Follow your head or your heart

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Hpyhrt
Posts: 17
Joined: Mon Aug 01, 2016 4:18 pm

Follow your head or your heart

Post by Hpyhrt » Mon Aug 12, 2019 9:47 am

No one likes change but my rent has increased from 2169 to 2439 in 4.5 years. I am an extremely conservative investor but I still have (on paper) slightly over 1M (nearly 3/4 is still untaxed.) I've been retired for 4 years. I like where I live. It is surely HCOL and I know I'm flushing my rent down the toilet. I have another opportunity to purchase a co op for 235K, monthly HOA $400. It is smaller and in a town that is a lot less bucolic but not far from where I am now.
I also suspect my own inertia in this decision making. The co-op has all the 17 year old appliances it came with so I'm guessing replacement would need to occur relatively soon. I collect $2,137 in SS payments after medicare deduction. This co-op is has tax subsidies courtesy of the town so resale would be what I paid + CPI - 2% fee to the town. I would not be building equity.
So..... move to a smaller/less expensive apartment in the complex I am now living in.
Buy the co-op and hope for the best.
Pray for divine inspiration.
I was hoping that writing all of this would light a bulb. Still very dim.
Thank you.

User avatar
willthrill81
Posts: 11862
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Follow your head or your heart

Post by willthrill81 » Mon Aug 12, 2019 9:52 am

Renting, contrary to popular wisdom, is not "flushing money down the toilet." If you buy into this other option, you will not be able to use the $235k to invest and will still have $400 of monthly expense. You would save about $2k per month or $24k per year, which seems to be a very good return on your $235k. But it's not apples-to-apples either since it is smaller and in a different area that may or may not work better for you. No potential to outpace inflation with your $235k purchase price isn't great, but only having to pay a 2% fee is less than what you would pay a real estate agent if you used one.

Only you can determine whether this is a good option for you, but based on what you've provided us, it seems like it may be significantly better financially than where you are now.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

HomeStretch
Posts: 1123
Joined: Thu Dec 27, 2018 3:06 pm

Re: Follow your head or your heart

Post by HomeStretch » Mon Aug 12, 2019 10:01 am

It can make sense to rent, it can make sense to buy. I think in your case it’s more of a personal decision.

You had a similar post 2-1/2 years ago where you decided to move from your rental and buy a senior co-op. What changed your mind about buying? Do you feel differently now?

rich126
Posts: 551
Joined: Thu Mar 01, 2018 4:56 pm

Re: Follow your head or your heart

Post by rich126 » Mon Aug 12, 2019 11:07 am

I'm not a fan of permanently renting for reasons like this (rent continually going up), and moving to a new place is painful and may be costly.

I'm also not a fan of co-ops.

What does the $400 monthly fee get you? Just general building maintenance?

How likely is it for the rent to continue to increase? How long have you lived there?

Personally I've never found a perfect living situation. I've had nice homes in wonderful neighborhoods but I'm not a huge fan of doing my own maintenance or yard work. Living in an apartment or condo seems to often come with problems (increase in rent, difficulty of selling a condo, noise, getting maintenance done, etc.).

If you could guarantee me a sound proof, well maintained, rodent free, condo where I didn't have to do anything myself, that would be perfect but I don't think those exist.

Swansea
Posts: 677
Joined: Sat Feb 13, 2016 5:16 am

Re: Follow your head or your heart

Post by Swansea » Mon Aug 12, 2019 11:37 am


02nz
Posts: 2112
Joined: Wed Feb 21, 2018 3:17 pm

Re: Follow your head or your heart

Post by 02nz » Mon Aug 12, 2019 12:00 pm

Buying may or may not make sense, but don't do it thinking rent is going up quickly. $2169 in 2014 is equivalent to about $2346 in 2019. In real terms, your rent has gone up about 4%.

User avatar
willthrill81
Posts: 11862
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Follow your head or your heart

Post by willthrill81 » Mon Aug 12, 2019 12:03 pm

02nz wrote:
Mon Aug 12, 2019 12:00 pm
Buying may or may not make sense, but don't do it thinking rent is going up quickly. $2169 in 2014 is equivalent to about $2346 in 2019. In real terms, your rent has gone up about 4%.
In a HCOL area, that's not bad at all. We live in a MCOL area, and property values and rents have gone up significantly more than that in real dollars over that time frame.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

02nz
Posts: 2112
Joined: Wed Feb 21, 2018 3:17 pm

Re: Follow your head or your heart

Post by 02nz » Mon Aug 12, 2019 12:08 pm

That $400 fee likely includes an underlying mortgage the co-op has (I forget the precise term). That's why co-ops are often cheaper to buy than comparable condos.

