Rental accommodation once retired

How to avoid signing your life over to a mortgage
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unemployable
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Re: Rental accommodation once retired

Post by unemployable » Sun Mar 10, 2019 6:21 pm

thrifty++ wrote:
Fri Mar 08, 2019 3:00 pm
One thing I often think of is that it may be all well and good if you retire because you have a few hundred thousand dollars in assets, but what about needing somewhere to live.

I have the fear that it might be difficult to obtain rental accommodation if you are not doing regular paid work. Even if you have a decent amount of assets.

What are peoples experience with this? Is this fear founded or unfounded? And how to strategise yourself out of this risk?
Anyway, back to the original question. OP's frame of reference seems to be still in the accumulation phase, where full ER is still several years off.

There's an obvious solution, though: Why keep renting? If you have several hundred grand, why not just buy a place?

Vast parts of the US -- most of it, by area -- have houses in move-in condition under $100k. If you can swing a little more, like up to $150k, you can get something quite nice and can start talking suburbs of lower-cost-of-living cities. If you don't mind doing your own improvements or living in a prefab (trailer) you can buy a house for about the price of a decent new car.

If you have $500k and buy a $100k house, and have $400 in monthly expenses (utilities, taxes, HOA, maintenance) -- that's high by the way for rural areas -- the $400K you're left with will fund $933 in non-house monthly expenses at a 4% WR. You can live on that, can't you? Then if you're out for long periods traveling, you can rent/AirBNB it, especially if it's in a vacationey area. I know lots of five-figure houses and condos in vacationey areas. And the house is an asset -- if you hate it, want to live somewhere else, run out of money or whatever, just sell.

I'm still a renter, and after a point in life, renting starts to suck. The whole point is not just to live, but live well.

classical_Liberal
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Re: Rental accommodation once retired

Post by classical_Liberal » Sun Mar 10, 2019 11:00 pm

unemployable wrote:
Sun Mar 10, 2019 6:21 pm
Then if you're out for long periods traveling, you can rent/AirBNB it, especially if it's in a vacationey area.
This is actually something I was going to mention in my next journal update. It's not a bad idea. I just finished a road trip along the gulf coast in TX,LA, MS, AL. The number of <75K condos sitting on or very near the beach in touristville(s) is amazing. Still, I worry that if this is a more permanent housing solution, issues with climate change destroying any value in the coming decades may be a valid concern.

Aren't you staying somewhere along the gulf coast this winter? What did you think staying for months vs the couple of weeks I had?

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Re: Rental accommodation once retired

Post by unemployable » Sun Mar 10, 2019 11:23 pm

classical_Liberal wrote:
Sun Mar 10, 2019 11:00 pm
This is actually something I was going to mention in my next journal update. It's not a bad idea. I just finished a road trip along the gulf coast in TX,LA, MS, AL. The number of <75K condos sitting on or very near the beach in touristville(s) is amazing. Still, I worry that if this is a more permanent housing solution, issues with climate change destroying any value in the coming decades may be a valid concern.
The bigger concern here is hurricanes. Last one to hit this area was Ivan in 2004. Katrina was to the west, mostly Mississippi and Louisiana, the following year. We have one neighbor who just sold a condo down there, thinking the area has gone too long without a major hit.

For anything within striking distance of a hurricane you want to see what sort of insurance the HOA has and/or price your own. Most underwriters won't cover full replacement value anyway, more like 70% if you're lucky.

If I wanted to be near the beach I'd check out some of the smaller towns in the Pacific NW that aren't a quick drive to Portland or Seattle.

A lot of rural and second-home real estate across the country hasn't come back at all from the crisis and is trading for around early-2000s prices. I know of one large condo development (not on the Gulf Coast) where condos that traded around $160K in 2006-07 have 2018-19 sales around $60k. Similar units, same square footage (2br, 1000sf).
Aren't you staying somewhere along the gulf coast this winter? What did you think staying for months vs the couple of weeks I had?
I like it here in the winter, although this year seemed unusually cool and rainy. It's not somewhere I'd live permanently. I'm much more a mountain guy. Four months or so is a nice period of time -- forces me to focus on things I want to accomplish (home improvements, car work, maybe some regional travel and touristy stuff) while still being able to relax.

I don't mind the culture in small doses, but the HOA of the subdivision we're in (nice suburban homes) is full of petty jerks. That's not an Alabama thing or even a Southern thing.

