Have $1M but made a bad mistake !

[ariesonthecusp]

So I'm married (wife is stay at home mom) with one kid and a baby due in a few months. I just moved my mom across the country to live with us to help out .

I have a $700K house I own outright, and about $280K in cash in the bank and make generally $350K per year. I'm 35 and own my business, but I just found out my main client (another business) of over 8+ years will be going away in 7 months (we had optional contracts to do business for 2 more years, so I was depending on that). I will make another $200K before the client goes away in 7 months

So here is the kicker. I just bought a new car on Thursday, on Friday I get the call from my client saying they only have enough capital to continue doing business for 7 more months. I already own a small car $23K, but with a new kid, we couldnt fit 2 car seats in it, so I had to get a new car. I figured I could pay off the new car in a 1.5 months and make payments on the old car. The new car costs $30K. The only other debt I have is a small student loan of like $8K. I figured I would be debt free in 3 months with 2 cars and a house owned outright, but then the big client surprise hit me out of no where.

Where I live, I cant return the car, so I can only sell both and get one big car (and take at least a $5K immediate loss) or keep both/one or the other. I'm really regretting buying the new car, and I know everyone here will say sell one but  we need 2 cars so my wife can do things when I'm at work

My house has only 3 bedrooms, and with a new baby, we will need somewhere else to put my mom eventually (in 1 year). I was going to build an addition on to the house which would add 2 more rooms, but that will cost around $120K and I dont want anymore debt. I was going to get her a small rental apartment, but that costs around $1100/month and is just throwing money into a hole. I'd prefer to just build an addition since it would be like renting her a place (the paymentes would be equal to her rent)

So here is the question, we will have a maternity bill of $10K in a few months, a property tax bill of $11K in a few months and I wont have my high paying client in 7 months. I feel really lucky to be in my position, though I've worked really hard for 10 yrs to get where I am. I have some other things that might have some potential financially, but I have no idea if it will happen and when.

What would you all do in the above situation ?

I dont know if its wise to pay down all my debt for the cars, as I'd like to have that cash on hand for living expenses (generally $3K/month), but the monthly payments on the cars are $890/month. So I'm on the fence, paying off the cars would seem like a huge waste of cash since they are a depreciating asset, though we need them. But I may need the cash to pay monthly expenses until my next business deal happens (if it goes through)

EDIT: I should also mention, I can easily get a regular job (engineering) making over $120K in the worst case scenario, so I will always have money coming in

[Another Reader]

I would start looking for other clients starting today.  Any business that relies on one client for more than half its revenue should be considered high risk and the owner should not be spending all the profits on $30k cars and $120k additions.

[ariesonthecusp]

Thanks for the reply. I've been in business for 10 years and have had multiple clients, but am down to this main client as of now. I also clearly stated that I was working on getting other clients/business, so I'm not sure why you mentioned that. I also said, I was thinking of building a $120K addition, not that I already have.

Is it high risk ? Yes, I will give you that, but I could pay off all my debts so its not like I've been in business for 1 year with nothing to show for.

Also, not sure if you were trolling, but how did you arrive at the assumption that I'm spending ALL the profits ?

[Frankies Girl]

I would start looking for other clients starting today.  Any business that relies on one client for more than half its revenue should be considered high risk and the owner should not be spending all the profits on $30k cars and $120k additions.

+1
That is scary dangerous to have counted on one client to maintain your lifestyle. It doesn't matter if you had other clients in the past, you stated your business was pretty much all this one client, and they are going away. I don't see Another Reader's comments as trolling at all - it is taking a huge risk to try to maintain a lifestyle of expensive cars and expensive house and supporting a stay at home wife and now your mother (which it is implied from your post is going to be supported by you) and two children when you have put all your financial eggs in one basket when you're responsible for so much.


I would sell or turn in the new car, sell the "old" car and locate two reasonably priced used cars that can hold two car seats that you can buy outright (plenty of sedans and even compact cars can hold 2 car seats and would be around $5K actually if you look for something 5-8 years old). You'd save not only on the new car payments, but on insurance for older vehicles.

