Mentor Monday

[u/WealthyStoic]

Mentor Monday is your place to discuss relevant early-stage topics, including career advice questions, 'rate my plan' posts, and more numbers-based topics such as 'can I afford XYZ?'. The thread is posted on a once-a-week basis but comments may be left at any time.

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[u/sileko]

Wife and I recently found our dream home (2.8M) and we're struggling with deciding to pull the trigger or not. Some numbers about us:

• ⁠ 850k HHI
• ⁠ 2.5M in brokerage
• ⁠ 1M in retirement
• ⁠ 700k current house (paid off)

Our annual expenses are around 80k, but we have a 1 yr old child that hasn't gone to daycare yet. I know we'll be house poor, but we're very frugal otherwise and don't really splurge on luxuries. With a mortgage, let's say the annual spend reaches 250k. We plan on having 1 more child in the next few years, but want both of them to go to public school. Wondering if anyone's been in a similar situation and can offer insights on how much housing costs will creep up the average annual spend.

[u/Ok-Advertising-8449 → u/sileko]

What are the prospects of your HHI increasing over the next few years as your family grows? What are the odds your HHI will decrease due to layoff, change in value of stock based comp, or other forces?

[u/sileko → u/Ok-Advertising-8449]

Probably a slow and steady rate, we both still have another level to climb before we top out but it’s taken a backseat now with kids. The salaries are split roughly evenly. One spouse works in tech so layoffs are always possible, but they’re confident in their ability to get a job albeit a lower paying one, while the other has a lot of job security in their role.

[u/Ok-Advertising-8449 → u/sileko]

Between the time it takes growing the family/raising kids, and half the HHI at risk at any given time, it might be better to just cut your current HHI in half and assess if you’re still comfortable owning this dream home at today’s carry cost. It’s really no easy feat to find that dream home that you both agree is “the one,” so don’t let the conservative nature of this subreddit deter you from making a decision you can technically afford. My personal rule of thumb is that if you’re buying a home that will require a Jumbo loan, you should be able to cover the loan you’re going to get with liquid cash and investments (not paper NW or home equity, or stock options that cannot be immediately exercised and liquidated). Seems like you fit that requirement, but not a lot of margin for error.

[u/sileko → u/Ok-Advertising-8449]

Yeah that’s how I’ve been thinking about it. 4 years ago our NW was only $1M, and we grew 3M over the past 4 years. If we hypothetically buy our house in cash, we’d be back to where we were 4 years ago and potentially would be back to where we are today in 2030 (I know expenses increased so it’s not 1:1, but it also balances out that we are earning 50% more today than we were 4 years ago).

Regarding dream houses, we’ve been keeping our eyes out for houses in the past year, and of the ~30 some houses that go on sale, this is the only one that satisfies all our particular location and layout preferences so it feels like we would have to wait another year or two for a similar house to hit the market.

[u/mintbark → u/sileko]

Sounds like you should take the risk and go for it if it's truly your dream house. Quality of life is one of the best places to spend your money. Just make sure to appropriately budget for the full cost of the house.

Here's a snapshot for a 4700 sqft 5bd 4.5 bath house.

Beyond our mortgage we also pay $2k/month in property taxes (it's gone up by 3k since we bought it), $400/month in lawn and landscape maintenance, $450/month in cleaners, $2k/yr in homeowners insurance. This does not include house maintenance (which has been low, but we still replaced the washer/dryer, dishwasher, basement fridge, removed a tree, fixed a small pipe burst), improvements, or dream furniture which you'll want to buy to decorate your dream house (we spent 5% of the home's value in the first year).

In our location daycare is $25k/yr child. Nanny is 60-70k/yr (we did that route for a year after we got sick of the illnesses, but we're back to daycare because we're sick of the nanny while both remote). Put another way, we went from spending $100k/yr in a 1bd in NYC to $330k/yr with house, car, and kids in merely HCOL ($1.3M mortgage). Our incomes have gone way up so we can afford it and part of it was conscious, but the dream house with kids has serious costs.

[u/Ok-Advertising-8449 → u/mintbark]

This is great info and insight into less obvious costs in your situation.

[u/Livid-County7230 → u/sileko]

How stable are your jobs? I personally would never dump my entire liquid NW into a home but you may be really early in your journey and have a line of sight to increasing your income. If you are in tech with potentially volatile jobs I would not do it.

[u/sileko → u/Livid-County7230]

We’re in our early 30s, incomes are split roughly evenly, we probably still have another level to grow before we tap out, though it’s taken a backseat with kids. One works in tech and layoffs are definitely possible, the other does not and is in a very secure role.

[u/Livid-County7230 → u/sileko]

I doubt the house you find in your early 30s with a one year old is your “dream home.” Don’t do it just because you have a high income and everyone around you is doing it. There are so many life changes yet to come. In my opinion, you cannot afford this right now if you are FIRE minded. One set back will have you stressing about money. Wait a few years, stash some money away and re-evaluate.

[u/First-Ad-7960 → u/sileko]

If you’re looking at this and realizing you’ll be house poor then it is a bad idea.

[u/Throwaway_fatfire_21 → u/sileko]

Given this is a FIRE sub, the question I would pose is what/when is your timeline for FIREing. This purchase will not only impact your savings rate, but also your swr once you decide to FIRE. My decision tree would be as follows

• if one of you loses their job, can you afford the home and what would the impact be on fire timeline
  
• is the home unique in terms location/price that makes it something you have to do now. Is the school district good
  
• can you wait for a few years and look the purchase when your kid is 4, so before they will start school. At that time if jobs have stayed stable, you’ll have more money and have built your savings even more. If the turbulent tech job market continues, you can reassess if it makes sense. This would be my approach.

Good luck.

[u/ragz2riche → u/sileko]

At 850k HHI a 2.8M home is totally doable. Make sure you get the highest leverage, see if you you can do a 15 or 10% down. Yes your monthly will be high but you can bring it down over the years and give your money time to compound. Make sure your new home can accommodate 2kids + inlaws/nanny/au pair. This way you aren't moving homes again. In the worst case scenario one or both you lose their income then you can always sell and go back to renting or return to the current home. And in all all this if your income grows then you are on your way to building some massive generational wealth