09, 2019 5:02 pm
KlangFool wrote:
Sun Jun 09, 2019 4:12 pm
2commaBH wrote:
Sun Jun 09, 2019 3:39 pm
cmoney2011 wrote:
Sun Jun 09, 2019 11:49 am
2commaBH wrote:
Sun Jun 09, 2019 11:29 am
Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...
Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.
Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.
2commaBH,

In order to provide a complete picture, you may want to provide your net worth excluding the house. For example, is it 2X, 3X, 4X?

KlangFool
Sorry, but I don't quite understand?
2commaBH,

In order to provide a complete financial picture, you should state your net worth excluding the house too.

For example, let's assume the price of your current house is X. What is your net worth excluding the house? Is it one time (X)? 2 times and so on.

If the house is 1 million, is your net worth excluding the house = 1 million? 2 million and so on.

KlangFool

2commaBH
Posts: 76
Joined: Mon May 29, 2017 9:23 am
Location: SFBA

Re: Can I afford this 2.3 million dollar home?

Post by 2commaBH » Sun Jun 09, 2019 5:45 pm

KlangFool wrote:
Sun Jun 09, 2019 5:17 pm
2commaBH wrote:
Sun Jun 09, 2019 5:02 pm
KlangFool wrote:
Sun Jun 09, 2019 4:12 pm
2commaBH wrote:
Sun Jun 09, 2019 3:39 pm
cmoney2011 wrote:
Sun Jun 09, 2019 11:49 am


Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.
Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.
2commaBH,

In order to provide a complete picture, you may want to provide your net worth excluding the house. For example, is it 2X, 3X, 4X?

KlangFool
Sorry, but I don't quite understand?
2commaBH,

In order to provide a complete financial picture, you should state your net worth excluding the house too.

For example, let's assume the price of your current house is X. What is your net worth excluding the house? Is it one time (X)? 2 times and so on.

If the house is 1 million, is your net worth excluding the house = 1 million? 2 million and so on.

KlangFool
Thanks - now I understand - although I do not agree that in our case it would give the correct impression given how aggressively we have paid down our mortgage.

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this 2.3 million dollar home?

Post by KlangFool » Sun Jun 09, 2019 5:58 pm

2commaBH wrote:
Sun Jun 09, 2019 5:45 pm
KlangFool wrote:
Sun Jun 09, 2019 5:17 pm
2commaBH wrote:
Sun Jun 09, 2019 5:02 pm
KlangFool wrote:
Sun Jun 09, 2019 4:12 pm
2commaBH wrote:
Sun Jun 09, 2019 3:39 pm


Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.
2commaBH,

In order to provide a complete picture, you may want to provide your net worth excluding the house. For example, is it 2X, 3X, 4X?

KlangFool
Sorry, but I don't quite understand?
2commaBH,

In order to provide a complete financial picture, you should state your net worth excluding the house too.

For example, let's assume the price of your current house is X. What is your net worth excluding the house? Is it one time (X)? 2 times and so on.

If the house is 1 million, is your net worth excluding the house = 1 million? 2 million and so on.

KlangFool
Thanks - now I understand - although I do not agree that in our case it would give the correct impression given how aggressively we have paid down our mortgage.
2commaBH,

It is up to you whether you choose to disclose this information. In OP's case, the number is about 50%: 1 million net worth versus a 2 million house. So, your definition of stretching may or may not be similar to OP.

KlangFool

RollTide31457
Posts: 259
Joined: Tue Nov 28, 2017 8:06 pm

Re: Can I afford this 2.3 million dollar home?

Post by RollTide31457 » Sun Jun 09, 2019 6:00 pm

Houses are a cost not a revenue source.

2commaBH
Posts: 76
Joined: Mon May 29, 2017 9:23 am
Location: SFBA

Re: Can I afford this 2.3 million dollar home?

Post by 2commaBH » Sun Jun 09, 2019 7:47 pm

KlangFool wrote:
Sun Jun 09, 2019 5:58 pm
2commaBH wrote:
Sun Jun 09, 2019 5:45 pm
KlangFool wrote:
Sun Jun 09, 2019 5:17 pm
2commaBH wrote:
Sun Jun 09, 2019 5:02 pm
KlangFool wrote:
Sun Jun 09, 2019 4:12 pm


2commaBH,

In order to provide a complete picture, you may want to provide your net worth excluding the house. For example, is it 2X, 3X, 4X?

KlangFool
Sorry, but I don't quite understand?
2commaBH,

In order to provide a complete financial picture, you should state your net worth excluding the house too.

For example, let's assume the price of your current house is X. What is your net worth excluding the house? Is it one time (X)? 2 times and so on.

If the house is 1 million, is your net worth excluding the house = 1 million? 2 million and so on.

KlangFool
Thanks - now I understand - although I do not agree that in our case it would give the correct impression given how aggressively we have paid down our mortgage.
2commaBH,

It is up to you whether you choose to disclose this information. In OP's case, the number is about 50%: 1 million net worth versus a 2 million house. So, your definition of stretching may or may not be similar to OP.

KlangFool
My point, however, was not about stretching. It was about the perniciousness of the hedonic treadmill - something I saw first hand when I bought what I thought was my "forever home" only to begin thinking about trading up a few years later.

KlangFool
Posts: 14560
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this 2.3 million dollar home?

