If you had $4M, would you spend $2M of it building a house?

[RunningBum]

I probably wouldn't do it, but if $2M (maybe more) is way more than enough to live on, I won't argue against doing it.

The biggest issue I see is that if you have to or want to move for health reasons, it may be very hard to sell. You might want to be closer to doctors/hospitals if you have a serious health condition, or you might not be capable of living independently at some point. Are people really looking for a $2M 2BR house in your area? You may be burdened with upkeep of this vacant house while living somewhere else, and if it's memory care it might be more expensive than you think.

As far as the plan itself, I can't help but notice that to go from the pool to a bathroom you have to go through either the shop or the main room.

 

[Texas Proud]

Little bit of a different angle ... after 20 years of appreciation my lake house is 1/2 net worth. So all those who would never build with half their wad would advise me to sell??

Never selling BTW. To each his own.

A different question than the OP... we are still not sure if it will be worth how much he puts into it... your example is a sure amount.. you have gain in your property... if you like what you have and can live off your investments then I would want to live in a lake house...

The big question to you is would you buy it at the price you can sell for today? IOW would you spend half your money for that lake house?

BTW, this is kinda like the 'should I have a mortgage or not' question... and if so then why not mortgage to the max my house and invest the money...

Buy let me ask you... if it was 75% of your NW would you sell? 90%? At some point the incentive to sell becomes real..

 

[skyking1]

^ Not if you have the cash flow in the form of pensions, etc.
A great many of us are not withrdrawal rate portfolio driven.

 

[MC Rider]

I guess hookers and blow is not a big item in most peoples retirement budget.

 

[RetiredAt55.5]

Ironically, I am actually waiting for a contractor to drop in a couple of hours to give me an estimate on 30 panels roof mounted on one of my workshops. I figure if it leaks, so be it. But you are correct, no way in hell I would do this on my house. I'm kind of struggling now with paying the extra money for (whatever the no seam metal roof is called) vs just regular shingles on our house. My contractor said it would be 3X the cost and that kind of jedi mind tricked me into thinking shingles would be fine. It is hard not to lose focus on what one of the goals is. A house I can live in for 30 years with minimal maintenance.

Looked at another way, you could redo the roof 2 times, IF one of you live that long. In the meantime, you could be investing the money saved going with regular shingles.

 

[Gumby]

I think it's interesting that at one point in time, the young wife and I spent all the money we had to buy a house, and the meager equity in that house was almost 100% of our net worth for quite a few years. But now, 32 years later, that paid off house represents about 25% of our net worth, and I sometimes think that is too much concentration in a single asset. Funny how the same house can look so different to the young me and the old me.

I would say that if that's the house you want and if you are confident that you can cover the carrying costs on it and can support yourself with what's left, go for it.

 

[RetiredAt55.5]

Debt free, fairly frugal, and FIRED. We are close to building our dream home and it suddenly hit me that we may be spending half our money on it. I have $1M in cash, $1M in 401K fixed fund, and $2M in S&P based equities (mix of Roth, 401K, and brokerage).

Maybe I missed it in the 8 pages of replies, but technically you don't have $2M to spend on the house and another $2M to live off of, since more than 25% of the $4M is in 401K's. You didn't say how much of the $2M in S&P based equities is in a 401k, but it's that portion plus the $1M in the 401k fixed fund.

Hopefully, you've considered the tax bite on 401k withdrawals and brokerage sales.

 

[Gumby]

Maybe I missed it in the 8 pages of replies, but technically you don't have $2M to spend on the house and another $2M to live off of, since more than 25% of the $4M is in 401K's. You didn't say how much of the $2M in S&P based equities is in a 401k, but it's that portion plus the $1M in the 401k fixed fund.

Hopefully, you've considered the tax bite on 401k withdrawals and brokerage sales.

A good reminder about the taxes, but there are two ways to approach it and discounting your current portfolio value is only one of them. You can also increase your projected expenses as necessary to account for the taxes you will pay when and as you draw on tax-deferred savings. But, as you point out, you cannot entirely neglect the taxes.

 

[rmcelwee]

As far as the plan itself, I can't help but notice that to go from the pool to a bathroom you have to go through either the shop or the main room.

Thanks for noticing! That has been fixed with a small Bath/changing room.

