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Whadda ya think,
Old 01-22-2006, 04:07 PM   #1
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Whadda ya think,

About renting, after retirement? I just can't see, having to get another 30 year mortgage, at 65+.
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Re: Whadda ya think,
Old 01-22-2006, 04:19 PM   #2
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Re: Whadda ya think,

Most folks who have really studied it think that renting is better economically after retiring. In retirement you likely are in a lower tax bracket so the interest deduction isn't as valuable. But the most important thing is that the home freezes your capital so it can't work for you. After retirement mortgages are riskier because they are a form of leverage and all leverage reduces your SWR in retirement because it makes it easier for you to go bust in a worst case situation.

BTW, in case you haven't been following the mortgage market, 30 year fixed mortgages are not your only option any more.
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Re: Whadda ya think,
Old 01-22-2006, 04:23 PM   #3
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Re: Whadda ya think,

We just refinanced for 30 years and I was 44 when we signed the papers. *If fixed interest rates get below 5.375% then we'll do it again for another 30 years.

Run the numbers for your situation. *If you get a low fixed interest rate and have reliable cash flow (like SS or pension or rental income) then you're paying off the loan with constant (depreciating) dollars. *There are a number of other issues to consider, all regurgitated on threads like this one. *Whatever decision you make has to accomodate your peace of mind.

Most people want to own their own home in retirement so that they're not at the whim of their landlord. *Some people can't imagine having a mortgage in retirement. *If my only ER choices were to rent, pay a mortgage, or work longer, then I'd be filling out the mortgage-application form.
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Re: Whadda ya think,
Old 01-22-2006, 07:37 PM   #4
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Re: Whadda ya think,

I skimmed that thread... good stuff. It sounds like the main point Nords is making is that a 30 year mortgage at historically low rates is a good way to arbitrage against bonds or other rates that Nords thinks will be higher in the future.

The problem with this line of reasoning to my mind is that the mortgage companies that set their rates also have the same thing on their mind. They wouldn't set their rates low enough that they lose money on the loan when held for the normal amount of time. They have priced in the likelihood that rates will rise over time. That is why 30 year fixed mortgage rates don't change nearly as much as greenspan's short term rates. The only ways you can successfully arbitrage with mortgages are:

1. Just get lucky and have rates rise more than mortgage companies predict over the life of the loan.
2. Be better at macroeconomic predictions than the mortgage companies.
3. Hold the mortgage for significantly longer than the average person does, in an era of increasing rates. Most people who pay for 30 years of fixed rates abandon the loans after 5-10 years, and even the Nords loan will be abandoned if something else comes along that's lower.

For most people none of these apply.

I think mortgages can have a place in ER as vehicles for taking more risk in order to increase likely terminal portfolio value, but doing that must be tempered with ability to reduce withdrawls in dips in order to deal with that increased volatility. In some sense Nords has this because of the pensions and social security that reduce exposure to dips.
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Re: Whadda ya think,
Old 01-22-2006, 08:01 PM   #5
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Re: Whadda ya think,

Ditto's on NOT going the mortgage route at retirement! *
Just the thought of that makes me shudder!

I'm not yet quite retired but renting has been working great for me and I just might continue on that route after leaving the workforce. For the last decade I've been paying $150.00/month for an older but nice 3 bedroom/1 bath farmhouse which includes a huge wrap around porch. By the nature of my employment working with a wilderness educational school I also live only 3 miles from "work" so it works out great.

Eventhough I can't imagine not living in a rural community since hunting, fishing, and other outdoor activities are so much about who I am, I do realize that it's not for everyone and there are some who'd prefer the hustle & bustle of city living. However, here in the southeastern states the cost of living is low and great housing bargains can still be found but you won't find them in the classifieds.You've gotta let neighbors get to know you and what you want and the deals will find you.

Not only has my rent never gone up, the family from whom I rent also has a huge garden every year on their 200 acre spread so in the summer my porch stays stocked with more vegetables than I can handle, not to mention the root cellar in my backyard which is full with potato's most of the year.

