$2-2.5M House?

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Topic Author
CactusGuy
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Joined: Sat Feb 15, 2014 6:48 pm

$2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 9:51 am

Hi BHs,

I need some perspective from the collective group on my current situation. The short of it is this:

My wife and I (both in mid-30s) have a collective W2 income of $750,000. This income has grown over the last five years, but we've earned more than $500,000 together since 2015. We both intend to keep working for at least another 10 years, and possibly as many as another 30+ years. My wife has secure employment and we expect it to remain this way for at least another 10 years. I am in a relatively high risk role at the moment, but could easily find continued low-risk employment that should mean sustained collective W2 income of at least $500,000 for at least the next 10+ years. We are both still relatively early in career, so we could also have upside to these numbers. There is also the 3-6 year potential of a multi 7-figure windfall with one of our business ventures.

Our current net worth is $2.2M. We have no debts - house, cars, credit cards are all paid. The $2.2M is roughly $600K real estate (primary residence), 800K in combined 401Ks, and 800K in taxable/cash. All retirement and taxable accounts are in low cost diversified index funds.

We have recently been looking at the possibility of moving into a centrally located, newer house, in an up and coming neighborhood. Houses in this area start at $2M and go up to $6M, and we are looking at a maximum budget of $2.5M. The house would certainly fall under the "nice to have" list and although it would not be significantly larger, it would save several hours of commuting time weekly which would lower stress. We also believe the area will continue to appreciate at a higher rate than where we currently live. If we were to transact this, we would get a jumbo loan of ~1.5M and pay the rest in cash.

I have historically been very conservative with financial investments, but I am tempted to make this move. I have had several recent deaths in the family, which has changed my perspective to enjoying the fruits of our labors a little more. My wife and I both work pretty hard, and I'm not sure we've rewarded ourselves from a quality of living perspective as much as we could given our assets and income. When we first paid off our mortgage about four years ago, I thought it would significantly decrease pressure on us, but candidly, it has done little to nothing for me. Most of my stresses come from work, which have remained high despite our personal financial situation.

Anyways, I know that this is a conservative forum, so was hoping I could get some advice/thoughts from the group. Thanks in advance!

snailderby
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Re: $2-2.5M House?

Post by snailderby » Thu Feb 13, 2020 9:56 am

How many minutes would you shave off of your daily commute?

ausmatt
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Re: $2-2.5M House?

Post by ausmatt » Thu Feb 13, 2020 10:02 am

You could easily do it. The down payment is a good chunk of your liquidity. Just know that houses >$1.5-$2.0M take a materially longer time to sell than less expensive houses - there’s an exponential effect at this level.

cableguy
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Re: $2-2.5M House?

Post by cableguy » Thu Feb 13, 2020 10:03 am

If you have kids and its a great school district, I would say to strongly consider it. If its just you and the wife, I would still stay to consider it because of the time savings but I personally don't have high hopes for $1M+ households appreciating much in the future. In fact, I recommend you get aggressive on your offers when you start to make your deal. Offer 80% - 90% of asking price. Good luck. Not much downside risk but don't do it to hit some home run in real estate.

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:06 am

cableguy wrote:
Thu Feb 13, 2020 10:03 am
If you have kids and its a great school district, I would say to strongly consider it. If its just you and the wife, I would still stay to consider it because of the time savings but I personally don't have high hopes for $1M+ households appreciating much in the future. In fact, I recommend you get aggressive on your offers when you start to make your deal. Offer 80% - 90% of asking price. Good luck. Not much downside risk but don't do it to hit some home run in real estate.
Thank you. Yes, this is one of the best school districts in the state and we have two children under 10.

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:07 am

ausmatt wrote:
Thu Feb 13, 2020 10:02 am
You could easily do it. The down payment is a good chunk of your liquidity. Just know that houses >$1.5-$2.0M take a materially longer time to sell than less expensive houses - there’s an exponential effect at this level.
Correct, we would lose significant (potentially all) current liquidity. We could also look at keeping a higher loan, or doing a max $2M purchase price to maintain some liquidity.

mdavis6890
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Re: $2-2.5M House?

Post by mdavis6890 » Thu Feb 13, 2020 10:08 am

Do it. You can easily afford it. It's nice to be debt free, but it wouldn't take you long to get back to that state. Use your taxable/cash money to make a substantial down payment. Then sell your current house and use the proceeds to pay off a big chunk of the remaining mortgage on the new one. That'll take you down to maybe $1-1.5M loan balance, which you could then pay off over the next 3-5 years, depending on your other spending habits.

Good luck, and enjoy the ride!

