Homeless no more: We just bought a house last month! Over the internet! Well, not entirely over the internet because we actually toured houses in person the old-fashioned way. With a real estate agent, more on that below. But we eventually closed the transaction while we were on our epic trip through Asia this Fall! All the “paperwork” was done electronically! One reason we were able to pull this off was that we paid for the house in full. Applying for a mortgage would have required a lot more paperwork and notarized signatures. Probably not something you can accomplish while traveling in Southeast Asia! And just in case you don’t remember, we outline the reasons for not getting a mortgage while in early retirement in Part 21 of the Safe Withdrawal Series!
In any case, where did we buy, what and why? Let’s take a look…
Picture credit: Pixabay (this is not our new home!)
Where did we buy?
It was clear to us that in order to afford a comfortable life in early retirement we’d have to leave San Francisco, CA. Geographic arbitrage! Pick an area with a lower cost of living, especially lower housing costs and no or at least low state income taxes. The three finalists (five if you count the cities) we considered were:
- Northern Nevada: Reno and Carson City
- Southwest Washington: Vancouver and Camas
- Eastern Washington: Spokane
Some of the stats of the different places:
Let’s look why we were considering those and the pros and cons of each region:
1: Reno and Carson City, Nevada
We visited the area very frequently. It’s only about 3-4 hours away from our old home in San Francisco. You can always see the beautiful, sunny Carson Valley when skiing on the Nevada side of the Heavenly ski resort. It always struck me that even during the harsh winters when the area around Lake Tahoe drowns in snow you see very little or no snow at all down in Carson City. Sounds like another level of geo-arbitrage: you get all the benefits of living in the mountains close to a world-class ski resort without the hassle of shoveling (that much) snow! Let’s look at the pros and cons in detail:
Pros:
- By car, San Francisco is only 3.5 hours away. That’s without traffic, of course, but you can always count on the occasional traffic jam along I-80 and add 1-2 hours to that! In any case, we still have a lot of social/family ties there and likely want to drive back frequently, so the distance to SF is of concern to us!
- Climate: Dry and sunny summers and the winters are not that harsh. The ideal early retirement climate!
- Zero state income tax!
- Close to my favorite ski resorts around Lake Tahoe (Heavenly and Northstar). The Stagecoach lift on the NV side of Heavenly is only about 45 minutes away from Carson City! Northstar is only about 45 minutes from Reno.
- A lot of outdoor activities, both around Lake Tahoe but also in the Sierra Nevada in general. Yosemite National Park is only a few hours to the South!
- We already know quite a few people in the area.
Cons:
- Casinos. OK, I get it, casinos bring in the revenue and afford the state to keep the income tax at zero. But I personally find that they have a slightly dingy and seedy feel. They are an eyesore, especially for someone like me with a FIRE mind. It’s not to insult anyone but this is my personal and honest opinion.
- School quality is low in Nevada. According to U.S. News, Nevada ranks #44 out of 50 in overall education quality. #49 in Pre-K to 12 quality out of 50. Only New Mexico is worse! Other surveys from USA Today and Forbes confirm that Nevada is close to the bottom of the U.S. education ratings.
- Reno has some schools with high ratings on Zillow (sourced from Greatschools.org) but even the top schools in a state with such low rankings are potentially not that great. Quite shockingly, the Nevada State capital Carson City has only pretty mediocre school ratings.
- Housing costs were the highest of the three places we considered. Not necessarily when measured by the median home prices, which can be deceiving, but by the home prices in the neighborhoods we actually would like to live in!
- The median house price to median income ratio also seems quite high.
- Health insurance plans are quite expensive. We priced a pretty basic Bronze plan and it would cost us $1,400+ for the three of us! Short-term it’s not a big issue because we signed up for a Health Share Ministry but longer-term we may look for a standard health insurance plan again.
2: Vancouver and Camas, Washington
Vancouver, Washington has nothing to do with the Vancouver, BC in Canada. Vancouver, WA is in the Southwest corner of the state, close to Portland, OR and 300+ miles away from Vancouver, BC! Camas, WA is just one town over to the East. Both Vancouver and Camas are part of the Portland MSA (metropolitan statistical area), which ranks 25th in the U.S. by population size.
Some of my wife’s good friends live in the area and we’ve visited several times over the last few years. We always noted that this would be a nice place to settle down. Well, not on the Oregon side (one of the highest state income taxes in the nation) but on the Northern shore of the Columbia River. Here are the pros and cons:
Pros:
- Zero state income tax.
- The best airport with the most flight options among the three regions.
- Portland is a fun and happening place but it’s also nice to know that the mighty Columbia River separates us from the more unpleasant side effects of the big city, like crime, homelessness, potheads, etc.
- Public schools are excellent! Not everywhere but some of the schools in Vancouver and especially Camas are among the best in the state of Washington. Washington State is ranked #6 in the U.S. News report, though that’s mainly because of the #3 Higher Education ranking. Pre-K through 12 is ranked only at #26 in the nation. Still better than Nevada, though!
- A vibrant and booming economy, not just in Portland but also on the Washington side: a lot of large employers set up shop there: Fisher Investments, and even tech companies, like Sharp Electronics and WaferTech in Camas and HP in Vancouver.
