Housing once you have considerable assets

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Jsdi7873hd
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Housing once you have considerable assets

Post by Jsdi7873hd »

Hi all,

Today I hit a significant milestone of joining the two comma club across our brokerage accounts, dutifully LBYM and saving as much as we could over the past 12 years. As I project into the next 10 years, each million becomes considerably easier. We’ll hit 2 million within ~4-5 years, ~3 million 2-3 years after that, and another million every 2 years after that assuming 7% return. These numbers are amazing and show the power of compounding. How do bogleheads approach housing once you have considerable assets as tailwind?

In my case specifically, we have an income of ~400K, which according to standard rules of thumb would allow 3x mortgage for a total of 1.2 million. However, if you have 3 million in assets that return ~1 million every 2-3 years, that seems too conservative. Even if someone buys a 3 million dollar house with a 2.4 million dollar mortgage, the returns alone on 3 million in VTSAX @ 7% would payoff the house within ~5-6 years. Are there bogleheads guidelines on how much to spend in such scenarios? We aren’t planning to buy a new house right now, but I could see in 10 years that we’d like to get a forever home and a single family home in a VHCOL is ~2 million, maybe 3 in 10 years. I’m pretty sure my income won’t go much higher. Thanks!
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arcticpineapplecorp.
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Re: Housing once you have considerable assets

Post by arcticpineapplecorp. »

Jsdi7873hd wrote: Fri Nov 27, 2020 9:23 pm Hi all,

Today I hit a significant milestone of joining the two comma club across our brokerage accounts, dutifully LBYM and saving as much as we could over the past 12 years. As I project into the next 10 years, each million becomes considerably easier. We’ll hit 2 million within ~4-5 years, ~3 million 2-3 years after that, and another million every 2 years after that assuming 7% return. These numbers are amazing and show the power of compounding. How do bogleheads approach housing once you have considerable assets as tailwind?

In my case specifically, we have an income of ~400K, which according to standard rules of thumb would allow 3x mortgage for a total of 1.2 million. However, if you have 3 million in assets that return ~1 million every 2-3 years, that seems too conservative. Even if someone buys a 3 million dollar house with a 2.4 million dollar mortgage, the returns alone on 3 million in VTSAX @ 7% would payoff the house within ~5-6 years. Are there bogleheads guidelines on how much to spend in such scenarios? We aren’t planning to buy a new house right now, but I could see in 10 years that we’d like to get a forever home and a single family home in a VHCOL is ~2 million, maybe 3 in 10 years. I’m pretty sure my income won’t go much higher. Thanks!
congratulations.

1. i think making certain assumptions could backfire.

are your compounding returns including contributions?

because in order to grow a $3 mil portfolio by $1 million in 2 years (with no additional contributions) would take an annual compounding over 2 years of 16% CAGR:
=FV(.16,2,0,-3000000)

in order to grow a $3 mil portfolio by $1 million in 3 years (with no additional contributions) would take an annual compounding over 2 years of 10% CAGR:
=FV(.10,3,0,-3000000)

So are you adding to the $3 million each year and if so, how much (because those additional contributions can make what appears to be an unreasonable compounding annual return assumption of 10%-16% seem more reasonable)?

2. it is true that with each million you add, it gets easier to get to the next million, but this is also true of saying the first $100k was the hardest. After I hit the first one, the next came faster and faster. That's due to compounding, yes. But we still need to be accurate. It might take 15 years for a median worker to get the first $100k then the next one comes in 5-7 years and sooner thereafter, etc. The compounding still depends on at what rate you compound PLUS any additional contributions.

3. I think it's a bad idea to buy a house based on how much money you have or think you'll have. You should buy a home based on what you need (or in some cases what you think you might need to grow into). You may not think you'll decrease your income but people get better income, less income, lose jobs, change jobs, get health conditions, relocate, and so on. You never know.

4. Also returns are variable. So you could add $1 mil, but then have a bad year (or string of years) where your account isn't growing (or growing as much as you hoped). Would that change how much you want to spend on a house? Are you counting chickens before they hatch? I don't spend based on anticipated income and/or savings. I spend based on current income and/or savings. I work with what I have, not that which I hope to have.
Last edited by arcticpineapplecorp. on Fri Nov 27, 2020 9:59 pm, edited 1 time in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
iamblessed
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Re: Housing once you have considerable assets

Post by iamblessed »

Warren Buffett still lives in the house he paid about 40k for.
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arcticpineapplecorp.
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Re: Housing once you have considerable assets

Post by arcticpineapplecorp. »

iamblessed wrote: Fri Nov 27, 2020 9:59 pm Warren Buffett still lives in the house he paid about 40k for.
he did have a second home, but I think he sold it:
https://www.google.com/search?client=fi ... ffett++own
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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Re: Housing once you have considerable assets

Post by WildBill »

Howdy

Post is a bit confusing.

As I read it you are planning to buy a house maybe in 10 years and you are trying to spec how much you can pay then based on hypothetical investment returns, or something like that?

That doesn’t make much sense, so I may have missed the actual question.

If that is he case, better to see how things are in 10 years and decide then.

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid
JBTX
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Re: Housing once you have considerable assets

Post by JBTX »

Jsdi7873hd wrote: Fri Nov 27, 2020 9:23 pm Hi all,

Today I hit a significant milestone of joining the two comma club across our brokerage accounts, dutifully LBYM and saving as much as we could over the past 12 years. As I project into the next 10 years, each million becomes considerably easier. We’ll hit 2 million within ~4-5 years, ~3 million 2-3 years after that, and another million every 2 years after that assuming 7% return. These numbers are amazing and show the power of compounding. How do bogleheads approach housing once you have considerable assets as tailwind?

In my case specifically, we have an income of ~400K, which according to standard rules of thumb would allow 3x mortgage for a total of 1.2 million. However, if you have 3 million in assets that return ~1 million every 2-3 years, that seems too conservative. Even if someone buys a 3 million dollar house with a 2.4 million dollar mortgage, the returns alone on 3 million in VTSAX @ 7% would payoff the house within ~5-6 years. Are there bogleheads guidelines on how much to spend in such scenarios? We aren’t planning to buy a new house right now, but I could see in 10 years that we’d like to get a forever home and a single family home in a VHCOL is ~2 million, maybe 3 in 10 years. I’m pretty sure my income won’t go much higher. Thanks!
Real returns could be much lower 3-5%. You could be looking at 15-20 years to double, especially if a portion of your portfolio is bonds or cash.

Much of the accumulated wealth is for retirement. Just because you come closer to reaching your retirement goals doesn't mean you should buy a more expensive house.

It may help to annulitize your wealth. If you have one million, that's $30k-$40k per year in retirement. Does attaining that level warrant a new expensive house?
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Jsdi7873hd
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Re: Housing once you have considerable assets

Post by Jsdi7873hd »

Real returns could be much lower 3-5%. You could be looking at 15-20 years to double, especially if a portion of your portfolio is bonds or cash.

