Should we buy a $3M+ house with parental help?

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Sator
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Should we buy a $3M+ house with parental help?

Post by Sator »

We're married with no kids yet in our early 30s and pay $5000 a month to rent a $2M house in the San Francisco Bay Area (Peninsula). We're perfectly happy living where we are at least until kids have to go to school but our families continue to insist we are "throwing money away" and would like to gift us $1-1.5M for a down payment on a house in a good school district which looks like it would cost $3M-3.5M. Should we endure the nagging or take them up on their offer? Is this a good financial decision now or should we hold off as long as possible (but home prices may go up even more)?

Age: Both early 30s
Family: Married. Likely to start a family post-Covid
Income: ~$800k in cash. Income about equal. Good visibility to 25% cash increases in the next several years. Higher income potential but much more uncertain going forward. If we were to lose our jobs it would likely take 6-12 months to get a new similar job.
Assets:
50k Cash
75k House Savings in Cash
850k in Index Funds
150k in illiquid assets (carried interest, options, private company equity)
No Debt
Expenses: 130k annual spend including rent
Current Living situation: 5k a month rent for $2M townhouse in area with "ok" public schools. In terms of size and comfort, we could easily live here for 5+ more years without issue. Houses for around $3M would make it worthwhile for us to move in terms of size, location, amenities, and schools that would satisfy us long term. Family lives locally.

Future Considerations: Would consider public or private school for children until high school. Private high school. Parents provided full support for private college and professional school so we would like to do the same. Gift from family has minimal/no impact on their quality of life. Real estate agents in the family would do transactions without commissions. Advantageous to lock in property tax at cost of living increases due to Prop 13.

Edit: Added wrinkle. Due to family dynamics, if we wait 5 years we would likely only get 500k instead of 1-1.5M. There may be some possibility to take the money in cash now (would it be worth investing or keeping in cash?) but the excuse of "we haven't found anything yet" might only last a couple of years.
Last edited by Sator on Thu Sep 10, 2020 5:12 pm, edited 1 time in total.
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JoeRetire
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Re: Should we buy a $3M+ house with parental help?

Post by JoeRetire »

Sator wrote: Thu Sep 10, 2020 3:57 pmShould we endure the nagging or take them up on their offer?
Never get nagged into buying something you can't afford - even if the naggers help you buy it.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
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TxAg
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Re: Should we buy a $3M+ house with parental help?

Post by TxAg »

I vote no
bubbadog
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Re: Should we buy a $3M+ house with parental help?

Post by bubbadog »

If anyone wanted to gift me 1-1.5 million dollars, I wouldn't turn them down.
drk
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Re: Should we buy a $3M+ house with parental help?

Post by drk »

TxAg wrote: Thu Sep 10, 2020 4:42 pmI vote no
Agreed. This is the prototypical example from Millionaire Next Door. OP, you're doing great, so keep doing you.
MarkerFM
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Re: Should we buy a $3M+ house with parental help?

Post by MarkerFM »

Absolutely not. You have at least six years before you have to worry about schools. Ask your relatives to give you the gift now, invest in equities, and buy the house free and clear when you are ready.
Last edited by MarkerFM on Fri Sep 11, 2020 11:20 am, edited 1 time in total.
fyre4ce
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Re: Should we buy a $3M+ house with parental help?

Post by fyre4ce »

If I were you I would take the offer. I'm in a similar situation in an expensive part of SoCal. My wife and I have a young child and planned to move out of our apartment this summer when our lease was up. Then COVID hit, both she and I needed to work a lot from home, and the already hot local housing market turned into a feeding frenzy (10-15 offers per property, selling for $150-300k over asking, many all-cash offers etc). The absolute minimum for a basic 4-bdr move-in ready house in a good school district is $2.0M. It's been a huge stress trying to work from a small apartment with lots of background noise, having a toddler in a space that can't be properly baby-proofed, having no yard to go outside without other people, etc, plus there's the added stress of trying to figure out how to pay a $9,000/mo mortgage payment (my wife works in a hospital, so each shift has a risk of virus exposure). It's been one of the most difficult periods of my life. If you have an opportunity to have housing taken care of by way of a family gift, and avoid all this stress, I wouldn't turn it down.

Edit: I don't think everyone on this thread appreciates just how little $3M buys in the OP's area. I just spent 90 seconds on Zillow and grabbed a couple random $3M+ listings in Palo Alto:

https://www.zillow.com/homedetails/3248 ... 9310_zpid/
https://www.zillow.com/homedetails/2886 ... 3124_zpid/

Even in the suburbs of other major US cities, houses like that would sell for less than $500k, and in most of the country less than $300k.

Before this year, I would have felt differently. My wife and I (IMO) have been very fiscally responsible, we live on about $80k/year including $3k/mo rent, save between a third and half of our income, invest well, minimize taxes, etc. We're in our mid 30's and just crossed $2M net worth on an average salary of about $160k/year for the last 15 years. I would have felt like accepting a large gift would degrade all the hard work we've done. Now, being in the situation of "needing" a family-appropriate house and barely being able to afford it, I wouldn't feel badly at all about accepting help.
Last edited by fyre4ce on Thu Sep 10, 2020 5:28 pm, edited 1 time in total.
delamer
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Re: Should we buy a $3M+ house with parental help?

