How much house is "enough"?

[ertyu]

What % of your FIRE NW would you spend on a permanent dwelling? Assume walking distance to groceries and public transportation, living from savings and/or supplementing with location-independent gigs, urban.

[Ego]

permanent dwelling

Permanent? Zero

Temporary? Maybe a little more than zero but it would be in effort, not cash.

Someday this will change.

[jacob]

viewtopic.php?f=7&t=10337

[ertyu]

Thanks, exactly what I needed, off to read that thread

Edit: was interesting to search for properties <10% of my NW and see what I can afford and where. Sobering. Either I'm too poor and need to double down and save, or properties are vastly overpriced.

[bostonimproper]

I'd start by figuring out what you need and prefer out of a living arrangement and then cast a wide net to determine the best way to acquire that in a financially sustainable fashion. For some that means living cheap and rural. For others that means housing arbitrage by renting it spare rooms through AirBnb while living in a hot urban center. Or maybe the boating life fits your needs. I wouldn't limit to a hard # as a first order thing.

[Nomad]

I'm currently about 28% of NW in house, but I rent a room out...

[2Birds1Stone]

We were spending 10% of gross income on housing the past 6 years.

[Alphaville]

We were spending 10% of gross income on housing the past 6 years.

NICE

[ScrewTheAverage]

While our housing for the last 3 1/2 years hasn't been in a 'permanent dwelling' (not to us anyway) it's really helped us to experience different types of spaces, countries/cities, population densities, and living arrangements.

We're fortunate to be able to work, travel, and house sit full time ('digital nomads') so we effectively have a very low monthly out of pocket housing/Airbnb/lodging cost (i.e. in 2019 we spent less than $300 in lodging for the year).

We know house sitting full time isn’t something we’ll do forever, nor do we think it’s a lifetime solution to lowering lodging costs, but for now it's a great way to travel and dramatically lower housing costs.

If/when we get to a time of buying (mortgage) or owning (cash) we'd really like to stay below 10% of NW.

[Bankai]

Edit: was interesting to search for properties <10% of my NW and see what I can afford and where. Sobering. Either I'm too poor and need to double down and save, or properties are vastly overpriced.

No, it's just that the 10% of NW rule is a bad rule to follow (in most places and for most people other than those already well off). It forces you to either buy a really tiny, shitty place or to work way longer than you need to build such an enormous stash that 10% of it buys a reasonable place.

Consider this: median household spend is c. £28k pa - to fund this from 4% WR they need £700k. But average house costs £250k. So that's £26% of NW if one wants to replicate median household lifestyle. Now, ERErs can easily chop expenses well below that level - our 2 persons household spends £12k pa excluding mortgage, or c. £42% of what a median family spends. Our flat is worth somewhere between 42-44% of median house. So %age-wise we're still around the 25% of NW mark. Could we ever go all the way down to 10%? No way - that would not even buy the smallest studio flat in the worst area in our city, which is one of the more affordable in the county. Unless we oversave big time, which is counterproductive.

I think 20-30% of NW is a reasonable range for most people.

[ertyu]

I managed 20% in the end. Permanent dwelling purchased for 40k, liquid net worth currently 193k in brokerage + 7k cash to live on until I get a new job.

[Bankai]

You probably already considered that but what if you bought another 3 similarly priced in cash and rent them out - would that not cover your expenses comfortably while also leaving some liquidity for emergencies? Could avoid having to work again...

[Seppia]

What % of your FIRE NW would you spend on a permanent dwelling?

Sorry to be direct, but I think you’re approaching the problem from a wrong angle.

When talking about housing (whether it’s buying or renting doesn’t matter), you first set what your needs are and then go from there.
This will dictate if you rent or buy, and how much you should spend.
The question shouldnt be, in my opinion, “how much of my NW should I spend?” but rather “what’s the least I can spend to get what I need?”

