I live in Santa Barbara, CA and own a median value home out here. It’s not worth over a million but it’s in the upper six figures. Now that I think about it it’s about 1100 a year for fire/theft and another 500 or so for earthquake. So I was off on that. I apologize.
I don’t think though that the house value to insurance price curve is linear so a house with five times the value will not have five times the insurance cost.
Haj
You generally don’t have to insure the land. Except, of course, in CA where the land itself might slide off into the Pacific! 
Don’t forget that one reason for the boom in these expensive houses is because the Baby Boom has entered its peak earning years.
There’s really no magic to being able to afford a $800,000 house. Buy a $100,000 house when you’re 25. Sell it for $150,000 ten years later, after you’ve paid off $50,000. Take the $100,000 equity, plus the added income you have 10 years down the road, and buy a $300,000 home. Fifteen years later, you’re 50, your $300,000 home is paid off and worth $600,000. Sell it, take out another $200,000 mortgage, and voila, you’re living in an $800,000 home on a $100,000 income.
Then there are inheritances - a lot of people get inheritances from parents around the time they turn 50 or so. Perhaps they get the parent’s house, or their life savings. You owe $100,000 on a $300,000 home, you sell the parent’s house for $200,000, and suddenly you can buy a mansion.
Don’t forget that one reason for the boom in these expensive houses is because the Baby Boom has entered its peak earning years.
There’s really no magic to being able to afford a $800,000 house. Buy a $100,000 house when you’re 25. Sell it for $150,000 ten years later, after you’ve paid off $50,000. Take the $100,000 equity, plus the added income you have 10 years down the road, and buy a $300,000 home. Fifteen years later, you’re 50, your $300,000 home is paid off and worth $600,000. Sell it, take out another $200,000 mortgage, and voila, you’re living in an $800,000 home on a $100,000 income.
Then there are inheritances - a lot of people get inheritances from parents around the time they turn 50 or so. Perhaps they get the parent’s house, or their life savings. You owe $100,000 on a $300,000 home, you sell the parent’s house for $200,000, and suddenly you can buy a mansion.
My brother when he got married had his reception in a home in University Park in Dallas. The place was huge! I think it was at least 25,000 if not more. Three stories on a 5 acre lot. It was a 2.5 acre lot but they bought the house next door and tore it down for the space.
Six car garage, tennis courts, 3rd floor basket ball court/movie theater and performing stage beautiful 20x30 fully mirrored workout room, life size Remington Bronze statues throughout the grounds and even had secret passage ways incase they were attacked by terrorists. It gave them a way out of the house without being detected. Oh did I mention their personal staff of 6?
Oh their next door neighbor is Ross Perot to boot. How’d they afford it? Nursing homes! He built up a chain of nursing homes and then sold them for $120,000,000 to buy a totally new company (which will remain undisclosed).
Real estate developers make pretty good money too! I’m friends with a few retired Dallas Cowboys who made a killing in the apartment complex ownership in Dallas.
Oh corporate security pays well too! I’m friends with the owner of the largest security company in Dallas. It’s responsible for the security at the Dallas Cowboy’s games, Dallas Maverick’s, the Texas State Fair and pretty much every major sporting or large event in Dallas.
I also know a few people who took their oil money and invested it into other ventures and pretty much divested themselves of the oil assets as the market turned down. One fellow took his hobby of thoroughbred horse racing and turned it into his major breadwinner while selling off his old oil business.
Then of course there is software developers who have made a bundle.
I knew the [bold] Id [/bold] boys before they were anyting. They started off in my hometown working for a monthly computer subscription service and in their spare time developed a little game called Wolfenstein. Of course this led to Doom I, Doom II, Quake I, Quake II, Quake III, Doom III and so on and so on. My brother-in-law worked with them for a while but has moved on to bigger and better computer related things like automating Coca-cola’s and Pepsi Cola’s inventory system. He’s not hurting right now either.
So it all boils down to people willing to take a risk, stepping out of their comfort zone and taking the next step in their personal evolution and NOT working for the Man! 
Duh 25,000 Sq. Ft. that is!