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Re: Rental accommodation once retired

Post by bigato » Mon Mar 11, 2019 3:22 pm

unemployable wrote:
Sun Mar 10, 2019 6:21 pm
There's an obvious solution, though: Why keep renting? If you have several hundred grand, why not just buy a place?
The obvious answer is, to not get anchored down somewhere? Real estate is not exactly liquid, unless you are willing to lower the price down to liquidation value. But then you would loose money unless you also had bought at liquidation price. And that is not easy, I can tell you from experience, because those deals are usually heavily explored by professional real estate investors. Yes I agree that sometimes you will find deals where the rent/price to buy ratio will be so cheap that it makes sense to buy even if you are staying just a couple of years. But that's an exception. I did buy something crazily cheap some years ago, where the rent/price was 2.5% and the price itself would be equivalent to the money a couple earning minimal wage would make in 10 months. Even such a great buy took me 7 years to sell. Obviously we can't draw general conclusions from a single case like this, but it at least goes to show that even when you buy cheap, selling is not guaranteed to be fast.

Now we could go into an argument about whether one should stay put after retired, but that's not the point. Part of us, part of the time, will want to stay mobile. And for them, buying is far from being ideal in a significant percentage of cases.

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Re: Rental accommodation once retired

Post by unemployable » Mon Mar 11, 2019 6:34 pm

bigato wrote:
Mon Mar 11, 2019 3:22 pm
The obvious answer is, to not get anchored down somewhere? Real estate is not exactly liquid, unless you are willing to lower the price down to liquidation value. But then you would loose money unless you also had bought at liquidation price. And that is not easy, I can tell you from experience, because those deals are usually heavily explored by professional real estate investors. Yes I agree that sometimes you will find deals where the rent/price to buy ratio will be so cheap that it makes sense to buy even if you are staying just a couple of years. But that's an exception.
I agree with these points -- yes, you want to buy somewhere you want to live and rural/low-demand real estate tends to sell slowly and for well under offer, like 15-20%. But that works both ways. So just build that into your own offers.

I don't worry about "competing" with "professional real estate investors". They're already out there and I see stuff at attractive prices sitting for months. They'll all tell you the buy-to-rent model doesn't scale well, that there's a limit to what one person can manage comfortably.

Anyway, I suggested once you buy something you essentially write it down to zero for net worth and withdrawal rate purposes. Now you live off 4% of whatever you have left after buying the house, and that has to include the cost of carrying the house. In my particular situation I would have more discretionary money than what I have now by renting for house prices up to about $200k. And you keep the option of renting it out when you're not there. Sure it can go Detroit on you, but so can whatever alternative the house money would be invested in.

I think the "not being tied down" factor is overrated for most people -- I plan on rotating my location 2-3 times a year (one of those would be "Western mountains in general during the summer") and I'm still looking at buying a place. Vacation-type travel, as in a month or less between changing locations, is expensive enough that if you can swing it you have the means not worry about an $80k house becoming worthless anyway. At the other extreme vagabonding/vandwelling isn't even renting either. Very few people want to keep it up their whole lives.

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Re: Rental accommodation once retired

Post by bigato » Mon Mar 11, 2019 7:08 pm

What is attractive to you is not necessarily attractive to the market, and if you are an outlier like most here, it means that what you consider to have an attractive price will just sit there for months or years when you try to sell it. "Attractive price" and liquidation price are two very different concepts, and the point of my argument was regarding liquidity and not attractiveness. Once you seriously try to look at the numbers from an investor perspective, trying to make money flipping, buying will never feel the same. Also, you have to factor in the transaction costs which are relevant. That means that even buying at liquidation price, which is already hard on its own, you can't easily sell without a loss. And if you are looking below liquidation price, then you are competing with the professional real estate investors, there's no way around this. At least not that I know of, but I'd be happy to be proved wrong and learn something new. I looked into this in depth recently, because I have at least two years left in this current city (but maybe more if I change my mind and decide to stay longer) and I wanted to minimize housing costs (or make a profit). So far I'm settling on renting a cheap place (by the way, I was too slow to decide and lost a good opportunity today).

It really depends on your numbers. For me, renting or buying is still relevant enough that I can't afford to just buy something and keep doing whatever else including traveling. I can't just hand wave it away. Regarding traveling, it can be all sorts of things from any range of prices you want, and even cashflow positive. Vacation travelling is not the only kind of travelling there is, but even if it was, it doesn't need to be too expensive. You can even vagabond airbnb'ing nowadays. Check the lowest prices for shared accommodations in some of the most expensive cities around the world. You would be amazed at how cheap you can get even a whole (small) place all to yourself.

