Author Topic: How a 30-something couple got rich retired by not joining home ownership 'cult'  (Read 14471 times)

kfire20

  • 5 O'Clock Shadow
  • *
  • Posts: 51
  • Location: Canada
http://www.cbc.ca/news/business/house-investment-wealth-1.3716641

Unlike owning a million-dollar home, says Leung, "if you have a million-dollar portfolio, it pays you."

« Last Edit: August 15, 2016, 05:27:55 AM by k20 »

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1612
The comments are a hoot. Mike Smith rocks the stash.

fattest_foot

  • Pencil Stache
  • ****
  • Posts: 856
I wish the article didn't start with them having $500k saved up already, as I wanted the story of how they got there (and their website is blocked at work).

Sounds like they've got it figured out though. I'm jealous that I didn't use my 20's as efficiently as they did.

sirdoug007

  • Pencil Stache
  • ****
  • Posts: 585
  • Age: 43
  • Location: Houston, TX
I wish the article didn't start with them having $500k saved up already, as I wanted the story of how they got there (and their website is blocked at work).

Sounds like they've got it figured out though. I'm jealous that I didn't use my 20's as efficiently as they did.

Their story is very similar to MMM.  Two computer engineers making very good money and saving $70-130k/year living in a cheap apartment with no cars.

They retired with $1 million and spent last year travelling all over the world.

johndoe

  • Stubble
  • **
  • Posts: 195
Impressive, and a good read.  Thanks for the link.  Here is the detailed post on accumulation: http://www.millennial-revolution.com/invest/the-breakdown-part-1-god-we-were-spendy-back-then/

They spend more on food (even after ratcheting down) than I spend on mortgage, yet home ownership is a "cult".

Tanor85

  • 5 O'Clock Shadow
  • *
  • Posts: 57
  • Age: 38
  • Location: Ottawa, Ontario
The comments are brutal.
House lust is a very real thing. I agree with the blog owner's belief that for millenials, buying an expensive house is financial suicide.

Seadog

  • Bristles
  • ***
  • Posts: 268
  • Age: 40
  • Location: Halifax, NS
I get a hoot out of the comments. Moreso because their situation mimics mine a fair bit. I do take issue with the sensationalist headline though. Personally I think housing in many parts of Canada is grossly overvalued, but the elephant in the room CBC is missing, is that their wealth didn't result from choosing to rent over buy, but rather from having two 6 figure salaries and saving 75% of their income.

With the benefit of hindsight, it's possible their situation would have been even better had they bought and sold a place, however they would likely be in the same ballpark.

Why do these sorts of stories attract such vitriol? Jealousy? Because it comes off as a bit of a humble-brag? Lack of truly applicable advice? ("Just make $150k each per year with no kids and you too can be here") No matter how you slice it, these people are doing well, but had to sacrifice to get there. People literally casting them off because they have 7 figures, experience, solid degrees, oh but a 2 year resume gap? "LOSER! YOU'LL NEVER BE ABLE TO WORK AGAIN AND ARE GOING TO RUN OUT OF MONEY!"

They spend more on food (even after ratcheting down) than I spend on mortgage, yet home ownership is a "cult".

Not sure where you're located, but when people are paying over 100% of their gross income on mortgages, buying multi-million dollar tear downs on postage stamp sized lots, and justifying it all on the belief that houses will continue to appreciate 30%+/yr forever, it does appear to be a cultish suspension of reason. Enabled by friends, family, and the other 70% of Canadians who think housing is great, investment fundamentals such as price/rent, price/salary, and current negative cash flow on rentals aren't even considered because UP UP UP! If you pay less than $750/mth on mortgage great, but the "average" house in Toronto with an "average" 80% 25 year mortgage would be closer to 5k/mth.

Stasher

  • Handlebar Stache
  • *****
  • Posts: 1912
  • Age: 50
  • Location: VanIsle
  • Power through Positivity
    • Mindful Explorer
Society will never clue in and we must just stick to what we know is possible.
Fear and Ignorance reigns supreme in the comments and much like Facebook I always avoid the comments to save myself from the negative spewing words that are inevitable.

Good on them and the rebuttal from the UBC prof isn't on point, once again he doesn't understand their message just like the commenters.

Stasher

  • Handlebar Stache
  • *****
  • Posts: 1912
  • Age: 50
  • Location: VanIsle
  • Power through Positivity
    • Mindful Explorer
Yet the internet police are in full force in the comments ....
Don't ever save
Don't ever work hard
Don't ever earn a good salary based on your hard work
Don't ever be frugal
Don't ever say you wont buy a house

Man the negativity in the world makes me sad.

dougules

  • Magnum Stache
  • ******
  • Posts: 2899
It generally seems like people always get fancier when they buy than when they rent.  It's an investment, right?  We need 4000 sq ft and granite counter tops for resale value.  Maybe we'll have kids in a few years, so we need a good school district.  We don't want to throw money down the rent toilet, but mortgage interest is no big deal.  People can't seem to get that extra house is an expense and not an investment. 

obstinate

  • Handlebar Stache
  • *****
  • Posts: 1147
dougules: guilty as charged. But we're planning to sell the 'ole ball and chain (my house, not my wife) and move into an apartment that is appropriately sized to our real needs.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Jim Collins wrote about them also: http://jlcollinsnh.com/2016/08/16/what-the-naysayers-are-missing/

I'm somewhat skeptical of them as well--not of their financial story.  That can be done, obviously, and is no big deal.