Yeah, I'd like to build that one last log home for retirement but the renting option would probably be my best *choice if I want the best shot at preserving capital. It's my plan to be prepared financially for either option at retirement in the next 3-5 years or so. Everyone must evaluate their own unique preferences, financial abilities, and situation but this is what's working for me.
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Re: Whadda ya think,
Old 01-22-2006, 08:14 PM   #6
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Re: Whadda ya think,

Dear Sundance,

How about living fulltime in a used RV? *Hmmmm? *Could be a no rent situation!

I bought MsTioga (my RV) for $18K. *Put about $20K in equipment consisting of; *full internet access system called Datastorm, big solar electric system, levelers (gotta be level), and a bunch of little things to make things perfect.

For the past three years, I have been travelling all over the Western United States and Mexico. *Right now I am typing at you from a hill overlooking the Sea of Cortez. *My camp is in the glorius Pueblo of Santa Rosalia in the State of Baja California Sur, Mexico.

My motto is, "Never Pay Rent."

Bye for now,
George
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Re: Whadda ya think,
Old 01-22-2006, 09:10 PM   #7
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Re: Whadda ya think,

TiogaRV good to hear from you. I just recently found your site at:

http://vagabonders-supreme.net/

and it looks like a good life... I'm thinking of going on the road sometime too, although not in an RV.

Although you're not paying rent you are paying for the RV; I see in your monthly budget

RV repairs by mechanics: $391
MsTioga parts, oil, tires, improvements: $265

and I don't see any line item for depreciation. I'd guess if you include depreciation your home is costing you at least $1k a month, roughly equivalent to renting.
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Re: Whadda ya think,
Old 01-23-2006, 12:55 AM   #8
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Re: Whadda ya think,

Quote:
Originally Posted by fireme
For most people none of these apply.
I'm not suggesting that anyone else should follow in my footsteps.

I AM suggesting that everyone should run their own numbers for their particular situation.*

Put aside the thumbrules and the medians and the conventions and do your own math for your own particular set of circumstances.* It's the only way to quantify your risks and to decide if it's worth the effort.* Quoting the conventional wisdom and assuming that it applies to you, just as it's assumed to apply to everyone else, is a surefire way to miss an opportunity.

If it keeps you from sleeping at night, then don't do it. But that doesn't mean that the math doesn't work for your situation... it just means that you're not comfortable with the life you'd have to lead under those conditions.

Maybe there's a reason that so many ERs are analytical about their finances... and perhaps even a little anal.
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Re: Whadda ya think,
Old 01-23-2006, 09:33 AM   #9
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Re: Whadda ya think,

Just make sure you do the calcs as fireme proposes. Running a simulation with a 30 year mortgage when you dont plan to stay for 30 is certainly going to look great, but its not valid.

You dont even need a calculator for that one. Most broad stock indices over 30 years produced an annual return higher than the average annual cost for a mortgage. Wow, 2 is higher than 1.

About six months ago I dug up some tables showing the average mortgage rate per year for the last 80 or 100 years. Column'ed up the average stock market returns from a firecalc detailed run next to them. Pulled five, seven and ten year comparisons for mortgage costs and market returns trying to mimic what the vast majority of people do...step out of the house at 5-7 years and almost all by 10. Many periods produced a positive aribitrage. A lot didnt. A few were fairly awful. In a lot of cases the equity markets dropping were a result of an economic falter that also produced lower rates, so you could take your loan then.

My biggest issue with any of these 'calcs' is sticking them in a fishbowl and then trying to make a two or three factor calculation out of it, rather than taking stock of your entire financial situation. Would you do absolutely nothing differently with your life and financial picture if you held a quarter million in debt vs if you dont? I think not.

In that spirit, you should never drive your car as there is a decent chance of death and a very decent chance of injury or at least damage to the car you would have to pay for. Getting fired from your job for not showing up and starving to death because you ran out of food would sort of have to be considered.

It makes absolute sense to run all the numbers and make sure you make the right decision. But make sure you run ALL the numbers.

If we had a big debt load, we'd feel like we needed to be more conservative in our portfolio holdings. We probably wouldnt have been as comfortable with my wife cutting her hours in half...we'd want to have enough cash coming in to cover the mortgage.

