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  • Too much house?

    looking for some thoughts whether a plan for new house is reasonable, or not

    We're a 2 physician couple, 40 with a 2 young children. We live in the south, but in one of the especially "hot" real estate markets. I feel relatively confident that even if national housing market slowed, the local market would not drop much. Local economy is doing very well with job growth and population growth. We're both in stable practices and expect to be here long term.

    We've been looking at building our long-term home, hope to be there for 20-30 year. We found a lot in the ideal school district, neighborhood. After putting a lot of time into design/selections, we got a price of 2.5 million...which was higher than the expected 1.7-1.8 million (based on early discussions with the builder). We got the usual explanation that this is due to increasing costs, and the local market. There are surprising number of 2 million plus homes in the area, that are selling.

    Based on our financial situation, i think we can "afford" it, but there's quite a bit of sticker shock

    700-800k combined income
    current home now probably could sell for 1 million (we bought ~650 5 years ago),
    480K mortgage
    ~500k in taxable account, invested in mainly equities
    ~500k in cash because we were anticipating this house
    ~500k roth
    ~500k pretax retirement accounts
    ~150k in kids 529
    No additional debt, other than mortgage above
    few smaller accounts, but net worth is ~2.8 million

  • #2
    General rule of thumb: mortgage < 2x income
    income ~$750k, so $1.5MM mortgage

    $2.5MM home means you should probably should come up with $1MM

    ​Between $500k cash you've saved and maybe $300k from home sale, you're still $1-200k short. Either save up the difference or drop the budget a touch.

    Ultimately you'll be fine, but it's a lot. You'll have to cut elsewhere (vehicles/travel/vacation time) to accommodate, but if it's a priority for you you can make it work. Folks in the Bay Area go through something similar. That said, I wouldn't do it if it were me. I have a higher income and that number still makes me uneasy. But, my priority is going to part time sooner than later, traveling. I still have a beautiful home with everything I want, but it's 1/3 the cost. Different strokes.


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    • #3
      Another thing to consider, at that cost with your combined income, both physicians are likely obligated to work full time for the duration of the mortgage. At 40 yo, could perhaps be into your 60s. That alone would make it a hard no for me, as it would be a substantial mental burden

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      • #4
        Too rich for my blood but you could swing it. Assuming your income is somewhat equivalent, you’re both going to have to continue working to likely meet your retirement goals and keep up with necessary expenses and maintenance on a $2.5M house. You’re still on pace to retire assuming you don’t live extravagantly in other aspects of your life.

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        • #5
          Never bet on implied appreciation with real estate. That 2.5 million dollar mortgage could be for a 1.5 million dollar house in 10 years. Everything is cyclical especially real estate. We surely aren’t at the bottom. Don’t do it

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          • #6
            You don’t have much buffer. I’d rather buy a 2.5mil than build. It will likely cost you more than 2.5mil in the end and you have to live somewhere while it’s being built. That is a lot of stress.

            You can afford it though with the big shovel. So if it’s a dream and you are willing to make sacrifices for it, it won’t sink you.

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            • #7
              Any wiggle room in the design? When I built mine it was tempting to add the best of everything offered but I am glad I pulled back on some of the unnecessary upgrades.

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              • #8
                That would be too tight for me, leaving an allowance for 10-20% over budget. I myself would wait for building costs to normalize, adjust my plans or build in phases.

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                • #9
                  1. Objectively affordable
                  2. Locks you into a certain track/path and diminishes future flexibility
                  3. This group values FI and FU money and thus wouldn't be the choice many regulars here would make
                  4. Only you can make decision but I'd encourage you to keep in mind that your and spouse's values and preferences will evolve over your lifetimes and optionality brings a lot of peace of mind.

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                  • #10
                    Personally, I wouldn’t do it. It locks you into maintaining the high income from both parents for a long time. Yes, given your current finances, you could certainly afford to do this. However….

                    Based on the research, living in a 1M house versus a 2.5M house will not change your overall level of happiness. But being stuck on the high income treadmill with less flexibility to downshift could negatively impact your happiness.

                    We are much further than you down the path of life. We live in a large, expensive home with high property taxes and high maintenance costs. We have paid off our mortgage so we can afford to be here. But the big doctor house is as much of a burden as it is a pleasure. Overall it’s fine, it’s a very nice house, but in reality, smaller, less maintenance, and less cost would probably be better for us overall in terms of less responsibility and more flexibility, both in terms of time and money.

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                    • #11
                      If the quote is $2.5M, expect the final tab to be over $3M. I have never heard of anyone who had a building project that did not go at least 20% over-budget. And then you get to furnish the new place. You will not like your old stuff in the new place. I would sooner purchase one of the $2M homes on the market.

                      With a house, as in most things in life, you are not going to get everything you want (unless your last name is Bezos, Musk or Gates). You will have to make compromises. This is a good opportunity to learn to lower your expectations. If you end up being more financially successful in the future, you can always add and update. If not, you will not be tied to the larger mortgage. Maybe one of you will want to go part time in a few years. Maybe one of you will have to go part time or leave work. At the age of 40, don't commit to something that your 50-55 year old self could be miserable in trying to keep up.

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                      • #12
                        Kudos on the 500K in the Roth accounts. You guys are killing it. If this is Austin or Nashville, likely would be fine.

                        What happens if the house goes over budget 10-20%? That would be an extra 250-500K. Could you handle that in your budget? I haven't met anyone that hasn't gone over their budget when building a home. Have you factored in property taxes on a home of this price? Brand new beautiful homes also "need" brand new furnishings as well.

                        I personally wouldn't, as right now you have tons lots of options in life. With a huge mortgage, it will always be hanging over your head.

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                        • #13
                          Originally posted by VagabondMD View Post
                          If the quote is $2.5M, expect the final tab to be over $3M. I have never heard of anyone who had a building project that did not go at least 20% over-budget. And then you get to furnish the new place. You will not like your old stuff in the new place. I would sooner purchase one of the $2M homes on the market.

                          With a house, as in most things in life, you are not going to get everything you want (unless your last name is Bezos, Musk or Gates). You will have to make compromises. This is a good opportunity to learn to lower your expectations. If you end up being more financially successful in the future, you can always add and update. If not, you will not be tied to the larger mortgage. Maybe one of you will want to go part time in a few years. Maybe one of you will have to go part time or leave work. At the age of 40, don't commit to something that your 50-55 year old self could be miserable in trying to keep up.
                          Almost identical post at the same time!

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                          • #14
                            Also what's the exit plan for that house. General rule...don't buy the largest biggest house in the area. 2.5m in San Diego not that unusual. How is that in your market?

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                            • #15
                              "net worth is ~2.8 million", seems silly to switch your AA to what is going to be a $2.5m-$3.0m house asset. The kids won't be there 20-30 years. Back to basics, the house is not really an investment. The exit from this house will be expensive in 30 years, your savings rate will be diminished as well.
                              Short version is you will be house rich and work a long time to pay for it. I think you might come to regret it. You have a big shovel, better off using it for investments for the next 5 years or so. You can afford it, but that does not mean you should. do it. Slave to the house is not a path I would recommend.
                              The killer is you don't seem to have a need for it. I , would segregate your retirement savings (including the taxable whatever that is retirement). Then see how your NW is, I think you are simply too early.

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