Post by KlangFool » Sun Jun 09, 2019 7:55 pm

2commaBH wrote:
Sun Jun 09, 2019 7:47 pm
KlangFool wrote:
Sun Jun 09, 2019 5:58 pm
2commaBH wrote:
Sun Jun 09, 2019 5:45 pm
KlangFool wrote:
Sun Jun 09, 2019 5:17 pm
2commaBH wrote:
Sun Jun 09, 2019 5:02 pm


Sorry, but I don't quite understand?
2commaBH,

In order to provide a complete financial picture, you should state your net worth excluding the house too.

For example, let's assume the price of your current house is X. What is your net worth excluding the house? Is it one time (X)? 2 times and so on.

If the house is 1 million, is your net worth excluding the house = 1 million? 2 million and so on.

KlangFool
Thanks - now I understand - although I do not agree that in our case it would give the correct impression given how aggressively we have paid down our mortgage.
2commaBH,

It is up to you whether you choose to disclose this information. In OP's case, the number is about 50%: 1 million net worth versus a 2 million house. So, your definition of stretching may or may not be similar to OP.

KlangFool
My point, however, was not about stretching. It was about the perniciousness of the hedonic treadmill - something I saw first hand when I bought what I thought was my "forever home" only to begin thinking about trading up a few years later.
2commaBH,

That might be your point. But, your post might unintentionally serve as an indicator that it is okay to stretch.

KlangFool

smitcat
Posts: 4603
Joined: Mon Nov 07, 2016 10:51 am

Re: Can I afford this 2.3 million dollar home?

Post by smitcat » Sun Jun 09, 2019 8:00 pm

RollTide31457 wrote:
Sun Jun 09, 2019 6:00 pm
Houses are a cost not a revenue source.
It varies for some.

masonstone
Posts: 511
Joined: Thu Feb 01, 2018 4:01 pm

Re: Can I afford this 2.3 million dollar home?

Post by masonstone » Sun Jun 09, 2019 8:20 pm

smitcat wrote:
Sun Jun 09, 2019 8:00 pm
RollTide31457 wrote:
Sun Jun 09, 2019 6:00 pm
Houses are a cost not a revenue source.
It varies for some.
The house you’re living in should never be considered a revenue source.

Starfish
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Re: Can I afford this 2.3 million dollar home?

Post by Starfish » Sun Jun 09, 2019 9:21 pm

RollTide31457 wrote:
Sun Jun 09, 2019 6:00 pm
Houses are a cost not a revenue source.
If I am to believe Zillow my house appreciated 50% in the last 6 years. It is not a revenue source now but it definitely a nice NW source.

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Re: Can I afford this 2.3 million dollar home?

Post by JonnyDVM » Sun Jun 09, 2019 9:55 pm

I find this forum very good for investing advice but often not so good for personal financial decisions. Any “ should I buy it “ post is almost always met with numerous “no’s”

You can’t really afford it. You could lose your job or get hit by a bus and not be able to make payments. You should pay for it in cash or not at all (ridiculous when talking about a house btw). Or the old standby- you can afford X but you really don’t actually want it.

If I listened to this forum I would have made several regrettable decisions when it comes to home and car purchases over the past decade. It is possible to be overly conservative. You only get one chance at this lifetime.

OP can easily afford this house. I don’t understand how this managed five pages of debate.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

samstar
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Re: Can I afford this 2.3 million dollar home?

Post by samstar » Sun Jun 09, 2019 11:21 pm

......
Last edited by samstar on Thu Jul 11, 2019 2:23 am, edited 1 time in total.

KlangFool
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Re: Can I afford this 2.3 million dollar home?

Post by KlangFool » Mon Jun 10, 2019 6:42 am

samstar wrote:
Sun Jun 09, 2019 11:21 pm
Klang Fool,
For those in VHCOL areas, what do you consider a conservative or moderate ratio for net worth (excl primary home equity) to value of home? Perhaps the better metric is net worth to mortgage?

Personally I think a lower ratio is justifiable to live in a better neighborhood but not justifiable for more sq footage.
samstar,

1) Why compromise? If a person is not paid well enough in a VHCOL area, then, please don't live in those areas.

2) My rule for buying a house

A) Net worth excluding the house is at least 2.5 times the house price.

B) PITI at 20% to 30% lower than the rent.

C) Comparing the buy versus rent with the SAME house that you are renting.

<<Personally I think a lower ratio is justifiable to live in a better neighborhood but not justifiable for more sq footage.>>

3) Why compromise? Move somewhere else where your income is good enough to get all of the above. It is a big country.

4) In many professional areas, the VHCOL does not pay well enough to justify living in that area. So, why bother?

KlangFool

smitcat
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Re: Can I afford this 2.3 million dollar home?

Post by smitcat » Mon Jun 10, 2019 6:47 am

masonstone wrote:
Sun Jun 09, 2019 8:20 pm
smitcat wrote:
Sun Jun 09, 2019 8:00 pm
RollTide31457 wrote:
Sun Jun 09, 2019 6:00 pm
Houses are a cost not a revenue source.
It varies for some.
The house you’re living in should never be considered a revenue source.
Again - in general that's true but it varies for some.

Topic Author
cmoney2011
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Re: Can I afford this 2.3 million dollar home?

Post by cmoney2011 » Mon Jun 10, 2019 8:57 am

KlangFool wrote:
Sun Jun 09, 2019 7:55 pm
2commaBH wrote:
Sun Jun 09, 2019 7:47 pm
KlangFool wrote:
Sun Jun 09, 2019 5:58 pm
2commaBH wrote:
Sun Jun 09, 2019 5:45 pm
KlangFool wrote:
Sun Jun 09, 2019 5:17 pm


2commaBH,

In order to provide a complete financial picture, you should state your net worth excluding the house too.

