The good doctor has realized that his house payment would disappear if they lived practically anywhere else in this great nation, save for a few select cities where houses similar start at about a million bucks for anything halfway decent.
So… should he move?
As always in our Saturday Selections, this post originally appeared at Passive Income MD.
He’s Financially Independent! [If He Moves]
So it’s no secret that my goal is to be financially independent from medicine. I absolutely love what I do as a doctor, but I crave the freedom to work as much or as little as I want.
I was just looking over my income and expenses, doing some tallying, and I realized something – taking out the cost of my mortgage (the principal payment), I now actually bring in enough from other outside sources of income on a monthly basis to cover the rest of our expenses.
We don’t live extravagantly but we don’t really live frugally either. At this point, my wife and I cherish our date nights and eating out once in awhile, or taking a couple vacations a year with the kids. It’s nice to know we’re at this point even with our current lifestyle.
So, it looks like at this point the only thing seemingly standing between me and financial independence is the house payment. Yes, that’s always a huge hurdle, but here’s where I’m at.
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The House Payment Hurdle
We bought our house at the beginning of 2012 and have seen its value rise significantly over that time. It helps that we bought in an area that was still developing and has now really matured into a place where young professionals and families want to be. In fact, we could sell it for more than double the value we bought it at.
So naturally, I thought… is there a way to get rid of this house payment? Well, the answer is simple… move. If I could sell my home, walk away with the equity and use that cash to purchase another home outright without needing a loan, then I’m there… total financial independence from medicine!
Geographic Arbitrage and the New Life
That means I’d never have to take another call or shift again if I wanted. It means I could take a six-month trip around the world with my family. It means I could make sure I never miss another Christmas school recital.
Of course like I mentioned before, I don’t think I’d ever stop working completely, but it’s nice to know I could. My other streams of income, mostly passive, would be able to support us.
So, Where Should I Go?
That thought motivated me quite a bit, so I started to look around online. Where could I buy a home to fit our family that might unlock this freedom?
My wife and I are city folk for the most part, so I limited the search to at least medium-size cities and the surrounding areas. Here are some cities I found that might work:
Austin, TX
Baltimore, MD
Charleston, SC
Las Vegas, NV
Phoenix, AZ
Portland, OR
Salt Lake City, UT
Not a bad selection of cities.
So What’s Keeping Me From Doing It?
Well, there are nice things about where I live – the ability to golf year-round, sunshine most of the time, walks on the beach whenever we want, or we can even drive to go skiing. However, the thing most keeping us from packing up right now is that most of our friends and family are here.
The whole point of financial freedom is to spend more time with friends and family. There’s really no point if we lose our community.
Yes, I guess we could always form a new community wherever we go. Many people are forced to move for their jobs and they make it work. However, there’s really no substitute for being close to family.
So for now, I’ll just keep waiting for these passive income streams to grow and continue to nurture them to the point where I’m financially independent where I live now. I may not be where I want to be yet, but I can say I’m enjoying the journey.
Think I’m being smart or not about this? Would you move or have you moved for financial independence?
Depends how many years FIRE would be delayed. As someone not close to being FIRE, but in a similar situation myself (HCOL area near family/friends vs LCOL), I’d choose the HCOL area even if it means delaying FIRE a few years. Being near family and friends, and raising a family in that environment is easily worth a few years in delayed FIRE. For me, that time spent is invaluable and cannot be bought back. Nevertheless, depending on where they live in SoCal, they could always downsize, move further from the city or even to the next town over to recoup some housing expenses without sacrificing as much in lifestyle and circumstances.
Interesting list of cities, and I’m sure you can’t go wrong with them, but I’d like to throw Jacksonville FL in as a suggestion. Home prices are still very very reasonable, and it is a growing market with great infrastructure, a lot of medical (Mayo clinic for example), and while it is hot in the summer, the fall, winter and spring are very nice. Also no state income tax. And endless beautiful beaches. And most pleasant airport I’ve ever traveled out of. And less crowded than southern florida. Etc, etc, etc.
You should take a mini retirement and see how life is in your neighborhood. I think you’ll find that friends and families are busy with their day to day life. Most of them probably can’t hang out during the work days. You can always come back for a visit.
I think Portland will be too rainy if you’re used to the sunny beachy weather….
I’m going to address your problem as an investor.
If you look at the home wealth of docs over 20-30 years you will notice something. Those that live in the most expensive parts of the country (socal, SF, NYC, …..) AND bought their house/condo, are the richest.
I’m not talking about RE investments which are a cash flow issue. Just their personal house.
This is so true that many, many, many docs who own in Manhattan, can sell at retirement and fund their entire retirement from the sale (a few Mils) .