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Re: Rental accommodation once retired

Post by unemployable » Mon Mar 11, 2019 7:44 pm

So, you're worried about paying $85k for a place with a "fair value" of $70K. Fine, I shave pennies too, but that's what, 3% of a $500k net worth? Real freedom is the freedom from having to give a crap. And to be able to paint the walls blue and put in a hot tub.

I actually enjoy this discussion in that it's the complete opposite of people trying to buy a house in some place like San Francisco.

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Re: Rental accommodation once retired

Post by The Old Man » Mon Mar 11, 2019 7:51 pm

@unemployable: $15K is $15K. That is two Jacobs. Why waste it?

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Re: Rental accommodation once retired

Post by unemployable » Mon Mar 11, 2019 7:58 pm

The Old Man wrote:
Mon Mar 11, 2019 7:51 pm
@unemployable: $15K is $15K. That is two Jacobs. Why waste it?
It's not a waste when:

1. Whether and how much it is a waste in the first place is open to debate (Is fair value $70k? $75k? $62k? Based on what model? You sure you can offer $10k under me and get a deal?)
2. I get what I want
3. I minimize nonmonetary costs such as time / hassle factor

I mean, I'm talking dropping 15-20% of my net worth, in cash, on an asset in a soft market that will free up hundreds of dollars a month to do more of what I want and/or reduce my withdrawal rate. You want me to believe I'm not the one in a position of strength? Y'all who put your faith in VTSAX are telling me I'm paying too much over fair value?

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Re: Rental accommodation once retired

Post by The Old Man » Mon Mar 11, 2019 8:17 pm

@unemployable: $15K is a waste because you stated it was 3% of a $500K net worth and thus not worth "having to give a crap". I am a millionaire and $15K is worth a crap. Once you start thinking "not worth having to give a crap" then you are on the road to being bankrupt with that kind of thinking.

Furthermore, it is important to recognize that the purchase price of a house is not the only costs involved. There are many other costs involved. Additionally, leaving a house vacant for long periods of time dramatically increases the risks of burglaries plus other difficulties. There are nonmonetary costs involved that can be significant.

I solidly support Bigato's well reasoned assessment.

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Re: Rental accommodation once retired

Post by Mister Imperceptible » Mon Mar 11, 2019 8:43 pm

I share unemployable’s disagreeable score so I support his assessment even if not well-reasoned, even if I wish the bastard would keep that $15k because in 31 years that could compound into something meaningful when I inherit it.

I think what unemployable means is that it is nice to have a fortress of solitude to retreat to after you’ve told everyone a tasteful knock knock joke, and being able to tell such knock knock jokes is well-worth the potential $15k after a certain amount has already been accumulated.

Anyways, I trust anyone smart enough to have a hoard of nickels.

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Re: Rental accommodation once retired

Post by unemployable » Mon Mar 11, 2019 9:45 pm

So, owning real estate is throwing money away. Got it.

I'm saying I dispute I'd actually be wasting $15k, that I'm perceptive enough to know I'd be wasting $15k, and that in that case, I'd be dropping my offer by that much. And that the rest of you are trying to optimize at a false degree of precision.

Back to what I originally wrote though. The whole point is to give yourself the option of not having to rely on the whim of some landlord. (If it wasn't clear, I rented my current residence without a job. And still live in it!) You can overpay for rent just as easily as for a house, although I've lost track what everyone's definition of "overpaying" is anymore.

I'm rather proud of my Agreeableness score. More so than my collection of nickels. Does that make me less Modest?
Mister Imperceptible wrote:
Mon Mar 11, 2019 8:43 pm
I support his assessment even if not well-reasoned, even if I wish the bastard would keep that $15k because in 31 years that could compound into something meaningful when I inherit it.
Welcome to the principal-agent problem!

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Re: Rental accommodation once retired

Post by Mister Imperceptible » Tue Mar 12, 2019 7:43 am

When your landlord raps on the door he says “knock knock.”

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Re: Rental accommodation once retired

Post by classical_Liberal » Tue Mar 12, 2019 6:31 pm

Meh...Real Estate ownership can go either way.