Much of the accumulated wealth is for retirement. Just because you come closer to reaching your retirement goals doesn't mean you should buy a more expensive house.

It may help to annulitize your wealth. If you have one million, that's $30k-$40k per year in retirement. Does attaining that level warrant a new expensive house?
I’m not really sure if it warrants buying the expensive house, this is definitely more dreaming than reality for the time being. Outside of housing, we don’t spend that much. Our goal was to get to 3 million and FIRE, but now that it’s finally almost visible, I’m not sure how much I actually want to do that. Indeed, variable returns is a giant risk here which is why we haven’t jumped on the house yet, but it’s definitely still a possibility. FWIW, I’m only 35 right now so it’s a 45 year old me ponder :)
arcticpineapplecorp. wrote: Fri Nov 27, 2020 9:51 pm 1. i think making certain assumptions could backfire.

are your compounding returns including contributions?

2. it is true that with each million you add, it gets easier to get to the next million, but this is also true of saying the first $100k was the hardest. After I hit the first one, the next came faster and faster. That's due to compounding, yes. But we still need to be accurate. It might take 15 years for a median worker to get the first $100k then the next one comes in 5-7 years and sooner thereafter, etc. The compounding still depends on at what rate you compound PLUS any additional contributions.
1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
KlangFool
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Re: Housing once you have considerable assets

Post by KlangFool »

OP,


If you have enough money to FIRE (Financially Independence Retire Early), why would you spend your time living in one location? Much less tied yourself down in one expensive location with one expensive house.

KlangFool
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Re: Housing once you have considerable assets

Post by mrspock »

Jsdi7873hd wrote: Fri Nov 27, 2020 9:23 pm Hi all,

Today I hit a significant milestone of joining the two comma club across our brokerage accounts, dutifully LBYM and saving as much as we could over the past 12 years. As I project into the next 10 years, each million becomes considerably easier. We’ll hit 2 million within ~4-5 years, ~3 million 2-3 years after that, and another million every 2 years after that assuming 7% return. These numbers are amazing and show the power of compounding. How do bogleheads approach housing once you have considerable assets as tailwind?

In my case specifically, we have an income of ~400K, which according to standard rules of thumb would allow 3x mortgage for a total of 1.2 million. However, if you have 3 million in assets that return ~1 million every 2-3 years, that seems too conservative. Even if someone buys a 3 million dollar house with a 2.4 million dollar mortgage, the returns alone on 3 million in VTSAX @ 7% would payoff the house within ~5-6 years. Are there bogleheads guidelines on how much to spend in such scenarios? We aren’t planning to buy a new house right now, but I could see in 10 years that we’d like to get a forever home and a single family home in a VHCOL is ~2 million, maybe 3 in 10 years. I’m pretty sure my income won’t go much higher. Thanks!

I add up all the expenses related to a 2nd home or primary residence, I then expand my nest egg first to pay for them plus a little.

I don’t see 10k on taxes and 10k hurricane insurance insurance, I see 570k (570k * 3.5% SWR) in additional capital I need in my near egg to support this. Same goes with HOA, utilities etc. Its as simple as that as far as I’m concerned. If you are willing to grow the nest egg to support the expenses for a given home, then go for it.

That said, I’m a much bigger fan of 2nd properties than absurdly large primary homes. They are easier to sell (lower cost properties have a bigger, more competitive market), act as insurance against natural disasters (you will have another place to stay), can be rented, can be sold to raise money for investing if needed, saves money on hotels, double your chances of getting lucky on appreciation in a good area, and gives you flexibility if you ever want to move. You can sell one property to raise funds and still live in the other.

Oh and a bonus.... aids in “stealth wealth” and privacy, I only tell folks about house #1, home #2 doesn’t exist as far as anyone outside my inner circle is concerned.

My 2 cents.
gurusw
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Re: Housing once you have considerable assets

Post by gurusw »

Damn... I saw this post...
iamblessed wrote: Fri Nov 27, 2020 9:59 pm Warren Buffett still lives in the house he paid about 40k for.
followed by...
WildBill wrote: Fri Nov 27, 2020 10:03 pm Howdy

Post is a bit confusing.

As I read it you are planning to buy a house maybe in 10 years and you are trying to spec how much you can pay then based on hypothetical investment returns, or something like that?

That doesn’t make much sense, so I may have missed the actual question.

If that is he case, better to see how things are in 10 years and decide then.

W B
And I thought Warren Buffet replied to this thread :D

On the serious thought; OP, what are your tax saving strategies at this income level?
saagar_is_cool
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Re: Housing once you have considerable assets

Post by saagar_is_cool »

Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm
Real returns could be much lower 3-5%. You could be looking at 15-20 years to double, especially if a portion of your portfolio is bonds or cash.

Much of the accumulated wealth is for retirement. Just because you come closer to reaching your retirement goals doesn't mean you should buy a more expensive house.

It may help to annulitize your wealth. If you have one million, that's $30k-$40k per year in retirement. Does attaining that level warrant a new expensive house?
I’m not really sure if it warrants buying the expensive house, this is definitely more dreaming than reality for the time being. Outside of housing, we don’t spend that much. Our goal was to get to 3 million and FIRE, but now that it’s finally almost visible, I’m not sure how much I actually want to do that. Indeed, variable returns is a giant risk here which is why we haven’t jumped on the house yet, but it’s definitely still a possibility. FWIW, I’m only 35 right now so it’s a 45 year old me ponder :)
arcticpineapplecorp. wrote: Fri Nov 27, 2020 9:51 pm 1. i think making certain assumptions could backfire.

are your compounding returns including contributions?

2. it is true that with each million you add, it gets easier to get to the next million, but this is also true of saying the first $100k was the hardest. After I hit the first one, the next came faster and faster. That's due to compounding, yes. But we still need to be accurate. It might take 15 years for a median worker to get the first $100k then the next one comes in 5-7 years and sooner thereafter, etc. The compounding still depends on at what rate you compound PLUS any additional contributions.
1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?

https://www.portfoliovisualizer.com/bac ... ion1_1=100
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ram
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Re: Housing once you have considerable assets

Post by ram »

Our current combined income exceeds 400K/yr.
Our house is worth <400K. (We live in flyover country)
This house is adequate for us and we do not need a costlier house.
Ram
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Re: Housing once you have considerable assets

Post by StevieG72 »

I still live in my starter home, enjoy the simplicity of living in a smaller home.
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Jsdi7873hd
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Re: Housing once you have considerable assets

Post by Jsdi7873hd »

On the serious thought; OP, what are your tax saving strategies at this income level?
Just max out my 401K, including after tax contributions. All the income is W2 so there isn’t much to save :(
KlangFool wrote: Fri Nov 27, 2020 11:03 pm OP,


If you have enough money to FIRE (Financially Independence Retire Early), why would you spend your time living in one location? Much less tied yourself down in one expensive location with one expensive house.

