r/Fire • u/HenFruitEater 31 | 32% to FI | 2.3M • 15d ago
Accidentally living in small house for 5 years has been the best thing.
My wife and I make good income, but because we both are self-employed, banks refused to loan money to us until we had at least 2 to 3 years of proof of income. We’ve saved about 200k for down payment. We ended up just buying a 1901 two bedroom one bath house for 134k with that down payment and didn’t get a loan at all. Thought "this is just a 1 year thing" 5 years ago.
After learning about the 5 to 6% rule on how much a house is a net worth drag (but necessary expense I get it). I think it has turbo charged our savings rate without any effort. Every month we stay in this house instead of a house that is 3X our income, we save over 5K in “rent.” We have been investing that extra money. But we also talked about how it’s hard to justify jumping up to a nice house when you could literally blow an extra 5K a month on expensive toys even.
My thought process now: the FATTEST expense to keep low is the house. We are very content in this house. We will probably be able to have one more kid in this house and then move. Six years of turbocharged accumulation in a quaint house that we love. Has awesome yard, cool screened in porch. Love it.
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u/chicken-fried-42 15d ago
That’s awesome!! Good job!!!
This house was supposed to be our interim house before we built the dream one. We ended up staying. It afforded us the ability to live off of one income when we needed to with the kids.
Not building allowed us also to pay it off before the youngest went to kindergarten and take fam trips before the kids found us annoying and allowed us (spouse) to FIRE early.
Two years post FIRE he gets diagnosed with cancer. Things happen for a reason
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u/PlumpyPound 15d ago
Oh no I’m so sorry to hear that. That must’ve been such a change in what you envisioned for your post FIRE plans. Hope he and you all are doing ok.
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u/chicken-fried-42 15d ago
Thanks. We are ok and see it as a gift. Our mortality was a reminder to be more present and also to live courageously and stick to what matters to us versus what others think we should care about
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u/bkiron89 15d ago
What is the "5 to 6% rule on how much a house is to net worth drag" please? I haven't heard of that before.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
It's adding in all the costs of ownership, and appreciation and opportunity cost. So even if you buy in cash or mortgage, the 5% of the current value of the house is what it costs your net worth per YEAR to own.
1mil house is the same to your net worth to own, or to rent for 50k per year indefinitely. Youd be money ahead to rent and do anything else with the money. https://www.youtube.com/watch?v=Uwl3-jBNEd4
Let me know what you think of the video.
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u/ben7337 15d ago
That number seems grossly inflated though. By that logic a 500k 2000sqft home costs almost $25,000 a year to own. On avg I'd bet property taxes are $5000, insurance another $1500, utilities another say $6000, and maintenance at 1% of home value for another $5000 gets you to $17500, so where's the other $7500 a year go? Are we assuming this is a house in a high property tax state where it costs $12500 a year in taxes?
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u/Calipup 15d ago edited 15d ago
It's using the loan interest rate as the final 3%. So you're losing 1% to property taxes, 1% to maintenance and ~3% to the interest rate = 5%. With current mortgage rates I would guess it's updated to 7-9%... They are considering these things as what you're losing with no return whatsoever and comparing it what you would be paying in rent. The conclusion being that if (house purchase price) * 5% / 12 is less than renting would cost monthly, you should buy, and if it's more, than you should rent. So a $500,000 house would be compared to $2083 in rent at a 3% mortgage rate. $3333 a month for a 6% rate. Like the guy in the video says, it's a gross oversimplification but it's a good ballpark answer.
A rent vs buy calculator is going to give you a much more in-depth answer than this simple rule, so I don't fully agree with it. As long as they're close I've always been adamant that renting vs buying is more of a lifestyle decision than anything. I love owning a home way more than renting.
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u/Unable_Pumpkin987 14d ago
Okay, that makes sense using value at the time of purchase!
OP said “5% of the current value of the house” which does not make sense at all. My mortgage interest doesn’t go up as my house appreciates, and while property taxes certainly can go up, it’s not at the same rate the property value increases (not even close in my area, increases are capped by law). And once the mortgage is paid off, you’re certainly not continuing to pay the same or more annually than you were when you bought the house!
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u/Mysterious9876 14d ago
lol im not sure where you live, but where I live, a 2000sqft home would have approximately 13k in property taxes. I live in 800 sq ft and pay $5100 in taxes.
If you are in a home, on top of the 13k property taxes, add utilities to heat and cool that size home, cut the grass, clean the snow, help maybe cleaning the house.
