Last edited by Alan; 5-11-20 at 5:00pm. Reason: Add missing words ;}
"Things should be made as simple as possible, but not one bit simpler." ~ Albert Einstein
No Smack on the back or Bear Hug, just a friendly Hi How Ya Doing?
I have seen a rule of thumb that a long term objective in a prudent financial plan is that the current market value of your owner-occupied dwelling ought to be (at most) 20% of your total assets.
I don't remember where I saw that. I would be very cautious with defining a goal in that way, because:
Locality makes a great deal of difference... the cost of a decent place to live is way higher in say, Greenwich CT or Santa Clara CA, than in my neck of the woods in the northern highlands of WI.
In a specific locality, there can be huge shifts due to changing environmental or economic conditions... Sleepy Verona WI is the home of Epic Systems, a company that is hiring talent hand-over-fist. But then there's Flint MI, and fabulous Desert Shores CA (with its own yacht club on the Salton Sea). You can be living on a little patch of paradise in coastal North Carolina, only to realize your home is next door to a new "Concentrated Animal Feeding Operation". Even a little thing like a sinkhole on your property can greatly reduce the price a buyer would offer.
With Zillow, every 6 months or so I can see what is their current estimate of the value of my house.
I realize SO and I are a bit out of the mainstream in that we both make good money but still choose to rent. Our D/E ratio is great. We have no debt but quite a bit of equity in non-real estate investments. We could take out an $800k mortgage to buy a place and our monthly cash flow wouldn't change significantly but then our D/E ratio would change significantly. We have made the decision to follow this path because buying a place comparable to what we are currently renting would probably require at least an extra $1000/month hit on our cash flow, and a redirect of other investments into a down payment. Our goal is that by doing this we will have enough additional non-real estate assets 10-ish years from now to be able to buy a place with cash in a substantially cheaper market than SF. Time will tell if our strategy was a good one.
Curiously, my parents also did not purchase a home until they retired. Their circumstances were somewhat different. In their case they lived in a nice rented house for my entire childhood and the landlord let the rent drift further and further under market because my parents did most of the minor repair type work themselves (painting the walls if the landlord paid for the paint, that kind of thing.) After dad retired they spent approximately 20% of their net worth on a condo (cash purchase) and lived happily ever after.
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