Author Topic: Million Dollar homes in HCOLs  (Read 6942 times)

jeromedawg

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Million Dollar homes in HCOLs
« on: April 12, 2017, 08:20:31 PM »
Hey all,

So I "overheard on Facebook" that an old coworker couple from my last company went in together and just got approved and are waiting to move in to a soon-to-be built 4/3 or 4/4 2000-2500sq ft million-dollar home. And the bonus is that it comes with absurdly high property taxes, mello roos, and the likely compelling need to purchase a 90" flatscreen to mount and fill that huge wall space :D I'm assuming they'll be getting married soon, for the tax-benefits... or maybe not.

If I had to guess, their current combined salary is probably in the ballpark of $250-300k at most (and that would include total compensation like 401k matches, profit sharing, etc). They're in their late 20's/early 30s.

That seems pretty insane to me... am I off base and just acting jealous? Yea, probably the latter but million dollar homes freak me out too. Million dollar homes are pretty common in my area though :T I guess the fact that it's brand new makes it a better deal hahaha

Just curious but what salary(ies) y'all would feel comfortable on when putting in an order for a million dollar home...
« Last Edit: April 12, 2017, 08:33:50 PM by jplee3 »

trashmanz

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Re: Million Dollar homes in HCOLs
« Reply #1 on: April 12, 2017, 08:25:40 PM »
Depends on the alternative.  Around here the rents are so hight that even buying a million dollar home isn't too crazy if you have/want to live where your desired work is.   300,000 a year is not an insubstantial amount of money.  If done correctly the home could just be a parking spot for money for a while until FIRE.   

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #2 on: April 12, 2017, 08:37:01 PM »
Depends on the alternative.  Around here the rents are so hight that even buying a million dollar home isn't too crazy if you have/want to live where your desired work is.   300,000 a year is not an insubstantial amount of money.  If done correctly the home could just be a parking spot for money for a while until FIRE.   

That's true, rent is pretty high around here. At the same time, this is a 4/3 or 4/4 home and it's just the two of them. Unless they plan on having kids real soon maybe... but I overheard talks of a "game room" so maybe not. BTW: these are advertised as "low $1,000,000s" so I'm not sure what that actually means. I guess anywhere from $1M exactly to $1.4M? But it's probably more than $1M - that's for sure.
« Last Edit: April 12, 2017, 08:40:20 PM by jplee3 »

Gondolin

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Re: Million Dollar homes in HCOLs
« Reply #3 on: April 13, 2017, 07:07:31 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

It's *possible* that this a smart couple with $1M NW who are building their 'dream home' in the city where they plan to live for the next 20+ years.

More *likely* is that is another high income couple who believes home ownership = success and have no problem with 90% of their NW tied to a house with a 700K mortgage.

Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #4 on: April 13, 2017, 09:06:25 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

It's *possible* that this a smart couple with $1M NW who are building their 'dream home' in the city where they plan to live for the next 20+ years.

More *likely* is that is another high income couple who believes home ownership = success and have no problem with 90% of their NW tied to a house with a 700K mortgage.

Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

Judging by the way it was posted on FB and the overwhelming number of likes and comments congratulating them on their success, I would say your latter hypothesis is probably the one to go with. I'm pretty sure, as with most people, they consider this to be a luxury AND investment aka "You *can* have your cake and eat it too" lol

Chris22

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Re: Million Dollar homes in HCOLs
« Reply #5 on: April 13, 2017, 09:23:26 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

Or they could be planning on starting a family and needing the rooms.  I know every MMM follower likes to fold their family into the smallest garden shed or porta john they can find, but out in the real world a 2k-2500sq ft is not an extravagantly large ridiculous house.  It's average to slightly larger than average.  And buying what you think you will need and staying there is likely cheaper than underbuying and then moving a few years later if necessary given the high transactional costs associated with RE.

Quote
If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

Individual markets may vary and all of that, but in most places, a 2br is going to be capped as to how far it will appreciate.  A 3br will also be capped but at a higher level, and a 4br starts to reach the point where it will have near-universal appeal to most home shoppers.  Given that we don't know the marginal cost of the additional 1-2 bedrooms in the OP's example, it's hard to say if it's wasteful or a sound investment.  I do know that in my own area a 2br house is as popular and easy to sell as a losing lotto ticket, and my 3br is going to be capped at a level not that much more than what I paid for it unless there is a sizeable market shift, whereas a 4br will continue to appreciate.

Quote
Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

"financial ruin" seems to be a bit dramatic, unless you're suggesting statistically they are likely to lose the house; current trends don't suggest foreclosure rates over 50% on $1M homes so I'd say that's not correct. 

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #6 on: April 13, 2017, 09:40:04 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

Or they could be planning on starting a family and needing the rooms.  I know every MMM follower likes to fold their family into the smallest garden shed or porta john they can find, but out in the real world a 2k-2500sq ft is not an extravagantly large ridiculous house.  It's average to slightly larger than average.  And buying what you think you will need and staying there is likely cheaper than underbuying and then moving a few years later if necessary given the high transactional costs associated with RE.

Quote
If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

Individual markets may vary and all of that, but in most places, a 2br is going to be capped as to how far it will appreciate.  A 3br will also be capped but at a higher level, and a 4br starts to reach the point where it will have near-universal appeal to most home shoppers.  Given that we don't know the marginal cost of the additional 1-2 bedrooms in the OP's example, it's hard to say if it's wasteful or a sound investment.  I do know that in my own area a 2br house is as popular and easy to sell as a losing lotto ticket, and my 3br is going to be capped at a level not that much more than what I paid for it unless there is a sizeable market shift, whereas a 4br will continue to appreciate.