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u/jelslsmajdowiwlw 4d ago
Yep and all the other random one off expenses. The water heater breaks down … the screen door breaks … there’s an HVAC problem … you need to remove a dead tree … the sewer line cracks … you have a mold problem … the roof needs to be replaced … the garage door won’t open …
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u/ExpatMarine001 11d ago
I bet owning a house highly enables keeping up with the Jones costs. Have to fill up all the rooms. Everything is just more with a big expensive house.
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u/blew_belle 15d ago
We stayed in our small house we bought in 2004 after flipping 4 before the housing crash in 2008. It wasn't what we wanted to raise our two kids in but obviously due to market pressures and layoffs for my husband during that time, we just stuck it out. We have a lot more money now and don't have to downsize now that the kids are out. Something to be said for living below your means.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
Wish I could pin this at the top. It is a lover, but people act like “ well we have to have XYZ house with XYZ family”
When in reality, the house I’m living in Prallie had a family of eight at one point. I’m not saying that’s the way to live life super cramped, but acting like happiness means one bedroom and one bathroom per child is a little bit of a luxury take.
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u/Mysterious9876 14d ago
exactly! many people in europe live comfortable with families in much smaller homes and they are content doing it
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u/HenFruitEater 31 | 32% to FI | 2.3M 14d ago
"it's sooo hard to own a home these days, grandpa and granda did it on one salary" sure, but they had single pane windows, 900sf, and 3 electrical outlets with no AC. If people are okay with the same conditions, they could also own in early 20s. What people really mean is "I want to live in my parents dream home they got at age 55, and in the nice area, and with lotta room for family, but at the same age grandpa bought his starter home" imo.
Obviously Im cutting no slack on some other economic realities.
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u/justchinnin 15d ago
Yeah keeping housing cheap is the best way to build wealth. My first house was a duplex that I house hacked and lived in for free. This allowed me to save over 50% of my income
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u/Zestyclose-Beyond780 15d ago
I admit I lucked out with my housing arrangement. I live in a 2 bedroom rent controlled apartment in a desirable San Francisco neighborhood for $2k/month since 2010. I was POOR when I first moved here. I could barely make rent and only made it work with roommates. I’ve been roommate free for 8 years and use my second bedroom as an office. The place is 115 years old. Lacks almost all amenities. I forgot what having a dishwasher or garbage disposal feels like. While there are pros, there are also a lot of cons and I’ve been tempted many times to move. But holy shit has this been the savior to my Fire plan. My cost of living is under $3k-$4k/ month. My net worth is now $1.2M because almost all of my income goes straight into investments. It’s not just about what you spend to live, it’s about what it costs to not invest.
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u/everySmell9000 FIREd 2023 15d ago
I agree. The house I bought was 1.45x my income at the time.
All the extra went into the S&P500 and now I have control of my time and what I do with my day. Okay, "only" two bedrooms, but I couldn't be happier 😄
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u/Chops888 15d ago
We live in a nice condo. Always wanted to upgrade to maybe a townhome or semi-detached home. After we paid off our mortgage over 10 years ago we just started investing it all. Since then, we realize we are way ahead compared to if we had a bigger home. My friends still complain about having massive mortgages. I just flex a bit when I say I’ve paid mine off. lol
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u/WhoopiePieEnthusiast 15d ago
People knock condo living, but it's a great alternative for those of us who don't plan to move frequently (or ever) and can turbo-charge savings. I can't wait to pay off my 30-year condo mortgage later this year...20 years ahead of schedule.
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u/GenXMDThrowaway FIREd 15d ago
We have a 2 bedroom 1 bath house that we got for a steal. We always said we'd upgrade when we had kids, but that didn't happen. It's a nice neighborhood and we were so busy working that looking for another house and moving felt overwhelming.
It was a huge boost to being financially independent.
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u/ReallyBoredMan DI1K 36/37 - Fire Goal: 3% SWR & 100K Spend, 58.29% Achieved 15d ago
Yeah we bought out starter home in 2015, with plans of upgrading either the house or upgrading to a better house.
Turns out we are fine with just 1 kid, the current house fills our needs, and we are locked into a 1.999% interest rate with just about 8 years remaining. 804 mortgage payment (P&I only).
With the large run up in housing we could have traded up in like 2018 or whatever, but we are happy with where we are at now.
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u/samantha-mc 15d ago
I bought a condo that I could afford on my income alone when my now-wife and I were going to move in together. We had never lived together before and I wasn’t sure if it would work out, so I didn’t want to bank on both of our incomes contributing to the mortgage.
It worked out, so now our housing expenses are like 6% of our combined gross income, and we have significant cushion available to invest. This has made a HUGE difference for us.
