Facing a housing conundrum and about to ER with young family

[2015maybetheyear]

Amethyst, yes, as we started to seriously look at ER that when I really started to look at the true cost of ownership. I've built in annual costs of roughly 1% for repairs/maintenance that we haven't come anywhere close historically as our home is a newer 2000 home but assuming as home ages we'll be "making up for lost time" shortly enough.

One nice thing about living in Southern CA is that our houses probably don't require as much maintenance as homes in harsher weather conditions (although an earthquake would be a game changer!). Also, we don't have the heating/cooling costs that you would have in some areas. Nevertheless, the point you are making is part of the concern as I have realized the overall savings on moving to smaller less expense home is significant when you factor in the equity plus the lower expenses.

[daylatedollarshort]

What we've been doing is going to open houses and running the numbers (nor Cal). We've never found any place we both want to live in the short term so the decision is easy - we just stay put. (Long term we are moving to a retirement village - we agree on that.)

We originally thought we would move further out to the 'burbs to lower our housing costs when we semi-ERed, but I like walkable areas and living near mass transit. We also live near a state park so we have a good split between country and city living that we are finding hard to duplicate. Some of the 'burb places we looked at are centered around golf clubs or lakes, and we don't boat or golf, so while they look pretty and I can see how they would be a great lifestyle if we had those kinds of hobbies, we wouldn't have a lot in common with our neighbors if we moved out to some of them. We also wouldn't be near our favorite hiking trails, and hiking is one of our main hobbies. The more we look at other houses the more we start to remember why we picked the house we have now.

So look around, collect data points and see what else is out there. If you find a place you love that is also less expensive, then it becomes an easy decision. Otherwise, if you are happy where you are at and can afford it (20% of expenses towards housing seems reasonable to me) why not stay? Why move some place else to save more money than you need to save?

[pb4uski]

Quote:

Originally Posted by 2015maybetheyear ....Since inventory in Southern CA is very tight right now and b/c prices can vary so much even within a town based on lot size, location, etc as I've looked options we definitely need to go from 4k to 2k-2500k to make this move financially worthwhile...also because of transaction costs, etc e.g. if we go from 20% of net worth to 18% of net worth is it worth it?

I'm not sure if % of NW is the metric to focus on, but rather carrying costs since these will be coming from your nestegg and will reduce your WR.

If your current WR is 3% and housing costs are 20% of your withdrawals and a more modest house cuts your housing costs by 25%, I think your new WR is now .15% lower or 2.85% and probably lower because the above only factors in reductions in the numerator and does not consider any increases in the denominator, so that might bring it down to 2.8% or lower.

[Brat]

Given the totality of your circumstances I think you should stay put. Doubtless your wife could use help with the little ones but be aware, as with every couple when both are at home, there may be territorial issues to be resolved.

As some point you may want to look for other opportunities, even consulting. Yes, if you become an employee, you may have transition issues in that role but I think you can manage that. Avoid opportunities that will suck cash or be stressful. If you could find something that includes health insurance so much the better.

[mrfeh]

Quote:

Originally Posted by pb4uski I'm not sure if % of NW is the metric to focus on,

+1

OP - I don't understand why you are so concerned about what percentage of your net worth your house comprises.

[rodi]

I agree with the others that the home equity/net worth ratio is not something to worry about. Otherwise I'd have to worry a lot since my home equity as a percentage of net worth is higher than yours (by double). It just means my house is overpriced. Such is the case for many folks in So. Cal.

If you're close to your families, and in a decent school district, I'd think about staying put... and consider a downsize/equity extraction when they are out of the house. That's our tentative plan if there's a market downturn (or if/when one of us needs long-term-care).

The property taxes may be higher than those of us with older houses... but they are a fixed, predictable expense... which is a big advantage for planning. When I lived in PA I had them go through a periodic reassessment and had my property taxes double from one year to the next.

[haha]

Quote:

Originally Posted by mrfeh +1 OP - I don't understand why you are so concerned about what percentage of your net worth your house comprises.

What always counts are the absolute cash flows, not the abstract ways that some of us like to massage that data.

Ha

[daylatedollarshort]

Quote:

Originally Posted by mrfeh +1 OP - I don't understand why you are so concerned about what percentage of your net worth your house comprises.

+1. It is going to be hard to keep the same percent of NW on housing compared to someone who lives in Pittsburgh if you live in a higher cost of living location like New York City or coastal California:

The salary you must earn to buy a home in 27 metros

[2015maybetheyear]

Hi everyone. I was including home equity as % of net worth to give a sense of sizing in terms of portfolio vs home equity. Obviously % of budget spent on housing related expenses is more important for FIRE.

I know @sheehs1 mentioned 7%. @pb4uski mentioned reducing housing expenses by 25% to get from 20% of budget to 15% of budget. I know I have focused on the qualitative aspects of the decision in front of me (i.e. family, etc) but putting qualitative considerations aside and focusing on only financial: is there an ideal % of budget dedicated to housing?

[Animorph]

It's a personal decision of course, staying in the house or not. We're pretty anchored to our house, even if it is big for us now in ER.


