Twice in my lifetime I have sauntered up to a Vegas craps table with a crisp new $100 bill, taken the dice in my hands, and rolled my way to big money – free flight and hotel nights thanks to Lady Luck. (*)
On both occasions, once well ahead, I very carefully tucked a $100 chip into my wallet. Going forward, win or lose, I was playing with house money.
Now… thanks to a robust stock market I’m once again playing with house money. Literally.
Awhile back when I outlined how we had deviated from an original goal (100% equities), some readers were quite unhappy about it.
And when I joked about buying a house, I got some nasty emails (read to the end.)
So this time around, I am making advance notice – we will probably buy a house. Renters for a half life.
Making an offer
2 weeks ago we actually made an offer on a house – all cash, no contingencies, as-is, close in a week.
After a couple months of looking I found what seemed an ideal candidate, a nice ~60 year old home with a sizable yard in a walkable/bikeable neighborhood near the California coast. It will need a new roof in a year or three, but is otherwise in respectable condition.
Family helped with a tour and inspection – I was able to “walk” through the house via video chat. To pull everything together I was up making phone calls at all hours of the night… With offers due at 5, I was able to get a carpenter friend-of-a-friend to climb into the attic and crawlspace just after lunch. A roofing contractor provided a quote shortly thereafter (~$14k.)
some photos from the roof inspection – very classy looking, “age of roof is unknown”
Ours was the lowest of 5 offers and the sellers declined to make a counteroffer.
We offered the asking price. According to Zillow the home has already appreciated 10%.
The Logic
This all happened by accident… we have been on covid lockdown for a couple months now and I was just doing some spreadsheets and analyzing some data, and one thing led to another… I may have gone a little stir crazy.
Does this make any sense? No, no it doesn’t. But here is the rationalization…
We’ve long been planning a return to the United States – we would like our children to spend time immersed in both of their cultures. We didn’t know where exactly, but we knew what we were looking for – a mid-sized city with good weather and schools.
Now post-covid a few things have changed:
– our interest in travel is not what it once was – I just want to bike and swim and Winnie wants to paint and bake. Combine this with the limitations of traveling around a school schedule and we are becoming No Go Curry Cracker. Life is good.
– the housing market is different – housing prices have jumped significantly. A lot of high income people with location flexibility also seem to like mid-sized cities with good weather, so the ratio between High Cost of Living areas and Mid-range areas is not as severe as it once was. This statement is time sensitive and will not age well.
– our portfolio is up even more than the housing market – it’s crazy. Near the bottom of the covid market decline we were down over $1 million. Now we have all of that back and then some. Pushing a bunch of our bond money into stocks during the downturn helped.
So we figured… why not let Mr. Market buy us a house? And maybe in areas we previously discounted because of higher housing prices.
The numbers don’t really add up, but it’s just a big luxury purchase so they don’t have to.
Risks
I explored how much we could pay without needing more income, whether to pay cash or get a mortgage, sequence of return risk with a mortgage, the tax implications of paying cash, how the SALT deduction limitation would impact our taxes as a homeowner, and more.
All of my extensive (over)analysis says it works – we still have a 100% retirement success rate with our projected California budget. There is some really interesting stuff in the details – I’ll share some of that in future posts.
But that is all putting the cart before the horse.
We are currently in a bit of a sweet spot – we can afford the houses we are looking at as long as the stock market doesn’t drop or home prices rise significantly higher. 10% either way and we miss the window and would then go back to looking at more medium cost of living places.
It actually may already be too late… the offer I made was already going to strain things a bit and prices are still climbing.
Maybe the stock market will jump 20% this week..
Summary
The housing market is crazy so I decided to buy a house. It didn’t work.
We are still looking though and maybe that house money will still find a home.
(*) also in my lifetime, I’ve certain I’ve lost more than I’ve won. The house always wins in the end.
