How A Big Expensive House Can Ruin Your Life And Path To Financial Freedom

So you're looking for a big expensive house to upgrade your life. Perhaps the pandemic has made you want to live it up a little because tomorrow is not guaranteed. You’re suffering from real estate FOMO and you're sick of putting your life on hold. I get it!

In fact, my wife and I bought a big expensive house one month into lockdown in April 2020. We figured, if we're going to stay home so much longer, we might as well have a nicer house.

Looking back, I don't regret the decision on bit. The intrinsic value of real estate has gone way up because we're all spending much more time at home. Further, it has felt nice raising our two young children in a bigger house so they can run around more.

However, I want to provide a warning that a big expensive house can ruin your life and derail you on your path to financial freedom if you don't carefully do the math. It is vital to crunch the numbers and buy an affordable house based on some home buying rules I'll highlight below.

Let me share one of my experiences almost buying an expensive house back in 2018 and the numbers. Then I'll provide another experience about actually buying a more expensive house in 4Q2023.

If you don't have the appropriate income or net worth, buying a big expensive house can really weight you down.

The Desire For A Big Expensive House Emerges

As a dad, I'd like my parents and in-laws to come visit more, which is why it'd be nice to have a ground floor level portion of the house dedicated just to them. This would make it more comfortable for all of us.

Given I write from home, it'd be nice to have a house large enough so that I can't hear my boy squealing with joy or crying in frustration. Trying to create while hearing him is one of my toughest challenges because once I hear him, I just want to drop everything and go to him.

Finally, I have some real estate FOMO that if I don't buy this house now in one of the best neighborhoods in San Francisco, I might never be able to get in. This is my ego talking more than anything else. 

Found The Perfect Big Expensive House

In 2018, I found the perfect house in Presidio Heights, one of the most prime neighborhoods in San Francisco. I want to use this post to reflect on what could have been a disaster purchase.

It had four bedrooms, four and a half bathrooms, an awesome attic that would be used as a playroom, and a ground floor suite for my parents or in-laws. My commute to the tennis club would be cut down from 15 minutes to only five minutes a well.

Here are some pictures:

In-law unity on ground floor with deck facing garden - A Big Expensive House
In-law unity on ground floor with deck facing garden
ground floor deck to yard
ground floor deck to yard
Amazing remodeled attic for man cave, play room, or teenager room
Amazing remodeled attic for man cave, play room, or teenager room
How A Big Expensive House Can Ruin Your Life And Path To Financial Freedom
Another angle of the attic with sky lights
Remodeled Master bathroom with his and her sinks
Remodeled master bathroom with his and her sinks, but no hot tub
Family room off kitchen to keep an eye out on the kids
Family room off kitchen to keep an eye out on the kids
Deck off the kitchen for brunch is one of my favorites
Deck off the kitchen for brunch is one of my favorites I had at my old house
Family room with deck
Family room with deck

Pretty nice house right? The house was roughly roughly 3,200 square feet, or 1,300 square feet larger than our existing three bedroom, two bathroom house. Not extravagant, but nice.

Here was the problem problem. The asking price was……………. $4,495,000! Nooooooo.

Believe it or not, buying a single-family home in Presidio Heights for under $5 million back then was considered reasonable. But when I do the math on how much it would cost to own a $4.5 million home, it kind of hurts my stomach.

The Cost Of Owning A Big Expensive $4.5 Million House

It's important to always do the math before making any big purchase. Here's the math to own this beautiful house with a $2 million downpayment just because I thought it might be nice to live in Presidio Heights instead of Golden Gate Heights.

The cost to own a big expensive house could ruin your life
You must do this math before you buy a house and want to achieve FIRE

If I bought this house, my all-in monthly housing expense would more than triple to $18,605 while I would no longer be able to earn any potential income or returns from $2 million currently spread out across municipal bonds, stocks, and real estate crowdfunding in lower cost areas of the country.

The Opportunity Cost Of Owning A Big Expensive House Is Large

The $2 million downpayment is guaranteed to earn $62,000 a year in state tax-free income if it was invested entirely in a 10-year government bond. Hence, one could easily argue that the total annual cost of owning this house a year is not $223,254, but actually $223,254 + $62,000 = $285,254.

Although the mortgage would eventually go away, the 1.23% property tax rate is for life. I cannot get over how egregious it is to pay $55,350 a year in property tax forever. Upgrading homes also comes with upgrading property taxes, maintenance expenses, and more. You might find out you have bad neighbors too.

You can rent a nice two bedroom, two bathroom, lightly remodeled condo in a nice part of San Francisco for $4,613 a month. Further, the property tax amount will keep on going up by about 2% a year because the city automatically assesses the value of your house up by 2% a year.

The Cost Adds Up With A Big Expensive House!

After 20 years of ownership, you will likely have paid roughly $1,200,000 in property taxes alone. That is just sounds absurd.

To add insult to injury, due to the $10,000 SALT deduction cap, I can no longer deduct the entire property tax amount. The SALT deduction cap includes state income taxes as well. Therefore, I'd be losing out on at least another $10,000 in tax refunds, despite the rise in the standard deduction to $24,000 for married filers.

When you buy a home, it's important to have the appropriate income and net worth to comfortably afford a home. Below is a chart I created highlighting how much income and net worth you should have before buying a home at all price points.

If I wanted to buy the $4,500,000 home, I would need an income of between $1 – 1.67 million, which I didn't have. Or, I would need a net worth of between $1.35 – $15 million, which I do have. But I wouldn't buy a $4.5 million home if my net worth was only $1,350,000. I need at least $10 million, the ideal minimum net worth amount to retire.

how much income and net worth you should have before buying a home at all price points

Note: If you want to calculate how much capital you need at a 4% rate of return to cover your housing costs, simply add up all your housing costs, divide by 0.04% and multiply by 1.4X to account for taxes.

Never Getting Out Of The Rat Race

Buying a big expensive house would put me in massive debt. If you buy a large expensive home, you might have to work many more years. At least with us, my wife and I are already retired.

It's clear that me buying this house or this type of house is not worth it. It goes against my minimalism philosophy in early retirement.

I would need to amass almost $8,000,000 in capital just to cover my housing costs if I wanted to stay unemployed. It's hard enough to retire with only a $5 million net worth and a family.

Even after paying off the mortgage, I would still need $2,500,000 in capital returning 4% to pay for the ongoing $5,938 a month in after-tax unavoidable costs of owning such a home.

No Wonder Why Some High-Income Households Feel Trapped

I can only imagine the family who ends up buying this home will have to work for a very long time with a very high income to afford this type of lifestyle. We're talking $500,000 – $1,000,000 a year in required income to be able to afford the house and everything else that comes with raising a family. These type of jobs can be very stressful, especially if you actually need that much money to survive.

Nobody buys a house this size if they don't have at least two kids. Further, each kid will probably also be going to private school at a cost of $35,000 – $50,000 each. If a downturn ever comes, these $500K+ jobs go away quickly. Then your stress goes through the roof as an albatross hangs around your neck.

If you needed to sell in a down market, you'd not only lose money on principal value of your home, you'd also have to pay at least 5% in realtor commissions and transfer taxes = $225,000.

Related: The Best Time To Own The Nicest House You Can Afford

A Deja Vu Feeling

Me wanting to buy this house felt exactly like how I felt buying my Lake Tahoe Property in 2007. The real estate market had just started to slow, and I thought I was getting a steal buying the 2/2 condo for $718,000 since the owners bought the property for $810,000 in 2006.

I was earning the most amount of money I had ever made in my life at the time, and I erroneously extrapolated that earnings power forward for 10 years. Of course, the financial crisis hit, and my earnings power along with my property got cut by 40% – 50%.

Right now, Financial Samurai is firing on all cylinders. I haven't seen a down year since I started the site in 2009. But it's very possible that Financial Samurai and all my investments could take a beating.

Big expensive house size

What If A Recession Comes After Buying A Big Expensive House?

There's always a chance we could buy a house at the top of the market again. The subsequent two-to-three years of a typical home price down cycle may be tough to bear.

