Blow that dough on a new house?

[pjigar]

I say go for it.

 

[Rich]

Yeah, I'm not saying a mortgage might not make sense.

Just something I wouldn't do.

If I were a billionaire I too might consider taking a mortgage out on a 100 million dollar home...

Rich

 

[Onda]

If it’s a new house you’ll have warranties on just about everything for at least 1-10 years so maintenance isn’t going to be an issue.

If anything, I’d say the reverse.

A well-built pre-1950 house—especially one that’s already had the electrical and plumbing properly updated—has old-growth lumber, robust framing, (probably sits on prime lot with mature vegetation) and materials that have already proven they can last. In many cases it’ll keep going another 50–75 years with routine upkeep.

A lot of newer “fast-build” construction is optimized for speed and cost: fast-growth softwoods, thinner assemblies, (joists made out of glued wood trash) and systems like PEX that may be fine in theory. And if you have rodents, they can chew through PEX shockingly fast—turning a small pest problem into a major water-damage event.

 

[COcheesehead]

If anything, I’d say the reverse.

A well-built pre-1950 house—especially one that’s already had the electrical and plumbing properly updated—has old-growth lumber, robust framing, and materials that have already proven they can last. In many cases it’ll keep going another 50–75 years with routine upkeep.

A lot of newer “fast-build” construction is optimized for speed and cost: fast-growth softwoods, thinner assemblies, and systems like PEX that may be fine in theory. And if you have rodents, they can chew through PEX shockingly fast—turning a small pest problem into a major water-damage event.

Construction codes are vastly updated compared to years ago. I just had a blower door report done on my new house. It came in at a .75. No way is a house built 70 years ago achieving that. The energy saving methods in place today are so superior.
I owned an old home long ago. It was constant maintenance. Every new home I have had was almost maintenance free.

 

[Onda]

P.S. - The home price represents 8.5% of my net worth.

Go for it!

 

[Onda]

Construction codes are vastly updated compared to years ago. I just had a blower door report done on my new house. It came in at a .75. No way is a house built 70 years ago achieving that. The energy saving methods in place today are so superior.
I owned an old home long ago. It was constant maintenance. Every new home I have had was almost maintenance free.

New codes help energy performance—agreed. Still, Warren Buffett lives in a 1921 house by choice. Mark Zuckerberg’s main, long-time residence is widely reported as his Crescent Park home in Palo Alto, which was built in 1903.

“Superior” isn’t just blower door report.

 

[Steve P]

We haven't had a mortgage in 5 years, no more car loans, kids done with college. Everything is on the asset side of the balance sheet.

When we moved here, we sold our home and paid cash for our current home. Certainly wasn't the home of our dreams, but it is functional and serves our needs. Wasn't even looking or considering a new house, but this one popped up on our radar. It's really nice with many pluses over our current house.

We can certainly afford it and after years of being careful (frugal), we're starting to spend on things we really want. I'm 68, DW 63. Both retired. I'm struggling a bit with this large of a purchase. I've run the numbers - loan amount, interest, property taxes, etc and it is well within my comfort level financially. I guess I'm looking for the "gotchas".

With that limited information, can you talk me out of it? Or convince me it's okay to take the plunge.

P.S. - The home price represents 8.5% of my net worth.

Well it sounds like you would make out fine and you only live once. What you didn't comment on is if the area is holding or increasing in property value? My bias is to not take on debt but just pay cash if you go forward and its not wrecking anything with withdrawls, not a big medicare impact, taxations, etc. It never feels good to take on debt with no income psychologically so I'd consider paying as much cash as you can and have no or little mortgage.

 

[COcheesehead]

New codes help energy performance—agreed. Still, Warren Buffett lives in a 1921 house by choice. “Superior” isn’t just blower door report.

As I said, I lived in an old house. I had a black board by the back door. Every week I had a list of things on that board that needed to be done. As soon as I would erase a few. I added a few more. I learned how to tuck point brick, clean fire places, stain fences, deal with water intrusion…. I could sit by the kitchen window and actually feel the cold coming in. It was weekly maintenance. I would never, ever buy an older home again.
So let’s stick to the topic of the OP which is a new build and not a home of a billionaire.