Comments were disabled for some reason, sorry
Good for you! Hope that ends up working out for you and you get a house you like. Would a house closing speed up your timeline of moving to USA? Keep us posted
I’m in somewhat of a similar situation as you in regard to deciding whether to take out a mortgage or purchase with cash. Specifically, I’m leaving a HCOL area and building a home in a state with no income tax.
If I purchase with cash, I’ll have to sell a small chunk of shares in my brokerage account to combine with the cash I have on-hand. Unfortunately, because I’d have to sell prior to gaining residency in the no tax state, I’d be on the hook for 15% capital gains plus state and local taxes on those gains.
How did you handle your situation being you sold shares as well?
I think it’s great! I miss the early posts. We found some great places to visit! Happy you have the opportunity to allow life to evolve. With the help of this site we are getting very close to our checkout date. Definitely suffering from the one more year syndrome though.
Which places did you visit? I would love to go back to Guatemala and Mexico
Hey Jeremy,
Have you seen this concept that rich people use, where they borrow against their stocks to get cheap liquidity without the capital gains tax hit?
Here’s an article describing it: https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583
Have you looked into this? Does it make sense as part of post-FIRE strategy? I guess you don’t pay a lot of cap gains to begin with due to your gains harvesting. But maybe it could be a component?
Thanks! Love the blog.
It does make some sense – I actually have this on my future topic list.
You can borrow against a portfolio fairly cheaply with something like a pledged asset line, or against a home with a heloc.
The simplest example might be you want $100k for this year’s budget – instead of selling highly appreciated stock and having a large capital gain in a single tax year, you could easily split it across 2 or 3 years to keep inside of the 0% tax brackets for capital gains. This way you pay 2-5% in interest costs instead of 15% in taxes.
You might want to check out this blog, I’ve been following this blog for years. It is written from a U.K perspective, but the writer has documented his trials and tribulations using a margin loan through Interactive Brokers to purchase his dream home. https://firevlondon.com/2019/06/17/ive-paid-for-my-dream-home-in-less-than-4-years/
A margin loan is not often considered in the FIRE community. The book:The Value of Debt in Retirement , advocates that the use of a margin loan, for some people, can be very advantageous and create opportunities that others might not have. (I’m trying to determine if I can use this strategy for Roth conversions) The author’s view, such as many of yours, goes against the grain.
Thanks again for the blog and best of luck on the house search. It’s a crazy time to buy. I gave up four years ago and it’s gotten even worse in my area of Raleigh / Durham.
I’m super excited for this post!
And thanks for the info on mortgages for the non W2 crowd; also maybe worth a post.
I will do a post on the mortgage options.
Can’t wait to read this post, as my wife and I have been contemplating getting one of these mortgages but it’s a little hard to find info. Thanks!
Fantastic! You deserve every penny you make on your blog. It’s one of the most useful FIRE blogs out there.
Wow, thank you.
Please use my links for all of your credit card / travel hacking needs! :)
Free Travel
This is why I like your blog. You adjust your plan over time according to your changing values and priorities.
We are long-term renters by choice as well. Yes we want to buy a house someday when it makes sense for us. I’ve always thought that from a financial standpoint, investing in the market for several years then paying cash for a house is the right strategy for us. Your example just confirmed that for me. Right now we are prioritizing flexibility, fixed expenses, and stock market growth so renting is good.
This approach did work well for us.
There are some downsides – in States like California that cap property tax growth rates buying early can be a big benefit. Prices have doubled or more in some places – buying 9 years ago would have a property tax bill around half the size.
Even though our portfolio also doubled, it costs more in tax to pull out the larger sum with greater gains.
On the upside, we had no idea we would ever want a house 9 years ago and were as of yet unsure about having kids. Or that we might want to stay in one place. It is often unwise to buy a house before you feel you are ready.
Agreed. That is real life is. Plan keep changing base on life . Thank you Jeremy for always to be real to your blog supporter . we learned it from step to step.