If I leveraged up to buy this Presidio Heights home and a recession comes, we would lose our lifestyle because one or both of us would have to go back to work in a hurry. All the levity we've felt having a reasonably low housing expense would go out the window.

The house would start to own us instead of the other way around.

I hope the buyers of this home are prepared for all types of scenarios. Their new house has likely trapped them into a lifetime of continuous work.

When we moved to our current house in 2014, we effectively lowered our housing cost by 40%. I originally looked at the move as just a change in scenery. We were bored of living in our old neighborhood after almost 10 years, but we weren't ready to relocate to Hawaii.

Downsizing Our House Actually Felt Great

But it turns out that the downsizing really did wonders to our FIRE lifestyle, especially after I sold our old house in 2017.

At a 3.5% rate of return, the proceeds from our house sale 100% covers our existing housing costs. This means I'm certain my wife and I will never have to go back to work again so long as we REMAIN in our current house.

Investing $550,000 of the proceeds in private real estate with platforms like Fundrise have helped boost our net worth. It feels wonderful to diversify our investments and earn more 100% passive income. As we get older, we longer for more simplicity.

However, if we buy this $4.5M house, we open ourselves up to massive lifestyle risk. This happened before when I bought my Lake Tahoe vacation property in 2007.

I had just made the most money I had ever made in my life. Because I extrapolated my record earnings into the future, I thought buying a $718,000 Lake Tahoe property after purchasing a $1,520,000 single family home a couple years earlier would be no big thing.

Of course, I ended up making a poor financial decision as the global financial crisis ensued. Extrapolating your earnings into the future with continuous growth is the second biggest financial mistake you can make.

Low Housing Cost Is The Key To Financial Freedom

Instead of owning a big expensive house, own something cheaper and more affordable. At least follow my 30/30/3 rule of home buying so you never feel like your house is a burden.

Housing Expense Guideline For Financial Independence

I highly recommend you keep your annual total housing expense to less than 20% of your annual gross income. Over time, you should be able to get your housing expense down to 10% of gross income thanks to largely fixed ownership costs and growing income. Once you do, achieving financial independence becomes much easier.

Go ahead and fantasize about living in a nicer, more expensive property from time to time. After all, visiting open houses is free. Maybe even spend a pretty penny renting a nice place for vacation once a year to get it out of your system.

Then come back to earth once you've done the math and realized how much you'll need to sacrifice in order to own such a property. Once you do, I'm sure you'll appreciate that what you have is already pretty good.

Renting Luxury Makes More Economic Sense

This $4.5M house in Presidio Heights is the perfect example of Buy Utility, Rent Luxury (BURL). It's a much better value to rent this house for $12,000 – $14,000 a month, given cap rates in San Francisco are around 2.5%, than to buy the property at current levels and pay all the continued maintenance, taxes, and mortgage interest if there is one.

My cozy home is currently being battle tested with my parents in town. Four adults and a toddler is quite a crowd. But my house is holding up like a champ. No matter how big or how small our house, we tend to get used to the size.

Therefore, I'll be shelving my dream property plans for now until the next stock market correction hits. At least I was able to experience what it was like to live in an $18 million mega-mansion. And now that I know, I'm not itching as much.

How It Feels Not Buying A Big Expensive House 5 Years Later

More than five years after writing this post, I will admit my wife and I would have enjoyed living in this big expensive house, especially now that we have two kids. The attic and outdoors would be nice play areas for our children. And an au pair or guests could live in the room on the ground floor.

On the other hand, putting down $2 million and taking out a $2.5 million mortgage would have felt like a lot. In my chart, I used a 4.5% mortgage rate that would result in a $12,500/month mortgage.

By not owning a big expensive house during the March 2020 meltdown, we were able to invest several hundred thousands dollars into the stock market. I wrote a prediction in March 2020 that we'd soon hit the bottom. We also felt less stressed because we had purchased a single family home with cash a year earlier.

On the other hand, owning a nice home during a pandemic was more valuable than ever before. We're spending so much time at home now that our home's intrinsic value has shot way up. The single-family home market is booming, and this property is likely up 15% – 25% in value since.

Finally Bought The True Forever Home

In 4Q2023, I decided to buy another big and expensive house after we bought one in mid-2020. This is our true forever home where I want to raise our children until they graduate high school. Unfortunately, buying this expensive house meant blowing up our passive income by $150,000.

The cost of the house is slightly more expensive than the house I was salivating over in 2018. But since 2018, our net worth has grown by over 50%, so we feel more comfortable.

Technically, we are no longer financially independent because we have a ~$115,000 income shortfall to cover our expenses. As a result, once our daughter begins school full-time in September 2024, I will start doing some consulting part-time.

Better To Buy A Home You Can Comfortably Afford

Bottom line, it's better to comfortably afford your home immediately instead of expecting your wealth to grow larger enough to allow you to comfortably afford your home in the future. Being house rich cash poor is an uncomfortable feeling that may stress you out.

Our wealth has increased since the time I first laid eyes on this $4.5 million house. But instead of spending $4.5 million, we spent about 40% less for a lovely house with panoramic ocean views on all three levels in Golden Gate Heights.

During this time, we were able to save and invest more money to finally grow into our current home. Real estate FOMO is hard to beat back, but you must if you want to gain financial independence!

Real Estate Investment Alternatives

If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today.

Fundrise manages over $3.5 billion in assets and has over 480,000 investors. Fundrise primarily invests in residential and industrial real estate in the Sunbelt, where valuations are lower and yields are higher. Sign up and take a look at all the various funds Fundrise has to offer.

If you are an accredited investor and bullish on the demographic shift towards lower-cost and less densely populated areas of the country, check out CrowdStreet. CrowdStreet focuses on individual commercial real estate opportunities in 18-hour cities.

The global pandemic has accelerated the work from home trend. I see positive demographic migration trends to the heartland for decades to come. CrowdStreet is also free to sign up and explore. The value of real estate has gone way up because interest rates have come way down.

I've personally invested $954,000 in real estate crowdfunding so far to earn income passively. It's been nice to diversify my real estate holdings in lower-cost areas of the country. As a father of two young children now, I don't have much bandwidth left to deal with tenants and maintenance issues.

129 thoughts on “How A Big Expensive House Can Ruin Your Life And Path To Financial Freedom”

  1. Emily Franklin

    I have such mixed feelings about this. I have been house poor for 35 years and really struggled as a single mom. I kept my married home. 6500 square feet. And 17 years later I have 1.5 million in equity. I have raised my kids and lived in a beautiful home. But, haven’t had a lot of fun. I’m always house poor. Now it’s time to retire. I want to pay cash for a small place. Up to a million. And invest the 500k. But, I’m scared I will live a long time. And not have enough money. I know this place is a gold mine. So, it’s hard. So hard to let go. Owning a big expensive home is all I know!!!

    1. Fascinating! Wouldn’t selling the home, downsizing to a $1 million cash home, and then having $500K in liquidity improve your financial situation?

      I feel you on being house rich cash poor. I just bought a dream house in 4Q 2023 and now I’m cash poor. It’s a disconcerting feeling.

      1. Emily Franklin

        Aha you have succumbed to housepoor status as well! Yes, I’m probably going to move. I’m just afraid if my money isn’t stuck in my home… I will fritter it away. Congrats on your new home!!

  2. No wonder why millennials aren’t buying homes. Only the rich will be able to afford homes at this point.

  3. The numbers of owning a home, paying property taxes, etc. freighted me. Nobody I know even makes that amount. The average joe only make $40k salary.

    Now the average home is costing around $200k where I live. This is insane. No one I know has $200k in the bank, & this is for your average home owner. I remember back in the early 2000’s when $200k you could afford a McMansion.

    Boomers are selling their homes at such high prices & they don’t seem to have a problem with it. They think the average buyer has $200k in the bank. I hate boomer generation like you wouldn’t imagine. They are literal worst generation ever.

    Interest/Usury is the real reason homes are unaffordable. They are literal money pits. Can we please expel the Jews who run the banks & ban interest already? I am sick of living in a mouse utopia experiment. I hate this clown world. Also f boomers! They too are responsible for this too.

