Reaching your number vs. owning a home

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etfan
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Reaching your number vs. owning a home

Post by etfan »

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.
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Watty
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Re: Reaching your number vs. owning a home

Post by Watty »

etfan wrote: Fri Oct 15, 2021 8:44 am Your net worth may never recover.
You may be looking at this wrong.

Your home equity is part of your net worth.

Once you have a paid off house, or at least a small mortgage, then your monthly expenses go down so you need a smaller portfolio to be financially independent.
etfan wrote: Fri Oct 15, 2021 8:44 am 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 live in a very expensive area where home prices are crazy and don't make a high income then you may be in a "no win" scenario unless you are willing and able to move to a less expensive area.
wolf359
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Re: Reaching your number vs. owning a home

Post by wolf359 »

Watty wrote: Fri Oct 15, 2021 9:03 am
etfan wrote: Fri Oct 15, 2021 8:44 am Your net worth may never recover.
You may be looking at this wrong.

Your home equity is part of your net worth.

Once you have a paid off house, or at least a small mortgage, then your monthly expenses go down so you need a smaller portfolio to be financially independent.
etfan wrote: Fri Oct 15, 2021 8:44 am 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 live in a very expensive area where home prices are crazy and don't make a high income then you may be in a "no win" scenario unless you are willing and able to move to a less expensive area.
I know multiple people in our HCOL area who retired by selling their house here, to fund their retirement and have a fully paid off house in a lower cost area.

You have to live somewhere. Buying a house freezes your housing cost to a fixed level.

Buying a house is an emotional decision, not a financial one. You have to be careful of not buying too much house.
KlangFool
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Re: Reaching your number vs. owning a home

Post by KlangFool »

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.
Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.

<<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.>>

Only true at a particular location, someone could always move to a beach elsewhere. There are plenty of beaches all over the world. And, if someone is financially independent, aka do not need a job, the person could live anywhere.

Before COVID-19, I have to check my older brother and older sister facebook page in order to find out where they are. They early retired and travel all over the world for fun.

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Random Walker
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Re: Reaching your number vs. owning a home

Post by Random Walker »

KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
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Re: Reaching your number vs. owning a home

Post by KlangFool »

Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

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vanbogle59
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Re: Reaching your number vs. owning a home

Post by vanbogle59 »

KlangFool wrote: Fri Oct 15, 2021 9:42 am
Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

KlangFool
LOL. Take that, Dave. And tell your wife. I just told mine.
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goodenyou
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Re: Reaching your number vs. owning a home

Post by goodenyou »

Your portfolio can feed you. Your house can eat you alive. The answer should be obvious
Fabulous. So very true. I had an epiphany recently when the concept of “liquidity” was discussed in terms of portfolio construction. Many confuse the idea of “liquid” assets within a portfolio that is designed to generate a required withdrawal rate for living expenses with true “liquidity”. A portfolio that must maintain a certain threshold balance does not have “liquidity” despite being constructed with “liquid” assets. Maybe this is obvious to most, but I was slow to realize this concept. Depleting your portfolio that is required to sustain a SWR can “eat you alive”.
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exodusNH
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Re: Reaching your number vs. owning a home

Post by exodusNH »

etfan wrote: Fri Oct 15, 2021 8:44 am On the other hand, houses aren't getting any cheaper.
That is only true in the recent past. I bought my house in August 2005. By 2009, it was worth 20% less than I had paid for it. It's taken 15 years for the nominal value of the house to equal what I paid. When you adjust for inflation, it's still about 25% below the value that would have resulted in 0% real growth.

For kicks, I ran the numbers on my down payment. Had I invested my down payment and continued living in my condo, my net worth (yes, even factoring in the house equity) would be higher, and I'd have paid off the condo.

The trade off is that I had a place where I didn't share walls with people and didn't have the headache of dealing with people who don't pay their condo fees.

