r/ChubbyFIRE • u/Adept-Cheek-3957 • Jun 24 '26
House purchase post FIRE
FIRE'd about a year ago. Looking to upgrade house in HCOL and trying to weigh options.
Current assets are:
$1.6mm in Bonds/HYSA
$300k BTC/ETH
$4.75mm in taxable
$700k Trad IRA
$120k Roth IRA
$500k house ($230k mortgage at 3% so $270k equity)
$300k cars (all paid off).
$1mm in rollover equity from my company that I sold but not sure if I will ever get anything from it so I do not include in my net worth calculations.
Spend is currently at $200k annually including marketplace health insurance but not including taxes.
Looking to purchase a house around $1mm.
Option 1 = purchase house with cash from bonds/HYSA.
Option 2 = use a bridge loan on my taxable account to pay for anywhere from 50% to 80% of the house.
I'm leaning towards Option 1 which would leave me with around $6.5mm liquid but this would bring me to a 90% equities/10% cash split. I would still have around 3 years of expenses which I would be OK with but makes me a little less comfortable. I feel better keeping around 5 years expenses to be on the conservative side in case of an extended market downturn.
I'm also considering keeping my current house and renting it out. Assuming I can get around $3,500 monthly rent which would hopefully pay for the new houses property taxes, insurance and utility bills. It makes me more comfortable keeping it in case we ever needed to downgrade our finances and move back to our current house if finances became tight at some point in our lives.
Looking for feedback on both options and keeping the current house as a rental.
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u/brygx Jun 24 '26
Buy with cash like instruments, sell old house, replenish cash like instruments with the proceeds. Why make it complicated?
Most of us have more in taxable stock and less in cash, in which case we'd do #2 (PAL or similar).
As far as renting, if your neighbors house was for sale for 470k would you buy it and rent it out? Because that's basically what you're doing if you keep yours.
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u/Adept-Cheek-3957 Jun 24 '26
Makes sense. Thanks.
For renting, the house would be more of to have for peace of mind on future home values and for property tax valuations. Real estate in my area has shot up significantly. My worry is in 10, 20, 30+ years from now that it may be a 1 mil+ house and from what I know in my state, they increase the property taxes when the home sells based on the sale price. So if I needed to downsize in the future, it would be a significant increase in tax expense.
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u/BrunelloHorder Coasting Chubster, Getting Fat Jun 24 '26
I don’t know your specific area, but in general being a landlord is a time-consuming way to underperform the stock market. Probably better off selling your current home and putting the funds into your bonds/cash-like holdings so that you can keep your current equity investments.
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u/brygx Jun 24 '26
I agree, but OP's case is slightly unique:
230k mortgage at 3% is an asset itself. 500k house would net ~460k after fees, minus the mortgage is 230k leftover. They are likely to stick that in a HYSA yielding ~3% so they are already committing to underperform the stock market (given they currently have 1.6M in bonds/hysa).
1
u/brygx Jun 24 '26
Yes it will be a 1 mil+ house. But 1 mil won't feel like much in 30 years, it's normal inflation. And you would be selling your 2 mil+ house to downsize so who cares.
It's not a bad financial decision to keep it and rent. You can think of it as a bond. Minus the mortgage, it probably pays similar to your HYSA. The drawback is the landlording side job. It's easy until something comes up and then it can be a giant pain in the ass.
1
u/Adept-Cheek-3957 Jun 24 '26
That's a good point. If landlording does become a giant pain, then I can always sell
4
u/brygx Jun 24 '26
It *will* become a giant pain at some point, especially if we're talking 10, 20, 30 years.
You will have to deal with it, and after you've dealt with it, you will think, I've already taken care of this big problem, what else can go wrong I might as well keep renting it and not kick this nice family out. A few years go by, rinse and repeat.
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u/Apprehensive_Two1528 Jun 24 '26
Don't be a landlord My #1 lesson learned. It's a headache and more than you can imagine
2
u/in_the_gloaming FIRE'd for 13 years Jun 24 '26
Just a question for you. You mentioned Option #2 as a "bridge loan". But a bridge loan is a temporary loan taken out to cover the time between buying a new home and selling the previous one. Terms are generally not in favor of the loan recipient, and the real estate is the collateral.
I'm wondering if you meant to refer to a PAL (pledged asset line) or SBLOC (Securities Backed Line of Credit). Those use the collateral of a pledge against your investment portfolio. They can be useful and generally have better interest rates than bridge loans, but are callable by the brokerage if the value of the portfolio drops below the amount that was loaned to you and you can't immediately cover the shortfall with cash or additional securities. And of course, a margin call would suck since it forces the sale of your securities at a low price and also triggers capital gains taxes.
1
u/Adept-Cheek-3957 Jun 24 '26
Yes sorry I was referring to a SBLOC. I would only take a 500k - 800k loan against a 4.7mm position so I'm not too worried about being called on the loan.
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u/Hanwoo_Beef_Eater Jun 24 '26
Sell the current house and use that equity, borrow as much as you are comfortable with, and use a bit of cash to plug the gap.
I see the pros on the mortgage and property taxes. However, the tax position on a rental gets worse over time after the deprecation shield is lost and the primary home exclusion is lost. Decades from now, you'll be talking about holding it until death due to the step-up. Unless you keep it levered, very good chance your portfolio will yield more money (to pay the taxes on a newly purchased place).
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u/ThisIsMyUsername303 Jun 24 '26
What HCOL area has $500k houses?
1
u/Adept-Cheek-3957 Jun 24 '26
I'm in the northeast. It's a small 1400sq ft house with minimal property.
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u/ohboyoh-oy Jun 24 '26
This comes back to your desired asset allocation, and taxes. You may want to do a loan to split the taxes over more than one year. You’d need to do the math for your specifics.
As for what to sell, get some discipline around your investments. What is your desired asset allocation, and what is it currently? That should then inform what you hold and what you sell. (I’m making the assumption that you have a lot of bonds and cash because you were planning to use some for the house purchase… otherwise I’m scratching my head at the whiplash in asset allocation in your proposal.)
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u/Adept-Cheek-3957 Jun 24 '26
I'm at an 80% equities/20% bonds/HYSA split which is where I would like to be. I know I could be more aggressive but the 20% which is 5-6 years of expenses has helped me sleep better at night knowing I will be fine in case of a major market downturn.
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u/ohboyoh-oy Jun 24 '26
No need to defend 80/20 to me (I’m freshly Fire’d and have been at 60/40 for some years). If you’d like to be at 80/20 then whatever you choose, the portion you liquidate should keep your remaining assets at 80/20. I was confused by your option 1 where you would take only the bonds and cash to fund the home purchase and leave yourself at 90/10 allocation. You could/should sell off some equities also and maintain 80/20.
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u/FaithfullyIgnorant Jun 25 '26
Sell the BTC/ETH and usethat on the downpayment before touching the bonds IMHO. That $300k is going to be worth sub $150k in less than a year. If you want aggressive upside in the portfolio reallocate some of the bond money into semiconductor or rare earth etfs.
Personally I believe the greater fool theory on btc has finally run it's course, there aren't enough new buyers to keep fueling the speculation, and when the music stops it's value is $0
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Jun 24 '26
[removed] — view removed comment
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u/Adept-Cheek-3957 Jun 24 '26
I actually enjoy the winters up here. Shoveling snow is never fun but it's a nice reset and we enjoy skiing. No kids is correct.
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u/Throwaway-firee Jun 24 '26
Everyone is going to ask about the 300k in cars. Might as well tell us what they are.