As you know, last week I wrote about the idea of selling our shares to buy a house with cash. At the end, I asked you all to chime in and let me know your thoughts on that strategy.
Well, the response was overwhelming! The comments section lit up like a bloody Christmas tree!
Some of you thought the idea was perfectly sensible. Others thought it was utterly insane. There was some great discussion, with interesting points on both sides.
And that was the point of the post really. To share the thoughts I’ve been having and open up the conversation to see what others think.
Over 150 comments in less than a week!
I’ve never received this many comments so quickly on a post, ever! But most interesting of all was the huge divergence in views and how strongly some people felt about this issue.
Funny side note: I could barely keep up with reading the comments because they just kept coming and we were busy cleaning our house for a rent inspection… how ironic!
Anyway, I really appreciate all the thoughtful responses. It’s great to have such a helpful community here 🙂
We had some awesome ideas thrown around. Even some innovative ones like suggesting I should crowdfund the purchase by getting readers to chip in, or ask my podcast partner Pat the Shuffler for a loan. Hahaha!
Some commenters were clearly new to our situation or how the numbers work, while others just plain didn’t read the post properly.
I am genuinely shocked at the number of responses. But then again, we are talking about Aussie property, so things got passionate.
It was even suggested that you can’t be considered financially independent at all UNLESS you have a paid-off house.
I get the thinking behind it in terms of security etc., but this statement is of course, nonsense. We’ve already discussed that you don’t need to own a house to retire early.
There were clearly emotional reactions accusing us (ironically) of making an emotional decision, when we’ve done… absolutely nothing different at this stage. It’s just an idea. Relax 😉
My views on housing and property ownership seem to have been misconstrued. So, today I want to clarify some of these points. We’ll also clear up some incorrect conclusions that were drawn from the idea.
I’ve never been against home ownership
From the very start of this blog, my message has been consistent.
In most places, renting is generally cheaper than owning, once all costs are included. That hasn’t changed (although with mortgage rates now at 2%-odd you can rightly argue otherwise).
So, for most people looking at the numbers, renting has been the way to maximise your savings rate and therefore retire earlier.
This has been twisted into “SMA says to always rent and invest instead.” But actually, here’s a quote from one of my first posts on housing:
“My preferred housing strategy is, pick a low-cost house to buy, or rent until you’re rich.” Rent vs Buy – The Aussie Housing Dilemma
Clearly, the level of spending is what I’m most concerned with. Not whether you buy or rent!
I couldn’t care less which you choose. You can rent a flash house and still blow all your money, just like you can own a modest house and save a ton of money.
Later, once you’ve established yourself financially and got some freedom in your life, you can then do whatever the hell you like. Because your choice to buy in a certain location will no longer be something that forces you to work X hours per week to keep paying the mortgage.
So, if we did buy a house, this doesn’t go against my previous stance on home ownership at all. I also did an in-depth podcast on the topic recently: “How to Deal with the Cost of Housing in Australia.”
If you listen, you’ll hear the same balanced views, where my focus is on the effect this choice has on your life – not which damn side of this religious debate you pick.
We don’t suddenly hate renting
Some folks suggested we move into an investment property to get the benefits of home ownership. But this idea wasn’t sparked because we now hate renting.
The idea has really come about because we’ve now rented in this particular location for about 3 years and love it. So we’ve finally decided that this is the area we’d like to stay in for a long time.
So, it’s not a case of wanting to own for the sake of avoiding being a renter. If it was, of course we could move into one of our investment properties. But renting has actually been quite a good experience overall.
As a side point, it also wouldn’t be feasible as we own townhouses and villas, whereas we’d be looking to have a decent sized garden and yard.
“But you’re always talking up shares and talking down property”
Okay this wasn’t a comment, but I got the strong vibe that this house-buying idea confused the shit out of people.
To be clear, I do suggest that for good savers an income-producing share portfolio is a more reliable and simpler way to reach FI in 10 years or so, compared to investing in property.
My stance on that hasn’t changed either. Instead, the key difference here is…
THIS WOULD NOT BE AN INVESTMENT PURCHASE!
It is not a “vote” for property investing and I am not “going back” to real estate as an investment choice.
Instead, my asset allocation would change in an unfavourable way (which is exactly how I framed it) because of a home purchase, which by definition, is a lifestyle choice!
We would continue to work towards a 100% share portfolio and any investible money would go to buy shares. I simply can’t make that any clearer.
Over the long term, we’d end up with the same result: a share portfolio and likely living in a paid-off house (as above). The only thing that is different is the order of those things.
It would be a case of bringing that home purchase date forward, much like we’ve decided to do with buying international shares sooner than expected. Basically the same long term result, different sequence of events.
My position on investing in property has not changed. As mentioned here several times, starting again I wouldn’t use real estate as an investment.
“FIRE is ruined, back to work you go!”
Um, what? Do you really think I would buy a house if it meant I’d have to go back to work full-time and our freedom disappeared? Come on.