If the NAV is right, in an area you want to live, owning has advantages. For one, it solidifies housing costs to a large degree. Taking away much of the uncertainly of ones #1 expense is huge. On top of that, if in the right area, there are plenty of anecdotes of folks actually make money on their primary housing with AirBNB's or as rentals for part of the year. This effect is amplified with low leverage rates.

OTOH, real estate is hyper local and non-diversified. Value can plummet, quickly. The option of walking away from a bad neighbor or neighborhood goes away. Transactional costs are ridiculous, even in the best of circumstance.

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Re: Rental accommodation once retired

Post by thrifty++ » Wed Mar 13, 2019 1:06 pm

Buying a place is not a bad idea I think. It provides you with a nice base of your own and if its paid in cash you cover almost all your living costs very easily, and somewhere to grow food etc. Property is cheap in USA though I think. At those sorts of prices it makes sense. Its not like that everywhere, and certainly not in NZ. Its very difficult to find a house for less than $300k in any of the shittiest little towns/rural areas.

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Re: Rental accommodation once retired

Post by Salathor » Wed Mar 13, 2019 6:37 pm

I am with unemployable and thrifty here--my future almost certainly involves buying some American house within walking distance of a relatively large downtown for <$250k. A $7,500 hit to income in exchange for eliminating rent inflation worries, reducing monthly costs, and the "fun" of home ownership is worth it to me.

I will not be keeping my current, much more expensive house in FIRE.

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Re: Rental accommodation once retired

Post by Mister Imperceptible » Thu Mar 14, 2019 8:45 am

While interest rates are artificially low and asset prices are artificially high, take out as much fixed rate debt as you can against the house and load up on gold. Then watch as the exploding federal deficit, entitlements, and the portion of the population unwilling to work cause the price of gold to appreciate faster than the interest you are paying on your mortgage at some point over the next 20-30 years.

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Re: Rental accommodation once retired

Post by Salathor » Thu Mar 14, 2019 4:24 pm

Mister Imperceptible wrote:
Thu Mar 14, 2019 8:45 am
While interest rates are artificially low and asset prices are artificially high, take out as much fixed rate debt as you can against the house and load up on gold. Then watch as the exploding federal deficit, entitlements, and the portion of the population unwilling to work cause the price of gold to appreciate faster than the interest you are paying on your mortgage at some point over the next 20-30 years.
I'm much more a no-debt-Dave-Ramsey-ite when it comes to FIRE finances than a gamble-it-all-on-analog-bitcoin guy.

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Re: Rental accommodation once retired

Post by George the original one » Thu Mar 14, 2019 6:49 pm

Mister Imperceptible wrote:
Thu Mar 14, 2019 8:45 am
While interest rates are artificially low and asset prices are artificially high, take out as much fixed rate debt as you can against the house and load up on gold. Then watch as the exploding federal deficit, entitlements, and the portion of the population unwilling to work cause the price of gold to appreciate faster than the interest you are paying on your mortgage at some point over the next 20-30 years.
a) You may have heard that Oregon enacted the first state-wide rent control system? It's actually more generous than most people may think when they hear "rent-control". It allows the landlord to raise the rent 10% above the inflation rate... annually! In other words, imagine renting when your rent is going up that fast annually while waiting for the gold explosion.
b) Once I exited employment, I paid off the mortgage, so there is no interest involved. Certainties are stronger than gambles when your income is uncertain or limited. Some day you may understand this.

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Re: Rental accommodation once retired

Post by Mister Imperceptible » Thu Mar 14, 2019 11:12 pm

The idea is not to rent. It is to own (or borrow, if you prefer to insist that by taking out a mortgage I do not own the house), with a fixed monthly mortgage payment (mine is at less than 4% interest). Analog-Bitcoin has appreciated on average more than 7% nominal per annum since the analog-Bitcoin standard ended. I think 7% per annum moving forward will be on the low side, given exploding deficits, Social Security and Medicare insolvency, the emergence of socialism and MMT, etc.

Yes, there is a risk. Real estate is a risk asset. Analog-bitcoin can be stolen. I prefer this risk to the VTSAX risk. I am not FI and I am not banking on the long-term returns of the stock market or entitlements. I have to invest based on the math and what I know of people. Risk cannot be eliminated, only transmuted.

As one might advise someone considering a move to the most insolvent state of Illinois, a house paid in cash does not look so great when the state is drooling to tax the bejesus out of property owners to cover bankrupt pension systems. A paid off house is stress-free from a mortgage interest standpoint but is also a sitting duck for the state.

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