Is Staying in the Same Home for a Long Time Good for Wealth Building?

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bigtex
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Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by bigtex » Fri Mar 22, 2019 9:53 am

Hello,

It has been said that staying long term in a home 15+ years can have a positive effect on wealth building. Why is this so? Are the transaction costs of buying and selling homes really that high? Is that the only factor at play?

Bobby206
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by Bobby206 » Fri Mar 22, 2019 9:57 am

Rough math but it's easy to spend 10% of purchase price between real estate closing costs on sold house, moving costs, fixing stuff at new house. Just stay where you are at is generally best. Also, in my personal experience, our house is slightly smaller than we ideally wanted but has worked out. A few times we wished it were bigger but when painting, remodeling, etc... smaller is better.

basspond
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by basspond » Fri Mar 22, 2019 9:59 am

By staying in a house you lock in your highest expense, housing.

oldlongbeard
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by oldlongbeard » Fri Mar 22, 2019 10:25 am

"Millionaire Next Door" book says yes.

adamthesmythe
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by adamthesmythe » Fri Mar 22, 2019 10:28 am

Yes, the transaction costs are pretty high, especially if you are honest about the cost of moving, overlap in payments, "necessary" repairs on each side,...

In some cities transfer costs alone can be near 5%.

What you gain by not moving:

- no costs for the churn
- steadily decreasing housing costs (mortgage gets paid off, even if not paid represents a decreasing fraction of income)
- better knowledge of maintenance needs (more surprises in houses new to you)

chw
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by chw » Fri Mar 22, 2019 10:38 am

I would say this statement is generally correct, predicated on the following-

1) You don't overbuy a home for the household income you generate (or expect to generate if income will decline while having children, or some other life event).
2) You choose your home's location well- not having to move due to demographic changes that may force a move (such as health and safety).
3) You properly inspect the home at time of purchase, and avoid major expenses for repairs or renovations that turn the home into a money pit.

Transaction costs can quickly eat up any gains a typical seller may have when selling their home. The next home purchased will likely erase whatever gains were seen from the previous home, as renovations are completed to make the home suit the buyer's tastes.
Last edited by chw on Fri Mar 22, 2019 11:48 am, edited 1 time in total.

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vineviz
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by vineviz » Fri Mar 22, 2019 10:51 am

Bobby206 wrote:
Fri Mar 22, 2019 9:57 am
Rough math but it's easy to spend 10% of purchase price between real estate closing costs on sold house, moving costs, fixing stuff at new house. Just stay where you are at is generally best. Also, in my personal experience, our house is slightly smaller than we ideally wanted but has worked out. A few times we wished it were bigger but when painting, remodeling, etc... smaller is better.
Yes.

And in addition to the transaction costs, lifestyle creep is a serious risk. I fell safe in saying that, with the exception of empty nesters and/or retirees, most people who sell one house and buy another are moving to a bigger house and/or a "better" area. This has not only a direct impact on expenses (insurance, maintenance, taxes, mortgage interest, etc.) but it also tends to put families in contact with people who have more income and/or a higher standard of living.

"Keeping up with the Jonses" is definitely a real affliction, and staying put in a home for last long as possible is a proven way to reduce the risk of it happening to you.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

DesertDiva
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by DesertDiva » Fri Mar 22, 2019 10:55 am

Yes, as long as you invest the difference and resist the urge to spend more on discretionary items during your accumulation years.

bullmoose85
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by bullmoose85 » Fri Mar 22, 2019 11:14 am

Consider that for the first few years of a 30 year mortgage, your monthly payment is mostly interest. It's not until the later years that you really start making a dent in the principal, thereby building up more equity. So it would make sense, along with the other reasons mentioned, that buying and selling every few years is not conducive to wealth building, and staying put is.

Ybsybs
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by Ybsybs » Fri Mar 22, 2019 11:18 am

bigtex wrote:
Fri Mar 22, 2019 9:53 am
Hello,

It has been said that staying long term in a home 15+ years can have a positive effect on wealth building. Why is this so? Are the transaction costs of buying and selling homes really that high? Is that the only factor at play?
My opinion:
(1) Yes, transaction costs are high:
-Transaction costs I've seen in my own purchase and sale and seen disclosed by close friends and family are on the order of 6% minimum.