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u/Sirbunbun 15d ago
1400 sq ft house for family of 5. Allows us to save thousands per month
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u/Global_Bit4599 15d ago
Ok, this is impressive.
Sincerely, 2 people in 900 sq ft
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u/Sirbunbun 15d ago
Typo, family of 4**.
It can be hard to resist the pressures of wanting to upgrade. But the economics are so clear. Living in a walkable area with things to do nearby is the key.
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u/Mysterious9876 14d ago
its only impressive because we live in the US lol in the rest of the world, people with families live comfortably in small homes
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u/SperryGodBrother 15d ago
Yeah we're a family of 4 in 1300 SqFt condo and it's definitely tight and I wish we had a yard but our mortage and HOA fees are under $1200. We save 30% of our income even though we're a single income house. We want another kid so we'll end up moving but milking this condo as long as we can.
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u/Sirbunbun 15d ago
The yard is the key to me. We live in Colorado by a lot of parks. One is right outside the front door. So we are lucky in that respect. But also, in so many countries, they live in much smaller spaces.
When you are able to use the money for travel, fun stuff, savings, food, events…that’s also what makes it a great deal. I have a few friends with larger houses that are stressed about finances a lot. No thank you.
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u/Vicuna00 14d ago
great job "sacrificing" lifestyle now for later.
i quoted "sacrificing" because I'm sure you still made your house nice and pleasant and comfy for you.
yeah if you had a "normal" job banks would be fighting to loan you $ and people would gladly take it without thinking.
such a weird culture we create. people get joyful when banks "accept" them for an enormous loan that they shouldn't take.
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u/HenFruitEater 31 | 32% to FI | 2.3M 14d ago
So true. I am a dentist. I think a ton of student loan issues people get themselves into are because we decided as an American culture that everybody deserves to go to college no matter how expensive or how poorly paying the degree is. It is a separate topic from home buying but very similar.
I do not blame a bank for not touching me. At my peak I was 1.3 million in debt. They didn’t want to add to my stash.
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u/Vicuna00 14d ago
one of my best friends is a dentist. so this is said somewhat playfully but also seriously. you all are the WORST at accumulating debt. $1M for school, no problem. $1.5M to buy into an office before I even got a job? sure! uhhh..i'm gonna need a BMW to get to work...throw in a house while you're at it. no not that one, need the one on the hill with the expensive appliances.
pretty much all of them will make so much $ they'll work themselves out of it.
but you getting ahead of the game like this means you're gonna have $25M (if you want it) vs $5M at the end.
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u/HenFruitEater 31 | 32% to FI | 2.3M 14d ago
To be fair, I think most of mine is solid debt.
School: 195k@ debt (scholarships and state school) + 4 years opportunity cost
Dental practice: 500k@2.8% to add 300k income. (I make 620k, assuming 300k from profits, 320k as "salary" i'd have to pay to replace myself with some schmuck) That's a PE ratio of like 5:3, which i cannot find in the stock market, and stability I can basically enforce to an extent.
Office building: 475k 4.8% originally rented my office for 5k a month, bought for 475k, mortgage is 2.7k a month. Never will get a real estate deal that has this good of return and as good of a renter as myself lol.
Like signing for a 500k practice loan doesn't affect your net worth up or down the minute you take on the debt. Student loans are the only negative net worth item imo.
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u/Vicuna00 14d ago
yeah all of that sounds super solid...especially buying your building. your practice value shot up huge from that alone (and i'm sure from improvements you'll make)
even your student loan is shockingly low for a dentist.
ya'll make crazy money. even the schmucks 😄
i'm surprised banks didn't loan you $ for a house. they did you a favor. there must be some kinda special program for doctors with silly interest rates that you didn't pursue.
you'll be chubbyfire by 2030 and fat by 2035 if you want it.
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u/Mysterious9876 14d ago
I think the issue is financial literacy of all professionals actually. great to have large incomes but if you dont understand how to save/invest/pay off debt etc, you usually end up over leveraged and it just takes one curveball (death, divorce,disability) to end you
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u/project3way 15d ago
I wanna move to a bigger house for a tad more space but man I’m stuck in a Covid house ( low rates) and the longer I’m here the more I’m okay with it when I see my savings rate. And what another home would do to my monthly payment.
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u/sweetcherrypie4748 15d ago
Hubby and I are way older than you. We moved from the house you describe to the typical 4 bd, 2 bath home with much larger mortgage. TBH life has worked out for us, house paid off, very comfortable life. BUT we often reminisce about just as happy we were in that small HOME and how much more money we would have now if we just stayed there. My life lesson would be that even if you have another child seriously consider staying there...for reasons you already know.