I would also question whether there are better housing options than having a $700K house - that is way too much money tied into equity. You may be a millionaire on paper, but if you have the majority of your money trapped in a house, that's not going to help much. Not sure where you live, but there have to be some options.

A baby doesn't need its own room, so you could put both kids in the same room and have your mother take the third bedroom if you have to have her living with you.

Might be a good time to have a serious meeting about the future with your wife and mother since your financial situation may become extremely uncertain unless you can drum up new business that will replace what you're about to lose. Could sell the house and relocate to a cheaper area with more room and recoup some of the money trapped in the house since you work for yourself. Wife could find a job if your mother still plans on living with you in a year, and your mother could watch the children, or you might need to find a job and work your business as a side hustle if you can't get more clients to support your current situation. At least you have some warning that it is coming, and have time to cut back, find new clients and maybe downsize so your money can go farther. Some folks get no warning at all, and that would be truly scary and horrible.

[SnackDog]

Financially speaking, I would sell the house and invest in the stock market while I rented a three bedroom house or apt with good walk ability. I would give Mom one room and the kids share until they are at least 8. If Mom gets in the way assist her into an apartment she can afford.

I would sell all vehicles and buy a 6 year old Hyundai minivan.

I would pay off the student loan and any other debt ASAP.

Then I would slash spending in hopes of achieving ER by age 40 or so.

[Another Reader]

I have friends that lost their business when their main client disappeared.  They owned their house free and clear, but they had 18 months left on an expensive building lease.  The economy went south and they could not replace the revenue.  They limped on until the lease expired and sold the equipment for scrap.  I know someone else that lost a printing business when the market and the technology changed.  They relied on a few clients and could not recover from the revenue slide.

As I read your statement, you take in $350k a year.  You seem to be generally conservative, as my friends were, paying off a lot of the household debt.  However, you made assumptions about the stability of your revenue that turned out to be inaccurate and the anticipated loss panicked you enough to raise the questions here.

In your shoes, my time today would be spent trying to replace the income I will lose in 7 months.  I would try to find multiple clients and expand my business into related areas to see if I could attract clients that with less exposure to whatever is happening to this client.  In the interim, I would cut the expenses in the business and at home. 

$53k of cars on $350k of income does not seem like a big deal.  I would not do that, but that's me.  On $150k, well, something would have to go if I were in your shoes.

[LinCO]

Well, my perspective on your situation is not that you made a mistake, because if you had two more years' work lined out you could certainly get all those investments done-pay off the cars, student loans and addition. Also, I know getting yourself set up for a new family member, you do tend to figure it's time for a bigger car etc, so I think you sound reasonable there.

Rather than a mistake, I'd say this was pretty tough timing, I mean the next day?! Talk about life slapping you upside the head!

When this happened to me in my business, it was 4 weeks *after* I'd had my second child. It was definitely a shock and horrible timing.

Here's my advice: plan to keep both cars and hustle up more work. Also, plan to re-evaluate the car plan as the probability of more work gets clearer. Don't do *anything* with your mother until you are clearer on work.

Once you get more work, invest in an alternative revenue stream, like dividend-paying stock or rental property.

[brewer12345]

So you have a paid off (wildly overpriced) house and 280k in cash sitting in the bank.  You will have enough runway left in your business to easily pay off all of your existing debt and probably pile up a bunch of extra cash.  I fail to see the problem, at least in the short term.  What does it cost you to live for a year?  How many months/years of expenses do you have in the bank?  That will tell you a lot about how much runway you have to get the business going again or find another job.

Just a thought: With the equity in your home and your cash in the bank, you are not all that far from being able to semi-retire if the business does not revive.  It might require relocating to a less expensive location, but the option is there if you want it.

[ariesonthecusp]

Brewer12345,

I've been thinking the same thing. Believe it or not, my house actually is underpriced, I bought it from someone trying to get out of a marriage & sell fast, so they grossly underpriced it.  Its in a prime part of the city on a huge lot , walkable to downtown with the best schools. I could easily sell it for way more than I paid (houses here are on the market for less than a few days).

Anyway, I've thought of just renting it and living off of savings. I could probably get by not working & on a budget for 10-15 years (assuming I payoff my cars immediately, and rented a place in another low cost area).

