Can we afford a $1.3MM house?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
carne_asada
Posts: 28
Joined: Sat Aug 03, 2019 7:38 am

Re: Can we afford a $1.3MM house?

Post by carne_asada »

Taxes and your retirement goals matter here: a 1.3 house in a NYC suburb could have a 20K tax bill or a 50K tax bill depending on the town. Also keep in mind the tax bills only go up over time and may go up faster then your income if you have both peaked in your careers.

When we purchased a house we estimated that 25K/year in property costs equaled out to about 1 extra year of work before we could retire. We also didn't want to buy a house that would lock us both into higher earning jobs in case one of us wanted (or was forced to) make a change. Our combined income is slightly lower then yours and we bought a house at about 1.1M with 19K of taxes and were very comfortable with that. We were also willing to go up to about 1.4/25K tax bill. you can definitely afford it - but it's all about your priorities.
User avatar
cchrissyy
Posts: 412
Joined: Fri May 05, 2017 10:35 pm

Re: Can we afford a $1.3MM house?

Post by cchrissyy »

I agree you can afford it but would advise not to pick something so big!

I live very comfortably in a house that is much less sqft than that but still feels spacious even with 3 teenagers, and on a much smaller lot. I am glad every day that there aren't extra rooms that need cleaning, furnishing, and heating, and I am very glad the yard work is not at the level you are describing and that there is not the ongoing costs and liability of a pool.
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

jcricket73 wrote: Sun May 02, 2021 12:36 pm
Drewski04 wrote: Sun May 02, 2021 11:42 am Agree so much with this perspective, and I too am sorry about the loss of your child.

It is ironic that the most conservative posters who regularly say to not spend on a house, save 50x+ for annual expenses, have an emergency fund of many, many years...do not realize how risky they are being in betting almost 100% that they will live long past 60+ years old.
I generally agree with this - and totally support buying this house given the OPs in the 15% DTI range and will likely find that declining to <10% over time. I've been in the same boat and taken the "calculated bet" on myself those times, and it's worked out for my family and myself. If it didn't work out I would have sold the place, licked my wounds, and moved on. Neither were "load up on 3x leverage and 36% DTI and roll the dice on BTC with my retirement" type of risks, but "taking zero risk" is itself a risk too (like being 100% in bonds creates the scenario you fear, where you run out of money in retirement).

I would add that a lot of the "no don't buy it, you can't afford it" is just value judgment - although it's far worse if you go to MMM than here on BH. It's often anti-consumption ethos (fine if you hold those beliefs, but not objective truth) or an argument from personal experience wrapped up in SWR/FIRE theory (ditto). When you scratch it, "you cannot afford <x>" is often missing a "if you want to retire forever at 30 and live on $50k a year which is more than enough for anyone" or "because I have lost jobs multiple times for years in a row and you will too" - certainly things/choices to be aware of when you think about these big purchases, but people should be transparent when they offer advice, not pretend they're preaching the gospel.

To me it's about balance between the saving & enjoyment of my money/time/health now, especially when I factor in the time you cannot count on always being there with my children, family and friends. Sure, I don't want to end up unable to retire in my late 50s/early 60s (voluntarily or otherwise) because of no financial means, but I don't want to end up in those years (or soon thereafter) w/o the physical means to enjoy my money when I could have at least enjoyed it earlier when healthy. And going back to the "value judgment" thing - I don't personally value the concept of retiring in my 40s on what I would call a shoe-string budget while hoping that everything BigErn/MMM/Physican on Fire has put in a spreadsheet is correct and my 15 side-hustles provide me the actual income I need to "retire". But there's my being judgmental ;)

Many things can steal future enjoyment from you even if you personally are healthy (death/injury of spouse, children, friends). I've seen that happen increasingly as I approach 50. Here's three examples off top of head: One of my healthiest friends got persistent headaches, went to the doctor - inoperable brain tumor, dead 3 weeks later at 49. Another was hit by a car while out on a walk (dead at 42). And another high powered many-millions-a-year earner was hit by another car while driving and is permanently disabled. She got a huge settlement and so her family is "fine" - but they will never again be the same.

I do try to be conscious of what I spend it on providing the right mix of necessity and "entertainment" value so I'm not just frittering money away. Haven't always been successful at that. But if I highly value something, like a house or trip? If I don't buy that, or do the remodel that gives my wife her dream kitchen, or take the trips now with the extended family, or spend on my/kids fun opportunities that aren't strictly needs - easily possible I never get those things.

So figure out what matters to you, balance that with being at least somewhat prepared for a future without regular income, and then just try and live in the present.
Very well said and good perspective.
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

KlangFool wrote: Sun May 02, 2021 11:57 am
Drewski04 wrote: Sun May 02, 2021 11:42 am
It is ironic that the most conservative posters who regularly say to not spend on a house, save 50x+ for annual expenses, have an emergency fund of many, many years...do not realize how risky they are being in betting almost 100% that they will live long past 60+ years old.

In other words, these ultra conservative savers are risking missing out on the real consumption value that comes from so many things in life.
Drewski04,

1) I eat out regularly and have plenty of money to spend on everything else because I spend less on the big items: house, car, and college education. And, I save 1 year of expense every year.

2) Meanwhile, my income peers overspend on their houses. They do not eat out regularly and they do not save any money.

<<In other words, these ultra conservative savers are risking missing out on the real consumption value that comes from so many things in life. >>

3) I disagreed. Many folks overspend on their houses and they are "House Poor". Hence, they are missing out on consumption values on so many things in life. If someone overspend on the house, they have no money for everything else.

It is simple math. If most of your income ended up in paying for the house, you have no money for everything else.

KlangFool
Don’t see how the OP is in any danger of being “house poor” given the income level of his family.

You do realize that everyone who rents is doing so from a person or entity that OWNS the property...I wonder if any of these landlords have figured out that owning property is such a bad investment???
KlangFool
Posts: 20462
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can we afford a $1.3MM house?

