Thinking about buying vacation/retirement property

[Vikas]

I understand that you have pretty much made up your mind and are here to really get the reinforcement (which unfortunately is not coming), I would suggest following.

Invest your down payment somewhat aggressively. Also, figure out the mortgage payments (including RE taxes, insurance and maintenance on the hypothetical property) and start dollar cost averaging that money in to the same investment. I have a feeling that you would be better off. You would be paying to yourself rather than to the bank. I can not come up with a scenario in which you would be worse off than putting your money in the property today.

- Vikas

 

[andrewg]

Originally Posted By: TooManyWheels
Originally Posted By: andrewg
Honestly I don't think any home is going to be completely outdated in 15 years and be termed a 'white elephant'. Houses aren't automobiles or notebook computers. Otherwise literally millions of homes, according to your criteria, would be effected.


To put things in perspective, I do think much of the U.S. housing landscape will become white elephants, including the one I live in. When any new technology supercedes old, the value of the old plummets, irrespective of how much was originally paid, or whether the owners wish it to be true.

And the technology is changing rapidly, start reading Fine Homebuilding magazine and see. And as a general rule (in regard to anything), in times of rapid change, you want to be as flexible as possible to accomodate the future, not locked in to the past.

I understand what you are saying about technology, but don't see housing in the same picture. Heating and a/c perhaps....but the desire and value of a basic sound residential structure (especially older, architectural beauties) will not become obsolete.
And by purchasing a home now for retirement, I am preparing for the future.

 

[andrewg]

Originally Posted By: Vikas
I understand that you have pretty much made up your mind and are here to really get the reinforcement (which unfortunately is not coming), I would suggest following.

Invest your down payment somewhat aggressively. Also, figure out the mortgage payments (including RE taxes, insurance and maintenance on the hypothetical property) and start dollar cost averaging that money in to the same investment. I have a feeling that you would be better off. You would be paying to yourself rather than to the bank. I can not come up with a scenario in which you would be worse off than putting your money in the property today.

- Vikas

No, I have not made up my mind at all. I'm just countering with why I think it may be a good investment. In the end I may very well forget it....especially after considering all the posts that seem to lean away from my plan. I would not waste my time looking for just reinforcement.
I think your idea about figuring out mathematically, as accurately as possible, the differences between buying now or saving for the future is a good idea. I've only thought about it in my head....not put pen to paper as of yet and REALLY added it all up.
Great post...thanks.

 

[morris]

i just retired in 2004. stayed in the town i was born in, mostly cause i have family here. and i dont like driving any more so being close to family and stores, places to eat, is important. i too dislike the heat. but i have a hobby that i can do outside or inside.

 

[Vikas]

When you look at it objectively, fundamentally, you are betting that investing in (i.e. buying) your own property will give you better results at the end of the 15 year period. If you are really convinced about that, then you could achieve the same results with little downside risk by investing in name branded REIT fund which concentrates on your location i.e. Arizona Real Estate.

But just look at some of the towns in Florida. Just few years ago, those were red hot. Now one can not even give away those houses. I remember driving down through these towns at the beginning of 2005 and was shocked at the building boom. Just think if you had bought at that time, how would you feel now!

When you take out the mortgage, somebody has to make money on your loan. On an average, you end up paying about 3 times the value of the loan. For example, if you purchased a $100K house and paid it over 30 years, you would have paid $200K in interest and $100K in principle and this does not even account for real estate taxes and the maintenance.

Be your own banker and pay yourself If you can do this in a tax deferred account, it is even better but I am assuming you are already maxing out your (and wife's) 401K AND IRA etc. If not, why are you even thinking about retirement property?

I wish somebody had put this sense in to me decades ago or I wish I had followed my own advise :-(

- Vikas

 

[CivicFan]

I think currently is a good time to buy a second property. The prices are quite depressed for it to make sense.

Obviously, it has to be something that is done without much risk to the OP's financial situation like stretching the cash flows or dipping into discretionary spending.

 

[CivicFan]

Originally Posted By: andrewg
Originally Posted By: Vikas
I understand that you have pretty much made up your mind and are here to really get the reinforcement (which unfortunately is not coming), I would suggest following.

Invest your down payment somewhat aggressively. Also, figure out the mortgage payments (including RE taxes, insurance and maintenance on the hypothetical property) and start dollar cost averaging that money in to the same investment. I have a feeling that you would be better off. You would be paying to yourself rather than to the bank. I can not come up with a scenario in which you would be worse off than putting your money in the property today.

- Vikas

No, I have not made up my mind at all. I'm just countering with why I think it may be a good investment. In the end I may very well forget it....especially after considering all the posts that seem to lean away from my plan. I would not waste my time looking for just reinforcement.
I think your idea about figuring out mathematically, as accurately as possible, the differences between buying now or saving for the future is a good idea. I've only thought about it in my head....not put pen to paper as of yet and REALLY added it all up.
Great post...thanks.


The future is uncertain so when you are running the numbers, make sure your assumptions are as reasonable as you can think. I don't know your background on running financial models but it would be a good thing to read on doing Net Present Value modeling and Time Value of Money. A couple of assumptions used in the industry, if you choose to go this route, is that the market has historically had an 8% return rate which you can use as your discount rate. Inflation is assumed to be 3% annually as well so that you can factor that into your model.

