Thank you. This is what I was getting at with my post, but this lays it out more clearly.ram wrote: ↑Thu Dec 02, 2021 6:50 pmAssume: Annual expenses including healthcare and housing (no mortgage)= 120K
Assume withdrawal rate 2.5% annually ( Need 40 x)
120 K x 40x = 4.8 million
For 3 M house = 7.8 M (Lowest NW)
For 5 M house: Add expense of 10K/yr or 400K in net worth.
Therefore 10.2 M ( 4.8 + 0.4 + 5M )
At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
- quantAndHold
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I'm thinking of it similarly. If FIRE'd, with a $3M house, and prop 13 cap on future property taxes: figure out the endowment needed to sustain the housequantAndHold wrote: ↑Thu Dec 02, 2021 6:03 pm Anyway, figuring $130k/year living expenses ($60k, plus $30k for healthcare and $40k for care and feeding of the house), somewhere in the $4-5m range (not including home equity) would support you indefinitely.
Given the 3.85K/month from OP, that's 46K/yr. Budget for maintenance on a not-large VHCOL house, and figure 50K/yr. This is a long-term baseline spend, and figure on at least 30x as an endowment for the house, so 1.5M. (40x expenses would be 2M)
Assuming 60K/yr for living as per OP. Figure 25K/yr for healthcare on average, and 10K/yr for taxes. So 95K/yr at 30x is basically another 3M to fund lifestyle. So 3M for lifestyle + 3M house + 1.5M house endowment is 7.5M
For a 5M house, you're now at 75K for tax+insurance. That's going to be a larger house so expect more for maintenance, and for utilities. Call it 90K/yr, which then requires 2.7M to endow it. 3M for lifestyle, 5M for house and 2.7M for house endowment is 11.7M. Maybe round up to 12M as a 5M home probably requires better furnishings
(That said, w/ 12M, I'd personally opt for a smaller house and a bigger lifestyle)
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I like this analysis. I live in a VHCOL area, and bought an expensive house about 15 years back. My income only supported a mortgage around 30% of the purchase price, so we sold stock to make the rest. Fortunately, I had been lucky with an option grant (which is compensation, but not like income in the sense that I don't expect to get another one of those in the future). On strictly income terms, we could nowhere near afford this house, but as I said at the time to my wife, you can't live in your portfolio.grkmec wrote: ↑Thu Dec 02, 2021 6:19 pm Here is my answer. I am assuming no income other than net worth.
3 million house economically costs 5% a year. That is what I think the true cost is of equity, debt, insurance, maintenance and capex. So that’s a $150k annual nut. I don’t think housing should exceed 30% of annual budget, so I must have an annual budget of $500k a year. In order to spend 500k, it must be capped at 3% of my net worth. So that means $16.6mm net worth.
Do the same math for 5mm house gets me to $27.8mm net worth.
Note, I am defining net worth here an investable assets and thus not including any equity I might use to buy said house.
Now if you have stable recurring income stream away from spending your net worth, then I wound accept a lower net worth threshold.
Anyhow, I don't think the above analysis is completely fair, because you don't necessarily need $350k in non-housing expenses. Granted, you want to take care that you don't cut it too close, you don't want to be choosing between essentials and property taxes, IMHO. And you want to make certain that your large house doesn't increase your run rate too much. But as long as you keep on top of those kinds of things, your non-house costs shouldn't be intrinsically higher just because you have a more-expensive house. I know ours wouldn't be much lower if we downsized (our expenses WOULD be lower! I'm just saying they wouldn't linearly scale or anything). The real trick to reducing our run rate would be to move out of the VHCOL area.
I guess that means I might push as low as $10M or even maybe $8M for a $3M house, and keep an eye on things so you can move BEFORE getting in trouble rather than after you are doomed. I wouldn't push much lower than that, though, because if you live there for any length of time, you're going to have to be able to deal with major maintenance like replacing the roof and remodelling bathrooms and kitchen.
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I see the poster before me assumed 2.5% (or 40x) and that's fine too. Closer to what I'd personally do, and basically at a "perpetual withdrawal rate," which is certainly safer. And you're young.
These numbers are "end goal" numbers for when retired. If you haven't reached those numbers, but have the income and timeline where you can get there with good confidence (acceptable risk), then buying prior to accumulating that kind of wealth could make sense. That then becomes a risk call, based on how close you are, and how reliable your income stream is.
