Author Topic: I want to sell my house and invest in the VTI-Convince me not to  (Read 1771 times)

LanzWiler

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I want to sell my house and invest in the VTI-Convince me not to
« on: November 19, 2023, 09:23:54 AM »
TLDR- Is it really smart to bet that a single house can outperform the VTI over a 10-15 year period?
Okay-We have 100K or so in VTI, 250K in equity in our home. We want to retire as soon as possible, hate my job and want to spend more time with my kids while they are still young. We don't have the energy or the funds to maintain or improve our home, we want to put all that money in the VTI as well. We dont want to waste our weekends with home improvement projects or get hit with a major expense and have to take a year step backwards. We have run numbers and with inflation we will only ever come out even, best case, on this property because it is in a bad location and is old and outdated (will need $75-$100K over time), but was overpriced when we bought it. (2021-post election) Our master plan is sell the house, rent closer to parks and stores to save EVEN MORE MONEY and invest all profit + money we would have put into home repairs in the VTI, target retirement 10 years. I don't understand how a single house can outperform the VTI over a 10-15 year period but it seems like every time I suggest doing this on an online forum, the only guy that says anything is the guy that says 'keep your house and build equity'. WHERE MY RENTERS FOR LIFE AT???!! What if I said, "Im renting and have 300K in my VTI, should I buy a house right now?" Wouldn't the FIRE world say "Hell no, don't do that!" Read JL Collins -Why Your House is A Terrible Investment and Go Curry Cracker-Renters for Life and then lets have a conversation. What am I missing? If you don't read these blog posts and tell me I'm an idiot and I need to keep my house, you are the reason I have had to rewrite this post three times. Please sit down and let someone else talk.

daverobev

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #1 on: November 19, 2023, 12:19:05 PM »
There's a difference between a bad house and a good house though.

Sounds like you should sell the bad house.

A house can easily beat global stocks over periods. You need housing in some form, what form that takes is up to you. Renting also costs money.

Buy high, sell low to then buy something else high... seems like a recipe for disaster.

With renting, well let's be fair, it's local. Some places tenants have strong protections, others not so much. If you can find a better house with less maintenance, lower taxes, better insulated, etc... that makes sense.

Morning Glory

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #2 on: November 19, 2023, 12:24:04 PM »
You are forgetting about the imputed rent value of your house. If your house is worth 250k and you sell it and invest the proceeds , that only covers 10k/year in rent according to the 4% rule. That is not enough to rent a decent apartment in most areas, but if you can find one that suits your needs for less than that, then the math comes out on favor of renting.  If your house is too big for your needs it probably makes sense to sell and buy or rent something smaller though.
« Last Edit: November 19, 2023, 12:29:51 PM by Morning Glory »

Villanelle

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #3 on: November 19, 2023, 12:28:58 PM »
We need more info.  First, what is most important:  the financial bottom line (today, yers in the future?), stability, having a great house you love?  Are you okay with having to move again in a year, and then again in 3 years, and maybe needing to switch schools for your kids if you cant find a rental in their district?   

What is the balance and interest rate on your loan?  What did you pay and what is it realistically worth today?  How much would it cost to buy a different house that better meets your needs (that might be smaller, or more expensive because it is in a more central neighborhood, or whatever)?  How much to rent a similar home (which is presumably what you'd do)? 

sonofsven

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #4 on: November 19, 2023, 12:57:39 PM »
I don't see why you wouldn't sell then, if you don't like where you live. The sooner you can invest the $250k the faster it will grow, due to the magic of compounding interest. Unless the market crashes, which is unknowable. The housing market could crash as well.

For example, if you invest $250k now and assume 8% growth, the $250k will be worth $593,731 in ten years.

If instead, you invested $25k a year for ten years, assuming 8% growth, your account would be worth $416,137 after ten years.

Some real estate can grow much faster, but not all does. And in order to realize those gains you need to sell your house. or leverage that equity by taking out loans to buy rental property. Of course, you could use borrowed money to invest in VTI, but I don't think that's wise except in very limited cases.

