047.Millennial Revolution

047 | The Cult of Home Ownership & Crushing Geoarbitrage | Millennial Revolution

Today we have Kristy and Bryce from Millennial Revolution on the podcast to discuss home ownership, international geographic arbitrage and much more…

In Today’s Podcast we cover:

  • A discussion with Kristy and Bryce from Millennial Revolution
  • They initially were contemplating buying a house and were shocked by the process
  • This is what led them to finding the Financial Independence community
  • Home ownership seemed like a “cult” to them
  • What did their financial life look like before finding financial independence and how did they save so much money previously?
  • Who might be naturally included to FI and how everyone can be open to it
  • FI opens up creativity that you otherwise wouldn’t have the time for
  • Voicemail from David from Canada
  • How difficult it is societally to not purchase a house
  • You need to do the math behind home ownership and don’t succumb to the ‘fear of missing out’
  • All the other costs that are involved in home ownership that eat into your paper gains
  • A house is not an investment, it’s a place to live
  • The power of compounding and the Rule of 72
  • How would someone do the math to compare renting versus buying?
  • The 1% rule
  • Introducing leverage into the scenario of buying a home
  • What do they invest in? Low-cost index funds
  • How often they rebalance their portfolio and how they came up with their 60/40 split
  • It is less expensive for them to travel the world than live in Toronto
  • Their annual spending their first year of travel was $40,000 but they were able to cut that to roughly $30,000 in year 2
  • How they believe everyone could live the same lifestyle if they were willing to break their mental block with owning a home
  • How would they recommend people get started with international travel and geo arbitrage?
  • Budget airlines and bus companies help them travel throughout Europe for a fraction of the expected costs
  • What do they do with lodging when first visiting a city?
  • The ‘secret’ location they’ve found in London to stay for a fraction of the cost
  • How nobody else in the world worries about health costs like Americans do
  • How much could you reasonably spend for a year of living in Thailand
  • The little enclaves of expats that exist throughout the world where they’ve found to live for less
  • Their summarized advice for David from Canada
  • Hot Seat Questions
  • They actually have a financial advisor, but they don’t outsource their knowledge to someone else

Links from the show:

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7 thoughts on “047 | The Cult of Home Ownership & Crushing Geoarbitrage | Millennial Revolution”

  1. Thank yo so much for your advice. I have been contemplating buying a home for about a year and it has never settled with me. I am currently 28 years old and switched my career from being a teacher to working in the finance world. I have a passion for helping people save their money and get out of debt. This podcast has given me so many ideas and tips on how to stay on my new path. It’s talked me out of buying a nicer car and staying in my apartment. I am seeing my net worth slowly climb and I’m super excited to be a part of this community. Thank you!

  2. LOL. Toronto’s property appreciation is SO LOW!!!! Try living in Melbourne or Sydney. I’ll attach a link showing just how crazy the property market is here. For me, buying a house was the best thing I ever did. Twenty years ago I bought a 4BR weatherboard house in an excellent school district. I paid $136, 500 and paid it off in around 15 years, while borrowing an extra 100K along the way for home improvements. I sold the place earlier this year for 1.7 MILLION dollars.
    It’s brought my retirement date at least 10 years closer. I practised a bit of geoarbitrage and bought a house 20kms away that was CHEAP at 750K. It’s already gone up 100K in value…
    Like I said… crazy. But for me it’s been crazy good. For my kids, clearly not so much.

  3. Location really does make a difference with home appreciation. We intentionally picked a home on the less appealing south side of Arlington Virginia in 1998 and let the neighborhood catch up with the expensive north side of town. The mistake many people make, is not staying in their homes long enough, especially those who use home equity to upgrade to larger homes, or move to a “better neighborhood”. Our home has appreciated on average 6 1/2% per year, and that includes the 2008 downturn. The home is now worth 1.1 million according to the tax man and continues to appreciate. Last year we refinanced our 160K loan balance to a 10 year loan with a 2.37% rate. My advice would be:

    – Buy your home like you’re going to live in it forever. Don’t move to upgrade. Buying and selling homes is expensive!
    – Look for shoulder neighborhoods that will benefit from nearby development, you can still do this, even in cities like Washington DC.
    – Take advantage of low interest rates I’m not sure when we’re going to see rates as low as 3% again.
    – Always factor things like property taxes and the costs of buying and selling a home into your long-term calculation, just like a landlord would.

    The Frug

  4. Thanks for the episode and your continued efforts! Just a couple thoughts.

    Am I correct in my understanding that the MR couple’s simulation/comparison looked at the difference between $500k spent on a house vs. $500k invested in terms of ROI?

