Reaching your number vs. owning a home
Re: Reaching your number vs. owning a home
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Last edited by etfan on Sat Oct 16, 2021 8:23 am, edited 1 time in total.
Re: Reaching your number vs. owning a home
You probably don’t have a $2M portfolio if you buy a $500K house.marcopolo wrote: ↑Fri Oct 15, 2021 1:08 pmYour questions seems to pose a false choice. It is not like you could live for free somewhere if you did not purchase a home. You have to account for housing costs in your "number" either way.etfan wrote: ↑Fri Oct 15, 2021 8:44 am 1- If a person has to prioritize between reaching their number and owning a home, which one should be the priority?
2- If it seems that both just can't be done and one must choose between the two, what is the better choice?
Using a big portion of your investments to buy a house is going to reduce the growth rate of your portfolio and it may lose a lot of value in the house. Your net worth may never recover.
On the other hand, houses aren't getting any cheaper. It's possible that one may never be able to buy a house if the prices keep increasing because the math may never go in your favor at this rate.
A simplified example would be something like this:
1) $2m portfolio and a $500k home, supporting $80k/yr spending
2) $2.5m portfolio (no home), supporting your rent plus $80k/yr spending.
The savings goal for your "number" does not really change much either way.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
- willthrill81
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Re: Reaching your number vs. owning a home
In order for such an approach to have a realistic shot of succeeding, renting would need to involve less cash outlay than owning. That's true in many HCOL areas, but it's less likely to be true in MCOL areas and usually not true at all in LCOL areas.
FWIW, our home has doubled in nominal value in the last 7 years, and 100% of the gains are tax-free.
The Sensible Steward
Re: Reaching your number vs. owning a home
That $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pmYou probably don’t have a $2M portfolio if you buy a $500K house.marcopolo wrote: ↑Fri Oct 15, 2021 1:08 pmYour questions seems to pose a false choice. It is not like you could live for free somewhere if you did not purchase a home. You have to account for housing costs in your "number" either way.etfan wrote: ↑Fri Oct 15, 2021 8:44 am 1- If a person has to prioritize between reaching their number and owning a home, which one should be the priority?
2- If it seems that both just can't be done and one must choose between the two, what is the better choice?
Using a big portion of your investments to buy a house is going to reduce the growth rate of your portfolio and it may lose a lot of value in the house. Your net worth may never recover.
On the other hand, houses aren't getting any cheaper. It's possible that one may never be able to buy a house if the prices keep increasing because the math may never go in your favor at this rate.
A simplified example would be something like this:
1) $2m portfolio and a $500k home, supporting $80k/yr spending
2) $2.5m portfolio (no home), supporting your rent plus $80k/yr spending.
The savings goal for your "number" does not really change much either way.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: Reaching your number vs. owning a home
Show your math then. There is opportunity cost in buying a home.marcopolo wrote: ↑Fri Oct 15, 2021 1:42 pmThat $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pmYou probably don’t have a $2M portfolio if you buy a $500K house.marcopolo wrote: ↑Fri Oct 15, 2021 1:08 pmYour questions seems to pose a false choice. It is not like you could live for free somewhere if you did not purchase a home. You have to account for housing costs in your "number" either way.etfan wrote: ↑Fri Oct 15, 2021 8:44 am 1- If a person has to prioritize between reaching their number and owning a home, which one should be the priority?
2- If it seems that both just can't be done and one must choose between the two, what is the better choice?
Using a big portion of your investments to buy a house is going to reduce the growth rate of your portfolio and it may lose a lot of value in the house. Your net worth may never recover.
On the other hand, houses aren't getting any cheaper. It's possible that one may never be able to buy a house if the prices keep increasing because the math may never go in your favor at this rate.
A simplified example would be something like this:
1) $2m portfolio and a $500k home, supporting $80k/yr spending
2) $2.5m portfolio (no home), supporting your rent plus $80k/yr spending.
The savings goal for your "number" does not really change much either way.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
Re: Reaching your number vs. owning a home
Landlords aren't doing it out of charity.nigel_ht wrote: ↑Fri Oct 15, 2021 1:57 pmShow your math then. There is opportunity cost in buying a home.marcopolo wrote: ↑Fri Oct 15, 2021 1:42 pmThat $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pmYou probably don’t have a $2M portfolio if you buy a $500K house.marcopolo wrote: ↑Fri Oct 15, 2021 1:08 pmYour questions seems to pose a false choice. It is not like you could live for free somewhere if you did not purchase a home. You have to account for housing costs in your "number" either way.etfan wrote: ↑Fri Oct 15, 2021 8:44 am 1- If a person has to prioritize between reaching their number and owning a home, which one should be the priority?
2- If it seems that both just can't be done and one must choose between the two, what is the better choice?
Using a big portion of your investments to buy a house is going to reduce the growth rate of your portfolio and it may lose a lot of value in the house. Your net worth may never recover.
On the other hand, houses aren't getting any cheaper. It's possible that one may never be able to buy a house if the prices keep increasing because the math may never go in your favor at this rate.
A simplified example would be something like this:
1) $2m portfolio and a $500k home, supporting $80k/yr spending
2) $2.5m portfolio (no home), supporting your rent plus $80k/yr spending.
The savings goal for your "number" does not really change much either way.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
What you are doing with that "oppurtunity", is paying rent.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: Reaching your number vs. owning a home
Ah, yes. 100%
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Re: Reaching your number vs. owning a home
“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“marcopolo wrote: ↑Fri Oct 15, 2021 1:59 pmLandlords aren't doing it out of charity.nigel_ht wrote: ↑Fri Oct 15, 2021 1:57 pmShow your math then. There is opportunity cost in buying a home.marcopolo wrote: ↑Fri Oct 15, 2021 1:42 pmThat $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pmYou probably don’t have a $2M portfolio if you buy a $500K house.marcopolo wrote: ↑Fri Oct 15, 2021 1:08 pm
Your questions seems to pose a false choice. It is not like you could live for free somewhere if you did not purchase a home. You have to account for housing costs in your "number" either way.
A simplified example would be something like this:
1) $2m portfolio and a $500k home, supporting $80k/yr spending
2) $2.5m portfolio (no home), supporting your rent plus $80k/yr spending.
The savings goal for your "number" does not really change much either way.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
What you are doing with that "oppurtunity", is paying rent.
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
Re: Reaching your number vs. owning a home
You’ll have to show the math where even for LCOL renting is more expensive than home ownership.willthrill81 wrote: ↑Fri Oct 15, 2021 1:38 pmIn order for such an approach to have a realistic shot of succeeding, renting would need to involve less cash outlay than owning. That's true in many HCOL areas, but it's less likely to be true in MCOL areas and usually not true at all in LCOL areas.
FWIW, our home has doubled in nominal value in the last 7 years, and 100% of the gains are tax-free.
