New way of thinking, am I crazy?

[dinosau12]

Background:
Married
Age - 43
2 kids age 5 & 9
Credit score 800+

Money:
Stocks = 4million
401k & IRA’s = 700k
Income:
Wife & I make about 160k

Current house:
Market value around 350-375k
I have always been very conservative with my money.  We are a pretty cheap family, buy used cars and drive them for ever, don’t try to keep up with the joneses, and just try to save money wherever I can.  Every investment I make is long term. I started buying stocks/IRA/401k at 23 and have never sold any shares. Like I said, very conservative.

Situation:
We are looking to move across country to the Seattle area.  Housing market is pretty expensive there. My original thought was to find a house in a good school district and try to keep it as low as we can.  Looking at redfin the houses look to be around 800k. I was looking to sell about 400-500k in stock so I could bring down the monthly payment and not have to live on an extremely tight budget.   
I have been giving some thought about this and I am starting to change my thought process.  Rather than selling a large chunk of stock to bring down the monthly payment I am now thinking I should only put in 20% and no more.  I will need to sell stock quarterly to help with the mortgage cost but that would only be around 30-50k a year. This allows me to continue making money on the stocks as well as money from the home appreciation.
I am feeling more and more comfortable with this the more I think about it.  Now I am leaning towards buying a more expensive house, 1.3 - 1.5million. The higher the cost the more money I will make when the home value goes up 6-8% a year.  Am I crazy for thinking this way?
The two big risks I see are:
1 - my stock value goes down and I will no longer be able to afford the payments.  I think this would be a pretty extreme situation but its something to think about 
2 - The housing market crashes and the 1.5mill house is now valued at 800 - 1.0mill.  I do plan to stay in the house for 10-15 years so I feel I could wait this problem out. 
Can I get some feedback on this?  Am I crazy for doing this? 

[Metalcat]

You're assuming that both the housing and stock markets will consistently go up year over year and you want to use this assumption to justify buying far more house??

This should be interesting...

[scottish]

Why do you want to go from a more practical modest house to a luxury mansion?     Real estate is expensive to own, not just purchase...   

[dinosau12]

Why do you want to go from a more practical modest house to a luxury mansion?     Real estate is expensive to own, not just purchase...   

The Seattle market is pretty expensive right now (not my best timing).  A 1-1.5mill house is no luxury mansion, here are some examples…
https://www.redfin.com/WA/North-Bend/47229-SE-157th-Pl-98045/home/487846
https://www.redfin.com/WA/Fall-City/35830-SE-27th-Pl-98024/home/441683
https://www.redfin.com/WA/Clinton/6369-Bayview-Rd-98236/home/16707842
https://www.redfin.com/WA/Kirkland/420-10th-Ave-98033/home/463205

You get the idea.  They are nice houses but not some luxury mansion.  I would say most of these are a step up from my current house but nothing crazy.  Its the area that is expensive.  Its hella bad timing on my part but the wife and I have always wanted to live in the Seattle area.  We finally feel like we have the means to do it but we also can't wait much longer.  We want to move before the kids get into middle/high school and really put down roots.

[marty998]

You have almost $5m in investments. At your current rate you’re probably gonna die with $20 million.

If not a nice house you might as well come up with some way of enjoying it.

[Metalcat]

Okay, so I read your initial post too quickly and misread your numbers. Whether or not this is a good plan depends on so many factors, largely, what your actual expenses are.

With the amount of money you have, there's no reason you can't buy a 1.5M home, but whether or not you can really afford that depends on all your other numbers.

There are people who buy used cars and describe themselves as frugal who spend 100K+. I doubt that's you since you managed to save nearly 5M on a 160K income, but still, these details matter.

I still think that just assuming that both markets will go up consistently is dodgy thinking, but how much you can afford the market to go down, and for how long, will heavily depend on how much you need the rest of your money.

On the flip side, if you really are quite frugal and don't need a ton of money, then you already have too much, and what does appreciation on your house matter anyway?

Basically, you should probably do a case study for better answers, because as it stands, it could be anywhere from possibly risky to way too conservative.

[dinosau12]

You're assuming that both the housing and stock markets will consistently go up year over year and you want to use this assumption to justify buying far more house??

This should be interesting...

I 100% agree that both stock and real estate will have their ups and downs.  I am not in it for the short term and trying to flip the house.  I am looking be in this house for 10-15 years.
I am looking at this as both a house my kids will grow up in and also an investment that will gain 6-7% per year.  And, that 6-7% per year would be on 1mill that I only have 200k invested into it. 

I feel like I have been very conservative in my past investments and don't plan to loose it all by purchasing a house, be it a very expensive house.  I am looking to maximize my investment and continue to grow my wealth without being too risky.

But I am asking the question of you guys/gals.  Maybe I am being too risky.  Maybe others have a different point of view I am not seeing.  Maybe someone else has been down this road and lost everything.  Maybe someone will say "hey, your crazy.  do this XYZ thing and you will be better off". 

[Metalcat]

You're assuming that both the housing and stock markets will consistently go up year over year and you want to use this assumption to justify buying far more house??

This should be interesting...

I 100% agree that both stock and real estate will have their ups and downs.  I am not in it for the short term and trying to flip the house.  I am looking be in this house for 10-15 years.
I am looking at this as both a house my kids will grow up in and also an investment that will gain 6-7% per year.  And, that 6-7% per year would be on 1mill that I only have 200k invested into it. 

I feel like I have been very conservative in my past investments and don't plan to loose it all by purchasing a house, be it a very expensive house.  I am looking to maximize my investment and continue to grow my wealth without being too risky.

But I am asking the question of you guys/gals.  Maybe I am being too risky.  Maybe others have a different point of view I am not seeing.  Maybe someone else has been down this road and lost everything.  Maybe someone will say "hey, your crazy.  do this XYZ thing and you will be better off".

