Second home or not ready

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blessed
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Second home or not ready

Post by blessed » Mon Feb 27, 2017 10:30 pm

Hello everyone...just joined. I'm not financially savvy so I cling to the basics of target date investing in 401k and retirement accounts. I'm considering a second home and would like to hear other opinions on the idea.

I'm in my mid-40s and my wife is in her late-30s. We never had kids due to careers and hobbies.
Our combined income is around 360k per year, conservatively.
We have a 350k mortgage at 3%, so right at $2,450 per month, 13 years remaining on 15 year note.
We have a total of 600k in 401k, IRAs, and investment account.
After company matching we contribute 48k/year combined to 401k.
We both max out our Roth IRA every year.
We have 125k in liquid savings.
No debt other than mortgage.
We clear around $7,000/month after all expenses and charitable contributions.

So now the question: we're looking at a 350k beach house in Destin, FL. Based on what I've found we could get a 15 year note on the beach house for $75k down with $2,500/month including taxes. This would take the monthly clear down to $4,500 which could be used for additional investing.

Any opinions on if this is a good idea?

pindevil
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Re: Second home or not ready

Post by pindevil » Mon Feb 27, 2017 11:33 pm

How much equity do you have in your current house? Do you have any additional assets?

Do you plan to rent the second home to generate income?

You could certainly afford the house. That being said I wouldn't be comfortable taking on more debt without saving more and increasing net worth.

daveydoo
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Re: Second home or not ready

Post by daveydoo » Tue Feb 28, 2017 12:29 am

blessed wrote:
Any opinions on if this is a good idea?


About whether or not this is a good idea: Do you need to do this? For the cost of property taxes alone, you could probably rent a comparable home for a month. How long/often do you plan to be in it? Do you live nearby? Is it a home or a condo? Is it a tower? Are there association fees? Are there maintenance issues/winterizing issues, etc? Will this be a family compound? Is it an investment or a hobby/indulgence? Do you have anyone to leave it to? "Beach" property in FL -- won't get too many generations out of that anyway.

Not enough information to determine if it's a "good idea" -- even if you can squeeze it into the budget. For example, you could buy a Maybach instead but I don't think that would be a "good idea."

SQRT
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Re: Second home or not ready

Post by SQRT » Tue Feb 28, 2017 3:32 am

Buying a second personal use property is really a lifestyle decision and you haven't given us enough information about your lifestyle and how you would use the property. We have multiple homes but they were all purchased without using mortgages. Seems to me that buying a second house with cash really makes you think hard about whether you should actually buy it. Probably a good thing.

If it's an investment property it will obviously depend on the numbers and a mortgage makes a lot more sense.

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 8:44 am

pindevil wrote:How much equity do you have in your current house? Do you have any additional assets?

Do you plan to rent the second home to generate income?

You could certainly afford the house. That being said I wouldn't be comfortable taking on more debt without saving more and increasing net worth.



Current home equity is about 150k. No intentions of renting the home, just something for broader family use and to pass down to the next generation.

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 8:49 am

daveydoo wrote:
blessed wrote:
Any opinions on if this is a good idea?


About whether or not this is a good idea: Do you need to do this? For the cost of property taxes alone, you could probably rent a comparable home for a month. How long/often do you plan to be in it? Do you live nearby? Is it a home or a condo? Is it a tower? Are there association fees? Are there maintenance issues/winterizing issues, etc? Will this be a family compound? Is it an investment or a hobby/indulgence? Do you have anyone to leave it to? "Beach" property in FL -- won't get too many generations out of that anyway.

Not enough information to determine if it's a "good idea" -- even if you can squeeze it into the budget. For example, you could buy a Maybach instead but I don't think that would be a "good idea."


Thanks for the response. The idea is to keep the property for extended family use and pass it on to someone else in the family that has kids. The fees and maintenance would be rather low for this community.

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 8:52 am

SQRT wrote:Buying a second personal use property is really a lifestyle decision and you haven't given us enough information about your lifestyle and how you would use the property. We have multiple homes but they were all purchased without using mortgages. Seems to me that buying a second house with cash really makes you think hard about whether you should actually buy it. Probably a good thing.

If it's an investment property it will obviously depend on the numbers and a mortgage makes a lot more sense.


