[USER]

My spouse and I are new grads in a high-paying field, earning $400K/year now, likely $600K next year, and then only 3–5% annual raises expected after that.

There’s a $1M waterfront lot near Puget Sound where I’d love to build a home. Similar non-waterfront lots go for ~$300K.

We can technically afford it, but I’m worried about being house poor for years.

Is it worth the stretch for a dream location where we plan to live forever, or better to stay flexible and go modest focusing on investments?

Would love your thoughts!

[Miriam]

How much are you prepared to build a house? Additionally, a waterfront lot will have extensive permitting requirements so be sure to do a thorough feasibility so you understand the cost to develop the lot, and the cost to build the home.

Depending wire this lot is, building permit fees alone could be $100k +, plus sewer hookup fees, water hook up fees etc.

[Sophie]

Anything waterfront screams flooding to me. Are you sure this is a good investment? Have there been any floods in the past 20+ years?

What about rising water levels in general?

If you want to make this your forever home, you should be very confident that the house will still be standing in 50 years.

If you care about FIRE, then something more modest is the obvious answer.

But even without FIRE as the goal, I would have a lot of concerns with any waterfront property as well as with anything unfinished.

Building/renovating always ends up significantly more expensive than you expect (make an estimate and add 50%).

Also consider cost of insurance, which will be much higher for an expensive property by the water (may even be hard to find insurance!).

[Zara]

Just running a scenario by you since you’re early in your careers. What if one of you got downsized.. could you comfortably afford this property and then build on it with one salary?

[Simonson]

May I ask what yours and your spouse’s career is? Looking to advise my niece on what kind of career to pursue for high earning potential

[Dew]

How much cash do you have to put for the down payment? I don’t think this is a good decision. In the beginning of your career you should focus on investing and building wealth.

Real estate is a great way to build wealth but it gets pretty murky when you’re talking about a primary home.

Because in that case you’re not making any money from it. And any equity you build will be trapped in that house pretty much forever.

Because it’s not like you’re going to sell the house and start renting again.

If you ever do sell it, you’ll just end up buying a bigger house. Sure you can borrow against it but then you’re increasing your monthly mortgage payment with a higher interest rate.

You might be thinking “well the alternative is to throw money away on rent”. Well the devil is in the details.

If you rented a place, is it really going to be just as big as this house you plan on building? Likely not anywhere close.

So, your rent payment would be far less than your mortgage payment. And remember that rent is the maximum you pay every month.

For a mortgage, it’s the minimum you pay, because there’s also maintenance costs.

And as soon as any contractor pulls up and sees that your house is right on the water, they’re going to charge you an arm and a leg.

[Douglass]

You’ll likely feel house poor. I suggest saving and investing as much as you can, as early as you can, and as aggressively as you can stomach.

Earning $600k after taxes isn’t as much as you might think. When you don’t have a big overhead, it allows you to take more risk, and that’s where the real money is made.

Your job income can disappear any day if you lose your job or the ability to work; they’ll simply find someone else to replace you.

Aim for the big financial goal; everything else is just a distraction.

If you stay laser-focused on your big goal, you’ll one day be able to afford multiple waterfront properties.

Also, as you get older, especially when you have a tough day at work, you would much prefer the freedom of not having to work and being able to travel the world with your family over where you live.

[Doug]

Ehh. We’re in that income range and went with an existing home in that ballpark. Spending that much on just the land and then building will get completely out of control.

It sounds like a lot of money and of course it is relatively speaking, but that will take a massive chunk of your nest egg.

Get something really comfy until you build up a bit more.

You’re young.

[Dani]

I wouldn’t be making such an expensive purchase this early on in your career unless you are 3000% confident you are never moving at least for quite a significant amount of time.

I’d continue to rent and save up for a year or two before you’re ready to put down roots.

Also, have you lived in that area before or other areas of Seattle because the Puget sound is really changing!

[Sebastian]

Too much uncertainty? If in tech what if you get laid off because your company wants to “go all in on AI”? Transferred somewhere else?