- Related to the previous point, Camas has a six-figure median household income, the highest among the five cities and the highest share of residents with college and post-graduate degrees. Camas has the same median income as San Francisco but a 60% lower median home price ($400k vs. $1m)! Not that we buy a house to make money on appreciation but a low price to income ratio leaves at least a little bit of room for our home price to appreciate. Remember, a house is actually an investment, and sometimes it can be a great investment, despite all the naysayers!
- Beautiful scenery: Majestic Mt. Hood is visible on clear days. Mt. St. Helens on the Washington side! Ski resorts are closeby. Lots of outdoor activities: hiking, fishing, etc.
- WA state has affordable health insurance plans! We got a quote for a basic Bronze plan with HSA for a little over $800/month. Still more expensive than the health ministry plan we found but a good option in case we don’t like the Health Ministry.
- The mildest winters and least snowfall among all three locations!
Cons:
- San Francisco is a long drive away. One could potentially manage this in one long day. But more likely we’d have to split the drive into two days. Not a bad option because we also have family in Southern Oregon, roughly at the half-way point. More likely, though, one would have to fly out of PDX airport! That’s not a terrible option because you get very affordable direct flights back to SFO from PDX!
- Sales taxes in Clark County are high.
- Property prices are high, though, not quite as bad as Reno.
- Property taxes are quite high. The money for good schools has to come from somewhere!
- The climate might be a little bit less pleasant than Reno, NV. Less sun and more rain. Though, the horror stories of bad weather in the Pacific Northwest are greatly exaggerated! But again, we like the idea of mild winters and are willing to trade off some sunshine hours for fewer days freezing our butts off in the winter!
3: Spokane, Washington
We drove through Washington on one of our epic vacations back in 2017. A road trip from San Francisco going North through Oregon, Washington, Idaho, Montana (Glacier NP!), Wyoming (Yellowstone NP!), and back to California via Idaho and Nevada. Spokane was on the way and struck us as a beautiful medium-size city with great outdoor activities all around. It’s also a short drive from picturesque Coeur d’Alene, Idaho.
Pros:
- Zero state income tax
- Lowest housing costs of the three. Spokane also has the lowest median home price to income ratio.
- Good public schools.
- Low crime, vibrant and friendly community
- Close to outdoor activities: skiing, hiking, fishing, etc.
- WA state has affordable health insurance plans! Similar rates as in Vancouver.
Cons:
- San Francisco is prohibitively far away. Driving back to SF would take at least two long days by car. Probably closer to three days.
- Spokane is the smallest of the airports among the places we considered. Going back to San Francisco by airplane, we’d have to connect through Seattle or Portland.
- We don’t know anyone in the city! Not that this is bad because we’d quickly make friends anywhere we move but it might feel awkward initially.
- The climate is pleasant during the spring, summer and fall but the winters are likely a little too cold for my wife. Maybe even for me!
OK, those were the three regions/five cites and some of the pros and cons. What location did we pick?
Drumroll… And the winner is…
Camas, Washington!
It’s the smaller of the two Washington towns just across the river from Portland, OR!
The first places we eliminated were Reno and Carson City, Nevada. That was with a very, very heavy heart because we visited the area so often and we know a lot of people in the area. For the longest time, even until about March this year, Reno/Carson City was our default location but in the end, the underwhelming school rankings and the prospect of sending Little Miss ERN to an expensive private school plus the unappealing health insurance options enticed us to scrap the plan.
Between the two Washington State location, the larger metro area beat the smaller one. Even if we had to spend more on the house, the slightly better school district and the more temperate climate won over the arctic climate in Spokane. But we’ll make sure we visit Spokane often. We really liked the scenery and the community there!
Picking between Vancouver and Camas we had a slight preference for Camas due to the slightly better school ratings. Camas High School seems to be one of the most sought-after schools in the entire state, probably topped only by some of the extra-pricy school districts in the Seattle area. But on our house hunting trips, we certainly looked at houses in both Vancouver and Camas and in the end, it really came down to liking that one house in Camas.
Finding our new home wasn’t as straightforward as we planned. We flew to Portland on the Sunday after FinCon for our second househunting trip in the area. We looked at houses every day for 6 days! Monday to Saturday! Early retirement can be a full-time job, everyone! We made an offer on Wednesday for a house in a great neighborhood but the house had some quirks and some waaayyy-strange design features that needed to be corrected before we’d like to live there. To account for the extra cost of bringing this house back into the 21st century we made what looked like a bit of a low-ball offer. Well, the sellers didn’t agree. They probably thought that those were actually selling points rather than quirks. They rejected the offer without a counter, effectively telling us that they were insulted by our offer and we should look elsewhere.
I was a little bit deflated after that offer fell through and on Friday night I had already accepted that we’ll probably head to the PDX airport on Saturday emptyhanded. That could be a blessing in disguise, I thought, because why would we want to have a house when we still have almost 3 months of travel through Asia-Pacific ahead of us, right?
So, in any case, my wife wakes me up on Saturday at 5 a.m. and tells me she wants to see one more house that day before we head to the airport. “No way” I responded and tried to go back to sleep. But she didn’t relent; she found one more house that we needed to see. I told her I’ll think about it and rolled over back to sleep. 7 a.m. came around and after “thinking about it” for two hours I still couldn’t warm up to the idea of touring another house. I just wanted to have a relaxed Saturday brunch and head to the airport. And I felt also embarrassed contacting our real estate agent again after had toured us every day already Monday through Friday. But we did set up an appointment to see the house late morning (do realtors have weekends?).
