Does purchasing property delay or accelerate your FIRE timeline?

[sizzlinkola]

I'm planning to purchase property with my SO and at my current SR, I should be able to purchase in 3 years. My SR includes maxing out all my tax-advantaged accounts.

On the other hand, I can purchase property much faster if I don't max out my tax-advantaged accounts. The tradeoff there is that I will delay my FIRE timeline since I'm not maxing out anymore.

Am I correct in that assumption or wildly wrong?

 

[lionfire]

Purchase property to do what with? Need more information.

 

[sizzlinkola]

Purchase property to do what with? Need more information.

To live in with my SO. Not looking to become a landlord and have renters.

 

[Physics Guy]

My first thought is to look at the comparison of a house versus savings. Since I have been looking at places near Philadelphia it is quick to pull up something. $450,000 purchase price with 20% downpayment givens a monthly principle and interest payment of $1,683. Using a simple 4% idea your $360,000 nest egg gets you $1,200 per month. Yes that is simplistic but it does give a starting point.

Personally I'd do it if it would leave me with an expected withdrawal rate that I was comfortable with even though I would be giving up on leveraging gains if the house appreciated and the beneficial effect of inflation on the mortgage while the money was invested. I do not like debt.

 

[mrfeh]

Am I correct in that assumption or wildly wrong?

There's no way to know. Insufficient information, and nobody can predict future investment returns.

 

[old medic]

By selling our old home, losing the mortgage and buying this place for cash, definitely made retiring easier... YMMV

 

[Aerides]

Not enough info. First home? 2nd home? buying to stop renting or just buying another place.

But if you mean "buy your first home" and stop renting, then, generally, that's a good step towards FIRE.

There are some who rent forever, but a minority.

Having a home that is paid off was a cornerstone in our FIRE plans.

 

[FLSUnFIRE]

Am I correct in that assumption or wildly wrong?

I feel there is an implied assumption that "FIRE" is the ultimate goal of life. You need to enjoy the ride too! If property ownership is important to you then don't exclude it just so you can FIRE first. There is not a right or wrong answer. I personally feel more secure when I own but I loved the freedom from responsibility and surprise expenses during periods I was a renter.



I would suggest that you not over-buy. I've owned 3 houses. My first was modest and I'd probably be in it free and clear with a much larger portfolio if I didn't have my marriage/divorce detour. Second house was bought in marriage and was way too big and definitely delayed my FI. Third house, I paid cash shortly before I reached FI (no payment reduced my cash flow needs -and portfolio size). I'm in a booming city so it turned out to be a great financial decision for me as if I was renting my current lifestyle would become unaffordable as a renter in the same location.

 

[Midpack]

Not enough info. First home? 2nd home? buying to stop renting or just buying another place.

But if you mean "buy your first home" and stop renting, then, generally, that's a good step towards FIRE.

There are some who rent forever, but a minority.

Having a home that is paid off was a cornerstone in our FIRE plans.

+1. Having one major asset protected from inflation (or better) has been a cornerstone of many successful FIRE plans, ours too.

 

[pb4uski]

To live in with my SO. Not looking to become a landlord and have renters.

It is hard to know... but assuming that you put down 20% and finance the rest, you'll be trading off paying rent for a place to live for paying mortgage payments, property taxes, insurance and maintenance but offet by any appreciation of the property.

I wouldn't necessarily look at it as to how it impacts FIRE and I'm not even sure that it should impact your retirement savings in a big way since it is mostly a trade of rent for other costs... I guess unless you are currently living rent-free.

 

[kgtest]

I look at it this way. I need a place to live. If I rent I won't gain any equity, sure maybe my maintenance or (investment expenses) would be much lower than if I owned, but I also don't have the flexibility that I have when I own. It costs money to buy and sell a house with fee's, but not all the time, and sometimes you can get the seller to pay those costs, or reduce them a little.

I have a family of 5 and having that freedom to stay put at this point in our lives is very desirable. With a landlord, you are dealing with a contractual obligation that could be cancelled, or modified on a whim.

With renting, you will face constant rent increases, versus owning you are locked into a fixed price.

I have the freedom to build spaces, and change things on my home I own that suits my family and I's needs. We build roots in our community and establish long term relationships that can't equate to a monetary "sum", and of course life is not a zero sum game. My family and children also built relationships that might last a lifetime.

Real estate is a supply vs demand scenario. Sure there might be a situation where the demand decreases, but as long as you follow that golden rule about "location, location, location" and pick a solid one, you will head the rewards of your risk.

 

[captain3d]

If you are early in a career that can benefit from moving for better opportunities then rent is better. Having a fixed base will (maybe subconsciously) limit where you look for careers opportunities.

 

[sizzlinkola]

+1. Having one major asset protected from inflation (or better) has been a cornerstone of many successful FIRE plans, ours too.

Not enough info. First home? 2nd home? buying to stop renting or just buying another place.