Vanguard Fan 1367
Posts: 1037
Joined: Wed Feb 08, 2017 3:09 pm

Re: Follow your head or your heart

Post by Vanguard Fan 1367 » Mon Aug 12, 2019 1:33 pm

Hpyhrt wrote:
Mon Aug 12, 2019 9:47 am
No one likes change but my rent has increased from 2169 to 2439 in 4.5 years. I am an extremely conservative investor but I still have (on paper) slightly over 1M (nearly 3/4 is still untaxed.) I've been retired for 4 years. I like where I live. It is surely HCOL and I know I'm flushing my rent down the toilet. I have another opportunity to purchase a co op for 235K, monthly HOA $400. It is smaller and in a town that is a lot less bucolic but not far from where I am now.
I also suspect my own inertia in this decision making. The co-op has all the 17 year old appliances it came with so I'm guessing replacement would need to occur relatively soon. I collect $2,137 in SS payments after medicare deduction. This co-op is has tax subsidies courtesy of the town so resale would be what I paid + CPI - 2% fee to the town. I would not be building equity.
So..... move to a smaller/less expensive apartment in the complex I am now living in.
Buy the co-op and hope for the best.
Pray for divine inspiration.
I was hoping that writing all of this would light a bulb. Still very dim.
Thank you.
I don't like either of the options. Is an option to keep looking something that you could consider?

I am in a "bucolic" area. I had to look up the definition: rural, outdoor, unspoiled, idyllic, country. I like my bucolic place much better than where I used to live downtown.

bloom2708
Posts: 6555
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Follow your head or your heart

Post by bloom2708 » Mon Aug 12, 2019 2:51 pm

Price out replacing all appliances, your hot water heater, painting the whole place and replacing all the flooring. On top of the $400, you have higher insurance and property taxes.

Your rent increase is "cheap". :wink:

You are sleeping, eat, watching TV, storing your stuff, keeping rain off your stuff. Not throwing money away.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

ohai
Posts: 918
Joined: Wed Dec 27, 2017 2:10 pm

Re: Follow your head or your heart

Post by ohai » Mon Aug 12, 2019 2:55 pm

Under OP's parameters, I'd choose renting for the primary reason that it is easier to change lifestyle in response to a financial disaster. Renting gives you freedom to move, and this makes it the preferable option if prices are the same.

User avatar
Mlm
Posts: 405
Joined: Sat Apr 09, 2016 6:00 pm

Re: Follow your head or your heart

Post by Mlm » Mon Aug 12, 2019 3:09 pm

I would stay put. You like it where you are and the co-op doesn't offer you any financial advantage. If you feel strapped for cash in the future look around for something cheaper in the area you like.

User avatar
willthrill81
Posts: 11862
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Follow your head or your heart

Post by willthrill81 » Mon Aug 12, 2019 3:19 pm

Mlm wrote:
Mon Aug 12, 2019 3:09 pm
I would stay put. You like it where you are and the co-op doesn't offer you any financial advantage. If you feel strapped for cash in the future look around for something cheaper in the area you like.
He would get over a 10% return on his purchase price at the co-op vs. renting and can get his money back + CPI - 2% if/when he wants. That's a sizable financial advantage.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

H-Town
Posts: 1902
Joined: Sun Feb 26, 2017 2:08 pm

Re: Follow your head or your heart

Post by H-Town » Mon Aug 12, 2019 3:22 pm

02nz wrote:
Mon Aug 12, 2019 12:00 pm
Buying may or may not make sense, but don't do it thinking rent is going up quickly. $2169 in 2014 is equivalent to about $2346 in 2019. In real terms, your rent has gone up about 4%.
4% over 5 years. I guess it's not that bad.

Lee_WSP
Posts: 621
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Follow your head or your heart

Post by Lee_WSP » Mon Aug 12, 2019 3:38 pm

What Will said. Your opportunity cost from losing out on 6% expected returns from the down payment pretty much always wipes out most gains from owning a house.

Raise that opportunity cost to 7% and it almost never comes out in favor of buying.

The unrecoverable costs of buying are: interest paid, HOA fees, taxes, maintenance (~1% of the home's value per year), upgrades (sometimes lumped into the 1%, but I think it's more like an additional .25% - .5%), and the aforementioned opportunity cost.

rich126
Posts: 551
Joined: Thu Mar 01, 2018 4:56 pm

Re: Follow your head or your heart

Post by rich126 » Mon Aug 12, 2019 3:38 pm

A manager of mine told me this is what his father used to tell him. Write down on a piece of paper the pros on one side, the cons on the other side, and then tear up the paper and do what your heart wants to do.