See.my second post. Chances are you're way, way too conservative, but we can't know for sure.

[dinosau12]

Okay, so I read your initial post too quickly and misread your numbers. Whether or not this is a good plan depends on so many factors, largely, whether or not you plan to continue working or if you are going to continue working and what your expenses are.

With the amount of money you have, there's no reason you can't buy a 1.5M home, but whether or not you can really afford that depends on all your other numbers.

There are people who buy used cars and describe themselves as frugal who spend 100K+. I doubt that's you since you managed to save nearly 5M on a 160K income, but still, these details matter.

I still think that just assuming that both markets will go up consistently is dodgy thinking, but how much you can afford the market to go down, and for how long, will heavily depend on how much you need the rest of your money.

On the flip side, if you really are quite frugal and don't need a ton of money, then you already have too much, and what does appreciation on your house matter anyway?

Basically, you should probably do a case study for better answers, because as it stands, it could be anywhere from possibly risky to way too conservative.

Can you give me an example of what you mean by "case study".  I run numbers all the time via excel, retirement calculators, margate calculators, guessing expenses, and so on.  If you have an example of a case study I can look at and run my numbers/life/stuff and figure out if Im crazy or not, that would be great. 

[Abe]

Why do you want to go from a more practical modest house to a luxury mansion?     Real estate is expensive to own, not just purchase...   

The Seattle market is pretty expensive right now (not my best timing).  A 1-1.5mill house is no luxury mansion, here are some examples…
https://www.redfin.com/WA/North-Bend/47229-SE-157th-Pl-98045/home/487846
https://www.redfin.com/WA/Fall-City/35830-SE-27th-Pl-98024/home/441683
https://www.redfin.com/WA/Clinton/6369-Bayview-Rd-98236/home/16707842
https://www.redfin.com/WA/Kirkland/420-10th-Ave-98033/home/463205

You get the idea.  They are nice houses but not some luxury mansion.  I would say most of these are a step up from my current house but nothing crazy.  Its the area that is expensive.  Its hella bad timing on my part but the wife and I have always wanted to live in the Seattle area.  We finally feel like we have the means to do it but we also can't wait much longer.  We want to move before the kids get into middle/high school and really put down roots.

I had the exact same thoughts (but higher salary, lower savings) when buying our house (which was about $1.5m - don't shoot!)

1. Figure out estimated annual costs of the mortgage + property tax (~80k total for Seattle with $1.5m house)

2. Estimate some scenarios:
a. Current scenario continues: 3.7m *4% = 150k + 160k = 310k
b. 50% portfolio loss, no income loss: $2m * 4% = 80k + 160k = 240k
c. Continued good returns, one income loss: 150k + 80k = 230k
d. 50% downturn, one income loss: = 80k + 80k = 160k
e. 50% downturn, both income loss: 80k only

Obviously those scenarios assume recovery of the market after a crash and the 4% rule still works, but you get the idea. Generally you'll turn out ok, but there is a scenario that you'd lose the house. Think in that scenario what your flexibility to move to a cheaper neighborhood will be. In my case, I could get a house in an exurb of the same city for what we have in cash & bonds, and have a very in-demand profession so job loss is unlikely (the employer did not lay off anyone during the 2008 onwards crisis, nor the current crisis). We made the calculated decision to buy a more expensive house with all of that in mind. To be honest, I still have misgivings but seeing how happy the family is makes it worth it. 

[Abe]

Okay, so I read your initial post too quickly and misread your numbers. Whether or not this is a good plan depends on so many factors, largely, whether or not you plan to continue working or if you are going to continue working and what your expenses are.

With the amount of money you have, there's no reason you can't buy a 1.5M home, but whether or not you can really afford that depends on all your other numbers.

There are people who buy used cars and describe themselves as frugal who spend 100K+. I doubt that's you since you managed to save nearly 5M on a 160K income, but still, these details matter.

I still think that just assuming that both markets will go up consistently is dodgy thinking, but how much you can afford the market to go down, and for how long, will heavily depend on how much you need the rest of your money.

On the flip side, if you really are quite frugal and don't need a ton of money, then you already have too much, and what does appreciation on your house matter anyway?

Basically, you should probably do a case study for better answers, because as it stands, it could be anywhere from possibly risky to way too conservative.

Can you give me an example of what you mean by "case study".  I run numbers all the time via excel, retirement calculators, margate calculators, guessing expenses, and so on.  If you have an example of a case study I can look at and run my numbers/life/stuff and figure out if Im crazy or not, that would be great.

There's a sticky post on the welcome forum that gives an example. Basically what your monthly budget is, what your assets and liabilities are, so we can help you think through the scenarios.

[the_fixer]

Not clear if you currently work or plan to keep working but I would just buy the house outright with the equity from your current house and the rest from your investments.

You already have more than enough built up to make you FI even if you buy the house so you have already won the game. For me it would be one less thing to worry / think about and worth the peace of mind.

You could probably make more using the leverage and leaving the money invested but you have to decide if it is worth it for yourself.


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[TheContinentalOp]

I vote for crazy.

[John Galt incarnate!]

I would just buy the house outright with the equity from your current house and the rest from your investments.

I dislike being in debt so I second the_fixer's recommendation.

His way is simple.

The purchase is over and done, and clean (no ongoing mortgage payments/documentation).

DONE!

[John Galt incarnate!]

You already have more than enough built up to make you FI even if you buy the house so you have already won the game. For me it would be one less thing to worry / think about and worth the peace of mind.

Exactly the same for me.

[AccidentialMustache]

3200sf on 4.5 acres is a mansion. Sorry. Not that you can't afford it -- clearly you can, at least if you keep working.

