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Can I Afford this vs Should I Buy it

Home Mortgages and Home Buying Can I Afford this vs Should I Buy it

  • Avatar angeladiaz99 
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    Earnest refinancing bonus

    Thanks for the pointer about the commute, will definitely mention it to my husband

    I could PM a photo but I probably wouldn’t feel comfortable sharing it on a forum. The house is unique enough where if you submit the image to Google search, it pops up as the only result. We live in what I would consider to be a moderate COL coastal area but there are numerous parts of town that would be considered VHCOL (e.g. rivaling or exceeding homes in NYC/SF). As a for instance, my hospital’s chief medical officer combined two plots of land ($3M x 2) and then built a $6M home atop those plots of land. He still doesn’t have the most expensive property in the neighborhood.

    No offense taken with any of the posts. I find it extremely helpful since my husband was quite taken aback. He thought we could easily afford it and didn’t think he’d run into so much resistance. It’s nice to hear from other sources so he knows I’m not just being a nagging, fiscally conservative wife for the fun of it 🙂

    We own our current home so we wouldn’t be interested in leasing. Our decision point is stay (likely at this point) or buy a new home.

    Our current net worth is probably ~$4M. We don’t plan on dying with anything close to $45M or $90M.

    So as an additional add-on question, how much should we spend if we are looking to move? It seems like the forum doesn’t like WCI’s rules which is what we tried to follow (mortgage no more than 2x gross annual income, monthly expenditures no more than 20% gross monthly income). We estimated $2M for the mortgage, $500K down, and then $500K from our current home to reach the $3M number for our formerly desired house. Should higher income docs be more conservative as compared to WCI’s rules for a mortgage?

    #154939 Reply
    Avatar artemis 
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    The price for my husband’s dream house has fallen by $1M over the last 3 years because no one is interested in it. It is a modern white box in a town that has some very traditional architecture. It suits our style but you are correct that it would likely take a few years and price reductions before we are able to unload it. It is also close to the beach so maybe someone will give us all our money back just for the plot of land 30 years down the road

    Click to expand…

    I know you’re probably walking away from the property (which given its earlier depreciation is probably a wise move), but I’d point out that after Sandy, Harvey, Irma, Maria, and Florence the words “beachfront property” may not be as alluring to buyers as they once were (at least not on the eastern seaboard).

    #154940 Reply
    Avatar artemis 
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    I find it extremely helpful since my husband was quite taken aback. He thought we could easily afford it and didn’t think he’d run into so much resistance. It’s nice to hear from other sources so he knows I’m not just being a nagging, fiscally conservative wife for the fun of it ?

    (snip)

    It seems like the forum doesn’t like WCI’s rules which is what we tried to follow (mortgage no more than 2x gross annual income, monthly expenditures no more than 20% gross monthly income). We estimated $2M for the mortgage, $500K down, and then $500K from our current home to reach the $3M number for our formerly desired house. Should higher income docs be more conservative as compared to WCI’s rules for a mortgage?

    Click to expand…

    WCI’s rules are only a rough guideline.  On paper, you can absolutely afford that house.  But once the shine has worn off, how much will the two of you really enjoy it?  And what are you trading off to get it?  30 minutes/day of your husband’s free time for sure, who knows what in the future (nice family vacations when the kids are older, loan-free or better quality higher educations for said kids, being able to walk away from medicine and do something else if you grow tired of it?  No doubt I’m forgetting other things that could be added to the list.) And you risk finding that when the place becomes too much for you both physically and financially and you’re ready to downsize, it will be very difficult to sell.

    Your fellow posters just want you to think very carefully before you cheerfully jump on the hedonic treadmill.  Material goods usually don’t bring us as much happiness as we think they will.  Money in the bank (or rather, the flexibility money in the bank gives us) is generally more valuable.  That house is not an investment; it’s a consumption item.  Don’t fool yourself into thinking otherwise!

    #154941 Reply
    Liked by hatton1, eyecandy
    Avatar jhwkr542 
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    With regards to how much to spend, the 2x rule is very malleable. It fails in hcol areas especially. I think a lot of us took more issue with your proposed house for non financial reasons. The hour long commute, your hesitation, the idea of it being a dream home/falling in love with a house, the fact that it’s sat so long that the current owners are willing to forgo $1MM to sell it, etc. All these things plus a $3MM price tag gets a pretty swift “no” from this crowd. We all see houses as a poor investment and a drag on net worth while not bringing as much happiness as, say, cutting back on work, taking vacations, etc. We realize burnout comes from being forced to work a job we don’t long for in order to keep up the extravagant lifestyle we’ve self imposed. We realize having higher housing expenses not only means that we have less for things that bring us more enjoyment but it also means we need that much more for financial independence. We’re more Mr money mustache than Robin Leach.

    #154944 Reply
    fatlittlepig fatlittlepig 
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    i still say buy the house or a similar priced property, i much prefer to limit the number of fatlittlepigs in this world. after buying the house please be sure to get a nice car, you need a nice vehicle for that kind of commute. only high end furnishings for the house as well please

    Fatlittlepig

    #154965 Reply
    Lithium Lithium 
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    We need a dislike button.

    hatton1 hatton1 
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    I feel stupid for agonizing over a $700k house.  I wrote a blog post about it.  A house is a consumption item in my area.

    #155369 Reply
    Avatar Dont_know_mind 
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    I feel stupid for agonizing over a $700k house.  I wrote a blog post about it.  A house is a consumption item in my area.

    Click to expand…

    What do you reckon the land value is on the 700k house Hatton?

    #155379 Reply
    Avatar Tim 
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    Guess:
    Land. 120,000
    Building & improvements 580,000

    20% land 80% improvements would be
    140/560.