Why? inflation.
You effectively stop the payments by moving but also leave the only inflation hedge of (upper) middle class: a mortgage (inflation proof bonds don’t work in a low rate environment).
I’ll even go as far as saying that you shouldn’t even pay off your mortgage in retirement. That’s what I do , I keep a nice jumbo mortgage at fixed rate at all times. Even refinancing/cash out to max it.
And when/if inflation picks up, it devastates all retirees except those whose debt gets destroyed in the process.
It ‘s a very common practice in the higher classes (more than 10M) , and the cheapest protection there is.
Real inflation is always higher than stated inflation. It makes you rich tax free. If you use it wisely.
I 100 percent understand this dilemma PIMD. I too am a Southern CA resident, have my family and friends here, as well as my private practice is based in the LA area. There are many things that living here offers that are amazing and tough to beat. Though I could do without the outrageous cost of living, mainly being housing expenses. If we moved out of LA, we would pretty much be FI, or at least extremely close to it. Hmm this sounds familiar. What to do, what to do?
Oh and now because of your initials I have the 50 cent song P.I.M.P song stuck in my head ;o)
That mother lovin’ PIMD.
I’m spending 2 years in Sydney as my wife finishes school. Sydney is honestly the most expensive city in the world. Once she graduates we will travel and work at the same tmie (I just need my laptop). And honestly travelling would still be cheaper than living in Sydney – that’s how expensive it is here.
Sounds to me like you can remove the qualifier. You are financially independent. My analogy is that I could pay off my mortgage, but there is not a lot of point while I’m working. You simply choose to buy time with friends and family at the price of an (outrageous) mortgage payment.
I’m with Amy (above). If the geographic arbitrage would work for you, perhaps you could convince some of the family it would work for them too and get them to make the move with you! Sure moving is hard, but it adds to life experiences.
That’s funny, I was just in Austin a couple of days ago!
We’re already FIREd but still considering moving to someplace cheaper. The Portland/Vancouver option is certainly on the table for us.
I totally agree that moving when you already have a community in place is hard. Building those connections and relationships takes years.
Ethnic food is what keeps you from moving out of SoCal! Can’t get anything else like it!
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Classic dilemma. To geo arbitrage or not? (Btw not sure who coined that term, PoF?)
We did and there are good and bad results.
The good:
Financially independent before 40
Saw tons of patients, all procedures and technology and am at the top of my medical game
Became very close to my wife because we were isolated
Learned about what I want and who I want to be, as did my wife
Forced to be an all the time father and learn what works and doesn’t
Learn to really appreciate warm weather and not complain about hot weather
Met a lot of really nice people in a great part of the country
The bad:
Left a job in my hometown next to my family
I’ve missed out on some great years with my family and friends
Had to make totally new friends which is not very easy with new kids and a very busy job in a different culture
Became burnt out when my partner left suddenly (the money did not make it worth it)
Put my wife through a lot of stress
Deprive my kids of playing outside six months of the year due to weather
Expose myself and family to very stressful travel. Despite what some say above about travel been easy, it is never easy with kids and airplanes. Our oldest also gets carsick, so do not think that travel is easy, it will never be until they are 10 years older or more.
The above limited our vacation time due to anticipated stress
Missed out on cultivating old friendships
Ultimaely I’ve been away for four years and in one month we are moving back to my hometown area for all of the above reasons. I should also mention my dad was diagnosed with stage III melanoma two years ago that was probably the catalyst. Otherwise I would’ve stayed for at least a couple of more years.
Stay in California, don’t lose your family friends, weather and practice. The money is not worth it although it is a nice thing to have. I say this only because you are financially savvy and will Early FI regardless, so why not just delay a few more years and enjoy the ride.
Your kids can’t play outside for six months of the year due to weather? Where the heck do you live?
Kids were very young here, just now 4 and 1. Live almost in Canada Upper Midwest. Temps regularly below freezing at a high October through March. This year worse, it was minus 17 Sat morning with windchill (35mph wind) . The windchill gets you here. Kids just cant stay out long. We tried sledding, snowman building, etc. The older one just gets too cold and the infant cant make it out. Older kids would be easier, but that wont be a few years.
Las Vegas provides favorable tax treatment and a lot of the amenities that Southern California does at a cheaper price.
Staying or moving. There are very few instances in life I can think of where there are truly just two choices to make, and yet we get stuck in it because the real binary dilemma that gives us apprehension is maintaining status quo vs changing (even if it is just a tiny change). In reality, there are often infinite possibilities. Staying can look like a lot of different things and so can moving, and really there is probably a spectrum between the two. As Stephen Covey would say, win-win situations take a lot more effort and creativity to discover. Just because you can only think a limited number of win-lose scenarios, doesn’t mean that there are no other options on the table. Or perhaps, it may just take a little bit more time for things to evolve on their own before a win-win scenario presents itself.