Side note: Our real estate agent Curtis who toured us around Vancouver and Camas to look at too many houses to count was awesome. If you’re ever in the market for buying/selling a property in the Vancouver/Camas area, please consider hiring him. He has our strongest possible endorsement! He was most patient, knowledgeable and helpful in the process.
The “last chance house” was the second smallest one we toured all week but the space is used very efficiently. The listing price was competitive, quite a bit below the Zillow estimate and recent sales in that area. So, that house had a great price not just compared to our budget and the other (bigger) houses we had toured but also relative to the comp analysis of houses the same size and the corresponding Zillow estimates.
A little bit of background search yielded that the sellers were motivated: a corporate move to another state and they’d gained enough appreciation over the years that they wouldn’t want to haggle over the last few thousand dollars. So, we knocked off another 2+% from the asking price. We signed the offer and headed to the airport. I would have been happy if they had met us half-way but they didn’t even counter; shortly after we landed in San Francisco they accepted our offer! I presume the sellers were happy about the all-cash offer: no mortgage contingency! It took a few more weeks to go through the motions; inspection, title search, etc., and in early November we were officially homeowners again, Well, only remotely because we were in Sydney at that time.
One argument against Camas, initially at least, was the higher housing cost: $400k for the median home? We don’t want to spend less than the median price, right? I’ve lived in other states and cities in this country, and in all places I can remember, I would not find any below-median-price house very appealing. But it turns out that in Camas we could confidently buy a nice house in a great neighborhood even significantly below the median home value; in a nice neighborhood with sidewalks and in walking distance to some amenities, like coffee shops and grocery stores. Our house has just under 1,800 square feet (about 165 square meters), 3 bedrooms, 2.5 baths. In the U.S., that’s considered a starter home, everyone! But we realized it’s really all we need and we paid less than $350k, significantly below our $425k budget. The house is mostly move-in ready, except for a few minor things, e.g. new coat of paint in some of the rooms, change carpet upstairs, etc.
Even in our small new house, we should be able to host more visitors than we’d ever expect showing up all at once. It always amazes me when people buy houses with way too much space just to accommodate guests who may stay there for a few nights every few years.
Why buy a house already? Why not wait?
As mentioned above, we might have waited until early next year to start a home search again. But there were a few reasons that enticed us to go ahead and make an offer already in October:
- Impatience? We’d been on the road for many months already. Homeless! I wouldn’t say that any travel fatigue had set in but we could definitely see that in January 2019 we’ll be ready to settle down again. Living out of suitcases for at least another 1-2 months until we find a home, close the transaction and actually move in didn’t seem that appealing.
- Timing. Early October isn’t a bad time to make an offer. Sellers are likely motivated to move out before the buyer activity goes down for the season. January can be a great or a horrible time to search for a house. Supply will be low but you might be able to find a bargain from a motivated (desperate?) seller. But we didn’t want to take the risk of not finding anything until the spring of 2019 when supply comes back on the market again.
- Low opportunity cost. We had designated a pot of money for the home purchase already. The bulk of the money came from a payout of a deferred compensation package at work. That big chunk of money arrived in August and we decided to simply keep this money out of the stock market. That might surprise folks because, for example, I’m a big proponent of investing your emergency fund in the stock market, but for a one-time, extremely short-term investment of a substantial sum designated for a home purchase (all cash), I’m not going to gamble with the money and just I’d rather keep the money in a zero or low-risk investment (and the decision to stay out of stocks was the correct one ex-post, too!!!). So, long story short, the carrying cost of the house for the two months we’re not even living there was minimal; some property taxes, no mortgage and essentially zero opportunity cost.
OK, we’re at 3,000 words already! So much for the update today! Having a home, finally, gives us something to look forward to when our epic seven-month vacation finally ends. We are thrilled to meet more folks in our new home state Washington and neighboring Oregon. Fellow FIRE bloggers J.D. Roth (Get Rich Slowly) and Joe (Retire by 40) live in the area and I’m sure the Portland Metro Area will have lots more FIRE enthusiasts to hang out with. We look forward to connecting with everyone soon!
Congratulations!
As someone who has a plan to eventually geo arbitrage out of the NYC area to the west and be a bit closer to big mountain skiing, this post was really helpful.
Enjoy your new home!
Thanks! How awesome would it be if we all grow a FIRE community in the Pac Northwest?! I’ll let you know how things go!
Very awesome Big ERN! Another good FIRE blogger added t Portland area.
It sounds like your house is basically like ours in Raleigh “Our house has just under 1,800 square feet (about 165 square meters), 3 bedrooms, 2.5 baths”. Ours is same size, has a 4th bedroom that we use as an office, and the same 2.5 bathrooms. I always explain it as the starter home that we bought right out of college and decided it was “good enough” so we kept it forever (or at least for 15 years so far).
We’ve hosted 30-40 people for birthdays, Thanksgiving, etc and it’s plenty big enough given our 2 living rooms (one of which opens to the dining room and kitchen) plus the office/game room. Now that the kids are getting older, 2 of them share 1 room. We might convert a room to a bedroom at some point.
But it’s funny you mention that size house is considered a starter home by Americans. So true. Most people would consider it too small to live in, especially if you have the kind of wealth to enable FIRE.
