Retirement Income

[mathjak107]

like i said , that is great , but in the mean time if need be they can't hit the pent up value in down years if principal has to be hit or rebalanced to refill cash .

it is bad practice in my opinion to count things as able to be spent as income if need be until that day actually comes . .

we own two investment co-ops which we would love to sell once the tenants die or take a buyout offer since they are rent stabilized . but until that day we do not count that money at all and we are talking multiple 7 figures since they over look central park . rents are near break even so cash flow is really nil .

 

[REWahoo]

Many in our area either have or have plans to "cash out" the house once they quit working and move some place cheaper.

This was once a frequently discussed topic and was a key element of the retirement plans of many posters. The subject disappeared in 2008 but it looks like the strategy may be gaining popularity again. Hope it turns out better this time...

 

[daylatedollarshort]

it is bad practice in my opinion to count

I'm not saying it is a diversified plan, but many people here do say "my house is my retirement plan" and either do cash out or have plans to do so and move to a lower cost of living area. In most cases it has worked out, at least for really long time owners, who survive the boom and bust housing markets, especially this guy:

Hoarder House In Palo Alto Is On the Market for $1.8 Million

 

[RobbieB]

If you have so little income that you are financially "stretched" then it would be a good idea to sell & rent (small) or sell and move or you could even do a reverse mortgage if you qualify. Expensive for sure, but hey if you need the dough...

The house really works the best if it is not the largest part of your "bag". You have plenty of income from other sources so that you don't have to worry. Now you can really enjoy spending the dough that you don't have to pay rent or mortgage with.

Or not, you can just let it stack up as you wish.

 

[mathjak107]

Many in our area either have or have plans to "cash out" the house once they quit working and move some place cheaper.

400,000 long islanders said in a survey they intend to sell . leave long island and move to cheapsville .

that sure works well but until the house is sold there is no income yet .
one of the benefits of living in a high cost of living area is because areas like the tristate area are not expensive in a vacuum . they are expensive because they are desirable and that is where the higher paying jobs are .

transplants usually do better then locals do since a 650- 800k house that appreciates 3% vs a 150- 200k house that appreciates the same will compound at a far greater rate . the higher incomes lead to higher social security too so relocating from a higher to lower cost area usually works out better then locals .

when we had the 2nd home in the pocono's most of the transplants had far more wealth then the locals did .

 

[Danmar]

Yeah, apples, oranges and pineapples is pretty good.

You can't spend a house, but you can spend what you're not paying for it eh?

That's all this was, an effort to get a more "fair" comparison between incomes for those who rent and those who don't or who are still paying mortgages.

No biggie just a little "equalizer"

I agree with your intent but I'm not sure how it would apply in my case? My personal use real estate is an expense not imputed income. Quite a big expense in fact. Maybe 25% of total spending.

 

[mathjak107]

all our housing costs over a lifetime are an expense . some will be more , some less and it does not even matter if you buy or rent since many renters never rent anywhere near as much house as they would buy .

our area has homes in the 800k plus range . i would never rent one . but we do rent a 2 bedroom 2 bath apartment in a luxury building with pool and tennis courts for a fraction of what i would spend if we buy .

we are entertaining buying a co-op next year but as far as cash flow goes it will not be as good a deal as we have . while housing costs drop by 6k , the money we will spend to buy will lose 12k a year in income . so initially it will cost us a lot more to buy .

appreciation does not matter to us much since we plan on dying in it .

 

[Danmar]

all our housing costs over a lifetime are an expense . some will be more , some less and it does not even matter if you buy or rent since many renters never rent anywhere near as much house as they would buy .

our area has homes in the 800k plus range . i would never rent one . but we do rent a 2 bedroom 2 bath apartment in a luxury building with pool and tennis courts for a fraction of what i would spend if we buy .

we are entertaining buying a co-op next year but as far as cash flow goes it will not be as good a deal as we have . while housing costs drop by 6k , the money we will spend to buy will lose 12k a year in income . so initially it will cost us a lot more to buy .

Yes, I agree. When we bought our last two vacation properties I certainly had to figure in the opportunity cost of the purchase price in addition to the added
maintenance expense. 4% opportunity cost and about the same for maintenance. Did reduce this by saving some on vacations though.

 

[brett]

We went from owning a large home and plans to buy a second vacation property to owning nothing. Sold our home, rented, and shelved buying a vacation property for the moment. Financial imperatives were not the driving force. Circumstances just worked out that way. This is fine with us for now...and maybe even for a few more years.

We may buy a principal residence again. Not sure. We are enjoying the freedom of not owning. Besides, where we live is a down market so the incentive to buy is not high.

 

[Fedup]

A house can be negative income if you need a new roof. Where would you find the money to fix it?

 

[pb4uski]

Its called an emergency fund. That is what we save money for.

 

[kcowan]

The other consideration is taxes. Owning a home eliminates the need to generate income to pay rent. So the taxes you save can more than cover the maintenance costs.

I think it is just a lifestyle choice. I consider our condo that we own to be a lifestyle expense, not an investment. And our decision to rent NOTB enabled us to retire 3 years sooner without being forced to sell and move. The fact that we can easily sublet it during the winter is just a cashflow bonus!

 

[Fedup]

Its called an emergency fund. That is what we save money for.

Yes but not in the context of this thread. It's negative income.

 

[daylatedollarshort]

400,000 long islanders said in a survey they intend to sell . leave long island and move to cheapsville .

that sure works well but until the house is sold there is no income yet

What if they rent it out or take in a roommate?