The one small car I have, if I sold it, I'd have to pay like $6k just to get out of it. So I'd be paying a year of payments upfront to get out of it

[brewer12345]

ariesonthecusp, I will be quitting my day job in January.  We have a portfolio that will just about support us (hard to guess exactly what the budget will be in some respects), and DWs small business will make up the difference.  I might work from time to time after some time off or not.  Haven't decided yet.  But I'm in a modest cost area and our fixed expenses simply aren't that high.  Its nice to have options.

[mm1970]

Well, I'd make some plans...just to be careful.  You seem to have plenty of money and little debt, so worst case, you get a regular engineering job.

The cars...you have payments on the cars.  Conservatively?  I'd sell both and replace them with older cars.  Get out of those loans.

I have a 2006 Matrix which works fine for two car seats (three actually, in a pinch when we are carpooling).  And the Honda Civic does too.

As far as the house goes...that really depends on if you like where you live and what the other options are.  If the house REALLY doesn't work for you, I'd sell it and find one that works better.  I'm not sure I would add on.  (I think about adding on also, but really try to "fit" in the house we have).

With 3BR you should easily be able to have a BR for you, a BR for the kids, and a BR for your mom.  Don't really *need* to add on, probably *want* to add on.  If it's comfort you can always give your mom the master.

[daverobev]

Regarding the addition: How much value do you think it will add?

If you build it for $120k, but it only adds $50k to the house, well, that's 5-6 years of 'throwing money away' renting a place for your mum.

If it was me, I'd sell the house, and move somewhere nice but less expensive. Sell either one of the expensive cars - as many others have said on the blog, what you've paid is irrelevant, it's a sunk cost, but continuing to pay is a choice.

$3k living expenses... plus $1k for transport. Just think about that! You can decrease your monthly outgoings by 25% *snaps fingers* just for the inconvenience of driving a not-nearly-new vehicle. Holy crap that's a good deal!! You are not your car, etc.

Anyway, good luck with finding more business. You could be ER now if you wanted - I'm not saying you DO want that, but there you go. It's all just choices.

[Gin]

I am new so forgive my ignorance but if you have 280k cash in the bank why do you have car loans?  Are you getting a better interest rate in savings? 

Congratulations on the new baby.

[totoro]

I fail to see a problem.  You can still pay off your debts - could do it today, with $280 000 in the bank. 

I would pay off all the debt and build the addition right now (assuming it would add the same or more value to your home) if you are planning to continue to work and it would be easy to get a $120 k job if the business client is not replaceable.  Having grandma next to you to help out is irreplaceable if you all get along.

I think you were really smart to go with the one big client if you were making $350 k a yr vs. $120 k a year - best decision ever!  Do you have any business debt/obligations that are a problem when your income drops?  Ie. premises/employees?

You may want to go to the bank and arrange for a low rate home equity line of credit as a safety net.  You don't have to use it but will you qualify if your income drops later and you need it?  Probably better to do it now.

[Hamster]

I think you and I have a different definition of bad mistake:

Your idea of mistake: You have $280k in cash, and are expecting $200k in income over the next 7 months and owe $30k on a car that is now worth $25k and $23k on a car that is now worth $17k.

My idea of mistake: you have $1 million doing nothing for you, and you are living in a house that forces you to pay $11,000 in property taxes per (?year, ? half-year), plus maintenance, etc. You are throwing away money every day.

The good news is, both are easy to fix. First, accept the loss from the bad car purchase, and make a good one instead.
Sell your cars - You said you'd lose $6k on the small one and $5k on the big one.
You walk away with $17k for selling the smaller one, and $25k for the bigger one, leaving you $42k total.
Buy a not-very-mustachian 2008 Honda accord EX, very good condition, blue book private party of $12,500
Buy a somewhat-more-mustachian 2008 Honda Civic EX very good condition, blue book private party value of $10,700
Now you are ahead by $20k in cash and still have 2 nice reliable cars that could fit 2 carseats and 2 adults. You could even squeeze grandma (assuming she's skinny) between the seats in the accord. Or, replace the accord with a 2009 Kia Sedona Minivan for less than the accord and have more room if you wanted.

