Well, back when I wrote the post about using our home equity to invest and income split, I was only partially joking when I said that our house was like a castle. Actually, I had originally put a picture of our house as the feature photo for that post, but then I chickened out. You can now see it in the above photo. Why did I chicken out? Because our house is one of my dirty little secrets.
Cognitive Dissonance About Wealth
I wasn’t comfortable sharing about our massive house on the internet with people who don’t know us. That parallels how my wife and I behave regarding our home in real life. We are shy about having people over to the house, unless they already know us well.
If you casually interacted with us, you may never guess that we are wealthy. I ride my bike when able. When not practical to bike, I drive a Subaru Impreza – the base model – and I rarely wash it.
I also wear some of the same shirts that I got in high school, university, or from various sporting or charity events that I’ve participated in. My wife has a better appearance when we go out in public, but she looks good whatever she is wearing. Yep, she edits these posts. We try to practice stealth wealth like ninjas. However, once someone sees our house, we are definitely out of the shadows.
Adapting to a move up the socioeconomic ladder can be more difficult to adapt to than people realize. One of the problems that people have is cognitive dissonance. Part of our financial culture is to scorn those with more money than us. Money corrupts. Born with a silver spoon in their mouth. There are lots of derogatory stereotypes perpetuated by popular culture. You get some cognitive dissonance when that becomes you by the numbers, and you worry about possible impacts on your core values.
Am I a personal finance hypocrite?
A large house is generally not frugal or simple. Yet, here I am blogging about personal finance. Much of personal finance blogging is around the virtues of frugality, simplicity, and living within your means. If people saw my house to form their first impression of me, then they may judge me as doing none of those things. Mr. Money Mustache would probably give me a face punch.
On the other hand, Passive Income MD has a cash burn rate more my speed. Physicians generally have high incomes. So, “living within your means” can be different for doctors or other high-income professionals. Further, with the time consumed developing a power career, and the need to “buy time” in other aspects of their lives also increases.
Regardless, one of the most common pieces of advice from physician finance bloggers is to not buy “too much house or too soon“. I agree with that, and I think that my housing odyssey helps to illustrate the point from a slightly different angle.
Hopefully, you can benefit from the lessons in my tale. This post is a bit longer than my usual, but it is lighter on financial technicalities and heavier on voyeurism. Who doesn’t like that?
Our Decision To Build A Country Home
We did several things well early on to build a strong financial foundation. I moonlighted extensively during my sub-specialty training, and we continued to live like a resident despite the income bump. That didn’t change when I landed a faculty position. We had bought a fixer-upper starter home that I put sweat equity into. Within a few years, we had our mortgage almost trashed, our other debts paid off, and had been socking away large sums of money.
I had my dream job, it was secure and only getting better. We had no intentions of moving cities or jobs. The only thing that my wife and I did not like about my job was that it tied us to living in, or near, a big city. So, we started to think about getting a cottage to escape urban/suburban life.
We quickly decided against a cottage because there was nothing “wildernessy” enough for our tastes within striking distance. There was no way that we’d be driving 3-4h each way on weekends, or taking weeks off to make enough usage of a cottage to justify it. So, we decided to think about how we could have some of the attractions of a cottage in our home.
We wanted to avoid the common more than one house doctor trap. However, with our location criteria basically meaning acreage on the edge of the city, compounded by our picky house tastes, it was no big surprise that we couldn’t easily find anything that met our list of demands. We would have to build our own country home.
Pent-Up Demand Is Powerful
This is where things off the rails. We had a blank slate to buy a property and build a home. That could have been done in a reasonable economical way. But dammit, we are rich, we have the money to get exactly what we want. We’ve worked hard for years and lived frugally to get here. We deserve it.
Those words are all true, but they are also dangerous thinking. We had worked hard. Our incomes were stable, and mine was growing rapidly. We had delayed gratification to not only build our careers, but to pay off our loans, save, and put ourselves ahead of the curve financially.
However, there must be balance and we had generated a pent-up demand to “misbehave” from “being good”. It is like the potential energy stored in a coiled spring. We had been coiling that spring without much release for 15 years. There would be consequences.
