$1 million in investments vs. 500k home + 500k investments

[Radagast]

Right now a 400k mortgage will run $23,000/yr for principal and interest. Charitably say it is more like GuitarStv's house and will only cost $13,000/yr in other expenses. That $36,000/yr is already 4% of $900k and will leave nothing for important things like food. I doubt you can support that much house on that little net worth no matter how you slice it.

[boarder42]

Right now a 400k mortgage will run $23,000/yr for principal and interest. Charitably say it is more like GuitarStv's house and will only cost $13,000/yr in other expenses. That $36,000/yr is already 4% of $900k and will leave nothing for important things like food. I doubt you can support that much house on that little net worth no matter how you slice it.

the post did not say which would you rather be when FIREd and why it said which would you rather be and why.  basically all you just proved was you cant FIRE on 500k if you own a 500k house b/c the expenses are too high - also note that the mortgage doesnt apply directly to the 4% rule as its fixed and does not index to inflation.

in cFIREsim
500k with 4% SWR(20k) and 500k paid for house - success = 91.67%
my scenario
500k with 4% SWR(20k) and a 400k mortgage at 4% - success = 96.3%

one is not even marginally better its WAY WAY better.

[Radagast]

Right now a 400k mortgage will run $23,000/yr for principal and interest. Charitably say it is more like GuitarStv's house and will only cost $13,000/yr in other expenses. That $36,000/yr is already 4% of $900k and will leave nothing for important things like food. I doubt you can support that much house on that little net worth no matter how you slice it.

the post did not say which would you rather be when FIREd and why it said which would you rather be and why.  basically all you just proved was you cant FIRE on 500k if you own a 500k house b/c the expenses are too high - also note that the mortgage doesnt apply directly to the 4% rule as its fixed and does not index to inflation.

in cFIREsim
500k with 4% SWR(20k) and 500k paid for house - success = 91.67%
my scenario
500k with 4% SWR(20k) and a 400k mortgage at 4% - success = 96.3%

one is not even marginally better its WAY WAY better.

Oh yeah. It didn't say FIRE. Sometimes I lack key reading comprehension skills.

[practik]

So if I'm a bachelor not yet FIRE'd and trying to hit a $1 mill nest egg in US total market index funds, should I essentially try to rent unless my life circumstances change?

[MrThatsDifferent]

So if I'm a bachelor not yet FIRE'd and trying to hit a $1 mill nest egg in US total market index funds, should I essentially try to rent unless my life circumstances change?

Seems so.

[boarder42]

So if I'm a bachelor not yet FIRE'd and trying to hit a $1 mill nest egg in US total market index funds, should I essentially try to rent unless my life circumstances change?

this greatly depends on many things a 1MM nest egg could be acheived faster renting or buying it all depends on the price of things in your location - if the cost to rent is 1k and the cost for your mortgage is less than 1k including PITI its cheaper to buy as some of that money will be going to principal.  basically if the costs are lower with owning a home vs renting a place - accounting for all costs including moving frequently when renting as well as gained equity in a home you could come out far ahead buying - and remember if its cheaper for PITI now than it is to rent you're fixing in your "rent" at todays price so your PI wont increase with inflation - taxes rarely do in my area - insurance is its own beast.  so if its cheaper to buy today than rent think about in 10 years at 3.22% inflation that 1k in rent is now almost 1400 dollars.  and your mortgage payment is still 1k. plus some likely tax and insurance increases maybe 100 dollars extra there MAYBE.

[YoungInvestor]

I'd rather have the 1M investments and use them to buy an appropriate property (closer to 350k where I am).

[SeattleCPA]

So if I'm a bachelor not yet FIRE'd and trying to hit a $1 mill nest egg in US total market index funds, should I essentially try to rent unless my life circumstances change?

this greatly depends on many things a 1MM nest egg could be acheived faster renting or buying it all depends on the price of things in your location - if the cost to rent is 1k and the cost for your mortgage is less than 1k including PITI its cheaper to buy as some of that money will be going to principal.  basically if the costs are lower with owning a home vs renting a place - accounting for all costs including moving frequently when renting as well as gained equity in a home you could come out far ahead buying - and remember if its cheaper for PITI now than it is to rent you're fixing in your "rent" at todays price so your PI wont increase with inflation - taxes rarely do in my area - insurance is its own beast.  so if its cheaper to buy today than rent think about in 10 years at 3.22% inflation that 1k in rent is now almost 1400 dollars.  and your mortgage payment is still 1k. plus some likely tax and insurance increases maybe 100 dollars extra there MAYBE.

+1

[dougules]

So if I'm a bachelor not yet FIRE'd and trying to hit a $1 mill nest egg in US total market index funds, should I essentially try to rent unless my life circumstances change?

this greatly depends on many things a 1MM nest egg could be acheived faster renting or buying it all depends on the price of things in your location - if the cost to rent is 1k and the cost for your mortgage is less than 1k including PITI its cheaper to buy as some of that money will be going to principal.  basically if the costs are lower with owning a home vs renting a place - accounting for all costs including moving frequently when renting as well as gained equity in a home you could come out far ahead buying - and remember if its cheaper for PITI now than it is to rent you're fixing in your "rent" at todays price so your PI wont increase with inflation - taxes rarely do in my area - insurance is its own beast.  so if its cheaper to buy today than rent think about in 10 years at 3.22% inflation that 1k in rent is now almost 1400 dollars.  and your mortgage payment is still 1k. plus some likely tax and insurance increases maybe 100 dollars extra there MAYBE.