There does seem to be the impression that owning is better than renting. I think they're both perfectly valid choices. Owning a house had a lot of hidden expenses, mostly having to do with having more space:

More furniture to buy
More drapes, curtains, blinds
Higher utility bills
Potentially illiquid asset taking up a large chunk of your wealth
Less flexibility
Painting and other redecorating
Eventual kitchen or bathroom renovations
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Re: Reaching your number vs. owning a home

Post by KlangFool »

vanbogle59 wrote: Fri Oct 15, 2021 9:45 am
KlangFool wrote: Fri Oct 15, 2021 9:42 am
Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

KlangFool
LOL. Take that, Dave. And tell your wife. I just told mine.
vanbogle59,

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
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dbr
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Re: Reaching your number vs. owning a home

Post by dbr »

You can certainly be "house poor" in the sense that you have placed too much equity in the home and don't have enough in remaining savings to support your retirement income need. Such a house may also impose more costs than one that is not so expensive.

But you have also posed a false dilemma. If living in such a home is one of your objectives, then your number is simply larger relative to your income and savings than you thought it was. In that case you have to earn more, save more, and work longer than you thought. It all comes out in the same wash.

An alternative is to downsize when you retire and add some of the returned equity to your portfolio. You also have to account for what the growth in that equity is and at how much risk that growth will materialize.

Maybe you are trying to plan on a higher standard of living than your income and savings rate is going to allow.
Marseille07
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Re: Reaching your number vs. owning a home

Post by Marseille07 »

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.
What I do is to plan for both scenarios, something like:

a) 2M portfolio without a house (renting)
b) 1.5M portfolio + 500K house all paid off

then I calculate expenses for both scenarios; a) obviously incurs rent, b) incurs property tax, house maint cost etc etc. I generally pick whichever is higher as my "number" so I'm ready for either scenario.
secondopinion
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Re: Reaching your number vs. owning a home

Post by secondopinion »

Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Oh dear, those who fall for that trap should not buy a house.

I live in a nice house as a renter (albeit with family); I and they certainly do not live it up. We ignore the Jones; always have, and always will. However, I wonder if selling it would benefit them because the net worth contained in the house is 50% (it started as only a 25% of their net worth).

But I do wish that I could get a house without breaking the bank as it were. At least my liquidity is really high right now.
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pizzy
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Re: Reaching your number vs. owning a home

Post by pizzy »

KlangFool wrote: Fri Oct 15, 2021 9:52 am I had been married for more than 25+ years.
What made her leave?
Last edited by pizzy on Fri Oct 15, 2021 10:04 am, edited 1 time in total.
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nigel_ht
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Re: Reaching your number vs. owning a home

Post by nigel_ht »

goodenyou wrote: Fri Oct 15, 2021 9:48 am
Your portfolio can feed you. Your house can eat you alive. The answer should be obvious
Fabulous. So very true. I had an epiphany recently when the concept of “liquidity” was discussed in terms of portfolio construction. Many confuse the idea of “liquid” assets within a portfolio that is designed to generate a required withdrawal rate for living expenses with true “liquidity”. A portfolio that must maintain a certain threshold balance does not have “liquidity” despite being constructed with “liquid” assets. Maybe this is obvious to most, but I was slow to realize this concept. Depleting your portfolio that is required to sustain a SWR can “eat you alive”.
If your SWR depletes your portfolio before you die it wasn’t a safe withdrawal rate…in some contexts 4% isn’t a SWR…but probably 3% is…
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Re: Reaching your number vs. owning a home

Post by KlangFool »

dbr wrote: Fri Oct 15, 2021 9:53 am You can certainly be "house poor" in the sense that you have placed too much equity in the home and don't have enough in remaining savings to support your retirement income need. Such a house may also impose more costs than one that is not so expensive.

But you have also posed a false dilemma. If living in such a home is one of your objectives, then your number is simply larger relative to your income and savings than you thought it was. In that case you have to earn more, save more, and work longer than you thought. It all comes out in the same wash.

An alternative is to downsize when you retire and add some of the returned equity to your portfolio. You also have to account for what the growth in that equity is and at how much risk that growth will materialize.