In the end, though, you need to live somewhere. Have you identified a rental that is more appealing to you?

When I was starting out, I bought and lived in fixers, because my skill set allowed me to fix them. I then sold them, and paid zero capital gains tax, and started over on another fixer. I turned that money into rental property and my current home that I never plan to sell. I have probably $800k in trapped equity in this place. I've been here 18 years. I'm not interested in leveraging that equity, so it just sits there. I bought those early fixers knowing they weren't my "forever" home, but I have friends who did the same who still live quite happily in their first fixer home, in what used to be a rough neighborhood, but now is not.

I don't hate my job though. If you want out asap then you need to radically re-think your spending and cut it to the bone. Housing is one of the biggest expenses in a typical budget, so any cuts you can make there will be huge.

Log

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #5 on: November 19, 2023, 02:32:42 PM »
...We don't have the energy or the funds to maintain or improve our home...

...We dont want to waste our weekends with home improvement projects or get hit with a major expense...

...this property because...is in a bad location and is old and outdated...

Sounds like you are the exact kind of people for whom rent-to-life is the right choice, and you should sell this house. I'm also 100% on board the JL Collins train.

Many people enjoy the home improvement projects and such, and for them that's a benefit of ownership rather than a downside. You're not wrong to not be one of those people. You might get disproportionate pro-home-ownership arguments here because handiness and the DIY ethic are a part of Pete's personality that entered the MMM persona and the Mustachian identity, but it's totally a take-it-or-leave-it component of the core message of living an efficient and joyful life.

To own a home is to take on the part-time job of maintaining a building. That is a big responsibility, and for people with the skills and the disposition, it can both be a rewarding and fulfilling project as well as a way to save money. But if you lack the skills, or just resent the on-going maintenance and the surprise emergencies, then outsourcing that kind of work is a worthwhile way to put your money to work. It's a lot cheaper and easier to outsource through a landlord rather than having to wrangle contractors yourself. That's, among various other benefits, one of the main value propositions of renting. Maintaining the building is their job, not yours.

So the financial question is entangled with the maintenance question and the emotional question (sense of ownership, stability). But if you can separate out the financial question and you really assert that real estate is a superior or comparable investment to stocks, then the question is why take on the high risk of buying a single property when you could diversify in the form of REITs? That question perhaps isn't valid though, because of ill-considered regressive policies that subsidize home ownership, which tips the scales in favor of buying an individual home. But considering that comparison in a vacuum certainly emphasizes that an individual home is an incredibly risky "investment," which is quite dissonant with the thinking that brings us to index funds.

So if we accept that buying a home as an "investment" is akin to stock-picking, then a lot of people are using sloppy thinking about investing to justify that buying a home is just a particularly large line-item of consumption that happens to come with a tax subsidy.

Morning Glory

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #6 on: November 19, 2023, 03:31:12 PM »
The "investment " of a house is not like stock picking but more like an inflation-adjusted annuity that pays you the cost of renting a similar place every month.  This amount goes up gradually over time as rents increase and the amount you paid for your house stays the same. Some countries tax this "imputed rent" as income. When you sell your "investment" you get your original capital back less transaction costs (on average they gain a little in value and keep up with inflation but its not guaranteed and not the point i want to make here). Whether it is worth it or not depends on how much it costs vs renting in your area, plus some personal factors like how long you plan to stay in your community. The opportunity cost on the capital tied up as "equity" is an important piece but to me it makes more sense to separate "buy vs rent" from "cash vs mortgage".

You can also see it as consumption, but you have to live somewhere and if you rent long enough you are still buying the house...for your landlord. As long as you dont buy more house than you need, you are consuming the same amount of housing either way. When you rent you are also paying for the maintenance, you just don't see it because it's priced into your monthly rent payment (there are economies of scale with apartment complexes so it is likely less than you would pay at a sfh but any rental property evaluation calculator includes vacancy and maintenance).

In hcol cities housing is priced up by speculation (the stock-picking analogy comes from people who live in these areas) and it can be much cheaper to rent than buy but I don't really grok the logic behind why one would want to be a landlord in such a place because it can't be profitable.

