Luxury Retirement Lifestyle

[Billy]

Maybe so, but that is a pretty broad brush point. Given enough time between the purchase price and the improvements it could be meaningless.

I'm not sure I agree, unless we are disputing how it is they figure out that 'purchase price amount.'

If you purchase a house for $100K, and 30 years later you have $400K into it with interest expenses, repairs, room additions, gardening, insurance etc., I would not consider that 'meaningless.' 

However, if they consider 'purchase price' to be 'no money down'  or $20K and 30 years later you have $80K into it, then, yeah, I would agree it's 'meaningless.'

And the figures for owning cars is pretty clear... From Retire to Simplicity: "The Department of Labor's Bureau of Labor Statistics calculates that car-ownership costs are the second-largest household expense in the United States. In fact, people in the average household spend almost as much on their cars as they do on food and health care combined for their entire family -- about $600 per month." http://www.retireearlylifestyle.com/retire_to_simplicity.htm

And from Cost of Working:  "Your second car costs you about $7,200 per year, and assuming state and federal taxes take 30% of your income, you'll need to earn $10,300 just to cover the costs of car ownership. A daunting thought indeed." http://www.retireearlylifestyle.com/cost_of_working.htm

Everything has a trade off...  8)

Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[haha]

If you purchase a house for $100K, and 30 years later you have $400K into it with interest expenses, repairs, room additions, gardening, insurance etc., I would not consider that 'meaningless.' 

However, if they consider 'purchase price' to be 'no money down'  or $20K and 30 years later you have $80K into it, then, yeah, I would agree it's 'meaningless.'

I am not really disputing anything with you. I appreciate your pointing out this article. All I am saying is that it is very hard to figure out what it means.

The only way I can think of to figure out if you have a real gain or loss on a house is the cash flow method.

Make a spreadsheet, then enter the CPI adjusted cash flows for every year you own the place, including the year you prepare for sale. I would enter all flows (mortgage payments, taxes, repairs, assessments etc) as negative, and offset them by what it would have cost you to rent the house in each year, a positive number.

Upon sale, take all cash you clear at closing, and enter that as a positive flow.

Use your IRR function to see how you did in real dollars! It may often indeed be a negative number, but it is probably often positive also.

Ha

 

[perinova]

About 400% in 30 years is really high but that compares with the value of the house at the purchase. Assuming the house value doubles every 10 years (accuracy?) the 400% becomes 50% not too far away (actually about twice as much) from the often assumed 1% of current value.

Of course when the maintenance is done matters in the computation (due to CPI and all) but we are talking about averages here so...

Since I never owned a home I am not sure if this one percent guideline is correct.

 

[sgeeeee]

Here is the link to the original article: http://www.realestatejournal.com/buildimprove/20001003-fletcher.html

I think your question is a valid one, however... the point is that homes (and vehicles and our tax structures) cost us more than what most people want to consider.

Having a home and several vehicles and a certain income has become a way of life that we don't like to question too much.

Akaisha
Author, The Adventurer's Guide to Early Retirement

Thanks for the link, Akaisha.  I certainly agree that it is important to understand that it makes no sense to buy a house if you don't take care of that investment.  And taking care of a house and yard costs money.

I can't help but notice that about $100,000 of the over $140,000 listed as 30 year costs are for "updates" to kitchen, bathroom . . .  These items really are discretionary and controllable.  I've kept track of my own homeowner expenses for over 20 years and can tell you that my extrapolated 30 year non-recurring homeowner expenses are less than 25% of the value presented in the article.  

I also wonder what the author thinks the option is?  Renting doesn't eliminate these expenses, it only hides them from you and smoothes them out.  

 

[SteveR]

...Having a home and several vehicles and a certain income has become a way of life that we don't like to question too much.