Exciting times! I hope Taiwan continues to treat y’all well while you make arrangements to leap the Pacific. I am amazed by the freedom and contentedness of mature interests: the things my wife and I share in music and cooking and running, your biking and swimming, Winnie’s art and baking. It’s so liberating to find happiness from the simple things rather than chasing the next expensive dopamine hit. Good luck with your plans!
Using NY Times and ACT, Aus relevant inputs,:
$1,000,000;
35 y;
100% down;
7% price growth;
2.5% rent growth;
7% investment growth;
2% inflation;
0.25% tax;
0% marginal rate rate;
3.5% buying & selling costs;
0.25% maintenance;
0.06% insurance;
0% landlord utilities;
0% common fee;
then:
“If you can rent a similar
home for less than …
$129 PER
MONTH
… then renting is better.”
Rents would be ~$3,000 / month.
The key is “How Long Do You Plan to Stay?”
Now I just need to find a place for $129/month! :)
S.F. spends more than $60K per tent at homeless sites.
“three meals a day, around-the-clock security, bathrooms and showers”
https://nypost.com/2021/06/26/san-francisco-run-homeless-encampment-costs-60k-per-tentsan-francisco-run-homeless-encampment-costs-60k-per-tent/
Virtual inspection:
https://www.google.com/maps/place/Pioneer+Monument/@37.7797327,-122.416218,72m/data=!3m2!1e3!4b1
The US is very good at spending infinite money on symptoms after refusing to spend any money on root cause.
Interactive Brokers 1% margin loan for the win?
Sell once you have the house if you want to lock in the gains?
Anyway, good luck. Crazy times for house hunting I’m sure.
South African property super cheap at the moment because of lockdown and riots. Not the place for kids though, lol. But Cape Town is beautiful and bikeable =)
So I’m f.i.r.e…I need a loan to pay for my “special assessment” I don’t feel special…for my condo. Tried 2 banks and 2 mortgage companies…no job no income no loan. Based in Washington state. Other then a margin loan (most will give 25 to 35% of your taxable acct) been told Roth and reg iras not eligible.
You can get a traditional mortgage based on assets only via Schwab and Quicken Loans / Rocket Mortgage.
More here:
https://www.schwab.com/public/schwab/banking_lending/todays_mortgage_rates
I love reading your blog because I am so tired of reading about all those youngsters traveling around and living frugally with no children.
I did that, I would never take it back! Now I have a family, and a kid who loves his community. Life IS good and great investment advice from someone in a similar position is a breath of fresh air.
Looking forward to your next post.
Thanks Steven. I do sometimes miss being a youngster…
You have written about how your family has saved a lot of money on healthcare while living in Taiwan rather than the US. What are the healthcare options you are considering when you return to the US? This cost is the main reason I moved abroad. I still have 9 years until I can get Medicare and the Obamacare plans are still too expensive with poor coverage.
We will get some Obamacare with subsidies for having income in the 250% FPL range.
Can you expand on your comment about plans being too expensive with poor coverage?
See my ACA premium calculator to experiment with pricing
For background:
Obamacare Optimization in Early Retirement
Obamacare Optimization vs Tax Minimization
Poor coverage – I have an HMO and all the options on Healthcare.gov are HMO right now as well.
Translation: I have to ask permission from my primary doctor to see anyone else. After I ask for permission, there are very few providers on the network and sometimes have to drive far to see them. Because the cheaper doctors are cheap, they have tons of patients so sometimes there is a waiting list.
With all that said, an Obamacare plan is adequate for an early retiree and definitely affordable after subsidies.
Your mileage may vary depending on your state.
I used Obamacare in 2016 and it was about $1,000/month and basically catastrophic insurance with high deductible and copay 80%. I take medicine which would cost +$1,000/ month in the US. Plus I spend time in multiple states which may not support the plan, I contacted Marketplace and I was told I would have to pay out of pocket without insurance support. It is a frustrating system which is not national. Thank you both for your comments. I will take another look at ACA and see if I can find a plan that works.