I'm a bit skeptical of their motivation for their blog, for the "millennial revolution" they push, etc.  I don't think I care for what they have to sell.

But I do believe what they write about their finances.  I have no reason to doubt them or call them liars, like many of the critics, who have no foundation for their criticism. I'm just skeptical of them personally.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 50
  • Location: Houston
    • EscapeVelocity2020
Jim Collins wrote about them also: http://jlcollinsnh.com/2016/08/16/what-the-naysayers-are-missing/

I'm somewhat skeptical of them as well--not of their financial story.  That can be done, obviously, and is no big deal.

I'm a bit skeptical of their motivation for their blog, for the "millennial revolution" they push, etc.  I don't think I care for what they have to sell.

But I do believe what they write about their finances.  I have no reason to doubt them or call them liars, like many of the critics, who have no foundation for their criticism. I'm just skeptical of them personally.  :)

Ooh, you're like a jr. EV :). I was skeptical of the affiliate links and always positive reviews of stuff like Prosper and Betterment here, but it worked out OK.  At the end of the day, a blog is a source of revenue for the 'FI' owner.  A Mustachian reader enjoys the content with a detached, independent perspective (and ad block).

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Ooh, you're like a jr. EV :). I was skeptical of the affiliate links and always positive reviews of stuff like Prosper and Betterment here, but it worked out OK.  At the end of the day, a blog is a source of revenue for the 'FI' owner.  A Mustachian reader enjoys the content with a detached, independent perspective (and ad block).

Yeah, I'm on record as being quite against Betterment and LendingClub, despite Pete's recommendation of them.

I don't think Pete's overall motives for Mustachianism are profit though, even if his motives on those parts are.  I'm not skeptical of him at all, as a person.  Or Jim Collins (even if he has some motives around, say, linking to the recent books he's read through Amazon affiliate links, or selling his book--heck, this one I fully endorse, and recommend it to as many people as I can), or Brandon (MadFIentist) or Jeremy (GoCurryCracker--loved that he specifically refused to endorse Betterment, for example, and wrote an article on why) or many others. If one's motivation is money, I like when they're up front about it (this seems to be a primary driver for Justin @ Root of Good, for example, but he doesn't hide it--he publishes his blog income, for example, and I really respect that).

I do have reservations about some though (Afford Anything, 1500 Days, Frugalwoods, etc.)

Everyone will develop their own BS/skeptical meter, and some may enjoy some bloggers I don't, and vice-versa.

Reading this couple's blog gave me that feeling, and I didn't add it to my RSS feeds.

:)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

dougules

  • Magnum Stache
  • ******
  • Posts: 2899
This is a complete tangent, really, but I noticed that they are into the Chautauqua down in Ecuador.  A bit back I took a look at it since we are probably going to take a trip anyway to scout out Ecuador as a potential post-FIRE destination.  Then I see it's $3600 for a couple.  Wow.  If Ecuador is anything like rest of Latin America we could travel pretty well for a month on that, two with some budgeting.  I'm sure the hacienda is really nice, but why is it so expensive?  It's a bit ironic for a conference on frugality to cost $3600, especially in a country where that's a year's income for a lot people.

StockBeard

  • Pencil Stache
  • ****
  • Posts: 649
  • Age: 42
the elephant in the room CBC is missing, is that their wealth didn't result from choosing to rent over buy, but rather from having two 6 figure salaries and saving 75% of their income.
Well, no, the point is that they avoided having to make a down payment and instead invested that money.

I sold my condo when I moved from Japan to the US, and now we're renting. As part of the sale I got a lot of my money back (although a huge chunk was used to pay-back the loan in full, obviously). That money was invested and has done  very well for me over the past 2 years. I don't own a house but my portfolio thanks me. Depending on where you live, owning a home is also one of those things you should do "later", and instead choose to grow your money first.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
the elephant in the room CBC is missing, is that their wealth didn't result from choosing to rent over buy, but rather from having two 6 figure salaries and saving 75% of their income.
Well, no, the point is that they avoided having to make a down payment and instead invested that money.

I agree with Seadog.

Had they done the downpayment, then continued plowing all their money into investments for 4-5 years or whatever it was, then sold, they likely would have done just as well (possibly a bit better, possibly a bit worse--there are transaction costs, but 5 years is generally the breakeven point on that, and it depends on the appreciation in their area..).  Plenty of people (even on these forums) hit FI through selling their primary residence.

Large income + saving 75% = FI quickly.  Whether you buy a house at the beginning and sell it, or you rent, they're both gonna get you there fast.  The key is the high savings rate.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

StockBeard

  • Pencil Stache
  • ****
  • Posts: 649
  • Age: 42
I agree with Seadog.

