EU-PP whilst buying a house.

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

Post Reply
juandelarocha
Junior Member
Junior Member
Posts: 7
Joined: Wed Aug 23, 2017 5:34 pm

EU-PP whilst buying a house.

Post by juandelarocha » Fri Nov 10, 2017 6:50 am

Hello.

Some months ago I started my EU-PP placing on it almost 50% of my economic wealth. At the same time, I have almost reached my thirtysomething and considering the stability in professional space and personal life, I have decided to take roots and buy a house. Let's say that the total cost of the house would 8 times the value of my current EU-PP.

When I have discussed this investment dilemma with close friends and family, they see no point in investing and maintaining the EU-PP considering the mortgage I will get: their general reasoning is based on the fact "pay off the mortgage as much as you can". I normally refute them that EU-PP should be able to give me returns enough to cover the cost of asking for money in my mortgage. However, it's true that this is a assertion can not be confirmed.

So the question is: am I doing right? Make sense to build up and mantain a PP in money-saving years of a young worker considering that is the time when people buy a new house and thus a huge amount of money is needed?
Last edited by juandelarocha on Fri Nov 10, 2017 7:23 am, edited 3 times in total.
User avatar
europeanwizard
Executive Member
Executive Member
Posts: 171
Joined: Sun Jun 04, 2017 4:06 am
Location: The Netherlands, Europe

Re: EU-PP whilst buying a house.

Post by europeanwizard » Fri Nov 10, 2017 7:18 am

Well, it all depends on the numbers, on your risk appetite, and very importantly, on any partner's taste in this regard.

Let me sketch my circumstances, and perhaps we can draw some parallels for yours.

I own a house, its current worth is 350k. Over the years, I've moved money towards the principal so the current mortgage is 205k. I will continue to put 1k every month into the mortgage, because I'm a freelancer. If I get sick, I'm only partially insured. Thus I want to reach a level where my partner, who earns considerably less, can pay the mortgage with her salary.

Besides that, I also move 1k every month into my PP. Since my mortgage is 3,8% and the EU PP does a bit more, it's still a win. But I don't overdo it.

So you have to see if you can strike a balance. To be honest, you say that friends and family have an opinion. But my family is very badly informed when it comes to investments. My friends are somewhat better, but they have particular tastes (crypto, real estate) so that advice simply isn't much useful to me. Best to make up your own mind :)
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 4052
Joined: Sun Sep 16, 2012 5:28 pm

Re: EU-PP whilst buying a house.

Post by Kriegsspiel » Fri Nov 10, 2017 9:24 am

Buy a cheaper house?
User avatar
frugal
Executive Member
Executive Member
Posts: 947
Joined: Sat Nov 10, 2012 12:49 pm

Re: EU-PP whilst buying a house.

Post by frugal » Sat Nov 11, 2017 2:21 am

hi

how much you pay of % interest of the loan to the bank?

EUPP interest should be higher.

Are you comfortable with loans?

Can't you buy a less maintenance and cheaper house?

Saludos
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: EU-PP whilst buying a house.

Post by sophie » Sat Nov 11, 2017 10:11 am

Frugal,

The decision to buy a house should not be based on your long-term investments. It's a consumer/quality of life decision first and foremost. Then figure out how much you need to save for a the standard 20% down payment, and what your anticipated fixed costs will be - counting everything including mortgage, taxes (minus any deductions), insurance, utilities that you might not cover when renting, and savings for repairs & improvements. From there, you can decide whether you can handle it now, and whether it might be a good idea to increase the size of your down payment by liquidating part of your investments.

If you want to throw some numbers at us that might help. It depends a lot on the mortgage rates and tax structure in Portugal - that's where you are if I remember correctly?
User avatar
frugal
Executive Member
Executive Member
Posts: 947
Joined: Sat Nov 10, 2012 12:49 pm

Re: EU-PP whilst buying a house.

Post by frugal » Sat Nov 11, 2017 11:52 am

sophie wrote:Frugal,

The decision to buy a house should not be based on your long-term investments. It's a consumer/quality of life decision first and foremost. Then figure out how much you need to save for a the standard 20% down payment, and what your anticipated fixed costs will be - counting everything including mortgage, taxes (minus any deductions), insurance, utilities that you might not cover when renting, and savings for repairs & improvements. From there, you can decide whether you can handle it now, and whether it might be a good idea to increase the size of your down payment by liquidating part of your investments.

If you want to throw some numbers at us that might help. It depends a lot on the mortgage rates and tax structure in Portugal - that's where you are if I remember correctly?
My friend Shopie,

I am more on the safe side.

I don't know what people pay here.

I prefer to live below my possibilities.

To be a mustachian I only have to find a new purpose.

I like ER style. I believe you do so.

Regards!
whatchamacallit
Executive Member
Executive Member
Posts: 750
Joined: Mon Oct 01, 2012 7:32 pm

Re: EU-PP whilst buying a house.

Post by whatchamacallit » Sun Nov 12, 2017 4:19 am

I go a long with the idea that a mortgage is a negative bond.

The mortgage would out balance your cash/bonds leaving you only holding stocks, gold and real estate leveraged through your mortgage loan.

Plus the cash/bonds you do have would be decayed away by the difference in the rate you are earning and your mortgage.

What interest rate would the collective cash/bonds you can get pay vs your mortgage rate?

If is so easy to earn a higher rate than a mortgage rate, why would someone loan the money for you to get it plus pay to service the mortgage?


What liability would you be left with if you walked away from the mortgage? Just the house or all your assets? If it is just the house, there is still a good case to hold pp outside mortgage but otherwise the risk is all on you.
Post Reply