Expensive Retirement Home

[rb35]

My wife and I are in what I hope to be our final couple of years before FIRE. We plan on moving to a different state and buying our "forever" home. This will probably cost about 700k to 1 million.

I'm conflicted about a few things and would like to hear other members' thoughts.

1. An expensive home seems like such an inefficient use of resources. If I pay cash for the house, the opportunity cost of those funds is going to be about $50k / year. Add in 20k for maintenance, taxes and insurance and we're talking 70k / year to live in the type of home we're considering.

I think this bothers me so much because I'm extremely investment oriented and virtually 100% of our net worth is currently working for us in some sort of investment. Do I just need to come to terms with the fact that we planned to splurge more during retirement and so it's time to quit being so frugal and just spend the 70k per year on our dream housing?

2. We plan on traveling a lot more during retirement. I could easily see us being away from our home 3 months a year (multiple trips). I'd be worried about having an expensive home vacant so much. It also compounds my feelings expressed in point 1 as paying that much for a house and not enjoying it for 3 months a year seems like a colossal waste.

Financially, I don't think we'll have any problem affording the home. It's just such a dramatic change to my lifelong pattern of spending little while constantly saving and investing.

Anyone been in a similar situation or given thought to these issues?

Thanks!



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[Ronstar]

You bring up 2 solid points. Your proposed new house expense IMO is a misallocation of funds. It would bother me to spend that kind of money on a house that you're only going to live in 9 months a year. And a house of that magnitude is probably not too "lock and leave" friendly.

I'm tackling a similar situation, but of lesser magnitude. I'd like to downsize our primary home to something more "lock and leave" ready so that we can spend more time traveling. And convert the excess capital to investments.

 

[Meadbh]

In your situation I would feel the same way. If I travelled 25% of the time, my home would provide me with less value. Operating costs, amortized over time in occupancy would be greater per unit of time spent in residence. Then there would be security issues while away. If I put a lot of money into such a dream home, it might make me reluctant to travel and leave the comforts of home behind.

That said, I live in a community where many people have beautiful and expensive homes and yet travel a lot. I am not among them.

It seems to me that this is the classic conflict between wants and needs. How much house do you really need to be comfortable? If you spent $500K on a more modest home in a good neighbourhood, and had operating costs of $30-50K per year, what would you lose in terms of quality of life?

 

[NW-Bound]

Does this new home limit you from traveling as much as you want? What is this home value relative to your net worth?

I have two homes, and I travel 3 months a year. Obviously, the time I spend in each home is less than what you spend in the one home. It is still worth it to me, at this point, I hasten to add. When I no longer feel that, or face a cash flow problem, I will sell the one I use less.

 

[Big_Hitter]

Yep, OP, yep. Just did it last year but we rarely travel (much to DWs chagrin). Maybe that will change once I pull the chute.


No regrets whatsoever. This is our FRP.

 

[rb35]

It seems to me that this is the classic conflict between wants and needs. How much house do you really need to be comfortable? If you spent $500K on a more modest home in a good neighbourhood, and had operating costs of $30-50K per year, what would you lose in terms of quality of life?

Great question. This is something we'll have to weigh as we start looking at actual homes. To me, I think the difference between a 500k home and a 1mm home is going to be a private lot with great views and an awesome backyard (pool, kitchen). Those are things we value and to us, enhance quality of life.

Looking at it another way, if we go with a modest house which has always been our style, we'll have more money in the bank, but that money won't necessarily improve our quality of life. I suppose that's the early retirement philosophy from a slightly different angle. We usually say why spend more the working when we have enough money. Now I guess the question is why not spend on some luxuries if you can comfortably afford it? What good will a larger bank account do?


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[Big_Hitter]

What good will a larger bank account do?


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exactly - I've never seen a truck full of cash following a hearse

 

[NW-Bound]

Now I guess the question is why not spend on some luxuries if you can comfortably afford it? What good will a larger bank account do?

If a retiree is older, then he/she may have only a few years of traveling before settling down, and to enjoy the nice home. Or maybe it does not matter. It's really a personal preference.

But about the larger bank account, hey, it helps you sleep better when the market tanks. And the latter will happen.

