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View Poll Results: Importance of home ownership to FI?
Extremely important or essential 31 23.66%
Very important 39 29.77%
Somewhat important 29 22.14%
Not important at all 32 24.43%
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Old 08-26-2014, 12:33 PM   #61
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With home ownership, I have a much lower monthly cost than renting. Currently about $600/month vs. renting same home at about $4500/month. I understand what you mean by liquidating the home and investing the equity as an ace in the whole. The problem is that the high cost of rent would probably go through that money and not be available later in life. By owning the home, if I were to need money at some point in time I could access the equity in a number of different ways.

Rents here (SF Bay Area) are very high. It's common for a 1 bedroom apartments to rent for $2000 to $2500 per month. Ouch....
As others pointed out, you are neglecting the fact that the money you have tied up in the home could be earning you $$$ if invested. A $4500 rent is likely a $700,000 to $1,000,000 property. Even if you are grandfathered in to low taxes, when someone else tries to buy your property, they will pay a much higher rate per month. $600 a month is $7200 a year. This is the cost for earthquake insurance, fire insurance, real estate tax, and home maintenance on a $1,000,000 property? I do not think that kind of deal can be found in a new purchase.

It would be like me saying I have Apple shares purchased at post split $10, so I am getting a dividend of 15% which blows away any home investment. It is a bad comparison because the next person that comes along will pay much more than $10 per share for Apple.
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Old 08-26-2014, 12:41 PM   #62
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Being up 4x on a cash house purchase is nice, but if you had sunk that money into Gilead you would be up some 30x.

Would have to figure out how much you could have invested in Gilead with the cash while reserving the rest for rent but I imagine you still would be up about 10x to 15x on your original investment.
Gilead Yea, and I'm all about some hindsight, too.

Look, my situation does not apply to all, or even most. Other extremely important factors played into decision to stabilize housing costs at the time--factors like I was either going to die soon or live a long time, so financials had to be optimized (looks like I won the bet). I also got super lucky with my "desirable" neighborhood going full tilt boogie into megatrendy and "worth" more than any idiot should pay, but pay these fashionistas do. As I said, I wouldn't buy anywhere in most of CA if I didn't own now.

This is why I would have voted "it depends" had there been the option. Review your situation carefully, and by all means, read and think for yourself. We live in a time when there's almost no margin for error.
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Old 08-26-2014, 01:23 PM   #63
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As others pointed out, you are neglecting the fact that the money you have tied up in the home could be earning you $$$ if invested. A $4500 rent is likely a $700,000 to $1,000,000 property. Even if you are grandfathered in to low taxes, when someone else tries to buy your property, they will pay a much higher rate per month. $600 a month is $7200 a year. This is the cost for earthquake insurance, fire insurance, real estate tax, and home maintenance on a $1,000,000 property? I do not think that kind of deal can be found in a new purchase.

It would be like me saying I have Apple shares purchased at post split $10, so I am getting a dividend of 15% which blows away any home investment. It is a bad comparison because the next person that comes along will pay much more than $10 per share for Apple.
Or gilead.

Timing certainly makes a difference, and hindsight can fool people terribly.
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Old 08-26-2014, 01:39 PM   #64
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Until you find out that you need a new roof at $x, or the sewer line immediately repaired for $6,000--which recently happened to my former landlord. And many "homeowners" are at the mercy of a landlord--who just goes by another name (such as "homeowners association").
Interesting that you paired these two together.

I own a stand-alone condo where I pay an HOA. For that monthly fee, I get landscaping, all external maintenance, including a roof, sewer, internal (walls) plumbing, trash, etc.

If you are renting, I think you're fooling yourself if you think you're not paying for that as well. Sure, you don't pay out of pocket with one-time big expenses, but any landlord or property manager worth his salt is charging you rent which covers their principal and interest, plus a percentage for maintenance, and then a little extra for profit.

If you happened to find a place where that's not the case, kudos to you! But I would guess 80% of renters are paying for the stuff they laud as not being their responsibility as renters (roofs, repairs, etc.).
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Old 08-26-2014, 01:56 PM   #65
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It's a crapshoot.

Two big chunks in our retirement savings came from selling houses in NNJ and buying one house in a LCOL area in the Midwest when DH and I married in 2003. DH netted $100K; I'd netted $200K. I'd put down $100K when I bought my house 6 years before so I tripled my money. It was all tax-free, of course. Where else could I have made an investment like that? I look at what happened during the financial crisis and it could easily have gone in the opposite direction, for reasons completely out of our control.

We are hoping to be able to buy our next (smaller) home with the equity in our current home. The intellectual part of me knows that I'm better getting a mortgage if interest rates are still down, and investing the equity, but I'm retired and would love to be free of mortgage payments.
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Old 08-26-2014, 02:09 PM   #66
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Anecdotally, I have made more money in the market (and probably in treasury bonds alone) than in housing - even with the leverage. Bought our first home in 2002 with 10% down for ~$185,000, sold it in 2005, plowed the equity back into another home bought for ~$194,000. Ten years later, I might be able to sell it for $220,000 - on a good day. I am so glad we never spent much money on houses.