Re: Reaching your number vs. owning a home
Sure renting is cheaper, if you ignore home equity, and tax deductions, etc, which is what the linked articles seem to have done.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“marcopolo wrote: ↑Fri Oct 15, 2021 1:59 pmLandlords aren't doing it out of charity.nigel_ht wrote: ↑Fri Oct 15, 2021 1:57 pmShow your math then. There is opportunity cost in buying a home.marcopolo wrote: ↑Fri Oct 15, 2021 1:42 pmThat $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pm
You probably don’t have a $2M portfolio if you buy a $500K house.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
What you are doing with that "oppurtunity", is paying rent.
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
I never said it was a "no brainer", just like any other investment, it depends on your assumptions, and what the markets actually do.
But, it is not a trade off between saving and buying a house like the OP stated, and you need to make apples to apples comparison, not absurd assumptions like assuming 0% appreciation on the home like you did above, or ignoring building equity, like the linked articles did.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Re: Reaching your number vs. owning a home
Many, many renters are facing 10% or more rent increases, because that's what the market will bear right now. And the landlords are not handing out breaks... because that's what the market will bear.
https://www.nytimes.com/2021/10/15/busi ... ation.html
Meanwhile homeowners (at least most of them) are sitting on mortgages that are well below (current) inflation, often by multiple percentage points.
Cost containment and predictability are very important when it comes to housing, IMO. Even with no price appreciation (which over decades is unlikely), owing is a better deal, in general, as long as you buy within your means and don't buy more than you need.
You can't refinance your rent payment. You can only keep moving.
My $02.
https://www.nytimes.com/2021/10/15/busi ... ation.html
Meanwhile homeowners (at least most of them) are sitting on mortgages that are well below (current) inflation, often by multiple percentage points.
Cost containment and predictability are very important when it comes to housing, IMO. Even with no price appreciation (which over decades is unlikely), owing is a better deal, in general, as long as you buy within your means and don't buy more than you need.
You can't refinance your rent payment. You can only keep moving.
My $02.
- willthrill81
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Re: Reaching your number vs. owning a home
There are countless situations where rent is more than the combination of mortgage interest, property taxes, insurance, and maintenance. If it wasn't, virtually nobody would be a landlord.nigel_ht wrote: ↑Fri Oct 15, 2021 2:27 pmYou’ll have to show the math where even for LCOL renting is more expensive than home ownership.willthrill81 wrote: ↑Fri Oct 15, 2021 1:38 pmIn order for such an approach to have a realistic shot of succeeding, renting would need to involve less cash outlay than owning. That's true in many HCOL areas, but it's less likely to be true in MCOL areas and usually not true at all in LCOL areas.
FWIW, our home has doubled in nominal value in the last 7 years, and 100% of the gains are tax-free.
Check out the NYT calculator that's been referenced dozens of times on the forum. It can help people to understand under which conditions renting or owning is likely to be financially optimal.
The Sensible Steward
- vanbogle59
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Re: Reaching your number vs. owning a home
The nerdwallet author even kind of admits that the whole thing is clickbait: "While renting can’t offer those long-term financial benefits, it’s cheaper to rent on a month-to-month basis, the analysis found."
Thank you, Captain Obvious.
Re: Reaching your number vs. owning a home
A mortgage payment may be higher than the rent payment for an equivalent property (though this is often not the case, and depends on the down payment of course) but... so what? Much of the payment is going back into your pocket as equity. It's a savings vehicle. Even if you don't realize it until you sell, you can still borrow against it.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“marcopolo wrote: ↑Fri Oct 15, 2021 1:59 pmLandlords aren't doing it out of charity.nigel_ht wrote: ↑Fri Oct 15, 2021 1:57 pmShow your math then. There is opportunity cost in buying a home.marcopolo wrote: ↑Fri Oct 15, 2021 1:42 pmThat $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pm
You probably don’t have a $2M portfolio if you buy a $500K house.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
What you are doing with that "oppurtunity", is paying rent.
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
People in my neighborhood are paying $1900 for a one bedroom apartment. My 3BR 2BA 1900ftsq house is $2010/month, of which $1600 is principal. Interest plus taxes plus insurance is still less than $1900/mo. By a lot.
Re: Reaching your number vs. owning a home
As long as you don't buy a house that is way too expensive, you can buy. It is not hurting your net worth.
If you calculated the inputted rent, that would be added to the capital gain of your house investment, along with the appreciation. Appreciation is speculative, but the inputted rent should be much more stabled. With that, the return % of a house does not necessarily lower than stocks on average nor is it necessarily riskier.etfan wrote: ↑Fri Oct 15, 2021 8:44 am Using a big portion of your investments to buy a house is going to reduce the growth rate of your portfolio and it may lose a lot of value in the house. Your net worth may never recover.
On the other hand, houses aren't getting any cheaper. It's possible that one may never be able to buy a house if the prices keep increasing because the math may never go in your favor at this rate.
If you choose to exclude the house value in your number, you also need to exclude inputted rent in your monthly expenses, which lowers your targeted number significantly.
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Re: Reaching your number vs. owning a home
The cost of rent being less than homeownership by the article standards seems grim; however, they need to be long-term focused.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“marcopolo wrote: ↑Fri Oct 15, 2021 1:59 pmLandlords aren't doing it out of charity.nigel_ht wrote: ↑Fri Oct 15, 2021 1:57 pmShow your math then. There is opportunity cost in buying a home.marcopolo wrote: ↑Fri Oct 15, 2021 1:42 pmThat $500k house didn't cost $500k back in 2000.nigel_ht wrote: ↑Fri Oct 15, 2021 1:33 pm
You probably don’t have a $2M portfolio if you buy a $500K house.
https://www.nerdwallet.com/article/mort ... vs-renting
Call it $100K down payment and $500 a month cost delta and the result from 2000 to today is nearly $1M difference.
https://www.portfoliovisualizer.com/bac ... sisResults
So back of the envelope it’s $2M + $500K equity vs $3M. It’s also closer to $75K gross vs $105K gross if you retire early.
I tell my kids to forego home ownership, save as much as they can and hope for a good first decade or two in the market.
$3M is a good target. Gives you anywhere from $90K gross at 3%. $2M is kinda marginal at $60K gross.
Past performance, etc but if you’re looking to FIRE you need some luck. Buying a house tends to limit the effects of luck…good or bad.
What you are doing with that "oppurtunity", is paying rent.
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
- Homeowners spend more just because they want to live it up more. Apples to apples housing, I doubt you get such numbers. I have never found renting to be much cheaper unless you strike a tremendous deal (or that can be the other way around with housing). As far as I know, the average rental to buy costs less than the median home to buy.
- All of renting is inflation and market driven. I have literally seen some (not all) landlords try to find loopholes in long-term contracts to get previous tenants out because they could get better rent otherwise. Homeowners are more protected in this regard.
