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Old 06-29-2008, 07:37 AM   #41
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I've lived in Texas for more than five years and in the central part of the state (not too far from REW) for more than two. And I'm yet to have an encounter with a rattlesnake or a scorpion. Or a chigger, for that matter. Granted that I haven't tried hard to find them, but...
I lived in College Station, Texas for almost 13 years, and did not spend much time out in the countryside. I saw the occasional rattlesnake or scorpion but didn't happen to have any problems with chiggers. But the fire ants were AWFUL and ubiquitous, as were the field mice. And OMG, the SPIDERS? Nobody has mentioned them but our back yard was full of the very dangerous brown recluse spiders. I have never seen so many spiders in my life.

I still loved Texas (love the salt-of-the-earth mentality there, and OK, I admit it, the wildflowers are breathtaking), but probably will not move back due to the property taxes and relentlessly hot, long, and parched summers that turn the countryside brown and made me wonder if I would fry like an egg on the sidewalk.

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I agree. I would use the value of the house in a net worth calculation. In addition when doing long-term planning (i.e., Firecalc), I'd make a determination when the value of the house would be cashed out in favor of rental living. That can also have some bearing on how long your nest egg lasts.
I guess I am sitting on a fence with this. I don't consider my home equity as part of my portfolio, so I do not include it in my asset allocation. However, I do count it as part of my net worth. The latter is mostly useful for purposes of daydreaming and pumping up my own sense of self-importance (in other words, not at all useful). I do not consider my paid off house as fixed income. It just lowers my expenses a little.
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Old 06-29-2008, 08:11 AM   #42
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I do not consider my paid off house as fixed income. It just lowers my expenses a little.
The interest expense of house payments could be "little," I suppose. The "Opportunity Cost" expense could, however, be considerable. All things considered, I would think that a "paid-off" house is more desirable -- on the Income side -- than one with a mortgage during one's retirement. At least, I would consider a mortgage to be a drag on income in most cases.

(I, of course, am unsure how this theory can be transferred to the Accounting involved in the current conversation. <chuckle>)
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Old 06-29-2008, 08:16 AM   #43
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I'll take the role of real estate heretic here and say that homes do not always increase dramatically in value over the longterm. There seems to be a common thread that owning a home minimizes espenses versus renting and provides an inflation hedge. I think that there may be better ways to deploy assets than having a paid for house.

What I have seen with my parents and in-laws is not so optimistic. My parents home of over 30 years was a smaller home in Des Moines, WN. By the time they were ready to sell, the neighborhood had pretty much gone to crap. The house needed lots of work. Despite a view of Puget Sound, it took well over a year to sell for about 2X what they originally paid for the place in 1965. That's not much of an ROI when you throw in property taxes and maintenance. My in-laws did much better. Their house was a disaster and would have required a small fortune to fix up. Fortunately, Houston grew the right way for them and their way out in the country lot purchased in 1952 was worth a small fortune. It was torn down to make way for a McMansion. If they had bought two miles north or south, they wouldn't have been so fortunate. Back in 1953, no one could have predicted what eventuallly happened.
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Old 06-29-2008, 08:23 AM   #44
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The interest expense of house payments could be "little," I suppose.
Comparing my paid off house to the option of renting, I consider the reduction of expenses to be:

(Expense Reduction) = Rent - (property tax) - Insurance - maintenance

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The "Opportunity Cost" expense could, however, be considerable.
Only if selling or mortgaging your house is something you intend to consider in your financial plan. Not working is also an "Opportunity Cost" expense, but the option of working is another one that I do not intend to consider in my ER financial plan.

Of course, if the world economy disintegrates and I am facing financial Armageddon, at that point I would consider changing my financial plan to include other options such as working until the day I die and/or raising my expenses by not living in a paid off house. Don't hold your breath waiting to see either of those options in place, though.

So, in my case I do not consider my paid off house to be something to consider in my own financial plan/accounting. Nor do I consider the possibility of working full time (even at a more enjoyable job) to be an ER option that I intend to consider in my own fnancial plan/accounting. Naturally these are personal decisions, with many weighing in on either side and YMMV
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Old 06-29-2008, 10:28 AM   #45
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Naturally these are personal decisions, with many weighing in on either side and YMMV
Oh! I guess I should have prefaced my remarks with "I agree with you 100%."
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Old 06-29-2008, 06:48 PM   #46
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I guess I am sitting on a fence with this. I don't consider my home equity as part of my portfolio, so I do not include it in my asset allocation. However, I do count it as part of my net worth. The latter is mostly useful for purposes of daydreaming and pumping up my own sense of self-importance (in other words, not at all useful). I do not consider my paid off house as fixed income. It just lowers my expenses a little.
I anticipate downsizing in rehirement....so I count the difference between the house I live in now and the house I anticipate purchasing. I think that once people are very old (when they can no longer take care of themself), many of them likely would sell their house and live in some type of condo or assisted living or nursing home etc....which acts like an apartment in the respect that you pay a monthly "fee"....so you could cash out your house and use the proceeds to pay the rent. The only problem would be what to do if you outlive the proceeds.
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