Housing Price Gain vs Income Growth

What is amazing to me is the variability across regions. Your argument that the 5x leverage is the big winner definitely holds for some regions. But it looks like there are many regions of the USA which didn’t see the huge run-up that the bay area saw. For those regions, buy and hold on S&P might be the best approach.

My prediction – the 60s, 70s, 80s belonged to the east coast, and that is where we saw the big growth. The 90s, 00s and 10s belonged to the west coast, and the east coast began to level off. The next 3 decades belong to the fly-over states. That is where the big gains will be. It doesn’t mean the bay area will collapse, it just means we won’t see the crazy growth of the past three decades.

What will make the fly over states attractive? Appreciation needs land scarcity and demand…I see neither in fly over states

We are going into the Pacific century. The center of gravity is shifting from the Atlantic to the Pacific. The west coast is that much closer to that region than the east coast. And then you layer on top of that our mighty Silicon Valley I don’t see the fly over states have any chance. Those states are being flew over for a reason.

I buy this reasoning.

Real estate growth is based on people’s migration. Bay Area attracts more people and the local real estate is growing with limited development-allowed lands. During recession times, 2000 and 2008, we saw the prices went down as a result of people leaving Bay Area.

US region have multiple development centers. We have manufacturing (Detroit,Cincinnati), Financials (East Coast) and Technology (west Coast), oil (Texas and Alaska)… etc. Just read “Finding the Next Starbucks”. Appx more than 25 different regions are specializing different sectors. Whichever sector is booming during bullish run, people migrate for jobs and real estate picks up those areas.

Just read “Geography of Jobs”: The American economy has been transitioning from an industrial to a knowledge-based economy (Intellectual Property, Technology based". The tech boom started around 1975 onwards. This is the main reason west coast has started picking up.

Yes, Unless the fly over states has the growth momentum, we may not see any major changes in that region.The growth depends on each economic cycle and how the local economy is improving.

30-year income growth means wages right? Not S&P…?

Yes. Income means wages.


How about the financial independence of our kids and grandkids :laughing:? I know Manch is working hard for this.

What’s the definition of financial independence anyway? I think for most that means your passive income can cover your living expenses? I have seen some bloggers claiming they have achieved FI, but I always wonder, how can they be so sure of their both the passive income and the living expenses? Do they have big fluctuation built into their model? That’s especially hard if they are young and not have a family yet.

I am not talking about anyone on this forum, but many of these bloggers lower their living expenses by moving to some rural towns in some fly over states. It just looks to me they are taking the easy way out. Most of us can retire right now if we were to move to Iowa, say. What’s the big deal?

It varies from person to person. For me figuring out where to invest and thinking about strategies is lots of fun. It helps that I am a pretty heavy sleeper. Although my wife told me I grind my teeth during sleep. Maybe I am not as steel-nerved as I think I am? :smile:

Sure you can’t find out of you were truly financially independent until you die. I think the bloggers are claiming FI based on “if I run a simulation of past returns, I can cover my living expenses with 95% probability without going bankrupt”

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But how can they be sure of their living expenses? If they don’t have kids yet, are they saying they will never have any? I just think that when you are 30, you have potentially 60 years to live. Too much uncertainty.

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Good working definition. May be add one more condition,

Net worth > (Expected life span less current age) * living expenses + margin of safety

Similar for passive income > living expenses + margin of safety

What is the appropriate margin of safety? 5% :slight_smile:

Margin of Safety 5% is close. I am comfortable with 20%, i.e. me.

This is fine if we are able to calculate very precisely. For example, age above 65 potential chances for big medical emergency expenses for which each person may need $125k minimum, but safety $175k.

I just copied the reddit FI description. Source is provided for reference. Whoever interested go through that completely.

What is financial independence (FI)?

It is typically defined as having enough income (from investments, passive businesses, real estate, etc) to pay for your reasonable living expenses for the rest of your life. You have the freedom to do what you want with your time (within reason). Working (full or part time), hobbies which generate income, or other activities are optional at this point.

This specific subreddit focuses on the three knobs controlling getting you to financial independence quickly. Reducing expenses, increasing income, and investing.

Reducing expenses - Reducing your living expenses to a reasonable level is the most critical step. Five-star restaurants, vacation homes, and jets are generally not achievable as a reasonable financial independence goal. But if you can realize contentment with significantly lower expenses, your ability to reach financial independence is greatly improved.