While that isn't perfect, I think in the long run people are usually happier when they decide things that way.

Lee_WSP
Posts: 621
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Follow your head or your heart

Post by Lee_WSP » Mon Aug 12, 2019 3:40 pm

rich126 wrote:
Mon Aug 12, 2019 3:38 pm
A manager of mine told me this is what his father used to tell him. Write down on a piece of paper the pros on one side, the cons on the other side, and then tear up the paper and do what your heart wants to do.

While that isn't perfect, I think in the long run people are usually happier when they decide things that way.
Makes sense, but if you've never been in a situation where you're the one doing the repairs, replacing the HVAC, pulling out the toilet, hauling around a water heater, etc etc. You cannot possibly know what it's actually like to own the home. All it is is some pie in the sky thing everyone and their mother told you you're supposed to do in life. Like being a doctor, except owning a home is more achievable.

Goal33
Posts: 857
Joined: Sun Apr 12, 2015 12:30 pm

Re: Follow your head or your heart

Post by Goal33 » Mon Aug 12, 2019 3:43 pm

How much money do you currently need to pull from your portfolio yearly in addition to your social security to live your life? If it's sustainable for life, I don't think I would want to bother moving.
A man with one watch always knows what time it is; a man with two watches is never sure.

User avatar
Sandtrap
Posts: 8010
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Follow your head or your heart

Post by Sandtrap » Mon Aug 12, 2019 3:49 pm

Stay where you are. Rent.
Don’t change a thing😃
Is that an option?
Wiki Bogleheads Wiki: Everything You Need to Know

yohac
Posts: 167
Joined: Sat Sep 01, 2018 1:42 pm

Re: Follow your head or your heart

Post by yohac » Mon Aug 12, 2019 3:53 pm

Now that I'm retired, I value simplicity. Don't assume that living in a co-op/condo is as simple as an apartment. They are only as good as their association. Got a cracked driveway or leaky basement? Big deal to you, maybe not a priority to the board. You can always walk away from an apartment if things go sour.

User avatar
willthrill81
Posts: 11862
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Follow your head or your heart

Post by willthrill81 » Mon Aug 12, 2019 3:54 pm

yohac wrote:
Mon Aug 12, 2019 3:53 pm
Now that I'm retired, I value simplicity. Don't assume that living in a co-op/condo is as simple as an apartment. They are only as good as their association. Got a cracked driveway or leaky basement? Big deal to you, maybe not a priority to the board. You can always walk away from an apartment if things go sour.
Based on what he's told us, he could walk away from the co-op any time he wants as well and get his purchase price + CPI - 2% back.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Katietsu
Posts: 2153
Joined: Sun Sep 22, 2013 1:48 am

Re: Follow your head or your heart

Post by Katietsu » Mon Aug 12, 2019 4:11 pm

Based on all your posts now and previously, it seems like the only reason you are considering the co-op is because you think it is a “bargain.” Your previous post indicated that the age of those in the co-op might be significantly older than your age ~ 69. You do not much like the physical setting compared to now. And your family is not nearby either place. This all sounds pretty bleak for the move.

There are some who just consider their home like a roadside motel. It is a place to sleep and their life is elsewhere. Heck, I have a relative who probably spends the equivalent of only a few months in their nice home cause they are always “going” . If this is you, then maybe a purely financial analysis makes sense.

But, otherwise, I would be thinking more about this decision from the perspective of where I would prefer to live and consider whether or not I can do so and still stay on sound financial footing. Given that your net worth seems stable over the last few years, it seems that you are handling the expenses OK right now. Do you feel you are having to spend more of your nest egg than recommended? Or having to cut corners in an unacceptable trade off elsewhere in your life?

delamer
Posts: 8430
Joined: Tue Feb 08, 2011 6:13 pm

Re: Follow your head or your heart

Post by delamer » Mon Aug 12, 2019 4:27 pm

Goal33 wrote:
Mon Aug 12, 2019 3:43 pm
How much money do you currently need to pull from your portfolio yearly in addition to your social security to live your life? If it's sustainable for life, I don't think I would want to bother moving.
This is the missing piece of the financial part of the decision.

How much are you withdrawing from your assets to cover all of your expenses?

Your rent is probably your largest expense, but it isn’t your only one.

You probably have a sustainable withdrawal rate from your investments of about $40,000/year. How does that compare to what you actually are taking out?