Pick your poison and drink it. We all do.

 

[rb35]

Does this new home limit you from traveling as much as you want? What is this home value relative to your net worth?

I have two homes, and I travel 3 months a year. Obviously, the time I spend in each home is less than what you spend in the one home. It is still worth it to me, at this point, I hasten to add. When I no longer feel that, or face a cash flow problem, I will sell the one I use less.

Thanks for sharing your experience. The home wouldn't limit our travel financially. But psychologically, I might be more reluctant to travel knowing how much we're spending on our home.

The home would be 10-20% of net worth. I'm projecting a couple of years out so there's some uncertainty both around cost of home and terminal net worth.

I think I'm just going to have to adjust my attitude toward spending. I've already done this in smaller ways as our income / net worth has grown (e.g. What I'm willing to spend on a nice vacation now would've shocked my younger self). I think it's the magnitude of this potential purchase and the long-term nature of it that I find uncomfortable.


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[Big_Hitter]

just make sure it's a one story

 

[NW-Bound]

My two homes are 25% of my net worth. I justify them by thinking that in more expensive areas like coastal CA, I would have only one home for the same money.

I definitely get more enjoyment out of the two homes compared to one. But man, the maintenance cost also doubles!

 

[NW-Bound]

just make sure it's a one story

No kidding! One of my homes is a 2-story. I can get up on the roof, but it is getting scarier as I get older.

The other is a chalet style with a tall and high-pitched roof (for a 25-ft ceiling). I have never been up to the crest. Cannot even clean the high windows!

Oh well! As I said, I will enjoy it as long as possible, but may not die owning it.

 

[Big_Hitter]

No kidding! One of my homes is a 2-story. I can get up on the roof, but it is getting scarier as I get older.

The other is a chalet style with a tall and high-pitched roof (for a 25-ft ceiling). I have never been up to the crest. Cannot even clean the high windows!

Oh well! As I said, I will enjoy it as long as possible, but may not die owning it.

that's the main reason we moved, well plus the view, the kitchen, etc. etc.

yard is a big pita, I still mow (walkbehind) it and it's about an acre, takes forever

 

[daylatedollarshort]

What is the likely appreciation rate on the house? I would run the numbers in a spreadsheet. It is surprising how little difference whether we have money in a house or our investment portfolio makes for us because we plan on very conservative returns from either one and our property taxes would not change either way because of Prop 13. If we downsize to a condo HOA fees would offset the home maintenance costs.

The big issue for us to consider is that our house is not lock and go and more work than a condo, meaning less free time. But financially our house has actually been a good investment over the long run and in a great location for us, so we're still thinking about what to do.

 

[SumDay]

We're in the same boat, but on a much less grand scale.

We're in a very modest neighborhood, with a huge yard and too much house for empty nesters. Downsizing for us, will cost money. A smaller home with a walkout basement, and perhaps maintenance-free is more expensive than where we are now.

Proceeds from the sale of our current home should/could pay for about 2/3 of the new house. I have cash set aside to pay the rest, which amounts to about 5% of our portfolio.

Taxes will be higher and our bank account lighter. But we sort of feel like we lived in a less than desirable 'hood with sometimes "interesting" neighbors, now we get our reward. But we're home bodies, and I' not sure I could pull all these triggers if I weren't going to be there virtually all the time.

Lots of tough decisions - no right or wrong answers. If it feels good, do it. You deserve it.

 

[NW-Bound]

that's the main reason we moved, well plus the view, the kitchen, etc. etc.

yard is a big pita, I still mow (walkbehind) it and it's about an acre, takes forever

My high-country home with acre-plus lot has only native evergreen trees, so no yard maintenance there. It's the lock-and-leave home. Well, except that I have to bring some cash up every so often for exterior and deck maintenance.

The suburban home no longer has any lawn, but my wife has planted a veggie garden. That has made her reluctant to leave the home in this summer heat, although I have automatic sprinklers. This is the higher maintenance home, although we also spend more time here.

 

[MichaelB]

Great question. This is something we'll have to weigh as we start looking at actual homes. To me, I think the difference between a 500k home and a 1mm home is going to be a private lot with great views and an awesome backyard (pool, kitchen). Those are things we value and to us, enhance quality of life.

