Afford $1.8M on 300K?

[Anonymous]

Anonymous wrote:

It sounds like you are not actually “maxing out” the 529s. How much do you have saved in those accounts now, and how old are your kids? How much have you saved for retirement? And how much do you have in other savings? I agree it doesn’t make financial sense to dump large amounts of money in a bank account earning no interest. There are many ways to invest your money.

I also agree with pps that your expenses will not stay the same with a house double the size. Everything is more expensive. Unless you have a huge amount in savings now it seems risky to halt all savings. Can you compromise, maybe getting a somewhat bigger house but not so much bigger?

OP here - thanks for the vigorous discussion - it has definitely helped feed the conversation between my spouse and myself about this issue. I have a couple of clarifying comments for some folks:

1. I meant $4K per child (so $8K total) for the 529s. We aren't sure whether 529s are the best vehicle for college savings (besides the tax deduction) so we're mum on that at the moment. Putting $ in stocks during a bear market doesn't look enticing either. We're maxed out on ibonds - but that's just $10K per year per person. I don't see many other investment opportunities. The nice thing about real estate is that you get to enjoy the benefits of your investment.
2. I think I wasn't clear about the prospective location. We're in fairfax now, but the neighborhoods of interest are not in or around Fairfax City. They are in Vienna/Mclean/Great Falls.
3. For those who say that we would be the "poorest" in the neighborhoods - I don't see how that aligns with the data. If you look at census data for neighorhoods in the general area (e.g. https://data.census.gov/cedsci/profile?g=1400000US51059460100 ), you can see median household income of around $200,000. So we would be higher than the median. We drove through these neighborhoods - I don't think the people driving land rovers and BMWs would be looking down their noses at our Odyssey - this isn't Bugatti territory.
4. It definitely sounds like a $9K PITI is outside DCUM's comfort level. But maybe $6K PITI is easier to swallow.

[Anonymous]

Are you out of your mind?? I'm not as conservative as many others on this forum when it comes to the "what can we afford" question - but what you're proposing is financial suicide.

Our HHI is $350K, we are almost maxed out at $1.2M. I wouldn't be able to sleep at night at anything higher than $1.3M.

[Anonymous]

Anonymous wrote:How many kids do you have? I don’t see childcare or cost of automobiles in your budget. Or home maintenance.

I would think in Fairfax you could upgrade without having to spend that kind of money.

All of that is baked into the $6K credit card bills. Obviously it's more in some months and less in other months, but over the past 3 years , it's averaged around $6K. Perhaps we've been lucky with the house, but we haven't had anything related to the house cost over $2000 (a new fridge). We have newer cars that should last us 10+ more years, but if one of them breaks down, then a $30K emergency purchase wouldn't be devastating. Obviously, an emergency cost over $100K would cause us to dip into our retirement savings (but a $100K emergency is devastating for most everyone on DCUM, no?)

As I said in a prior response, we're not looking at Fairfax City.

[Anonymous]

OP how much do you have saved for kid colleges and your retirement, in any account, and how much non-retirement savings do you have?

[Anonymous]

Anonymous wrote:No. Don’t take the risk. If one of you goes, it’s too much for one.

There’s life insurance for that.

[Anonymous]

OP, I live in McLean a 1.2-1.5m house neighborhood, and I can assure you the minimum HHI is 400k in mine, because every household is two income, with at least one person a doctor or lawyer or World Bank/IMF management level above.

If you move to the neighborhood of 1.6-1.8, which is your target price range, min HHI is at least 500k. If you look at census data on median HHI of McLean and Great Falls, it’s above 300k, counting on all the condo and townhouses.

So OP, you will be the poorest on your street. People will not look upon you because that’s none of their business. It will be a struggle for yourself.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

It sounds like you are not actually “maxing out” the 529s. How much do you have saved in those accounts now, and how old are your kids? How much have you saved for retirement? And how much do you have in other savings? I agree it doesn’t make financial sense to dump large amounts of money in a bank account earning no interest. There are many ways to invest your money.

I also agree with pps that your expenses will not stay the same with a house double the size. Everything is more expensive. Unless you have a huge amount in savings now it seems risky to halt all savings. Can you compromise, maybe getting a somewhat bigger house but not so much bigger?

OP here - thanks for the vigorous discussion - it has definitely helped feed the conversation between my spouse and myself about this issue. I have a couple of clarifying comments for some folks:

1. I meant $4K per child (so $8K total) for the 529s. We aren't sure whether 529s are the best vehicle for college savings (besides the tax deduction) so we're mum on that at the moment. Putting $ in stocks during a bear market doesn't look enticing either. We're maxed out on ibonds - but that's just $10K per year per person. I don't see many other investment opportunities. The nice thing about real estate is that you get to enjoy the benefits of your investment.
2. I think I wasn't clear about the prospective location. We're in fairfax now, but the neighborhoods of interest are not in or around Fairfax City. They are in Vienna/Mclean/Great Falls.
3. For those who say that we would be the "poorest" in the neighborhoods - I don't see how that aligns with the data. If you look at census data for neighorhoods in the general area (e.g. https://data.census.gov/cedsci/profile?g=1400000US51059460100 ), you can see median household income of around $200,000. So we would be higher than the median. We drove through these neighborhoods - I don't think the people driving land rovers and BMWs would be looking down their noses at our Odyssey - this isn't Bugatti territory.
4. It definitely sounds like a $9K PITI is outside DCUM's comfort level. But maybe $6K PITI is easier to swallow.