Topic Author
Hpyhrt
Posts: 17
Joined: Mon Aug 01, 2016 4:18 pm

Re: Follow your head or your heart

Post by Hpyhrt » Mon Aug 12, 2019 5:41 pm

When I considered nearly the same scenario several years ago I really wasn't ready to uproot and move again so soon and I didn't see myself as a "senior". I now recognize the delusion about being a "senior" and I'm leaning a little more toward the idea of having a roof over my head that isn't challenged by rent hikes although I know the HOA can go up significantly if they decide to re roof the entire place.
I would like to loosen up some funds to travel more but I'm not certain that undertaking this purchase would do that.
I see it more as parking some money to use when it's time to go to assisted living if I need to and I wouldn't have that if I continued to rent. I withdraw $12K a year from my 401K and pull money from bank accounts when I need it which hasn't exceeded a few hundred dollars a year.
I haven't owned a home in many, many years.
All your replies have been extremely helpful. I have 36 more hours to make a decision about this particular unit. Crazy.

delamer
Posts: 8430
Joined: Tue Feb 08, 2011 6:13 pm

Re: Follow your head or your heart

Post by delamer » Mon Aug 12, 2019 5:50 pm

Hpyhrt wrote:
Mon Aug 12, 2019 5:41 pm
When I considered nearly the same scenario several years ago I really wasn't ready to uproot and move again so soon and I didn't see myself as a "senior". I now recognize the delusion about being a "senior" and I'm leaning a little more toward the idea of having a roof over my head that isn't challenged by rent hikes although I know the HOA can go up significantly if they decide to re roof the entire place.
I would like to loosen up some funds to travel more but I'm not certain that undertaking this purchase would do that.
I see it more as parking some money to use when it's time to go to assisted living if I need to and I wouldn't have that if I continued to rent. I withdraw $12K a year from my 401K and pull money from bank accounts when I need it which hasn't exceeded a few hundred dollars a year.
I haven't owned a home in many, many years.
All your replies have been extremely helpful. I have 36 more hours to make a decision about this particular unit. Crazy.
If you are only withdrawing $12,000/year from a $1 million-plus portfolio, then you don’t need to move for financial reasons.

Topic Author
Hpyhrt
Posts: 17
Joined: Mon Aug 01, 2016 4:18 pm

Re: Follow your head or your heart

Post by Hpyhrt » Tue Aug 13, 2019 9:33 am

The reason I'm considering a move is because I am obsessed about spending down and therefore living so frugally it's not fun. I want to be more generous and able to go out to dinner without a coupon. I think that's a big piece of the puzzle. I just listed all that I would need to do to move into the co-op and scared myself. 24 hours to go. My son is noncommital and my beautiful DIL is the most practical one in the family and she thinks my rent is outrageous. It is more than their mortgage. Thank you for listening to my insanity.

rich126
Posts: 551
Joined: Thu Mar 01, 2018 4:56 pm

Re: Follow your head or your heart

Post by rich126 » Tue Aug 13, 2019 10:06 am

Lee_WSP wrote:
Mon Aug 12, 2019 3:40 pm
rich126 wrote:
Mon Aug 12, 2019 3:38 pm
A manager of mine told me this is what his father used to tell him. Write down on a piece of paper the pros on one side, the cons on the other side, and then tear up the paper and do what your heart wants to do.

While that isn't perfect, I think in the long run people are usually happier when they decide things that way.
Makes sense, but if you've never been in a situation where you're the one doing the repairs, replacing the HVAC, pulling out the toilet, hauling around a water heater, etc etc. You cannot possibly know what it's actually like to own the home. All it is is some pie in the sky thing everyone and their mother told you you're supposed to do in life. Like being a doctor, except owning a home is more achievable.
That is what a phone and now the Internet, is used for. Something breaks you find someone reputable to fix it. I've never replaced a HVAC myself, never replaced a toilet, water heater, etc. I've done plenty of painting, replacing electrical outlets and light fixtures but I'm not someone who enjoys doing a lot of repairs and I make a decent enough living to call someone. And two of my homes were definitely fixer uppers, no major structural issues but some serious cosmetic issues.

Owning a house isn't anything like being a doctor, it is infinitely simpler. I've owned homes since I was in my early 20s. I've certainly heard some bad stories about renting. Sure you can call someone and they are supposed to fix it, but is it always timely? No.