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simplesimon
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Re: $2-2.5M House?

Post by simplesimon » Thu Feb 13, 2020 10:09 am

Without knowing your expenses it's hard to make a recommendation, but I always spend money to save time when I can.

Just curious, what "up and coming neighborhood" costs $2 million to get in?

rich126
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Re: $2-2.5M House?

Post by rich126 » Thu Feb 13, 2020 10:12 am

Not sure why people ask these questions here since only you really know the stability, wants/needs, future plans, etc.

Personally I'd have a tough time pulling ~$1M in cash to put down on a house. I'd want to put down as little as possible and keep the cash for investments and emergencies.

My other concern is the timing. Personally I think most housing markets are very high and due for a drop. Would it bother you if the house dropped 20% in value? 40%?

This is a guess but if your userid indicates you live in AZ, I'd be very reluctant in buying. The market seems quite high and based on my previous experience with it crashing (and drops were more in the 50-75% range, even in desirable neighborhoods) I'd hold off. I managed to ride it out the last time because I had no urgent need to sell and was able to rent it out and seen it appreciate 100% from the bottom but if I had bought at the top, it would have concerned me greatly (instead my purchase price was close to where it had bottomed out). And most of the time the expensive (over $1M) homes take the biggest hit when stock/housing markets crash.

Otherwise I don't think it is a terrible idea. You have a high income and believe it is safe (although I always wonder how people figure that unless it is a federal government job). And remember that for a high like that, all other expenses are likely to go up (higher end appliances, flooring, etc.).

During the last crash I looked at some homes in Paradise Valley, AZ and the price drops certainly put them into my price range but I had no interest in a high end home due to the maintenance costs and didn't want to put most of my money into real estate. Now looking back, I should have put everything into real estate and made a fortune over the last 10-15 years but that was too risky for me at my age.

Good luck.

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:12 am

simplesimon wrote:
Thu Feb 13, 2020 10:09 am
Without knowing your expenses it's hard to make a recommendation, but I always spend money to save time when I can.

Just curious, what "up and coming neighborhood" costs $2 million to get in?
We spend about $150,000 in annual living expenses. This includes property taxes, vacations, and daily living expenses. Up and coming is probably the wrong description... It is a well established neighborhood, but many of the $750K-1M homes are being bulldozed and new constructions are being put up all over with prices from $2-6M.

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:13 am

mdavis6890 wrote:
Thu Feb 13, 2020 10:08 am
Do it. You can easily afford it. It's nice to be debt free, but it wouldn't take you long to get back to that state. Use your taxable/cash money to make a substantial down payment. Then sell your current house and use the proceeds to pay off a big chunk of the remaining mortgage on the new one. That'll take you down to maybe $1-1.5M loan balance, which you could then pay off over the next 3-5 years, depending on your other spending habits.

Good luck, and enjoy the ride!
Thank you for your response and perspective!

desiderium
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Re: $2-2.5M House?

Post by desiderium » Thu Feb 13, 2020 10:15 am

Consider also the neighborhood. When you are off work, do the neighborhood amenities enhance your life?
Consider that you are able to justify the move financially with your high income scenario. Realize you will now be yoked to this version of your work life, and that changes could be more difficult

It sounds like you will be fine so you should do what you want. Accumulating wealth in accounts is useful to a point, but you should use some of it to enjoy your good fortune and hard work.

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:21 am

rich126 wrote:
Thu Feb 13, 2020 10:12 am
Not sure why people ask these questions here since only you really know the stability, wants/needs, future plans, etc.

Personally I'd have a tough time pulling ~$1M in cash to put down on a house. I'd want to put down as little as possible and keep the cash for investments and emergencies.

My other concern is the timing. Personally I think most housing markets are very high and due for a drop. Would it bother you if the house dropped 20% in value? 40%?

This is a guess but if your userid indicates you live in AZ, I'd be very reluctant in buying. The market seems quite high and based on my previous experience with it crashing (and drops were more in the 50-75% range, even in desirable neighborhoods) I'd hold off. I managed to ride it out the last time because I had no urgent need to sell and was able to rent it out and seen it appreciate 100% from the bottom but if I had bought at the top, it would have concerned me greatly (instead my purchase price was close to where it had bottomed out). And most of the time the expensive (over $1M) homes take the biggest hit when stock/housing markets crash.

Otherwise I don't think it is a terrible idea. You have a high income and believe it is safe (although I always wonder how people figure that unless it is a federal government job). And remember that for a high like that, all other expenses are likely to go up (higher end appliances, flooring, etc.).