Post by KlangFool »

Drewski04 wrote: Sun May 02, 2021 2:18 pm
You do realize that everyone who rents is doing so from a person or entity that OWNS the property...I wonder if any of these landlords have figured out that owning property is such a bad investment???
Drewski04

A) They may had bought the property at a low price long ago. Hence, they are making good enough money.

B) You are making a flawed assumption. You assumed that all of the landlords are making money now. Many of them are not. They hope that the house appreciation will save them in the future.

<<Don’t see how the OP is in any danger of being “house poor” given the income level of his family. >>

C) It is very easy to see that. Just don't assume that OP can earn this level of income forever.

Some people would be unemployed in every recession. Counting on being lucky is not a good planning strategy.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

KlangFool wrote: Sun May 02, 2021 2:46 pm
Drewski04 wrote: Sun May 02, 2021 2:18 pm
You do realize that everyone who rents is doing so from a person or entity that OWNS the property...I wonder if any of these landlords have figured out that owning property is such a bad investment???
Drewski04

A) They may had bought the property at a low price long ago. Hence, they are making good enough money.

B) You are making a flawed assumption. You assumed that all of the landlords are making money now. Many of them are not. They hope that the house appreciation will save them in the future.

KlangFool
KlangFool

A) Well, if they are not selling and deploying equity elsewhere they must still consider it a good investment even at today’s prices.

B) Landlords have been around for centuries. I think it is safe to conclude that owning property has worked out quite well over time...doesn’t mean EVERY TIME, which is true of everything.

I feel good about having a balanced perspective of respecting both the benefits of sound financial planning...while also recognizing that tomorrow, let alone another 30+ years isn’t guaranteed to anyone.

Now off to enjoy our home that is far less expensive than renting today, AND has a FIXED yearly payment (great if inflation hits), has appreciated over 30% in just the last few years with no capital gains tax up to 500k...yeah, I think we are pleased with our decision to buy.
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

KlangFool wrote: Sun May 02, 2021 2:46 pm
Drewski04 wrote: Sun May 02, 2021 2:18 pm
You do realize that everyone who rents is doing so from a person or entity that OWNS the property...I wonder if any of these landlords have figured out that owning property is such a bad investment???
<<Don’t see how the OP is in any danger of being “house poor” given the income level of his family. >>

C) It is very easy to see that. Just don't assume that OP can earn this level of income forever.

Some people would be unemployed in every recession. Counting on being lucky is not a good planning strategy.

KlangFool
KlangFool

C) Good to plan for reasonable outcomes, including of course the idea that not everyone lives to be 100, let alone 50, 60, or 70.

I would caution that a belief that those who don’t save as much as you and forgo so much current consumption, are all counting on luck...not everyone needs to wear 5 raincoats and use 5 umbrellas when the rain comes.
DS1986
Posts: 34
Joined: Thu Aug 17, 2017 3:20 pm

Re: Can we afford a $1.3MM house?

Post by DS1986 »

Just to add my story to the mix- We had a good income (~350K) with lots of student debt (~400K) and little savings 6 years ago. We just started working so our NW was probably around 100K. No kids yet. We bought a house by putting 10% down and doing a piggyback loan on a 550K house. I’m pretty sure most here would have said don’t buy and we were obviously house poor. But it was the best decision we ever made. Our house is worth over 800K today, we’ve refinanced the interest rate to 2.625 over 30 years, and by “buying up”, we now have a large enough space for our 2 young kids now. We’ve never had trouble with the payments. So many of my peers are stuck in tiny houses, trying to grow families, and stressed trying to move to a bigger house in the craziest housing market ever. If your incomes support the monthly payments and jobs are stable, go for it. You clearly don’t have a problem with that.

I regret not buying a house a few years ago that I posted about here. Your house is where you spend all your time and where your family grows. I’m pretty sure that’s worth spending your $ on. You only have one life and unpredictable circumstances can cut it short.

I think the “Can I Afford this house” posts need to be framed at the beginning with what the poster’s retirement goal is. Most can afford the house but would set FIRE back a few years. Some want to FIRE at 40, some are ok with FIRE at 60. That makes a huge difference. Maybe we should ask “Can I Afford this house and FIRE at (age)?”
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

DS1986 wrote: Sun May 02, 2021 3:23 pm Just to add my story to the mix- We had a good income (~350K) with lots of student debt (~400K) and little savings 6 years ago. We just started working so our NW was probably around 100K. No kids yet. We bought a house by putting 10% down and doing a piggyback loan on a 550K house. I’m pretty sure most here would have said don’t buy and we were obviously house poor. But it was the best decision we ever made. Our house is worth over 800K today, we’ve refinanced the interest rate to 2.625 over 30 years, and by “buying up”, we now have a large enough space for our 2 young kids now. We’ve never had trouble with the payments. So many of my peers are stuck in tiny houses, trying to grow families, and stressed trying to move to a bigger house in the craziest housing market ever. If your incomes support the monthly payments and jobs are stable, go for it. You clearly don’t have a problem with that.

I regret not buying a house a few years ago that I posted about here. Your house is where you spend all your time and where your family grows. I’m pretty sure that’s worth spending your $ on. You only have one life and unpredictable circumstances can cut it short.

I think the “Can I Afford this house” posts need to be framed at the beginning with what the poster’s retirement goal is. Most can afford the house but would set FIRE back a few years. Some want to FIRE at 40, some are ok with FIRE at 60. That makes a huge difference. Maybe we should ask “Can I Afford this house and FIRE at (age)?”
With your solid incomes I would’ve definitely agreed on your house purchase even with the student loan debt.

I actually think buying a house early in the accumulation phase opens up a lot more roads to a secure retirement.

Money for shelter has to be paid one way or another, and ownership in housing can be a great long-term planning tool for retirement.

Obviously a lot of factors to consider first, but I wouldn’t say by default (not saying you are either) that ownership compared to renting would delay a secure retirement.
KlangFool
Posts: 20462
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can we afford a $1.3MM house?

