For an audio version of this post, please click on the speaker icon (top left).
Welcome to this episode of The Doctor’s Bill (Can You Afford It?).
Wonder if you should buy that big ticket item or not?
Well here’s your chance to have a wealth management expert, Johanna Fox Turner, of Fox & Company Wealth Management analyze your overall finances and make a final verdict on whether or not you can indeed swing for the fences and splurge on yourself or whether you should just walk away.
[Johanna and I have no current financial relationship]
Disclaimer: This is not meant to be a substitute for paid professional advice but only meant to serve as a suggestion/guideline.
The following are the details from our submission form:
Item/Experience Desired:
House addition to add in-law suite for aging parents.
Approximate Cost:
$420k.
What is the timeframe for this purchase?
Next 1-2 years.
How do you plan on paying for this item/experience?
Combination of cash downpayment and loans.
Probably 25-30% down and might borrow from family at a lower interest rate (but definitely 60% if not 75% loan to value).
On A Happiness Scale of 1-10 (10 Being Happiest), rate what this item/experience will do for you A) Short Term and B) Long Term:
A) 8.
B) 9.
Age:
35.
Gender:
Female.
Occupation:
Physician.
Marital Status:
Married.
Any Children (If so please provide ages)?
2 year old.
How Many Years Till Planned Retirement?
Aiming for FIRE: Ideal 12 years; Likely 15 years.
What is your total household income?
$650k (I am going to project 2 years at this income level. Then assume drop to $600k due to declining reimbursements).
State Income Tax (if Any)
$50k.
What is your % Annual Savings Rate? (savings/gross income)
43% (approximately $260k/yr in taxable and pretax accounts).
Estimated Annual Living Expenses (Current):
$155k.
Estimated/Desired Annual Living Expenses (In Retirement):
$120k if include mortgage (below).
Market Value of Primary Home [For Renter =$ 0]
$1.9 million.
Additional Real Estate Holdings Equity (Market Value-Debt):
$0.
Current Liquid Asset Value (Savings, Checking, Etc.):
$110k.
Retirement Assets (401k/IRA/HSA):
$730k.
Brokerage Account (Taxable):
$300k.
Miscellaneous Asset Value (Please elaborate):
$0.
Mortgage Balance:
$850k.
Student Loan Balance:
$0.
Additional Liabilities:
$0.
Unfunded Future College Costs & Years Left Till Needed:
16 years left to fund 4 year college fully at assumed $65k/yr in today’s dollars.
Saving $12k/yr for 529 (hoping for $200k in 529 at time of use) and cash flow the rest.
Other Unfunded Goals and Years Remaining (Today’s Dollars):
$0.
Any other pertinent information not addressed?
- Want to see if this addition will set us back significantly for FIRE.
- FI is our goal, not necessarily RE.
- Ideally for both spouses work would be optional with estimated income of $150k with part time and consulting work factored in during phase out to full retirement.
- Want to not be just be 100% dependent on W2 work (especially in medicine, where I foresee salaries going down).
- I am actively looking for Real Estate investments (hence cash).
- We just put $50k into a RE syndication and looking for rental property (around $250k range with 25% down payment ($60-70k).
- We have a looming decision to add another to our family.
- If we do have another child the expenses jump to $190k/year for the next few years due to the astronomical childcare costs in our area.
- As far as the in-law suite addition, the in-laws would likely pay for part of it (possibly 25%).
- We do not plan on supporting their living expenses.
- Childcare costs will not decrease when in-laws move in (goal is just to have them nearby/part of our lives only).
- Home value will likely go up to roughly $2.3M+ after addition.
So is this doctor building up the home only to tear down her financial safety nets?
After seeing these financials what would you suggest: Show the in-laws a new suite or would you show them the door instead?
Click on the Doctor’s Bill Image and find out the verdict:
Click on the Bill (image) and find out if can afford it or not
After you see the verdict please come back to this page and comment whether you agree or not with the decision (and no cheating by looking at comments first!)
If you would like to submit your own Doctor’s Bill request please fill out the submission form.
Note:
If you are in search of financial help, please consider enlisting the service of any of the sponsors of this blog who I feel are part of the “good guys and gals of finance.”
Even a steadfast DIY’er can sometimes gain benefit from the occasional professional input.
NOTE: The website XRAYVSN contains affiliate links and thus receives compensation whenever a purchase through these links is made (at no further cost to you). As an Amazon Associate I earn from qualifying purchases. Although these proceeds help keep this site going they do not have any bearing on the reviews of any products I endorse which are from my own honest experiences. Thank you- XRAYVSN
Great discussion . Agree never borrow from family . If they want to put a fixed dollar amount towards the project , that’s great, otherwise traditional financing . My only suggestion is not to make decision about a second child a financial one. On that combined income you can certainly afford it with some minor changes to your plan.
Great point about a family addition not financially based. Thank you for you insight
Interesting thought about the additional child. You’re right, it shouldn’t be decided strictly upon finances, but, as with every decision, finances will be affected and should be considered within the context of other goals. Should the desire to have an additional 1,2,3 or more children be the primary factor, whatever the costs, even if one spouse would need to put aside a career for 18 years? Yes for some, no for others. Another way to look at it is – are we willing to retire 5 years later to add to our family? Because, realistically, paying for college is a… Read more »
I would pay $420k NOT to live with in-laws and another $420k to move them further away. LOL
My wife feels the same about her in-laws. We discussed this and agreed to it, at least the point about not living with in-laws, before we were married, over 20 years ago, and the mutual sentiment is unchanged.