KlangFool
I like living in my current area. All my friends, family, and social network are here. No reason to move to a lower cost of living if I like living where I’m at.

I don’t see 10k on taxes and 10k hurricane insurance insurance, I see 570k (570k * 3.5% SWR) in additional capital I need in my near egg to support this. Same goes with HOA, utilities etc. Its as simple as that as far as I’m concerned. If you are willing to grow the nest egg to support the expenses for a given home, then go for it.
This is probably the best take and seems the most reasonable way to think about it. Thank you for this insight.

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
StevieG72 wrote: Sat Nov 28, 2020 1:27 am I still live in my starter home, enjoy the simplicity of living in a smaller home.
I concur! We live in a townhome right now, just in a VHCL. Any single family home that is ~1500 square feet, 3 bed / 2 bath is 2 million around this area. Our townhome is actually 2000 square feet now, and I actually want to downsize to a 1500 square foot home, just a SFH if possible.
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HomerJ
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Re: Housing once you have considerable assets

Post by HomerJ »

Jsdi7873hd wrote: Fri Nov 27, 2020 9:23 pm Hi all,

Today I hit a significant milestone of joining the two comma club across our brokerage accounts, dutifully LBYM and saving as much as we could over the past 12 years. As I project into the next 10 years, each million becomes considerably easier. We’ll hit 2 million within ~4-5 years, ~3 million 2-3 years after that, and another million every 2 years after that assuming 7% return. These numbers are amazing and show the power of compounding. How do bogleheads approach housing once you have considerable assets as tailwind?

In my case specifically, we have an income of ~400K, which according to standard rules of thumb would allow 3x mortgage for a total of 1.2 million. However, if you have 3 million in assets that return ~1 million every 2-3 years, that seems too conservative. Even if someone buys a 3 million dollar house with a 2.4 million dollar mortgage, the returns alone on 3 million in VTSAX @ 7% would payoff the house within ~5-6 years. Are there bogleheads guidelines on how much to spend in such scenarios? We aren’t planning to buy a new house right now, but I could see in 10 years that we’d like to get a forever home and a single family home in a VHCOL is ~2 million, maybe 3 in 10 years. I’m pretty sure my income won’t go much higher. Thanks!
You are counting your chickens before they have hatched.

In our case, I feel we were fortunate that we discovered we had "enough" fairly early on, and never had a goal of spending a ton of money on housing just because we could.

3 million won't return ~1 million every 2-3 years. There will be another crash someday, and it may not bounce back in 1-2 years next time.

Buy your next home for $2 million for cash when you have $5-6 million net worth, not before.

(Or be happy with "just" a $1 million home, and retire early - especially if you leave those HCOL areas)
Last edited by HomerJ on Sat Nov 28, 2020 2:31 am, edited 1 time in total.
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Re: Housing once you have considerable assets

Post by 123 »

There are people who "upgrade" their cars and housing based on increases in income or assets. Our home and automobiles were purchased to meet our needs and as long as they continue to do so will keep them, no reason to change them. Perhaps one of the reasons we have been able to accumulate considerable assets is because we haven't had any vehicle or mortgage payments for years.
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neverpanic
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Re: Housing once you have considerable assets

Post by neverpanic »

This long bull market is fueling euphoria outside the BH forums.

OP - You're doing very well and you're in a good position. You're also in a good online place where you can talk with people about continuing to live wisely and comfortably within your means.
Jsdi7873hd wrote: I like living in my current area. All my friends, family, and social network are here. No reason to move to a lower cost of living if I like living where I’m at.
Likewise, you do not have to overspend for your next home just because you might have the means to. :wink: Buy a home you can enjoy, then buy a second home you can enjoy when you want to get away.
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Re: Housing once you have considerable assets

Post by TomatoTomahto »

OP, congrats on hitting the two comma club. Now, be careful not to get out over your skis. Man plans and God laughs.
I get the FI part but not the RE part of FIRE.
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Re: Housing once you have considerable assets

Post by mr_brightside »

TomatoTomahto wrote: Sat Nov 28, 2020 7:49 am OP, congrats on hitting the two comma club. Now, be careful not to get out over your skis. Man plans and God laughs.
totally true

we are also in this situation so the issue is relevant with us. we will be looking to retire in less than 5 years and figuring out our long-term housing will be an issue... (currently renting / recently relocated for work...)

my plan is to keep things 'moderate' -- the kids will be gone but we will want space to entertain / have overnight visitors, etc. but wont need 4000 sq ft thats for sure... gotta get this one figured out sooner or later

-------------------------------
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Re: Housing once you have considerable assets

Post by smitcat »

Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am
On the serious thought; OP, what are your tax saving strategies at this income level?
Just max out my 401K, including after tax contributions. All the income is W2 so there isn’t much to save :(
KlangFool wrote: Fri Nov 27, 2020 11:03 pm OP,


If you have enough money to FIRE (Financially Independence Retire Early), why would you spend your time living in one location? Much less tied yourself down in one expensive location with one expensive house.

KlangFool
I like living in my current area. All my friends, family, and social network are here. No reason to move to a lower cost of living if I like living where I’m at.

I don’t see 10k on taxes and 10k hurricane insurance insurance, I see 570k (570k * 3.5% SWR) in additional capital I need in my near egg to support this. Same goes with HOA, utilities etc. Its as simple as that as far as I’m concerned. If you are willing to grow the nest egg to support the expenses for a given home, then go for it.
This is probably the best take and seems the most reasonable way to think about it. Thank you for this insight.

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
StevieG72 wrote: Sat Nov 28, 2020 1:27 am I still live in my starter home, enjoy the simplicity of living in a smaller home.
I concur! We live in a townhome right now, just in a VHCL. Any single family home that is ~1500 square feet, 3 bed / 2 bath is 2 million around this area. Our townhome is actually 2000 square feet now, and I actually want to downsize to a 1500 square foot home, just a SFH if possible.
"I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing."
While you are at this review it might be very good to see the implication of taxes when you have higher producing assetts.
Your potential plan to utilize returns and growth to purchase/support a much larger cost home will have tax implications that are very large in $$ and %'s.
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dodecahedron
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Re: Housing once you have considerable assets

Post by dodecahedron »

I love the home my family has lived in for over 30 years, full of natural beauty and historic charm, after we relocated here from a much higher cost of living city.

In retrospect, it was "way too much house" relative to our net worth at the time we bought it but under tax laws at the time it made sense to purchase it. (Otherwise a large gain on the sale of our previous home would have been immediately taxable at a high marginal rate. So we did a tax-free rollover of that gain into this home, which kept our mortgage payments affordable. However, under current tax laws, we NEVER would have bought such an expensive house. If current tax laws had applied 30 years ago, we would have just rolled the gain from that previous home tax free into a diversified equity portfolio and bought a far more modest house.)

