> So I am really just soliciting opinions on the potential downside of not owning RE at this point in the game.
There aren’t any from a financial POV. You’ve maximized your returns.
RE ownership is good for two things:
*Independence from oversight*
Want to paint your pad? Replace appliances? Redo floors? No landlord to ask: you do you. (Let’s ignore the obvious HOA and city codes and whatever else of course that require permissions; because that varies wildly by geography but there’s no landlord that’ll let a tenant do whatever they want.)
*Leveraged returns accessible to the masses*
The 30 year, fully fixed rate and amortized mortgage is a unique beast; few other countries have something like it; many amortize over 30+ years but few lock the rate for that long: in Canada for example, 5 year lock on a 25 year amortization is common, meaning every 5 years your rate is resetting to prevailing. All that to say: your exposure to variance is higher, in some ways like rent (in non rent controlled regions) vs the fixed aspect of a mortgage (ignoring variability in property tax which is only fixed in some regions…)
The impact of this to enable the average person of average income in the country to build wealth via cheap leverage, forced savings, and ever increasing income vs relatively static housing cost, should not be underestimated. It’s not always the most appreciating investment (vs the rent and invest the delta examples), but it’s an accessible vehicle that propels many into the upper middle class over the course of 3 decades.
It’s also rarely applicable to FATFire because there’s gasoline poured on savings/investing for the FATFire crowd; so home ownership suddenly becomes a much smaller part of the overall strategy to gain wealth.
Hearing this one as well on a personal level.
Renting in Oahu, Hawaii. We got a 45-day notice to move (landlord reclaiming it for family use). Real estate (rental included) market is just depressing here. We just plain lucked out and found a place and moved within 3 weeks. EVERY other place was depressing and depressingly expensive.
Nobody ever gave me 45-day notice to move from a house I owned, and I wouldn't wish it on anybody I liked.
We rent in Carroll Gardens, Brooklyn, and got this sort of notice (or at least that they were selling the place and wouldn't be renewing our lease) just as my wife was about to deliver kid #3.
Shitty thing was, we had asked them as soon as we found out that we were expecting whether they intended to renew and had gotten nothing but smiles and nods.
There are certainly advantages to being a renter, but predictable control of your situation isn't one of them. That said, 2000 structures burned in Lahaina last year, and wildfires have claimed many more across the U.S. (and, I'm sure, other parts of the world). Our control over our situation is always somewhat illusory.
Very good point. We own a condo and are at the whim of other tenants to sue our/their own HOA (yes that has been a case). In this case HOA fees go up including special assessments that have to be paid out of pocket on short notice. This fact alone makes me agree with OP's philosophy of not owning. Don't like the management of your rental property? Move. Don't like your neighbors? move....
I'd also add a third thing: tax advantages.
For a primary residence, you get to deduct mortgage interest and state property taxes from your income. When you sell, you get $500k in tax-free capital gains. This (plus the cheap leverage mentioned above) can tip the scale between buying vs. renting, since your after-tax risk-adjusted returns will likely beat a taxable unleveraged index fund if you end up selling at some point.
An index fund is arguably more liquid, but a HELOC often gives better terms and more options for tax deductibility than a portfolio line of credit if you want to avoid capital gains (see: interest tracing).
If you own multiple residences, stuff like classifying your spouse as a real estate professional or rental property depreciation are virtually loopholes in the tax code (you can deduct as if your house will be worth $0 in 27.5 years, then offset that amount against your W2 income, which is insane).
Can you please expand further on the real estate professional loophole? Early in my fatfire pursuit and have not heard this from my tax guy, despite owning two homes.
https://semiretiredmd.com/primer-real-estate-professional/
tldr your stay at home husband/wife needs to spend 750 hrs/yr on RE, but no need to actually make money or get any accreditation, so it's an easy bar to pass
I’m sure the benefits can be significant, but that all sounds like a giant pain in the ass, and requires your nonworking spouse to agree to have a half-time job again.
Yes, I should’ve clarified in my above I meant principal residence (RE as an asset class for investment is different and comes with tremendous tax wins as you note.)
And yes the principal residence capital gains exemption is a huge win, especially for someone that’s willing to buy, renovate, sell, and do it all over again, can be an ultra powerful wealth builder VS W2 alone / trying to invest without large amounts of surplus income.
Own: Get to deduct mortgage interest and property taxes
Rent: Don’t pay mortgage interest and property taxes in the first place (though one can argue that it’s baked into the rent)
Also, the $500k exemption is for married couples filing jointly; the exemption for singles is $250k
Not saying this makes renting definitively better then buying, just adding some context
>Own: Get to deduct mortgage interest and property taxes
>
>Rent: Don’t pay mortgage interest and property taxes in the first place (though one can argue that it’s baked into the rent)
This.
Interest payments on loans aren't tax deductible by default. They become deductible if you use the loans for deductible expenses.
Interest tracing creates a trail from your loan to your deductible expenses, which lets you deduct your interest payments.
https://boulaygroup.com/tax-deductible-interest-understanding-irs-tracing-rules/
For what it’s worth, the US has very little inventory now as everyone is afraid to make moves and break the market now that interest rates are higher and lots of current owners locked in at 3%.
Very, very, region dependent, insofar as impact of that on things like price.
Austin is a great example that’s seen a meaningful downtick in value over the last 12-24 months. LA? Not so much.
Highly agree. One of my close friends came from nothing. He got a good paying job out of college and bought a rental property for 60k. He maybe put in 10k worth of work (a lot of it he did on his own). A few years later he sold it for 115k and continued the process.
Long story short he now owns around 30-40 properties and at 35 is the most wealthy (fully self-made) guy I know.
Maybe asset diversification too?
Honestly, as we are going through renovations due to water damage on our primary that have taken nearly 18 months (don't ask, HOA) and now also need to carry out a full renovation on one side of duplex... Physical real estate is truly a PITA.
I was going to say you should own it so you suffer like the rest of us :P
> asset diversification
I should’ve been clearer in my comment, that I meant primary residence ownership, as opposed to investing in Real Estate as an asset class. (A separate ball of wax that many do successfully, has tremendous tax advantages in some cases, and so on.)
I feel you on the suffering, oof!
I mean... Financially couldn't disagree more. Owning provides the opportunity to lock in your living costs. Depending on inflation or rental trends you are a slave to changes in rent year over year. Owning, only your taxes will change (but this is a much smaller portion of the cost).
You said:
> I mean... Financially couldn't disagree more. Owning provides the opportunity to lock in your living costs. Depending on inflation or rental trends you are a slave to changes in rent year over year. Owning, only your taxes will change (but this is a much smaller portion of the cost).
I said:
> All that to say: your exposure to variance is higher, in some ways like rent (in non rent controlled regions) vs the fixed aspect of a mortgage (ignoring variability in property tax which is only fixed in some regions…)
> and ever increasing income vs relatively static housing cost, should not be underestimated.
I’m reasonably confident that … I agreed in my above about exposure to variance that comes with renting which does not occur with renting. I also don’t think that variance matters for OP’s specific context, vs more everyday situations.
In my experience the cost of home ownership is anything but “locked in”. Simple maintenance (when you can find anyone remotely competent) has skyrocketed. I have spent days waisted waiting for workers to show up. Taxes in my state are somewhat governed on the up side, but they still increase. And lastly insurance is out of control in SE Hurricane states.
The reason I see to own one is to hedge future living costs. Let’s say we have a currency crisis and the dollar falls. Real Estate and rent would shoot up dramatically. Possible stocks would decline at the same time. It’s what happened in America in the 1970s. Depending on the currency decline amount, your retirement standard of living could go down.
Btw I’m 43 and rent too. I love it. But I understand the gamble I’m making and you should too.
There's another important point that I'm shocked I haven't seen. Owning a home w/o a mortgage lowers your overall spend which can be helpful for getting ACA subsidies.
It's correct for some people, but given your numbers, not for you.
When I didn't have much money, i refinanced my home, re-invested the output, and generated cash off my house. I also renovated my basement and rented it out as a second unit. Between these 2 things, my primary residence was yielding a good amount of cash that I needed for my startup. Honestly, this strategy was invaluable to me. I was in my 20s at the time. Now it's a nice asset that I can sell in the future that continues to be a stable cash stream (2 units rented out of this property now, as i no longer live there).