A few thoughts come to mind (though of course none of these may be desirable for your current situation):
– Move to a cheaper city right now, sell the house, become FI immediately, make an arrangement to pay rent and create a basement apartment at your parents’ (or other relative or friend) house in southern CA order to spend several months with them every year and live as snowbirds to avoid uncomfortable weather year round. Plus, they may want to come spend time with you wherever you live in as well (e.g. southern FL in the winter, southern CA in the summer)
– Keep a pulse on what is important to your kids. It may be that they don’t want to move now but perhaps it is more related to social circles than relatives. Perhaps the move would be easier if there is a point coming up in which they are transitioning between schools
– Consider re-framing your perspective to ease the tension between these two competing values. As a psychiatry supervisor once told me, “To grow, we can either seek to change our circumstances or change our perspective of our circumstances.” That could mean becoming more comfortable with the perspective that friends tend to move away quite frequently, and thanks to technology and transportation in the 21st C, it has even become acceptable to live far from family, particularly when you have the means to maintain close contact (this is coming from someone who met someone on the other side of the planet, maintained a five year friendship and two year relationship overseas, and eventually married her). Quality of time is always more important than quantity of time. And of course, moving away doesn’t have to be permanent. Or perhaps it means loosening your financial goals just a bit and becoming a bit more comfortable with delayed FI, knowing that every passing day is better than the last. As the late, great psychologist Carl Rogers said, “The good life is a process, not a state of being. It is a direction not a destination.”
– Write a blog post and get ideas from a large following of random strangers on the Internet (oh you already did this, nice work 🙂
Any chance some family would follow? Could be a win-win for all of you.
From a tax standpoint, Portland “is a great place to visit but I wouldn’t want to live there.”
Portland does enable a second level of geographic arbitrage. You can live across the Columbia River in Vancouver, WA and work in Portland. Washington has no state income tax so you would only owe Oregon taxes on income you actually earn in Portland. Oregon also has no sales tax so plenty of Washington residents cross the river to shop in Portland.
Retire to Vancouver and shop (small purchases) in Oregon? Yes!!
Live in Vancouver and work in Portland? Not for me.
Charleston is a great place from my visit there, and friends that moved to the city love it.
The beach is very close, lots of restaurants, and a beautiful city. The weather is mild during the winter, although hot during the summer.
My big recommendation to you before making the decision – visit them for a week or two and let yourself experience the city like you would if you lived there. Head back home and really think how much you enjoyed and things you didn’t like, then use mental models to remove any bias from the final decision!
There is absolutely nothing wrong with working a bit longer to be closer to family, it is admirable and selfless!
The family bit is exactly why we won’t move (our home has doubled in value since we bought in 2011 as well). Financial independence is all well and good, but I have no plans of ripping our kid away from his grandparents and great grandmother, all of whom he sees at least once a week. We toss fantasies around from time to time, but in all honesty, our roots are pretty deep here.
Actually, this story describes my situation in the past. I wouldn’t be FI If I was living in one of the coastal cities like in the past. Being in a relatively lower cost Texas city allowed me to be FI. Now, after moving to India (though on work), I find myself even more FI (in critical ratio terms like Retirement Assets/Expenses). Moving is often the easiest way to shrink the budget.
But I understand the attraction of not wanting to rock the boat of a settled down life in a known community for years. Life is all about choices, we often have to give up something to gain something else. We just hope what we gain is worth more to us than what we give up.
With that mortgage, when do you foresee being FI? I would not move, but I would consider more aggressively paying off my mortgage. There are arguments for and against. What are your thoughts on this?
I grew up in Baltimore and would not recommend moving there. Of course you might well mean moving to the suburbs of the cities you listed, which is way better in the case of Baltimore but still not recommended. Maryland is one of the highest tax states in the country when looking at overall tax burden. We who grew up there and who are financially savvy call it the “People’s Republic of Maryland” for a reason. When I moved to Virginia everything went down, a lot.
I can second this. I live in VA and we call Maryland exactly that.
It’s called that because the state is high taxes and pretty wacky as far as what laws they pass. Think they actually tried to have everyone install GPS type devices in their vehicles so they could tax them every time they drove on Maryland roads — totally unconstitutional and creepy weird. Luckily it didn’t pass.
Oh man! Baltimore isn’t getting any love! But The Wire was a great show and it showed a lot of diversity and character no?
Move to Las Vegas first because it’s closest and there’s no state taxes. Then I’ll consider Austin. Other than that, enjoy sunny Southern California! So cheap compared to San Francisco!