Akaisha
Author, The Adventurer's Guide to Early Retirement

This is also part of the "upkeep" costs on the cabin. I have 2 ATVs, 2 snowmobiles, a trailer and a truck that is mostly for getting up to the cabin and hauling stuff up there and back and for pulling the trailer for taking the toys to get them fixed or serviced. Each are paid for so no interest payments or loans but the insurance, repairs, gas, registration, taxes etc. all add up on an annul basis.

I would much rather use this $$$ to travel and have less "stuff" to maintain. I would estimate that just the toys costs me $2000/year. These will be put up for sale soon too.

Simplify! Sounds good to me.

 

[Billy]

Talking about how much a home and vehicles are costing us is important, in my opinion.

Repairs are not just the cost of the screw or replacement part. It's the cost of your time standing in line, the gas in traffic, the distraction from what you would rather be doing (even if it is 'nothing.') and so on.

Yes, I love having a home base. OTOH, is there ever really only a ten minute repair? It's my bet that even in keeping these spread sheets, no one ever factors in their own time at any wage... 

And if we love to garden (as I do) the replacement plants, fertilizers, fencing and so on.... simply add up.

Everything has a trade off.  We can't escape it!

Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[Arc]

Well, you just have to be creative! - A 2nd home on the Itailian Riveria overlooking the Mediterranean would be a joy to visit for a month two each winter.

A nice Ranch outside of Jackson Hole with a view of the Grand Tetons would be an ideal place to summer. Private jet to get in and out as well.

I could get into it. They are lots of folks that have this kind of $$$$ and spend it exactly like this. Jackson Hole Wyoming is full of them.

Here is a nice 'little' cabin in Jackson Hole for about $20 Million. On a private trout Stream.

In the future, please stay off my property! Trying to ER in peace!

 

[Billy]

Great photo... superb.

I do have a question though  Does anyone else feel pressure by owning so much? I mean running a household with all the vehicles, maintenance, yard work, the jet to and from, the scheduling of the servants, dog walkers and so on...

Sitting down to pay the bills must take a good few hours every week - and how do you decide what to wear to the next social event?

It seems like such a dream lifestyle. I wonder if I am 'weird' by feeling the pressure of taking up so much room, using so many resources on a daily basis, etc. Are the servants just like 'members of the family?'

I'm not being facetious here.. but maybe I am simply 'small fry.' I am comfortable with my needs being modest. I feel more self determined and less likely to be bought off somehow.. Am I off the mark?

I know.. everyone is different! 

Best,
Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[unclemick]

Yep

At what point does the ownership of 'stuff' reverse and the 'stuff owns you'.

heh heh heh heh heh heh

 

[Eagle43]

Well, George Carlin pontificated about this years ago.

http://www.writers-free-reference.com/funny/story085.htm

quote:  A house is just a pile of stuff with a cover on it. You can see that when you're taking off in an airplane. You look down, you see everybody's got a little pile of stuff. All the little piles of stuff. And when you leave your house, you gotta lock it up. Wouldn't want somebody to come by and take some of your stuff. They always take the good stuff. They never bother with that crap you're saving. All they want is the shiny stuff. That's what your house is, a place to keep your stuff while you go out and get...more stuff!


and

Sometimes you gotta move, gotta get a bigger house. Why? No room for your stuff anymore. Did you ever notice when you go to somebody else's house, you never quite feel a hundred percent at home? You know why? No room for your stuff. Somebody else's stuff is all over the go***mn place! And if you stay overnight, unexpectedly, they give you a little bedroom to sleep in. Bedroom they haven't used in about eleven years. Someone died in it, eleven years ago. And they haven't moved any of his stuff! Right next to the bed there's usually a dresser or a bureau of some kind, and there's NO ROOM for your stuff on it. Somebody else's sh** is on the dresser.

Have you noticed that their stuff is sh** and your sh** is stuff? God! And you say, "Get that sh** offa there and let me put my stuff down!"
unquote

 

[Jarhead*]

I am not really disputing anything with you. I appreciate your pointing out this article. All I am saying is that it is very hard to figure out what it means.

