Great post, it'll be interesting to watch and see what you determine is the best route for you upon yor return to the US. Our retirement goal is lofty, but it does bring down the % our home represents. Mr. and I are still struggling to determine if our home should even be included in our retirement goal. Your post makes me think that it shouldn't be...

Posted by JBS | January 30, 2008 11:37 AM

$250K for a house sounds like you will be able to continue making progress on your financial freedom goals.

Another huge expense that you should keep in mind is having children. I'd love to see a post on your thoughts about the costs of having children. I continue to be amazed how the costs grow year-to-year: from baby gear costs, to preschool, to dance/music/sports lessons, and don't forget saving for college! The good school district for your house will pay huge dividends for you: we have been paying a lot for private school -- which has been wonderful but costly.

Posted by AGC | January 30, 2008 5:21 PM

Perhaps you could consider finding a lot that you like. Go ahead a purchase that and build a large basement or garage w/apartment. Live in that while you act as general contractor for the main house.
Use good common sense and deal hounding, find discontinued and clearance items and buy those whenever possible, go to surplus yards.
Building your own home is stressful but it would be a way to attain your goals.

Another good tip if you need storage space during the build would be to purchase a used semi trailer and use that for storage on the property during construction. You can generally sell them for the same amount you bought them for and that would save you a ton on storage costs.

Posted by Blake | January 30, 2008 5:30 PM

I would say the days of considering your house a "good" investment are long gone. The value can drop quickly making you upside down on your mortgage in an instant.

Your wants are fairly pricey, at least in Minnesota where I live. Large lots with trees are generally farther away from everything necessitating a long commute. They are also in demand, which increases the price. Considering everything now, perhaps you need to choose which is more important - your list of wants or your financial security?

Posted by Erin | February 1, 2008 1:46 PM

2mil - why buy a house when it makes more since to rent? When you factor in carry costs such as repairs, taxes, insurance,etc. and declining asset prices(both real and nominal) and you have a job that can change locations, IMO - it just doesnt make sense. You have a great goal that Im sure you will reach. But go against the crowd on this one; rent for a few yrs, maybe check out other parts of the world to buy prop in. The value of your $ and EVERY asset you have is only in USD. That may not be the best choice long term.

Posted by ted | February 5, 2008 12:09 AM

This seems like a good question to ask in today's environment. Everybody will have differing opinions; this is my take and it probably won’t be that of many.

I believe the home is an incredible asset because it is an ATM. Now a lot of people get in trouble with this and I may also in the future, but this is how I think about my assets. I have 3 buckets:

Numbers chosen haphazardly.

1) Cash - Say $500K. Leverage: Depends on what type of asset I acquire with it.

2) A home - Say $500K with 20% equity so I really only have a $100K asset. Leverage: I can get 400% or more.

3) Securities - Say $500K. Leverage: Depends on the security, up to 100% for equities, 1000% in futures and options, 10,000% in f/x, treasuries, etc.

I like to have access to max leverage. Currently I have a 1st mortgage fixed, a second mortgage fixed and a heloc at prime minus 1% (currently 5%).

The home gives me incredible flexibility. It finances my investments at a low (mostly fixed) cost. I can pay off my mortgages, but then I'd be cash and securities poor. When home appreciation is slow and to non-existent, I like to draw out all the equity in my home. If you get the right appraisal, you can definitely borrow more than the home is worth, and experienced RE investors will look for these opportunities. It is important that you have enough liquidity to make all RE payments.

Since my heloc is at 5% nominal right now (i love helocs (1) because of flexibility (2) during low interest environments like now (3) when they appraise automatically with no tether in reality), I am looking for other short term opportunities in stocks. So I'm looking to deploy my cash and home equity into attractive investment opportunities. I have the flexibility to deploy up to $3 million in equities in the above example.

Obviously it's not smart to put all eggs in one basket so I'd be looking for $1.5-2 million in investments in 5-7 buckets that are as uncorrelated as I can make them. This can include a rare coin, a car, stocks, bonds, ebay sale items, etc. Keep your eyes open for anything that can make you money, and learn to better assess risk. Yields are low on liquid investments so I am being tested to try more illiquid stuff.

I like trading on the "cash is king" premium in the marketplace.

If it all implodes at the same time, I'll be toast, but I try to be 20-30% liquid at all times. That seems to me like a good margin of error coupled with disciplined risk management execution: managing the bankroll appropriately and exiting losers quickly.