What is your long-term goal re: plans to keep vs sell your business, how long you want to work, what level of living expenses do you need for a satisfactory (not extravagant) lifestyle? Do you work from home, or are you tied in to the neighborhood you live in now because of proximity to work? How mobile is your business? If you need to live where you do now to maintain your business, what about your alternative of going back to engineering at $120k per year and living somewhere you can buy a much less expensive house and free up that capital to work for you.

Don't build the addition. You don't need more bedrooms. You need to use your bedrooms. One for husband/wife/baby, one for the kids (when baby leaves your room), one for grandma. If you have short-term guests, have the kids sleep in your room a few nights or use another room as a convertible guest room. Or, for the price of a $120k addition, put your guests up in the Ritz-Carlton. You'll still come out ahead.

But, you still have $700k tied up and doing nothing for you but giving you a roof. Sell the house and invest your $1 million in something that will actually earn returns (or at least buy a cheaper house and invest the difference)

If you invested that money, you could half-retire in 7 months (with another $200k minus living expenses earned in that time). Work half-time in your business or your theoretical $120k/year backup option, which would give you the median US household income. Add in the returns on your $1million in your stache. You could be the happiest man on earth if you choose to.

Before you entertain the crazy idea of renting out a $700k single family home, think long and hard about what your return on investment would be, especially after accounting for vacancy, repairs/maintenance, that crazy-ass tax burden, etc.

[oldtoyota]

The big mistake may have been paying off your house if your interest rate was low. If you'd not paid it off, you would have more liquid cash to handle the upcoming expenses.

I do not count my house as part of my net worth, because I need somewhere to live. It's not cash I can use to pay for things.

My advice:

1. Get additional clients.
2. Send out resumes for engineering.

I don't think the person above was trolling either. They were stating that it's dangerous to have one client represent most or all of the revenue for a business.

[ariesonthecusp]

Thanks all for advice ! I really appreciate it

Totoro:  I have no business debt obligations/premises. I work from home with a crew of contractors

Hamster: I can work from anywhere, and though I could do the early retirement route, I actually love what I do and want to continue working as long as I am able to. I agree the $700K isnt doing anything for me, but even if I was able to get 5% consistently in the stock market, thats only $35K a year. To live anywhere near a major city (eg: San Francisco, DC, etc). I'm going to have to pay at least $35K a year to rent anyplace. Yes, if I slummed it in some small townhouse or moved out to the sub-burbs I could pay less, but for my family, we find it really worthwhile to live in a city because of the diversity of food, people, etc & that to us is worth its weight in gold. I definitely see your point about  investing it to live off the income. I thought long and hard before buying the house about that. We definitely can sell the house easily at any time to do it. Let me know if you see any flaws in my logic about paying rent/market returns

oldtoyota: I considered using the money to invest, but like I said, for the type of places we looked at (not even that great, but within a city) any returns in the market would be neutralized by the cost of rent (that goes up). Yes, property taxes are high, but housing appreciation should offset that some.

[Mega]

This may sound a little silly, but why not take out a 30 year mortgage on your primary residence, then invest in a reliable dividend paying stock (e.g. SNH as recommended by MMM - current yield about 7%)

You could net around 3k for every 100k you take out of your house (assuming rate is 4% on mortgage).

That takes care of a chunk of your living expenses.

Other than that, your really don't have anything to worry about, aside from lifestyle creep. You will find another client, you will have a great new baby, life is good.

[RootofGood]

Dude, where has all your money gone?  You have been making $350k/yr from your business, and you have only $3k per month in expenses.  I know taxes are taking a huge bite out of that $350k, but seriously, where is all the money going? 

Regardless of whether your income takes a dive, I'd pay off those cars and/or downsize to something more reasonable in the auto department.  The fact that you are $6k underwater is immaterial at this point - the money is gone! 

It sounds like a $120/k yr job in engineering as a back up plan would be a great plan B if you can't rebuild your business. 