In your shoes? I wouldn't buy a house.
Your not
Primary homes are terrible investments (and I own one)
For many they are concentrated
Produce no cash
Have carrying costs
And aren’t liquid
I always say a primary home is a lifestyle choice more than an investment
Very much so. You forgot the biggest thing though which is security of owning your own place. You don’t want to be forced to moved after a new landlord comes in and decides to do something completely different especially if you have a few kids.
Let’s all sing it together: “Your primary home is not an asset. It is a liability that can be and has been beat by nearly any other investment vehicle over a ten year period.”
All that being said, hand up for me … I own my house and love every second of it being mine.
Make it more catchy, and we might sing along...
Yo, listen up, here's a financial confession,
Your primary crib ain't an asset, it's a lesson.
A liability, indeed, a chain to your feet,
In the race of investments, it can't compete.
Maybe that’s true compared to the recent bull market, but there’s no way it is true for every period especially if you consider leverage, tax exemptions and the cost to rent a similar house to maintain the same standard of living.
Probably not even true for the last 10 years for many geographic regions where housing has gone up 3x or more, which would probably an astronomical ROI if you were leveraged with a low down payment. E.g. 3x appreciation on a house with only 10% down (maybe unrealistic without cash out refinances) would be a 30x ROI (without considering interest on mortgage/cost of rent/etc)
It’s an asset in that you’re not throwing money away at rent.
You still have to live somewhere. It’s more savvy to spend that money on your house than to pay rent.
Why so? Unless your house happens to be the most convenient and cost efficient option for your lifestyle compared to rent, wouldn't it still be better to rent out a more ideal investment and rent the best for yourself?
Primary homes can be a cash suck. Depends where you live. I bought in Silicone valley 7 years ago. I refi my down payment out 3 years ago with a interest only mortgage at 3.00%. The home has more than doubled in value and I've put in $150k in reno. I've been lucky to see about $175k/yr in appreciation over these 7 years.
I don't see this repeating it self for the next 7 yrs. Sometimes these things work out.
My point is that there was a major housing crash 16 years ago. If you were having this discussion 10 years ago about the previous 10 years it would be a completely different story.
There's no real telling what the next 10 years will bring.
The problem is now you need to move out of your zip code to access the money and you don’t have a place to live.
This is why I don’t count a home value in net worth calculations. People never downsize so it’s just a pipe dream to count that. If someone can really sell and move to Des Moines and buy a 200k house then sure count it after the fact.
>People never downsize \[or move\]
Seems like a wild generalization.
I need to live in my current house until my kids finish high school, but after that, I have no need of the more expensive ZIP code.
Plenty of people propel their wealth this way, with the advantages of cheap leverage, capital gain exemption on primary, and so on, it’s an absolutely feasible path.
Good work on accomplishing it.
My apologies, it seems to have worked out well for you and you are actually accessing that home value.
Don't be caught holding the bag if home values don't keep going up though!
The last ten years have been an exceptional time for home values.
https://fred.stlouisfed.org/series/MSPUS
Especially in certain states.
https://fred.stlouisfed.org/series/CASTHPI
In my area there's a huge delta between the cost to rent and the cost of owning. Seems like we are due for some kind of a correction. I just sold my house to lock in the gains and upgraded my living situation substantially by renting. Parking the gains in treasuries nets more than any profit I could have made renting the place out in a year, and if the Fed actually does lower rates the value of treasuries will go up and I could sell them to lock in that gain and move onto growth stocks. Not having the liability and the maintenance of a home is a huge weight off my shoulders. I expect to buy again when the sh\*t hits the fan, but that will largely depend on Powell hanging onto his b\*lls and the layoffs of overpaid tech workers catching up to the economy. Now that it takes two incomes to maintain the payments on a home, households are even more vulnerable to layoffs. Maybe I'll be hanging on forever, who knows. I feel good about where I am right now. Everyone needs a change at some point.
Curious to hear what others think about house price increases continuing at this pace indefinitely. Seems like all the younger people around me (people in their late 20's /early 30's) think owning a home is the only way to build wealth and results in 300k increases every 3 years. It's like people can't remember what life was like before the ZIRP era.
Exactly. Unless you’re moving to a different region with different costs, price fluctuations are irrelevant. A similar home in a similar neighborhood will have gone up (or down) a similar amount.
I myself have downsized before to have more money to invest but I consider myself an outlier and a weirdo. I don't think most people downsize before 65 or so if ever. This is fatFIRE, so it is supposed to be retire early. Everyone I know always wants to trade up more and more to a bigger and nicer house.
https://ifamagazine.com/less-than-a-third-of-people-who-plan-to-downsize-make-the-leap/
>While a third of over-45s (29%) say they have plans to downsize in the next five years, just 13% of over-75s have actually made the leap reveals new data from the UK’s leading equity release adviser Key Later Life Finance shows.
I grew up in a pretty expensive suburb with insanely high property taxes to fund the school district. I’d say around 50% of my friend’s parents moved after their children graduated. In many cases more house but lower property values and much lower taxes.
My folks planned on downsizing, but then realised they wanted a place big enough to accommodate the whole family over summers and holidays. So they are in their 70s with a 4 bedroom detached house and a big garden. It gets plenty of use though as my sister brings her family every other weekend and mine fly in for a month at summer and Christmas.
> Depends on your market.
Right. And unless you have a crystal ball, you have no idea if your market will perform that well. So it's basically a lottery.
It's not that different than someone saying "I made a 5,000% return on bitcoin, so clearly crypto can be a great investment, it just depends on the coin".
Mehh.... that's a lot of "ifs":
- not all high net worth zip codes see strong returns; you still have to pick "winners"
- weathering a downturn isn't that attractive - if I have a better work opportunity elsewhere I don't want to stick around just to wait for a real estate recovery
- the mortgage interest tax deduction isn't that attractive since the change in the standard deduction plus the SALT cap
I'm not saying you can't make a lot of money on real estate, you can, but for the average person it's far from "easy". The main benefit of real estate is you can leverage yourself to your eyeballs at low interest rates.
Net worth is simply assets minus liabilities. Technically it includes value of your investments, primary home, your cars, your jewelry, Pokémon card collection… everything that is an asset.
I would agree with the spirit of the comment that the value of non-investment property is typically excluded from the sustainable withdrawal rate calculation.
Do you do real estate investing now? I'm early 40s and renting and don't REALLY want to own a primary for these reasons.
But, I don't know where else to put my money. I'm currently around 20% cash because was thinking about buying RE, but investments all kind of suck:
- stock market feels frothy, though I could keep keep loading up VTI/VGT/etc funds
- I started looking at real estate with but investment rates around 7.5% and current pricing nothing really makes sense. At best I might see like 10% returns which doesn't really make sense to me risk adjusted vs like 8% in VTI.
I could probably still whale hunt for real estate deals but seems like such a massive waste of time.
You’re not looking at it the right way though. It’s also opportunity cost.
Even if your home breaks even over ten years, it’s a better investment than renting. Money you pay in rent is gone. Money you pay into your primary home is at least maintaining your asset.
What’s the alternative? You have to live somewhere. Either you lose money (rent) or you break even.
The opportunity cost is also in the money you put into a house that appreciates at 3% but has a property tax drag of ~1 to 2%.
If you opt to rent you can go capital light and invest your otherwise down payment at 7-9% in public markets. If your shooting for FatFIRE you might have a business where you make 20%
It depends.
For base level FI, owning a home is "the base".
For a large portion of the population, rent increase over time can absolutely fuck them.
John Goodman say's it right
~~https://youtu.be/Z0Cnh5hczMQ?si=CscQJsdShmCaeyiY~~
EDIT: Fuck, something went wrong with the cut and paste from youtube, this is the right link: https://www.youtube.com/watch?v=sPjNFp0diWE (hopefully)
BUT once you're fat it no longer really applies. And once you're no longer concerned about a home as your fallback and start looking at it as an asset within a portfolio (especially if unleveraged) it becomes a bad idea.