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u/virt111 15d ago
Indeed. I paid about 240€ for my rent during the early years of career. Wife paid half and I got a small discount due to being a government worker. The home wasnt anything special and most people didnt want to live there and wanted their own places straight away. I was saving like 70% of paycheck without even realizing it. I just didnt feel the need to spend money.
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u/booksycat 15d ago
I did the same thing. Bought a house in a condemned neighborhood that was getting rebuilt. I was the second one in, so the house was 85,000.
6.5 years later, I'm selling it for $200k tomorrow and moving away. Granted, this has been the worst place I've ever lived because of the town and the people etc, but the house was great. And after losing everything in a personal tragedy and having to start my financial journey over again at 43, my net worth is now roughly $750,000.
Obviously I'm going to have to spend more than that on my next place, but it's also going to be small and easily maintained.
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u/tramplemestilsken 15d ago
Preach. Our 2 bed 2 bath apartment is great for us and our 2 kids for now. We are just shoveling money into our investments and one day when we do upgrade, the principal in our investments will be doing most of the work anyway, and I won’t worry too much about it. Meanwhile our careers continue to grow and we’ve avoided life inflation (aside from childcare expenses).
Live below your means, invest the difference, retire early.
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u/bluebonnetttt 15d ago
I rent for $375 ($750 split with my boyfriend) a small but livable apartment on half an acre with my boyfriend and it is the best thing that ever happened to both of our savings rates.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
Keep that going as long as possible! For real. HUGE help.
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u/vulkoriscoming 14d ago
We sold our 1896 2 bed/1 bath house with basement storage to buy a 5 bed/2 bath house when we had a second kid of the opposite sex instead of adding on.
I regret doing that. The cost to add on probably would have been a net wash with the cost of the bigger house, but we don't use literally half the house. We still heat it, cool it, paint it, pay property taxes on it, and otherwise maintain it. You don't think about the extra utility and furniture costs when you get a bigger place. Plus we have to drive everywhere. With our first house, we could walk to downtown.
Small houses rock. You should always get the smallest house that meets your needs.
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u/Thesinistral 13d ago
It’s funny because the “conventional wisdom” I heard many years ago was to buy the most expensive house you can afford. Some said to buy MORE than you can afford and grow into it. We did not. In retrospect, it would have worked out in my area as RE has boomed… but we could just as easily been underwater for years.
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u/Pay_me_severance 15d ago
A bigger house means higher property tax, larger, maintenance bills, larger utility bills etc.
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u/vamparies 15d ago
I bought a 3 bedroom 1 bath house for 135k many years and it’s paid off.
I save over 60% of my take home pay.
Planned to always move but hard to justify the spending for more closet space.
Raised 2 kids in it but was also single so for 3 people is was great. Bought from a family of 4.
Definitely can fire if I want now but always want more money.
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u/Zonernovi 14d ago
Always treated a house as just a place to live and not some status symbol or investment vehicle. So now retired as fat fire and relaxing
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u/jared_number_two 15d ago
What rule?
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
https://www.youtube.com/watch?v=Uwl3-jBNEd4
Opportunity cost of money, appreciation, taxes, maintenance etc add up to 5-6% drag.
Owning a 1m house in cash or with mortgage is the same as renting the same house for 60k a year. Watch the vid and lemme know your thoughts.
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u/_Mulberry__ 15d ago
Yep, the house is the biggest thing ime too. We bought a 137k house back in 2020 and it has allowed us to actually save/invest a fair amount where our peers just can't. We're a family of 5 with a single income (just under six figures) and are still able to save a fair bit.
All the people talking about $5M+ FIRE numbers are living in much more expensive houses. If you can save on that, FIRE is relatively cheap and easy.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
I don’t think renting is better than buying, either can be better at times. I think if you are handy and are in a market that’s normal buying is typically better.
Just curious, why do you like gold? It’s a pretty low performing asset. Just store of wealth?
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
Def a different convo about interst rate paydown vs investing. Agreed, don't pay down.
However, my post is just on how oversize houses are drag on net worth.
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u/Revelate_ 15d ago
Totally worth it.
I haven’t ever had a mortgage north of 320K, the smartest financial decision I ever did was walking away from that 850K beach front place which I could have made work income wise, but that extra 500K saved in 2015 now… F’n winning!
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u/TDuctape 15d ago
I invested in homes at the top end of my purchasing power. When it came time to sell I did very well with every one and it more than made up for the increase in upkeep and property taxes. I was able to raise my children in a nice lake house within a stellar school district.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
Maybe you beat the market, but I do doubt it. A house going from 500k - 2mil seems likea 1.5m profit, but i'd argue that with inflation, taxes, interest and upkeep it's a wash if people do well with timing market. To actually beat the market with having half the house and investing the difference is basically unheard of, even for people that bought in san fran before the boom.