During the last crash I looked at some homes in Paradise Valley, AZ and the price drops certainly put them into my price range but I had no interest in a high end home due to the maintenance costs and didn't want to put most of my money into real estate. Now looking back, I should have put everything into real estate and made a fortune over the last 10-15 years but that was too risky for me at my age.

Good luck.
Thank you for your perspective. A 20% hit on the house would be digestible, but 40% would hurt a lot. With that said, we'd ride it out if we fell into a dip. I hear you on housing being at a high right now, but I'm not sure if things will actually decline (of course no one knows for certain!). The cost of mortgage rates is still extremely low and there has been significant population increases here, with forecasts for the trend to continue.

knowledge
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Re: $2-2.5M House?

Post by knowledge » Thu Feb 13, 2020 10:26 am

Fiscally, you can afford it, and it sounds like it would be a net win for your kids education.

Some potential downsides to consider:
- An expensive home will desire to be furnished commensurately, so plan for that
- An expensive neighborhood will have higher expectations on your family. Your kids will grow up with similarly situated kids which has its tradeoffs. Your schools may expect more, and there is the higher level of keeping up with the Joneses.
- Property taxes for an expensive house will be high, and likely continue to grow. Plan accordingly.

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simplesimon
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Re: $2-2.5M House?

Post by simplesimon » Thu Feb 13, 2020 10:28 am

CactusGuy wrote:
Thu Feb 13, 2020 10:12 am
simplesimon wrote:
Thu Feb 13, 2020 10:09 am
Without knowing your expenses it's hard to make a recommendation, but I always spend money to save time when I can.

Just curious, what "up and coming neighborhood" costs $2 million to get in?
We spend about $150,000 in annual living expenses. This includes property taxes, vacations, and daily living expenses. Up and coming is probably the wrong description... It is a well established neighborhood, but many of the $750K-1M homes are being bulldozed and new constructions are being put up all over with prices from $2-6M.
It's safe to say your expenses will increase by at least $100k with the new mortgage. With $250k annual expense, I'd have a tough time having that little liquidity post-close. How quickly do these houses move? I'd take my time with it but you can definitely afford it. Good luck!

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:41 am

simplesimon wrote:
Thu Feb 13, 2020 10:28 am
CactusGuy wrote:
Thu Feb 13, 2020 10:12 am
simplesimon wrote:
Thu Feb 13, 2020 10:09 am
Without knowing your expenses it's hard to make a recommendation, but I always spend money to save time when I can.

Just curious, what "up and coming neighborhood" costs $2 million to get in?
We spend about $150,000 in annual living expenses. This includes property taxes, vacations, and daily living expenses. Up and coming is probably the wrong description... It is a well established neighborhood, but many of the $750K-1M homes are being bulldozed and new constructions are being put up all over with prices from $2-6M.
It's safe to say your expenses will increase by at least $100k with the new mortgage. With $250k annual expense, I'd have a tough time having that little liquidity post-close. How quickly do these houses move? I'd take my time with it but you can definitely afford it. Good luck!
The ones that are priced well are moving in a week right now...

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:42 am

knowledge wrote:
Thu Feb 13, 2020 10:26 am
Fiscally, you can afford it, and it sounds like it would be a net win for your kids education.

Some potential downsides to consider:
- An expensive home will desire to be furnished commensurately, so plan for that
- An expensive neighborhood will have higher expectations on your family. Your kids will grow up with similarly situated kids which has its tradeoffs. Your schools may expect more, and there is the higher level of keeping up with the Joneses.
- Property taxes for an expensive house will be high, and likely continue to grow. Plan accordingly.
We currently live in a great district and the schools are amazing here as well. I don't see the move as benefiting much from an education perspective, although it's an equally great area. I agree with the higher standard and costs and agree that this needs to be factored into this decision.

smitcat
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Re: $2-2.5M House?

Post by smitcat » Thu Feb 13, 2020 10:53 am

knowledge wrote:
Thu Feb 13, 2020 10:26 am
Fiscally, you can afford it, and it sounds like it would be a net win for your kids education.

Some potential downsides to consider:
- An expensive home will desire to be furnished commensurately, so plan for that
- An expensive neighborhood will have higher expectations on your family. Your kids will grow up with similarly situated kids which has its tradeoffs. Your schools may expect more, and there is the higher level of keeping up with the Joneses.
- Property taxes for an expensive house will be high, and likely continue to grow. Plan accordingly.
Congratulations you definitely can afford it...
Adding one thought to this excellent reply.
Based upon your ages you have not been thru a downside financial and housing market.
Your experiences are based on this great market both in jobs and housing - [perhaps temper your plans for what may come that you have not seen yet.