Mortgage rates are at historical lows though. I'm not sure I see a world where the market will return less than 3% for an extended period that doesn't involve the collapse of society, so you'd be beating your mortgage rate in gains.

Note that the housing market won't always keep appreciating out there. When https://www.newyorker.com/magazine/2015/07/20/the-really-big-one goes off (and its when not if), you can expect home prices to plummet... assuming the home still exists... for a while.

Again, not that you shouldn't live out there, but you should understand the risk and do so with a conscious decision.

[bmjohnson35]

Based on our past experience of moving to a new state/city and buying immediately.........don't.  I recommend you rent for the initial year or so and see how you like the area before purchasing a home.  If you do like the Seattle area, this has the added benefit of allowing you time to identify the neighborhood(s) you prefer in the area.  It's also a lot easier and less costly to got back to where you came from or go to another location if you don't own your house. 

[the_fixer]

Based on our past experience of moving to a new state/city and buying immediately.........don't.  I recommend you rent for the initial year or so and see how you like the area before purchasing a home.  If you do like the Seattle area, this has the added benefit of allowing you time to identify the neighborhood(s) you prefer in the area.  It's also a lot easier and less costly to got back to where you came from or go to another location if you don't own your house.

Solid advice!


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[the_fixer]

Note that the housing market won't always keep appreciating out there. When https://www.newyorker.com/magazine/2015/07/20/the-really-big-one goes off (and its when not if), you can expect home prices to plummet... assuming the home still exists... for a while.

Again, not that you shouldn't live out there, but you should understand the risk and do so with a conscious decision.

 And Yellowstone is going to explode and kill us all the way in Colorado, the seas are going to rise and flood all costal areas, the plains are going to get ravished by tornadoes and hurricanes are going to get worse and continue to destroy costal areas.

Most of the US (and the world) could be a risk in one form or another just pick where you want to live and understand life is uncertain and shit happens.


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[ericrugiero]

First, yes those are mansions (especially in a relatively high cost of living area). 

Second, you can probably afford one of them if that is your priority. 

To really answer the question we need more details. 

What is your current spending?  Are you moving from a low cost of living area to Seattle?  If so, your expenses will go up.  If you buy an expensive home, that drives your expenses even higher.  If you buy the home cash you still have close to 4 million invested which should provide about $150,000 per year per the 4% "rule".  Read up on the 4% rule if you haven't. 

Do you plan to keep working?  If you keep working you can afford a lot more (again, is that your priority?). 

How are your stocks invested?  If you made $4M investing in Tesla and Amazon (for example) you did well.  Now might be the time to diversify.  Being widely diversified is MUCH safer than having large amounts tied up in single stocks.  I (and most here) would feel much more comfortable counting on income from a diversified portfolio than from just a few companies. 

I personally would not buy a home counting on future appreciation.  Buy it if you can afford it and that is the priority of where you want to spend the money.  Before you decide you can afford it, research the property tax, insurance and estimated maintenance (sometimes estimated as a % of the home value). 

[StashingAway]

First, yes those are mansions (especially in a relatively high cost of living area). 

+1
Maybe not MTV Cribs mansion, but certainly is MMM mansion. Not that that's inherently bad, but there is a lot of luxury on top of what I would consider essential living space in those links.

What makes more sense to me is to not include your personal house as part of your investment strategy. Unless you plan on flipping it or renting it later, it is your living space first and foremost. Trying to put too much strategy into playing the market detracts from that. There will always be some kind of FOMO if you read about someone doubling their investment in 10 years on their home- just like there's FOMO for not playing the lottery.

If you want a 1+million house to live in, then go for it! But I wouldn't do it just to try to maximize your portfolio; it's already going to be a large chunk in an unstable market. Would you throw 500K of your investment funds into the Seattle RE market? Just do that instead if you have that much confidence in that market.

[Mustache ride]

It depends what your end goal is. It appears you've already won the game. If that's the case, what's the point of using leverage to juice the returns? I'm all for holding a low interest mortgage in perpetuity, but you seem to be viewing this as a speculative investment rather than a home to live in.

[caracarn]

So I was not sure I was going to comment but after reading a bit and re-reading your OP five times decided to hop in.

My input is that betting on an overpriced market continuing to grow is not something I would do.  Having lived around some very expensive markets (Chicago, Nashville Belle Meade and Green Hills) and knowing how long these houses stay on the market because the pool of buyers with the ability to pay for them keep dwindling, I just do not see it.  I am also not a fan of moving to a HCOL area, which Seattle certainly is, because it is not just the house that is overpriced, it is everything in your life and the potential wealth erosion that occurs can be scary.  If you determine this is not for you, your job explodes or any other reason that you suddenly need to leave, imagine how frustrating it may be to be trying to sell a house that may be hard to sell.   I'm not an expert on the Seattle RE market by any means, but unless you just decide to buy a house with the money you already have it just seems like you are placing yourself in a position with things that can impact you in the future when you do not have to. 

[Villanelle]

So your main rationale for jumping up from the $800k price range is that you want to make money?  No.  Do not do that. 

I would put down 80% to avoid PMI, and finance the rest, but I'd also move some of that equities money out of the market so you have a large cushion on which you can live (and pay that mortgage) without making withdraws during a down market.  What exactly that looks like will require you to make and set a withdraw strategy to which you stick regardless of market conditions.  (The strategy can factor in market conditions, but if you say you won't sell if the market is down more than x%, unless your cash or similar funds get down to $y or Z months' expenses, then you have to do that.) Although actually, that might not be my answer.  You have $4m invested.  If I had that, it would be soooo much more than enough to cover my annual expenses at a very conservative withdraw rate that I would likely just sell stocks and buy the house outright, because I'd no longer need to worry about optimizing things.  So if that's the case, then there is something to be said for simplifying. 

