Can I afford this house in very high cost locale?

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hungrynow
Posts: 12
Joined: Mon Aug 08, 2011 12:21 pm

Can I afford this house in very high cost locale?

Post by hungrynow »

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?
skierincolorado
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Joined: Sat Mar 21, 2020 10:56 am

Re: Can I afford this house in very high cost locale?

Post by skierincolorado »

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?
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.

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?
gips
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Joined: Mon May 13, 2013 5:42 pm

Re: Can I afford this house in very high cost locale?

Post by gips »

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…
gips
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Re: Can I afford this house in very high cost locale?

Post by gips »

skierincolorado wrote: Sun Oct 24, 2021 2:17 am
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?
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.

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?
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.
moneyflowin
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Re: Can I afford this house in very high cost locale?

Post by moneyflowin »

gips wrote: Sun Oct 24, 2021 2:36 am
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.
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
moneyflowin
Posts: 287
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Re: Can I afford this house in very high cost locale?

Post by moneyflowin »

moneyflowin wrote: Sun Oct 24, 2021 4:50 am
gips wrote: Sun Oct 24, 2021 2:36 am
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.
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.

But in general, I'd say yes, the OP can afford it.
ymmt
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Re: Can I afford this house in very high cost locale?

Post by ymmt »

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.
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unclescrooge
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Re: Can I afford this house in very high cost locale?

Post by unclescrooge »

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?
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.

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.
pizzy
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Re: Can I afford this house in very high cost locale?

Post by pizzy »

hungrynow wrote: Sun Oct 24, 2021 1:49 am Santa Monica.
A 2500 sqft standard house in this area is around 3-3.5 million.
No wonder there are so many homeless in Santa Monica.
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bradinsky
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Location: Ohio

Re: Can I afford this house in very high cost locale?

Post by bradinsky »

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.
z3r0c00l
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Re: Can I afford this house in very high cost locale?

Post by z3r0c00l »

pizzy wrote: Sun Oct 24, 2021 6:19 am
hungrynow wrote: Sun Oct 24, 2021 1:49 am Santa Monica.
A 2500 sqft standard house in this area is around 3-3.5 million.
No wonder there are so many homeless in Santa Monica.
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.
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59Gibson
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Re: Can I afford this house in very high cost locale?

Post by 59Gibson »

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.
BFR
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Location: Los Angeles

Re: Can I afford this house in very high cost locale?

Post by BFR »

Yes you can. Culver City, Palisades Highlands, Mar Vista, south Santa Monica are all fine
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JoeRetire
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Re: Can I afford this house in very high cost locale?

Post by JoeRetire »

hungrynow wrote: Sun Oct 24, 2021 1:49 am Is this something we can afford?
Yes.
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newyorker
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Re: Can I afford this house in very high cost locale?

Post by newyorker »

Yes you can.

Pure asset 900k house (excluding mortgage) + 1700k stocks

Put down 1.5m for house and mortgage the rest.
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quantAndHold
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Re: Can I afford this house in very high cost locale?

Post by quantAndHold »

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.
Topic Author
hungrynow
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Joined: Mon Aug 08, 2011 12:21 pm

Re: Can I afford this house in very high cost locale?

Post by hungrynow »

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.
almostretired1965
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Re: Can I afford this house in very high cost locale?

Post by almostretired1965 »

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.
Wannaretireearly
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Re: Can I afford this house in very high cost locale?

Post by Wannaretireearly »

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…
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
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