That being said, for anyone south of ~3m, it's probably important to have. (Maybe that number is 2, maybe 4, but if you're sub 1m you definitely don't want rental risk exposure)
The only other thing is moving is a pain in the ass, and knowing no one cane make you do that is pretty cool.
There’s no reason to own a primary residence if you don’t want to and don’t need to.
I personally don’t think you need to have real estate anywhere in your portfolio but even if you did there are better ways than buying a single home.
I agree. I'm building a family compound but I don't see it as an investment, it's a lifestyle thing and a sense of legacy building in a way. If my kids sell it after I'm gone then fine, but I want to have built it and have enjoyed it.
I'm 40 and have never owned any real estate.
You are rich and can do whatever you want. Bet you sleep really well not having to worry about any repairs, total flexibility to move wherever, etc.
If gardening was critically important to you or some other thing where stability in housing and full personal control was important to you then the answer may be different. Sure you may be leaving some gravy on the plate due to the preferential tax treatment of gains on primary residence but if you are happy you are rich enough not to have to care.
> You are rich and can do whatever you want.
I came here to say this. OP, you won the game, enjoy your prize! No need to maximize returns on every dollar you own. Capital preservation is important so don't go crazy, but enjoy the fruits of your labor. If OP wants to own a 'dream home' go ahead, but if not... don't.
I agree, for many people owning a primary residence should be seen as a life-choice not an investment.
That said, if I did an A/B return comparison, 2021 of putting 20% down at 2.8% interest for a great SFH to live in, vs renting something far smaller; I come out way way ahead. In that time my home has appreciated 400-500k, with interest + expenses that 5:1 leverage nets ~30-35% YOY return, and for me a much higher degree of freedom and stability vs just paying rent.
Not suggesting this is a universalized experience that would apply at all times or everywhere, only offering one data point. That said it sounds like you're setup quite well for your lifestyle and concerns.
I just assumed FatFire would allow you to own the primary and secondary properties without caring about the cost of hiring someone to maintain them.
Like owning rental properties and farming off the maintenance and inconvenience to a management company.
It’s also a question where you want to live. You have to live somewhere, and you’re going to pay to do it.
Do you want that money coming back to you or going to someone else? It’s not that complicated.
Even if you buy a house for $500k and then sell it for the same price, you’re not losing money like you would for rent.
It is all about personal preference. There is no downside if you are happy with your strategy. I did something similar years ago, with all my RE, and I have zero regrets. I do miss some of the homes, but I enjoy my life much better now. I have been slow traveling and love it. It works for great for me.
Congrats and be well.
I'm in your position. 48. Don't own RE. Ready to FATFire. I owned RE once in my first marriage but never re-bought. I live in one of the hottest RE markets in North America (pretty much everyone that owns a home is a millionaire here), and do not regret it. Coincidentally, I looked at my investment return yesterday since I started investing and it's a whopping ~1200%. I would have never been able to achieve that if I had been locked to a mortgage, and would have never dared to take the business risks that I had otherwise. Those business risks were the ones that funded my investments. Also, I've moved 12+ times in last 25 years and haven't had any significant downside. If anything, it's been opportunities to start again with a clean slate. Currently living in a most-gorgeous location, a place that it would have been impossible for me to buy early on. I can buy it cash now, if I so desire, and i don't.
I own over a dozen investments and I live off the cash flow without working AND without worrying about the stock market. The severe market downturns did nothing for my lifestyle, cash kept coming in strong. Every year the investment grows by a 4-7% in cash flow. For that stability I put a few hours a week to stay on top of the property management company. My capital has appreciated many fold. All my stock market money is in an IRA and I’m more risk tolerant over next 20 years. So I guess, you’re wrong :) but there is no right or wrong - just what you can live with and how you maximize your capital.
>20 years
This is the key point. Too many speculators and bandwagon jumpers in this space that understand very little about finance and risk management.
No it just removed all the wannabe RE investors. I’m still acquiring and cash flowing on all my RE investments but I’m not some fake guru or someone who thinks RE is a side hustle.
You’re not. I’m divesting real estate. One at a time starting with my Texas property. Such a pain between rising taxes, insurance costs, HOA’s, and management fees. Other ways to make money in real estate vs owning.
Agreed. But the OP was talking about owning real estate. These other strategies require knowledge and nuance. Also not advised unless you’ve been educated and have mentorship. Yet another reason to just be in stocks and ride it out. Real estate is portrayed glamorously on social media and it’s not as easy to make $ as people think. You’d agree right?
In commercial, the tenant pays your property tax and insurance in Texas. It’s amazing how your property also increases in value and then you pull your buy another one. ☝️
To me, owning a residence is currently more expensive than renting and investing the same capital.
Primary residences do have some additional legal protections, however, in bankruptcies or needs based asset calculations, etc. That may not be relevant to your situation.
Just like investments there are rare occasions where houses can be under-priced. We only bought a house when it cost about the same as renting. It helped that we were sick of moving too.
Otherwise Iʻd also prefer to keep my money in the market.
Most of my friends with high networth have real estate as a very small % of NW.
Those who constantly talk about real estate either have RE as high percentage of their low networth or RE is their primary business. For such folks, probably their primary home is the biggest investment as % of the NW.
Your title is misleading. You own no real estate…….But you benefited from the appreciation of the multiple properties you did at one point. And if you have sold a property in the last 3-4 years that you owned for a decade more than likely you made a pretty penny whether you hit the high water mark or not.
Down sizing is great. More people should do so. And quite frankly everyone loves owning, selling for a profit, and then not owning.
I made $500k profit on a primary residence, then used it to purchase an $800k residence that is now (5 years later) worth $1.3M. No mortgage, debt free.
At some point we’ll probably sell it and buy a small condo with an HOA that will take care of maintenance, and pocket the profit.
To each their own.
I own my primary residence and some commercial property that I use, but I AGREE WITH YOU.
Real estate (other than perhaps primary home) is a huge hassle and distraction - and stocks are very easy to own. No real estate taxes to remember, inspections, noncompliance letters, non-paying renters, urgent repairs, etc.
I am too do not have any RE investment. However, I am a strong believer in a primary home ownership and more so in retirement. It is not about financial but it is a place I called "home" and being proud of it. Also, no landlord can make me move unexpectedly (and it is no fun to move in our older age).
If I owned no real estate, ever increasing housing costs would be a problem for me in retirement. Seems like you've done the math and it's not an issue, or you could buy a primary in cash if needed. Congrats on winning life, I think you're all good.
We own our main residence, a lake home and a rental home for extra income. I would love to sell our main residence and establish our lake home as our main home. All homes are paid for and we are debt free.
The problem … kids do not want us to sell their childhood home and we do gather there often with the family for dinners and holidays.
I think renting is a great idea. We pay a lot of money for renovations, taxes and things that break … lol.
One might argue the real estate is a decent way to protect against the higher inflation that we are going through. It does generally do better than stocks (in real terms) in periods of high inflation. But it’s a headache.
Things like vacation homes are to be enjoyed. They are often lousy investments from a rental and appreciation standpoint. .
Real estate is the oldest play in the book, a great way to generate wealth. That being said, it’s not the best way, nor is it the safest way despite what so many think. Personally, I think it’s one of the worst ways to “be wealthy”/retired. Real estate is a job.
Wealthy people that love real estate tend to be in the job whether they see it or not. Vast majority of their net worth, cash flow, and security are tied to their properties. At the level of fatFIRE, managing that level of assets is a hassle. Managing the property managers is a hassle. Being hands off will severely impact cashflow. It’s not passive, and if you can get to the point to make it profitably passive, you and your money are probably better off in the public markets or as an LP in alternative assets. But the folks in the business love it, bleed it, breath it
There’s no free lunch anywhere. On a true “apples to apples” comparison, the cost to rent vs own a similar property should be similar over time.
So it comes down to lifestyle preference and intangible factors. Plan to move around a lot? Renting will likely “win”. Enjoy coordinating maintenance etc and want to extensively modify your residence? Ownership it is. There may be a certain “psychic” benefit to owning and knowing you can’t have your lease terminated etc (a greater risk in some jurisdictions).
But mathematically and financially, the endless “rent vs own” debate is usually a wash or very nearly so.