    1. You’re an idiot!!!!!!!!!!!!!!!! So you want us to give you our house for nothing. Then what do we use to buy the replacement. Boomers should have never brought this generation into this world!!!!!!!!!!!!!!!!!!!!!!!!

      1. You’re both idiots. Boomers didn’t cause all these problems directly, so stop blaming them for everything. You would’ve done exactly the same in their shoes so OC needs to calm down.

        And x, shut up. Nobody is asking for a free house. The world isn’t the same as it was in the 50s and will never be that way again. Stop expecting millennials to do things the same way you did, because it’s much more difficult to buy a house and start a family today.

        Y’all need to consider each other’s perspectives.

  4. Hi Financial Samurai- I have the ability to build a $1.6M house on the water in Florida (new development that is very unique) with a down payment of $160k vs. buying a $675k house (17 year old home in nice neighborhood) with a down payment of $40k. Family gross income is $700k and we have zero debt (sold our home a year ago, own our vehicles outright and have no other debt). Not really any comparable new homes on market but older homes sell for about $1.9-2.0 million and we have gone through a series of negotiations with the builder that has resulted in such a good price. We plan to move from either home in 6-8 years after move-in. My thinking is that with such a large discount on the new home, it might be a similar outcome financially whether some of our money goes to the more expensive home vs. investments. What are your thoughts?

  5. Well, here’s a big part of the problem when people rant and rave about property taxes, (I live in Illinois where that’s all they talk about!) You cant’t have your cake and so on and so on. The trend is is bigger and better and I don’t care how much it cost, i’m Going to have it. Then they sit around and moan about taxes. You buy a million dollar house…..what do you think your taxes should be? Sick of hearing this song and dance about property taxes. Are you griping about the $80000 SUV you bought? Probably not.

  6. My wife and I’s mortgage payment is about $3.5k per month. In order to have that 10-20% housing expense/income ratio, we’d need $200-400k salaries. Sadly, we don’t have that. I’m a stay at home spouse that’s thinking about giving blogging a second chance. Any tips would be welcome!

  7. I purchased a similar size home with similar amenities on a brand new home in a CLT suburb just over the state line for less than $400k last year with 2.3k/yr in property tax. No kids and no plans for kids, but the extra space vs the base price was only another $30k for 800 more sq ft. Figured it was worth the $30k for resale. It’s very easy to over buy on your house.

      1. This year I’ve had family live with us off and on all year but long term the extra space will be used for family and friends that come to visit (4br/4ba). Half of the extra space also makes for a great media man cave area. Mortgage + taxes + insurance + hoa is 7% of my pre-tax annual income so extremely affordable for us.

  8. Looking at those numbers makes me feel nauseous, I bought my 2,200 sq ft home (and that doesn’t include the unfinished attic or the basement) for under $70k a few years ago. It blows my mind what some people are willing to pay in expensive cities. For 4.5 million you could buy several blocks of homes in my town!

  9. Yoinks! $1400 sq/ft. Makes my home seem like an absolute bargain!

    I love SF – well, to visit SF – way too many people for me to live there. Come visit us in Asheville, NC – where for a lot less (as in a LOT less) you can live next to the old Vanderbilt estate (The Biltmore) or in the nearby mountains with great views, clean air and a slower paced lifestyle. Invest the other 3.5m+ and vacation anywhere in the world.

  10. john stafford

    As a 16 year old, I am able to save 100% of my income (May it be small), and am in the midst of building a stock portfolio. When do you think the optimal time is to invest in real estate? ASAP, out of high school, out of college, during a correction, or later?

  11. How optimistic are Americans, do you all think the world in thirty years will be anything like it is today?

  12. Hey Sam,

    As someone that lives in Austin and is about to start looking for a home, I struggle with the age old question of looking for a place that would keep my D to I low (which is less than 10% currently) or bump it up into the 30%+ and purchase a house that would probably see substantial appreciation over the next decade or so… (not a given by any means, I know but this market is one of a few that I think could weather a mild to moderate recession in the near future). Either way, I will be going the way of house hacking and looking for duplexes/multifamily units. As such, it would be conceivable that I’d only be fitting around half (or less) of the total monthly note. Would love to hear your thoughts on this strategy if you haven’t already written about it somewhere else. Thanks!

  13. Given the announcement from RealtyShares that they are going out of business, would you have insight on what investors can expect? Unfortunately, similar to you, I also own investments through RS.


    You should move to Southern California. Get a similar house for just half the cost! :-)

    I spent all of last year remodeling a crack house so I could benefit from prop 13.

    Okay, it wasn’t really a crack house, but the inhabitants were definitely selling drugs out of it. The original owner passed away at 107, and about ten years ago extended family moved in to “take care of her”.

    The house was in shambles, with decades of deferred maintenance and probably a few steps away from being condemned.

    The size and configuration was similar to the house you mentioned in the post, it’s in a very nice neighborhood with a school district that’s usually ranked number 10 in the state.

    I paid “only” $1.3m, spent under $500k repairing/remodeling the whole thing top to bottom (from the roof down to the sewer line). It’s now valued about $2.3m (based on an appraisal in February) but my property taxes are still based on the purchase price saving me over $12k/year.

    There’s no way I would consider buying a house with property taxes in the range of $2,400/month.

    As your post says, you really need to do the math on home purchases.

  15. I enjoyed the 5,500 sqft. house where I grew up as a kid, since I wasn’t paying the bills.

    Mom practically went bankrupt trying to keep it up after the divorce.

    I now live happily in the same LCOL area in a 2,500 sqft. 3BR/3BA townhouse which you can buy here all day long for under $200,000, with city/county combined property taxes only ~1.25%.

  16. In 2007, before the financial crisis, a coworker/friend used his IPO windfall to buy a big house in one of the prime neighborhoods in Silicon Valley for $3M. The house is now worth $5-6M and both him and his wife are still working. I calculate had he not sold all his shares in 2007 to buy his house, he’d have at least $10-15M by now. He complained his property tax alone is $50K a year and it’s very expensive to upkeep a 4500 sq ft home.

    In contrast, we bought the smallest home we could afford under $1M, in 2009. Since then our assets has grown from $1.5M to $9M, and we’re looking to retire in 3 years when it hit $10M (the Suze Orman number:)

    People forget the home you live in is not an income-generating investment, and its real worth is the memory and joy of your family living there. If the mortgage you take on requires two income for 30 years, then you’re just 1 layoff away from bankruptcy every 10 years. By 20202-2022 many 5/1 and 7/1 2.5% jumbo ARM will come due and refi can be 5% or more, and we’ll see who’s been swimming without their pants.

  17. Sam-

    This was another great read! Thank you for your thoughtful insights and thorough analysis as always. I have learned a lot here.

    I’m curious if you have a house-to-net worth ratio rule for those that have already achieved financial freedom? You’re worth what, 3-4 millon? And your current house is worth 1.8? Would love to know your thoughts on how much house to safely buy once you’ve created a pretty sizable nest egg.

  18. I am stuck on this decision. I have a house in sydney in an expensive suburb.
    It’s needs rebuilding which will double my mortgage. It will have a separate flat to provide income but it will double my mortgage.
    What do I do? No ongoing tax here.

  19. Once you are done paying off the mortgage you get the privilege of paying $55k+ in annual rent to the city…

    You would think that with the next recession these high tax cities would implode, but they havent…..yet…

  20. Hi Sam,

    Regular reader. Love the way you write a fun to read article that has spot on number crunching to prove the point. I have learned a lot. Wondering if you can tell me I put too much of my portfolio in my house.

    House- After 23 years in Boulder moved to Carbondale and built my dream house ( that is bigger than I need. I built attached rental over garage but my wife only allowed me to have nanny trade for rent until my twins reached 4-now it sits. Working on wife to let me rent for $2K/month as it would get us to retirement sooner but cant get her to give up privacy now even though I built it to have separate entrance.

    -$135,000- cost of 2.3 acres on river with mtn view
    -$1,200,000- new construction house- 3800 sq ft house 4600ft with garage. $250 sq ft cost to construct
    – $4200 (monthly house)/$25833 (monthly gross income)=16% ratio
    -Guessing the house could sell for $1.4-$2M.

