Looking for advice re: buying a bigger home

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Topic Author
RFC1690
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Joined: Fri Jan 08, 2021 3:19 pm

Looking for advice re: buying a bigger home

Post by RFC1690 »

I've been a long time lurker and finally registered to start interacting with all you amazing people. Thank you so much for all you have taught me - this forum is amazing.

I'd like some advice/sanity check on a potential move to a bigger home. We are a family of 7 (me, wife and 5 kids ranging from ages 4 through 17) and feel we are a bit squished. We moved into the home 7 years ago with 3 kids with no plans for kid 4 and 5. No more kids, promise :-)

I'm 43, wife is 39. I work as in-house counsel at a fortune 5 tech company, and have been there for 9 years and plan to work there until retirement. I really like my job. We live ~2 hours from my work, but have a great work from home arrangement where I only come into the office for 1 day every two weeks. I've had this arrangement for 7 years, and the company is very supportive.

We started to get our financial act together about 5 years ago, so we are not as far ahead as I would like. Student loans are all paid off now, which also put us back a bit. No debt, other than the mortgage.

Total comp per year: $620k. Wife does not work. I've had this income for 2 years after a big promotion, and it is stable.
401k: $670k
Taxable Accounts: $120k
529: $60k - we realize we will not pay anywhere near 100% of our kids college with this. We will pay for some college with our then-current income - we started too late to save enough in advance for our older kids.


Current home:
3,000 sq ft, 4 bedrooms, but only 2 baths. So that means all 5 kids and any visitors share the same bathroom/shower.
Home value: $825k
Remaning mortgage: $440k at 2.65%

Proposed new home:
4,500 sq ft - all the rooms and space we could ever want, in a great neighborhood
Home purchase price: $1,150,000
Mortgage: we'll put all equity (after fees) from the sale of our existing home as a down payment, so ~$340k down resulting in $810k at 3.7%

My wife really wants to do it, and I am on the fence. Is it too risky or stupid? Should we just stick it out where we are? What would you do? I feel I've been a moron financially until about 5 years ago, and want to set ourselves up for a good retirement - hopefully by age 60.
chassis
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Re: Looking for advice re: buying a bigger home

Post by chassis »

Are you in Seattle/PNW or NorCal?

If yes, principal dwelling real estate might be considered an investment. Most everywhere else in the U.S., a principal dwelling is an expense.

What is a reasonable rate of price appreciation for principal dwellings in your market? Discount (reduce) that estimate by 30%, then compare the resulting number to what you can earn in financial instruments? This is what your invested capital (home equity) will be earning, hopefully if there is no housing downturn before you sell. If happy, proceed. If not happy, get more information.

Principal dwellings are, for most people with dependent children at home, quality of life and pride/ego/esteem objects. Therefore not subject to the cold light of financial analysis, because it's emotional and subjective. How much is living next to the Joneses, so that they can be kept up with, worth?

1. You will be paying more interest.
2. You will be paying more property taxes.
3. You will (likely) be paying more maintenance expense. Including remodeling in this figure for the sauna, hot tub, deck, patio, fence and landscape you will add.

1+2+3 = alot more expense that could be invested in financial securities.

I see this is primarily a subjective and emotional quality of life decision. From a strict financial point of view, if your roof doesn't leak and your neighborhood is not infested with drug houses, you likely don't *need* to move.
KlangFool
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Re: Looking for advice re: buying a bigger home

Post by KlangFool »

OP,

1) It is between buying the house and paying for your kids' college education. How does your wife feel about your kids taking a student loan because of the house?


2) Your oldest kid is 17 years. The kids are leaving the nest. The bigger house will be emptied pretty soon. You may not need or use the additional space.


3) Assuming a conservative 30K per year. You need to pay 5 X 4 X 30K = 600K.


4) What is your current annual savings?


5) What is your current annual expense?


KlangFool
trinc
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Re: Looking for advice re: buying a bigger home

Post by trinc »

7 years ago you had three kids, the oldest is 17. Are the kids going to be off to college ? if so, next year you'll be -1 in the house.