And man, was it a great idea or what to pay off a couple of mortgages and some other debt in 2000 rather than invest the cash I got from my last stock options sale? I'd still be looking up from a hole in the ground right now if I'd tried the 'arb' route.
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Re: Whadda ya think,
Old 01-23-2006, 09:47 AM   #10
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Re: Whadda ya think,

Quote:
Originally Posted by ()
And man, was it a great idea or what to pay off a couple of mortgages and some other debt in 2000 rather than invest the cash I got from my last stock options sale?* I'd still be looking up from a hole in the ground right now if I'd tried the 'arb' route.
Yeah, I notice Intel is having a "rebranding" sale this week... ouch.
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Re: Whadda ya think,
Old 01-23-2006, 10:05 AM   #11
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Re: Whadda ya think,

True

I plan on moving in 26 yrs - age 88. Got 26 years out of the fish camp - so why not.

Not wanting to move in 1993 - was one primary motivator to ER. Then again the locals say we have tornados up here.

Now - if I lived in a more dynamic RE area - I might learn to sing a much different tune.

heh heh heh - keep it up guys - haven't dabbled in RE since the 90's.

heh heh - two vacant lots across the street came with the house I. IMHO - too wooded and steep sloping to build on - but they are city lots.
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Re: Whadda ya think,
Old 01-23-2006, 10:09 AM   #12
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Re: Whadda ya think,

Quote:
Originally Posted by Nords
Yeah, I notice Intel is having a "rebranding" sale this week... ouch.
Dont even get me started.
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Re: Whadda ya think,
Old 01-23-2006, 10:37 AM   #13
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Re: Whadda ya think,

Quote:
Originally Posted by fireme
I skimmed that thread... good stuff.* It sounds like the main point Nords is making is that a 30 year mortgage at historically low rates is a good way to arbitrage against bonds or other rates that Nords thinks will be higher in the future.

The problem with this line of reasoning to my mind is that the mortgage companies that set their rates also have the same thing on their mind.* They wouldn't set their rates low enough that they lose money on the loan when held for the normal amount of time.* They have priced in the likelihood that rates will rise over time.*
This isn't really true. As long as there is a market for long term debt, mortgage companies will make and then sell loans. The ultimate holders usually will have institutional reasons for needing or wanting debt with the characteristics offered- such as liability matching, etc. IMO, there really is no "efficient market price discovery mechanism" that has any relevance to someone trying to predict inflation.

Ha
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Re: Whadda ya think,
Old 01-23-2006, 02:58 PM   #14
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Re: Whadda ya think,

Quote:
Originally Posted by HaHa
This isn't really true. As long as there is a market for long term debt, mortgage companies will make and then sell loans. The ultimate holders usually will have institutional reasons for needing or wanting debt with the characteristics offered- such as liability matching, etc. IMO, there really is no "efficient market price discovery mechanism" that has any relevance to someone trying to predict inflation.
The buyers of the mortgage debt are the "efficient market price discovery mechanism" because they consider the future effects of inflation in deciding what terms they will buy.
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Re: Whadda ya think,
Old 01-23-2006, 03:19 PM   #15
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Re: Whadda ya think,

Owning your own home is one of the best investments you can make, bar none; provided you are going to stay there a while.* And yes, at any age.* *JG is right, real estate makes a wonderful investment, and what better way to do that than to be a home owner.* *You're going to be paying someone's mortgage, why not make it yours.*

fireme, owning your home isnt a leveraged position, its an investment.* *Real estate has gone up some 6-7% annually, and historically and makes a wonderful addition to a well balanced portfolio.* *Those most know this, adding additional asset classes, such as real estate actually lowers your risk, not increases it, fireme.

Your money isnt tied up, because it is an appreciating asset that can be sold in a reasonable amount of time provided one is smart enough to buy in a decent location.* *Ideally, you wont have to sell your house, but if you do, so be it, sell it and rent somewhere.* *Houses can be sold just like a mutual fund, and they appreciate just like a mutual fund.

What's the difference between "tying up" as fireme put it, 147K into a house I own, and paying a 900 dollar mortgage cause I dont own one.* You guessed it!* *In the latter case, i have a 900 payment i dont have if i own a home AND i pay interest too.* Weee!* That dont sound so smert!