Quote
Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

"financial ruin" seems to be a bit dramatic, unless you're suggesting statistically they are likely to lose the house; current trends don't suggest foreclosure rates over 50% on $1M homes so I'd say that's not correct.


FWIW, the community (it's a planned cookie-cutter brand-new development neighborhood with at least 8 communities/sections) they chose with the $1M+ homes is the most expensive out of all of them (there are two others in the millions). The remaining 5 communities range from the "mid-$500s" to "low-$900s" (of course, with smaller square footage) so they had a lot of choices but chose one of the biggest and most expensive ones to buy. I don't know... the talk about a "game room" just makes me skeptical that this is any sort of "sound investment" lol

Chris22

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Re: Million Dollar homes in HCOLs
« Reply #7 on: April 13, 2017, 09:45:26 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

Or they could be planning on starting a family and needing the rooms.  I know every MMM follower likes to fold their family into the smallest garden shed or porta john they can find, but out in the real world a 2k-2500sq ft is not an extravagantly large ridiculous house.  It's average to slightly larger than average.  And buying what you think you will need and staying there is likely cheaper than underbuying and then moving a few years later if necessary given the high transactional costs associated with RE.

Quote
If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

Individual markets may vary and all of that, but in most places, a 2br is going to be capped as to how far it will appreciate.  A 3br will also be capped but at a higher level, and a 4br starts to reach the point where it will have near-universal appeal to most home shoppers.  Given that we don't know the marginal cost of the additional 1-2 bedrooms in the OP's example, it's hard to say if it's wasteful or a sound investment.  I do know that in my own area a 2br house is as popular and easy to sell as a losing lotto ticket, and my 3br is going to be capped at a level not that much more than what I paid for it unless there is a sizeable market shift, whereas a 4br will continue to appreciate.

Quote
Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

"financial ruin" seems to be a bit dramatic, unless you're suggesting statistically they are likely to lose the house; current trends don't suggest foreclosure rates over 50% on $1M homes so I'd say that's not correct.


FWIW, the community (it's a planned cookie-cutter brand-new development neighborhood with at least 8 communities/sections) they chose with the $1M+ homes is the most expensive out of all of them (there are two others in the millions). The remaining 5 communities range from the "mid-$500s" to "low-$900s" (of course, with smaller square footage) so they had a lot of choices but chose one of the biggest and most expensive ones to buy. I don't know... the talk about a "game room" just makes me skeptical that this is any sort of "sound investment" lol

I'm not going to stick my neck out and say it's any sort of sound investment, I just find the attitude of "OMG if it's a single square inch more than you currently need at this very moment it's a guaranteed way to go bankrupt!" absurd. 

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #8 on: April 13, 2017, 09:50:05 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

Or they could be planning on starting a family and needing the rooms.  I know every MMM follower likes to fold their family into the smallest garden shed or porta john they can find, but out in the real world a 2k-2500sq ft is not an extravagantly large ridiculous house.  It's average to slightly larger than average.  And buying what you think you will need and staying there is likely cheaper than underbuying and then moving a few years later if necessary given the high transactional costs associated with RE.

Quote
If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

Individual markets may vary and all of that, but in most places, a 2br is going to be capped as to how far it will appreciate.  A 3br will also be capped but at a higher level, and a 4br starts to reach the point where it will have near-universal appeal to most home shoppers.  Given that we don't know the marginal cost of the additional 1-2 bedrooms in the OP's example, it's hard to say if it's wasteful or a sound investment.  I do know that in my own area a 2br house is as popular and easy to sell as a losing lotto ticket, and my 3br is going to be capped at a level not that much more than what I paid for it unless there is a sizeable market shift, whereas a 4br will continue to appreciate.

Quote
Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

"financial ruin" seems to be a bit dramatic, unless you're suggesting statistically they are likely to lose the house; current trends don't suggest foreclosure rates over 50% on $1M homes so I'd say that's not correct.


FWIW, the community (it's a planned cookie-cutter brand-new development neighborhood with at least 8 communities/sections) they chose with the $1M+ homes is the most expensive out of all of them (there are two others in the millions). The remaining 5 communities range from the "mid-$500s" to "low-$900s" (of course, with smaller square footage) so they had a lot of choices but chose one of the biggest and most expensive ones to buy. I don't know... the talk about a "game room" just makes me skeptical that this is any sort of "sound investment" lol

I'm not going to stick my neck out and say it's any sort of sound investment, I just find the attitude of "OMG if it's a single square inch more than you currently need at this very moment it's a guaranteed way to go bankrupt!" absurd.

That's true... and "if you have extra monies" I guess it's not that big of a deal. They just may not be able to max out the HSA, 401k, Roth IRAs, and other taxable investments. So it boils down to the fact that it's affordable but are you working to live in your house? I guess most people have that mentality anyway...

Chris22

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Re: Million Dollar homes in HCOLs
« Reply #9 on: April 13, 2017, 09:54:08 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

Or they could be planning on starting a family and needing the rooms.  I know every MMM follower likes to fold their family into the smallest garden shed or porta john they can find, but out in the real world a 2k-2500sq ft is not an extravagantly large ridiculous house.  It's average to slightly larger than average.  And buying what you think you will need and staying there is likely cheaper than underbuying and then moving a few years later if necessary given the high transactional costs associated with RE.

