Can I afford a 3M+ house

[shombra]

Did you hire a contractor who did the whole remodel or did you have to spend a lot of your time during the remodeling time? Our thinking is similar, if we fix it up by spending say $250k, we expect the price would immediately jump by $500k or so, but with two small kids and dual career, we are hesitating

we hired a builder who essentially acted as an intermediary between all the contractors

we still hated our builder and had lots of communication issues along the way

i was hands off through most of the process as fortunately my husband enjoys overseeing construction

otherwise i agree, we also have 2 small kids and dual careers and building or renovating would have been too much of a burden if both of us disliked overseeing the process (at least with our lazy, drag-his-feet builder)

[Kamban]

I am simply looking for advice based on our income/NW whether we can afford to buy a $3.5M property.

My thoughts

1.. You can afford it.

2. But both of you have to work in order to afford that house. You cannot take chances with a startup that can go bust or have issues with your employer that can get you fired, since you need that mortgage money.

3. The renovations for a 60 year never updated house will not cost $200K, it will cost $500K-1M+ in Palo Alto. Otherwise you are kidding yourself. Inflation is real and the prices for everything, including labor has gone up. Probably more so where you are.

4. I would either buy a house that needs no major updates, or postpone any remodeling for a couple of years. Live in it to see what you really want to change and make sure you have the means to do so.

5. There was nothing lost by not buying 2 or 5 years earlier. All the money you saved on mortgage, taxes, updates, inflated lifestyle etc, if invested in the stock market, would have given much better returns than any price appreciation. Even in Palo Alto. But if you had just held it as cash......

6. There is nothing wrong with renting long term if it checks all your boxes. People might look down at renters but you come out ahead in the long term if you invest the money.

7. As they say, past performance is no guarantee of future returns. No one knows how tech will look like in 10-20+ years. It might still be there in Bay area or other cities and states in USA might get to become tech hotpots and take some of that business away. Who knows. Nothing in life is guaranteed, even the Bay Area.

[Sampter]

I agree with Kamban. Renovations are likely higher than 200-300K.

You could do it, would just be a huge monkey on your back.

The fact that you even said you would have to change from private to public school already tells me that you will have less money monthly than you are comfortable with.

Also, the fact that your rent is just a little more than just the property taxes would make me rent.

[Lordosis]

We are not medical doctor's, but we are doctors of the useless kind. I have a PhD in physics and my spouse is a math PhD. My husband works at one of the big tech companies, I work at a startup that went public and just had a landfall of over $1M post taxes, so net worth went up a lot this year.

How secure are your incomes? A huge windfall can make you feel rich but if it will not be ongoing you can get in over your head. Look at all the stories about lotto winners and short career athletes.

[StarTrekDoc]

The adages of rent vs own and cost get skewed with bay area and Manhattan locations. Likewise on asset appreciation

Most leverage primary home and that with land appreciation that's leverage, outpaces most funds, even with the rampup of sp500.

Single company tech can leave, others take their place. HP goes, Tesla leaves, still silicon valley remains.

[Tangler]

It seems like it would be a burden and create added stress.

Exactly. Financially you will likely do better by renting and investing. Sounds like a renters market.

[Tangler]

The adages of rent vs own and cost get skewed with bay area and Manhattan locations. Likewise on asset appreciation

Most leverage primary home and that with land appreciation that's leverage, outpaces most funds, even with the rampup of sp500.

Single company tech can leave, others take their place. HP goes, Tesla leaves, still silicon valley remains.

Always? Forever? Sounds like justification for buying a hugely expensive home with high property tax that needs 300-500k worth of work on a 30 year fixed.

[Kamban]

How secure are your incomes? A huge windfall can make you feel rich but if it will not be ongoing you can get in over your head. Look at all the stories about lotto winners and short career athletes.

Based on her past posting, I suspect she would invest all that money if she did not buy the house. She is not like a lotto winner as regards to blowing any windfall.

[Lordosis]

Based on he past posting, I suspect she would invest all that money if she did not buy the house. She is not like a lotto winner as regards to blowing any windfall.

That is good to know but I do not recall the OPs past posts.

I would just be wary that she came into a bunch of money and wants to buy a 3M fixer upper. I would want to make sure that money will keep coming in. I do not even pretend to know that kind of business. At lease with medicine physician incomes are more stable than most. And worse case you can pack up and work pretty much anywhere else. Probably not the case with a start up.

OP What kind of house are we talking about for that kind of money and work? I am just curious what that kind of money would buy. Around these parts that would get you a 10K sqft mansion on a several acre lake front plot. And you would still have enough left over to buy a boat!

[kdeva]

So your current rent is 4,500? Do you like where you are renting?

Yes, we live in a nice neighborhood and the house is nice with a large yard and plenty of space. The schools are bad where we are renting, that's why if we continue here, the kids will go to private school.

[CalMD]

Here is a market conditions report from a real estate company, so take it with a ton of salt. However, the prices and square footage are from public data. The median price for Palo Alto is 3.59m, 2042sf, at $1775 per square foot. If one is curious, the report also has break downs of different Santa Clara cities. Toward the end of article, there is a section on what you get for 3m in Santa Clara county.

Last year we placed a bid on a house just after the pandemic started, thinking this could be a good opportunity like after the 1989 earth quake, dot com bust, 9/11, or 2008. 30 offers. We did not get the house.

https://www.bayareamarketreports.com...et-trends-news

[ObgynMD]

3mil would get you a modest house ~2000sq ft, 3-4bed, 2-3bath in Palo Alto.

My bias is OP can afford it. They need to live somewhere. They want to stay in Palo Alto long term. OP has waited 7 years already and shown they can ‘make it’ in the Bay Area. If this is what they want, financially they can afford it. Maybe not the house + $40k/yr private school.

Good points re: a $200k Reno going way over. But even if it does, OP could just pay for it with their savings.

Edited to add this does assume OP’s salary will remain >1 million in a stable fashion. I would personally not buy if that were not the case. But really seems to me OP has done the math and feels confident their salaries will remain that high- which is not that unusual in the Bay Area.

[kdeva]

5. There was nothing lost by not buying 2 or 5 years earlier. All the money you saved on mortgage, taxes, updates, inflated lifestyle etc, if invested in the stock market, would have given much better returns than any price appreciation. Even in Palo Alto. But if you had just held it as cash......

The house prices have shot up by $500-600k in the last 6 months alone, and by $1.2-$1.5M in the last 5 years, this house would have costed $1.6-1.8 about 5-6 years ago, silicon valley is crazy that way!

[kdeva]

Based on her past posting, I suspect she would invest all that money if she did not buy the house. She is not like a lotto winner as regards to blowing any windfall.

We are going to invest the windfall in index funds if we don't buy. Our jobs are decently secure I would say, if tech crashes, we would crash with it, but hopefully that won't happen in the next 5 years at least.

[kdeva]

OP What kind of house are we talking about for that kind of money and work? I am just curious what that kind of money would buy. Around these parts that would get you a 10K sqft mansion on a several acre lake front plot. And you would still have enough left over to buy a boat!

Oh, how I wish for $3M I could afford that kind of a living!! It's a 2400 sq. house two story on a 6000 sq. lot. We are in the final throes of making an offer, will keep this post updated. I was wrong about no updates since 1960, some updates were done in 1996 it seems, not a lot. My agent thinks that for 200-250k, we could make the house nice and live-able.