    With high income I did what you said to do to max write offs and secured 7yr mortgage 3.6%. I paid a big chunk down and have $641K left to pay. This makes up roughly half my net worth I estimate at 1.9M. I am 49 but had twins late. $756K of this is 60/40 stocks/bond mix, $150K is a carbondale VRBO rental equity, and I estimated $300 inheritance to be conservative.

    Now the question- I have anxiety that I put too much of my portfolio in my main house that is too large but its my dream house and I love it. Given my situation and real estate at top of the curve- I wonder if I should stay in house another 5 years then try to rent-it and rotate to work in Europe to give the kids the experience. I work remote on IoT security for Intel so can really work anywhere. Also- I will sell that rental so I want to throw $150K at mortgage to bring down debt and monthly- just feels safer. Or as you are doing do I take cash and invest in equities right now after Oct drop?

    Thoughts? By the way if your looking for what I think is best town in America check out Carbondale. 4 world class ski mtns, Moab 2 hrs away, 3 hrs to Denver or fly out of Grand Junction/Aspen. Aspen pulls all kinds of festivals and the roaring fork valley has 4 great small towns. I cringe when I drive back to Boulder or Denver as crowds suck.

    1. Yes, I think way too much is in the house. Wouldn’t be quite as bad if you were getting rent from the nanny unit. You won’t be able to retire for quite a while with this asset mix but that is okay if you are cool working for a while.

      I wouldn’t count any potential inheritance in my net worth btw.

    2. Todd, you’ve got great taste man. That’s a very nice house on a beautiful lot. I’m currently stuck in Irvine, Ca and can’t wait to move somewhere like Carbondale

    3. Todd,

      Congratulations, you have a stunning home and view and wonderful place to raise your kids and let them run wild. I have recently had 2 close friends pass away from cancer, lung cancer, never smokers and extremely fit and did not drink and in early 50’s. Miss them both. Yes, it’s nice to see the big numbers in the big columns to help you sleep at night but you cannot take it with you. If you get stuck later you can sell and if you didn’t get the biggest number for it so what. You can’t put a price on time and that place would definitely help me sleep better at night instead of columns.


    4. Todd,
      Beautiful home and a fellow Carbondale guy here. If you’re still in the area when the twins get to high school I recommend sending them to CRMS. Beautiful school amazing staff and low teacher to student ratio. Went there myself and couldn’t have asked for better.

  21. While I obviously don’t disagree with the facts of your post, I do think the personal finance/FIRE community sometimes go over board with fetishisation of frugality, particuarly for housing. For someone worth maybe $20m, spending $5-8m on an amazing house for them and their family is probably the best thing they can do to maximise utlity. You can only have so many big TVs, Lambos etc.

    To be clear I have no argument with the facts in your post (big houses are expensive!). And I’m not advocating over stretching / over leveraging oneself.

  22. I live in a large home for the first time in my life, and I definitely think it is too much space, but my spouse wanted a lot of space, so I guess it is an expensive compromise. One extra cost that hit us hard the first year was the cost to furnish and decorate it. The heating cost in the winter is also really high. On the other hand, our property taxes are way lower than they would be for a much smaller home in CA or other places in the country where we have lived (we have a different, higher rate for second home owners, but primary homeowners pay very little in taxes, and yet our public schools are excellent thanks to tourism). Also, I really value the garage storage space and though it may sound ridiculous to some, couldn’t get by anymore with less than a 3-car garage – we live a really full and adventurous life outdoors in a ski town and each have a mountain bike, road bike, downhill skis, skate skis, xcountry skis, snow shoes, hiking gear, running gear, backpacking gear, kid gear, baby gear – just lots of gear. I don’t think of our house as an investment at all – I don’t include include the equity in my net worth calculations. I think of it as one of our largest expenses. Some days I think we should sell it and pay cash for a smaller house; then I could retire in my 30s and ski all winter long and bike all summer long and spend a ton of time with my kids, but other days I think we’re just fine and it’s enough to know that the option is always there to downsize and retire (if I can convince my spouse), but it makes sense to keep plugging away at work (which I don’t hate) and enjoy the big house for what it is.

  23. Givemeadvicetoo

    From a practical standpoint, my rule of thumb is not to buy anything I can’t pay off within 5 years. I built a 7500 sq ft home about a decade ago and paid it off within 5 years. I built a 16,000 sq ft office building last year that I can pay off within 5 years.

    I’m not a financial adviser but if I was, and had a client who could spend the $4.5M in cash or pay off a mortgage within 5 years, there would be no problem. If I had a client that couldn’t pay off a $200K home within 5 years, I would advise to rent and accumulate a larger down payment, lower expenses, and/or focus on increasing household income first.

    I would not advise a $4.5M home for anyone without a secure income of at least $1M/year, a minimum 30% down payment, a >1 year emergency fund, and other successful investments for diversification (stock market, business, real estate, education, etc.). I speak from the perspective of someone who could comfortably buy this house. However, I would not. I would live in a less expensive neighborhood (if necessary with a reasonably longer commute).

    FYI my house cost far, far less than this one (low COLA) and my office buildings are essentially being paid off by my tenants, so as not to sound hypocritical.

    If I could do it all over again, I would not bother with such a large home due to the (non-financial) hassles of maintenance demands. My dream home now is under 2,000 sq ft – I know better what I really want now – free time, simplicity and freedom from “stuff”. Don’t let society convince you that spending will make you happy. It won’t. Financial security will, as will things that cost little or nothing, such as time with the kids at the park or the local ice cream shop. Don’t try to keep up with the Jones because your neighbors and friends are also struggling to keep up with the Jones or maybe they are the Jones and you can’t compete!

    Always remember the following word: balance. If you bought this house would your life still be in balance, or would you have to give up investments, philanthropy, vacations, restful sleep, health, time with the family, etc? Some can answer yes, most will answer no. Think long and hard before making one of the biggest financial decisions of your life. Consequences include costs, but also extend far beyond costs. We all tend to underestimate “collateral damage”.

    Not to discourage, if you can do it comfortably go for it! Home ownership does create memories, gives you tax advantages (with new limits), generally appreciates over time, gives you access to lower cost borrowing, forces you to build equity rather than spending mostly on consumables or build equity for someone else, you can’t get kicked out by a landlord, etc. Make sure it’s ultimately home SWEET home.

  24. One item of note. I think property taxes will go up higher than 2%. The county assesses your house at a 2% increase per prop 13 or inflation which ever is lower. But my property taxes increased 10%. I called the assessors office as to what gives. It’s all the bonds that are voted in by your city or local jurisdiction.

  25. I always enjoy well thought out articles on accumulation of wealth and the resulting comments on financial sites such as yours. ESI is another example. Although I am of a great age, I find that the excellent advice very useful especially as I do not wish to run out of money. Being frugal by nature, I like to get my money’s worth and I find articles like this open my eyes to hidden costs. I personally think that more people should read these articles, whether they follow the recommendations discussed or not, because of their thought provoking content. I have never bought into early retirement or renting my residence but that doesn’t mean I shouldn’t consider such ideas ever.
    More people should follow your blog as us oldies are in great danger of financial disaster.
    Thank you so much for educating us all.

  26. That is a really nice house!

    At $1300 per square foot for that kind of property with all that beautiful outdoor space in Coastal California, in one the of the nicest neighborhoods in this country, surrounded by parks, water and great restaurants, this house is a steal!

    Compared to Manhattan, yes it is cheap. For $1800 a square foot, I get to look at brick walls outside my third floor pre-historic coop, where all my neighbors know and control every single detail of my finances and life! No outdoor space, no washer/dryer, no view, no sublets. Monthly maintenance doubles the carrying costs.

    I personally would not want to buy this house unless I had at least 10 million in liquid net worth, ideally at least 15-20 million. The carry costs of that home, and the possible hit to my net worth in a downturn would be very stressful. Not to mention all the expensive trappings that go with this house, like private school, luxury cars, another vacation home or two in Tahoe and Hawaii, tennis and fencing lessons for the kids, luxury family vacations to Europe! Talk about a hamster wheel – no thanks!