Quote
If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

Individual markets may vary and all of that, but in most places, a 2br is going to be capped as to how far it will appreciate.  A 3br will also be capped but at a higher level, and a 4br starts to reach the point where it will have near-universal appeal to most home shoppers.  Given that we don't know the marginal cost of the additional 1-2 bedrooms in the OP's example, it's hard to say if it's wasteful or a sound investment.  I do know that in my own area a 2br house is as popular and easy to sell as a losing lotto ticket, and my 3br is going to be capped at a level not that much more than what I paid for it unless there is a sizeable market shift, whereas a 4br will continue to appreciate.

Quote
Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

"financial ruin" seems to be a bit dramatic, unless you're suggesting statistically they are likely to lose the house; current trends don't suggest foreclosure rates over 50% on $1M homes so I'd say that's not correct.


FWIW, the community (it's a planned cookie-cutter brand-new development neighborhood with at least 8 communities/sections) they chose with the $1M+ homes is the most expensive out of all of them (there are two others in the millions). The remaining 5 communities range from the "mid-$500s" to "low-$900s" (of course, with smaller square footage) so they had a lot of choices but chose one of the biggest and most expensive ones to buy. I don't know... the talk about a "game room" just makes me skeptical that this is any sort of "sound investment" lol

I'm not going to stick my neck out and say it's any sort of sound investment, I just find the attitude of "OMG if it's a single square inch more than you currently need at this very moment it's a guaranteed way to go bankrupt!" absurd.

That's true... and "if you have extra monies" I guess it's not that big of a deal. They just may not be able to max out the HSA, 401k, Roth IRAs, and other taxable investments. So it boils down to the fact that it's affordable but are you working to live in your house? I guess most people have that mentality anyway...

OTOH, buying into a HCOL area, working there sucking up HCOL salaries, paying down the house, and then retiring to a LCOL area after selling the HCOL house isn't a bad plan either.  The appreciation potential of a $1M HCOL house is way more than a $200k LCOL house over a decade or two. 

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #10 on: April 13, 2017, 09:59:11 AM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

Or they could be planning on starting a family and needing the rooms.  I know every MMM follower likes to fold their family into the smallest garden shed or porta john they can find, but out in the real world a 2k-2500sq ft is not an extravagantly large ridiculous house.  It's average to slightly larger than average.  And buying what you think you will need and staying there is likely cheaper than underbuying and then moving a few years later if necessary given the high transactional costs associated with RE.

Quote
If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

Individual markets may vary and all of that, but in most places, a 2br is going to be capped as to how far it will appreciate.  A 3br will also be capped but at a higher level, and a 4br starts to reach the point where it will have near-universal appeal to most home shoppers.  Given that we don't know the marginal cost of the additional 1-2 bedrooms in the OP's example, it's hard to say if it's wasteful or a sound investment.  I do know that in my own area a 2br house is as popular and easy to sell as a losing lotto ticket, and my 3br is going to be capped at a level not that much more than what I paid for it unless there is a sizeable market shift, whereas a 4br will continue to appreciate.

Quote
Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

"financial ruin" seems to be a bit dramatic, unless you're suggesting statistically they are likely to lose the house; current trends don't suggest foreclosure rates over 50% on $1M homes so I'd say that's not correct.


FWIW, the community (it's a planned cookie-cutter brand-new development neighborhood with at least 8 communities/sections) they chose with the $1M+ homes is the most expensive out of all of them (there are two others in the millions). The remaining 5 communities range from the "mid-$500s" to "low-$900s" (of course, with smaller square footage) so they had a lot of choices but chose one of the biggest and most expensive ones to buy. I don't know... the talk about a "game room" just makes me skeptical that this is any sort of "sound investment" lol

I'm not going to stick my neck out and say it's any sort of sound investment, I just find the attitude of "OMG if it's a single square inch more than you currently need at this very moment it's a guaranteed way to go bankrupt!" absurd.

That's true... and "if you have extra monies" I guess it's not that big of a deal. They just may not be able to max out the HSA, 401k, Roth IRAs, and other taxable investments. So it boils down to the fact that it's affordable but are you working to live in your house? I guess most people have that mentality anyway...

OTOH, buying into a HCOL area, working there sucking up HCOL salaries, paying down the house, and then retiring to a LCOL area after selling the HCOL house isn't a bad plan either.  The appreciation potential of a $1M HCOL house is way more than a $200k LCOL house over a decade or two.

True - in my area, homes should appreciate in value granted this city is still a highly desirable place to live 20-30 years from now and doesn't turn into a slum. I'm pretty sure it won't lol. With more and more people moving here though, it's getting crazy, especially with traffic (and there are some really awful drivers here too). Dunno how far they're looking ahead in terms of retirement but I'm guessing not anytime soon.

One of my friends did pretty well starting out by buying into a brand new development (but it was a smaller town home unit) during the downturn in 2010 or 2011. I think they paid $400~ for it and sold it in 2015 for $625k. They moved into a 2900sq ft home that was $767k, then decided it was too big, sold it for $850k, and moved back into a smaller place (probably around 2000sq ft or less) that, if I had to guess is probably around $800k. They seem to have gotten lucky on the move out of their second (too big) home but maybe they knew exactly what they were doing. Makes me regret not doing something like that when the market was down - so many opportunities, but I was way too fickle about it. They could have just stayed in their first place but I guess the new place is still valued maybe $100k higher so in the end it seems to have worked out for them in terms of the NW they have in their home.
« Last Edit: April 13, 2017, 10:20:53 AM by jplee3 »

Gondolin

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Re: Million Dollar homes in HCOLs
« Reply #11 on: April 13, 2017, 10:52:09 AM »
Quote
I just find the attitude of "OMG if it's a single square inch more than you currently need at this very moment it's a guaranteed way to go bankrupt!" absurd. 