Post by delamer »

I would not take on a major, new financial commitment in the middle of a pandemic.
jarjarM
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Re: Should we buy a $3M+ house with parental help?

Post by jarjarM »

I vote no. Buying a $3M+ house is not just buying the $3M house, there's a whole life style from neighbors and etc that goes with it. I have several friends who live in such area in Pennisula, the spending is significant more than just housing cost. Hence the reason you get this:
But in large parts of the Peninsula, all that would require an income of about $500,000 and about $1 million somewhere like Mountain View, she said.

Those numbers may sound breathtaking to many, but others put the threshold for being wealthy in the Bay Area even higher — $4.2 million in net worth, to be exact, according to a 2017 survey from San Francisco-based investment firm Charles Schwab. A Bay Area household could be financially comfortable at a more attainable $1.1 million, Schwab found.

The $4.2 million requirement was the highest of the 10 cities Schwab surveyed, including New York ($3.2 million) and Washington D.C. ($3 million). But it’s still not enough according to Steven Jon Kaplan, CEO of True Contrarian Investments LLC. He said that’s because incomes in the Bay Area have not increased as much or as quickly as housing prices, something he expects to change in coming years.

“Right now probably $10 million is needed to be comfortable,” he said in an email interview.
https://www.mercurynews.com/2019/04/14/ ... 20million).

So if you have thoughts of retiring early, don't. But if you plan on working til normal retirement age, go ahead. I know a few who have done it.
Flashes1
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Re: Should we buy a $3M+ house with parental help?

Post by Flashes1 »

I would never turn down +$1 million with no strings attached. I would want to know how much the additional property taxes would be between the $3 million house and what I would buy without the assistance.....and maybe see if I could squeeze an annual gift to help pay for them (if they have $1.5 million to give for a downpayment; they have $15k/annum to help pay taxes).
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Brianmcg321
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Re: Should we buy a $3M+ house with parental help?

Post by Brianmcg321 »

No. If you can't afford it, then you can't afford it. Find something you can afford.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
tashnewbie
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Re: Should we buy a $3M+ house with parental help?

Post by tashnewbie »

fyre4ce wrote: Thu Sep 10, 2020 4:58 pm If I were you I would take the offer. I'm in a similar situation in an expensive part of SoCal. My wife and I have a young child and planned to move out of our apartment this summer when our lease was up. Then COVID hit, both she and I needed to work a lot from home, and the already hot local housing market turned into a feeding frenzy (10-15 offers per property, selling for $150-300k over asking, many all-cash offers etc). The absolute minimum for a basic 4-bdr move-in ready house in a good school district is $2.0M. It's been a huge stress trying to work from a small apartment with lots of background noise, having a toddler in a space that can't be properly baby-proofed, having no yard to go outside without other people, etc, plus there's the added stress of trying to figure out how to pay a $9,000/mo mortgage payment (my wife works in a hospital, so each shift has a risk of virus exposure). It's been one of the most difficult periods of my life. If you have an opportunity to have housing taken care of by way of a family gift, and avoid all this stress, I wouldn't turn it down.
Could you rent a bigger place?
sailaway
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Re: Should we buy a $3M+ house with parental help?

Post by sailaway »

Flashes1 wrote: Thu Sep 10, 2020 5:07 pm I would never turn down +$1 million with no strings attached. I would want to know how much the additional property taxes would be between the $3 million house and what I would buy without the assistance.....and maybe see if I could squeeze an annual gift to help pay for them (if they have $1.5 million to give for a downpayment; they have $15k/annum to help pay taxes).
There are strings attached: they have to buy more house than they need!

Nope. Family can't guilt or bribe me into living their ideal life.
Jags4186
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Re: Should we buy a $3M+ house with parental help?

Post by Jags4186 »

Don’t listen to the naysayers. Take the $1.5mm and buy the house.

Early 30s. $1.5mm gift. $800k income. No debt. Some people have it all.
Tingting1013
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Re: Should we buy a $3M+ house with parental help?

Post by Tingting1013 »

jarjarM wrote: Thu Sep 10, 2020 5:06 pm I vote no. Buying a $3M+ house is not just buying the $3M house, there's a whole life style from neighbors and etc that goes with it. I have several friends who live in such area in Pennisula, the spending is significant more than just housing cost. Hence the reason you get this:
But in large parts of the Peninsula, all that would require an income of about $500,000 and about $1 million somewhere like Mountain View, she said.

Those numbers may sound breathtaking to many, but others put the threshold for being wealthy in the Bay Area even higher — $4.2 million in net worth, to be exact, according to a 2017 survey from San Francisco-based investment firm Charles Schwab. A Bay Area household could be financially comfortable at a more attainable $1.1 million, Schwab found.

