FIRE.055 Dividend Paying Asset: House

What dividends are you earning on your investments?  Which of those are guaranteed dividends?

I was listening to Big ERN on ChooseFI who mentioned his home paid him a monthly dividend.  That’s just GENIUS.  It’s really a reverse, tax-free dividend—no need to worry about dividend/LT cap gains rates on this one.

There are people who feel their house in an investment and it’s often their largest asset.  I personally don’t want an investment that cost significant money to maintain and only increases slightly over the inflation rate on average.  Nor do I want an investment that can only be sold in whole if I need some money.  “It’s not like you can eat your house…”  [Notes: leveraging your down payment for profit multiplication is definitely interesting & housing markets determine their own rate of return]

There are people who have the opposite position that your house is a liability.  That is a solid position as well because you are required to pay expenses on your home.  I agree with most of the different position in one way or another.

How did we get to where we live today?  At some points in our lives, we’ve usually had to work a job(s) to pay taxes and take home the leftover.  That leftover probably went toward our housing expense, if not as the highest priority bill, probably very close to the top.  It’s very important to optimize this highest bill to meet your lifestyle choice…budget home or McMansion.

House Dividend Amount Theory:

Let’s say for round numbers your housing principle and interest payment equals $1000 per month.  It’s quite possible you would have to earn $1300-$1500  (1000 net + fed tax + state tax + FICA tax) just to pay for your housing shell.  For now,  I’m ignoring all the other costs such as insurance, utilities, maintenance, etc.

Let’s say you own your home [not, the-bank-owns-my-home-and-I’m buying-it-from-them-each-month; see your deed for details].  At this point, you do not need to earn $1300+ to make your house payment.  That means your house is contributing to/avoiding the removal of $1000 from your earnings/assets (either financial or human capital).

This is the financial “flip-side” of the “it feels great to have a paid for house.”  This is a way of looking at the house actually paying for you to live it in.

Each month the owned house gives your budget a $1000 cost avoidance.  It removes the $1000 cash outflow, thereby not requiring a $1000 of cash inflow ($1300-1500 gross income).  It’s the equivalent of $1000 tax-free dividend, or $1300-1500 taxable dividend income [note: divd tax rates are not 30%, but you get the idea].

Remember, there’s always another angle to view a situation

I love Big ERN’s interesting logic, which I interpret as, not having a payment (outflow), yet still having the item (service) is like a personal dividend.

There are plenty of ways to break this perspective apart and revisit the own/rent discussion.  I just liked ERNs angle for the positive view.

So much of personal finance is related to cash flow.  A dividend-paying home reverses the negative cash flow.  Brilliant sir, as usual for you.

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