Increasing income - Forget get rich quick schemes. But many of those on Reddit are early (or before) their career. There are plenty of those underemployed who should look into steps to improve their financial situation. There are choices each of us can make to increase our ability to generate income. Improve your education, ask for a raise, create a side business.

Investing - When you’re heading towards financial independence, you need your money to work for you. Real estate, investing. While we don’t focus on specific strategies (most here would aim for passive index fund investing), we’re interested in long term sustainable investment returns. Money in a savings account won’t grow at the necessary rate.


Financial independence is a complicated calculation. I haven’t even begun to think seriously about it. I just assume my “f* you” number is somewhere between 1M and 10M. A couple obvious questions:

  1. Do you run down your capital? Or just live off the dividend & interests? If you run it down you have to know how long you will live. I think people assume a 4% withdrawal rate? With 4% withdrawal does your seed capital run down?

  2. How do you know your expenses will be? Especially for people under 50 I don’t even know what’s covered in Medicare and what’s not. @tomhVallejo mentioned his mom’s expenses spike up when she went to a nursing home. Do people even model that into their calculation? What else do they miss?

  3. How much extra money do you set aside? I mean the money that’s not needed to generate investment income to cover day to day expenses. Let’s say in 2020 some mad scientists invent a drug that will prolong human life by 20 years. The catch is that the treatment will cost $1M. Aging is not a disease so that drug is not covered in any insurance plan. Now what do you do? Do you say oh crap I don’t have 1M in my FI capital so I will just die young(er)? That’s a far fetched scenario, sure. But we are talking about unexpected event. How much do you set aside?

I see a lot of FI bloggers declaring to the world they are quitting their jobs and moving to some rural fly over state at age 35 or 40. And they attract a huge following. I just don’t have a good feeling about all this:

A. It’s a huge loss of human potential. America used to value hard work. What’s up with these slackers who can’t stand even 10 years of office work?

B. Some of them don’t even have kids yet. Do they really know what their expenses will be? Do they understand what expenses will be when they get old? Or sick?

C. I hope they pick good investments and model their returns well, to sustain a prolong period of downturn. We can easily have 15 years of bear market in US equities.

Maybe I will retire after my net worth hits $10M. Maybe that means I will never retire… :slight_smile:

Thank you for sharing your thoughts.

  1. From the working definition, it follows just live off dividends and interests, no drawdown of capital.
  2. Just assume current expenses. Make sure the growth rate of dividends is above 10%* (20% for JIL???) to compensate for normal inflation and save a little for unexpected expenses. Can use covered calls but it becomes not passive :slight_smile:
  3. I prefer one year up to 10% of net worth. If you didn’t drawdown the capital and have 10% growth rate for dividends, it doesn’t matter how long you live.

As for the rest, I’m not a politician and not an American, if Americans are lazy, good for other nations. If true, I would be rejoicing.

Does S&P 500 index fund satisfy your criteria?

I have VINIX but don’t follow it at all. All dividends are re-invested automatically. I didn’t count on the dividends from VINIX for FI. Is the growth rate of dividends more than 10%?
Dividends from AAPL & defensive portfolio + rentals from 6 rentals is sufficient. Growth rate of AAPL dividend is 10%.

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Ignore them as they are not experienced people. They can not be real FI or can not be quitting their jobs. It is their expectations.

This goal is good so that you can maximize net worth.

Few details

Like hanera, no doubt,I do plan to live off dividends and interests, no drawdown of capital.

As of today, yearly rents are good percentage of normal IT take home pay. It is easy for me to reach that 100% level as I have additional retirement funds.

Regarding growth, Assuming 10% YOY is high even though practically possible. The best case is 5% (bonds) or 7% (stocks) for higher safety. With 5% to 7%, we are 100% sure to achieve it over 10+ years.

If I assume 5%, the net worth increases 50% in 2020 (easy), 125% in 2025 (possible) and 300% in 2030 (Stretch). I do not think that I will be able to work beyond 2030.

Regarding FI or future, everyone must have a plan. Without a plan, we may inadvertently make a mistake. I use excel and word heavily to review.

Bad choice. Numbers and Pages are much better :smile:

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