If you made more than 400% FPL in 2016 then you had to pay the full unsubsidized cost of insurance. That is not inexpensive so people choose Bronze plans which have incredibly high deductibles. It’s a slap in the face to pay $12k/year for insurance and then also have to pay $12k for care before getting any return.
In 2021 (only, unless extended) subsidies have been improved and the subsidy cliff at 400% FPL goes away.)
See more here: The American Rescue Plan Act of 2021
Be happy that you can get an HMO. I just moved from Utah to Tennessee and the plans in TN are all EPOs.
I had no issues at all in Utah seeing any provider I wanted (even with an HMO), but now my EPO plan is basically useless. Nobody is in-network. Even though they accept most plans from my insurer (United Healthcare), they don’t accept my plan. Just today I was supposed to see a PT, but they cancelled the appointment on me yesterday because of my plan.
And here’s the kicker: apparently in TN if I have insurance, they are not allowed to accept me as a self-pay patient, even though I have a high deductible plan and would be paying out of pocket either way. I am literally going to cancel my insurance on Monday so I can see the PT on Thursday.
Did you decide on the location in CA?
Based on offering the asking price, safe to assume it is not the Bay Area :-) Curious if you found other NorCal cities with same diversity. I often think of selling my Bay Area house but then again I have not found comparable cities for my lifestyle.
The house I made an offer on was in Santa Cruz.
Sacramento area is fairly diverse – 1 in 5 people are Asian, 1 in 5 foreign born, etc…
It’s hotter than immediate SF area.
Repatriating can be hard. Much has changed in the last ten years.
Yes… not looking forward to this.
Just saying…give yourself the grace to realize it’s hard, get any help you might need, and also be open to it working or not working, and that Winnie may actually have an easier time.
That makes a lot of sense, thank you.
AZ homes are less expensive than CA homes and just few hours of drive to San Diego and Vegas and Grand Canyon.
Florida, the coastal cities, are also very reasonable in price if you are still looking for a home. CA has been always overpriced, high crimes, lots of homeless, natural disasters and high taxes.
That is an interesting assessment of California
Flagstaff today
“It actually may already be too late… the offer I made was already going to strain things a bit and prices are still climbing”
… I dunno, it feels like this has to stop at some point right? If prices keep rising people won’t be able to get their 20% downpayment….
unless banks start relaxing the down payment requirement because they know that home prices will just keep going up forever. What could go wrong?
I don’t think W2 people are the ones buying houses- these are equity purchases, from stock market or real estate gains.
In places like Santa Cruz, you’re probably right.
Of the 5 offers received on the property we bid on, we were the only cash offer. But at least 2 of the other offers were mostly cash with just small loans… this just tells the seller that there is no risk of a “low” appraisal forcing the buyer to back out. Point being – lots of cash out there.
I think also in Santa Cruz there are people making $400k/year who were paying $4k/month for a shitty 1-bedroom apartment in Palo Alto or Mountainview. $4k/month is the mortgage payment on $1 million. Combine with some recently exercised stock options at all-time highs and you got yourself a nice work from home situation.
Not everyone can work from home of course – some friends at Google are now 3 day / week in the office – the number of people willing to do a 3 days/week commute from SC is substantially higher than those willing to do it 5 days/week.
Bummer. You’d think a 30-mile commute over a two lane mountain road in heavy traffic would be turnoff for any days per week, but hey, that’s America.
we need a tunnel to Los Gatos
cc: Elon Musk @ The Boring Company
Barely my place to suggest but have you considered building a “Granny Flat” on a relatives property?
Serve many purposes at tenth the cost and improve relatives asset.
Useful a a temporary lodging when visiting country.
Your quest seems driven by connection to relatives, national culture, fair weather and possibly to proximity to tech markets.
Tech puts people, cultures, and markets in contact. Air conditioning make all weather fair.
We were looking at this in the other direction – possibly having a granny unit on our property.