Post by KlangFool »

Drewski04 wrote: Sun May 02, 2021 3:14 pm
KlangFool wrote: Sun May 02, 2021 2:46 pm
Drewski04 wrote: Sun May 02, 2021 2:18 pm
You do realize that everyone who rents is doing so from a person or entity that OWNS the property...I wonder if any of these landlords have figured out that owning property is such a bad investment???
<<Don’t see how the OP is in any danger of being “house poor” given the income level of his family. >>

C) It is very easy to see that. Just don't assume that OP can earn this level of income forever.

Some people would be unemployed in every recession. Counting on being lucky is not a good planning strategy.

KlangFool
KlangFool

I would caution that a belief that those who don’t save as much as you and forgo so much current consumption, are all counting on luck.
Drewski04,

I knew that they were counting on luck. Many of them did not survive financially over the past recessions. And, the story will repeat itself over the coming recession.

It was not a belief. It was an observation.

In every recessions, there were folks that were unemployed and their houses foreclosed.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
lazynovice
Posts: 1095
Joined: Mon Apr 16, 2012 10:48 pm

Re: Can we afford a $1.3MM house?

Post by lazynovice »

I would definitely find out if that locale resets assessed value based on sales price. Every house we have ever bought (not in CT) has. So we could not count on the tax assessment paid by the previous owner.

I assume you have done all the math on state and local income taxes associated with living in CT and working in NYC.

After that, it is a matter of priorities. Are you willing to forego travel or work a few years longer to afford a house you love staying home in? Are you willing to spend a lot of your free time on home maintenance? For many years, yard work was a bit of a hobby for us.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

KlangFool wrote: Sun May 02, 2021 4:46 pm
Drewski04 wrote: Sun May 02, 2021 3:14 pm
KlangFool wrote: Sun May 02, 2021 2:46 pm
Drewski04 wrote: Sun May 02, 2021 2:18 pm
You do realize that everyone who rents is doing so from a person or entity that OWNS the property...I wonder if any of these landlords have figured out that owning property is such a bad investment???
<<Don’t see how the OP is in any danger of being “house poor” given the income level of his family. >>

C) It is very easy to see that. Just don't assume that OP can earn this level of income forever.

Some people would be unemployed in every recession. Counting on being lucky is not a good planning strategy.

KlangFool
KlangFool

I would caution that a belief that those who don’t save as much as you and forgo so much current consumption, are all counting on luck.
Drewski04,

I knew that they were counting on luck. Many of them did not survive financially over the past recessions. And, the story will repeat itself over the coming recession.

It was not a belief. It was an observation.

In every recessions, there were folks that were unemployed and their houses foreclosed.

KlangFool
It is good to know that if you are renting and you lose your job that your landlord will let you stay rent free until you are back on your feet.

Also, it would be such a disadvantage to owning a home to access a pre-existing Home Equity Line of Credit to keep the bills paid if you lose your job.
KlangFool
Posts: 20462
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can we afford a $1.3MM house?

Post by KlangFool »

Drewski04 wrote: Sun May 02, 2021 8:44 pm
It is good to know that if you are renting and you lose your job that your landlord will let you stay rent free until you are back on your feet.

Also, it would be such a disadvantage to owning a home to access a pre-existing Home Equity Line of Credit to keep the bills paid if you lose your job.
Drewski04,

<<Also, it would be such a disadvantage to owning a home to access a pre-existing Home Equity Line of Credit to keep the bills paid if you lose your job.>>

In a recession, the housing market can crash at the same time. And, the house can be underwater. Aka, you have to pay the bank in order to sell the house. The home equity can go negative. BTW, HELOC can be cancelled by the bank too.

Where were you in 2008/2009 GFC? This should be obvious to anyone live through that period.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Starfish
Posts: 2182
Joined: Wed Aug 15, 2018 6:33 pm

Re: Can we afford a $1.3MM house?

Post by Starfish »

z3r0c00l wrote: Fri Apr 30, 2021 7:24 pm
mikejuss wrote: Fri Apr 30, 2021 7:20 pm
z3r0c00l wrote: Fri Apr 30, 2021 7:17 pm Broadly home ownership is called affordable up to 3x annual earnings. As a NYC resident I say nonsense to that and would go 10x earnings for a person who lives frugally. So yes you are good to go on that price point. There are other issues like property taxes, schools, to consider.
Can one even qualify for a loan if he's trying to buy a house with a price that's ten times his earnings?
Remember this is a world where housing is an outsize part of the financial picture. 100K salary puts 500K down on a 1M property with 500K mortgage over 30 years? Not a big deal imho. No, I wouldn't recommend that the OP buy a $5 million property especially if they have not saved a few million by now.
Unless putting down 500k on 1 mil property is because of the bank not qualifying you for a loan or just as a measure of savings, it would be pretty bad idea to put down anything more than 20% regardless of income in current climate.
H-Town
Posts: 3555
Joined: Sun Feb 26, 2017 2:08 pm

Re: Can we afford a $1.3MM house?

Post by H-Town »

jcricket73 wrote: Sun May 02, 2021 12:36 pm
Drewski04 wrote: Sun May 02, 2021 11:42 am Agree so much with this perspective, and I too am sorry about the loss of your child.

It is ironic that the most conservative posters who regularly say to not spend on a house, save 50x+ for annual expenses, have an emergency fund of many, many years...do not realize how risky they are being in betting almost 100% that they will live long past 60+ years old.
I generally agree with this - and totally support buying this house given the OPs in the 15% DTI range and will likely find that declining to <10% over time. I've been in the same boat and taken the "calculated bet" on myself those times, and it's worked out for my family and myself. If it didn't work out I would have sold the place, licked my wounds, and moved on. Neither were "load up on 3x leverage and 36% DTI and roll the dice on BTC with my retirement" type of risks, but "taking zero risk" is itself a risk too (like being 100% in bonds creates the scenario you fear, where you run out of money in retirement).

I would add that a lot of the "no don't buy it, you can't afford it" is just value judgment - although it's far worse if you go to MMM than here on BH. It's often anti-consumption ethos (fine if you hold those beliefs, but not objective truth) or an argument from personal experience wrapped up in SWR/FIRE theory (ditto). When you scratch it, "you cannot afford <x>" is often missing a "if you want to retire forever at 30 and live on $50k a year which is more than enough for anyone" or "because I have lost jobs multiple times for years in a row and you will too" - certainly things/choices to be aware of when you think about these big purchases, but people should be transparent when they offer advice, not pretend they're preaching the gospel.

