Sell personal home, invest 1m, rent long term ….nuts idea?

[bthewalls]

Need bit of advice.

Thinking of selling family home and investing everything in something like vwrl. Based on 4pc rule I’ll withdraw 40k ish….ill then rent, costing 15k per year in my area (uk). Tax is c. 3400 per annum on 40k ish.

I’ll never bank/invest 1m otherwise in my career without this potential (but extreme) method.

What’s the general thoughts about using the personal home for this purpose?

Baz

[LightStache]

It's too extreme. Imagine selling and investing £1m for it to plummet 20% in the first year.

I'd look to bank at least £500K from work and then figure out how much of your portfolio you want allocated to real estate.

You could refinance to pull out cash to buy more equities.

You could sell the £1m home and buy another one for £500K, invest the remainder.

[Metalcat]

If you have a 1m home and you can reasonably live in the kind of home that you can get for 15K/yr, then yeah, sell the home.

How is this math working though?

Is the home way too massive for your needs? Are real estate prices drastically higher than rents??

There has to be some reason why you have such an expensive home when you can happily live in something much, much cheaper.

How much would it cost to buy the equivalent of the property that you could rent for 15K/yr??

[Freedomin5]

Some people make it work this way. In your case, how much might you earn if you rented out the family home?

My concerns would be:
- Is there rent control in your area? What would happen if rents suddenly shot way up? What if you got a sweet deal but then the landlord decided to sell and rents have increased significantly over the years?
- Are you tied to a certain area? Is there a possibility that you may be priced out of the market?
- Are you okay being asked to move every year or two? You never know when a landlord may decide to take back their unit.

For example, we have been renters for the past 24 years, but that was because our work contracts/obligations at each location were only for a limited time, and for the past 14 years, our companies covered housing. So it made sense to rent. Moving every 1-2 years was a huge hassle though, as well as non-responsive landlords when we had a problem, landlords who cut corners, and landlords who broke contract and took back the unit mid-contract.

At the same time, we also purchased a place elsewhere because we didn't want to be priced out of that market. We have family there and knew we wanted to live there post-retirement. I look forward to knowing that my home isn't going to be taken from me at the whims of another person. We are currently renting it out and will take it back once we retire this year.

So whether this will work for you depends entirely on your situation.

[bthewalls]

It's too extreme. Imagine selling and investing £1m for it to plummet 20% in the first year.

I'd look to bank at least £500K from work and then figure out how much of your portfolio you want allocated to real estate.

You could refinance to pull out cash to buy more equities.

You could sell the £1m home and buy another one for £500K, invest the remainder.

Yeah perhaps to risky….hse worth 700k and have 300k

[Metalcat]

Some people make it work this way. In your case, how much might you earn if you rented out the family home?

My concerns would be:
- Is there rent control in your area? What would happen if rents suddenly shot way up? What if you got a sweet deal but then the landlord decided to sell and rents have increased significantly over the years?
- Are you tied to a certain area? Is there a possibility that you may be priced out of the market?
- Are you okay being asked to move every year or two? You never know when a landlord may decide to take back their unit.

For example, we have been renters for the past 24 years, but that was because our work contracts/obligations at each location were only for a limited time, and for the past 14 years, our companies covered housing. So it made sense to rent. Moving every 1-2 years was a huge hassle though, as well as non-responsive landlords when we had a problem, landlords who cut corners, and landlords who broke contract and took back the unit mid-contract.

At the same time, we also purchased a place elsewhere because we didn't want to be priced out of that market. We have family there and knew we wanted to live there post-retirement. I look forward to knowing that my home isn't going to be taken from me at the whims of another person. We are currently renting it out and will take it back once we retire this year.

So whether this will work for you depends entirely on your situation.

Exactly this, renting vs buying is as much a lifestyle decision as it is a financial one.

[bthewalls]

If you have a 1m home and you can reasonably live in the kind of home that you can get for 15K/yr, then yeah, sell the home.

How is this math working though?….depends if we avoid a recession….

Is the home way too massive for your needs? Are real estate prices drastically higher than rents??……Kids leaving home, house way too big for 2….

There has to be some reason why you have such an expensive home when you can happily live in something much, much cheaper…..bought towards end of 08 crash for peanuts..

How much would it cost to buy the equivalent of the property that you could rent for 15K/yr??…..c. 400

Answers in text ….the concept feel risky

[bthewalls]

Some people make it work this way. In your case, how much might you earn if you rented out the family home?