Best of luck settling into your new home and I hope Little Miss ERN does well in the schools! Free public school is another huge FIRE-enhancer. 🙂
Thanks Justin! Very comforting to know that you had the same size house with a larger family and never felt constrained over the years!
We are also thinking about converting a 2nd downstairs living area into the Big ERN office (man cave?), so we might also have a 4th BR, just like you!
Cheers!
Big ERN office = tax deduction? 🙂
Hey, it IS Big ERN Global Headquarters! But I doubt that deduction is very helpful anymore these days. 🙂
Congrats Big ERN! I understand and appreciate your rationale for home ownership as a part of asset allocation. However, considering that Camas will be a new city for you and your family, did you consider renting for 2-3 years to make sure you’ll be happy there (things are often different in reality than on paper)? Looking at average rents in the area, it appears that renting and investing the earmarked cash in 2-3 year munis/Treasuries would leave you in a similar position to owning once taxes, insurance, and homeowner maintenance is factored in.
I do realize that this is a low risk decision regardless – it sounds like you’ve done your homework and the amount at risk is relatively low. But, I would be curious how you and your wife thought through the economic and non-economic considerations of buy vs rent. Cheers!
We certainly consiered renting for a while. But renting is expensive in that area. In Camas, you’ll have a hard time renting for less than $2,000 a month for a comfortable house. $2,300 is more realistic. It takes quite a big pile of cash to generate that kind of income. Or you take your chance with the stock market but sequence risk is pretty bad with a large mandatory expense like that.
We also don’t like for little Ms. ERN to start Kindergarten and 1st Grade in one elementary school and then we have to potentiallt move again to another elementary school district. Camas has multiple really good PreK-5 schools all within the same Camas High School district!
We also have an aversion against moving in general. I like to do that one and be done with it. 🙂
Awesome analysis! Those are definitely places we’ve considered moving to as well for the no state income taxes.
I’d love to hear the softer side of things on how you adjust to the environment after 6-12 months, since we’re in SF now.
I think we can comfortably adjust to my hometown of Hawaii, but not sure about elsewhere I donno.
Also, did you sell all property in CA?
Sam
Hi Sam! Thanks for checking in! What would it take to entice you to move to Portland/Vancouver/Camas? Wouldn’t that be aweseome with J.D., Joe, you, me and the whole gang here? It would be FIRE-Central! But Hawaii sounds great, too, if you can afford it! 🙂
We’ll defintely post an update on the “softer side” and how we cope with changes from SF!
Yes, we sold our condo in January already! Got a great price, no looking back! 🙂
https://earlyretirementnow.com/2018/03/21/best-investment-ever-homeownership/
Cheers,
Karsten
Great article. I love the detailed analysis you’ve put into it. Seems like you made a great choice. We’re going through something similar ourselves, and leaning towards geographical arbitrage.
I’m surprised by the all-cash purchase. Why not have a modest mortgage and set that off against a relatively riskless investment? Seems like a mixed strategy (some cash, some mortgage) better balances asset diversification. Is it peace of mind that ultimately trumps? It’s not necessarily a bad decision, but I’d be curious to hear more on the thought process.
Congratulations on the new spot!!
DeForest
Ha, great question!
Since we no longer deduct the mortgage interest (we’ll just use the $24,400 standard deduction), we don’t see the need of leverage with a 4.375% or 4.5% borrowing rate. True, that’s lower than the expected capital market return, but not low enough to justify the additional sequence risk.
In other words, it’s paying for the peace of mind. With a mortgage-free home we have very little in mandatory expenses. We can make it through everything the stock market might throw at us, even a 1929 repeat. 🙂
Makes sense, especially in light of taking the standard deduction – thanks for the insight! Maybe if rates go back down you can get a loan..! Good luck at the new place and thanks for the great article!
DeForest
Congratulations and welcome to the neighborhood! I’m jealous. Portland is fun, but there are too many problems now. Chief among them is the high state income tax. You guys made the right choice on which side of the Columbia to live.
As for WA, I’d pick Camas over Spokan too. That’s too far east. Let’s see if you can adjust to the rainy weather. 🙂
Thanks, Joe! The advantage of OR is the 0% sales tax so in retirement, with a low enough income it’s probably almost a wash. But we like to do some Roth conversions in the next few years and then WA is better!
Cheers!
Congrats! Exciting times in the ERN household. We are debating buying too. Leaving the Bay area in 3 weeks for Nashville, TN (my hometown). We have a rental until October 2019, but then need to consider buying. The prices are not low for a southern town as Nashville has been booming, but there is still more value there than in the Bay Area. Thanks for outlining your thinking process. We will be doing the same, but in terms of neighborhoods and school districts…also counties.
Thanks DDD! Best of luck with your relocation. So nice to finally move to a more affordable place! Enjoy the mountains in TN!
Welcome to the Portland Metro! It’s beautiful here and you’ll love it! Not sure what your comment about “potheads” was about, as Washington had recreational cannabis use before Oregon did. Living in Camas you’ll have easy access to the Columbia River Gorge, which has a ton of beautiful outdoors spaces to explore! Be sure and head to Mt Saint Helens, too. Welcome to the neighbourhood! (Plus, we have Joe and JD Roth, so that’s obviously a win-win for our area! ;o)
Thanks! And thanks for the pointers, we will definitely check.out all the outdoor activities the area has to offer.