To me it's about balance between the saving & enjoyment of my money/time/health now, especially when I factor in the time you cannot count on always being there with my children, family and friends. Sure, I don't want to end up unable to retire in my late 50s/early 60s (voluntarily or otherwise) because of no financial means, but I don't want to end up in those years (or soon thereafter) w/o the physical means to enjoy my money when I could have at least enjoyed it earlier when healthy. And going back to the "value judgment" thing - I don't personally value the concept of retiring in my 40s on what I would call a shoe-string budget while hoping that everything BigErn/MMM/Physican on Fire has put in a spreadsheet is correct and my 15 side-hustles provide me the actual income I need to "retire". But there's my being judgmental ;)

Many things can steal future enjoyment from you even if you personally are healthy (death/injury of spouse, children, friends). I've seen that happen increasingly as I approach 50. Here's three examples off top of head: One of my healthiest friends got persistent headaches, went to the doctor - inoperable brain tumor, dead 3 weeks later at 49. Another was hit by a car while out on a walk (dead at 42). And another high powered many-millions-a-year earner was hit by another car while driving and is permanently disabled. She got a huge settlement and so her family is "fine" - but they will never again be the same.

I do try to be conscious of what I spend it on providing the right mix of necessity and "entertainment" value so I'm not just frittering money away. Haven't always been successful at that. But if I highly value something, like a house or trip? If I don't buy that, or do the remodel that gives my wife her dream kitchen, or take the trips now with the extended family, or spend on my/kids fun opportunities that aren't strictly needs - easily possible I never get those things.

So figure out what matters to you, balance that with being at least somewhat prepared for a future without regular income, and then just try and live in the present.
If you value your time and enjoying of your money/time/health, then I think your approach is wrong. You spend $1M+ on a house while just 3-5 years into making money, you are doing yourself and your family a huge disservice.

Save your money early and often, and at least the first 10 years of your working career. Then your earned income will become portfolio growth. You will have the freedom to do many things with your family.

Balance approach? Sure it sounds nice, but does it really work for you in real life? Be honest. Buy a new house and buy a new car when you don't even max out your retirement and save at least one year of annual expense? Is that the balance you refer to? All I see is the "Buy It Now!" mentality and trading your time for big and unnecessary purchases that you don't even save for. I guess that's why we plan to work until 60 or 65 and retire? So when we gonna spend time with family?
Drewski04
Posts: 25
Joined: Tue Apr 27, 2021 2:27 pm

Re: Can we afford a $1.3MM house?

Post by Drewski04 »

KlangFool wrote: Sun May 02, 2021 9:07 pm
Drewski04 wrote: Sun May 02, 2021 8:44 pm
It is good to know that if you are renting and you lose your job that your landlord will let you stay rent free until you are back on your feet.

Also, it would be such a disadvantage to owning a home to access a pre-existing Home Equity Line of Credit to keep the bills paid if you lose your job.
Drewski04,

<<Also, it would be such a disadvantage to owning a home to access a pre-existing Home Equity Line of Credit to keep the bills paid if you lose your job.>>

In a recession, the housing market can crash at the same time. And, the house can be underwater. Aka, you have to pay the bank in order to sell the house. The home equity can go negative. BTW, HELOC can be cancelled by the bank too.

Where were you in 2008/2009 GFC? This should be obvious to anyone live through that period.

KlangFool
I respect your choice to see financial ruin around every corner, and discounting the multitude of ways to prepare beyond being ultra, ultra conservative.

It’s kind of like someone owning a boat and never leaving the harbor to avoid having it sink...it certainly avoids disaster, but doesn’t make much use of the boat either.
reader79
Posts: 24
Joined: Sat Jan 16, 2021 12:42 am

Re: Can we afford a $1.3MM house?

Post by reader79 »

I wouldn't buy it. Transitioning from your NYC apartment to that home would be too much of a shock. There are so many moving parts with a larger property with land. This seems like the third property you'll live in, not the second. I would get something between the two. Believe me, we went big with our second home (5500+ sq ft, 20 acres) and we weren't prepared for the maintaining and staff to keep our lives manageable. It is really a time issue more than a money issue. (We are happily in a smaller place now.) I would invest your savings (you'll be financially independent in no time), spend 18 months saving for a moderate place, and go with that. You'll have plenty of time to determine if you want to scale up in complexity, retire early and travel the world, or stay put and grow immense wealth.
reader79
Posts: 24
Joined: Sat Jan 16, 2021 12:42 am

Re: Can we afford a $1.3MM house?

Post by reader79 »

I wouldn't buy it. Transitioning from your NYC apartment to that home would be too much of a shock. There are so many moving parts with a larger property with land. This seems like the third property you'll live in, not the second. I would get something between the two. Believe me, we went big with our second home (5500+ sq ft, 20 acres) and we weren't prepared for the maintaining and staff to keep our lives manageable. It is really a time issue more than a money issue. (We are happily in a smaller place now.) I would invest your savings (you'll be financially independent in no time), spend 18 months saving for a moderate place, and go with that. You'll have plenty of time to determine if you want to scale up in complexity, retire early and travel the world, or stay put and grow immense wealth.
chipperd
Posts: 1014
Joined: Sat Sep 24, 2011 5:58 am
Location: here and now

Re: Can we afford a $1.3MM house?

Post by chipperd »

jharkin wrote: Sun May 02, 2021 6:10 am
Neoseo1300 wrote: Fri Apr 30, 2021 7:13 pm Hi there,


More than the absolute price point, another thing that scares us is the recurring expenses associated with owning such a house (we're talking about 3,500sqft with pool on 1.0-1.5 acre of land). We brutally realized that when the owner of one of the similar houses we recently visited shared his home expenses for 2020. While we had a pretty good idea of standard expenses such as heating, electricity, pool service, sceptic, etc., certain other costs were more "shocking" to us (who said naïve?), such as lawn mowing (damn expensive), lawn fertilization, pest control (??), tick control (??), garbage, irrigation, tree care, house cleaning (okay, this one is on us), chimney cleaning, gutter cleaning, etc. Overall, that owner was spending over $2,000 per month on expenses and utilities.

