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Old 06-02-2016, 03:09 PM   #41
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Although, having just locked my mortgage rate at 3.6125 for a 30-year mortgage, I'm starting to think a 55 FIRE date may still be in the cards.

We just need a little inflation.

As far as having money (FIRE) house is a bad investment. For investment to be terrible:

It should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner.

It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.

It should be expensive to buy and sell. We’ll add very high transaction costs. Let’s say 5% commissions on the deal, coming and going.

It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.

It should generate low returns. Certainly no more than the inflation rate. Maybe a bit less.

It should be mortgaged! Another beauty of leverage. We can charge interest on the loans. Yep, and with just a little more effort we should easily be able to persuade people who buy this thing to borrow money against it more than once.

It should be unproductive. While we’re talking about interest, let’s be sure this investment we are creating never pays any. No dividends either, of course.

It should be immobile. If we can fix it to one geographical spot we can be sure at any given time only a tiny group of potential buyers for it will exist. Sometimes and in some places, none at all!

It should be subject to the fortunes of one country, one state, one city, one town…No! One neighborhood! Imagine if our investment could somehow tie its owner to the fate of one narrow location. The risk could be enormous! A plant closes. A street gang moves in. A government goes crazy with taxes. An environmental disaster happens nearby. We could have an investment that not only crushes it’s owner’s net worth, but does so even as they are losing their job and income!

Why your house is a terrible investment
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Old 06-02-2016, 03:27 PM   #42
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I never really looked at a house as an investment, although there is value in having a roof over your head and a place to store your possessions. So you're stuck with either buying it, or renting it.

But, for an example of how real estate isn't always the money maker people think it is, check out this gorgeous little early-retirement killer I looked at about a month ago: https://www.redfin.com/MD/Davidsonvi.../home/10071344

I pulled the property tax records, and this place had the following transactions:
1989: Sold for $410K (to the original owner, when it was built)
1999: Sold for $424K
2005: Sold for $849K
2016: On the market for $770K.

Adjusting for inflation, those numbers come out to $791K, $608K, $1,040K, and $770K respectively. So, whoever bought the house in 1999 and sold in 2005 did well, but everybody else lost money.
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Old 06-02-2016, 03:35 PM   #43
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Real estate depends on location.
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Old 06-02-2016, 03:35 PM   #44
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I also do not look at it as an investment.

What I am saying is you should buy house conservatively if what you desire is FIRE. For people who are incapable to save money house may do well as a savings vehicle though.

The above numbers do not tell story of Property Taxes, Insurance, Maintenance, Leaking roof and if you have 500k in equity loss of income that that 500k could earn you
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Old 06-02-2016, 03:53 PM   #45
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I say a big house is cheaper than divorce. Do live reasonable but I don't have a manta on anything. To me 3000 sqft is reasonable. Our real estate investments have done really well for us. When we had bank run in 2008 and stock market crashed in 2009, my husband and I sleep well. Our rental income stays the same or go up. House price went up also. Leveraging is good in this case.
Of course, general statement about real estate doesn't work. It varies from region to region.
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Old 06-02-2016, 03:57 PM   #46
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That house is most likely going to become filled with furniture, consumables, and more "stuff" in the garage which is going to push your FIRE date even farther into the future, but you knew that, right?
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Old 06-02-2016, 04:01 PM   #47
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55 is still young. It's not terrible to retire at 55. My brother thought I was too young to retire.
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Old 06-02-2016, 04:30 PM   #48
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Originally Posted by eta2020 View Post
As far as having money (FIRE) house is a bad investment. For investment to be terrible:

It should be not just an initial, but if we do it right, a relentlessly ongoing drain on the cash reserves of the owner.

It should be illiquid. We’ll make it something that takes weeks, no – wait – even better, months of time and effort to buy or sell.

It should be expensive to buy and sell. We’ll add very high transaction costs. Let’s say 5% commissions on the deal, coming and going.

It should be complex to buy or sell. That way we can ladle on lots of extra fees and reports and documents we can charge for.

It should generate low returns. Certainly no more than the inflation rate. Maybe a bit less.

It should be mortgaged! Another beauty of leverage. We can charge interest on the loans. Yep, and with just a little more effort we should easily be able to persuade people who buy this thing to borrow money against it more than once.

It should be unproductive. While we’re talking about interest, let’s be sure this investment we are creating never pays any. No dividends either, of course.

It should be immobile. If we can fix it to one geographical spot we can be sure at any given time only a tiny group of potential buyers for it will exist. Sometimes and in some places, none at all!

It should be subject to the fortunes of one country, one state, one city, one town…No! One neighborhood! Imagine if our investment could somehow tie its owner to the fate of one narrow location. The risk could be enormous! A plant closes. A street gang moves in. A government goes crazy with taxes. An environmental disaster happens nearby. We could have an investment that not only crushes it’s owner’s net worth, but does so even as they are losing their job and income!