Just kidding about the potheads. But on our visits to Portland downtown we did see quite a few. But I’m sure they also roam the Northern shore of the Columbia River! 🙂
Congrats, Big ERN! Ironicallyx, I read your post in the middle of our 2 1/2 week stay in Steilacoom, WA (between Tacoma & Olympia), we love the area and can certainly see why you’d want to make the Pacific NW “home”.
Ha, I realized that too after you published some photos from the lakes up there. We will be just a few hours south from there, so make sure you swing by on one of your upcoming trips to WA State!
Thanks, Fritz!
Congrats and welcome to the PNW! We live just across the river in Milwaukie. All Californian jokes aside (I’m a Midwestern transplant by way of DC), I think you’ll enjoy it here. It’s worth surviving the mild and misty (and gray! so gray) winters to get to enjoy the summers.
Thanks, Bec! Exactly our thinking! Looking forward to living in the PNW!
Cheers!
Congratulations ERN!
Two out of 3 of the locations you listed are on my short list of places to consider after my better half retires in 7 years. As usual your detailed post is very helpful, though I imagine things can change 7-8 years later (i.e. housing cost). In the meantime, we’ll try to visit the potential locations during every season to get a feel of the different places.
Enjoy your new home and community!
Thanks! That’s a lot of time to plan! But things can change as you mention. I was eying NV for the entire 10 years while living in SF. But then changed my mind last minute. Always keep an open mind and see if there are other places around! 🙂
Would love to see a post on your choice of health share ministry – pros/cons, which ones did you consider, etc.
Hi ERN!
Yes. Your reference to health share ministry got my attention too. I’ve seen lot’s of discussion on this topic, but you’re the first person that I know to have actually pulled the trigger. It would be great to hear about your research and how you made the decision to go for it! I also seems like you might open to switching to traditional insurance in the future. I’d love to know what circumstances you think would precipitate the change.
We needed our own healthcare in December for the first time. We picked MediShare and will also stick with them through 2019.
But if it doesn’t work out we’ll consider one of the regular Bronze or Silver plans in WA State.
We considered Liberty and MediShare. In the end, we went with Medishare because I like the setup as a PPO with ex ante negotiated rates. I might write a blog post on this in the future! 🙂
Ditto–am very interested in getting your thoughts on health share ministries, especially in light of the frivolous GOP lawsuit against the ACA,which is greatly endangering the law.
Congrats. It will be interesting to see your thoughts after living there for a while. I moved from Phoenix to just north of Seattle (my wife got a new job up here). I was shocked by the huge cost of living increase. Restaurants, groceries, utilities, pretty much everything is more expensive here than in AZ. Of course, this may simply be due to our proximity to Seattle and things might be more reasonable in Camas.
Thanks! Well, Seattle is very different, of course. Almost as expensive as SF. But living close to the OR border, the cost of living is much lower.
Curtis can always sell it if things don’t work out like expected, and if the price point was right if you wait maybe it would have gone up…Best wishes
Thanks! I hope we won’t be needing Curtis anytime soon to sell the place again! 🙂
I’d pick the same out of your 3 areas of choice. We’re still stuck in the high cost Seattle area but alas, we’re still working 🙁
Very good point! While working you’re stuck in the high-cost areas. But maybe consider moving to the cheaper corner of your home state when you finally go FIRE! Maybe see you Vancouver/Camas in a few years! 🙂
Congratulations on the new home. I can only dream of US starter house prices in Australia.
We do have good things here too so I can’t complain.
Thanks Bob! I hear you! On our recent visit to AUS and NZ, I looked at some of listings posted at the real estate offices. Very exensive real estate you got there!
Great post! Congrats on the house purchase. 1600 sq ft is large if you’re in SF 🙂
I totally agree that people tend to buy more house than they need. There’s a lot more maintenance and costs associated with a larger house.
Thanks! Yes, maintenance, heating/cooling, etc. means that it’s best to buy the smallest possible house that gives you a comfortable life! 🙂
Good luck and seems like you made a smart choice. I live in SoCal, but my family came over on the Oregon Trail back in the mid 1800’s and a few ended up in Camas.
It is pretty amazing how expensive Reno/Carson City can be and yes, one does hear about the terrible public services from schools to medical in NV even though the no income taxes is very nice.
Wow, that’s amazing! True, the Oregon Trail must have passed there, right on the Columbia River!
Once you have a kid (or more) it changes the ER equation. We could have picked a much cheaper house in a bad school district. Ah, what you do for your kid(s)! 🙂
Way cool! A lot (10s of thousands) of people work at Intel/Nike/Adidas in the area too. I live close enough to bike to my workplace, Intel.
On taxes, you made me look into Oregon income taxes again (9%). That’s one expensive bike into work! Also, didn’t know that capital gains was taxed as income! Lame. On the flip side, aren’t you getting double-taxed now? Once as income tax in CA, and now your purchases are taxed regardless of whether it was taxed already! Whereas in Oregon, you can withdraw your taxable contributions tax-free and let your capital gains grow unrealized? I feel like I’m missing something…
Wow, I guess if you buy stuff used on Craigslist there’s no sales tax. Nice! Also, one can skirt it by driving across the river…nope! Self-policing “use tax”. Interesting…
Looking forward to hearing more about your adventures! Although I haven’t traveled the world or anything, I quite like the Gorge. Among many things to do, my favorite hike so far is the Multnomah Falls + Wahkeenah Falls loop. ~5 miles, ~6 accessible and different waterfalls, 1500 feet elevation, and lots of great Gorge scenery! A great treat on hot summer days. Just be sure to take a bus or park in the Benson State Recreation Area ($5, can use CC) and walk over if you’re coming at a busy time though. On a summer weekend I saw a line-up of cars a mile long on each side!
