Author Topic: Buy House with Cash OR Mortgage and invest  (Read 1515 times)

ThisTooShallPass

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Buy House with Cash OR Mortgage and invest
« on: January 21, 2020, 06:57:17 PM »

I searched and read quite a bit on this topic, however, I really appreciate the wise minds to look at my situation and provide some insight that puts me in the right direction.  I truly respect this forum's collective wisdom.

In less than 6 months I plan to Retire Early from my job. Wondering if it is better to buy a house 100% cash or go for mortgage (20% down).

Excellent credit rating, 15 year APY @ 3% and 30 years at 3.8%

$400k comes out of the taxable savings account earning 2.35%. 

Age: 44, Married with two children

Currently Renting. Relatively closer to work. High cost of living area with the highest property tax in the country.

Planning to buy a house in low cost state but not too from where I live so current friends are “accessible”.   
Brand new house priced at $400k (2,300 Sq. Ft. , already factored in for some upgrades like bigger lot for vegetable garden, moving costs and certain one time costs).

Expenses at early retirement would be $25k but we are flexible both ways.
The magic number $625k (using 4% rule of thumb) is in taxable accounts (30% tax managed muni bond index, 70% stocks index for now but will transition to ~90% to stocks over time)

ROTH, IRA’s are in good shape (don’t like to touch this for another 15-20 years, however, may take out some money from ROTH early for children’s collage in few years.

If I go for the mortgage this $400k will be dollar cost averaged into the markets (more like 80 or 90 stock index rest bond index)

Thank you, let me know if any additional information is required.

gocurrycracker

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Re: Buy House with Cash OR Mortgage and invest
« Reply #1 on: January 28, 2020, 11:07:10 PM »
Debt is leverage. Leverage amplifies gains and losses.

The first 10 years +/- are key for portfolio sustainability. If the market goes against you, that is bad. If it goes against you with leverage, that is worse.

How much worse depends on what your total portfolio/leverage ratio looks like. A mortgage won't face a margin call so you can ride it out (in theory) but look at some of the worst times to retire and see if you would enjoy even greater drawdowns:
https://www.gocurrycracker.com/the-worst-retirement-ever/
https://www.gocurrycracker.com/how-are-the-2000-and-2008-retirees-doing-4-percent-rule/