I’ve been given an opportunity I want to get your help with making a decision on. All the values that I put in here are post-tax estimates.
Here’s the background:
I make about 65k/year in passive income.
I also have a normal job which gives me 65k. I’m sure I can probably increase that in the future, but for now let’s assume it’s just this much.
I’m 35 M in Los Angeles, single, and my family is close by too.
I have about $400k in stocks.
I was really hoping to go on a long backpacking trip around the world for at least a year. I have enough savings to do that without relying on passive income, although the passive income would allow me to travel longer and more nicely. Unless something major happens on the road where I have some obligation to be elsewhere whether it be new job or relationship, I will probably want to settle down back in Los Angeles at some point.
In the future, I want to explore other entrepreneurial ideas, which means I may have to rely on savings or passive income.
In the future, I may also want to get married and start a family, but that may be a bit far off.
Scenario A. I’m given a home at the expense of passive income.
My family has offered me $1 million to help purchase a $2 million home in Los Angeles. The home is close to my family and is a good place to raise a family. It also on average appreciates about 100k each year. This opportunity will not come again if I decline it, nor in a different form of straight cash or stocks. I have to take out a mortgage for the remaining $1 mil. I estimate all the expenses of the home ownership like mortgage, prop tax, upkeep, and etc to be $110k /year.
Scenario A1: I live in the home.
I use my passive income and job income to cover the $110k in housing expenses. $65k from passive income. $65k from my job. That leaves me with a net $20k/yr for everything else, which would mean a lean lifestyle. I’d really have to keep working hard to get better income.
Scenario A2: Rent out the home.
I rent out the home and can collect about $60k/yr in rental income. With the 65k in passive income, that gives me 125k/yr without working. Without working my normal job, deducting the home ownership costs, I’d come out 15k/yr ahead in passive income. If I worked, I’d have 80k/yr. However, I wouldn’t have a place to live in. I’d probably have to spend 30k in rent elsewhere if I wanted to stay near my family.
Scenario B. Decline the home
I skip out on the opportunity, and it never comes to me again. I still have my $65k/yr passive income. I don’t have to work if I don’t want to. I likely will never own a house in Los Angeles unless it’s a small townhome maybe.
So overall, what do you think is the better scenario? And why? Are there certain benefits with owning real estate even if it means sacrificing living expenses? Or should I just go for full freedom, liquidity, and peace of mind? Thanks!!