Why your house is a terrible investment

I don't really think of a house as an investment. It's consumption. I was just pointing out that the cost of that consumption is a lot less when you're only paying 3.6125% (tax-deductible no less ) it is costing a more modest amount to borrow that money. If inflation picks up, that mortgage that seems extreme now may look pretty modest in 20 years.

A lot of those points are pessimistic about home ownership to the point of silliness, though.
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Old 06-02-2016, 04:52 PM   #49
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I say a big house is cheaper than divorce.
Hard to argue with that
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Old 06-02-2016, 04:58 PM   #50
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I don't really think of a house as an investment. It's consumption. I was just pointing out that the cost of that consumption is a lot less when you're only paying 3.6125% (tax-deductible no less ) it is costing a more modest amount to borrow that money. If inflation picks up, that mortgage that seems extreme now may look pretty modest in 20 years.

A lot of those points are pessimistic about home ownership to the point of silliness, though.
3 of us live for 20 years in 1037 square foot house Zillow valued at 595k. From my experience those points are not silly at all.

And our house sits in prime location and does not suffer from lack of employers that pay 6 digit salaries or lack of buyers so it probably did way better then many other locations.

I think retiring at 55 is just fine. That is what we plan though we could do it today.

BTW I never missed having big house hence my opinion is clearly skewed.

As a payed off house it costs me today 30k to live in. I could probably rent it for 30k. So once we FIRE I want to be forever renter.
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Old 06-02-2016, 05:30 PM   #51
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I don't consider a house as an investment, but I always do my due diligence as to rent versus buy when comparing shelter expenses. Having served in the military with many moves over 20 plus years of service, I found sometimes it's best to buy, and sometimes it's best to rent. The bottom line is your family needs "shelter' and it's not always 'black-or-white' as to whether owning or renting is best. Looking back over the past 50 years of renting versus buying; owning a house has proved to be the best deal 'for me' financially. That said, when I purchased a house, it was always with the intent of reselling it with minimum losses, versus a 'dream-house' purchase. Only once did my spouse and I fall in love with a 'dream' house, and that cost us dearly at resale.

Twelve years before my second retirement, I looked for the cheapest house I could find, but in the best location. My lakefront home value has now increased at least five fold, and will easily cover all assisted and long term care expenses in a high end facility if our nest egg should disappear.
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Old 06-02-2016, 05:38 PM   #52
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3 of us live for 20 years in 1037 square foot house Zillow valued at 595k. From my experience those points are not silly at all.

And our house sits in prime location and does not suffer from lack of employers that pay 6 digit salaries or lack of buyers so it probably did way better then many other locations.

I think retiring at 55 is just fine. That is what we plan though we could do it today.

BTW I never missed having big house hence my opinion is clearly skewed.

As a payed off house it costs me today 30k to live in. I could probably rent it for 30k. So once we FIRE I want to be forever renter.
Your little house is more expensive than the big house we are buying. That certainly changes the consumption math quite a bit. It's one thing to add 1000 square feet for 100-150k and another to add it for 500k.

At 100k, it probably costs 6-8k in added expenses (interest, taxes, utilities, maintenance, etc). That's a significant expense, but one that is possible to justify if you enjoy the added room.

At 500k, you're probably in the 30k range. That's a more extreme price to pay for a place to put more stuff.

Being in flyover country has some advantages.
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Old 06-02-2016, 05:47 PM   #53
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Your little house is more expensive than the big house we are buying. That certainly changes the consumption math quite a bit. It's one thing to add 1000 square feet for 100-150k and another to add it for 500k.

At 100k, it probably costs 6-8k in added expenses (interest, taxes, utilities, maintenance, etc). That's a significant expense, but one that is possible to justify if you enjoy the added room.

At 500k, you're probably in the 30k range. That's a more extreme price to pay for a place to put more stuff.

Being in flyover country has some advantages.
Ney it costs about 150k-200k to add 1000 square feet of house out here but it will cost you 500k-over million for a lot

But 3000 square foot house will cost you 20k in property taxes and shitload in insurance, maintenance and repair. Good school districts need ton of taxes to pay for teachers. Not to mention that you need to fill 3000 square foot house with lot of stuff and it it is not going to be cheap to heat and cool.
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Old 06-02-2016, 06:01 PM   #54
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Ney it costs about 150k-200k to add 1000 square feet of house out here but it will cost you 500k-over million for a lot

But 3000 square foot house will cost you 20k in property taxes and shitload in insurance, maintenance and repair. Good school districts need ton of taxes to pay for teachers. Not to mention that you need to fill 3000 square foot house with lot of stuff and it it is not going to be cheap to heat and cool.
A $1.5 million for 3000 sqft here, tiny lot, 6000 sqft, $15k property tax. While it's not an investment, but it's cheaper than renting and I get a nice home equity through appreciation.
I only pay $400+ for insurance. Perhaps it's a combo of other insurance I have with AAA.
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Old 06-02-2016, 06:09 PM   #55
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Renters For Life - Go Curry Cracker!Go Curry Cracker!
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Old 06-03-2016, 03:20 PM   #56
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Renting generally means moving relatively often. I like to stay put. I like having a garden. I like having room to have fish tanks or a comic book room. My kids will like having a play set in the backyard to play on. I like being able to modify my living space to suit my needs. You save a lot of work by renting, but you give up a lot of control too.

