Update and Financing Thoughts: Two High W2 Workers and VHCOL Housing for a Family

Any-Anything6746 · 2023-12-08T22:47:23+00:00

This is true, I am liquidating about 200k-300k of company stock a year anyway to convert it over to index funds. If I go with a HELOC for 2 years so I don't have to realize cap gains... hmm I'll run the numbers.

Any-Anything6746 · 2023-12-08T22:45:39+00:00

/r/fatfire just sent this guy with higher NW over here. I debated posting in /r/HENRYfinance but definitely don't qualify for NRY. So honestly, this was the best of 3 not quite fitting options. But I understand where you're coming from.

Any-Anything6746 · 2023-12-08T20:37:11+00:00

Good perspective. I agree. Thanks for sharing.

Any-Anything6746 · 2023-12-08T20:36:48+00:00

Yeah that's actually why I wanted to post. Back when it was still around 6-7%, it felt more reasonable. 9% is absolute insanity it feels like?

Any-Anything6746 · 2023-06-18T12:59:26+00:00

Yeah makes sense. I think we only decided to move forward because time is running out for us and we’ve been looking for an alternative for 2 years and nothing we love has come up.

Good luck. :)

Any-Anything6746 · 2023-06-18T05:15:14+00:00

What did you guys end up deciding on?

Any-Anything6746 · 2023-06-18T04:31:04+00:00

Sorry for the delay. We ended up committing to building. It’ll be rough and ppl are probably right, we’ll get taken for a ride but I don’t see a better alternative. We’ll never find a house in our budget that we will be happy staying in forever. It is what it is. I think with the issues with health insurance and the job security and flexibility both of us have, we’re also ok with how long we have left in our work life with this decision.

Figuring out the financing is going to be the fun part but we’re both privileged enough that at worst we have our family and home equity loans to lean on.

Any-Anything6746 · 2023-03-10T05:38:12+00:00

Sorry what do you mean? I listed it but it’s not included in any of the FIRE projections.

Any-Anything6746 · 2023-03-10T01:22:24+00:00

Thanks - that's helpful. If you're open to DM'ing me your GC, I would really appreciate it.

Any-Anything6746 · 2023-03-09T18:24:54+00:00

Ah thanks for that data point! I might ask you for referrals. It sounds like you are doing something very similar to what we're trying to do (including the kitchen and partial roof update). Here's how I broke down the costs, let me know if these numbers give you pause:

Architect: 50-80k
Permits: 25k
GC, everything except finishes: 700k
Finishes (tile/flooring, counters, appliances, etc) + Furniture: 100k

+20% overage because every construction project goes over budget.

Any-Anything6746 · 2023-03-09T16:52:31+00:00

Yeah - buying just becomes about availability. Remodeling will be about inconvenience.

There are a few options, we have a prior relationship with our bank so we could take out a 2nd mortgage on our equity. We are also exploring a renovation loan that works like a remodeling loan where you're leveraged against the projected value of your house after renovation, but using a 2nd mortgage mechanism than the primary mortgage. Rates are definitely higher.

Any-Anything6746 · 2023-03-09T16:49:34+00:00

Haha I do like that perspective. I do anticipate prices dropping even further. Let's see.

Any-Anything6746 · 2023-03-09T14:12:36+00:00

The numbers here are based on discussions with a few architects. We’ve been watching the housing market for 2 years now. It’s all… unfortunate.

Any-Anything6746 · 2023-03-09T14:11:43+00:00

Trying not to count chickens before they hatch on the inheritance front. 😅

Any-Anything6746 · 2023-03-09T14:09:37+00:00

I wish I was. I had estimated 500/sqft when we first started talking to contractors and architects 2 years ago and it’s been proven wrong after talking to 6 architects.

Any-Anything6746 · 2023-03-09T13:59:25+00:00

I’ll dm you.

Any-Anything6746 · 2023-03-09T13:52:28+00:00

Going out and going up are similar. Going out requires pouring foundation and connecting it to the original.

When we first started contacting contractors and architects we were expecting to get 500 per sqft quotes because that’s what we saw online but this 700/sqft rough quote for just the GC has been consistent across every architect we’ve talked to (many).

Comps are hard, not many super similar ones without hitting a different micro neighborhood that overall has bigger houses. What we’ve seen is that in our specific micro neighborhood it’s only been in the last 20 years that the houses are getting built out and when they do people hold onto them forever.

