Housing is typically the largest ERE expense and is therefore, in accordance with the Pareto principle, the place to look first to reduce expenses. This is accomplished by some combination of sharing, going smaller, going non-traditional, or living in a less desirable area. Obviously, each person or family's limit will be different. Some people will be fine with van dwelling, while others might insist on a house in a good school district. ERE is certainly easier with lower expenses, but it still might be possible with added requirements up to a point.
At its simplest, a house provides protection from the elements and a place to sleep and store one's belongings. At the lowest end, there is a trade-off between housing and other needs and wants. For example, with no kitchen, food costs are typically higher, and without space for do-it-yourself activities, one would need other places to learn such skills.
Calculator to help figure out how moving and/or downsizing will improve your finances.
- 1 Choosing a place to live
- 2 Living options
- 3 Rent vs. own
- 4 Mortgages
- 5 Also See
Choosing a place to live
Housing choice is dictated not only by price, but by size, family and roommate needs, proximity to work and grocery, and safety.
Early Retirement Extreme 21-Day Makeover Day 1: Finding a place to live
Roommates or Communal Living
This is a straightforward way to reduce expenses. Finding good roommates can be hard, and bad roommates can be a discouragement. Having roommates is a good way to reduce the costs of purchasing a house, since the roommates pay rent to the owner.
Living with family
This is a good way to build savings fast, especially right out of school. Because ERE involves self-sufficiency, be sure to contribute by paying some rent and doing household chores. The personal interactions of each family dictate whether this is feasible.
Tiny houses can provide a high-quality dwelling for the cost of a typical down payment. These are essentially a homier version of an R.V., since they can be towed by their trailer hitch. The online tiny house community is growing, spurred on by the recession and the green movement. They match well with the ERE perspective of simple living, low expenses, and freedom. The most popular tiny houses are made by the Tumbleweed Tiny House Company, which sells house plans. Such houses cost around $15K to $20K to build it yourself. If a cheap or free parking place can be found, this becomes a very suitable option for ERE. Eco-Cottages also produces small modular homes under $100K.
Move To A Place With High Unemployment
One of the advantages of retiring early is not having to worry about securing a job, or living in an area that is convenient to jobs. This creates an opportunity to move to depressed areas (e.g. Detroit, MI, or parts of Pittsburgh, PA) where houses can be purchased for a small fraction of what they originally cost to build. While crime and the quality of schools may be reasons to avoid such areas, it may be worthwhile to look for a small neighborhood that fits your needs.
RV or houseboat
A used RV can cost about the same as a tiny house without the labor, making it one of the cheaper housing options. Jacob has written several blog posts about his experience living in an RV.
For long term living, RVs are typically parked in mobile home parks. Campgrounds intended for tourism are generally more expensive although some offer monthly or seasonal rates. An alternative may be to rent someone's drive-way. This may violate zoning regulations.
There are four different classes of RVs, all of which have their strengths and weaknesses.
- Motorhomes have their own engine. The benefit is that one does not need a 3/4-ton truck to move it around. The downside is that if the engine breaks down, the entire home goes in for repair.
- Travel trailers (TT).
- 5th wheels.
- Truck campers.
Houseboats are usually docked in larger marinas next to other houseboats. Alternatively, they can be tied to private piers. Most houseboats are more like a "mobile home on a barge" and less like a boat. A houseboat will feel very similar to a normal home except there's a negligible chance of your home sinking and that you in principle have the possibility of having your home towed somewhere else. In practice, less so.
Bluewater sailing is doable in retirement at ERE levels. There are several books (I'll see if I can dig some out --- Jacob/ERE) of sailors cruising the Caribbean for $10-15,000/year. This is a normal and generally not based on FIRE principles but rather an intermittent work schedule. This price level requires the sailor to be familiar with and capable of repairing practically all systems on the boat from diesel repair to sail making and brightwork. A sailor with such skills can make money from cruisers who lack those skills.
Some people can live well out of a van, but for many, it is too difficult.
Homelessness, perpetual camping, couch surfing
This can work for some people, but for those with a regular full-time job, it is nearly impossible.
Rent vs. own
There is no straightforward answer to the rent vs. own question. There are calculators that can compare the finances of each, but typically they will be comparable. It is perhaps more important to consider the non-financial issues. Renters have more freedom and do not have to deal with maintenance. Buyers have more control over their properties, and apart from real estate taxes, their future costs are better known.
Home ownership allows for purchasing duplexes and renting out part of the property.
It may also be possible to rent out one's garage for storage.
Buying in cash gets rid of closing costs and interest payments, but there is still the opportunity cost of lost investments. If mortgage rates and closing costs are low, and inflation is expected to be high in the future, a mortgage can be a useful tool. Cost savings from purchasing a house increase the longer someone lives in a house, and if a mortgage helps someone purchase a house earlier, it might be more financially beneficial to take out a mortgage rather than save and purchase in cash. In all cases, though, avoid Mortgage Insurance.