Agree: you can’t really use the no-sales-tax feature in Oregon. You still have to tax everything you bring back. But going on vacation in OR would probably be OK.
Thanks for the outdoor recommendations. We stopped by Multnomah Falls once but only briefly. We will definitely explore that area more in detail!
Not sure what you mean by double taxation. Once we settle in WA we will continue to generate income (Dividends, captial gains, Roth Conversions, maybe a little bit of W2 income) and that income will no longer be taxed in CA but goes untaxed in WA.
Right. In the 10?-year time frame though (before capital gains start to outweigh your contributions), you could sell your lots that have minimal gains or are underwater and they won’t be taxed as income in OR because you’re just getting post-tax contributions back. Whereas in WA they’ll be taxed as sales, regardless of their source. Unless WA taxpayers have some way of getting a rebate for their double-taxation or something…
Selling assets in the state of WA is neither subject to sales tax nor income tax. Not sure what you mean by double taxation.
Let’s try this view. The $25K is after-income-tax (from CA or OR, or WA for that matter) money.
Oregon:
1. 1st year of retirement, you sell $25K worth of underwater tax lots of a mutual fund.
2. You buy a new car and have $25k to spend on it, as there’s no sales tax, and no immediate taxes are paid.
3. Eventually, the time comes to pay yearly taxes. No income taxes need to be paid because none of the $25K was dividends or capital gains.
Washington:
1. Same. 1st year of retirement, you sell $25K worth of non-growth or underwater tax lots of a mutual fund. No immediate tax is due because selling assets like this isn’t taxed, as you say. Different if you’re a business selling stuff, of course.
2. You buy a new car, but you only have $23K to put towards it because there’s an 8% sales tax in Camas, regardless if the money was principal or not.
3. How do you get that $2K back? The Point of Sale? Filing an adjusted return by keeping all your receipts? If so, what law do you reference? I’m struggling to find the right keywords to search for.
The $25K was effectively double-taxed in WA, whereas in OR it wasn’t. This would hold true for a significant number of years, but flip over to favoring WA as your capital gains would be taxed as income in OR.
Yes, yes, yes. I knew exactly what you were getting at. The only sticking point is the term double-taxation. As a WA resident I pay zero income tax and sales tax once. Where is the second layer of taxes? 0+1=1. Not 2.
Also, your example is utterly irrelevant to us personally. We will generate our consumption budget out of income from dividends, option trading, rental income, maybe even some W2 income for my wife (part time nurse) and maybe even some 1099 income for me (consulting gigs). That will all be taxed in OR, but not in WA.
We also plan to do some sizable Roth conversions. That will be taxed as ordinary income. But it’s not subject to sales taxes in WA.
But it gets even better: a lot of items are not subject to WA sales taxes: food, health insurance, medical expenses, property taxes, travel. Essentially all the big-ticket items in our budget. In fact, the only person subject to double taxation on many items is the OR resident. You get taxed on your income but if you go on a Mediterranean cruise you get taxed again with the local sales taxes there and you won’t get those back from Oregon. So, to give you some rough numbers, we plan to consume around 90k per year and have 150k in taxable income (due to Roth conversions). Out of the 90k consumption budget only half if subject to WA sales taxes. I’d rather pay zero state income tax and 8.4% on 45k. That’s less than paying OR income taxes on 150k per year.
Hope this is clear now!
But don’t get me wrong: we like Oregon. Once our daughter is off to college and we are done with all of our Roth conversions we might consider moving to Oregon if we can push our taxable income low enough.
To preface, I’m not doing a great job of motivating myself to whip out a spreadsheet for this one, I think since I’m not moving yet. So I apologize, and appreciate your desire and life-time to flesh out both of our perspectives with me! I think the “light bulb moment” happened! 🙂
I mean double-taxation in the sense of:
1. Assuming you worked in an income-tax country or state, contributions to a taxable account are income-taxed. Or even “doubly-taxed” at this stage if you count income *and* sales tax in California. Of course, if you were living in WA, this income wouldn’t be state-taxed as you say and goes direct to savings (after accounting for minimal sales tax)
2. You pick a state to retire to. Withdrawals of principal from that taxable account are taxed “again” as sales in WA, even though you paid income taxes elsewhere on that money. In the short-term, OR naively looks better.
It looks like I can only claim “double taxation” when one retires from OR/CA to WA. Also, my trick of withdrawing principal will only last for so long.
But…you have an interesting twist on it! Instead of withdrawing principal first like I was narrowly thinking, you’re going to withdraw actual income first (capital gains, rental income, etc) because you won’t get taxed on it in WA! And, the “roth converted” money is income-tax-free (but not sales tax free!) 5 years later too.
I feel that my trick still beats WA in the short-term, but WA wins in the long-term by a landslide in allowing you to raise your tax basis easily + convert them to Roth. Interesting. Thank you!
