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Re: How much does your home cost???
Old 07-27-2006, 02:08 PM   #21
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Re: How much does your home cost???

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Originally Posted by Cute Fuzzy Bunny
Years: 12.

How many more: Dont know.

What is your definition of "opportunity cost"?* Not having the money invested in something else?* Cant see anything else thats given me the same return, and since I use the home as my 'ballast' instead of bonds, my nearly all equity portfolio is doing far better than if I used that 'opportunity' money in stock/bond investments, which would force me to take on more bonds/cash to maintain balance...at a far lower return than what I'm getting....
I do not know why you consider a real estate holding to be in the same class as bonds. It is not liquid. It does not return any revenue (although it offsets a cost). And there are maintenance costs that you would avoid if you rented.
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Re: How much does your home cost???
Old 07-27-2006, 02:20 PM   #22
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Re: How much does your home cost???

Hmmm...well, lets see. Perhaps its easier if I frame it this way: if I had a mortgage, I would in effect be taking a negative bond from the bank and paying the bank a dividend.

My property is exceeding the growth of my personal rate of inflation. The value is unlikely to drop as fast and as far as equities. Not having a mortgage means I have a very limited monthly spending budget. Owning the home outright means I'm "making" (or spend avoiding?) whatever the average mortgage rate is, which is more than many bonds are paying right now.

And its completely liquid. Within a week or less I can have a HELOC or mortgage on it and get a lump sum up to 100% of its value. It can turn a revenue stream by renting a room or renting the entire thing.

So yes, its quite liquid, while its not returning a positive revenue stream I am avoiding a number of costs, which reduces my withdrawal and my tax load. I compare it to a bond because by owning the home outright, and not paying rent or a mortgage, my monthly spending is low enough that I can consider increasing the percentage of my equity holdings without much fear of volatility.

But there is maintenance. Newer house, low maintenance materials and I do my own work, so its pretty limited.

Rent is fine for some people. However I've 'made' half my net worth on three pieces of real estate over the last 12 years. Had I been renting, I'd be out about 175k in rent over the same time period with nothing to show for it.
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Re: How much does your home cost???
Old 07-27-2006, 02:34 PM   #23
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Re: How much does your home cost???

Interesting... CFB..

I agree with what you say on the house.. but have never put it in my 'portfilio' as an investment... and also had left out a small trust fund since my Mom has first right to use if she needs the money..

But, if I put both of these in as 'bonds'.. my bond/equity ratio goes from 11%/89% to 27%/72%!!! Big difference...

And... I have a HELOC with zero balance.. but they gave me a checkbook, so I can get at the money today if needed..
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Re: How much does your home cost???
Old 07-27-2006, 02:39 PM   #24
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Re: How much does your home cost???

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Originally Posted by Texas Proud
...And...* I have a HELOC with zero balance.. but they gave me a checkbook, so I can get at the money today if needed..
Seems to me that a HELOC is sort of like a liquid asset. You can borrow the cash against the equity in your home and buy what you want with it. You can only pay back the interest so it is an interest only loan using the house equity as collateral. But, if you were renting you could not do that so the HELOC is liquidification of your equity without selling the house.
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Re: How much does your home cost???
Old 07-27-2006, 02:50 PM   #25
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Re: How much does your home cost???

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Originally Posted by Texas Proud
Interesting... CFB..

I agree with what you say on the house.. but have never put it in my 'portfilio' as an investment... and also had left out a small trust fund since my Mom has first right to use if she needs the money..

But, if I put both of these in as 'bonds'.. my bond/equity ratio goes from 11%/89% to 27%/72%!!! Big difference...

And... I have a HELOC with zero balance.. but they gave me a checkbook, so I can get at the money today if needed..
Yeah, we 'talked' about this in one of the other threads.

If I had a mortgage or was renting, my annual withdrawal would go up by $20-25k minimum per year, which means I have to pull more money out of the investment pile which means I have to be more cautious about volatility in my regular investment holdings. And would vault me into a much higher tax bracket.

Without that, my monthly bills are less than half that, can be satisfied with just the dividends thrown off the investments and volatility isnt really that interesting anymore.

Or I could hold a mortgage, invest the proceeds, probably eke out a few percent benefit over a very long period of time, need to hold a larger percentage of bonds to hold down my volatility, take a higher withdrawal, pay more taxes, and probably worry more.

Seems like you're creating a problem and then trying various means to solve it, all for a small potential financial benefit.

By dropping my bond holdings, I may end up getting that financial benefit anyhow, and then some.

And yeah, I can always write a check against the equity. You can bet that if stocks drop 50, 70, 80% like the doomsayers predict that I'll cash out a quarter mil of my home equity and be buying like a madman...
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Re: How much does your home cost???
Old 07-27-2006, 03:44 PM   #26
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Re: How much does your home cost???

Wow, this calculation was depressing

Our 1050sq ft condo is costing us $63.28 per day or $.0603 per sq ft



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Re: How much does your home cost???
Old 07-27-2006, 03:50 PM   #27
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Re: How much does your home cost???