For example, let's assume the price of your current house is X. What is your net worth excluding the house? Is it one time (X)? 2 times and so on.

If the house is 1 million, is your net worth excluding the house = 1 million? 2 million and so on.

KlangFool
Thanks - now I understand - although I do not agree that in our case it would give the correct impression given how aggressively we have paid down our mortgage.
2commaBH,

It is up to you whether you choose to disclose this information. In OP's case, the number is about 50%: 1 million net worth versus a 2 million house. So, your definition of stretching may or may not be similar to OP.

KlangFool
My point, however, was not about stretching. It was about the perniciousness of the hedonic treadmill - something I saw first hand when I bought what I thought was my "forever home" only to begin thinking about trading up a few years later.
2commaBH,

That might be your point. But, your post might unintentionally serve as an indicator that it is okay to stretch.

KlangFool
Agree, I’d also like to hear your net worth and income to put your housing costs in context.

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simplesimon
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Re: Can I afford this 2.3 million dollar home?

Post by simplesimon » Mon Jun 10, 2019 12:09 pm

2commaBH wrote:
Sun Jun 09, 2019 3:39 pm
cmoney2011 wrote:
Sun Jun 09, 2019 11:49 am
2commaBH wrote:
Sun Jun 09, 2019 11:29 am
Most of the relevant points here have been covered, but just to make explicit one that was implied in a few of the previous posts.

Caution with the "forever home" concept. We took the plunge to buy our "forever home" 4 years ago at income levels and purchase price slightly higher than yours. While we still love our home, not a month goes by when we don't think about trading up to a place with - you name it - a little more room, a little more land, a little more privacy, a little bit better style, etc.

So far we have resisted the urge, but those $4m places are starting to look quite enticing to us...
Wow- care to share more details? Interested in your story. I guess it shouldn’t be surprising that we keep adjusting our tastes/expectations ever higher. To be clear, I never used the phrase “forever home.” I said we expect to stay in the home for a long time, “possibly forever.” I certainly wouldn’t be surprised if that didn’t happen.
Sure, here are some details: We bought our first home in 2015 in a VHCOL area. 2 healthy incomes, both of us in senior management in our respective fields with plenty of room to run. We paid just over 20% down on a 30 yr fixed. Our home was about 15% above our ceiling, but as Bogleheads our ceiling was probably slightly conservative. Anyway, we felt we got *much* more for our money for that final 15%, and we loved the house. And we were qualified for the larger amount and had the dry powder to make the down payment. "Why buy a lesser place and then move in five years," we thought, "when we could just stretch and buy our forever home [our actual phrase] now?"

We moved in, did a light remodel to the kitchen, had another kid and slowly filled the house up with furniture of our liking. Life is good.

Flash forward 4 years: We still love our home, but we (mostly me) are starting to wonder if it wouldn't be nice to have a little more space. Also the yard is beautiful, but it is not the most usable for two young kids. And the house, while beautiful, isn't quite the style I imagined living in my whole adult life. We have also thought a more private setting might be nice.

We believe our home has appreciated significantly (approx 25% cumulative). We have also aggressively paid down our mortgage (now at LTV of approx 33%). (Side note: maybe this won't be an issue for you as you already are a home-owner, but I severely underestimated the discomfort I would feel at having a large mortgage.) And we're now above the tax-free profit on any sale, so we will make 80 cents on any future dollars of appreciation.

So we have started to lightly entertain the idea of buying something in the $4m range. In looking at other houses (just for fun for now), that is the next level of home where we would feel a difference, and financially we could afford it. We have resisted the urge so far (again, we are Bogleheads and know all about the hedonic treadmill), but I will say it is getting harder to resist.
Thanks for sharing. I'm in a similar situation as you for our first home...wonder how I'll feel in a few years.

I know a family who just upgraded from a very nice house to a much nicer and bigger house just down the street (worth 45% more) last year even though their oldest child is leaving for college this fall so the household is going from four to three. I don't understand it but they certainly can afford it. I guess if its either a nicer house or a couple McLarens then I'd probably choose the house.

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Re: Can I afford this 2.3 million dollar home?

Post by SQRT » Mon Jun 10, 2019 1:01 pm

JonnyDVM wrote:
Sun Jun 09, 2019 9:55 pm
I find this forum very good for investing advice but often not so good for personal financial decisions. Any “ should I buy it “ post is almost always met with numerous “no’s”

You can’t really afford it. You could lose your job or get hit by a bus and not be able to make payments. You should pay for it in cash or not at all (ridiculous when talking about a house btw). Or the old standby- you can afford X but you really don’t actually want it.

If I listened to this forum I would have made several regrettable decisions when it comes to home and car purchases over the past decade. It is possible to be overly conservative. You only get one chance at this lifetime.

OP can easily afford this house. I don’t understand how this managed five pages of debate.
Yes it is certainly a conservative site. I would never ask an anonymous internet chat room if I could afford anything. The answer , at best, would be “ yes you can but why would you buy that?”

It’s very difficult for most people to put themselves in someone else’s (who has much more) financial shoes. Just human nature.

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Re: Can I afford this 2.3 million dollar home?