Had they done the downpayment, then continued plowing all their money into investments for 4-5 years or whatever it was, then sold, they likely would have done just as well (possibly a bit better, possibly a bit worse--there are transaction costs, but 5 years is generally the breakeven point on that, and it depends on the appreciation in their area..). 
I guess having lived for 10 years in a country (Japan) where houses are a liability, not an asset, has made me extremely biased on this topic.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Yeah, location plays a big deal, but let me put it another way as to why I think the savings rate is more important than the homeownership.

Person A: Puts 20% down (let's say...200k on a 1MM place?).  Continues to plow 75% of their income into investments.  Eventually FIREs, 5-7 years later, selling the house.

Person B: Decides to rent, thinking homeownership is a trap after reading this article.  Spends everything they make.  Maybe saves the token 5-10% society tells them they should.  Can never retire, or maybe in their late 60s at best.

Obviously this isn't apples to apples, but we're not comparing someone saving 75% and buying to someone saving 75% and renting.. we're--in this example--comparing someone saving 75% versus the average person who doesn't save,

It's the saving part that matters, basically.  Whether you buy a home at the beginning, or not, is much, MUCH less relevant.  Sometimes it will set you a bit behind.  Sometimes a bit ahead.  Unless prices collapse, or shoot up, it shouldn't make much of a difference, but be mostly a wash.  But that saving 75%?  That'll make a huge difference.

So the click-baity title can be all like "oh look how they got rich not buying a home" but really it's "look how they got rich saving 75% of their income."  That's the real workhorse here.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

StockBeard

  • Pencil Stache
  • ****
  • Posts: 649
  • Age: 42
OK, yes, that's a fair point

Seadog

  • Bristles
  • ***
  • Posts: 268
  • Age: 40
  • Location: Halifax, NS
I guess having lived for 10 years in a country (Japan) where houses are a liability, not an asset, has made me extremely biased on this topic.

A slight aside, because I read the same thing in rich dad poor dad, but still can't understand how a house can be considered a liability. Completely ignores returns in the form of utility. You can live in it rent free, and it provides value by protecting you from the cold. To someone on the street, I would think a house seems like an asset. I just can't fathom how it's a liability like cancer or a one million dollar debt that you would happily be rid of for free if you could.

Similarly if you are in a place where buying makes more sense than renting, what's his proposal? Set up a corp, have the corp buy a house, charge more than the mortgage while your corp rents it to yourself? So basically a lot of paper work and expense, and tax the corp has to pay, for essentially nothing different?

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
I guess having lived for 10 years in a country (Japan) where houses are a liability, not an asset, has made me extremely biased on this topic.

A slight aside, because I read the same thing in rich dad poor dad, but still can't understand how a house can be considered a liability. Completely ignores returns in the form of utility. You can live in it rent free, and it provides value by protecting you from the cold. To someone on the street, I would think a house seems like an asset. I just can't fathom how it's a liability like cancer or a one million dollar debt that you would happily be rid of for free if you could.

Similarly if you are in a place where buying makes more sense than renting, what's his proposal? Set up a corp, have the corp buy a house, charge more than the mortgage while your corp rents it to yourself? So basically a lot of paper work and expense, and tax the corp has to pay, for essentially nothing different?

Here's how to understand:
Kiyosaki is not using the same definition that is common for "asset" or "liability."

He's making up his own, new definitions.

His definition of an asset==puts cash flow in your pocket (you get cashflow from it).
His definition of a liability==takes cash flow out of your pocket (you have to pay out).

Until you understand that he has a BRAND NEW definition for those common terms, it doesn't make sense.  After that, it makes more sense--a house may be a necessary liability (under his definition) to own, as you need to live there, but it's still something that takes cash out of your pocket (when you pay the mortgage, or property taxes, or whatever), so something he calls a liability (and something the rest of us, under the common definition, call an asset, as it's something you own of value).
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

dougules

  • Magnum Stache
  • ******
  • Posts: 2899
I guess having lived for 10 years in a country (Japan) where houses are a liability, not an asset, has made me extremely biased on this topic.

A slight aside, because I read the same thing in rich dad poor dad, but still can't understand how a house can be considered a liability. Completely ignores returns in the form of utility. You can live in it rent free, and it provides value by protecting you from the cold. To someone on the street, I would think a house seems like an asset. I just can't fathom how it's a liability like cancer or a one million dollar debt that you would happily be rid of for free if you could.

Similarly if you are in a place where buying makes more sense than renting, what's his proposal? Set up a corp, have the corp buy a house, charge more than the mortgage while your corp rents it to yourself? So basically a lot of paper work and expense, and tax the corp has to pay, for essentially nothing different?

Here's how to understand:
Kiyosaki is not using the same definition that is common for "asset" or "liability."

He's making up his own, new definitions.

His definition of an asset==puts cash flow in your pocket (you get cashflow from it).
His definition of a liability==takes cash flow out of your pocket (you have to pay out).