These numbers are "end goal" numbers for when retired. If you haven't reached those numbers, but have the income and timeline where you can get there with good confidence (acceptable risk), then buying prior to accumulating that kind of wealth could make sense. That then becomes a risk call, based on how close you are, and how reliable your income stream is.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I would think it is fairly easy math.stostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
Went through this a few years ago.
You would like to stop working, so think about what you need to retire.
some back if the envelope calculations:
$60k of other expenses. Figure about $30k for health insurance and associated expenses. Another $10k/yr or so for periodic expenses (car, remodel, etc)
Figure about $5k/mo to support $3m house, or ~$8k to support $5m house
So total annual expenses $160k or $200k, roughly.
Add in taxes, looks like maybe you are in California, so Figure maybe 20% effective combined tax rate. So, now we are at $200k or $250k in annual expenses
At your age. probably want ~3% WR. So a portfolio of $6.7m or $8.3m.
Add in the cost of the house, and the grand total is:
~$10M for the $3M house.
~$13.5M for the $5M house.
give or take.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
It is small for a 3 million house.
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
The correct answer is I would buy a $3MM or $5MM dollar home if it did not move the needle.
"Moving the needle" is the key criteria.
Dave
"Moving the needle" is the key criteria.
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
It's all about priorities.
Would you feel the same way if all your friends and family lived in a VHCOL area where housing is that expensive AND it was important to you personally to be near them?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Yes, you can well afford to own a house that is between 10% and 16% of your net worth, if and only if 1/2 of your net worth is in stable assets.stostech wrote: ↑Thu Dec 02, 2021 6:39 pm$30MM for a $3MM house? or a $5MM house?Dontridetheindexdown wrote: ↑Thu Dec 02, 2021 6:37 pm Thirty million net, if and only if with 1/2 in cash or cash equivalents.
That is, 15 million in equities and/or bonds, and 15 million in FDIC insured deposits, or VUSXX (Vanguard Treasury Money Market) equivalent.
Just my opinion, for what it's worth!
Last edited by Dontridetheindexdown on Thu Dec 02, 2021 7:24 pm, edited 1 time in total.
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Even if I had the net worth of Warren Buffet, I would not be comfortable purchasing a $3 million house. It's simply too much house. Apparently Warren Buffet agrees with me on this. Check out his house.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Yes. I have had to live by the needle for decades as a small business owner/entrepreneur and never knew if my income would dry up. The habit was formed. But the needle is not hard and fast, it is soft, flexible and somewhat subjective too.
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
It's smaller than ours...which we paid less than 10% of the OP's figure....and ours has acreage!! (but it's not in a HCOL/VHCOL area)
The numbers given above of ~9 M and ~14 M for the two different values is about right. The taxes to support the needed draw for the property, the insurance, and maintenance would certainly be a factor....and would also likely put one into IRMAA territory permanently.
{as with others, ...wouldn't go there... we're already retired and would instead consider cheaper property (properties !) that met our wants (... and a $3M house is a "want" not a "need"). One can spend a lot just for short term rentals, when you really need to be there, and it'll still be cheaper }
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
You are forgetting the first rule of real estate: location, location, location.
Here is a <1600 sq ft condo that sold recently not too far from where we live.
The buyers obviously did not think it was small for $4m
https://www.redfin.com/HI/Waimea/6684-K ... /175049199
Oh, and that does not include the $2k/mo HOA fees!
But, i do agree with your that I would rather spend my money on something like that rather than in a congested area. Buy, I am not the OP, and clearly he has different priorities.
Last edited by marcopolo on Thu Dec 02, 2021 7:33 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
For me, if I had $15m (retired with no stable w2 income), I may spend $3m on a house.
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Well said.Dave55 wrote: ↑Thu Dec 02, 2021 7:15 pmYes. I have had to live by the needle for decades as a small business owner/entrepreneur and never knew if my income would dry up. The habit was formed. But the needle is not hard and fast, it is soft, flexible and somewhat subjective too.
Dave
Great points as usual.
As to that "moving the needle thing".
Sometimes whe it is cold, the needle is pointed and exact and with no variation.
But, on hot days, it become like "Gumby" in the sun with "Pokey" not far behind. Things become vague and interpretive.
