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Flip side of that is that people who get lucky in the booming, prestigious markets can simply cash out and often walk away.
One of my high school buddies bought a house in east Nashville back in 2009, right after getting a regular job and graduating undergrad. He said the house gained about $400,000 in equity between when he bought it and when he sold out last year. The neighborhood wasn't nearly as cool then, Nashville wasn't yet booming, and he bought the house because it suited his lifestyle at the time. He had no idea he was going to make so much.
In the intervening years he also become a pharmacist and moved to another part of the state, and bought a nicer home in a more reasonable area. He's in his early 30s and probably has no or at least a very minimal mortgage.
For every one of those, I can match it with the sap who bought Florida, Phoenix, or Vegas property in 2006 and was wiped out.
Individual COL is largely a function of whether you own or rent your home. Living on $24K is vastly easier for those who own a mortgage-free home than it is for those for whom rent consumes half their income.
Most retirees that we know IRL are people whose pension income I would put in the $15k to $40k range. Some rent and some own.
I do agree that owning [free of debt] is an 'easier' budget compared to renting.
I have had tenants who were retirees, so I have observed those lifestyles.
I think owning is probably more affordable. At best, to try and rent a decent place is at least 800.00 a month in the area we live. And that is really on the low side if you want to rent a house with a yard. Also, a renter would not have any equity built up, so if the time comes when assisted living is needed, there is no house to sell to help with the costs.
As to the OP's original question, I agree with Rabbit that "it depends". I would much rather live cheaply and be free from a work schedule, than keep working so I can "someday" retire and have a lot of expensive hobbies. But, that is just me. Fortunately, my DH agrees with that sentiment. The OP's 55K yearly income would be more than enough for us!
Unlike yesterdays' repartee about grocery bills, real-estate is unassailably local. In my region, rent is moderately low, but housing prices are even lower. "On paper" it is cheaper for long-term residents to be homeowners, at least in terms of cashflow. Renting is therefore associated with transient lifestyle, or impecunious choices. However, the low (or zero, or outright negative) long-term appreciation of real estate means that the carrying-costs of a house aren't compensated by investment opportunity.
A paid-off $100K house might be great for a fresh retiree of say 60. But when that retiree passes away at say 80, and the house is down to $90K over those 20 years, the impact on cumulative net-worth isn't too favorable, as compared to renting. This is why I'm ceaselessly reiterating that "Cost of Living" isn't just about cashflow, about what it, eh, costs to live for a month or a year or whatnot. It's also about our capacity to put capital to work. If that capacity is limited, relative to say that of another region, then in the former region, the cost of living might actually be higher - even if groceries and movie-tickets and car-registration and housing-costs are lower.
Let me give an outlandish and fantastical example, to illustrate the above point. Suppose that we somehow find ourselves living in some benighted dictatorial third-world country, but we do so with the capital accumulated intact, after a lifetime of American-style earnings. In this hypothetical country, food is cheap, housing is cheap, healthcare is cheap, even domestic help is cheap. But the dictator - and remember, that country is a dictatorship - insists that all residents keep 100% of their capital within the country, either kept in their banks, which pay no interest, or in their local stock market, which is unstable or generally declining, or in any case, in their domestic currency. OK, monthly or annual or whatnot costs are still cheap, but now your capital is sequestered. It earns nothing - and likely even declines. OK, healthcare is great and readily accessible, local restaurants are delicious, your butler is polite and your maid is efficient. Even the water is safe to drink. Great. But the opportunity-costs of not putting your capital to work, more than overwhelm the savings in cashflow.
Last edited by ohio_peasant; 06-06-2017 at 08:38 AM..
Well, owning is more affordable primarily because you end up with a property at the end of it (which you can bequeath, sell, rent out, or occupy with no mortgage forever yourself), whereas - if you rent - you end up with nothing.
Unlike yesterdays' repartee about grocery bills, real-estate is unassailably local. In my region, rent is moderately low, but housing prices are even lower. "On paper" it is cheaper for long-term residents to be homeowners, at least in terms of cashflow. Renting is therefore associated with transient lifestyle, or impecunious choices. However, the low (or zero, or outright negative) long-term appreciation of real estate means that the carrying-costs of a house aren't compensated by investment opportunity.
A paid-off $100K house might be great for a fresh retiree of say 60. But when that retiree passes away at say 80, and the house is down to $90K over those 20 years, the impact on cumulative net-worth isn't too favorable, as compared to renting. This is why I'm ceaselessly reiterating that "Cost of Living" isn't just about cashflow, about what it, eh, costs to live for a month or a year or whatnot. It's also about our capacity to put capital to work. If that capacity is limited, relative to say that of another region, then in the former region, the cost of living might actually be higher - even if groceries and movie-tickets and car-registration and housing-costs are lower.
Let me give an outlandish and fantastical example, to illustrate the above point. Suppose that we somehow find ourselves living in some benighted dictatorial third-world country, but we do so with the capital accumulated intact, after a lifetime of American-style earnings. In this hypothetical country, food is cheap, housing is cheap, healthcare is cheap, even domestic help is cheap. But the dictator - and remember, that country is a dictatorship - insists that all residents keep 100% of their capital within the country, either kept in their banks, which pay no interest, or in their local stock market, which is unstable or generally declining, or in any case, in their domestic currency. OK, monthly or annual or whatnot costs are still cheap, but now your capital is sequestered. It earns nothing - and likely even declines. OK, healthcare is great and readily accessible, local restaurants are delicious, your butler is polite and your maid is efficient. Even the water is safe to drink. Great. But the opportunity-costs of not putting your capital to work, more than overwhelm the savings in cashflow.