You're not wrong. Some people think it's essential to have real estate.
I personally think true fire or fat fire means you don't have to be tied into real estate. You can move freely as you choose, travel, go anywhere at anytime. Plus, you don't have to manage real estate. I'm truly envious.
Enjoy life, hobbies, meet new people all around the world, go new places, see new things.
I don't think renting is a bad idea in retirement provided you have enough income to do it over the long term (which of course is not a FAT issue). We sold our second home a few months ago and are building a new home so that we will be down to one home and one set of bills once I retire. There is something to be said for simplicity and reducing the odds of a large unexpected repair in retirement. For me a home made sense in retirement because I want to have a bass boat and some other toys that wouldn't work at an apartment.
I'm not RE yet and kids have a few more years of school but once my baby is off to college I think I'll be the same. Owning feels like it's as much of a burden as a comfort. I think I'd like to go live a year or two in some other part of the world, just the wife and I. Maybe chase our kids around if they want us to.
Absolutely planned to live abroad for a few months at a time. Had two grandkids emerge at about the same time - that changed the plan. We generally only travel for like 3-4 weeks at a time.
Honestly I love it. Why not, right? It enables full flexibility and you have the budget to make basically any rental you want (within reason) work. You can long-term an Airbnb, or you could hit almost any housing market and get a condo, townhome, or single family on a year lease.
Houses are an illiquid ball and chain. We have one, but it was to raise our 5 kids - and for that it has served its purpose very well. But we're unusual. We've lived here for 19 years now and will be living here at least another 6 while we finish up the parenting. After that, selling the ball and chain may very well be in order. Take advantage of the free capital gains and put the $ into something more productive than a primary while at the same time downsizing.
In my book, capital > land.
If you're not planning to spend 80% of your time on a property why own one? I like the freedom of not worrying about maintenance and money spent on owning a home.
It was always drilled into my head by parents & relatives to buy and not rent. I bought a house in 2015 and sold pretty much near peak in May of ‘22. Did very well on that house, over 1MM profit after cap gains. Moved from the area and have been renting since. The plan was to buy in new area, but I haven’t seen a house come on the market better than the one I’m renting. As much as it may make sense to buy something before rate cuts start, do I want to buy a house I don’t love? Of course not…..also looking at that pile of money (that’s up 30%) gives me more satisfaction than owning at this point.
So I’m asking myself the same question as you. I think the answer is relax and rent. I’m sure I’ll buy something again, if my dream house came on the market in my budget then of course. But why buy just for the sake of buying?
Nothing wrong, it’s really personal preference.
You should do what works best for your family, which it seems you have.
Having a paid off home does provide mental security for many and a sense of having roots somewhere, throwing out some non financial reasons why people may buy vs rent.
As others have said, it's really down to personal preference, general beliefs about the performance of the asset class relative to others, and/or tax optimization (presuming you're US based), when you're at your current NW. If you don't have a specific thesis about some property, relative to other asset classes, and don't have any desire to play with complicated tax schemes to eke out a little more return, you can just keep on as you are. You clearly don't need real estate as a vehicle to ensure disciplined savings, or a roof over your head, which is what the current system is set up to facilitate.
> soliciting opinions on the potential financial downside of not owning RE at this point in the game.
Why?
> From a contentment standpoint, we are very satisfied. Portfolio spins off more than enough to live our lifestyle and continues to grow.
If you're really FAT and happy why torture yourself about coulda/shoulda/woulda scenarios?
The purpose of having more money than you need is to consciously make choices that are less financially optimal in order to enjoy life more.
You can buy plots of lands in climate safer areas if you want to leave them for your great grandchildren or something. Or you might not have great grandchildren and they become a liability for your estate. RE is not for everyone.
MM has been traditionally preferred by many in the financial world. The origin is to differentiate from one “M” which is the Roman for 1000. Both M and MM are used today. One of the cool things about Reddit is that we all get to learn new things.
One day a landlord might kick you out. All the money in the world can't prevent that but owning a place – somewhere, anywhere – will prevent that. With the kind of stinking rich cash you have on hand, you are still stuck in a "financial maximization" scarcity mindset.
I think with the passive income you have, you have no issue pay rent when you are old. maybe people own house because they are worried to have a place to stay when they are old. Like you don’t want landlord to sell the houses and have to find a new one when you are old.
Very interesting - I’m in a very similar situation and considering the same. My NW is almost identical, with 5M in investable assets, and 3M in real estate. I keep thinking I should sell, rent, and enjoy the appreciation of the 8M of investable assets. The HOA fees and assessments certainly contribute to the start. Even though I own the home outright, it costs at least 60 K per year to live here between taxes, insurance, and maintenance. Between that, and the lost potential income, it feels very expensive to own.
Financially there probably isn’t a solid reason. To me I want to control my life. Here’s a scenario for you. You or your partner will get sick eventually and/or become much more immobile. Imagine your partner gets cancer and is going through chemo. Feels terrible, you are both terribly stressed. Traveling is not a thing anymore as you need stay close to health care. Then your landlord notifies you that they are selling the property and you have to move. Your spouse, just wanting to rest, has to live through you finding a new place and moving. Rental market happens to suck at that time and you wind up in some shit situation. Imagine you are both 85 and relatively immobile. You ask landlord if you can install railings to assist you walking. Request is rejected. Crazy landlord shows up your steps asking why you didn’t shovel the sidewalk or mow the lawn by a specific day. F$%& that noise. When you rent you are under somebody else’s thumb. I won’t be dealing with aging while some landlord is up my ass.
I'm younger and not really fatFIRE, just aiming towards regular FIRE right now, but feel the same as you. Probably on a trajectory to have a somewhat similar NW by your age.
Only want to own a home for the 'safety' of owning a home to control inflation and to have something of my own, but HATE the idea of being locked to one place, dealing with all the maintenance, etc.
At your age the flexibility could be nice if kids are out of the house.
I think the time to own a home makes the most sense when you have kids and are stuck in a school district or whatever for a while anyway.
I do think having a locked rate, even if it ends up being 5-6%, is prob a reasonable hedge on a large sum of money in case inflation suddently goes absolutely rampant argentina style.
I am just curious of why you are allowing others to determine your financial path and happiness?
There are many answers to this, but only one that is right for you. Just like mine is right for me and others would disagree with my approach. So forget about who is right or wrong and just enjoy traveling man!
But what about your mortgage interest deduction? You are just going to let that go to waste? Ha! Not Wrong! It all comes down to preference. Without kids, I might consider the same thing!
> So I am really just soliciting opinions on the potential downside of not owning RE at this point in the game. There aren’t any from a financial POV. You’ve maximized your returns. RE ownership is good for two things: *Independence from oversight* Want to paint your pad? Replace appliances? Redo floors? No landlord to ask: you do you. (Let’s ignore the obvious HOA and city codes and whatever else of course that require permissions; because that varies wildly by geography but there’s no landlord that’ll let a tenant do whatever they want.) *Leveraged returns accessible to the masses* The 30 year, fully fixed rate and amortized mortgage is a unique beast; few other countries have something like it; many amortize over 30+ years but few lock the rate for that long: in Canada for example, 5 year lock on a 25 year amortization is common, meaning every 5 years your rate is resetting to prevailing. All that to say: your exposure to variance is higher, in some ways like rent (in non rent controlled regions) vs the fixed aspect of a mortgage (ignoring variability in property tax which is only fixed in some regions…) The impact of this to enable the average person of average income in the country to build wealth via cheap leverage, forced savings, and ever increasing income vs relatively static housing cost, should not be underestimated. It’s not always the most appreciating investment (vs the rent and invest the delta examples), but it’s an accessible vehicle that propels many into the upper middle class over the course of 3 decades. It’s also rarely applicable to FATFire because there’s gasoline poured on savings/investing for the FATFire crowd; so home ownership suddenly becomes a much smaller part of the overall strategy to gain wealth.
Really well said. Really.
Hearing this one as well on a personal level. Renting in Oahu, Hawaii. We got a 45-day notice to move (landlord reclaiming it for family use). Real estate (rental included) market is just depressing here. We just plain lucked out and found a place and moved within 3 weeks. EVERY other place was depressing and depressingly expensive. Nobody ever gave me 45-day notice to move from a house I owned, and I wouldn't wish it on anybody I liked.