Subjectivity is like comparisons. (Assumptions too).
Comparisons are odious (said a world reknowned professor that had the ear of many countries, to me over a melting bowl of Macadamian Nut/Haupia Ice Cream, a Hawaiian Island favorite).
Personally, as I grew up in poverty and am internally vs externally defined, so, as long as a home fits our needs and lifestyle and so forth and there's nothing lacking, whatever the price is fine as long as it doesn't move our needle.
We paid cash to live in a multi zillion dollar area of ranch estates by buying a "fixer upper" zillion dollar home for a song at a bank auction by owner default, then did a full renov and remod. Thus, did not move our needle, though we could have bought more, it worked out.
We might pay 3-5 mil if our asset base was perhaps 50 mil, at least. Why? It just seems like a nice round number.
j
Last edited by Sandtrap on Thu Dec 02, 2021 7:42 pm, edited 2 times in total.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
If you paid cash for $3M house, if you cash flow expenses for a $3M house another $4M, and another $3M to live on. $10M would be minimal.
If you paid cash for $5M house, if you cash flow expenses for a $5M house another $6M, and another $4M to live on. $15M would be minimal.
If you paid cash for $5M house, if you cash flow expenses for a $5M house another $6M, and another $4M to live on. $15M would be minimal.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Jim your poetry is right on tonight.Sandtrap wrote: ↑Thu Dec 02, 2021 7:36 pmWell said.Dave55 wrote: ↑Thu Dec 02, 2021 7:15 pmYes. I have had to live by the needle for decades as a small business owner/entrepreneur and never knew if my income would dry up. The habit was formed. But the needle is not hard and fast, it is soft, flexible and somewhat subjective too.
Dave
Great points as usual.
As to that "moving the needle thing".
Sometimes whe it is cold, the needle is pointed and exact and with no variation.
But, on hot days, it become like "Gumby" in the sun with "Pokey" not far behind. Things become vague and interpretive.
Subjectivity is like comparisons. (Assumptions too).
Comparisons are odious (said a world reknowned professor that had the ear of many countries, to me over a melting bowl of Macadamian Nut/Haupia Ice Cream, a Hawaiian Island favorite).
Personally, as I grew up in poverty and am internally vs externally defined, so, as long as a home fits our needs and lifestyle and so forth and there's nothing lacking, whatever the price is fine as long as it doesn't move our needle.
We paid cash to live in a multi zillion dollar area of ranch estates by buying a "fixer upper" zillion dollar home for a song at a bank auction by owner default, then did a full renov and remod. Thus, did not move our needle, though we could have bought more, it worked out.
j
Dave
"Reality always wins, your only job is to get in touch with it." Wilfred Bion
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I think that's more just that he happened to buy in an area where the land didn't appreciate nearly as much. It looks like he lives in an enormous 6500 sq ft house on .73 acre. He bought it for $31k in 1958. That same house in my area would probably be $15MM or more.UpperNwGuy wrote: ↑Thu Dec 02, 2021 7:12 pm Even if I had the net worth of Warren Buffet, I would not be comfortable purchasing a $3 million house. It's simply too much house. Apparently Warren Buffet agrees with me on this. Check out his house.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
+1 on this, I hadn't noticed the insurance estimates but agree that they seem way high. My insurance on a 2000 sq ft house in Silicon Valley was $1700/year for homeowners + $2300/year for CEA earthquake coverage = $4000/year total. It's only the structure that you have to pay to insure, and if in California that's a small fraction of the total value.quantAndHold wrote: ↑Thu Dec 02, 2021 6:03 pm First, I’m not at all sure why Zillow would think insurance on a 2200 sq ft house would be $9k/year. We’re in a similar situation with a 2300 sqft house sitting on very expensive dirt, and our insurance is about $1500/year. Is it that high because it’s in a fire zone and it’s basically uninsurable?
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
marcopolo,
It is cheaper and better to get my friends and family to leave that VHCOL area. It is just a matter of time before they leave that area.
Why do you think that is not a reasonable assumption?
What is the median income of that area? What is the median house price in that area?
