The Personal Residence Conundrum

by FI Fighter on February 20, 2015

in Real Estate Thoughts, Thoughts

my_sweet_home

As an investor who has an ownership stake in 8 properties, you could say that real estate is on my mind quite frequently. I’ve been blessed to not only earn high income, but I also got started with investing (and frugality) at a pretty early age. With that said, I’m also somewhat unfortunate in the regard that I also happen to live in one of the most expensive cities in the country (Silicon Valley).

So, naturally, a question I get asked quite often is whether or not I own my own personal residence? I’ve answered this before, but in case you missed it, the answer is no.

If circumstances were different, like say I lived in the Midwest, then I’m almost certain that I would own and occupy my own single family home right now. But living in the Bay Area (as many are aware), the barrier to entry is very high, so if you are going to put down some roots, you had better be sure you know what you’re doing!

I’ve lived with family or rented my entire life. Right now, I’m currently living with family again, as I live with my brother Living Proof (a contributor to this blog). We split all the bills, and life is pretty good, as we get along well for the most part. However, being the planner that I am, I can’t help but look down the road and realize that our situation is only temporary, and sooner or later things will change for the both of us…

The reality for me right now is that when I think about owning a personal residence, I’m left with uncertainty and question marks.

For instance,

  • Do I want to stay rooted here in the Bay Area long-term?
  • What location will I settle in?
  • Do I care for good school districts?
  • How many bedrooms?
  • How many bathrooms?
  • Condo, townhouse, or single family?
  • Do I need a backyard?

At this stage of my life, I really can’t answer any of those questions. All I know is that I have a serious case of wanderlust and want to start traveling around the world… I’m not sure if buying a primary residence right now would be in my best interest.

As investors, we all know that your own home isn’t really an investment anyway (unless you plan on speculating on massive appreciation down the line)… On the day-to-day, it’s a money pit. True, I could scale back down and get something more affordable so that the cash flow numbers work better so that someday in the future I could conceivably turn the property into a rental…

But I already own two such units in the Bay Area… Do I really need another minimal (or negative) cash flow property?

For me, it also doesn’t make much sense to throw down a $100,000+ downpayment to try and secure a nicer $800,000 single family home in a wonderful location. For starters, I would be out of pocket for more each month than what it cost to rent a 1 bedroom…

What it comes down to, most importantly, is that I’m still single and have no idea who my future partner is… How can I predict in advance what she might want? Who knows, maybe she’ll have more wanderlust than me and never want to stay rooted in any one location for too long? I can’t say for certain, but I think I could be down for that… Or, we might relocate to a cheaper location so that we could stretch our dollar further? Perhaps she’s also a Bay Area native and never wants to leave, and in turn wants to buy that aforementioned $800,000 home and start a family?

I just don’t know… So, that’s why I’ve done nothing up to this point, but instead continued focusing on my investment game. These days, my health is the number one priority.

But regardless of where my future takes me, I’m almost certain that I’m going to be grateful for making the decision to start investing when I did (sooner rather than later)… even though I didn’t have many things figured out.

Such is life…

Yes, it does kind of suck that I’ve gone about life in kind of a backwards fashion! Isn’t the proper sequence supposed to be: get married, buy a house, and then really start figuring out all this finance stuff?!?

You would have had me fooled if you told me beforehand that my life would turn out this way!

Anyway, so I invested like crazy, and am now about ready to retire… Soon, I will need to indulge in wanderlust and then find my wife so that I can finally figure out where I want to live long-term…

Right now, I don’t have the answers, unfortunately… So, I’m just gonna keep swimming until I do.

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{ 15 comments… read them below or add one }

1 Midwestern LandlordNo Gravatar February 20, 2015 at 8:13 pm

When you own rental real estate, in theory, you own several homes. You just happen to rent them out and certainly could move into one at a future date. No reason to take on a large personal monthly obligation until you decide what is in your best interest moving forward. Most people that do become FI early tend to have modest / reasonable housing costs. So unless your future wife has more money than you, I would not give up my FI dreams over someone that is not on the same page financially.

You talked about doing things in reverse order of most; At least from a financial perspective, that is a good thing. Most people are broke!

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2 FI FighterNo Gravatar February 22, 2015 at 9:47 am

Midwestern Landlord,

Definitely, and in theory I could move into any one of my rentals in the future… Although I don’t plan on it, it is kind of nice knowing that I own a home free and clear in Indianapolis. 🙂

Yes, I think keeping costs down is important and almost imperative to make early FI work. That $800k+ dream home could only work if a spouse also earns impressive income… or maybe she will already own such a place and I can simply move in with her. That would be the dream!

Good point — Having finances in place isn’t a bad thing, so I’m really fortunate in that regard.

All the best!

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3 LeighNo Gravatar February 20, 2015 at 8:25 pm

This is definitely a conundrum and in a way, much harder than finances. Life is much harder to figure out to me. I didn’t go the “conventional” way either and bought my condo at 23. I feel like I bought it early enough that it’ll be fine to sell it if I end up wanting to buy a bigger place with my SO. In fact, I would be totally okay with selling now and walking away if that was what we wanted since I should already bank a decent profit on it AND it’s been cheaper than renting by about $1,500 after just under 3 years. Plus, I met someone who was happy also living in the place I had bought myself and who knows how long we’ll stay here. I hope we stay here a while as I like the place and I like owning. I’ve been lucky though.

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4 FI FighterNo Gravatar February 22, 2015 at 9:52 am

Leigh,

I agree, life is definitely way more unpredictable and uncontrollable than finances. Looking back, it might have been a smarter idea for me to purchase a rental property that could have more easily been converted into a personal residence.

