Checking in with a quick question RE: personal home AA

[shasta]

Our personal homestead is 25% of our NW but the "dwellings" are only 8% of NW. The rest of the homestead is land which is appreciating at a pace faster than the stock market and will continue to, due to proximity to DFW metro.

Nice <3

 

[pjigar]

Nice <3

Thanks. By the way, I misunderstood your question. I thought you were polling everyone about their home as a percent of NW.

If I were you, I would be very uncomfortable parking a large percent of NW in to a primary home, especially during retirement. Homeownership comes with a lot of longer term costs like others mentioned (roof, AC, repairs, etc) as well as tax+insurance. Your original question requires a "buy vs rent" analysis while accounting for the "opportunity cost (i.e. lost earning power)" of the purchase price.

I would rather buy a modest home in an area where younger couples (or couples with infant) are moving. Such area typically becomes a very good place to raise a family (including school performance) AND offers affordable house price. Historically I have thrown all math out the window when buying a primary home (4 times so far) and I regret 1 (most expensive house as a percent of income) out of 4 purchases. I would be very afraid of making any such a mistake while in retirement. YMMV.

 

[Closet_Gamer]

Plot twist : Any thoughts on buying a house outright and then using a HELOC or Home Equity Line of Credit to buy stocks in a down market.

Does this give the house more Bond like liquidity?

(too experimental?)

id pay for any ongoing house repairs and all insurance / taxes with cash flow from equities.

This is piling complexity and risk onto the situation. If you want to keep more in the market, take a larger primary mortgage and use the retained cash to invest. Loads of people follow that approach. A HELOC will almost certainly have a higher interest rate than your primary mortgage.

To your original question, I can’t imagine having my house be 30-50% of my net worth later in life. I can’t even imagine it being 30% of our assets. Way too illiquid and exposed to a housing correction. For reference, our primary house is <5% of assets. That plus a beach house we rent part time is about 20% of assets.

 

[shasta]

On the HLOC strategy I would maybe take at max 10% of home value to flood into equities and those shares wouldn't be touched for years. I would pay the cash back to the house before interest if possible but the cost basis the cash is used on should deliver in such a situation ....... "should"

 

[Koolau]

To your original question, I can’t imagine having my house be 30-50% of my net worth later in life. I can’t even imagine it being 30% of our assets. Way too illiquid and exposed to a housing correction. For reference, our primary house is <5% of assets. That plus a beach house we rent part time is about 20% of assets.

Our current home is a much higher percent of NW than we would have ever considered (for all those years while w*rking.) But because it is now our retirement home, we're okay with the higher percentage because we had previously owned it as an investment (rental.) By the time that "happened," we knew what our retirement needs and nest egg were and we realized it absolutely would w*rk for us. We didn't agonize over whether we could afford it or not or even whether it was a good idea for retirement. We'd w*rked through all of that beforehand and it was all in the "plan." We would have never made that big a move had we not been moving (planning) toward it for 20 years. YMMV

 

[ncbill]

On the HLOC strategy I would maybe take at max 10% of home value to flood into equities and those shares wouldn't be touched for years. I would pay the cash back to the house before interest if possible but the cost basis the cash is used on should deliver in such a situation ....... "should"

Enough assets in taxable to simply borrow against them to buy a home?

Called a pledged asset line at my brokerage...cheaper than paying margin interest rates.

 

[jazz4cash]

What’s happening right now is with no interest rate cash available to a lot of shoppers.

No interest cash? What do you mean by that?

 

[sengsational]

I might not have a correct understanding of the motivation for the expensive house, but I thought there was a component of having a base for the kids & their families to come and stay? What I say to that is it's not a "good investment." It's hugely inefficient to have a big, expensive house that's empty except for the kitchen and master suite. Much better to just rent something if the kids will be coming. And they'll probably come less than you think. I've got 6 siblings and we all have 2+ kids and there's grandkids now too. We rent out some cabins every other year...we don't completely take-over the venue, but pretty close. So we have the family together and do a little socialist manipulation so nobody won't come due to money concerns. It would be easy to just sponsor the event, and still come out way cheaper, like single digit percent even in the most extreme luxury and catering type sponsorship, than a mostly empty big house.

 

[shasta]

No interest cash? What do you mean by that?

Sorry must have been a typo I didnt catch.

High interest rates on cash to buy houses / mortgages bars many shoppers. If you have cash to buy a house without a mortgage its an advantage right now when shopping etc...

 

[shasta]

Enough assets in taxable to simply borrow against them to buy a home?

Called a pledged asset line at my brokerage...cheaper than paying margin interest rates.

Piqued and noted

 

[Surewhitey]

We are @ 15% of NW for ours.

Looking back at the 6 years here, our expenses for insurance and prop tax is ~$9k this year, so $750/mo. We can't rent a home in our neighborhood for under $3000. Maintenance is minimal for us. We've added a few things, but nothing major. The appreciation is around 30-40%, so it offsets anything we've had to deal with. Initial cost was $330k including the remodel and updating the mechanicals. Now worth ~$450-500k.

We did buy a fixer (original owner never updated, but did a great job of maintaining it). We also live a street away from the kiddos.

50% is high for me personally. No income tax (& others) is a great motivation. I'd definitely consider ongoing costs like utilities for Florida. We're in DFW & after 3 years of electricity rates <.10/kwh, we're looking at a 40% increase in rates next month. We have a small home, but it could be a huge bill for the 4-5000 sf homes they're building here. Insurance just jumped 28% for 2 years straight too. Smaller home = smaller expenses.