Poll

Read the post! Should we upgrade our home?

Yes
8 (15.1%)
No
23 (43.4%)
Not now, maybe in 3-5 years
20 (37.7%)
Face punch! Should be living in a yurt and renting out current residence
2 (3.8%)

Total Members Voted: 53

Author Topic: $550K luxury home: Yay or Nay? *Update*  (Read 2986 times)

Civex

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$550K luxury home: Yay or Nay? *Update*
« on: August 16, 2019, 08:52:47 PM »
I have a question for my fellow mustachians! I'm posting this as a poll because as a lurker, I often have an opinion, but rarely post. I'd like a large response group with or without a post and am hoping that a poll will help increase responses.

The Query:

Should we upgrade from our current 3 bed 2 bath home to a 4 bed 4 bath home?

Current home:

Pros
-Inexpensive relative to HHI
-On acreage
-Close to favorite resteraunts, event centers, and work
-Pretty much have it updated to our tastes

Cons
-All bedrooms are on different levels (lots of stairs for kids and they're on different levels)
-Missing a feature we like (mountain access, waterfront access, etc)
-Custom home with a few features that require regular, expensive upkeep ($1-2k/year over a similar sized home)

Hedonistic home:

Pros
-Specialty property (think mountain,waterfront access)
-Multiple bedrooms on the same floor
-Extraordinarily close to our favorite trail and state park
--This is a *big* bonus; I've ran over 2k miles on this trail, so being closer would be great

Cons
-Expensive relative to current house
-Property taxes would double ($3-6k)
-Smaller lot (still a *big* lot by most standards, but my dog would have neighbors)
-Any illusion of stealth wealth would be gone
-300ish sq.ft. larger than our current place (more cleaning/maintenance indoors)


Good job if you've made it this far!

The financials:

Current home value ~$280k, hedonistic home asking is $570k. ( I wouldn't buy for more than $550k)

HHI ~$250k ( 5 year average, low of $225k, high of $270k)

Net worth excluding current residence: ~$400k

Very little cash on hand (all in retirement accounts), probably $50-60k in home equity. We are ~30 with 1 toddler; would like at least 1, maybe 2-3 more children. The big drive for looking is the desire to move into this property type-we live in an area where we can afford it (at least at some point in time) and want to try it. My wife grew up with this property type and loved it. Basically, we can afford to buy a "vacation" type home and still have a reasonable 15 minute commute and feel like it would be crazy to not take advantage. We live in a very LCOL; our current home is larger and nicer than average.

I feel like we will be able to do this in the future and lean to postponing, but I know I can sometimes be too conservative. We have basically brute forced our net worth up by $100k/year since joining the workforce. ($145k in debt pay off and building a $400k+ portfolio in that time) Let me know your thoughts!

Go for it!

So, I'm a bit of a terrible OP, since it's been weeks and I haven't given any of the posters who were gracious enough to weigh in an update. I've just been super busy closing on our new place.


Hah, just kidding. So, like I said originally, I was leaning towards staying at our current place and this did help affirm that is probably the best plan. A couple very good points did come up that I hadn't considered: what if future child had disabilities and needed handicapped accessible home, future child costs being more than anticipated, etc.

AirBNB wouldn't be the worst idea, but my wife would be 100% against it and our local hotel union/guild was able to get a city ordinance passed that they are technically outlawed. How they would enforce that, I'm not sure.

I tried to really drill down to *why* this property was appealing to us and I think that it is that desire of freedom that most (everyone?) on this board is chasing. The freedom to easily go for a boat ride pretty much any time of the day or jump on our favorite trail. Which, typed out, sounds dumb (higher debt, higher payments=/freedom), but also makes moving forward at our current place easier.

I think there is a bit of restlessness right now for us; a desire for change. Thank you for your thoughts and insight!

« Last Edit: September 09, 2019, 07:59:12 PM by Civex »

starguru

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$550K luxury home: Yay or Nay?
« Reply #1 on: August 16, 2019, 09:28:38 PM »
How much equity in the current home?  Your biggest problem would be finding enough cash for a down payment.  For a 550k house you really want to bring 20%, and you don’t want to deplete your reserves doing it.   Moving is expensive (I did it last year).  Movers, paying two mortgages while your current home sells, redoing anything you don’t like about the new house, etc. 

With average 250k income you can afford this house if other pieces fall in.

If you have 1 other kid you could stay in you current home.  With more than that it’s going to be cramped.   Also having more kids will dramatically raise your spending.  Will the move affect the kids schools?

How secure are your jobs? 