Until you understand that he has a BRAND NEW definition for those common terms, it doesn't make sense.  After that, it makes more sense--a house may be a necessary liability (under his definition) to own, as you need to live there, but it's still something that takes cash out of your pocket (when you pay the mortgage, or property taxes, or whatever), so something he calls a liability (and something the rest of us, under the common definition, call an asset, as it's something you own of value).

Also, there are opportunity costs to owning a house.  If you own your house outright  you're essentially paying rent in the form of lost returns on your money.   If you sell your house, live in a tent, and invest the money, it would make a return.  The only return you get on your equity is having a place to live. 

The other issue is that buying and selling a house is expensive.  If you're not going to stay there very long it's generally just cheaper to rent because of those costs. 

Buying a house is a good deal a lot of times, but you've got to run the real numbers.  You also should be conscious of the tendency to buy a place fancier than you would rent.  People don't generally think about all this when they call up the realtor. 
« Last Edit: August 26, 2016, 08:42:55 AM by dougules »

Mississippi Mudstache

  • Handlebar Stache
  • *****
  • Posts: 2170
  • Age: 40
  • Location: Danielsville, GA
    • A Riving Home - Ramblings of a Recusant Woodworker
You also should be conscious of the tendency to buy a place fancier than you would rent.

Truth. My wife and I have been renting for the last two years after owning for the previous six years. We were much less demanding when looking for rentals than we would have been if we were buying a house. And there's no constant urge to upgrade appliances, fixtures, etc.

EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 50
  • Location: Houston
    • EscapeVelocity2020
Ooh, you're like a jr. EV :). I was skeptical of the affiliate links and always positive reviews of stuff like Prosper and Betterment here, but it worked out OK.  At the end of the day, a blog is a source of revenue for the 'FI' owner.  A Mustachian reader enjoys the content with a detached, independent perspective (and ad block).

Yeah, I'm on record as being quite against Betterment and LendingClub, despite Pete's recommendation of them.

I don't think Pete's overall motives for Mustachianism are profit though, even if his motives on those parts are.  I'm not skeptical of him at all, as a person.  Or Jim Collins (even if he has some motives around, say, linking to the recent books he's read through Amazon affiliate links, or selling his book--heck, this one I fully endorse, and recommend it to as many people as I can), or Brandon (MadFIentist) or Jeremy (GoCurryCracker--loved that he specifically refused to endorse Betterment, for example, and wrote an article on why) or many others. If one's motivation is money, I like when they're up front about it (this seems to be a primary driver for Justin @ Root of Good, for example, but he doesn't hide it--he publishes his blog income, for example, and I really respect that).

I do have reservations about some though (Afford Anything, 1500 Days, Frugalwoods, etc.)

Everyone will develop their own BS/skeptical meter, and some may enjoy some bloggers I don't, and vice-versa.

Reading this couple's blog gave me that feeling, and I didn't add it to my RSS feeds.

:)

I dunno, I'm back to being skeptical on Pete after his latest post.  A separate studio for his blogging and her Etsy?  Being a roadie with his brother?  Not that there's anything wrong with either thing if you are a money-making machine and want to fade out of the spotlight to indulge, but certainly not in line with his stated goals of efficiency and badassity.  Like why not just put an office in the main house structure when he gutted it and, well, ramp up family time or many things other than indulge in a bachelor road trip, but whatever.  At least he's not lauding more financial crap (with the attendant profitable affiliate links). 

I guess my BS meter means I shouldn't read blogs, but I ultimately like the new ideas on balance.  I just thought FIREcracker was at least transparent about what their message actually was supposed to mean.  They haven't made up words like badassity and made a whole post to re-purpose the word retirement. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Efficiency and badassity doesn't mean you can't enjoy yourself with quality family time (road trip with brother) or have nice things (shed...which he DIY'd).

Is zero indulgence the only acceptable level to you?

Different perspectives, I guess. :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 50
  • Location: Houston
    • EscapeVelocity2020
I'm all about indulgence personally, as long as it's LBYM, but I was commenting about MMM.  I thought the bedrock of Mustachianism was stoicism and bike riding.  But whatevs.  I kinda wish he'd let his inner Elon Musk go and spend some of that pent up capital to really go for it!

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
I'm all about indulgence personally, as long as it's LBYM, but I was commenting about MMM.  I thought the bedrock of Mustachianism was stoicism and bike riding.

And I'm sure he still does plenty of both. Are you saying a Mustachian should never do anything else?

Quote
But whatevs.  I kinda wish he'd let his inner Elon Musk go and spend some of that pent up capital to really go for it!

I'm confused. Are you arguing he indulges too much, or not enough? :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

pancakes

  • Handlebar Stache
  • *****
  • Posts: 1338
As I understand it, second hand houses have next to no resale value in Japan with the value being almost entirely in the land. So much so that an exisiting dwelling being on the property can reduce the value due to the cost of demolishing it. Depending on the cost of the structure and how long you intend to stay in it, it seems to me there is a real possibility that people spend can easily a lot more in Japan living in their own homes than they would on rent over the same period.

