Growth portfolio in retirement

Investing Strategies Retirement Investing
81

He who does with the most money still dies.

Maybe it’s his hobby to squeeze every penny until Abe screams. Otherwise, I don’t see the point. From his description of his situation, he can relax and do pretty much anything he wants for the rest of his days without worrying about money ever again. Sounds ideal to me.

I’m worrying a little bit while I get ACA coverage squared away, and a few things like that. Then I plan to relax and not worry. I’m not as well-off as him, but all the retirement calculators I have used say we’re good to go.

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82

In general, I prefer to rent, but I’m willing to buy if I have some prospect of getting an S&P 500 return on my money.

Why?

Everything in life doesn’t have to generate a return on your money. You’ve said multiple times that you have more money and more income than you need. What’s the point of dying with an extra zero on your net worth?

Maybe it’s a single guy thing. A wife would not be happy renting when a house could be afforded.

One thing about rent vs. buy is sure. Rent can go up, and it’s totally out of your control. A 30 yr fixed rate mortgage is, er, FIXED. The monthly payment won’t go up. RE tax & insurance can, but not the mortgage payment.

Indeed, thge payment can go down, if/when you refinance when rates go down. Ex: when we bought this house our rate was 7.5% and now it’s 2.5%.

While rents can unexpectedly go up as we’ve seen lately, I think the chance of unexpected expenses is more with an owned house. Taxes and repairs, in particular. I’m not saying not to own a home, but I’m not convinced that, unless you get lucky (like market timing), that long term the FINANCIAL risk/reward equation of owning a home doesn’t favor renting. Like I said, I think the chance of unexpected repairs or expenses is a bigger risk than rent spiking.

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83

I’m still paying property taxes, HOA fees, and maintenance inside the condo which would be covered by the landlord

Which in turn is baked into the rent, so effectively the landlord is temporarily holding your money until it can be forwarded to the appropriate payee.

mortgage-free home

While no mortgage increases available cash, it isn’t significant when calculating overall cost of owning a home because the opportunity cost of equity offsets the lack of mortgage, basically and simplified; mortgage cost + opportunity cost = a constant.

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84

Rayvt asks,

In general, I prefer to rent, but I’m willing to buy if I have some prospect of getting an S&P 500 return on my money.

Why?

Because renting a high quality apartment is much more convenient than owning a home, and it usually has a higher investment return since you’re not tying your money up in a poorly appreciating asset.
(i.e., residential real estate.)

A 5,000 SF home on a 2-acre lot in the suburbs would be an inconvenient living arrangement for me.

Rayvt: One thing about rent vs. buy is sure. Rent can go up, and it’s totally out of your control. A 30 yr fixed rate mortgage is, er, FIXED. The monthly payment won’t go up. RE tax & insurance can, but not the mortgage payment.

Indeed, thge payment can go down, if/when you refinance when rates go down. Ex: when we bought this house our rate was 7.5% and now it’s 2.5%.

All true, but you’re ignoring the fact that you’re sitting in an asset with an average inflation + 1% return while I’m getting inflation + 8% in the stock market. After 30 or 40 years, the renter has a fortune and can afford to rent a castle if he decides he needs one. Historically, the stock has risen much faster than the increase in rents.

It’s just arithmetic. Like I’ve said, I’m not arguing that people live in a less luxurious home than they’d like, just that it makes sense to do a rent vs. buy calculation and choose the path with the best investment return. People are apparently willing to accept a lower investment return to be a homeowner or mom & pop landlord. The savvy renter can take advantage of that phenomenon by renting when it makes sense, and buying on those rare occasions where a real estate market collapse provides you with some prospect of an S&P 500 like return.

I can across this funny video on Sunday that explains the residential real estate market.

If home buying were honest
https://youtu.be/Y-i7cawhw8s

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85

JonathanRoth writes,

<<I’m still paying property taxes, HOA fees, and maintenance inside the condo which would be covered by the landlord>>

Which in turn is baked into the rent, so effectively the landlord is temporarily holding your money until it can be forwarded to the appropriate payee.