No feelings hurt! I like them both for right now.
No, you did perfectly well in explaining. I was pretty sure from the beginning what you’re getting at. I’m just saying that for us personally, for our consumption and income situation, we’re better off in WA.
To see how attractive OR can be for some, I once heard the story of ultra-rich Californians who buy their private jets, to be owned by an entity (e.g. LLC) in Oregon to save the sales tax. 🙂
Congratulations on your new house!
I am curious what your plans are after your child starts kindergarten. I’ve been early retired for 11 years. Once my child started K, lifestyle had to change a lot to accommodate her schedule. I pretty much have to stay around the whole school year on a fixed schedule and only travel when everyone else is traveling. It’s fine with me because I have mostly had my fill of travel. What other activities will you pick up and will your new surroundings be interesting enough for you?
Very valid point! THat’s exactly the reason why we squeezed in a lot of travel before little Ms. ERN starts Kindergarten next year.
Once we’re more settled down and stuck in the area (bound by school vacations) we will do more stuff locally. I like skiing & hiking and like to start fishing (have to check what the rules and regs are for that).
Sounds like it’s time to bring home a puppy dog!
Oh, my! If we are still bored and don’t have enough to do after 6 months in the new house we may consider that. But I’m not too hopeful we’ll have the bandwidth for a dog! 🙂
I grew up in Vancouver and it was a very nice place to live. However, there were days when the smell of the Camas paper mill would be noticeable in the air. Have you noticed this smell living in Camas?
Nice!
The Camas paper mill will eventually shut down: https://www.camaspostrecord.com/news/2018/apr/26/end-of-an-era/
Real nice blog and nice style of writing! My first visit here. I have only been blogging myself since July at age 67 (yes that is not a typo). So maybe I am a bit out of place here among these young people. Although I have no hope of matching anything like this site, I do enjoy blogging!
Nobody is out of place here. At some point we’ll all be 67-years-old, so we got things to learn from you, too! 🙂
Fantastic post!!!!!!!! My favorite post you’ve written so far.
Those three areas have made my short list as well for potential destinations. I spent 4 years in Seattle, but visited Portland relatively little. I love the no-state-income-tax arbitrage by living on the north side of the river. Groceries are not taxed in WA state. Since groceries constitute a huge portion of our budget (I have 5 kids), that is always nice.
Thanks for walking us through the logic on of your decision process. I will definitely returning to this post in future years when the time comes for us to settle down.
Thanks Professor! That’s a nice compliment and made my day! 🙂
Camas and Vancouver are also significantly cheaper than Seattle, so make sure you check out the area and see if you want to move here later! Would be nice to have a growing FIRE community here!
By the way, it seems that the Washington Medicaid program is exceedingly easy to enter. See this forum post for details: https://forum.mrmoneymustache.com/welcome-to-the-forum/why-keep-income-above-medicaid-limits/msg2069953/#msg2069953.
If you had a $10M portfolio kicking off $50k/year in quarterly dividends (making $200k/year), you could pay $0 indefinitely for healthcare for your family so long as the dividends didn’t occur in consecutive months.
What a bizarre set of policies our legislators have written….
That is something I didn’t know! We may look into that if we can indeed engineer our monthly income like that. Thanks for the link!!!
Great post.
Have lived in 10 states but not the PMW, yet have been looking at Vancouver WA for your reasons stated. Need to visit when time permits. It’s a long way from Chicago.
Had not considered Camas (no school-age children), but will look at it now.
Feel you have made a very good choice. I too have bought via the internet, and it went well. There is so very much data available on line now that one can make a moving decision confidently without extended on-site discovery.
One negative of both WA and OR is their death taxes, which may or may not drive location decisions. That would deter me a little and would have a greater or lesser effect on others.
Talented newcomers can have a disproportionately positive impact in open smaller cities like Portland, if desired. All best wishes for a happy resettlement there.
Thanks! If you don’t have school children you may find much lower-priced homes in the area! No need to seek the best school district in the area!
I’m not too worried about death taxes. We will revisit that issue 30+ years down the road. Then maybe relocate again if necessary. But even then not because of death taxes alone. Maybe we’ll be tired of the cold weather by then and move to Florida. 🙂
We just moved to Spain for our retirement. The weather is great and the cost of living is low. The peaople are really friendly too. We have taken up Salsa dancing and Spanish lessons. Our villa is on the souther coast of Spain where the weather is to die for. 320 days of sunshine per year.
Yes, Spain is a great choice. If you want to escape from the States but want a safe good standard of living through your retirement the Malaga area of Andalucia is a great bet.
ERN, your post reads almost exactly like the discussions we’ve been having in my household. My wife and I are from the Sacramento area and we’re strongly considering going back there in a few years when it’s time to retire. We’ve also looked at Reno, Carson City, Phoenix, Colorado Springs, Portland, and Tacoma. Our son is 8 so schools are still important. The biggest factor we keep coming back to though is distance from Sacramento. It’s where all of her family and all of my friends still live. My father moved to Montana a couple years ago (over 2 hours east of that far-off city of Spokane you looked at). We have family in CO and we’ve lived there before, but the flat income tax rate is less attractive for someone trying to keep their spending low and any savings would be eaten up by a couple trips back to CA. Even travel-hacking those trips wouldn’t erase the expense since we’d want to visit often.
