Buy a house and rent it out until we FIRE in 5-7 years?

[Houston]

Hi Team,

My wife and I have found our dream FIRE spot (mountain town, low cost of living, close to family). At the moment, housing in the area is reasonably priced. We are considering buying a house there and renting it out until we are ready to move once we FIRE in 5-7 years. I want to do the math to determine if it makes more sense to wait or to buy now, but I am having a hard time wrapping my head around how to crunch the numbers.

Considering the house purely as a rental property makes me think buying the house now is a bad idea. It would fail the 1% rule (~200k renting for ~1200 per month) and would have a slightly negative cash flow based on conservative calculations. But I am not sure if I should be taking other factors into consideration given that we want to move into the house when we FIRE. Perhaps it would be good to get a head start on paying down the mortgage and take advantage of the modest current prices.

Outside of comparing the purchase to the opportunity cost of taking the down payment out of the market I don't really know where to start. Any advice would be greatly appreciated!

ps- I should mention that we are currently renting. I should also mention that we know this mountain town very well, and we are confident that it will meet all our needs down the road. Thanks!

[waltworks]

More houses will always come up, and your money will work a lot harder in basically any other investment, with less stress.

But if you're that close to FIRE anyway, it might not make much difference and give you some sort of peace of mind/happy anticipation - which is a worthwhile thing to spend money on.

I'd sit down and figure out what you'd make in the market, and then assume you'll break even on the house including the mortgage paydown on a 30 year note - so your cost will just be the expected returns the DP would earn. If it's worth that amount (of extra money and hence working time before FIRE) to you to have this plan/house in place, then pull the trigger. If not, don't.

We did something similar, and bought a house we liked in a LCOL mountain town that basically breaks even when all is said and done. In our case that was just as a bailout option if we decide to leave our HCOL area. I wanted to know that if my business did poorly or I was getting super stressed out, we could simply sell our house, move into our other place, and be instantly FIRE. There is some significant cost associated with that since the house is a crappy rental, but it's worth it to me for the peace of mind.

-Walt

[Houston]

Thanks for the prompt reply, Walt. I appreciate it!

[Eurotexan]

I am doing this too! One of my rentals will be my fire home in about 6-8 years. I used to live there but moved for better schools. I plan on moving back when my daughter goes to college in 6 years. It works for me. I am just about cash flow positive after raising the rent at the last renewal. It's been below market for a while but I have great tenants so I am slowing getting the rent closer to market. Having tenants who look after the house is very important to me knowing I plan on moving back.

I think it's a good idea so long as the house you buy is your dream house and you aren't buying in a hurry out of fear the housing prices will go up significantly in a short period of time.

[former player]

I did something similar: I bought a holiday home 7 years before FIRE with the idea of it becoming my full-time home after retirement.  I used it for weekends and holidays and didn't even rent it out (bad mustachian).  I've been retired to it for several years now, and it is perfect for me (which means, I am slowly making it perfect).

Locking in the purchase at a price you can afford works well if 1) you are happy to tie your future plans to that particular location, and 2) you are happy to tie your future plans to that particular house in that particular position.

I will admit that after I bought my retirement house I spent idle moments for several years checking out what was available on the local property market to see whether there were any houses I would prefer to live in.  There never were, so I think I got it right.  It would be a bit of a bummer to find something you preferred just after buying something else, though.

[Joggernot]

We bought our retirement home three years before retiring and rented it out.  It more than paid the loan until we could sell our current home and move to the new one.  It was worth it for us.

[frugaliknowit]

No, no, no, no, no....am I clear?

Don't do this, don't do this, don't do this.

No reason to.  Risky, for what (potential reward)? 

FAGETABOUDIT!  Tough huggs!

[Rubic]

No, no, no, no, no....am I clear?

Don't do this, don't do this, don't do this.

No reason to.  Risky, for what (potential reward)? 

FAGETABOUDIT!  Tough huggs!

+1

I've known a lot of people who've made similar plans, but I can't think
of a single instance where it worked out for them.  Which isn't to say
that it turned out to be a financial disaster, just sub-optimal results
with additional stress.