- Drops in interest rates are good for homeowners because they can just refinance. Rise in interest rates? Inflation has occurred usually and now the mortgage is not worth so much in real dollars anymore. Either way, the borrower wins in real dollar terms. The power of a callable loan. They have a loan they want to roll out after 15 years to another 30 years? They can and they cut their payment (more interest paid over time, but it seriously does help if one needs to cut the payment). Try to do either with rent...
- The mortgage ends eventually; the profit portion of rent (the rent - expenses) never will end for renters to fulfill for the landlords.
- You end up with house equity by owning the home. Rent leaves you with nothing. Mortgages are not all lost cash.
- Not all mortgages have much of a downpayment; I have seen places do it with hardly any downpayment. Then it is a question of net flow rather than opportunity costs at this point. Interest rates are higher (and the mortgage is more), but no opportunity costs on existent funds.
- You can often rent out a part of your house; you cannot rent a part of a rental usually. I had extended family members pay their mortgage payment and a little more just by renting out the basement.
- To the speculator, you can flip a home -- not a rental. I had a person I knew that literally have a paid off home by all this.
- Tax write-offs favor home ownership.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Reaching your number vs. owning a home
You will only need 20% down to own a house. 30 year fix mortgage is around 2.75-3.0%. So you can reach your number and own a house at the same time.
Re: Reaching your number vs. owning a home
vanbogle59 wrote: ↑Fri Oct 15, 2021 2:39 pmThe nerdwallet author even kind of admits that the whole thing is clickbait: "While renting can’t offer those long-term financial benefits, it’s cheaper to rent on a month-to-month basis, the analysis found."
Thank you, Captain Obvious.
"NerdWallet compared 2015 American Community Survey data from the U.S. Census Bureau for the median gross rent and median homeownership cost in each state and Washington, D.C."
Did they compare apples and oranges?
Median home owner lives in SFH. Median renter lives in apartment/condo.
Like in the example above, $1900 for a one bedroom apartment sure is less than $2010 for 3BR house...
Re: Reaching your number vs. owning a home
What matters is the delta between costs because we’ve already accounted for home equity in the net worth calculations.marcopolo wrote: ↑Fri Oct 15, 2021 2:29 pmSure renting is cheaper, if you ignore home equity, and tax deductions, etc, which is what the linked articles seem to have done.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
TCJA reduced the number of folks who itemized as well as the value of some interest deductions (for high value homes).
https://taxfoundation.org/standard-dedu ... -law-2019/
The last couple quarters have been exceptional around 12-13% however for 2019 it was around 4% while the S&P 500 returned a lot more.But, it is not a trade off between saving and buying a house like the OP stated, and you need to make apples to apples comparison, not absurd assumptions like assuming 0% appreciation on the home like you did above, or ignoring building equity, like the linked articles did.
Since 1940 the annualized increase has been around 5.5%…after accounting for inflation is around 1.5%. Over the long haul the S&P 500 returns a lot more after accounting for inflation…
Yes those are averages so local markets will differ.
Still, if you intend to FIRE it’s better not to buy a home and invest in the market. Especially if there is the intent to geoarbritage to a LCOL area once you hit your number.
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Re: Reaching your number vs. owning a home
Precisely. The typical renter might not have enough money to safely afford a house. That does not mean that the home was a bad deal; it was just too risky for them to buy it.TheHiker wrote: ↑Fri Oct 15, 2021 3:58 pmvanbogle59 wrote: ↑Fri Oct 15, 2021 2:39 pmThe nerdwallet author even kind of admits that the whole thing is clickbait: "While renting can’t offer those long-term financial benefits, it’s cheaper to rent on a month-to-month basis, the analysis found."
Thank you, Captain Obvious.
"NerdWallet compared 2015 American Community Survey data from the U.S. Census Bureau for the median gross rent and median homeownership cost in each state and Washington, D.C."
Did they compare apples and oranges?
Median home owner lives in SFH. Median renter lives in apartment/condo.
Like in the example above, $1900 for a one bedroom apartment sure is less than $2010 for 3BR house...
I might argue operating rentals being profitable when one is tight on time, but I have not seen homeownership actually hurt for long periods for someone who has some stuffing in their finances.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Reaching your number vs. owning a home
I meant to phrase the question to indicate that the person wants to own a home, but there is no time restriction. Could be today or it could be in 10 years, etc.
Would it be cheaper to buy the home now, or invest the money instead and buy it later?
For example, if we know a $200K house today is going to be $1Mil in 10 years, then using the $200K to buy the house is better than investing it in the stock market. But obviously that kind of result can't be predicted.
I wonder if the definite answer is: investing in the market is better since it's more diversified and therefore safer.
Would it be cheaper to buy the home now, or invest the money instead and buy it later?
For example, if we know a $200K house today is going to be $1Mil in 10 years, then using the $200K to buy the house is better than investing it in the stock market. But obviously that kind of result can't be predicted.
I wonder if the definite answer is: investing in the market is better since it's more diversified and therefore safer.
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- Joined: Wed Dec 02, 2020 12:18 pm
Re: Reaching your number vs. owning a home
To the TCJA bit, I do not think people rent such houses usually. Also, I think most such houses are probably more than what most people need anyway. Rent against home ownership: we must make sure it is apples to apples.nigel_ht wrote: ↑Fri Oct 15, 2021 4:09 pmWhat matters is the delta between costs because we’ve already accounted for home equity in the net worth calculations.marcopolo wrote: ↑Fri Oct 15, 2021 2:29 pmSure renting is cheaper, if you ignore home equity, and tax deductions, etc, which is what the linked articles seem to have done.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
TCJA reduced the number of folks who itemized as well as the value of some interest deductions (for high value homes).
https://taxfoundation.org/standard-dedu ... -law-2019/
The last couple quarters have been exceptional around 12-13% however for 2019 it was around 4% while the S&P 500 returned a lot more.But, it is not a trade off between saving and buying a house like the OP stated, and you need to make apples to apples comparison, not absurd assumptions like assuming 0% appreciation on the home like you did above, or ignoring building equity, like the linked articles did.
Since 1940 the annualized increase has been around 5.5%…after accounting for inflation is around 1.5%. Over the long haul the S&P 500 returns a lot more after accounting for inflation…
Yes those are averages so local markets will differ.
Still, if you intend to FIRE it’s better not to buy a home and invest in the market. Especially if there is the intent to geoarbritage to a LCOL area once you hit your number.
To total returns, you have to factor in the excess cash inserted and the leverage had; simple cash-only analysis will not get the right numbers. Ask if people are willing to take a cut in returns to secure housing at a constant; hedges are good to have and that might be one reason to "pay" for it. And if you save money in the long-run, it will not be taxed either.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Reaching your number vs. owning a home
I see both as efforts to control ones own destiny. Financially speaking, investments would be more important, but from a lifestyle point of view, the ability to control the space you occupy is pretty important too. I believe it is a false paradox, as neither is 'more important' absent context and personal circumstances.
