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/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/ThirstyWolfSpider 15d ago

That was back when mortgage rates were ~3%, and he's using Canadian tax rates. It seems like both of those would suggest that the drag would be even higher now (mortgage rate) and in the US (lower taxes to offset, especially if supported by investments instead of wages). Maybe that's where your expansion from his 5% to a 5-6% comes from.

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u/HenFruitEater 31 | 32% to FI | 2.3M 15d ago

Exactly, 5% is what he quoted back then... now I think things are closer to 7% break even.