Thanks a lot,
Most of the expenses you listed are a Choice, nobody is forcing you to pay top shelf and have everything done for you when you buy a house. You can learn to DIY some of those and completely skip others.


I live in a house like that. 2800sq above grade (3400 w/ basement). 2 acres (1 grass). Where I live it cost about half hat you are spending but the upkeep is no different.

Let’s see:

House cleaning? You know the answer here, but a vacuum...

Lawn mowing? I bought a rider. Couple grand up front but now it only costs a gallon of gas and one hour of my time per week. And that’s an hour sitting! It’s not even a workout..lol
(Previous house on 1/2 acre I had a nice Honda self propelled walk behind, my criteria is to get the smallest machine that will do the entire lawn in an hour)

Lawn fertilization? I pay a service about $600 a year. $1k if I ask them to aerate and reseed. Used to do this myself but it cost almost that much just to buy the fertilizer so why not.

Pest/tick. Only needed if you have issues. We have used it occasionally. $600 a year pays for full service if so.

Garbage is municipal.

Irrigation? Just say NO. It’s a fantastic waste of resources, environmentally and money wise. My lawn is as green as an emerald right now without it. All that happens is a little browning in Aug but it comes back by October. And you get to mow less as a bonus.

What tree care? Trees don’t need care other than some pruning If they overgrown the house or power lines. I do a lot of cleanup diy with a manual pole pruner.

Septic care? Unless the system fails (good ones go 30-50yr) all it needs is a pumping every 3 years or so for about $250

Chimney cleaning? Once a year costs about $300 if you hire. I have a device called a soot eater ($50) it’s a brush you attach to the drill. I can brush out my chimney DIY from the bottom, so easy anyone can DIY and only takes 20 min.

Gutter cleaning? Only an issue if trees overhang the house.If the eves are low enough you can buy long pole brushes and DIY without even getting on a ladder.


TL/DR ? Life is expensive if you choose to outsource everything and try to keep up with the Jones’s... There is another path.
+1 on these numbers and ideas.
We have a 3100+sq foot house in CT on 1+acre, 3/4 acre grass. All those numbers above fit ours. We have a pool as well. I was in it yesterday after mowing (cold water is great for the bum knee and gets all that pollen off you). We get about 5 months out of it, but I'm a swimmer, so I don't mind the cool water. (An old belt tied to the fence, a noodle under the legs and water proof headphones for the tunes: 30 minutes is a great upper body workout.)
Our pool cost us about $600/season, but I do it myself. Set up in the spring is a bit of a pain and takes a bit of time, but you will learn your system so you don't get fleeced if you do need a repair from an outside source.
OP: yes you can afford the house, it's just a question of priorities. I agree with another poster that it might be wise to try and rent for a year in the area you are looking for a while after your first is born. You will learn what you really need vs want in a home and be able to find a house that really fits your needs. You are considering a large home for 2-3 people. We have 5 in our house (5 beds plus an office, gym in the basement) and are quite spread out.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
z3r0c00l
Posts: 2330
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC
Contact:

Re: Can we afford a $1.3MM house?

Post by z3r0c00l »

Starfish wrote: Sun May 02, 2021 10:13 pm
z3r0c00l wrote: Fri Apr 30, 2021 7:24 pm
mikejuss wrote: Fri Apr 30, 2021 7:20 pm
z3r0c00l wrote: Fri Apr 30, 2021 7:17 pm Broadly home ownership is called affordable up to 3x annual earnings. As a NYC resident I say nonsense to that and would go 10x earnings for a person who lives frugally. So yes you are good to go on that price point. There are other issues like property taxes, schools, to consider.
Can one even qualify for a loan if he's trying to buy a house with a price that's ten times his earnings?
Remember this is a world where housing is an outsize part of the financial picture. 100K salary puts 500K down on a 1M property with 500K mortgage over 30 years? Not a big deal imho. No, I wouldn't recommend that the OP buy a $5 million property especially if they have not saved a few million by now.
Unless putting down 500k on 1 mil property is because of the bank not qualifying you for a loan or just as a measure of savings, it would be pretty bad idea to put down anything more than 20% regardless of income in current climate.
Is this because of the expectation that mortgage rates will prove lower than inflation?
jcricket73
Posts: 32
Joined: Thu Jan 21, 2021 11:48 am

Re: Can we afford a $1.3MM house?

Post by jcricket73 »

H-Town wrote: Sun May 02, 2021 11:40 pm If you value your time and enjoying of your money/time/health, then I think your approach is wrong. You spend $1M+ on a house while just 3-5 years into making money, you are doing yourself and your family a huge disservice.

Save your money early and often, and at least the first 10 years of your working career. Then your earned income will become portfolio growth. You will have the freedom to do many things with your family.

Balance approach? Sure it sounds nice, but does it really work for you in real life? Be honest. Buy a new house and buy a new car when you don't even max out your retirement and save at least one year of annual expense? Is that the balance you refer to? All I see is the "Buy It Now!" mentality and trading your time for big and unnecessary purchases that you don't even save for. I guess that's why we plan to work until 60 or 65 and retire? So when we gonna spend time with family?
Way to prove my point - first you assume this person (or others in the same boat) can't max their retirement if they also pay 15% of their income on housing (FYI I blow through this savings number annually by like 10x). Then you make a value judgement (buy it now/trading your time/unnecessary). Then you make a false dichotomy (if you spend money now you can't also spend time with family b/c I guess you'll be too busy working), and to top it off you throw in things we're not talking about (cars).

