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Old 05-15-2021, 09:16 AM   #41
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Few key differences:
1. 30 year fixed rate is WAAAY lower than one you pay for margin.
2. The rate you pay is (nominal - inflation) which could be negative in the future, which further drives down the real rate of interest.
3. No margin call EVER and lender will not forcefully liquidate your asset unless you stop paying mortgage.
4. Access to otherwise locked up equity at least during the first decade of mortgage. ...
I'll concede that some aspects of an arbitrage scheme may be less risky if a home mortgage loan is used to finance the equity purchase, but the structure of the deal is the same.

For those suggesting that the OP borrow on his house in order to invest in equities, have you done this personally? If yes, why and to what extent? If no,why not?
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Old 05-15-2021, 09:38 AM   #42
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Originally Posted by Mountain skier View Post
concerning % RE value NW....would one include pension value to overall NW?...if so a $1M house would be 36% of our NW. This does not include SS....if I include SS the $1M becomes 26%. I calculated values as if living into our early 90's.
Personally, I would not count pension value or SS as part of my net worth. They might be expected or promised, but I don't consider them to be guaranteed.

Also, I consider net worth and wealth to be separate. NW would include a house, but wealth would not. Wealth is what you can tap right now, today. A house is an asset and must be sold before its value can be spent -- unless you get a HELOC, which then becomes a debt (liability). Just my opinion and how I think of this. Other folks might feel otherwise.
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Old 05-15-2021, 11:19 AM   #43
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I can only speak for myself. If I had the same numbers, I would not be comfortable sinking that much money into a house. Obviously, YMMV.
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Old 05-15-2021, 11:43 AM   #44
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Someone here a lot more savvy on the "search" function can probably find it, but I'm pretty sure we've done a poll (or 2 or 3) about House as %of Net Worth. IIRC, the sweet spot might have been around 20%. I think 50% +/- would have been unusual. More than 50% "house" may be a real outlier.
I'm not all that savvy, but after reading the above I got curious and somehow managed to find a three year old poll on that topic. Here it is in case anybody's interested:

https://www.early-retirement.org/for...rth-91439.html

I was amazed to discover that my house was 15% of my net worth when I bought it back in 2015, and due to the recent dual booms in housing and the stock market, it is still 15%. Not that it matters; I don't ever intend to sell. They can take me out of here feet first but I'm not leaving voluntarily as long as F lives next door.
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Old 05-15-2021, 11:56 AM   #45
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I put a high priority on home and lifestyle in retirement. Many retired people spend the majority of their time in and around home, so it's important that you have a place you really enjoy.

A little more than year ago, right before prices skyrocketed, we bought a house that was twice as expensive as our current house at the time. I wake up everyday enjoying the new house and especially the location. This new house is less than 14% of our NW, and the appreciation over the last year has been phenomenal based on recent sales prices in the same area. While the new house is larger and taxes are higher, the utilities and repairs are lower since it is a newer, better constructed, better insulated house. So although our overall expenses have risen slightly, the comfort and location have increased our enjoyment of life dramatically. After all, this is what we worked hard to be able to do if we chose to do so.
+1000 (bolded emphasis mine) Yes!! Like you, my first thought when awakening each morning is how happy and lucky I am, to be living in this wonderful house. Sure starts my day on a happy note. Others might see my home as an average 1960's 1500 sf ranch house, but to me it is everything I always dreamed of.

I look on realtor dot com every day out of curiosity, and haven't yet found another house at any price that I would like as much. Plus, this house has the advantage of being right next door to Frank's house and that has been wonderful for us.
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Old 05-15-2021, 11:56 AM   #46
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I'm not all that savvy, but after reading the above I got curious and somehow managed to find a three year old poll on that topic. Here it is in case anybody's interested:

https://www.early-retirement.org/for...rth-91439.html

I was amazed to discover that my house was 15% of my net worth when I bought it back in 2015, and due to the recent dual booms in housing and the stock market, it is still 15%. Not that it matters; I don't ever intend to sell. They can take me out of here feet first but I'm not leaving voluntarily as long as F lives next door.
YES! That's what I was looking for. Thanks, W2R - you are way more savvy than I on the search function.