« Last Edit: November 19, 2023, 03:46:49 PM by Morning Glory »

eddy20

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #7 on: November 19, 2023, 09:05:22 PM »
1) Get a different job
2) Get a home for your children that both you and your significant other are happy with and want a home as opposed to just a house
3) Provide stability for your children growing up with a great neighborhood and possibly life long friends that come with stability of a neighborhood
4) Children like a stable place to live and not have to move every few months or even years
5) You asked and just my opinion, if no children then moving every so often is no big deal for adults

Log

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #8 on: November 19, 2023, 10:59:57 PM »
^Thereís no reason renting has to mean moving frequently. People all over the world (including the US) live in rentals for decades.

Dicey

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #9 on: November 19, 2023, 11:19:33 PM »
Y'all know JL Collins bought a house after he wrote that, right? He calls it Kibanda.

https://jlcollinsnh.com/2017/07/11/kibanda-mr-anti-house-buys-his-dream-house/

Freedomin5

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #10 on: November 20, 2023, 03:27:58 AM »
^Thereís no reason renting has to mean moving frequently. People all over the world (including the US) live in rentals for decades.

Thatís only if you luck out and your landlord doesnít decide to sell the rental or take it back for their own use, or jack up the rent by an exorbitant amount, or the rental corporation doesnít decide to turn the rentals into condos. The point is that, if you rent, you have no control over what the owner may or may not decide to do.

clarkfan1979

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #11 on: November 20, 2023, 04:23:37 AM »
^Thereís no reason renting has to mean moving frequently. People all over the world (including the US) live in rentals for decades.

Thatís only if you luck out and your landlord doesnít decide to sell the rental or take it back for their own use, or jack up the rent by an exorbitant amount, or the rental corporation doesnít decide to turn the rentals into condos. The point is that, if you rent, you have no control over what the owner may or may not decide to do.

I think this is a good thought experiment. I like the stability and autonomy of owning my own house. As long as I pay my PITI no one can force me to leave. When I was a renter, I was typically looking at the best locations at the lowest possible price. Not surprisingly, I moved a lot. I was successful at finding rentals in which the landlord was not keeping pace with market rent. However, they typically figured it out after 1 year of renting and jacked up the rent. I would move and repeat the cycle.

Would it be possible to find a location and rental that you like, but you know might be less desirable for other people? Have a conversation with the landlord and let them know that you are looking for stability and wish to stay for a long time. Ask them what they want as a landlord. If you meet the landlords needs, they will likely rent to you for a long period of time and you get your stability.

On a personal note, I love my job, but my salary is less than impressive. I have a Ph.D. and have taught college full-time for 13 years and taught part-time for another 4 years. My salary is $59,600/year and my wife makes about 18,000/year. She works 2-3 days/week as a substitute teacher (32 weeks/year) and is a virtual assistant for a real estate agent, which is 5 hours/week (50 weeks/year). We have averaged around $80,000/year of W-2 income for the past 12 years and our net worth went up from zero to 1.4 million during this time. How did we do it? We bought a primary home lived in it for a few years and then moved out and converted it into a rental. We did this 3 times and now live in our 4th house. How did we come up with down payments on all those houses? It was traditional saving and investing to get the down payment for house #1. We then used rental cash flow and money from cash-out re-fi's to buy houses #2, #3 & #4.

SeattleCPA

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #12 on: November 20, 2023, 07:17:52 AM »
What am I missing?

1. You're not imputing the rental income your home provides.
2. You're not considering the effect a real asset (like a house) has on your portfolio.

Here is my longer rebuttal to Jim Collins, Jeremy, etc. to explain why you want to look at your house (at least partially) as an investment:

https://evergreensmallbusiness.com/are-houses-investments/

BTW there's some stuff seems like you wisely are alert to, including at least the following:

1. Any single asset (a house, a small business, stock in Tesla, etc) subjects us to more risk (more variability)
2. An house requires owner to "manage" the thing. Ditto for rentals, small businesses, etc.
3. It's harder to determine whether a house is an okay or average investment. (With low cost index funds, you basically know you're getting a fair deal.)


index

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #13 on: November 20, 2023, 08:34:47 AM »
Filing Status/Occupation: My husband and I file jointly, though he is a single income earning household. We have 6 children age 11-2 (I know, thatís a lot of kids. We planned every one of them.) I homeschool and he works as a self-employed contractor.