I mean I could easily say the opposite - by laying out being FI and then an early retirement as the only place that's acceptable to spend money, and probably not even then (since you view these expenses as unnecessary) you will also not spend any time with your family because you'll be focused on FIRE, and then wealth preservation with the most frugal of lifestyles - so no big trips, no camps, nothing that isn't a necessity. Folks that enjoy cars? You should feel bad about yourself - those are never OK! Great - now you've not enjoyed your 20s-40s, and you're not enjoying your 40s-90s either. I'm exaggerating for impact, but it proves the point. These are value judgements about how to live your life, not hard and fast financial rules (you do not have to save 1x your intended expense for your entire working life to retire - and 1x expense is also a moving target and again there are value judgements about this).

Things are working for me fine in real life and for lots of others, even not following this advice. I mean there's lots I can't control (the economy for one) and so there have been lean years and fat years. I survived the dot com bust, 10-years of low income/stock growth, and the financial crisis. Wasn't always perfect, but neither would it have been following your advice.

Over those 20 years I've managed to both save lot (by almost any standards except MMM) and enjoy lots of time with my spouse, friends, family and so too have my kids. All these "retirement trips of a lifetime" people talk about? We've gotten to take a few of them in the here and now. Super fortunate of course, because my income has supported this - but by your standards I should have put that off until I can "afford it" because I'm not FI by your standards.

All while working a full-time job. I personally don't value a lean retirement (nor do I value super lean living while I am working). It's fine if you do, but admit your recommendations aren't strictly speaking necessary, unless the person is a) literally going into debt; b) subscribes to the same ethos as you about spending; c) wants to retire super early.

Reminds me of the quote I saw here the other day that BH is the place people go to ask "is $10M enough to support a $50k/year retirement" and the answer they get is "you're cutting it close"
H-Town
Posts: 3555
Joined: Sun Feb 26, 2017 2:08 pm

Re: Can we afford a $1.3MM house?

Post by H-Town »

jcricket73 wrote: Mon May 03, 2021 10:20 am
H-Town wrote: Sun May 02, 2021 11:40 pm If you value your time and enjoying of your money/time/health, then I think your approach is wrong. You spend $1M+ on a house while just 3-5 years into making money, you are doing yourself and your family a huge disservice.

Save your money early and often, and at least the first 10 years of your working career. Then your earned income will become portfolio growth. You will have the freedom to do many things with your family.

Balance approach? Sure it sounds nice, but does it really work for you in real life? Be honest. Buy a new house and buy a new car when you don't even max out your retirement and save at least one year of annual expense? Is that the balance you refer to? All I see is the "Buy It Now!" mentality and trading your time for big and unnecessary purchases that you don't even save for. I guess that's why we plan to work until 60 or 65 and retire? So when we gonna spend time with family?
Way to prove my point - first you assume this person (or others in the same boat) can't max their retirement if they also pay 15% of their income on housing (FYI I blow through this savings number annually by like 10x). Then you make a value judgement (buy it now/trading your time/unnecessary). Then you make a false dichotomy (if you spend money now you can't also spend time with family b/c I guess you'll be too busy working), and to top it off you throw in things we're not talking about (cars).

I mean I could easily say the opposite - by laying out being FI and then an early retirement as the only place that's acceptable to spend money, and probably not even then (since you view these expenses as unnecessary) you will also not spend any time with your family because you'll be focused on FIRE, and then wealth preservation with the most frugal of lifestyles - so no big trips, no camps, nothing that isn't a necessity. Folks that enjoy cars? You should feel bad about yourself - those are never OK! Great - now you've not enjoyed your 20s-40s, and you're not enjoying your 40s-90s either. I'm exaggerating for impact, but it proves the point. These are value judgements about how to live your life, not hard and fast financial rules (you do not have to save 1x your intended expense for your entire working life to retire - and 1x expense is also a moving target and again there are value judgements about this).

Things are working for me fine in real life and for lots of others, even not following this advice. I mean there's lots I can't control (the economy for one) and so there have been lean years and fat years. I survived the dot com bust, 10-years of low income/stock growth, and the financial crisis. Wasn't always perfect, but neither would it have been following your advice.

Over those 20 years I've managed to both save lot (by almost any standards except MMM) and enjoy lots of time with my spouse, friends, family and so too have my kids. All these "retirement trips of a lifetime" people talk about? We've gotten to take a few of them in the here and now. Super fortunate of course, because my income has supported this - but by your standards I should have put that off until I can "afford it" because I'm not FI by your standards.

All while working a full-time job. I personally don't value a lean retirement (nor do I value super lean living while I am working). It's fine if you do, but admit your recommendations aren't strictly speaking necessary, unless the person is a) literally going into debt; b) subscribes to the same ethos as you about spending; c) wants to retire super early.

Reminds me of the quote I saw here the other day that BH is the place people go to ask "is $10M enough to support a $50k/year retirement" and the answer they get is "you're cutting it close"
I believe we're on the same spectrum on this topic, but I think I should not have directed my points to you specifically. I think most bogleheads are not on the extreme end of the spectrum, i.e. either eating beans & rice and save 99% of their paycheck, or spend 200% or more of their paycheck. Many here make more money than they spend (or spend less money than they earn). Now if we talk about value judgment and the balance between saving and spending, my opinion is as good as the next guy. So let's skip all that.

OP said that they just have 3.5 years of working and no income before that. Now if OP decided to buy 1.3M house, they just directly violate the principle: "living below your means" in my mind. I value being FI more than owning a $1M house and a fancy car. If OP just be patient and delay their gratification, they should achieve FI in the next 5 years with their income and saving rate. Then, they can easily afford the $1M house while their FI portfolio continues to grow. Which one is a better proposition?
jcricket73
Posts: 32
Joined: Thu Jan 21, 2021 11:48 am

Re: Can we afford a $1.3MM house?

Post by jcricket73 »

H-Town wrote: Mon May 03, 2021 10:56 am OP said that they just have 3.5 years of working and no income before that. Now if OP decided to buy 1.3M house, they just directly violate the principle: "living below your means" in my mind. I value being FI more than owning a $1M house and a fancy car. If OP just be patient and delay their gratification, they should achieve FI in the next 5 years with their income and saving rate. Then, they can easily afford the $1M house while their FI portfolio continues to grow. Which one is a better proposition?
I think this is fair, but It's not black or white there either. In a LCOL/low appreciation area certainly there's no "rush" to go buy a house unless your rent situation is super unstable. House will cost the same amount in a few years.