Not entirely true. It’s baked into the owner/landlord’s cost of operations. What he can charge in rent varies with market conditions.

Where I live right now rents have spiked to “short squeeze” proportions. That’s why we have a roving fleet of derelict RVs on the street providing an affordable housing solution, as well as a few people sleeping in their cars for the night.

For most of the time I lived in Houston, my rent barely budged. REITs just kept building new garden apartment complexes for as far as the eye could see. If you put money into a REIT, management is unlikely to tell you you’d be better off in the S&P 500. As long as you keep throwing money at them, real estate developers are going to develop, and builders are going to build.

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86

REITs just kept building new garden apartment complexes for as far as the eye could see.

Right and they had absolutely no regard for traffic patterns, parking, crime, etc. As a piece of advise I would suggest you live as far away from apartment complexes as you can.

87

Well then, don’t keep a lot of money in a poorly appreciating asset. (i.e., residential real estate.)

Instead of paying cash, have a 30 year fixed rate mortgage and keep the money earning inflation + 8% in the stock market.

My house may or may not be poorly appreciating asset (spolier: it probably is), but I don’t care. Because the bulk of its value is in the stock market, at the minor cost of paying a below-inflation interest of 2.5%.

People are apparently willing to accept a lower investment return to be a homeowner

Not financially savvy people, though. Financially savvy people keep the money out of the house. By having a mortgage. Long-term, cheap, non-callable, fixed rate loan----what’s not to like?

The savvy renter can take advantage of that phenomenon by renting when it makes sense, and buying on those rare occasions where a real estate market collapse provides you with some prospect of an S&P 500 like return.

I guess that makes sense if you don’t mind spending a lot of time studying the residential real-estate situation. Seems like a waste of time & effort to me. Make a one-time decision to put 20% down and get a cheap FRM. Done and done.

If you rent, you can only choose among whatever happens to be offered for rent at the time. If you buy, you can buy exactly what you want. We have had our last two houses custom-designed and custom-built.

We soured on renting early on, when our landlord told us to move out because he was going to move his daughter into our unit.

What is the point of dying with a net worth of 7 digits instead of 6? When 6 gets you everything you want.

========

Not too long ago I mentioned to my wife how many $100’s of thousands our portfolio had dropped since January. She said to me, “Do we still have at least $$XXX?” I said, “Well, yes.” She then said, “Big deal, We still have more than enough money to live like we want, so it doesn’t matter. And the market will go back up.”

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88

"She then said, “Big deal, We still have more than enough money to live like we want, so it doesn’t matter. And the market will go back up.”

A very wise woman. Be thankful.

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89

ImAGolfer advises,

<>

Right and they had absolutely no regard for traffic patterns, parking, crime, etc. As a piece of advise I would suggest you live as far away from apartment complexes as you can.

Absolutely! And as a renter I hope more people take your advice.

Since Houston doesn’t have zoning, if you live in a wealthy neighborhood, it’s not uncommon to see an apartment complex sitting next to a subdivision of million-dollar homes. Traffic and parking problems come with living in an area that people find attractive due to amenities like restaurants, shopping, or a short commute to their job.

I spent most of my time in Houston living within a mile or two of the Galleria.

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90

I guess that makes sense if you don’t mind spending a lot of time studying the residential real-estate situation.

How much time does it take? Doing a rent vs. buy calculation takes a few minutes.

The NY Times even published a helpful online calculator a while back.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal…

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91

One thing about rent vs. buy is sure. Rent can go up, and it’s totally out of your control. - rayvt

The worse thing about renting is the lack of control over your neighbors, loud music, barking dogs, etc less so when renting a single family home vs an apartment but still. The second thing is lack of motivation to improve the property and the need to ask permission for anything you might want to do.

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92

"She then said, “Big deal, We still have more than enough money to live like we want, so it doesn’t matter. And the market will go back up.”

A very wise woman. Be thankful.