Maybe you are trying to plan on a higher standard of living than your income and savings rate is going to allow.
dbr,

There is no dilemma if OP

1) Renting versus buying the same house.

2) Buying is significantly cheaper than renting. Aka, PITI is 20% to 30% lowered than renting.

But, (1) is seldom true.

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Re: Reaching your number vs. owning a home

Post by KlangFool »

pizzy wrote: Fri Oct 15, 2021 10:03 am
KlangFool wrote: Fri Oct 15, 2021 9:52 am I had been married for more than 25+ years.
What made her leave?
We are still married.

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Re: Reaching your number vs. owning a home

Post by pizzy »

KlangFool wrote: Fri Oct 15, 2021 10:05 am
pizzy wrote: Fri Oct 15, 2021 10:03 am
KlangFool wrote: Fri Oct 15, 2021 9:52 am I had been married for more than 25+ years.
What made her leave?
We are still married.

KlangFool
Very nice!
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dogagility
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Re: Reaching your number vs. owning a home

Post by dogagility »

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?
Rent vs buy is more of a lifestyle question than a financial question, IMO.

If you have the funds to buy a house and you want to buy a house, buy a house.
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MiddleOfTheRoad
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Re: Reaching your number vs. owning a home

Post by MiddleOfTheRoad »

You need to answer for yourself why you invest, and what the money is ultimately for. What will make you happy? Is owning a home one of your major milestone? There are consequences and perks to each answer, and you are risking something with either choice. Life is not risk free. Make sure you know the risk and can accept it, i.e do your due diligence. Making a conscious choice will minimize regrets.
Believe it or not, some people regret not stretching a little further while young to get a little more house too. On BH, the house-poor crowd is louder. 🤣
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Re: Reaching your number vs. owning a home

Post by danaht »

There is nothing wrong with not owning a home. A small apartment can be a lot less costly - and you don't have to worry about all the things like maintenance, insurance, real estate taxes, etc. In my experience - owning a home can be one of the most costly things someone can do. I think owning a small home (in a nice neighborhood) where you can reduce those expenses I mentioned does make sense if you can do that.
Onlineid3089
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Re: Reaching your number vs. owning a home

Post by Onlineid3089 »

Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
I wonder, do these Keeping up with the Jones' things really only apply to owning? Does somebody who lives in a similar house in the same neighborhood really have less pull to keep up just because they rent while their neighbor owns?

I do think that keeping up with the Jones' is a very real thing. I just don't think that rent/buy has much to do with it compared to where you have chosen to live. I suppose maybe in other parts of the country 'nice' neighborhoods are exclusively owner occupied?
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22twain
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Re: Reaching your number vs. owning a home

Post by 22twain »

KlangFool wrote: Fri Oct 15, 2021 10:05 am
pizzy wrote: Fri Oct 15, 2021 10:03 am
KlangFool wrote: Fri Oct 15, 2021 9:52 am I had been married for more than 25+ years.
What made her leave?
We are still married.
English-language tip (since I suspect you're not a native English speaker):

"I have been married for more than 25 years" implies that you're still married.

"I had been married for more than 25 years" implies that you're no longer married.

I've studied a few languages myself, and am married to a (now retired) language professor, so I know that they all have tricky details like this. :happy

(Some of them even escape native speakers. :wink: )
Last edited by 22twain on Fri Oct 15, 2021 10:27 am, edited 1 time in total.
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Mike Scott
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Re: Reaching your number vs. owning a home

Post by Mike Scott »

Buying/owning a home is only partly a financial question. Some people really, really want to own their home. Some don't care or don't want to own. Depending on your local market, your plans and your own preferences and choices, there can be good financial arguments for renting or owning at any given point in time and place.

I do think it's a flawed scenario. It seldom is an absolute choice of one or the other.
WhatsIRR
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Re: Reaching your number vs. owning a home

Post by WhatsIRR »

One risk to renting a SFH is a change in ownership. I have known several people in the last year who found themselves homeless after their landlord took advantage of the rising home markets and sold the property. The new owner didn’t want it as a rental or had a big renovation plans. One family had to live in a travel trailer for months until they found a new place.