The $4.2 million requirement was the highest of the 10 cities Schwab surveyed, including New York ($3.2 million) and Washington D.C. ($3 million). But it’s still not enough according to Steven Jon Kaplan, CEO of True Contrarian Investments LLC. He said that’s because incomes in the Bay Area have not increased as much or as quickly as housing prices, something he expects to change in coming years.

“Right now probably $10 million is needed to be comfortable,” he said in an email interview.
https://www.mercurynews.com/2019/04/14/ ... 20million).

So if you have thoughts of retiring early, don't. But if you plan on working til normal retirement age, go ahead. I know a few who have done it.
In the Bay Area, a neighborhood of $3M houses might be full of retirees on fixed incomes.

Also $800k stable income can support a couple of $3M houses.
Armoured
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Re: Should we buy a $3M+ house with parental help?

Post by Armoured »

No; the only time "strings aren't attached" is when everyone involved is dead..
srt7
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Re: Should we buy a $3M+ house with parental help?

Post by srt7 »

Dang! Way to start off on Bogleheads, OP :D Welcome to the forums!

Your family is gracious in gifting you that kind of money. I know you mentioned their QOL wouldn't strain with this gift but I would still double/triple confirm it. Last thing you want is them moving in to your house in which they consider themselves equals. It would bug me ... a LOT.

As for buying a house during a pandemic I would not do it. It would be a double no if the location is San Francisco Bay area. For one thing prices are high and could fall (in which case your idea of locking yourself in to prop 13 for taxes works against you) and secondly with the new trend of transitioning to remote work (especially with tech companies) I can see house prices fall even further due to decreased demand. Of course, this is all theoretical and I don't have a crystal ball but definitely something to ponder on.

Good luck and keep those $800K incomes going!
I can't think of anything more luxurious than owning my time. - remomnyc
gclancer
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Re: Should we buy a $3M+ house with parental help?

Post by gclancer »

Jags4186 wrote: Thu Sep 10, 2020 5:12 pm Don’t listen to the naysayers. Take the $1.5mm and buy the house.

Early 30s. $1.5mm gift. $800k income. No debt. Some people have it all.
+1 I guess I’m confused, since when can’t $800k per year in income service a $1.5M mortgage? [OT comment removed by moderator oldcomputerguy]
srt7
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Re: Should we buy a $3M+ house with parental help?

Post by srt7 »

Armoured wrote: Thu Sep 10, 2020 5:18 pm No; the only time "strings aren't attached" is when everyone involved is dead..
LOL! Good point. :sharebeer
I can't think of anything more luxurious than owning my time. - remomnyc
Tingting1013
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Re: Should we buy a $3M+ house with parental help?

Post by Tingting1013 »

srt7 wrote: Thu Sep 10, 2020 5:20 pm For one thing prices are high and could fall (in which case your idea of locking yourself in to prop 13 for taxes works against you)
Not an issue, taxes can adjust downwards if valuations drop.
Last edited by Tingting1013 on Thu Sep 10, 2020 5:24 pm, edited 1 time in total.
jarjarM
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Re: Should we buy a $3M+ house with parental help?

Post by jarjarM »

Tingting1013 wrote: Thu Sep 10, 2020 5:16 pm
jarjarM wrote: Thu Sep 10, 2020 5:06 pm I vote no. Buying a $3M+ house is not just buying the $3M house, there's a whole life style from neighbors and etc that goes with it. I have several friends who live in such area in Pennisula, the spending is significant more than just housing cost. Hence the reason you get this:
But in large parts of the Peninsula, all that would require an income of about $500,000 and about $1 million somewhere like Mountain View, she said.

Those numbers may sound breathtaking to many, but others put the threshold for being wealthy in the Bay Area even higher — $4.2 million in net worth, to be exact, according to a 2017 survey from San Francisco-based investment firm Charles Schwab. A Bay Area household could be financially comfortable at a more attainable $1.1 million, Schwab found.

The $4.2 million requirement was the highest of the 10 cities Schwab surveyed, including New York ($3.2 million) and Washington D.C. ($3 million). But it’s still not enough according to Steven Jon Kaplan, CEO of True Contrarian Investments LLC. He said that’s because incomes in the Bay Area have not increased as much or as quickly as housing prices, something he expects to change in coming years.

“Right now probably $10 million is needed to be comfortable,” he said in an email interview.
https://www.mercurynews.com/2019/04/14/ ... 20million).

So if you have thoughts of retiring early, don't. But if you plan on working til normal retirement age, go ahead. I know a few who have done it.
In the Bay Area, a neighborhood of $3M houses might be full of retirees on fixed incomes.

Also $800k stable income can support a couple of $3M houses.
Honestly, there is lots of retirees living in San Mateo/Cupertino and between living on pensions/SS/limited nest egg. But lots of them bought their house back in the 70/80s and property tax is 3-4k a year so their house cost is quite low. But they don't really have the resources to maintain/remodel the house so you do plenty of situations where a mansion style house sitting right next to a little 1200 sq ft tract home.