Partial release of the spring.
A property came up for sale that met our criteria. It was 24 acres on the edge of the city, close to a bike path going into the city, rolling hills, forest, and close to a highway but not on it. We snapped it up.
We were able to make a 50% down payment without touching our investments. However, our investment portfolio would also sit largely unloved for the next three years as we funneled cash into our real estate. This started in 2007. So, it actually turned out to be a stroke of dumb luck that we didn’t keep feeding money into the global financial market meltdown.
The property had a small hovel on it which was rented out. We continued that arrangement for a couple of years while we paid down the mortgage and started making our building plans. This also served to re-coil the spring.
Sproing – Total release of the spring.
We managed to find a custom design/build company whose work fit our tastes. The project manager and I had some pretty frank discussions about my expectations around quality and craftsmanship. He was, of course, fully on board with that, since building is usually a balance between cost and quality. This would push up our costs and their profits, but I would get what I wanted.
I rationalized this to myself, having learned the hard way, that it is better to pay a bit more now for a job to be done well, than to pay more than double to have a shoddy job redone later. That is especially true when you’re talking major structural features of a house.
Spending Begets More Spending
Once the spring is released, it is hard to stop it. Spending begets more spending. With a house, the potential scale of that is massive. Not only is the cost high, but you have access to leverage (debt) to extend your reach.
Building a house is complicated. We spent a year planning our house with the builder in detail. Despite that, there were things that we had not considered, and we changed our minds on details as the house took shape. As this happened as we went along, the result was invariably more expensive.
When we started the build, we sold our first house, paid off the mortgage on the new property, and moved into the dilapidated shack on the new property. The mortgage on the new build was released in installments as it hit milestones of completion. Due to permit delays, the birthing of our house protracted itself from the planned human gestational duration – to that of an elephant.
On the upside, we did not have to make any mortgage payments until the completion of the house. This meant that we were mortgage-free again for 18 months. The cash flow into our bank account was enormous. Psychologically, this made it all the easier when faced with deciding about upgrades.
Plus, as we put more money into the house, we didn’t want to ruin the whole effect by skimping out on one thing. Or one more thing. Or one more thing.
We Got What We Wanted
Where did we end up when the spring had fully unsprung? Well, we ended up with a really nice house that checked off all of our wants.
The main floor and upper floor add up to about 5500 square feet plus the basement of 2500 square feet. That is a huge amount of space. Something we had dreamed about, but had no practical experience with. However, you truly can grow into just about any space that you have. Kind of like how a fish or plant gets bigger if in a bigger container.
We also underappreciated the amount of equipment required to look after a country property. As I bought progressively larger tractors, we ended up building a 2500-square-foot storage building and workshop. That, of course, made more space to fill with stuff.
To build a basic barn in the country was relatively cheap. Further, when you have 24 acres, having ample horsepower saves both time and money. Hence, a building to keep your serious-not-fun-at-all-tools-with-a-purpose out of the elements and prolong their lifespan is worthwhile.
Perhaps, this would fit with being frugal according to Physician on FIRE’s post on frugality and minimalism, and the fact that I have only one pole barn also means that I am also a minimalist according to his parents. I’ll take the validation where I can get it.
How Much House Could We Afford?
My wife and I were already careful with our money entering into this endeavor. Being a financial geek already, I used several financial metrics throughout the process. They all gave us the green light:
Mortgage Relative To Gross Income
Our mortgage was equal to 1.5X our gross income. This was less than the standard 2X your income recommendation. It was also less than the age-adjusted recommendation, and certainly much less than the generous guidelines you’d find on the sites of businesses that make their money off of giving you a bigger mortgage.
Avoid Being House-Poor With Concentrated Risk
Our house did not constitute too much of our net worth. While many Canadians consider their home their best investment, it may not be. That perception may be skewed because people don’t realize that they were using leverage to invest and we’ve had a strong period to magnify those gains. They also forget all of the transaction and maintenance costs.
Homeownership, as a mono-strategy, is not a wise diversified plan. Yes, you do need a place to live, but you can’t eat your house (unless it is a gingerbread house which would be pretty cool until it rains). As you age, you need progressively more liquid financial assets to fund your impending retirement.