Fortunately the remainder of our net worth (now my net worth, as a widow) has grown far more than this house.

But it serendipitously wound up being much more than just a home.

My husband (an employee at the time we relocated here) eventually wound up running a consulting business here, and I worked for the business as well. To our surprise, our daughters eventually wound up homeschooling here for almost the entirety of their K-12 education. So our home effectively wound up being a place of business as well as a school.

And of course, during 2020, I have been spending far more time than I would have imagined IN this home, as the pandemic cancelled travel plans and even dining out possibilities. So it has also wound up being a "staycation" home and "in-home gourmet restaurant."

All in all, we have spent far more "person-hours" in this home than we could have ever imagined.

None of this was possible to predict at the time we bought this home.

Interest rates were still quite high (low double digits) when we bought this home but fortunately they fell and we refinanced several times and our income increased a lot and we wound up paying off entire mortgage balance almost 20 years ago.

Taxes and upkeep are high but I am grateful that my net worth allows me the luxury of "aging in place" surrounded by the memories and natural beauty and history here. (The builder of our home was also a noted environmentalist, sometimes called the John Muir of the Adirondacks. He and his brother, the stonemason who helped him build our house 82 years ago, were still living nearby when we bought this home. They have now left this earth but I often walk by their respective former homes and think of all the care and pride they put into building my home.)

Some of the original occupants of this house (who were children at the time it was built in 1938 and now live out of state) are still living and have occasionally dropped by to see it when they were visiting in town and have recounted their own woundrous memories of growing up here.

In retrospect, it all worked but I do not think there are any magic formulas for how much to spend on a home.
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Re: Housing once you have considerable assets

Post by Sagefemme »

TomatoTomahto wrote: Sat Nov 28, 2020 7:49 am OP, congrats on hitting the two comma club. Now, be careful not to get out over your skis. Man plans and God laughs.
This sentiment, said this way, is the thing. Love me some Bogleheads......
Sagefemme
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Re: Housing once you have considerable assets

Post by Sagefemme »

I'm about to turn 60 and will "retire" (will quit my day job but not sure I won't work at something else next) very soon. We live in a modest house in a very pleasant older neighborhood, bought in 1995 when my kids (now gone) were very small.

I'm watching friends, especially those who are a bit older, selling their "forever" megahouses in order to make retirement simpler. Some of these houses were custom built at great expense but now look a little dated. Many have a shiny, bright, hard, modern feeling to them I never liked much. My 1900 square foot bungalow-like house, built in 1939, is still in the ballpark of the right size for us considering we have guests fairly often, at least we did until the pandemic. It was crowded sometimes in the past but feels spacious and lovely now.

We have spent money remodeling bits and pieces of our home over the years. I am very pleased with having beautiful but not huge indoor spaces. Everyone who visits seems to think our small house is cozy and wonderful.

I realize the OP is not talking about buying a megahouse; he just lives somewhere where 1500 square feet costs 2 million dollars. Breathtaking! Can housing really continue to be this expensive?? I will say I'm grateful my housing has been so simple and pleasing. It was pure luck--I didn't realize I was buying my last house at age 34!!
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arcticpineapplecorp.
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Re: Housing once you have considerable assets

Post by arcticpineapplecorp. »

Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm 1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
ok, using portfolio visualizer I used starting $1 million and annual contributions of $150k. Assumed all VTSAX (VTSMX technically due to VTSAX starting only in 12/2000). Is that correct (VTSAX ONLY?)? If not, the numbers below are garbage. I used 2000-2010 since that was the lost decade so sort of worst case rather than best case scenario and came up with ending result AFTER 10 years of $3,552,400.

Would you have bought, held and rebalanced the entire time while seeing market drops of 50.89% (11/2007-2/2009)??

source:
https://www.portfoliovisualizer.com/bac ... ion1_1=100

But the most important thing to notice is that it is your $150k contributions that make the difference. If you stop contributing because you think the compounding will do all the magic you are mistaken. Look at the same time period, start with $1 million. After 10 years (2000-2009) you only made $139,602 (end with $1,139,602):

https://www.portfoliovisualizer.com/bac ... ion1_1=100
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
saagar_is_cool
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Re: Housing once you have considerable assets

Post by saagar_is_cool »

Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
Not asking anything else. I was just interested in how you arrived at those numbers. I am in similar boat of doing the calculations on what it takes to retire wealthy. It was depressing to see that starting with $1M and adding $100k per year (big deal as per me) all in vsmgx between 2000-2020 will only get you to $4.5M in 20 years with inflation. At a withdrawal rate of 2%, that is $90k per year, comfortable - yes, but not really wealthy.

Not anywhere closer to $6M and UHNW ($15M) specified by a lot in this forum.
saagar_is_cool
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Re: Housing once you have considerable assets

Post by saagar_is_cool »

arcticpineapplecorp. wrote: Sat Nov 28, 2020 9:53 am
Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm 1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
ok, using portfolio visualizer I used starting $1 million and annual contributions of $150k. Assumed all VTSAX (VTSMX technically due to VTSAX starting only in 12/2000). Is that correct (VTSAX ONLY?)? If not, the numbers below are garbage. I used 2000-2010 since that was the lost decade so sort of worst case rather than best case scenario and came up with ending result AFTER 10 years of $3,552,400.

Would you have bought, held and rebalanced the entire time while seeing market drops of 50.89% (11/2007-2/2009)??

source:
https://www.portfoliovisualizer.com/bac ... ion1_1=100

But the most important thing to notice is that it is your $150k contributions that make the difference. If you stop contributing because you think the compounding will do all the magic you are mistaken. Look at the same time period, start with $1 million. After 10 years (2000-2009) you only made $139,602 (end with $1,139,602):

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Inflation adjusted in $2.7M with 100% stocks. Also, you were generous in assuming $150k is inflation adjusted contribution. The 401k contribution limit doesn’t move as much as inflation and saving that kind of amount with inflation adjustment is difficult as salaries do now grow at same level for W2.
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Jsdi7873hd
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Re: Housing once you have considerable assets

Post by Jsdi7873hd »

HomerJ wrote: Sat Nov 28, 2020 1:46 am You are counting your chickens before they have hatched.

In our case, I feel we were fortunate that we discovered we had "enough" fairly early on, and never had a goal of spending a ton of money on housing just because we could.

3 million won't return ~1 million every 2-3 years. There will be another crash someday, and it may not bounce back in 1-2 years next time.

Buy your next home for $2 million for cash when you have $5-6 million net worth, not before.