I actually think $800k income is fine to support a $3M house, I bought my with higher house/income ratio back in 2012. Just that I have seen several of my friends got into those neighborhoods and succumb to that lifestyle. They're now given up their dream of retiring early for a modest house in a very expensive area without the proper protection (didn't do their earthquake retrofit :oops: ).
SheReadsHere719
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Re: Should we buy a $3M+ house with parental help?

Post by SheReadsHere719 »

Sator wrote: Thu Sep 10, 2020 3:57 pm Due to family dynamics, if we wait 5 years we would likely only get 500k instead of 1-1.5M. There may be some possibility to take the money in cash now (would it be worth investing or keeping in cash?) but the excuse of "we haven't found anything yet" might only last a couple of years.
What does this mean? Why would the help be reduced? Why is it time-bound?
jarjarM
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Re: Should we buy a $3M+ house with parental help?

Post by jarjarM »

srt7 wrote: Thu Sep 10, 2020 5:20 pm Dang! Way to start off on Bogleheads, OP :D Welcome to the forums!

Your family is gracious in gifting you that kind of money. I know you mentioned their QOL wouldn't strain with this gift but I would still double/triple confirm it. Last thing you want is them moving in to your house in which they consider themselves equals. It would bug me ... a LOT.

As for buying a house during a pandemic I would not do it. It would be a double no if the location is San Francisco Bay area. For one thing prices are high and could fall (in which case your idea of locking yourself in to prop 13 for taxes works against you) and secondly with the new trend of transitioning to remote work (especially with tech companies) I can see house prices fall even further due to decreased demand. Of course, this is all theoretical and I don't have a crystal ball but definitely something to ponder on.

Good luck and keep those $800K incomes going!
Minor correction, one can appeal to adjust cost basis if the value of the home falls below the purchase price. Obviously it's up to the county assessors to judge but I have seen many cases during the 07-10 GFC that successfully lowered their property tax.
Tingting1013
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Re: Should we buy a $3M+ house with parental help?

Post by Tingting1013 »

I wonder how many naysayers would change their tune if the $1.5M parental gift was instead earmarked for the OP’s kids’ education.
aristotelian
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Re: Should we buy a $3M+ house with parental help?

Post by aristotelian »

With 800k income you should be able to buy whatever you want wherever you want without help. Down payment should be 600k which you already have in stocks and cash. Up to you if you want to accept 1.5M gift.
fyre4ce
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Re: Should we buy a $3M+ house with parental help?

Post by fyre4ce »

tashnewbie wrote: Thu Sep 10, 2020 5:09 pm
fyre4ce wrote: Thu Sep 10, 2020 4:58 pm If I were you I would take the offer. I'm in a similar situation in an expensive part of SoCal. My wife and I have a young child and planned to move out of our apartment this summer when our lease was up. Then COVID hit, both she and I needed to work a lot from home, and the already hot local housing market turned into a feeding frenzy (10-15 offers per property, selling for $150-300k over asking, many all-cash offers etc). The absolute minimum for a basic 4-bdr move-in ready house in a good school district is $2.0M. It's been a huge stress trying to work from a small apartment with lots of background noise, having a toddler in a space that can't be properly baby-proofed, having no yard to go outside without other people, etc, plus there's the added stress of trying to figure out how to pay a $9,000/mo mortgage payment (my wife works in a hospital, so each shift has a risk of virus exposure). It's been one of the most difficult periods of my life. If you have an opportunity to have housing taken care of by way of a family gift, and avoid all this stress, I wouldn't turn it down.
Could you rent a bigger place?
Yes. We just signed a least on a 4-bdr house for $6,000/mo. I still would have preferred to buy for a variety of reasons (down payment fund ready to go, now earning nothing, and others) but this is a reasonable compromise. Even renting here is not easy, there are usually at least 5-10 applications. We got turned down thrice before our application on this place was accepted.
Last edited by fyre4ce on Thu Sep 10, 2020 5:42 pm, edited 1 time in total.
delamer
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Re: Should we buy a $3M+ house with parental help?

Post by delamer »

Tingting1013 wrote: Thu Sep 10, 2020 5:29 pm I wonder how many naysayers would change their tune if the $1.5M parental gift was instead earmarked for the OP’s kids’ education.
Sure, I would.

A gift of $1.5 million that doesn’t require a major financial commitment of your own is absolutely different.
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vitaflo
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Re: Should we buy a $3M+ house with parental help?

Post by vitaflo »

There are always strings attached. I know from experience. It's also already been proven by the fact that there would be less money available in 5 years (for some reason).

If you are happy and can do it on your own I highly recommend it. Once someone gives you money, they're going to want to have a say in things, even if they say they don't. Stay independent and you will be much happier. Be thankful you only get nagging now instead of demands.
ericb
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Re: Should we buy a $3M+ house with parental help?