My concerns would be:
- Is there rent control in your area? What would happen if rents suddenly shot way up? What if you got a sweet deal but then the landlord decided to sell and rents have increased significantly over the years?
- Are you tied to a certain area? Is there a possibility that you may be priced out of the market?
- Are you okay being asked to move every year or two? You never know when a landlord may decide to take back their unit.

For example, we have been renters for the past 24 years, but that was because our work contracts/obligations at each location were only for a limited time, and for the past 14 years, our companies covered housing. So it made sense to rent. Moving every 1-2 years was a huge hassle though, as well as non-responsive landlords when we had a problem, landlords who cut corners, and landlords who broke contract and took back the unit mid-contract.

At the same time, we also purchased a place elsewhere because we didn't want to be priced out of that market. We have family there and knew we wanted to live there post-retirement. I look forward to knowing that my home isn't going to be taken from me at the whims of another person. We are currently renting it out and will take it back once we retire this year.

So whether this will work for you depends entirely on your situation.

Yep did consider renting existing, but it’s to sensitively finished for that…….

Rental control is good re preventing rent hikes

[Metalcat]

If you have a 1m home and you can reasonably live in the kind of home that you can get for 15K/yr, then yeah, sell the home.

How is this math working though?….depends if we avoid a recession….

Is the home way too massive for your needs? Are real estate prices drastically higher than rents??……Kids leaving home, house way too big for 2….

There has to be some reason why you have such an expensive home when you can happily live in something much, much cheaper…..bought towards end of 08 crash for peanuts..

How much would it cost to buy the equivalent of the property that you could rent for 15K/yr??…..c. 400

Answers in text ….the concept feel risky

Okay, so if you own a 1M house and you no longer need a 1M house, then selling it seems like a no-brainer.

Renting may also be a great idea if you can rent for 15K per year something that would cost 400K to buy.

I don't see much risk in that element of the plan. The risk is in jumping to retiring just because you've saved a bunch of money. It sounds like you could probably benefit from selling and renting while still working to build a more robust retirement plan.

The downside of renting is potentially getting locked out of the real estate market, and if circumstances change to make renting less optimal in the future.

As I mentioned above, renting is a lifestyle choice as much of a financial one. So a lot comes down to how comfortable you are with the renting lifestyle and what that entails long term.

If I were in your shoes, I would absolutely sell the expensive, large house and downsize. Whether I would rent or buy a smaller home would be a more nuanced question. But I absolutely would not invest everything in 100% equities and retire on that alone.

You have several separate questions to answer, each of which are almost unrelated.

1: Should you cash out the equity in the house now that you no longer need it?
2: Should you rent or buy your next home?
3: What should you invest the proceeds of the house into?
4: What is your overall retirement investment strategy and at what point will you feel financially secure to retire?

Do not conflate any of these individually important questions with one another. Just because investing in 100% equities and living on that feels risky doesn't mean selling the house is a bad idea. Just because renting sounds much cheaper doesn't mean buying a smaller place is a bad idea.

Address each question individually, then make a plan from there.

[vand]

Nothing can possibly go wrong.

[Tasse]

?? What answers in what text???

Am I missing something?

Bolded their answers for you (and pulled it out of the multi-quote block):

If you have a 1m home and you can reasonably live in the kind of home that you can get for 15K/yr, then yeah, sell the home.

How is this math working though?….depends if we avoid a recession….

Is the home way too massive for your needs? Are real estate prices drastically higher than rents??……Kids leaving home, house way too big for 2….

There has to be some reason why you have such an expensive home when you can happily live in something much, much cheaper…..bought towards end of 08 crash for peanuts..

How much would it cost to buy the equivalent of the property that you could rent for 15K/yr??…..c. 400

[Dicey]

Would the sale of the house be taxed? If so, at what rate?

How much other money do you have saved/invested? If your kids are grown and gone, you must have some sort of nest egg built up so far, yes?

If you have nothing (or very little) saved, I'd want to know why.

[MustacheAndaHalf]

Thinking of selling family home and investing everything in something like vwrl.

Later you mention your plan not working out if a recession hits.  That's accurate - sequence of returns risk can ruin your retirement.  So why are you investing 100% equities knowing it could destroy your retirement?

[Metalcat]

?? What answers in what text???

Am I missing something?

Bolded their answers for you (and pulled it out of the multi-quote block):

If you have a 1m home and you can reasonably live in the kind of home that you can get for 15K/yr, then yeah, sell the home.

How is this math working though?….depends if we avoid a recession….

Is the home way too massive for your needs? Are real estate prices drastically higher than rents??……Kids leaving home, house way too big for 2….

There has to be some reason why you have such an expensive home when you can happily live in something much, much cheaper…..bought towards end of 08 crash for peanuts..