 

[rmcelwee]

Maybe I missed it in the 8 pages of replies, but technically you don't have $2M to spend on the house and another $2M to live off of, since more than 25% of the $4M is in 401K's. You didn't say how much of the $2M in S&P based equities is in a 401k, but it's that portion plus the $1M in the 401k fixed fund.

Hopefully, you've considered the tax bite on 401k withdrawals and brokerage sales.

Yes, you are correct. We have $1M cash sitting there making 4.5%. Hopefully the house will come in around $1.4M so the tax hit won't be much. We should know more in a few days.

 

[reneeh63]

Thanks for noticing! That has been fixed with a small Bath/changing room.

I can't quite tell how much of your plans are completely custom(ized) though it might be a good idea to have an architect review to make suggestions regarding room flow, doorway placement, etc. to catch anything you may have overlooked. I can tell you have all your special areas of interest in terms of the shop, garage, supersized pantry, etc. but it's easy sometimes to miss other details, especially if you've started from scratch. There may also be structural aspects and roofline to be sure the plan is "builder ready".

 

[Texas Proud]

Yes, you are correct. We have $1M cash sitting there making 4.5%. Hopefully the house will come in around $1.4M so the tax hit won't be much. We should know more in a few days.

You also could get (GASP) a loan....

It might be an advantage to spread the taxes out over a few years and a loan could bridge that problem...

 

[pb4uski]

I think it's interesting that at one point in time, the young wife and I spent all the money we had to buy a house, and the meager equity in that house was almost 100% of our net worth for quite a few years. But now, 32 years later, that paid off house represents about 25% of our net worth, and I sometimes think that is too much concentration in a single asset. Funny how the same house can look so different to the young me and the old me.

I would say that if that's the house you want and if you are confident that you can cover the carrying costs on it and can support yourself with what's left, go for it.

When DW and I got married, we looked at a condo that would have cost $40k and required 5% down. We passed on it because we didn't have $2k to put down. Fast forward 42 years and if the monthly credit card bill arrives at $2k I'm

 

[Koolau]

You have to pay a bunch of fees (I think $750) and fill out paperwork and I am sure inspections and stuff so I am not sure we will be doing that. I think a lot of the places that were buying energy back have dropped their $$$ where you only get 1/4 back as what they charge you. Too much hassle, expense and rules for me right now.

Heh, heh, that sounds familiar. Here we're supposedly tryring to cut the use of fossil fuels but then we have all these road blocks along the way.

Our solar load is one of the most "reliable" in the nation, but HECO can't integrate very much of it so they have limited how much they will take. I've heard both good and bad stories of how the "system" w*rks (or doesn't) for folks.

I was just thinking with the large array that you're installing that you could possibly make it pay. Hope it w*rks out for you.

 

[Koolau]

I think it's interesting that at one point in time, the young wife and I spent all the money we had to buy a house, and the meager equity in that house was almost 100% of our net worth for quite a few years. But now, 32 years later, that paid off house represents about 25% of our net worth, and I sometimes think that is too much concentration in a single asset. Funny how the same house can look so different to the young me and the old me.

I would say that if that's the house you want and if you are confident that you can cover the carrying costs on it and can support yourself with what's left, go for it.

I remember those days. Prices were going up so fast that we were afraid we'd never be able to come up with a down payment. Even with a decent salary, it was really tight for a few years. Every dime went into the house.

 

[Koolau]

You also could get (GASP) a loan....

It might be an advantage to spread the taxes out over a few years and a loan could bridge that problem...

We did that (got a loan) on our current condo. We HAD the money in 401(k) but it turned out to be cheaper to get a loan for a few years to spread out the taxes. I admit that the taxes "wagged the dog" but sometimes, you gotta do what you gotta do. Just a back-of-the-envelope calculation showed us saving a bundle that way. Always stay flexible though YMMV.

 

[RetMD21]

,,,If the OP and his DW are making a value judgement that they want to be house rich and they enjoy their $2m home that is fine by me. I personally would not want that much square footage to maintain and keep clean and tidy.

But... the title of the thread is "If you had $4M, would you spend $2M of it building a house?" and I think the answer is clearly no for the majority of forum members responding.....

It's all about choices. We're low outliers in the house/net worth ratio but we got 90% of our dream house at a low price in Michigan.

I wonder about a tax assessments for homes that are outside the ordinary. In OP's case I would guess that the square footage of the shop would be counted as "house" with the garage being assessed at a lower rate. I am not sure that the assessor will catch all the premium features of the house in his calculation. It would be interesting if OP came back in a year to compare his cost vs assessment.

