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Old 04-12-2021, 12:59 PM
 
Location: Round Rock, Texas
12,567 posts, read 12,625,024 times
Reputation: 17277

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Quote:
Originally Posted by Gaylord_Focker View Post
Why not sell the home and put it towards your next home?
That's what we did, at least in part. Either way, a new house is a new mortgage, and our current home was far more expensive than the ones previously. It is now even more expensive than when we bought it. Either way, this isn't the home we're going to get old in so it doesn't matter if it's not paid off.
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Old 04-12-2021, 01:49 PM
 
13,236 posts, read 11,140,548 times
Reputation: 34912
Quote:
Originally Posted by bande1102 View Post
But a house is never really paid off. Maintenance costs, property taxes, insurance, all of these costs are never ending. Are they less than rent? Once you account for the fact that you have hundreds of thousands of dollars locked in a house, I'm not so sure.
From a retirement perspective, I would advise the person to do all major renovations and repairs right before retiring. Taxes and insurance will be only a fraction of rent. Maintenance would be sporadic.

If rent is $1800 a month, that's $21,800 per year.

If you live 15 years in retirement, that's paying out $327,000 cash.

Most people won't have access to that much in retirement just for housing. If you say money is locked up in the house, isn't that the same money that would be needed for rent over the entire retirement?
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Old 04-12-2021, 03:13 PM
 
91,720 posts, read 89,036,150 times
Reputation: 66296
Sell a 900k house in these parts and you can have the choice of rebuying another house or renting and investing the money in a 60/40 or 50/50 portfolio and you can draw 36k inflation adjusted and still likely have a 90% chance of having more than the 900k left 30 years later or you can up the spending on 900k to 58k a year under all but the worst outcomes in a 60/40 or 50/50 and drain the 900k down

You can rent for 1800 a month and have that increased by inflation every year and still have a whole lot more to spend above the cost of the rent left.

A best case scenario is you would have over 4 million left after spending 36k initially and then raising it by inflation yearly ..worst case was you ended up with nothing left and minus 245k if you were a 1966 retiree ...average balance left would be 1.3 million and this is with a 60/40
.........

FIRECalc looked at the 120 possible 30 year periods in the available data, starting with a portfolio of $900,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 120 cycles. The lowest and highest portfolio balance at the end of your retirement was $-245,227 to $4,108,409, with an average at the end of $1,279,333. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 5 cycles failed, for a success rate of 95.8%.

Last edited by mathjak107; 04-12-2021 at 03:40 PM..
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Old 04-12-2021, 04:21 PM
 
Location: Stuck on the East Coast, hoping to head West
4,596 posts, read 10,720,260 times
Reputation: 9703
Quote:
Originally Posted by charlygal View Post
From a retirement perspective, I would advise the person to do all major renovations and repairs right before retiring. Taxes and insurance will be only a fraction of rent. Maintenance would be sporadic.

If rent is $1800 a month, that's $21,800 per year.

If you live 15 years in retirement, that's paying out $327,000 cash.

Most people won't have access to that much in retirement just for housing. If you say money is locked up in the house, isn't that the same money that would be needed for rent over the entire retirement?
I think to get an accurate picture, you need to compare the carrying costs of owning compared to renting.

I picked a test state and ran the $330,000 house test. Assuming no mortgage, you would still pay about $500/month for property taxes and insurance......and that is underestimating. I went to a realtor site and I feel that is too low, but let's go with it. And they always go up.

Houses always need work done and over the 15 years that you own that house, it will absolutely need maintenance and repairs as it ages. Assuming 3% of fair market value, you get $9900/year or $825/month. In my own experience of owning for over 25 years, that figure is about right. Some years more, some less, but it's about right. Also, as you age, you'll probably be hiring more jobs out.

The total for that house would be about $1325. So you're really only "saving" $6,000 a year owning.

But what if you kept that $330,000 in the bank? Even if you spent an extra $6000/year, it would take you 55 years to go through the difference between owning a paid off house and renting.

Of course, you could always take out a mortgage assuming you have the downpayment and qualify, but I'm not sure I would do that in retirement.

All of that being said, I still go back and forth between owning and renting in retirement.
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Old 04-14-2021, 09:17 AM
 
Location: The Woods
17,880 posts, read 24,264,324 times
Reputation: 10635
The financial side of things is different in different situations. For instance, I built/am building (adding a bit more on this summer) my own house on 10 acres of mostly woods. I'm off grid so there's no water/sewer/light bill. Although there is periodic maintenance on the septic, spring, and solar array with generator backup, which can mostly be planned for well in advance and isn't that bad in costs. I heat with primarily wood and get the wood from my own woodlot for the price of a few gallons of gas for the chainsaw. My only monthly payment is on the debt I owe on the land, around $200 a month. That should be paid off within the next 2 years. Taxes are still well under $1000 a year for now. If my income is disrupted, as it was last year to some degree, I can live for a long time at my house without outside income coming in. And as I've always wanted orchards and large gardens, I've been building those up to. So that plus the maple sugaring I do in the spring will bring some income in itself and offset food expenses. I also don't think you can even put a dollar value on the fact that I don't live in wall to wall people, I don't need to listen to or smell people I don't want around me. I've never been able to really feel relaxed and at home in an apartment.