That said, unless you are very familiar with Seattle (more than some quick trips to the area), I would rent for a while before buying. 

[joe189man]

Why not stay where you are and quit working now?

Your $4 million will generate $160k in income a year, replacing your wages,

I think its crazy to move to a place with home prices 2-3x your current home unless you 1.5-2x your income as a result of the move.

stay put and FIRE now?

[Zamboni]

I am just curious:
What exactly is drawing you to the Seattle area? Do you have family there or very close by? Have either or you lived there before? Or in a similar climate? Is there a particular recreation activity that is drawing you to that location?

Nothing against Seattle (my Mom loved living there). I'm just curious why Seattle for you?

[dinosau12]

Not clear if you currently work or plan to keep working but I would just buy the house outright with the equity from your current house and the rest from your investments.

You already have more than enough built up to make you FI even if you buy the house so you have already won the game. For me it would be one less thing to worry / think about and worth the peace of mind.

You could probably make more using the leverage and leaving the money invested but you have to decide if it is worth it for yourself.


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The wife would rather just pay cash for the house and be done with it too.  My goal is to buy the house, live in it for approximately 15 years, the kids would be out of the house and we can sell it and down size.  I am 44 now and plan to retire around 53+/- a couple years.  I figure my savings would allow me a pretty comfy retirement.  If I take out 1.5mill to buy a house I feel like that would set our retirement age back a couple years and would rather not do that.  My original goal was to retire was 50, feel like I will miss it by a couple years but I am ok with this. I don't t want to keep pushing that number back.
Maybe I am too conservative in my retirement goals.  I just don't want to be 90 years old and worrying about how much the electric bill is going to be. 

[dinosau12]

I vote for crazy.

Thanks for your insight and contribution.  Was very helpful

[dinosau12]

I dislike being in debt so I second the_fixer's recommendation.

His way is simple.

The purchase is over and done, and clean (no ongoing mortgage payments/documentation).

DONE!

I agree, I don't like debt either.  But....rates are around 2.7-3.0%.  Feel like this is my chance to make a decent return on a relatively low risk investment. 

[scottish]

Why not stay where you are and quit working now?

Perhaps the mountains are calling?

[dinosau12]

3200sf on 4.5 acres is a mansion. Sorry. Not that you can't afford it -- clearly you can, at least if you keep working.

Mortgage rates are at historical lows though. I'm not sure I see a world where the market will return less than 3% for an extended period that doesn't involve the collapse of society, so you'd be beating your mortgage rate in gains.

Note that the housing market won't always keep appreciating out there. When https://www.newyorker.com/magazine/2015/07/20/the-really-big-one goes off (and its when not if), you can expect home prices to plummet... assuming the home still exists... for a while.

Again, not that you shouldn't live out there, but you should understand the risk and do so with a conscious decision.

I 100% feel like this is the worst time to move and probably even worse time to move to Seattle.  Pretty sure Seattle is in a bubble and 6 months after we buy a house the bubble will pop.  I will have paid 1.5 and it will drop to 1.1mill. 
The big push for us to move sooner than latter is the kids schooling.  The 9 year old will be in middle school in about 1.5 years and we would like to have them settled before middle school starts.  Once they hit high school we don't want to move them at all.  But, in life things happen.  We are trying to control as much as we can.

[dinosau12]

Based on our past experience of moving to a new state/city and buying immediately.........don't.  I recommend you rent for the initial year or so and see how you like the area before purchasing a home.  If you do like the Seattle area, this has the added benefit of allowing you time to identify the neighborhood(s) you prefer in the area.  It's also a lot easier and less costly to got back to where you came from or go to another location if you don't own your house.

Thanks for this, and yes we agree.  We are looking to rent something for 6months and in that time look for a house.  If we need to extend the 6months we will do so.  We have visited the area a number of times.  Talked to friends in the area and have a general idea of where we want to be. 
Its been a dream of mine to live in the Seattle area since I was in HS.  We should have done with a while ago but we are trying to make it happen now.

[dinosau12]

First, yes those are mansions (especially in a relatively high cost of living area). 

Second, you can probably afford one of them if that is your priority. 

To really answer the question we need more details. 

What is your current spending?  Are you moving from a low cost of living area to Seattle?  If so, your expenses will go up.  If you buy an expensive home, that drives your expenses even higher.  If you buy the home cash you still have close to 4 million invested which should provide about $150,000 per year per the 4% "rule".  Read up on the 4% rule if you haven't. 

Do you plan to keep working?  If you keep working you can afford a lot more (again, is that your priority?). 

How are your stocks invested?  If you made $4M investing in Tesla and Amazon (for example) you did well.  Now might be the time to diversify.  Being widely diversified is MUCH safer than having large amounts tied up in single stocks.  I (and most here) would feel much more comfortable counting on income from a diversified portfolio than from just a few companies. 

I personally would not buy a home counting on future appreciation.  Buy it if you can afford it and that is the priority of where you want to spend the money.  Before you decide you can afford it, research the property tax, insurance and estimated maintenance (sometimes estimated as a % of the home value).

We would be moving from the greater Atlanta area.  Very low cost of living when compared to Seattle.  But I feel the biggest cost of living increase would be housing.  Yes milk, gas, and things are 5-20% higher (just guessing here) but over all with the housing taken care of I feel like we would be able to afford it. 

We are looking to retire in 8-10 years.  We will realistically probably take on contract jobs here and there to keep us busy.  I don't want to feel like I have to take those jobs, just if everything looks right.