Home: We own our home 5b/3ba on 2 acres in a boom town. We bought it for 475k two years ago at 2.87% interest and its now worth 604k. We owe 360k on the loan and our month payment is $1921.

Retirement Savings: We have no formal retirement plan, No 401k or anything, just about 30k in the Vanguard VTSAX, through 2 ROTHIRAís that we max out yearly.

Other Assets: We own a 4 acres parcel of raw land in an area we expect will grown exponentially in the next 5 years, paid 40,000 for it, and will own it outright after this year.

Income: My hisbands income varies dramatically but this year we did over 200k in revenue, and this year we expect to do more. I anticipate at least 100k in income claimed after deductions. We also get about $1200 in royalties every year, nominal but income nonetheless.

Debts: We have an $18K loan on a truck my husband uses for work, we own our other car outright. No credit card debt, no other loans

Budget : $6000
Mortgage 1921
Groceries 1500
Gas 400
Electricity 250
Internet 123
Cell phone 95
Water 100
Disneyplus/audible  25

Savings: I have no personal savings but we just upped my budget from $5k to $6k so I can save for things like new appliances or emergency stuff. My husband has about 30k in working capital that fluctuates with projects.

School/activites: We drive to the town 20 minutes away 4 days minimum a week for a private co-op which costs $1275 per year per kid (2 currently enrolled) and extracurriculars for my kids, but we also participate in a set funded at home school that pays 6800 per year so I reimburse internet and their extracurriculars but not the co-op.

I know thereís a lot of fat to trim off but frankly, Im so tired and so busy I canít even think anymore and Ive racked the numbers and threatened to move to a cheaper area so many times, but the interest rates are crazy and the town we visit the most is more expensive to live in than our current town. We have looked at other states but Im not sure a cross-country move is feasible with having to reestablish a small business built on reputation and having to start over entirely will be hard on the kids. Someone please shed some light here, we NEED to retire in ten years, my husband canít physically work for much longer, the trades put a lot of miles on a body and by 45, heís going to be totally spent. We arenít against Airbnbing our house, living in an RV, getting creative with our home equity, living off grid on our other property etc. Im open to any and all suggestions.

From your case study above. Selling your home would be a terrible financial idea. Your mortgage rate is 1.7% less than the 10-yr treasury right now meaning the bank is essentially paying you $5,800 a year to stay in your house. I also find it funny that you are evaluating the possibility of VTI beating you home when your home has increased in value 27% in two years versus a flat VTI. Keep in mind your house is essentially a leveraged investment meaning if keeps up with inflation at 3% a year on a 600k house that is 18k in gains year one; SPY has to do 7.2% on 250k to match that.

In addition, finding a rental and moving more frequently with 6 kids sounds expensive and difficult.     

clarkfan1979

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #14 on: November 20, 2023, 09:18:45 AM »
Filing Status/Occupation: My husband and I file jointly, though he is a single income earning household. We have 6 children age 11-2 (I know, thatís a lot of kids. We planned every one of them.) I homeschool and he works as a self-employed contractor.

Home: We own our home 5b/3ba on 2 acres in a boom town. We bought it for 475k two years ago at 2.87% interest and its now worth 604k. We owe 360k on the loan and our month payment is $1921.

Retirement Savings: We have no formal retirement plan, No 401k or anything, just about 30k in the Vanguard VTSAX, through 2 ROTHIRAís that we max out yearly.

Other Assets: We own a 4 acres parcel of raw land in an area we expect will grown exponentially in the next 5 years, paid 40,000 for it, and will own it outright after this year.

Income: My hisbands income varies dramatically but this year we did over 200k in revenue, and this year we expect to do more. I anticipate at least 100k in income claimed after deductions. We also get about $1200 in royalties every year, nominal but income nonetheless.

