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Old 08-12-2010, 10:16 AM   #61
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I may be mistaken, but it doesn't seem like anyone has pointed out that there is an important difference between rent vs own when a house is fully paid vs 80% or more mortgaged. The arguments for and against owning when the house is fully paid are both compelling and seem to depend on individual situations rather than a strict financial analysis. However, for a younger person purchasing a home with a small down payment it is important to consider that real estate historically rises at 5% (or thereabouts) a year on average. The 5% applies to the full value of the house, not the down payment. This creates an opportunity to leverage a small investment with a relatively low and tax-subsidized interest rate. Unless the rental prices are much lower than housing costs, there is a powerful financial incentive to purchase.
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Old 08-12-2010, 10:22 AM   #62
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It took being a homeowner to make me realize that there are huge emotional issues in the rent vs buy decision. Get the emotional aspects wrong, and you'll be miserable, regardless of whether your decision was smart financially.
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Old 08-12-2010, 10:49 AM   #63
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It took being a homeowner to make me realize that there are huge emotional issues in the rent vs buy decision. Get the emotional aspects wrong, and you'll be miserable, regardless of whether your decision was smart financially.
I agree complete, however, it would be interesting to see the pure financial side. Then one could look at it and say: "Is that delta important to me?". The emotional aspects are going to be different for everyone - Let each person break them out separately (not ignore them).

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Old 08-12-2010, 11:37 AM   #64
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I may be mistaken, but it doesn't seem like anyone has pointed out that there is an important difference between rent vs own when a house is fully paid vs 80% or more mortgaged. The arguments for and against owning when the house is fully paid are both compelling and seem to depend on individual situations rather than a strict financial analysis. However, for a younger person purchasing a home with a small down payment it is important to consider that real estate historically rises at 5% (or thereabouts) a year on average. The 5% applies to the full value of the house, not the down payment. This creates an opportunity to leverage a small investment with a relatively low and tax-subsidized interest rate. Unless the rental prices are much lower than housing costs, there is a powerful financial incentive to purchase.
Depends upon what time-frame you mean by "historically." Use the last hundred years or so, and not just 1945-2005, and the numbers are relatively flat.

This does not include repairs, tax, and the ~10% closing costs factored in.
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Old 08-12-2010, 11:50 AM   #65
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Depends upon what time-frame you mean by "historically." Use the last hundred years or so, and not just 1945-2005, and the numbers are relatively flat. This does not include repairs, tax, and the ~10% closing costs factored in.
You're right. It also depends on which location you are talking about. I live in Southern California so the growth numbers are probably higher than 5%. Plus the home costs are so large that the leverage may tend to wash out the impact of repairs which typically don't vary as much by location. There is also Prop 13 which freezes the property tax base at fmv at transfer of ownership. You would almost need to come up with a different model customized for each particular city or county to get an accurate comparison.
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Old 08-12-2010, 12:48 PM   #66
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Another thing to consider about the future of real estate prices is the very real consideration that lower wages and fewer jobs will result in a marked increase in multigenerational "extended family" arrangements -- adult children moving back in with their parents or older parents moving in with their children because one or the other is enduring an extended period of unemployment or underemployment to the point where they can't support a separate living arrangement.

This may also be the fate of many older folks when they retire (or can't find a job any more) and they don't have personal retirement savings or a pension.

If this does become more of a trend, that will further increase the supply of homes because some of these people abandoning their old residences will need to sell in conjunction with moving in with family. And some of these will be "desperate" sales.

Retirement and the nuclear family may be two post-WW2 middle class expectations that are starting to revert back to pre-war conditions.
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Old 08-12-2010, 12:52 PM   #67
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So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.
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Old 08-12-2010, 01:51 PM   #68
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So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.
The good life awaits you:

Cheap Health Care


and Cheap Housing:



What are you waiting for ?
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Old 08-12-2010, 02:10 PM   #69
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So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.
I can; can't say what DW will do though...
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Old 08-12-2010, 02:13 PM   #70
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I can; can't say what DW will do though...
Put her to work. Work makes people happy !

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Old 08-12-2010, 09:19 PM   #71
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Note the post-WWII spike in that housing graph...the echo boomers are starting to form households now...betcha that at least keeps housing prices stable, if not upward again.
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Old 08-12-2010, 11:01 PM   #72
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I may be mistaken, but it doesn't seem like anyone has pointed out that there is an important difference between rent vs own when a house is fully paid vs 80% or more mortgaged. The arguments for and against owning when the house is fully paid are both compelling and seem to depend on individual situations rather than a strict financial analysis. However, for a younger person purchasing a home with a small down payment it is important to consider that real estate historically rises at 5% (or thereabouts) a year on average. The 5% applies to the full value of the house, not the down payment. This creates an opportunity to leverage a small investment with a relatively low and tax-subsidized interest rate. Unless the rental prices are much lower than housing costs, there is a powerful financial incentive to purchase.