In just a handful of years you will be a family of 4. Seems like you are starting the downhill swing for needing SQ footage.

added bonus: you are prepping them for dorm life. : )

Tim
Dottie57
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Re: Looking for advice re: buying a bigger home

Post by Dottie57 »

Hmmm. Big income and you can’t pay for college —- priorities.
Topic Author
RFC1690
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Re: Looking for advice re: buying a bigger home

Post by RFC1690 »

Thanks for the responses so far - this is what I needed: a little reality check. Seriously, very good points.

We live in NorCal, and I actually really like our current house (other than the bedroom/bathroom situation). It's very much a want, not a need.

I got another promotion 2 months ago, and am now eligible for the company's non-qualified deferred compensation plan. Between that, and other savings (401k, 529 and taxable accounts), we plan to save at least $150k/year. I realize I am behind on investing, and am serious about getting way ahead.

It's so hard for me to make big decisions like this, so having a sounding board is incredibly helpful. Thank you again. I am very much leaning toward staying put. And you folks are right, the kids can manage just fine - and will thank me later if we can help more with college.
Last edited by RFC1690 on Fri Jan 08, 2021 4:45 pm, edited 1 time in total.
Topic Author
RFC1690
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Re: Looking for advice re: buying a bigger home

Post by RFC1690 »

Dottie57 wrote: Fri Jan 08, 2021 4:40 pm Hmmm. Big income and you can’t pay for college —- priorities.
You are exactly right. Sometimes I need these types of responses to get my thinking moving in the right direction.
123
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Re: Looking for advice re: buying a bigger home

Post by 123 »

trinc wrote: Fri Jan 08, 2021 4:31 pm ...added bonus: you are prepping them for dorm life. : )

Tim
+1 Extraordinarily insightful
The closest helping hand is at the end of your own arm.
onourway
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Re: Looking for advice re: buying a bigger home

Post by onourway »

You clearly have the income to support the purchase.

I do agree with concerns raised regarding your retirement funding, and college, but I suspect you could easily pay for both of those and still have plenty to pay for the new house. That said, I'd suggest that if you are not intimately familiar with your ongoing expenses, you start to become so now as you would have three major cashflow drains going on at the same time, and if you also continue to spend with abandon on other things (no idea if you do this or not) you could still run into cash flow issues.

I also somewhat agree with the comments that you're over the hump as far as needing space, depending on the exact age spread - but again, I don't think that what you are proposing is out of line.

If you do not have a solid understanding of your budget and cashflow, I highly recommend you find some software to aid you - I am very happy with You Need A Budget - even as a high earner - not at your level but still plenty - it has really helped us super-charge both our saving and our spending on the now and greatly simplified the process of planning for and paying for life's ongoing major expenses.

Good luck!
gonefishing01
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Re: Looking for advice re: buying a bigger home

Post by gonefishing01 »

Man, I can imagine how 7 in a 3k sq ft house is uncomfortable. Especially in COVID times. But if i were you I’d get serious about increasing your net worth before you essentially double your mortgage debt. It shouldn’t take long with your salary if you prioritize, even in CA.
chassis
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Re: Looking for advice re: buying a bigger home

Post by chassis »

H-E-double-hockey-stick no way on a physically larger house and more expensive one at that.

Remodel your current house to fix the bathroom situation. Easy.

Aggressively fund 529s.

Aggressively participate in the NQP. Very aggressively.
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Watty
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Re: Looking for advice re: buying a bigger home

Post by Watty »

RFC1690 wrote: Fri Jan 08, 2021 3:55 pm 529: $60k - we realize we will not pay anywhere near 100% of our kids college with this. We will pay for some college with our then-current income - we started too late to save enough in advance for our older kids.
One problem is that with your income your kids will not qualify for any financial aid.

If you had a time machine and could talk to your adult kids then I would bet that they would rather live in a smaller house, even if it is a bit cramped, than to have large student loans.

Be sure to also ask your kids what they think about having to switch schools and leave their friends. I had to do a corporate relocation when I had a kid in middle school and it was real hard on him.

I suspect that if you talk to your kids they will not want to to move.

As someone said you could add another bathroom to your current house.

I don't really don't like them but you could also convert your garage to living space for a few years if that would be allowed in your area. It would be good to do that in a way that it could be easily converted back to a garage in a few years.

