How can you be (semi) retired while still having a mortgage?

How to avoid signing your life over to a mortgage
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pacontrak
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How can you be (semi) retired while still having a mortgage?

Post by pacontrak » Tue May 16, 2017 2:58 am

Hi guys and gals,

First I'll introduce myself in one line: 37-year old with a net worth of roughly 450K in my local currency.

My largest asset is a paid-for home. Having no debt at all at this age set me up for wealth. I have joined this forum to learn from others so that I can continue to do wise things with my money.

This brings me to my main question (and concern) : Quite a few people on this forum claim they are either retired or semi-retired while they are still carrying a mortgage or pay rent. My question is how can you consider yourself to be financially independent when you still have not locked in your cost of living?

This is not to offend anyone, I would just like to understand how debt and FI can go together. Thank you for your insights.

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YoungAndWise
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Re: How can you be (semi) retired while still having a mortgage?

Post by YoungAndWise » Tue May 16, 2017 3:12 am

Essentially they have enough saved/invested to cover the cost of rent/mortgage per month. And most mortgages have a fixed monthly amount so it makes it easier to account for it than say emergency expenses.

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Sclass
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Re: How can you be (semi) retired while still having a mortgage?

Post by Sclass » Tue May 16, 2017 8:24 am

pacontrak wrote:
Tue May 16, 2017 2:58 am
how can you consider yourself to be financially independent when you still have not locked in your cost of living?
You're right. I have some disturbing news for you. A lot of real retirees haven't either.

By the time most people have some semblance of having things tied down, it's over.

Edit - I get this question a lot IRL. In all honesty it is my fault because I live like a person who has very little money. However it begs the question, "how much money do you want me to have to call me FI without a house? $1M? $10M? $100M?" Surely there must be some limit before you say "oh forget the house."

Maybe it's like the comments (or apologizing) I hear 1%er people making when they explain why they use Net Jets instead of owning a Gulfstream?" What?!? You don't own your plane?!?

Net Jets is low class. :lol:

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cmonkey
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Re: How can you be (semi) retired while still having a mortgage?

Post by cmonkey » Tue May 16, 2017 10:38 am

There really are different degrees of FI and I think the 1st degree is having your current investment income cover your current expenses. 2nd degree might be extending that out for X number of years, say if you expect your dividends to be safe for at least the next 3-5 years. 3rd degree would be FI for life based on historic scenarios/wisdom (i.e. 3-4% WR).

So I think having debt while also having enough investment income to cover the debt payments + all other expenses would fall under 1st order of FI at the very least. It could also be 2nd or 3rd based on the situation. While not as robust as 2nd or 3rd, its still FI.

Sometimes it makes sense to not pay off debt from a numbers standpoint if your debt is low interest and you can put your money into high interest. The higher the spread, the more logical it is. Then you have the emotional component as well and many just decide to pay it off even if it doesn't make sense from a numbers standpoint.

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Dragline
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Re: How can you be (semi) retired while still having a mortgage?

Post by Dragline » Tue May 16, 2017 10:50 am

Well, it's just an expense to be accounted for like everything else. Its not a magic talisman as the OP seems to imply. ("How can you call yourself a magician without a magic talisman?")

We own our home free and clear right now, but I could see a time where we would sell it and rent again to avoid the hassles of home ownership.

JL Collins has some good articles about the trade-offs here and has become a renter again in the past few years. See http://jlcollinsnh.com/?s=rent+home

oldbeyond
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Re: How can you be (semi) retired while still having a mortgage?

Post by oldbeyond » Tue May 16, 2017 12:19 pm

Different approaches expose you to different risks. Some paths are more conventional, and therefore feel more natural or safer, but usually you are really choosing what type of risk to take on, not between risk and no risk. Not to say that all choices are equally sane, but there's a tendency to overlook typical risks. Like the risks in putting a large portion of your assets into a very specific slice of land and 4x4:s vs the risks of paying your rent with the dividends from your global REIT portfolio. Both have risks but the first gets a pass while the latter gets scrutinized.

Leveraging your investments with your mortgage has risks(see "correlation"), but might increase your returns over the long term and thus decrease your risk of running out of assets. OTOH, can also lead to severe drawdowns were you're forced to sell at the bottom to avoid losing your house. And proportions matter greatly of course - mortgage to house value, mortgage to investment value etc.

ThisDinosaur
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Re: How can you be (semi) retired while still having a mortgage?

Post by ThisDinosaur » Tue May 16, 2017 1:31 pm

If your ROI is higher than the interest on your mortgage, then you should stay invested and not rush to pay off debt. Since you can never really be certain about your future ROI, its probably lower risk to be debt free. But lower risk tends to mean lower return.

pacontrak
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Re: How can you be (semi) retired while still having a mortgage?

Post by pacontrak » Wed May 17, 2017 3:22 am

Dragline wrote:
Tue May 16, 2017 10:50 am
Well, it's just an expense to be accounted for like everything else. Its not a magic talisman as the OP seems to imply. ("How can you call yourself a magician without a magic talisman?")

We own our home free and clear right now, but I could see a time where we would sell it and rent again to avoid the hassles of home ownership.

JL Collins has some good articles about the trade-offs here and has become a renter again in the past few years. See http://jlcollinsnh.com/?s=rent+home
Thanks all for the replies so far. Interesting views also in the mentioned article.

I think I would say if you can pay off a home at a relatively young age, say before you hit 40, then always do so. You still have a good 20 years left to rent another place and invest in mutual funds or stocks while land-lording on your first property.

So when you're young enough you can have and-and, instead of just if-if.

SustainableHappiness
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Re: How can you be (semi) retired while still having a mortgage?

Post by SustainableHappiness » Wed May 17, 2017 7:12 am

I'd argue your stance (pay off mtg before 40 and then rent out first house) has a serious Your Mileage May Vary component, just be careful if you extrapolating that advice to everyone.

- Landlording can seriously suck from a lifestyle perspective if it's not your thing (I definitely have a personal bias here)
- Why bother entering into a mtg in the first place assuming net return on a real estate investment and net return on different investment vehicle are similar or equal?
- Mobility.

We've recently went from owning and landlording to renting and trying to sell our homes. We've only owned for ~3 years, but it's been long enough to know that owning is not everything it's been cracked up to be, even though it has worked out financially (and that is both the live-in and landlord statuses).

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Dragline
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Re: How can you be (semi) retired while still having a mortgage?

Post by Dragline » Wed May 17, 2017 7:35 am

As I finally saw Robert Kiyosaki finally admit in a video the other day, owning/renting real estate is "management intensive" in his words. It's right for some, but not for others. YMMV.

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Sclass
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Re: How can you be (semi) retired while still having a mortgage?

Post by Sclass » Wed May 17, 2017 9:50 am

pacontrak wrote:
Wed May 17, 2017 3:22 am

I think I would say if you can pay off a home at a relatively young age, say before you hit 40, then always do so. You still have a good 20 years left to rent another place and invest in mutual funds or stocks while land-lording on your first property.

So when you're young enough you can have and-and, instead of just if-if.
I think you need to do the math on every individual investment decision. Time value of money problems can have varied results depending on their inputs. Inputs across the US vary enough to mess things up.

There's a book out of Canada. I don't think it is a hard and fast rule or for everyone but it presents an unpopular alternative to the get a job, get a mortgage and a 401k lifestyle conventional methods. Just another opinion at the end of the day. YMMV especially if you are undisciplined.

https://www.amazon.com/Wealthy-Renter-C ... 145973646X

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