How much would it cost to buy the equivalent of the property that you could rent for 15K/yr??…..c. 400

Thank you!! I'm dyslexic so I miss things.

I went back and responded properly to the previous post.

[bthewalls]

If you have a 1m home and you can reasonably live in the kind of home that you can get for 15K/yr, then yeah, sell the home.

How is this math working though?….depends if we avoid a recession….

Is the home way too massive for your needs? Are real estate prices drastically higher than rents??……Kids leaving home, house way too big for 2….

There has to be some reason why you have such an expensive home when you can happily live in something much, much cheaper…..bought towards end of 08 crash for peanuts..

How much would it cost to buy the equivalent of the property that you could rent for 15K/yr??…..c. 400

Answers in text ….the concept feel risky

Okay, so if you own a 1M house and you no longer need a 1M house, then selling it seems like a no-brainer.

Renting may also be a great idea if you can rent for 15K per year something that would cost 400K to buy.

I don't see much risk in that element of the plan. The risk is in jumping to retiring just because you've saved a bunch of money. It sounds like you could probably benefit from selling and renting while still working to build a more robust retirement plan.

The downside of renting is potentially getting locked out of the real estate market, and if circumstances change to make renting less optimal in the future.

As I mentioned above, renting is a lifestyle choice as much of a financial one. So a lot comes down to how comfortable you are with the renting lifestyle and what that entails long term.

If I were in your shoes, I would absolutely sell the expensive, large house and downsize. Whether I would rent or buy a smaller home would be a more nuanced question. But I absolutely would not invest everything in 100% equities and retire on that alone.

You have several separate questions to answer, each of which are almost unrelated.

1: Should you cash out the equity in the house now that you no longer need it?
2: Should you rent or buy your next home?
3: What should you invest the proceeds of the house into?
4: What is your overall retirement investment strategy and at what point will you feel financially secure to retire?

Do not conflate any of these individually important questions with one another. Just because investing in 100% equities and living on that feels risky doesn't mean selling the house is a bad idea. Just because renting sounds much cheaper doesn't mean buying a smaller place is a bad idea.

Address each question individually, then make a plan from there.

Points noted….need to chew over that

[bthewalls]

Nothing can possibly go wrong.

Yes vand….this is exactly the type of optimism we need here

Baz

[bthewalls]

Thinking of selling family home and investing everything in something like vwrl.

Later you mention your plan not working out if a recession hits.  That's accurate - sequence of returns risk can ruin your retirement.  So why are you investing 100% equities knowing it could destroy your retirement?

Re AA, bonds seem worthless now…

[MustacheAndaHalf]

Thinking of selling family home and investing everything in something like vwrl.

Later you mention your plan not working out if a recession hits.  That's accurate - sequence of returns risk can ruin your retirement.  So why are you investing 100% equities knowing it could destroy your retirement?

Re AA, bonds seem worthless now…

I believe the 4% rule was based on having a mix of 60% stocks and 40% bonds to weather all market cycles.  If you don't follow the original asset allocation, you can't expect to get the same results.


In 2022, the Fed hiked rates faster than any time in history, inflicting the the worst year for bonds in history.  For most of the time since the 2008 crisis, bonds have yielded less than they do now.  You're getting paid more by bonds, not less.  (Link below, pick 25 year)
https://tradingeconomics.com/united-states/government-bond-yield

[ChpBstrd]

I would definitely sell the #1M home that is too big for you, especially if it made the difference between retiring and not. You say annual rent is only 1.5% of this amount, so if your money could earn a mere 3%, for example, you'd be making a decent amount of extra income from the decision.

I would be reluctant to put it all in stocks though. UK bonds of several years' duration are yielding 4.5% to 4.75%, and you could probably earn a percent over that in corporates. UK CPI was 3% as of January, so these are reasonable real yields.

One solution for the decision is to invest enough of the #1M in fixed income so that your rent is covered, then allocate the rest at will. If the rate is 4.5%, you'd need to invest ((1/0.045)*15000 =) #333,333 this way to cover #15k in annual rent. Allocate the remaining two-thirds according to your goals and risk tolerance, with an awareness that rent will go up over time.

Also bear in mind that a wave of American refugees too lazy to learn a different language may be headed your way soon, so perhaps locking in housing costs with an inexpensive little cottage in a sleepy town might be the better way to go.

[vand]

Yea, if you have too much house then you should downsize to something more appropriate, otherwise it is just money locked up in in your home that could otherwise be put to work.  Trouble is that moving isn't cheap, between two sets of conveyancing fees, EA fees and non-FTB stamp duty could you easily be staring at a £40k bill or more.