You could also rent a bigger house for the few years that you would need the additional space.
RFC1690 wrote: Fri Jan 08, 2021 3:55 pm ....but only 2 baths. So that means all 5 kids and any visitors share the same bathroom/shower.
If the visitors are staying with you then just get a hotel room for them.
mrsmitt
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Re: Looking for advice re: buying a bigger home

Post by mrsmitt »

With your current income and job stability, you should be easily able to afford a bigger house = a better quality of life (considering 5 kids situation).

The interest rate on a new mortgage seems high (3.7%). I would suggest checking this with a broker.

Interest on the old mortgage - $11.44K
Interest on the new mortgage - $29.97K

In this case, interest along will increase your expense by $18.53k annually. Add the increase in real estate taxes, homeowners insurance, and maintenance. This way you will get the actual increase in your non discretionally expenses. This exercise will help you with the decision. Keep in mind that you will also have an increase in your monthly principal payment what affects your cash flow.
Last edited by mrsmitt on Sat Jan 09, 2021 12:26 am, edited 1 time in total.
Pandemic Bangs
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Re: Looking for advice re: buying a bigger home

Post by Pandemic Bangs »

RFC1690 wrote: Fri Jan 08, 2021 3:55 pm I'd like some advice/sanity check on a potential move to a bigger home. We are a family of 7 (me, wife and 5 kids ranging from ages 4 through 17) and feel we are a bit squished. We moved into the home 7 years ago with 3 kids with no plans for kid 4 and 5. No more kids, promise :-)
To me it depends entirely on whether the ages are 4, 5, 6, 8, and 17 (say) or 4, 13, 14, 15, and 17.

We almost upsized many times in our neighborhood. Spouse always brought home "for sale" flyers from neighborhood properties that she picked up on her long walks with the dog. The gap between flyers for larger houses and our interest in flyers for smaller houses was like two or three years. It really was amazing how fast the house emptied out. Even the second half of HS the kids are never home. We are so thankful that we did not pull the trigger for a bigger home.

That said, RE in our area is spendy but not a great investment -- 25-year "return" on our mid-range new-construction home is < 3.0% annualized and easily my worst long-term investment.
Wait 'til I get my money right | Then you can't tell me nothing, right?
oldfort
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Re: Looking for advice re: buying a bigger home

Post by oldfort »

RFC1690 wrote: Fri Jan 08, 2021 3:55 pm My wife really wants to do it, and I am on the fence.
A happy wife is much cheaper than divorce.
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geerhardusvos
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Re: Looking for advice re: buying a bigger home

Post by geerhardusvos »

RFC1690 wrote: Fri Jan 08, 2021 4:41 pm Between that, and other savings (401k, 529 and taxable accounts), we plan to save at least $150k/year. I realize I am behind on investing, and am serious about getting way ahead.
I make a little over $200,000 per year, and we saved almost $150,000 of that income last year. Since you make well over half $1 million, saving $150,000 is not good enough in my opinion. You need to be aggressive with your investments, and while you say your income is stable, you don’t know what can happen with your job, let alone your health, your family, etc. I highly recommend you save at least half of your income after tax per year.

This house is splurging a little bit too soon. Give it 5 to 10 years when you have a more significant portfolio, and then you can spend 2 to 3X your annual income on a house. Your current house is probably just fine. You need a wife who will cool her jets. That can be the toughest part with having a very high income at a wife at home. She needs to be on board and she needs to be educated.
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geerhardusvos
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Re: Looking for advice re: buying a bigger home

Post by geerhardusvos »

oldfort wrote: Sat Jan 09, 2021 12:07 am
RFC1690 wrote: Fri Jan 08, 2021 3:55 pm My wife really wants to do it, and I am on the fence.
A happy wife is much cheaper than divorce.
Buying your wife stuff that is unwise financially isn’t what would save a marriage from divorce. If the wife does not understand the value of patience and their need to have more discipline to invest in their portfolio for their long-term wealth, there are probably more underlying issues, ones that can’t be solved by buying more stuff. I hope that’s not the case here.

Learning to not inflate your lifestyle with your increases in income is really the only true principle in building wealth.
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Monsterflockster
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Re: Looking for advice re: buying a bigger home

Post by Monsterflockster »

RFC1690 wrote: Fri Jan 08, 2021 3:55 pm I've been a long time lurker and finally registered to start interacting with all you amazing people. Thank you so much for all you have taught me - this forum is amazing.