Truthfully my understanding of Japan's housing is very limited so please correct me if I am completely wrong.

EscapeVelocity2020

  • Magnum Stache
  • ******
  • Posts: 4815
  • Age: 50
  • Location: Houston
    • EscapeVelocity2020
I'm all about indulgence personally, as long as it's LBYM, but I was commenting about MMM.  I thought the bedrock of Mustachianism was stoicism and bike riding.

And I'm sure he still does plenty of both. Are you saying a Mustachian should never do anything else?

Quote
But whatevs.  I kinda wish he'd let his inner Elon Musk go and spend some of that pent up capital to really go for it!

I'm confused. Are you arguing he indulges too much, or not enough? :)

I'm saying that he is not staying true to his original Mustachian blogging values.  Himself personally can do as he pleases, but this drift into building a studio and going on roadtrips isn't in line with minimal footprint and efficicency.  Personally, I was hoping he would eventually take the blog in an environmental direction with solar panel discussions, maybe a whole house battery test, experiments with living off the grid, etc.  Or maybe he has some grand entrepreneurial idea (like the Mustachian collective he floated at one point), hence the Elon Musk comment.  I'm hoping for more world saving at some point, I really thought he was doing good, difficult things in that environmental arena which sorely needs all the help it can get. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Ah. Thank you for explaining. Yes, I hope to see a lot more of that as well.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

ysette9

  • Walrus Stache
  • *******
  • Posts: 8930
  • Age: 2020
  • Location: Bay Area at heart living in the PNW
Quote
As I understand it, second hand houses have next to no resale value in Japan with the value being almost entirely in the land. So much so that an exisiting dwelling being on the property can reduce the value due to the cost of demolishing it. Depending on the cost of the structure and how long you intend to stay in it, it seems to me there is a real possibility that people spend can easily a lot more in Japan living in their own homes than they would on rent over the same period.

I am by no means an expert on Japanese real estate either, but your comment did remind me of an interesting thing I heard on Freakonomics a while back about how houses in Japan are basically expensive, depreciating assets like a car. For whatever cultural or historical reasons, people there seem to think that houses only have a life of 20-30 years and act accordingly. That means not building them to last, not spending energy on maintenance, etc. Obviously this is a massive drain on the economy and wealth building if the most expensive purchase one makes ends up being worth nothing after you have paid it off. I have no idea how this impacts the rental market though.

http://freakonomics.com/2014/02/26/why-are-japanese-homes-disposable-full-transcript/

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA


Obviously this is a massive drain on the economy and wealth building if the most expensive purchase one makes ends up being worth nothing after you have paid it off.

Doesn't it create more jobs, encourage consumption (by now basically "consuming" a house), etc.?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

redbird

  • Pencil Stache
  • ****
  • Posts: 546
Quote
As I understand it, second hand houses have next to no resale value in Japan with the value being almost entirely in the land. So much so that an exisiting dwelling being on the property can reduce the value due to the cost of demolishing it. Depending on the cost of the structure and how long you intend to stay in it, it seems to me there is a real possibility that people spend can easily a lot more in Japan living in their own homes than they would on rent over the same period.

I am by no means an expert on Japanese real estate either, but your comment did remind me of an interesting thing I heard on Freakonomics a while back about how houses in Japan are basically expensive, depreciating assets like a car. For whatever cultural or historical reasons, people there seem to think that houses only have a life of 20-30 years and act accordingly. That means not building them to last, not spending energy on maintenance, etc. Obviously this is a massive drain on the economy and wealth building if the most expensive purchase one makes ends up being worth nothing after you have paid it off. I have no idea how this impacts the rental market though.

http://freakonomics.com/2014/02/26/why-are-japanese-homes-disposable-full-transcript/

Most people in Japan, or at least in Tokyo (where I lived), rented as a result of the expenses. And really, it's not that the house itself that's expensive. Yes, that's the depreciating part because of everything you said. But the land itself is really expensive. Even if the house is worth little to nothing, buying in Japan is still stupidly expensive because of land costs. Remember that Japan is about the same land mass as the state of California, but less land is usable than even California because of the mountains.

Anyway, I read some of Millennial Revolution's blog the other day. She seems extremely anti-house ownership, to the point where it's like she can't see any reason to own a house at all. There absolutely are good reasons for it, depending on your life situation and where you live. Not all areas are HCOL, paying through the nose for a tiny horror show of a place - all types of which she quotes as examples of why she decided never to buy.

Brokenreign

  • Stubble
  • **
  • Posts: 120
  • Age: 39
  • Location: Alberta


Obviously this is a massive drain on the economy and wealth building if the most expensive purchase one makes ends up being worth nothing after you have paid it off.

Doesn't it create more jobs, encourage consumption (by now basically "consuming" a house), etc.?

I listened to this podcast as well. The premise is that the cycle of home demolition/rebuilding isn't productive in an economic sense as they're replacing something with the same utility. Similar to how an oil spill can technically be an temporary/regional economic boon, but is a net negative in the end as the capital spent on the spill could have been used for something economically productive such as a factory.