(Or be happy with "just" a $1 million home, and retire early - especially if you leave those HCOL areas)
Thanks for your help :). I guess I don’t feel like I’m counting chickens before they hatched because I’m not actually buying a new house yet. I’m trying to screw my head on straight to think about what I’d like to do 10 years from now, not what I’m doing tomorrow. I wish we could retire in our current house, but I think the stairs will destroy my knees before I am able to.
I realize the OP is not talking about buying a megahouse; he just lives somewhere where 1500 square feet costs 2 million dollars. Breathtaking! Can housing really continue to be this expensive?? I will say I'm grateful my housing has been so simple and pleasing. It was pure luck--I didn't realize I was buying my last house at age 34!!
Sadly yes, VHCOL is basically paycheck -> housing. I’m grateful that I’m able to still save a significant sum and have always bought much less housing than our income could afford.
Sagefemme wrote: Sat Nov 28, 2020 9:24 am [quote=TomatoTomahto post_id=5624437 time=<a href="tel:1606567745">1606567745</a> user_id=25926]
OP, congrats on hitting the two comma club. Now, be careful not to get out over your skis. Man plans and God laughs.
This sentiment, said this way, is the thing. Love me some Bogleheads......
[/quote]

Hahah touché :). Thanks to this forum for knocking some sense into me!
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Jsdi7873hd
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Re: Housing once you have considerable assets

Post by Jsdi7873hd »

arcticpineapplecorp. wrote: Sat Nov 28, 2020 9:53 am
Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm 1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
ok, using portfolio visualizer I used starting $1 million and annual contributions of $150k. Assumed all VTSAX (VTSMX technically due to VTSAX starting only in 12/2000). Is that correct (VTSAX ONLY?)? If not, the numbers below are garbage. I used 2000-2010 since that was the lost decade so sort of worst case rather than best case scenario and came up with ending result AFTER 10 years of $3,552,400.

Would you have bought, held and rebalanced the entire time while seeing market drops of 50.89% (11/2007-2/2009)??

source:
https://www.portfoliovisualizer.com/bac ... ion1_1=100

But the most important thing to notice is that it is your $150k contributions that make the difference. If you stop contributing because you think the compounding will do all the magic you are mistaken. Look at the same time period, start with $1 million. After 10 years (2000-2009) you only made $139,602 (end with $1,139,602):

https://www.portfoliovisualizer.com/bac ... ion1_1=100
This is indeed sobering. I’ve just been using a simple compound interest calculator - https://www.thecalculatorsite.com/finan ... ulator.php

I’ve learned 3 valuable things in case someone else comes in here:
  • Backtesting with portfolio analyzer is better than using a compound interest calculator
  • Use a 3% SWR to model how much the nest egg needs to be and compare that against the mortgage
  • Prepare to be disappointed because plans never work out :)
Maybe I can flip the question into a hypothetical instead. Is there ever a point at which a large nest egg can support a large house purchase that wouldn’t be supported by the 3x income rule? For example, it seems as if someone had 100 million but only a 100K income (improbable I know, but asking for a hypothetical), even a 10 million dollar home seems ok?
EddyB
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Re: Housing once you have considerable assets

Post by EddyB »

smitcat wrote: Sat Nov 28, 2020 8:47 am Your potential plan to utilize returns and growth to purchase/support a much larger cost home will have tax implications that are very large in $$ and %'s.
Although there’s some knee-jerk reaction to carrying debt into retirement, this is a scenario where it can make sense to consider buying the house while you still have a job or otherwise can get a mortgage (especially in a very low interest rate environment). If the assets you’d call on to buy a house can only be accessed at a tax cost, then the annual nature of the income-tax system can be a significant factor, especially if spending is otherwise moderate.
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Jsdi7873hd
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Re: Housing once you have considerable assets

Post by Jsdi7873hd »

saagar_is_cool wrote: Sat Nov 28, 2020 9:55 am
Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
Not asking anything else. I was just interested in how you arrived at those numbers. I am in similar boat of doing the calculations on what it takes to retire wealthy. It was depressing to see that starting with $1M and adding $100k per year (big deal as per me) all in vsmgx between 2000-2020 will only get you to $4.5M in 20 years with inflation. At a withdrawal rate of 2%, that is $90k per year, comfortable - yes, but not really wealthy.

Not anywhere closer to $6M and UHNW ($15M) specified by a lot in this forum.
Hahah, congratulations on adding $100K a year! I constantly have to remind myself that on this forum, having only $4.5 million is considered not wealthy. I think it’s still quite an achievement and it’s nice to have a place to discuss such lucky problems :)
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Jsdi7873hd
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Re: Housing once you have considerable assets

Post by Jsdi7873hd »

EddyB wrote: Sat Nov 28, 2020 10:22 am
smitcat wrote: Sat Nov 28, 2020 8:47 am Your potential plan to utilize returns and growth to purchase/support a much larger cost home will have tax implications that are very large in $$ and %'s.
Although there’s some knee-jerk reaction to carrying debt into retirement, this is a scenario where it can make sense to consider buying the house while you still have a job or otherwise can get a mortgage (especially in a very low interest rate environment). If the assets you’d call on to buy a house can only be accessed at a tax cost, then the annual nature of the income-tax system can be a significant factor, especially if spending is otherwise moderate.
Maybe this is coast FI? As in, once you have a large amount of assets and you’re retirement is mostly taken care of, is it better to significantly cut back on retirement contributions and pour that money into a house instead? Then you could avoid the tax consequences and only access the taxable account in the event of a job loss.
saagar_is_cool
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Re: Housing once you have considerable assets

Post by saagar_is_cool »

Jsdi7873hd wrote: Sat Nov 28, 2020 10:24 am
saagar_is_cool wrote: Sat Nov 28, 2020 9:55 am
Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
Not asking anything else. I was just interested in how you arrived at those numbers. I am in similar boat of doing the calculations on what it takes to retire wealthy. It was depressing to see that starting with $1M and adding $100k per year (big deal as per me) all in vsmgx between 2000-2020 will only get you to $4.5M in 20 years with inflation. At a withdrawal rate of 2%, that is $90k per year, comfortable - yes, but not really wealthy.

Not anywhere closer to $6M and UHNW ($15M) specified by a lot in this forum.
Hahah, congratulations on adding $100K a year! I constantly have to remind myself that on this forum, having only $4.5 million is considered not wealthy. I think it’s still quite an achievement and it’s nice to have a place to discuss such lucky problems :)
I am neither adding $100k per year nor at $1M investable assets yet :happy . When I ran my numbers, it was very low. Then I said, fine, lets assume I have $1M today and am able to add $100k YoY and backtested this. Result was not that great either considering the numbers I see around here. So, I was intrigued by the big numbers you mentioned and thought maybe I was missing something.
is50xenough
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Re: Housing once you have considerable assets

Post by is50xenough »

Jsdi7873hd wrote: Sat Nov 28, 2020 10:21 am
arcticpineapplecorp. wrote: Sat Nov 28, 2020 9:53 am [quote=Jsdi7873hd post_id=5624215 time=1606535751
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).