 

[CO-guy]

Hard no for me. A $2M house where I live costs at least 2-5% to maintain per year with taxes, insurance, yard care, sinking funds, etc. That is the safe withdrawal on the other $2M, so I would be forced to choose between living or maintaining the house. If you can cover your living expenses without the portfolio then it probably works.

That's a big part of my "absolutely not" response. It isn't just about chopping the retirement savings in half. It's about how much taxes, insurance, utilities and maintenance costs will be on a $2M house.

In our area, it would be difficult to afford a $2M home with only $2M in retirement savings to maintain it.

 

[Diogenes]

That's a big part of my "absolutely not" response. It isn't just about chopping the retirement savings in half. It's about how much taxes, insurance, utilities and maintenance costs will be on a $2M house.

In our area, it would be difficult to afford a $2M home with only $2M in retirement savings to maintain it.

The OP's area is famous for low taxes and generally low prices on a bevy of services. Presumably this entered into his calculation. Indeed, in my current VHCOL area, the nod goes to renting, or buying a minimalist house, because even if one can readily afford the purchase price, the taxes and associated recurring costs would be unjustifiable.

 

[rmcelwee]

The OP's area is famous for low taxes and generally low prices on a bevy of services. Presumably this entered into his calculation.

One of our goals is zero maintenance and utilities. We can't get there but we are going to spend money up front to get something that gets us closer to it than most households. I'm hoping for no more than a $25 electric bill (monthly service fee), no water bill, no sewer bill, no trash pickup, no exterior painting, (maybe) no shingle replacement, etc. Also, very low grocery bill (garden/chickens/hunting), zero in medical expenses ($$$ in HSA), and on and on. It will be interesting to see how this all turns out.

 

[CO-guy]

One of our goals is zero maintenance and utilities. We can't get there but we are going to spend money up front to get something that gets us closer to it than most households. I'm hoping for no more than a $25 electric bill (monthly service fee), no water bill, no sewer bill, no trash pickup, no exterior painting, (maybe) no shingle replacement, etc. Also, very low grocery bill (garden/chickens/hunting), zero in medical expenses ($$$ in HSA), and on and on. It will be interesting to see how this all turns out.

That's awesome! I saw your "Bunny Ranch" thread, kudos to you for living the dream!

Our current property consists of a 4br/3ba main home, a 2br/2ba apartment, and a 1br/1ba apartment. All were built/renovated to be super energy efficient and can be heated with wood.

Rental income from the two apartments more than covers our small mortgage, taxes, insurance, utilities (electric, gas, water, sewer, refuse) and most maintenance, which has allowed us to live essentially expense for free now for several years. My better-half served as the general contractor on all three builds, with our main home featuring her most extensive attention to personalizing the finishing work. In no uncertain terms, she built it to be our dream "forever" home.

In the past year we've received a few unsolicited all-cash offers that, frankly, have made my better-half interested in selling as soon as we are able. While still a few years off, it's too much equity to leave tied up, even when we're living expense free.

 

[skyking1]

I think that low overhead is quite doable. We won't garden ( too much travel ) but we will put up solar to match our use.

 

[Music Lover]

If it was my place I would:

- swap the laundry and shop bathroom and add an exterior door so the bathroom can be accessed from the patio outside. A door can also be added from the main closet to the laundry.

- swap the main bath shower with the toilet so that the shower can be larger.

- move the island a little to the left and add more cabinets on the pantry wall.

 

[rmcelwee]

If it was my place I would:

- swap the laundry and shop bathroom and add an exterior door so the bathroom can be accessed from the patio outside. A door can also be added from the main closet to the laundry.

- swap the main bath shower with the toilet so that the shower can be larger.

- move the island a little to the left and add more cabinets on the pantry wall.

We originally had the laundry and bathroom swapped but the builder said the complexity of the drier vent on an interior wall would cause a ton of problems and possibly a fire. You'll have to ask my wife about the other two things. I would agree though.

 

[Gumby]

I would move the gas fireplace a little toward the front door and put another half-wall/peninsula on the left side between the living room and the kitchen to more clearly delineate the two spaces. I'd put bookshelves on the living room side of it and lower cabinets on the kitchen side (you can never have enough kitchen cabinets).