I have posted a couple of times already - I said that we stayed in our house and fixed it up and the extra money each month gives us flexibility, etc. It sounds like you have your mind made up and this is what you want to do. I hope that your income is straight salary and not dependent on bonuses bc if you have a bad year, you won’t be able to pay all of your expenses. I also want to add that when you look at the median income for, say, McLean, it also includes all of the condo buildings (I’m assuming). Plus you have to remember that a lot of people bought their homes years ago when prices were much lower and they may retired now but they likely have a lot of assets (which is what allows them to stay in their homes which are now worth a lot of money). I think you are assuming that all of your expenses will stay the same except for your mortgage. Have you checked the property taxes? Utilities? Landscaping costs? Put all that into your budget and see how much you have left over every month.

[Anonymous]

A house you live in is primarily an expenditure, and not something you should think of as an investment on par with other types of investment.$2 million in stocks won't cost you around $50,000/year + in taxes, maintenance and insurance annually. Stocks and bonds can be easily sold in small increments with minimal transaction costs. No so for your primary residence. You are taking on massive leverage - a loan that greatly exceeds your assets and over-consuming in the present at the cost of your in your children's future and loss of diversification of your investments.

[Anonymous]

Anonymous wrote:
I have posted a couple of times already - I said that we stayed in our house and fixed it up and the extra money each month gives us flexibility, etc. It sounds like you have your mind made up and this is what you want to do. I hope that your income is straight salary and not dependent on bonuses bc if you have a bad year, you won’t be able to pay all of your expenses. I also want to add that when you look at the median income for, say, McLean, it also includes all of the condo buildings (I’m assuming). Plus you have to remember that a lot of people bought their homes years ago when prices were much lower and they may retired now but they likely have a lot of assets (which is what allows them to stay in their homes which are now worth a lot of money). I think you are assuming that all of your expenses will stay the same except for your mortgage. Have you checked the property taxes? Utilities? Landscaping costs? Put all that into your budget and see how much you have left over every month.

Op here. Good points. some responses

- I'm not keen on fixing up and/or expanding the current house beyond what's normal in the current neighborhood. If I have a 4000 sqft house in a neighborhood of 2000 sqft houses, it will be very hard to sell 5-15 years from now. I see neighborhoods in the midst of teardowns/rebuilds, and I'd rather not deal with those issues. (I think) it's better to just move into a neighborhood of 4000 sqft houses instead.

- we're civil servants, so income is just salary and pretty much steady until we retire, which we don't plan to do any time soon. so no income volatility. For those asking about college - I think there's a separate but real DCUM conversation on how much college costs should be prepaid by parents (rather than leveraging student loans ).

- our mind is certainly not made up. this arose out of a conversation where we were wondering "what do we do with the extra $6K? venture into a bear market? buy a rental property? trade-up our house? If the third option, could we possibly afford (for example) a 4000 sqft house in a Langley pyramid neighborhood with a short commute to Tysons?

- I chose the census data area ( https://data.census.gov/cedsci/profile?g=1400000US51059460100) specifically because that area has no condos/townhouses. Certainly if you include the townhouses/condos, the median HHI goes down - but I'm just using SFH HHIs as my comparison. And that's at (or just above) $200K.

- property taxes should project proportionally with the property value/size. Utilities, on the other hand, are a tossup. We're paying $300 for gas and electricity, $100 for cell and internet, and $250 quarterly for Water. Even if those doubles, that's still doable. But if it triples or quadruples, yeah that's a concern.

[Anonymous]

OP, your census data is 2020 and outdated. During pandemic, many higher income family moved in. Look at 2022 data, it’s above 300k. Also your target area is more of 1 - 1.5 min houses. So you can see 4 times median HHI might be more realistic.

[Anonymous]

You're going to stop saving and put everything into the house? This does not sound wise.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Why? Sometimes you just have to live within your means. I don’t understand how everyone believes that they must live in a $1.5-$2m house. We’re at $650HHI. House purchased at 630k around 2900 sq ft. We’d never buy a 1.8m home.

Everything new costs that much around here. In my area you can either get a teardown for slightly less than $1m, or a nice place for $2m. Not much in between.