[Hamster]

Hamster: I can work from anywhere, and though I could do the early retirement route, I actually love what I do and want to continue working as long as I am able to. I agree the $700K isnt doing anything for me, but even if I was able to get 5% consistently in the stock market, thats only $35K a year. To live anywhere near a major city (eg: San Francisco, DC, etc). I'm going to have to pay at least $35K a year to rent anyplace. Yes, if I slummed it in some small townhouse or moved out to the sub-burbs I could pay less, but for my family, we find it really worthwhile to live in a city because of the diversity of food, people, etc & that to us is worth its weight in gold. I definitely see your point about  investing it to live off the income. I thought long and hard before buying the house about that. We definitely can sell the house easily at any time to do it. Let me know if you see any flaws in my logic about paying rent/market returns

I'll preface all of this by saying you are doing great finanically. Ahead of the VAST majority of the US. But, this site is about badassity and facepunches, so we are all here to challenge our assumptions and comfort level.

I guess the major flaw I see is that owning the house is costing you not just the opportunity cost of lost opportunity tying up your capital (i.e. the $35k/year you mention), but also:
Taxes - $11k per year (or half year?).
Insurance - Let's say $1500 to be very cheap
Maintenance/repairs - can estimate 1% per year over the long haul. So let's say $7,000.
Utilities - A smaller home would generaly be less expensive depending on efficiency. Let's pretend neutral for sake of argument.
Lifestyle inflation - if you live in a more expensive home/neighborhood, your spending tends to creep upward to fit those around you. Let's pretend you are immune to your environment and say zero dollars.

So, I'd suggest that living in your paid off $700k house is costing you at least $55k per year (conservatively), and even more if the house raises your utilities or other spending. So, you could roughly break even over the long-term by renting for $4500 per month and investing the equity, or potentially come out ahead if you rent for less than that. Obviously there's uncertainty in equity investments, especially in the short term, so it depends on risk tolerance. If it's worth it to you, that's fine, but just look at the real costs.

I'm ignoring housing appreciation since appreciation and inflation in US homes has historically been roughly equal over the long term from what I understand.

If you did take out a low-interest fixed rate mortgage as some have suggested, that does make a nice inflation hedge, and let's you leverage your equity and diversify your investments outside your own home. Taking on debt has its own risks/costs, of course.

Also, as a small-business owner I hope you are taking advantage of the FANTASTIC tax-saving opportunities you have for stashing money away in retirement plans. I hope that there is retirement acct money outside of the $280 in cash that you have.

I could go on (with $900/month for insurance, and $900/month for car payments, how are your expenses only $3000 per month? or do you need to get a better sense of your true expenses?). But it's all irrelevant without knowing what are you looking for from a site focused on "early retirement through badassity" - you say you don't want to retire early, and don't seem interested in "badassity" if that means changing your living situation. What are your goals? If it's just to rewind and undo a car purchase, that won't happen. If it's acknowledgement, then financially you are doing great. Keep up the high earning and low debt and you'll have all kinds of choices when/if you choose to make them.

[totoro]

I may be wrong but my understanding is that the OP is not interested in selling his home and renting or doing any downshifting to work less or retire early. 

It is not a how can I retire early question for him.  It appears to be a question of how to manage some anxiety to me - triggered by client loss/new baby/new expenses.  The OP is perhaps posting on the wrong site.  Given that he does not seem to wish to make changes and does want to stay put and continue to work, he can afford his current lifestyle and I don't see cause for anxiety or alarm.  Worst case scenario they could sell their home and move to a low cost market and be fine. 

The fact is that the OP could retire now if he wanted to live like MMM and do some consulting on the side.

As far as house appreciation goes, that is a factor, but at his price point owning is likely more expensive than renting.  If prices appreciate 3% per year he is making 21,000 the first year - which will likely go to property taxes/insurance/repairs. The appreciation is not working very well re. ROI because he is not leveraged - his house is paid off.

If this was an ER/FI question I agree the OP should be looking to sell the cars and reduce housing costs.  OP, are you looking to be financially independent as quickly as possible or are you looking for reassurance about your current situation?

[theSchmett]

I think you are in pretty good shape!  Lots of options.  Do a lifestyle assessment and figure out what you want, and what you are willing to trade for it.  You aren't in any danger of being out in the street so to speak, right?