Thanks for your response. You make a really good point about buying with cash which really makes you think hard about the decision. Based on other replies I think the consensus is to wait a little longer and increase net worth.

Jack FFR1846
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Re: Second home or not ready

Post by Jack FFR1846 » Tue Feb 28, 2017 9:10 am

blessed wrote:Thanks for the response. The idea is to keep the property for extended family use and pass it on to someone else in the family that has kids. The fees and maintenance would be rather low for this community.


Personally, I'd pass and use the money to visit the area, staying at a really nice hotel. Maybe pay for the extended family to stay in their own hotel room.

As far as passing it down, it can work, but I have never seen it work. It seems that every story I've heard (including friends whose parents both passed leaving just a primary house) have been wrought with conflict, inflicted directly from leaving a house to them. Our best friends had his mother pass (father already gone) leaving the family house to the 4 kids. In come the niece who wants to "fix up the house" with her fiance. But both of them are students and have no money and expect the house to be given to them. Then there are stories of siblings where one wants the house and has no way to afford property taxes and maintenance even if given the house and other siblings who want nothing to do with it and want it sold to get the money and a battle starts.

I would not do it. There are hotels everywhere and when you're not there, no property taxes come due and if a hurricane hits, it's just a news story, not a call to the insurance company because your house is now just a sand bar.
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Carefreeap
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Re: Second home or not ready

Post by Carefreeap » Tue Feb 28, 2017 10:50 am

First of all I would spend a couple of years renting VRBO or AirBnB properties before buying a second home in a vacation area. And talk to property owners and managers about the kinds of issues that come up. It's not just the initial outlay. It's the on-going maintenance and repairs that can become tiresome.

We own a second home but we inherited it about 15 years ago. We made the choice to keep it because we had great memories there. Financially it really doesn't make sense; it would have made more sense to sell it and invest the money but we're still happy with our decision to keep it. We currently live about 500 miles away and use it ourselves about 4 or 5 times a year. We placed it into vacation rental service not for financial reasons but to make sure the property was being checked on and used at least monthly. It's a mountain cabin and things happen to vacant properties.

A formula for a good outcome for a vacation property is one whereby the owners live within 2 hours and a longer term plan to retire to the property at some point.

Gill
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Re: Second home or not ready

Post by Gill » Tue Feb 28, 2017 10:56 am

For your ages and income you need to work on your net worth a bit more rather than acquiring more real estate and expense.
Gill

North
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Re: Second home or not ready

Post by North » Tue Feb 28, 2017 11:01 am

We have a second beach home, about an hour and 15 mins away from main home. We love everything about it and actually spend more time there than our main home. That being said, I would advise against the Florida house. If you cannot get down there at least 3 times per month (or are so wealthy that it doesn't matter) you are going to regret it. Just too many headaches, worries and unknowns given that you cannot just pop down any time you want to check on things. I'd rent a house whenever you feel like it and know that you are saving money.

Nearly A Moose
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Re: Second home or not ready

Post by Nearly A Moose » Tue Feb 28, 2017 11:10 am

I'd strongly consider just renting a house whenever you want to visit. Owning a second house is a lot of hassle and cost, and it effectively ties you to vacationing in the same area again and again (or at least it increases the opportunity cost of going elsewhere).

Consider this: add up all the money you'd put into the house: down payment, monthly mortgage and interest, insurance, hurricane insurance, property taxes, upkeep, furnishing, utilities, HOA fees, (anything I'm missing?). That pot of money is now your "vacation fund," and its quite massive. You can rent a nice house on VRBO a couple times a year and never come close to exhausting this. Even if you took your $75k down payment and invested that conservatively, you'd be able to bankroll a decade or two of vacations in that area, and that's not taking into account investment returns or the other costs associated with vacation homes.

Also, think very hard about whether you have family who would really want to inherit a vacation home. Absent it being some extremely unique circumstance that I could not easily replicate myself (e.g. family member got ahold of a small flat in Paris or NYC decades ago for cheap, I couldn't easily do it now, and upkeep costs are extremely low; a beach house in Florida is not one of those things), I would not want to inherit a vacation property, and I'd try to sell it as soon as title transferred. But I also don't want the hassle and don't want to be tied down in terms of vacations.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

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Ged
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Re: Second home or not ready

Post by Ged » Tue Feb 28, 2017 11:10 am

Like others have said, I think that the idea of passing it on to the next generation is unlikely to work well, and when it comes time to settle your estate it may actually turn into a problem.