Re: Reaching your number vs. owning a home
Sure, you can earn more in equities, but that is because you have take on more risk. You are still not doing an apples-to-apples comparison. There is no free lunch.nigel_ht wrote: ↑Fri Oct 15, 2021 4:09 pmWhat matters is the delta between costs because we’ve already accounted for home equity in the net worth calculations.marcopolo wrote: ↑Fri Oct 15, 2021 2:29 pmSure renting is cheaper, if you ignore home equity, and tax deductions, etc, which is what the linked articles seem to have done.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
TCJA reduced the number of folks who itemized as well as the value of some interest deductions (for high value homes).
https://taxfoundation.org/standard-dedu ... -law-2019/
The last couple quarters have been exceptional around 12-13% however for 2019 it was around 4% while the S&P 500 returned a lot more.But, it is not a trade off between saving and buying a house like the OP stated, and you need to make apples to apples comparison, not absurd assumptions like assuming 0% appreciation on the home like you did above, or ignoring building equity, like the linked articles did.
Since 1940 the annualized increase has been around 5.5%…after accounting for inflation is around 1.5%. Over the long haul the S&P 500 returns a lot more after accounting for inflation…
Yes those are averages so local markets will differ.
Still, if you intend to FIRE it’s better not to buy a home and invest in the market. Especially if there is the intent to geoarbritage to a LCOL area once you hit your number.
Your initial "analysis" you did in response to my post ignored appreciation of the home, the articles you linked are so silly, as several people have pointed out, it is hard to take them seriously.
I am not sure if you do not understand how to do the analysis in a level way, or are being disingenuous.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Reaching your number vs. owning a home
Why not put $50k down and take a $150k mortgage (while investing the rest)? Cash-only is a bad way to do real estate if you have cash flow. You can always pay off the mortgage if you get tired of it; you cannot undo it at the same rate. Power of borrowing.etfan wrote: ↑Fri Oct 15, 2021 4:18 pm I meant to phrase the question to indicate that the person wants to own a home, but there is no time restriction. Could be today or it could be in 10 years, etc.
Would it be cheaper to buy the home now, or invest the money instead and buy it later?
For example, if we know a $200K house today is going to be $1Mil in 10 years, then using the $200K to buy the house is better than investing it in the stock market. But obviously that kind of result can't be predicted.
I wonder if the definite answer is: investing in the market is better since it's more diversified and therefore safer.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Reaching your number vs. owning a home
Folks don’t like my links, find your own.
Folks don’t like my numbers, find your own.
I’m not inclined to give my kids bad advice so if you have the data that shows home ownership is a better path to early FI than stock investment great. I’ll change my mind.
But pretty much all I’m seeing is hand waving.
For the last couple decades, even with dot bomb and GFC the numbers tend work out better for owning VT or VTI than buying a starter home unless you took advantage of some really good deals in 2008.
There is a path to FI via rental units but that’s different than the buy a house so you can live in it use case. Now if you rent out rooms in the house you own that works out nicely but that’s still being a landlord.
Folks don’t like my numbers, find your own.
I’m not inclined to give my kids bad advice so if you have the data that shows home ownership is a better path to early FI than stock investment great. I’ll change my mind.
But pretty much all I’m seeing is hand waving.
For the last couple decades, even with dot bomb and GFC the numbers tend work out better for owning VT or VTI than buying a starter home unless you took advantage of some really good deals in 2008.
There is a path to FI via rental units but that’s different than the buy a house so you can live in it use case. Now if you rent out rooms in the house you own that works out nicely but that’s still being a landlord.
Re: Reaching your number vs. owning a home
Lol. Whatever, you wave your hands and claim X is true without any supporting evidence. That you don’t like mine is perfectly fine.marcopolo wrote: ↑Fri Oct 15, 2021 4:23 pmSure, you can earn more in equities, but that is because you have take on more risk. You are still not doing an apples-to-apples comparison. There is no free lunch.nigel_ht wrote: ↑Fri Oct 15, 2021 4:09 pmWhat matters is the delta between costs because we’ve already accounted for home equity in the net worth calculations.marcopolo wrote: ↑Fri Oct 15, 2021 2:29 pmSure renting is cheaper, if you ignore home equity, and tax deductions, etc, which is what the linked articles seem to have done.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
TCJA reduced the number of folks who itemized as well as the value of some interest deductions (for high value homes).
https://taxfoundation.org/standard-dedu ... -law-2019/
The last couple quarters have been exceptional around 12-13% however for 2019 it was around 4% while the S&P 500 returned a lot more.But, it is not a trade off between saving and buying a house like the OP stated, and you need to make apples to apples comparison, not absurd assumptions like assuming 0% appreciation on the home like you did above, or ignoring building equity, like the linked articles did.
Since 1940 the annualized increase has been around 5.5%…after accounting for inflation is around 1.5%. Over the long haul the S&P 500 returns a lot more after accounting for inflation…
Yes those are averages so local markets will differ.
Still, if you intend to FIRE it’s better not to buy a home and invest in the market. Especially if there is the intent to geoarbritage to a LCOL area once you hit your number.
Your initial "analysis" you did in response to my post ignored appreciation of the home, the articles you linked are so silly, as several people have pointed out, it is hard to take them seriously.
I am not sure if you do not understand how to do the analysis in a level way, or are being disingenuous.
Provide data and I’ll be inclined to change my mind but from what I see the path to FIRE isn’t through early home ownership.
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Re: Reaching your number vs. owning a home
I do not think homeownership is a path to early FI; I never saw people get rich just by owning a home rather than renting (unless they used the equity or renting potential to their advantage). But I much rather delay FI a little and make it less reliant on the stock market.nigel_ht wrote: ↑Fri Oct 15, 2021 4:33 pm Folks don’t like my links, find your own.
Folks don’t like my numbers, find your own.
I’m not inclined to give my kids bad advice so if you have the data that shows home ownership is a better path to early FI than stock investment great. I’ll change my mind.
But pretty much all I’m seeing is hand waving.
For the last couple decades, even with dot bomb and GFC the numbers tend work out better for owning VT or VTI than buying a starter home unless you took advantage of some really good deals in 2008.
There is a path to FI via rental units but that’s different than the buy a house so you can live in it use case. Now if you rent out rooms in the house you own that works out nicely but that’s still being a landlord.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Reaching your number vs. owning a home
There's no definite answer. The market can outperform RE, but owning RE can reduce your COL especially when you can buy RE with cash. You need to crunch the numbers based on your situation and arrive at a conclusion.