I like Garth Turner’s Rule of 90: “Take 90. Deduct your age. The remainder represents the [maximum] percentage of your household net worth that you should ideally have allocated to residential real estate.” We were 35 years old at the time, and our home equity made up about 60% of our net worth then. Now, at age 42, it makes up about 30% of our net worth. We’re golden.
Consider Ongoing Costs of Ownership
We did consider landscaping costs. Generally, you should budget about 5-10% of the cost of a new build towards landscaping. This may seem like a lot, but my experience has shown it to be almost dead on. We hired people for the tough and important parts like building retaining walls, patios, and ensuring proper drainage. My tractor and I handled much of the unskilled manual labour.
We considered property taxes. These are huge in our area.
We budgeted for maintenance. You should plan on 2% of the house value annually. There is a steady grind of small things, but intermittently large expensive items come up. So, this cost of ownership comes in fits and spurts. We have been well below this so far, but our house is only 7 years old, and I know it is coming.
Our monthly housing costs comprise about 15% of our gross income. The CMHC guideline is to not exceed 32%. I do find the validity of these comparisons to gross income breakdown when you are dealing with high-income professionals. There is an interplay between the fact our tax load is exponentially higher than average against the fact that we also have more disposable income or potential fat to trim in a crisis. Importantly, our housing costs don’t stop us from spending on important things.
Benefits of Our Country Estate
Our big country home did measure up to some of our expectations for an improved lifestyle.
- We all have projects on the go. Whether of LEGO, wood, or paper. Now, we have enough space that we all can work on them simultaneously. More importantly, we can also leave them and come back later without cleaning up in between or facing the Wrath of Mom.
- Our house isn’t cluttered with stuff. That is not for a lack of really cool stuff – we just have more places to put it.
- Our home is very conducive to having physically active lifestyles. We can work out in our home gym and have a full-sized karate dojo in the basement. Our family can go skiing out of the back door in winter and bike the rest of the year.
We previously had lived in more normal-sized homes. With that perspective, we appreciated the benefits of a large country home. However, that inexperience also left us unprepared for some of the disadvantages of owning an over-the-top mansion.
Pitfalls of Our Monster Home
There will be judgment.
A large home is an open display of wealth. As mentioned at the beginning, that may cause some cognitive dissonance if you come from an economic culture that vilifies wealth. Externally, it can also change how people relate to you or their expectations of you. They may also assume that you live way beyond your means and are irresponsible.
There will always be people like that, and “it is their problem, not yours” – just be prepared for it. You will probably be related to some of them. So, they may be unavoidable.
Cleaning has hindered our social life.
Having the extra space helps our house to be less cluttered. However, it can also make cleaning mentally overwhelming if there are multiple messes in multiple rooms. I have no problems with our friends and family seeing that our house is “lived in” (I am barely housebroken), but it bothers my wife. We have a Roomba. However, it is lazy and usually hits quitting time half-way across our living room.
We built this large house with the intent of using it as a venue to entertain our family and friends. The reality is that we have rarely done so. The effort and planning involved have proven to be a barrier.
Maintenance takes time and money.
When there is maintenance to be done, it is bigger. There is a financial cost to that. However, it is the time and hassle cost that bothers us the most. Since many of the systems in the house are more complex or unusual, it can take a while to find someone with the knowledge or tools to deal with them.
There are also some things that the frugal part of me just can’t let go of and hire someone to do. Most of those tasks would involve hassle to hire out and involve me using horsepower (which I like). However, that also comes at the expense of buying and maintaining equipment.
Some tradespeople see our house and try to jack up the price. They probably figure that we can afford to pay a premium and that they need the money more than we do. I get that, but I don’t like it.
Are we ruining our kids?
We do worry that our kids may get a distorted view of what normal housing looks like. It was a dream for me to build a castle. However, that is not a dream that is attainable by most people. While we try to instill the core values from our more modest upbringings into our kids, they are inevitably impacted by their physical surroundings. Unrealistic expectations may be unmet and result in dissatisfaction later in life. Or prying them out of the nest to fly on their own.