Post by ericb »

I personally prefer to involve as few people as possible in any type of significant financial endeavor. It depends on how your relationship is with both sets of parents.

As far as "throwing money away" goes, I don't think your parents understand how home ownership works. Between mortgage interest (even with historically low rates) and property taxes, you'll surely be "throwing away" more on the house in the first few years than you would be on rent. (Assuming borrowing $2M at 2% and a $3M house appraisal at 1% property tax, which are probably both underestimates). That doesn't include upkeep and any significant renovations you'll want to do (which are likely in the seller's market of the Bay Area).

If you were considering purchasing such a home anyway, then consider whether it makes sense to involve your parents. If not, then don't let them force you into taking on additional responsibility. Buying and maintaining a home is a lot of work. It's not just a financial matter.
Tingting1013
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Re: Should we buy a $3M+ house with parental help?

Post by Tingting1013 »

delamer wrote: Thu Sep 10, 2020 5:33 pm
Tingting1013 wrote: Thu Sep 10, 2020 5:29 pm I wonder how many naysayers would change their tune if the $1.5M parental gift was instead earmarked for the OP’s kids’ education.
Sure, I would.

A gift of $1.5 million that doesn’t require a major financial commitment of your own is absolutely different.
OP is already subject to a financial commitment of $60k per year by renting.

A $1.5M mortgage on a $3M house is only $75k/yr in ITI+M.

All on an $800k income.
fyre4ce
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Re: Should we buy a $3M+ house with parental help?

Post by fyre4ce »

delamer wrote: Thu Sep 10, 2020 5:33 pm
Tingting1013 wrote: Thu Sep 10, 2020 5:29 pm I wonder how many naysayers would change their tune if the $1.5M parental gift was instead earmarked for the OP’s kids’ education.
Sure, I would.

A gift of $1.5 million that doesn’t require a major financial commitment of your own is absolutely different.
Sure, but are the property taxes on a $3M house unaffordable for a couple earning $800k? Not even close. ($36k/year @ 1.2%) OP could afford a $3M house on their own, full mortgage and all, without financial assistance, although the gift will vastly improve the family's cash flow.

If the strings attached would outweigh the benefits, then don't do it. But it's certainly possible to have it be a positive. I help my parents with their finances and we're very open about it. If they gave me a gift like that, there wouldn't be strings. Ultimately, OP has to be the judge of that.
neverpanic
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Re: Should we buy a $3M+ house with parental help?

Post by neverpanic »

fyre4ce wrote: Thu Sep 10, 2020 4:58 pm If I were you I would take the offer. I'm in a similar situation in an expensive part of SoCal.

Edit: I don't think everyone on this thread appreciates just how little $3M buys in the OP's area.
When I read the responses to people in SoCal or the Bay Area or Seattle or NorVa, etc from people outside those housing markets who have never lived there, there's so much "they just don't understand" in the well-intended counsel they give.

OP - It is true that you don't need a family home with the good school district right now, but if the home you like is priced where you want it, it makes sense to take the offer while the money is on the table. Your wants may change in 5 years, but the offer might be gone in 5 years, too.

You have a great deal on the rental right now. By my math, $5000/month on a $2M property is well below market, so I can understand not wanting to give that up unless a too-good-to-be-true opportunity were to present itself, which it seems is the case. Good luck!
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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Watty
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Re: Should we buy a $3M+ house with parental help?

Post by Watty »

Sator wrote: Thu Sep 10, 2020 3:57 pm Age: Both early 30s
......
Income: ~$800k in cash.
.......
50k Cash
75k House Savings in Cash
850k in Index Funds
150k in illiquid assets (carried interest, options, private company equity)
No Debt

........
Expenses: 130k annual spend including rent
I am tempted to say sure go for it since it sounds mainly like they are giving you an early inheritance if they really do not need that money.

The only thing that keeps me from saying that is that your numbers don't seem to add up since with your income I would think that you would have a lot higher net worth if your expenses are really $130K a year. It would be good to figure out just why your net worth is not a lot higher before you commit to an expensive house like that.

One thing you should do though is to have a lawyer write up an agreement to figure out just what would happen with the million dollar+ gift they are giving you if you end up getting divorced. In addition to wanting to set up something that is fair having that unresolved could lead to a long and ugly legal battle which could make a divorce pretty bitter.

You also need to figure out if taking the gift will cause any problems with the family dynamics with any other siblings.

Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
Last edited by Watty on Thu Sep 10, 2020 5:49 pm, edited 1 time in total.
Tingting1013
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Re: Should we buy a $3M+ house with parental help?

Post by Tingting1013 »

Watty wrote: Thu Sep 10, 2020 5:46 pm Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
Most likely the house is only worth $1M or less.
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Re: Should we buy a $3M+ house with parental help?

Post by FoolMeOnce »

We live in a house our income can't afford. Paid cash. Money wasn't gifted directly for a house like you are contemplating, but it is not money I earned through anything other than chance of birth. I don't feel a lack of pride in my work or our further saving. I don't feel like I need to keep up with the neighbors' cars and toys and first class vacations. I'm able to enjoy a reasonable commute, good schools, and a nice house I wouldn't otherwise able to afford on income alone, and there is nothing wrong with that.