Yokan

  • 5 O'Clock Shadow
  • *
  • Posts: 52
  • Age: 36
  • Location: Houston Tx
I think in many countries and even some places in the US houses don't appreciate. Just check out the small towns in between major metropolitan service areas and you'll see alot of dilapidated houses. The structures themselves have a useful life. Tax depreciation exists because of this reality. When you see appreciation in your home you can be certain that it's the land appreciating faster than your structure is depreciating. Avoiding the whole home ownership stage of life can be a good move if you're the nomadic type. It's not obligatory nor is it a smart financial move.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Obviously this is a massive drain on the economy and wealth building if the most expensive purchase one makes ends up being worth nothing after you have paid it off.

Doesn't it create more jobs, encourage consumption (by now basically "consuming" a house), etc.?

I listened to this podcast as well. The premise is that the cycle of home demolition/rebuilding isn't productive in an economic sense as they're replacing something with the same utility. Similar to how an oil spill can technically be an temporary/regional economic boon, but is a net negative in the end as the capital spent on the spill could have been used for something economically productive such as a factory.

But isn't that something like 99% of all consumption?  Rebuilding roads.  Clothing (presumably selling to people who already own clothes, even ones that are now worn out, not people who are totally naked).  Makeup.  Basically almost every consumer good.

If housing becomes "disposable" as described, sure, it doesn't contribute to wealth building in the same way, but it then adds to the economy in other ways (creating jobs building new houses to replace the torn down, worthless ones).  It's not the same, obviously, but clearly not worthless--as with all the other consumer spending.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Brokenreign

  • Stubble
  • **
  • Posts: 120
  • Age: 39
  • Location: Alberta
Obviously this is a massive drain on the economy and wealth building if the most expensive purchase one makes ends up being worth nothing after you have paid it off.

Doesn't it create more jobs, encourage consumption (by now basically "consuming" a house), etc.?

I listened to this podcast as well. The premise is that the cycle of home demolition/rebuilding isn't productive in an economic sense as they're replacing something with the same utility. Similar to how an oil spill can technically be an temporary/regional economic boon, but is a net negative in the end as the capital spent on the spill could have been used for something economically productive such as a factory.

But isn't that something like 99% of all consumption?  Rebuilding roads.  Clothing (presumably selling to people who already own clothes, even ones that are now worn out, not people who are totally naked).  Makeup.  Basically almost every consumer good.

If housing becomes "disposable" as described, sure, it doesn't contribute to wealth building in the same way, but it then adds to the economy in other ways (creating jobs building new houses to replace the torn down, worthless ones).  It's not the same, obviously, but clearly not worthless--as with all the other consumer spending.

True. I wasn't arguing the point so much as stating the premise of the speaker on the podcast. I'm of the opinion that the current buy-use-throw away growth economy is essentially the same as a bunch of tiny oil spills in an economic sense. It contributes to jobs and growth through environmental degradation while adding questionable utility. The house situation in Japan certainly falls into the same category.

I don't think roads fall into the same category as they tend to be truly "used up" before being replaced. Although you tend to have much better roads in the US so perhaps that's not the case down there.

Apologies for the tangent.

I'm curious to see what will happen with housing in Canada. It seems like prices (outside of Toronto anyway, where I believe there's a substantial supply shortage) are currently being sustained by low interest rates and the collective will of the owners. I recently read an article about the number of "millionaires" that have been created through home equity while having very little in the way of liquid assets. It seems like a house of cards.

uwp

  • 5 O'Clock Shadow
  • *
  • Posts: 84
I don't understand this headline.

They would pretty clearly have been better off if they had bought a house?  Did I miss something?

They had over 300k sitting in cash in 2010, but couldn't pull the trigger on buying. 
Sat out 2011 too. 
Finally invested in 2012 where they earned 3.4%
Made 8.4% in investments in 2013.
And 8.1% in 2014.  And retired in 2015.

While if they had bought a home in Toronto in 2010, they probably would have had 30-50% gains (Maybe more? + leverage) if they sold when they FIREd in 2015.

I don't knock their method, but I don't think they retired rich because they didn't buy a home.  It was because they saved a lot.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
I don't knock their method, but I don't think they retired rich because they didn't buy a home.  It was because they saved a lot.

100% correct.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

ender

  • Walrus Stache
  • *******
  • Posts: 7402
I don't knock their method, but I don't think they retired rich because they didn't buy a home.  It was because they saved a lot.

100% correct.  :)

Though, for a lot of people, buying a house restricts their ability to save when they buy too much house. And when you are renting you have better mobility than as a homeowner, so maybe that's what they are getting at.

Er.... probably not :P

zolotiyeruki

  • Walrus Stache
  • *******
  • Posts: 5603
  • Location: State: Denial

I listened to this podcast as well. The premise is that the cycle of home demolition/rebuilding isn't productive in an economic sense as they're replacing something with the same utility. Similar to how an oil spill can technically be an temporary/regional economic boon, but is a net negative in the end as the capital spent on the spill could have been used for something economically productive such as a factory.