The question is, do these things add enough value to your life to justify the cost? If so, there's no reason not to go ahead with the plan.

 

[Dawg52]

If money is no problem and you want it, go for it. I have a small house and a costal condo, but the 2 added together is less than many I know with 1 house. I could afford more, but I'm just not into big expensive homes. I sleep well so it works for me.

 

[Cut-Throat]

My wife and I are in what I hope to be our final couple of years before FIRE. We plan on moving to a different state and buying our "forever" home. This will probably cost about 700k to 1 million.

I'm conflicted about a few things and would like to hear other members' thoughts.

1. An expensive home seems like such an inefficient use of resources. If I pay cash for the house, the opportunity cost of those funds is going to be about $50k / year. Add in 20k for maintenance, taxes and insurance and we're talking 70k / year to live in the type of home we're considering.

I think this bothers me so much because I'm extremely investment oriented and virtually 100% of our net worth is currently working for us in some sort of investment. Do I just need to come to terms with the fact that we planned to splurge more during retirement and so it's time to quit being so frugal and just spend the 70k per year on our dream housing?

2. We plan on traveling a lot more during retirement. I could easily see us being away from our home 3 months a year (multiple trips). I'd be worried about having an expensive home vacant so much. It also compounds my feelings expressed in point 1 as paying that much for a house and not enjoying it for 3 months a year seems like a colossal waste.

Financially, I don't think we'll have any problem affording the home. It's just such a dramatic change to my lifelong pattern of spending little while constantly saving and investing.

Anyone been in a similar situation or given thought to these issues?

Thanks!



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It's only money, and not to be morbid, but you're going to die someday. You are not going to be able to take the money with you. It is there for the spending. So, I say enjoy it.

There are some folks here that enjoy seeing a pile of money more than they enjoy spending it. Some even have pain spending it, which I see as a physiological problem. So, you have to decide which group you are in. I like spending it, as I am aware of my own mortality. It really just boils down to that.

 

[RunningBum]

15 yrs ago when I was about to FIRE (false start actually when the dotcom bubble burst) I had a very nice home custom built, which I'm still in. Sometimes I feel like I overdid it. I really like just about everything about it, but there are some rooms I don't use that often. Could have done without the pool table room, for example, though when I do have people over and play pool or darts it's really nice to have.

Sometimes I feel like I'd be just about as happy with a much smaller but nice cozy home, but mostly it's just that there is more to be maintained and cleaned and heated. I can afford it but don't set my heat as high as I would a much smaller house. OTOH, I have a really nice uninterrupted view across a gorge to another mountain behind me, and a valley below, and I never tire of it. I think the relaxation I feel from it is good for my health vs having noisy neighbors or a highway behind me. I never regret the premium I paid for this location.

I don't figure this is my final home, but I could see being here another 20 years depending on health. The home isn't a great investment but it will bring me something over what I would see moving into after that, so I don't feel like the money is gone after splurging on it. It's just tied up and being an under-performing investment. Actually about 4 years after I finished it I probably could've sold it for nearly double, but that was another bubble that popped where I'm at. Thankfully I bought before the bubble even started.

Bottom line IMO is that if you think you'll enjoy it, go for it! I got over any feeling of over-indulgence, having never bought a house over $150 before this one.

 

[Davis65]

It sounds to me like the real issue is that you have been frugal for so long that you don't know how to spend. You didn't say, "maybe i should save $500K on the house and spend it on drugs" or "... on a massive yacht" or "... on round-the-world cruises in the penthouse suite". You seem to be saying "maybe I should not spend the money".

Do you have beneficiaries for you're estate? (I'm available if you need one.) are you planning to leave a big legacy to a charity? If not, you should start getting ready to enjoy the fruits of your labour, thriftiness, and investment savvy.

I am trying to make this shift too: I'll retire early next year having accumulated significantly more than I expected to or than I think I'll need, in part, because I've been so frugal.

