another home buying brainstorming discussion

I thought it to be a weird FA suggestion.

With more clarity what he suggested was a mortgage or a jumbo loan with a low rate and a monthly lower than I pay now for housing. He suggested I use securities as loan collateral. Not use them for a line of credit to buy a house.
When I bought our current home, with mortgage interest at 2.75%, our FA suggested that we get a small loan for the difference between our new home and previous home that we were selling. This is a separate home transaction from a prior sale/purchase which occured a few years before which I had noted above.

The mortgage company, BOA, only looked at cash flow, i.e. income, dividends/interest, SS, annuities, and RMD withdrawals from IRA. Assets/securities are not used as loan collateral. The accounts were with the same company, i.e. Merrill Lynch.

What your FA said just would not work. It's all about income - cash flow and withdrawals.
 
I have tried a few of them.

I was fine to rent forever. I would target 1-2 yr old new builds, usually a situation where the owner had to move after it was built and never lived in it but wanted to rent 5 years before selling etc.... so id rent there for 5 years then move on to the next new house that looked good.

This was all going great until now later on with 2 young kids, a house I rented went bad when the owner who moved lost his job and had to come back only giving me one lease term as a renter. Hard to find another place in the area so have to change schools for the grade K kid and move. Plus just painful to move into a place, un pack and then immediately repack to move again, Plus $$$ moving again so soon. Eats up lots of time and money to do other things with. My kids love this summer of packing as you can imagine.

Want to buy a place mostly to lock in location till the kids are developed and ready to move along to college or whatever. Otherwise, id just keep renting for sure. Fine holding a property for 15-20 years.
Well, that introduces a non-financial consideration that is new to the thread and no rent vs buy calculator can factor in.
 
Don't forget that going from a renter to an owner is quite a bit different. You are now responsible for any repairs, upkeep, replacements, yard work, etc. Plus property and homeowners insurance.
It is more than a mortgage payment vs rent.
Agree with others that a home, whether rental or owned, is not part of your investment or asset allocation, but can be counted towards net worth.
 
Good morning.

I hope everyone had a good weekend!

When you consider your AA, stocks / bonds, and you want to buy a personal house to live in, if the home is 30% of your net worth would you consider replacing bonds with the house assert so you can have more bigger money generation remaining in the stock asset class?

Is personal real estate, or the home you live in an acceptable replacement for bonds or some portion of your bond portfolio? Seems weird to take away from stock AA.

Thanks in advance for any thoughts or insights.

We ran into an issue where rents got so high it makes more sense on paper to just outright buy a house at 20-40% of the portfolio value and then just pay insurance / taxes instead of the rent which is 7-8X higher is most cases. There will be a reduction in spending power, but it seems like going from 8-10K a month in rent to a 600-2K a month maintenance taxes and insurance feels much more attractive.

Without buying the house, the portfolio is doing so good im paced well beyond inflation. Rents went up from 5K to 6K to 8K to maintain same quality of life and the portfolio grew with inflation. But paying the rents still feels gross. Plus want more stability now than renting. I have 2 young kids id like to park in a school system till they are 18. Continuity etc...
Unless your home is generating income (rents, etc.) then, I would not consider it an income stream but would include it as part of my net worth.
 
Reverse mortgage, HELOC, rent out a room ...
Reverse mortgage and HELOC are not income generating, more like borrowing against your own property and paying high interest rates and fees. Rent out a room is unlikely to generate enough meaningful income. Plus who wants a room mate if you can help it.
 
I think there are several aspects to this

Is your Home considered part of your Financial Planning Assets - No

You kind of asked if you should sell assets and buy a home - That is a personal decision that is different for everyone. I did sell some assets to pay off my house before I retired. Some would say the math doesn't work out. It was important to me to eliminate debt before I retired. Again, personal goal not shared by everyone. As someone said above, as a home owner you have maintenance and repairs etc. The flip side of that is you have an inflation hedge that your rent will never go up. e.g my house payment/rent is $0. I do have inflation in Property Tax and Insurance. I also wanted to hedge Energy costs and put in Solar and Batteries (Big up front expense) and I haven't paid for electricity in 2.5 years since it was installed.

The third item is although the house shouldn't be considered part of your liquid assets for financial planning, it can be considered a buffer in some cases. In my case, my home has tripled in value over 15 years and is worth $1.5M. It was and still is my dream house and I have no plans to move. IF we should have all our assets ruined then I could sell the house and buy a nice house for half of what it is worth. So I consider it my buffer not a financial asset for any planning.
 
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Sorry for the late response...the way to model this in FIRECalc would be to NOT include the value of the home in your portfolio (i.e. reduce your portfolio value to reflect what you have left after this home purchase is completed), but to also reduce your ongoing living expenses (withdrawals) to reflect your reduced monthly housing payments. Seems to me, anyway.

As an aside, I think if your portfolio still does OK in FIRECalc this move would be wise simply because of the reduction in housing-cost inflation risk. It's a crazy world full of (financial) sharks right now, including in the rental market, and anything you do to reduce your exposure to those sharks seems like a good thing. As long as you can still afford to eat, of course.
 
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Security backed lines of credit is really meant for short-term borrowing. The rates are higher than mortgage rates and the risk is higher. If stock market crashes, the percentage borrowed against brokerage account value increases and can result in a call back for the loan, much like margin loan calls, forcing you to sell in a down market. Since you are not anticipating other money to come in to repay the line of credit loan, it is a terrible recommendation by the FA.

I have used security backed line of credit loan when I bought a home while trying to sell another home. Once the other home got sold, I paid back the loan.
Back in 2021 I borrowed against margin to short term (I planned 2 yrs) buy a fixer upper house for a kid. I moved my money to IBKR because they had very low margin rates. (1.5% at that time) I borrowed about 39% margin, I got advice that I might want to lower that percentage in case the market dropped to avoid a margin call. So I got a Heloc (teaser rate 0.99% for 6 mo.) and paid down the margin loan. I gave the kids a 4% mortgage for the first year and 6% the second year. (motivation!) The kids got the house fixed and remortgaged in 9 mo. and I got paid back. But, times have changed, even IBKR rates are up to 5.83% to borrow on margin. I also don't consider our home as an asset in my portfolio.
 
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Security backed lines of credit is really meant for short-term borrowing. The rates are higher than mortgage rates and the risk is higher. If stock market crashes, the percentage borrowed against brokerage account value increases and can result in a call back for the loan, much like margin loan calls, forcing you to sell in a down market. Since you are not anticpating other money to come in to repay the line of credit loan, it is a terrible recommendation by the FA.

I have used security backed line of credit loan when I bought a home while trying to sell another home. Once the other home got sold, I paid back the loan.
I did the exact same thing, I used a Schwab Pledged Asset Line of Credit tied to my brokerage account as bridge financing between buying or new home and selling our old home. The 8.71% rate was higher than a mortgage but there were no up-front fees associated with the PALOC. Luckily, it was only 3 months between when we bought and sold so we only paid 3 months of interest.

The collateral rate ws 70% for preferred stocks and IIRC 94% for SWVXX money market fund.

Interesting thing, even I paid of the LOC I transferred some preferreds from my joint brokerage to my brokerage account that included a Schwab preferred issue. Schwab reversed the transfer a couple days later. I transferred it again and then reversed it a couple days later again. It turns out that I have a Schwab preferred in a brokerage account that has a LOC tied to it. I dunno why they wouldn't allow it and just give it 0% collateral value but that is the way they do it.
 
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