My father owned a beach house which we enjoyed tremendously as a family, However when we grew up and had our own families we all moved out of the area and the beach house became a burden so was eventually sold.

For you own use I would say that you have a clear rent vs buy decision. Will you actually use it enough to justify tying up that much capital?

yo gabbapentin
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Re: Second home or not ready

Post by yo gabbapentin » Tue Feb 28, 2017 11:15 am

Are you familiar with the real estate market in destin? I am... and that seems extremely cheap for a beach home. Just make sure there are no huge issues with it. Also check into flood insurance status. Sometimes can make a property unaffordable.

Otherwise, I recommend saving the money and just renting in Santa Rosa beach or destin/crystal beach.

SQRT
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Re: Second home or not ready

Post by SQRT » Tue Feb 28, 2017 11:30 am

Certainly a good idea to rent before you buy. Second homes can be a very enjoyable lifestyle. Your clothes in the closet, your car in the garage, decorated your way, putting down roots and making new friends. Total flexibility as to when you visit. Inviting friends and family to join you or lending the property out when not in use. A wonderful way to create memories.

No doubt it can be expensive and certainly adds complexity to your life. We hire local property management to look after our places. Again, can obviously be expensive. Make sure you can afford it. A good reason to pay cash.
Last edited by SQRT on Tue Feb 28, 2017 12:13 pm, edited 1 time in total.

ponyboy
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Re: Second home or not ready

Post by ponyboy » Tue Feb 28, 2017 11:39 am

You guys have a high combined salary...but your investments at $600k is really low. Thats a red flag in my book.

Im 34...wife is 32...we made 1/3 of what you do and our 401k/ira/investment accounts are higher than yours.

Do not buy a 2nd home. You need to cushion your investments.

Cruise
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Re: Second home or not ready

Post by Cruise » Tue Feb 28, 2017 11:46 am

blessed wrote:No intentions of renting the home, just something for broader family use and to pass down to the next generation.


What "next generation?" In post #1, you said you did not have kids. Perhaps I am missing something?

chicagoan23
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Re: Second home or not ready

Post by chicagoan23 » Tue Feb 28, 2017 11:54 am

Our combined income is around 360k per year, conservatively.
...
We both max out our Roth IRA every year.


Do you mean you do a back door Roth? How do you contribute to a Roth with that level of income?

As for the house, you can definitely afford it.

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praxis
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Re: Second home or not ready

Post by praxis » Tue Feb 28, 2017 12:10 pm

Carefreeap wrote:First of all I would spend a couple of years renting VRBO or AirBnB properties before buying a second home in a vacation area. And talk to property owners and managers about the kinds of issues that come up. It's not just the initial outlay. It's the on-going maintenance and repairs that can become tiresome.


Good ideas

1. How far from Destin is your primary residence? We live 1200 miles from our second home and use it for longer trips because of that (5 months over the summer). We would go there on weekends if we lived closer. Some friends of ours have their second home on the south island of New Zealand!

2. The incentive to build family memories was the big reason we built a second home. We considered using the money instead for many fabulous vacations in a variety of wonderful spots, and decided to build. We do travel some with the family, but mostly buy tickets for the kids' families to come visit or buy their gas. Someday, we might sell the second home and use the money for more travel with the family. I do not believe we will leave the cabin to the kids. We will leave them more liquid assets instead.

We have built so many memories during the 10 years we have owned our cabin. You said you have no kids but you wanted to leave it for future generations. Sibling's children, perhaps?

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 2:47 pm

Cruise wrote:
blessed wrote:No intentions of renting the home, just something for broader family use and to pass down to the next generation.


What "next generation?" In post #1, you said you did not have kids. Perhaps I am missing something?


I should have been more clear. I would like to leave it behind for the others in my family that do have kids. However, given the feedback received so far it seems like that's a bad idea given how many problems that might create.

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 2:50 pm

praxis wrote:
Carefreeap wrote:First of all I would spend a couple of years renting VRBO or AirBnB properties before buying a second home in a vacation area. And talk to property owners and managers about the kinds of issues that come up. It's not just the initial outlay. It's the on-going maintenance and repairs that can become tiresome.