This wasn't my attitude. Chris22, why are so needlessly antagonistic? You spent many words countering my post and then....reached the same conclusion I did. Specifically, there are situations where the OP would make sense from both a lifestyle and financial perspective but, from the very limited information we are given there are several red flags (ex. unmarried couple overleveraging themselves to *build* a property that's larger than their apparent needs).

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Re: Million Dollar homes in HCOLs
« Reply #12 on: April 13, 2017, 11:07:12 AM »
The number of bedrooms and square footage seem excessive to me, but buying a $1M house with a $300k household salary doesn't seem extraordinary to me. In fact that is what we are trying to do right now. The difference is that the house we would like to buy is about 1100ft^2 including unpermotted garage conversion, and is a 3/2 (legally a 2/1).

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #13 on: April 13, 2017, 11:13:46 AM »
The number of bedrooms and square footage seem excessive to me, but buying a $1M house with a $300k household salary doesn't seem extraordinary to me. In fact that is what we are trying to do right now. The difference is that the house we would like to buy is about 1100ft^2 including unpermotted garage conversion, and is a 3/2 (legally a 2/1).

Thanks for the insight - those were might general thoughts. But that leads to the next question: if you can get a $1M house, why would you get one like the one you're describing (with an unpermitted garage conversion)? Is it simply because of the limited amount of housing available (e.g. you live in the Bay Area)?

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #14 on: April 13, 2017, 11:19:34 AM »
I think you may be off base without more information.

The key is whether they can live within their means, save, and hit their wealth targets.

Not everyone wants to retire early or live in the minimum cost structure.  We all desire some luxury, but also make some sacrifices to achieve financial independence.

My wife and i are incredibly frugal investors.  We also own a large home in a HCOL area.  We accept that our housing choice would carry a large opportunity cost, especially considering the capital tied up.  We accept it as worth it to us.  We could rent spare rooms or hold a leveraged morgage for the equity, to invest the difference, but dont.  Facepunch us if you like, but i have never bought a new car, even though we could pay cash for any one we wanted.  We cook mostly all our own meals, etc.

Fair argument. Perhaps this couple intends to do something like you describe: rent out the remaining 3 rooms while they don't have kids to subsidize the cost of mortgage which would more than likely allow them to maximize all their pre-tax accounts and then some. At least, this is what I would do if I were going to buy such a large house. Perhaps these kids are more frugal than I'm giving them credit for. Now that I recall, one of them drives a Honda Insight (though I don't know if there have been any automobile upgrades as of late). And I don't know what their eating/spending habits are like otherwise - they never struck me in particular as being the frugal types though. Who knows... they're both smart and I'm sure they'll have it figured out.

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Re: Million Dollar homes in HCOLs
« Reply #15 on: April 13, 2017, 11:50:39 AM »
Just curious but what salary(ies) y'all would feel comfortable on when putting in an order for a million dollar home...

Considering my condo is about 13% that plus condo dues, and I bought on the low end of affordability.  I would estimate a 5-6x raise would put me in the comfort zone for a million dollar house.  So 2 people making half a million a year total should be able to cover it.  Now if my wife and I could get a 250k career each instead of struggling in the low 100s combined we'd be getting somewhere besides small condos or the trailer park.

Imagine $3800 a month for 30 years with a down payment between  of 20%.  Traditional advice recommends a 28% limit on house payment to gross monthly income which suggests a minimum salary of $162,857.  That seems extremely low for a million dollar house but within reach of my household income in about 20 years.  Maybe I will get a million dollar home in 50 years. 

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Re: Million Dollar homes in HCOLs
« Reply #16 on: April 13, 2017, 11:57:57 AM »
Quote
thoughts. But that leads to the next question: if you can get a $1M house, why would you get one like the one you're describing (with an unpermitted garage conversion)? Is it simply because of the limited amount of housing available (e.g. you live in the Bay Area)?

Yup, that about sums it up. And to answer another question asked in the thread, our base household income is $335k right now. That puts a $1M purchase price at 3x annual salary. That is well within the usual rules of thumb for affordability, even on this site.

I think people get all up in arms by things like "six-figure salary" and "million dollar homes" and forget to scale. Yeah, houses are expensive, but salaries are high. Other things in life are basically the same wherever you go, so you might end up with a lot more disposable income after the expensive housing. My car wasn't more expensive for being in a HCOL area. My food is pretty much the same, especially produce since it is mostly grown in my state. We have perfect weather year-round so most of our leisure activities are outside and free. Not that there is anything wrong with choosing a different path, but it helps to keep everything in perspective.

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #17 on: April 13, 2017, 12:17:11 PM »
Quote
thoughts. But that leads to the next question: if you can get a $1M house, why would you get one like the one you're describing (with an unpermitted garage conversion)? Is it simply because of the limited amount of housing available (e.g. you live in the Bay Area)?

Yup, that about sums it up. And to answer another question asked in the thread, our base household income is $335k right now. That puts a $1M purchase price at 3x annual salary. That is well within the usual rules of thumb for affordability, even on this site.

I think people get all up in arms by things like "six-figure salary" and "million dollar homes" and forget to scale. Yeah, houses are expensive, but salaries are high. Other things in life are basically the same wherever you go, so you might end up with a lot more disposable income after the expensive housing. My car wasn't more expensive for being in a HCOL area. My food is pretty much the same, especially produce since it is mostly grown in my state. We have perfect weather year-round so most of our leisure activities are outside and free. Not that there is anything wrong with choosing a different path, but it helps to keep everything in perspective.