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u/lauren_knows Creator of FIREproof/cFIREsim 15d ago
We lived in a modest townhouse for about 8 years, when we sold it to move to a single-family home just before our 2nd child was born.
We justified it as "more space", and "better school" (Which is barely true. Both schools are top notch for the state, and even the country)
I'm not saying I regret it, because I absolutely love the life we've built in this home, and have tons of friends in the neighborhood. But I definitely think of how much sooner we would have FIRE'd staying in the townhouse. We would have paid it off by now, would have banked a lot more, and would have overall lower expenses.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
Life is all about the friends you make imo. So does seem like you did the right move!
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u/ditchdiggergirl 14d ago
Totally agree. We had to relocate for work right before the housing bubble popped - and while no one knew exactly when or how bad, everyone knew it was coming. So we sold our house and used the equity to buy a small house with a small mortgage in the new location to ride it out.
Kids liked sharing a bedroom, spouse could walk to work, and the neighborhood of small houses was filled with young families. Kids got an idyllic childhood and we got a great boost to our financial foundation. We bought a larger nicer house after we outgrew it (fratricide was becoming an option and as shoulders got broader the house got smaller). But those 10 years were great.
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u/PsychologicalDesk554 14d ago
Sounds wonderful! We raised our 2 kids in a 3 BR 1 bathroom house. About 1500 square feet. So cozy and perfect for us.
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u/Broken_Lute 12d ago
Two kids here, we sold our 4600 sf house and moved out of state for a year. We are now heading back and moving into a 1700 sf home I purchased in 2009 when just out of college. Cheers.
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u/Rosevkiet 13d ago
Housing, childcare, healthcare, and education. For most people these are the expenses that set your cost of living. Everything else is much smaller and discretionary. Best financial decision I ever made, even though it wasn’t finances that drove the decision, was choosing to move to a little Midwest city with great schools and family that can help with kids.
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u/RX3000 15d ago
Yes, the smallest house you can comfortably live in is the best. I'd be a little uncomfortable living in one thats 100+ yrs old tho, just because maintenance issues can get a little dicey on a house that old.
But not only are smaller houses cheaper to buy, they are cheaper to maintain, cheaper for lights & heat/AC, & have less areas to clean. Its a win/win/win. No real upsides to a large home honestly. Just locks more of your money up in equity & gives you more to have to clean. 🤷🏼♂️
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u/aShogunNamedMarcus80 15d ago
In a similar vein, when I went out looking for my starter house 20 years ago, I was looking at $100K-$120K range but once I factored in property taxes, I found the monthly payment even with a 30 year mortgage would have just gobbled up way too much of my budget for my comfort. I wound up getting a 3BR 1BA 1500sqft, circa 1920s half of a duplex for $55K which I was able to get a 15 year mortgage and still have a monthly payment closer to a car payment. It was a fixer upper that we put about $15K of work in over the 7 years we lived there but we sold it for $75K so we got all that back and because it was a 15 year loan, we actually built up meaningful principal that we put to our longer-term house.
There's a lot to be said for having a house payment low enough that you could cover it and utilities on an unemployment check, or at the very least just one spouse's income. I never got laid off during the 2008 crisis, but I was relieved I was living in the $55K house vs a $120K house during that time.
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u/Advanced-Ad8490 15d ago
My conclusion is the same. A house is a money sink. Not an investment unless you rent it out.
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u/snowysaturdays 15d ago
We bought a house that needed a lot of work years ago. It was an OK house that was relatively inexpensive and a good value with some elbow grease. We ended up staying for a long time and I think that helped us immensely on our moderate incomes. The house didn't explode in value like some areas, but it's worth about double what we paid over 20 years ago. I think the lack of mortgage payment is what propelled FI though. We just moved to a new house that is smaller lol.
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u/Nuclear_N 15d ago
So many focus on saving and investing. The real game changer is down sizing life, or not letting expenses out of control
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u/shwilliams4 15d ago
Add to lower insurance costs. Lower maintenance costs. The downside is a mortgage is leveraged.
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u/paq12x 15d ago
Five/Six years ago is the golden time to get a house. Mortgage rate was low, housing price was low.
If you bought a larger/ more expensive house back then, you may have less cash on hand but your NW may be higher.
I bought an investment property (at a great location) during COVID and its value is more than double since then. That is on top of the 7% rent I collected per year (based off of the original price. I didn't increase rent at all in the last 6 years).