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- Joined: Wed Dec 02, 2020 12:18 pm
Re: Reaching your number vs. owning a home
FIRE or secure FI? If you want FIRE, then by all means rent initially for a long while. But then you are taking a downside risk by doing so. That FIRE becomes FDRL if it goes sour.nigel_ht wrote: ↑Fri Oct 15, 2021 4:40 pmLol. Whatever, you wave your hands and claim X is true without any supporting evidence. That you don’t like mine is perfectly fine.marcopolo wrote: ↑Fri Oct 15, 2021 4:23 pmSure, you can earn more in equities, but that is because you have take on more risk. You are still not doing an apples-to-apples comparison. There is no free lunch.nigel_ht wrote: ↑Fri Oct 15, 2021 4:09 pmWhat matters is the delta between costs because we’ve already accounted for home equity in the net worth calculations.marcopolo wrote: ↑Fri Oct 15, 2021 2:29 pmSure renting is cheaper, if you ignore home equity, and tax deductions, etc, which is what the linked articles seem to have done.nigel_ht wrote: ↑Fri Oct 15, 2021 2:24 pm
“Homeowners in all 50 states and Washington, D.C., pay from 33% to 93% more for housing each month than do renters living in the same state, according to a new NerdWallet analysis“
https://www.nerdwallet.com/article/mort ... vs-renting
“Homeowners with a mortgage pay $8,609 more than renters every year: On average, in 2019, homeowners with a mortgage paid $26,418 per year on total housing costs while renters paid $17,809 -- about $717 more per month. (Total housing costs include mortgage or rent, but also maintenance, utilities, and other costs that we'll discuss shortly.)”
https://www.fool.com/the-ascent/researc ... ng-owning/
“Although both home prices and rental prices are on the rise, in every single U.S. state, homeowners with a mortgage spend more money per month than renters on housing. That's according to data from the U.S. Census Bureau's 2013-2017 American Community Survey five-year estimates, which tracks median housing costs across the country.”
https://www.cnbc.com/2019/02/13/how-muc ... state.html
That’s just three random articles from a Google search for “rent vs mortgage”.
If your assertion is that renting costs you more than home ownership you’ll have to find some sources that support that assertion.
Just the difference in the down payment vs VTI is an opportunity cost.
As a landlord I’m showing negative when you factor in closing costs, renovation, maintenance, etc. It’ll be a little while before I show a profit…especially vs VTI in this last year or so.
/shrug
My cap rate is meh but the demographic of the tenants is stable. Cash flow and diversification is why I’m doing this. It’s not a charity but it’s not such a huge winner that home ownership is an automatic no brainer like you seem to think.
TCJA reduced the number of folks who itemized as well as the value of some interest deductions (for high value homes).
https://taxfoundation.org/standard-dedu ... -law-2019/
The last couple quarters have been exceptional around 12-13% however for 2019 it was around 4% while the S&P 500 returned a lot more.But, it is not a trade off between saving and buying a house like the OP stated, and you need to make apples to apples comparison, not absurd assumptions like assuming 0% appreciation on the home like you did above, or ignoring building equity, like the linked articles did.
Since 1940 the annualized increase has been around 5.5%…after accounting for inflation is around 1.5%. Over the long haul the S&P 500 returns a lot more after accounting for inflation…
Yes those are averages so local markets will differ.
Still, if you intend to FIRE it’s better not to buy a home and invest in the market. Especially if there is the intent to geoarbritage to a LCOL area once you hit your number.
Your initial "analysis" you did in response to my post ignored appreciation of the home, the articles you linked are so silly, as several people have pointed out, it is hard to take them seriously.
I am not sure if you do not understand how to do the analysis in a level way, or are being disingenuous.
Provide data and I’ll be inclined to change my mind but from what I see the path to FIRE isn’t through early home ownership.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Reaching your number vs. owning a home
You're seeking an answer where none exists. The variables in housing and the stock market are infinite. Real estate is highly local. Much of the appreciation is due to luck or other factors out of your control (for example: interest rates).etfan wrote: ↑Fri Oct 15, 2021 4:18 pm I meant to phrase the question to indicate that the person wants to own a home, but there is no time restriction. Could be today or it could be in 10 years, etc.
Would it be cheaper to buy the home now, or invest the money instead and buy it later?
For example, if we know a $200K house today is going to be $1Mil in 10 years, then using the $200K to buy the house is better than investing it in the stock market. But obviously that kind of result can't be predicted.
I wonder if the definite answer is: investing in the market is better since it's more diversified and therefore safer.
Owning a home is a lifestyle choice. Don't view it as an investment. If it makes money, that's great. At least you're paying some portion of your housing expense into something you can sell eventually. You can't make that claim with renting.
I feel very comfortable that in the 30-40 years I will own my house, the stock market will beat my 2.25% mortgage, which will end in 10 years. That's why I won't pay it off. I leverage it to invest. If I rented, I'd be renting... forever.
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Re: Reaching your number vs. owning a home
I would still recommend a mortgage since it is the best loan one can have. Remember that not all debt is bad if it can help your profits in the long run.Marseille07 wrote: ↑Fri Oct 15, 2021 4:45 pmThere's no definite answer. The market can outperform RE, but owning RE can reduce your COL especially when you can buy RE with cash. You need to crunch the numbers based on your situation and arrive at a conclusion.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
- willthrill81
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Re: Reaching your number vs. owning a home
I don't think that anyone here at least has claimed that you get can "get rich just by owning a home."secondopinion wrote: ↑Fri Oct 15, 2021 4:43 pm I do not think homeownership is a path to early FI; I never saw people get rich just by owning a home rather than renting (unless they used the equity or renting potential to their advantage).
The comparison is not owning a home vs. stocks. The comparison is owning a home vs. renting. And in many areas of the country, the math clearly favors owning.
A big advantage to free and clear home ownership for FI, especially those pursuing early FIRE, is that it usually reduces sequence of returns risk substantially. When you live in a paid off home, you have no mortgage (or rent) payment to make. Yes, maintenance, taxes, and insurance are still due, but these are usually a fraction of equivalent rent. Not having a required mortgage or rental payment to make means that you have a greater ability to reduce your portfolio withdrawals in the event of poor portfolio performance. By contrast, those with a mortgage or rent in retirement have to make those payments every single month even if their portfolio is on the rocks. That exacerbates sequence of returns risk.
The Sensible Steward
- willthrill81
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Re: Reaching your number vs. owning a home
In reality, you're arguing for stock ownership over fixed income since a mortgage is just a negative bond. Generally speaking, greater stock ownership has led to greater wealth, but the key word there is 'generally'. Those pursuing this path should have both the ability and willingness to take on the associated risks. And when it comes to retirees, there are clear mathematical advantages to owning one's home free and clear even if the mortgage rate is low, as I noted here.secondopinion wrote: ↑Fri Oct 15, 2021 5:06 pmI would still recommend a mortgage since it is the best loan one can have. Remember that not all debt is bad if it can help your profits in the long run.Marseille07 wrote: ↑Fri Oct 15, 2021 4:45 pmThere's no definite answer. The market can outperform RE, but owning RE can reduce your COL especially when you can buy RE with cash. You need to crunch the numbers based on your situation and arrive at a conclusion.