The only way I can think of to figure out if you have a real gain or loss on a house is the cash flow method.

Make a spreadsheet, then enter the CPI adjusted cash flows for every year you own the place, including the year you prepare for sale. I would enter all flows (mortgage payments, taxes, repairs, assessments etc) as negative, and offset them by what it would have cost you to rent the house in each year, a positive number.

Upon sale, take all cash you clear at closing, and enter that as a positive flow.

Use your IRR function to see how you did in real dollars! It may often indeed be a negative number, but it is probably often positive also.

Ha

Hey Ha: It's been a while since I checked in. (Been a very busy summer).
I noticed your post and the subject and decided to comment re: formula for comparing buying and renting. (We covered this subject on another thread some time ago, however....

Certainly agree with Sgeeeeeeee that numbers seem out of line.

I recently went over this with my wife a few weeks back.

If you figure cash on cash, it will simplify comparisons.

Ie: Built home 20 years ago, and paid cash.

My cost for the 20 years for Taxes, and Maintenance have been $l05,000. Built the home for $200,000.00.

Equivilent rent would have been $360,000 during that period of time. (Being fair on the rent side, as it would have been in a "development" somewhere, and not a custom home located where it's at.

It's not for sale, but if it were, $500,000 of the gain would be tax-free.

Since buying our first home in the early 60's, the experience has been much the same.

For me personally, it's hard to see the advantage (in the long haul), for young people to rent rather than buy.

Will agree that owning a home can be a PIA from time to time, but Money-Pit (In the long haul), isn't accurate in my experience. (Keeping
deferred maintenance from becoming overwhelming takes a bit of work though)

 

[Nords]

I do have a question though  Does anyone else feel pressure by owning so much?
Sitting down to pay the bills must take a good few hours every week - and how do you decide what to wear to the next social event?
It seems like such a dream lifestyle. I wonder if I am 'weird' by feeling the pressure of taking up so much room, using so many resources on a daily basis, etc. Are the servants just like 'members of the family?'
I'm not being facetious here.. but maybe I am simply 'small fry.' I am comfortable with my needs being modest. I feel more self determined and less likely to be bought off somehow.. Am I off the mark?

No, you're not off the mark, you're just not ready to join the luxury retirement lifestyle!  Maybe you need another 15 years of practice.  I don't think I'll ever be mature or responsible enough to handle taking care of all those things and their people.

Like UM says, the stuff owns you.  You can turn your checkbook over to a personal assistant and put much of the billing on automatic deduction, but I'm sure that every luxury lifestyle has at least a 5% "leakage" (theft) rate as the staff works out the kickback heirarchy.  There's no incentive to shop for bargains-- only to "buy from the best!"  It's rumored that Barbra Streisand's farewell concert tour was motivated by her accountant's "discovery" that she was spending over $25K/month caring for "just" the yards of all of her residences.  It was adding up to some serious SWR cashflow problems.  Elton John has done the same with flowers & CDs, Michael Jackson with... well... whatever he's doing with it.

It also messes up your life.  Perhaps it's a good thing to have to pick up all the clutter on the night before the housecleaners come, but if you're reluctant to be around the house while they're cleaning then it's affecting your lifestyle.  Not only that, but you're paying for the home invasion.  At some point it must feel more like living in a museum (or a zoo) than in a home.

I've spent some time with professional butlers* who say they've been made to feel like members of the family but who also caution their peers about being sucked into the soap opera.  They feel it's unprofessional to be "family members", especially considering the old quote "No man is a hero to his valet".  No one wants to work for a jerk and good butlers don't have to, but they're also uncomfortable when the lines of familiarity are crossed.

* You might know a couple of these guys, Akaisha.  Two of them were retired from "service" but working at the Queen's Park Hotel a couple years ago as staff trainers.  It's a little odd to go into a Bangkok hotel lobby and be welcomed by two obviously British butlers in frock coats who later join you at the pool for frosty beverages...

