Can I afford this house in very high cost locale?
Can I afford this house in very high cost locale?
Late 30s married living in Los Angeles with 2 kids in elementary school and want to live near the coast to reduce commute and for better weather. Currently live in Santa Clarita and have 1 hour+ commute to Santa Monica. Also hate the 100 degree weather in the summer where its impossible to go outside. Near the coast it rarely gets above 80.
A 2500 sqft standard house in this area is around 3-3.5 million.
Current income: 475k
Existing house: 1.5 million
After tax investment account: 1.7m
401k: 550k
Savings account: 200k
2 paid off cars under 6 years old
Mortgage: 600k
Is this something we can afford?
A 2500 sqft standard house in this area is around 3-3.5 million.
Current income: 475k
Existing house: 1.5 million
After tax investment account: 1.7m
401k: 550k
Savings account: 200k
2 paid off cars under 6 years old
Mortgage: 600k
Is this something we can afford?
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Re: Can I afford this house in very high cost locale?
You could nearly buy the whole house in cash, so it seems like the lower end at least is affordable. Possibly might want to put more than 20% down - like take the 900k in equity and put it all down, maybe a little more from the savings account. Mortgage would be 2M or less without having to sell any investments.hungrynow wrote: ↑Sun Oct 24, 2021 1:49 am Late 30s married living in Los Angeles with 2 kids in elementary school and want to live near the coast to reduce commute and for better weather. Currently live in Santa Clarita and have 1 hour+ commute to Santa Monica. Also hate the 100 degree weather in the summer where its impossible to go outside. Near the coast it rarely gets above 80.
A 2500 sqft standard house in this area is around 3-3.5 million.
Current income: 475k
Existing house: 1.5 million
After tax investment account: 1.7m
401k: 550k
Savings account: 200k
2 paid off cars under 6 years old
Mortgage: 600k
Is this something we can afford?
Obviously, it's more risk and interest payments and less money in the stock market over time. So it will set you back a bit, but if it's what you want and you're not going to sell in 3 years, it should be affordable. Your income is quite high so if it improves quality of life significantly, you should do it. What else is a 475k income for?
Re: Can I afford this house in very high cost locale?
how much are real estate taxes? will you need to spend additional $ to send your kids to private schools? (i had an offer in santa barbara and with three young kids, that was the deal breaker for us)
is your commute time 1 hour+ rt or each way? if the former, in your shoes, i’d probably stay put. another consideration is what happens if you lose or want to move on from your job? will you need to move again? at some point, we didnt want to change schools/friends for our kids…
is your commute time 1 hour+ rt or each way? if the former, in your shoes, i’d probably stay put. another consideration is what happens if you lose or want to move on from your job? will you need to move again? at some point, we didnt want to change schools/friends for our kids…
Re: Can I afford this house in very high cost locale?
i tend to agree with your analysis but just a small nit, i believe the $900k in equity will be closer to $800k after cap gains tax.skierincolorado wrote: ↑Sun Oct 24, 2021 2:17 amYou could nearly buy the whole house in cash, so it seems like the lower end at least is affordable. Possibly might want to put more than 20% down - like take the 900k in equity and put it all down, maybe a little more from the savings account. Mortgage would be 2M or less without having to sell any investments.hungrynow wrote: ↑Sun Oct 24, 2021 1:49 am Late 30s married living in Los Angeles with 2 kids in elementary school and want to live near the coast to reduce commute and for better weather. Currently live in Santa Clarita and have 1 hour+ commute to Santa Monica. Also hate the 100 degree weather in the summer where its impossible to go outside. Near the coast it rarely gets above 80.
A 2500 sqft standard house in this area is around 3-3.5 million.
Current income: 475k
Existing house: 1.5 million
After tax investment account: 1.7m
401k: 550k
Savings account: 200k
2 paid off cars under 6 years old
Mortgage: 600k
Is this something we can afford?
Obviously, it's more risk and interest payments and less money in the stock market over time. So it will set you back a bit, but if it's what you want and you're not going to sell in 3 years, it should be affordable. Your income is quite high so if it improves quality of life significantly, you should do it. What else is a 475k income for?
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Re: Can I afford this house in very high cost locale?
Not enough info to know. What's the OP's cost basis? Then there's the homeowner exemption.
OP-- Something to consider: If you sell your SM home someday, you'll get hit with a large transfer tax. SM has a big surcharge on top of the base rate
Prop taxes on a $3M house in SM is $36k per yr
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Re: Can I afford this house in very high cost locale?
moneyflowin wrote: ↑Sun Oct 24, 2021 4:50 amNot enough info to know. What's the OP's cost basis? Then there's the homeowner exemption.
OP-- Something to consider: If you sell your SM home someday, you'll get hit with a large transfer tax. SM has a big surcharge on top of the base rate
Prop taxes on a $3M house in SM is $36k per yr.
But in general, I'd say yes, the OP can afford it.
Re: Can I afford this house in very high cost locale?
If you move ahead with this, it would either be a massive asset allocation shift or a chunky 7-digit mortgage. Personally I don't like either as it limits your flexibility and your upside.
- unclescrooge
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Re: Can I afford this house in very high cost locale?
