New way of thinking, am I crazy?

[Mustache ride]

You seem to be sidestepping important questions. The questions you have answered shows a different picture than what you portrayed in the original post. You claim to be conservative yet your asset allocation is a single stock and you're looking to leverage a $1M+ property on $160K of income. Contrary to what you believe, I think you're actually reckless. I guess the saying better to be lucky than good strikes true here. I think it's time you take your chips and go home (to a total market fund).

[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.

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.

Thanks for taking the time to reply, was a very helpful post.  Are you currently located in the Seattle area?  If so I would love it if you could PM me so I could get your thoughts on the area.

[ericrugiero]

Between the apple stock, 401K and home equity you have about 5 million.  That is plenty to retire for most people.  You could spend 1 million on a home and the 4% "rule" would say you could spend 160K/year from the remaining 4M.  Most people around here like to be more conservative so maybe you only spend 100-120K/year.  That's still a lot of money.  The big problem is that the 4% rule is based on a balanced portfolio of diversified stocks and bonds.  Most of your money is in one stock.  It's very feasible you could buy a large home with a big mortgage and then Apple stock tanks.  You are now in a home you can't afford, struggling to make payments and depressed about losing so much money.  That would scare me to death. 

Apple stocks have been very good to you and you are reluctant to give up future gains.  That's human nature and totally understandable.  What if you kept a million in Apple and pulled the rest out to diversify?  That way you can still make significant money if Apple keeps going up but if they go bust you are still in good shape. 

Regarding the home, buying more home than you need to make money on appreciation is very risky.  If you diversify that portfolio you can probably afford the 1-1.5M home.  But, is that your priority?  Spending $6 on a coffee bothers you.  How do you feel about spending an extra $15,000/year on housing you don't need? (forgive me, I'm making up numbers to make a point)  Don't choke on a gnat and swallow an elephant. 

You can do whatever you want.  But, you are saying your a conservative with money and you seem nervous about early retirement.  Your BIG risk is the single stock.  Overspending on a home is another risk (especially if you take both risks at the same time).  I personally don't like to be house poor where I can't afford other things because I spent to much on a house. 

Hopefully you don't feel like we are all piling on you.  You are in a great situation financially right now (much better than me) but have significant risk.  I would hate to see you lose most of your money which is why I'm pointing out what I see as excessive risk. 

[Rhinodad]

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.


This, right here. The conservative option is to stay where you are. If Seattle is a "must", then the next most conservative thing is to sell stock (It's high right now) and buy the house outright. If you lose your jobs, you still have your house and 3 million. If the stock market crashes, you'd still have a house, and $1.5 million.


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[Metalcat]

Between the apple stock, 401K and home equity you have about 5 million.  That is plenty to retire for most people.  You could spend 1 million on a home and the 4% "rule" would say you could spend 160K/year from the remaining 4M.  Most people around here like to be more conservative so maybe you only spend 100-120K/year.  That's still a lot of money.  The big problem is that the 4% rule is based on a balanced portfolio of diversified stocks and bonds.  Most of your money is in one stock.  It's very feasible you could buy a large home with a big mortgage and then Apple stock tanks.  You are now in a home you can't afford, struggling to make payments and depressed about losing so much money.  That would scare me to death. 

Apple stocks have been very good to you and you are reluctant to give up future gains.  That's human nature and totally understandable.  What if you kept a million in Apple and pulled the rest out to diversify?  That way you can still make significant money if Apple keeps going up but if they go bust you are still in good shape. 

Regarding the home, buying more home than you need to make money on appreciation is very risky.  If you diversify that portfolio you can probably afford the 1-1.5M home.  But, is that your priority?  Spending $6 on a coffee bothers you.  How do you feel about spending an extra $15,000/year on housing you don't need? (forgive me, I'm making up numbers to make a point)  Don't choke on a gnat and swallow an elephant. 

You can do whatever you want.  But, you are saying your a conservative with money and you seem nervous about early retirement.  Your BIG risk is the single stock.  Overspending on a home is another risk (especially if you take both risks at the same time).  I personally don't like to be house poor where I can't afford other things because I spent to much on a house. 

Hopefully you don't feel like we are all piling on you.  You are in a great situation financially right now (much better than me) but have significant risk.  I would hate to see you lose most of your money which is why I'm pointing out what I see as excessive risk.

OP doesn't seem to want to engage much on issues of spending or investment risk. So I'm not sure exactly what they're looking for from us.