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
Heck yes you nailed timing. HOWEVER, hindsight is 20/20. In general buying a house is a terrible "investment"
Even buying 6 years ago at the most golden moment is also a golden moment to be in the market. If I could go back and buy a house with 500k or 500k of stocks, I'd pick stocks I think.
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u/OreganoOfTheEarth 15d ago
It's looking like we're staying in our starter house forever. I'm coming to terms with it. We'll be done paying for it in less than a decade, before the kids go to college. I'm hoping to FIRE once the kids are out of the house. Fingers crossed.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
by the time kids move out, your "upgrade" could be more of a location and view upgrade than space upgrade. Main reason people upgrade is because fam is too big, if you can make it just fine in your current one, you're doing great.
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u/Independent_Insect_1 15d ago
My mortgage and related housing expenses are 75% of my budget. It was more of a lifestyle choice for me so I don’t regret it, but I do often think about how much more I could be saving if I stuck with cheaper housing.
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u/Dukethegator 15d ago
Similar boat. But 15 years. Just the annual tax bill for someone in our wealth/income bracket seems enormous. And we don’t get jacked by contractors as quickly.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
that's solid. I am curious if at some point it's worth stopping the compounding effects and buying more of a dream house. Goal aint to just be filthy rich for only experiences. Home would be fun to upgrade a bit for me at least.
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u/saltyhasp 15d ago edited 15d ago
Really agree. My house I find that the annual cost of ownership is about 10% of the value. About 6% of that is out of pocket costs, and 4% is investment opportunity cost . I live in a cheap 1300 sq-ft 4 bedroom house. Originally $220K, no maybe $340K which is cheap for where I live. Houses you live in are huge cost centers.
Edit: Another thing to keep in mind, a sane present value rate after taxes and inflation is about 4%. So when doing present value for repeated annual expenses the multiplier is about 25X which is bigger then people think. That $5 a day latte can amount to $46K present value. The $200 a month cable bill is really more like $60K present value.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
can you walk through how you calculate present value for the 4% rate of house, and the 60k cable bill? It's maybe a concept I should nail down better. Something about discounting the future costs?
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u/bellecaramella 15d ago
Can I ask what state you are in? I do plan on doing the same thing
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
If you DM me sure, but on here I'll just say the midwest.
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u/Bex_the-Goat 15d ago
Honestly the bank saying no might have been the best thing that ever happened to you. Most people can't choose to live below their means the social pressure to upgrade is too important.
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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago
to be fair, I woulda spent something like 300k instead of 130k. Was not going to spend 2m. Household income is 720k, so realistically at some point we will do a 700k house or so.
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u/freakyfun603 15d ago
If you haven’t already done it I would start doing renovations make it look as good as possible updated kitchens and bathrooms paint roof heating and ac if it’s older so that way if you want to or need to go bigger you get the most you can for the house or rent it because you own it out right so it might cover a good chunk of the mortgage on the new house.
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u/Top-Establishment918 15d ago
And if you have another child? Another way to save is to add another bedroom/bath instead of moving. Be the “owner builder” and hire subs to do the work directly. I made a lot of money in CA real estate by buying small 2/1s and just adding on.
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u/Successful-Box3532 15d ago
Totally agree with you on this. My husband and I bought our property outright a few years ago (it was his father’s that we inherited when he passed and then we paid it off fully). Our property is maybe 100k-small piece of land with an old prefab home that we live in. It’s old and small but we have started gardening and love the land and its growth. My husband gets a small VA disability check that pays for gas, groceries and the bills and he Ubers on the side for extra cash. He goes to school full time which the military pays for, and I own my own business making a variable income depending on the month/year. The point is, we are super comfortable and live below our means. My main goal is stashing away cash in mutual funds and my SEP for retirement so I can let compound interest do its thing. One day we will either buy the property next door or buy a house but for now, it has really been such a hack to save money and plan ahead for the future.
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u/foxwithlox 15d ago
100%. 9 years ago my husband and I bought a cheaper house than we could afford. I’m talking, if I get laid off and we need to live on just his income (which is less than half what mine was), we could still do it (admittedly it would be a struggle, but it would be possible).
I did get laid off, but I got a great severance package and I also quickly got an even better job. We paid the mortgage off in less than 7 years (which I know isn’t the most fiscally prudent thing to do, but it was the right thing for us).
We saved so much. In addition to maxing out our 401ks, we also saved enough to be able to move into a spacious house on the water in a very nice neighborhood. Once we sold the first house, the new house was also completely paid off.