    There is always someone richer than you and has more than you. Same with your child. While I don’t advocate being an ascetic (nothing wrong with that), we all have to find a balance and contentment, where we are happy and grateful for shelter, food, safety, health, education, clean air, nature and a few luxuries like great meals, vacations, hobbies, etc.

  27. Presidio Heights is one of the most expensive areas in SF if not the most. We went to a park of over there a few months back(on Pacific Ave I believe) and we already had a feeling that it’s a expensive area just based on how big the houses are over there and add to the fact that CPMC hospital and the GGB are close by.
    That’s a really nice house but I don’t know if it’s $4.5 million nice!!

  28. They make excuses for things they can’t have. I would live in a mega mansion if I could afford it, because I would justify it. Just like you justify why you can’t. I can’t however because my family’s generational wealth was stolen in WW2. What’s your excuse? That’s the truthful answer to make you rich. We are rebuilding. My great grandchildren should arrive if they inherit tribal values and most of them will. If you’re on the stage, you don’t own the stage. So, keep having children feeding the endless treadmill of college, drinks, corporations, condos, dogs, marriages, houses, babies, debt, repeat. Then blame my family because you think it was given to us, when we worked it for generations.

    1. Max, I’ve read it 3 times and I still don’t understand what your trying to say. I’m interested but I’m not sure if your rich or poor, happy or sad,old school or new school

      Basically, can you dumb your comment down for me. It feels intriguing, but I’m missing the point.

      Cheers, Bill

      1. Thanks for being polite so I’ll entertain this but I don’t think I’ll be able to help you or anyone else. I’ll answer 3 questions if you are interested.

  29. If you are really after financial freedom, you may need to first achieve location freedom. That’s a point in life where location, location, location, no longer has a hold on you.

    From what I can see of it, you could have a house like that in a lot of places for a tenth the price.

    So why do people choose to live in expensive locations? Lot’s of reasons, but the top three are probably proximity to jobs, proximity to extended family, and climate.

    After that would be safety, taxes, and proximity to activities (culture, parks, skiing, golf, beach, whatever).

    First off, be retired, have a job that allows you to work remotely, or job that is in demand a lot of places.

    Secondly, extended family? See them a lot, now? How much? Would travelling further and making your visits into overnights be acceptable?

    Let’s skip climate and come back to that.

    So, safety? What? Safety against what, specifically? If you are worried about avalanches, mudslides, hurricanes, wildfires, earthquakes, crime, blizzards, et cetera, you still have many options in many places, so that’s not precisely a dealbreaker.

    Taxes, again, many options, but certain places can be avoided, although these tend to be places with lots of jobs.

    Activities? I live close enough to Broadway to go for dinner and a show any night of the week. But many hundreds of dollars for date night isn’t really something we do very often. I don’t play golf except when relatives force me, I ski but not that often, when I lived in Florida with beach access in my own neighborhood I went maybe twice a year. And so on.

    Climate is the tough one. Not many places in North America have a climate as nice as coastal Southern California. But lordy, what drawbacks! Likewise, living in Manhattan seems to be a young person’s game. Most of them I know do that through their twenties, then marry and start families and all of a sudden they’re finding jobs that let them live well outside the metro area, or even in another part of the country.

    Again, if you don’t have location freedom, you can still get financial freedom, but you won’t get there nearly as easily.

  30. Gorgeous home but to your point, you’d need to have an 8 figure liquid net worth for it to make sense financially. The carry costs on something like that would be astronomical.

    With the rate of taxation in CA, expect those costs to increase in the future too. 4.5 million goes a reallllllly long way in other parts of the country.

  31. Another great post by the samurai!!

    I feel safe to say that the majority of people have the dream of owning that mansion, in an upscale neighborhood. We then proceed to look at dream houses online and start talking ourselves into how we can afford it. The reality is there is so much that goes into it, then just the mortgage payment. Reading your post, the mortgage payment doesn’t seem to be the big problem, it is the property taxes that will continue in perpetuity. Let’s be honest property taxes suck!!

    Nonetheless, it is important we look at all aspects of home buying before making the purchase. Looking at taxes and opportunity costs are what really matters in the math of home buying and preparing for a scenario with economic downturn would be a must.

  32. Hello Friend

    My boyfriend and I downsized from 2,400 sqft to 600 sqft but we moved to a high cost of living area so our mortgage expenses remained about the same. What a spreadsheet can’t show you is the savings of time. We used to spend countless hours at stores like Costco & Target simply to fill up our home with that oh-so-perfect patio set….. and then there is the time it takes to schlep/stock everything. We no longer buy 12-pack cans of corn or a 3-packs of 44oz ketchup and we’re freer for it.

  33. I couldn’t agree more.

    My primary residence is a 3-bed, 1500 sq ft flat in North London, current price £1,850,000.

    Through hard graft to build equity we have a mortgage of £625,000, giving net equity of just over £1.2 million after transaction costs.

    Our mortgage is a very low (by US standards) 1.29%pa, giving c.£8k in annual mortgage costs. Maintenance costs and tax add another £10k.

    With opportunity cost on the equity in the property, our annual housing bill is in the region of £60,000. Of course, were we to downsize to say a £500,000 home, this would eliminate the mortgage and release cash that could be invested for c.£30,000 annual investment income.

    So as well as a high opportunity cost, the cashflow damage of a high value property is evident: from say -£18,000 to +£25,000 (assuming lower tax and running costs for the smaller property).

    I think it’s the cashflow damage that really causes a big property to interfere with FIRE plans. Having said that, it does force you to over-save, which, while bad, is not the worst thing in the world.

  34. Large homes are a waste. I say this as my daughter has a 650 sqft bed room. I moved from a 1,400 sqft house when I had my 3 kid, into a much larger house. I thought the home size was reasonable, but learned quickly that its about space distribution. Large bed rooms are a huge waste, if you want something large make it a walk in closet or a kitchen. Living with kids is difficult, they do need some space, because they aren’t very efficient. But at the same time, space gives people more room for stuff. I follow some minimal type sites, most of the people have no kids or 1 kid, 3 is quite a bit different. The other issue I see in my town (in CT), is that they don’t build small houses, every house that is built in town ins 3,500 sq ft. All these people who aren’t “woke” still want giant houses.

    1. Dang, a 650 sqft bedroom is HUGE! Do you think as a result of living large, she will require living in a big house when she is an adult and has to purchase one herself?

      I do feel we fill our homes with stuff, no matter how big it is.

      But 3 kids is a lot, and I can totally see how having a 4,000+sqft house would be appealing to many.

      1. Yeah she is going to be high maintenance… Hopefully my other teachings offset this “spoiling”.

  35. I bought too big of a house a decade ago. It definitely made my FIRE number a lot higher than it needed to be.

  36. Do you have a post where you explain how you do your calculations ? Like how do you calculate the cost of the home after the mortgage was paid off in this example?

  37. How is the property insurance that low?

    It’s only 12.5% more than my house that costs more than 13x less.

      1. I live in MN. The land is less than 1/6th of the value and the cost to rebuild is estimated at 280k.

          1. I’ve shopped my rate around and the best I can find saves about $200. However, I bundle home/auto and the auto goes up everywhere else by about $400 annually.

            1. Got it. Alternatively, San Francisco might be cheaper than people think in terms of insurance and property tax rates. It’s just the absolute house value that is very expensive. Think about it this way. If you spend $50,000 remodeling a $2 million house kitchen, that’s better value than spending probably $40,000 to remodel a kitchen of similar quality in a $700,000 house.

          2. Depends on the part of the country. Remember parts of the US have tornadoes and many also experience hail storms that frequently destroy roofs. Some areas also have foundation issues. It really varies.

  38. When we bought our first house 20 years ago we were astonished at how much money the bank was willing to throw at us. Things have obviously changed a bit since then, and we have made money on all the houses we have bought over time.

  39. Hi Sam,

    Great post. I love looking at high priced homes, wondering ‘what if’ I through FI to the wind. Thanks for sharing: )

    I am interested though, as you commented:

    “Therefore, I’ll be shelving my dream property plans for now until the next stock market correction hits”

    What do you mean? How would a stock correction aid one in obtaining a Dream property?