Good ideas

1. How far from Destin is your primary residence? We live 1200 miles from our second home and use it for longer trips because of that (5 months over the summer). We would go there on weekends if we lived closer. Some friends of ours have their second home on the south island of New Zealand!

2. The incentive to build family memories was the big reason we built a second home. We considered using the money instead for many fabulous vacations in a variety of wonderful spots, and decided to build. We do travel some with the family, but mostly buy tickets for the kids' families to come visit or buy their gas. Someday, we might sell the second home and use the money for more travel with the family. I do not believe we will leave the cabin to the kids. We will leave them more liquid assets instead.

We have built so many memories during the 10 years we have owned our cabin. You said you have no kids but you wanted to leave it for future generations. Sibling's children, perhaps?


Correct, my siblings have children and I have thought about buying a place that I could pass down to them. However, I clearly didn't think through the amount of problems that might create for the family once I'm gone.

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 2:51 pm

chicagoan23 wrote:
Our combined income is around 360k per year, conservatively.
...
We both max out our Roth IRA every year.


Do you mean you do a back door Roth? How do you contribute to a Roth with that level of income?

As for the house, you can definitely afford it.


Correct, we back door Roth every year.

blessed
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Re: Second home or not ready

Post by blessed » Tue Feb 28, 2017 3:00 pm

ponyboy wrote:You guys have a high combined salary...but your investments at $600k is really low. Thats a red flag in my book.

Im 34...wife is 32...we made 1/3 of what you do and our 401k/ira/investment accounts are higher than yours.

Do not buy a 2nd home. You need to cushion your investments.


Great job on your 401k/ira/investment accounts, I unfortunately wasn't as good with my money as you have been.

We started off with a HUGE amount of college debt which has now been paid off. We've also funded the college educations of two nieces. After all of that we've just recently hit our stride of saving and investing like we should have been all along. Other than our mortgage we are now debt free and other than an unforeseen medical emergency, we do not have any big expenditures on the horizon.

Thanks for your input, I appreciate the perspective.

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OthalaFehu
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Re: Second home or not ready

Post by OthalaFehu » Tue Feb 28, 2017 3:42 pm

You certainly have the money. That might not be the question. 1. how much time do you really see yourself spending there? 2. Do you have a beneficiary you care about enough to leave them a beach house, if not I would say just stick too renting. You are not locked into a location.

I spent the money of the second home, but it was mostly because i wanted it to stay in the family for generations.

cherijoh
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Re: Second home or not ready

Post by cherijoh » Tue Feb 28, 2017 5:51 pm

blessed wrote:Hello everyone...just joined. I'm not financially savvy so I cling to the basics of target date investing in 401k and retirement accounts. I'm considering a second home and would like to hear other opinions on the idea.

I'm in my mid-40s and my wife is in her late-30s. We never had kids due to careers and hobbies.
Our combined income is around 360k per year, conservatively.
We have a 350k mortgage at 3%, so right at $2,450 per month, 13 years remaining on 15 year note.
We have a total of 600k in 401k, IRAs, and investment account.
After company matching we contribute 48k/year combined to 401k.
We both max out our Roth IRA every year.
We have 125k in liquid savings.
No debt other than mortgage.
We clear around $7,000/month after all expenses and charitable contributions.

So now the question: we're looking at a 350k beach house in Destin, FL. Based on what I've found we could get a 15 year note on the beach house for $75k down with $2,500/month including taxes. This would take the monthly clear down to $4,500 which could be used for additional investing.

Any opinions on if this is a good idea?


blessed wrote: Great job on your 401k/ira/investment accounts, I unfortunately wasn't as good with my money as you have been.

We started off with a HUGE amount of college debt which has now been paid off. We've also funded the college educations of two nieces. After all of that we've just recently hit our stride of saving and investing like we should have been all along. Other than our mortgage we are now debt free and other than an unforeseen medical emergency, we do not have any big expenditures on the horizon.

Thanks for your input, I appreciate the perspective.


I may be wrong, but here's how your posts struck me. You have finally gotten rid of all your debt except your mortgage, are maxing out your tax-advantaged accounts, and have significant extra cash flow. You want to do something nice for yourself and happened on the idea of buying a second home even though you have a fairly new home (unless you simply refinanced your old loan) and a considerable mortgage balance.