I'd like some advice/sanity check on a potential move to a bigger home. We are a family of 7 (me, wife and 5 kids ranging from ages 4 through 17) and feel we are a bit squished. We moved into the home 7 years ago with 3 kids with no plans for kid 4 and 5. No more kids, promise :-)

I'm 43, wife is 39. I work as in-house counsel at a fortune 5 tech company, and have been there for 9 years and plan to work there until retirement. I really like my job. We live ~2 hours from my work, but have a great work from home arrangement where I only come into the office for 1 day every two weeks. I've had this arrangement for 7 years, and the company is very supportive.

We started to get our financial act together about 5 years ago, so we are not as far ahead as I would like. Student loans are all paid off now, which also put us back a bit. No debt, other than the mortgage.

Total comp per year: $620k. Wife does not work. I've had this income for 2 years after a big promotion, and it is stable.
401k: $670k
Taxable Accounts: $120k
529: $60k - we realize we will not pay anywhere near 100% of our kids college with this. We will pay for some college with our then-current income - we started too late to save enough in advance for our older kids.


Current home:
3,000 sq ft, 4 bedrooms, but only 2 baths. So that means all 5 kids and any visitors share the same bathroom/shower.
Home value: $825k
Remaning mortgage: $440k at 2.65%

Proposed new home:
4,500 sq ft - all the rooms and space we could ever want, in a great neighborhood
Home purchase price: $1,150,000
Mortgage: we'll put all equity (after fees) from the sale of our existing home as a down payment, so ~$340k down resulting in $810k at 3.7%

My wife really wants to do it, and I am on the fence. Is it too risky or stupid? Should we just stick it out where we are? What would you do? I feel I've been a moron financially until about 5 years ago, and want to set ourselves up for a good retirement - hopefully by age 60.
You make over 600k per year. Buy your wife the house.
mrsmitt
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Re: Looking for advice re: buying a bigger home

Post by mrsmitt »

I assume you do not live in NorCal or similar areas with a high cost of living. Additionally, I doubt that you have 5 kids. They are very expensive to raise! Taxes on 600K+ are much higher than 200K, especially in California.

Saving 150K on 200K income is an achievement but many others would like to live a balanced life. I want to see my kids flourish and have a good time with them rather than buying exotic cars after retirement.
geerhardusvos wrote: Sat Jan 09, 2021 12:21 am
RFC1690 wrote: Fri Jan 08, 2021 4:41 pm Between that, and other savings (401k, 529 and taxable accounts), we plan to save at least $150k/year. I realize I am behind on investing, and am serious about getting way ahead.
I make a little over $200,000 per year, and we saved almost $150,000 of that income last year. Since you make well over half $1 million, saving $150,000 is not good enough in my opinion. You need to be aggressive with your investments, and while you say your income is stable, you don’t know what can happen with your job, let alone your health, your family, etc. I highly recommend you save at least half of your income after tax per year.

This house is splurging a little bit too soon. Give it 5 to 10 years when you have a more significant portfolio, and then you can spend 2 to 3X your annual income on a house. Your current house is probably just fine. You need a wife who will cool her jets. That can be the toughest part with having a very high income at a wife at home. She needs to be on board and she needs to be educated.
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geerhardusvos
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Re: Looking for advice re: buying a bigger home

Post by geerhardusvos »

mrsmitt wrote: Sat Jan 09, 2021 12:43 am I assume you do not live in NorCal or similar areas with a high cost of living. Additionally, I doubt that you have 5 kids. They are very expensive to raise! Taxes on 600K+ are much higher than 200K, especially in California.

Saving 150K on 200K income is an achievement but many others would like to live a balanced life. I want to see my kids flourish and have a good time with them rather than buying exotic cars after retirement.
I live in one of the top 10 most expensive cities in the United States and we rent a $1 million home in a very nice neighborhood. My family enjoys our life and we live comfortably eating high quality foods, driving reliable cars, and well involved in our community. You don’t have to spend $150,000 a year in order to have a full and fruitful life with your family. We even go to the driving range every other Friday. Best of all, we have no debt and we have freedom and flexibility.
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surfstar
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Re: Looking for advice re: buying a bigger home

Post by surfstar »

No one has mentioned this yet:

You have a 2 hour commute


Only once per two weeks. That should provide a HUGE circle of area to look for a more affordable, larger home, right?
If you really can't find a better location and its down to the one home or your current - add a 3/4 bath. Or maybe even a guest room and 3/4 bath.
supalong52
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Re: Looking for advice re: buying a bigger home

Post by supalong52 »

Without knowing more, I think you're too far behind on your retirement and college savings to consider buying a more expensive house. I say this as a fellow lawyer who used to be in your income range. You say you just got your act together 5 years ago. What was your net worth then? How much do you spend a year now? How much do you pay in taxes now? If you made a radical change and can continue to make significant progress even with said house then maybe I might have a different reaction.