Post by DesertDiva » Mon Jun 10, 2019 1:19 pm

SQRT wrote:
Mon Jun 10, 2019 1:01 pm
JonnyDVM wrote:
Sun Jun 09, 2019 9:55 pm
I find this forum very good for investing advice but often not so good for personal financial decisions. Any “ should I buy it “ post is almost always met with numerous “no’s”

You can’t really afford it. You could lose your job or get hit by a bus and not be able to make payments. You should pay for it in cash or not at all (ridiculous when talking about a house btw). Or the old standby- you can afford X but you really don’t actually want it.

If I listened to this forum I would have made several regrettable decisions when it comes to home and car purchases over the past decade. It is possible to be overly conservative. You only get one chance at this lifetime.

OP can easily afford this house. I don’t understand how this managed five pages of debate.
Yes it is certainly a conservative site. I would never ask an anonymous internet chat room if I could afford anything. The answer , at best, would be “ yes you can but why would you buy that?”

It’s very difficult for most people to put themselves in someone else’s (who has much more) financial shoes. Just human nature.
It's also human nature to alert an OP to potential issues they may not have considered. Many posters--myself included--have faced circumstances beyond our control and have seen that plans with the best intentions may go awry. Therefore, some of us will naturally suggest more caution and present a more conservative POV.

SQRT
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Re: Can I afford this 2.3 million dollar home?

Post by SQRT » Mon Jun 10, 2019 1:48 pm

DesertDiva wrote:
Mon Jun 10, 2019 1:19 pm
SQRT wrote:
Mon Jun 10, 2019 1:01 pm
JonnyDVM wrote:
Sun Jun 09, 2019 9:55 pm
I find this forum very good for investing advice but often not so good for personal financial decisions. Any “ should I buy it “ post is almost always met with numerous “no’s”

You can’t really afford it. You could lose your job or get hit by a bus and not be able to make payments. You should pay for it in cash or not at all (ridiculous when talking about a house btw). Or the old standby- you can afford X but you really don’t actually want it.

If I listened to this forum I would have made several regrettable decisions when it comes to home and car purchases over the past decade. It is possible to be overly conservative. You only get one chance at this lifetime.

OP can easily afford this house. I don’t understand how this managed five pages of debate.
Yes it is certainly a conservative site. I would never ask an anonymous internet chat room if I could afford anything. The answer , at best, would be “ yes you can but why would you buy that?”

It’s very difficult for most people to put themselves in someone else’s (who has much more) financial shoes. Just human nature.
It's also human nature to alert an OP to potential issues they may not have considered. Many posters--myself included--have faced circumstances beyond our control and have seen that plans with the best intentions may go awry. Therefore, some of us will naturally suggest more caution and present a more conservative POV.
Agree. This would be part of the reason why the responses tend to be conservative. But also there is just a bias against spending a lot of money, whether you can afford it or not.

RobLyons
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Re: Can I afford this 2.3 million dollar home?

Post by RobLyons » Mon Jun 10, 2019 2:06 pm

stoptothink wrote:
Wed May 29, 2019 6:32 pm
"Normal people" don't belong anywhere near this thread. You are earning 15x-20x what "normal" households do.


^ This!!


Those numbers are mind boggling to this middle income family of 4. :shock: Just two to three years of that income would take us from debt riddled (now) to FIRE.
"Great parenting sets the foundation for a better world"

protagonist
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Re: Can I afford this 2.3 million dollar home?

Post by protagonist » Mon Jun 10, 2019 4:31 pm

z3r0c00l wrote:
Sat Jun 08, 2019 6:59 am
protagonist wrote:
Fri Jun 07, 2019 12:08 pm
z3r0c00l wrote:
Wed May 29, 2019 6:29 pm

Here in NYC 2.3 million gets you a nice 2 br 2 ba in Manhattan so I don't think the number is automatically obscene. But if you are buying a giant home in the suburbs for that much, I might question the need for all that space.
That depends on the neighborhood. My friend owns a 2 br 2 ba right on Central Park in E Harlem...I'm not sure of the square footage but I would guess maybe 1400 plus? It is not luxurious but it has a very good layout, and is what I would define as a "nice" apartment in a "nice" building. I think apts. like hers are selling for around $800K these days (at least that is what she tells me). The neighborhood is mixed income, slowly being gentrified.

Another friend bought a place in Riverdale- I haven't seen it but I have seen photos and I was surprised how nice it looks. They paid , I forget....somewhere between 150-175K? Of course it is a long haul from there to midtown via public transportation, whereas from E Harlem it is only 4 express subway stops from Greenwich Village...15- 20 min. on the train.
Nice/new construction 2/2 runs over 2 million in Brooklyn let alone nicer parts of Manhattan. Harlem is cheaper, that is true!
I don't want to give you the wrong idea. In my mind, hailing from W MA, $800K for a 2/2 is still rather obscene. I think her building was built around the 1950s-60s but I am not sure.

SQRT
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Re: Can I afford this 2.3 million dollar home?

Post by SQRT » Tue Jun 11, 2019 7:46 am

RobLyons wrote:
Mon Jun 10, 2019 2:06 pm
stoptothink wrote:
Wed May 29, 2019 6:32 pm
"Normal people" don't belong anywhere near this thread. You are earning 15x-20x what "normal" households do.


^ This!!


Those numbers are mind boggling to this middle income family of 4. :shock: Just two to three years of that income would take us from debt riddled (now) to FIRE.
There is a wide range of incomes and net worth on this site. This reflects the wide range of wealth in our society. If you participate in these sites you need to appreciate that some people have orders of magnitude more than “average”. Putting yourself in wealthy peoples’ shoe’s can be very difficult for an “average” person. But surely it’s possible and if you want the discussion to reflect anything other than “what the average guy would do” I think we will need to try and appreciate this.

