Checking in with a quick question RE: personal home AA

[shasta]

Hi .

I have been living pretty good for a decade or more from developing a personal strategy based on strategies discussed here.

I have a 70/30 with textbook international diversity in both the stocks and bonds.

I have been outpacing inflation, living well and gaining.

Finally got older and have a few kids.

Never owned a home I lived in but ready to settle down in a place big enough for my kids to reach adulthood and either leave or stay in the house with us.

Really want places that are 30-50% of my AA

Would take - huge line item of rent off my annual budget so lots of room to move in spending power needs there. Property tax is like 20% of what I spend on rent.

Questions : would consider putting up to 50% of your AA into your personal home you intend to die in?

With what’s remaining what would your new AA be ? If 50% RE now what would the stocks VS bonds AA be?

Sell more or most of the bonds for the illiquid RE asset?

Thanks in advance for any feedback .

Much love extended for the good fortune of living well following your adventures here.

 

[FLSUnFIRE]

I don't think there is a right or wrong answer that fits everyone. I own my home free and clear and do not consider my home equity as part of my net worth wrt withdrawals, etc. It does offer imputed rent/reduce my cash flow requirements and the equity is sort of an off balance sheet "emergency fund" (I have a HELOC in place I could tap in an emergency). I'm about 100% equities and retired. I would not have likely retired early if I did not own free and clear or at least have cash available to pay off any mortgage balance. That said, I'd personally sell bonds (not a fan, especially if in a fund) to fund the house purchase viewing the equity as the fixed income portion (imputed rent) if I was one to consider HE as part of my asset allocation.

FWIW, my home equity/LNW+HE is about 20%.

 

[DrRoy]

Our house is 8% of our NW.

 

[latexman]

I have a 70/30 with textbook international diversity in both the stocks and bonds.

Really want places that are 30-50% of my AA

Did you mean to say, “Really want places that are 30-50% of my net worth or nest egg.” As stated (AA), I don’t understand. Can you explain in more detail?

 

[Flyfish1]

Did you mean to say, “Really want places that are 30-50% of my net worth or nest egg.” As stated (AA), I don’t understand. Can you explain in more detail?

Yeah that confused me as well. I'm guessing they meant 30-50% of net worth or assets. Buying a house that is 50% of your assets seems a bit high for me. Also I wouldn't consider the house as part of my AA pertaining to my investment portfolio. yes, it has equity that may or may not grow over many years but keep that separate from your AA of your investments.

 

[mrfeh]

Yeah that confused me as well. I'm guessing they meant 30-50% of net worth or assets. Buying a house that is 50% of your assets seems a bit high for me. Also I wouldn't consider the house as part of my AA pertaining to my investment portfolio. yes, it has equity that may or may not grow over many years but keep that separate from your AA of your investments.

+1
+1

 

[RetiredHappy]

I think it depends on your age. If you are 30 years old, I can see home being 50% of your net worth. If you are 50 and on track for early retirement, I can't see 50% of your net worth.
Our home is about 20% of our net worth and the home is in 7-digit figure and we are retired.

 

[Exchme]

It's a high percentage for most people, but may be necessary in certain very high cost of living areas. If you can still have a comfortable retirement with 50% of your assets tied up in an illiquid property, then sure. In the end, the landlord should charge enough rent to make it worthwhile for them to tie up their money in the home. If you can afford that too, then owning provides assurance that no there is no landlord that can force you to move, assurance that the rents won't increase, etc.

 

[shasta]

It's a high percentage for most people, but may be necessary in certain very high cost of living areas. If you can still have a comfortable retirement with 50% of your assets tied up in an illiquid property, then sure. In the end, the landlord should charge enough rent to make it worthwhile for them to tie up their money in the home. If you can afford that too, then owning provides assurance that no there is no landlord that can force you to move, assurance that the rents won't increase, etc.

I don’t like to talk about the numbers here, of course, but that’s kind of what the situation feels like here. I can take about 80 to 100 K of cash going out the door to rent every year by moving some portion of assets into the illiquid real estate.

Thank you to everybody that replied once again the advice is on point all the way around.

 

[InsertCleverHandle]

Your age is a major factor here. If you are in your 30s having a larger mortgage or % of net worth in your home is more reasonable. In your 60s or 70s I would want to have a lower percentage or at least the flexibility to downsize and use that capital if needed. As I've aged my homes percentage of net worth has declined and I expect that trend to continue. I also do not consider my primary home as any type of diversification or factor in AA. Investment properties maybe you consider that more...

 

[shasta]

In my head using cocktail napkin math if I take half of the investable assets and put them into a very ill liquid class like the house, I’m living in and I cut in half what I’m spending right now by default I can easily live off half of that if I have a house that’s paid off.

My concern is at that point I don’t have nearly as much money in the stock market working hard so I wonder if I will be able to outpace inflation in the future as good as I’m doing it now.

I’m 51 BTW and I probably would not downsize. I would probably buy this house and die in it.

 

[shasta]

The other thing here is if I buy the house, I move from the West Coast to the East Coast, which also reduces my living expenses greatly in many ways. More specifically I would be moving from the Seattle Washington area to the Orlando Florida area, which impacts things greatly.

 

[imjustawarrior]

How much you put into or don't put into a house depends on your overall goals, like when do you want to retire.

I would run firecalc without buying a house and see when you can retire. I would then run firecalc with buying a house and see when you can retire. This will give you a sense of the financial impact of buying a house. Remember that insurance can be tough in Florida. Also include 1-2%/yr for house maintenance.

This allows you to do the analysis so you don't have to share specific numbers.

 

[skyking1]

That is a big change in every sense. I take you will bring your job with you to fL?