All very true. It'll be interesting, to say the least, seeing (on FB) what other expenditures this couple will make over the next several years. New cars, new toys, vacations, etc.... then again, maybe it will all be from disposable income by that point in time :)

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Re: Million Dollar homes in HCOLs
« Reply #18 on: April 13, 2017, 12:22:22 PM »
I had to google what a mello roos was. 

All this time I was thinking they were just relaxed kangaroos, and that actually sounds pretty awesome. 

Like this guy:


ysette9

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Re: Million Dollar homes in HCOLs
« Reply #19 on: April 13, 2017, 12:24:41 PM »
That prompted me to look up mello roos also. I had never heard of that term before today. I much prefer mellow 'roos. :)

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #20 on: April 13, 2017, 12:29:42 PM »
That prompted me to look up mello roos also. I had never heard of that term before today. I much prefer mellow 'roos. :)
I had to google what a mello roos was. 

All this time I was thinking they were just relaxed kangaroos, and that actually sounds pretty awesome. 

Like this guy:




LOL this makes me want to go to Australia. How did they get the shades on that thing? He must be super-"mello" to not have knocked out the person who put them on him (or her).

Oh yea, I almost forgot about HOAs. So mello roos + HOAs is what people around here pay in addition to exorbitant property taxes in these new developments/communities. Pretty sure I've heard of mello roos+HOAs encroaching on the $1000 threshold (and likely going over in reality) in my area. Of course, mello roos should only be for 15 years but still... the HOA dues on new developments are ridiculous here. You're paying for the "amenities" (one being growing traffic congestion) of "living in a nice area" basically.

Actually, the HOA may not be *as* bad - I just did a quick look and supposedly it's $125/mo

Info on the financials:
Approximate HOA Dues: $125
Base Property Tax: 1.05%
AD Tax: $1,200 per year
CFD Tax: $1,700 per year
Other Taxes: $164 per year
Overall Effective Tax Rate: Approximately 1.3%
« Last Edit: April 13, 2017, 12:41:28 PM by jplee3 »

yachi

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Re: Million Dollar homes in HCOLs
« Reply #21 on: April 13, 2017, 01:51:49 PM »
The appreciation potential of a $1M HCOL house is way more than a $200k LCOL house over a decade or two.

Why should this be the case? 

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Re: Million Dollar homes in HCOLs
« Reply #22 on: April 13, 2017, 02:38:46 PM »
The appreciation potential of a $1M HCOL house is way more than a $200k LCOL house over a decade or two.

Why should this be the case?

Appreciation is generally a percentage of the whole, and it typically applies to all the houses in an area.

Chris22

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Re: Million Dollar homes in HCOLs
« Reply #23 on: April 13, 2017, 02:48:57 PM »
The appreciation potential of a $1M HCOL house is way more than a $200k LCOL house over a decade or two.

Why should this be the case?

Why shouldn't it be the case?  Dollar amounts are a lot larger so same-percentage gains are greater, HCOL has more people with more dollars chasing houses, generally HCOL areas aren't as affected by downturns and other economic events ('the one employer in town shut down'), HCOL areas generally have people who are less price-sensitive, HCOL areas generally attract more people chasing the resources, etc etc etc. 

mm1970

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Re: Million Dollar homes in HCOLs
« Reply #24 on: April 13, 2017, 03:46:18 PM »
Hey all,

So I "overheard on Facebook" that an old coworker couple from my last company went in together and just got approved and are waiting to move in to a soon-to-be built 4/3 or 4/4 2000-2500sq ft million-dollar home. And the bonus is that it comes with absurdly high property taxes, mello roos, and the likely compelling need to purchase a 90" flatscreen to mount and fill that huge wall space :D I'm assuming they'll be getting married soon, for the tax-benefits... or maybe not.

If I had to guess, their current combined salary is probably in the ballpark of $250-300k at most (and that would include total compensation like 401k matches, profit sharing, etc). They're in their late 20's/early 30s.

That seems pretty insane to me... am I off base and just acting jealous? Yea, probably the latter but million dollar homes freak me out too. Million dollar homes are pretty common in my area though :T I guess the fact that it's brand new makes it a better deal hahaha

Just curious but what salary(ies) y'all would feel comfortable on when putting in an order for a million dollar home...

I live in a HCOL area.  Combined salary, similar.

Million dollar homes are the median.  So:

This one: no:
https://www.zillow.com/homedetails/4104-Modoc-Rd-Santa-Barbara-CA-93110/15904167_zpid/

This one: no:
https://www.zillow.com/homedetails/3623-Sunset-Dr-Santa-Barbara-CA-93105/15900959_zpid/

This one: maybe: (though I'd prefer a bigger yard)
https://www.zillow.com/homedetails/853-Fellowship-Rd-Santa-Barbara-CA-93109/15893072_zpid/

This one: maybe
https://www.zillow.com/homedetails/3784-Brenner-Dr-Santa-Barbara-CA-93105/15902341_zpid/

The answer is, for me - $1M is a lot of money, and doesn't get you everything that you need.

Our local market is odd, to say the least.  So the "more expensive homes appreciate more" doesn't usually apply here.

Generally, when the market gets tight, it gets "squished", like when we bought.  A 2BR, 1BA "starter home" (no garage, bad school district) was $870k at the peak (2005/2006) and $490k at the bottom.  In 2004, say, it was about $800k, and there were very few homes under $800k.  "For only $150,000 more" (aka, if your budget was $930-950k), you could get a house 1.5 to 2x the size, in a better school district, which would be 1500-2200 sf.

Why is that?  Well, it's a stretch to get into an $800k home.  So all the "bottom feeders" are competing for the same homes, driving up the price.  When you add $150k, that eliminates a lot of competition.