I'd appreciate different perspectives on how you manage your financial/investment lives.

I've been called kind of wild in my process, but I respectfully disagree. Sitting on cash for prolonged periods of time with inflation raging is probably pretty risky. I think there's a time for buy and hold; mostly when the market is rising normally, even abnormally. I like to be in cash when the market is sliding.

The home I think of as a vessel. Sometimes it is more empty, sometimes more full depending on conditions.

Posted by ETFnerd | February 5, 2008 2:39 PM

Despite the currently dropping home prices, houses are still definitely one of your best long-term investments.

The real financial benefits of buying versus renting, come when your mortgage stays the same for decades while everybody's rent keeps going up. And, if you are smart enough to pay off your house before you retire, you only have to worry about paying property taxes and insurance.

For the people who think buying a house is a bad investment, try to calculate your retirement income needs, while projecting rental costs in 30-40 years. You will need a pretty big IRA/401K to cover the future cost of monthly rent.

I recommend that you take this opportunity, which will probably last a couple more years, to buy a house in this soft-market. Or, you may find the future investment to be a lot more painful.

Posted by Bret Frohlich | February 5, 2008 11:50 PM

...everyone tells you "your home is your biggest asset", "buy the biggest home you can afford"

Who is saying this and why would you listen to them? I bought a home that I can easily afford. It's just the right size and is almost paid for. I took a 15 year loan at 5% eight years ago, and will have it paid off by 2010. All this while still maxing out retirement and investing 15 - 20% of my income. I couldn't do this if I had bought the home that I wanted, but my wife and I must think long term.

Posted by Special Ed | February 6, 2008 11:05 AM

"Newer neighborhood to help build social ties to community"

What does this mean? I live in what I am sure is a more affordable part of the country. I live here because the economy is diverse, taxes are generally lower, and jobs are easy to find. Long ago I decided that I hated the newer communities and suburban sprawl caused by mostly young families moving out further from the city. My wife and I lived in suburbia right after we were married because it was cheap. But in spite of the trend, we moved further into the city as soon as we could. Fortunately we found an established neighborhood with stable families and good public schools. My home is about 30 years old, but I love the fact that my neighbors (some of them are retired or semi-retired) are mature, established, and upwardly mobile. I love my neighborhood and wouldn't ever trade it for a newer one. My commute to work takes 20 minutes. Some suburbanites who I work with drive an hour.

Posted by ah | February 7, 2008 1:42 PM

thanks for the post!

Posted by Money Guy | February 8, 2008 7:25 AM

Buying a home has been a struggle for me and my fiancee for the past 2 years. We make good money, but we live in Seattle, where $250,000 gets you a 1/1 that's abot 600-700 feet or so...definitely no worth it. But, while things get worse for sellers, it gets better for buyers.

Posted by Cully Perlman | February 13, 2008 1:03 AM

A short commute to work will save you a lot of money in the long run.
I reviewed several years of financial records a couple of months ago, and it was pretty obvious that the highs in our monthly gas expenses matched up with the times when either my husband or I had an out-of-town commute (regardless of the per-gallon gas prices / regardless of the vehicle).

Posted by Monroe on a Budget | February 26, 2008 6:27 PM

I could not agree more. People have been encouraged in the past few year to buy more house than they need or can afford.

The culture is even worse among physicians. I see many of my co-residents locking in a huge 30 year mortgage as soon as they sign thier first contract b/c they think the public expects a physician to have a large house.

What ever happened to the starter home?

Posted by Dr T | April 23, 2008 7:12 AM

I was wondering if any one had any thoughts on me wanting to pay off my primary residence with proceeds from a rental that I recently sold. It appears that for some reason everyone is against this concept. My home is currently 20% of my net worth, and when orginally purchased was only 2.5x my salary as stated in the "Millionaire next door." Moreover, I have no debt. My thought was to take out a HELOC then pay off my home and if a rental property was to present itself buy another one. Unfortunately most blogs I read love debt and the magical power of leveraging yourself to the hilt.

Posted by Robert DiNero | May 3, 2008 11:41 AM

I do have to agree that maybe the home is the biggest asset for many people, however i would also say it is the biggest liability as well. You could almost be better of investing the money you may spend on a home, into an investment property which gives you better tax deductibility, at least in Australia, and rent the a house that is more to your needs. This i believe would make better use of your money. However i have been known to be wrong before.

Posted by Joel | August 4, 2008 2:44 AM