We’re in Bali right now and so far it’s been a bit underwhelming to put it kindly. Maybe it is our preconceived notions, but there doesn’t seem to be much to do or interesting to see. But that being said, we just got here and have a month to explore the region. I hope things will get better when we leave the touristy areas and get to Lombok and the Gili Islands.
Per a recent post, I’ve been thinking more about buying a house when we get back. But it starts to feel more and more like a financial stretch possibly indicating that we are not as FI as we need to be…
Let me explain. As we started to zero in on the the Folsom and El Dorado Hills area near Sacramento, I started hearing more about Mello Roos taxes, which are essentially an end-run around the 1% limit on property taxes set by Prop 13. These taxes can add thousands to the property tax bill in a year, depending on your housing development. I found myself factoring more recurring costs and at the same time I suddenly became acutely aware that our taxable portfolio will have to bear all of these housing costs, including the entire purchase price of the home.
Say we have $1.4 million in taxable accounts. Taking $400k out for the purchase of a house drops us to $1 million in taxable, which supports a 3% withdrawal of $30k a year of which $6k will go towards property taxes. The remaining portfolio will be our primary war chest going forward. (I know we can do a Roth IRA ladder to tap into some retirement accounts, but hate to plan on doing that.) If we have kids, then we have to fund them through our taxable accounts as well. That starts to feel like a stretch and the anxiety of living in a scarcity mindset versus an abundance mindset rears its head again.
So that leads me to my current thought that (1) we are either not as FI as we should be, (2) we should just plan to rent or (3) figure out a way to qualify for a mortgage so we’re not losing the opportunity cost of $400k towards buying a house in cash. Qualifying for a mortgage requires working again, but that would also alleviate the scarcity concern.
That got me thinking about having *just* another million in our taxable account. Then I started feeling a little depressed lol. Maybe all of this has something to do with being in a place I thought would be paradise, but so far is coming far short, or maybe that I was too optimistic about how far I could stretch $2 million. The whole Brexit rollercoaster didn’t help things, although I’m sure I would be even more concerned had the market not come back at the end of the week.