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« Last Edit: August 16, 2019, 09:32:51 PM by starguru »

gaja

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Re: $550K luxury home: Yay or Nay?
« Reply #2 on: August 17, 2019, 06:17:23 AM »
I would never buy a house for people who don't exist. A lot of things can, and will, happen before more children come along, and you have no idea what your needs will be. Suddenly it turns our the next kids are triplets: will your fancy house be big enough? The yet to be born child might need a wheelchair: is the fancy house handicap accessible? maybe you or your spouse feels a need to stay at home; is the location good for socializing children and a SAHP?

So only based on your current needs: four bedrooms for 2.5 people is not a big problem, you can always have a playroom for the child, a hobby room or office for one of the adults. But four bathrooms!? Who the heck wants to wash that many bathrooms?

mistymoney

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Re: $550K luxury home: Yay or Nay?
« Reply #3 on: August 17, 2019, 08:25:48 AM »
I voted yes in the poll.

Based mainly on your income and enthusiasm for this type of property.

But give a little more info on what your current and projected expenses are for old/new home.

What is your fire number old/new? How many years of work does this move add on?

And - how do you and/or spouse like your job/s?

FIRE 20/20

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Re: $550K luxury home: Yay or Nay?
« Reply #4 on: August 17, 2019, 09:57:07 AM »
Basically, this boils down to a simple question (those are always the hardest to answer!).  What do you value in life and what tradeoffs are you willing to make?  You clearly value this type of house a lot.  It's also going to cost a lot - not just in purchase price and closing costs but in long-term costs including insurance, upkeep, and taxes.  Are you willing to add years to your working career for this property?  Are you willing to take on the risk that comes with job loss and an expensive property?  Remember that recessions often not only cause otherwise stable jobs to disappear but they also often impact property values. 
So the question I see is - should I spend a ton of money both now and for all time on this really nice thing my wife and I really want?  Only you can answer that.  I would vote no, just because I have found in my own life that really nice expensive things have never given me the same value as more time to spend with family, friends, and my own individual pursuits.  And that's what you're trading away if you buy this house.  At some point you'll be able to FIRE, and that date will be in what, 5-10 years if you don't buy the house?  How valuable would the time be if you could spend 24/7 with your kids as they grow up for a few extra years instead of working during that time?  Only you can answer that. 
One other thing that I'd put in the "no" camp.  Something like this house will be available next year, in 3 years, in 10 years, etc.  You can always make the move later, but once you make the move now you're pretty much locked in.  We always have a fear of missing an opportunity, but in reality with real estate there's always something equivalent at some point in the future.  There are plenty of exceptions (San Francisco, Seattle, etc.) but on average residential real estate appreciates at the same rate of inflation or very slightly higher.  We always worry that we'll be priced out but that actually doesn't happen often except in very limited local cases.  If you decide to buy in 5 years when you're closer to 35, the financial impact is likely to be a lot lower relative to your net worth, and you'll be better able to judge the tradeoffs. 
I think the only thing that would put me in the "yes" camp is if the move would dramatically impact the quality of schools the kids were able to go to.  That would be worth the cost to me, but since you didn't include that as a "pro" then I'm assuming it's not a factor. 

Tuskalusa

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Re: $550K luxury home: Yay or Nay?
« Reply #5 on: August 17, 2019, 10:04:59 AM »
Right now, with economic indicators pointing to a possible slowdown, I personally would not add significant debt to my portfolio. I would wait until I had enough cash and investments to easily afford the upgrade, without doubling my mortgage.

former player

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Re: $550K luxury home: Yay or Nay?
« Reply #6 on: August 17, 2019, 10:23:34 AM »
You have already "upgraded" -  good sized house, lots of land, close to everything you need, stairs to help kids keep their bodies moving, arranged to your tastes.

The new house would come with close neighbours, be a longer commute to work, be further away from all your destinations. It would add a permanent $300k to your capital costs, and the extra taxes, utilities and maintenance would be what, an extra $5k a year?  How many more years do you need to work to pay for this?

Dicey

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Re: $550K luxury home: Yay or Nay?
« Reply #7 on: August 17, 2019, 10:55:18 AM »
Right now, with economic indicators pointing to a possible slowdown, I personally would not add significant debt to my portfolio. I would wait until I had enough cash and investments to easily afford the upgrade, without doubling my mortgage.
I'm more in this camp.

OP, how long have you lived in your current home? If you mentioned that, I missed it.