    If so, I think they missed a pretty major line item. You would really need to subtract all of your rent for the entire period of investment from the $500k invested. If you paid cash for a house you are only paying taxes, insurance, and maintenance for that period which is going to be way less than rent. I understand geoarbitrage helps reduce the rent cost but most people making this decision aren’t going to be doing that. They are deciding between renting or buying while they continue their W2 life in pursuit of FI.

    From this perspective I think the math lands on the side of purchasing in most cases. It of course depends on the area you live in but for where I’m at, even with a 4% 30 year fix my savings rate is significantly higher as a home buyer than as a renter (~$6000/year or $93,872 after 10 years invested). Take a look at ERN’s article (https://earlyretirementnow.com/2017/11/01/shockingly-simple-complicated-random-math-behind-early-retirement/)…savings rate is the biggest deal.

  5. Thank you, Brad and Jonathan, for having us on the PodCast!

    Angeleen, good for you for realizing how you want to live your life, rather than buying into FOMO (Fear of Missing Out)! We had so much pressure from parents, friends, co-workers, all trying to talk us until buying a house and car, but we ignore them. Now, life is SO much better and we no longer have to be stressed, stuck in the rat race, paying the mortgage and car payments. Stay the course!

    Frogdancer: “But for me it’s been crazy good. For my kids, clearly not so much.” This is why exactly why Millennials need a different life plan. When you bought your house 20 years ago it was actually affordable. When I was looking for a house 5 years ago, there was no such thing as a $136,000 house, even adjusted for inflation. It made sense for my parents to buy a house when it was only 2-3 times their salary, but not for the next generation, in Toronto, when it costs 11-12 times the average household salary. Still, all the boomers around me were saying “you should buy! you’d be stupid not to.” Um. No. I would be stupid to buy. They don’t understand that times have changed and their rules home buying no longer apply to their kids. Glad you get it.

    Brad: You make a good point about not staying in their homes long enough. One of the biggest disadvantages as a Millennial these days is job insecurity. Gone as the days when you can have jobs for 25-35 years and get a big, fat pension. The next generation now has to switch jobs every 5 years or take on unstable temporary work. That is not a good recipe for living in a house for a long time. Like Brad and Jonathan mentioned in the episode, buying for lifestyle reasons is the true reason for buying a house, not as an investment. Because even if your house appreciates 6.5%, there’s still all the added costs of property taxes, maintenance, insurance that eat into it, PLUS you have SELL the entire thing to capture that gain. Index investing will give you on average 6-8% over the long term, you don’t to pay for upkeep, AND you get paid dividends throughout. Also, unlike a house, you don’t have to sell the entire portfolio to capture the gains. With a house, you can just sell a brick or a window.

    I’m glad your house worked out for you thought! Thanks for sharing your insights.

    Puddle: Yes, we did do the comparison by subtracting our rent. You can check out the details here: https://www.millennial-revolution.com/rent/bought-house-back-2012/

    “From this perspective I think the math lands on the side of purchasing in most cases.” It’s the opposite. We made 2.61 times the amount by renting instead of owning. Renting allows you to be flexible and the cost is predictable. Owning comes with a ton of unexpected costs you have zero control over.

    • Good Day Kristy
      I have just listened to your podcast episode with ChooseFI and I must say it is one of the best I have listened to. I need advice on weather I should purchase an investment property I plan to retire in in the next 10 years from now 2030.
      I am able to save $1100 which i plan to pay into a mortgage in which the monthly expected payment is $600 including rates and taxes, I am staying in China so I will rent it out to a tenant who will also be contributing $500 to the mortgage, and together we can pay it off in 2.3 years. In so doing I can get tenants in the next 8 years who will pay $500 dollars monthly to me as income which I then plan to invest into a ETF that tracks the S&P 500, with the additional $1100 I will still be saving.
      Option to is I can choose not to buy the property and just start investing $1100 immediately in a low cost ETF starting in January for the next 10 years, and double the amount invested in it to $2777 monthly from 2021 to 2030,  and then diversify into bonds from a 100 stocks to a 70 30 split. And then decide to buy the apartment cash in 2030 as opposed to owning it now.
      which of the above do you think is more viable. I am originally from South Africa and I would like to say the FI community has changed my life and helped me answer tons of unanswered questions I had about retiring early.
      I hope to hear from you soon.
      Kind regards Percy

  6. I agree with this premise, but it’s clear that FIRECracker has no understanding of the concept of leverage in real estate. The ROI buying the house would be higher in this situation if a mortgage was taken out, not lower.

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