Topic Author
CactusGuy
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Re: $2-2.5M House?

Post by CactusGuy » Thu Feb 13, 2020 10:57 am

snailderby wrote:
Thu Feb 13, 2020 9:56 am
How many minutes would you shave off of your daily commute?
I don't go into the office every day, but if I lived closer, I would. My office is 30 mins one way with no traffic, and as much as 1 hr one way with traffic. I would say this will currently save an average of 5 hours of commuting per week collectively. Traffic is getting much worse given the housing sprawl, so I expect this traffic trend could double over the next 5 years.

anon3838
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Re: $2-2.5M House?

Post by anon3838 » Thu Feb 13, 2020 11:07 am

It might be beneficial for you and your wife to read Millionaire Next Door. Half Priced Books usually has a few copies available at a decent price.

If I could turn back time, I would've stayed in my less expensive home.

Carefreeap
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Re: $2-2.5M House?

Post by Carefreeap » Thu Feb 13, 2020 11:12 am

CactusGuy wrote:
Thu Feb 13, 2020 10:21 am
rich126 wrote:
Thu Feb 13, 2020 10:12 am
Not sure why people ask these questions here since only you really know the stability, wants/needs, future plans, etc.

Personally I'd have a tough time pulling ~$1M in cash to put down on a house. I'd want to put down as little as possible and keep the cash for investments and emergencies.

My other concern is the timing. Personally I think most housing markets are very high and due for a drop. Would it bother you if the house dropped 20% in value? 40%?

This is a guess but if your userid indicates you live in AZ, I'd be very reluctant in buying. The market seems quite high and based on my previous experience with it crashing (and drops were more in the 50-75% range, even in desirable neighborhoods) I'd hold off. I managed to ride it out the last time because I had no urgent need to sell and was able to rent it out and seen it appreciate 100% from the bottom but if I had bought at the top, it would have concerned me greatly (instead my purchase price was close to where it had bottomed out). And most of the time the expensive (over $1M) homes take the biggest hit when stock/housing markets crash.

Otherwise I don't think it is a terrible idea. You have a high income and believe it is safe (although I always wonder how people figure that unless it is a federal government job). And remember that for a high like that, all other expenses are likely to go up (higher end appliances, flooring, etc.).

During the last crash I looked at some homes in Paradise Valley, AZ and the price drops certainly put them into my price range but I had no interest in a high end home due to the maintenance costs and didn't want to put most of my money into real estate. Now looking back, I should have put everything into real estate and made a fortune over the last 10-15 years but that was too risky for me at my age.

Good luck.
Thank you for your perspective. A 20% hit on the house would be digestible, but 40% would hurt a lot. With that said, we'd ride it out if we fell into a dip. I hear you on housing being at a high right now, but I'm not sure if things will actually decline (of course no one knows for certain!). The cost of mortgage rates is still extremely low and there has been significant population increases here, with forecasts for the trend to continue.
If you are in AZ and in the greater Phoenix area understand that there are very few building constraints unlike the San Francisco Peninsula. Therefore Phoenix keeps spreading further and further. The quoted comment makes a very valid point. In 2008 we watched prices fall about 50%. Even rents dipped 25%-30% as people moved out of the area to find jobs out of the building industry and investors scooped in to buy the foreclosures and flooded the market with rentals. As you can guess from the user name our house is in a nice area. It is relatively modest in comparison to the newer stuff going in.

Even during the good times we watched a really interesting phenomenon. A done up house (in the $1M range in 2005) would hit the market and linger for a couple of years. Multiple price reductions and the house would finally sell 30% lower. Then the next set of people would move in, dump another $300k ish with the latest high-end finishes and four or five years later the house would be on the market. Rinse and repeat.

I'm not saying don't do it. Homes, as everyone points out, are a lifestyle decision. If it would make you happy to live in such an area go for it. you can afford it. Just be aware it may not be a good financial decision. I don't personally think everything is about money.

And FWIW we still have our AZ house. We love the house and the area. I'm going back next week to visit! 8-)

robphoto
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Re: $2-2.5M House?

Post by robphoto » Thu Feb 13, 2020 11:20 am

If it will make the difference of the kids being in public school vs. private, that could be 100K a year difference by the time they're in high school, depending on the private school.

Still, I would try to list your expenses, assets, and income requirements in the two scenarios (stay or move) to compare. Now and in 5 or 10 years. This also helps you picture how you want your future to look. Not that it won't change, but you can start to have a vision for it.

ge1
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Re: $2-2.5M House?