It is perfectly natural to want a break from the slog and to do something nice for yourselves, but taking on the debt of a second property is not the smartest choice IMO. Whatever you decide to do, do it out of cash flow - plan a super nice semi-annual vacation or start saving money to buy a vacation home in cash down the road. As super high earners, I wouldn't stop at maxing out my tax-advantaged plans. I would be investing in a taxable funds as well and/or accelerating the payment of my mortgage. have you considered leaving the rat-race and retiring early?

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gasdoc
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Re: Second home or not ready

Post by gasdoc » Wed Mar 01, 2017 9:43 am

blessed wrote:
SQRT wrote:Buying a second personal use property is really a lifestyle decision and you haven't given us enough information about your lifestyle and how you would use the property. We have multiple homes but they were all purchased without using mortgages. Seems to me that buying a second house with cash really makes you think hard about whether you should actually buy it. Probably a good thing.

If it's an investment property it will obviously depend on the numbers and a mortgage makes a lot more sense.


Thanks for your response. You make a really good point about buying with cash which really makes you think hard about the decision. Based on other replies I think the consensus is to wait a little longer and increase net worth.



Blessed,
+1. We own a Florida second home that we purchased, in cash, as a future retirement home (within 5-6 years). We rent it mostly now. Would not want to be in this situation full time for any longer than we are.

gasdoc

rjbraun
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Re: Second home or not ready

Post by rjbraun » Wed Mar 01, 2017 10:12 am

gasdoc wrote:
blessed wrote:
SQRT wrote:Buying a second personal use property is really a lifestyle decision and you haven't given us enough information about your lifestyle and how you would use the property. We have multiple homes but they were all purchased without using mortgages. Seems to me that buying a second house with cash really makes you think hard about whether you should actually buy it. Probably a good thing.

If it's an investment property it will obviously depend on the numbers and a mortgage makes a lot more sense.


Thanks for your response. You make a really good point about buying with cash which really makes you think hard about the decision. Based on other replies I think the consensus is to wait a little longer and increase net worth.



Blessed,
+1. We own a Florida second home that we purchased, in cash, as a future retirement home (within 5-6 years). We rent it mostly now. Would not want to be in this situation full time for any longer than we are.

gasdoc

So, the idea is that you use the Florida home some but mostly rent it out. Any reason why you would not stay in hotel / resort, VRBO, etc now and wait to buy when you actually decide to retire?

We don't have a 2nd home and I really don't think we want to go down that path. But, when I hear about (seemingly) so many people with second homes, I wonder if there's something I may be missing.

Someone I know said he's probably lost some money on his weekend place (away from their very urban residence), but the memories with the kids together on weekends, etc. were priceless. I can kind of see that, but that situation doesn't apply in my case (no kids).

The one case I could kind of see would be having a second place located where we plan to retire to (actual location tbd, though!). I guess that's why I'm asking you now.

Thanks

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knpstr
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Re: Second home or not ready

Post by knpstr » Wed Mar 01, 2017 10:24 am

Just curious on how you guys contribute (let alone max) to IRAs when your income is over the limit?

For example, in 2016 and a MAGI of over $194,000 for married filing jointly, you aren't eligible to contribute. Just seems like $156,000 is a lot of deductions! (well $166,000 if you are indeed maxing)

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SQRT
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Re: Second home or not ready

Post by SQRT » Wed Mar 01, 2017 10:58 am

rjbraun wrote:
gasdoc wrote:
blessed wrote:
SQRT wrote:Buying a second personal use property is really a lifestyle decision and you haven't given us enough information about your lifestyle and how you would use the property. We have multiple homes but they were all purchased without using mortgages. Seems to me that buying a second house with cash really makes you think hard about whether you should actually buy it. Probably a good thing.

If it's an investment property it will obviously depend on the numbers and a mortgage makes a lot more sense.


Thanks for your response. You make a really good point about buying with cash which really makes you think hard about the decision. Based on other replies I think the consensus is to wait a little longer and increase net worth.



Blessed,
+1. We own a Florida second home that we purchased, in cash, as a future retirement home (within 5-6 years). We rent it mostly now. Would not want to be in this situation full time for any longer than we are.

gasdoc

So, the idea is that you use the Florida home some but mostly rent it out. Any reason why you would not stay in hotel / resort, VRBO, etc now and wait to buy when you actually decide to retire?