In our calculations I completely forgot that Vancouver is right across the river from Portland! Oregon quickly went to the bottom of the list with their tax rates and general dislike for CA ex-pats (apparently everybody who gets priced out of Sac or SF moves to Portland). The biggest con for WA is distance, but we’ve made that drive before when we lived near Tacoma. I came to the same conclusion as you for NV with regards to their school systems. It’s too bad since it would be a nice compromise between proximity to Sac and low expenses. My wife despises the extreme heat of AZ, and I cringe at the electric bills people in CA have to pay. Looking forward to hearing about your new neighborhood!
Nice! Thanks for sharing!!!
We just moved to Camas and we really like it here. Keep it on your radar screen. The drive from here to Sacramento isn’t that bad. You might be able to do it one day! Maybe we can start a little FIRE community here! 🙂
Congratulations!! My husband and I chose Spokane for his FIRE and my eventual FIRE – we actually haven’t gotten any snow this year that has stuck for more than 1 day, and quite honestly, “thanks” to climate change, winters have been trending warmer and warmer each year. And you can’t beat spring, summer and fall here 🙂 Then again, we moved from Phoenix, AZ and were ready for a change!
Excited to see more FIRE people heading up to the PNW! 🙂
That’s a huge issue for us too: I believe global warming will happen and anything humans do to stop it (driving Hybrid cars, etc.) will have only a minimal effect (like, 0.001 degrees). So some of the warmer climate options (TX, FL. AZ) were not that appealing for that reason. Who knows, Portland might become the new San Francisco?!? 🙂
We also recently moved our family to Camas for similar reasons. It’s a great little town for many of the reasons you mentioned. Welcome, I’m sure our paths will cross eventually. Tom
Nice choise! We like it a lot in Camas!
Let me know if you like to get together for a coffee or a beer. See “Contact” tab on the website!
Oh my goodness! I read this post after listening to you mention recently settling down and buying a home in Camas on the ChooseFI Podcast 109R…I’ve lived in Camas for 18 years! Great to know you’re part of our community, welcome 🙂
Awesome! We love our new home and the new neighbors! If you ever want to connect, please let me know! I will also try to regularly go to the Portland ChooseFI meetups! 🙂
Since you paid off the home in full, you should look into a HECM Line of Credit as a potential source of income later on in retirement. A HECM Line of Credit is like a special HELOC with a few differences:
1) it’s only available to those 62 or older
2) you must own almost all of the equity in your home
3) the credit limit grows at the interest rate (i.e. the same rate that the credit balance grows at)
4) You don’t owe any of the balance as long as you are alive and live in that house
5) It is non-recourse, meaning whoever inherits the house owes nothing if the proceeds from the sale does not cover the credit balance.
This article covers a great method for using the HECM with your retirement savings:
https://www.onefpa.org/journal/Pages/OCT17-Integrating-Home-Equity-and-Retirement-Savings-through-the-Rule-of-30.aspx
tl;dr withdraw from your securities on good years for securities and withdraw from HECM on bad years. Vastly increases the survival rate of your portfolio, and is a great reason to own a home outright
Thanks for pointing this out! Two caveats: You can only tap it very late in life. It probably works well as a last resort for the FIRE crowd if you half-way through FIRE that you’re running low. It’s also associated with very high fees. You can also borrow only up to a certain percentage of the home value (I think around 50%). So, as a “put option” against a 50% drop in your home value this seems to work well. But it’s a very costly put option!
Belated congratulations! Camas was on our short list of next places for many of the same reasons as you. We ended up elsewhere, but fell in love with the Columbia River Gorge area. I think your family will be very happy there. If you have a chance to get out to Washougal, the Pendleton mill is there. They do tours and your Little Miss Ern might enjoy it. Then you can buy yourself a wool blanket at the outlet store as a housewarming present. Welcome to the Pacific Northwest!
Nice! Thanks for the pointers! Will check it out!
I live just across the bridge in Sandy, OR. If you are ever up for grabbing a cup of coffee or lunch and talking FIRE and Family I would be happy to treat you!
Nice! Thanks for that! I’m retired and available most of the time. Just shoot me an email and propose a date/time! 🙂
Lucky of you that you can retire now…. Enjoy your retirement though..
Thanks! 🙂
Enjoy your retirement life and hope you can share us the secret way to retire early!!!
The secret is that there’s no secret! Just invest for 10-15 years and don’t fall off the wagon! 🙂
I’ve been re-reading some of your posts as my family considers buying a new house. We’ve been retired for about a year now and are wanting to get out of our current city. We’ll be buying cash, based at least in part on your guidance. I’m trying to figure out how this should affect our asset allocation. I’m inclined to keep our stock percentage of our total net worth the same (the house would replace some of our bond allocation). I’m curious how you approached this decision. How do you factor your home into your asset allocation? Thanks, as always.
Probably the same as your approach. Since we hedge a significant portion of our expenses (housing) we face a littel bit less sequence Risk and thus took the cost of the home, paid in cash, out of the safe asset bucket. In that sense, our home is now part of the safe asset allocation (bonds, cash, etc.). 🙂
One plus for Nevada over Washington is no estate tax. You’re probably aren’t worrying about that issue right now but there’s 100% chance it will come into play in the future! 🙂