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Re: Advice....Should I look at home equity this way?
Old 02-10-2007, 01:03 PM   #61
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Re: Advice....Should I look at home equity this way?

1 final stipulation:

An 80/20 equity/fixed income portfolio has a higher survivability than a 60/40 portfolio, according to FIRECalc.

If one starts from the erroneous assumption that a mortgage, or rent, somehow prohibits an 80/20 portfolio or requires a 60/40 portfolio, then based on that erroneous assumption home equity results in higher portfolio survivability according to FIRECalc.

What, pray-tell, would be the difference in portfolio survivability between a renter and a homeowner in a highly efficient property and rental market (all else being equal)? The expected survivability should be virtually identical as long as the property and rental markets are priced efficiently.
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Re: Advice....Should I look at home equity this way?
Old 02-10-2007, 01:17 PM   #62
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Re: Advice....Should I look at home equity this way?

But we know that rental is more efficient than purchase. Ongoing costs are cheaper for the same dwelling class. So the purchase market has a built-in bias for the emotion of owning one's home. This inflates the value and therefore produces less buffer in case the SWR turns out to be too high.
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Re: Advice....Should I look at home equity this way?
Old 02-10-2007, 02:06 PM   #63
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Re: Advice....Should I look at home equity this way?

Quote:
Originally Posted by kcowan
But we know that rental is more efficient than purchase. Ongoing costs are cheaper for the same dwelling class. So the purchase market has a built-in bias for the emotion of owning one's home. This inflates the value and therefore produces less buffer in case the SWR turns out to be too high.
Agree. As I said to CFB, I think it is situation dependent, though. In theory, a house price should set at the discounted value of its expected equivalent rent, net of maintenance costs (rental prices should set at the reverse of that). So, in theory, people should be economically indifferent. In practice, though, that isn't true for a variety of reasons - one of which is the home ownership bias you mention. But I don't think the economics always favor one vs. the other. Rents can be slow to adjust downward even when a glut of capacity pushes ownership prices below their equivalent rents.

I wouldn't want to argue that it is always better to rent, or always better to own. But I do feel comfortable arguing that it shouldn't matter while recognizing that local markets may create "arbitrage" opportunities.
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Re: Advice....Should I look at home equity this way?
Old 02-10-2007, 02:29 PM   #64
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Re: Advice....Should I look at home equity this way?

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Originally Posted by 3 Yrs to Go
I think it is situation dependent, though.
Ok - in my case, I/DW own our home (no mortgage) and have no desire to move, downsize, reverse mortgage, or execute any other "scheme" to extract $$$ (no dependents - it will go to charity after we're gone).

We have our 25x (of course, more than that, when adding in SS) put away for retirement; we will retire in the next few months (age 59)...

What do you say?

- Ron
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Re: Advice....Should I look at home equity this way?
Old 02-10-2007, 02:42 PM   #65
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Re: Advice....Should I look at home equity this way?

Quote:
Originally Posted by Ron'Da
What do you say?
I say "you're sitting pretty."

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Re: Advice....Should I look at home equity this way?
Old 02-11-2007, 09:37 AM   #66
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Re: Advice....Should I look at home equity this way?

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Originally Posted by 3 Yrs to Go
I guess when you make a whole host of unfounded assumptions, sure.
Hmm...you know I was hoping this was over, but jeez louise...I covered practically everything you brought up, almost nothing you mention is factual in the scenario I laid out. You just arent reading this stuff, you just want a diatribe.

So having said that, I regret ceding the irrelevant points to get to the meat of the matter.

The OP asked "should I consider home equity as the bond in my asset allocation"

The answer is ABSOLUTELY.

You hold bonds for 'sleep at night' factor emotionally, income and low volatility financially.

100% home equity solves all of those problems.

My sleep at night factor in having full home equity far surpasses the emotional benefit of owning a bunch of bonds. And you cant live in a bond.

I avoid a lot of spending need, reducing my need for income, reducing my need for reduced volatility, and can mortgage, heloc, reverse mortgage, rent part, rent all, or charge people to pitch pup tents in the back yard. In that manner, once we stop confusing the HOME with the PROPERTIES FINANCIAL CHARACTERISTICS, we see that it is a stable source of capital value, can produce income, and is a volatility reducer.

So its function is exactly the same as a bond as part of a full financial plan.

As far as every other comment you made, I addressed those already, so you'll have to scroll back and read those.

Its my opinion that you're more interested in an argument than being open minded and exploring different ways to structure ones financial scenario.

While I enjoy a good argument, this isn't one of those. Its a lot more fun to dispute valid points than to discuss something with someone who has their fingers in their ears while mumbling 'la la la la la' and periodically yells "does not!". :
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