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Re: Whadda ya think,
Old 01-23-2006, 03:23 PM   #16
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Re: Whadda ya think,

Quote:
Originally Posted by fireme
The buyers of the mortgage debt are the "efficient market price discovery mechanism" because they consider the future effects of inflation in deciding what terms they will buy.
OK chief, whatever you say.
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Re: Whadda ya think,
Old 01-23-2006, 08:11 PM   #17
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Re: Whadda ya think,

I had a delightful experience the last little RE difficulty - had about 20% of original price left to pay off mortgage. The S&L crisis was making the news - so's I'paid' off the mortgage - heh, heh, heh.

To make a very long story short - after retaining an attorney (billing hours spent) - roughly 8 months later caught up with the paper(6-7 co.'s but whose counting) saying solvent enough, holding the mortgage - to take the money, not try to scam fee's and work the problem get a 'legal paid title' to MY property.

Of course - this time it's different - Congress fixed the S&L problem - liked they fixed defined pensions thru reform and funding in the 70's.

Not to worry - I'm an optimist

Buffett's just a worrier about derivatives and that sort of stuff.

heh heh heh heh
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Re: Whadda ya think,
Old 01-23-2006, 08:53 PM   #18
 
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Re: Whadda ya think,

Quote:
Originally Posted by azanon
Dave Ramsey - "The borrower is slave to the lender"
Dave Ramsey is mostly an idiot!
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Re: Whadda ya think,
Old 01-23-2006, 10:53 PM   #19
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Re: Whadda ya think,

Quote:
Originally Posted by azanon

What's the difference between "tying up" as fireme put it, 147K into a house I own, and paying a 900 dollar mortgage cause I dont own one.* You guessed it!* *In the latter case, i have a 900 payment i dont have if i own a home AND i pay interest too.* Weee!* That dont sound so smert!

Azanon
Not sure about other areas, of the country, but here in the north Dallas area, the equation has to factor property taxes, homeowners insurance, utilities, yardwork, pool upkeep, property maintenance, and the miscellaneous costs of fire ant killer, etc
When I look at the quoted 900 payment for renting a pretty decent place, albeit smaller then the house, versus the operational costs, not including the mortgate and interest payment, it still is less on a cash flow basis to rent versus own. And the money from the sale of the home, is generating at least part of that monthly rent payment, unlike the home owner ship scenario which has all of the costs, and the occasional catastrophic repair bill that is not covered by insurance.
Weehoo! sounds pretty smart to me.
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Re: Whadda ya think,
Old 01-24-2006, 04:57 AM   #20
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Re: Whadda ya think,

I go with the home ownership crowd.

-It's just superior to many other investments.. its value may fluctuate but will never go down to zero; even 50% or 75% of what you paid for it is highly unlikely if you're not buying in a hot area or speculative market...

-Mortgage rates have been pretty low but are going up, so I wouldn't hestitate to lock in a long-term mortgage now, at whatever age, if I wanted to live in my own home and not be subject to:
--raising rents.. you know what your payments will be for the life of the mortage.
--eviction, when the owner wants to sell/condo-ize or whatever

The tax deduction may be not as appetizing for someone in a lower bracket, but why turn down the gov't.'s offer of any 'free money'?

Quote:
the equation has to factor property taxes, homeowners insurance, utilities, yardwork, pool upkeep, property maintenance, and the miscellaneous costs of fire ant killer, etc
..and if you're renting, do you think those expenses are somehow not included in your rent Insurance goes down for owner-occupied units.

I wouldn't want to spend my life thinking about whether I could paint the walls anything but "rental off-white", whether I could put a nail in the wall to hang a picture, whether I could have a pet, whether I could have a backyard BBQ, how long I can stand to look at the tired and stained "Berber"! carpeting since the landlord sure as hell's not gonna replace it until I move out nor is he going to re-paint, even if I've been there 10 years... etc., etc.

I think it is different for older single guys who might find more flexibility and freedom in renting. Even married guys would love to have someone else worry about maintenance and so forth.. but hey, I'm a gal, and I want a "nest"!* If budget were an issue, I'd rather buy a little cabin that was Mine rather than rent a nicer or bigger place. It does have a big emotional component, but I think it often makes economic sense, too. If you need cash later on, you can always do a reverse mortgage.. oh, and one other thing, they can't nab your home equity before letting you be eligible for Medicaid, if you're in that situation. Can't say that about other investments.
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