Combining debt and investing results in leverage, and leverage increases both upside potential and downside risk.
The Sensible Steward
Re: Reaching your number vs. owning a home
willthrill81,willthrill81 wrote: ↑Fri Oct 15, 2021 8:10 pm
A big advantage to free and clear home ownership for FI,
1) Except folks buy more houses versus when they are renting. It is apple versus orange. Then, they cannot FI.
2) After that, they got worried about their mortgage. They reduced their 401K contribution in order to pay down the mortgage. They paid a lot more taxes in order to reduce their mortgage. They reduced their liquidity by keeping even more money in the house.
3) The final blow comes when they are unemployed in a recession. The house is underwater and they have to move elsewhere to find employment. They got stuck paying mortgage in the old house and rent at a new location.
4) The lucky one found sufficient employment and survive long enough for the recovery. The unlucky one loses their houses and financially wiped out.
5) The story recurred in every recessions.
KlangFool
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- willthrill81
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Re: Reaching your number vs. owning a home
Many do, but that is not an inherent aspect of home ownership. We own our home outright, and it's a 3/2 home with 1,200 sq. ft.KlangFool wrote: ↑Fri Oct 15, 2021 9:20 pmwillthrill81,willthrill81 wrote: ↑Fri Oct 15, 2021 8:10 pm
A big advantage to free and clear home ownership for FI,
1) Except folks buy more houses versus when they are renting.
By the same token, many who rent spend every dime they make and don't even build home equity. But that doesn't mean that renting is inherently a bad decision; sometimes, it is very wise.
While there is no doubt that the cycle you refer to has existed for at least some people, owning a home is far from a universal money pit. It's only correlational data, but renters as a group have far lower net worths than homeowners.
https://www.keepingcurrentmatters.com/2 ... -widening/
Obviously, renting can be financially superior to owning, as I've said multiple times now I believe in this thread.
We should not paint with too broad a brush when it comes to the potential pitfalls of home ownership.
The Sensible Steward
Re: Reaching your number vs. owning a home
Investments are assets. They create wealth. Your residence is a liability. It incurs expenses. If wealth is your goal, then maximize your assets and reduce your liabilities.
In my experience, most home owners I know do the exact opposite. That is, they buy a lot more house than they need, which significantly increases their expenses and reduces their ability to invest in wealth generating assets.
With that said, most renters I know aren’t doing any better.
In my experience, most home owners I know do the exact opposite. That is, they buy a lot more house than they need, which significantly increases their expenses and reduces their ability to invest in wealth generating assets.
With that said, most renters I know aren’t doing any better.
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Re: Reaching your number vs. owning a home
The mortgage is long-term, fixed-rate, low-rate, callable debt. This is actually rather a safe debt to have for the borrower. You can have a mortgage and still hold fixed income; the trick is not to hold similar debt. How this works depends on the exact terms of fixed income.willthrill81 wrote: ↑Fri Oct 15, 2021 8:13 pmIn reality, you're arguing for stock ownership over fixed income since a mortgage is just a negative bond. Generally speaking, greater stock ownership has led to greater wealth, but the key word there is 'generally'. Those pursuing this path should have both the ability and willingness to take on the associated risks. And when it comes to retirees, there are clear mathematical advantages to owning one's home free and clear even if the mortgage rate is low, as I noted here.secondopinion wrote: ↑Fri Oct 15, 2021 5:06 pmI would still recommend a mortgage since it is the best loan one can have. Remember that not all debt is bad if it can help your profits in the long run.Marseille07 wrote: ↑Fri Oct 15, 2021 4:45 pmThere's no definite answer. The market can outperform RE, but owning RE can reduce your COL especially when you can buy RE with cash. You need to crunch the numbers based on your situation and arrive at a conclusion.
Combining debt and investing results in leverage, and leverage increases both upside potential and downside risk.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Re: Reaching your number vs. owning a home
Except that IS the choice. The down payment comes at the expense of your portfolio. Any excess expenditures come at the expense of your portfolio.willthrill81 wrote: ↑Fri Oct 15, 2021 8:10 pm
The comparison is not owning a home vs. stocks. The comparison is owning a home vs. renting. And in many areas of the country, the math clearly favors owning.
An advantage you won’t see for 30 years and one that doesn’t matter as much because you can choose to geoarbitrage living expenses.A big advantage to free and clear home ownership for FI, especially those pursuing early FIRE, is that it usually reduces sequence of returns risk substantially.
Re: Reaching your number vs. owning a home
Hold on now. A home is not an asset? Even when owned free and clear? If I have $500k in cash and buy a home with it, my assets don't fall to zero. They remain the same.Drxgs wrote: ↑Fri Oct 15, 2021 9:52 pm Investments are assets. They create wealth. Your residence is a liability. It incurs expenses. If wealth is your goal, then maximize your assets and reduce your liabilities.
In my experience, most home owners I know do the exact opposite. That is, they buy a lot more house than they need, which significantly increases their expenses and reduces their ability to invest in wealth generating assets.
With that said, most renters I know aren’t doing any better.
Whether or not a home is a good investment is another story. An investment may gain or lose value. But it is still an asset. When you hold a mortgage, that is a liability. But the value of the home minus the mortgage is an asset. A home (even a mortgaged one) can also create "wealth" in the sense of imputed rent. You're saving what you would be spending otherwise.
Re: Reaching your number vs. owning a home
You're making some assumptions about portfolio construction that are not true for everyone, or even for most. A portfolio can consist of stocks and bonds, true. But it can also include real estate, like your home. Your wealth is made up of all your assets, minus liabilities. One advantage of a home over, say, stocks (and renting, for that matter) is price stability/lack of volatility. That has value in a portfolio. If my rent goes up every year, I might need to take more money out of my portfolio to pay for it (or save less).nigel_ht wrote: ↑Sat Oct 16, 2021 6:59 amExcept that IS the choice. The down payment comes at the expense of your portfolio. Any excess expenditures come at the expense of your portfolio.willthrill81 wrote: ↑Fri Oct 15, 2021 8:10 pm
The comparison is not owning a home vs. stocks. The comparison is owning a home vs. renting. And in many areas of the country, the math clearly favors owning.
An advantage you won’t see for 30 years and one that doesn’t matter as much because you can choose to geoarbitrage living expenses.A big advantage to free and clear home ownership for FI, especially those pursuing early FIRE, is that it usually reduces sequence of returns risk substantially.
Your point about not seeing an advantage for 30 years is simply not true. The advantage is seen in price stability. When the renter next to me sees their rent rise 10%, my cost stays fixed. I can also refinance. Or take out a home equity loan. Or sell tomorrow and buy a smaller house (or rent a cheap apartment.) Or, once my balance is low, I can get a 10 year mortgage. Or no mortgage.
All of the data that exist on housing in the US shows renters, on average, have less wealth that homeowners. Forced savings is one reason. But the other is that renters who spend less on housing don't invest the difference. The spend it.