But if you mean "buy your first home" and stop renting, then, generally, that's a good step towards FIRE.

There are some who rent forever, but a minority.

Having a home that is paid off was a cornerstone in our FIRE plans.

This would be our first home purchase. Can both of you elaborate or point me to a beginner's resource that describes why having a home would be a good step towards FIRE?

 

[CRLLS]

FIRE and home ownership are 2 different goals that are just slightly interconnected IMO. You need a place to live. And you need to save for retirement. One should not exclude one for the other. If you read here about carrying a mortgage into retirement, you will find some on one side of the fence and others on the other side. There is no one right answer.

I would also suggest that saving exclusively in tax sheltered accounts (IRA's, 401K's etc.) is often regretted by many of us here. Read: https://www.early-retirement.org/forums/f28/i-wish-i-knew-before-or-after-i-retired-112674.html

How quickly are home prices rising in your area? It may be better to buy earlier than later as your saving rate may not keep up with rising home prices. On the other hand, it is hard to know what prices are going to be 3 years from now.

Good luck in whatever you choose.

 

[pb4uski]

It is best to consider a home purchase as an alternative to rent since you need a place to live no matter what. When you rent, the cost is pretty straight forward... rent and renter's insurance. When you own, the cost is more complicated, a combination of principal and interest, property taxes, insurance and the opportunity cost of money for the downpayment offset by price appreciation of the property.

The reason why some contend that owning a home is good for FIRE is a view that more often than not in the long run that owning is less expensive than renting, principally because of the benefit of appreciation.

 

[ncbill]

Buying a home freezes your "rent" over whatever term mortgage you pick.

Realistically it can be thought of as "renting from the bank" since few stay long enough to pay off a 30-year mortgage.

 

[l8_apex]

OP, you haven't provided much info to go on. So I'll just give you a bit of my personal history.

2013: bought empty lot. 2015 construction done, moved in. Roughly $475k all in for a better than average 3 bed 2 bath home. Mortgage was originally $1900 for P&I. Renting this same home would have been $2500-$3000 max back then.

2022: Home is now worth $1M. To rent this, it would be $4500-5000k. I recently refi'd to a 30 yr loan where the first 10 years are interest only. Monthly P&I = $1090. Property tax $400/mo (the increase in valuation and rent amounts are not normal from a historical perspective, but that's what they are)

As others have said, ownership isn't mandatory, but does provide an inflation-protected roof over your head. Sure, taxes and insurance and repairs inflate over time, but since that's a small part of the cost of ownership, it's not nearly as bad as the alternative of renting.

 

[kgtest]

It is best to consider a home purchase as an alternative to rent since you need a place to live no matter what. When you rent, the cost is pretty straight forward... rent and renter's insurance. When you own, the cost is more complicated, a combination of principal and interest, property taxes, insurance and the opportunity cost of money for the downpayment offset by price appreciation of the property.

The reason why some contend that owning a home is good for FIRE is a view that more often than not in the long run that owning is less expensive than renting, principally because of the benefit of appreciation.

Well said. It cost me $75,000 to get into our home...and I put $40,000 into it. But I got all of that back and then some since the property appreciated $175,000. I expect that appreciation trend to continue. Sure I've paid some interest, but I've also been able to deduct some of that against my income tax obligations, and paying the IRS less than what I normally would have had I been renting, is always a winning proposition.

I have a 15 yr term, so I will pay a lot less in interest than the 30 yr term, and at age 50 I will more importantly have options. I could take equity out in a HELOC, and buy another property. I could sell and downsize and then invest the profits from my investment gains into the market. There may be some capital gains but there will be more profit than tax.I could allow my children to stay in the home while they get their career's going, helping offset some of my future generations COL.

Indeed, Lots to consider beyond just paying rent or a mortgage.

One other interesting thing to note. When you own your own land, you can grow your own food, saving money on groceries. For instance we grow some vegetables and herbs. I've also harvested some of the tree's that were dying, diseased or impeding by selling firewood, and some of the burls to furniture makers. Maybe not a huge difference in the scheme of things, but a property can provide investment and income or savings outside just the equity gained.

 

[kgtest]

Other ways I just quickly realized you could accelerate your FIRE timeline with an investment into property. You could harvest honey, that honey bee's create, you could harvest maple syrup from the maple trees' you planted, or you could sell the food (vegetables, fruit and herbs) you plant or even simply the flowers and plants. Maybe all of this is work, and more like a business but in terms of accelerating FIRE it's certainly plausible. You could rent out a room, or a lower level, or heck even a shed to store someone else's 'things' in. Lots of ways I could see leveraging a property for FIRE acceleration. Just need to be creative and motivated.

I don't know that you could have all of those acceleration opportunities if you simply rented. Maybe, I've seen people sublease a property out for more than their landlord charged. I've seen people stiff the landlord and not even bother paying for rent so there is that. But I think there are many benefits to owning property that outweigh any negative issues that could arise. It's all about location though,