700k house in cash or 3m house with mortgage?

[FCP]

Hello all,

I make between 1.5 and 2.5 million a year (I don't want to give exact numbers).  My net worth is around 1.5 million.  Student loans are paid off.  I max out all retirement accounts annually.  I enjoy working, so early retirement doesn't appeal to me.  I have multiple contracts with various hospitals and own my own practice, so financial security is good unless I were to get disabled or lose my license.

I was wondering what everyone's thoughts were, on buying their dream home for 3m+, vs using the down payment for that and getting a house they'd be OK with for at least 5 years and paying for that house in cash (with plan to transition to that dream home in 5-10 years, if at all)?

There is greater immediate security in doing the latter (if something were to happen to me this year or within the next few years, at least the house would be paid, and I have enough in savings and disability insurance that I'd be set for life).  However, there is much more fun in the former, and it's a place that I would likely keep for life (unless I decided to be even more extravagant in my 50's and beyond).  I also anticipate the more expensive house would continue to fuel my motivation to work hard, but that is less clear to me; I might just get used to it after a while and it may end up being more of a burden than anything else.

Also; I have a partner, no kids yet, and am in my early 30's.

Thoughts?

[G]

That's an expensive house for a relatively small NW.  Can't quite get the numbers to add up with a $2M income; but whatever, I'm not really sure why you would hesitate if it's really a dream home.  You can afford it:  Take the mortgage and pay it off in a couple years.

[Peds]

I think it won't matter. But will the dream house you get today be the same as in 5 years? Probably not....

[artemis]

You can certainly afford the dream home.  But I'd stop and consider first:  what exactly is it that makes it your dream home?  If it's location, that's one thing.  But if it's size and finishes, that's different.  An overly-large house can become a burden to clean and also to maintain, and new house excitement is like new car smell:  it fades over time. Ultimately a countertop is a countertop, regardless of what it is made of.

(And remember, if you ever get married, your 3-million dollar house may no longer be your dream home.  That goes double if you then decide to have kids!  And a house that works for you at age 30 may not work for you at all at age 65.  The odds are good that you will NOT be living in the 3 million dollar dream home until you die, so don't think of it as a place you'll own forever.)

[CordMcNally]

Giving a million dollar range in income is big and kind of odd. Nonetheless, a lot more information is needed, more specifically, your spending and ultimate goals. What's the real price of the $3M+ house? That's a huge range with literally no ceiling. Also, lifestyle spending will also drastically increase with a home that expensive. Given the limited information here, I would say no. You give up so many future options if you get house crazy now.

[PhysicianOnFIRE]

FCP wrote:

I have multiple contracts with various hospitals and own my own practice, so financial security is good unless I were to get disabled or lose my license.

Click to expand...

I would start with a good disability insurance policy if you actually do not have that piece yet.

Dreams change and a home costs a lot more than the purchase price. Is there a middle ground between the $700k house for cash and the $3 Million dream home?

[Kamban]

You are young. You can easily enjoy a $700K house. And the money saved with less maintenance, furnishing and all the additional costs of a expensive house ( taxes, insurance... ) can be used to invest. When the time comes you can move into the then dream house ( not current dream house) in 10 years time.

Improve your net worth more ( for your salary) before going into extravagant purchase.

JMHO.

[FCP]

G wrote:

That’s an expensive house for a relatively small NW.  Can’t quite get the numbers to add up with a $2M income; but whatever, I’m not really sure why you would hesitate if it’s really a dream home.  You can afford it:  Take the mortgage and pay it off in a couple years.

Click to expand...

Appreciate your thoughts.

Peds wrote:

I think it won’t matter. But will the dream house you get today be the same as in 5 years? Probably not….

Click to expand...

That is my concern.

artemis wrote:

You can certainly afford the dream home.  But I’d stop and consider first:  what exactly is it that makes it your dream home?  If it’s location, that’s one thing.  But if it’s size and finishes, that’s different.  An overly-large house can become a burden to clean and also to maintain, and new house excitement is like new car smell:  it fades over time. Ultimately a countertop is a countertop, regardless of what it is made of.

(And remember, if you ever get married, your 3-million dollar house may no longer be your dream home.  That goes double if you then decide to have kids!  And a house that works for you at age 30 may not work for you at all at age 65.  The odds are good that you will NOT be living in the 3 million dollar dream home until you die, so don’t think of it as a place you’ll own forever.)

Click to expand...

It is a house in a wealthy suburb with excellent school district, etc.  The reason I think I'd live there forever, is because many neighboring houses include people in their 70s and 80s who have lived in the same home for 40+ years.  The home would be perfect for kids/married life/etc.  It is both appealing in size (over 5000 sqft, so I can have my parents/siblings/nieces/nephews stay over during holidays and other celebrations without feeling cramped) and finishes.

CordMcNally wrote:

Giving a million dollar range in income is big and kind of odd. Nonetheless, a lot more information is needed, more specifically, your spending and ultimate goals. What’s the real price of the $3M+ house? That’s a huge range with literally no ceiling. Also, lifestyle spending will also drastically increase with a home that expensive. Given the limited information here, I would say no. You give up so many future options if you get house crazy now.

Click to expand...

The vast majority of my money is saved or invested; I spend less than 1/4 of my after tax income.  The real price of the 3M+ home is 3M exactly (I modified the + just now).   Thank you for your thoughts though.