At least locally, more expensive homes ($1.6M+) sit on the market a lot longer, as there are fewer buyers.  And we have the HCOL housing without the HCOL salaries.
« Last Edit: April 13, 2017, 03:49:31 PM by mm1970 »

yachi

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Re: Million Dollar homes in HCOLs
« Reply #25 on: April 13, 2017, 04:01:24 PM »
The appreciation potential of a $1M HCOL house is way more than a $200k LCOL house over a decade or two.

Why should this be the case?

Why shouldn't it be the case?  Dollar amounts are a lot larger so same-percentage gains are greater, HCOL has more people with more dollars chasing houses, generally HCOL areas aren't as affected by downturns and other economic events ('the one employer in town shut down'), HCOL areas generally have people who are less price-sensitive, HCOL areas generally attract more people chasing the resources, etc etc etc.


To me it rhymes with picking a stock based on how much it gained over the last few years, and momentum.  I get that you can borrow more on a $1M house, but if you're all cash, the $800K difference should be invested somewhere, so you're really just talking more leverage.  Entire industries have been affected by downturns before, and I don't think there is anything special about the industries supporting today's HCOL areas that would prevent similar things happening to them.  I've looked at HCOL areas, but my skills as an engineer are not in the favored computer field, so salaries there are no better than in my LCOL area.  Maybe you're right and these HCOL areas will continue to have more people with more dollars chasing houses over the next 20 years.  It does seem to me that most of the HCOL areas have a single high salary industry, with just average salaries others.





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Re: Million Dollar homes in HCOLs
« Reply #26 on: April 13, 2017, 04:06:38 PM »
Maybe you're right and these HCOL areas will continue to have more people with more dollars chasing houses over the next 20 years.  It does seem to me that most of the HCOL areas have a single high salary industry, with just average salaries others.

Here in Chicagoland, we have lots and lots of company HQs, large and small, which means lots of employment opportunities.  There are some places that are single-industry, but I think most major metropolitan areas are more diverse than that. 

Chris22

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Re: Million Dollar homes in HCOLs
« Reply #27 on: April 13, 2017, 04:10:02 PM »
Our local market is odd, to say the least.  So the "more expensive homes appreciate more" doesn't usually apply here.

Sorry, I'm not saying a $1M house will appreciate more than an $800k house in the same area; I'm saying houses in a HCOL area have a better chance at appreciating significantly versus a house in a LCOL area.  A $200k house in middle America is less likely to see significant appreciation than a $500k-$1M house in a high cost major metropolitan area.   

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #28 on: April 13, 2017, 05:01:41 PM »
Our local market is odd, to say the least.  So the "more expensive homes appreciate more" doesn't usually apply here.

Sorry, I'm not saying a $1M house will appreciate more than an $800k house in the same area; I'm saying houses in a HCOL area have a better chance at appreciating significantly versus a house in a LCOL area.  A $200k house in middle America is less likely to see significant appreciation than a $500k-$1M house in a high cost major metropolitan area.

In terms of appreciation doesn't it also depend on future forecast of the area in addition to the desirability to live there? e.g. the Phoenix area is expected to be the "Silicon Desert" and thus home/housing prices are expected to appreciate in value pretty significantly (by how much, I don't know the exact numbers...). Of course, it's all scaled so while home prices out there are appreciating, home prices in SF and LA will also appreciate. I wonder what would happen to home prices in CA if CA secedes LOL! Generally, the idea of appreciation seems to be a form of speculation but I guess there is such a thing as "calculated speculation" much like how there is such a thing as "calculated risk"

ysette9

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Re: Million Dollar homes in HCOLs
« Reply #29 on: April 13, 2017, 07:45:54 PM »
Of course housing prices are related to desirability of living at that location as well as the economic and job environment. I think another aspect is simple supply and demand. When you can continue building then your supply can meet demand so prices really shouldn't rise more than inflation overall. If your supply is limited though by geography or zoning or both, then that can drive prices really high. That is what we have seen in the Bay Area for decades. I suspect Phoenix will not suffer the same fate since you can just keep building out into the desert there, like Huston of Bakersfield or other sprawl-y cities.

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #30 on: April 13, 2017, 08:26:06 PM »
Of course housing prices are related to desirability of living at that location as well as the economic and job environment. I think another aspect is simple supply and demand. When you can continue building then your supply can meet demand so prices really shouldn't rise more than inflation overall. If your supply is limited though by geography or zoning or both, then that can drive prices really high. That is what we have seen in the Bay Area for decades. I suspect Phoenix will not suffer the same fate since you can just keep building out into the desert there, like Huston of Bakersfield or other sprawl-y cities.

That is true - look at the population density in San Jose these days!

OC isn't *as* bad because certain cities, like Irvine, they have strict planning regulations and ordinances. But otherwise, there's just no room to build a lot more. You have to move east and inland... even in Irvine, most of the new developments are in EAST Irvine. Same with other cities like Lake Forest - more new developments east.

Up there, it's the same story - if you want cheaper, move to Stockton or Gilroy LOL

The dilemma is similar to that of the classic triangle of "good, fast, or cheap; pick any two."

BTW: is the 3x your salary 'guideline' in the context of the entire home price? Or is it in the context of the mortgage?
« Last Edit: April 13, 2017, 08:28:01 PM by jplee3 »

ysette9

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Re: Million Dollar homes in HCOLs
« Reply #31 on: April 14, 2017, 09:40:13 AM »
The 3x/4x guideline as I have seen it is the total purchase price of hr house with respect to your total gross yearly income.

honeybbq

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Re: Million Dollar homes in HCOLs
« Reply #32 on: April 14, 2017, 10:23:43 AM »
Our local market is odd, to say the least.  So the "more expensive homes appreciate more" doesn't usually apply here.