This is probably not a risk in apartments

There are definitely more considerations than straight NW, I value security and control so I elect to own a home where I can do as I please.
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Re: Reaching your number vs. owning a home

Post by Random Walker »

KlangFool wrote: Fri Oct 15, 2021 9:52 am
vanbogle59 wrote: Fri Oct 15, 2021 9:45 am
KlangFool wrote: Fri Oct 15, 2021 9:42 am
Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

KlangFool
LOL. Take that, Dave. And tell your wife. I just told mine.
vanbogle59,

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
And I bet Klangfool performed better at the job than his co-worker in the next cubicle. There is something freeing about not desperately needing the job that allows the worker to perform better, and this can easily result in higher income. When work is more of a choice than a desperate effort to stay afloat, I think good things can happen: better job satisfaction, better performance, more sense of control, stronger negotiating position, perhaps better pay.

Dave
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bligh
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Re: Reaching your number vs. owning a home

Post by bligh »

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.
Depends on how flexible you are in terms of your living situation. Are you okay retiring to a lower cost of living area?

If I had to pick between the two, I'd pick (1) for sure. In fact, I did.

The problem with renting is that housing cost inflation can push (1) up on you. It makes it a moving target. Keeping your housing costs predictable helps with (1) because now you have the ability to limit your monthly housing costs from going up (while simultaneously retaining the option of lowering it).

I was a lifelong renter who had essentially reached their number but the recent madness in the housing market made me realize that in the long run I wanted control over my housing costs. Even after the purchase I made sure I was in the FI range (ie. I could cover my basic living expenses indefinitely but it is not going to be comfortable and not with the margin of safety that I want). It will likely be another 3-4 years before I am fully FI once again. 3-4 years seemed like a decent trade off to make for long term housing cost stability, diversification of assets and the inflation protection it brings, and the improved life style that comes with home ownership. But that is a personal thing, after having reached FI some people would see 3-4 years of additional work and balk at the idea.
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vanbogle59
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Re: Reaching your number vs. owning a home

Post by vanbogle59 »

KlangFool wrote: Fri Oct 15, 2021 9:52 am
vanbogle59 wrote: Fri Oct 15, 2021 9:45 am
KlangFool wrote: Fri Oct 15, 2021 9:42 am
Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

KlangFool
LOL. Take that, Dave. And tell your wife. I just told mine.
vanbogle59,

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
Good for you. Seriously. That's awesome. My sincerest congratulations.

What I was laughing at was the idea that you could give marital advice based on the information provided.
Without even questioning the absolute rank you apply to the root causes of divorce, I doubt there are ANY statistics that actually measure "house-poor-ness". OTOH, "Financial disagreement" is frequently cited as top 5. Of course, if one partner wants the big house now and the other doesn't, becoming house poor could be a problem. But what if they both want the big house now?

Sounds like you and your partner agree with how to manage your financial risks. Cool. Highly recommended.
DW and I also take care that we stay on the same page.
But I doubt our acceptable risk-profile matches yours. And I doubt you have any insight into the stability of our marriage.
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jeffyscott
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Re: Reaching your number vs. owning a home

Post by jeffyscott »

exodusNH wrote: Fri Oct 15, 2021 9:52 amOwning a house had a lot of hidden expenses, mostly having to do with having more space
There is no requirement to buy more space than you would have rented. If you wanted more space, then had you not bought, you presumably would have rented more space and had many of the same expenses.
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Re: Reaching your number vs. owning a home

Post by KlangFool »

vanbogle59 wrote: Fri Oct 15, 2021 10:33 am
Good for you. Seriously. That's awesome. My sincerest congratulations.

What I was laughing at was the idea that you could give marital advice based on the information provided.
Without even questioning the absolute rank you apply to the root causes of divorce, I doubt there are ANY statistics that actually measure "house-poor-ness". OTOH, "Financial disagreement" is frequently cited as top 5. Of course, if one partner wants the big house now and the other doesn't, becoming house poor could be a problem. But what if they both want the big house now?