That’s exactly my point. Not everyone needs to live in a brand new house. Sometimes you just have to accept your budget and what that means for you. Instead, most in this neighborhood feel entitled to all that the 1% have and drown themselves financially trying to chase it. This materialistic keeping up with the Joneses nonsense is ridiculous. Live within your means, whatever that may be

[Anonymous]

Anonymous wrote:

Anonymous wrote:
I have posted a couple of times already - I said that we stayed in our house and fixed it up and the extra money each month gives us flexibility, etc. It sounds like you have your mind made up and this is what you want to do. I hope that your income is straight salary and not dependent on bonuses bc if you have a bad year, you won’t be able to pay all of your expenses. I also want to add that when you look at the median income for, say, McLean, it also includes all of the condo buildings (I’m assuming). Plus you have to remember that a lot of people bought their homes years ago when prices were much lower and they may retired now but they likely have a lot of assets (which is what allows them to stay in their homes which are now worth a lot of money). I think you are assuming that all of your expenses will stay the same except for your mortgage. Have you checked the property taxes? Utilities? Landscaping costs? Put all that into your budget and see how much you have left over every month.

Op here. Good points. some responses

- I'm not keen on fixing up and/or expanding the current house beyond what's normal in the current neighborhood. If I have a 4000 sqft house in a neighborhood of 2000 sqft houses, it will be very hard to sell 5-15 years from now. I see neighborhoods in the midst of teardowns/rebuilds, and I'd rather not deal with those issues. (I think) it's better to just move into a neighborhood of 4000 sqft houses instead.

- we're civil servants, so income is just salary and pretty much steady until we retire, which we don't plan to do any time soon. so no income volatility. For those asking about college - I think there's a separate but real DCUM conversation on how much college costs should be prepaid by parents (rather than leveraging student loans ).

- our mind is certainly not made up. this arose out of a conversation where we were wondering "what do we do with the extra $6K? venture into a bear market? buy a rental property? trade-up our house? If the third option, could we possibly afford (for example) a 4000 sqft house in a Langley pyramid neighborhood with a short commute to Tysons?

- I chose the census data area ( https://data.census.gov/cedsci/profile?g=1400000US51059460100) specifically because that area has no condos/townhouses. Certainly if you include the townhouses/condos, the median HHI goes down - but I'm just using SFH HHIs as my comparison. And that's at (or just above) $200K.

- property taxes should project proportionally with the property value/size. Utilities, on the other hand, are a tossup. We're paying $300 for gas and electricity, $100 for cell and internet, and $250 quarterly for Water. Even if those doubles, that's still doable. But if it triples or quadruples, yeah that's a concern.

It sounds like you are saying you can handle utilities rising from about $450 monthly to $900 but not to $1800. I personally would be worried about such a limited financial cushion in a new, large home. But you’re still not sharing many specifics about your current financial picture, beyond the fact that you’re comfortable not saving much for college, so it’s hard to give much advice.

[Anonymous]

Anonymous wrote:We have a 300Kish HHI and am living in a 2000sqft SFH in Fairfax. We think the house is a bit small - ideally, we'd like to be in 4000sqft. Homes that size in our neighborhoods of interest are running $1.6-$2M. With a 20% down payment, I'm calculating monthly PITI payments of around $9K. We're paying $3.5K right now and are saving $6K+ per month, so just from basic accounting, it looks doable. But the 6:1 house price to income ratio seems crazy and out of line with other folks opinions.

Other threads on DCUM are suggesting house price around $1M for our HHI. But we're doing that right now and have $6K left over every month going into measly 1% savings accounts ( we have maxed out 401K, HSA, 529 plans, so this is after all those things). We are debt free (besides current mortgage)

What do you guys think? Should we upgrade and basically dump all of our extra savings into a bigger house? Or is that too much house for our income?

First thing, take some of that extra money and spend it on a financial literacy course. Good lord.

[Anonymous]

Anonymous wrote:

Anonymous wrote:
If I understand your budget and income flow correctly, if you take on a $9k PITI then you wouldn't have any non-retirement savings each month, right? So every time you have a large one-off expense (annual vacations, new car, house repair/renovation), you would be drawing upon your existing savings rather than being able to save up for it. This doesn't seem sustainable?

Do you have a lot of equity in your current house? Can you make a higher down payment so your PITI is lower?

OP here - you are right - $9K would eliminate our positive savings cash flow. Certainly we could reduce it to $8K and have $1K monthly positive savings cash flow.

We have enough savings and equity in our current house to put 20% down on a new house (so $300-$400K). And accumulate about $90K in cash savings each year. I don't know why we would put more than 20% - though - PMI is done for, and I don't see why getting a smaller mortgage just for the sake of having a small mortgage is better (besides the positive cash flow issue).

Waiting as year to reduce the principal by $90K doesn't make sense to me if I am able to borrow at <5% (and possibly refinance if the rate drops below 3%). Suppose I had $2M in cash. I don't think I would buy the house in all cash (and have a $0 PITI). I think the right (income maximizing) thing to do is put pay exactly $400K down on a house (to eliminate PMI) and do something else with the remaining $1.6M that garners returns greater than my expected borrowing rate. or am I being financially illiterate here?

Well, you are financially illiterate, but it's because of this statement:

"We've saved quite a bit over the last couple of years, but the money just goes into a savings account (we don't put non-retirement money in stocks)."

That's just insane.