Reply to How rich are people who buy 3 million dollar houses

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]What's the typical income/net worth for this demographic? Is anyone making under 7 figures or having a net worth below 10 million?[/quote]

There may be, but not us. The carrying costs are significant in terms of interest, taxes, maintenance, upkeep, and utilities. Even if there is no mortgage, the opportunity cost of having $3M of equity just sitting there is very high.

I would say factoring all of the above, a $3M home may have about a 150-200k annual effective cost. Unless you are making 7 figures, that kind of housing cost is just excessive. [/quote]
hmmm... what if that $3M equity becomes $5M or $6M in 7-8 years?
And your estimate on the effective cost is way off. A $3M house here is new or newer, so there is minimal maintenance and utilities are also low due to the new building standards.[/quote]

I'm not sure if a $3M home would become $5M or $6M in such a short period of time. It can happen on a one-off basis, I guess, but traditionally, the appreciation of homes in this price range does not work like this. Your typical $3M home already is in a very nice neighborhood, is of a certain size, and built to a certain quality standard. Generally speaking, unless significant renovation or improvement is done to a home, the value would not increase significantly. I mean you can take a look at the current 5-6 million dollar homes in the area and see what their prices were 7-8 years ago. There is a $4M home on the market down the road and it was sold 7 years ago for $3.5M. Another one nearby is selling for $5.5M, and it sold 10 years ago for, $5M. These are anecdotal, of course but they match what I've seen in general browsing for homes in the area.

My estimate on effective cost is factoring in either mortgage interest or opportunity cost on about 2M. I place this cost at about 5% a year, or about $100k. Taxes will be over 30k, and another 20k for everything else is rather conservative.[/quote]

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