Lol. I agree that having in laws under same roof can create even more issues. Sometimes marriage is hard enough when considering 2 adults. Becomes much more difficult when there are 4
I seem to recall you have mentioned your…ambivalence about your in-laws previously on the WCI forum 😉
Thumbs down. Just too much of a concentration in net worth in primary home for my tastes. If the real estate market were to rapidly decline and jobs issues came into focus things could get ugly quick.
Now I will be the first to admit my opinion is colored by living in a moderate cost of living area. Our home represents less then a 1/4 of our entire net worth. But the Spector of the 2008 real estate crash and how many foreclosures happened near me is just too strong for me to approve.
Appreciate your viewpoint FTF and that was pretty much the stance I took as well. Having that much money tied up in one asset is bad enough, but to have it in a non-income producing asset makes it even worse.
Aww, I dunno, in this case, if they are planning on staying there forever (and looks like they are) a real estate “crash” (which did recover for most) is pretty much irrelevant. They are fine financially even with FIRE in 15 yrs and an expensive house, imo. I’ve definitely changed my attitude that my was is best after working with so many families from other backgrounds than mine. For most Americans, I agree it’s a big mistake. But many Asian families do not feel complete without multiple generations under one roof. In speaking with physicians of Asian and African backgrounds,… Read more »
My opinion: I am thumbs up. Here are my reasons for the thumbs up: 1) Utility: There is tremendous utility in the cost for the item (in-law suite to provide housing for aging in-laws). 2) Emotion: 8 and 9 in the short term and long term level of happiness. What a great way to spend money given the emotional benefits. Additionally, in-laws can help with emergency childcare (when nanny calls in sick or unplanned late nights in the office) which is a big personal relief when it is needed. 3) Return on Cost: In-laws to cover 25%, house value increases… Read more »
Love the analysis and agree that there are a lot of non financial benefits that come with the addition as well. For me it was the high concentration of that net in the primary residence that made me swing the other way. Thanks for your input. Appreciate the comment
Hi, Sport, I appreciate your input. It’s impossible to put a price tag on these intangibles, even though that’s what the column is about. Sounds like maybe you’ve been in the same or similar situation, am I right?
Hi – not the same situation with respect to building a place for the in-laws to live.
But my in-laws are close by and provide for great relief in childcare. Therefore, I am very appreciative of having family in close proximity.
Appreciate that you took time to post an alternative viewpoint. It is difficult to imagine that which you have not experienced – including myself, of course.
I’m conservative about money so the idea of a $420,000 home addition makes me queasy. I’m also kind of shocked that it’d really cost that much, even in a HCOL area, but maybe I’m being naïve. So I’d probably thumbs down it until a more affordable solution could be had.
That said, it sounds like this might not be optional (short of letting the in-laws move into the main house), so maybe it’s moot. Though a couple that can afford 25% of $420k could probably afford assisted living pretty easily… That’s just not an option in some people’s minds.
I was a bit shocked by sticker price as well as you can buy a mini mansion in LCOL areas for that price. Given the main home worth $1.9 million of course you cannot just plot a cheap add on to it though so I guess have to pay premium to make it blend in with an obvious expensive area/home.
In my head I was thinking for that price could buy a home hopefully not too far away but maybe $420k prices someone way out of the neighborhood.
Thanks for your insight 🙂
Abigail, I love your screen name! We actually have several clients planning home additions that are even costlier (FL and NYC), so I’ll have to admit the price tag wasn’t a shock. I believe with this family that motivation to move the in-laws in is not because they can’t afford assisted living or buy a house nearby – it’s just important to have them there with them. Quite common in other cultures and expected by both parents and children (typically oldest son). And I may be completely wrong about the cultural issue – for all I know, the FF’s are… Read more »
Thumbs Up –because family takes precedent. Financially, it’ll most likely be a wash if one stays fiscally responsible on the renovation and don’t make it a Taj. If ALL parties get along, there’s something to be said of having three generations under a single rooftop. The intangibles go way beyond the financial costs. If the party was to help the in-laws locally anyways to be nearby given the HCOL, it’s going to have a cost in that too. We’ve done it both ways. Before our move, we added a significant addition to our house for in-laws quarters/sutdy/2nd rec area ~300k… Read more »
Thanks for your own personal experience and happy to see it worked out. I agree that in certain cultures there is great reward for having multi-generational household as the kids can benefit quite a bit from having all that experience right there. Appreciate the comment 🙂
I bought my first house half and half with my parents to help move them to a nicer HCOL area. I have left them my half of the house to use for the past ten years. My kids grew up with their grandparents. My mom calls my kids up for lunch whenever they get the chance. It has been a lovely thing for our family. I also have been taking care of all the housing costs for my parents since I was 25 years old. That might sound difficult but I have zero worries about their finances as they become… Read more »
Excellent point about money and using it to care for those you love. Having grandparents and your kids able to develop a relationship like that is indeed priceless.
While Vagabond’s comment gave me the most micturition for the money, I can appreciate the desire to keep tight family networks close. As Irma Bombeck so memorably termed family, they are truly, “The ties that bind… And gag.”
Unlimited free babysitting, living close as later age-related medical crises unfold… Perhaps finding the right distance from in laws is a higher yield way of practicing geographic arbitrage? Close enough to help each other, far enough not to harm each other?
Fascinating case with a lot of resonance, thanks for doing this one!
Fondly,
CD
Lol. Yeah Vagabond definitely started of the comments with a bang.
I too was thinking with that amount of money another home in the vicinity may be better than an add on but who knows how far you would have to be to get a 420k home when the primary home is 1.9M. HCOL area may push that option beyond what is practical