Maybe I can flip the question into a hypothetical instead. Is there ever a point at which a large nest egg can support a large house purchase that wouldn’t be supported by the 3x income rule? For example, it seems as if someone had 100 million but only a 100K income (improbable I know, but asking for a hypothetical), even a 10 million dollar home seems ok?
I think you are just asking about doing a mortgage based on asset depletion of asset depreciation?
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arcticpineapplecorp.
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Re: Housing once you have considerable assets

Post by arcticpineapplecorp. »

Jsdi7873hd wrote: Sat Nov 28, 2020 10:21 am
arcticpineapplecorp. wrote: Sat Nov 28, 2020 9:53 am
Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm 1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
ok, using portfolio visualizer I used starting $1 million and annual contributions of $150k. Assumed all VTSAX (VTSMX technically due to VTSAX starting only in 12/2000). Is that correct (VTSAX ONLY?)? If not, the numbers below are garbage. I used 2000-2010 since that was the lost decade so sort of worst case rather than best case scenario and came up with ending result AFTER 10 years of $3,552,400.

Would you have bought, held and rebalanced the entire time while seeing market drops of 50.89% (11/2007-2/2009)??

source:
https://www.portfoliovisualizer.com/bac ... ion1_1=100

But the most important thing to notice is that it is your $150k contributions that make the difference. If you stop contributing because you think the compounding will do all the magic you are mistaken. Look at the same time period, start with $1 million. After 10 years (2000-2009) you only made $139,602 (end with $1,139,602):

https://www.portfoliovisualizer.com/bac ... ion1_1=100
This is indeed sobering. I’ve just been using a simple compound interest calculator - https://www.thecalculatorsite.com/finan ... ulator.php

I’ve learned 3 valuable things in case someone else comes in here:
  • Backtesting with portfolio analyzer is better than using a compound interest calculator
  • Use a 3% SWR to model how much the nest egg needs to be and compare that against the mortgage
  • Prepare to be disappointed because plans never work out :)
Maybe I can flip the question into a hypothetical instead. Is there ever a point at which a large nest egg can support a large house purchase that wouldn’t be supported by the 3x income rule? For example, it seems as if someone had 100 million but only a 100K income (improbable I know, but asking for a hypothetical), even a 10 million dollar home seems ok?
depends on if you're fine with what you have leftover after taking from savings.

if you can still hit your goals (retirement) even after taking from savings, you're fine. If not, you're toast.

So for a normal retirement if you have (or will have) at least 25X shortfall of income in retirement AFTER withdrawing for house purchase, then you're fine.

In your example if you have 100 million and take out 10 million that leaves you with 90 million (in savings).

a 4% withdrawal rate from 90 million is $3,600,000 annually (adjusted for inflation) you can withdraw from that portfolio for 30 years (with high degree of safety, not perfect and assuming at least 30% or more of this $90 mil is in stocks).

If you need that much or less annually, you're fine.
If you need more than that, you're not.

does that help?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Firemenot
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Re: Housing once you have considerable assets

Post by Firemenot »

My guess is you live in California. Prop 13 should be factored into your calculus if you know you’ll ultimately move. Better to lock in those taxes sooner than later.
CurlyDave
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Re: Housing once you have considerable assets

Post by CurlyDave »

Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm
...1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
I wouldn't say "bad Boglehead", but I do think you are getting ahead of yourself. You just crossed the $1M threshold and are projecting to reach pretty rarified levels in the not-to-distant future.

Contrary to many here, I do include our house in our total assets, and when one's assets get to the point where any reasonable return is much higher than expenses, you can do whatever you want without going too far wrong.

When DW and I retired we bought land and built a retirement home in a much lower COL area. By all the "rules" of how much we "should" spend we way over spent. BUT, we love the house and have a guest suite to accommodate kids and grandkids when they visit. And, over the years our home has become a lower percentage of our total assets. It has not appreciated much, but it has not lost value.

Real estate is bought and sold every day. No need to get so far ahead of yourself. When you get there what to do will become much more clear. Meanwhile enjoy the ride. $1M is still a good accomplishment and you are clearly on track to take that even higher.
MrDrinkingWater
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Re: Housing once you have considerable assets

Post by MrDrinkingWater »

Jsdi7873hd wrote: Fri Nov 27, 2020 9:23 pm Hi all,

<SNIP>
How do bogleheads approach housing once you have considerable assets as tailwind?
<SNIP>
Are there bogleheads guidelines on how much to spend in such scenarios? We aren’t planning to buy a new house right now, but I could see in 10 years that we’d like to get a forever home <SNIP>
I don't think your question is a request to get a feel for what percentage of assets is the best percentage to spend on housing or shelter. When I read what you wrote, I think you are considering that your assets are a backstop to help save you from any future problems you might encounter with having disruptions in your income.

I would suggest that the price you pay for a house should be based on whether you are anywhere other than a VHCOL area or in a VHCOL area. In a VHCOL area, your minimum home price is unfortunately likely going to be a much larger multiple of your annual income. In any other cost-of-living area, try to buy a home that is two times your annual income, even if you can easily afford a more expensive home.

It sounds as if you may be thinking that you won't be buying anytime soon, and that you hope to make a single and one-time purchase of your "forever" home when you do buy a home. I think it is likely that your requirements about what a great home or shelter is will change and evolve after you buy your "forever" home. I suggest that you probably should reconsider calling any particular house your "forever" home. Don't trick yourself into buying too much house or a house that has a lot of high-maintenance-cost extras that aren't really part of your core set of requirements because it is going to be your "forever" house. Buy or rent housing (whatever is the best deal) that meets your core and key requirements, and nothing more.
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TomatoTomahto
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Re: Housing once you have considerable assets

Post by TomatoTomahto »

saagar_is_cool wrote: Sat Nov 28, 2020 10:39 am [snip...]Result was not that great either considering the numbers I see around here. So, I was intrigued by the big numbers you mentioned and thought maybe I was missing something.
Don’t let the “numbers [you] see around here” affect your sense of pride and accomplishment. The numbers here are big, and often don’t reflect “normality.” It’s one reason I stopped posting numbers (other than our fixed income portion of our Liability Matching Portfolio); there’s no benefit for me or anyone else on the forum, and an unintended consequence might be that someone who might have felt close to “enough” will no longer think so. And they would probably have been right the first time.
:sharebeer
I get the FI part but not the RE part of FIRE.
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Orbuculum Nongata
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Re: Housing once you have considerable assets

Post by Orbuculum Nongata »

iamblessed wrote: Fri Nov 27, 2020 9:59 pm Warren Buffett still lives in the house he paid about 40k for.
Sure, but it's valued at $1,059,700.00 today.
Potential - distraction = performance.
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HomerJ
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Re: Housing once you have considerable assets

Post by HomerJ »

saagar_is_cool wrote: Sat Nov 28, 2020 9:55 am
Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
Not asking anything else. I was just interested in how you arrived at those numbers. I am in similar boat of doing the calculations on what it takes to retire wealthy. It was depressing to see that starting with $1M and adding $100k per year (big deal as per me) all in vsmgx between 2000-2020 will only get you to $4.5M in 20 years with inflation. At a withdrawal rate of 2%, that is $90k per year, comfortable - yes, but not really wealthy.