EngineerOurFI

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Re: $550K luxury home: Yay or Nay?
« Reply #8 on: August 17, 2019, 11:04:16 AM »
It feels like you’re severely underestimating the cost of additional kids in terms of healthcare, food, clothes, daycare, and 529/college savings.  You might want the additional space in 5 years - look into a house like that then after you significantly build up your savings, actually know how many kids you have, maybe find out whether or not any kids have a disability that could be expensive, and maybe weather the next downturn.  Kids really don’t need a lot of room when they’re that young and cleaning a huge house with young kids is not enjoyable.  I’m by no means a full, conservative mustachian...but you really shouldn’t even consider upgrading house size until youngest kid is 1 and you’re done having kids.

What if one parent wants or needs to stay home after another kid?  What about job loss during next downturn?

Maybe something you can do in meantime is complete a project in current house that brings you joy.  My wife and I looked into getting bigger house but decided against it for similar reasons as above.  We’re age 30 with net worth of $400k or so on income of $150k that just increased to $190k or so and have a one year old with more on the way.  We chose to screen in our back patio and get new patio furniture to make that outdoor space enjoyable and then stain faded doors and fix some broken bits and pieces around the house in order to find more joy in current space and stay here much longer rather than seeing money thrown away in closing costs, moving costs, double mortgage while selling, higher property taxes and maintenance costs after moving, etc.

ReadySetMillionaire

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Re: $550K luxury home: Yay or Nay?
« Reply #9 on: August 17, 2019, 11:28:54 AM »
I think, as humans, we are hardwired to think that things are scarce. That if you don't eat everything on your plate, you'll go hungry; or when you see "only 4 left in stock" while shopping online, you truly believe that item will run out; or here, that if you don't buy this house, there won't be any similar house, ever.

I would really think long and hard about whether this house is truly *that* unique. Is it really one of a kind? How many other houses are on this trail? How many houses are somewhat close but have similar layouts?

If it is not really that unique, I would wait until you are in a much better cash position to purchase such a home.

mistymoney

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Re: $550K luxury home: Yay or Nay?
« Reply #10 on: August 18, 2019, 07:56:25 AM »
Right now, with economic indicators pointing to a possible slowdown, I personally would not add significant debt to my portfolio. I would wait until I had enough cash and investments to easily afford the upgrade, without doubling my mortgage.
I'm more in this camp.

OP, how long have you lived in your current home? If you mentioned that, I missed it.

Could you both be a little more explicit here? I would think that investments would take a much harder hit in an economic slowdown than property.

But I do think that OP should think very carefully about job security and willingness to work a few extra years for this place.

Other/s have shared on a recent thread how delaying a purchase like this priced them out. Sometimes opportunities are limited in time and don't come around again.

So - this should be a very robust decision-making process taking a lot of factors into consideration.

Give the locale - waterfront/mountains/whatever and plenty of extra bedroom/baths - Sounds great for airbnb - could totally defray extra costs until the larger family comes into play.

 

Goldy

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Re: $550K luxury home: Yay or Nay?
« Reply #11 on: August 18, 2019, 08:48:19 AM »
I’d be very hesitant to make a large home upgrade which would put you into negative net worth territory.  Between the increased payments and maintenance plus wanting to have more kids it seems to me that this would be a substantial delay to fire (if that’s important to you).

undercover

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Re: $550K luxury home: Yay or Nay?
« Reply #12 on: August 18, 2019, 10:41:38 AM »
I think the only correct answer is to at least wait 3-5 more years because you're not even using the third bedroom yet. Also, it's a nice home that's close to everything you do. You're still working so it makes sense to be closer to work. I'd keep piling onto the 'stache while you have the energy and drive to do it.

Also, how exactly would you plan on financing? Are you prepared to pay for mortgage interest? I would at least start a taxable account and contribute up to the down payment up to the level of home you're considering and let that grow for a few years before even thinking about an FHA loan or other. I'm assuming you didn't go conventional on the home you're in but those costs increase dramatically on a more expensive loan.

Just doesn't sound worth it and seems like a bad case of lifestyle inflation from my perspective.

martyconlonontherun

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Re: $550K luxury home: Yay or Nay?
« Reply #13 on: August 18, 2019, 11:16:31 AM »
I vote wait five years when you actually need the space. It keeps the options open. You didn't give specifics but waterfront and and trail access seems to be better when the kids are older as well. If anything I would not want to be waterfront with 3 kids under five running around the backyard.

Dicey

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Re: $550K luxury home: Yay or Nay?
« Reply #14 on: August 18, 2019, 12:37:47 PM »
Right now, with economic indicators pointing to a possible slowdown, I personally would not add significant debt to my portfolio. I would wait until I had enough cash and investments to easily afford the upgrade, without doubling my mortgage.
I'm more in this camp.