That's perhaps why I am not too keen on dropping 7 figures for a tiny house in earthquake country.
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Old 08-26-2014, 02:16 PM   #67
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Anecdotally, I have made more money in the market (and probably in treasury bonds alone) than in housing - even with the leverage. Bought our first home in 2002 for ~$185,000, sold it in 2005, plowed the equity back into another home bought for ~$194,000. Ten years later, I might be able to sell it for $220,000 - on a good day. I am so glad we never spent much money on houses.

That's perhaps why I am not too keen on dropping 7 figures for a tiny house in earthquake country.
Napa might be a bargain on the heels of their quake, and certainly some pressure was relieved.
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Old 08-26-2014, 02:33 PM   #68
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What is the opportunity cost you're assigning to the money tied up in your home? For example, if your home is valued at one million and you could invest conservatively at 3%, your annual opportunity cost is $30k.

You arguments are all valid except they're general arguments about home ownership and not arguments regarding a home being a better "ace in the hole" (I'm interpreting that as being a source of hard times or emergency money) than the same monetary value invested in a relatively liquid, convervative portfolio.
I was comparing Cashing out home equity then renting vs. home ownership. Calling my home "an ace in the whole" is very specific to my situation. I believe that the additional cost to rent would drain the additional capitol over time. Therefore leaving no ace in the whole.
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Old 08-26-2014, 02:39 PM   #69
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As others pointed out, you are neglecting the fact that the money you have tied up in the home could be earning you $$$ if invested. A $4500 rent is likely a $700,000 to $1,000,000 property. Even if you are grandfathered in to low taxes, when someone else tries to buy your property, they will pay a much higher rate per month. $600 a month is $7200 a year. This is the cost for earthquake insurance, fire insurance, real estate tax, and home maintenance on a $1,000,000 property? I do not think that kind of deal can be found in a new purchase.

It would be like me saying I have Apple shares purchased at post split $10, so I am getting a dividend of 15% which blows away any home investment. It is a bad comparison because the next person that comes along will pay much more than $10 per share for Apple.
No, I was not neglecting the fact that the home equity would be earning money if invested. I also understand that my home ownership isn't equivalent to purchasing the home today. For my specific situation, the additional cost of renting would probably deplete the additional money invested from the home equity, thus leaving no "ace in the whole". If I were buying the home today, it would be entirely different story.
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Old 08-26-2014, 02:46 PM   #70
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Our friends in Sacramento have a mortgage that is the maximum they can carry and they increase it to buy a new car a new big TV et al. They are in their 60s.
See, that's the thing -- if you don't trust yourself not to use your house as an ATM, if you can't resist the urge to take out HELOCs and cash-out refinances as you gain equity and want "more stuff", you probably shouldn't buy a house. Someone with such a lack of financial discipline will likely be worse for it.
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Old 08-26-2014, 04:02 PM   #71
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Perhaps if the poll were retitled "Do you think buying a home at the market low while getting benefits from prop 13 then having the market go bubblishious in your area is important to increasing your retirement nestegg?"
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Old 08-26-2014, 04:14 PM   #72
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Perhaps if the poll were retitled "Do you think buying a home at the market low while getting benefits from prop 13 then having the market go bubblishious in your area is important to increasing your retirement nestegg?"
The prop 13 is good, but really unless you cash out the market value doesn't really help ER.
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Old 08-26-2014, 04:31 PM   #73
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I'm lukewarm on home ownership as an investment (which is how it could be important to FI). We made a home run/big profit on our first home, made nothing on our second home and now live in our third home which it is unlikely that we will ever sell. We also had a nice gain on a lot we bought to build on but The main benefit has been some nice places to live at a cost that all in was probably less than renting similar digs.

Over the years, I have been able to use our home as collateral and borrow against it and invest the proceeds and have done quite well, so it has been helpful to FI.
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Old 08-26-2014, 07:27 PM   #74
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I'm not sure that my experience applies to your question. In my lifetime, I have owned seven homes - always selling and moving within two to ten years in each case. In all but one case, I came out ahead when selling and this has helped my bottom line financially.

My biggest financial mistake was buying our second home for vacations. We thought we might eventually retire there but due to many factors, we do not want to stay here forever. We have just retired and are selling our primary residence and have moved to the 2nd home. We can't give this waterfront home away for less than half of what we paid for it about six years ago at top of market. Now we are stuck here unless we want to lose almost $200k. It's lovely, so no hardship. Just not where we want to be.

I would love to have a paid off home at this time - but we made money on most of our moving around for past 35 plus years, so just got ahead of the game in another way. Now just waiting for market to improve in our area. There is a glut of waterfront property available here.

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