Sam
Are you guys crazy! Let me explain some details about Maryland as I’m a long time resident and would HIGHLY recommend it. First off, he said he’s financially independent and won’t need to work, so MD state income tax is a non-factor (very little income = very little tax). Plus, state income tax is about 7.5% unless you are the higher ends of the income spectrum which is still better than California.
Next, sales tax is 6% which is reasonable when considering other alternatives. There are no special municipality add-ons or “extra tax” for restaurants, etc. so it’s 6% flat.
Finally, the property tax rate is VERY favorable. For a house assessed at $275k (but worth about $325k) in the suburbs of Baltimore, I pay $3,800 per year. BUT, that includes the school tax, trash collection, sewer, and a huge portion of my water bill (my water bill is approx. $25 per quarter). So $3,800 is all in.
P.S. I’ve also lived in Virginia…don’t forget the “personal property tax” that Virginians pay on their cars every year…over and over again.
Dan
Dan, you make a fair point about state income tax if and only if the person won’t be earning any income in retirement, But if you even wanna get a menial job doing something for fun in retirment like working at REI one day, MD starts hitting you hard. You never know what you’ll want to do, so why even risk it?
Kiplingers lays out the tax burdens per state overall covering the spectrum. MD is very red for a reason, and it’s not just income tax
https://www.kiplinger.com/tool/taxes/T055-S001-kiplinger-tax-map/index.php
Another thing you’re forgetting is that MD also has one of the highest corporate tax rates
https://taxfoundation.org/state-corporate-income-tax-rates-and-brackets-2016/
Why does this matter? When I moved from MD to VA, my car insurance went down – a lot. I called Allstate and asked if they mistakenly changed my coverage or made a mistake. They said no, that’s it’s simply cheaper to operate in VA and they pass those savings on. Allstate operates out of local offices still, and MD kills them on taxes. Companies give you cheaper services when they pay less state taxes, and in VA many many things are cheaper than the same thing in MD.
As for Baltimore specifically, I grew up there, in the inner city. FORGET IT. Murders, drugs, thugs, corruption, and the cycle of poverty. There’s a reason it’s most famous for shows like The Wire and Homicide – that’s what it’s really like! I’ve had childhood friends murdered, been held up at gunpoint more than once myself, and seen it all. It’s a decaying city.
Hello Accidental…and nice to meet you! Shall we begin our “tit for tat?”
Corporate taxes, inner city murders, car insurance rates??? Well that is a completely different topic than what I thought we were talking about. But if you insist, then I will stipulate that if you are a business, you may not want to move to MD…and if you don’t want to be murdered, you also might be better off in another state since “MD is for crabs…and inner city slayings!”
But the issue (at least I thought it was the issue) is the overall tax burden of Maryland. But it’s not the “tax burden in all circumstances,” it’s the tax burden for FIRE folks. And in that specific, narrow circumstance, Maryland comes out quite well. In fact, you also agreed on your website posting from March 6th (just 20 days ago). Remember your scenario 3? Maryland moved to number 43 (just behind your beloved Virginia at number 46).
So, I think we must agree that Maryland works quite well for FIRE folks on the overall tax burden scale, and therefore, we will have to meet sometime for crabcakes! VA or MD…your choice!
Dan
Ha, we all know that arguing on the internet is for morons and since we read FIRE blogs (and maybe write them) we’re certainly not that!
It would be interesting to try to calculate tax optimization for FIRE folks since they have unique circumstances. But even within that crowd there’s a lot of variance (fat-FIRE, lean-FIRE, real estate moguls etc). So each would likely have a different tax-optimization scenario. But it’s an interesting thought experiment.
You are correct that MD went ahead of VA in the post I did on that simple 2-tax scenario. But there are many other taxes (for instance MD’s gas tax is also way higher than VA) and I still say corporate tax rates matter as companies pass down cheaper prices, and we all buy things, FIRE’d or not. My personal experience is that many things in my life went down when I made the move.
My car insurance went down to the tune of $600 a year! (that was for 2 cars)
But we can agree that a State’s respective tax burden according to Kiplinger’s or whomever might not be applicable to retirees or everyone, and each person’s situation is unique. So sure, in any situation MD could be better than many/most other states. Probably except Hawaii, Cali, and NY. There’s just no hope for those 3! Great convo!
Obviously we agree on a great many things so I hope you enjoyed interacting as much as I did. VA was certainly a great place to live during my 3 years there in the late 90’s and I’d happily move there again if the circumstances were right.
And also, I love the thought experiment you proposed!
Keep up the good work on your blog!
Dan
Thanks for the kudos on the blog and if we ever meet for crab cakes that’s for sure better done in MD as you know!