Not anywhere closer to $6M and UHNW ($15M) specified by a lot in this forum.
But why take only 2%? 4% is $180k a year. $180k with a paid-off house is rich, rich, rich.

And you might get another $40k from Social Security as a high earner.

There a FEW people on this forum who talk about $6 million and even fewer that talk about $15 million.

$180k a year with a paid off house probably gives you at least $7,500, and maybe more like $10,000 a month to spend on FUN. Let's say $8000.

$8,000 a month, every month, just for fun. For the rest of your life.

That sounds a bit more than just "comfortable" to me.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
Firemenot
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Re: Housing once you have considerable assets

Post by Firemenot »

Orbuculum Nongata wrote: Sat Nov 28, 2020 11:54 am
iamblessed wrote: Fri Nov 27, 2020 9:59 pm Warren Buffett still lives in the house he paid about 40k for.
Sure, but it's valued at $1,059,700.00 today.
I also looked up a picture of the house. It looks like he basically totally rebuilt the place. In no way does it appear to be a pre-1958 house.

My guess is he kept the property just for purposes of building his personal brand. All part of his schtik.
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grabiner
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Re: Housing once you have considerable assets

Post by grabiner »

Jsdi7873hd wrote: Fri Nov 27, 2020 9:23 pm Today I hit a significant milestone of joining the two comma club across our brokerage accounts, dutifully LBYM and saving as much as we could over the past 12 years. As I project into the next 10 years, each million becomes considerably easier. We’ll hit 2 million within ~4-5 years, ~3 million 2-3 years after that, and another million every 2 years after that assuming 7% return. These numbers are amazing and show the power of compounding. How do bogleheads approach housing once you have considerable assets as tailwind?
The reason you accumulate large amounts of assets is that you want to spend them. At this point, housing is a consumption decision. If you want to live in an expensive house because the location, schools, and condition of the house are worthwhile, you can go ahead and do that, because you can afford it. If you want to live in a less expensive house and retire earlier, or spend more money traveling, or donate a lot to charity, you have those options instead.
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Re: Housing once you have considerable assets

Post by saagar_is_cool »

TomatoTomahto wrote: Sat Nov 28, 2020 11:48 am
saagar_is_cool wrote: Sat Nov 28, 2020 10:39 am [snip...]Result was not that great either considering the numbers I see around here. So, I was intrigued by the big numbers you mentioned and thought maybe I was missing something.
Don’t let the “numbers [you] see around here” affect your sense of pride and accomplishment. The numbers here are big, and often don’t reflect “normality.” It’s one reason I stopped posting numbers (other than our fixed income portion of our Liability Matching Portfolio); there’s no benefit for me or anyone else on the forum, and an unintended consequence might be that someone who might have felt close to “enough” will no longer think so. And they would probably have been right the first time.
:sharebeer
I didn’t mean to make it sound like sour grapes. It is inspirational to read about them and aspire to reach those amounts. Based on my calculations, you cannot just save from good job living in a decent place and reach them. You need to do something different - business, really high paying profession or risks with small amount of portfolio like AAPL, TSLA etc. to reach the bigger amounts. It is everyone’s personal decision to either aspire to reach those or be content with what is possible for them with current journey.
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Re: Housing once you have considerable assets

Post by saagar_is_cool »

HomerJ wrote: Sat Nov 28, 2020 12:33 pm
saagar_is_cool wrote: Sat Nov 28, 2020 9:55 am
Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
Not asking anything else. I was just interested in how you arrived at those numbers. I am in similar boat of doing the calculations on what it takes to retire wealthy. It was depressing to see that starting with $1M and adding $100k per year (big deal as per me) all in vsmgx between 2000-2020 will only get you to $4.5M in 20 years with inflation. At a withdrawal rate of 2%, that is $90k per year, comfortable - yes, but not really wealthy.

Not anywhere closer to $6M and UHNW ($15M) specified by a lot in this forum.
But why take only 2%? 4% is $180k a year. $180k with a paid-off house is rich, rich, rich.

And you might get another $40k from Social Security as a high earner.

There a FEW people on this forum who talk about $6 million and even fewer that talk about $15 million.

$180k a year with a paid off house probably gives you at least $7,500, and maybe more like $10,000 a month to spend on FUN. Let's say $8000.

$8,000 a month, every month, just for fun. For the rest of your life.

That sounds a bit more than just "comfortable" to me.
I wouldn’t do more than 2-3% for multiple reasons. I look at it as about $8-11k pre-tax and $6-$9k post-tax. You are right about paid house, I didn’t factor that in. Depending on where you live and your expenses, that is about $1-3k of fun money per month after slogging for 20-30 years :happy . As I mentioned above, I am not trying to make it sound like a bad thing, I am just saying that between aspiring for being content and achieving wealth, there are some risks / avenues you need to pursue. Whether or not, one does it or not is a personal choice.
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Re: Housing once you have considerable assets

Post by fyre4ce »

Jsdi7873hd wrote: Sat Nov 28, 2020 10:21 am Maybe I can flip the question into a hypothetical instead. Is there ever a point at which a large nest egg can support a large house purchase that wouldn’t be supported by the 3x income rule? For example, it seems as if someone had 100 million but only a 100K income (improbable I know, but asking for a hypothetical), even a 10 million dollar home seems ok?
I would say that you shouldn’t have a mortgage more than 3x your gross income. If you want to put extra down and buy a more expensive house, and you’ve decided that the extra consumption on the house will give you more enjoyment than anything else you can spend the money on, then go ahead. In the example you gave, you’d obviously be buying the house with cash, so my rule would hold. Don’t forget to account for carrying costs though. Ongoing expenses for this $10M house will exceed even the $100k gross income for sure.
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Re: Housing once you have considerable assets

Post by sperry8 »

arcticpineapplecorp. wrote: Sat Nov 28, 2020 9:53 am
Jsdi7873hd wrote: Fri Nov 27, 2020 10:55 pm 1. My compounding returns do include contributions of ~150K a year. Indeed a downmarket would throw some kinks into the plan.
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).
ok, using portfolio visualizer I used starting $1 million and annual contributions of $150k. Assumed all VTSAX (VTSMX technically due to VTSAX starting only in 12/2000). Is that correct (VTSAX ONLY?)? If not, the numbers below are garbage. I used 2000-2010 since that was the lost decade so sort of worst case rather than best case scenario and came up with ending result AFTER 10 years of $3,552,400.