Post by ge1 » Thu Feb 13, 2020 11:23 am

CactusGuy wrote:
Thu Feb 13, 2020 9:51 am
Hi BHs,

I need some perspective from the collective group on my current situation. The short of it is this:

My wife and I (both in mid-30s) have a collective W2 income of $750,000. This income has grown over the last five years, but we've earned more than $500,000 together since 2015. We both intend to keep working for at least another 10 years, and possibly as many as another 30+ years. My wife has secure employment and we expect it to remain this way for at least another 10 years. I am in a relatively high risk role at the moment, but could easily find continued low-risk employment that should mean sustained collective W2 income of at least $500,000 for at least the next 10+ years. We are both still relatively early in career, so we could also have upside to these numbers. There is also the 3-6 year potential of a multi 7-figure windfall with one of our business ventures.

Our current net worth is $2.2M. We have no debts - house, cars, credit cards are all paid. The $2.2M is roughly $600K real estate (primary residence), 800K in combined 401Ks, and 800K in taxable/cash. All retirement and taxable accounts are in low cost diversified index funds.

We have recently been looking at the possibility of moving into a centrally located, newer house, in an up and coming neighborhood. Houses in this area start at $2M and go up to $6M, and we are looking at a maximum budget of $2.5M. The house would certainly fall under the "nice to have" list and although it would not be significantly larger, it would save several hours of commuting time weekly which would lower stress. We also believe the area will continue to appreciate at a higher rate than where we currently live. If we were to transact this, we would get a jumbo loan of ~1.5M and pay the rest in cash.

I have historically been very conservative with financial investments, but I am tempted to make this move. I have had several recent deaths in the family, which has changed my perspective to enjoying the fruits of our labors a little more. My wife and I both work pretty hard, and I'm not sure we've rewarded ourselves from a quality of living perspective as much as we could given our assets and income. When we first paid off our mortgage about four years ago, I thought it would significantly decrease pressure on us, but candidly, it has done little to nothing for me. Most of my stresses come from work, which have remained high despite our personal financial situation.

Anyways, I know that this is a conservative forum, so was hoping I could get some advice/thoughts from the group. Thanks in advance!
A few thoughts / questions

- "continue to appreciate at a higher rate than where we currently live" - that's a very dangerous statement. I would not count on any appreciation in your home in order to make that decision. Yes, the housing market is great right now, but that can change very quickly and you are stuck with a 2m+ mansion.
- The key point is how much will you be able to save with the new house with much higher mortgage and higher property taxes. With an income of 750k I would want to save at least around 200-250k - if that is still the case I don't see any issues.

Golf maniac
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Re: $2-2.5M House?

Post by Golf maniac » Thu Feb 13, 2020 11:27 am

I would not liquidate all my cash for down payment. I would get it to 75% LTV to ensure no issue if appraisal comes in slightly low. This down payment can be from sale of home (home equity line if home doesn’t sell before buying new home) and some of your cash. You can easily carry the mortgage and leaves you a good liquidity level in after tax cash. Then you can be aggressive as you like in making extra principal reductions, especially if you get to that 7 figure income.

nguy44
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Re: $2-2.5M House?

Post by nguy44 » Thu Feb 13, 2020 11:36 am

ge1 wrote:
Thu Feb 13, 2020 11:23 am
A few thoughts / questions

- "continue to appreciate at a higher rate than where we currently live" - that's a very dangerous statement. I would not count on any appreciation in your home in order to make that decision. Yes, the housing market is great right now, but that can change very quickly and you are stuck with a 2m+ mansion.
- The key point is how much will you be able to save with the new house with much higher mortgage and higher property taxes. With an income of 750k I would want to save at least around 200-250k - if that is still the case I don't see any issues.
I agree with this. you have no idea what the future may hold. If you like the house and area, base the decision on that, not whether or not the house appreciates by X amount in Y timeframe. It is a place to live, not an investment. One of the questions we asked when we bought our "dream home" was "if we never move from here, and our house never gains, or even loses value, will we still be happy living in it and the area?"

Also, in addition to the higher mortgage and property taxes, try to understand what, if any, additional maintenance costs. Heating, cooling, grounds, major repairs, etc. There is some "rule of thumb" I forget in terms of what % of your home price you should expect for annual maintenance costs, but you might try to get a better idea from existing homeowners in that area.

surfstar
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Re: $2-2.5M House?

Post by surfstar » Thu Feb 13, 2020 11:37 am

Trading money for time.

Funny enough, you could retire early without purchasing a more expensive house and that would likely have a greater ROI on your money for time buy.

...but as you don't seem to mind the work, sure you might as well purchase a house that will save you time on a weekly basis and right now, versus years in the future. Long commutes suck.
I say go for it.