OP, how long have you lived in your current home? If you mentioned that, I missed it.
Could you both be a little more explicit here? I would think that investments would take a much harder hit in an economic slowdown than property. Misty money, I'm guessing you're young. The Stock Market rebounded much faster than Real Estate during the Great Recession

But I do think that OP should think very carefully about job security and willingness to work a few extra years for this place.

Other/s have shared on a recent thread how delaying a purchase like this priced them out. Sometimes opportunities are limited in time and don't come around again. Real Estate is always cyclical. Current indicators point to a cooling trend. The time to buy is when people are afraid of Real Estate, typically due to some external circumstance. Buying when the market has been red hot for so long should only happen with caution, for the right deal.

So - this should be a very robust decision-making process taking a lot of factors into consideration. Agreed.

Give the locale - waterfront/mountains/whatever and plenty of extra bedroom/baths - Sounds great for airbnb - could totally defray extra costs until the larger family comes into play. See below.
Ha, this topic is current over in the RE section. Airbnb is not a slam dunk. It's a lot of work. Look at the last two comments on this thread from me and waltworks.

https://forum.mrmoneymustache.com/real-estate-and-landlording/airbnb-vs-long-term-renter-thoughts/msg2440246/#msg2440246

trollwithamustache

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Re: $550K luxury home: Yay or Nay?
« Reply #15 on: August 18, 2019, 05:23:26 PM »
Stairs are good for your health, its a pro! :)

Zamboni

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Re: $550K luxury home: Yay or Nay?
« Reply #16 on: August 18, 2019, 06:26:14 PM »
Spending more to move into a larger home that is further from work right now is a very bad call, I think, unless you telecommute. Do you telecommute?

I voted maybe in 3-5 years, but that was being generous. Right now I'd be a hard "no" unless there is information that is missing in your post.

Or, as my realtor is fond of saying, "there will always be another house." You definitely do not need a house that big right now, and farther from work/shopping is a terrible call.

Civex

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Re: $550K luxury home: Yay or Nay? *Update*
« Reply #17 on: September 09, 2019, 07:59:37 PM »
Updated original post, thanks for your input!

KBCB

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Re: $550K luxury home: Yay or Nay? *Update*
« Reply #18 on: September 09, 2019, 08:02:01 PM »
very much appreciate the comedy of the last option :)

MonkeyJenga

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Re: $550K luxury home: Yay or Nay? *Update*
« Reply #19 on: September 09, 2019, 08:30:17 PM »
Thank you for the update! The freedom contradiction is interesting, and probably common. I've chosen to rent, and with roommates, precisely so I have more freedom. Freedom to move, change jobs, save more money, travel for a year with no housing costs. So I support y'all staying put in the cheaper home for now!

Civex

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Re: $550K luxury home: Yay or Nay? *Update*
« Reply #20 on: September 09, 2019, 08:52:36 PM »
Thank you for the update! The freedom contradiction is interesting, and probably common. I've chosen to rent, and with roommates, precisely so I have more freedom. Freedom to move, change jobs, save more money, travel for a year with no housing costs. So I support y'all staying put in the cheaper home for now!

I think the freedom contradiction is a big rub for me right now; my social circle is living it *way* up right now and when you have the means (if you aren't seeking FIRE) to do so and aren't it can be tough. What a first world problem. With our careers, the freedom of FU money is a comfort and a more expensive home would take that away.

I've enjoyed living vicariously through your journal-political activism and freedom are enviable!

MonkeyJenga

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Re: $550K luxury home: Yay or Nay? *Update*
« Reply #21 on: September 09, 2019, 10:40:38 PM »
Thank you for the update! The freedom contradiction is interesting, and probably common. I've chosen to rent, and with roommates, precisely so I have more freedom. Freedom to move, change jobs, save more money, travel for a year with no housing costs. So I support y'all staying put in the cheaper home for now!

I think the freedom contradiction is a big rub for me right now; my social circle is living it *way* up right now and when you have the means (if you aren't seeking FIRE) to do so and aren't it can be tough. What a first world problem. With our careers, the freedom of FU money is a comfort and a more expensive home would take that away.

I've enjoyed living vicariously through your journal-political activism and freedom are enviable!

I don't have the same problem when comparing myself to friends. I grew up in big homes with conspicuous consumers, and I went in the opposite direction when I was on my own. I've lived it up already, and I don't want it. I wasn't making a lot in my early working years, but once I got into high 5 figures, I could've jacked up my spending. FIRE was the shiny goal instead!

Activism, freedom, and free food! It's not too shabby. :)