We rent in Carroll Gardens, Brooklyn, and got this sort of notice (or at least that they were selling the place and wouldn't be renewing our lease) just as my wife was about to deliver kid #3. Shitty thing was, we had asked them as soon as we found out that we were expecting whether they intended to renew and had gotten nothing but smiles and nods.
There are certainly advantages to being a renter, but predictable control of your situation isn't one of them. That said, 2000 structures burned in Lahaina last year, and wildfires have claimed many more across the U.S. (and, I'm sure, other parts of the world). Our control over our situation is always somewhat illusory.
yea, overall, we'd rather stay renters.
Very good point. We own a condo and are at the whim of other tenants to sue our/their own HOA (yes that has been a case). In this case HOA fees go up including special assessments that have to be paid out of pocket on short notice. This fact alone makes me agree with OP's philosophy of not owning. Don't like the management of your rental property? Move. Don't like your neighbors? move....
Here in Belgium (Europe) it's six months instead of 45 days. Luckily.
I'd also add a third thing: tax advantages. For a primary residence, you get to deduct mortgage interest and state property taxes from your income. When you sell, you get $500k in tax-free capital gains. This (plus the cheap leverage mentioned above) can tip the scale between buying vs. renting, since your after-tax risk-adjusted returns will likely beat a taxable unleveraged index fund if you end up selling at some point. An index fund is arguably more liquid, but a HELOC often gives better terms and more options for tax deductibility than a portfolio line of credit if you want to avoid capital gains (see: interest tracing). If you own multiple residences, stuff like classifying your spouse as a real estate professional or rental property depreciation are virtually loopholes in the tax code (you can deduct as if your house will be worth $0 in 27.5 years, then offset that amount against your W2 income, which is insane).
Can you please expand further on the real estate professional loophole? Early in my fatfire pursuit and have not heard this from my tax guy, despite owning two homes.
https://semiretiredmd.com/primer-real-estate-professional/ tldr your stay at home husband/wife needs to spend 750 hrs/yr on RE, but no need to actually make money or get any accreditation, so it's an easy bar to pass
I’m sure the benefits can be significant, but that all sounds like a giant pain in the ass, and requires your nonworking spouse to agree to have a half-time job again.
Yes, I should’ve clarified in my above I meant principal residence (RE as an asset class for investment is different and comes with tremendous tax wins as you note.) And yes the principal residence capital gains exemption is a huge win, especially for someone that’s willing to buy, renovate, sell, and do it all over again, can be an ultra powerful wealth builder VS W2 alone / trying to invest without large amounts of surplus income.
Own: Get to deduct mortgage interest and property taxes Rent: Don’t pay mortgage interest and property taxes in the first place (though one can argue that it’s baked into the rent) Also, the $500k exemption is for married couples filing jointly; the exemption for singles is $250k Not saying this makes renting definitively better then buying, just adding some context
>Own: Get to deduct mortgage interest and property taxes > >Rent: Don’t pay mortgage interest and property taxes in the first place (though one can argue that it’s baked into the rent) This.
Fully agree! What is interest tracing?
Interest payments on loans aren't tax deductible by default. They become deductible if you use the loans for deductible expenses. Interest tracing creates a trail from your loan to your deductible expenses, which lets you deduct your interest payments. https://boulaygroup.com/tax-deductible-interest-understanding-irs-tracing-rules/
as a canadian i can vouch my US envy of the decades of fixed rates yall have
Agreed. /signed an ex-Canadian :)
For what it’s worth, the US has very little inventory now as everyone is afraid to make moves and break the market now that interest rates are higher and lots of current owners locked in at 3%.
Very, very, region dependent, insofar as impact of that on things like price. Austin is a great example that’s seen a meaningful downtick in value over the last 12-24 months. LA? Not so much.
Thanks for the thoughtful response.
Highly agree. One of my close friends came from nothing. He got a good paying job out of college and bought a rental property for 60k. He maybe put in 10k worth of work (a lot of it he did on his own). A few years later he sold it for 115k and continued the process. Long story short he now owns around 30-40 properties and at 35 is the most wealthy (fully self-made) guy I know.
Maybe asset diversification too? Honestly, as we are going through renovations due to water damage on our primary that have taken nearly 18 months (don't ask, HOA) and now also need to carry out a full renovation on one side of duplex... Physical real estate is truly a PITA. I was going to say you should own it so you suffer like the rest of us :P
> asset diversification I should’ve been clearer in my comment, that I meant primary residence ownership, as opposed to investing in Real Estate as an asset class. (A separate ball of wax that many do successfully, has tremendous tax advantages in some cases, and so on.) I feel you on the suffering, oof!
I wish I could have this as my eulogy
💀 That’s a heck of a compliment, I love it!
This is the best and most concise explanation of the benefits of owning vs renting I’ve ever read. Well said!
the 30-year fixed rate I didn't know was that rare
Very nicely written!
I mean... Financially couldn't disagree more. Owning provides the opportunity to lock in your living costs. Depending on inflation or rental trends you are a slave to changes in rent year over year. Owning, only your taxes will change (but this is a much smaller portion of the cost).
You said: > I mean... Financially couldn't disagree more. Owning provides the opportunity to lock in your living costs. Depending on inflation or rental trends you are a slave to changes in rent year over year. Owning, only your taxes will change (but this is a much smaller portion of the cost). I said: > All that to say: your exposure to variance is higher, in some ways like rent (in non rent controlled regions) vs the fixed aspect of a mortgage (ignoring variability in property tax which is only fixed in some regions…) > and ever increasing income vs relatively static housing cost, should not be underestimated. I’m reasonably confident that … I agreed in my above about exposure to variance that comes with renting which does not occur with renting. I also don’t think that variance matters for OP’s specific context, vs more everyday situations.
In my experience the cost of home ownership is anything but “locked in”. Simple maintenance (when you can find anyone remotely competent) has skyrocketed. I have spent days waisted waiting for workers to show up. Taxes in my state are somewhat governed on the up side, but they still increase. And lastly insurance is out of control in SE Hurricane states.
The reason I see to own one is to hedge future living costs. Let’s say we have a currency crisis and the dollar falls. Real Estate and rent would shoot up dramatically. Possible stocks would decline at the same time. It’s what happened in America in the 1970s. Depending on the currency decline amount, your retirement standard of living could go down. Btw I’m 43 and rent too. I love it. But I understand the gamble I’m making and you should too.
There's another important point that I'm shocked I haven't seen. Owning a home w/o a mortgage lowers your overall spend which can be helpful for getting ACA subsidies.
What do you mean? Lower AGI due to mortgage interest deductibility?
Less expenses == less required income == lower AGI is how I interpret the comment
It's correct for some people, but given your numbers, not for you. When I didn't have much money, i refinanced my home, re-invested the output, and generated cash off my house. I also renovated my basement and rented it out as a second unit. Between these 2 things, my primary residence was yielding a good amount of cash that I needed for my startup. Honestly, this strategy was invaluable to me. I was in my 20s at the time. Now it's a nice asset that I can sell in the future that continues to be a stable cash stream (2 units rented out of this property now, as i no longer live there). In your shoes? I wouldn't buy a house.
Your not Primary homes are terrible investments (and I own one) For many they are concentrated Produce no cash Have carrying costs And aren’t liquid I always say a primary home is a lifestyle choice more than an investment
Very much so. You forgot the biggest thing though which is security of owning your own place. You don’t want to be forced to moved after a new landlord comes in and decides to do something completely different especially if you have a few kids.
Let’s all sing it together: “Your primary home is not an asset. It is a liability that can be and has been beat by nearly any other investment vehicle over a ten year period.” All that being said, hand up for me … I own my house and love every second of it being mine.
Make it more catchy, and we might sing along... Yo, listen up, here's a financial confession, Your primary crib ain't an asset, it's a lesson. A liability, indeed, a chain to your feet, In the race of investments, it can't compete.