About the stocks, you are going to absolutely hate this.  I know better, I know you are 100% correct, diversified is the way to go.   But....I kind of lucked out.  I bought some Apple stock in the late 90's, think it was a bit more than 2k at the time.   I also worked for Apple for over 10 year and maxed out my employee stock purchase every year.  This is the part you're going to hate, 95% of my money is in Apple stock.   I have been saying to the wife for years and years "we should really sell some and buy SP500 index funds" and every year I am glad we didn't do it because Apple went up 38% (making that number up).  Yes, we need to diversify...this is something I struggle to actually do.  I am sure tomorrow Apple will nose dive and I will be curled up in the fetal position crying for days.

Yes, agree we need to do our due diligence.  I have been reading, ask questions (like I am doing now) and visiting.  This is not something I am take lightly.  The one thing that surprised me was earthquake insurance.  Not something I have had to deal with in Atlanta.

[lhamo]

Is there a particular reason you are looking at houses in the Snoqualmie Valley?  I grew up there and know the property market fairly well.   There is a BIIIIIIG difference between living in that house on acreage in Fall City (which is in the middle of nowhere) versus the house near downtown Kirkland.   If you are in tech and need to be at offices in redmond or kirkland, you do NOT want to commute on highway 202 daily.  I-90 used to be a bit better but is now also very congested due to all the development in Issaquah.

Schools in the valley also still have significant issues with lack of diversity/racism -- check out some recent articles in Living Snoqualmie by students who have been fighting this.  It is a deep rooted problem that goes back many decades.  The valley was primarily farmer/loggers until the '80s and pockets of it are still very conservative.  Maybe you like that, I didn't and it is one big reason I didn't move back there.

FWIW we returned to the Seattle area in 2015-16 and paid more than we should have for a house at the peak of the housing rush in 2017 -- prices dipped a bit in 2018-19 in our neighborhood (far NE Seattle proper) but are now back up.  We paid cash and are living comfortably off savings at around 40-60k/year, not including eldest kid's college costs (now done -- we had enough in 529s for both him and his younger sister).  You will be just fine if you spend up to 1.5 mill on a house with your ongoing income/current assets AS LONG AS YOU DIVERSIFY, but strongly suggest you rent in your target community first and make sure the schools, etc are a good fit.  If you think you want to live rural RENT rural first - there is a lot to like about it but also lots not to like (power sometimes goes out for days or even weeks, roads may not get plowed quickly, and increasingly the fire danger from spring-fall is scary).  Having to drive 15-30 minutes to get to ANYTHING (even small/expensive convenience stores) gets tiring.

Bellevue/Lake Washington/Northshore/Issaquah school districts are all excellent.  I personally think Shoreline is a better district than Seattle, generally speaking, but there are ways to get a good experience in Seattle if you are informed and proactive (unless your kids have special needs -- I would avoid Seattle if you have a kid with an IEP or 504 based on friends' experiences).

[Zamboni]

Your last post outlines a reasonable plan.

I do think you should be sure to listen to your wife's ideas about just owning it outright, especially if you can find something at the lower end of your $800K-$1.5MM range. Yes, it financially might make more sense to keep the mortgage. But this is not completely financial, it is also psychological. Remember, you are in a partnership. With 6 months to a year to look, you might find the perfect place at the lower end of the range. I can't blame your wife for her outlook, because there's no way I'd ever sign on the dotted line for a $1MM mortgage, even with your assets. Don't pressure her into buying too much house or taking out a large mortgage if she is more nervous about it than you are. On the plus side, if you side with her idea, instead of having to make a mortgage payment every month, you'll have all that extra money to stash in the market, right? When the market nosedives, which it will eventually, you'll have cash flow to buy stocks while they are on sale. That will certainly feel good, and it will free up cash flow for when the kids get to high school and you start having bigger fixed expenses (like bigger grocery bills and car insurance for teenagers, ouch!)

Her peace of mind of knowing there is no mortgage payment is worth more than investment growth...Happy wife, happy life!

Edited to say I just saw your post to say you overwhelmingly have Apple stock. In that case, I am 100% on the side of your wife that you should sell some of that to pay for the home outright in cash. Just get a $1.5MM property, and thank Apple for your good fortune. I mean, you basically already hit the equivalent of the single stock lottery already. Why tempt fate by refusing to cash out some in exchange for a secure family home?

[Metalcat]

Not clear if you currently work or plan to keep working but I would just buy the house outright with the equity from your current house and the rest from your investments.

You already have more than enough built up to make you FI even if you buy the house so you have already won the game. For me it would be one less thing to worry / think about and worth the peace of mind.

You could probably make more using the leverage and leaving the money invested but you have to decide if it is worth it for yourself.


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The wife would rather just pay cash for the house and be done with it too.  My goal is to buy the house, live in it for approximately 15 years, the kids would be out of the house and we can sell it and down size.  I am 44 now and plan to retire around 53+/- a couple years.  I figure my savings would allow me a pretty comfy retirement.  If I take out 1.5mill to buy a house I feel like that would set our retirement age back a couple years and would rather not do that.  My original goal was to retire was 50, feel like I will miss it by a couple years but I am ok with this. I don't t want to keep pushing that number back.
Maybe I am too conservative in my retirement goals.  I just don't want to be 90 years old and worrying about how much the electric bill is going to be.

Okay, how does any of this make any sense?

How much are you spending that you don't think you will have enough money to retire until you are at least 50??

None of this is making any sense to me.

[dinosau12]

First, yes those are mansions (especially in a relatively high cost of living area). 

+1
Maybe not MTV Cribs mansion, but certainly is MMM mansion. Not that that's inherently bad, but there is a lot of luxury on top of what I would consider essential living space in those links.

What makes more sense to me is to not include your personal house as part of your investment strategy. Unless you plan on flipping it or renting it later, it is your living space first and foremost. Trying to put too much strategy into playing the market detracts from that. There will always be some kind of FOMO if you read about someone doubling their investment in 10 years on their home- just like there's FOMO for not playing the lottery.