Own a high value house, a relatively successful business, and skills in high demand.

In city planning, there is something called the four step oregon model for community visioning. Hopefully I don't botch it (I don't work with it daily) but its something like this:

1) Where are we now? [Existing condition]
2) Where are we going? [Trends analysis]
3) Where do we want to go? [Visioning]
4) How do we get there? [Implementation plan]

I think it works pretty well on problems like the one you stated as well.

You know where you are.  You have determined the baseline of where you are going financially, $120k/year in an engineering job..

Now answer 3 and 4 and you are golden.

[Forcus]

Man I'd love to have the OP's problems.... lol. I'd be done working tomorrow (or as soon as I got the house sold).

[willn]

I don't get why people think having a paid off home is a bad idea.  Trading it for payment on a lesser place to get a possible marginal increase in return on your assets sounds ridiculous but seems to be common advice.  I couldn't stomach watching 700K go to 350K during a crash, all while living in an apartment or even having downsized in house value to a far out suburb? Ugh.

Clearly many disagree here but I like, no, I LOVE what you've done so far.  The security it gives your family - shelter - is very valuable.  Having lived in a truck informs my opinion on that ;)

What would I do?

You're anxious, rightly so.  Use that energy to get new clients.  With your expenses you don't even need to replace all the income you had, you'd be fine with 100K.

Sell the cars, get something without payments.  Not sure why anyone with that much cash would ever have car payments except it's what everyone else is doing.  Financing anything isn't my preferred method of ownership, but financing a depreciating asset is foolish.

[Mr.Macinstache]

I would start looking for other clients starting today.  Any business that relies on one client for more than half its revenue should be considered high risk and the owner should not be spending all the profits on $30k cars and $120k additions.

If you are employed, you are relying on one client (your boss). So just because you work for someone, doesn't mean you can't loose that job, like a self employed person can loose their one big client.

[Cromacster]

If this was an ER/FI question I agree the OP should be looking to sell the cars and reduce housing costs.  OP, are you looking to be financially independent as quickly as possible or are you looking for reassurance about your current situation?

This.

Your tone throughout your post's have shown that you have no real interests in changing your lifestyle.  The title of this post is "Bad mistake".  I don't see "a" (singular) mistake.  You have many good steps in paying off your house, saving a good amount of cash, and have a profitable business going.  The house is the main drain on your pocketbook right now.  It may be paid off, but it shaves everyday.

I'll reiterate.  Sell the cars, buy some practical ones that are paid for.  Pay off the student loan.

Then sit down and consider what you want your life to be like.  That's what this blog is about, living your life to the fullest in the most efficient way.

Edit: You say your living expenses are 3k a month.  What does that entail? A budget breakdown can help people give more detailed responses on ways to help.  Does "living expenses" mean the essentials, but you spend more because you can at the moment?  Or is it your actual spending (most likely not if you taxes are 915, 860 on auto's, and i'm guessing 600 for maintenance, 150 for utilities and we're already at 2500 before you have eaten or driven anywhere)

[SunshineGirl]

I agree that the timing of the car purchase is unfortunate, but you've got over 20 years of property tax payements via your savings, so there's no cause for alarm.

Is there any opportunity for you to pick up the pieces of the business that's "going away" and make something of that?

[Hamster]

I don't get why people think having a paid off home is a bad idea.  Trading it for payment on a lesser place to get a possible marginal increase in return on your assets sounds ridiculous but seems to be common advice.

I'm certainly not arguing that having a paid-off home is a bad idea. It adds security, gives you a place to live, and if you live in the right house, can reduce your expenses over renting. But, having a $700k home is an expensive choice, and is tying up the vast majority of the OPs assets. My point is that it is VERY expensive - both in opportunity costs and real costs to own more house than you need.

I couldn't stomach watching 700K go to 350K during a crash, all while living in an apartment or even having downsized in house value to a far out suburb? Ugh.