Also, are you in a specialized practice area like patent lit? My buddies who are in house doing patent lit feel a little marginalized these days. Trolls don't command the same fear they once did, except for outliers here and there.
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dogagility
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Re: Looking for advice re: buying a bigger home

Post by dogagility »

oldfort wrote: Sat Jan 09, 2021 12:07 am
RFC1690 wrote: Fri Jan 08, 2021 3:55 pm My wife really wants to do it, and I am on the fence.
A happy wife is much cheaper than divorce.
+1000
Spousal communication, compromise, and agreement are the answer to this question, IMO.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
Jags4186
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Re: Looking for advice re: buying a bigger home

Post by Jags4186 »

You make $620k a year. You can afford to upgrade from an $850m house to a $1.15mm house. Not sure why this is a question.

You have approximately $430,000/yr or $35,000/mo take home pay. PITI on a 15 yr, $920,000 home is approximately $7620/mo.

So.... $35,000 - $7620 (PITI) - $6000 (highest tuition room and board in the country) - $15,000 (savings) = $6380. Can you live day to day on $6,380/mo after your house is paid for?


I mean just cut zeros off and ask if it’s reasonable. Is it reasonable for someone making $62,000 to buy a $115,000 house. Without question, yes.
onourway
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Re: Looking for advice re: buying a bigger home

Post by onourway »

geerhardusvos wrote: Sat Jan 09, 2021 12:47 am
mrsmitt wrote: Sat Jan 09, 2021 12:43 am I assume you do not live in NorCal or similar areas with a high cost of living. Additionally, I doubt that you have 5 kids. They are very expensive to raise! Taxes on 600K+ are much higher than 200K, especially in California.

Saving 150K on 200K income is an achievement but many others would like to live a balanced life. I want to see my kids flourish and have a good time with them rather than buying exotic cars after retirement.
I live in one of the top 10 most expensive cities in the United States and we rent a $1 million home in a very nice neighborhood. My family enjoys our life and we live comfortably eating high quality foods, driving reliable cars, and well involved in our community. You don’t have to spend $150,000 a year in order to have a full and fruitful life with your family. We even go to the driving range every other Friday. Best of all, we have no debt and we have freedom and flexibility.
You saved $150k of $200k in income last year and you rent a $1M home in a nice neighborhood with plenty left over? :confused
59Gibson
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Re: Looking for advice re: buying a bigger home

Post by 59Gibson »

of course you can afford it w/ $620k income. What happens if/when something changes and you "only" make $300-400k. You need to answer how confident you are w/ the margin of safety.
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geerhardusvos
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Re: Looking for advice re: buying a bigger home

Post by geerhardusvos »

onourway wrote: Sat Jan 09, 2021 10:19 am
geerhardusvos wrote: Sat Jan 09, 2021 12:47 am
mrsmitt wrote: Sat Jan 09, 2021 12:43 am I assume you do not live in NorCal or similar areas with a high cost of living. Additionally, I doubt that you have 5 kids. They are very expensive to raise! Taxes on 600K+ are much higher than 200K, especially in California.

Saving 150K on 200K income is an achievement but many others would like to live a balanced life. I want to see my kids flourish and have a good time with them rather than buying exotic cars after retirement.
I live in one of the top 10 most expensive cities in the United States and we rent a $1 million home in a very nice neighborhood. My family enjoys our life and we live comfortably eating high quality foods, driving reliable cars, and well involved in our community. You don’t have to spend $150,000 a year in order to have a full and fruitful life with your family. We even go to the driving range every other Friday. Best of all, we have no debt and we have freedom and flexibility.
You saved $150k of $200k in income last year and you rent a $1M home in a nice neighborhood with plenty left over? :confused
Not sure how this is hard to believe. We make a little over $200,000 and we live a comfortable life spending a little bit over $60,000. We invest the rest.
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mrsmitt
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Re: Looking for advice re: buying a bigger home

Post by mrsmitt »

What is your annual rent expense on $1M house? Interest along on that capital at 3% will be $30k. Taxes, insurance, maintenance + landlord's profit can easily bring your rent expense to $50K-$80K along.