New grads are at high risk of being let go first in a layoff.

Can’t tell if the OP is being serious about taking on such a huge liability this early on.

But hey it’s your life and if you got the funds from somewhere then go ahead

[Lin]

The three words of real estate investing are location location location. If it’s a good price for the land, go for it.

But pulling 1.2M/yr you should think about monetizing the land rather than living there on its entirety.

Build with an eye to operating a B&B, Airbnb, or having a rental ADU.

[Anna]

You know the answer. Wants vs needs. Live below your means and don’t saddle all your money into real estate. Scrape by with bare minimum for the next couple years and go ham on your investments, savings, retirement, etc.

Max out all possible investment vehicles, and let compounding do its thing. Get the “dream house” later, as if that’s what brings happiness…

what *does* is financial freedom. Be smart. Have patience. Grow your nest egg.

Retire your spouse, build a family. Don’t try keeping up with the Jones.

[Melissa]

Seattle is notoriously difficult and expensive to get building permits. Not to mention the new regulations on no gas and such.

Personally, I’d buy an existing home, just please don’t buy one of the beautiful queen Anne’s and then remodel it into a stark and barren modern home.

Signed a Seattle native

[Pam]

Are you thinking about whether you want kids in the future? Kids are expensive and they change everything. Suddenly, you’re wondering if the school near by isn’t good enough and you want to move to a good area and good school.

Or the school is not close enough and you want to move.

Or lot isn’t big enough to build your dream home with extra bedrooms and playrooms for kids and a big enough yard for the kids to play in and have a pool. Point is, things change.

You’re also in Seattle. What’s the job market like for someone with your background if you or SO were to get laid off?

In this job market, I would have at least one year of emergency money set aside from your regular savings and investments.

[Elizabeth]

I’d wait, other lots will come up and when they do you’ll probably be in a better position with more saved up.

The PNW is gorgeous but buying a home there is EXPENSIVE and you want to make sure you won’t be house poor

[Bob]

FIRE is all about living beneath your means so that you can retire early, well.

Being a new grad with good money in your future and asking if it’s responsible to buy a 1M piece of land is a rhetorical question unless you have significant money already saved.

400k doesn’t spend like it did in 2019.

[Amber]

It really depends on what your long term goals are. At this stage in life you could house hack, or live in a small condo until you’re ready to start your family.

This would allow you to live well below your means and save up for an early retirement.

If your goal is to have a comfortable life with a nice big house and you don’t mind potentially working longer, then that’s great too.

Keep in mind that when you’re ready to start a family, one of you may want to quit working to stay home with the kids.

I know it’s not something most people realize until they actually have kids. If you have a large mortgage then that may not be an option.

On the other hand, you could have your realtor go over the numbers with you, and if the house would be worth more than what you’ll have into it, then I would consider it as an investment.

[Amber]

I wouldn’t build your first home, you’ll be much happier building someday when you’ve lived in a house or two and know what you want.

Also, I changed my career very unexpectedly and I also had my dream job… nothing is forever

[Maria]

My husband and I were in similar situation years ago and bought land, build our house after we did some tech consulting for a couple years all over.

I do say we did not enjoy as much bc it seemed like all our time and money revolved around the house at a young age but we also did not know if that was where we really wanted to be forever.

Go with your gut, where your family is, if you’re near good airport/travel options and also a big deal if you love your job and your company.

PM if any other?s.

[Chris]

Do you know the stats of the lot and the build? For instance, electric, water, sewage hookups, and conservation easements, percolation tests, building restrictions, flood zones, etc?

Once those costs and restrictions are known, do you know how much the home build will be?

A new build on the wrong lot could cost $$$ and have many headaches. Just look at the homes literally falling into the ocean in certain high value coastal areas.

Some land fails percolation or local permits for certain builds.

So, a $1M lot might only “legally” support a small log cabin. Some places need electric, fiber, water, sewage, etc hookups installed and depending on how close the hookups are could be $$$$.

So, what is the nominal monthly lot cost + home build loan cost in terms of your free cash flow?

[Author]

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