Owning a home may not be for everyone but it can provide a level of freedom and independence (well, except for some home owners associations!).

delamer
Posts: 8430
Joined: Tue Feb 08, 2011 6:13 pm

Re: Follow your head or your heart

Post by delamer » Tue Aug 13, 2019 10:08 am

Hpyhrt wrote:
Tue Aug 13, 2019 9:33 am
The reason I'm considering a move is because I am obsessed about spending down and therefore living so frugally it's not fun. I want to be more generous and able to go out to dinner without a coupon. I think that's a big piece of the puzzle. I just listed all that I would need to do to move into the co-op and scared myself. 24 hours to go. My son is noncommital and my beautiful DIL is the most practical one in the family and she thinks my rent is outrageous. It is more than their mortgage. Thank you for listening to my insanity.
At your age, a safe withdrawal rate is about 4% (inflation adjusted), so you are being very conservative now. You could be withdrawing another $30,000.

I suggest you look at the wiki section on safe withdrawal rates to give you some perspective.

Lee_WSP
Posts: 621
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Follow your head or your heart

Post by Lee_WSP » Tue Aug 13, 2019 10:10 am

rich126 wrote:
Tue Aug 13, 2019 10:06 am
Lee_WSP wrote:
Mon Aug 12, 2019 3:40 pm
rich126 wrote:
Mon Aug 12, 2019 3:38 pm
A manager of mine told me this is what his father used to tell him. Write down on a piece of paper the pros on one side, the cons on the other side, and then tear up the paper and do what your heart wants to do.

While that isn't perfect, I think in the long run people are usually happier when they decide things that way.
Makes sense, but if you've never been in a situation where you're the one doing the repairs, replacing the HVAC, pulling out the toilet, hauling around a water heater, etc etc. You cannot possibly know what it's actually like to own the home. All it is is some pie in the sky thing everyone and their mother told you you're supposed to do in life. Like being a doctor, except owning a home is more achievable.
That is what a phone and now the Internet, is used for. Something breaks you find someone reputable to fix it. I've never replaced a HVAC myself, never replaced a toilet, water heater, etc. I've done plenty of painting, replacing electrical outlets and light fixtures but I'm not someone who enjoys doing a lot of repairs and I make a decent enough living to call someone. And two of my homes were definitely fixer uppers, no major structural issues but some serious cosmetic issues.

Owning a house isn't anything like being a doctor, it is infinitely simpler. I've owned homes since I was in my early 20s. I've certainly heard some bad stories about renting. Sure you can call someone and they are supposed to fix it, but is it always timely? No.

Owning a home may not be for everyone but it can provide a level of freedom and independence (well, except for some home owners associations!).
I wasn't implying you replace the HVAC yourself, you should obviously pay a professional. But a water heater isn't bad and saves you $500 in labor. I don't know about you, but I certainly don't make $250 an hour after tax (this accounts for you taking 4x as long as the plumber to install the thing & 20 minutes to buy it).

But my point was that owning a home involves more maintenance & costs than renters think. And with today's sky high home prices, it's not a great time to be in the market.

User avatar
willthrill81
Posts: 11862
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Follow your head or your heart

Post by willthrill81 » Tue Aug 13, 2019 10:21 am

Hpyhrt wrote:
Tue Aug 13, 2019 9:33 am
The reason I'm considering a move is because I am obsessed about spending down and therefore living so frugally it's not fun. I want to be more generous and able to go out to dinner without a coupon. I think that's a big piece of the puzzle. I just listed all that I would need to do to move into the co-op and scared myself. 24 hours to go. My son is noncommital and my beautiful DIL is the most practical one in the family and she thinks my rent is outrageous. It is more than their mortgage. Thank you for listening to my insanity.
Again, considering that you would be essentially getting a 10% guaranteed return on your investment (and yes, I know it's not apples-to-apples), if you would be at least as happy at the co-op, I would urge you to go there. It would make financial sense and, apparently, soothe your nerves as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

HomeStretch
Posts: 1123
Joined: Thu Dec 27, 2018 3:06 pm

Re: Follow your head or your heart

Post by HomeStretch » Tue Aug 13, 2019 10:30 am

Hpyhrt wrote:
Tue Aug 13, 2019 9:33 am
The reason I'm considering a move is because I am obsessed about spending down and therefore living so frugally it's not fun. I want to be more generous and able to go out to dinner without a coupon. I think that's a big piece of the puzzle. I just listed all that I would need to do to move into the co-op and scared myself. 24 hours to go. My son is noncommital and my beautiful DIL is the most practical one in the family and she thinks my rent is outrageous. It is more than their mortgage. Thank you for listening to my insanity.
Your spend and withdrawal rate are low enough that financially you will be fine whatever you choose. Make the choice that makes you happy, fits your lifestyle and puts you close to family/friends/activities. Moving might not solve your reluctance to spend. You might instead “obsess” about your smaller portfolio after buying. Life is short. Use your time and money in a way that makes you happiest.

Post Reply