How many people are in your household? Good organic food for 7 people will be well over $12K a year. If you have small kids the daycare cost is $10K-$20K annually each for each. The list goes on (utilities, clothes, transportation, insurance, etc.). Granted last year was an odd one as traveling was not an option for many due to COVID-19 but the bare minimum expenses of a household of 7 in NorCal is very high due to very expensive real estate and other costs. I honestly considered moving to California but housing costs and high taxes just didn't make sense.

Do not get me wrong, I am a frugal guy and I am all for responsible financial behavior. However, my goal is to get as much from this life as possible and retirement is not a goal or a target.

We do not really know much about OPs financial situation to give the best advice, but I salute him for his five kids, high income, and asking the right questions in the right place.

geerhardusvos wrote: Sat Jan 09, 2021 11:15 am
onourway wrote: Sat Jan 09, 2021 10:19 am
geerhardusvos wrote: Sat Jan 09, 2021 12:47 am
mrsmitt wrote: Sat Jan 09, 2021 12:43 am I assume you do not live in NorCal or similar areas with a high cost of living. Additionally, I doubt that you have 5 kids. They are very expensive to raise! Taxes on 600K+ are much higher than 200K, especially in California.

Saving 150K on 200K income is an achievement but many others would like to live a balanced life. I want to see my kids flourish and have a good time with them rather than buying exotic cars after retirement.
I live in one of the top 10 most expensive cities in the United States and we rent a $1 million home in a very nice neighborhood. My family enjoys our life and we live comfortably eating high quality foods, driving reliable cars, and well involved in our community. You don’t have to spend $150,000 a year in order to have a full and fruitful life with your family. We even go to the driving range every other Friday. Best of all, we have no debt and we have freedom and flexibility.
You saved $150k of $200k in income last year and you rent a $1M home in a nice neighborhood with plenty left over? :confused
Not sure how this is hard to believe. We make a little over $200,000 and we live a comfortable life spending a little bit over $60,000. We invest the rest.
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geerhardusvos
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Re: Looking for advice re: buying a bigger home

Post by geerhardusvos »

mrsmitt wrote: Sat Jan 09, 2021 12:38 pm What is your annual rent expense on $1M house?
OP is doing great, and with his discipline he will be very successful. It’s time for him to focus on investing now that he’s in his 40s. With his résumé he will never be out of work, so not unreasonable to want to buy another house next 3 to 10 years. Hoping he can get a better commute and wishing his family the best.

This thread is about him not about me, but our rent is about 35K per year. Everything else is around 30k per year. Not rocket science, we just choose not to pursue activities that are expensive, and we are smart about the big stuff like housing, transportation, education, vacations, etc.
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Lexx
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Re: Looking for advice re: buying a bigger home

Post by Lexx »

Don't forget moving into a more expensive house will mean higher property taxes in perpetuity. That's a big expense. With a kid off to college soon, I'd consider remodeling somehow and maybe adding an extra bathroom before moving.
Drrads
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Re: Looking for advice re: buying a bigger home

Post by Drrads »

It is a very individual question. My wife and I are slightly younger than you, and our combined income is slightly higher than yours (both physicians). We have two young kids. Last year we bought a 7k plus Square foot house in a medium cost of area living for 1.3 million. We were previously living in a 2800 square foot house. We still feel it is a great decision, and we actually use the entire space on a regular basis (home gym, home office, big playspace, music room, wine cellar etc). People in smaller houses do not know what they are missing out on lol! We are otherwise pretty frugal with our living. Ie toyotas, no expensive vacations etc. We still are saving/investing a LOT despite paying a big chunk to our mortgage every month. We consider it the one area of life we wanted to spurge on. I also have to disagree on houses being a "horrible investment". They are a hard asset, and while they will never be your best investment, they usually won't be your worst. Good luck with your decision!
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