I guess its "worse" than I thought - The sweet spot is more in the 10 to 15% range for a goodly chunk of us here. Heh, heh, 50% isn't even mentioned, so OP might be exploring new territory, % of NW wise.

Once again, what WE do should only be one of the aspects to consider. Still, all of us "old timers" must have done a couple of things right along the way, so the young 'uns ignore us at their own peril.

As always, YMMV.
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Old 05-15-2021, 12:20 PM   #47
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And that's the rub in OP's case. OP is trying to spend about 59% of Networth on a house which IMHO is little too high even during retirement.

PS: FWIW our forever home (for now!) is about 15% of NW today. It may represent even smaller percentage of NW in the retirement if other assets + savings grow faster than the house.
True, but another factor to consider is that the OP have a $35k/year fixed joint life pension. That is probably worth ~$800k and would drop the % from 59% to 40%... still higher than most but less than 59%.
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Old 05-15-2021, 12:23 PM   #48
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I'll concede that some aspects of an arbitrage scheme may be less risky if a home mortgage loan is used to finance the equity purchase, but the structure of the deal is the same.

For those suggesting that the OP borrow on his house in order to invest in equities, have you done this personally? If yes, why and to what extent? If no,why not?
Whoa there hoss. Where has anyone suggested that the OP borrow on his house to invest in equities?

To me and and I suspect most others other than you, there is a huge difference between 1) taking on a mortgage to buy a house rather than liquidating investments (equities or whatever) to pay cash and 2) borrowing on a paid off house to invest in equities.
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Old 05-15-2021, 12:33 PM   #49
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Getting a mortgage at low interest rates we may never see again is also cheap asset protection in states without great asset protection laws for personal residences, especially if the funds that could be used to pay off the mortgage are left in more protected assets classes, like retirement accounts.
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Old 05-15-2021, 12:52 PM   #50
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Getting a mortgage at low interest rates we may never see again is also cheap asset protection in states without great asset protection laws for personal residences, especially if the funds that could be used to pay off the mortgage are left in more protected assets classes, like retirement accounts.
Yes, and remaining slightly off-topic, holding a mortgage - WITH a fixed rate - is one of the more-or-less iron-clad inflation hedges. Unless you default, you will pay back the loan with inflated dollars - thus "beating" inflation at its own game. Now returning you to today's topic since YMMV.
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Old 05-18-2021, 04:00 PM   #51
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My home is only about 10% of my total net worth. I'd rather have a smaller home and then have more money for investments, travel, and maybe even a second home somewhere. Also, because it is now below the median price for homes in this area (HOT RE market), I know that I would have absolutely no problem selling it or turn it into a rental for positive cash flow. Some of the more expensive homes (and 1 mil would definitely be in that category) sit empty on the market for a while.
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Old 05-18-2021, 08:27 PM   #52
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According to your post it sounds like your pension and both SS checks cover your expenses. If that’s the case I say go for it. For years my plan was to sell our home in a high cost area and bank a lot of cash when moving to somewhere more reasonable. Instead we fell in love with an “almost always on vacation” type of place with a beautiful view and a ton of parks/restaurants/museums/bike paths, etc right out our door. Instead of banking money this place was 60% more expensive but we pinch ourselves every single day because we love it. You only live once and we are very glad we made the move as we are enjoying every day.
PS...No pensions but this was not a reckless as we can withstand the inevitable market correction and our calculations are still in good shape
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Old 05-26-2021, 11:03 AM   #53
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Reading many of the responses reflects different lifestyles and locations.I've lived in Southern California all my life, my $3 mil house is a shocker to those lower priced areas. I am also thankful each and every day for my house and location with great weather daily. My house if paid off, I do know I can sell it and buy a cheaper place if I needed to, but believe I'll ever NEED to, but may want to.

Some areas in California are subject to loss of value in the short term, most are not in the long term, some never lose much value. When considering volitle areas I think of the Palm Springs larger area, it has many second home and retired people dying off, little good career prospects for those interested in that so I have seen big drops that last longer than other areas. Beach communities in the greater Los Angeles area come back real fast. Your local area is the best measure of your financial risk.

My vote is DO IT.
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