It really depends on how this could affect your family dynamics (might not) and if you think you'll fall into trappings of a lifestyle you can't afford, but based on your income you can afford the lifestyle of someone in a $3m home that is likely less than 3k sqft.
jarjarM
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Re: Should we buy a $3M+ house with parental help?

Post by jarjarM »

Tingting1013 wrote: Thu Sep 10, 2020 5:49 pm
Watty wrote: Thu Sep 10, 2020 5:46 pm Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
Most likely the house is only worth $1M or less.
Which will cost like $3-4k a year in earthquake insurances.
fyre4ce
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Re: Should we buy a $3M+ house with parental help?

Post by fyre4ce »

Watty wrote: Thu Sep 10, 2020 5:46 pm Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
My guess (please correct me if I'm wrong) is that in the OP's area, a $3M house is a $500k dwelling and $2.5M land. So even if the dwelling gets leveled, it's relatively inexpensive to rebuild.
softmax
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Re: Should we buy a $3M+ house with parental help?

Post by softmax »

Watty wrote: Thu Sep 10, 2020 5:46 pm
Sator wrote: Thu Sep 10, 2020 3:57 pm Age: Both early 30s
......
Income: ~$800k in cash.
.......
50k Cash
75k House Savings in Cash
850k in Index Funds
150k in illiquid assets (carried interest, options, private company equity)
No Debt

........
Expenses: 130k annual spend including rent
The only thing that keeps me from saying that is that your numbers don't seem to add up since with your income I would think that you would have a lot higher net worth if your expenses are really $130K a year.
OP likely works in tech and $400k/year is roughly the compensation of a L5 engineer, which takes <5 years YOE.
hoffse
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Re: Should we buy a $3M+ house with parental help?

Post by hoffse »

As long as it can be a business-like transaction (meaning no strings moving forward), I would take it once pregnant.

I can’t relate to Bay Area housing prices, but a 1.5M mortgage on $800k/year is exceptionally comfortable, even if you need to add in costs of childcare, private education (sounds like you won’t need this though?), etc.

I have a toddler. You don’t want to move with very young kids. I moved with a 5 month old, and it was pretty terrible. But it would be worse trying to do it now with a 2.5 year old. Super fun age, but he’s into everything/can’t be trusted alone.

I wish we had bought our “forever” house when I was pregnant. It would have been nice to have that settled instead of trying to pull off a move with an infant, and at that point you can pretty well KNOW that you need the space instead of saying “maybe someday.”

The only caveat to this is that I didn’t really know what we needed in a house before my kid arrived, so I would do some research and serious thinking on this if you pull the trigger before baby comes. Our house is a very nice family house. There are two “kid” bedrooms that share a bathroom. They are on the same floor as the master, but not right next door. So there is some privacy for the master, but it is close enough to the kids for middle of the night stuff. We also have a separate play room in the basement that opens to a fenced back yard big enough for a swing set, teeter totter, etc. The kitchen is open to the family room and breakfast room so we can keep an eye on him while cooking. The stairs are located in a place easy to gate off. Our kitchen cabinets are the older kind without a lot of drawers, but it made them very easy to baby proof, and we will upgrade them to drawers when kids are older.

Look for features like that.

I also suggest trying to be close enough to walk to a playground. Our house is walking distance to two playgrounds and a flat church parking lot where kids ride bikes. It’s clutch, and I never fully appreciated how great our location is until we were under lockdown for 6 months with no childcare. My 2 year old can legit ride a bike already because he got a lot of practice!

So yes, I would probably take it as long as the gift doesn’t make grandma and grandpa feel like they have the right to direct how you raise your kids. You can afford it, and I really think it’s better to do it before having kids. I would, however, wait until baby’s arrival is imminent just so you can know for sure it is happening.
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Sator
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Re: Should we buy a $3M+ house with parental help?

Post by Sator »

We had late career starts have both been receiving significant raises the last few years so we just started earning this amount (taxable income has doubled each of the last two years). We anticipate that expenses will be stable until we have a family as our budget is pretty comfortable right now. We don't work in tech though so our ability to move jobs is significantly lower than our peers.

No siblings to worry about.

Great point on the legal structure.

Watty wrote: Thu Sep 10, 2020 5:46 pm
Sator wrote: Thu Sep 10, 2020 3:57 pm Age: Both early 30s
......
Income: ~$800k in cash.
.......
50k Cash
75k House Savings in Cash
850k in Index Funds
150k in illiquid assets (carried interest, options, private company equity)
No Debt

........
Expenses: 130k annual spend including rent
I am tempted to say sure go for it since it sounds mainly like they are giving you an early inheritance if they really do not need that money.

The only thing that keeps me from saying that is that your numbers don't seem to add up since with your income I would think that you would have a lot higher net worth if your expenses are really $130K a year. It would be good to figure out just why your net worth is not a lot higher before you commit to an expensive house like that.