But isn't that something like 99% of all consumption?  Rebuilding roads.  Clothing (presumably selling to people who already own clothes, even ones that are now worn out, not people who are totally naked).  Makeup.  Basically almost every consumer good.

If housing becomes "disposable" as described, sure, it doesn't contribute to wealth building in the same way, but it then adds to the economy in other ways (creating jobs building new houses to replace the torn down, worthless ones).  It's not the same, obviously, but clearly not worthless--as with all the other consumer spending.
You're correct that "using up" a house in that market makes it similar to other consumables.  In terms of "adding to the economy," Brokenreighn is right.  If you catch yourself thinking "building it cheap so it wears out faster so more people have jobs building new ones," then you're falling into the broken window fallacy.  It becomes a drag on the economy--people have to spend more money on (re)building houses, when their money could be more efficiently/profitably/enjoyably spent on other things.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
Oh, I agree that it doesn't help build long term wealth, but I also wouldn't characterize it as a "massive drag" on an economy.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Brokenreign

  • Stubble
  • **
  • Posts: 120
  • Age: 39
  • Location: Alberta
Oh, I agree that it doesn't help build long term wealth, but I also wouldn't characterize it as a "massive drag" on an economy.

I'm not sure that it is a massive drag, but I could certainly see how it could be in a country like Japan. They have a stagnant economy with an aging population, no inflation and a declining domestic market due to population shrinkage (and other things I presume).

A shrinking number of consumers spending capital on non-productive assets with no incremental utility can't be great for economic growth. The fact that the houses are so expensive would also mean that a significant percentage of that declining capital would be concentrated in one sector, similar to if they collectively decided to be into golden sneakers.

Might just be my anti-house bias coming through though. They've always struck me as a silly 'asset.' I'll take a van and a river any day!

astvilla

  • Stubble
  • **
  • Posts: 236
I do worry why a lot of people neglect to mention "no kids" as another reason why they're FIRE.  Even if they are FI, you can't RE from raising children.  A lot of DINKs should be able to retire early and enjoy life.  That also needs to be considered.  There's nothing wrong about life choices.  But you can FIRE and still have a family but may not be able to travel or "enjoy" life as much.  And some people do have commitments to family.  And if you have a kid, you're more likely to buy a residence.   

It's doable, but not for everyone.  I firmly believe there still are people that no matter what, won't be able to FIRE.  Mostly everyone should be FI at some point but RE is different for everyone.

I do find the comments to be pretty negative and pathetic.  But I get that FIRE isn't possible for some people.  It's much easier said than done, to suddenly upend one's life and try to FIRE.  Not everyone can be a winner. 

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5278
  • FU @ 22. F.I.R.E before 23
I do worry why a lot of people neglect to mention "no kids" as another reason why they're FIRE.  Even if they are FI, you can't RE from raising children.  A lot of DINKs should be able to retire early and enjoy life.  That also needs to be considered.  There's nothing wrong about life choices.  But you can FIRE and still have a family but may not be able to travel or "enjoy" life as much.  And some people do have commitments to family.  And if you have a kid, you're more likely to buy a residence.   

It's doable, but not for everyone.  I firmly believe there still are people that no matter what, won't be able to FIRE.  Mostly everyone should be FI at some point but RE is different for everyone.

I do find the comments to be pretty negative and pathetic.  But I get that FIRE isn't possible for some people.  It's much easier said than done, to suddenly upend one's life and try to FIRE.  Not everyone can be a winner.

Not with that attitude, they can't.  "Whether you think you can or you think you can't; you're right."

Brokenreign

  • Stubble
  • **
  • Posts: 120
  • Age: 39
  • Location: Alberta
I do worry why a lot of people neglect to mention "no kids" as another reason why they're FIRE.  Even if they are FI, you can't RE from raising children.  A lot of DINKs should be able to retire early and enjoy life.  That also needs to be considered.  There's nothing wrong about life choices.  But you can FIRE and still have a family but may not be able to travel or "enjoy" life as much.  And some people do have commitments to family.  And if you have a kid, you're more likely to buy a residence.   

It's doable, but not for everyone.  I firmly believe there still are people that no matter what, won't be able to FIRE.  Mostly everyone should be FI at some point but RE is different for everyone.

I do find the comments to be pretty negative and pathetic.  But I get that FIRE isn't possible for some people.  It's much easier said than done, to suddenly upend one's life and try to FIRE.  Not everyone can be a winner.

I'm not sure the article would be printed if it attributed early retirement to no kids. That seems to be a bit of a taboo in mainstream media.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
I do worry why a lot of people neglect to mention "no kids" as another reason why they're FIRE.  Even if they are FI, you can't RE from raising children.  A lot of DINKs should be able to retire early and enjoy life.  That also needs to be considered.  There's nothing wrong about life choices.  But you can FIRE and still have a family but may not be able to travel or "enjoy" life as much.  And some people do have commitments to family.  And if you have a kid, you're more likely to buy a residence.   