[FCP]

PhysicianOnFIRE wrote:

FCP wrote:

I have multiple contracts with various hospitals and own my own practice, so financial security is good unless I were to get disabled or lose my license.

Click to expand…

I would start with a good disability insurance policy if you actually do not have that piece yet.

Dreams change and a home costs a lot more than the purchase price. Is there a middle ground between the $700k house for cash and the $3 Million dream home?

Click to expand...

Ah, I have a good disability insurance policy; I should have rephrased that.  However, it would not be a policy that covers a mortgage on a 3 million house.

There is definitely a middle ground; I just feel like I wouldn't be that happy with a house in the middle over the long term (over 10 years), and it would be harder to sell without a bigger hit (usually the more expensive the home, harder it is to sell, more transaction costs, etc).

Kamban wrote:

You are young. You can easily enjoy a $700K house. And the money saved with less maintenance, furnishing and all the additional costs of a expensive house ( taxes, insurance… ) can be used to invest. When the time comes you can move into the then dream house ( not current dream house) in 10 years time.

Improve your net worth more ( for your salary) before going into extravagant purchase.

JMHO.

Click to expand...

This is what I am leaning toward but I wasn't sure if it was a waste of time/energy/money to be hopping around from one house to the next within 5-10 years.  Thank you for your thoughts.

[artemis]

FCP wrote:

artemis wrote:

You can certainly afford the dream home.  But I’d stop and consider first:  what exactly is it that makes it your dream home?  If it’s location, that’s one thing.  But if it’s size and finishes, that’s different.  An overly-large house can become a burden to clean and also to maintain, and new house excitement is like new car smell:  it fades over time. Ultimately a countertop is a countertop, regardless of what it is made of.

(And remember, if you ever get married, your 3-million dollar house may no longer be your dream home.  That goes double if you then decide to have kids!  And a house that works for you at age 30 may not work for you at all at age 65.  The odds are good that you will NOT be living in the 3 million dollar dream home until you die, so don’t think of it as a place you’ll own forever.)

Click to expand…

It is a house in a wealthy suburb with excellent school district, etc.  The reason I think I’d live there forever, is because many neighboring houses include people in their 70s and 80s who have lived in the same home for 40+ years.  The home would be perfect for kids/married life/etc.  It is both appealing in size (over 5000 sqft, so I can have my parents/siblings/nieces/nephews stay over during holidays and other celebrations without feeling cramped) and finishes.

Click to expand...

I'm also single with no kids.  Take my experience with a heaping tablespoon of salt, but I found a 2800 square foot house too big for me.  I didn't use half the rooms, and it was a lot to clean.  Just keeping up with the yard work on the weekends was a struggle (and that was after hiring someone to mow the grass).  I never did get around to fully furnishing it before I finally decided to downsize to a smaller condo.

Yes, the extra rooms are nice when family visits - but how often is that actually likely to happen?  The rest of the time you're paying to heat, cool and clean spaces you're not actually using.  Putting the relatives up in a hotel room is cheaper and less hassle.

How much of your free time (and money) do you actually want to spend on maintaining a house?  Are you a fixer-upper type or a homebody, or do you like to go out on the weekends and do things or travel a lot?  If the former, you might appreciate a big house, but if you're the latter type, you may come to feel the house is owning you rather than you owning it.

[wideopenspaces]

I personally have a hard time understanding how a young single guy would enjoy a 5k sqft house. That's . . . a LOT of house to fill, decorate, clean, maintain. And this is coming from a mom of 2 that loves to design, decorate, organize, etc. I mean I am just a house person and I would not like a property that large. Plus the fact of the matter is that if you do meet a partner, the chances of them loving this house and not wanting some say in where they live for 40 years is close to nothing. I'd find some middle ground, knowing you will probably move if you meet someone, have kids, etc. Congrats on your success though!

[Brains428]

What area of the country is it in? Or better yet, what's the cost of living? There are multiple physicians in my area (LCOL) who are having trouble selling homes in the $1-2M range even though they're listing at a loss.  Many custom builds 6-7k sq ft. Most are selling to downsize as kids have left the house.

As with all things extravagant, it may be affordable, but may extend your time table to financial independence.

 

[DCdoc]

No doubt you can afford a 3 million dollar house. But as a single person without kids, why would you want that? I hate my house and all the costs associated with it. And it’s definitely not 3 million. In your shoes I would be renting a hip downtown condo under kiddies were on the way. No driveway to seal-coat. No mulch to have put down. No grass to mow. Seriously, you’re young. Why would you ever want a 3 million dollar house now? I can almost guarantee a similar house will be available in 3-5 years when you’re ready for that.

[ddswifey]

There's no such thing as a "forever house".    That's a unicorn that will disappoint.    Go VRBO a house that big for a month and see how it feels if you truly think that isn't too big.  The upkeep/maintenance/cleaning lady cost is just the start.  It'll prob throw some amazing parties with a house like that but it won't be your forever home.

[burritos]

I think you can readily afford the 3 mill home. You don’t have wife or kids so working to generate that income without schedule conflicts won’t be an issue. You love your work so burnout won’t be an issue.

I love young people willing to work and contribute to the machine:equity wise, tax wise, and economically promoting wise.

You’re not going to make a big decision like this based on some random advice from strangers. I suspect there’s some flexing happening here amongst peers, that’s okay. I’m impressed with those numbers., even a little bit jealous. That’s ok cause my above sentiment is sincere. I say go for it.