No lie. I an very lucky & thankful. We both are. She delights telling people that I was the one who taught her to drive some 50+ years ago.

When I first started following the Motley Fool, after awhile we were going to refi the house to get a lower interest rate. It turned out that we could get a lower payment or could take some cash out while keeping the same payment. Which would be invested the MF way. In discussions, we decided since we were ok with the payment so we did the cashout and invest it.

I planned to keep track of the growth of the investment and said that possibly in 10-15 years it would grow to the level of the mortgage balance whereupon we could just pay it off. The market was good, and just a couple-three years later it grew to match the mortgage balance.
I told her when that occurred, and asked if she wanted to sell the investments and pay off the house–expecting that she would want to–all her friends were trying to pay off their houses ASAP.

She said, “Are you nuts??!! Keep investing, we are easily making the house payments. Just let me know: If/when we are in trouble and need to hunker down, or when/if we have enough money that we can retire.”

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93

Rent covering costs. Not entirely true. It’s baked into the owner/landlord’s cost of operations. What he can charge in rent varies with market conditions.

Like any other business, if income fails to cover expenses, the business disappears when the owner runs out of money or patience in subsidizing customers. In high appreciation areas buyers may pay more than current income covers with the expectation of future rent increases or appreciation covering the initial losses. In areas without a history of appreciation, property purchase price is generally based upon current ROI.

For most of the time I lived in Houston, my rent barely budged. REITs just kept building new garden apartment complexes for as far as the eye could see. If you put money into a REIT, management is unlikely to tell you you’d be better off in the S&P 500. As long as you keep throwing money at them, real estate developers are going to develop, and builders are going to build.

Increasing rent where there’s no barrier to building more properties is hard. Selecting an investment increasing in value is important in both the stock and real estate market.

94

And delays in getting stuff done. You are dependent on the landlord to be prompt, and treat your problems as their problems.

If my water heater goes out, I call someone that same day. If I have a landlord, I call him/her, and hopefully they get around to it (assuming they don’t comparison shop because they don’t have a regular plumber).

It will get handled more quickly if I’m doing it.

And also DIY…I would be reluctant to do DIY on a property I didn’t own. Even something as simple as a toilet valve. I touch it, I own it. Kinda like voiding a warranty.

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95

Rayvt analyzes,

Well then, don’t keep a lot of money in a poorly appreciating asset. (i.e., residential real estate.)

Instead of paying cash, have a 30 year fixed rate mortgage and keep the money earning inflation + 8% in the stock market.

My house may or may not be poorly appreciating asset (spolier: it probably is), but I don’t care. Because the bulk of its value is in the stock market, at the minor cost of paying a below-inflation interest of 2.5%.

That’s not how arithmetic works.

You just added mortgage interest to the the price of your “poorly appreciating asset”, making it even worse.

Since I’ve been using a “rent vs. buy” calculation to inform my real estate decisions, I didn’t purchase a home until I found one at a low enough price to give me a prospect of an S&P 500 return on the asset. I wasn’t investing money in real estate at a lower return than the S&P 500.

But I’ll admit that a lot of people share your thinking – and your banker loves you for it.

intercst

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96

1poorguy writes,

And delays in getting stuff done. You are dependent on the landlord to be prompt, and treat your problems as their problems.

If my water heater goes out, I call someone that same day. If I have a landlord, I call him/her, and hopefully they get around to it (assuming they don’t comparison shop because they don’t have a regular plumber).

I’ve never rented from a mom & pop landlord. My preference was for large, professionally-managed resort-style apartment complexes with palm trees, pools and tennis courts, and an on-site maintenance staff. I’ve never had a water heater blow up, but for stuff like a leaky faucet, or a refrigerator that wasn’t cooling enough, I never waited more than 24 hours to get it fixed.

For the refrigerator, the maintenance guys didn’t even come look at it. They just wheeled a new one to the front door and said they wanted to replace the other one. This was an apartment complex with about 300 units and they had a storage area with about a half dozen refrigerators sitting there as spares. That points to the advantages of economies of scale and professional management in your housing decisions.