    1. 1) When the stock market corrects by 10%+, buyers tend to freak out more, so it’s easier to buy property. Worst case scenarios begin to form for buyers, given most buy property with debt.

      2) I like looking at real estate to keep my mind off much more volatile stocks. Real estate is like a ship. Stocks are more like jetskis.

  40. FIRE and Loving It

    Sam, love the article as I’ve studied this for some time more so for second home (which is increasingly harder to justify from a financial perspective), but the cost breakdown is similar.

    Up here in the northeast where the heat or AC is on for much of the year, a 4500 sq ft home would easily run above $1000/mo especially as you include all utilities.

    Secondly, as a post above noted, our home (larger, but 1/3 the cost) costs several thousand to insure annually.

    Lastly, a placeholder for exterior maintenance is necessary (I previously read $8k/$1m/year – admittedly seems high, but some placeholder is definitely necessary).

    As you included, the cost of NOT having the money invested is an absolute must. Add on significant illiquidity, cost to sell, stress related to those items etc. and the price of said home better go up several % a year to make it worthwhile financially.

    1. Yeah, very few homes have AC in SF. Our average year around temp is 62 degrees or so. Natural AC.

      Hopefully this home won’t have a lot of maintenance because it was remodeled in the past five years. But again, who knows for sure. Something always comes up.

  41. Interesting thoughts. In your opinion/experience, are many people who can’t really afford $4.5MM houses buying them? I’m not sure.

    One quick question apropos of nothing; is $2700 a realistic cost for homeowners insurance for full replacement value on a $4.5MM house? my house is worth 1/4 that, and that it what my insurance costs (with a $2MM umbrella policy added in)…

    1. Yes, I think many people at this price range and actually do stretcg quite a bit and hope they continue to make big money for Many years to come.

      It cost me $1500 to ensure a $2.7 million home. So ensuring a $4.5 million home for $2500-$3000 a year is in the ballpark in San Francisco. It depends on how much personal property damage, and rebuilding cost etc.

      Maybe it’s closer to $4,000/year, but that’s not big compared to the overal cost to own.

    2. The folks I know who bout $4.5 million or higher houses are all worth at least $20 million, and quite a few much more than that.

  42. “To add insult to injury, due to the $10,000 SALT deduction cap, I can no longer deduct the entire property tax amount. The SALT deduction cap includes state income taxes as well. Therefore, I’d be losing out on at least another $10,000 in tax refunds, despite the rise in the standard deduction to $24,000 for married filers”

    Am I missing something? You can’t deduct the entire property tax on your current house either. That is, the SALT tax deduction cap is already in place.

  43. Beautiful home, but damn you get so little for your money there. That would be about $600k in the posh part of town where I’m from. I have to admit, I’m a little scared about what I see going on around me. I was fortunate to have bought my place for $1M back in a short sale at the bottom of the market (they people who built it had a $3M mortgage after putting and additional $750k into it!?!?!). Equity wise I’m pretty sure I’m good, the homes they teardown for the lots here sell for $1M+, and I have a $3M+ new house going up right next to me and on the other side 2 doors down a $5M home. I’m a tad bit nervous what happens during the next crisis because I would bet the farm these people aren’t writing a checks to have a paid for place like I did. It feels nice to have a spectacular forever-type home at the end of peninsula with my boat parked in the back with sunset views over the water and sunrise views over the water in your front yard…but I totally agree with your analysis on costs and it does make me think from time to time.

    The way I look at it my costs me between taxes/insurance/utilities and maintenance $50k year, which in itself is ridiculous but not horrible. Factor in though the cost of having $2M+ of equity tied up after selling expenses and capital gains is paid, that’s another $80k per year in lost income if I just had it in a boring bond portfolio. So my paid for amazing place really costs me $11k/month. I’m fortunate that I can afford it, but still, as a guy that scraped and clawed my way to a nice early retirement it sure seems irresponsible at times. The plan is though to turn whatever I end up pulling out of this into a retirement place somewhere tropical once I find the best spot …in the mean time I feel for you having to deal with ridiculous pricing that is reality in the SF market, I’d hurry up and move to Hawaii!

      1. We live in Oakland County in Michigan…one of the wealthiest areas in the country. Lots of old money, lots of new money, lots of people who like to make it appear as if they have money as well (which is essentially everywhere lol). Admittedly the only things that makes it tolerable from January through April is the living on the water where the best summers in the world occur and an international airport with direct flights pretty much anywhere you want to go.

  44. We’re recently FIREd (7 figure biz sale) and are comfortable in our current home of 10 years. We’re planning to add another kid to the mix and will end up losing the guest room. We can renovate a den and convert it to a master, but it just isn’t my dream home.

    So nothing is painful about the situation, but it’s got me dreaming of what could be. I’m currently exploring the idea of a homestead that has a detached garage with an apartment. Really any sort of income generating “out building” that can subsidize the lifestyle upgrade (long term rental, short term rental, storage facility, etc).

    Anybody pulling this off successfully?

    Keep the current home and rent that too?! mortgage is 3.25% and would cash flow $750 to $1000/month. Oohhh boyy…lookout real estate empire. :)

    1. Buying a home, living in it, renovating it, then buying another home and renting the old one out was the way I purchased three properties in SF until I finally sold one in 2017. It’s a good method b/c you get to enjoy what you buy and make it great for the next inhabitant.


  45. “and that’s when I really felt the benefits of living way below our means.”

    Although we didn’t sell a property to realize this, my wife and I are really starting to enjoy living way below our means. It’s a fantastic feeling and we’re actually enjoying life more.

    And thanks for the information, confirmation, and encouragement of posting about 20% or less housing expenses of gross salary to really speed things up toward financial independence. We’re at 15% ourselves and getting more excited with possibilities of FI within the next 10 years.

  46. When I was growing up I dreamed about living in a huge house when I grew up. Now that I’m older I would much rather just visit one. There comes a point when a house just gets too big to comfortably and manage stress-free due to the mortgage payments, property tax, repairs and maintenance, and way too many rooms to clean and vacuum. Plus moving is such a pita. It’s fun to look a huge houses and then be happy we don’t have to pay for or take care of them!

  47. Excellent article Sam ! Given the fact that I just bought my home straight up, 100% cash and therefore I don’t have a mortgage, my only expenses are utilities and property tax (which is like 0.1% of the value of the house; not US!!). That allows me to stay well within the 10% threshold, even as I’m trying to start my own business after leaving the corporate life at age 37!

    Thanks for being such a wonderful inspiration Sam!

      1. Thanks Sam! I know, isn’t that amazing! I remember when I used to live in Houston, the annual effective property tax was close to 3%, which to me seemed huge (also given that my daughter was going to a private international school, so I wasn’t benefiting from the school district portion of the tax). Now I live in Bucharest (Romania) and I pay only a nominal fee in property taxes. VAT (equivalent of sales tax) when buying pretty much anything else, at 19% makes up for it though.

  48. I have no interest in owning a huge home (though that house is a beauty and living in San Francisco would be a dream). I’m single with no intention of marrying or having kids – my life goal is a tiny home. I don’t want to spend the rest of my life in debt because of my house. I suspect I will have to incur some debt with a tiny home as there are some custom features I want, but it won’t be anywhere near millions of dollars. Of course, ideally, I incur no debt, but I also understand that sometimes things happen.

  49. Martial arts Mama

    Thanks for another awesome article– love seeing all the analyses and number crunching.

    I think the Bay Area is one of the hardest places to live. (I lived there for 4 years.) Despite people projecting a laid-back appearance and wearing a preponderance of fleece, it is incredibly competitive there and people can become completely money-obsessed even if they don’t start out like that.

    I felt like people judged my personal worth almost entirely on my net worth while I was there. And unless you make it big, specifically from founding and selling a high-tech company for millions of dollars, you are not deemed truly successful. With so many highly-educated, successful people striving in such a concentrated space, living in the Bay Area is incredibly stressful. I think it must be particularly difficult for children to grow up there, who feel like they can only go downhill from where they started.