Where I live, many if not most of the million dollar + homes are second homes. They only get used a few times a year.
It’s really pretty astounding.
“many if not most of the million dollar + homes are second homes.”
Yep, in Carmel, California, about 82% of the homes bought are second family homes. One year, average price was about $1.2M, next year just $670k.
homepricecheck.com has home sale prices in your neighborhood. So you can find out what your neighbor paid for his house & when.
I wonder as well.
I understand the mansions - the places that SunTzu2U is describing. I’ve met people who have made a lot of money by starting a business or whatever…
And I understand the situation in parts of California or other really hot housing markets. A million bucks buys somewhat less in San Francisco than it does here in the Twin Cities. When your median house is half a million dollars, million dollar homes seem reasonable.
But here in the Twin Cities there is an explosion of “Faux Chateaus.” Houses in the $800,000 and up range. And LOTS of them.
Hubby and I make a pretty good income - i.e. we are the target for Republican tax cuts. And we’ve inherieted money. And we have an OK portfolio by 2003 standards. And we’ve sold a house once already - selling at a profit for more home. Yet we live in a modest (market value $280,000) home by these standards. I guess if run the numbers on a “how much house can you afford” site, we could buy at $1.5 million dollar home - but we’d be eating hamster cage cedar chips to do so and I wouldn’t sleep at night knowing that if either of us got laid off we wouldn’t be able to make payments.
My sister was in a similar situation. Very nice home that they custom built. Not nearly in the million dollar range, in the mere $400,000 range - but with stainless steel appliances and granite countertops. He got laid off and they had to move when he took a new job in another community. Took nine months to sell the darn thing. And the million dollar house down the street has been on the market two years.
So now you got me wondering. My wife and I own 3 houses, 2 rentals and the one we live in. They are all of modest size. Since we paid off one of them we’re thinking of buying a 4th house to move into (it’s slightly bigger) and we’re going to go look at it tonight after work.
My long-term admittedly fuzzy plan was to keep buying rental houses until the income was great enough to either retire on (or I die from overwork everytime I have to clean up an ex-tenant’s mess). Are you saying that I could sell off everything and maybe move into that dream mansion some day? That’d be scary to contemplate.
Although spending it all before we die and leave nothing to the kids except some vacation photos does have a certain attraction
A lot of people inherit money and are advised by an accountant to buy an expensive house just for the interest deduction. I have friends that moved out of their homes into huge houses after they picked up half a million in the will. It’s better than getting 1 percent in the bank.
I expect a huge real estate bust once the boomers start to sell out in a few years. I intend to sell as soon as my kids are gone and get out while the gettin’ is good.
What Sam Stone said.
My father and mother are divorced. Have bee for a long time. They are both in thier late 50’s.
My dad is a surveyor with a construction company. He is basically a construction worker. His house is on the market right now for 1.375 Million. He built it for $300K a few years ago on a lot that his wife had owned for decades.
My mom is a real estate broker. Her house is worth about 2 Million, maybe more. It isn’t for sale. She is married to a doctor and they bought the land for $300K (A steal for the riverfront lot they got) and built for maybe $600K or so.
I don’t consider either of them rich, but they have always owned the houses they lived in and are financially savy.
Many people don’t own real estate at all. They are out of the game.
Others own, but re-fi every time there is an increase in the value and use the cash to pay off credit cards or buy a boat. They aren’t building any equity.
Smart ones own their homes and make intelligent choices about when to refi and how much equity to have in the home. After decades of making these choices, it adds up to be a lot.
Have been for a very long time.
I too owned rental property but have since divested myself of it. Too many headaches! My dad although is a real estate broker, appraiser and property manager. He manages about 150 properties and owns about 20% of those properties out right. As far as headaches are concerned he gets about 30 calls a day about things that need to be fixed or things which require his attention but since this is what he does then its just a matter of business.
Fortunately, he has several people to do the repair work. All he has to do is collect the rent pay the taxes keep the books and once in a while evict someone. I got started in this field about 20 years ago when he sold his previous business and now the rental income is more than sufficient for his lifestyle.