House == bank ???

[traineeinvestor]

House and bank are two distinct concepts.

That said, spending the extra on the house is not the same as spending money on something you can never get back – money spent on a house has value even if that value will, in the future, be uncertain.

For what it's worth:

1. we would never spend money on a larger house if we needed returns on the invested capital to sustain our income needs;

2. trading our current home for a smaller home is an insurance plan if our other investments should fail to produce enough income for our needs.

[HadEnuff]

Quote:

Originally Posted by nash031 House is not a bank. I don’t think that’s the real question here. Can you afford the better house? I think so, yes. I think, emotionally, you want that house. You can rationalize away anything, but I think ultimately you’ll be happier long term when you lend an ear to your emotional side rather than flatly ignoring it - within reason! You said this better house is $200K more than your current house on a $3.1M portfolio... that’s within reason IMO.

From the original post: "My question is: should I consider the extra $200K to be like money in the bank? If I need it back, can I just downsize later, and enjoy the better house for the next 10-15 years? "

I don't doubt that the OP can "afford" it in the sense that even if things go badly in the housing market, and the stock market, AND he loses his ACA (his point of concern, not mine), or for some other reason he needs to cash out and finds out there is no equity, he won't starve.

If he puts cash in a money market fund, and he needs it down the road, it will be there. Equity in the house may or may not exist. If he's prepared for that and can deal with that, that's fine. But that's a different question than the one posed.

[nash031]

Quote:

Originally Posted by HadEnuff From the original post: "My question is: should I consider the extra $200K to be like money in the bank? If I need it back, can I just downsize later, and enjoy the better house for the next 10-15 years? " I don't doubt that the OP can "afford" it in the sense that even if things go badly in the housing market, and the stock market, AND he loses his ACA (his point of concern, not mine), or for some other reason he needs to cash out and finds out there is no equity, he won't starve. If he puts cash in a money market fund, and he needs it down the road, it will be there. Equity in the house may or may not exist. If he's prepared for that and can deal with that, that's fine. But that's a different question than the one posed.

Of course I read (and answered) the question posed, but as I said I don’t think that was the real issue. The real issue was trying to justify the home purchase with some rational or logical argument, IMO. Perhaps I’m wrong and should only take that question at face value, and if that’s the case OP can certainly ignore the second two paragraphs of my post.

[RunningBum]

Quote:

Originally Posted by flintnational As others have said, it appears you can afford the house so get the nicer home if you choose. As far as money in the bank, it depends. I see two potential problems with this line of thinking. What if you decide you love the nicer home and do not want to downsize? Then it is not really money in the bank because you can't really access the value easily. Second, if you are planning to downsize only if financial circumstances require it, that might not work either. Often real estate values and other investments (stocks, bonds) are closely correlated. In a recession they could all go down. So, at the time you need the extra equity it may not be there.

For the first problem, I don't really see that as an issue. If things go bad, you're going to have to give something up, whether you want to or not. It may not be easy, but if it's necessary, you do it.

For the second, I've thought about that one. My plan is to not wait until I am down to my last year of money, and then decide I'd better sell soon. Mine would be an early detection. If I had retired at the start of 2000 (which I nearly did), and saw 3 bad years, I wouldn't be in immediate need of money, but I would see that my 50 year plan (I was 38 then) was in danger, and I'd be looking for the next decent sell time to unload the house. I think the OP also has the funds to ride out a few down years to not have to unload an expensive house in a recession. If you don't, that's another story.

[pb4uski]

I think that the essence of the OP's question is that if he put an extra $200k into housing is that like money in the bank. In terms of guarantees, certainly not... there is a remote possibility that the value of the house would decline and when he sells that he will not get his $200k back. In terms of what will likely happen... then maybe... the most likely result is that when he sells many years later that he will get his $200k back plus some modest appreciation.. but it is not guaranteed like a bank. He has enough so it would be a prudent risk to take IMO... but if it were me I would leave the $200k invested and take out a mortgage to finance the difference.

[kcowan]

Quote:

Originally Posted by deskpilot My wife and I clearly have "house fever" and aren't thinking rationally. that's why I am seeking advice. We are going down to FL this week to look at these houses.

I think you need to consider your purchase as a lifestyle expense. Clearly you love that idea.

Let's say in 5 years, the RE prices decline by 30%, a possible but unlikely outcome. Then your loss is $60k plus RE fees. Are you willing to pay $12k p.a. to enjoy that fabulous home? If so, then you are done. That is the worst case.

If you cannot accept the worst case, then pull in your horns and be conservative. You will not enjoy your choice as much but you will feel that you are adhering to your conservative ideals.

(I would blow that dough and live like there is no tomorrow. You might get rewarded with a windfall!)

[OldShooter]

Quote:

Originally Posted by kcowan ... Let's say in 5 years, the RE prices decline by 30%, a possible but unlikely outcome. ...