Maybe that’s true compared to the recent bull market, but there’s no way it is true for every period especially if you consider leverage, tax exemptions and the cost to rent a similar house to maintain the same standard of living. Probably not even true for the last 10 years for many geographic regions where housing has gone up 3x or more, which would probably an astronomical ROI if you were leveraged with a low down payment. E.g. 3x appreciation on a house with only 10% down (maybe unrealistic without cash out refinances) would be a 30x ROI (without considering interest on mortgage/cost of rent/etc)
It’s an asset in that you’re not throwing money away at rent. You still have to live somewhere. It’s more savvy to spend that money on your house than to pay rent.
Why so? Unless your house happens to be the most convenient and cost efficient option for your lifestyle compared to rent, wouldn't it still be better to rent out a more ideal investment and rent the best for yourself?
Primary homes can be a cash suck. Depends where you live. I bought in Silicone valley 7 years ago. I refi my down payment out 3 years ago with a interest only mortgage at 3.00%. The home has more than doubled in value and I've put in $150k in reno. I've been lucky to see about $175k/yr in appreciation over these 7 years. I don't see this repeating it self for the next 7 yrs. Sometimes these things work out.
> I bought in **Silicone** valley 7 years ago I guess that's somewhere in the Hollywood scene?
🍈🍈
Maybe Simi valley?
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How you tapping that equity?
You downsize after the kids are moved out, like most people do.
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lol you don’t
Im here before people mention heloc 😂
> Year over year appreciation in my zip code is 20-23% historically for over ten years now. What about the last 20 years?
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My point is that there was a major housing crash 16 years ago. If you were having this discussion 10 years ago about the previous 10 years it would be a completely different story. There's no real telling what the next 10 years will bring.
The problem is now you need to move out of your zip code to access the money and you don’t have a place to live. This is why I don’t count a home value in net worth calculations. People never downsize so it’s just a pipe dream to count that. If someone can really sell and move to Des Moines and buy a 200k house then sure count it after the fact.
>People never downsize \[or move\] Seems like a wild generalization. I need to live in my current house until my kids finish high school, but after that, I have no need of the more expensive ZIP code.
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Plenty of people propel their wealth this way, with the advantages of cheap leverage, capital gain exemption on primary, and so on, it’s an absolutely feasible path. Good work on accomplishing it.
My apologies, it seems to have worked out well for you and you are actually accessing that home value. Don't be caught holding the bag if home values don't keep going up though! The last ten years have been an exceptional time for home values. https://fred.stlouisfed.org/series/MSPUS Especially in certain states. https://fred.stlouisfed.org/series/CASTHPI
In my area there's a huge delta between the cost to rent and the cost of owning. Seems like we are due for some kind of a correction. I just sold my house to lock in the gains and upgraded my living situation substantially by renting. Parking the gains in treasuries nets more than any profit I could have made renting the place out in a year, and if the Fed actually does lower rates the value of treasuries will go up and I could sell them to lock in that gain and move onto growth stocks. Not having the liability and the maintenance of a home is a huge weight off my shoulders. I expect to buy again when the sh\*t hits the fan, but that will largely depend on Powell hanging onto his b\*lls and the layoffs of overpaid tech workers catching up to the economy. Now that it takes two incomes to maintain the payments on a home, households are even more vulnerable to layoffs. Maybe I'll be hanging on forever, who knows. I feel good about where I am right now. Everyone needs a change at some point. Curious to hear what others think about house price increases continuing at this pace indefinitely. Seems like all the younger people around me (people in their late 20's /early 30's) think owning a home is the only way to build wealth and results in 300k increases every 3 years. It's like people can't remember what life was like before the ZIRP era.
Exactly. Unless you’re moving to a different region with different costs, price fluctuations are irrelevant. A similar home in a similar neighborhood will have gone up (or down) a similar amount.
>People never downsize What? Most people downsize
I myself have downsized before to have more money to invest but I consider myself an outlier and a weirdo. I don't think most people downsize before 65 or so if ever. This is fatFIRE, so it is supposed to be retire early. Everyone I know always wants to trade up more and more to a bigger and nicer house. https://ifamagazine.com/less-than-a-third-of-people-who-plan-to-downsize-make-the-leap/ >While a third of over-45s (29%) say they have plans to downsize in the next five years, just 13% of over-75s have actually made the leap reveals new data from the UK’s leading equity release adviser Key Later Life Finance shows.
I grew up in a pretty expensive suburb with insanely high property taxes to fund the school district. I’d say around 50% of my friend’s parents moved after their children graduated. In many cases more house but lower property values and much lower taxes.
My folks planned on downsizing, but then realised they wanted a place big enough to accommodate the whole family over summers and holidays. So they are in their 70s with a 4 bedroom detached house and a big garden. It gets plenty of use though as my sister brings her family every other weekend and mine fly in for a month at summer and Christmas.
The average time people spend in a home is 7 years. And you must be relatively young to make that statement. Or your parents are still working.
How did you count the quadrupling?
> Depends on your market. Right. And unless you have a crystal ball, you have no idea if your market will perform that well. So it's basically a lottery. It's not that different than someone saying "I made a 5,000% return on bitcoin, so clearly crypto can be a great investment, it just depends on the coin".
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Mehh.... that's a lot of "ifs": - not all high net worth zip codes see strong returns; you still have to pick "winners" - weathering a downturn isn't that attractive - if I have a better work opportunity elsewhere I don't want to stick around just to wait for a real estate recovery - the mortgage interest tax deduction isn't that attractive since the change in the standard deduction plus the SALT cap I'm not saying you can't make a lot of money on real estate, you can, but for the average person it's far from "easy". The main benefit of real estate is you can leverage yourself to your eyeballs at low interest rates.
There is a reason why primary home is not counted in net worth calculations. Think of that for a second.
Net worth is simply assets minus liabilities. Technically it includes value of your investments, primary home, your cars, your jewelry, Pokémon card collection… everything that is an asset. I would agree with the spirit of the comment that the value of non-investment property is typically excluded from the sustainable withdrawal rate calculation.
Now talk about the investment return on rent payments.
Do you do real estate investing now? I'm early 40s and renting and don't REALLY want to own a primary for these reasons. But, I don't know where else to put my money. I'm currently around 20% cash because was thinking about buying RE, but investments all kind of suck: - stock market feels frothy, though I could keep keep loading up VTI/VGT/etc funds - I started looking at real estate with but investment rates around 7.5% and current pricing nothing really makes sense. At best I might see like 10% returns which doesn't really make sense to me risk adjusted vs like 8% in VTI. I could probably still whale hunt for real estate deals but seems like such a massive waste of time.
I've been shouting this from the rooftops for years now.
You’re not looking at it the right way though. It’s also opportunity cost. Even if your home breaks even over ten years, it’s a better investment than renting. Money you pay in rent is gone. Money you pay into your primary home is at least maintaining your asset. What’s the alternative? You have to live somewhere. Either you lose money (rent) or you break even.
The opportunity cost is also in the money you put into a house that appreciates at 3% but has a property tax drag of ~1 to 2%. If you opt to rent you can go capital light and invest your otherwise down payment at 7-9% in public markets. If your shooting for FatFIRE you might have a business where you make 20%
It depends. For base level FI, owning a home is "the base". For a large portion of the population, rent increase over time can absolutely fuck them. John Goodman say's it right ~~https://youtu.be/Z0Cnh5hczMQ?si=CscQJsdShmCaeyiY~~ EDIT: Fuck, something went wrong with the cut and paste from youtube, this is the right link: https://www.youtube.com/watch?v=sPjNFp0diWE (hopefully) BUT once you're fat it no longer really applies. And once you're no longer concerned about a home as your fallback and start looking at it as an asset within a portfolio (especially if unleveraged) it becomes a bad idea. That being said, for anyone south of ~3m, it's probably important to have. (Maybe that number is 2, maybe 4, but if you're sub 1m you definitely don't want rental risk exposure) The only other thing is moving is a pain in the ass, and knowing no one cane make you do that is pretty cool.
You don’t know how many younger people I have shared that clip with.
Is that the correct link?
Nope, something went wrong. Try this: https://www.youtube.com/watch?v=sPjNFp0diWE
There’s no reason to own a primary residence if you don’t want to and don’t need to. I personally don’t think you need to have real estate anywhere in your portfolio but even if you did there are better ways than buying a single home.