If you want a 1+million house to live in, then go for it! But I wouldn't do it just to try to maximize your portfolio; it's already going to be a large chunk in an unstable market. Would you throw 500K of your investment funds into the Seattle RE market? Just do that instead if you have that much confidence in that market.

I have to keep the wife happy.  Not that she is a money grabber or anything like that.  We have had a number of arguments about money and how its being spend.  I was probably a bit hard core about saving in my 20's and early 30's.  But I have loosen up big time in our late 30's and 40's.  We both agree we want certain things in our next house and in order to get some (you can never get all of them) of those things its going to be a good 1-1.5mil. 
Its crazy that I find myself saying "look at this house on Redfin.  Its pretty nice and only 1.1mil".

I have less confidence in the Seattle real estate market than I do in the stock market.  Historically stock has done around 7-8% return and RE is around 4-6% return.  To me, it make more sense to leave as much money as I can in the market and as little money as I can in RE.  I am also pretty sure Seattle is in a huge bubble and will pop 3 days after I buy the house. 

[slappy]

First, yes those are mansions (especially in a relatively high cost of living area). 

+1
Maybe not MTV Cribs mansion, but certainly is MMM mansion. Not that that's inherently bad, but there is a lot of luxury on top of what I would consider essential living space in those links.

What makes more sense to me is to not include your personal house as part of your investment strategy. Unless you plan on flipping it or renting it later, it is your living space first and foremost. Trying to put too much strategy into playing the market detracts from that. There will always be some kind of FOMO if you read about someone doubling their investment in 10 years on their home- just like there's FOMO for not playing the lottery.

If you want a 1+million house to live in, then go for it! But I wouldn't do it just to try to maximize your portfolio; it's already going to be a large chunk in an unstable market. Would you throw 500K of your investment funds into the Seattle RE market? Just do that instead if you have that much confidence in that market.

I have to keep the wife happy.  Not that she is a money grabber or anything like that.  We have had a number of arguments about money and how its being spend.  I was probably a bit hard core about saving in my 20's and early 30's.  But I have loosen up big time in our late 30's and 40's.  We both agree we want certain things in our next house and in order to get some (you can never get all of them) of those things its going to be a good 1-1.5mil. 
Its crazy that I find myself saying "look at this house on Redfin.  Its pretty nice and only 1.1mil".

I have less confidence in the Seattle real estate market than I do in the stock market.  Historically stock has done around 7-8% return and RE is around 4-6% return.  To me, it make more sense to leave as much money as I can in the market and as little money as I can in RE.  I am also pretty sure Seattle is in a huge bubble and will pop 3 days after I buy the house.

You keep saying you are concerned about a bubble. Why? Why does it matter if the home value goes down? You said you plan to be there 15 years right? Who cares what happens in six months? Also, as others have said, RE appreciation is unreliable. You keep saying 4-6% but that's not really something you can rely on.

[the_fixer]

Not clear if you currently work or plan to keep working but I would just buy the house outright with the equity from your current house and the rest from your investments.

You already have more than enough built up to make you FI even if you buy the house so you have already won the game. For me it would be one less thing to worry / think about and worth the peace of mind.

You could probably make more using the leverage and leaving the money invested but you have to decide if it is worth it for yourself.


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The wife would rather just pay cash for the house and be done with it too.  My goal is to buy the house, live in it for approximately 15 years, the kids would be out of the house and we can sell it and down size.  I am 44 now and plan to retire around 53+/- a couple years.  I figure my savings would allow me a pretty comfy retirement.  If I take out 1.5mill to buy a house I feel like that would set our retirement age back a couple years and would rather not do that.  My original goal was to retire was 50, feel like I will miss it by a couple years but I am ok with this. I don't t want to keep pushing that number back.
Maybe I am too conservative in my retirement goals.  I just don't want to be 90 years old and worrying about how much the electric bill is going to be.

Quick back of the napkin math...

You have 4.7 million now let’s say you go CRAZY and spend 1.5 million on a house today. Let’s assume you have 300k from your current place and you put in an additional 1.2 million from your investments.

That leaves you with 3.5 million

If you work until 53 as you mentioned and you put 0 ZERO ZILCH NADA additional dollars into retirement at a 7% return you would have approx 6.5 million dollars  in your retirement and a paid off house.

That would be $262,400 per year at a 4% withdrawal rate.

And that is with not putting any additional money into your retirement.

Either path you go down is winning. If you get to 90 and are worried about paying the electricity bill from where you are now something catastrophic that cannot be planned for has happened.

Buying more house than you NEED is a likely a suboptimal investment strategy as real estate appreciation is generally lower than market returns so you would be better off buying the 800k house and investing if you are really concerned about the optimal.

SOO ask yourself if you are trying to justify buying the 1.5 M house by coming up with an appreciation/ low mortgage rate / stock return scheme? If you want the house buy the house but do not trick yourself into thinking it is financially optimal. You and the wife need to sit down and go over the numbers (current and future) decide what impact that has and make an informed decision together


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[Telecaster]

Yes, agree we need to do our due diligence.  I have been reading, ask questions (like I am doing now) and visiting.  This is not something I am take lightly.  The one thing that surprised me was earthquake insurance.  Not something I have had to deal with in Atlanta.

You don't strictly have to do that in Seattle either.  It is usually optional and most earthquake insurance isn't that good.  It is likely more cost effective to make sure the house has been upgraded seismically and self-insure for the rest (which means you really do have to self-insure).

The other thing is to do your due diligence.  Most municipalities publish seismic risk hazard maps.  Seismic risks can vary widely due to soil type and other factors.  Don't buy a house in the Seattle area (or any area really) that is on or adjacent to an area of elevated seismic risk, a steep slope, a historic landslide (even if the landslide is thousands of years old), a historic river channel, flood zone, or wetland. 