Sorry, I'm not saying a $1M house will appreciate more than an $800k house in the same area; I'm saying houses in a HCOL area have a better chance at appreciating significantly versus a house in a LCOL area.  A $200k house in middle America is less likely to see significant appreciation than a $500k-$1M house in a high cost major metropolitan area.

This. And the post by mm1970 is totally spot on.

Just for the record, I have a "million dollar house." As in, the purchase price was over a million bucks. In all honesty, it is more house than I wanted, but it is not a McMansion or anything like that. As pointed out, the 2-3 bedroom houses that are "only" $800-900k have 10 bids on them in 3 days. By bumping up the price point, we could get away from the competition, and get a bit more house.

We don't have a game room (lol) but I do have a bedroom that I've converted to my pain cave (bike trainer and treadmill) where I workout.

In terms of the salary, we owe less than 2x our gross income on it. It has also appreciated by approximately $400k in 4 years. And, I get to write off a large amount on my itemized taxes every year.

I can't wait to sell it when I FIRE and laugh all the way to the bank with my million dollar check.

Seattle is having a hard time recruiting people to move here because of the cost of living (and shitty traffic). But the salaries are large and fair. If there's 2 incomes and you save elsewhere (ie public school, etc) you can make a LOT of money and put away a LOT of money, and have a giant real estate resale value.

gimp

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Re: Million Dollar homes in HCOLs
« Reply #33 on: April 14, 2017, 01:51:20 PM »
~4x income on a house is quite a bit, but it's not outrageous.

mm1970

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Re: Million Dollar homes in HCOLs
« Reply #34 on: April 14, 2017, 02:17:43 PM »
Our local market is odd, to say the least.  So the "more expensive homes appreciate more" doesn't usually apply here.

Sorry, I'm not saying a $1M house will appreciate more than an $800k house in the same area; I'm saying houses in a HCOL area have a better chance at appreciating significantly versus a house in a LCOL area.  A $200k house in middle America is less likely to see significant appreciation than a $500k-$1M house in a high cost major metropolitan area.
that makes a lot more sense!

Chris22

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Re: Million Dollar homes in HCOLs
« Reply #35 on: April 14, 2017, 02:18:31 PM »
I've always heard the rule was 2-3x, not 3-4x.  Maybe 3-4x makes more sense in a place like Manhattan or the Bay Area.  We're 1.5x, 1.6x if you consider the significant renovations we did after moving in.  We didn't go any higher because we also have our first home that we still 'own' that we're renting out, so we wanted to make sure we could cover both mortgages.  Goal is to sell the rental home within 5 years, and then 5 years after that buy a vacation condo that will double as a rental property, so we don't want the main home to be sucking up too much money. 

ysette9

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Re: Million Dollar homes in HCOLs
« Reply #36 on: April 14, 2017, 02:59:35 PM »
I was talking to my aunt about 3x versus 4x just the other day. My guess is that 4x is thrown around now to account for how much lower interest rates are today than they were in the early 80s when she was first looking at buying a house. Thoughts?

The house we just got into contract for is 3.07x our household annual salary. Winning!

Fomerly known as something

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Re: Million Dollar homes in HCOLs
« Reply #37 on: April 14, 2017, 06:40:59 PM »
The price isn't the problem. The problem is that a childless couple thinks they need a 4/3 or 4/4 AND that they need to build it themselves.

If GF and I made 300K a year we would strongly consider purchasing some kind of 2/2 rowhouse in our HCOL city and those places start around 800K.

It's *possible* that this a smart couple with $1M NW who are building their 'dream home' in the city where they plan to live for the next 20+ years.

More *likely* is that is another high income couple who believes home ownership = success and have no problem with 90% of their NW tied to a house with a 700K mortgage.

Could be a savvy play but, statistically speaking, it's more likely they are setting themselves up for financial ruin.

Judging by the way it was posted on FB and the overwhelming number of likes and comments congratulating them on their success, I would say your latter hypothesis is probably the one to go with. I'm pretty sure, as with most people, they consider this to be a luxury AND investment aka "You *can* have your cake and eat it too" lol

My cousin posted a pretty Mid Century modern home that was $800,000 in a LCOL area with the comment "want".  (she's not buying it but just looking)  I admit it is pretty but at 6,000sq.ft I can only think, why does the pretty house have to be TOO BIG.  (and to pricey but more on the too big)

nick663

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Re: Million Dollar homes in HCOLs
« Reply #38 on: April 15, 2017, 12:28:21 PM »
Just for the record, I have a "million dollar house." As in, the purchase price was over a million bucks. In all honesty, it is more house than I wanted, but it is not a McMansion or anything like that. As pointed out, the 2-3 bedroom houses that are "only" $800-900k have 10 bids on them in 3 days. By bumping up the price point, we could get away from the competition, and get a bit more house.
We just ran into this while buying our home in a relatively LCOL area.  20-50k increase in house price got you significantly nicer house (major appliances replaced, remodels done, larger lot, etc) with much less competition.

When you added up everything they had done, it was well worth the money to go up market.  The house we bought has had the boiler replaced, a/c retrofitted, new roof, new windows and new kitchen with all new appliances all within the last 10 years and we got it for below asking price.
« Last Edit: April 15, 2017, 12:34:10 PM by nick663 »

obstinate

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Re: Million Dollar homes in HCOLs
« Reply #39 on: April 15, 2017, 07:53:46 PM »
If I had to guess, their current combined salary is probably in the ballpark of $250-300k at most (and that would include total compensation like 401k matches, profit sharing, etc). They're in their late 20's/early 30s.
$300k is easily enough to carry a $800k loan. It's quite doable on $200k as well. What you're not factoring in are tax deductions.

