We Are Homeowners Again!

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!)

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My best investment ever: Homeownership?!

Sometimes folks ask me what has been my best investment ever. I normally answer that this is not the right question to ask. We didn’t have one lucky break that made us rich overnight. We never owned the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google/Alphabet) outright, only through index funds. No lottery winnings, neither literally nor figuratively (tech company stock options, IPOs, etc.). Building our Net Worth is mostly the result of many years of small and large contributions to brokerage accounts, never losing our nerves and staying the course through volatile periods.

But the other day, I ran the numbers on how well we did with the apartment we just sold in January (not pictured above!!!). Over a period of just under 10 years, the IRR was almost 16% and beat stocks pretty handily! Again, this did not single-handedly catapult us into Financial Independence, but in the ranking of good investments, it’s clearly way up there, probably even at the top!

Of course, all this assumes that we do the math right. And that’s what today’s post is all about…

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How to invest a house downpayment fund

Our previous post on emergency funds got a lot of traffic and we received mostly praise for the post (see here and here). One issue mentioned by some that got us thinking is how to save for a house down payment or some other large expense in the future. Should we apply our same rule as for the emergency fund, i.e., invest it all in risky assets to get greater expected returns and avoid opportunity cost? Or is this a different animal from an emergency fund?

Since we still can’t time the stock market we would lean towards keeping money in stocks until it’s time to withdraw. So we first make a case in favor of equities. But we concede that there can be situations where you want to take less risk, say, where you could lose your dream house if you are short even a single dollar in your down payment fund, so we present some options for that scenario as well.Read More »

Real Estate: Buy or Rent?

If there’s one major disagreement in the Early Retirement community it’s on buying vs. renting your home:

  • Mr. Money Mustache apparently owned two homes at some point, lived in one and rented out the other. Both properties were paid off. He might have sold the rental property recently if I remember correctly, but still owns his primary residence. Owning real estate seems to have worked out all right for him. But he also points out that if you have to live in a large metro area, renting an apartment in town is probably better than owning a McMansion in the suburbs, with all the additional costs attached to it, see here.
  • Go Curry Cracker are renters. Mr. GCC had a bit of a traumatic experience as both a homeowner and an involuntary landlord. Besides, with their busy travel schedule they seem better served renting.
  • Jlcollinsnh thinks owning a house is a terrible investment.
  • Yours truly, Mr. and Mrs. ERN, live in a condo. The property has appreciated quite a bit since the purchase. But had we invested the down payment in an equity index fund, we would have gained as well. I once did a careful exercise to calculate our current gain net of the equity index opportunity cost, and we did come out ahead quite a bit owning our place. But this experience may not be typical. It may certainly not be replicable going forward.

We personally believe that the pros and cons of homeownership are about balanced. The median household with the median income and wealth living in the median U.S. city should be about indifferent between renting and owning. The personal idiosyncratic factors would tip the scale in one direction or the other:Read More »