[the_fixer]

First, yes those are mansions (especially in a relatively high cost of living area). 

Second, you can probably afford one of them if that is your priority. 

To really answer the question we need more details. 

What is your current spending?  Are you moving from a low cost of living area to Seattle?  If so, your expenses will go up.  If you buy an expensive home, that drives your expenses even higher.  If you buy the home cash you still have close to 4 million invested which should provide about $150,000 per year per the 4% "rule".  Read up on the 4% rule if you haven't. 

Do you plan to keep working?  If you keep working you can afford a lot more (again, is that your priority?). 

How are your stocks invested?  If you made $4M investing in Tesla and Amazon (for example) you did well.  Now might be the time to diversify.  Being widely diversified is MUCH safer than having large amounts tied up in single stocks.  I (and most here) would feel much more comfortable counting on income from a diversified portfolio than from just a few companies. 

I personally would not buy a home counting on future appreciation.  Buy it if you can afford it and that is the priority of where you want to spend the money.  Before you decide you can afford it, research the property tax, insurance and estimated maintenance (sometimes estimated as a % of the home value).

About the stocks, you are going to absolutely hate this.  I know better, I know you are 100% correct, diversified is the way to go.   But....I kind of lucked out.  I bought some Apple stock in the late 90's, think it was a bit more than 2k at the time.   I also worked for Apple for over 10 year and maxed out my employee stock purchase every year.  This is the part you're going to hate, 95% of my money is in Apple stock.   I have been saying to the wife for years and years "we should really sell some and buy SP500 index funds" and every year I am glad we didn't do it because Apple went up 38% (making that number up).  Yes, we need to diversify...this is something I struggle to actually do.  I am sure tomorrow Apple will nose dive and I will be curled up in the fetal position crying for days.

No wonder you are insecure about your financial future I would be a nervous wreck and completely worried about my future if I had all of my eggs in one basket like that.

Even more reason to pay cash for this 1.1 m house... if Apple tanks at least you would have a paid for house to cry in.

Give some serious thought to your risk profile, you are worried about housing crashing and losing money but not Apple?


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[Zamboni]

At this point you are doing something I would call "playing with the house's money." It's generally a bad idea to leave all of your own money on the table along with the house's money.

You keep talking about "the stock market" but you are not in "the market", you are in a single stock. A single stock that has been extraordinarily beneficial to date, but it lost 1.5% today, just as an example, so something really crazy could happen that causes it to plummet and not recover.

You don't have to own 95% Apple stock, but you do have to have a place to live with your family. I can see how you are having some financial disagreements with your wife: time to let her win a few rounds, I think.

Find a house that everyone really likes while you are renting in Seattle and pay cash for it. Remember that everything will cost double for a $1.5MM house compared to a $800K house (taxes, insurance, probably maintenance) . . . so you'll need to have money to cover those fixed homeownership expenses in a SAFER place. If you continue to leave everything you have in one stock and also leverage an extremely expensive property, then you are veering into quite dangerous and greedy territory. Maybe you'll continue to be luckier than 99.999% of people, and maybe your luck will run out and you'll be up a creek. That's my $0.02.

[dinosau12]

It depends what your end goal is. It appears you've already won the game. If that's the case, what's the point of using leverage to juice the returns? I'm all for holding a low interest mortgage in perpetuity, but you seem to be viewing this as a speculative investment rather than a home to live in.

You know what.  After reading all these comments about how I have already "won the game" and I could retire now and so on.  I don't feel like I am rich.  I would still rather eat in and save money.  I still would never buy a new car when a 3-4year old car is a much better deal.  It pains me to see the wife buy Starbucks.  I don't feel rich and I don't feel like I have "won the game". 

[dinosau12]

So your main rationale for jumping up from the $800k price range is that you want to make money?  No.  Do not do that. 

I would put down 80% to avoid PMI, and finance the rest, but I'd also move some of that equities money out of the market so you have a large cushion on which you can live (and pay that mortgage) without making withdraws during a down market.  What exactly that looks like will require you to make and set a withdraw strategy to which you stick regardless of market conditions.  (The strategy can factor in market conditions, but if you say you won't sell if the market is down more than x%, unless your cash or similar funds get down to $y or Z months' expenses, then you have to do that.) Although actually, that might not be my answer.  You have $4m invested.  If I had that, it would be soooo much more than enough to cover my annual expenses at a very conservative withdraw rate that I would likely just sell stocks and buy the house outright, because I'd no longer need to worry about optimizing things.  So if that's the case, then there is something to be said for simplifying. 

That said, unless you are very familiar with Seattle (more than some quick trips to the area), I would rent for a while before buying.

I agree that I need to come up with a withdraw strategy.  I am thinking every 6months pull X amount out.  I also plan to have around 75k liquid incase something does happen I can ride it out for about a year.
I also agree with renting for a time before buying.
Thanks for taking the time to reply.

[bacchi]

The 4% rule is not based on holding an equity position in one and only one company.

There's no way you should buy a $1.5M house while holding only Apple; not on that salary.

[Zamboni]

It depends what your end goal is. It appears you've already won the game. If that's the case, what's the point of using leverage to juice the returns? I'm all for holding a low interest mortgage in perpetuity, but you seem to be viewing this as a speculative investment rather than a home to live in.

You know what.  After reading all these comments about how I have already "won the game" and I could retire now and so on.  I don't feel like I am rich.  I would still rather eat in and save money.  I still would never buy a new car when a 3-4year old car is a much better deal.  It pains me to see the wife buy Starbucks.  I don't feel rich and I don't feel like I have "won the game".