SovereignInvestor
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Re: $2-2.5M House?

Post by SovereignInvestor » Thu Feb 13, 2020 11:40 am

Mortgage rates are at all time lows. If one was going to do this move, now is the best time.

Katietsu
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Re: $2-2.5M House?

Post by Katietsu » Thu Feb 13, 2020 11:43 am

You are suggesting moving to a higher priced home in part to be closer to a high risk high stress job that you might want to take a step back from. I would do a bit of soul searching about your job before making a decision on the home. I am concerned that you might hesitate to take a new job that would improve your quality of life because it involved a commute from the new house and a pay cut that would make the mortgage payment stressful.

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Sandtrap
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Re: $2-2.5M House?

Post by Sandtrap » Thu Feb 13, 2020 11:47 am

Buy it😃

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Re: $2-2.5M House?

Post by KyleAAA » Thu Feb 13, 2020 11:50 am

Yes, you can easily afford it. This isn't even close. Even after a pay cut you could very easily afford it. Still wouldn't be close.

Nowizard
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Re: $2-2.5M House?

Post by Nowizard » Thu Feb 13, 2020 11:56 am

You can do it. I would consider my investment returns and do the numbers regarding taking out a loan that did not reach jumbo status to determine whether or not investing excess funds was at least break even. If so, consider the loan. With your assets you can pay it down quicker, or off, if you choose. You can also look at 15 vs. 30 year loan possibilities. It is relatively hard for younger investors to recognize just how historically low mortgage rates are currently. This is not the preference for those who gain substantial comfort from being debt free, but being so in terms of a mortgage has not been substantial for you.

Tim

Pierre Delecto
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Re: $2-2.5M House?

Post by Pierre Delecto » Thu Feb 13, 2020 12:12 pm

Be sure to think about how secure your jobs would be in an economic downturn and whether you’re committed longterm to that location. While the houses in that high price point neighborhood might be moving now, resale could be a problem in an economic downturn.

il0kin
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Re: $2-2.5M House?

Post by il0kin » Thu Feb 13, 2020 12:20 pm

“Most is my stress comes from work.”

If I were you, I’d be looking at designing an exit plan from a high pressure, high stress work environment rather than an entry plan for a 2M house. The carrying costs of that kind of residence are huge and may well trap you into years of high stress work that you would otherwise not need to do.

EnjoyIt
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Re: $2-2.5M House?

Post by EnjoyIt » Thu Feb 13, 2020 12:21 pm

You can afford it, but I think you need to look at all pros vs cons.

What is important to you? Is the short commute worth needing to work more years making the high income you currently make? Is it better to just work where you are for a few more years and then retire or go part time, or switch jobs that are more fun, less stressful with a shorter commute but pay less?

Me personally I would stick it out, get myself to about $3-$3.5 million in invested assets and then drop to some easy part time gig that just covers expenses.

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Re: $2-2.5M House?

Post by tibbitts » Thu Feb 13, 2020 12:26 pm

I guess it depends how durable the income is. For me I've had income drop over 80% from one year to the next.

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Re: $2-2.5M House?

Post by 123 » Thu Feb 13, 2020 12:33 pm

What are our plans for kids (or not)? Children can upend your lifestyle because your priorities change, work for either/both parents begins to sometimes get inconvenient. The lifestyle for a family can be decidedly different than for a couple, usually more but sometimes less enjoyable (depends on your perspectives).
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Re: $2-2.5M House?

Post by mdavis6890 » Thu Feb 13, 2020 12:40 pm

Thank you for your perspective. A 20% hit on the house would be digestible, but 40% would hurt a lot.
Once you have the house, it's market value is (mostly) irrelevant. You're living there. What someone hypothetically would pay you for it doesn't matter since you're not planning to sell in the foreseeable future and have no chance of being forced to sell, since you'll have so much equity (in fact you'll pay it off soon).

There is a valid concern here, but the right way to look at it is: Am I willing to wait to possibly get a better deal down the road? How long will I wait? Will I continue waiting if the market continues to go up?

Given your circumstances, I would not want to wait. Your kids, your wife, and you are all at the right place in life to take full advantage of better circumstances. And a shorter commute makes a huge difference in quality of life.

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Re: $2-2.5M House?

Post by emilyinsf » Thu Feb 13, 2020 12:42 pm

Katietsu wrote:
Thu Feb 13, 2020 11:43 am
You are suggesting moving to a higher priced home in part to be closer to a high risk high stress job that you might want to take a step back from. I would do a bit of soul searching about your job before making a decision on the home. I am concerned that you might hesitate to take a new job that would improve your quality of life because it involved a commute from the new house and a pay cut that would make the mortgage payment stressful.