I didn't think of it until now, but with hurricane frequency increasing and sea level rising, a big decline in value may not be so unlikely. The West Palm airport is a whopping nineteen feet above historic sea level.

[aja8888]

Quote:

Originally Posted by deskpilot I will be moving soon. See here: http://www.early-retirement.org/foru...ml#post2032259 I am looking to buy a house in a particular community in FL and have the choice of a houses from $350K to $550K. The $550K houses are quite larger with lake views and more land. My current house should sell for 450-500. Putting an extra $200K into real-estate at the start of a probable ER scares me. My question is: should I consider the extra $200K to be like money in the bank? If I need it back, can I just downsize later, and enjoy the better house for the next 10-15 years? I am aware of the costs due to higher taxes and the future closing costs. That is no issue. These houses are in a community with an HOA. The values seem pretty rock solid and I'd be downsizing in the same community. So - is the extra equity like future money in the bank?

Responding to the questions, it's not like money in the bank..it's equity in a house. If you need it back, pull a home equity loan.

But it sounds like you really want the more expensive place and I would just go for it. It will make you and DW happy.

And with $3+ M in investments, it's a "no brainer".

If I had that kind of dough, I would even treat myself to new Corvette!

You only live once (my current thinking).

[steinj]

As others have said, there is risk to house equity. I find these decisions come down to lifestyle choices. If you are more of a 'homebody' and get enjoyment from gardening, tinkering in the house, cooking, entertaining etc then the nicer house will bring give you enjoyment and its worth it. On the other hand, if you want to spend more on experiences, travel, dining out, etc and dont plan on spending a lot of time at home then it may not be worth it. Also consider how circumstances will change as you age, health issues and whether your mother might need to live with you at some point.

[deskpilot]

Quote:

Originally Posted by OldShooter I didn't think of it until now, but with hurricane frequency increasing and sea level rising, a big decline in value may not be so unlikely. The West Palm airport is a whopping nineteen feet above historic sea level.

the community is off of SR-7 and decently above sea level. I'll probably be gone before that's an issue. Maybe the house will be ocean-front property some day.

Quote:

Originally Posted by aja8888 If I had that kind of dough, I would even treat myself to new Corvette! You only live once (my current thinking).

It would be so easy to just go for it. The early death threads on this forum have a big impact on me. Males in my family are not long-lived.

Quote:

Originally Posted by steinj As others have said, there is risk to house equity. I find these decisions come down to lifestyle choices. If you are more of a 'homebody' and get enjoyment from gardening, tinkering in the house, cooking, entertaining etc then the nicer house will bring give you enjoyment and its worth it. On the other hand, if you want to spend more on experiences, travel, dining out, etc and dont plan on spending a lot of time at home then it may not be worth it.

I am a total introvert and homebody.

Quote:

Originally Posted by kcowan Let's say in 5 years, the RE prices decline by 30%, a possible but unlikely outcome. Then your loss is $60k plus RE fees. Are you willing to pay $12k p.a. to enjoy that fabulous home? If so, then you are done. That is the worst case.

I can handle that kind of loss.

[RobbieB]

Good.

I'm happy to see that we've talked you into buying the nicer house.

Now go buy it and enjoy a pina colada by your pool -

[LARS]

Didn't read entire thread, but the view that a house purchase is money spent seems beyond overly conservative to bordering on... well... really out there.

Assuming one is not pushing the "numbers" to get into a better house then by all means get what will make you happy. And it is more than reasonable to recognize that the house represents wealth that can be accessed in the future if need be (e.g. liquidate to fund assisted living, etc).

[FI_RElater]

Quote:

Originally Posted by deskpilot 1.2M is after tax, and yes, I will apply for unemployment on 1/1/19 and I will need to keep my current house until mid 2019 for this reason and until my kids move out. The main elder care issue is my promise to allow my mom to live in her house, so it would start with me driving her, buying groceries, doing housework, etc... If it comes to long term nursing care, her current assets should fund 10 years before the house is at risk.

since you should have cash flow, and (my to be corrected) analysis should only have you take ~100k out: you should be good to go
since it’s Palm Beach and (now reading near FL 7) that implies inland a bit, but hopefully not too close to the airport, the biggest concern would be flood zone and insurance ( since looking at the map, you have a swamp above Breakers West and west of FL 7 at the nature preserve)

{afa pb, earlier post indicated that they expected it and were using that to attempt to justify....I was showing that you cannot count on that}

I can appreciate not wanting to go to work at min wage, I wouldn’t mostly because we have enough (pension plus just a bit under you, along with paid off house and insurance guaranteed) and because there are plenty of others that would NEED that job to get by.

[RunningBum]

Quote:

Originally Posted by FI_RElater {afa pb, earlier post indicated that they expected it and were using that to attempt to justify....I was showing that you cannot count on that}

The inheritance? I saw twice where it was brought up, and both times said he was NOT counting on it, including the post you quoted. Where do you see it was expected and being used to justify?