The two rentals I purchased are great, but they are a little further out than ideal, and I probably should have secured something more central to the hub of Silicon Valley. That would have helped a lot of with things like commute…

Similar to you, I will always have the opportunity to sell and trade up in the future. Right now, there’s no reason to do so, but it’s good to know that I can.

Looks like you made a wonderful move for your own situation and I am glad it’s been working out so well for you!

Cheers!

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5 MaxNo Gravatar February 21, 2015 at 12:39 pm

Hmmm, yeah I wondered about that for you. Personally, it was really difficult for me to get started. I barely bought the house that I did. However, I had a bunch of ideas for renting out rooms in a cheap home, ultimately settling on my duplex. I have had ideas for building an in-law in the backyard or turning it into a triplex converting the basement. Since my gf helped me fix up the primary unit I’m letting us live in it for a while. But I definitely think I could move out and rent it out for a good little profit. However, with rising costs here, I don’t think we could probably afford to live in as nice a neighborhood/unit for what it’s costing us currently to live.

But it definitely was a factor in what I was looking at, being able to rent it out if we wanted to travel in the future or even sell the unit in the future.

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6 FI FighterNo Gravatar February 22, 2015 at 9:55 am

Max,

Yes, costs are definitely rising and rising quickly… Almost makes me want to secure a primary before it’s too late… But then again I’m sure many others felt the same way back in 2007, only to watch things fall apart later…

Being able to travel freely and unencumberd is important to me… My own preference is probably to own something smaller and more cozy…

Take care!

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7 MaxNo Gravatar February 23, 2015 at 10:40 am

Yeah, iUnno it seems with Bay Area real estate people have been betting on another correction the past few years since 2008 and it hasn’t come yet, then again I guess 7 years in the scheme of things isn’t too long.

Yeah, my unit is pretty smaller/cozy at 1 bedroom/1 bath and ~600-700 sf. However, it works for us right now. At times I think it’d be nice to have a little extra space, but honestly, I don’t think it’s worth the increased cost for the moment.

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8 No Nonsense LandlordNo Gravatar February 21, 2015 at 1:47 pm

I would rent. The reason being is you can rent a place close to work, and move when you need a new job. If you move overseas, it’s a lot easier.

Save your money, use the shorter commute time to devote to a side hustle. Or go for a promotion. As long as you get along with your brother, you are saving a lot.

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9 FI FighterNo Gravatar February 22, 2015 at 9:57 am

Eric,

Good point — By renting you allow yourself the freedom to move about freely, should the need ever arise to do so, such as landing a new job.

One of my rentals is great for cash flow, but it’s pretty far away from my job, so I would dread that longer commute… I definitely don’t think it would be a viable option.

Yeah, my expenses aren’t too bad right now, so I’m going to stay put until the future looks more concrete.

Cheers!

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10 JohnNo Gravatar February 21, 2015 at 6:33 pm

Agree you should rent till you get that figured out. Since you already have 2 properties in the bay area you are covered. I bought a SFH in east bay 2 years ago.

BTW do you have a post detailing your current annual expenses and how did you arrive at a number which you think lets you retire? Would help me determine my “number” as well.

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11 FI FighterNo Gravatar February 22, 2015 at 10:00 am

John,

Yeah, I’m fortunate to own two Bay Area properties, so I’m content for now.

In regards to expenses, I don’t tally them up every month anymore, but I used to when I first started the blog -> Monthly Expenses.

I stopped keeping track since after awhile I got into the groove of the whole ERE/early FI thing and found my steady state… For Bay Area, I would need at least $2000/month to attempt early FI, but $2500/month would be much more preferable. Right now, my plan dictates on me moving overseas for awhile and I’m aiming for around $1500/month, although I would probably first attempt $1000/month if I can.

Then again, I plan on earning side hustle income in early FI, and perhaps working again in the future, albeit in a different field than high tech. So, I’m not too overly concerned with hitting any exact figures. I’ll have to be creative and figure out other options if things prove challenging in the future.

All the best!

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12 Income SurferNo Gravatar February 22, 2015 at 6:00 am

I think you’re right on Fighter. Plus the rent vs ownership argument is grossly skewed in places like where you live. I always figure that unless you’re going to live somewhere for 7 to 10 years, it’s better to rent……if just for the flexibility. Have a great week buddy. I’m glad you’re recovering so well!
-Bryan

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13 FI FighterNo Gravatar February 22, 2015 at 10:04 am

Bryan,

Yes, the flexibility part is one good reason to rent… I’ve always been too uncertain to put down a purchase for a “dream home” in a great location that would make for an absolutely horrible rental property… since most “dream houses” are expensive and the rent/purchase ratio is terrible.

If that were to happen, my only out would be to sell… Since prices are at an all-time high here in the Bay Area, I’m not sure if buying that $800,000+ house is in my best interest right now… I don’t have my own family or kids or any of those things that would keep me rooted for a long period of time.

Thanks for the well wishes!

All the best!

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14 rickNo Gravatar February 22, 2015 at 7:11 am

you could buy a SFH 3/3 and rent out two of the bedrooms and cover close to 3/4 of your mortgage

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15 FI FighterNo Gravatar February 22, 2015 at 10:07 am

Rick,

Yeah, that’s an option as well. I guess I’m hesitant to go that route since a 3 bedroom SFH is so expensive out here… especially in areas where I would actually want to live in… which would need to provide an easy commute to work since the highways are beyond congested every weekday.

So far, my focus has been on townhouses in more affordable areas that are farther away from center… They provide better cash flow but would increase my commute to over 1 hour each way with traffic.

Take care!

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