Perhaps I’ve lived a charmed life?

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97

"Since I’ve been using a “rent vs. buy” calculation to inform my real estate decisions, I didn’t purchase a home until I found one at a low enough price to give me a prospect of an S&P 500 return on the asset. I wasn’t investing money in real estate at a lower return than the S&P 500’

Of course, as a SINGLE PERSON, you could rent a 1 bedroom or even studio apartment to house all of one individual.

If you are a family unit of 3 or 4 or 5, you don’t rent a 1 bedroom apartment and maybe 2 bedrooms is not enough if kids are over 5 and you need to separate boys from girls. So you’re now trying to rent 3 bedroom apartments or a house.

Throw in a dog and it gets worse as many places aren’t ‘pet friendly’.

Then, if you have kids in school, you likely WANT a a good school district which probably ups your rent as you want to live in the right areas.

So while you, as a single, have an easy decision to make, a family doesn’t.

I rented for years and years. Decided to build my first house (1300 sq feet) on a hilltop among 10,000 acres of woods - and proceeded to install 2 70 foot towers, lots of large antennas, and have fun while I was living there. Couldn’t do that in an apartment.

when I moved to TX, both my parents were alive and would spent months visiting me. So a one bedroom apartment wouldn’t do it. So bought a nice house with pool. Dad passed soon and mom spent six months a year here in TX. Not possible to do in one bedroom apartment.

So your choice was easy.

Lots of apartments here in TX to rent…but rents going up and up…

one bedroom $1500…3 bedrooms $2400
Houses - median house $412,000

Don’t need my house now as mom passed 20 years ago and just me. But inertia has a way of not doing anything, and with frozen real estate taxes, I’m still enjoying my house/pool. Lots of privacy, no one walking on the ceiling at 3am and blasting radios, got my own garage, etc. Can I ‘afford it’…yeah…living on under 2% SWR now. SS and a teeny pension are gravy. Mostly dividend income.

t

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98

FWIW, I don’t regard my house as an investment. It’s my home. If, whenever I sell it, I get more for it than I paid, great! If not, it was my home.

I don’t expect to get more for my car than I paid, though if it becomes “classic” or “collectible”, I might. But I don’t expect it. It’s my car, and serves as my car. That’s it.

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99

tele explains,

"Since I’ve been using a “rent vs. buy” calculation to inform my real estate decisions, I didn’t purchase a home until I found one at a low enough price to give me a prospect of an S&P 500 return on the asset. I wasn’t investing money in real estate at a lower return than the S&P 500’

Of course, as a SINGLE PERSON, you could rent a 1 bedroom or even studio apartment to house all of one individual.

If you are a family unit of 3 or 4 or 5, you don’t rent a 1 bedroom apartment and maybe 2 bedrooms is not enough if kids are over 5 and you need to separate boys from girls. So you’re now trying to rent 3 bedroom apartments or a house.

Lots of apartments here in TX to rent…but rents going up and up…

one bedroom $1500…3 bedrooms $2400
Houses - median house $412,000

As you point out, there are 3-bedroom apartments available for rent in most large cities. Doing a “rent vs. buy” calculation isn’t restricted to single people.

I think I may have pointed this out on this board before, just North of where I lived in Houston you have the Memorial School District which has excellent schools funded by the tax-base of the multi-million dollar homes around it. There are also apartment complexes with 3-bedroom units in the Memorial School District. You don’t need to buy a million-dollar home to send your kid to a good school.

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100

in 1982 i bought a duplex…i live in one unit and have rented out the

other unit. The unit has generated thousands of dollars over the years.

It now just about pays my entire cost to live there…taxes, insurance

etc. No Hoa fees etc. If you want to buy yourself a place to live

buy a duplex, tri plex, or a quad. Let someone else pay your living expenses.

It’s not difficult and the money you earn at your real job can be used to invest.

A single family house is an Alligator…It is an expense.

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