Good luck. This can be a quite exciting exercise. A lot of times the numbers do not support the gut feeling.

 

[Win]

Originally Posted By: andrewg


As I said before, I will not rent it out.


I understand that, and I don't blame you - it will be in need of substantial renovation by the time you want to use it. And a gated or secure community probably would not let you rent it out anyway. But if you just let it sit idle, it will also fall into disrepair, so neither option is very attractive at that distance as I see it.

One other fact not mentioned is that empty properties (at least commercial properties around here) are very difficult to insure when empty, and when you can get it, it is very expensive. If you borrow money, the lender will require it to be insured.

There are still some tax advantages to having two homes, I think. AFAIK, you can still take up to .5M gain on a principal residence tax free, but you need someplace to live when you sell that home - this is the advantage to owning a second home. You used to be able to then convert the second home to a principal residence and then just keep rolling that gain substantially tax free between multiple homes, but the latter part of the tax shelter has been scaled back somewhat.

So you might want to think about buying two homes - one you can live in now, and another one to move into it when you sell your primary residence and take a tax free gain. Of course you should talk to an accountant or tax adviser before committing to anything. And congress may well end the tax free gain on sale of a primary residence considering how broke the country is.

Shrewdly bought, real estate is the best investment, and it is a great time to buy right now, but the distance between you and where you want to own sounds impractical to me.

Good luck with whatever you decide.

 

[andrewg]

Great ideas, input, and advice from everyone. Now my head hurts! The tax costs/benefits, insurance when not occupied, practicality with distance, inflation rates, real estate market estimates, vandalism, upkeep vs. occupancy, low risk investments vs. home purchase....etc. Man! I need a nap and I just got up a few hours ago!

 

[TooManyWheels]

Having any second thoughts yet about the stable value of real estate?
That investment strategy again.....???

 

[andrewg]

Nope. Actually glad they aren't rising at this point. My only concern has been a market rebound and that prices would rise before I was ready to buy....and price me out of the affordability of a retirement home. I expected something like this. The lower they go before I buy the better it will be for me. Now what happens to the market AFTER I buy (in the long term) is what will interest me. Can't go much lower where I am looking. Only up from the bottom....just don't know when a bounce will occur.

 

[andrewg]

Arizona Vacation House UPDATE:

Well, here it is...2014 now. Purchased my Arizona home (for vacations and retirement) several years ago.

Recap: I live in Seattle and purchased a home in Arizona in August 2011. At that time I had concerns about the market, break-ins (I'm only there a few times a year), pests, and affordability. More than one person thought that theft and the copper in my A/C would eventually get stolen.

Observations/Experiences: It's been rough at times trying to manage my property down there in terms of a good maintenance person. I'm on my second company right now and so far he is pretty good and trustworthy. I've only had one attempted break-in (sort of) where some jerk tried to open my back slider. Since that occurred I installed security devices and more lighting. No issues since. Occasional pests get into the house (scorpions,spiders) but nothing serious. I had an outside pipe leak from a rare freezing night. That's been fixed with extra pipe insulation (who would think you would ever need that in central Arizona?). Weeds and the HOA has been an problem now and then. My maintenance guy isn't really a yard person (he mostly just does the inside and security) so getting him to keep up on a few weeds can be tiresome.
So....so far so good. No major problems.

The best part: House has increased in value $25k since purchase.

 

[Quattro Pete]

Thanks for the update. Which part of Arizona?

 

[andrewg]

Originally Posted By: Quattro Pete
Thanks for the update. Which part of Arizona?

Between Phoenix and Tucson. Just northwest of Florence in the San Tan area.

 

[HTSS_TR]

I think you were lucky to buy it in 2011, since then the housing market in Arizona went up more than 20-25%. Last year my brother planned to move to California, he tried to see how much his house in Phoenix can sell for, his agent suggest $500k after some market researches. He got multiple offers, one as high as $550k.

Now he changes his mind after experienced 5.1-5.2 Earthquake when he was in Ca looking some houses. He decided to stay in Phoenix.

Southern California isn't cold but we still have some nights when temp can go down to low 40's or even high 30's. My prefer retirement location is at 1 of the Hawaii islands. the climate there is just about perfect, high all year around low to mid 80's, low is low to mid 70's.

 

[andrewg]

Originally Posted By: HTSS_TR
I think you were lucky to buy it in 2011, since then the housing market in Arizona went up more than 20-25%. Last year my brother planned to move to California, he tried to see how much his house in Phoenix can sell for, his agent suggest $500k after some market researches. He got multiple offers, one as high as $550k.

Now he changes his mind after experienced 5.1-5.2 Earthquake when he was in Ca looking some houses. He decided to stay in Phoenix.

Southern California isn't cold but we still have some nights when temp can go down to low 40's or even high 30's. My prefer retirement location is at 1 of the Hawaii islands. the climate there is just about perfect, high all year around low to mid 80's, low is low to mid 70's.

I'd love to live in some parts of Hawaii for most of the year. Beautiful climate and stunning scenery. Trouble is the expense of doing it. Not a cheap place in any way. Even a dump over there in a decent area is far more than I would want to spend. I sure like it though. Guess I'll have to be satisfied with short visits.