I like to follow rules so if I ever answer the poll I will follow the instructions for this poll because I can move my income up a higher bracket. - "And for all those with paid off mortgages, the fair rental for your home minus property taxes and "mello roos" or other such assessments if still paying and 10% for upkeep."

 

[Fedup]

What if they rent it out or take in a roommate?

I think that would count as income. My secret stash of future income is renting out rooms on Airbnb. That and potentially selling one of my kidneys for cash.

 

[pb4uski]

Yes but not in the context of this thread. It's negative income.

Negative income is an offset to income (like sales returns and allowances) but a new roof doesn't relate to income in any way so I'm not sure what you are talking about. Do you mean an expense?

If you need a new roof you need a new roof... homeowners expect to have to replace roofs every 25-35 years or so... a new roof marginally increases the value of the property (but usually by less that the cost of the roof). It's a capital improvement, not negative income.

You had asked "Where would you find the money to fix it?". While I have no idea what that question has to do with retirement income which is the topic of the thread.... I answered it anyway.

 

[Fedup]

Negative income is an offset to income (like sales returns and allowances) but a new roof doesn't relate to income in any way so I'm not sure what you are talking about. Do you mean an expense?

If you need a new roof you need a new roof... homeowners expect to have to replace roofs every 25-35 years or so... a new roof marginally increases the value of the property (but usually by less that the cost of the roof). It's a capital improvement, not negative income.

You had asked "Where would you find the money to fix it?". While I have no idea what that question has to do with retirement income which is the topic of the thread.... I answered it anyway.

Negative income is a tongue in cheek comment. It's expense in my book.

Btw, I did major in accounting and almost finished with the degree when I switched to engineering. I'm not totally clueless.

 

[mathjak107]

What if they rent it out or take in a roommate?

I like to follow rules so if I ever answer the poll I will follow the instructions for this poll because I can move my income up a higher bracket. - "And for all those with paid off mortgages, the fair rental for your home minus property taxes and "mello roos" or other such assessments if still paying and 10% for upkeep."

they are not consuming it themselves once they rent it or earn money off it . it is an investment or partially an investment at that point

 

[RobbieB]

Good to see we are still having fun with this and that was my intent. Yes I know a home does not provide "income", you have to pay taxes and upkeep. And while you have a mortgage you pay the same or more than if you were renting.

But the US government thinks that it is a good idea and so they encourage it by allowing mortgage interest deduction as well as capitol gain avoidance. They want you to own a home. They think it's a good idea. They think it's good for the country. They know that a home is often a retiree's largest asset.

Take that $40,000 a year number that's been discussed. I know that was an expense number and not "income" either, but lets say it was. Now I could do it with my housing expense of 2 grand in taxes and 2 grand deferred upkeep a year. My housing expense is only 10% of my income. But if I had to rent the place at $1600/mo, I would be pretty "stretched" at 48%. I don't think I could get anyone to rent to me with that ratio.

That's the reason for the inclusion, not because I think a home produces income. It does have pretty much the same effect though which is why I included it.

As always, have fun!

 

[Meadbh]

But the US government thinks that it is a good idea and so they encourage it by allowing mortgage interest deduction as well as capitol gain avoidance. They want you to own a home. They think it's a good idea. They think it's good for the country. They know that a home is often a retiree's largest asset.

That argument is not valid for those of us who live in countries where home mortgage interest is not tax deductible. In fact, the incentive here is to pay down your home mortgage ASAP. To do that, you have to spend more of the income earned from other sources.

 

[RobbieB]

Yeah, I know, you Canadians are on your own. That's why I said the US government -

 

[mathjak107]

Good to see we are still having fun with this and that was my intent. Yes I know a home does not provide "income", you have to pay taxes and upkeep. And while you have a mortgage you pay the same or more than if you were renting.

But the US government thinks that it is a good idea and so they encourage it by allowing mortgage interest deduction as well as capitol gain avoidance. They want you to own a home. They think it's a good idea. They think it's good for the country. They know that a home is often a retiree's largest asset.

Take that $40,000 a year number that's been discussed. I know that was an expense number and not "income" either, but lets say it was. Now I could do it with my housing expense of 2 grand in taxes and 2 grand deferred upkeep a year. My housing expense is only 10% of my income. But if I had to rent the place at $1600/mo, I would be pretty "stretched" at 48%. I don't think I could get anyone to rent to me with that ratio.

That's the reason for the inclusion, not because I think a home produces income. It does have pretty much the same effect though which is why I included it.

As always, have fun!

then you need to learn the difference between improving cash flow vs increasing income . cutting expenses no way is an income increase . it is managing existing income better .

 

[RobbieB]

I understand this. I know the difference. I get it, I really do. I give up.

 

[Mulligan]

I understand this. I know the difference. I get it, I really do. I give up.

Hang in there Robbie, you are doing fine! I dont really care about the tedious nuances of income terminology. But I do like cutting expenses and increasing cash flow for DISPOSABLE INCOME. Well that is not all true either ...increasing my cash flow also allows for more money to invest with, also.

 

[papadad111]

a house you live in cuts expenses , it can improve cash flow . that is not the same thing as producing income .

that is why wall street looks at profits which can come from cost cutting as well as revenue which is income .

while it appears similar at first , cost cutting has a bottom after which increasing expenses or inflation can no longer be offset .

increasing income has no limits like cost cutting does .

a home is an expense , it just may be less of an expense then renting but that does not mean income increased a penny .

do not confuse improving crash flow with increasing income .

Exactly. Lets not confuse revenue and expenses.

Owning a home may be a contra expense, in that it reduces rent needing to otherwise be paid, (but net out property related expenses like insurance taxes and maintenance).

It is not a source of revenue...unless it brings in actual rental income.