So my NW is 3.6M right now 2.5 years in, you can see my previous post for my details.
I'm anticipating up to 85k spend this year and my SWR @3% from when I started was 104k, now at 116k if you do straight 3% based off interest or 106k if you do the Endowment method.
I'm looking to buy some land for a future homesite 5+ years out in a high growth area. I really want to buy soon so I don't get priced out, which has already happened in the first two suburbs of the city I live near.
I've exhausted my search in the area I want & I'm not willing to compromise on the location. So I have to wait indefinitely until the right piece of land comes up for sale.
There's a new housing development construction right in the perfect area, but it means I have to actually buy a house now, not exactly what I want, but maybe I can make it work?
It'll be about 300k at 4.875% interest which comes out to be 15k per year for just mortgage if I put down 20%.
This leaves a little room in my budget for property taxes & maintenance I think?
Forgot to mention that I'm currently renting & not planning to move to this property but I can visit at least once a week or maybe live there for a week every other week until I want to move there permanently?
So how would you look at this since at least for right now it's kind of an investment, so maybe I keep that 60k down payment included in my NW for figuring out my WR? When I stop renting and move there, remove the principle on the house from my NW? At my current NW this would reduce my yearly WR by about 2k.
Do I keep the mortgage, taxes and maintenance as just part of my expenses that needs to be below my WR? If so, maybe I can include additional principle being paid by the mortgage as extra investment for WR considerations?
I suppose I could also rent it out, but they are building so many new homes I'm not sure I'd be able to rent a brand new house & I also kind of waste the new home niceness on a tenant rather than myself. (Hopefully this doesn't sound too greedy).
If I did rent it out, I guess I could think about it as a hedge against the rising house prices there bc even if my house gets trashed by renters, I could fix it up, sell it and buy another one in the same neighborhood when I'm ready to actually move there.
Another consideration is once I leave my rental and move to the house, that'll be a reduction in about 19k per year of my withdrawals, but also my WR rate would drop slightly from subtracting the principle from the house.
This is all so complicated, it's hard to wrap my head around, so let me know how you'd look at this situation.
How to think about buying 2nd-ish house with regard to NW and WR
byu/WillowGrouchy2204 infinancialindependence
Posted by WillowGrouchy2204
3 Comments
>So how would you look at this since at least for right now it’s kind of an investment, so maybe I keep that 60k down payment included in my NW for figuring out my WR? When I stop renting and move there, remove the principle on the house from my NW? At my current NW this would reduce my yearly WR by about 2k.
I don’t consider any money tied up in personal use real estate to be part of my ‘investable net worth’ for calculating what I can spend in FIRE. Property I buy for myself is a financial liability.
>Do I keep the mortgage, taxes and maintenance as just part of my expenses that needs to be below my WR? If so, maybe I can include additional principle being paid by the mortgage as extra investment for WR considerations?
Anything you spend is an expense. Paying down debt is an expense that definitely counts toward your WR because you have to withdraw money to do it.
How are you getting a 4.875% interest rate? Is that builder subsidized? Even though that is an awesome rate right now you should consider paying cash because it is higher than your SWR.
It’s not an investment it’s consumption. Any outlay you put down is excluded from investible assets, which is what your SWR is applied to. All costs of ownership (mortgage, taxes, insurance, maintenance, HOA etc.) are expenses. If you Airbnb it, net out the rental income from expenses.
I’m a little confused by your numbers, 3% of $3.6m is $108k not $116k. I’m assuming by “endowment method” you’re using some form of smoothing.
You seem incredibly conservative. Confirming, is your post asking if you’ll be priced out of housing selling for $360k with a NW of 3.6M?
Round numbers. You buy a $600k house with $3.6M leaves $3M. 3% is $90k/year. Not recommending you pay cash, but looking at it more simply.
I would wait on the house. Even if it goes up $100k, ITI (no P) is likely $2k/month * 12 months / year * 5 years = $120k. I wouldn’t over complicate the problem nor undersell how strong your financial position is.