[bthewalls]

Hadn’t considered splitting to fixed income to cover rent.

Vand right on the associated costs to.

Thanks for advice guys

[SeattleCPA]

This may not be helpful. And I really don't throw this comment out there to be inflammatory.

But your home is an investment. It costs you money. But it also saves you rent. E.g., if it costs you 2K a month but you'd pay 5K a month for similar place, you have imputed rental income of 3K a month.

Good things about the investment: The month to month cash return is tax free. You've got a probably a very good inflation hedge.

Bad things about the investment: You may not be able to comfortably afford the imputed rent. You've got an awfully lot of your wealth tied up in a single asset.

[Metalcat]

This may not be helpful. And I really don't throw this comment out there to be inflammatory.

But your home is an investment. It costs you money. But it also saves you rent. E.g., if it costs you 2K a month but you'd pay 5K a month for similar place, you have imputed rental income of 3K a month.

Good things about the investment: The month to month cash return is tax free. You've got a probably a very good inflation hedge.

Bad things about the investment: You may not be able to comfortably afford the imputed rent. You've got an awfully lot of your wealth tied up in a single asset.

OP stated that for the kind of place they want to rent, it would cost them 15K/yr.

Where I live, the property taxes alone on a 1M property would be about that much.

[bthewalls]

Thanks folks

Just to clarify. The property is in Northern Ireland (uk)…..it’s cheap here, free medical.

And yes, there is a lot of money tied up in this asset, but I bought it in the worst of last recession and the current value is due to work I completed myself, while I raised family…its a lot of money for me anyway!

Also investments are taxable if outside of the 20k per year investment limit of a “uk government Isa”….kinda like USA pension wrappers. I.e. 2 Adults is 40k per year tax free

Based on suggestions it appears best to liquidate, then purchase a suitable retirement sized house by a small mortgage (or just cash….c. 400k ish perhaps) and invest the remaining capital based on aa….

[bthewalls]

This may not be helpful. And I really don't throw this comment out there to be inflammatory.

But your home is an investment. It costs you money. But it also saves you rent. E.g., if it costs you 2K a month but you'd pay 5K a month for similar place, you have imputed rental income of 3K a month.

Good things about the investment: The month to month cash return is tax free. You've got a probably a very good inflation hedge.

Bad things about the investment: You may not be able to comfortably afford the imputed rent. You've got an awfully lot of your wealth tied up in a single asset.

Not inflammatory at all!

[Dicey]

I'm going to repost this and batsignal @bthewalls. These are important questions to be answered before any decision is reached.

Would the sale of the house be taxed? If so, at what rate?

How much other money do you have saved/invested? If your kids are grown and gone, you must have some sort of nest egg built up so far, yes?

If you have nothing (or very little) saved, I'd want to know why.

[ChpBstrd]

Just to clarify. The property is in Northern Ireland (uk)…..it’s cheap here, free medical.

If it's in a Low Cost of Living (LCOL) location, it must be an absolute mansion! Must have been lots of work to fix up, but here you are reaping the rewards selling amidst the next housing bubble!

Honestly, I don't think N.I. is on most people's radar. Here in the U.S. it's generally associated with religious fanaticism. But cheap housing and healthcare make it sound like a nice place to be! Especially in comparison to the U.S. where we have religious fanaticism, expensive housing, and expensive healthcare.

Based on suggestions it appears best to liquidate, then purchase a suitable retirement sized house by a small mortgage (or just cash….c. 400k ish perhaps) and invest the remaining capital based on aa….

That's my thought too, based on the available information (having not seen said castle).

[bthewalls]

Just to clarify. The property is in Northern Ireland (uk)…..it’s cheap here, free medical.

If it's in a Low Cost of Living (LCOL) location, it must be an absolute mansion! Must have been lots of work to fix up, but here you are reaping the rewards selling amidst the next housing bubble!

Honestly, I don't think N.I. is on most people's radar. Here in the U.S. it's generally associated with religious fanaticism. But cheap housing and healthcare make it sound like a nice place to be! Especially in comparison to the U.S. where we have religious fanaticism, expensive housing, and expensive healthcare.

Based on suggestions it appears best to liquidate, then purchase a suitable retirement sized house by a small mortgage (or just cash….c. 400k ish perhaps) and invest the remaining capital based on aa….

That's my thought too, based on the available information (having not seen said castle).

No your absolutely correct… religious fanaticism and ptsd….once cited as highest rate of conflict based trans generational ptsd in the world….buts its home lol…