Quote:
Originally Posted by Texas Proud

And yes, the coasters will be a lot higher... but then again, they are high cost areas, are they not* And are you not giving up opportunity cost to live on the coast?* It is a real cost.
Hmmm, well, considering that appreciation has generally been a lot higher on the coasts, I'm not sure I would call it "opportunity cost".

For many of us, living in a particular spot on a coast provides lots of career and income opportunities. I know cost of living where I am is obnoxiously high, but I regard it as the cost of entry to a labor market that has been phenominally remunerative.
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Re: How much does your home cost???
Old 07-27-2006, 03:54 PM   #28
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Re: How much does your home cost???

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Originally Posted by brewer12345
Hmmm, well, considering that appreciation has generally been a lot higher on the coasts, I'm not sure I would call it "opportunity cost".

For many of us, living in a particular spot on a coast provides lots of career and income opportunities.* I know cost of living where I am is obnoxiously high, but I regard it as the cost of entry to a labor market that has been phenominally remunerative.
When you say your cost of living is higher on the coast...be specific. What costs more? I know my property taxes are higher, and generally speaking healt insurance is too...but what else?
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Re: How much does your home cost???
Old 07-27-2006, 04:10 PM   #29
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Re: How much does your home cost???

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Originally Posted by OldMcDonald
When you say your cost of living is higher on the coast...be specific. What costs more? I know my property taxes are higher, and generally speaking healt insurance is too...but what else?
Property taxes (whew!), income taxes, groceries, healthcare, auto insurance, entertainment, utilities... Need I say more? But this is highly variable by locale.
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Re: How much does your home cost???
Old 07-27-2006, 05:22 PM   #30
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Re: How much does your home cost???

Quote:
Originally Posted by brewer12345
Hmmm, well, considering that appreciation has generally been a lot higher on the coasts, I'm not sure I would call it "opportunity cost".

For many of us, living in a particular spot on a coast provides lots of career and income opportunities.* I know cost of living where I am is obnoxiously high, but I regard it as the cost of entry to a labor market that has been phenominally remunerative.
The problem is that except for real estate gains... I do not see that much advantage.... I worked in NY, living in a company apartment for awhile. It was a 750 sq. ft. place that would go for about $750K back then... plus you would have to pay the maintenance fees, property taxes etc. etc.. They were trying to get me to transfer, but the cost of living per the HR groups was only 20% higher than Houston. Well, I can tell you that half thier increase would have gone to state and city taxes... and the cost of living is a LOT more than 20% without taxes!!!

I would guess that living in NY would cost 50% more than it does in Houston, and that is downsizing your living space by at least half...

So, I still say that it is an opportunity cost to live there... expecially in you are already FIREd... you could move to a much cheaper place and then have more income with the proceeds of your sale..
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Re: How much does your home cost???
Old 07-27-2006, 05:23 PM   #31
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Re: How much does your home cost???

Quote:
Originally Posted by brewer12345
For many of us, living in a particular spot on a coast provides lots of career and income opportunities.* I know cost of living where I am is obnoxiously high, but I regard it as the cost of entry to a labor market that has been phenominally remunerative.
Very much so. It's more expensive to live in places like NYC and the Bay Area, but in most cases you also get to make more money. Of course, if you are retired, other considerations become more important.

If you are going to stay in the same area no matter what, then the question is how much money you could make if you sold your house and either bought a smaller one or rented.

In my case, if I sold my house and got rid of non-essential possessions, then I could probably rent a decent place for $1K/mo. It would cost me $12K/y, but then I would be saving about $7K/year on taxes, maintenance, utilities, insurance, etc. So the net increase in expenses is only $5K/year and I get about $350K to invest.

Assuming the 5% return mentioned above minus inflation (2-3%) minus taxes (another 1%+), I would be netting 1-2% or $3-7K/y, roughly enough to offset the rent. Of course, this calculation makes assumptions about where the housing market in the area will be in the foreseeable future.
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Re: How much does your home cost???
Old 07-27-2006, 05:24 PM   #32
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Re: How much does your home cost???

Yep, my property taxes are fixed to my original purchase price plus a percent or two increase per year thanks to CA's prop 13

Currently living in a house worth close to 400k and paying taxes on about 260k.

As far as advantage of living near the coast...besides the increases in real estate value, in a couple of hours I can drive to a dozen or so 'vacation destination' locales like Tahoe, SF, Napa, etc...sure saves on the travel dollars a little bit...
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Re: How much does your home cost???
Old 07-27-2006, 07:11 PM   #33
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Re: How much does your home cost???

If I use an opportunity cost of 5%, something like $57/day, 3.8 cents/sq-ft/day.
Using a more realistic opportunity cost for me of 1% gives $34/day, 2.3 cents/sq-ft/day. No corrections for imputed rent.
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Re: How much does your home cost???
Old 07-27-2006, 09:00 PM   #34
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Re: How much does your home cost???