Re: Reaching your number vs. owning a home
Folks attempting to FIRE aren’t retirees yet and they are trying to do it faster than 30 years. The other aspect is they tend to have higher incomes which typically means living in HCOL areas if they have any hope to FIRE by 40…which is just 18 years or so after finishing college.willthrill81 wrote: ↑Fri Oct 15, 2021 8:13 pm
In reality, you're arguing for stock ownership over fixed income since a mortgage is just a negative bond. Generally speaking, greater stock ownership has led to greater wealth, but the key word there is 'generally'. Those pursuing this path should have both the ability and willingness to take on the associated risks. And when it comes to retirees, there are clear mathematical advantages to owning one's home free and clear even if the mortgage rate is low, as I noted here.
Combining debt and investing results in leverage, and leverage increases both upside potential and downside risk.
Re: Reaching your number vs. owning a home
I’m making assumptions about portfolio construction for folks trying to FIRE in the context for advice I’m giving to my kids.Admiral wrote: ↑Sat Oct 16, 2021 7:11 amYou're making some assumptions about portfolio construction that are not true for everyone, or even for most.nigel_ht wrote: ↑Sat Oct 16, 2021 6:59 amExcept that IS the choice. The down payment comes at the expense of your portfolio. Any excess expenditures come at the expense of your portfolio.willthrill81 wrote: ↑Fri Oct 15, 2021 8:10 pm
The comparison is not owning a home vs. stocks. The comparison is owning a home vs. renting. And in many areas of the country, the math clearly favors owning.
An advantage you won’t see for 30 years and one that doesn’t matter as much because you can choose to geoarbitrage living expenses.A big advantage to free and clear home ownership for FI, especially those pursuing early FIRE, is that it usually reduces sequence of returns risk substantially.
See the word FIRE in the above paragraph? It’s there for a reason.
And if inflation is high then bonds tend to be higher which means stocks tend to be higher except when you are in stagflation.Your point about not seeing an advantage for 30 years is simply not true. The advantage is seen in price stability. When the renter next to me sees their rent rise 10%, my cost stays fixed.
If the kids encounter a bad 20 year period they can forget FIRE.
Well THESE renters are going to try to save 50% of net. Probably only manage less but that’s the goal.All of the data that exist on housing in the US shows renters, on average, have less wealth that homeowners. Forced savings is one reason. But the other is that renters who spend less on housing don't invest the difference. The spend it.
Maybe they will buy a condo and rent out the spare bedrooms but that’s more investment property than traditional home ownership. Then we’d look at the expected cap rate and see if it makes sense vs renting and sub-letting.
Re: Reaching your number vs. owning a home
My number is based on net worth so this is the wrong question.
If I can't reach my net worth number without being subject to concentration risk then the concentration risk I would choose would be to have investments and not property ownership. If I have enough assets to eliminate concentration risk I would do both becasue it provides diversification. And the reality is one doesn't know which asset class will outperform until ex post.
- jeffyscott
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Re: Reaching your number vs. owning a home
I think this is one of the main sources of these homeownership debates, it's what people actually do vs. what they could do. Many (most?) people do buy more house than what they would rent. So one group wants to compare things like median rent to median buy, which results in something like comparing the cost of renting an 800 SF two bedroom apartment to buying a 2000 SF single family home. And the other group wants to compare like properties, so either buying the 2000 SF house compared to renting a 2000 SF house or else buying a modest 2 bedroom condo compared to renting the 2 bedroom apartment.willthrill81 wrote: ↑Fri Oct 15, 2021 9:46 pmMany do, but that is not an inherent aspect of home ownership. We own our home outright, and it's a 3/2 home with 1,200 sq. ft.
The other big factor is that some of us live where buying might cost 10-15 times the annual rent for an equivalent home and others where it might be 20x+.
My single son had co-workers telling him "you should buy a house, instead of renting...financial advantages, etc..." and he's thinking "yeah, no, I pay $525 per month in rent, house would cost $$$...". I told him that at least part of the problem is comparing renting a 1 bedroom apartment to buying a 3 bedroom house, if there were a place you could buy that was more equivalent to what you are renting, then the comparison might look better, but you can't really buy a 1 bedroom apartment that is equivalent to your rental in that area. But then it turned out you could buy a 1 bedroom condo for about $50-60K (the condos were actually more equivalent to places that rented for $700+ at the time, but were as close as possible to being equivalent to his rental) and, after a financial analysis he bought one for cash.
So the comparison here was paying out $525 per month vs. a one time payment of $50K and about $300 per month in condo fees, taxes, and estimated maintenance. The initial return on his investment of $50K was 5.4%, based on the $225 per month difference. The condo actually had some added amenities that he'd have been willing to pay about $100 per month for, so accounting for that boosts the return to 7.8%. If it is assumed that the condo, rent, and his monthly costs would all rise at the same rate, does that mean his ongoing return remains 5.4% (or 7.8%, including the value of added amenities)?
Of course, this analysis would look quite different if, as many do, he went from his rental apartment to a single family home. One of the cheaper houses in that area would have cost maybe $150K, plus maybe $350-400 per month in taxes and maintenance. It also would look different if he lived where an equivalent condo would cost $150K+.
Re: Reaching your number vs. owning a home
Well, if you can buy a condo for $50K that’s not bad even with a $300 condo fee, taxes, etc assuming it’s not in a terrible part of town.jeffyscott wrote: ↑Sat Oct 16, 2021 8:20 amI think this is one of the main sources of these homeownership debates, it's what people actually do vs. what they could do. Many (most?) people do buy more house than what they would rent. So one group wants to compare things like median rent to median buy, which results in something like comparing the cost of renting an 800 SF two bedroom apartment to buying a 2000 SF single family home. And the other group wants to compare like properties, so either buying the 2000 SF house compared to renting a 2000 SF house or else buying a modest 2 bedroom condo compared to renting the 2 bedroom apartment.willthrill81 wrote: ↑Fri Oct 15, 2021 9:46 pmMany do, but that is not an inherent aspect of home ownership. We own our home outright, and it's a 3/2 home with 1,200 sq. ft.
The other big factor is that some of us live where buying might cost 10-15 times the annual rent for an equivalent home and others where it might be 20x+.
My single son had co-workers telling him "you should buy a house, instead of renting...financial advantages, etc..." and he's thinking "yeah, no, I pay $525 per month in rent, house would cost $$$...". I told him that at least part of the problem is comparing renting a 1 bedroom apartment to buying a 3 bedroom house, if there were a place you could buy that was more equivalent to what you are renting, then the comparison might look better, but you can't really buy a 1 bedroom apartment that is equivalent to your rental in that area. But then it turned out you could buy a 1 bedroom condo for about $50-60K (the condos were actually more equivalent to places that rented for $700+ at the time, but were as close as possible to being equivalent to his rental) and, after a financial analysis he bought one for cash.