Would you have bought, held and rebalanced the entire time while seeing market drops of 50.89% (11/2007-2/2009)??

source:
https://www.portfoliovisualizer.com/bac ... ion1_1=100

But the most important thing to notice is that it is your $150k contributions that make the difference. If you stop contributing because you think the compounding will do all the magic you are mistaken. Look at the same time period, start with $1 million. After 10 years (2000-2009) you only made $139,602 (end with $1,139,602):

https://www.portfoliovisualizer.com/bac ... ion1_1=100
Exactly. Because contributing $150k per year for 20 years is $3 million in savings without earning one penny in interest.

OP - be careful... returns may not be the same over the next 20 years as they were over the prior 20. Prior 20 was something like ~7% per year. Anyway, 7% doubles in ~10 years if memory serves.
BH contests: 2020 #253 of 664 | 19 #233 of 645 | 18 #150 of 493 | 17 #516 of 647 | 16 #121 of 610 | 15 #18 of 552 | 14 #225 of 503 | 13 #383 of 433 | 12 #366 of 410 | 11 #113 of 369 | 10 #53 of 282
EddyB
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Re: Housing once you have considerable assets

Post by EddyB »

Jsdi7873hd wrote: Sat Nov 28, 2020 10:27 am
EddyB wrote: Sat Nov 28, 2020 10:22 am
smitcat wrote: Sat Nov 28, 2020 8:47 am Your potential plan to utilize returns and growth to purchase/support a much larger cost home will have tax implications that are very large in $$ and %'s.
Although there’s some knee-jerk reaction to carrying debt into retirement, this is a scenario where it can make sense to consider buying the house while you still have a job or otherwise can get a mortgage (especially in a very low interest rate environment). If the assets you’d call on to buy a house can only be accessed at a tax cost, then the annual nature of the income-tax system can be a significant factor, especially if spending is otherwise moderate.
Maybe this is coast FI? As in, once you have a large amount of assets and you’re retirement is mostly taken care of, is it better to significantly cut back on retirement contributions and pour that money into a house instead? Then you could avoid the tax consequences and only access the taxable account in the event of a job loss.
I’m not suggesting one necessarily keeps working, just that the tax system creates scenarios where paying for a house over time may be attractive even when one has the money at the time of purchase. But my understanding is that’s it’s generally difficult to get a (home) mortgage without employment income.
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Re: Housing once you have considerable assets

Post by MrDrinkingWater »

is50xenough wrote: Sat Nov 28, 2020 10:52 am
Jsdi7873hd wrote: Sat Nov 28, 2020 10:21 am
arcticpineapplecorp. wrote: Sat Nov 28, 2020 9:53 am [quote=Jsdi7873hd post_id=5624215 time=1606535751
2. Maybe to rephrase, my question is, if your assets start to be much larger than a house purchase, but based on income the house wouldn’t be viable due to the 3x gross income rule, are there other guidelines to follow instead? E.g. if you have 3 million and stop contributing, maybe it doubles in 10 years and you now have 6 million, which should make it pretty easy to buy a 2 million house and still have leftover for a good retirement. Or is this line of thinking just being a bad boglehead :).

Maybe I can flip the question into a hypothetical instead. Is there ever a point at which a large nest egg can support a large house purchase that wouldn’t be supported by the 3x income rule? For example, it seems as if someone had 100 million but only a 100K income (improbable I know, but asking for a hypothetical), even a 10 million dollar home seems ok?
I think you are just asking about doing a mortgage based on asset depletion of asset depreciation?
Perhaps the OP is less concerned about purchase price. That's an unusual situation. While most home buyers might be concerned about how to manage their total debt load, this is a situation where the OP appears unconcerned about how to figure out the best way to manage a debt load.

He may be paying cash for a house, and therefore he might only be focused on getting help in estimating what the ongoing maintenance costs, property taxes, special parcel taxes, insurance, and annual HOA fee will likely be each year going forward after he purchases the home. When he buys his home in about ten years, we should recommend that he should get a really top-notch inspection completed, just so that he is aware of any deferred maintenance that will need to be completed.
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Re: Housing once you have considerable assets

Post by smitcat »

HomerJ wrote: Sat Nov 28, 2020 12:33 pm
saagar_is_cool wrote: Sat Nov 28, 2020 9:55 am
Jsdi7873hd wrote: Sat Nov 28, 2020 1:37 am

I am intrigued by your calculation of rapid growth. I ran on portfolio visualizer for 20 year perio from 2000 to 2020, with 100% VSMGX starting with $1M and adding $150k per year like you mentioned. End result is about $9M without inflation and about $5.48M aith inflation at a cagr of 11%. Link below. What am I missing ?
I just ran it through a simple compound interest calculator with 7% returns. You’re probably right to back test instead. From 2000-2008, hitting 3 million in ~8 years looks right with a 7% compound interest calculator and back testing. Then from 2012 - 2020, you’re still adding 1 million every 2-3 years which is inline with the simple calculator. So there is indeed some amount of luck and this doesn’t include a downturn like 2008, but it quasi works? Or are you asking something else?
Not asking anything else. I was just interested in how you arrived at those numbers. I am in similar boat of doing the calculations on what it takes to retire wealthy. It was depressing to see that starting with $1M and adding $100k per year (big deal as per me) all in vsmgx between 2000-2020 will only get you to $4.5M in 20 years with inflation. At a withdrawal rate of 2%, that is $90k per year, comfortable - yes, but not really wealthy.

Not anywhere closer to $6M and UHNW ($15M) specified by a lot in this forum.
But why take only 2%? 4% is $180k a year. $180k with a paid-off house is rich, rich, rich.

And you might get another $40k from Social Security as a high earner.

There a FEW people on this forum who talk about $6 million and even fewer that talk about $15 million.

$180k a year with a paid off house probably gives you at least $7,500, and maybe more like $10,000 a month to spend on FUN. Let's say $8000.

$8,000 a month, every month, just for fun. For the rest of your life.

That sounds a bit more than just "comfortable" to me.

"And you might get another $40k from Social Security as a high earner."
And high earners could be double that ...
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Re: Housing once you have considerable assets

Post by smitcat »

EddyB wrote: Sat Nov 28, 2020 10:22 am
smitcat wrote: Sat Nov 28, 2020 8:47 am Your potential plan to utilize returns and growth to purchase/support a much larger cost home will have tax implications that are very large in $$ and %'s.
Although there’s some knee-jerk reaction to carrying debt into retirement, this is a scenario where it can make sense to consider buying the house while you still have a job or otherwise can get a mortgage (especially in a very low interest rate environment). If the assets you’d call on to buy a house can only be accessed at a tax cost, then the annual nature of the income-tax system can be a significant factor, especially if spending is otherwise moderate.
I thought about planning for taxes due to part of his initial post here:
"In my case specifically, we have an income of ~400K, which according to standard rules of thumb would allow 3x mortgage for a total of 1.2 million. However, if you have 3 million in assets that return ~1 million every 2-3 years, that seems too conservative. Even if someone buys a 3 million dollar house with a 2.4 million dollar mortgage, the returns alone on 3 million in VTSAX @ 7% would payoff the house within ~5-6 years"
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