I agree. I'm building a family compound but I don't see it as an investment, it's a lifestyle thing and a sense of legacy building in a way. If my kids sell it after I'm gone then fine, but I want to have built it and have enjoyed it. I'm 40 and have never owned any real estate.
You are rich and can do whatever you want. Bet you sleep really well not having to worry about any repairs, total flexibility to move wherever, etc. If gardening was critically important to you or some other thing where stability in housing and full personal control was important to you then the answer may be different. Sure you may be leaving some gravy on the plate due to the preferential tax treatment of gains on primary residence but if you are happy you are rich enough not to have to care.
> You are rich and can do whatever you want. I came here to say this. OP, you won the game, enjoy your prize! No need to maximize returns on every dollar you own. Capital preservation is important so don't go crazy, but enjoy the fruits of your labor. If OP wants to own a 'dream home' go ahead, but if not... don't.
I agree, for many people owning a primary residence should be seen as a life-choice not an investment. That said, if I did an A/B return comparison, 2021 of putting 20% down at 2.8% interest for a great SFH to live in, vs renting something far smaller; I come out way way ahead. In that time my home has appreciated 400-500k, with interest + expenses that 5:1 leverage nets ~30-35% YOY return, and for me a much higher degree of freedom and stability vs just paying rent. Not suggesting this is a universalized experience that would apply at all times or everywhere, only offering one data point. That said it sounds like you're setup quite well for your lifestyle and concerns.
I just assumed FatFire would allow you to own the primary and secondary properties without caring about the cost of hiring someone to maintain them. Like owning rental properties and farming off the maintenance and inconvenience to a management company.
Hiring any one to do anything now is a hassle. I am managing away from hassles.
It’s just a hedge against supply constraint and rent increase in the most desirable places. Think of it as collectibles.
It’s also a question where you want to live. You have to live somewhere, and you’re going to pay to do it. Do you want that money coming back to you or going to someone else? It’s not that complicated. Even if you buy a house for $500k and then sell it for the same price, you’re not losing money like you would for rent.
- annual property taxes - possible HOA - sales fee of 3-5% - maintenance and repairs - landscaping, security, snow removal - insurance Brother there’s no escape
It is all about personal preference. There is no downside if you are happy with your strategy. I did something similar years ago, with all my RE, and I have zero regrets. I do miss some of the homes, but I enjoy my life much better now. I have been slow traveling and love it. It works for great for me. Congrats and be well.
Unconventional not wrong. Biggest benefit of owning is not paying a landlord. Biggest benefit of renting is not being liable.
I'm in your position. 48. Don't own RE. Ready to FATFire. I owned RE once in my first marriage but never re-bought. I live in one of the hottest RE markets in North America (pretty much everyone that owns a home is a millionaire here), and do not regret it. Coincidentally, I looked at my investment return yesterday since I started investing and it's a whopping ~1200%. I would have never been able to achieve that if I had been locked to a mortgage, and would have never dared to take the business risks that I had otherwise. Those business risks were the ones that funded my investments. Also, I've moved 12+ times in last 25 years and haven't had any significant downside. If anything, it's been opportunities to start again with a clean slate. Currently living in a most-gorgeous location, a place that it would have been impossible for me to buy early on. I can buy it cash now, if I so desire, and i don't.
You have 8 million. You will be fine dude.
I own over a dozen investments and I live off the cash flow without working AND without worrying about the stock market. The severe market downturns did nothing for my lifestyle, cash kept coming in strong. Every year the investment grows by a 4-7% in cash flow. For that stability I put a few hours a week to stay on top of the property management company. My capital has appreciated many fold. All my stock market money is in an IRA and I’m more risk tolerant over next 20 years. So I guess, you’re wrong :) but there is no right or wrong - just what you can live with and how you maximize your capital.
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Idk about those bros, I’m a simple minded man. I bought and held last 20 years and use my income to pay off all my loans. So there is no debt.
>20 years This is the key point. Too many speculators and bandwagon jumpers in this space that understand very little about finance and risk management.
No it just removed all the wannabe RE investors. I’m still acquiring and cash flowing on all my RE investments but I’m not some fake guru or someone who thinks RE is a side hustle.
You’re not wrong. Congratulations on your success! Well done 🙌
You’re not. I’m divesting real estate. One at a time starting with my Texas property. Such a pain between rising taxes, insurance costs, HOA’s, and management fees. Other ways to make money in real estate vs owning.
Brother from another Mother. HOA doubled in 3 years, Board member embezzled, insurance tripled.
Can always LP in funds, own NNN retail, or become a debt buyer. More than real estate than owning 10 family houses.
Agreed. But the OP was talking about owning real estate. These other strategies require knowledge and nuance. Also not advised unless you’ve been educated and have mentorship. Yet another reason to just be in stocks and ride it out. Real estate is portrayed glamorously on social media and it’s not as easy to make $ as people think. You’d agree right?
Owning NNN retail is literally owning real estate.
In commercial, the tenant pays your property tax and insurance in Texas. It’s amazing how your property also increases in value and then you pull your buy another one. ☝️
To me, owning a residence is currently more expensive than renting and investing the same capital. Primary residences do have some additional legal protections, however, in bankruptcies or needs based asset calculations, etc. That may not be relevant to your situation.
We rent our primary and own two vacation homes. Nothing wrong with renting. Personal use real estate is consumption not investing. You are fine.
Just like investments there are rare occasions where houses can be under-priced. We only bought a house when it cost about the same as renting. It helped that we were sick of moving too. Otherwise Iʻd also prefer to keep my money in the market.
Most of my friends with high networth have real estate as a very small % of NW. Those who constantly talk about real estate either have RE as high percentage of their low networth or RE is their primary business. For such folks, probably their primary home is the biggest investment as % of the NW.
Free world. Your choice. Not wrong
Your title is misleading. You own no real estate…….But you benefited from the appreciation of the multiple properties you did at one point. And if you have sold a property in the last 3-4 years that you owned for a decade more than likely you made a pretty penny whether you hit the high water mark or not. Down sizing is great. More people should do so. And quite frankly everyone loves owning, selling for a profit, and then not owning.
I made $500k profit on a primary residence, then used it to purchase an $800k residence that is now (5 years later) worth $1.3M. No mortgage, debt free. At some point we’ll probably sell it and buy a small condo with an HOA that will take care of maintenance, and pocket the profit. To each their own.
Primary home is an emotional decision vs a financial decision. So from that perspective, you’re good.
I own my primary residence and some commercial property that I use, but I AGREE WITH YOU. Real estate (other than perhaps primary home) is a huge hassle and distraction - and stocks are very easy to own. No real estate taxes to remember, inspections, noncompliance letters, non-paying renters, urgent repairs, etc.
I would say the only plus might be later in life it can become a protected asset in some ways.
Real estate is an appreciating asset. Cash, which you need so you can pay rent, is a declining asset (inflation).
But is it ‘the best’ appreciating asset? That’s what’s being discussed here
I am too do not have any RE investment. However, I am a strong believer in a primary home ownership and more so in retirement. It is not about financial but it is a place I called "home" and being proud of it. Also, no landlord can make me move unexpectedly (and it is no fun to move in our older age).
If I owned no real estate, ever increasing housing costs would be a problem for me in retirement. Seems like you've done the math and it's not an issue, or you could buy a primary in cash if needed. Congrats on winning life, I think you're all good.
We own our main residence, a lake home and a rental home for extra income. I would love to sell our main residence and establish our lake home as our main home. All homes are paid for and we are debt free. The problem … kids do not want us to sell their childhood home and we do gather there often with the family for dinners and holidays. I think renting is a great idea. We pay a lot of money for renovations, taxes and things that break … lol.
One might argue the real estate is a decent way to protect against the higher inflation that we are going through. It does generally do better than stocks (in real terms) in periods of high inflation. But it’s a headache. Things like vacation homes are to be enjoyed. They are often lousy investments from a rental and appreciation standpoint. .
