More Expensive Home Purchase After FIRE

[freedomatlast]

We are considering purchasing a more expensive house in an area that would provide a significantly better quality of life, and much closer access to parks and walking/biking trails.

Presently the value of our primary residence is approximately 6% of our NW. We are thinking of purchasing a different primary residence that would be about 14% of our NW. I retired in June 2019 and was originally planning on upgrading to a house that would be about 10 or 11% of our NW. Property taxes will more than double. Having just retired, I'm still getting used to spending instead of saving. Either way, our annual spending averages less than half of what Firecalc considers safe.

Anyone else buy a substantially more expensive house after retiring?

 

[COcheesehead]

Yes. Went from about 10% to 14% of NW. Didn’t really change anything in our plan.

 

[W2R]

I retired in 2009, and in 2015 I bought my Dream Home, moved, and immediately did a lot of re-landscaping at the Dream Home to make it what I wanted. In this post I am including that re-landscaping in the purchase price. If I am computing this correctly, then the percent of my net worth represented by my house went from 11% to 18%.

In my case, this move added a great deal of happiness to my life.

My property taxes went up from $956 to $1822, but overall the ongoing costs have not been a budget buster. However, it helps that the two homes were about the same square footage.

 

[Ronstar]

Our current home is roughly 15% of NW. made an offer last year on a home that would have been 23% of NW, but the offer was not accepted. Still looking, but I really don’t want to be over 23%.

 

[travelover]

I don't see how percentage of net worth is relevant. The purchase reduces your investments and increases your necessary spending (taxes, etc). To me, what is relevant is whether your withdrawal rate is still appropriate. If your current withdrawal rate is half the safe rate, you probably don't have anything to worry about.

 

[W2R]

I don't see how percentage of net worth is relevant. The purchase reduces your investments and increases your necessary spending (taxes, etc). To me, what is relevant is whether your withdrawal rate is still appropriate. If your current withdrawal rate is half the safe rate, you probably don't have anything to worry about.

I think that's a very good point.

 

[ut2sua]

I don't see how percentage of net worth is relevant. The purchase reduces your investments and increases your necessary spending (taxes, etc). To me, what is relevant is whether your withdrawal rate is still appropriate. If your current withdrawal rate is half the safe rate, you probably don't have anything to worry about.

I am guessing that the OP is trying to get a feel for what percentage the cost of the main residence vs total NW before the home price becomes excessive. For those of us living in HCOL area, home costing 30% or more of total NW is typical, so ~15% sounds reasonable to me.

 

[travelover]

I am guessing that the OP is trying to get a feel for what percentage the cost of the main residence vs total NW before the home price becomes excessive. For those of us living in HCOL area, home costing 30% or more of total NW is typical, so ~15% sounds reasonable to me.

I guess I'm missing your point. The only "excessive" concern that matters is your withdrawal rate. If I need $100,000 a year to live on and I have $3M in investments, it doesn't matter if my home costs $50,000 or $2M, as long as all my expenses are covered by the $100,000 that I withdraw yearly.


If you were drawing down your investments to a dangerously low amount by purchasing an expensive house, that would be an issue. But that again is just a different side of the safe withdrawal rate equation.

 

[GenXguy]

This is something I consider doing as well, going from a house that is about 8% of my net worth to 11% of my net worth as part of a relocation in the same general region of the same state, and possibly up to 14% of my net worth if I relocate to a state that doesn't have such high property taxes. That would still leave me with plenty of buffer/discretionary.

A similar thread came up in the last few weeks on another early retirement forum, and most people recommended buying the more expensive house if it would truly make the OP happier and if the OP could afford it.

 

[Vacation4us]

I live in a HCOL area. My home is 50% of my net worth. The mortgage will be paid off before retirement. As Travelover states % of NW doesn’t matter. What matters is if the income covers your costs/spend.

 

[Retired Expat]

I asked a similar question on here recently about buying a new more expensive house. No one ever raised the % of Net Worth as an issue. Simply if the additional cost would impact WR or my portfolios ability to generate income for expenses. And most importantly quality of life and longevity in the home.