I have an almost irrational love of freedom for its own sake, so the idea that I’d voluntarily give that up to go back to the drudgery of a mandatory full-time job just so I can own the walls around me is absurd.
Things would continue on as before. We would sell properties over time to buy shares. It’s just that we’d have a bunch of cash tied up in home ownership first, rather than in shares. When you net those things out, only the order of things has changed.
Obviously, we could debate the numbers, but the cashflow outcome is not dramatically different. If that’s confusing, I’m sorry, but you suck at maths. The numbers were explained in the post.
Remember, the amount needed in shares would then be about half as much, due to not having to pay rent.
“But, but, this is so different to what you said before!!!!”
Is it though? This argument is starting to look a little shaky. Let’s take a look.
I didn’t have to search hard to find the following sentences sprinkled around this blog in various places:
“…we will figure out exactly where we want to live long term and most likely buy a house.” Rent vs Buy: The Aussie Housing Dilemma
“Despite enjoying renting, we’ll almost certainly buy a place later, if we’re happy committing to the location.” Do You Need to Own A House to Retire Early?
“If I was just starting out, I’d probably buy a place at current ultra-low interest rates. But only if it was clear we’d like to stay there for ten years.” Paying Off Your Mortgage vs Investing
“It’s still a matter of preference and everyone’s situation is different. But depending on your location, renting may no longer allow a higher savings rate compared to owning.” Paying Off Your Mortgage vs Investing
Hmm, doesn’t seem like I’m such a fanatical renter after all. I can see both sides of this debate and frankly would be happy either way.
Clearly, I’ve made no commitment to renting forever. I’ve simply defended the idea of doing so, and debunked the myth that you can’t be FI as a renter in Australia (see above link).
Maybe some people are just getting a little emotional because it seemed like I was on their ‘side’ and have taken something I’ve said to an extreme conclusion.
“You’re just experiencing FOMO”
Perhaps. But I don’t think so.
I mentioned in the last post that Perth property seems to be picking up as of late. So am I worried prices are going to take off and I won’t be able to afford a particular house in the future?
Well, that would be an odd thing to worry about, because we’d get 4 times the benefit of price rises in Perth, given what we already own.
“You can’t blog about investing anymore”
Really? That’s a bit unfair. But I probably will anyway 😉
Again, if we did buy a place, we would still be investing every month to build up our share portfolio again.
Or are we not allowed to do that? Are we banned from the share investors club?
“FIRE and home ownership are not compatible”
Somehow, my last post is proof that you can’t retire early AND own your own house. Like the two things operate like some bizarre reverse magnet!
This is also nonsense. You can own a property and still retire early. Depending on your property choice, it may just take a bit longer. See the important part of that sentence?
It’s a big stretch to say FIRE is not possible when you want to own a house (post on this coming soon!). That’s the same whiny argument as, “life is expensive these days, especially in Australia, so FIRE doesn’t work here.”
For some people, in some locations, with certain expectations and tastes, buying a house and retiring early will absolutely NOT be possible for them. I totally agree. But for many, it is still achievable.
So what are we going to do?
Just so you know we had been thinking about this in the background for a little while. I didn’t just dream it up on the Thursday and pump out a blog post ready for Saturday!
After mulling it over for another week, thinking about our situation and the most feasible options available, we’ve decided to leave things as they are.
But rather than wait until all properties are sold before we look to buy our own place (as per initial plan with rough estimate of 10 years), we may try something else…
We’ll keep adding to our shares over time exactly as planned. These will remain untouched.
A few years down the track when the numbers line up, we may look to sell a Perth property where we can do a security substitution. (Thanks to a few astute readers who pointed this out. I’d heard of it before, but not really looked into it.)
A security substitution is where you sell a property, and the bank keeps the loan proceeds in a term deposit, while also keeping the loan facility open.
When you find a new property, typically of a similar value where you can keep the loan balance the same (the loan must stay the same to avoid a fresh credit assessment), the bank will release the proceeds to fund the house purchase and take the new property as security for the mortgage.
It’s not the simplest option and right now it wouldn’t really suit us (high LVR loans, fixed rates, need to reduce loan balance to fit the property we’d buy). Besides being a headache, currently that would still require us to still tip in a bunch of cash which we’re not willing to do.
But this does seem like a suitable option for us down the track, when our LVR and loan balances have fallen, we’re no longer on fixed rates, and our properties have risen (if we need extra cash). Definitely something to research further.
Again, thanks very much for all your support, ideas and helpful comments. Strong Money readers sure are a thoughtful bunch!
I hope this post clears up any confusion about my supposed wild change in stance on home ownership, investment property etc. And after all the drama, things will be staying the same around here after all.
But it’s good to have found a workable option which we can utilise in the future without touching our shares!
Mrs SMA is pleased with this plan too given the shorter time-frame involved. And best of all, we won’t be disturbing our existing passive income stream. Speaking of which, it’s about time for a portfolio update.
I’ll get cracking on that now… have a great weekend 🙂
P.S. And no, there is no “pitter-patter” on the way. We’re more than happy with our dog which keeps us on our toes…