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I would only consider buying a $3 million house if I was already financially independent and buying such a house would make no difference to my financial outcome or affect my financial independence. Even thenstostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
- Harry Livermore
- Posts: 1927
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I'll bite:
If I was paying cash for $3MM house, and had annual expenses of $60K (I'm assuming before the $3MM house expenses; pardon if that was not the case and I missed it somehow):
Minimum NW: $9MM
Comfort-Zone NW: $12MM
Cheers
If I was paying cash for $3MM house, and had annual expenses of $60K (I'm assuming before the $3MM house expenses; pardon if that was not the case and I missed it somehow):
Minimum NW: $9MM
Comfort-Zone NW: $12MM
Cheers
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
His house is a palace. He’s made tons of improvements and additions over the years. Have you seen pictures? It doesn’t live up to the folksy tale. I guarantee you he’s spent more than 3 million on improvements.UpperNwGuy wrote: ↑Thu Dec 02, 2021 7:12 pm Even if I had the net worth of Warren Buffet, I would not be comfortable purchasing a $3 million house. It's simply too much house. Apparently Warren Buffet agrees with me on this. Check out his house.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
He also had a beach house in CA until recently. It sold for $7.5M.Firemenot wrote: ↑Thu Dec 02, 2021 8:00 pmHis house is a palace. He’s made tons of improvements and additions over the years. Have you seen pictures? It doesn’t live up to the folksy tale. I guarantee you he’s spent more than 3 million on improvements.UpperNwGuy wrote: ↑Thu Dec 02, 2021 7:12 pm Even if I had the net worth of Warren Buffet, I would not be comfortable purchasing a $3 million house. It's simply too much house. Apparently Warren Buffet agrees with me on this. Check out his house.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
OK, I always assumed that the trite story about how he's just stayed in his old house all these years was true, but ... really? He bought a 6500 sq ft house in 1958? And it has 5 bedrooms? Again, 6500 sq ft?stostech wrote: ↑Thu Dec 02, 2021 7:45 pmI think that's more just that he happened to buy in an area where the land didn't appreciate nearly as much. It looks like he lives in an enormous 6500 sq ft house on .73 acre. He bought it for $31k in 1958. That same house in my area would probably be $15MM or more.UpperNwGuy wrote: ↑Thu Dec 02, 2021 7:12 pm Even if I had the net worth of Warren Buffet, I would not be comfortable purchasing a $3 million house. It's simply too much house. Apparently Warren Buffet agrees with me on this. Check out his house.
Don't get me wrong, it's no Xanadu 2.0, but it's also obviously not great-grandma's bungalow that she raised 8 kids in.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
You think people have that much power over where other people choose to live?!?KlangFool wrote: ↑Thu Dec 02, 2021 7:49 pmmarcopolo,
It is cheaper and better to get my friends and family to leave that VHCOL area. It is just a matter of time before they leave that area.
Why do you think that is not a reasonable assumption?
What is the median income of that area? What is the median house price in that area?
KlangFool
Many people bought in those VHCOL areas a long time ago, and the current ratio of housing cost to median income is meaningless.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I will not offer a figure, since there is not enough information.
I will note that no one is discussing the sources of income or the income tax rates paid. X% of assets each year would have to include the large amount of taxes paid to the fed. Most of the VHCOL places are in high tax states.
One would need to increase the asset base to have enough after tax income to support the lifestyle.
I am skeptical of the proposition that someone would pay $3M for a house in a VHCOL area but live on $60k, plus healthcare and housing costs. Maybe they would intend to but I would ask why live in that area? One can live a very nice life in many parts of the country where that $60k goes much farther. If one is in love with, say, the Bay area, can one appreciate it while only spending 60?
But going with the assumptions, including that the $60k is accurate, I would work out a total annual budget including all taxes. Then calculate no more than a 2% withdrawal rate for a very long retirement.
That would give me a minimum networth. In reality, I would want very much more than that to allow for unexpected expenses. I would probably double whatever number I got based on the $60k in expenses plus housing and healthcare.
I will note that no one is discussing the sources of income or the income tax rates paid. X% of assets each year would have to include the large amount of taxes paid to the fed. Most of the VHCOL places are in high tax states.
One would need to increase the asset base to have enough after tax income to support the lifestyle.
I am skeptical of the proposition that someone would pay $3M for a house in a VHCOL area but live on $60k, plus healthcare and housing costs. Maybe they would intend to but I would ask why live in that area? One can live a very nice life in many parts of the country where that $60k goes much farther. If one is in love with, say, the Bay area, can one appreciate it while only spending 60?