Sounds like you and your partner agree with how to manage your financial risks. Cool. Highly recommended.
DW and I also take care that we stay on the same page.
But I doubt our acceptable risk-profile matches yours. And I doubt you have any insight into the stability of our marriage.
vanbogle59,

<<Of course, if one partner wants the big house now and the other doesn't, becoming house poor could be a problem. But what if they both want the big house now?>>

Even if that is true, if one or both spouses are unemployed in a recession, the financial stress of being "House Poor" will cause problem.

<<And I doubt you have any insight into the stability of our marriage.>>

That is true.

KlangFool
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Re: Reaching your number vs. owning a home

Post by KlangFool »

Random Walker wrote: Fri Oct 15, 2021 10:29 am
KlangFool wrote: Fri Oct 15, 2021 9:52 am
vanbogle59 wrote: Fri Oct 15, 2021 9:45 am
KlangFool wrote: Fri Oct 15, 2021 9:42 am
Random Walker wrote: Fri Oct 15, 2021 9:38 am

I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

KlangFool
LOL. Take that, Dave. And tell your wife. I just told mine.
vanbogle59,

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
And I bet Klangfool performed better at the job than his co-worker in the next cubicle.
Random Walker,

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
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Re: Reaching your number vs. owning a home

Post by redrum »

I was in a similar boat - and implicitly made a decision earlier to prioritize reaching my number. We do own our own home, so it is not an exact comparison. We are revisiting our decision as we get closer to our number.

Our current place is a townhouse, and we live in an VHCOL area. The options in front of are/were -
a) continue living in our current place
b) buy a larger home - a SFH
c) move out of the area

Our current place has served us well, but our preference is to move to a better neighborhood so (a) is not really appealing to us.

(c) is such a heavy hammer, that it feels unrealistic. We have a lot of friends in the area, people that our kid is growing up with. The area has good weather, plenty of job opportunities and a sizable community from our place of birth (we didn't grow up in the USA). We don't want to throw all of this away..

So we are most likely going ahead with (b), and have realized that plenty of others seem to do the same thing in our area - buy a starter home, upgrade post family etc..

The cost is very very high, and that gives us pause.. but it feels like (b) is the right choice over a 15-20 year time period. It will set back our retirement targets, but for now we've decided that is an acceptable setback. Ultimately, who knows..
FIREmeup
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Re: Reaching your number vs. owning a home

Post by FIREmeup »

Onlineid3089 wrote: Fri Oct 15, 2021 10:24 am
Random Walker wrote: Fri Oct 15, 2021 9:38 am
KlangFool wrote: Fri Oct 15, 2021 9:22 am Your portfolio can feed you. Your house can eat you alive. The answer should be obvious.
KlangFool
I love this quote!!!
One big thing about a house is that it consciously and subconsciously sets the standard of living in so many other ways for the owner. Need to furnish the house, pay for upkeep, pay for repairs, perhaps have cars that look like the neighbors, perhaps go on vacations like the neighbors, choose schools accordingly, etc. Keeping up with the Jones’ can be a very real phenomenon. That being said, it’s all about personal choice. I personally place way more value on freedom, personal choice, and restaurants, than on my house. Of course, the right answer is quite likely, whatever makes the wife happy! :-)

Dave
I wonder, do these Keeping up with the Jones' things really only apply to owning? Does somebody who lives in a similar house in the same neighborhood really have less pull to keep up just because they rent while their neighbor owns?

I do think that keeping up with the Jones' is a very real thing. I just don't think that rent/buy has much to do with it compared to where you have chosen to live. I suppose maybe in other parts of the country 'nice' neighborhoods are exclusively owner occupied?
Yeah, if you think you aren't paying for upkeep and repairs in your rent cost I have some news for you. If you are a keeping up with the Jones type of person it doesn't get turned on or off if you are renting or not.

