Is home ownership essential to ER?

[ziggy29]

One mistake I made when I was married was at times renting a house rather than an apartment. Apartments are better serviced, usually cheaper and there is zero outdoor upkeep expected of the renter.

On the other hand, if you are like me and all of your apartment and condo experience included sharing walls with noisy neighbors...

 

[sengsational]

Kotlikoff and Burns say the tax break for owning a house comes from 'implicit rent'. The mortgage deduction doesn't even kick-in for median houses in 1/3 of US cities, they say. The implicit rent example is two people, two identical houses next door to each other. They swap houses and then each need to pay income tax on the rent they get as a landlord. If you own your house, you get past that tax.

By paying for a house while earning, you're essentially pre-paying for later years, when the mortgage is paid off. So you pay higher housing costs early, and the costs go down later. Seems like the end state is not apples to apples, between rental and ownership, except for a comment about leaving the house to the kids.

 

[haha]

On the other hand, if you are like me and all of your apartment and condo experience included sharing walls with noisy neighbors...

Sounds like bad luck. I've had 10 or more apartments plus my current condo, and they all but one have been quiet, in some ways more quiet than when I lived out in the country and somebody would start cutting wood or bulldozing something or other at 7 AM.

I couldn't be enticed to live in a sfh now. One thing is if someone drops something, or lets a gate slam, I don't feel a reaction to it as I might if I were in my own little domain. I know I share this building with others, and I think that resets my expectations.

Ha

 

[ShortInSeattle]

Owning a home is not necessary to reach ER, as is proven by the many retirees on this board who do not own homes.

From my POV, one good reason to own rather than rent as you home in on retirement or are already retired, is if you know clearly where you want to live (city, neighborhood, etc.) and this is an area that could get very popular. IOW, it has amenities, it has constraints on buildable land, and it has employment conditions that attract in-migrat6ion of well-paid workers. If one is wealthy enough relative to his lifestyle, this doesn't matter as he will always be able to afford to stay where he wants. It's at the margins that these smaller things can count.

Ha

+1. We plan to stay in downtown Seattle for the next 30+ years (nothing is 100% certain but we are as certain as we can be) and took the chance to snap up a home during the crash. Given that this is a high cost of living area with fairly strong employment, we expect inflation to make our housing expenses cheaper and cheaper over time. We also expect in the far future we can sell the place for an extra bucket of cash if our ER investments take an unexpected nosedive or if one/both of us needs long term care.

So while owning a house isn't required for ER, and it is not exactly an investment, I do believe it can be part of an ER plan, in some cases.

SIS

 

[comicbookgujy]

Depends on where you live. The math doesn't work out in NYC, LA, SF, and other places. Much cheaper to rent than to buy.

No way I would even consider retiring if I bought in LA or SF. I would probably have to work till 60. Average home price in San Francisco is now $1 million!! Even the house in "da hood" cost $500k

 

[traineeinvestor]

Essential? Clearly not.

I may be in a minority here but home ownership is an important part of our FIRE planning - we prefer owning the place we want to be in long term and know that over a retirement that will last for 40+ years (we hope!) it is very unlikely that we will be forced to move, we will never face rent increases that outstrip our income* and have a valuable asset that we can use (downsize, sell, reverse mortgage etc) as a Plan B should our other investments fall short of funding our living expenses. Owning our home provides peace of mind and insurance.

Certainly, there is an opportunity cost measured in both money that could be invested elsewhere and time needed to save the additional money used to pay for our home, but for us the peace of mind makes it well worth it.

Needless to say, it helps that the property is still worth more than we paid for it.

* rates, management fees, maintinance etc will obviously go up as well but are still much less than what we would pay to rent our home.

 

[urn2bfree]

Don't forget to add in the opportunity cost of the money you have tied up in the house. Even at a modest 3%/yr, the value of a nice home would generate some significant bux towards paying rent...

But also don't forget that in general, over long periods of time, housing prices appreciate at roughly the rate of inflation which is also 3%.

 

[haha]

I sometimes take hints from fiction. Their is Norwegian mystery writer named Jo Nesbo. His protagonist, Harry Hole, is a cop in either Oslo or Bergen, I can't remember which. He owns a flat that he really likes in a scenic area overlooking the sea, and he admits that he could never buy it or rent it in real time. He bought it before this part of town got cool.

I believe in opportunism. If a good opportunity presents itself, as the one described above by Short in Seattle, don't let any flies settle on you, get going and take advantage of what may turn out to be a limited window of opportunity.

I went to a Meetup coffee that I go to now, and really like. It is downtown (Belltown), so some self selection of nearby folks. But out of about 20 people who were there, 14 or 15 either live in Belltown, Lower Queen Anne, or Capitol Hill-all walkable distance. And others are either near link stations, or the new Rapid Ride bus lines.

Ha

 

[Tyro]

Easy. Home ownership has nothing to do with ER.

... and vice versa.

I've known folks for whom owning was the plan for ER; one (of a couple) held down a 9-5 with a megacorp for all its plusses (medical, 401K, cash flow, etc.) while the other worked at flipping the houses they owned/lived in. They always LBYM, never stayed in a house longer than 2 yrs., and almost always made a tidy profit (no investment is perfect; while their profit wasn't always tidy/as planned, they never took a bath either). Others (some here, so I've read) make ownership an integral part of their plan by becoming landlords and building their own real estate empires...