It's doable, but not for everyone.  I firmly believe there still are people that no matter what, won't be able to FIRE.  Mostly everyone should be FI at some point but RE is different for everyone.

I do find the comments to be pretty negative and pathetic.  But I get that FIRE isn't possible for some people.  It's much easier said than done, to suddenly upend one's life and try to FIRE.  Not everyone can be a winner.

I'm not sure the article would be printed if it attributed early retirement to no kids. That seems to be a bit of a taboo in mainstream media.

It's also not true.  See, for example, RootofGood, who retired at 35, a millionaire with 3 kids, just from the tried and true high savings rate.

http://rootofgood.com/early-retirement-at-33-an-overview/
http://rootofgood.com/zero-to-millionaire-ten-years/

Certainly not having kids was a factor for this couple, but so was a million other things.  Focusing on one small factor that contributed, when it's not the limiting factor, is silly.  (So yes, the premise that no home ownership allowed them to hit FIRE is silly, when plenty of us hit FIRE while owning homes).

What these articles try to do is pick out one thing that is shocking and could ostensibly be a factor for ER, and overplay it.  Heck, read the title of this thread.

They don't want the boring truth, that the real reason this couple ER'd was a high savings rate.  Same reason I ER'd.  And RoG.  And MMM.

High savings rate.  That's the common factor.  Because some of us had kids.  Some didn't.  Some owned houses.  Some didn't.  But the high savings rate.  THAT'S the key.  That's the one thing we all shared in common.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Brokenreign

  • Stubble
  • **
  • Posts: 120
  • Age: 39
  • Location: Alberta
I do worry why a lot of people neglect to mention "no kids" as another reason why they're FIRE.  Even if they are FI, you can't RE from raising children.  A lot of DINKs should be able to retire early and enjoy life.  That also needs to be considered.  There's nothing wrong about life choices.  But you can FIRE and still have a family but may not be able to travel or "enjoy" life as much.  And some people do have commitments to family.  And if you have a kid, you're more likely to buy a residence.   

It's doable, but not for everyone.  I firmly believe there still are people that no matter what, won't be able to FIRE.  Mostly everyone should be FI at some point but RE is different for everyone.

I do find the comments to be pretty negative and pathetic.  But I get that FIRE isn't possible for some people.  It's much easier said than done, to suddenly upend one's life and try to FIRE.  Not everyone can be a winner.

I'm not sure the article would be printed if it attributed early retirement to no kids. That seems to be a bit of a taboo in mainstream media.

It's also not true.  See, for example, RootofGood, who retired at 35, a millionaire with 3 kids, just from the tried and true high savings rate.

http://rootofgood.com/early-retirement-at-33-an-overview/
http://rootofgood.com/zero-to-millionaire-ten-years/

Certainly not having kids was a factor for this couple, but so was a million other things.  Focusing on one small factor that contributed, when it's not the limiting factor, is silly.  (So yes, the premise that no home ownership allowed them to hit FIRE is silly, when plenty of us hit FIRE while owning homes).

What these articles try to do is pick out one thing that is shocking and could ostensibly be a factor for ER, and overplay it.  Heck, read the title of this thread.

They don't want the boring truth, that the real reason this couple ER'd was a high savings rate.  Same reason I ER'd.  And RoG.  And MMM.

High savings rate.  That's the common factor.  Because some of us had kids.  Some didn't.  Some owned houses.  Some didn't.  But the high savings rate.  THAT'S the key.  That's the one thing we all shared in common.

I didn't mean to say that "the" reason they could do it is because they don't have kids. Just that it is one of several reasons they could do it. Any reduction in expenses, including those associated with kids, obviously contributes to retiring early. It's part of the savings rate % just like anything else. If someone were to write an article about me (which would never happen, as I do not have a photogenic face and have an abrasive personality), it would truthfully state that I will retire at 33 (while my peers do not) because I don't have a house, car, kids, ferret, vacation home, speedboat etc. and because I alternate between the same two sweaters and pants every day.

You could obviously pick any one of those as "the" reason to generate clicks on the article. I just don't think that anyone would ever pick kids as "the" reason in that article. Or the sweater thing, as that would just generate pity.

It is remarkable how rageful people get in comments though. If they really want to generate some clickbait, they should post an article titled "I retired early because I voted for Hillary!"

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28444
  • Age: -997
  • Location: Seattle, WA
If someone were to write an article about me (which would never happen, as I do not have a photogenic face and have an abrasive personality), it would truthfully state that I will retire at 33 (while my peers do not) because I don't have a house, car, kids, ferret, vacation home, speedboat etc. and because I alternate between the same two sweaters and pants every day.

You could obviously pick any one of those as "the" reason to generate clicks on the article. I just don't think that anyone would ever pick kids as "the" reason in that article. Or the sweater thing, as that would just generate pity.

I agree.   They wouldn't pick kids. 

They want to pick something semi-edgy/clickbaity (e.g. not owning a home) rather than the real, but boring reason (high savings rate).
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

 

Wow, a phone plan for fifteen bucks!