When we moved 2 years ago, we originally planned on paying cash, but some of the cash we wanted to use exists in a foreign bank account. The exchange rate has not been a friend (can we a have a weaker US dollar please…) so we took out a small mortgage (we had been mortgage free for years).
So now we have a low rate and they look after all the taxes from our payment. It may not be financially optimal, but it simplified things. We don’t have to worry about keeping cash around for the taxes or timing them so as to get 2 years taxes paid in the same year. Not so bad. The money is invested in treasuries paying more than the mortgage rate.
I’ve said it before and I’ll say it again. Owning assets, be it stock or real estate or anything that can be cyclical, is best done if you take steps to not have to sell in a down market. With stocks that can be having enough liquid assets to not have to sell off stocks to pay your bills when stocks are struggling. With real estate, it may mean renting out the property until the market improves, assuming you have to move elsewhere, or just sucking it up in a place you would rather not be until market conditions improve. If you live in a property for the first two of the last 5 years, you can rent the property for the following 3 years and still get full capital gains exclusion when you sell. However you can no longer simply move back into a rental for two years and get the capital gains exclusion back. If you need the capital from the sale of the property to buy another place, that may mean renting until you can sell, but it gives you about 3 years to get out of that down market.
I have sold 5 properties. The only one I took a loss on was the one we could not finesse the exit on. Then again we were heading overseas for a job that provided corporate housing , so it was worth the quick exit. Three of them we rented out for a while before selling into a better market. I bought my first house in my early 20’s, turning it into a rental 2 years later when I bought the next place.
Zestimates are typically trash. They have always been about 20% lower than what I sell or rent for. Of course they magically ramp up to around the asking price as soon as you put it on the market, whether it’s a rental or sale. Not a good data point to base your theories on.
Mortgages are the only debt we carry, and we typically have enough funds on hand to pay it off, particularly now when we are earning more interest on our money market than we are paying on the mortgage, and stocks are too pricy. It’s a great tool if you use it wisely, and if you don’t let fear get in your way.
Every time we moved for a new employer, costs were tax deductible. Often a signing bonus paid for it all. Transfers in house to another location meant corporate paid everything, including Realtor fees, and we were taxed on that as income. Moving because of the job can be a great way to make money in real estate.
IP
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- This only applies to higher end employees (like most of the people here on this board), management and up. The typical guy who is moving for a better job will not get much of a signing bonus and relo packages are much rarer today even for middle management. But I agree, relo packages back in the day were excellent and quite lucrative* (I was a relo when I bought my first and only house).
- The vast majority (close to 90%) of people don’t itemize deductions anymore because the standard deduction is so high, so “tax deductible” doesn’t mean anything substantive anymore to most people.
* In the 90s, I worked with a guy that did 4 rapid relocations in less than 3 years (yes, he got a waiver for doing another relo in under a year) at the same company. On one of them, he had bought a house for $250k, literally closed on it 5 1/2 months before his next relocation and sold it for $300k with almost all expenses paid for by our employer.
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And certain industries. We relocated with packages pretty early on.
I hate the word “typical” when it comes to housing. Each transaction is it’s own, and subject to what you negotiate. Same can be said for jobs. Learn to look at something from all angles and think outside the box.
I didn’t start my housing experience with buying the house I loved. In fact, I pretty much hated the busy road my first house was on, but with a little bit of renovation it sure was a way to get to where I wanted to be with time and multiple transactions. It seems to me that people have forgotten the difference between WANT and need, or perhaps just prefer to complain about the time and effort needed to get what they WANT, rather than put in the effort.
IP,
who had been in 4 rentals before buying, some just a room in a house of room rentals, finding the luxury of being able to do what she wanted when she wanted, in her own small house on a busy street, was what she needed
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In that case, I’ll define it - when I say “typical”, I mean households in the range of +/- 50% of median household income. That covers well over 80% of households. That includes household incomes of $37,250 to $111,750.
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I had 5 different Fortune 500 employers in the 1980’s as I job-hopped my way to early retirement. All of my relocation packages included paying any liquidated damages resulting from breaking a lease, so I didn’t get any less of a relocation benefit by being a renter. I just benefited by having the money most people have tied up in a poorly appreciating home invested in the stock market at a much higher rate of return.
And also, I played golf and tennis on the weekends rather than do home maintenance. {{ LOL }}
intercst
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That’s what people miss in this calculation.
Since the “rent vs.buy” calculation didn’t turn positive for me until 2012, I had 30 years of stock market returns banked in my “housing account”.
When I bought my home in 2012, I just paid cash for it. At the time, I had about 8 years worth of living expenses in fixed income earning 2% and I could have gotten a mortgage for about 3% at the time. The purchase price of the home was about 2.5 years’ of annual spending for me, but my unspent dividend income would replenish the fixed income account within 3 years. Why would I get a mortgage, if the goal of most retirees is to have a mortgage-free home? Just pay cash for it, and I immediately got about a 75% reduction in my monthly rent (i.e., property taxes and the HOA fee were about 25% of what I was paying in rent in my previous home.) And I saved the 3% or so that acquiring the mortgage would have added to the closing costs. (My closing costs was 1/2 the escrow fee, $75 to record the deed, and $100 to change the locks – about 0.50% of the purchase price. I did my own inspection (I’m a licensed PE) and I didn’t need an appraisal since there wasn’t a mortgage lender involved.)
Minimizing the “skim” – the key to retiring early.
intercst
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For the same reason you didn’t keep all the money in a house for the previous 30 years. You could put $100k in the house or put the $100k into the S&P500 (with the $100k covered by a ~5% mortgage). Over the next 20-30 years, which choice is better?
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No. It was really a matter of having enough cash at the time to pay for the home sitting in fixed income at a 2% return, while the mortgage rate was 3% (plus the added closing costs if you have a mortgage.) It was also an asset allocation decision. A home purchased at a low enough price to give you some prospect of an unleveraged S&P 500 return, is a valuable retirement asset and provides some diversification, plus it reduced by monthly rental cost by about 75% (i.e., my property taxes and HOA fee was about 25% of the monthly rent I’d been paying previously.) While the home has nearly quadrupled in price over the past 12 years, of course there’s little likelihood I’m going to get an S&P 500 like return on it going forward from these price levels.
Maybe it’s time to go back to renting? {{ LOL }}
intercst