[caracarn]

Yet another vote for figuring out how to most tax effectively get out of Apple and into total index fund.  You have won whether you think so or not, but what is keeping you up at night is you realize (correctly IMO) that you could lose tomorrow by being 95% in Apple.  I fear Malcat may be right that you are choosing not to listen to this because you've made up your mind to stay in and be greedy.  You've beaten the odds by a long way.  Keeping all your chips on the table forever is never a winning hand.

[TheFrenchCat]

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.

Your plan is similar to what my grandfather did, who retired around 55 as a multimillionaire, which he still is.  He worked for a big pharma company and took the stock options and let them grow a bit.  And then you know what he did?  He got out and has his money in a general mutual fund.  He just turned 80 and doesn't worry about keeping the lights on, quite the opposite.  He's helped with all the kids' and grandkids' college funds and it wouldn't surprise me if he did something for his great-grandkids too. 

It seems like you could be in that territory too if you want as long as you get out of that single stock gambling racket you've got going on.

[RedmondStash]

OP, as someone who rode the Microsoft gravy train for years, I know how hard it is to let go of that golden goose and settle for a measly market-matching index fund. It took me several years to completely switch over -- but I have never regretted it. I sleep better at night, regardless of how well Microsoft is doing now, because at a certain point, you've won the game.

Make no mistake: by having 95% of your investments in one stock, you are taking a huge risk, much bigger than buying a $1.5-million house. I agree with those who say your first priority should be finding tax-smart ways to start moving from Apple to a total stock market fund.

You say you don't feel rich. It sounds like what you don't feel is financially secure, which isn't the same thing. I recommend laying everything out in a spreadsheet or other financial tool, running some long-term projections, etc. Maybe read J.L. Collins's Stock Series website for some perspective.

I know I felt much more financially secure when I figured out my best asset allocation, moved from individual stocks to broad-market stock & bond index funds, and had some solid financial projections for the next several decades. Knowledge is power. You can't really project how Apple will do over the next 50 years, but you can make a reasonable guess about the entire stock market.

About the house itself -- I don't think it matters what you spend, as long as you can afford it without jeopardizing your family's financial future, and with the numbers you're talking about, you likely can. Don't worry about whether the Seattle RE market dips or rises, or the stock market either. If you're not selling, the prices don't matter.

Look, there are no guarantees. But there are probabilities. Microsoft used to be the killer stock. Now Apple is, and Microsoft isn't. I strongly suggest getting out of the high-risk/high-return scenario -- over a few years if that's more comfortable for you -- and into a more diversified, less risky portfolio. You've already won. Now take your winnings before you lose them.

That's what I'd do, anyway.

[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.

Thanks for taking the time to reply, was a very helpful post.  Are you currently located in the Seattle area?  If so I would love it if you could PM me so I could get your thoughts on the area.

Sorry no, I’m in Texas.

[lutorm]

OP, as someone who rode the Microsoft gravy train for years, I know how hard it is to let go of that golden goose and settle for a measly market-matching index fund. It took me several years to completely switch over -- but I have never regretted it. I sleep better at night, regardless of how well Microsoft is doing now, because at a certain point, you've won the game.

I'm also in the boat of having a lot of my NW in employee stock. It's been very good so far, but I've now managed to diversify to "only" having 50% of my NW in that one stock. This is the highest I'm reasonably comfortable with, it still leaves a big upside if our company continues to grow, but also limits the downside if it tanks to 50%. Especially since that 50% diversified is a good-sized chunk of money that is almost good for FIRE. And I work really hard to value the employee stock at $0 in my mind, because there are so many things that can go wrong.

OP, start selling! With that amount of assets there's just no justification to remaining so concentrated. If you limit your sell-off to keeping you in the 15% LTCG bracket it'll still take you almost a decade to get fully diversified.

Brings to mind

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done

You're countin' your money sittin' at the table right now...

[Green_Tea]

You keep talking about "the stock market" but you are not in "the market", you are in a single stock.

Exactly. And this is why the 4 % rule doesn't apply to you (as has been said) and FI cannot really be determined.

What does your wife say about your shared asset allocation?

[lhamo]

If you are interested in Bainbridge you should be able to get a nice house on a large lot for under $1mill if you stay away from waterfront properties.  There is limited inventory due to the time of year, but this one looks quite nice:

https://www.redfin.com/WA/Bainbridge-Island/7265-NE-Vincent-Rd-98110/home/2291369

Bothell/Woodinville/Maple Valley are all developing rapidly and are quite sprawling/suburban and likely to become more so. 

[dinosau12]

Just want to thank everyone for taking the time and giving me their thoughts. 

The big take aways I hear are:
- Diversify.  Not 100% sure about this one.  You guys seem a little wishy washy about this (I joke)
- About half of you think its a bad idea.  Maybe a third of you think its fine.

Thanks again.