Example:
Young 24 YO, single, just moved to another country because of work, in a big HCOL city, has zero savings.
Needs: flexibility, being reasonably close to work, reasonably close to where other young people gather because he/she is an expat and doesn’t have a network yet.
Solution: rent a room in a 2br small place shared with 2 other people (one sleeps in the living room), central location. Rent alone is worth 100% of his entire NW
Has low salary so spending 33% of income is as good as possible.

Example 2:
Married 40yo, two kids, WFH in a stable job in a tier 2 city with no traffic. Used to be a trader and is worth 1.5M
Needs: being close to nature, space, no more than 1 hour commute to the office for the occasional meeting
Solution: buy a cheap place in the countryside for less than 10% of NW.

[ertyu]

You probably already considered that but what if you bought another 3 similarly priced in cash and rent them out - would that not cover your expenses comfortably while also leaving some liquidity for emergencies? Could avoid having to work again...

I did. not suitable for reasons. could explain but it comes down to, location + the kind of properties available + what rent one can charge makes it a bad deal. I bought because I liked the view from the balcony of my place + it is close to park, walkable to downtown, groceries, and parents.

[Frita]

The question shouldnt be, in my opinion, “how much of my NW should I spend?” but rather “what’s the least I can spend to get what I need?”

Nice, this can generalize to other areas of spending. Budgeting can be a trap, leading to overspending or unnecessary suffering given the situation.

@ertyu
Congrats on a well-situated bachelor pad/homebase!

[Alphaville]

all you need is a bed and a table and location location location

[chenda]

I went the other way and am over 90% in my house, and fund my expenses through part time working from home. My basic budget is almost identical to @Bankai's and the location I'm in gives the same benefits as @ertyu's.

[7Wannabe5]

I am buying a very little old 1 bedroom house with an accessible attic room (likely full of bats and/or raccoons) , an old garage (fits my Smart car perfectly) and an old two room shed** (the outbuildings are almost as big as the house itself and all 3 are grandfathered in under 1930s code ) on more than a quarter acre lot in a city, walking distance to school, grocery, park, and easy biking distance to giant nature preserve and hip coffee shop/University district for LESS THAN 1 JACOB* CASH!!!!

The funny thing is that I probably never would have even tried to find something to buy for such a small percentage of my net worth if it weren't for the fact that Jacob posted that rule of thumb about 10% or less. Also, obviously, NAV calculation for my region makes buying over renting an easy call. Another downside would be neighborhood is such that there is something that looks like a gang symbol, but also the word LOVE spray painted on the property. However, I have already put the monthly meeting of my new neighborhood improvement committee on my calendar as well as the information about the local urban gardening society and cultural center events. Anyways, I prefer a diverse up and coming sort of environment where I can walk to the corner and buy a taco or a catfish sandwich for $2 while taking a break from hauling, painting, nailing, digging, etc. etc. etc. etc.

*Expect multiple future posts from me on topics such as "Wood Rot Remediation", "Installing My Own New Used Gas Furnace or..???", and/or "Trench Digging 101." IOW, I plan on spending at least 2X as much money getting the house up to code status "human habitable" After my last adventure in major home renovation which involved an old house (money pit) that was over 2800 sq ft, I vowed that I ever did it again the house would be much smaller. At less than 500 sq ft, I am calling this cute little one the Money Dimple.

**The 2 room shed already very much resembles a post-apocalypse version of a Tiny House. The front room has a bookcase, an extremely dilapidated sofa, and 2 chairs in it already. It would not be remotely legal for me to rent it out to anybody, but it might be possible that if somebody wanted a free place to camp out this summer in exchange for manual labor...

[Alphaville]

heeeey congrats!!!

when does the exorcism begin? bats and raccoons i mean...

and as a glutton i have some ideas to offer for a cheap & hygienic kitchen refurbish (i mean, if you wanna hear my lunacy, lol).

[chenda]

@7 congratulations! You know we all want to see the pictures