But going with the assumptions, including that the $60k is accurate, I would work out a total annual budget including all taxes. Then calculate no more than a 2% withdrawal rate for a very long retirement.
That would give me a minimum networth. In reality, I would want very much more than that to allow for unexpected expenses. I would probably double whatever number I got based on the $60k in expenses plus housing and healthcare.
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
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
No one addressed taxes?afan wrote: ↑Thu Dec 02, 2021 8:43 pm I will not offer a figure, since there is not enough information.
I will note that no one is discussing the sources of income or the income tax rates paid. X% of assets each year would have to include the large amount of taxes paid to the fed. Most of the VHCOL places are in high tax states.
One would need to increase the asset base to have enough after tax income to support the lifestyle.
I am skeptical of the proposition that someone would pay $3M for a house in a VHCOL area but live on $60k, plus healthcare and housing costs. Maybe they would intend to but I would ask why live in that area? One can live a very nice life in many parts of the country where that $60k goes much farther. If one is in love with, say, the Bay area, can one appreciate it while only spending 60?
But going with the assumptions, including that the $60k is accurate, I would work out a total annual budget including all taxes. Then calculate no more than a 2% withdrawal rate for a very long retirement.
That would give me a minimum networth. In reality, I would want very much more than that to allow for unexpected expenses. I would probably double whatever number I got based on the $60k in expenses plus housing and healthcare.
You could read my post earlier in the thread.
2% WR as a minimum portfolio size, and then double it?!?
OK.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
The math is not that hard:stostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
1. You need 60k for expenses.
2. You need 40k for property tax + say 20k for maintenance.
With taxes and health care costs, you need to generate around 200K. At 3% it should be around 6-7 million over the 3MM house cost (if you plan to pay cash), so about 10MM total.
However my soul would bleed to convert so much of my income producing NW into a money sucking asset. I have to say I am very surprised at the low level of expenses for such a large NW. Life at 60k$ in HCOL area means that you have no activities.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
What activity possibilities are you envisioning? Most of the activities we enjoy are free outdoor activities like hiking and biking. Spending time with friends and family has little cost as well. HCOL areas have high housing costs and other expenses don't really move the needle much in comparison.Starfish wrote: ↑Thu Dec 02, 2021 8:56 pmThe math is not that hard:stostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
1. You need 60k for expenses.
2. You need 40k for property tax + say 20k for maintenance.
With taxes and health care costs, you need to generate around 200K. At 3% it should be around 6-7 million over the 3MM house cost (if you plan to pay cash), so about 10MM total.
However my soul would bleed to convert so much of my income producing NW into a money sucking asset. I have to say I am very surprised at the low level of expenses for such a large NW. Life at 60k$ in HCOL area means that you have no activities.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
My view: If I had no earnings other than the return on wealth, then to buy at $3 million house, I would want net worth of about $15 million.
Reason: Cost of home ownership is 3 percent for real return on capital plus 1 percent for property tax plus 1 percent for maintenance and depreciation. So, under these assumptions, cost of owning the home ($150,000 per year) would be 33 percent of income (the return on total wealth, or $450,000 per year). This percentage of income is in line with what most people pay for shelter.
Reason: Cost of home ownership is 3 percent for real return on capital plus 1 percent for property tax plus 1 percent for maintenance and depreciation. So, under these assumptions, cost of owning the home ($150,000 per year) would be 33 percent of income (the return on total wealth, or $450,000 per year). This percentage of income is in line with what most people pay for shelter.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Traveling, diving, sailing across oceans, climbing Everest, flying your own airplane, racing cars, fly fishing in British Columbia, skiing, going around the world on a bicycle or motorcycle, going to Galapagos or a polar expedition (there is a topic right here), going to opera, eating at a fancy restaurant now and them etc.stostech wrote: ↑Thu Dec 02, 2021 9:24 pmWhat activity possibilities are you envisioning? Most of the activities we enjoy are free outdoor activities like hiking and biking. Spending time with friends and family has little cost as well. HCOL areas have high housing costs and other expenses don't really move the needle much in comparison.Starfish wrote: ↑Thu Dec 02, 2021 8:56 pmThe math is not that hard:stostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
1. You need 60k for expenses.
2. You need 40k for property tax + say 20k for maintenance.
With taxes and health care costs, you need to generate around 200K. At 3% it should be around 6-7 million over the 3MM house cost (if you plan to pay cash), so about 10MM total.