Despite the increased in mortgage interest and taxes, your itemized deductions are unlikely to change much due to the 750k cap on mortgage principal deduction and SALT limitations.hungrynow wrote: ↑Sun Oct 24, 2021 1:49 am Late 30s married living in Los Angeles with 2 kids in elementary school and want to live near the coast to reduce commute and for better weather. Currently live in Santa Clarita and have 1 hour+ commute to Santa Monica. Also hate the 100 degree weather in the summer where its impossible to go outside. Near the coast it rarely gets above 80.
A 2500 sqft standard house in this area is around 3-3.5 million.
Current income: 475k
Existing house: 1.5 million
After tax investment account: 1.7m
401k: 550k
Savings account: 200k
2 paid off cars under 6 years old
Mortgage: 600k
Is this something we can afford?
If you and your spouse are contributing$19.5k each to your 401ks, then it appears your take-home income is $300k.
(using smart asset's tax calculator:
https://smartasset.com/taxes/california ... Rp5BaHfP0R)
If you get a 3.5% mortgage on $2 million dollar loan, and pay $40k property tax, you will be spending approximately 50% of your take-home income.
Yes, you can afford it. But, are you okay with this?
If your budget is like mine, then you spend with reckless abandon without worrying about anything and still put away extra money for retirement.
However, this huge jump in housing expenses might crimp your style. Only you can determine if this is worth it to you.
Do you have other goals? Like early retirement? Might this affect those goals?
Also, houses near the coast may require higher levels of maintenance. The salty air is corrosive.
Re: Can I afford this house in very high cost locale?
No wonder there are so many homeless in Santa Monica.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Re: Can I afford this house in very high cost locale?
I think that only you can really answer this. You & your spouse’s spending habits, along with your financial discipline, will be the real determining factors.
Re: Can I afford this house in very high cost locale?
I don't think there is any link between the price of mansions and homelessness, and anyway most of them are from elsewhere and migrate to warmer climates where sleeping on the sidewalk is possible.
And this brings up my question, do you really need 2500 square feet? Lots of 3 BR 2 bath places in the area for under $2 million and they look perfectly fine. The friends I know living in the xurbs with McMansions have tonnes of space they never use. It just sits there most of the year, getting heated in the winter, AC in the summer, and cleaned once a month. The extra guest room, the rec room with piles of exercise equipment. If you are moving to the coast, consider embracing the coastal way of life that values what is outside your home, the beach, the parks, the restaurants and other culture, as much as what is inside.
70% Global Stocks / 30% Bonds
Re: Can I afford this house in very high cost locale?
You can probably afford 3-3.5 but it'll be like tying 2 anchors around your neck. It will definitely limit your options going forward..that's the real cost.
Re: Can I afford this house in very high cost locale?
Yes you can. Culver City, Palisades Highlands, Mar Vista, south Santa Monica are all fine
Re: Can I afford this house in very high cost locale?
Yes you can.
Pure asset 900k house (excluding mortgage) + 1700k stocks
Put down 1.5m for house and mortgage the rest.
Pure asset 900k house (excluding mortgage) + 1700k stocks
Put down 1.5m for house and mortgage the rest.
- quantAndHold
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Re: Can I afford this house in very high cost locale?
You can afford it if you have to, but my question would be, do you really *need* a 2500 sq ft single family home? Everything is a tradeoff. Cost, space, location. You’re moving to a place that’s more outdoor friendly year round. Maybe you don’t need 2500 square feet and a yard. Maybe you could spend $2M, and get an 2000 sqft townhouse instead. Looking at Zillow, there are a lot of very nice family homes in Santa Monica in the $2-2.5M range, they just aren’t 2500 sqft single family homes with big yards.
Re: Can I afford this house in very high cost locale?
Thanks for all the replies. Right now my house is 3700 sqft so I’m already prepared to move to a smaller place (2500sqft). Maybe can do 1750 sqft (3 bed, 2 bath) but definitely having a hard time justifying paying over 2 million for a townhouse with a shared wall and no backyard. Most of the cheaper places are very close to the freeway and/or further away from the coast.
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Re: Can I afford this house in very high cost locale?
Are rentals available in the neighborhoods you are looking at? That can be a good option in VHCOL areas if the monthly rent to price ratio is less than, say, .5%., assuming you are not set on owning.
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Re: Can I afford this house in very high cost locale?
I get the draw to the coast. But, you seem so close to FI.
I’d be worried about the lifestyle creep aspects of living in a $3M neighborhood. Not just the increased non mortgage housing costs (cleaning, contractors, yard work etc) but the inevitable keeping up with the Jones’, better cars, vacations, school activities/costs etc.
My 2 cents, good luck. Btw, I hate paying $12k, property taxes. $36k and ever increasing, is a significant chunk if/when you don’t have any income…
I’d be worried about the lifestyle creep aspects of living in a $3M neighborhood. Not just the increased non mortgage housing costs (cleaning, contractors, yard work etc) but the inevitable keeping up with the Jones’, better cars, vacations, school activities/costs etc.
My 2 cents, good luck. Btw, I hate paying $12k, property taxes. $36k and ever increasing, is a significant chunk if/when you don’t have any income…
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