We'll be in this house for a minimum of 16 years unless something serious happens to change our plans. I imagine that we will consider downsizing/moving when the kids are out of the house. I doubt we will actually do it though unless our mobility gets too bad to deal with stairs.
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Old 06-03-2016, 05:29 PM   #57
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Renting generally means moving relatively often. I like to stay put. I like having a garden. I like having room to have fish tanks or a comic book room. My kids will like having a play set in the backyard to play on. I like being able to modify my living space to suit my needs.
Well life is not about Retiring at 40 but about enjoying living it and FIRE is in a way just side show .

I understand your point.
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Old 06-04-2016, 02:02 AM   #58
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To your original question.

Yes. I am in that position to some degree... and many/most people are at one point.

So the question for me is whether the position is desirable or not compared to alternatives and as we can see that I'd completely case by case.

Some people are MORE satisfied living on 35k in north Carolina in a "bad" school district than they would be living on 150k in socal with kids in daycare/private school, nice house, car, etc if it meant working every day for an additional 10 years or more.

People tend to feel strongly and usually can't really imagine why someone could be happy doing something else. And it's easy to be judgemental.

For me personally what was surprising is that I thought I was one way and I'm discovering I'm another.

I'm going into "peak" earning power (40 yo) I have 2 young kids, a great well paying job (that I more or less like) and a DW that supports me. I could easily get a msg bigger house (2400 sqft, 3 bedroom currently) in a better neighbourhood, closer to work, better interior, yard and so on and that would bring some amount of happiness.

But... after taking a larger chunk of time off work I've discovered I REALLY like having total ownership of my time.

I like to be with my family 8-10 hours a day every day instead of 1-3 hours and then more on weekends.

I REALLY like ubplanning. Waking up and not having to be anywhere or do anything is great. With young kids at home it's super busy... but it's unstructured.

I DONT get bored because of lack of work. I quickly picked up some side projects and spend a few hours a few times a week in them.

So when I compare that to a larger fancier house... it doesn't provide me with nearly the value I thought it would.. but I needed to test it out and of course things can change.

So for me... time control became the most valuable thing and so the earlier I can FIRE the better. The fact that DW is aligned is critical. If she wasn't I'd happily work loner and get a bigger, better house. Giving up large amounts of liquid assets that are unlikely to be recoverable later is NOT a simple decision... and each person must evaluate it for themselves and their family.

I think the important thing is to have ownership of the decision and domestic tranquility. It can't be a selfish choice and I think there is no right answer.

The fact that you have the choice is great.

I agree with the people who say focus on domestic tranquility . Without that things get really, REALLY expensive.

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Old 06-04-2016, 07:31 AM   #59
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I don't really think of a house as an investment. It's consumption. I was just pointing out that the cost of that consumption is a lot less when you're only paying 3.6125% (tax-deductible no less ) it is costing a more modest amount to borrow that money. If inflation picks up, that mortgage that seems extreme now may look pretty modest in 20 years.

A lot of those points are pessimistic about home ownership to the point of silliness, though.
How did you come up with 3.6 as the cost of consumption? Let's see, higher price for the "perfect house", more household goods, higher monthly utilities and taxes. This all leaves you with less money to put toward ER. A house is consumption with a lot of emotion thrown in, which means one size doesn't fit all.

If inflation does pick-up you'd still be better off in a less expensive home in 20 years unless you want to sell and live under a bridge.
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Old 06-04-2016, 07:37 AM   #60
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Renting generally means moving relatively often. I like to stay put. I like having a garden. I like having room to have fish tanks or a comic book room. My kids will like having a play set in the backyard to play on. I like being able to modify my living space to suit my needs. You save a lot of work by renting, but you give up a lot of control too.

We'll be in this house for a minimum of 16 years unless something serious happens to change our plans. I imagine that we will consider downsizing/moving when the kids are out of the house. I doubt we will actually do it though unless our mobility gets too bad to deal with stairs.
This comment shows what I meant when I said the norm is for people's stuff to expand to fill their homes.If you need an entire room for your comic book collection and space for your fish tanks you will gravitate to a larger more expensive home and continue to acquire stuff, it's human nature, but can really chip away at ER plans
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