However my soul would bleed to convert so much of my income producing NW into a money sucking asset. I have to say I am very surprised at the low level of expenses for such a large NW. Life at 60k$ in HCOL area means that you have no activities.
It's easy to throw 1000$ party, so even spending time with friends can cost money. Even the cheaper of these are big hit at 60k$.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
OP
It depends on the situation. If you have 600k cash, 4 million in assets, no encumbrances and income in the range of 350k, it is very easy to enjoy a 3m home. Income needs to be stable though. Or if you want to retire, do that when the home is paid for or you have assets of 6m
It depends on the situation. If you have 600k cash, 4 million in assets, no encumbrances and income in the range of 350k, it is very easy to enjoy a 3m home. Income needs to be stable though. Or if you want to retire, do that when the home is paid for or you have assets of 6m
AV111
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Assuming you're paying cash for the house, it really depends entirely on:stostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
1. Whether you have the money needed to afford maintenance and insurance on a $3M property.
2. Whether you can maintain the lifestyle you want in that VHCOL area above the maintenance of that property.
At a rough guess, I'd estimate a NW of around $15M, but it really depends on math that only you can calculate. One problem I can foresee is the Diderot Effect: once you have a $3M home, it's hard to resist the lifestyle creep associated with living in a $3M home.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
OP has joined new (as in, today) and bringing up multi-millions incomes and home purchase decisions. Almost sounds like a drum-up to Financial KungFu’s recent article. Too much give away
OP - If you have wherewithal- please proceed to buy, not just one - but two multi-million homes
OP - If you have wherewithal- please proceed to buy, not just one - but two multi-million homes
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
For whatever reason, the travel adventures I've enjoyed most have not been a large cost. No disrespect if spending $30k gets you a more meaningful experience, but I can think of far cheaper options that I'd get more out of.Starfish wrote: ↑Thu Dec 02, 2021 9:38 pmTraveling, diving, sailing across oceans, climbing Everest, flying your own airplane, racing cars, fly fishing in British Columbia, skiing, going around the world on a bicycle or motorcycle, going to Galapagos or a polar expedition (there is a topic right here), going to opera, eating at a fancy restaurant now and them etc.stostech wrote: ↑Thu Dec 02, 2021 9:24 pmWhat activity possibilities are you envisioning? Most of the activities we enjoy are free outdoor activities like hiking and biking. Spending time with friends and family has little cost as well. HCOL areas have high housing costs and other expenses don't really move the needle much in comparison.Starfish wrote: ↑Thu Dec 02, 2021 8:56 pmThe math is not that hard:stostech wrote: ↑Thu Dec 02, 2021 4:09 pm I have an informal survey that I'm hoping will help me figure out appropriate saving targets..
Given the following assumptions:
What is the lowest total net worth that you would be comfortable purchasing a $3MM house?- 45 years old
- 22 years of high earnings
- Moderate desire to quit current job, with a likelihood of never returning to anything lucrative
- No pension or employer provided healthcare (after quitting)
- Requirement to live in VHCOL area to be close to family
- Desire to purchase a nice house on a large lot. Assume ~3-4 bedroom, 2.5 bath, 2200 sq ft.
- Excluding potential housing and healthcare costs for 2 people, other expenses/travel/hobbies aren't expected to exceed $60k/year total
- Net worth is accessible and invested sensibly for long term growth (60-70% in low cost equity index funds)
What about a $5MM house?
(In this area:
random $3MM house on zillow estimates $3,100/month in property tax and $750/month in insurance
random $5MM house on zillow estimates $5,000/month in proerty tax and $1200/month in insurance)
1. You need 60k for expenses.
2. You need 40k for property tax + say 20k for maintenance.
With taxes and health care costs, you need to generate around 200K. At 3% it should be around 6-7 million over the 3MM house cost (if you plan to pay cash), so about 10MM total.
However my soul would bleed to convert so much of my income producing NW into a money sucking asset. I have to say I am very surprised at the low level of expenses for such a large NW. Life at 60k$ in HCOL area means that you have no activities.