    If you are willing to move to other parts of the country (or even other areas of CA), you can still find highly-compensated jobs where the dollar goes a lot farther, particularly with real estate. We were fortunate to find our dream home (4000+ sq ft, 2/3 acre), and still keep our total monthly housing costs to around 10% of our gross income.

    Of course there are opportunity costs– we put down a hefty down-payment that could have earned more money in investments–and the upkeep definitely takes more time. But we really enjoy that our new home is the hub for our family and kids’ friends. While we still enjoy visiting the Bay Area for the cultural events and for the fine dining, we love living in a more low-key area. Maybe on a more global scale, your philosophy of ‘Buy utility, Rent luxury‘ should be ‘Visit Bay area, Live Loca’ (low cost area).

    1. All the type-A, super-motivated, top university grads tend to flow to NYC, SF, LA, Seattle now.. so I can see how people can be super competitive here. It’s become a grind, which is one reason why I moved to the western part of SF.

      Where do you guys live now?

      1. I’m not the OP but my family is in a very similar situation. Sold our small (1800 sq ft) Bay Area home for $$$ last year, and moved to the Suburbs of Portland. Bought a brand new 3600 sq ft house on a quarter acre (not my dream house but one that is very nice for the time being). Housing costs are 13% of our gross income.

        It felt like a weight lifted moving here, and knowing that while we were buying a huge brand new house, the budget was much easier to manage.

          1. I work from home – writing proposals and managing social media for a small consulting firm. My wife is in medicine and due to her specialization can get a job pretty much anywhere.

  50. FIRE walk with me

    Sam, you seem to give contradictory advice. On the one hand, you have repeatedly advocated buying one’s primary residence. On the other, you state that “Low Housing Cost Is The Key To Financial Freedom.”

    Many people who have lived in San Francisco for 10 years or more are in rent-controlled apartments. Would it make sense for them to buy now, given that property taxes alone ($1330/month on a median $1.3 million house) would be close to locked-in rents ($2000 or so) in many cases?

    1. 1) In my case, I own my primary residence and plan to own one forever to at least stay neutral the real estate market.

      2) for the family buying this house, I’m pointing out that buying such a property shackles one to a life of work probably forever.

      3) I’m trying to make a point that you must weigh the benefits of a larger house with the negative of losing options/freedom

      4) If you have a rent controlled apartment, it now actually makes no sense to give that up to buy real estate at record high prices. That is a disaster. At least follow through and by utility by investing in lower price property elsewhere around the country.

      1. I typed out a whole comment, so of course a bad Internet connection would cause the whole thing to get lost.

        But I wanted to add to Sam’s comment by pointing out that different areas of the country have different markets.

        Pound for pound, owning is better than renting. And month to month, renting tends to be cheaper than owning.

        But that’s not always the case. Despite living in a HCOL city, I managed to get a 1 bedroom co-op for $120,000. Even with the HOA fee and additional principal paid monthly, it’s still cheaper than renting a comparable apartment in my area. And I own it.

        Sam’s advice to own your primary residence and keep your housing costs low aren’t as inherently contradictory as they seem. They just depend on the local housing markets. Different people in different areas will have different housing needs.

        ARB–Angry Retail Banker

  51. IN this piece you said. “October’s stock market rout could be a harbinger for slower growth ahead.”

    What do you believe, predict, will happen?

    1. In my newsletter, I discussed aggressively buying the selloff in October for a year-end recovery. I believe a China-US trade deal will be finalized by year-end as well, as this is best for both sides.

      But once the recovery happens, I’m likely going to downshift my equity weightings further b/c I’m afraid that a housing slowdown will drag down US economic growth. Further, bond yields are pretty attractive now.

  52. The house is fantastic. It’s staged tastefully but doesn’t even need it. The layout, location, and look really draw the buyers in. And then the price tag hits you. The supplemental costs to purchasing the home sink you. Best to dream through open house visits or luxury rentals as you suggest.

    I have a fear of overextending ourselves on our first home purchase together. Our current situation is very manageable because we fall in the <10% category, arguably <5%. I know this situation can't last as we look to build a family and a life together, but will do all I can to prevent us from rising above the 25% threshold. I can't in good conscience support a decision which puts our financial security in such jeopardy.

    Nice housing is wonderful to have, but nice housing within your means is the goal. I don't want to be in the rat race my whole life just to finance an extravagant lifestyle/home. Mostly, I don't want the headaches of out-sized property taxes, maintenance and upkeep, lifestyle inflation, and furnishing the bigger house. I don't want an expensive house to ruin our path to financial independence.

  53. Simple Money Man

    If I may ask, what are the reasons for you continuing to stay in SF, where property overall is so expensive?

    You can run your website from anywhere, continue to invest in the market and real estate from anywhere, and I’m sure there are great schools elsewhere too. You could probably find an awesome home (maybe even waterfront – i.e., lake) in the central U.S. for a lot cheaper.
    Was just curious.

      1. PuristDriver

        If you applied early enough, preschool shouldn’t be that big of a deal unless you’re doing the more pricey schools like Presidio Knolls which could be more competitive. The bigger deal is getting into elementary school which is a lottery if you’re not from the poor testing areas as you know. We’re going through the process now and will see what school we get into before our house purchase.

        1. Funny, we just took a tour of PKS. Seems nice once construction is done.

          $30K is a lot though.

          When you say elementary school lottery, you are talking about public schools yes? It makes sense to apply to all the schools and see if you can get into a good public school. If so, it seems worth it. If not, then hopefully you can get into one of the top three choices of private schools.

      2. Hello from Honolulu Sam!
        Both my children attended Central Union Church preschool, Manoa Elementary School-public and Iolani School. Any school within Manoa/UHM is great. We moved to Manoa neighborhood for the kids education

        1. Aloha! Thanks for the tips!

          Any mandarin immersion schools there?

          How long did your kids go to public school for before transferring to Iolani? Iolani Is like five minutes away from my house in Kaimuki.

          That would be cool if we could have a Hawaii meet up.

          1. Hi Sam.
            I am sure there is mandarin school. I will check with my sister-in-law as she sent her children to Chinese Languages school.
            My daughter attended public school 6-yrs elementary and my son 5-yrs elementary and 2-yrs middle school. You don’t need to published this response. You have my email and you can email me directly as well.

          2. I think that there is only one Mandarin immersion school in Honolulu — Maryknoll.

            Sam, it’s good to hear that you are interested in Mandarin immersion. I know you have a Mandarin-speaking background. My husband and I are interested in putting our toddler in Mandarin immersion. We live in a city with Mandarin immersion, but the odds in the lottery are very slim. I’d consider moving for a Mandarin program — it’s a language I believe really benefits children if they have sufficient early exposure. You may be interested in this website I found in my research:

            1. Thanks for the heads up on Maryknoll! Awesome! I think we’re going to end up applying to 10 pre-schools. Sigh. So indecisive, but also, b/c of the average 5% acceptance rate.

  54. My college roommate has an awesome house at Tahoe. They’ve got the in-law suite downstairs and everything. It’s right out of a magazine. I’m not too envious, though. That beautiful house is a source of stress. He would have been able to live a comfortable life without having to work again if they didn’t buy that big house.
    IMO, the biggest problem with an expensive house is the property tax. It just keeps increasing every year and you don’t get much ROI from it.

  55. No way would I buy a bigger house. Too much maintenance work even before you account for the costs. As for the costs I currently have a 2800 sq foot home in an area where houses are cheap. The house came with the land, we would have been happy with smaller. Even with 2 kids we have rooms we never use. So instead of new space I focus on using the space I have differently. Just the change in space utilization is usually enough to scratch any itch to move.
    I 100 percent agree tiring yourself to expensive personal housing costs is a road to long career to support it.

  56. Wow, what a beautiful house! But those annual costs are like an anchor around your neck that you will never be able to shake. Plus, once you move in, you’ll get used to it and won’t enjoy it as much day to day. Better to buy a nice simple place that works and then splurge on the occasional vacation home rental!