There are a lot of zoning restrictions against this in many areas but they exist. It isn’t much of an option for us as our relatives in the areas we were looking rent or live in condos. My other relatives live in Minnesota where no amount of tech will make me want to spend another winter.
https://www.ca-ilg.org/sustainability-case-story/santa-cruz-implements-granny-flat-program
70 m^2 (750-square-foot ) … building to cost $350,000, due to high cost for materials and stringent city building requirements. [Self build – sky high price?]
+assembly: https://i-build.com.au/2-bedroom-house-plans/
turn-key ~$A200k: https://www.canberragrannyflatbuilders.com.au/secondary-residences/secondary-residence-granny-flat-designs
Hey Jeremy… At 62 yrs. old all I want to do for fun is swim and bike. And in my search for travel destinations good bike trails and a decent pool are musts. My go-to fall/spring escape is Tucson. Miles and miles of paved “The Loop” paths and awesome outdoor pools.
I’ve done some biking in Tucson, outside of town on dirt trails. That was a good time.
Just spent a handful of minutes tooling around Santa Cruz via Google Streetview. Awesome town on the water there. Too bad it didn’t work out!
Considering some other towns for other offers or are your hearts set in that area? I’ve poked around CA’s coast a number of times with a little imagination about beachy mornings and still being in the US, but it’s a struggle to find something that matches what’s in my head. Seems like Mexico might be better suited for me, but, there’s a bunch of negatives to that…
If we had no kids we would stay outside the US. Or main motivation for US living is so our children can experience both of their cultures
Mexico is great. Coastal life in Mexico is crazy hot, but that is why you siesta
I remember running the numbers on renting vs buying and when math came out in favor of renting, I bought a house anyway. Sometimes the right decision isn’t always the financially optimal one, especially when you have kids. That’s something I wanted to write about in my blog.
Why, oh why!? I understand you’ve been stuck on a small island in a foreign environment/culture for a while and experiencing some serious cabin fever. It can take a toll on a person. But please think really hard and remember why you left the US years ago. Things have not changed for the better since. The grass is always greener on the other side. I know, the only way to realize this, you actually have to come back and see for yourself. Just don’t make this HUGE and STUPID mistake of buying a house first. If you like it back here then there will always be plenty of opportunities for you to buy a house. But if you don’t then you won’t have a huge anchor to keep you in place killing your dreams and possibly even sink you financially. Anyway, you have the whole world open to you. Why not move to some place that is actually pleasant, like Portugal for example? Beautiful weather and landscape similar to California but without the plastic-cardboard ‘culture’ you’re missing so much. Why not pick any of dozens of nice affordable countries with good and cheap health care, safe streets, governments that actually care more about their citizens than big money. Sure, your kids will not grow up American, but on the bright side, will have a chance to live their lives in a healthier, less consumerist and work and money obsessed society.
Hi Chris :)
I probably agree that buying a house is a poor financial choice. But…. oops, too late :)
What is the reason that you think I left the US? It isn’t that I disliked the people or place, which is how I read your statement.
How long have you lived in Portugal?
Cheers
Jeremy
Hey Jeremy.
I didn’t mean or think that you disliked the US. I thought that you just didn’t love it with all your heart if you decided to travel the world to see if there is something better out there :)
You’re right. I have never lived in Portugal. I only visited there 3 times for a few days. All I’m trying to do is to give you some advice based on my own experience. We were living overseas a few years ago. After hitting a few rough patches and a bit of nostalgia we took the easy and familiar way out – moved back to the US, bought a house, etc. Now the kids are set in their schools (cry if you mention moving). Have a nice comfy suburban life like everyone else around. At night dream about moving far far away someday…;) If this is what you’re missing then Welcome Home brother!
Anyway, love your blog! I’ve been following it since 2015 or 14.
Yeah that all makes sense. Sorry sometimes things get lost with text only communication :)
When we were working and saving hard, our goal was to save enough to fund our desired US lifestyle – 2 kids, dog, nice house, sweet bicycle, etc…
But then we left the US. Why?