    #155412 Reply
    hatton1 hatton1 
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    I think Tim’s numbers are good.  Lot $100-120k. Gated. 0.4 acre.  New construction.  Walking distance to hospital.

    #155426 Reply
    Avatar Dont_know_mind 
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    I think Tim’s numbers are good.  Lot $100-120k. Gated. 0.4 acre.  New construction.  Walking distance to hospital.

    Click to expand…

    It might be more of a consumption item than a long term investment. But you can afford it. I guess you only live once !

    A 700k house which is 10% of your net assets is different to a 3M house which is 75% of your net assets.

    All the best with it. Your blog is great as well.

    #155430 Reply
    Liked by q-school, hatton1
    hatton1 hatton1 
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    Yes to me housing is consumption.  At least the personal residence.

    #155431 Reply
    White.Beard.Doc White.Beard.Doc 
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    Let me share a few personal thoughts on the subject of large, expensive homes.

    I am the owner of a too large, very expensive, albeit beautiful home, on a prime piece of property mere minutes outside the city limits of one of the most desirable and expensive cities in the country.  We bought it as a foreclosure in the depths of the real estate depression.  My wife loved it… I thought it was way too big for us but the location was perfect for both of us.  My wife had a 3 minute commute until retiring this year, and my commute is roughly 4 to 7 minutes depending which of 2 locations I am heading to on any given day.  I was somewhat reluctant to buy it as the size, maintenance, utilities and taxes were expected to be significant.  But the price was so low due to the foreclosure situation.  I figured the land, the enjoyment and the likely ability to sell for a significant profit in better times would make up for much of those other negatives.  The truth is one never knows how any given investment or major purchase is going to work out, but there are times in life when we simply decide to make that leap of faith.

    Here we are years later.  How do I feel?  My wife loves the house, and I love many things about the house, particularly the location.  It is great going to work and being able to dash home for lunch in 5 minutes if I feel the desire.  The grounds and gardens are a great source of joy to my wife and I do enjoy them as well.  The biggest negative is the property taxes, and they are substantial.  I had psychologically justified the excessive property taxes in the past with the income tax deduction making the taxes a bit more palatable.  However, with the new tax law, we lost that deduction.  Although we can easily afford to pay the property taxes, thinking forward to retirement, once I am no longer working and earning a high income, I don’t think I will want to be paying such high property taxes from my retirement assets.

    We are at a later stage of life in comparison with you, so the house value, while high, is a small percentage of our net worth on the cusp of retirement.  If I had to do it over again, would I buy this big, expensive house?  I would probably say yes as the joy has been significant and our income has been stable and high enough to make it easily affordable without compromising any other financial needs.

    So my thoughts for your situation… If you love the house and the high income is stable and will allow you to pay it off in only a few years, and the long commute is not an issue for your spouse, then go ahead.  The 1 hour commute would be a total deal breaker for me, but everyone has different trigger points.

    Best of luck to you in your decision.

    #155437 Reply
    Liked by hatton1, Zaphod
    Avatar Tim 
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    Many places, $700k is not ostentatious. It’s not a starter home, but you aren’t a starter either. Housing is consumption, when you tire of it, downsize.
    No big deal.

    #155439 Reply
    Liked by hatton1
    Avatar Dont_know_mind 
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    Let me share a few personal thoughts on the subject of large, expensive homes.

    I am the owner of a too large, very expensive, albeit beautiful home, on a prime piece of property mere minutes outside the city limits of one of the most desirable and expensive cities in the country.  We bought it as a foreclosure in the depths of the real estate depression.  My wife loved it… I thought it was way too big for us but the location was perfect for both of us.  My wife had a 3 minute commute until retiring this year, and my commute is roughly 4 to 7 minutes depending which of 2 locations I am heading to on any given day.  I was somewhat reluctant to buy it as the size, maintenance, utilities and taxes were expected to be significant.  But the price was so low due to the foreclosure situation.  I figured the land, the enjoyment and the likely ability to sell for a significant profit in better times would make up for much of those other negatives.  The truth is one never knows how any given investment or major purchase is going to work out, but there are times in life when we simply decide to make that leap of faith.

    Here we are years later.  How do I feel?  My wife loves the house, and I love many things about the house, particularly the location.  It is great going to work and being able to dash home for lunch in 5 minutes if I feel the desire.  The grounds and gardens are a great source of joy to my wife and I do enjoy them as well.  The biggest negative is the property taxes, and they are substantial.  I had psychologically justified the excessive property taxes in the past with the income tax deduction making the taxes a bit more palatable.  However, with the new tax law, we lost that deduction.  Although we can easily afford to pay the property taxes, thinking forward to retirement, once I am no longer working and earning a high income, I don’t think I will want to be paying such high property taxes from my retirement assets.

    We are at a later stage of life in comparison with you, so the house value, while high, is a small percentage of our net worth on the cusp of retirement.  If I had to do it over again, would I buy this big, expensive house?  I would probably say yes as the joy has been significant and our income has been stable and high enough to make it easily affordable without compromising any other financial needs.

    So my thoughts for your situation… If you love the house and the high income is stable and will allow you to pay it off in only a few years, and the long commute is not an issue for your spouse, then go ahead.  The 1 hour commute would be a total deal breaker for me, but everyone has different trigger points.

    Best of luck to you in your decision.

    Click to expand…

    Buying a house on acreage can be a very good investment long term with rezoning potential. Particularly if bought during a recession. What is the land:building ratio on your property though Whitebeard and do you think it would have gone up much if it had been 20% ? I tend to think a ratio less than 50% is like gravity over time. You could do well buying at a good time but the odds over time are not favourable. It could be in a sought after area and appreciate, but the appreciation on the 20% land has to outweigh the depreciation on the 80% building and that is a lot of work to do.

    #155447 Reply

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