OP, you have to run some projections. Will you be staying put in one area with some sort of confidence? Obviously you never know. Just don't buy too much house realizing if you have to move, you may be looking at a 25% rip...make sure you can afford that.

Rent = mortgage of owner+ taxes + upkeep + maintenance + owner's profit
Mortaged house = mortgage of owner + taxes + upkeep + maintenance
Owned house = taxes + upkeep + maintenance

Anyone rabidly advocating one way or another should be avoided. This is a big decision of personal finance. Read as much as you could before taking a big step into home ownership. I personally paid off my house. My bond portion of my investment went towards my mortgage...it was nice when my monthly expenses dropped 33% and now funding my accounts more. However, flexibility that renting provides is a major plus and has to be considered.
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Re: Reaching your number vs. owning a home

Post by vanbogle59 »

KlangFool wrote: Fri Oct 15, 2021 10:46 am Even if that is true, if one or both spouses are unemployed in a recession, the financial stress of being "House Poor" will cause problem.
Does your crayon box have ANY colors besides black and white?
wander
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Re: Reaching your number vs. owning a home

Post by wander »

I owned a home first before reaching my number. It was not a financial decision, I was just following my common sense.
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Re: Reaching your number vs. owning a home

Post by KlangFool »

vanbogle59 wrote: Fri Oct 15, 2021 10:54 am
KlangFool wrote: Fri Oct 15, 2021 10:46 am Even if that is true, if one or both spouses are unemployed in a recession, the financial stress of being "House Poor" will cause problem.
Does your crayon box have ANY colors besides black and white?
Does your crayon box have black and white?

I plan for the worst. If I can survive the worst case, I do not need to worry about anything less than the worst.

I had been unemployed for more than 1 year a few times. And, in same cases, it was in a recession. I do not count on being lucky.

Counting on being lucky is not a good planning strategy.

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Re: Reaching your number vs. owning a home

Post by Californiastate »

I'm glad some of you have decided to rent forever. I need qualified tenants.
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Re: Reaching your number vs. owning a home

Post by bligh »

One thing people on this thread do not seem to point out is that home ownership is more expensive even if you aren't the "keeping up with the joneses" type.

There is a pride of ownership component to it. Before when I rented if something was not right (even if it was just cosmetic), it didn't bother me as much as it does now. Now I would care because it is mine and so I would make sure it is fixed and that it is fixed correctly (ie. not in a handyman, DIY, "good enough for now let the next guy deal with it" sort of way. That is a personality trait and it increases my cost of ownership regardless of what kind of neighbors I have.
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Re: Reaching your number vs. owning a home

Post by pizzy »

bligh wrote: Fri Oct 15, 2021 11:05 am home ownership is more expensive even if you aren't the "keeping up with the joneses" type.
That is 100% not true in many places.
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Re: Reaching your number vs. owning a home

Post by vanbogle59 »

KlangFool wrote: Fri Oct 15, 2021 10:59 am Does your crayon box have black and white?
I just checked. Nope. Threw them out. I'm pretty proud of that.
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Re: Reaching your number vs. owning a home

Post by Californiastate »

bligh wrote: Fri Oct 15, 2021 11:05 am One thing people on this thread do not seem to point out is that home ownership is more expensive even if you aren't the "keeping up with the joneses" type.

There is a pride of ownership component to it. Before when I rented if something was not right (even if it was just cosmetic), it didn't bother me as much as it does now. Now I would care because it is mine and so I would make sure it is fixed and that it is fixed correctly (ie. not in a handyman, DIY, "good enough for now let the next guy deal with it" sort of way. That is a personality trait and it increases my cost of ownership regardless of what kind of neighbors I have.
I wish more of my neighbors had OCD pertaining to their homes. There are always a few who just don't care.
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Re: Reaching your number vs. owning a home

Post by Sandtrap »

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.
"your number" is what puts food on your table and pays your bills in retirement.

You can't eat your house. You live in it.

Don't mix the 2 as they are different in purpose.