So the comparison here was paying out $525 per month vs. a one time payment of $50K and about $300 per month in condo fees, taxes, and estimated maintenance. The initial return on his investment of $50K was 5.4%, based on the $225 per month difference. The condo actually had some added amenities that he'd have been willing to pay about $100 per month for, so accounting for that boosts the return to 7.8%. If it is assumed that the condo, rent, and his monthly costs would all rise at the same rate, does that mean his ongoing return remains 5.4% (or 7.8%, including the value of added amenities)?
Of course, this analysis would look quite different if, as many do, he went from his rental apartment to a single family home. One of the cheaper houses in that area would have cost maybe $150K, plus maybe $350-400 per month in taxes and maintenance. It also would look different if he lived where an equivalent condo would cost $150K+.
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Re: Reaching your number vs. owning a home
Devils advocate to plowing all your money into index funds and trying to hit "a number". You can own 5 houses (4 rentals) and gross ~$30-40K gross on rents per month. This allows you to re-invest in more real estate or more index funds. Lots of ways to skin a cat to hit your number. Real estate ownership/investing is truly the wealth multiplier, and diversification is great.
- jeffyscott
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Re: Reaching your number vs. owning a home
I think the answer is to compare the cost of renting vs. the cost of buying. From that estimate the return you get by prepaying a portion of your housing costs via a purchase and compare that to the return you might expect from an equally risky investment. Instead of buying the $200K house are you paying $20K per year in rent (in which case probably buying is the better option, if you have no plans to move) or are you paying $10K (in which case renting is probably better, financially).etfan wrote: ↑Fri Oct 15, 2021 4:18 pm I meant to phrase the question to indicate that the person wants to own a home, but there is no time restriction. Could be today or it could be in 10 years, etc.
Would it be cheaper to buy the home now, or invest the money instead and buy it later?
For example, if we know a $200K house today is going to be $1Mil in 10 years, then using the $200K to buy the house is better than investing it in the stock market. But obviously that kind of result can't be predicted.
I wonder if the definite answer is: investing in the market is better since it's more diversified and therefore safer.
I think determining risk is the more difficult part, in one sense buying is a very safe investment because you are locking down maybe 2/3 of your housing costs. But in another sense it is risky, because it is one undiversified asset, maybe you bought a money pit that's going to need $50,000 in unanticipated repairs over the next 5-10 years. I think I would lean more toward it being relatively low/moderate risk, provided that you buy a place that you would be happy to live in for the rest of your life.
- willthrill81
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Re: Reaching your number vs. owning a home
Actually, once those in the FIRE crowd retire, they will have even greater exposure to sequence of returns risk than more traditional retirees because their expected retirement period is so long. All else being equal, having no mortgage or rent results in lower sequence of returns risk due to the lower mandatory portfolio withdrawals. A mortgage interest rate being low does nothing to resolve this issue unless it's lower than one's fixed income yield on an after-tax basis, which hasn't been the case for most in a long time and isn't true for most now either.nigel_ht wrote: ↑Sat Oct 16, 2021 7:23 amFolks attempting to FIRE aren’t retirees yet and they are trying to do it faster than 30 years. The other aspect is they tend to have higher incomes which typically means living in HCOL areas if they have any hope to FIRE by 40…which is just 18 years or so after finishing college.willthrill81 wrote: ↑Fri Oct 15, 2021 8:13 pm
In reality, you're arguing for stock ownership over fixed income since a mortgage is just a negative bond. Generally speaking, greater stock ownership has led to greater wealth, but the key word there is 'generally'. Those pursuing this path should have both the ability and willingness to take on the associated risks. And when it comes to retirees, there are clear mathematical advantages to owning one's home free and clear even if the mortgage rate is low, as I noted here.
Combining debt and investing results in leverage, and leverage increases both upside potential and downside risk.
Again, your point about where they live being important to the rent/own decision is something I wholeheartedly agree with.
The Sensible Steward
Re: Reaching your number vs. owning a home
I don’t always agree with Klang, but I do agree to be careful on housing expenses. Pre-crisis I had a job that looked like it was secure and my income was going up every year. My senior partners actually encouraged people to buy big expensive houses. So my ex and I (he was an architect) built an fantastic house in a close-in suburb. Completely custom, huge lot, pool, pool house. I loved it, but it cost $2.2M all in and that was with a lot of value engineering.Random Walker wrote: ↑Fri Oct 15, 2021 1:28 pmTrue. I’ve seen that myself. All bets are off when acquisition occurs.KlangFool wrote: ↑Fri Oct 15, 2021 10:49 amRandom Walker,Random Walker wrote: ↑Fri Oct 15, 2021 10:29 amAnd I bet Klangfool performed better at the job than his co-worker in the next cubicle.KlangFool wrote: ↑Fri Oct 15, 2021 9:52 amvanbogle59,vanbogle59 wrote: ↑Fri Oct 15, 2021 9:45 am
LOL. Take that, Dave. And tell your wife. I just told mine.
1) I had been married for more than 25+ years.
2) I had survived multiple recessions across 30+ years.
3) I had been unemployed for more than 1 year a few times.
4) But, I am not "House Poor" and we know we can feed our family no matter what.
5) On 1/1/2009, my employer laid off 50% of the employees at my location. I "Slept Well At Night" (SWAN) because I know I am not "House Poor". My co-worker on the next cubicle worried that she might be next and whether they could pay their mortgage.
KlangFool
That did not help or stop me from being laid off eventually. Once the employer being acquired by someone else. All bets are off.
KlangFool
Dave
Then came the crisis. I was lucky to keep my job through the decline and failure of my firm but my comp got cut in half. Paying the mortgage on that house because very, very uncomfortable, as the value declined precipitously . We sold at break-even in 2014 (against the advice of every realtor who told us we wouldn’t be able to do it) to take an ill-advised job transfer - break-even before expenses, of course.
In hindsight it was a huge stretch and a foolish decision, no matter how much fun the house was (not building it, that was awful).
Now single, I have chosen a different housing path than many. You know the adage to buy the cheapest house in the nicest area? I did the opposite, bought a really well built spec house in an exurb that is walkable to services/transit and with fantastic neighbors, but that is not considered “desirable.” I don’t care, I enjoy the space, the design, the improvements I’ve made (pool, home theater, etc.) at an all-in price of about what a teardown costs in town. It “lives” remarkably similarly to the boondoggle mansion, and that was intentional, at about 1/3 the cost.
I’m not focusing on paying it off before retirement because I have a 1.875% mortgage. The low payment allows me to shovel away money into savings.
I am on a local real estate forum and the conventional wisdom about location leads upper middle class people to spend insane amounts of money on housing. There ARE alternatives, people just don’t consider them.
So…. Buy a house if you want, but make sure it’s well within your means. Don’t make yourself house poor, make sure you can still save a good amount even after mortgage and expenses. You’ll be happy you did someday.