I think I would hang on to the house. Weight your AA more towards stocks than you normally would, assuming some of your home equity counts as "bonds". Withdraw at the 3% rate. If things go well, no problem. If you end up with a big bear market and an opportunity to downsize (or even take out a home equity loan), you can use the equity to delay selling stocks or add to your stocks. This considers some equity as part of the portfolio, but doesn't sell the house right away.


I think this would be much less disruptive. 3% still has a very low failure rate, so the chance of really needing to sell is small. There is an obvious risk that the home value will tank with the market, but nothing says you can't spend the portfolio down quite a ways before having to sell the house. And a home equity loan would also allow time for the house price to recover.

[pb4uski]

Quote:

Originally Posted by 2015maybetheyear .... is there an ideal % of budget dedicated to housing?

Yes, zero. We like to kid my DS that she never had either a rent payment nor a mortgage payment until she was 40 (long story).

But realistically, in the eye of the beholder.

Ours is 16% (home value divided by NW). 10% if I divide home equity in relation to NW.

[sheehs1]

2015maybetheyear:
There is a poll that was done previously on "How much of your net worth does your home represent".

http://www.early-retirement.org/foru...ent-74352.html

[2B]

I personally think you have enough to retire although I am concerned about your apparent inflexibility. You are either blaming your DW or she is a "princess" and demands a certain level of physical comfort/status. If you do choose to retire, you have a potential for a 50 year retirement for either or both of you. Life happens and you will really have to roll with the punches. With all the time you have to deal with, that could be a lot of punches.

You and your DW need to get on the same page and understand the issues -- risks and rewards. There are others on this forum that are doing what you are proposing but most are living a more restrained lifestyle and also have a lower investable net worth. You can retire at your current lifestyle but it won't take much of a near term market downturn to necessitate either a lifestyle reduction or a return of one of you to the work force.

[meekie]

I would look in to moving. You don't say how much your HOA costs are, but I've seen some that aren't cheap. It can be an expensive recurring cost that doesn't do much for you.

I've also heard horror stories from friends that move into neighborhoods with "the best schools" only to have their kids bussed out of the area because the schools are overcrowded.

Tierrasanta has older houses without HOA costs, decent sized houses and decent schools. House prices are much lower there (my old house/current rental is there).

I'd look for other neighborhoods built in the 70's. Maybe Mira Mesa or university city. Larger houses than stuff built earlier, but was before the Mello roos fees of the 80's.

Most schools are pretty decent. What makes them great is more parent involvement. Get involved in you kids school and turn it from an ok school to a great one. There was an article in the UT recently about a parent group doing this for Jefferson elementary in North Park. Really cool.


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[superdave]

Quote:

Originally Posted by haha I believe someone with a wife and 3 toddlers should never be optimizing retirement. The big disaster possibility in your life is not a later retirement, but a divorce, separate maintenance, child support, and becoming a bi-weekly weekend visitor to your children and persona non-grata in your former family home. It's OK for some old person to pull his train over onto a siding and watch the world go by, but it is dereliction of duty and a terrible loss to all concerned for a young a young father to follow this course. Ha

Very good point. Divorce is a big risk. Lots of things will change in your life in the next 10-20 years.

Also, I could have pulled the plug 5-10 years ago, but at time our kids were in the early teens. With them in school, we couldn't travel freely, etc, etc. It just seemed better to migrate to lower stress jobs, and enjoy the ride.

[bw1990]

I'm interested in your plan since in two years, I'll be in a similar situation (42 years old, wife of 36 with 2 kids under 4, and looking to ER to CO).

We plan on moving before the kids enter school. I wouldn't worry about them adjusting to the new house. They seem to get along just fine wherever we stay.

I'd love to free up equity as well, but CO has about the same cost of living. Even if we did downsize the house, it wouldn't free up that much to really affect the long term plan. We will save 1/3rd on property taxes, but the equity equation is lost in the noise over 40 years. That being said, we'll probably rent for a few years since you never know… we might find we hate it there. That is always a risk of relocating.

We've looked at cheaper locations, but I want the kids to go to college and have some chance of staying where they grew up. You never know what opportunities may exist in 20 years, but you want your kids to have a chance at them and to not have to move across the country to reach them.

Also is your wife working now? Since our wives are a bit younger, are they ready to retire? Statistically, they will outlive us by many years. I assume your plan accounts for that?

We're personally trying to escape the brutal MN winters for the somewhat better climate and recreational opportunities of CO. My wife's family is located in MN, so we've had many discussions on what that means to her and if she is all in on moving. Since she seems more excited than me with the plan, I'd have to say so!

Your marriage is the most important thing here, so ensure DW is fully onboard with the decision. I'd personally choose a location that makes the two of you the most happy over choosing a location where you can live the most cheaply. Life is too short to live somewhere that doesn't make you happy. If you're choosing cheapness over long term happiness at this age, you should consider working a bit longer.

Your SWR appears good to me, so I'm everything may work out with either course. It is never fun navigating these decisions, but that is what makes life interesting.