– we like travel (and coming home again)
– could live large while continuing to live well beneath our means (e.g. $200/month rent in Guatemala.) The idea was to let the portfolio grow and have some adventure. It did and we did.
When we decided we were ready to have kids, we settled down in Taiwan because it is both a great place to live and a great place to do IVF – great results and inexpensive relative to US.
Now the kids are older – Jr is ready to start 1st grade. So back to the US we go. The only thing the pandemic did was change the year from 2022-2023 to 2021.
We fully expect to stay in place for the school year for the next 17 years or so until kid #2 graduates high school. We will still do some regular trips – skiing, visit family in the US, visit friends/family in Taiwan, etc… and we have summer flexibility to do something bigger if/when we wish. There will probably be another Europe trip, etc…
Once the kids are grown and gone… maybe Portugal :)
(Portugal is nice – we have friends who bought a condo in Porto to use as a part-time base for traveling the rest of Europe.)
Anyway, it’s all good – a comfy suburban life is nice, assuming you have a good bike and walk score. I’m going to get a smoker and make some killer brisket and pulled pork, sign the kiddos up for the baseball team, and bike/swim/write.
Ok. It looks like you have everything well thought out. At first, I was a little afraid that you were making a hasty decision out of frustration. You’ve been on the road for so many years that hopefully the suburban blues won’t hit you as quickly and hard as it did for me :)
You’re correct about staying put for school. In my experience 2nd grade is the latest cut-off point for moving before it takes a toll on the child’s psyche. As for traveling around the school schedule with 2 kids inside (or out of) the US. Well, that will really test your travel hacking skills :) I am waiting for some future posts on that topic.
Looks like we may meet around the same time frame in Portugal. I am actually having a major FOMO syndrome myself about buying property there before all those “pesky rich Californians” swoop in and rise the prices to the moon LOL. Need to talk myself out of it from time to time.
Probably not a lot of peak-season travel hacking in the future for flights. Hotels still work.
Life in the US will be like anywhere, some pros / some cons. Focusing on the priorities and personal values will tip the scales more to the positive side.
“I probably agree that buying a house is a poor financial choice. But…. oops, too late :)”
So you found another house and bought it?
Yes, we close in a few days.
I’m happy about it but I also want to vomit :)
Lol. I owned a house once in my life and I had that feeling. I’m over it now.
Congratulations!!!
I’m so excited for you guys!
Congratulations on your new home! CA is beautiful.
I eventually moved because I was uneasy with having so much of my net worth tied up in my house.
I’m glad you’ve (over)done the math and it works for you.
I look forward to future posts on this adventure. It will be a great experience for your family.
What did you decide was too much net worth in the house?
I targeted somewhere around 20-25%. Operating costs occupy another 15% (4% rule to pay maintenance & property taxes.) Another few % for furniture, move-in adjustments/repairs, etc…
50%….some days higher.
In 20 yrs house went 4x.
House helped me achieve FIRE on paper, but having all of that appreciation locked up meant I couldn’t really FIRE.
I could have used the house like a credit card (big cash out re-fi’s, HELOCs, etc), all my neighbors did that, but I wasn’t comfortable with it. Doesn’t really feel free to me.
Since I sold it…it’s nearly doubled again. (new owners are psyched!)
I’m very satisfied. Moved to an incredible area, got a great place (10% of net worth), and love it. With upgrades I’m doing will end up around 20%. So I think your target is good.
Yeah 50% is hard to make it work – I was looking at up to 40% but reason prevailed.
Santa Cruz?
Hello…looking for insight on what I should do with the proceeds of my home sale of about $600,000. I don’t plan to buy another home. I would like to do some Roth conversions over the next couple years and will probably max out 401K and live on cash for the rest. Should I spread it out between HYSA and Money Market funds to spread out the risk? I’m 57 and plan on retiring next year. Thank you!
Honestly, very hard to say. This is just a small part and it would require looking at the whole picture.