There are many choices other than $700k house, apartment or "far-out suburb". I personally couldn't stomach looking back in 30 years and realizing I'd thrown away hundreds of thousands (if not millions) of dollars in wasted expenses and lost investment returns. As for the stock market losses, if historical trends (housing value vs stock market returns) continue, simply waiting it out would put you in a better long-run financial position than having had all of that money tied up in your home. I'd still argue to switch to a cheaper house (owned outright) and invest the difference in a broad market index or rental properties depending on your interests.

[jrhampt]

I don't get why people think having a paid off home is a bad idea.  Trading it for payment on a lesser place to get a possible marginal increase in return on your assets sounds ridiculous but seems to be common advice.

I agree totally with this, but it seems to be the minority opinion.  However, having a paid off home that is 70% of your net worth DOES seem like your asset allocation is off balance. 

[nawhite]

To live anywhere near a major city (eg: San Francisco, DC, etc). I'm going to have to pay at least $35K a year to rent anyplace. Yes, if I slummed it in some small townhouse or moved out to the sub-burbs I could pay less, but for my family, we find it really worthwhile to live in a city because of the diversity of food, people, etc & that to us is worth its weight in gold. I definitely see your point about  investing it to live off the income. I thought long and hard before buying the house about that. We definitely can sell the house easily at any time to do it. Let me know if you see any flaws in my logic about paying rent/market returns

First, I lived in a really really nice 3 bedroom 2000 sqft townhouse in DC for $24k per year so I'm skeptical of your first claim.

Second, You need to get out more and try other places. SF and DC are absolutely not the only places with diversity of food and people in the US (assuming you're only looking in the US). Travel more and find some of the awesome places in the country that are just as diverse (or more so) but are WAY nicer places to live. Living in DC is a nightmare, the traffic to go ANYWHERE ends up being a significant portion of your waking hours. SF has absolutely ridiculous taxes. The cost of living in those places is so much higher than the rest of the country its painful. Get out more.

The thing which is upsetting some people on this board is that we see your net worth and think: "If I had that, I could do whatever I wanted, be it work, play, spend time with kids or other family, or travel the world, every single day for the rest of my life" and you see it as "oh darn my income is going to drop from $350k to $120k, boo hoo"

Be more creative and figure out what you want to do in life. You have the means to do ANYTHING you could possibly imaging every day for the rest of your life right now if you are willing to make some changes (namely sell your house and move somewhere cheaper).

[ariesonthecusp]

nawhite: I never said SanFran or DC were the only places. I've been to almost every state in the US and have traveled all over the world. I was saying that we prefer to live near (short driving distinace) or in a city. Anyway, if you had a $2k townhouse in DC like you say then you probably were incredibly lucky or it was in Anacostia or some where far out. Of course there are deals there, I'm just saying its expensive. But I agree the traffic is horrible and there are better places.

Ultimately, I do want ERE, as I've been reading MMM for years. However, I dont want to live like I'm in college or send my kids to sub-standard schools or live in the middle of no where. Not saying these are all mutually exclusive, but to sell my house and downsize means my kids would have to go to (most liklely) worse schools, further out from the city, etc.

Lets not kid ourselves here, the best schools generally are in more expensive areas for a reason (higher property taxes, etc), of course there are exceptions. Being close to a city costs more, etc. I'm definitely willing to change my lifestyle, but I've yet to see anyone mention a reasonable place.
Also, most of the costs for home maintenance  are way off. I've been here almost a year and have spent $900 total on home maint. I've never had an average costs of the home maint #'s being quoted here in all my years of owning houses. Maybe it will happen and the monthly average starts moving up, or maybe its because the houses I've bought are not terribly old.

If one of you knows of a place where I can get all of the above that has a low cost of living, great schools, not out in the middle of nowhere (I consider Longmount, CO way out there, I've been out there a bunch), I'd love to hear it.

[escolegrove]

Why is your mother moving in and/or why are you paying all of her expenses? Does your wife work? Personally I don't think your car is a big deal. I would just scrimp your budget. I wouldn't pay everything off. I would let the debt sit and you put $100,000 in the bank as an oh shit fund. The great thing is since you have no debt that money will last.