It's easy to throw 1000$ party, so even spending time with friends can cost money. Even the cheaper of these are big hit at 60k$.
If I threw a $1000 party all of my friends and family would think I was some sort of imposter
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
If you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
LFKB,LFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
If you are worth 10 billion, why would you pay $3 million for a 2,200 square feet house in a congested area?
KlangFool
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
$500k income is extremely low for a $3million house in my opinion. im in this scenario (california) and i will basically be house poor if i do thisz3r0c00l wrote: ↑Thu Dec 02, 2021 5:12 pm If I had about $12 million (e.g. won the lotto) I might consider spending about $3 million on a home, that is a perfectly reasonable price to pay in NYC for a nice place, but the real question is about income. I would also buy a $3 million home if I made $500K a year and only had a million saved up.
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
If my NW is $10 billion i would probably buy a $100 million+ houseLFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
What's the alternative? To pay $300,000 for a similar home in a cheaper area that is far away from all friends and family? To pay $30 million for a fancier place in the VHCOL area?KlangFool wrote: ↑Thu Dec 02, 2021 10:01 pmLFKB,LFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
If you are worth 10 billion, why would you pay $3 million for a 2,200 square feet house in a congested area?
KlangFool
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
cacophony,cacophony wrote: ↑Thu Dec 02, 2021 10:09 pmWhat's the alternative? To pay $300,000 for a similar home in a cheaper area that is far away from all friends and family? To pay $30 million in the VHCOL area?KlangFool wrote: ↑Thu Dec 02, 2021 10:01 pmLFKB,LFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
If you are worth 10 billion, why would you pay $3 million for a 2,200 square feet house in a congested area?
KlangFool
When you have 10 billion, you can move all your friends and family to be closer to you.
Why would you leave your friends and family in that VHCOL areas?
KlangFool
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
For a $3M house:
Spending will be around $300k to keep up with rich life style x 25 = $7.5M.
So, the networth is at least $10.5M.
Out of the $300k, tax will cut it to almost half. With healthcare, property tax, insurance, ... there is not much left to really enjoy life like people may think.
Spending will be around $300k to keep up with rich life style x 25 = $7.5M.
So, the networth is at least $10.5M.
Out of the $300k, tax will cut it to almost half. With healthcare, property tax, insurance, ... there is not much left to really enjoy life like people may think.
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
uhhh maybe that's where they like to live and it's not high cost for themKlangFool wrote: ↑Thu Dec 02, 2021 10:13 pmcacophony,cacophony wrote: ↑Thu Dec 02, 2021 10:09 pmWhat's the alternative? To pay $300,000 for a similar home in a cheaper area that is far away from all friends and family? To pay $30 million in the VHCOL area?KlangFool wrote: ↑Thu Dec 02, 2021 10:01 pmLFKB,LFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
If you are worth 10 billion, why would you pay $3 million for a 2,200 square feet house in a congested area?
KlangFool
When you have 10 billion, you can move all your friends and family to be closer to you.
Why would you leave your friends and family in that VHCOL areas?
KlangFool
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
But that's the point, isn't it? There is obviously an approximate net worth where a $3M house in an area you want to live makes perfect sense; thus the question from the OP. 10 billion is a ridiculous amount, but so is the aforementioned answer of 'Never'. Moreover, 'never' seems to reflect a far-too-common BH attitude of status-seeking through frugality rather than a thoughtful reply based on the OP's situation.KlangFool wrote: ↑Thu Dec 02, 2021 10:01 pmIf you are worth 10 billion, why would you pay $3 million for a 2,200 square feet house in a congested area?LFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Independent George,Independent George wrote: ↑Thu Dec 02, 2021 10:18 pmBut that's the point, isn't it? There is obviously an approximate net worth where a $3M house in an area you want to live makes perfect sense; thus the question from the OP. 10 billion is a ridiculous amount, but so is the aforementioned answer of 'Never'. That seems to reflect a far-too-common BH attitude of status-seeking through frugality.KlangFool wrote: ↑Thu Dec 02, 2021 10:01 pmIf you are worth 10 billion, why would you pay $3 million for a 2,200 square feet house in a congested area?LFKB wrote: ↑Thu Dec 02, 2021 9:58 pmIf you were worth $10 billion you wouldn’t be comfortable buying a $3 million house?runner3081 wrote: ↑Thu Dec 02, 2021 5:06 pm Honestly, never. Excessive price for a house, no matter where it is, in my opinion.