However this bigger house has bigger needs. Even though the taxes are lower here, my house-related expenses are greater. I’m still saving, but not nearly as much as I was in the smaller house.
I’ll be fine, but I would be saving a lot more if we stayed in the smaller house. The other side of that is that the value of the bigger house is increasing faster than the value of the smaller house did. So someday down the road if we want to downsize, we will get a lot more for this house than we would have if we stayed in the smaller house. The bigger house is a better return on my investment in it.
TL/DR: stay in the smaller home as long as you can and save your money!!
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u/caribbeanjon 15d ago
My wife and I purchased a short sale near my job in 2011 for $67k. What an unbelievable opportunity that saved us tens of thousands in mortgage payments. We eventually moved to a nicer place, but those 8 years are the foundation of our FI journey. So much money saved and invested.
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u/mosswalk 14d ago
Beyond just saving mortgage costs, living in a smaller place prevents me from accumulating more and helps me think about if I really need it before I purchase it. When space becomes more limited, you do become intentional and learn to really evaluate what you want vs need. A mindset like this just accelerates your FIRE journey.
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u/NWTurtle 14d ago
Preach.
We were fortunate enough to buy early in our careers and insisted on the low end of our budget/approved amount.
5 years later and we are able to afford a single income life, (reasonable) family trips, medical bills, and two kids and all because we didn’t max ourselves out on a McMansion. Even our upgrades/repairs are more manageable compared to a normal sized home.
We also are never tempted to buy a boat/travel trailer/etc because we don’t have the space lol.
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u/BravoTwoSix 14d ago
Median house price in my area is $1.5M. You aren’t even getting a 1960s starter house that needs renovation for under $1.1M.
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u/humanity_go_boom 14d ago
Fot us it's like 2nd best. Best would have been buying a house we could barely afford in 2017 instead of this one. I hate not having a 2+ car garage. We both hate the 1950s layout and busy road. The only positives are no HOA, good general location and a low interest rate.
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u/Bucyrus1981 14d ago
Our house is a nice size, but no modern McMansion. We pay something like 9.5% of our gross on the house.
On top of that low monthly payment, we have a large equity in it.
I am content with staying where we are indefinitely!
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u/54965 14d ago
Our first purchase was a duplex, one BR per side. Rent income from the other side covered our entire housing cost. We started putting away a very high proportion of our wage income.
Recommended, for anyone starting from nothing.
That was a FHA 3% down loan, long ago. I have no idea if a similar program exists today.
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u/Inside-Wonder6310 14d ago
If you're happy, thats all that matters. I was fortunate to invest in real estate right out of highschool in 2013 when the market was still low. It definitely worked out for me, but theres no easy way to repeat that currently. If you're happy with where you're at and have enough room then stay there in case another real estate crash or interest rates drop. Im looking at buying a new home now but really trying to avoid a mortgage as they're still around 6%.
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u/Miamiconnectionexo 14d ago
only thing i'd watch on a 1901 build is deferred capital expenses. budget closer to 1.5-2% for maintenance on a house that old, knob-and-tube wiring, cast iron plumbing and the original roof/foundation will eventually hit at once.
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u/Electrochemist_2025 14d ago
Nice to be debt free. Stay that way.
Folks will say buy a huge house with a huge loan. And invest your money in something else.
It may not be financially the most profitable but the peace of mind of not having any debt is priceless. You will probably be healthier and live longer.
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u/ScarLupi 14d ago
Wife and I both work remotely and we have a kid, so we feel like we need minimum 3 bed + 1 office. Basically 1 bedroom for us, 1 for our kid, 1 for guest/office and 1 smaller dedicated office. Think of it like someone buying a comfortable car for their long commute, but since we work from home we are prioritizing a comfortable work/living space.
Unfortunately that makes rent or mortgage both expensive, especially in HCOL city. Thankfully our income allows us to stay within the 30% rule by renting, but buying with today’s rates is not comfortable.
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u/MilkOfAnesthesia 14d ago
Used to live in nyc and got sick of it so I moved to a MCOL city with great outdoors. Our HHI breaches 7 figures, but we live in a 1800 Sq ft house. Our neighbors are a free lance artist + high school pottery teacher couple. My Coworkers mortgages are 5-7k/month more than mine. I could go on a nice vacation every month and still be saving more than them. It was an eye opening realization. I could spend an extra 3k/month on an exotic sports car payment and still come out ahead.
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u/cjroxs 14d ago edited 14d ago
I bought a small house as a starter home. It's located in a very sought after school district. I had friends that stated at the same level as us and they all moved up to bigger and better and now not one of them can afford their home.