The other thing, I would NOT build an addition right now. If you mother MUST live near you, she should live with you. Personally the kids get one bedrooms, your mom gets one and you get the third. I would have the baby sleep with you for the first 3 months and than from there the kids share. Will it be cozy, YUP, but you need to explain to everyone that this is a buckle your boots to wait for the storm is over.

[nawhite]

If one of you knows of a place where I can get all of the above that has a low cost of living, great schools, not out in the middle of nowhere (I consider Longmount, CO way out there, I've been out there a bunch), I'd love to hear it.

I agree with you Longmont is way out there ;-) however Denver is not. 3 bedrooms in great school districts can be had for $300k-$400k. Or lets try Philadelphia, or Charlotte, or Chicago or Atlanta, or Austin, or even Portland, or Seattle? You haven't said where you live but at 700k in a city its probably either DC, SF, or NYC. ANYWHERE ELSE would be an improvement from a "getting value from your net worth" perspective. You just need to figure out where that is for you.

Heck, you could even move someplace cheaper and use the investment income to put your kids through private school if you were that worried about school districts.

[DoubleDown]

Or lets try Philadelphia, or Charlotte, or Chicago or Atlanta, or Austin, or even Portland, or Seattle? You haven't said where you live but at 700k in a city its probably either DC, SF, or NYC. ANYWHERE ELSE would be an improvement from a "getting value from your net worth" perspective. You just need to figure out where that is for you.

+1

There are so many great cities in the US to choose from, with good schools and amenities, culture, etc. I live in Northern Virginia which consistently gets rated as supposedly "THE Best" schools in the country, and "best places to live." All the public schools around us are rated 10/10 on all those ratings sites.

I say "meh." Sure, there's lots of wealth here and the pretension to go with it, and that wealth is usually associated with "good schools" though I'm not convinced there's any real connection between wealth and "good" (see the other thread on this topic for all the debate about how much, if any, it matters).

OP, I'm confident you could find a good, safe school in a city where housing costs 1/4 or 1/3. With parental involvement, and so many other factors that go into a child's education, living in a wealthy place is just one relatively small influence. Besides, there's the well documented phenomenon that kids coming from wealthy "good school" districts often face a disadvantage in college admissions. That plays out every year here, where it's been clearly demonstrated that the top universities accept a disproportionate number of kids from poorer school districts/counties, with academically inferior (on paper) qualifications, over their peers here in our wealthy district with superior grades/scores. The universities just don't want all the kids from one (wealthy) district taking all the spots, so they make an effort to draw kids from the other places. Often it's better to be the very good student in an average school district than to be the average student in the very good district.

[Hamster]

Lets not kid ourselves here, the best schools generally are in more expensive areas for a reason (higher property taxes, etc), of course there are exceptions. Being close to a city costs more, etc. I'm definitely willing to change my lifestyle, but I've yet to see anyone mention a reasonable place.

the exceptions may even exceed the rule... If schools are your #1 priority, then take a look at this - highest performing school districts in math. I don't see San Francisco (not a SINGLE California school district made the list), or DC, or NYC on the list - plenty of NJ school districts, though. Or if you don't care about district-wide averages, and expect your kids to perform at the highest level, then look at US News for the Best Public High Schools in the US (the top schools are based mostly on the # passing AP and IB tests). Most of them are also not in/near the places you mention.

Then see how those areas rank in terms of the amenities you want and cost of living. If you don't want to move, that's fine. I just don't accept the assumption that there are only 2 or 3 places in the entire US that would provide what you want. 

If you just really love where you live, that's fine. But, why not  take your points to their logical conclusion - paying more for good schools, big city/good food/diversity, and a job lets you work from anywhere. Singapore kicks the ass of US schools (on tests, at least) and is arguably more international than any US city. Kids can learn Chinese and English, and get a leg up on everyone else for the Pacific century. Not the most mustachian place, but you could do fine on 120k or 350k per year. Get a job with an multi-national corporation, and they would prob hook you up with private school tuition and housing.

[Petunia 100]

I can't help but wonder about your asset allocation.  Home equity and cash, that's it.  No retirement accounts?  No taxable brokerage accounts?

If nothing changes (i.e., no new customers), how much do you expect to earn per year from your business once your biggest customer is gone?