Also, net worth has absolutely zero to do with my mental math on purchasing a house.
Net worth has absolutely nothing to do with your math on buying a house?
???
<< That seems to reflect a far-too-common BH attitude of status-seeking through frugality.>>
I disagreed. It has nothing to do with status seeking through frugality. It just does not make any sense. 3 million is more that enough for many of us to live on some nice beaches else where. And, we can stay in a 5 star hotel when we visit our friends and family that cannot leave the VHCOL area.
<<so is the aforementioned answer of 'Never'. >>
If you disagreed with me, please mention at what net worth that it would make sense to you.
KlangFool
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I’ll play.
I am a strong believer of spending money on experiences and I just don’t see myself living in a $3 million house but only spending $60k on living expenses. We travel, go to shows, have hobbies that aren’t necessarily cheap and there is no way we would choose to be house poor and not enjoy said experiences. With that said if the house is going to cost $3 million, and most of the cost is the land, then maybe upkeep on the house. I would need a minimum of $5 million and the paid off house so that I had $200k a year for home expenses and still enjoy our lives outside of the house. So $8 million minimum for the $3 million home.
Then again, if I had $8 million and retired I would rather buy a more comfortable house in a lower cost of living area so that I had plenty of spending money. Maybe rent a 1 bedroom apartment in the VHCOL area if I chose to visit a lot.
I am a strong believer of spending money on experiences and I just don’t see myself living in a $3 million house but only spending $60k on living expenses. We travel, go to shows, have hobbies that aren’t necessarily cheap and there is no way we would choose to be house poor and not enjoy said experiences. With that said if the house is going to cost $3 million, and most of the cost is the land, then maybe upkeep on the house. I would need a minimum of $5 million and the paid off house so that I had $200k a year for home expenses and still enjoy our lives outside of the house. So $8 million minimum for the $3 million home.
Then again, if I had $8 million and retired I would rather buy a more comfortable house in a lower cost of living area so that I had plenty of spending money. Maybe rent a 1 bedroom apartment in the VHCOL area if I chose to visit a lot.
A time to EVALUATE your jitters: |
viewtopic.php?p=1139732#p1139732
Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
Never. I prefer renting. If I want to move, leaving when my lease expires is much easier than selling as an owner.
I'm currently a homeowner. At some point I intend to sell and will never be a homeowner again.
I'm currently a homeowner. At some point I intend to sell and will never be a homeowner again.
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Re: At what net worth would you to be comfortable purchasing $3MM house? (given certain assumptions)
I think it absolutely is status seeking when the quoted text is, "Honestly, never. Excessive price for a house, no matter where it is, in my opinion.". That's not a reasoned analysis of a financial question, it's passing moral judgement on someone who wants a $3M house.KlangFool wrote: ↑Thu Dec 02, 2021 10:23 pm
Independent George,
<< That seems to reflect a far-too-common BH attitude of status-seeking through frugality.>>
I disagreed. It has nothing to do with status seeking through frugality. It just does not make any sense. 3 million is more that enough for many of us to live on some nice beaches else where. And, we can stay in a 5 star hotel when we visit our friends and family that cannot leave the VHCOL area.
<<so is the aforementioned answer of 'Never'. >>
If you disagreed with me, please mention at what net worth that it would make sense to you.
KlangFool
If I could afford it, I would absolutely spend $3M on a home in, say, Hawaii, or in the Hudson Valley. But the point is, I can't afford it because my net worth is nowhere near high enough that such a purchase makes any sense.
So at what net worth do I think it makes sense? I estimated around $15M:
Independent George wrote: ↑Thu Dec 02, 2021 9:44 pm Assuming you're paying cash for the house, it really depends entirely on:
1. Whether you have the money needed to afford maintenance and insurance on a $3M property.
2. Whether you can maintain the lifestyle you want in that VHCOL area above the maintenance of that property.
At a rough guess, I'd estimate a NW of around $15M, but it really depends on math that only you can calculate. One problem I can foresee is the Diderot Effect: once you have a $3M home, it's hard to resist the lifestyle creep associated with living in a $3M home.