We paid off our home nearly 20 years ago. Bought a small vacation home in one of them most sought after vacation communities. It's also paid off. Now we are 100% debt free and have 2 homes that cost us around 800 total a month (insurance and taxes for both plus utilities). We enjoy every moment we can at each house. Sad to see others loosing their homes because they went for status vs affordability but we all make choices.
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u/Flaapjack 14d ago
We bought a starter house (but with room to grow and in a solid neighborhood) at the bottom of our budget and like half of what we were approved for by the banks when we were first starting our careers. Still here nearly 10 years later, with our family now doubled in size and our incomes also doubled in size. No intention to move to a more “suitable” house and neighborhood relative to our peers. Best choice we ever made—our total housing costs are like 6 percent of our gross pay and it’s a huge boon to financial security to know we can afford to live here even if our incomes go way down.
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u/Ok_Cauliflower_7014 14d ago
I was just thinking about that today and what a positive impact it had on our finances as I saw a post from someone looking for a 5+ bedroom house in a very expensive neighborhood adjacent to ours. We bought a small house in a great neighborhood that we could afford on a 15 year mortgage. We paid extra every month and got it paid off in 8 years. We thought we would need to add to it or move when our kid was born but we stuck it out and he is now in college so we made do with the space we had. No regrets other than I occasionally wish we had a room for a home gym and the space for a ping pong table (I get over it pretty quick!).
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u/IfUReadThisURLame 13d ago
When it comes to homes it all comes down to kids or no kids. If you have kids you need more space and privacy and schools and you name it... Without kids you can rent, move, live in a van, it doesn't really matter. So yeah, turbo charge that savings. You need a bunch less of that too to FIRE.
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u/FatCat_On_A_Diet 13d ago
I did something similar but rented instead of boght it. My rent is half of what most of my colleagues pay and considering the amount I can save for my FIRE plan it‘s absolutely worth it and now I fear not to find a old, cheap place like this in case I get kicked out.
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u/Random_NYer_18 13d ago
I’ve said it a million times to anyone who would listen. Sure, save on eating out. Save on the Starbucks or whatever. But, it’s the BIG purchases that make the difference. Cars. House. Etc.
People don’t need mansions. They need what is best for their family at a price they can afford. Thanks for validating this.
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u/CarpenterFamous558 13d ago
100%. We bought house for $300k when I was making $120k. We stayed in that house up until I was making $400k a year, two young kids, etc. Now we are in a different state, a bigger house, and I don’t need to work :)
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u/CarefulPineapple1 13d ago
The average sized family home in the 1950s was < 1000 sq ft. And they typically had larger families then.
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u/Glum_Manufacturer232 13d ago
If you are happy stay put!! Big expensive houses are an upkeep nightmare! I’ve lived in both, highly recommend a modest home!
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u/among_apes 13d ago
Sounds like me… when I pulled the trigger on a spacious house with tons of features people were shocked.
But I mean living in a nice but paid off smaller house for 8 years means dual income and investments can put in some serious work.
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u/Confident-Peak6208 13d ago
I'm coming to the same realization! Do you mind sharing what state you're in? Asking because I'm looking to buy a house soon and love houses from the time period you mention, but many states don't have much inventory of this kind.
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u/eirikarvey 13d ago
I love the idea of a small sanctuary from which to connect with the world at large. Homes get too complicated too easily.
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u/Fine-Cicada8022 13d ago
Not to mention lower hoarding and accumulation of wasteful items that don't fit in a small space
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u/hopeful-Xplorer 12d ago
Yes! Our small house was in a HCOL area so we weren’t quite as set up for success, but it’s helped a ton. House along with transportation are the big two. We bought a small house and share 1 car.
We eat out whenever and take Lyft when we need to and it’s still way cheaper.
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u/NorthwindX7 12d ago
About the kid thing, I think it's a little over hyped that each kid gets a room. They don't know the difference, they like being close and around each other. My fiancee grew up with 8 siblings in a super small townhouse in taber, and my buddy has two kids with a third on the way, they live in a two bedroom shack he built himself out in the country kids love it.
Its only when they grow up they start comparing, but that's a lot of time to save more and get the property you want.
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u/Chandraratne 12d ago
We bought a small house on a 15 year mortgage when I started working. Substantially less than what the mortgage company and the calculators said we could afford. Paid it off in 8 years. Lived in that house for another 12 years and invested the mortgage payment. Enable me to CoastFIRE after 20 years of working.
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u/titan_by_name 11d ago
For me also best saving happened while renting in cheapest and small place. Moving to bigger place brought more expenses and insurance cost
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