  57. If this is a 30 year mortgage, the annual payments over 30 years come to 4,560,000. Added to the 2 million down payment brings the house to 6,560,000. You have to hope they sell at a profit. We bought our home 30 years ago, mortgages were sky high, and although we refinanced and changed to a 15 year mortgage, our “inexpensive” $225,000 home cost us about $400,000 over the life of the mortgage. Add in remodeling of kitchen and bathrooms, and 30 years later, hope to break even upon selling. Home prices in our area (western NY state) are up now but never really kept up with rest of nation. Of course, they never really tanked during the housing crisis either. A house is not an investment where we live, just a roof over your head.

    1. If you believe that’s how money works, then I’m sure you’d be happy to give me $90,000 today if I were to guarantee to pay you back $100,000 in 30 years. I’d be happy about this arrangement too. Win-win!

      In all seriousness, the time value of money is a real thing. Money paid many years in the future is far less costly than money paid today, unless your investment plan involves hollowing out your mattress. Unless you’re absolutely bearish on the long-term prospects for the economy, it always makes sense to choose to finance something at <5% and invest the cash difference. And it never makes sense to multiply the monthly payment by the term – the result is meaningless.

  58. St. Patrick

    Property tax increase 2% a year? I thought it was capped in California thanks to Prop 13 or something?

    1. Yep, the limit assessed value increase is 2% a year, which is better than 10% a year when the market is going up. But if you buy a house that has gone up in value by 100%, it still hurts to pay the new property tax amount and continue to pay 2% a year more forever. Even in a flat market for a soft market, the city or state will end up assessing a 2% higher property tax to “catch up.”

      1. Yes, but there are years when it is 0%. It is based on inflation or 2%, whichever is lower. It makes a big difference if you are in your property for a long period of time. That is why to me it only really makes sense to buy property in CA if you are going to hold for 10+ years or more.

  59. Absolutely beautiful house but yeah the cost of ownership would make it a financial anchor unless you have an 8 figure portfolio working for you.

    Those property taxes are unbelievable. I was under the assumption that you get locked in at a certain property tax based on sale of home in California. Does that not apply anymore? 2% annual increase can add up very quickly to an already insane amount.

    Too many people don’t factor the cost of ownership in any luxury item. They just look at the sale price and that is how they get in trouble.

    Well everything in San Francisco (bad or good neighborhood) is too rich for my blood. Unfortunately same thing probably would apply for Hawaii where I know you want to go and would be an amazing place for me to retire too but again out of reach.

    1. Yes, Proposition 13 anchors you to your purchase price. But if your purchase price is at all-time highs and multi-millions, you are screwed.

      Prop 13 is great for those who bought 30+ years ago. Hence, you have people living in multi-million dollar houses who pay a fraction of what new buyers pay.

      1. I purchased my home 30 years ago as you said. It is worth 1.1 million dollars. My house is appraised at about 270,000 dollars. property taxes were 3,700.00, a 10% increase over last year because of the city’s increase so the assesor told me which I don’t fully understand.

        Eventually, we would like to move near my kids. Daughter still lives in an apartment to a house that is around $600,000 but we have to be careful on the property tax impact, the capital gains we would have. I figured the extra 400K (not counting selling expenses) would pay for the increase in taxes. Or we could buy two homes and rent out one.

        I would rather convince my kids let’s all move to Texas, we can buy three homes there and nicer for what my house would sell for.

  60. It is nice to see Sam has the same thoughts, just on a grander scale. We were approved for 1.2M and sometimes dream about getting the large old money mansion this would buy near us, but our sparkling new townhome at half that is way more functional and comfortable financially. We even have the first floor private bed/bath for the visiting parents that Sam lusts after. There are always things you wish your house had, and things other people love about your place over theirs. I try to focus on family and how I spend my time to not dwell on it too much.

  61. I’m working on a post about how our houses have changed over time and this is great timing. We hear all the time “middle class salaries can’t keep up with the cost of living”. Yet the average house size has ballooned up over time, a lot. The average now is about 2,600 square feet, when it was about 900 square feet in 1950.

    And all that time the average number of people in each family has gone down. At what point do people feel they have enough space? Because right now they feel they don’t have enough money to buy a house, but gee, maybe they need to look at how big that house needs to be.

    I realize in San Fran and where I live (Wash DC) even small houses are ridiculously priced, but that’s not true everywhere. In many markets people feel “priced out”, but they refuse to even consider anything less than 3,000 square feet with only one kid. Ridiculous…

    1. Agree 100%, always shocked when people can’t consider sub-2000sqft. Flip side; we’re in a very low cost of living area vs wages (San Antonio) that, while prices are increasing steadily, is still…reasonably affordable. Yet there’s a significant imbalance–builders stopped building smaller homes in the 70’s since land is so cheap, so all of the smaller homes are either in older suburbs that are now the expensive/close to downtown areas, or rundown in high crime areas. Now, you can get small expensive good neighborhood, small cheap bad neighborhood, or larger more expensive far away. Small cheap decent neighborhood is nonexistent. So hello suburb and extra living room and 2 bedrooms we don’t use. I sometimes dream about having a townhouse with sidewalks. #merica

      1. This 100%.

        I’m a single person living in a mid-sized midwest city. I moved there last year and had the hardest time finding a “small” house. I ended up with a 1,644 sq. ft. house built in the mid ’90 but it was hard. I ran into the small but expensive older neighborhood, small but I don’t want to live their, vs big house I don’t need in the real suburbs. Ideally I wanted 1,000-1,500 depending on set up but that wasn’t happening without building myself

    2. I always wondered about this, too. When I was a kid my mom only had one thing to say about big houses, usually regarding what a pain in the backside it would be to clean.

      On the other hand are builders and banks complaining millennials don’t want to buy houses, when there was a severe lack of small townhouses or studio apartments where I lived in Canada. Well, when wages stagnate for decades and house sizes balloon, along with prices, there’s not much we can do but wait. But plenty of people would have happily shelled out for small 1br or studio places that actually suit their needs, rather than buying an empty bedroom and adding 30mins or more to their commute time.

    3. Maybe it can be called generation creep? It’s not hard to notice how homes in older neighborhoods average much smaller in terms of square footage compared to a brand new subdivision.

      We grew up in a house built in the mid-70s with a new neighborhood built just down the road from us. Those houses had to be 20-30% larger on average than houses in our older part. I always noticed that as I’d ride around on my bike and wonder why that was.

      Now, in my young adulthood, my wife and I moved into a smaller house and feel perfectly content with our space. We share roughly 800 sq. ft. with a lock off unit we use as an airBnB. If we include that space, we’re dealing with 1,000 sq. ft. Neither one of us know what we would do with the extra space and decided to use it to our advantage and help pay a portion of the monthly mortgage note.

      I’d be very interested to hear your piece about housing creep over time. Sam has written on it in the past but I’d be glad to hear some more about it. Please write it. It’s something I’d consider as a topic for my site as well. I always enjoy pieces which examine trends across time. They provide great perspective on how we live now compared to previous generations.

    4. We are on the same page because I too noticed that many things have changed in regards to sizes and preferences for homes, cars, and even food choices in the world today. In the 1950’s the number one drink was milk. Today, its soda. Portion sizes used to be smaller as well. There was no supersize anything. Plates were at least a third smaller than they are today. You know what that did? It expanded waistlines. More places have fast food restaurants than there ever was in the 1950’s as most cooked at home. There was no such thing as daycare really because most women stayed home or a family member was there to help as 1 salary enabled them to do so.

      But housing prices along with college and health care are what is really hurting families. I had read a home used to be about 1100 sq ft. They are gargantuan today. A family’s budget is being stretched way too thin and to the limit. When you spend 50% of your after tax income on housing, it’s a recipe for disaster.

      I agree with this post. Especially, after seeing numerous friends, families, and acquaintances spending big bucks for homes. I would do an online search for zip codes and could not believe the prices they want for homes. In my parents neighborhood, the average home price is $400k, but I saw homes listed (in a quick drive thru their area) for $700k! In addition, that zip code had a wide range of anywhere from quarter a mil to $2M. I say just buy what you need or less so you can bank the rest. I did just that. That’s just my $0.02 cents.


Leave a Comment

Your email address will not be published. Required fields are marked *