I know another fellow who owned because it was his dream house; he loved the place, put a ton of time & money into improving/customizing, and then when the economy tanked and he lost his job, he couldn't relocate because the house was suddenly worth considerably less than what he owed.

We rented for the first 8 years, but home ownership was always one of our shared goals, and we've never regretted that choice/decision. Now that we're ER, we're looking at our (hopefully) last relocation, and still prefer owning our own place for as long as we can -- it's just who we are, and I 'spect it will always be that way for others. To each their own.

For young people, unless they're similar to the first couple I mentioned above, I'd advise making an ER plan, and a completely separate housing plan. Both will depend on the individuals'/couples' (if applicable) desires & personalities, and each will have its own set of variables. The plans may coincide/complement, or independently survive. Plan for the worst hope for the best.

Tyro

 

[Texas Proud]

There has been a few who have talked about renting an apartment vs owning a SFH... to me that is not comparable...

IOW, if you own a 2500 sf house, it is not comparable to a 1200 sf apartment... the comparison has to be made with similar properties... either rent or own the 2500 sf house.... or own a 1200 sf condo or rent it...

The other is a decision in the amount of spending and not a buy vs rent decision.... at least IMO....

 

[nash031]

Yes - sellers often pay closing costs. Which affects the transaction if you are a seller.

Presumably - if you are changing houses in the short term, you are selling at least once... so you bear the higher costs of broker fees and, as you suggested, the buyers closings costs.

On a bit of a hijack - I've never understood how the seller paying closing costs is good for a buyer in the long term.... It's a good thing I'm not selling, because I'd probably scare off every buyer by refusing to play this game.

I am with you on your last statement, but the important thing to remember there is if it is a seller's market, as it will slowly become as the economy improves, you will be able to avoid paying closing costs if you so choose. If you're lucky enough to be in an area where there are almost always multiple buyers bidding, well, that's part of it. There's a sweet spot, I think, in finding the time when you can command the best price and get a great deal before the market tips and now you may get a decent price, but it takes you a year to find a buyer.

As far as everything else - I don't see how owning a home HAS to be part of an ER plan, but it certainly CAN be if you're smart about it.

 

[clifp]

Agree with board absolutely not essential. Having had the opportunity to briefly meet your lovely daughter, I'd say that her career (and probably life experienced) has been enhanced by mobility (So Cal, Washington DC, and Honolulu) that being renter has given her.

On the other hand their places, Vegas comes to mind and probably many places in the midwest, where the mortgage payments are cheaper than the rent. Considering the tax advantage, principal reduction, and opportunity for price appreciation I won't hesitate to purchase a place to lock into today low rate. As long as she plans on being there 3-5 years.

On the flip side there are many place in the country (typically on the coasts) where it is still more expensive to buy then rent, in after tax dollars. The only way that a person will come out ahead then renting, is the property appreciates. The one lessons from the financial crisis is housing prices can go down, and go down a ton.

I think being flexible is the key while in the accumulating stage. I'd say when you are actually retired it generally makes sense to own your home.

 

[imoldernu]

Depending on one's assets, home ownership can be very important. Here's a partial excerpt from an older post that explains:

Perhaps the most important part of this thread on retirement, is the matter of protecting one's assets... and even more important, thinking ahead to protect the assets of a spouse, when health requires extraordinary expenses.

Since we, and our spouses will always be healthy, we don't think about what could happen. We just assume we'll both die at the same time.

Statistically that ain't gonna happen. If you already have a net worth of 2 Million dollars, don't read the rest... It doesn't apply to you.

Current medicaid law allows for payment of nursing home expenses under certain conditions. If you understand those conditions, you could save hundreds of thousands of dollars for yourself, your spouse, or your estate... (your kids).

Here are the things you should know about:

Current nursing home costs average from $75,000 to $90,000/yr. A friend on Long Island is currently paying over $135,000/yr. for just basic care.

The state (medicaid) does not automatically pay for this.

You should understand "exclusions".

Know that the "look back period" is now 5 years.

...........................................
As long as a married couple have assets, if one spouse should have to go into a nursing home, the couple's assets will be used to pay for the medical care until the assets go below a certain level, at which time, the state medicaid program will pay for the nursing home care. The asset level varies by state.
............................................

Here's an example that happened to friend, that points up the importance of planning ahead. Bob retired with his wife May, to Florida from Maine. He sold his Maine house for $280,000 and planned to use this as his nest egg during his retirement. He bought a mobile home..(downsized)for $35,000. Shortly after retiring, May began a long slide into Alzheimers, and after three years has to go into a nursing home. (at the time $65,000/yr.) She lived there for 5 years before passing away. Because Bob and May had assets from the sale of their house, medicaid would not pay, and The nest egg was gone.

more....

Link to the original reply and more explanation:

http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html#post1214332

 

[sengsational]

Depending on one's assets, home ownership can be very important. Here's a partial excerpt from an older post that explains:

more....

Link to the original reply and more explanation:

http://www.early-retirement.org/for...s-of-frugal-retirement-62251.html#post1214332

The implication here is that keeping the house would have protected the $280 K of assets from paying for nursing home care? Then the second one to go wouldn't be down to only the SS check? Seems like 20-20 hindsight on this eaxmple would have been to buy another house with whatever cash was left after the RV purchase, then use a heloc to buy tires for the RV.