Did We Buy Too Much House?
“Don’t buy too much house” is excellent advice for high-income professionals. I hope that my story helps flesh this advice out a bit more from some different angles. The reason that this is excellent advice is not just the financial aspect.
We did the “financial part” right in many ways:
- By attending to our finances early on, we had more freedom to make our “dream home” a reality later.
- Not overspending by a variety of measures.
- Keeping enough space in our budget to cover landscaping, maintenance, taxes, saving for retirement, and funding other important parts of our lifestyle.
Diminishing returns from buying more house.
Even though we could “afford it”, we still bought “too much house”. We are very happy with the benefits of our location. However, we would have been equally happy with a smaller house on our lot where we could have many of the same benefits with only minor adjustments. In fact, we would probably be more happy with a simpler house that would not have the downsides that I described above.
There is a diminishing return on spending more past a point, as nicely articulated by fellow physician blogger, The Happy Philosopher. If he were to make one of his happiness diagrams of our house, it would look like this.
Unfortunately, another downside of having built a huge fancy semi-rural home is that the price range and uniqueness will also mean that we are selling into a very limited buyer pool. When we do eventually decide to sell, it will not likely be a quick sale. We may be lucky to get out of it what we put into it when inflation, realtor fees, etc. are taken into account. Luxury home ownership has higher barriers to both entry and exit. [Update: This proved to be true when we ultimately sold in late 2020].
Those buying in a high-demand urban area may face different issues.
The combination of buying outside of a high-cost-of-living area, our strong financial position, our pent-up demand, and our inexperience with being wealthy facilitated our buying “too much house”.
For those looking in HCOL cities, like Toronto or Vancouver, getting too large of a house may not be a problem. For our price range, we would have been looking at something like the house shown here. Seriously.
Feel free to share your experiences with the ups and downs of buying or building a home in the comments section below. The more perspectives, the better…
Amazing home!
Which city are you in, if you don’t mind sharing?
I agree that a decent home in Vancouver can easily cost $3M.
Thanks R! We are just outside the GTA in Ontario – although that seems to be an ever-expanding area as people seek affordable housing. Toronto and Vancouver seem to have some similar affordability issues. We were lucky to beat alot of that by location and timing. It would be tough starting out now, but I also can’t see the current prices being sustainable without some sort of reversion to the mean when interest rates rise.
-LD
Hello LD!
Gorgeous house by the way! This is what I keep griping about. Spending is all relative. The docs who get into trouble are the ones who CAN NOT afford it. It is rarely 1 large expense that gets people. It is the multiple ones. The nice house begets the nice cars which begets the private school which begets the luxury vacations which begets the expensive hired help for everything which begets the luxury clothes and jewellery which begets the country club and the latest professional sports and concert tickets….I should really stop now. It is the cumulative impacts of all these that breaks the bank. Unfortunately for some folks it isn’t even the nice things that ruin their finances but the unconscious common expenses.
You think about these issues too much LD for one house to sink you. Enjoy your lovely home instead.
The issue with the kids however is a challenging one. Once you raise the bar for people it is very difficult to set it lower without feeling it.
Hey Dr. MB. Thanks! I really liked your recent living within your means article and it is quite relevant to this post (I added a link to it just now). Financially, our house is no problem. What caught me was that living within our means was always limited by “our means” before. Now, we need to decide on limits beyond that to keep ourselves (well, largely me) in check.
-LD
Beautiful home LD! Not living in the GTA/Vancouver etc. does have its advantages. But I’m glad I don’t have to mow your lawn, even with your tractor.
We moved into our current home when our kids were in elementary school. They have now basically both moved out as they finish university. Although we love the house, it is too much space for just two of us. I cringe every time the property tax bill arrives in the mail, but there is too much inertia for us to downsize right now.
Hey Neuro Doc! When kids fly the coop, that will probably be our time to downsize also. Of course, by then I’ll have more time to mow – takes about an hour every couple weeks.
LD MD:
I love not only the house but the property too.
I vote for a summer Camp Loonie MD for the FIRE community. Outdoor fun for all!
