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What a difference some real estate makes...
Old 09-15-2012, 11:54 PM   #1
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What a difference some real estate makes...

My current employer-managed retirement accounts are with Fidelity, and with the nice increase in the market last week (that pushed us over some significant financial benchmarks -- yay!) I decided to play around with the Retirement Income Planner a bit and see how we were looking in terms of potential retirement dates. In the past, I had never included the likely sale of our current home in the figures, but decided to do that and see how it looked. WOW! If we were to sell our current place and maintain the same amount of annual spending (which I think we could do by either moving back to the US and buying a modest property/having the kids go to public school, or downsizing to a smaller and cheaper property here in China/homeschooling), we could pretty much retire now. SWR would be a bit on the high side for a few years if we did that, but if we worked for 5 more years we could get it down to 2-3% for the long haul and likely have a substantial nest egg to pass on to the kids eventually.

For now, both DH and I enjoy our work and things are pretty stable on other fronts, so we will probably continue working for at least a few more years, but boy, does this open up the options for us should we want to make a change.

Curious to know if others include likely profits from downsizing in their retirement projections, or, like we did until now, leave that out of things. Given what has happened with property markets in the past few years, I can see the ups/downs of both approaches.
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Old 09-16-2012, 05:44 AM   #2
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Congratulations. Reaching an FI goal certainly opens things up. My conservative nature does not allow me to count any properties in my retirement plan. I stick to liquid assets which can be easily calculated. There are enough other variables out there already. However, the sale of real estate would be included in my plan B.
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Old 09-16-2012, 09:33 AM   #3
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Originally Posted by lhamo View Post
Curious to know if others include likely profits from downsizing in their retirement projections, or, like we did until now, leave that out of things. Given what has happened with property markets in the past few years, I can see the ups/downs of both approaches.
Congrats on your recent "discovery" .

Personally, while I did certainly enjoy the boost to my portfolio value over this past week (even as the cynical side of me knows that reality still may strike in the form of fiscal trainwrecks a la the US and/or the Eurozone), I'm in the camp that is looking to fun my SWR through primarily dividends, rather than building in annual portfolio growth and selling off parts of that along with the dividends that are spun off.

As a result, I have a slightly different take on determining when I reach my "take this job and cram it" funding level.

When it come to real estate, I currently live in a decent home that should retain its value (due to the ground), but it won't result in a windfall down the road should I sell it. Also, my long-term goal is to tear the house down and build a modest 'dream home' after I get married at some point, and the goal would then be to live in it until it's time to pass on (and let the kids take it over).

One thing I am curious about - you mentioned that you are in China. Given the relatively short history of its equity markets (and relatively higher level of questionable accounting among public companies), are you basing your portfolio off of a globally diversified equity base, or mostly Chinese investments, or mostly US?
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Old 09-16-2012, 12:52 PM   #4
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Most ex-pats (who have owned a home for 5 or more years) are looking at serious RE appreciation and so it needs to be factored in, if you are planning a return to your home country. I have friends in China that have left and I understand that getting your money out can be a real hassle?

We are contemplating a move back to the USA for a minimum of five years and are wrestling with this as well. I am leaning towards downsizing and keeping a place here as the LT appreciation story is very compelling. The balance of the proceeds would buy a house and car in the USA and so we could remove car payments and mortgages from our budget. Depending on the current economic/currency situation at the time, we may opt to rent and keep the proceeds in high interest foreign currency cd's/sovereign bonds.

The savings we achieve on private schools will offset Health care costs for family and I will certainly travel for most medical needs until I am 65 (6 years away).
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Old 09-16-2012, 06:56 PM   #5
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I am hopeful that we can reduce some of the hassle of getting our funds out by adopting the same strategy the people we bought from did -- sell to foreigners or Chinese locals with US-based accounts/assets who can transfer a substantial downpayment directly to our US-based accounts. In our case we paid our downpayment (which was very large) directly to the sellers HK US$ accounts, and that worked very well for all parties. Second-line strategy is to use the large extended family (my DH has 4 sisters) to do regular transfers out of the annual allowance of US$50k/person, so between the SILs and BILs and separate accounts for DH and I, that should cover a big chunk.

In terms of the local stock market, our exposure is limited to whatever is in our US-based international funds. As I understand it, foreigners are not allowed to buy regular Chinese shares directly. You can buy special shares that are designated for foreign purchase, but that is a limited segment of the market. Given what I know of China, though, I wouldn't touch the Chinese stock market with my money -- we have enough risk wrapped up in our apartment as it is. There is no transparancy here and accounting practices are questionable. So all of our stock-based investments are in US instruments. I can sleep that way.

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Old 09-16-2012, 07:03 PM   #6
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Real estate has been a great asset to invest in for many emerging markets (and a few other places) - the appreciation has been impressive. The question is whether the factors that have driven that appreciation will continue? Strong growth in the middle class who can afford to buy their own home and/or investment properties, very high savings rates, improved access to credit, improvements in recognition of property rights under local law etc. In many of these markets (including China), governments have been introducing measures to prevent a bubble developing. I guess they learned something from recent experience in the US, Ireland, Spain and a few other places.

With China, you have the uncertainty of extracting your money from the country (which I understand is getting easier but still has some way to go).

For my part, we are looking to dividends and rents to support us post retirement. While our house is an asset that forms part of our net worth, when it comes to retirement, we view the possiblity of downsizing, taking out a reverse mortgage or outright selling as contingency plans - something to consider only if the primary plan fails. Hopefully never.
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Old 09-16-2012, 10:22 PM   #7
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Familiarity breeds contempt

Having seen so many market fluctuations, on both Wall Street and local real estate, my forecast is that you will pass the FI milestone again and again, going both ways.

My suggestion is to keep your jobs, finish selling your house, and finish transferring assets, then and only then, consider retiring.

Congratulations on your achievement. It is special the first few times. These days, I'm tired of the repetition.
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Old 09-17-2012, 01:23 PM   #8
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Originally Posted by foxfirev5 View Post
Congratulations. Reaching an FI goal certainly opens things up. My conservative nature does not allow me to count any properties in my retirement plan. I stick to liquid assets which can be easily calculated. There are enough other variables out there already. However, the sale of real estate would be included in my plan B.
This.

If the market tanks in a way not seen historically (since firecalc uses history)... Our plan B would be to sell the house for living expenses. But for now, it's not included in plan A. Consider it a super-duper emergency fund.
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