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  • Lot Purchase/Custom Home Build

    First WCI post...

    We are a dual physician couple in our mid 30's with 3 young kids- combined salary around 1.4M and have recently stumbled on a private lot sale through mutual friends. The lot is in a highly desirable community where the newer homes tend to sell 2M+, and has 300 ft of lake frontage giving us plenty to work with to design our dream home (most lots are 80-100ft of frontage in the area). The owners want 1M for the lot which is reasonable given the comps in the area but still difficult to stomach paying that much just for land. Ideally, would like to build a 4000-5000 sq-ft house. Custom home builders in the area are around the 300-350/sq-ft so would budget around 1.5M for the build. We are both established in our practices and are planning on this to be our "forever" home.

    With that said...
    -Do you think we are in over our heads buying a million dollar lot with around a 1.5M build with our salaries? No debt other than current mortgage. We are currently investing around 40K a month between our backdoor Roths, 401K and taxable accounts. This would probably get cut to around 30K a month after the house is built. No plans for private schools for the kids and don't have any other major anticipated expenses in the future.
    -We are not interested in starting the build process until next year, but with the current mortgage rates being so low, would it be in our best interest to just buy the property now? Or do you think things will be similar in the Spring/Summer of 2021? The owners do not care when or if we buy (they have estates in multiple states and by no means are depending on our sale).

    Thank you in advance for any feedback/advice!


  • #2
    so you want to spend <2x your income on a mortgage?.....

    Comment


    • #3
      How much land are you getting? How much work will be needed to prep the land to build (clearing, resurfacing, retaining walls, well, sewer, getting other utilities to the lot)? Have they been looking to sell the land and can't? Basically, what negotiating power do you have?

      Expect your architect fees to be more expensive than you think.

      Lumber prices are about 25% up right now and projected to be so for the next 6 months.

      Take that 300-350 and just make it $400. It'll set your bar where it needs to be so you won't get as much sticker shock.

      Can you afford it? Yes.

      Comment


      • #4
        With that income this seems like a non issue. Might be reasonable to consider what it looks like if one of the earners goes part-time or stays at home as this can drastically change the picture.

        Comment


        • #5
          Can you afford it? Currently yes.
          •Without knowing the specifics (even then doubtful) can’t tell if $2.5 is a fair or reasonable price. Likely underestimating ongoing costs.
          •I would step back and consider this from purely a consumption view. Do you want to drop $2.5m on a house?
          •You probably don’t need it.
          • I would feel better if it weren’t for the interest rate that seems to be an influence. Favorable if it was more of an asset allocation to real estate question, downpayment vs taxable account or taxable vs paydown mortgage.
          • $1.5m “House downpayment fund” in 3 years would make me feel better saying it’s up to you how you spend. It’s the leverage (which you can afford) that gives me pause.

          Comment


          • #6
            What is your retirement savings? If that is good then you can go ahead.

            You are investing $480K a year on 1.4M salary. But if you build this house and also furnish it to its appropriate level, your savings rate and amount will drop significantly. So keep an eye out for that, especially considering you have 3 kids with looming future college expenses.

            Also have a "what if" scenario in mind. What if your spouse or you take time off or quit working or become disabled. Can you afford this on one salary and also keep up with reasonable savings?

            Comment


            • #7
              I made that mistake at age 32. My dream home is 20% the size of my current one.

              ...but financially you can afford it too.

              Comment


              • #8
                If the income is stable for both you and your spouse, then you can theoretically afford this house. But that is the big question, the stability of the income.

                What will a resurgent or prolonged Covid pandemic do to your income? What might the coming changes in medicine do (perhaps a democratic sweep of the presidency and both houses of congress) do to your income if your income taxes doubled, or if we got a medicare for all national health plan? And what would happen if one of you became disabled and could not work?

                When you have an income that high, the risks become higher for something to change. If everything goes smoothly, you will be fine. But things in life do not always go smoothly. I would consider the possibility that too much house will actually make life more stressful and less happy, rather than more happy.

