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Originally Posted by Randall55
Agree with most of what you said. However, when interest rates are high, paying cash for a home is not always the best solution. You are throwing away the possibility of earning good interest. Interest rates go back down? Then you pay cash for your home. Hopefully, the period of time you were able to make a good return on your investment will pay for the bulk of your home purchase. In the interim, you enjoy maintenance free living while renting.
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Just the opposite. Right now, interest rates are in the 7% range or higher. If you want a longer term safe investment like money market funds, you are getting 5% which is good, but you are losing 2%, and that is today, it could go higher but it could go lower to < 1% like it was for a decade. If you invest in stocks/funds, a good average of earnings over a 30 year span is 8-10% if you do it right, don’t have high expenses, no finance fees, and you don’t time the market. For example, all of my investments have gone up from 12% to 30% and some stocks have doubled this past 8 months, and I sold everything last week. When you look at the market late last week and tomorrow morning, you will know why.
During the past 20-30 years, I had home loans at 2-3% and got a loan for the max amount possible (80%), and was making triple times on an annual basis during this same time.
As for cash to buy a home, cash is king. I’ve had 2 custom homes built during the past 11 years and I was the bank, I didn’t get a builders loan nor an end loan which saved me over 4% just in loan fees.
In normal years and in most places, when a recession hits, house values go down and interest rates go up. Prime time for somebody with cash to go in and get a great deal, 2008 and the last 2 years are an example of this.
I also think $1.5M is low to have financial independence, this doesn’t take in account if you have a nice pension or 2. My reasoning is the golden rule of taking 4% of your money out of your portfolio to live on so you don’t live past your mooney. $1.5M x 4% is $60k a year which isn’t that much. Somebody mentioned that their expenses are $70k a year and they make $72k. What happens if you want to go on a $10k vacation a couple times a year? Say you need a new car? A new golf cart? Do some renovation? Have a medical issue or you want to help you kids with a big expense? $2k extra isn’t going to cut it. Then what happens when the market goes down for 18-24 months while you are still taking 4% out each year? Next year you might be taking 4%out of $1.2M. Having $2M-$3M gives you breathing room to pay for expenses or luxury items that you want. No reason to cut back on doing things in retirement.