+1

+2.  You just have to run the numbers for your area and situation. 

[Mighty-Dollar]

Renting VS owning:
When you own you pay upwards of a 6% commission when you sell. However the first 250K is tax free (Federal) or 500K if married.

Also you don't want to be house rich and cash poor.

I will say that once you've owned a house for a long time and your home has appreciated in value a lot, you're looking at paying capital gains taxes all in one fell swoop (one year). Compare that with selling securities, which can be strategically sold over several years to reduce taxes. Also, at least in California, if you sell one home that you've lived in for a long time, then move to another, expect your property taxes to go WAY up. Because of these two reasons I can never sell my house which I've owned for almost 20 years. Otherwise I'd get slammed with capital gains taxes and I'd see my property taxes jump about 50% if I moved to a home of the same value.

[Kyle Schuant]

What position would you rather be in financially and why?  $1 million in investments and renting or 500k in investments and own a 500k home? 

As a single man, $1 million in investments. I'd rent some tiny place to live, if I have to move it's no big deal because I wouldn't have much. As a married man with two kids... the other one. Moving is too much damn hassle, and I'd want some security - even if all my investments tank, I'd still have a place to live.

[swampwiz]

It all depends on how much rent would be needed to get something comparable to that $500K home.  I am of the belief that it is far better to own one's detached house than to rent one, if only for the simple fact that the home can be leveraged at a lower interest rate than the reservation return than the landlord would demand.  Also, the selection in homes that one could buy is far more extensive than the homes that one could rent.

Now, if by saying "rent", you mean renting something that would not be comparable (e.g., an apartment), then renting is far better financially speaking - but of course, that would be at the expense of having a lower standard of living.

[robartsd]

Unless you are 55 or older and can then take advantage of Prop 60 which allows you to transfer your old house prop tax basis to new house. So if you have a prop tax of $1000/year and sell that place for a million and buy a new place for a million.you can transfer your $1000/year prop tax rate. Can't do anything about CG tax though.

If you're buying a property with the same value, can't you transfer your tax basis to the new property if you do a like-kind transfer to put off CG tax?

I didn't know about Prop 60 maybe it will apply to me when I want to move from my current house.

[robartsd]

Not sure about the like-kind transfer because in Cali our prop taxes don't increase based on FMV so you'll have vastly different prop tax rates on houses with the same price. Probably the reason Prop 60 and Prop 90 exist here.

Both Prop 60 and Prop 90 also depend on your county as not all counties in Cali do it. Prop 60 lets you retain your prop tax rate when you buy with in the same county and Prop 90 is when selling and buying in 2 different counties. I believe you have 2 years from sale of your property to purchase of a new property.

You can also transfer your prop tax basis to your kids or grandkids either if they inherit or purchase your property from you. My Mom bought her SoCal house in the midb1970s and I bought it from her for FMV in 1996 and was able to transfer her prop tax basis of $300/year to me even though it would normally be $1500 /year. These were 2 different Prop #s not under Prop 13, 60, or 90

Like kind transfer doesn't do anything for property taxes as far as I know - but it can be used to postpone realizing a capital gains, thus delaying capital gains tax.

I was aware of the parent/child transfer rules (even with the property tax basis on the house my grandfather purchased new around 1940 that my dad inherited free and clear, the debt my dad left in the HELOC he took out to fix up the place and consolidate debt makes it not worthwhile to redeem the property - unfortunately the bank is taking its time foreclosing). But I didn't know about Prop 60 & 90 allowing transfer of the tax basis to a new property.

Looking it up on boe.ca.gov I see that the replacement property must be of equal or lesser value, this kind of transfer of property tax basis can only be done once in a lifetime (the transfer counts for both spouses if they reside together at the time of the transfer), and only a handful of counties accept prop 90 inter-county transfers (my reading indicates that all counties allow prop 60 transfers and the county of the property being sold for a prop 90 transfer does not mater).

[PiobStache]

So the question is, "Did you pay 500k for a 500k house or did you pay 500k for a house worth two or more times 500k?"  We bought our dream house on the courtroom steps for cash in 2011.  It's in a highly desirable, upscale development and in 2018 worth about four times what we paid for it.  Patients, lots of homework, and the financial means to make a move really paid off handsomely.

[aspiringnomad]

So the question is, "Did you pay 500k for a 500k house or did you pay 500k for a house worth two or more times 500k?"  We bought our dream house on the courtroom steps for cash in 2011.  It's in a highly desirable, upscale development and in 2018 worth about four times what we paid for it.  Patients, lots of homework, and the financial means to make a move really paid off handsomely.

Absolutely not the question any more than it is "Did you pay $1 million for a house in Detroit in 1999 or $1 million for AAPL stock in 1999?"

Or did you just want a congrats? If so, congrats.