Alas after a year on the market with an interested buyer finally, they took it off the market.

 

[DrRoy]

We did not move but since RE have done several remodeling projects that took the house investment from 7% to 10% of NW. WR still below 3%.

 

[kcowan]

We have just doubled our home investment and are not done yet. Will probably end up another 10%. Will end up at 16.4% of NW but still below SWR at 2%.

With the consistent run up in the markets, we are spending the inheritance yet they will still get it eventually plus it forced us to take some profits into fixed assets.

 

[mrfeh]

I don't understand why the cost of the house is being expressed as a percentage of net worth. How is that useful?

All that matters is your spending and your portfolio.

 

[ShokWaveRider]

I don't understand why the cost of the house is being expressed as a percentage of net worth. How is that useful?

All that matters is your spending and your portfolio.

I do not either, but it is an interesting metric. Ours is 20%, but we like a high standard of retirement and live in a MCOL area but in an up market development. We spend a lot of time in our home. Others who travel more than we do perhaps do not, and see no need for such an expense. Nothing wrong with that, different strokes. Same as some people do not mind living in ULCOL areas. Not for everyone, but works for some.

We want to enjoy our retirement, a nice home is part of that, good weather along with having all the things we need and the beach close by is another. Again, different strokes.

 

[SumDay]

We did this right before we retired, as I wanted to have a HELOC secured on the new place before we no longer had earned income.

Our old house was 7% of our net worth, and the new one is 13%. Money was cheap at the time, so we took a small mortgage on the new place, after putting down ~70%.

Quality of life in retirement is important. We're glad we did it. Good luck.

 

[COcheesehead]

I don't see how percentage of net worth is relevant. The purchase reduces your investments and increases your necessary spending (taxes, etc). To me, what is relevant is whether your withdrawal rate is still appropriate. If your current withdrawal rate is half the safe rate, you probably don't have anything to worry about.

I think the net worth guide is just piggy backing onto an older thread regarding what percentage your house is in your NW. I think the mean was around 10% ish, but don’t quote me on that. It’s just another guidepost and yes cash flow is king in this equation.

 

[Qs Laptop]

I retired in 2009, and in 2015 I bought my Dream Home...


My property taxes went up from $956 to $1822, but overall the ongoing costs have not been a budget buster. However, it helps that the two homes were about the same square footage.

Trying to understand, your property taxes are $1,822 per year?

 

[Teacher Terry]

We live in a MCOL and spend a lot of time at home so it’s important that it’s nice. We also like to entertain. I also don’t think it matters what percentage of your net worth it is.

 

[ShokWaveRider]

Trying to understand, your property taxes are $1,822 per year?

We DREAM of our property taxes bein under $6k a year, but we do get a lot for it.

 

[GenXguy]

We DREAM of out property taxes bein under $6k a year, but we do get a lot for it.

I know, right? Mine are more than double that for a modest home.

 

[W2R]

Trying to understand, your property taxes are $1,822 per year?

Yes! That's high for my community, too. Louisiana has its problems, but property taxes here are pretty good compared with some other places where I have lived. We have a property tax exemption of $75K, so those whose home is assessed at under that value pay no property taxes. We also have fixed assessment for those over 65, if they earn under a certain amount (I got that one year, but now my income is too much to qualify).

Now, we are about a mile outside the city limits, but if we were inside the city our taxes would be much higher plus we think we get better services out here too.

Also, unlike the Texans, Floridians, and some others we do have state income taxes here; mine were $1,195 last year, so adding income tax and property tax came to over $3K. As Frank says, "they get you one way or another".

 

[Teacher Terry]

Our property taxes are 700/year. The older your home is the cheaper they are. It’s figures into the calculation. Plus when you sell they don’t go up for the next buyers. We are lacking in services.

 

[freedomatlast]

Well, we made an offer on a house that is about twice as expensive as the one we're in now. We'll see what happens........to be continued.... Thanks to all for your responses.

 

[COcheesehead]

Some states stick it to homeowners. Some spread the costs around. We pay $2082 year for a half million dollar plus home. We also pay a 4.6% state income tax that almost every wage earner contributes to. I think that is fair.