But in HCOL/VHCOL areas it's demonstrably true that housing costs can rise faster than your income. Lots of examples on this board of folks in the Bay Area, NY, PNW whose ability to save large chunks of money in their 30s/40s was actually dependent on: A) Buying a house that seemed vaguely like a stretch in their early career & growing income into it; B) Consigning themselves to never owning; C) Being willing to trade massive amounts of time (commute) to keep the house price reasonable.

I remember the thread of that teacher in the Bay Area who saves half his (her?) income - and buried in the details are the fact that they bought a home in 2010. They'd never even be able to afford that now (or even anything anywhere near them).

That's not to say you *have* to value having a house, or a big one. But with the OP at 15% DTI, and lots of years of likely (but not guaranteed) income growth ahead of them - I'd argue this is a calculated risk and well within their means, esp compared to what I see some folks spending for rent/housing in general (not here). This kind of purchase should only be avoided if the OP doesn't actually want a house/this much house (which is a personal choice) or has severe concerns about future earning potential. Inflation alone will wither this down to <10% DTI before too long. So again, why delay? It's no even clear this forestalls FI (what if they get huge raises, or the market grows more than the ultra-conservative folks here are estimating) - because you can't know that.

It'd be very different if the OP was saying "buying this house puts my DTI at 28-35%, my income is highly variable, or my spouse plans to stop working." And yes I know there are people on this board and in life who prefer to live life like a recession/50% drop in income is around every corner, or forced moves will be a constant fact of life. Not dissimilar with folks who prefer 80-100% stocks vs 30-50% stocks - those are just risk tolerances, not right/wrongs.
H-Town
Posts: 3555
Joined: Sun Feb 26, 2017 2:08 pm

Re: Can we afford a $1.3MM house?

Post by H-Town »

jcricket73 wrote: Mon May 03, 2021 11:34 am
H-Town wrote: Mon May 03, 2021 10:56 am OP said that they just have 3.5 years of working and no income before that. Now if OP decided to buy 1.3M house, they just directly violate the principle: "living below your means" in my mind. I value being FI more than owning a $1M house and a fancy car. If OP just be patient and delay their gratification, they should achieve FI in the next 5 years with their income and saving rate. Then, they can easily afford the $1M house while their FI portfolio continues to grow. Which one is a better proposition?
I think this is fair, but It's not black or white there either. In a LCOL/low appreciation area certainly there's no "rush" to go buy a house unless your rent situation is super unstable. House will cost the same amount in a few years.

But in HCOL/VHCOL areas it's demonstrably true that housing costs can rise faster than your income. Lots of examples on this board of folks in the Bay Area, NY, PNW whose ability to save large chunks of money in their 30s/40s was actually dependent on: A) Buying a house that seemed vaguely like a stretch in their early career & growing income into it; B) Consigning themselves to never owning; C) Being willing to trade massive amounts of time (commute) to keep the house price reasonable.

I remember the thread of that teacher in the Bay Area who saves half his (her?) income - and buried in the details are the fact that they bought a home in 2010. They'd never even be able to afford that now (or even anything anywhere near them).

That's not to say you *have* to value having a house, or a big one. But with the OP at 15% DTI, and lots of years of likely (but not guaranteed) income growth ahead of them - I'd argue this is a calculated risk and well within their means, esp compared to what I see some folks spending for rent/housing in general (not here). This kind of purchase should only be avoided if the OP doesn't actually want a house/this much house (which is a personal choice) or has severe concerns about future earning potential. Inflation alone will wither this down to <10% DTI before too long. So again, why delay? It's no even clear this forestalls FI (what if they get huge raises, or the market grows more than the ultra-conservative folks here are estimating) - because you can't know that.

It'd be very different if the OP was saying "buying this house puts my DTI at 28-35%, my income is highly variable, or my spouse plans to stop working." And yes I know there are people on this board and in life who prefer to live life like a recession/50% drop in income is around every corner, or forced moves will be a constant fact of life. Not dissimilar with folks who prefer 80-100% stocks vs 30-50% stocks - those are just risk tolerances, not right/wrongs.
The real estate market in Bay Area, NY, PNW are out of my wheelhouse. So I don't really understand how it works...

I live in a LCOL/MCOL area. We bought our house in a suburban area for 135k in 2010 when real estate was at rock bottom. We have paid off the mortgage and it's currently valued at 255k on Zillow. The market value of our principal house represents less than 10% of our net worth. I can't imagine the cost of housing would exceed our net asset. So I don't know if I can give my 2 cents other than saying that I would not be comfortable committing 15 or 30 years of mortgage in a VHCOL area. Why don't we wait until there is a crash? 2008 happened. Sure history could repeat itself?
jcricket73
Posts: 32
Joined: Thu Jan 21, 2021 11:48 am

Re: Can we afford a $1.3MM house?

Post by jcricket73 »

Yeah, it's sort of bonkers, and some days I wonder whether it can ever end (but then look at Paris, London, etc and say maybe not). I definitely don't model/bank on 5+% appreciation YoY in housing prices to mean anything for my retirement assets but it's what I've experienced for all but a few of my last 25 years in the PNW. If you live in one of these areas it's not really applicable to use rule of thumbs about "housing as a percent of net worth" that would work in a LCOL area. In fact, in some ways by that metric you could actually be punished by buying "early" and seeing a decade of housing price growth at 5%+ Should you then sell your house because it's too high compared to a metric is achievable in LCOL areas because housing doesn't appreciate? Just making a point here about rules of thumb.

And as far as crashes in housing? I remain worried too, but retty knowledgeable folks (Goldman Sachs, Case/Shiller, Calculated Risk) are arguing this housing boom is more like the late 70s/early 80s than the sub-prime loan driven bubble in 2008. Lowest inventory in a decade, low rates, down payments/lending standards are high/rising. Similarly, for sure an economic crash could (will?) happen too - but like the jokes goes, the analysts have predicted 10 out of the last 3 recessions. Most are expecting a couple of years of post-COVID recovery before anything settles down.