One thing you should do though is to have a lawyer write up an agreement to figure out just what would happen with the million dollar+ gift they are giving you if you end up getting divorced. In addition to wanting to set up something that is fair having that unresolved could lead to long and ugly legal battle which could make a divorce pretty bitter.

You also need to figure out if taking the gift with cause any problems with the family dynamics with any other siblings.

Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
flyingcows
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Re: Should we buy a $3M+ house with parental help?

Post by flyingcows »

Renting a 2m house for 5k a month is a fantastic deal. I would keep doing that if you like the location and house. I wonder if that even covers property tax, nevermind the P&I, insurance, and maintance.

I paid 8.5k a month to rent a 3 bedroom house when I lived in the bay area 7 years ago, in Los Gatos, the house zestimate was about 2m.

The only reason I would consider buying in SF area would be if I was being paid to work at a company that wanted me in a physical office nearby and they paid 500% more than the compensation available for remote staff. Even then I think I would just rent, unless I couldnt find a rental I liked
Last edited by flyingcows on Thu Sep 10, 2020 5:58 pm, edited 2 times in total.
jarjarM
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Re: Should we buy a $3M+ house with parental help?

Post by jarjarM »

Just read that OP wants to send the kid to private high school, if that's Harker, it'll be another $54k/kid/year. Expenses do add up but of course with 800k one can afford it, just that it'll hurt the saving rate a bit more. :beer
delamer
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Re: Should we buy a $3M+ house with parental help?

Post by delamer »

Tingting1013 wrote: Thu Sep 10, 2020 5:39 pm
delamer wrote: Thu Sep 10, 2020 5:33 pm
Tingting1013 wrote: Thu Sep 10, 2020 5:29 pm I wonder how many naysayers would change their tune if the $1.5M parental gift was instead earmarked for the OP’s kids’ education.
Sure, I would.

A gift of $1.5 million that doesn’t require a major financial commitment of your own is absolutely different.
OP is already subject to a financial commitment of $60k per year by renting.

A $1.5M mortgage on a $3M house is only $75k/yr in ITI+M.

All on an $800k income.
I am not arguing that the OP can’t afford the mortgage and other homeowner costs.

I am stating that I wouldn’t take on a major NEW financial commitment in the middle of an uncontrolled pandemic. There are too many unknowns in terms of stocks, employment, health, etc.
Tingting1013
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Re: Should we buy a $3M+ house with parental help?

Post by Tingting1013 »

jarjarM wrote: Thu Sep 10, 2020 5:51 pm
Tingting1013 wrote: Thu Sep 10, 2020 5:49 pm
Watty wrote: Thu Sep 10, 2020 5:46 pm Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
Most likely the house is only worth $1M or less.
Which will cost like $3-4k a year in earthquake insurances.
Again, $800k income.
jarjarM
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Re: Should we buy a $3M+ house with parental help?

Post by jarjarM »

Tingting1013 wrote: Thu Sep 10, 2020 6:00 pm
jarjarM wrote: Thu Sep 10, 2020 5:51 pm
Tingting1013 wrote: Thu Sep 10, 2020 5:49 pm
Watty wrote: Thu Sep 10, 2020 5:46 pm Also budget for earthquake insurance if you can get it for a house that is that expensive. You will not be able to take a three million dollar loss if the house is destroyed in an earthquake.
Most likely the house is only worth $1M or less.
Which will cost like $3-4k a year in earthquake insurances.
Again, $800k income.
Not saying they can't afforded it, just pointing out the cost isn't extravagant for a $3M house. Some may spend that much on gardener or just a trip to Vegas.
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8foot7
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Re: Should we buy a $3M+ house with parental help?

Post by 8foot7 »

Consider the impact of having received a $1 million gift from your parents, or perhaps worse, your in-laws. How will that affect relations in the future? What if they have “advice” for you?

I also tire of the constant narrative that real estate rules don’t apply to Bay Area where a house that would go for 200k in essentially 99% of the rest of the US must be bought for 2.5 million. You’re not forced to play that game, you know?
Last edited by 8foot7 on Thu Sep 10, 2020 6:07 pm, edited 1 time in total.
afan
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Re: Should we buy a $3M+ house with parental help?

Post by afan »

I would take the money now. No rush to buy a house. Lots of reasons not to. The current weak real estate market in crowded cities and the high rate of work from home in the tech industry are part of the reason.
If you do not decide to buy a house, then the family will have to accept it.
As long as you don't agree that you will immediately use the money, one would hope they respect your judgment enough to be satisfied that they got the money out of their estates without you doing what they advised right upon receiving it.

Agree that house prices are astounding in your area. But since you will not need a good school district for years, not sure it is reasonable to move somewhere like that now.

At this point in your lives, you want to live in a place that is fun for DINKs. Once you have little ones, peace and quiet, playmates, a backyard and such things become more important that lots of local restaurants and other entertainment that appeals to adults.