Quote:
Originally Posted by bpp
If I use an opportunity cost of 5%, something like $57/day, 3.8 cents/sq-ft/day.
Using a more realistic opportunity cost for me of 1% gives $34/day, 2.3 cents/sq-ft/day. No corrections for imputed rent.
That's not bad! I always assumed Japan would cost more. Can you describe what your accomodations are like (size, style)? Distance from downtown, type of neighborhood, etc.? What those type of houses cost. (I'm an idiot american who envisions all Japanese living in tiny pagodas).
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Re: How much does your home cost???
Old 07-27-2006, 11:24 PM   #35
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Re: How much does your home cost???

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Originally Posted by justin
That's not bad! I always assumed Japan would cost more. Can you describe what your accomodations are like (size, style)? Distance from downtown, type of neighborhood, etc.? What those type of houses cost. (I'm an idiot american who envisions all Japanese living in tiny pagodas).
The house is a fairly modern style, with one token Japanese-style tatami room (mostly used as a guest room), but other than that pretty Western in style. This is typical of most new houses these days. Two-story, 1500 sq-ft, on a 2300 sq-ft lot. The neighborhood is basically a suburb, schools close by, about a 30-minute walk from downtown, similar to an American suburb except that the houses are closer together, the streets are narrower, and only the more major streets have sidewalks.

New houses in general run around $350-500k, which is pretty much the limit that a family can afford even with the extremely low mortgage rates we have been having up to now. That price will get you less land and house the closer you get to a big city, more the farther away you go. If you buy new, the total cost will be roughly 1/2 for the house, and 1/2 for the land. The land may appreciate or depreciate depending on where you are (the bubble is still deflating in a lot of places), but the house itself will only depreciate over time. Had TaxasProud not disallowed appreciation/depreciation in the calculation, that would have raised the cost of the house somewhat.

Some typical house styles can be seen at the following web pages (these are some of the big house makers):
http://www.daiwahouse.co.jp/jutaku/s...hohin_top.html
http://www.sekisuihouse.com/products/steel2/index.html
http://www.misawa.co.jp/kodate/index.html

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Re: How much does your home cost???
Old 07-28-2006, 12:07 AM   #36
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Re: How much does your home cost???

Cool.* I like that Japanese/Western blended architecture!



Do you still find many of the traditional timberframed homes there?
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Re: How much does your home cost???
Old 07-28-2006, 12:43 AM   #37
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Re: How much does your home cost???

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Do you still find many of the traditional timberframed homes there?
You see them, mostly out in the countryside. Very few or no new builds though, mostly restorations -- and that takes a fairly wealthy and nostalgic customer. (In fact I think I read that one of the few people who specializes in restoring traditional farm houses is an American who moved to Japan and fell in love with the style.) More common are hybrids of traditional post-and-beam carpentry plus maybe a traditional tile roof, but modern interior and exterior finishes (sheetrock and wallpaper inside, ceramic tile or fake brick/stone outside, e.g.).
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Re: How much does your home cost???
Old 07-28-2006, 04:27 AM   #38
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Re: How much does your home cost???

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Originally Posted by wab
Cool.* I like that Japanese/Western blended architecture!
good choice. only i'm not sure it's a blend. looks prairie school to me. reminds me of frank lloyd wright's designs

here's his imperial hotel built in tokyo circa 1915

edit: below that is prairie school designed house circa 1902 (take note of the massing, overhangs, setbacks, columns, the balconies and compare with the house you picked. pretty similar huh?--i just noticed even the planter bowls are similar.)
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File Type: jpg Willetts House 1902.jpg (19.2 KB, 52 views)
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Re: How much does your home cost???
Old 07-28-2006, 05:58 AM   #39
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Re: How much does your home cost???

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Originally Posted by lazygood4nothinbum
good choice. only i'm not sure it's a blend. looks prairie school to me. reminds me of frank lloyd wright's designs
Wasn't he influenced by Japanese architecture?
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Re: How much does your home cost???
Old 07-28-2006, 07:41 AM   #40
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Re: How much does your home cost???

Quote:
Originally Posted by Texas Proud
The problem is that except for real estate gains... I do not see that much advantage.... I worked in NY, living in a company apartment for awhile.* It was a 750 sq. ft. place that would go for about $750K back then... plus you would have to pay the maintenance fees, property taxes etc. etc..* They were trying to get me to transfer, but the cost of living per the HR groups was only 20% higher than Houston.* Well, I can tell you that half thier increase would have gone to state and city taxes... and the cost of living is a LOT more than 20% without taxes!!!

I would guess that living in NY would cost 50% more than it does in Houston, and that is downsizing your living space by at least half...

So, I still say that it is an opportunity cost to live there... expecially in you are already FIREd...* you could move to a much cheaper place and then have more income with the proceeds of your sale..
Like I said, it all depends. Obviously if the oppotunities presented aren't valuable to you, then the extra cost is a waste. But if you are in investment banking, corporate law, asset management, etc., being in and around NYC is VERY much worth the extra cost of living over, say, Houston.
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