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ResearchMed
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Re: Can I afford this 2.3 million dollar home?

Post by ResearchMed » Tue Jun 11, 2019 7:53 am

RobLyons wrote:
Mon Jun 10, 2019 2:06 pm
stoptothink wrote:
Wed May 29, 2019 6:32 pm
"Normal people" don't belong anywhere near this thread. You are earning 15x-20x what "normal" households do.


^ This!!


Those numbers are mind boggling to this middle income family of 4. :shock: Just two to three years of that income would take us from debt riddled (now) to FIRE.
Yes, this is part of the problem, and not just with this thread; with any questions about "higher priced" choices.
And that is a problem, when people respond as though the money being spent is theirs, or something like that.
It's difficult to imagine this level of income for most of us.
However, there are quite a few levels of income/wealth here, and where one sits affects one's view.
Consider something closer to "average" household income, perhaps $60-75k (and I think this is slightly high?). The choices that someone with HHI of, say, $250k would be quite different. And ditto for a jump to high 6-figures or $1m or more.

But OP actually asked what "normal" people would think, which is inviting this type of problem:

"These numbers seem insane. I know what the affordability calculators say, and I know we can find financing, but do normal people find these numbers reasonable or just out of control? Looking for some perspective here."

I'm thinking back to the proverbial "$5k watch" question here (and similar, higher priced watches or cars, etc.)...

The scolding tone sometimes here on BH isn't really appropriate, and isn't fair to those in a "different" category. It's also not appropriate for someone with "more" money to write that someone with much less "should go ahead and get that <expensive treat/toy> YOLO!" without suitable regard for the income/wealth level.
And then there is the relative cost of living area, often discussed in terms of housing costs more than other items. Homes aren't portable, so someone can't go a few states over to get a similar house for a fraction of the cost, etc. "If only....!" :annoyed

I just wish there was some way to have these types of discussions, to answer an OP while keeping in mind the OP's circumstances, not necessarily one's own. (And if one simply cannot identify, then... don't answer.)

RM
This signature is a placebo. You are in the control group.

Rus In Urbe
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Re: Can I afford this 2.3 million dollar home?

Post by Rus In Urbe » Tue Jun 11, 2019 7:59 am

I just wish there was some way to have these types of discussions, to answer an OP while keeping in mind the OP's circumstances, not necessarily one's own. (And if one simply cannot identify, then... don't answer.)
+1 to ResearchMed

One sticking point on this thread is the use of the word "normal."

The word "normal" (ie. "we have a normal income"), is a value judgment.

I recommend the word "average" when talking about income and finances (because I believe the posters using the word "normal" are talking in broad terms about average/median incomes and average/median net worths). Or better yet, provide specific details.

IMHO, if we all avoid the word "normal," it will keep our conversations more on the factual level and less on the judgmental.

EDIT: Addendum----I note that the OP actually started this off by posing the question if "normal people" would find this okay, setting themselves up as "abnormal?" So the problem of judgment was baked-in to the original question. Sorry to pose as the language police but such terms matter when we are trying to focus on a factual issue.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

SQRT
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Re: Can I afford this 2.3 million dollar home?

Post by SQRT » Tue Jun 11, 2019 8:35 am

ResearchMed wrote:
Tue Jun 11, 2019 7:53 am
RobLyons wrote:
Mon Jun 10, 2019 2:06 pm
stoptothink wrote:
Wed May 29, 2019 6:32 pm
"Normal people" don't belong anywhere near this thread. You are earning 15x-20x what "normal" households do.


^ This!!


Those numbers are mind boggling to this middle income family of 4. :shock: Just two to three years of that income would take us from debt riddled (now) to FIRE.
Yes, this is part of the problem, and not just with this thread; with any questions about "higher priced" choices.
And that is a problem, when people respond as though the money being spent is theirs, or something like that.
It's difficult to imagine this level of income for most of us.
However, there are quite a few levels of income/wealth here, and where one sits affects one's view.
Consider something closer to "average" household income, perhaps $60-75k (and I think this is slightly high?). The choices that someone with HHI of, say, $250k would be quite different. And ditto for a jump to high 6-figures or $1m or more.

But OP actually asked what "normal" people would think, which is inviting this type of problem:

"These numbers seem insane. I know what the affordability calculators say, and I know we can find financing, but do normal people find these numbers reasonable or just out of control? Looking for some perspective here."

I'm thinking back to the proverbial "$5k watch" question here (and similar, higher priced watches or cars, etc.)...

The scolding tone sometimes here on BH isn't really appropriate, and isn't fair to those in a "different" category. It's also not appropriate for someone with "more" money to write that someone with much less "should go ahead and get that <expensive treat/toy> YOLO!" without suitable regard for the income/wealth level.
And then there is the relative cost of living area, often discussed in terms of housing costs more than other items. Homes aren't portable, so someone can't go a few states over to get a similar house for a fraction of the cost, etc. "If only....!" :annoyed

I just wish there was some way to have these types of discussions, to answer an OP while keeping in mind the OP's circumstances, not necessarily one's own. (And if one simply cannot identify, then... don't answer.)

RM
Well put. Sometimes it’s just better to pass on responding if you don’t have the relevant experience. It’s a real challenge to provide useful advice if you circumstances (wealth or location) is really in a “different world”. It’s probably better for people starting threads like this to try and encourage responses from people with comparable circumstances.

Of course it’s quite interesting sometimes to see how “others” live as long as we remain respectful.

ww340
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Re: Can I afford this 2.3 million dollar home?