I had an even larger loan than this in an HCOL area before I recently sold my place. On the downside, it was a high monthly cost. On the upside, you can pull a very high salary in some of these locales, to the point where even $1.5M of debt does not make a significant dent in the budget.

Dicey

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Re: Million Dollar homes in HCOLs
« Reply #40 on: April 16, 2017, 07:02:03 PM »
I was talking to my aunt about 3x versus 4x just the other day. My guess is that 4x is thrown around now to account for how much lower interest rates are today than they were in the early 80s when she was first looking at buying a house. Thoughts?

The house we just got into contract for is 3.07x our household annual salary. Winning!
Agree with your guess, especially absent any other debt, plus a good down payment.

Congrats on an accepted offer! 3.07x is awesome!!!
___________________
Just to fuck with people in flyover states, I'll throw some fuel onto this fire. We live across the Bay from ysette9, on the "less expensive" side.

Our house is 2600 sf, 4 + 3.5. In 2013, we paid $928k on a short sale. It is a custom house, full of features that nobody needs. It also has a bitchin' 1050sf garage, which we use thoroughly, but we've never parked a car in, lol. Our property taxes are over 11k per year. No HOA or Mello-Roos, though. At the time of purchase, it cost about 10 times DH's annual salary. We were pre-qualified and pre-approved for a mortgage. For other reasons, we decided to pay cash.

How? We had both been in the CA Real Estate market for decades with long, low-interest mortgages. We sold two very appreciated properties and had the cash on hand, plus we had our FI number in other investments.

The new house has gone up in value an average of $100k per year since we've owned it. That's right, the house is earning more than DH, who is no slouch. When the folks next door finish building their 3000sf forever home, our values will get another big bounce, probably at least 100k more, as ours is kind of overimproved for the neighborhood, hence the short sale.

BTW, We are four adults, one of whom has Alzheimer's. We are walking distance to DH's work. We are FI, I am also RE.

Here's the point, HCOLA or LCOLA: It is what is. Learn your market, save your money and then make the best decision that fits your circumstances. We didn't buy this house to make money and until it's sold, nothing is guaranteed. We bought it to suit our needs at this time in our lives, and it's just what things cost where we live. Meh.

To the OP's original point, theirs might be a stupid purchase, it might not. Hard to tell from the outside. Perhaps one of them has a trust fund or a fat inheritance. You just never know the full story based on outward appearances. There's always the possibility that there might be a little green-eyed monster peeking out from behind the blinds as well.

jeromedawg

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Re: Million Dollar homes in HCOLs
« Reply #41 on: April 16, 2017, 11:59:38 PM »
All this talk of Bay Area COL makes me glad I'm in Southern California, partly... LOL

My parents own up there and are making good off their home as well as their rental properties. They own all their properties flat out and owe no mortgage and both retired 5-10 years prior to the 'standard' age. They're in Alameda and own two other properties, one two doors down from their place and the other a condo/apt near South Shore. I'm certain their home and the one two doors down would encroach on $1M offers if they were to sell (which they don't intend to). The apt would probably fetch around $500k give or take. I think they charge their tenants slightly below market rate but are still doing well off that + their pensions. My mom is super frugal but my dad isn't and I wouldn't say they're Mustachian by any means. One thing I sort of resent is them not imparting or passing any of their knowledge of "real estate investing" to any of my brothers or myself. I think part of this might have been due to the dumb luck of being able to obtain the properties they do have at the most opportune and unexpected times (they've been living there for 40-50 years minimum so they obviously "bought low" LOL). They probably also think that the yields they're generating aren't very significant compared to their other dividends and income (my mom still consults up to the $40k retirement limit for the school district). Their entire situation makes me pretty jealous... anyway, I'm starting to research REI myself and it seems the closest possibility is to go out of state. I'm sure there are deals to be had around here and what not but it seems like more time would be spent trying to find such a deal than just building a portfolio out of state.

It's also been in the back of my mind to move out of state elsewhere, especially since I WFH currently. I don't know, we'll see... it would be hard to leave "sunny SoCal" and maybe I don't realize how much of a deal-breaker it might be until I've actually left.
« Last Edit: April 17, 2017, 12:04:55 AM by jplee3 »

Dicey

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Re: Million Dollar homes in HCOLs
« Reply #42 on: April 17, 2017, 05:40:45 AM »
Funny,  jplee3. I used to live in LA (Westside) and wanted to buy Real Estate. I could afford nothing, so I bought a 3+2 SFH where I grew up, in Riverside. I rented it out for eight years, then traded it for a tiny 2+1, 880sf East Bay condo.

Now we live in NorCal, but all our rentals are in SoCal. Best of both worlds, perhaps?

Your parent's story reminds me of a sign I saw at a nursery recently. "The best time to plant a tree is twenty years ago. The second best time is today." Another way to learn from your parents is simply to ask.

Villanelle

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Re: Million Dollar homes in HCOLs
« Reply #43 on: April 17, 2017, 05:49:16 AM »
I don't think 2000sqft is monstrously large.  It sounds like they can easily afford this (barring a ton of consumer debt or other unusual obligations).  It doesn't actually seem all that anti-mustachian.  Sure, it's not a choice that would earn high praise around here, but nor does it seem especially spendy-pants or OTT. 

I think it's easy for people who live in LCOL areas to get judgey about housing in a high COL area.