(2) Yes, there are other factors at play too:
- In some areas (California *cough*), your property taxes are set at your purchase date and don't go up again after... which can be a huge savings if you are in the place for 40 years.
- Moving even just across town can cost a few hundred bucks for packing materials, truck rental, and beer & pizza for friends if you use the DIY approach or a thousand or so if you hire out.
- It's easy to have lifestyle creep in the exchange of old house for new house. Even in 'downsizing' from a house sized for a young family to a house sized for mature couple tends to come with wanting the new place to be filled high price point features for all that it might be a small total square foot home.
- Moving for more highly rated schools tends to involve moving into a higher property tax area.
- A new house tends to come with new expenses of repainting, maybe remodeling, and maybe buying of new furniture to go with the new place.

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220volt
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by 220volt » Fri Mar 22, 2019 11:45 am

By hoping form house to house not only you spend ungodly amount on transaction costs, closing costs and fix-ups, but you are not building much equity either since most of what you're paying upfront is interest. So it's a multiple whammy against you. As matter of fact, if you plan on changing houses every 5 years, you would probably be better off by renting.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart


Admiral
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by Admiral » Fri Mar 22, 2019 12:28 pm

Another factor is that housing prices (typically) go up, at least matching inflation. If you stay, your costs are fixed. If you move--presumably for a more expensive and not a cheaper home--your costs keep going up as home prices rise. Yes, there are exceptions, such as people downsizing. There's also the issue of interest rates. They fluctuate, but if you get a good rate and keep it you don't face rate risk as you would when buying a new home.

FederalFIRE
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by FederalFIRE » Fri Mar 22, 2019 12:51 pm

Even moving among rentals incurs more expenses. I'm in a temporary (5 year) situation where I'm living in a rental and I was astounded surprised with how much we spent at the time of moving in for basic things like rug for the hallway, picture hooks to re-hang everything, curtains for the bedroom, etc. etc. All money that would have otherwise gone to savings. Even without the closing costs, etc. this alone would add up substantially if moves are frequent.

Thankfully I've got a good tenant back in the States paying all my carrying costs to keep our house there and pay down the mortgage while I'm gone :beer

rashad3000
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by rashad3000 » Fri Mar 22, 2019 1:11 pm

Very interesting post!!!

I have a friend who has been in a 2000 sq ft home for about 9-10 years. She may have paid $150,000 for it. It may be worth around $225,000 now. She has one child. She recently built a 3000 sq ft home for close to $400,000. Hasn't been able to sell the previous home yet. She has a paid off Accord, but she bought a Lexus for the weekends.

I know that she is absolutely drowning in debt.

rashad3000
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by rashad3000 » Fri Mar 22, 2019 1:13 pm

It's just like with educators. If you stay in the same state for 30 years and teach, your pension plan will be worth more than if you teach in 3 states for 10 years each or 6 states for 5 years each.

The longer you stay somewhere, the more you reap the benefits.

scottgekko
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by scottgekko » Fri Mar 22, 2019 2:05 pm

It depends - in a vacuum, yes it makes sense because you lock in your transaction and inflation costs. However, there are outside opportunity costs that may offset that. Perhaps you turned down better job or promotion opportunities because you didn't want to move so your income stagnates for 15-20 years. Are you really better off "aging in place" in your career? Some career industries, this wouldn't matter, but a lot of times, you have to be flexible to take advantage of career growth.

delamer
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by delamer » Fri Mar 22, 2019 2:20 pm

Transactions cost are important.

But so is the effect of moving up in housing as your income increases. It is a classic problem that as some people become more affluent, they spend more rather than saving more.

And it isn’t just the purchase price, but the utilities, taxes, and furnishings. Not to mention that when you take a new mortgage, you are delaying the time when you are mortgage-free (assuming you are starting at 30 years again).

VACat07
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Re: Is Staying in the Same Home for a Long Time Good for Wealth Building?

Post by VACat07 » Fri Mar 22, 2019 2:37 pm

The only time that I have found it beneficial to sell was in a hot real estate market where the gains will start to exceed the $250K/$500K exclusion. Bought in the mid-90's in the DC area and sold in 2008 b/c we were moving overseas. We thought about renting out, but realized we had almost $500K in gains. We decided to pocket that. Later we bought back in the area in 2012, and we have roughly a $300K gain again. At this point, the market has slowed considerably, so I don't see us hitting that $500K again for a few years. Since it will be close to retirement, we'll just stay until then and potentially pay some tax over the $500K gain. But again, this is unusual unless your in a hot and expensive market area.

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