Post by ww340 » Tue Jun 11, 2019 8:58 am

We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.

IntangibleAssets
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Re: Can I afford this 2.3 million dollar home?

Post by IntangibleAssets » Tue Jun 11, 2019 9:09 am

With respect to the discussion RE: incomes, there have been several higher NW (including persons making more than OP) that have urged restraint and caution.

Naturally persons with lower incomes would be cautious, I'd say there is definitely a fine balance to be made in terms of collective consequences of a home of that magnitude (kids, schooling, Jones', etc.). Which I think is what the OP was looking for rather than affordability, it's clearly affordable for someone of their means.

bluebolt
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Re: Can I afford this 2.3 million dollar home?

Post by bluebolt » Tue Jun 11, 2019 9:09 am

ww340 wrote:
Tue Jun 11, 2019 8:58 am
We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.
While that's a reasonable approach for someone who is very debt averse, the vast majority of Americans and BHs do not take this approach.

There's a very good argument to be made that in a historically low interest rate environment that paying for a house with cash is not the right approach for most people. That said, you still need to buy within your means, whether you take out a loan or not.

KlangFool
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Re: Can I afford this 2.3 million dollar home?

Post by KlangFool » Tue Jun 11, 2019 9:27 am

IntangibleAssets wrote:
Tue Jun 11, 2019 9:09 am
With respect to the discussion RE: incomes, there have been several higher NW (including persons making more than OP) that have urged restraint and caution.

Naturally persons with lower incomes would be cautious, I'd say there is definitely a fine balance to be made in terms of collective consequences of a home of that magnitude (kids, schooling, Jones', etc.). Which I think is what the OP was looking for rather than affordability, it's clearly affordable for someone of their means.
IntangibleAssets,

It is easier to find an equivalent job within your local area with a lowered income. My older brother lost money on every house that he bought because he had to move every few years in order to find a new job (voluntary or involuntary). My older brother was making high 6 figures up to 7 figures with his annual salary and bonus. But, he did not buy a house far above his income and/or net worth. He early retired at 49 years old.

KlangFool

IntangibleAssets
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Re: Can I afford this 2.3 million dollar home?

Post by IntangibleAssets » Tue Jun 11, 2019 9:46 am

KlangFool wrote:
Tue Jun 11, 2019 9:27 am
IntangibleAssets wrote:
Tue Jun 11, 2019 9:09 am
With respect to the discussion RE: incomes, there have been several higher NW (including persons making more than OP) that have urged restraint and caution.

Naturally persons with lower incomes would be cautious, I'd say there is definitely a fine balance to be made in terms of collective consequences of a home of that magnitude (kids, schooling, Jones', etc.). Which I think is what the OP was looking for rather than affordability, it's clearly affordable for someone of their means.
IntangibleAssets,

It is easier to find an equivalent job within your local area with a lowered income. My older brother lost money on every house that he bought because he had to move every few years in order to find a new job (voluntary or involuntary). My older brother was making high 6 figures up to 7 figures with his annual salary and bonus. But, he did not buy a house far above his income and/or net worth. He early retired at 49 years old.

KlangFool
Hi Klang,

Certainly, I would be in agreement with that. I have several relatives in the same income strata as OP and have seen highs and lows.

The risk to OP as you rightly point out is a concentration of NW in one asset for the short to medium term, and the potential for job security being lower than anticipated.

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Re: Can I afford this 2.3 million dollar home?

Post by HEDGEFUNDIE » Tue Jun 11, 2019 9:56 am

ww340 wrote:
Tue Jun 11, 2019 8:58 am
We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.
As someone in this demographic who owns a $1.5-2M home, I would sleep worse at night if I owned it outright. That would mean I had a significant amount of money tied up in an illiquid, immovable asset. BHs preach diversification, owning a multi-million dollar home (or two of them) with no mortgage is about as far from diversified as you can get.

Debt-averse and risk-averse should be two different things. The latter makes rational sense, the former is just a behavioral anomaly.

User avatar
Watty
Posts: 18019
Joined: Wed Oct 10, 2007 3:55 pm

Re: Can I afford this 2.3 million dollar home?

Post by Watty » Tue Jun 11, 2019 9:58 am

SQRT wrote:
Tue Jun 11, 2019 7:46 am
RobLyons wrote:
Mon Jun 10, 2019 2:06 pm
stoptothink wrote:
Wed May 29, 2019 6:32 pm
"Normal people" don't belong anywhere near this thread. You are earning 15x-20x what "normal" households do.


^ This!!


Those numbers are mind boggling to this middle income family of 4. :shock: Just two to three years of that income would take us from debt riddled (now) to FIRE.
There is a wide range of incomes and net worth on this site. This reflects the wide range of wealth in our society. If you participate in these sites you need to appreciate that some people have orders of magnitude more than “average”. Putting yourself in wealthy peoples’ shoe’s can be very difficult for an “average” person. But surely it’s possible and if you want the discussion to reflect anything other than “what the average guy would do” I think we will need to try and appreciate this.
Compared to many of the posters here I am pretty middle class. I retired a few years ago and the OPs current net worth is not all that much more than mine so from that perspective the OP may be "normal" right now than they would like to think.

Sure they have a fantastic income now and they are expecting about a 50% increase next year and their future income should be many times an average income but currently their net worth is not exceptional.

I think that the reason this thread has gone on so long is that the wrong question was asked.