So as everyone here always says, if you sit on the sidelines with your investments, you'll miss out on the run-up (certainly everyone who pulled out in 2009 or 2020 have experienced this). I think housing is the same way. Might go down/flatten, might not - and is probably going to be specific to the geographic area. So you have to look at the secular/economic trends in your area and decide what you value spending on.

Fun conversation
Starfish
Posts: 2182
Joined: Wed Aug 15, 2018 6:33 pm

Re: Can we afford a $1.3MM house?

Post by Starfish »

z3r0c00l wrote: Mon May 03, 2021 7:07 am
Starfish wrote: Sun May 02, 2021 10:13 pm
z3r0c00l wrote: Fri Apr 30, 2021 7:24 pm
mikejuss wrote: Fri Apr 30, 2021 7:20 pm
z3r0c00l wrote: Fri Apr 30, 2021 7:17 pm Broadly home ownership is called affordable up to 3x annual earnings. As a NYC resident I say nonsense to that and would go 10x earnings for a person who lives frugally. So yes you are good to go on that price point. There are other issues like property taxes, schools, to consider.
Can one even qualify for a loan if he's trying to buy a house with a price that's ten times his earnings?
Remember this is a world where housing is an outsize part of the financial picture. 100K salary puts 500K down on a 1M property with 500K mortgage over 30 years? Not a big deal imho. No, I wouldn't recommend that the OP buy a $5 million property especially if they have not saved a few million by now.
Unless putting down 500k on 1 mil property is because of the bank not qualifying you for a loan or just as a measure of savings, it would be pretty bad idea to put down anything more than 20% regardless of income in current climate.
Is this because of the expectation that mortgage rates will prove lower than inflation?
Yes, and capital market returns. Plus the value of liquidity.
Topic Author
Neoseo1300
Posts: 29
Joined: Sat May 12, 2018 8:46 am

Re: Can we afford a $1.3MM house?

Post by Neoseo1300 »

Thanks a lot everyone, this topic includes a lot of great and very valuable answers and I really appreciate getting personal views from both sides.

I'll post a longer message later to answer a few questions that were directed to me and to continue the conversation but I also wanted to provide an update on the situation (for those interested).

Ultimately, we didn't get the house. We did bid on it though, $60k above asking price so ~$1.36MM approx but ultimately, the seller received 21 (!!) offers (all above asking price) and we ranked 11th among them. We won't know how much #1 offered until the deal closes but I would assume it probably includes a pretty hefty premium. Anyway, this market is getting more and more frustrating, almost depressing. I feel like homes are going at completely random prices and even when you can afford it, you wonder why it would make sense to pay such a premium.

But as others said before, the fact that the market is crazy right now doesn't mean it will get any better in the future. You may get priced out for good in certain areas..
jcricket73
Posts: 32
Joined: Thu Jan 21, 2021 11:48 am

Re: Can we afford a $1.3MM house?

Post by jcricket73 »

Neoseo1300 wrote: Mon May 03, 2021 5:43 pm Thanks a lot everyone, this topic includes a lot of great and very valuable answers and I really appreciate getting personal views from both sides.

I'll post a longer message later to answer a few questions that were directed to me and to continue the conversation but I also wanted to provide an update on the situation (for those interested).

Ultimately, we didn't get the house. We did bid on it though, $60k above asking price so ~$1.36MM approx but ultimately, the seller received 21 (!!) offers (all above asking price) and we ranked 11th among them. We won't know how much #1 offered until the deal closes but I would assume it probably includes a pretty hefty premium. Anyway, this market is getting more and more frustrating, almost depressing. I feel like homes are going at completely random prices and even when you can afford it, you wonder why it would make sense to pay such a premium.

But as others said before, the fact that the market is crazy right now doesn't mean it will get any better in the future. You may get priced out for good in certain areas..
This is the kind of thing that makes me super glad each time we've bought a house has not been in a hot/seller's market. I know that means we also didn't get crazy offers-over-asking on the houses we sold - but I didn't need to in order to get a "decent" return/not be under-water.

If we were looking right now I don't know how we'd choose between: "expand your budget", "change your criteria", "sit on the sidelines and hope for it to get better in 1-2 years" or "just plain opt-out forever and switch gears"

Good luck and sorry this is such a PITA!
User avatar
goodenyou
Posts: 2670
Joined: Sun Jan 31, 2010 11:57 pm
Location: Skating to Where the Puck is Going to Be..or on the golf course

Re: Can we afford a $1.3MM house?

Post by goodenyou »

I just sold my 5000+ sq ft house/~1 acre/pool/elaborate trees and landscaping/etc.. 4 days ago. It cost me about $4000/month to live there without a mortgage. I was very happy to unload it. It was 20 years old (custom built by us) and the maintenance was a killer. I am going to rent for a while. But, my kids are out of the house (last one to college this Fall) and we don't need the space (nor the expense). Don't underestimate the cost of home ownership. Be sure to buy similar priced homes (preferably less) in the neighborhood. Real estate is out of control right now. I don't envy those who are forced into decisions based on school systems.
"Ignorance more frequently begets confidence than does knowledge" | “Do you know how to make a rain dance work? Dance until it rains”
ymmt
Posts: 40
Joined: Fri Jul 10, 2020 10:59 am

Re: Can we afford a $1.3MM house?

Post by ymmt »

I suspect you are looking in lower Fairfield County? I was a bit confused to see how you could find so much land/house for $1.3mm around here (especially one you liked) without some competition. But clearly others had the same idea and were more willing to pay for a house they liked as well.

We bought a home here two years back and wanted to just drop two tidbits:
- The cost estimates you got are pretty middle of the fairway. They're nothing compared to some of childcare costs you can see around here.
- Nowadays if you want a home here, you need to move fast and aggressively. You're up against other people who are just as well off and are possibly more incentivized to move (i.e. w/ kids).

Feel free to PM if you want to talk.
Post Reply