For me personally, it's hard to see the advantage (in the long haul), for young people to rent rather than buy. 

Welcome back, Jarhead!  Been a few changes while you were out...  and please check your PMs!

Especially when they're married, I think the buyer's first home decision is rarely a financial one.  It's driven by job stability, relocation possibilities, and family.  It might even be driven by a sense of "keeping up with the Jones" entitlement, but spreadsheets are probably used for rationalization rather than for analysis.

Otherwise everyone would be saving their cash for a 20% down payment and a fixed-rate low-interest 30-year mortgage, right?

 

[Billy]

Unclemick:

At what point does the ownership of 'stuff' reverse and the 'stuff owns you'.

Exactly. I like not worrying about the 'stuff.'   8)  I mean, I am emotionally invested in some of it, and it would be a bit of a hassel should a tornado hit it and blow it away, but I could virtually pick up and buy new stuff without too much trauma.. I like that idea.

I'm emotionally invested in my art supplies,... but I could buy more somewhere else easily enough. I like being unencumbered.

Eagle43

Well, George Carlin pontificated about this years ago.

Love it love it love it! Perfect!

Jarhead

Will agree that owning a home can be a PIA from time to time, but Money-Pit (In the long haul), isn't accurate in my experience. (Keeping
deferred maintenance from becoming overwhelming takes a bit of work though)

Yes, and everyone is different. That's what makes the world go round.  

It's that feeling of overwhelm that is hard for me to handle. If I start feeling responsible for too many things I start to short out - don't get the sleep I need!   (I'm serious!)

Learning to lighten up -- in all the ways it can be - has been an en-lightening experience for me. Great benefits!
Nords:

You can turn your checkbook over to a personal assistant and put much of the billing on automatic deduction, but I'm sure that every luxury lifestyle has at least a 5% "leakage" (theft) rate as the staff works out the kickback heirarchy. There's no incentive to shop for bargains-- only to "buy from the best!"

Now see… that ‘leakage’ would  bother me. Call me anal retentive or something.. (I would rather call it efficient or zen-like    ) But that is why I was good at running a business. And I like to shop for bargains..  I don’t mind having good quality, but I don’t need a $15,000 purse or  a diamond choker for my dog…

I dunno... I enjoy leaving a soft footprint.

Akaisha
Author, The Adventurer's Guide to Early Retirement

 

[REWahoo]

Welcome back, Jarhead!

I'll second that. But it does seem odd that you've been absent for months and suddenly show up again the morning after a certain highly rated college football team is defeated in an overhyped prime time TV matchup.

Just a coincidence I'm sure...

 

[Jarhead*]

I'll second that.  But it does seem odd that you've been absent for months and suddenly show up again the morning after a certain highly rated college football team is defeated in an overhyped prime time TV matchup. 

Just a coincidence I'm sure...

ReWahoo: Depressing as it is, I guess I'll just have to file it under "opportunities lost".

"ReWahoo, who agrees with Jarhead, that Texas is not the best collge football team in the country." Damn, that would have looked great in Neon Lights.

Be that as it may, Fall is my absolutely favorite season. (Fly-fishing is great, Golf is cooler, Major League Baseball is trying to filter out who's going to the playoffs, and the NFL kicks off today.

Lord, if you're going to take me, make it in February.

Talk to you later, "Lucky".

 

[Eagle43]

I'll second that.  But it does seem odd that you've been absent for months and suddenly show up again the morning after a certain highly rated college football team is defeated in an overhyped prime time TV matchup. 

Just a coincidence I'm sure...

Darn! Darn! Darn!  I was gonna mention that.  But, I took my nap, first.  Yep, the Horns got branded last nite.  It took more than 8 seconds, but branded, they were.   

 

[haha]

Hi Jarhead. Welcome back from me also. I hope you will have time to post, even given the allure of autumn in your neck of the woods.

Also, thanks for the rundown on your experience as a homeowner.

Ha