Instead of asking "Can I afford this 2.3 million dollar home?" it would have been better to have asked "When can I afford this 2.3 million dollar home?"

Right now;
1) Their net worth is not all that high.
2) They are basing their decision on next years big income increase.

A couple of years from now it should be easy to say "yes" about if they can afford it but right now it is a huge stretch.

teelainen
Posts: 195
Joined: Fri Feb 01, 2019 1:17 am

Re: Can I afford this 2.3 million dollar home?

Post by teelainen » Tue Jun 11, 2019 1:55 pm

cmoney2011 wrote:
Wed May 29, 2019 6:26 pm
Interested in buying a dream home in ideal location next year for 2.3 million. Would plan on staying for a long time, possibly forever. Price is a bit shocking, but after months of scanning the market, it seems to be the best option for our taste.
Based on your current income, you can afford it. I think you already know that.

I know people who live in $2+ million dollar homes, but their net worth is much higher than your current net worth. If their income went to zero, they could liquidate assets and pay off all debts on their home. Just as important, even if their income went to zero, they would still be able to pay all their property taxes and costs to maintain the home every year (for the rest of their lives). This way, they don't run the risk of ever losing their home (and equity).

They know that $2+ million dollar homes are very illiquid, and in distressed situations these properties will sometimes only sell for 50-70 cents on the dollar.

But overall, it seems like you can afford this $2.3 million home. There is always some risk, but if your jobs are stable then it should be ok. A more conservative play would be to wait until your net worth is higher.

Best wishes to you and your family.

Topic Author
cmoney2011
Posts: 42
Joined: Thu Aug 20, 2015 9:10 pm

Re: Can I afford this 2.3 million dollar home?

Post by cmoney2011 » Tue Jun 11, 2019 2:23 pm

Watty wrote:
Tue Jun 11, 2019 9:58 am
SQRT wrote:
Tue Jun 11, 2019 7:46 am
RobLyons wrote:
Mon Jun 10, 2019 2:06 pm
stoptothink wrote:
Wed May 29, 2019 6:32 pm
"Normal people" don't belong anywhere near this thread. You are earning 15x-20x what "normal" households do.


^ This!!


Those numbers are mind boggling to this middle income family of 4. :shock: Just two to three years of that income would take us from debt riddled (now) to FIRE.
There is a wide range of incomes and net worth on this site. This reflects the wide range of wealth in our society. If you participate in these sites you need to appreciate that some people have orders of magnitude more than “average”. Putting yourself in wealthy peoples’ shoe’s can be very difficult for an “average” person. But surely it’s possible and if you want the discussion to reflect anything other than “what the average guy would do” I think we will need to try and appreciate this.
Compared to many of the posters here I am pretty middle class. I retired a few years ago and the OPs current net worth is not all that much more than mine so from that perspective the OP may be "normal" right now than they would like to think.

Sure they have a fantastic income now and they are expecting about a 50% increase next year and their future income should be many times an average income but currently their net worth is not exceptional.

I think that the reason this thread has gone on so long is that the wrong question was asked.

Instead of asking "Can I afford this 2.3 million dollar home?" it would have been better to have asked "When can I afford this 2.3 million dollar home?"

Right now;
1) Their net worth is not all that high.
2) They are basing their decision on next years big income increase.

A couple of years from now it should be easy to say "yes" about if they can afford it but right now it is a huge stretch.

To be clear I never meant to equate "normal" with "average income." I admit the language was imprecise-. Why don't we just agree to ignore it?

We're in our mid 30s and and net worth was -$200k 5 years ago. It's 1.5 mill now. I don't think we're exceptional in most ways, but I would argue that our rate of wealth accumulation is.

cmoney

bltn
Posts: 600
Joined: Mon Feb 20, 2017 9:32 pm

Re: Can I afford this 2.3 million dollar home?

Post by bltn » Tue Jun 11, 2019 2:48 pm

Starfish wrote:
Sun Jun 09, 2019 9:21 pm
RollTide31457 wrote:
Sun Jun 09, 2019 6:00 pm
Houses are a cost not a revenue source.
If I am to believe Zillow my house appreciated 50% in the last 6 years. It is not a revenue source now but it definitely a nice NW source.
While I do consider my home equity part of my net worth, a large home is not a source of financial security , unless I plan on trading down. To me a large home is detrimental to achieving financial independence due to high maintenance costs. Trading down involves a change in lifestyle which would be uncomfortable for many.
When I evaluate my financial picture, I look at my invested assets and my lifestyle requirement (which a large house definitely increases). The big house requires a bigger invested asset base to maintain.
For me , short of a financial emergency necessitating liquidation, the bigger house means a nicer , more expensive lifestyle, and a bigger inheritance for the kids. Definitely an expense, not a money producer.

Broadway2018
Posts: 284
Joined: Sat May 13, 2017 3:34 pm

Re: Can I afford this 2.3 million dollar home?

Post by Broadway2018 » Tue Jun 11, 2019 3:04 pm

Do you by any chance work in tech and are in Seattle? I think I saw this post on another board...

Topic Author
cmoney2011
Posts: 42
Joined: Thu Aug 20, 2015 9:10 pm

Re: Can I afford this 2.3 million dollar home?

Post by cmoney2011 » Tue Jun 11, 2019 3:44 pm

Broadway2018 wrote:
Tue Jun 11, 2019 3:04 pm
Do you by any chance work in tech and are in Seattle? I think I saw this post on another board...
Nope. Sounds fun tho.

User avatar
simplesimon
Posts: 3442
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Can I afford this 2.3 million dollar home?