 

[Chasing Retirement]

Similar situation here

I downsized a few years ago when I saw the real estate market showing weakness. I am now in a small condo that is very "lock and leave" but looking at larger homes for our "final home" in a lower cost market (i'm currently in SoCal). My goal is to travel while I'm still young (currently 57, planning to retire at 60), and still living in my paid for lock and leave condo. Once I make the investment into a larger home, i am guessing I will be all traveled out and not wanting to leave as often. In the mean time, and while traveling, make your money work for you so when you plunk down the $1mil, it won't hurt as bad! Of course, who knows what that $1mil home today will cost tomorrow.

 

[hesperus]

My wife and I are in what I hope to be our final couple of years before FIRE. We plan on moving to a different state and buying our "forever" home. This will probably cost about 700k to 1 million.

I'm conflicted about a few things and would like to hear other members' thoughts.

1. An expensive home seems like such an inefficient use of resources. If I pay cash for the house, the opportunity cost of those funds is going to be about $50k / year. Add in 20k for maintenance, taxes and insurance and we're talking 70k / year to live in the type of home we're considering.

I think this bothers me so much because I'm extremely investment oriented and virtually 100% of our net worth is currently working for us in some sort of investment. Do I just need to come to terms with the fact that we planned to splurge more during retirement and so it's time to quit being so frugal and just spend the 70k per year on our dream housing?

2. We plan on traveling a lot more during retirement. I could easily see us being away from our home 3 months a year (multiple trips). I'd be worried about having an expensive home vacant so much. It also compounds my feelings expressed in point 1 as paying that much for a house and not enjoying it for 3 months a year seems like a colossal waste.

Financially, I don't think we'll have any problem affording the home. It's just such a dramatic change to my lifelong pattern of spending little while constantly saving and investing.

Anyone been in a similar situation or given thought to these issues?

Thanks!



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Yes, we also have been giving this some serious thought, trying to decide where we want to be in 10 years. I'm 56, FIRE'd about 2 years ago. DW is 47. We have two places, one a modest home in a somewhat expensive area in colorado that we purchased about 4 years ago, near a market bottom. The other is a ten acre mountain retreat, that we built a nice new cabin on. They are only about 30 minutes from one another. Right now our properties are only about 15% of our net worth, with the majority of our NW in investment accounts, right in the mid seven figures. I keep thinking eventually we'll rent out the current home we're in (the rental market is strong) and then buy a new home, that is more in our 20%-25% net worth range. But, the modest home we're in is so efficient for our uses currently, that I cannot justify it right now. I'm kind of a spendthrift, so I agree with the OP that going into a larger, $1M home just runs against my nature. But we could definitely use a larger home to comfortably have guests, give myself a wood shop, and also have ample storage and a privacy buffer. We like the idea of two homes, but right now they're so close to another that we don't get up to the mountain retreat as much. In ten years, I would like to see ourselves having a larger home in the neighborhood where we live now, with a second home somewhere very different, perhaps near the ocean. I just don't want to have too much tied up in our primary residence, because of the costs, and the fact that I'm investment oriented, liking the ability to keep growing the the income we get off of several good investment accounts. Need to find that balance somewhere.

 

[Bamaman]

We downsized to a medium size house in town, and are fortunate to have a lake house with a 6 mile sunset/water view. We live in a very inexpensive housing market where $1 million houses are not required. And our property taxes are ridiculously low.


My biggest problem is keeping up maintenance and insurance on two houses. The only help we ever get may HVAC--with me doing all other maintenance. The money I save by doing everything myself allows us to travel extensively.


If someone's wanting a second home of the magnitude you're talking about, you might consider getting the second home in a more inexpensive retail market.

 

[Options]

...Now I guess the question is why not spend on some luxuries if you can comfortably afford it? What good will a larger bank account do?

Unless you've lost interest in spending on "luxuries", which I certainly have. Buying a luxury car last month and dropping way too much this month on remodeling (needed though it may be) have taught me I will not be doing either of these things again. The level of satisfaction is just not there anymore when buying "things", stuff, or luxury anything.

Nowadays, I'm much more interested in experience, and not the manufactured kind that has always been available to me. This newfound mentality probably comes from living almost half my life five minutes from the third most expensive zip code in the country (with everything that goes along with that).