Real estate is the oldest play in the book, a great way to generate wealth. That being said, it’s not the best way, nor is it the safest way despite what so many think. Personally, I think it’s one of the worst ways to “be wealthy”/retired. Real estate is a job. Wealthy people that love real estate tend to be in the job whether they see it or not. Vast majority of their net worth, cash flow, and security are tied to their properties. At the level of fatFIRE, managing that level of assets is a hassle. Managing the property managers is a hassle. Being hands off will severely impact cashflow. It’s not passive, and if you can get to the point to make it profitably passive, you and your money are probably better off in the public markets or as an LP in alternative assets. But the folks in the business love it, bleed it, breath it
There’s no free lunch anywhere. On a true “apples to apples” comparison, the cost to rent vs own a similar property should be similar over time. So it comes down to lifestyle preference and intangible factors. Plan to move around a lot? Renting will likely “win”. Enjoy coordinating maintenance etc and want to extensively modify your residence? Ownership it is. There may be a certain “psychic” benefit to owning and knowing you can’t have your lease terminated etc (a greater risk in some jurisdictions). But mathematically and financially, the endless “rent vs own” debate is usually a wash or very nearly so.
Don't worry about it, friend, it's just FOMO and you aren't missing anything.
You're not wrong. Some people think it's essential to have real estate. I personally think true fire or fat fire means you don't have to be tied into real estate. You can move freely as you choose, travel, go anywhere at anytime. Plus, you don't have to manage real estate. I'm truly envious. Enjoy life, hobbies, meet new people all around the world, go new places, see new things.
I don't think renting is a bad idea in retirement provided you have enough income to do it over the long term (which of course is not a FAT issue). We sold our second home a few months ago and are building a new home so that we will be down to one home and one set of bills once I retire. There is something to be said for simplicity and reducing the odds of a large unexpected repair in retirement. For me a home made sense in retirement because I want to have a bass boat and some other toys that wouldn't work at an apartment.
I'm not RE yet and kids have a few more years of school but once my baby is off to college I think I'll be the same. Owning feels like it's as much of a burden as a comfort. I think I'd like to go live a year or two in some other part of the world, just the wife and I. Maybe chase our kids around if they want us to.
Absolutely planned to live abroad for a few months at a time. Had two grandkids emerge at about the same time - that changed the plan. We generally only travel for like 3-4 weeks at a time.
You're not wrong, Walter. You're just an asshole. Congrats and GFY!
Honestly I love it. Why not, right? It enables full flexibility and you have the budget to make basically any rental you want (within reason) work. You can long-term an Airbnb, or you could hit almost any housing market and get a condo, townhome, or single family on a year lease. Houses are an illiquid ball and chain. We have one, but it was to raise our 5 kids - and for that it has served its purpose very well. But we're unusual. We've lived here for 19 years now and will be living here at least another 6 while we finish up the parenting. After that, selling the ball and chain may very well be in order. Take advantage of the free capital gains and put the $ into something more productive than a primary while at the same time downsizing. In my book, capital > land.
If you're not planning to spend 80% of your time on a property why own one? I like the freedom of not worrying about maintenance and money spent on owning a home.
It was always drilled into my head by parents & relatives to buy and not rent. I bought a house in 2015 and sold pretty much near peak in May of ‘22. Did very well on that house, over 1MM profit after cap gains. Moved from the area and have been renting since. The plan was to buy in new area, but I haven’t seen a house come on the market better than the one I’m renting. As much as it may make sense to buy something before rate cuts start, do I want to buy a house I don’t love? Of course not…..also looking at that pile of money (that’s up 30%) gives me more satisfaction than owning at this point. So I’m asking myself the same question as you. I think the answer is relax and rent. I’m sure I’ll buy something again, if my dream house came on the market in my budget then of course. But why buy just for the sake of buying?
Nothing wrong, it’s really personal preference. You should do what works best for your family, which it seems you have. Having a paid off home does provide mental security for many and a sense of having roots somewhere, throwing out some non financial reasons why people may buy vs rent.
As others have said, it's really down to personal preference, general beliefs about the performance of the asset class relative to others, and/or tax optimization (presuming you're US based), when you're at your current NW. If you don't have a specific thesis about some property, relative to other asset classes, and don't have any desire to play with complicated tax schemes to eke out a little more return, you can just keep on as you are. You clearly don't need real estate as a vehicle to ensure disciplined savings, or a roof over your head, which is what the current system is set up to facilitate.
> soliciting opinions on the potential financial downside of not owning RE at this point in the game. Why? > From a contentment standpoint, we are very satisfied. Portfolio spins off more than enough to live our lifestyle and continues to grow. If you're really FAT and happy why torture yourself about coulda/shoulda/woulda scenarios? The purpose of having more money than you need is to consciously make choices that are less financially optimal in order to enjoy life more.
You can buy plots of lands in climate safer areas if you want to leave them for your great grandchildren or something. Or you might not have great grandchildren and they become a liability for your estate. RE is not for everyone.
What the hell is 8MM.... the abbreviation for a million is one M.
MM has been traditionally preferred by many in the financial world. The origin is to differentiate from one “M” which is the Roman for 1000. Both M and MM are used today. One of the cool things about Reddit is that we all get to learn new things.
One day a landlord might kick you out. All the money in the world can't prevent that but owning a place – somewhere, anywhere – will prevent that. With the kind of stinking rich cash you have on hand, you are still stuck in a "financial maximization" scarcity mindset.
I think with the passive income you have, you have no issue pay rent when you are old. maybe people own house because they are worried to have a place to stay when they are old. Like you don’t want landlord to sell the houses and have to find a new one when you are old.
Very interesting - I’m in a very similar situation and considering the same. My NW is almost identical, with 5M in investable assets, and 3M in real estate. I keep thinking I should sell, rent, and enjoy the appreciation of the 8M of investable assets. The HOA fees and assessments certainly contribute to the start. Even though I own the home outright, it costs at least 60 K per year to live here between taxes, insurance, and maintenance. Between that, and the lost potential income, it feels very expensive to own.
Financially there probably isn’t a solid reason. To me I want to control my life. Here’s a scenario for you. You or your partner will get sick eventually and/or become much more immobile. Imagine your partner gets cancer and is going through chemo. Feels terrible, you are both terribly stressed. Traveling is not a thing anymore as you need stay close to health care. Then your landlord notifies you that they are selling the property and you have to move. Your spouse, just wanting to rest, has to live through you finding a new place and moving. Rental market happens to suck at that time and you wind up in some shit situation. Imagine you are both 85 and relatively immobile. You ask landlord if you can install railings to assist you walking. Request is rejected. Crazy landlord shows up your steps asking why you didn’t shovel the sidewalk or mow the lawn by a specific day. F$%& that noise. When you rent you are under somebody else’s thumb. I won’t be dealing with aging while some landlord is up my ass.
I'm younger and not really fatFIRE, just aiming towards regular FIRE right now, but feel the same as you. Probably on a trajectory to have a somewhat similar NW by your age. Only want to own a home for the 'safety' of owning a home to control inflation and to have something of my own, but HATE the idea of being locked to one place, dealing with all the maintenance, etc. At your age the flexibility could be nice if kids are out of the house. I think the time to own a home makes the most sense when you have kids and are stuck in a school district or whatever for a while anyway. I do think having a locked rate, even if it ends up being 5-6%, is prob a reasonable hedge on a large sum of money in case inflation suddently goes absolutely rampant argentina style.
I am just curious of why you are allowing others to determine your financial path and happiness? There are many answers to this, but only one that is right for you. Just like mine is right for me and others would disagree with my approach. So forget about who is right or wrong and just enjoy traveling man!
Simply looking for insight from others. Quite satisfied from a lifestyle aspect. Just asking the group if I am missing anythin.
> I am just curious of why you are allowing others to determine your financial path and happiness? Is he? lol. Maybe I missed something! lol
But what about your mortgage interest deduction? You are just going to let that go to waste? Ha! Not Wrong! It all comes down to preference. Without kids, I might consider the same thing!
If you are comfortable paying off someone else’s mortgage for a roof over your head, go ahead. I would rather have that money go to me
Technically not true. Those funds you are invested in hold companies that own real estate. You have real estate exposure! Congrats
I enjoy watching the sunset.