Being from Louisiana, I have no problem pulling my weight while there (mowing, tractor work, etc)
Count me in!!
Would be totally fun! We have a great little enclave of neighbours that make summer quite fun. Once the mosquitoes die off…
You earned it and deserve it!
I personally would like to see more articles on spending. Most savers have trouble transitioning to spending.
Thanks BC Doc! I don’t feel guilt (anymore) about our house. I do wish that I had had a little more restraint though 😉 I love spending money. This is probably an example where I went a little too far and made our lives a bit more complicated. I have some good examples where we spent money on things that were expensive and complicated that have been great for our family. They are cooking in my brain as posts. One is my ski trail making equipment and I am currently sitting outside the other. It is only about 400 sqft, but has 400HP and has already given us some of the greatest adventures as a family. Dying rich is a silly goal. We do need to transition to spending when living within our means starts to uncouple from the means as limiter. As my house story illustrates, I think there is learning curve.
Hi LD:
It’s good that you enjoy spending. Like you said, after certain point, we have the means.
I am hoping not to die rich, although I still feel guilty with spending. Have to learn from you. 🙂
Thanks for sharing LD!
As others have said, you shouldn’t feel guilty about your home, since you have your financial house in order. Money is there to be spent on your and your family’s happiness, not just being a number on a screen.
It’s the docs who have bought their “forever house” BUT are living pay cheque to pay cheque to fund their house expenses yet wonder why they don’t have any savings, who should feel some regret about their decision. I think your post is a good example for anybody who wants to buy a “doctor’s house/mansion” that it can be achieved but done in the appropriate circumstance (i.e. mortgage < 2x income, geography, appropriate savings etc…).
Some trades people also see our house and try to jack the price for a job if we are not careful. They probably figure that we can afford it and that they need the money. I get that, but I don’t like it.
Hey DN! I don’t really feel guilt over our house anymore. I did for a while, but that is another story. We overall enjoy it and wouldn’t consider moving unless we retire and/or leave the area. If we had a do-over, I would go a bit smaller on the same lot. The big spending lesson for me in this saga was that even though we could afford it, bigger doesn’t necessarily suit us better (except in motorhomes and tractors). The other thing that I have come to appreciate is that that may change as we age and there probably is not a forever home for us. The driveway is a piece of cake – I have multiple options in the barn and snowflakes cower in fear before my might. Great to hear from you!
-LD
Hey LD,
Thoroughly enjoyable confession. As one who cuts his own hair but also has more house than is needed (intended to accommodate the ability to host family for extra visits…a mixed blessing) I share your inconsistency.
I really dig your posts, and were it not for Canadian acronyms throwing me off, your deep dives into retirement peppered with geeky references to my childhood pop culture are most appreciated.
Thanks for doing what you do,
CD
Thanks CD!
Cutting your own hair – that is some serious eye-hand co-ordination! Impressive. The paradox of haircuts and houses I think reflects spending where it matters – family visits (important), quaffed boy-band hair (less desirable).
Hosting gatherings was one of the reasons that we went bigger. We had good intentions, but we went so big I think it has actually impeded us on that front.
-LD
Congratulations on the McMansion and the beautiful land. My inner child is insanely jealous of such a castle, but the rational adult is less enthusiastic 😉 In my area, such homes are unfortunately built on ridiculously small plots, which is a total deal breaker.
Could I ask you what made you decide to go for 10K square feet? I know that this is within your means, but 15% of gross income sounds like a lot and it is incongruent with the reminder of the website where you fight for every percentage of extra tax or investment fees. Was the builder pushy or was this what you truly wanted ?
Hi Yoho and thanks for the comment and excellent question.