Post by simplesimon » Tue Jun 11, 2019 4:07 pm

HEDGEFUNDIE wrote:
Tue Jun 11, 2019 9:56 am
ww340 wrote:
Tue Jun 11, 2019 8:58 am
We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.
As someone in this demographic who owns a $1.5-2M home, I would sleep worse at night if I owned it outright. That would mean I had a significant amount of money tied up in an illiquid, immovable asset. BHs preach diversification, owning a multi-million dollar home (or two of them) with no mortgage is about as far from diversified as you can get.

Debt-averse and risk-averse should be two different things. The latter makes rational sense, the former is just a behavioral anomaly.
How does using debt to purchase an asset increase diversification? I can see feeling sick if I lacked sufficient liquidity.

HEDGEFUNDIE
Posts: 3973
Joined: Sun Oct 22, 2017 2:06 pm

Re: Can I afford this 2.3 million dollar home?

Post by HEDGEFUNDIE » Tue Jun 11, 2019 4:19 pm

simplesimon wrote:
Tue Jun 11, 2019 4:07 pm
HEDGEFUNDIE wrote:
Tue Jun 11, 2019 9:56 am
ww340 wrote:
Tue Jun 11, 2019 8:58 am
We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.
As someone in this demographic who owns a $1.5-2M home, I would sleep worse at night if I owned it outright. That would mean I had a significant amount of money tied up in an illiquid, immovable asset. BHs preach diversification, owning a multi-million dollar home (or two of them) with no mortgage is about as far from diversified as you can get.

Debt-averse and risk-averse should be two different things. The latter makes rational sense, the former is just a behavioral anomaly.
How does using debt to purchase an asset increase diversification? I can see feeling sick if I lacked sufficient liquidity.
Two examples, which investor's asset base is more diversified?

1. $1M house owned outright, $1M invested in three-fund portfolio.
2. $0.2M home equity, $1.8M invested in three fund portfolio, -$0.8M fixed-rate debt

User avatar
simplesimon
Posts: 3442
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Can I afford this 2.3 million dollar home?

Post by simplesimon » Tue Jun 11, 2019 4:32 pm

HEDGEFUNDIE wrote:
Tue Jun 11, 2019 4:19 pm
simplesimon wrote:
Tue Jun 11, 2019 4:07 pm
HEDGEFUNDIE wrote:
Tue Jun 11, 2019 9:56 am
ww340 wrote:
Tue Jun 11, 2019 8:58 am
We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.
As someone in this demographic who owns a $1.5-2M home, I would sleep worse at night if I owned it outright. That would mean I had a significant amount of money tied up in an illiquid, immovable asset. BHs preach diversification, owning a multi-million dollar home (or two of them) with no mortgage is about as far from diversified as you can get.

Debt-averse and risk-averse should be two different things. The latter makes rational sense, the former is just a behavioral anomaly.
How does using debt to purchase an asset increase diversification? I can see feeling sick if I lacked sufficient liquidity.
Two examples, which investor's asset base is more diversified?

1. $1M house owned outright, $1M invested in three-fund portfolio.
2. $0.2M home equity, $1.8M invested in three fund portfolio, -$0.8M fixed-rate debt
Okay I see what you're saying now, but I think you meant "2. $1.8M investments and $1M home" for assets, right?

HEDGEFUNDIE
Posts: 3973
Joined: Sun Oct 22, 2017 2:06 pm

Re: Can I afford this 2.3 million dollar home?

Post by HEDGEFUNDIE » Tue Jun 11, 2019 4:34 pm

simplesimon wrote:
Tue Jun 11, 2019 4:32 pm
HEDGEFUNDIE wrote:
Tue Jun 11, 2019 4:19 pm
simplesimon wrote:
Tue Jun 11, 2019 4:07 pm
HEDGEFUNDIE wrote:
Tue Jun 11, 2019 9:56 am
ww340 wrote:
Tue Jun 11, 2019 8:58 am
We always determined how much house we could afford by how much house would could pay for in cash. Through the years that number climbed and we would sell the one we were in and move up. Most of our lives we lived in a 200,000 to 300,000 house in a low cost of living area, plus we had a vacation home worth 100,000 to 250,000 also bought with cash.

Even when my husband was making 1,000,000 plus, we lived in that price range. We bought our dream home in 1998. It was $330,000, we knew it need work and used it as our vacation home for many years. After my husband retired and sold some property we spent the money to truly turn it into our dream home with a huge 1.5 million renovation.

We also upgraded our vacation home, so we are not against big expensive homes, we just think you should pay cash for them.

Yes, we are debt averse. I think debt is what makes you feel trapped. It limits your choices.
As someone in this demographic who owns a $1.5-2M home, I would sleep worse at night if I owned it outright. That would mean I had a significant amount of money tied up in an illiquid, immovable asset. BHs preach diversification, owning a multi-million dollar home (or two of them) with no mortgage is about as far from diversified as you can get.

Debt-averse and risk-averse should be two different things. The latter makes rational sense, the former is just a behavioral anomaly.
How does using debt to purchase an asset increase diversification? I can see feeling sick if I lacked sufficient liquidity.
Two examples, which investor's asset base is more diversified?

1. $1M house owned outright, $1M invested in three-fund portfolio.
2. $0.2M home equity, $1.8M invested in three fund portfolio, -$0.8M fixed-rate debt
Okay I see what you're saying now, but I think you meant "2. $1.8M investments and $1M home" for assets, right?
Yes

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