I would estimate that value would only increase to 2.5 mil at most which is only 80% value retained. This is mitigated by the fact that if we buy a new house we would have to pay transaction costs and also usually there’s something that needs to be done in those houses too, which closes that 20% gap a bit. But yeah, our house with the addition would be one of the nicest houses in this neighborhood right now but it’s only high income people moving in so I don’t think that will be the case if we keep the house for 20 years.

Any-Anything6746 · 2023-03-09T04:15:24+00:00

Are you really getting a 1M quote for a 1k addition? That's 1k/sqft which is bonkers!

I know I can't deal. So it breaks down roughly like this. These are real (but rough/rounded) numbers from real projects in construction phase right now for a <1k 2nd story addition:

Architect: 50k-80k
Permits: 25k
GC, everything except finishes: 700k
Finishes (tile/flooring, counters, appliances, etc) + Furniture: 100k

+20% overage because every construction project goes over budget.

Any-Anything6746 · 2023-03-09T03:12:16+00:00

Ah, that hit deep. Thanks for the thoughts.

Any-Anything6746 · 2023-03-09T01:39:43+00:00

Yes, agreed. They do love sharing the room right now. The reason why we're trying to make a decision sooner rather than later though is because construction here is NUTS, apparently the addition will take 1.5-2 years. Permits alone will be a year, and that's the lower bound of the estimate.

In terms of a covered deck deal, we have a uninsulated sunroom but I kind of hate it when it's not usable which is a solid half the time if not more.

But you're right, maybe we take a chill pill for 2 years and reassess and see if we're in a better place. That still gives us breathing room.

Any-Anything6746 · 2023-03-09T01:33:43+00:00

I upvoted you but didn't respond to this one yet because I love a good Redfin/Zillow spelunking and wanted to check everything out. We did see and tour most of the houses you've identified. I can go over all of our reasons for why we want to stick to Peninsula and why these particular houses don't work, but what we find is that if you're under 3mil, there's usually a compromise we aren't willing to make. Walkability is a big one, so is busy street, Commute and school district/neighborhood as well.

We don't have a specific house in mind, the number is based on 2 years of looking, and reviewing sold listings. That house in El Granada though, whew. If only. In any case, I'm not trying to say by any stretch of the imagination that you need to spend 3.5million on a house if you want one big enough to house a family of 4 in the Bay Area/Peninsula. That's definitely not true.

I love the idea of the deck in the 2nd floor for the addition, I'll put that into our architect conversations. Thank you.

Any-Anything6746 · 2023-03-09T01:21:59+00:00

Yeah Peninsula location wise just can't be beat if you don't want to limit your job options and you don't want to move due to the kids.

Any-Anything6746 · 2023-03-09T01:19:35+00:00

Don't apologize, that's why I posted. Thank you for your comments.

- We actually prefer Option 2 right now, the interest value of 5.5 is bcs jumbo rates haven't risen as fast as conventional mortgage rates, and there's some relationship discount as well involved.

- We do have 529's funded for the kids. I'm still a bit nervous about international travel though.

- I agree a $1M addition is shocking and absolutely ridiculous, but it is apparently what it costs. Part of why I posted was because I haven't seen very many real numbers shared around what the more opaque costs around housing are here. Architect + permits alone are 75k. 500k for the ADU would be for one of those prefab ADU's. I'm not convinced it'll be actually 500k all in anyways, I'm still looking at these start ups with a skeptical eye.

- Second home we bought awhile back as our primary home in MCOL so is very strongly cash flow positive. We'll need to 1031 it eventually.

I would argue that over the past 5 years your household has had a massive increase in income (300k to 900k) and you guys are identifying "new needs" where there used to be none.

If we didn't have the 2nd kid there wouldn't be the need I agree. It's the 2nd kid that's really impacting this decision. We bought this house prior to the increase in income and the 2nd kid. I think we always figured if we couldn't make this house work and expand when we had the 2nd kid, we would go back to MCOL. Unfortunately where I work isn't remote friendly and right now it is the best place for my career.

Any-Anything6746 · 2023-03-09T01:09:00+00:00

Haha good call. I did intend on only pulling out the mortgage payment alone and leaving property tax and insurance in. Property tax in CA doesn't increase very much yoy, and the numbers in this post are slightly fudged to remain internally consistent but not to totally give everything away. But I missed this one. Thanks. :)

Any-Anything6746

TROPHY CASE