[brucethebroker]

Quote:

Originally Posted by deskpilot I will be moving soon. See here: http://www.early-retirement.org/foru...ml#post2032259 I am looking to buy a house in a particular community in FL and have the choice of a houses from $350K to $550K. The $550K houses are quite larger with lake views and more land. My current house should sell for 450-500. Putting an extra $200K into real-estate at the start of a probable ER scares me. My question is: should I consider the extra $200K to be like money in the bank? If I need it back, can I just downsize later, and enjoy the better house for the next 10-15 years? I am aware of the costs due to higher taxes and the future closing costs. That is no issue. These houses are in a community with an HOA. The values seem pretty rock solid and I'd be downsizing in the same community. So - is the extra equity like future money in the bank?

Just ask the thousands of folks who moved OUT OF FLORIDA during the housing crash of 2008 and created one of the highest forclosure rates in the USA.

The higher the home price, the harder it is to sell, most of the time. Think of your house as shelter. Any appreciation is a bonus. (And this comes from a real estate investor, and broker.)

[Carol1862]

Quote:

Originally Posted by freedomatlast 200K difference on a 3.1M portfolio is nothing more than a market fluctuation in magnitude. After years of hard work and saving, go ahead and buy the nicer house if that's what you want.

I agree. You earned the luxury of being able to enjoy the larger home. Go for it!

[l8_apex]

Quote:

Originally Posted by Carol1862 I agree. You earned the luxury of being able to enjoy the larger home. Go for it!

I'm piling on here. Just get the nicer house. Your finances can easily accommodate it.

My only concern would be whether you and your family will have any issue with lifestyle creep. If that's not an issue, then you'll be fine.

As others have suggested, you should think about your AA and whether you're being too conservative.

[kgtest]

Quote:

Originally Posted by pb4uski I think that the essence of the OP's question is that if he put an extra $200k into housing is that like money in the bank. In terms of guarantees, certainly not... there is a remote possibility that the value of the house would decline and when he sells that he will not get his $200k back. In terms of what will likely happen... then maybe... the most likely result is that when he sells many years later that he will get his $200k back plus some modest appreciation.. but it is not guaranteed like a bank. He has enough so it would be a prudent risk to take IMO... but if it were me I would leave the $200k invested and take out a mortgage to finance the difference.

Case in point. Bought my home and PO paid 50k more for the home then they sold it to me for, ten years later.

They lost 1% annually, and sold to me to be in a more expensive lake home. Plus new furnace, roof, four remodeled bathrooms and a kitchen. They did some outside concrete and landscape work as well. I guess they had dough to blow.


To this day I am somewhat confused as to why they would do this? I know their kid was big into wake boarding and the lake allowed him to pursue that passion.

[sheehs1]

A little late to this thread...

Last year I spent about 15% of my liquid investments/9% of my total net worth on a second home that is a bay front condo. Why? (1) i had been looking forever for something that felt right that had the stellar views and was affordable (2) I loved it and it was a quality of life decision (3) I had a lot of cash sitting around doing nothing (4) My home that I also have of over 25 years is in a location where a major international company pulled and many amenities that were here are no longer here - but I love my house and am not ready to sell it (5) With the market highs and with cash sitting around, interest rates low, I felt it was a way to divert some $$, keep it out of the stock market, etc. I don't consider it "money in the bank" but it is "an asset"...sort of ..although I define an asset as something that makes you money not one you spend money on. A core of this asset will be preserved ...unless sea levels rise and take out the second floor, unless a hurricane slams it but I have flood insurance, unless, unless, unless. I am at the age I don't care nor do I worry about things like that anymore. There will always be reasons to keep you from doing something.

8 months later and I have never had one ounce of regret or buyers remorse. Bay front views as soon as I walk in the door. Best thing I have done in quite a while. Based on what you have written, I'd say...do what inspires you and your wife and what your hearts and gut instincts tell you. From the numbers you seemingly can afford it.

[Cayman]

[QUOTE: My question is: should I consider the extra $200K to be like money in the bank? If I need it back, can I just downsize later, and enjoy the better house for the next 10-15 years? [/QUOTE]

1. OR you could spend $200k less and move UP to the larger home in 10-15 years if circumstances allow and you want to. (the opposite of what you propose above)

2. Home values have fluctuated wildly in W. Palm over the years, so no.... stable value isn't assured and you may sit for years with a for sale sign and then sell at a substantial loss.

3. West Palm real estate has a median selling price of ~$250k.There are many desirable $350k homes in the West Palm area that do not look at walls. Many.

Your stash, the economy and your spending may easily support $550k+ on a home purchase. If you're truly concerned, just spend less/sleep more. Only you can decide.