Debts: We have an $18K loan on a truck my husband uses for work, we own our other car outright. No credit card debt, no other loans

Budget : $6000
Mortgage 1921
Groceries 1500
Gas 400
Electricity 250
Internet 123
Cell phone 95
Water 100
Disneyplus/audible  25

Savings: I have no personal savings but we just upped my budget from $5k to $6k so I can save for things like new appliances or emergency stuff. My husband has about 30k in working capital that fluctuates with projects.

School/activites: We drive to the town 20 minutes away 4 days minimum a week for a private co-op which costs $1275 per year per kid (2 currently enrolled) and extracurriculars for my kids, but we also participate in a set funded at home school that pays 6800 per year so I reimburse internet and their extracurriculars but not the co-op.

I know thereís a lot of fat to trim off but frankly, Im so tired and so busy I canít even think anymore and Ive racked the numbers and threatened to move to a cheaper area so many times, but the interest rates are crazy and the town we visit the most is more expensive to live in than our current town. We have looked at other states but Im not sure a cross-country move is feasible with having to reestablish a small business built on reputation and having to start over entirely will be hard on the kids. Someone please shed some light here, we NEED to retire in ten years, my husband canít physically work for much longer, the trades put a lot of miles on a body and by 45, heís going to be totally spent. We arenít against Airbnbing our house, living in an RV, getting creative with our home equity, living off grid on our other property etc. Im open to any and all suggestions.

From your case study above. Selling your home would be a terrible financial idea. Your mortgage rate is 1.7% less than the 10-yr treasury right now meaning the bank is essentially paying you $5,800 a year to stay in your house. I also find it funny that you are evaluating the possibility of VTI beating you home when your home has increased in value 27% in two years versus a flat VTI. Keep in mind your house is essentially a leveraged investment meaning if keeps up with inflation at 3% a year on a 600k house that is 18k in gains year one; SPY has to do 7.2% on 250k to match that.

In addition, finding a rental and moving more frequently with 6 kids sounds expensive and difficult.  

I had no idea you have 6 kids. Good job on getting a house. That's huge.

As an experiment, email some landlords with rentals that you think would be a good fit. Tell them you have 6 kids and see how many of them email you back. I'm guessing less than 50% of them will email you back and less than 20% will actually be willing to rent to you. It's not legal, but that is reality from my experience.

If you also have dogs, it's going to be less than 10%.

Jon Bon

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #15 on: November 20, 2023, 09:19:49 AM »
If you take into account the leverage that they used to by the house. The return is about 136%

Basically OP if you only put down 20% on the house that is $95,000 correct? You only invested 95k of your own money. Well the gain was on the house was (604-475) $129,000.

So the return on the house so far has actually been (129/95) = 136%

Leverage is a big reason why so many folks get rich on real estate (including you!) The bank does not get a cut of any gain, and bares a ton of risk if there are any loses. Borrowing money to buy RE is generally a good idea due to a super cheap rates (which you have) and the massive benefit of leverage (which you have)

Also I think your budget is fine, 6 kids is a bunch. I have 3 with similar housing costs and we run about 6k a month. Could you do better? Sure, but unless your eating out as a family 2x a week there likely is not a ton of fat on that budget, kids are expensive! I guess maybe send them to public school schools be a big savings but it sounds like not doing that is a pretty important value to you? I don't see how your housing costs can get a whole lot cheaper with that big of a family.

I feel like there is more to this story. Do you just hate the area? Hate the hood? Hate the drive to school?




Villanelle

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #16 on: November 20, 2023, 10:48:49 AM »
^Thereís no reason renting has to mean moving frequently. People all over the world (including the US) live in rentals for decades.

Sure they do, but it is far from guaranteed that the rental you move in to will be one where that works out.  It may, but it certainly may not be.  Even if the owner doesn't decide to sell, move back in, have family move in, etc., they can jack up the prices so high that you don't (or can't) want to pay that amount anymore. 

Even if the homeowner assures you they have no intention of selling, things changes.  Their finances could take a dive, or they could die, or their parents could suddenly lose their home and need a place to stay.  If stability is a primary goal, renting is not the way to go.