One of the things we learned in recent years is that housing prices always go up--except when they don't.
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Old 08-13-2010, 01:51 AM   #73
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So, you can FIRE on less than 1 Mil if you live cheaply (low COL area, paid off house) and have some form of subsidized health care.
....or if you have no kids. BTW my HI is not subsidized, other than most of it being tax-deductible.
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Old 08-13-2010, 02:55 AM   #74
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I am semi-retired, and wondering if I should completely retire. This thread is very interesting. I have about a million, perhaps a little less, in TIAA-CREF and a bank account. I'm living on the interest from some of my money, and that interest income gives me about $32,000/year. I live in Singapore, pay the equivalent of about $1,300/month on rent, electricity, water, cable TV, and internet. Social security will add about $8,000/year if I took it now. I'm holding off though. I'm 63.

I'm in an area that is cheap to travel from. Last week I hopped on a bus and went to a small Malaysian town. Flying to any of the SE Asian countries is very convenient.

As for healthcare, I got a plan when I turned 60, and have held on to it even though the places I've worked in provided their own insurance. My policy is called IHI, and it's a subsidiary of BUPA. I pay about $3,600/year with a $1,600 deductible. It covers me everywhere in the world, guaranteed until I give up the policy. Two more years and I am on Medicare.

Cheers,

Rob
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Old 08-13-2010, 11:31 AM   #75
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....or if you have no kids. BTW my HI is not subsidized, other than most of it being tax-deductible.
How is your health insurance (versus your "qualified medical expenses") tax-deductible? (I guess I'm assuming it's an HSA, which it may not be.) Is it COBRA? Are you collecting unemployment?

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Old 08-13-2010, 11:39 AM   #76
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Note the post-WWII spike in that housing graph...the echo boomers are starting to form households now...betcha that at least keeps housing prices stable, if not upward again.
This does not mean, however, that these "echo boomers" will want to buy (versus rent), or can afford to buy, or even that they will be extended credit to buy a home.
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Old 08-13-2010, 12:24 PM   #77
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How is your health insurance (versus your "qualified medical expenses") tax-deductible? (I guess I'm assuming it's an HSA, which it may not be.) Is it COBRA? Are you collecting unemployment?

HI is a "qualified medical expense," as the first sentence of the "TIP" of the definition of what can be included in Form 1040, Schedule A, Line 1 shows:

"Do not forget to include insurance premiums you paid for medical and dental care."

Later, it says not to include these premiums if they were paid for by pretax dollars, such as those withheld from your paycheck as part of enrolment in your employer's group health plan. However, I have been retired and/or off that plan for the last 3 years.

Yes, I was on COBRA for 18 months from mid-2007 through the end of 2008. In 2007, because it was only for 6 months, the COBRA premiums (plus out-of-pocket dental) I paid that year were not high enough to exceed the 7.5%-of-AGI threshold so I could not deduct them in Schedule A. And in 2008, I received a huge lump-sum payout when I left my company so the threshhold was slightly greater than $25k, far greater than what I paid for COBRA+dental the whole year.

In 2009 and 2010, my AGI is much lower and my HI premiums are higher than what I was paying for COBRA, so the deductible portion of my HI + dental is about 2/3.
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Old 08-13-2010, 02:51 PM   #78
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As for healthcare, I got a plan when I turned 60, and have held on to it even though the places I've worked in provided their own insurance. My policy is called IHI, and it's a subsidiary of BUPA. I pay about $3,600/year with a $1,600 deductible. It covers me everywhere in the world, guaranteed until I give up the policy.
That sounds like very cheap insurance! Good for you.

Never heard of BUPA...
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Old 08-13-2010, 03:08 PM   #79
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As for healthcare, I got a plan when I turned 60, and have held on to it even though the places I've worked in provided their own insurance. My policy is called IHI, and it's a subsidiary of BUPA. I pay about $3,600/year with a $1,600 deductible. It covers me everywhere in the world, guaranteed until I give up the policy. Two more years and I am on Medicare.

Cheers,

Rob
Do you have a link? I found the UK site and it excludes US citizens. I will be looking for a health ins company for when I travel outside of the USA. I will keep my USA ins.
Thanks

I found a link for it. - It looks very reasonable - 169/year

https://global.ihi.com/travel+insura...insurance.aspx
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Old 08-13-2010, 07:01 PM   #80
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I got IHI (International Health Insurance) which is a part of the British BUPA, the largest health insurance company in the world. As an American, you can enroll in IHI only when you are overseas as an expat. You cannot enroll when you are in the states. After you enroll as an American Expat overseas, it covers you in the states when you return. I've been told than many many times.

The customer service for IHI is excellent, and I've only had to use it once for a double hernia. I paid the first $1,600, and they picked up the rest.

On a side note, I just semi-retired from being a high schoool teacher and living in Singapore now. For the first time in my life, I am jobless, but I'm 63. I'm trying to reinvent myself. I get a little worried that some of you think a million dollars is not enough. I have a little that ($990,000). When you say a million is not enough, do you mean you and your wife and kids, or just you? For me, I'm single, and I'm hoping the million I have, mostly with TIAA-CREF, is enough. I will work part-time, but I don't want to feel I need to.

I'm glad we can all share idea like this. Thank you.

Rob
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