You could, in a roundabout way, figure in the opportunity cost of having your capital "not working so well" into your cost of living. The buddy of mine in Nashville who made hundreds of thousands in profit on a house likely had a lower effective cost of living, by this measure, than here in Kingsport where houses have appreciated slowly, if at all.
The problem with this line of thinking is that, let's say he sold out on month #85 of his mortgage and pocketed hundreds of thousands in profit, he had to cope with whatever the cost of living was during months 1-84 on whatever his income/obligations ratio was at the time. You can't "backdate" the capital gains which occurred at month #85, divide those gains up and apply it to months #1-84 as an effective income increase. While gains were occurring at that time, the gains were uneven (some periods appreciated more than others), and he hadn't realized those gains yet.
However, those gains can be applied going forward saying "I made X profit, I can stretch this over Y months to bring me a Z monthly effective net income increase." That would very well be a way to depress the "cost of living" as a ratio of income to required expenses.
Well, owning is more affordable primarily because you end up with a property at the end of it (which you can bequeath, sell, rent out, or occupy with no mortgage forever yourself), whereas - if you rent - you end up with nothing.
how about a renter who instead of tying up all that money in a house has it invested in other things with greater returns ?
Well, owning is more affordable primarily because you end up with a property at the end of it (which you can bequeath, sell, rent out, or occupy with no mortgage forever yourself), whereas - if you rent - you end up with nothing.
Yes, and I don’t mean to dismiss that consideration. But here’s another analogy. In some parts of the country, owning a house and bequeathing it to one’s descendants is a bit like owning a classic car. It is more valuable today, than on the day that it was new. It is prized and desired. Its value keeps rising. In other parts of the country, owning a house is like owning a reliable but stodgy and quotidian commuter-car. It gets the job done. It’s nicer to have, than to take the bus. It’s a fine thing to inherit, though its purpose is utility. It doesn’t rise in value, like the classic car. In still other parts of the country, owning a house is like owning a barely-running jalopy. Inherit such a car, and you’ll spend more money maintaining it, than it is worth; might as well just donate to a charity, for the tax-deduction.
Quote:
Originally Posted by Serious Conversation
You could, in a roundabout way, figure in the opportunity cost of having your capital "not working so well" into your cost of living. ...
The problem with this line of thinking is that,...You can't "backdate" the capital gains... as an effective income increase. While gains were occurring at that time, the gains were uneven (some periods appreciated more than others), and he hadn't realized those gains yet.
You’re of course right. Real-estate is not liquid, and does not appreciate monotically. There is a price of entry, and if a person can’t afford that price, then a vibrantly ascendant market is no boon; on the contrary, it just stymies one.
Your friend, though only starting out in life, managed to corral his expenses and to sustain the vicissitudes of daily life, waiting long enough to realize a substantial gain. And he did this without a trust-fund or winning the lottery. My guess is that what separates you and him, is a mere handful of small but enormously significant differences in luck and/or impulse decisions. It’s not that he was morally upstanding, while you were dissolute; or clever and enterprising, while you were dull and obdurate. You’d likely have done just as well, if that handful of turning-points turned in your favor. And a large part of this is the locale where one happens to reside.
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Originally Posted by mathjak107
...that is flawed logic .
I’d rephrase that, to say the logic isn’t so much flawed, as situational. Money that’s tied up, that is nevertheless earning a decent return, is no cause for regret. It can even be a comfort, as it’s shielded from wild gyrations. It’s the long-term tying-up at zero or negative returns, that’s so grating and unfortunate – especially while the other fellow’s money, though equally tied up, is growing handsomely.
how about a renter who instead of tying up all that money in a house has it invested in other things with greater returns ?
that is flawed logic .
If interest rates were still 12%, sure; at 1%? Maybe a bit more with greater risk to your money? Meh! You can also get a reverse mortgage at age 62, which returns the house's value to you without selling.
Even if it didn't make fiscal sense to own (which it does), I personally have an aversion to leasing a property. I collect rent; I don't pay it!
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by otterhere
If interest rates were still 12%, sure; at 1%? Maybe a bit more with greater risk to your money? Meh! You can also get a reverse mortgage at age 62, which returns the house's value to you without selling.
Even if it didn't make fiscal sense to own (which it does), I personally have an aversion to leasing a property. I collect rent; I don't pay it!
I (and many others) do both - Collect rents and PAY rents. Business as we know it (for last 40+ yrs).
I was home when the sheriff took my parents ranch, and I moved my inlaws out of their "American Dream turned nightmare'
Even with those CRISIS', I will keep my 2.8% mortgage, until something else makes more sense. (Owning does not make sense, even tho my $100k home is now valued at $1m. My residence is a liability, not an asset.)
Reverse mortgage I can do better than that with my home equity... (and have for 40+ yrs)
Banks are fine, but they are not usually your friend! And are doing you no favors with Reverse Mortgages.
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I can do better than that with my home equity... (and have for 40+ yrs)