My parents thought renting in their retirement was a good idea. In actuality rent increases have far outpaced income increases via investments. Normalcy bias in financial planning is dangerous.
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Old 04-14-2021, 09:39 AM
 
3,895 posts, read 5,772,984 times
Reputation: 6186
I've also come to the realization that I don't like owning a home after 20+ years of owning. I paid off my first home several years ago, saved more money, then bought a slightly larger house with cash where I now live. I have never enjoyed yardwork/gardening, have never had an interest in customizing my living space, and don't feel like this house is really mine, since I always feel like I'm taking care of it for the next "owner". I think I would have more peace of mind if I could rent somewhere, but that also has a lot of downsides which I was escaping from when I first bought a house.

Probably the happiest living situation I had was living in a college dorm room. I guess I never grew up. I feel no attachment to the contents of my house either, and could be happy just chucking everything and renting a furnished apartment.
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Old 04-14-2021, 01:04 PM
 
12,450 posts, read 6,802,788 times
Reputation: 20126
Personally, I can't seem to find a small enough place to suit me. I would honestly be happy in just a single room with a small efficiency kitchenette and bath; perhaps a studio apartment (and there are "condotels," motels/hotels made into condos), but finding the equivalent in a SFH isn't easy. "Tiny houses" aren't actually legal in most municipalities (it's usually a minimum of 1500 sf for new construction or placement, and it can't be mobile). I toy with the idea of living full-time in an RV or renting a room in different cities, but would want to pay only for the space I'm occupying. For those who don't need or want an entire ginormous house full of stuff, there should be appropriately cheap alternatives.

Last edited by otterhere; 04-14-2021 at 01:26 PM..
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Old 04-14-2021, 03:01 PM
 
8,229 posts, read 6,005,614 times
Reputation: 11375
Quote:
Originally Posted by aries63 View Post
I've also come to the realization that I don't like owning a home after 20+ years of owning. I paid off my first home several years ago, saved more money, then bought a slightly larger house with cash where I now live. I have never enjoyed yardwork/gardening, have never had an interest in customizing my living space, and don't feel like this house is really mine, since I always feel like I'm taking care of it for the next "owner". I think I would have more peace of mind if I could rent somewhere, but that also has a lot of downsides which I was escaping from when I first bought a house.

Probably the happiest living situation I had was living in a college dorm room. I guess I never grew up. I feel no attachment to the contents of my house either, and could be happy just chucking everything and renting a furnished apartment.
But you are not getting into non tangible things, which the benefit of even one, can far outweigh any financial benefit.

The discussion has been really centered on financial only, excluding anything else. Even something as simple as "I want to own five dogs", already puts such a person in the owning category, since it would be next to impossible to rent a home with five dogs, especially a specific type home in a specific area.

As for me, I love tinkering with things and customizing things, so renting would be completely out for me even if it was free. 99% of everything I have done has been voluntary improvements to my house, the only needed thing was an HVAC replacement, but the system was over 16 years old when it was done, and living in Miami, AC runs year around basically.
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Old 04-14-2021, 03:05 PM
 
8,229 posts, read 6,005,614 times
Reputation: 11375
Quote:
Originally Posted by bande1102 View Post
I think to get an accurate picture, you need to compare the carrying costs of owning compared to renting.

I picked a test state and ran the $330,000 house test. Assuming no mortgage, you would still pay about $500/month for property taxes and insurance......and that is underestimating. I went to a realtor site and I feel that is too low, but let's go with it. And they always go up.

Houses always need work done and over the 15 years that you own that house, it will absolutely need maintenance and repairs as it ages. Assuming 3% of fair market value, you get $9900/year or $825/month. In my own experience of owning for over 25 years, that figure is about right. Some years more, some less, but it's about right. Also, as you age, you'll probably be hiring more jobs out.

The total for that house would be about $1325. So you're really only "saving" $6,000 a year owning.

But what if you kept that $330,000 in the bank? Even if you spent an extra $6000/year, it would take you 55 years to go through the difference between owning a paid off house and renting.

Of course, you could always take out a mortgage assuming you have the downpayment and qualify, but I'm not sure I would do that in retirement.

All of that being said, I still go back and forth between owning and renting in retirement.
There is no way repairs are 3% of market value, market value has zero to do with repair costs. My repair costs did not double in ten years all because my home value did, lol.

I have never spent remotely close to what your figures show, and that is for the two homes I own.

Houses do not need repairs "all the time", I will never understand where people get this from.
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Old 04-14-2021, 03:21 PM
 
91,720 posts, read 89,036,150 times
Reputation: 66296
Quote:
Originally Posted by k350 View Post
There is no way repairs are 3% of market value, market value has zero to do with repair costs. My repair costs did not double in ten years all because my home value did, lol.

I have never spent remotely close to what your figures show, and that is for the two homes I own.

Houses do not need repairs "all the time", I will never understand where people get this from.
Must be the same myth pile that landlords can charge whatever they want and just pass all repair costs on to tenants
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