Would you rather have 300k or a place to live forever?

dragoncar · Post by **dragoncar** » Tue Jul 12, 2011 4:34 am

I think I'd pick a place to live, but I live in a relatively expensive area. How much would you pay for eternal housing (let's say your own bedroom and a shared bath)

Post by **jacob** » Tue Jul 12, 2011 5:25 am

I'd take the 300k, buy a place to live in forever, and use the rest for something else.
My limit is $200-300/month/person which translates into a max of about 100k.

teewonk · Post by **teewonk** » Tue Jul 12, 2011 3:10 pm

@jacob
Here, you use the guideline that a house should cost less than 110 monthly rents, referring to "the NAV formula." The NY times buy/rent calculator favored buying for values much higher than 110, more like 120 to 170.
From the safe withdrawal perspective, I would think that for a withdrawal rate R, the test to buy a house would be
((house purchase cost)*R/12+(monthly costs)) < rent
So a rent of $600 (max for your case of two people), for a house that would add $100 of additional monthly expenses for ownership (e.g., taxes, maintenance), translates into a house price of <$200K for R=0.03 and <$150K for R=0.04. 200K/600=333, and 150K/600=250.
How did you get the number 110?

S · Post by S » Tue Jul 12, 2011 3:43 pm

I'd take the money. Houses can be had for way less than $300k in many desirable places. Invest what's left to cover taxes and utilities and you have housing for life and money to use as you like.

George the original one · Tue Jul 12, 2011 3:48 pm

Here in the Portland area (for the moment), you can buy a main stream house for $200k. A minimalist buying a cheap condo can do so for about $100k. Mind you these are NOT the hot properties, but they're decent.
A $300k property, to me, would have to be darn worthwhile to select it over the money.

anastrophe · Post by **anastrophe** » Tue Jul 12, 2011 3:56 pm

300k and live on my bicycle.

JasonR · Post by **JasonR** » Tue Jul 12, 2011 7:03 pm

Hoplite · Post by **Hoplite** » Tue Jul 12, 2011 8:51 pm

I would take the money. I see the question as more, how much would you pay to be done with housing worries for life (one more major life expense crossed off, which is very tempting). This is similar, in my view, to a 3% SWR; it has the same purpose, the only question is, which will prove more secure in the long run.
The trouble with lifetime secure housing is that it is not for sale; you can rent from a landlord, or you can rent directly from your local tax assessors at a reduced rate. Maybe with an HOA/condo/coop board middleman thrown into the mix. And not all states will protect $300,000 in equity from other creditors, making lifetime secure housing even more of a phantom.

Maus · Post by **Maus** » Tue Jul 12, 2011 10:24 pm

Take the money.
Nothing is forever. Unmentioned in all the preceding comments is what happens if the neighborhood, sudivision, parcel etc. goes to hell. Cheap homes can be had for less than $100K in Sacramento by the dozens. And your neighbors won't be ERE, they'll be your worst nightmare with loud music at 1am, cars on blocks, questionable "market" activity, possible gunfire. OR, maybe Sac just gets a Katrina-like event and its crappy levees fail to hold. Your forever home is now under 10 feet of water and the mold cannot wait to start growing. Freedom is having assets that are liquid, but that's not what I'm talkin' about.

Post by **jacob** » Tue Jul 12, 2011 10:55 pm

@teewonk - RE taxes and maintenance.

Hoplite · Post by **Hoplite** » Tue Jul 12, 2011 11:07 pm

@Maus is right; I came close to buying a place until I discovered the half-way house next door. Evenings in the neighborhood could be quite special. But, neighborhoods go up as well as down; I lived in Hell's Kitchen (Clinton) in the bad old days where you knew it was Sunday morning because the sidewalks were extra-crunchy with the discarded crack vials from Saturday night. Now it's a hot (excuse the pun) neighborhood with prices to match. Just another instance of risk/lack of security in everything.
One other point though, maybe it's just me but I don't know any homeowners who don't wish (sometimes secretly) to chuck it, even custom built dream houses. Maybe a part of it is the financial burden, but I suspect a good portion is Thoreau's observation that they don't have the house, the house has them.

djc · Post by **djc** » Wed Jul 13, 2011 12:12 am

Yes, take the money.
Our paid off home (since 1998) is in an older neighborhood that is starting to experience some "problems". Houses are down in value 50% from their highs and people are forced to rent homes they can't sell to well, people who won't take care of the property like they should i.e. (not mowing the lawns soon enough, etc.). Everyone is stuck. Is it bad now? No, but what if it doesn't get better? Cash is king.
djc

DividendGuy · Post by **DividendGuy** » Wed Jul 13, 2011 1:18 am

I'd take the money and run.
I'm not sure I'll ever buy a house, but for sake of this exercise it's a no-brainer for me. I could live off $300k right now, including rent.

teewonk · Post by **teewonk** » Wed Jul 13, 2011 3:08 am

@jacob - So the ratio is 12/(R+X), where R is the safe withdrawal rate and X is the ratio of annual taxes and maintenance to house cost.
If you can get X down by living in a place with a homestead exemption and by frugal maintenance, say $1500/year, then with R of 3%, for two people, $100K*(0.03+0.015)/12/2 = $187.50/person/month.
Seems very sensitive to X, and you have a good deal of control over X.

Dum spiro spero · Post by **Dum spiro spero** » Wed Aug 31, 2011 9:29 am

I think the question has too much wiggle room for people to interpret what you mean

If the choice was $300k or a room + shared bathroom forever, I'd take the $300k in a flash. That would buy me a nice 4 bedroom house in Scotland. Add a couple of lodgers into the mix and I could retire tomorrow.

dragoncar · Post by **dragoncar** » Wed Aug 31, 2011 7:42 pm

Yeah, the question was poorly worded. But it was fun to see the various interpretations.