IE: if people brag and say my "net worth is 2 million", and thier house is valued in equity as 1.5 million. They have 500k to support themselves in retirement, unless they sell their house.

j :D
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Re: Reaching your number vs. owning a home

Post by adamthesmythe »

Ask yourself. What is your number if you need to pay rent at whatever rent is when you retire? (Of course, accounting for rent increases after retirement).

And what is your number if you need to pay only taxes maintenance, and insurance on a paid-off house?

These are different numbers and the first one (A) is bigger than the second one (B).

The uncertainty comes in because you don't know what the investment gains on A-B will be. And you don't know how rapidly rent will increase.
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Re: Reaching your number vs. owning a home

Post by Cash is King »

Sandtrap wrote: Fri Oct 15, 2021 11:16 am
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.
"your number" is what puts food on your table and pays your bills in retirement.

You can't eat your house. You live in it.

Don't mix the 2 as they are different in purpose.

IE: if people brag and say my "net worth is 2 million", and thier house is valued in equity as 1.5 million. They have 500k to support themselves in retirement, unless they sell their house.

j :D
Excellent advice!
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Re: Reaching your number vs. owning a home

Post by willthrill81 »

dbr wrote: Fri Oct 15, 2021 9:53 am You can certainly be "house poor" in the sense that you have placed too much equity in the home and don't have enough in remaining savings to support your retirement income need. Such a house may also impose more costs than one that is not so expensive.

But you have also posed a false dilemma. If living in such a home is one of your objectives, then your number is simply larger relative to your income and savings than you thought it was. In that case you have to earn more, save more, and work longer than you thought. It all comes out in the same wash.
Correct. Contrary to what some here espouse, there is no inherent advantage to adding to one's portfolio vs. reducing one's debt burden. It all comes down to the details, including one's goals and risk tolerance.
dbr wrote: Fri Oct 15, 2021 9:53 am An alternative is to downsize when you retire and add some of the returned equity to your portfolio.
That's part of our early retirement plan.
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Re: Reaching your number vs. owning a home

Post by bligh »

pizzy wrote: Fri Oct 15, 2021 11:13 am
bligh wrote: Fri Oct 15, 2021 11:05 am home ownership is more expensive even if you aren't the "keeping up with the joneses" type.
That is 100% not true in many places.
I should have been more clear. I didn't mean "more expensive than renting", but rather "more expensive than people expect".
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Re: Reaching your number vs. owning a home

Post by JoeRetire »

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?
Whichever is most important to that person.
2- If it seems that both just can't be done and one must choose between the two, what is the better choice?
If "reaching their number" means "being able to eventually retire", then that seems like the logical choice to me.
It's never really a distinct choice between two exclusive goals in my experience.

For everyone I know (including myself) this would be a false dilemma. Everyone I know has owned a home. And all of them either have already retired, or will retire when they choose to do so.
Last edited by JoeRetire on Fri Oct 15, 2021 12:13 pm, edited 1 time in total.
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Re: Reaching your number vs. owning a home

Post by Jags4186 »

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.
If purchasing a home is preventing you from reaching your number, you’re targeting too much home or you have too many expenses other places or you don’t make much money. Of course, the less you make the less you need to save since Social Security will replace a higher percentage of your pre-retirement income.
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Re: Reaching your number vs. owning a home

Post by marcopolo »

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.
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.
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

Post by Random Walker »

KlangFool wrote: Fri Oct 15, 2021 10:49 am
Random Walker wrote: Fri Oct 15, 2021 10:29 am
KlangFool wrote: Fri Oct 15, 2021 9:52 am
vanbogle59 wrote: Fri Oct 15, 2021 9:45 am
KlangFool wrote: Fri Oct 15, 2021 9:42 am

Random Walker,

Trouble with finance is the #1 or #2 cause of divorce. Being "House Poor" play a major part of that.

KlangFool
LOL. Take that, Dave. And tell your wife. I just told mine.
vanbogle59,

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
And I bet Klangfool performed better at the job than his co-worker in the next cubicle.
Random Walker,

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
True. I’ve seen that myself. All bets are off when acquisition occurs.

Dave
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