You are literally in the 97th percentile in household wealth in one of the wealthiest countries in the world. Whether you feel rich or not, the fact is that you are rich.
https://dqydj.com/average-median-top-net-worth-percentiles/

That doesn't need mean you need to start spending like money grows on trees, but give your wife a break even if she has a $6 a day coffee habit. Sure, keep buying slightly used cars because that makes sense. You don't need to go out and buy a Maybach and a Bentley. But don't leverage a house if you have this much in one stock. What you are proposing is indeed crazy talk.

Part of the reason you are so rich is that Apple stock went up 84% YTD. Can that continue forever? That is truly why you are so nervous and don't really feel like you've won. You need to make the decision to pull some of that money into safer places, and you don't want to do it entirely because of fear of missing out on future gains. There is absolutely nothing rational or defensible about your position at this point. You are literally willing to downplay and ignore your wife's perfectly normal and sensible desire for safety and security in her home because you are afraid of missing out on potential additional money that you don't even need from a continued single stock gamble. It makes absolutely no sense.

I can assure you that Elon Musk and Bill Gates and Warren Buffet and Jeff Bezos all have paid for houses, not leveraged houses.

[dinosau12]

I am just curious:
What exactly is drawing you to the Seattle area? Do you have family there or very close by? Have either or you lived there before? Or in a similar climate? Is there a particular recreation activity that is drawing you to that location?

Nothing against Seattle (my Mom loved living there). I'm just curious why Seattle for you?

The climate, thats the number 1 reason.  The water, the mountains, it has it all.  It has a shitty winter, dark and wet but I feel like I can handle that.  Lets face it, every place has a crappy season.  I would rather have a crappy winter than a sauna like summer. 
We have visited a number of times.  Have a couple friends that live there and they too love it. 

[Villanelle]

Not clear if you currently work or plan to keep working but I would just buy the house outright with the equity from your current house and the rest from your investments.

You already have more than enough built up to make you FI even if you buy the house so you have already won the game. For me it would be one less thing to worry / think about and worth the peace of mind.

You could probably make more using the leverage and leaving the money invested but you have to decide if it is worth it for yourself.


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The wife would rather just pay cash for the house and be done with it too.  My goal is to buy the house, live in it for approximately 15 years, the kids would be out of the house and we can sell it and down size.  I am 44 now and plan to retire around 53+/- a couple years.  I figure my savings would allow me a pretty comfy retirement.  If I take out 1.5mill to buy a house I feel like that would set our retirement age back a couple years and would rather not do that.  My original goal was to retire was 50, feel like I will miss it by a couple years but I am ok with this. I don't t want to keep pushing that number back.
Maybe I am too conservative in my retirement goals.  I just don't want to be 90 years old and worrying about how much the electric bill is going to be.

Okay, how does any of this make any sense?

How much are you spending that you don't think you will have enough money to retire until you are at least 50??

None of this is making any sense to me.

I agree. You make only $160k, so presumably you are spending less than that per year.  Yet $4m is years away from being able to retire?

What is your annual spending and what does it include?

[dinosau12]

Is there a particular reason you are looking at houses in the Snoqualmie Valley?  I grew up there and know the property market fairly well.   There is a BIIIIIIG difference between living in that house on acreage in Fall City (which is in the middle of nowhere) versus the house near downtown Kirkland.   If you are in tech and need to be at offices in redmond or kirkland, you do NOT want to commute on highway 202 daily.  I-90 used to be a bit better but is now also very congested due to all the development in Issaquah.

Schools in the valley also still have significant issues with lack of diversity/racism -- check out some recent articles in Living Snoqualmie by students who have been fighting this.  It is a deep rooted problem that goes back many decades.  The valley was primarily farmer/loggers until the '80s and pockets of it are still very conservative.  Maybe you like that, I didn't and it is one big reason I didn't move back there.

FWIW we returned to the Seattle area in 2015-16 and paid more than we should have for a house at the peak of the housing rush in 2017 -- prices dipped a bit in 2018-19 in our neighborhood (far NE Seattle proper) but are now back up.  We paid cash and are living comfortably off savings at around 40-60k/year, not including eldest kid's college costs (now done -- we had enough in 529s for both him and his younger sister).  You will be just fine if you spend up to 1.5 mill on a house with your ongoing income/current assets AS LONG AS YOU DIVERSIFY, but strongly suggest you rent in your target community first and make sure the schools, etc are a good fit.  If you think you want to live rural RENT rural first - there is a lot to like about it but also lots not to like (power sometimes goes out for days or even weeks, roads may not get plowed quickly, and increasingly the fire danger from spring-fall is scary).  Having to drive 15-30 minutes to get to ANYTHING (even small/expensive convenience stores) gets tiring.

Bellevue/Lake Washington/Northshore/Issaquah school districts are all excellent.  I personally think Shoreline is a better district than Seattle, generally speaking, but there are ways to get a good experience in Seattle if you are informed and proactive (unless your kids have special needs -- I would avoid Seattle if you have a kid with an IEP or 504 based on friends' experiences).

To be honest I just randomly picked those houses for an example.  I would really appreciate it if you could PM me and I could pick your brain about the Seattle market.  We really like the Bainbridge area and the schools there look good and thats where we are looking to rent.  We are also looking at maple valley, woodinville/bothal, mukilteo, and others.  I do not want to live in Seattle proper.  I would like to have a little bit of space, lets say 0.5acre. 
Both the wife and I are working remote.  My goal is to continue this trend of working remote allowing us to live farther out and not have to commute.

[Abe]

Wow, that’s a risky stock portfolio. I’d agree with putting a good down-payment to get out of apple stock, but keep in mind your long-term capital gains tax will be somewhere between 15-20% depending on how much you take out (roughly 500k-total income at 15%, above that will be 20%): use https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates for reference. Keep in mind that trading stock in retirement accounts is generally not taxed, so try to get out of apple that way to protect your retirement plan.