 

[Onda]

So let’s stick to the topic of the OP which is a new build and not a home of a billionaire.

OP did not specify age of the property. I am curious what it is .

 

[MarieIG]

Rather than looking at the proportion of net worth (8.5 % is not at all prohibitive), I would look at the ongoing expense of the new home as a portion of income. Then I would figure out how "flexible" this would leave us, vis-a-vis lumpy expenses, surprise need to liquidate (pulling funds from different sources in a market drop or pulling pre-tax funds causing a tax spike) etc. I would then look at how this would effect discretionary expenses. Also, I would look at the ability to age in place.

So, for me, it would be a matter of can I (or my spouse if I pass) handle this move comfortably both fiscally and physically, and would it improve our quality of life.

 

[ut2sua]

P.S. - The home price represents 8.5% of my net worth.

At 8.5% of NW, I would not even worry about it (especially when you are already good financially) . But DW and I are home lovers. It is like having a year round vacation when/if your home provides the comfort and convenience desired. Also, depending on the location, a home may likely to appreciate (unlike a car which is most likely to depreciate). My vote is to go for it.

 

[ut2sua]

New codes help energy performance—agreed. Still, Warren Buffett lives in a 1921 house by choice. Mark Zuckerberg’s main, long-time residence is widely reported as his Crescent Park home in Palo Alto, which was built in 1903.

There was a house in an upscale neighborhood close to where we live. The owner remodeled it by ripping out everything except 1 piece of external wall. I think that was on purpose so the house can be classified as a remodel instead of newly built house (most likely for tax purpose - owners of these ~$4m homes are far from Buffet and Zuckerberg's level so a tax break is significant for them still). It is not hard for me to imagine that there is nothing 'old' left in these houses owned by Buffet and other Billionaires.

 

[TripleLindy]

P.S. - The home price represents 8.5% of my net worth.

Not sure I’ve seen you factor in what you would sell your existing house for. Regardless, as others have said, I’d pursue whatever route you believe you’ll get the most enjoyment from.

I’d love to move into a newer home, but we love our neighborhood so much and haven’t found anything that gives us the same conveniences. There’s an area in our subdivision that we really like and is mostly comprised of retirees, as the homes are a little smaller, but houses in that area rarely hit the market.

I also don’t know that I’d want a home built after the pandemic. We’ve lost so many good tradesmen since then and homes seem to be built with speed in mind over quality.

 

[Onda]

There was a house in an upscale neighborhood close to where we live. The owner remodeled it by ripping out everything except 1 piece of external wall. I think that was on purpose so the house can be classified as a remodel instead of newly built house (most likely for tax purpose - owners of these ~$4m homes are far from Buffet and Zuckerberg's level so a tax break is significant for them still). It is not hard for me to imagine that there is nothing 'old' left in these houses owned by Buffet and other Billionaires.

Cambridge is full of old houses, and on my daily walks I see renovations all the time. Pretty much nobody rips out all the old wood framing or wood boards and keeps one random exterior wall —what you’re describing is the exception, not the rule.

For a 100+ year-old house in desirable location, the typical renovation is systems + enclosure + kitchens/baths, plus selective structural repairs where needed—not a full replacement of the wood frame. Most projects keep the structural shell, then modernize electrical, plumbing, HVAC, insulation/air-sealing, windows/doors, and finishes. Ofcourse such houses cost much more than new construction

 

[freedomatlast]

Great video, Onda, and so true. We have a friend who is a small local contractor and tells us some horror stories of people trying to hire him to fix many of the issues discussed in the video. Most prevalent, are the foundation issues caused by building on soft fill. Recently a guy called him with the complaint that his door wouldn't latch. He sent me a picture of this home which was built less than six years ago with a 1/4" gap between the door and frame due to settling on soft fill. No wonder the door wouldn't latch. The people are in tears when he passes on these types of jobs since he doesn't want any liability trying to repair a home on a moving foundation. And these aren't cheap starter homes. They're $750, 000 to $1,000,000 homes that have all the nice finishing touches people seem to want, but are built by big companies, as cheaply and quickly as possible.