Honestly, the builder was not pushy. I initially approached him with what I wanted to do. We often decided to do upgrades or options that were things that the builder didn’t usually do because it was more expensive. Much of that was actually structural. I specifically did not want to have a typical McMansion where the finishes look nice, but beneath the surface is crap. Or there are “architectural features” that are meant to look like a more classic older build, but I think just look cheesy – like fake pillars or arches that would not be structurally sound. For example, we have thicker walls and large wooden beams that are placed in ways that they could be structural (even though we have a steel and engineered substructure). It was a dream of mine since being a little kid to live in a castle. I also have a tendency to overbuild things when I make stuff – I hate having to redo things that break. We also wanted to have lots of extra space for family and friends to visit. So, it is what we thought we wanted at the time. Unfortunately, our lack of experience living in castles caused us to not realize or to underestimate some of the practical drawbacks. We did get what we wanted, but one lesson is that what we want can change when the unforseen realities kick in or our lives change. The fact that houses are a strongly emotional asset makes us especially prone to irrational mistakes. It was a mistake to go so big and “current me” would have corrected “younger me” if I had a time machine. Hopefully my post will do that for a younger person “like younger me” since I don’t have 1.21GW to power the Flux Capacitor of my Delorean. We make mistakes and hopefully learn from them – even better to learn from someone else’s 🙂 That is actually why I wrote the post.
I do try to optimize how I make money, invest money, and minimize taxes to keep it. I have made mistakes in all of those areas too and will share some of them over time. The internet financial information was either more primitive or I just didn’t know about it as I moved through my early career. I also have all of the usual flaws that cause doctors to make some dumb financial moves. The reason why I try to optimize how I make and retain money is to spend it eventually. We do need to save enough to have the freedom that financial independence can bring and to provide for when we stop working. However, there is also no point in dying rich. Spending money wisely is just as difficult and prone to making errors and learning from them. This experience was a good example of that.
-LD
Glad I stumbled onto your site and this was a great first post to read.
The great thing about it is you did it the right way, you had all your financial ducks in a row and then decided to settle on your primary home. Too often docs fall in the trap of buying large right away when they first see that paycheck hit and banks are bending over backwards lending you money more than you should really spend.
Beautiful place by the way.
Thanks Xrayvsn – both for the comment and for stopping by! Spending wisely is one of the toughest parts for high-income professionals. The delayed gratification and then huge jump in income definitely makes it more so. We did, fortunately, have our sequence of spending right with getting our ducks lined up first. That made even our large home financially manageable. However, it was still a good lesson for us to learn that spending wisely means more than just having the money, but making sure that it is achieving what we intended.
-LD
Is that a Kubota zero turn ZD series? Makes lawn mowing fun.
Yep. It is a ZD331. A beast. I actually just recently went back to using a front mount F3060. The 4WD allows me to mow straight up some big hills and switch to a hydraulic blade on the front for winter. It’s like driving a go cart 🙂
-LD
Hi LD Saw the link today on Garths site. Great article. I wish I’d read this a few decades ago. I love your comments when they come up on G.F. I rarely comment but when I do my handle is Doc. I gave up on FT plus plus age 59 when stress was killing me slowly. I now live in an 1120 sq. ft. home in the Okanagan with lovely views and bought adjacent lots for gardening and chickens etc. Perspective now at 70 is quite different. The truly crazy thing is my provincial assessment at 1.6 M for a total of .66 acres and a 1974 house. I’ll be like prairie farmers who live poor and die rich. Cheers. Doc
Thanks David. That sounds quite idyllic. I agree that using your money while alive is important. Even if you did plan to leave an estate, why not bypass probate and see some of it put to good use while alive. Time certainly becomes the big driver. Has for me too.
-LD
Amazing house and great perspective! You mentioned the financial criteria of 2x gross income or CMHC using 32% of gross income. How do you reconcile that if you are incorporated? For example if someone pays themselves 100k a year personally, but leaves 250k in the Corp, how would you calculate gross income?
Thanks for sharing your wisdom,
Thanks Ab doc. This is one of the problems with using gross income. Net income is proportionally much less as you move up tax brackets. You should presumably have more disposable income, but that is not always the case. The carrying costs are also different if the interest rates over the lifetime of the mortgage are lower than the historical average. It is really just a ball-park. If I were to use it, I would use my gross income of the $250K plus the $100K for $300K. The real measure should be whether your after-tax cashflow is enough to pay all of the mortgage, property tax, maintenance, insurance, etc. plus still have enough for your retirement planning, lifestyle, and emergency buffer.
-LD