Agree. It’s hard to tell how you and your wife feel about your work. You say you feel a lot of stress from your job but also that you both plan to continue working for 10+ years. Why? At these numbers, one or both of you can probably take a step back from high stress work instead of the new house. You might even be able to buy the house or one of the older houses in the new area and have lower stress jobs, but you should probably get those jobs in place before buying. I’d really clarify your thoughts about your jobs and stress levels before buying, especially with two young kids.

It’s obvious that you can afford the house at your current income or even the lower income you postulate if you intend to stay with your current employment and the jobs (or your hypothetical job with family income at $500k) are as secure as you say.

And, wow, I had no idea houses were so expensive in AZ.

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Re: $2-2.5M House?

Post by Petrocelli » Thu Feb 13, 2020 8:33 pm

The answer is "yes."

You spend a lot of time in your home. With your income, it won't be a stretch.

You'll be dead soon enough. Enjoy your money.
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Watty
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Re: $2-2.5M House?

Post by Watty » Thu Feb 13, 2020 9:34 pm

CactusGuy wrote:
Thu Feb 13, 2020 10:57 am
snailderby wrote:
Thu Feb 13, 2020 9:56 am
How many minutes would you shave off of your daily commute?
I don't go into the office every day, but if I lived closer, I would. My office is 30 mins one way with no traffic, and as much as 1 hr one way with traffic. I would say this will currently save an average of 5 hours of commuting per week collectively. Traffic is getting much worse given the housing sprawl, so I expect this traffic trend could double over the next 5 years.
For all the talk of people working from home not being a problem being in the office and getting the facetime with is still real important especially when you are at a higher level.

When you are talking face to face with someone the communications and body language is so much better than phone call and video conferences. There is a lot of informal communications when you just pass someone in the hallway or go out to lunch.

How does this impact your wifes commute?

My situation was a lot different and my wife was either a stay at home parent or working in a part time job near our house but I typically worked about about 45 minutes to an hour away in good traffic.

It really helps to have at least one parent nearby when there is a kid puking at school or with a fever. I have also gotten calls at different times at work because I had a kid in an emergency room getting stitches, getting a cast, or that poison control was called and he had been given ipecac and violenting vomiting to empty his stomach(probably a false alarm). None of these turned out to be serious and my wife was there to handle it but being nearly an hour away is a long ways when something like that is going on.

Being that much closer to work would be a big deal to me.

A few sort of random thoughts that might not have been mentioned.

1) Your kids may end up growing up with a bunch of rich kids as friends. This can especially be a problem when the kids are teenagers. One time when I was house hunting I happened to drive through the student parking lot at the high school in a more affluent area that we considering. We were turned off to see that there were noticeable number of Mercedes, BMW's, and even one late model Corvette in the student parking lot. We did not want our kid to be in that sort of situation when he was a teenager so that is one of the reasons that be picked a less affluent area. You might drive through the student parking lot at the high school that your kids would go to.

2) I did a corporate cross country relocation when I had a kid in middle school and changing schools was hard on him and it took him several years to adjust to the move. If you are going to move then moving before they are in middle school might be a good thing. If you buy a bigger house in five years your oldest kid will only live there for a few years before they head off to college.

3) In a recession expensive houses can be very hard to sell.

4) Interest rates are historically low now which makes buying a $2 million dollar house easier to justify. If (more likely when) interest rates go back up the math on buying a $2 million dollar house will be a lot different with interest rates that are 6% or higher. Not many people will be able to afford that house with a 6% mortage even if they are willing to pay that much. Consider the house to be a consumption item, not an investment.

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Re: $2-2.5M House?

Post by Gemini » Thu Feb 13, 2020 11:29 pm

Why do people think OP is in AZ or Phoenix?

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Re: $2-2.5M House?

Post by J295 » Fri Feb 14, 2020 1:40 am

Financially ok to purchase

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Re: $2-2.5M House?

Post by Wannaretireearly » Fri Feb 14, 2020 2:38 am

Think thrice about schools. Dont know where you are.
Really understand public schools by talking to parents etc. Make a commitment to either public or private and keep to it.
If it's really a great public school environment, your golden.
If not, try to avoid the double whammy of a big new exp house plus private school down the road.

How much will property taxes be?

At your steady income you'll be fine. My comments above may be for the more 'average' 300k-400k income crowd ;)

Good luck!
Buy Low, Sell High

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Re: $2-2.5M House?

