24/7 Insights

• The family is deciding whether to buy a new home. 
• They are currently too cramped in their existing home. 
• The mother-in-law needs her own apartment. 
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If there is one truth when becoming an adult and owning a home, it’s generally about always hoping to own something larger. Based on how our society works, owning a larger home is often directly associated with having more success and wealth. 

In the case of one Redditor with a net worth of just over $5 million, this scenario is playing out in the r/ChubbyFIRE subreddit. While the family’s current home is in good shape, and they haven’t lived there very long, they suddenly want to buy a bigger home. 

I love these posts because they teach a real lesson about how much you can and should spend, regardless of how much wealth you have accumulated. 

The Scenario 

What we know about this individual and his family is that we have a family of six, all looking to live in the same home. This breaks down to the 41-year-old Redditor and his 39-year-old wife, three children (ages 10, 8, and 4) who all sharing the same bedroom, and a mother-in-law, so they are looking to upgrade their existing $1.2 million three-bedroom, two-bath home. The goal is to purchase a larger $1.5 million dollar home with either four or five bedrooms with at least three baths. 

To afford this home, we have a wife who makes $70,000 as an academic advisor and a husband, the Redditor, who makes $125,000 as a mid-level software engineer. In addition, they have roughly $125,000 as rental net income. 

Looking at the family’s assets, we have approximately $250,000 in cash, a $200,000 brokerage account, $1.5 million spread across various retirement accounts (Roth, 401K, etc.), and a $110,000 529 account for the kids’ school. In addition, they have roughly $700,000 in equity in their residence and an additional $2.5 million in rental property equity. This gives the family an approximate net worth of around $5.125 million. 

The Recommendation 

To make a recommendation, we must understand the family’s current situation and future goals. Currently, the family is paying a mortgage of $3,000 per month (2.875% interest rate) for $36,000 per year in payments. 

The goal is to buy a $1.5 million home with a $700,000 down payment at an interest rate of 6.5% with a 30-year fixed mortgage. With this home, their payments would more than double to $6,500 per month or $78,000 per year. We also learn the family is spending around $160,000 per year on expenses, so we also realize they are getting close to spending more than they are currently bringing in. 

Look, I’m not a financial advisor, and I don’t pretend to have all the answers, but two things are clear about this post: they need more space, and they likely can’t afford this home. 

The smartest recommendation here appears multiple times in the comments: build an addition to their existing home. However, because the wife thinks the family is “rich,” she would prefer to move. The reality is that adding more space to their current home is likely to be far more affordable and something they can pay for with cash and not impact their monthly expenses. I vote for the family to stay where they live now and instead paying for the mother-in-law to find her own apartment. Even with adding more space to their home and funding a MIL apartment, it’s still less per month than a new mortgage. 

The Takeaway

The reality is that this family may be comfortable, but they are far from being “rich,” regardless of what this Redditor’s spouse wants to believe. This is especially true in the San Diego real estate market, one of the most expensive in the country, where this family would be firmly upper middle class. 

While a $5 million net worth might mean they aren’t worried about where their next meal will come from, moving into this bigger house will pinch them beyond what they are already factoring in cost-wise. There is also the added cost burden of maintenance, taxes, upgrades, and making the home their own, none of which is cheap. 

I just don’t see a scenario where buying a new home is the smartest move. The two most sensible solutions are adding on to the existing home and or moving the mother-in-law into her apartment.

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