 

[MarieIG]

When we bought first house, percentage of assets was not an issue. We used almost all of our assets (cash) for the down payment and were searching under the couch cushions for loose change.

This is a lifestyle factor. If you decide to spend 1/2 of assets on your house, I would "redo" your budget showing the potential lower expense, but still calculate what you will need to cover your ongoing expenses. (I would be aware of the value of the house, but not consider it as a portion of my investment portfolio and it would not effect the asset allocation of my liquid assets.)

 

[Sunset]

Buying a house to save on rent has always been my lifelong thinking process.

I'm personally flabbergasted by OP saying they spend $80->100K on rent. If true, I have to wonder is that simply rent or rent plus utilities/etc..

OP will not save as much as thought if that "rental" number includes utilities, as those are present in a owned home. Along with extra high expenses as owner insurance vs tenant insurance, repairs (they are lumpy but I find average 1% per year of home value).

Without numbers I would think OP could plan without a mortgage to plan on spending a lot more than the 20% of rent mentioned that is only for property tax.

 

[Rianne]

Why not buy an inexpensive house with good bones and remodel/update? That's what we did and have our forever home with the floorplan we wanted. You can do it gradually. We ended up knocking out walls, pulling up old flooring, new lighting, new appliances...little by little. A good contractor can work miracles in an old house.

What you pay in rent would cover an awesome remodel.

 

[Sunset]

I will point out , buying a mansion brings with it extra costs compared to a "regular" 3-4 bedroom house. Higher property tax, maintenance, utility bills, insurance, and possibly worse is the neighborhood of other folks who have lots of disposable income. There is pressure to keep up with the Jones.

If after spending 50% of assets on a house, OP has enough $$ left over to live comfortably on with a safe estimated 3% withdrawal rate (OP is 51) then it could be done.

I don't consider my house part of my retirement $$, it just reduces my living expenses for shelter by about half of what rent would be.

 

[Lorenzo]

Buying a house to save on rent has always been my lifelong thinking process.

I'm personally flabbergasted by OP saying they spend $80->100K on rent. If true, I have to wonder is that simply rent or rent plus utilities/etc..

OP will not save as much as thought if that "rental" number includes utilities, as those are present in a owned home. Along with extra high expenses as owner insurance vs tenant insurance, repairs (they are lumpy but I find average 1% per year of home value).

Without numbers I would think OP could plan without a mortgage to plan on spending a lot more than the 20% of rent mentioned that is only for property tax.

I have seen calculations that make the case that banking on home ownership as an investment--that is, better than paying rent--is no sure thing. In my opinion, you buy a home because you want to live in a home.

 

[skyking1]

There is nothing in the historical data to suggest that you won't get your money back and then some in real estate investment. Will it perform as well as the market? Probably not, but pick your period and place and it might outpace it considerably.
The sale of our house will be used to fund either condo rental or buy in to a CCRC.

 

[shasta]

Buying a house to save on rent has always been my lifelong thinking process.

I'm personally flabbergasted by OP saying they spend $80->100K on rent. If true, I have to wonder is that simply rent or rent plus utilities/etc..

OP will not save as much as thought if that "rental" number includes utilities, as those are present in a owned home. Along with extra high expenses as owner insurance vs tenant insurance, repairs (they are lumpy but I find average 1% per year of home value).

Without numbers I would think OP could plan without a mortgage to plan on spending a lot more than the 20% of rent mentioned that is only for property tax.

No the 80-100k per annum is all rent no bills.

Metro Seattle area. Trying to maintain my same lifestyle as when I was an exec.

I’m intrigued by strategies around using a mortgage to fund some of it.

Since we’re all mature adults here, I will, of course, consult with an hourly rate finance advisor to see what he thinks of my ideas and what the pitfalls could be.

 

[shasta]

As usual I learn so much here.

Grateful <3

 

[shasta]

I will point out , buying a mansion brings with it extra costs compared to a "regular" 3-4 bedroom house. Higher property tax, maintenance, utility bills, insurance, and possibly worse is the neighborhood of other folks who have lots of disposable income. There is pressure to keep up with the Jones.

If after spending 50% of assets on a house, OP has enough $$ left over to live comfortably on with a safe estimated 3% withdrawal rate (OP is 51) then it could be done.

I don't consider my house part of my retirement $$, it just reduces my living expenses for shelter by about half of what rent would be.

What’s happening right now is with no interest rate cash available to a lot of shoppers. There’s some properties that normally would be out of my reach, but I think I could get by shooting in cash bids that are about half of my portfolio of investable assets.

Getting rid of the rent line item and also moving from the West Coast to the East Coast could make it work. The houses I’m looking at are the kinds of things where I would probably not buy another house in my lifetime.

We have 2021 and 2024 year cars so no need to buy another soon. Could take the hit and have years to live frugal and readjust.

I’m just outpacing inflation so good now. Rents jumping 12-14k per annum on each hop, skyrocketing healthcare, etc.

I could never imagine spending what I do to live now 10 years ago. The scale of the glidepath can be remarkable.

Is it better to just keep surfing the rise?

I’m obsessed with a few of the houses I’m shopping. Nothing like them in the rental market.

 

[Midpack]

Questions : would consider putting up to 50% of your AA into your personal home you intend to die in?

Not unless I was 100% SIRE including the ongoing expenses with the new home, and probably not even then. We’re mostly FIRE and our home is about 10% of our NW, but only because it has appreciated like crazy since we bought it. But it doesn’t matter what others do, it’s your financial future.

The problem with expensive homes isn’t the purchase price, it’s the (much) higher insurance, taxes, utility and maintenance expenses that NEVER stop, and only increase. DW doesn’t want to clean a bigger house either…

 

[Koolau]

At age 51, I would not want half my NW in a house. We're all different in the way we wish to live, so no criticism implied.