Not at all clear that real estate will keep going up as it has been for years to this point.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
gubernaculum
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Re: Should we buy a $3M+ house with parental help?

Post by gubernaculum »

Sator wrote: Thu Sep 10, 2020 3:57 pm We're married with no kids yet in our early 30s and pay $5000 a month to rent a $2M house in the San Francisco Bay Area (Peninsula). We're perfectly happy living where we are at least until kids have to go to school but our families continue to insist we are "throwing money away" and would like to gift us $1-1.5M for a down payment on a house in a good school district which looks like it would cost $3M-3.5M. Should we endure the nagging or take them up on their offer? Is this a good financial decision now or should we hold off as long as possible (but home prices may go up even more)?

Age: Both early 30s
Family: Married. Likely to start a family post-Covid
Income: ~$800k in cash. Income about equal. Good visibility to 25% cash increases in the next several years. Higher income potential but much more uncertain going forward. If we were to lose our jobs it would likely take 6-12 months to get a new similar job.
Assets:
50k Cash
75k House Savings in Cash
850k in Index Funds
150k in illiquid assets (carried interest, options, private company equity)
No Debt
Expenses: 130k annual spend including rent
Current Living situation: 5k a month rent for $2M townhouse in area with "ok" public schools. In terms of size and comfort, we could easily live here for 5+ more years without issue. Houses for around $3M would make it worthwhile for us to move in terms of size, location, amenities, and schools that would satisfy us long term. Family lives locally.

Future Considerations: Would consider public or private school for children until high school. Private high school. Parents provided full support for private college and professional school so we would like to do the same. Gift from family has minimal/no impact on their quality of life. Real estate agents in the family would do transactions without commissions. Advantageous to lock in property tax at cost of living increases due to Prop 13.

Edit: Added wrinkle. Due to family dynamics, if we wait 5 years we would likely only get 500k instead of 1-1.5M. There may be some possibility to take the money in cash now (would it be worth investing or keeping in cash?) but the excuse of "we haven't found anything yet" might only last a couple of years.
Yes. Take the money and buy the house you need. In the Bay Area it's worth it.
vanpan
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Re: Should we buy a $3M+ house with parental help?

Post by vanpan »

You can absolutely afford it and the mortgage is completely fine with your income.

1. Please take the gift from family. I received help from family for the downpayment at it was a huge help. It hasnt effected our relationship one bit.
2. Your income is going t grow if you are in high tech by a lot.

However ....

1. If you are in the bay area , you should be able oi find reasonable homes at 2M.
2. You do not want most of your wealth locked in your house.
3. A larger house is more expensive and having a 1.5M mortgage will take time to pay it down.
4. Property tax hurts ;(
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geerhardusvos
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Re: Should we buy a $3M+ house with parental help?

Post by geerhardusvos »

Sator wrote: Thu Sep 10, 2020 3:57 pm We're married with no kids yet in our early 30s and pay $5000 a month to rent a $2M house in the San Francisco Bay Area (Peninsula). We're perfectly happy living where we are at least until kids have to go to school but our families continue to insist we are "throwing money away" and would like to gift us $1-1.5M for a down payment on a house in a good school district which looks like it would cost $3M-3.5M. Should we endure the nagging or take them up on their offer? Is this a good financial decision now or should we hold off as long as possible (but home prices may go up even more)?

Age: Both early 30s
Family: Married. Likely to start a family post-Covid
Income: ~$800k in cash. Income about equal. Good visibility to 25% cash increases in the next several years. Higher income potential but much more uncertain going forward. If we were to lose our jobs it would likely take 6-12 months to get a new similar job.
Assets:
50k Cash
75k House Savings in Cash
850k in Index Funds
150k in illiquid assets (carried interest, options, private company equity)
No Debt
Expenses: 130k annual spend including rent
Current Living situation: 5k a month rent for $2M townhouse in area with "ok" public schools. In terms of size and comfort, we could easily live here for 5+ more years without issue. Houses for around $3M would make it worthwhile for us to move in terms of size, location, amenities, and schools that would satisfy us long term. Family lives locally.

Future Considerations: Would consider public or private school for children until high school. Private high school. Parents provided full support for private college and professional school so we would like to do the same. Gift from family has minimal/no impact on their quality of life. Real estate agents in the family would do transactions without commissions. Advantageous to lock in property tax at cost of living increases due to Prop 13.

Edit: Added wrinkle. Due to family dynamics, if we wait 5 years we would likely only get 500k instead of 1-1.5M. There may be some possibility to take the money in cash now (would it be worth investing or keeping in cash?) but the excuse of "we haven't found anything yet" might only last a couple of years.
I wouldn’t recommend it. Too much wrapped up in one property. Check this out: viewtopic.php?p=5480265#p5480265

Can you take the money and rent a luxury penthouse? Probably still a better deal than buying a house in SF :mrgreen:
Last edited by geerhardusvos on Thu Sep 10, 2020 9:57 pm, edited 1 time in total.
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