Post by msk » Fri Feb 14, 2020 2:49 am

I think many BHs who have high incomes sooner or later wonder whether they are too stingy and are letting their lives drift at a lifestyle that is much lower than they can afford indefinitely into the future. My rules of thumb since my 20s, 50 years ago, and I have yet to see anything to point out that they are wrong:

1. Save and invest 30% of after tax income. Paying off equity in one's home mortgage may be treated as investing, not the interest part.
2. Never purchase a home worth more than 3x income (2.5x combined income)
3. Never acquire a car(s) worth more than 6 months' income(s). Does not matter whether paying cash or leasing.

Of course one can have hobbies and wants that exceed the above "rules" and as long as these excess "wants" can be paid for cash, without jeopardising 1. why not? Too much attention IMHO is paid to intricate arithmetic about mortgages/interest rates/etc. to gauge affordability and appropriateness. How you pay for a Rolls Royce is unimportant. What is important is that an appropriate lifestyle for your earning capacity ought to be within the above rules-of-thumb and that the Rolls does not jeopardise 1. above. Ditto for the home.

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Re: $2-2.5M House?

Post by goodenyou » Fri Feb 14, 2020 11:54 am

IMO, there is nothing more stress free than financial independence. I am on the opposite extreme from you. My house is less than 1/4 the price as yours ($2.5M) and my income is higher and net worth many times your net worth. I am 20 years older as well. I live in a LCOL area and have forgone the temptation of spending that exists in HCOL areas. I still could have spent like my peers in LCOL (huge houses, planes, second and third homes, beachfront property, etc). The worry-free lifestyle of paying for 3 kids to do very expensive sports, having all their college and graduate school expenses covered in their entirety and having the ability to retire in my early 50s was worth it. I can now “afford” the very expensive home and pay cash. Consider these options when you sign up for a lifestyle you can afford, but forego a tremendous savings that gives you piece of mind. You’ll be 50 before you know it.
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Re: $2-2.5M House?

Post by jharkin » Fri Feb 14, 2020 12:00 pm

simplesimon wrote:
Thu Feb 13, 2020 10:09 am
Without knowing your expenses it's hard to make a recommendation, but I always spend money to save time when I can.

Just curious, what "up and coming neighborhood" costs $2 million to get in?
Most likely silicon valley. tech millionares.

When you are inside the bubble it may seem like the party will never end, but we thought so in 1999 as well.....

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Re: $2-2.5M House?

Post by TheTimeLord » Fri Feb 14, 2020 12:06 pm

CactusGuy wrote:
Thu Feb 13, 2020 9:51 am
We have recently been looking at the possibility of moving into a centrally located, newer house, in an up and coming neighborhood. Houses in this area start at $2M and go up to $6M, and we are looking at a maximum budget of $2.5M.
My concern would be the price point of the house you are buying in that neighborhood. My understanding is the sweet spot in a neighborhood is around the 33% percentile so I would want to be between the 33% and 66% percentile. So $2-$2.5M would be too close to the low end of that neighborhood for me (providing I could ever afford that). If I couldn't afford at least a $3.3M house in that neighborhood I would pick a different neighborhood.
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Re: $2-2.5M House?

Post by Hikes_With_Dogs » Fri Feb 14, 2020 12:37 pm

Our current net worth is $2.2M. We have no debts - house, cars, credit cards are all paid. The $2.2M is roughly $600K real estate (primary residence), 800K in combined 401Ks, and 800K in taxable/cash. All retirement and taxable accounts are in low cost diversified index funds.

My personal opinion is that yes, you can afford it, but for high income earners, you really don't have all that much in terms of assets. Even with 500k+ of income, you're looking at a 10-12k PITA a month with a 1.5MM mortgage. You have less than a mil in 401 and less than a mil in other assets.

My belief is you'd be spending too much on a house and not enough in asset accumulation. If you really do live in AZ there is no way I'd pay that much for a house. So my suggestion is to pass.

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Re: $2-2.5M House?

Post by Count of Notre Dame » Fri Feb 14, 2020 12:56 pm

We have an eerily similar situation (income, jobs, etc.). We own a $2M house in Southern California, and are still paying $4k per month on my wife's student loans. After that is paid off, we could technically afford a $3M home easily based on our current budget but are happy with what $2M can buy us where we live. I know the real estate market in the Bay Area (San Francisco) is out of control and the $2M where we live would not be nearly as acceptable of a house up there.

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Re: $2-2.5M House?

Post by snowox » Sat Feb 15, 2020 5:39 am

I'd say no way speaking from experience. Affording it isnt the point. And life experiences are more important than material things. Buy something of lesser money and do more things with your wife and perhaps work a little less. I too would suggest reading the book the Millionaire Next Door.

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