                Comment


                • #9
                  I purchased a nearly $2M dollar home when I was around 40. We had been living in a nice $400k home. I've loved my new house thru the years but, as I get older and the kids reach the point of moving out of the house, I can't help but think "wow, what if I'd paid that $400k house off a long time ago and invested this nearly $2M (for this house) instead???" As I get older, I'm realizing more and more that I enjoy my life experiences more than y big huge house. Just saying your perspective may change as you age, and your children get to the point where they leave for college

                  Comment


                  • #10
                    I say go for it but with everything: lot, transaction/loan fees, architect fees, landscape designer, structural engineer fees, building overages, landscaping, hardscape, furnishing I can be 90% certain you’ll be at 3M

                    Comment


                    • #11
                      Originally posted by Brains428 View Post
                      How much land are you getting? How much work will be needed to prep the land to build (clearing, resurfacing, retaining walls, well, sewer, getting other utilities to the lot)? Have they been looking to sell the land and can't? Basically, what negotiating power do you have?

                      Expect your architect fees to be more expensive than you think.

                      Lumber prices are about 25% up right now and projected to be so for the next 6 months.

                      Take that 300-350 and just make it $400. It'll set your bar where it needs to be so you won't get as much sticker shock.

                      Can you afford it? Yes.
                      We would be getting 1.7 acres of land. The land is already cleared where we would place the home and has a seawall. We would just need a portion graded to get access to the water (the property sits high up from the water with a lot of trees to partially clear).
                      Last edited by DualPhysicianFam; 07-23-2020, 07:08 AM.

                      Comment


                      • #12
                        Originally posted by Kamban View Post
                        What is your retirement savings? If that is good then you can go ahead.

                        You are investing $480K a year on 1.4M salary. But if you build this house and also furnish it to its appropriate level, your savings rate and amount will drop significantly. So keep an eye out for that, especially considering you have 3 kids with looming future college expenses.

                        Also have a "what if" scenario in mind. What if your spouse or you take time off or quit working or become disabled. Can you afford this on one salary and also keep up with reasonable savings?
                        We have just over 1M in investments, both retirement and taxable account (we have only been out of fellowship for 3 years and aggressively paid off student loans first).

                        We have talked about the “what if” scenario quite a bit and are ok with the possible decreases in salaries. The only situation where it wouldn’t be feasible is if my spouse outright quit, we would be unable to live on just my salary but would be ok if he was collecting disability with his current policy.

                        Comment


                        • #13
                          Originally posted by DualPhysicianFam View Post

                          We would be getting 1.7 acres of land. The land is already cleared where we would place the home and has a seawall. We would just need a portion graded to get access to the water (the property sits high up from the water with a lot of trees to partially clear).
                          1.7 acres for a million? HCOL area?

                          Comment


                          • #14
                            Originally posted by DualPhysicianFam View Post

                            We would be getting 1.7 acres of land. The land is already cleared where we would place the home and has a seawall. We would just need a portion graded to get access to the water (the property sits high up from the water with a lot of trees to partially clear).
                            A good friend built a house on the lake. He also has a property that steeply banks to the lake. He has tall trees and even clearing a walking path to the lake cost more than he thought it would. He got the lot cheaply because it did not come with rights for a dock. Make sure yours has one even if you do not have a plan for a boat, since lots without boat docking facilities are much less valuable.

                            A neighbor had a dock and it was quite a sum of money to clear a few tall trees in his property to access the lake.

                            Grading land, even a small portion, is always more expensive than you get an initial estimate for. I went through that process 2 years ago..



                            Comment


                            • #15
                              Originally posted by EntrepreneurMD View Post
                              I made that mistake at age 32. My dream home is 20% the size of my current one.

                              ...but financially you can afford it too.
                              Why wasn’t a mistake? Did you not like the house? Too much to take care of?

                              Comment

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