Looking at Real Estate Downsizing for FI

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ClemsonBogle
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Joined: Fri Apr 07, 2017 9:11 am

Looking at Real Estate Downsizing for FI

Post by ClemsonBogle » Mon Sep 10, 2018 11:34 am

Needing some help with my thinking. I am in a little analysis paralysis.
1. I feel like financial independence would be lovely but having never experienced it i have no idea. Part of the goal to get there would be paid off home and minimizing monthly payments. In order to achieve this i have been researching homes in the same general area that i live now but much smaller and or further away from work less desirable places to live by common consensus.

The place i live now is a at the lowest price end of area (close to city center) and has easy access to work (3 miles) and activities i enjoy. It is at about 60% (350-400k) of the average home (avg homes are 600K + and 1M is not uncommon). This neighborhood homes have an average time on the market of less than 15 days. So all good. Bad is an HOA that is around 4K a year, and taxes almost as high. SO 6-700 a month even with no mortgage. If i aggressively pay this mortgage off i can be done in 7-8 years.

I could move 3-5 miles further out from where i live and the price of single family homes would drop to 200K. Taxes to 1300 a year, HOA would go away but obviously more maintenance would be required by me. These homes would be further away from everything but would be paid off immediately. I think these places will take longer to sell and are just in general less desirable.

I have no plans to move, my job is fairly secure, i am not stressed at all by my current situation. Its just hard to imagine that i will pay almost as much as rent would cost for a 1 BR in taxes and hoa fees even when my mortgage is paid off. But it also means if i move it will sell and my property and lifestyle are fairly protected from adversity.

PS i dont really consider my home as part of my net worth, aka you have to live somewhere. I would prefer it keep up with inflation and be as liquid as possible in case of job moves etc. This is my 4th home and the first one it took a day to sell (made 10K in 12 months was in a great location i moved further out), second took a year to sell to lose 10K (this was a much bigger house further from city center and brand new but builder was still building new things when time to sell), third took 4-5 months to sell to lose 30K (close to city center but was selling in 2012 in a stagnant job market area).

PPS If i was retired tomorrow i probably wouldn't stay in this city but for working life it currently a nice balance between access to things i enjoy.

PPSS no kid/school concerns need to be considered.

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Cycle
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Re: Looking at Real Estate Downsizing for FI

Post by Cycle » Mon Sep 10, 2018 2:14 pm

I wouldn't move further away. I'd either do nothing, or rent... Possibly renting current residence if it cashflowed (which I doubt it will).

Anther option would be to rent out a spare bedroom.

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Meg77
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Re: Looking at Real Estate Downsizing for FI

Post by Meg77 » Mon Sep 10, 2018 2:27 pm

We'd need to know your other financial and personal details to see if downsizing your house is worth it or necessary.

To use extreme examples: If you're 60 and have no savings plus credit card debt, then downsizing is a no brainer. If you're 30 with millions invested and no debt, then there's no need to make a move that would negatively impact your lifestyle. Anything in between and, well, it depends.

In general though, if you're able to save 15%+ for retirement and either have no consumer debt or are paying it off steadily, then your current housing costs aren't impacting your ability to live within your means and build wealth. (A good rule of thumb is to keep ALL housing costs below 30% of your gross income.) So I wouldn't sweat it unless you want to retire sooner and/or save more. But even if that's the case you could cut other expenses and/or pick up a side hustle if keeping your house is more important to you. You could also get a roommate or rent a room on airbnb now and then. Lots of options besides moving to get you closer to FI more quickly.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Cycle
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Re: Looking at Real Estate Downsizing for FI

Post by Cycle » Mon Sep 10, 2018 2:45 pm

Rover is another option if you don't want to rent out space to humans (dog boarding).

HEDGEFUNDIE
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Re: Looking at Real Estate Downsizing for FI

Post by HEDGEFUNDIE » Mon Sep 10, 2018 2:50 pm

If you want to be truly “independent” you should rent.

ClemsonBogle
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Re: Looking at Real Estate Downsizing for FI

Post by ClemsonBogle » Mon Sep 10, 2018 3:23 pm

Sorry, i was trying to say i dont need to downsize at all. I just get frustrated by the expense that seems avoidable due to HOA and taxes but i appreciate the convenience it affords. I guess i was trying to get a sense of if it costs me 25 dollars every day no matter what to live where i do in taxes and hoa if there was some benefit to moving that substantially down.

I am 40, with only a rental property as additional debt (it is cash flow positive). I'm saving about 50% of my income (max 401K, Taxable accounts, and Early Payment on Mortgage).

I have saved more than 20% of my income since i was 21 so compounding is working to my favor (and a long bull market).
My current mortgage and hoa represents less than 11% of my gross monthly.

adamthesmythe
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Re: Looking at Real Estate Downsizing for FI

Post by adamthesmythe » Mon Sep 10, 2018 3:35 pm

When you are working it is really valuable to live close to work and entertainment. Taxes/ HOA are the price you pay for a short commute and convenient living.

Is it really worthwhile to retire early, move far away, and worry about health insurance?

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