This of course, doesn't mean never buy a new home, but like anything, you really need to know what you're buying, how it was constructed, what materials were used, and if the land was recently filled.

 

[TripleLindy]

Yes, that is an eye-opening video. I never even considered that today’s lumber is a product of trees “designed” for fast growth and therefore weaker than previous generations.

The binding arbitration issue is everywhere. We probably need laws passed to get rid of it. I spent a career negotiating contracts and would never have asked a client to sign something that forced them to waive any legal option afforded to them under law.

Interestingly, we have a minor foundation issue in our 30yo home, and even though it’s within tolerance, we’re having it repaired. The contracts from every company had binding arbitration language. I asked the company we selected to remove it, or at least remove the binding aspect, but they said I’d have to use someone else if I wouldn’t accept that language. As a consumer, what can you do when there is no other option?

 

[Onda]

I didn’t fully appreciate what high-quality, old-growth, dense, true-dimensional lumber was until I took a piece of it to Home Depot and asked what I should buy to match it.
2 by 4 with growth rings you cannot count measuring 2 by 4 inches not 1.5 by 3.5 inches wood with 4-6 growth rings.


Their answer was basically: you can’t. That kind of lumber just isn’t available new anymore.

 

[COcheesehead]

Great video, Onda, and so true. We have a friend who is a small local contractor and tells us some horror stories of people trying to hire him to fix many of the issues discussed in the video. Most prevalent, are the foundation issues caused by building on soft fill. He sent me a picture a couple of weeks ago inside a home built six years ago with a 1/4" gap between a door and frame due to settling on soft fill. People are in tears when he passes on the jobs since he doesn't want any liability trying to repair a home on a moving foundation. And these aren't cheap starter homes. They're $750, 000 to $1,000,000 homes that have all the nice finishing touches people seem to want, but are built by big companies, as cheaply and quickly as possible.

This of course, doesn't mean never buy a new home, but like anything, you really need to know what you're buying, how it was constructed, what materials were used, and if the land was recently filled.

We had to have a soils report prior to building. They drilled core samples down as far as 40 feet to determine where a solid base existed. The foundation is then built based on the soil type. If buying a new home I would ask for the soils report to understand the construction type they recommended.
Our current home sits on 42 micro-piles because of our expansive soils and hasn’t budged a bit.
Our state has a required 10 year warranty on structural issues like foundations.

 

[dobig]

*shrug*

If you can imagine waking up and having your morning coffee in the new place and having your morning coffee where you currently are, which would put a bigger smile on your face?

You have the money so it's that uncomplicated.

 

[Dtail]

I would say go for it. It sounds like your NW is around 2.8m.
Some want their dream home late in life and others trade down from a larger home.
Our retirement home is my largest to date, but could dream higher, but don't yearn for it.

 

[Sorcerer]

Have you seen how new houses are being built? Get an inspection. Tread lightly.

 

[Lorenzo]

I may be wrong, but I vaguely recall a thread where someone asked about putting 50% of their net worth into a home. There was some discussion of whether that was advisable.

 

[skyking1]

<looks at what I am doing>
8.5%?

<skips away giggling>
Go for it

 

[Koolau]

Interesting article I just came across in Kiplingers….Why even Millionaires take out Mortgages for homes….

A lot of good points here.

Elon Musk and Mark Zuckerberg Borrow Instead of Pay Cash for Homes

Some of the wealthiest Americans opt for mortgages as a strategic way to preserve liquidity, leverage investments and reduce tax exposure.

www.kiplinger.com

When we bought our condo, we took out a mortgage because we needed to fix up the new place for a few months and then fix up the old place for a couple of months before we could sell. We took the mortgage vs dumping most of our (hard won) Roth IRAs. We were 62.

 

[pb4uski]

Add me to the list of advocates for a green light. You'll be exchanging 7.67% of other assets for and investment in residential real estate that you will use, improve your quality of life and you will enjoy! Just do it.

But why the mortgage loan?