You may luck out and get someone who will sign a 2-3 year lease with either no increases or modest increases listed in the contract.  That provides some stability, but when those 2-3 years are up, anything could happen.

You may be able to stay for decades, but you can't count on it.

Morning Glory

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #17 on: November 20, 2023, 11:07:47 AM »
Acreage is a lot of work, especially with young kids who have to be supervised all the time. No strapping them to your back if you have to run the chainsaw, gotta do it while they're napping and bring the long-range baby monitor. Once they grow out of naps you have to do it while they're at school.  One of the adults has surgery or has to travel for work and chores start to pile up really fast. It's been romanticized a lot but can quickly lead to burnout if you don't have time to do it all.

Are there any available cheaper houses the size you need but in town with a regular size lot? That would ease your workload substantially. You can still have a veg garden and even chickens in most places now.

I did rent 2 small apartments in between downsizing,  moving across country, and purchasing the next house.  Renting first really did help me to decide what things I really wanted in a house and what I could live without. I only have 2 kids though so it was easier and cheaper to find rentals.
« Last Edit: November 20, 2023, 11:10:13 AM by Morning Glory »

Dicey

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #18 on: November 20, 2023, 11:50:19 AM »
When I was you age, I desperately wanted to retire early, and blogs/forums like this didn't exist. I was always dreaming of shortcuts like this to get me to the finish line faster.

Now that I'm FIRE for real and have been for nearly twelve years, I'm glad I kept my nose to the grindstone.

One thing I did that I'm forever grateful for is that I monetized my homes as much as possible. I almost always had a roommate, or a job that allowed me to legitimately take the Home Office Deduction, or both.

Is there anything you can do to help your house help you? You'll always need a place to live, and rents tend to only move in one direction.

EDIT: I just saw the snip from your Case Study (thanks @index!). Since you said each of your six of your children was planned (no snark, I'm the eldest of six), you must have considered the cost of housing your posse. You grabbed the Golden Goose when you bought your house. Why on earth would you even consider killing it?

Related: Please tell us your husband carries the appropriate insurances. The industry is tough on a body, especially if said body gets injured.

Dicey

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Re: I want to sell my house and invest in the VTI-Convince me not to
« Reply #19 on: November 20, 2023, 12:40:47 PM »
I want to make this post separate from the one above, so I can pull it if necessary. Please don't quote it.

My sister and her husband lived in the L.A. area when they first got married. Husband and a buddy stumbled upon a great deal on a fixer, so they rehabbed it together, sold it and made a nice profit. BIL wanted to do an 1031 Exchange, but they couldn't afford what they wanted in CA, so they moved to his (low-cost) home state and bought another dump, which they fixed up as their family grew. They liked it there, but everything he'd done for work in CA paid pennies in his home state. They packed up and moved tp South Carolina, and did it again. A few years later, they decided to move to Texas and did the same thing. I specifically remember how difficult this move was on my sister's mental health, even though she was okay with moving.

Eventually, they wanted to be closer to our aging parents and decided to come home to CA. They had four boys by this time. Their budget forced them to move to an area seven hours drive from our parents. Fortunately, it was closer to me and another sibling. This time, they wanted acreage. Fortunately, the business they started in CA thrived. Finding a fixer that met their needs was a challenge, so they rented. Then rented another when the LL decided to sell. And again. After seven years of paying rent, they finally found their "perfect" property. They moved again and got to work.

Fortunately, their kids were homeschooled. Unfortunately, the youngest had learning disabilities. All the moving around did him no favors, and his life is forever scarred by his upbringing.

Fast forward a few years, the house looks great and has appreciated quite nicely, and their hands-on, physical labor-type business was thriving. Alas, a pandemic came along and swept my BIL up in its wake. They had no disability insurance and no life insurance. (His health history made him uninsurable except at enormous cost.) Alas, they had prioritized paying off the house first, so there is not a huge nest egg for Sis to fall back on.

I sometimes wonder what would have happened if they had just stayed in CA.