We don't have a 2nd home and I really don't think we want to go down that path. But, when I hear about (seemingly) so many people with second homes, I wonder if there's something I may be missing.

Someone I know said he's probably lost some money on his weekend place (away from their very urban residence), but the memories with the kids together on weekends, etc. were priceless. I can kind of see that, but that situation doesn't apply in my case (no kids).

The one case I could kind of see would be having a second place located where we plan to retire to (actual location tbd, though!). I guess that's why I'm asking you now.

Thanks

It really depends on your personality. Do you value control, flexibility and routine above a sense of adventure and newness? Do you like to travel or like staying in one place? Do you have enough funds to own rather than rent? Do you like going to the same place over and over? Do you value new friends or would this be a chore? Do you have family or friends that could also use the place? Do you know where you would like to retire? Lots of issues and everybody is different.

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gasdoc
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Re: Second home or not ready

Post by gasdoc » Wed Mar 01, 2017 11:34 am

rjbraun wrote:
gasdoc wrote:
blessed wrote:
SQRT wrote:Buying a second personal use property is really a lifestyle decision and you haven't given us enough information about your lifestyle and how you would use the property. We have multiple homes but they were all purchased without using mortgages. Seems to me that buying a second house with cash really makes you think hard about whether you should actually buy it. Probably a good thing.

If it's an investment property it will obviously depend on the numbers and a mortgage makes a lot more sense.


Thanks for your response. You make a really good point about buying with cash which really makes you think hard about the decision. Based on other replies I think the consensus is to wait a little longer and increase net worth.



Blessed,
+1. We own a Florida second home that we purchased, in cash, as a future retirement home (within 5-6 years). We rent it mostly now. Would not want to be in this situation full time for any longer than we are.

gasdoc

So, the idea is that you use the Florida home some but mostly rent it out. Any reason why you would not stay in hotel / resort, VRBO, etc now and wait to buy when you actually decide to retire?

We don't have a 2nd home and I really don't think we want to go down that path. But, when I hear about (seemingly) so many people with second homes, I wonder if there's something I may be missing.

Someone I know said he's probably lost some money on his weekend place (away from their very urban residence), but the memories with the kids together on weekends, etc. were priceless. I can kind of see that, but that situation doesn't apply in my case (no kids).

The one case I could kind of see would be having a second place located where we plan to retire to (actual location tbd, though!). I guess that's why I'm asking you now.

Thanks



rjbraun,
We had already decided we wanted to retire in The Villages, FL. One time when we visited, we found a house on a lot that had a view that DW fell in love with. We decided that with the rate at which the boomers were retiring we would have an easy time renting it- and that has been the case. At times, we have a hard time finding the time to use it ourselves. We don't make a lot of money on it since we have to use a company to manage it, but we come out ahead every year by $6-$8K after expenses. To answer your question, DW fell in love with this particular property out of dozens that we had looked at that day, and the community of The Villages was nearing the end of their development of new homes.

gasdoc

rjbraun
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Re: Second home or not ready

Post by rjbraun » Wed Mar 01, 2017 1:36 pm

gasdoc wrote:rjbraun,
We had already decided we wanted to retire in The Villages, FL. One time when we visited, we found a house on a lot that had a view that DW fell in love with. We decided that with the rate at which the boomers were retiring we would have an easy time renting it- and that has been the case. At times, we have a hard time finding the time to use it ourselves. We don't make a lot of money on it since we have to use a company to manage it, but we come out ahead every year by $6-$8K after expenses. To answer your question, DW fell in love with this particular property out of dozens that we had looked at that day, and the community of The Villages was nearing the end of their development of new homes.

gasdoc



Thanks, gasdoc - that makes sense. Nice to have your ideal retirement home lined up and to even be cash flow positive in the interim.

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gasdoc
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Re: Second home or not ready

Post by gasdoc » Wed Mar 01, 2017 4:10 pm

rjbraun wrote:
gasdoc wrote:rjbraun,
We had already decided we wanted to retire in The Villages, FL. One time when we visited, we found a house on a lot that had a view that DW fell in love with. We decided that with the rate at which the boomers were retiring we would have an easy time renting it- and that has been the case. At times, we have a hard time finding the time to use it ourselves. We don't make a lot of money on it since we have to use a company to manage it, but we come out ahead every year by $6-$8K after expenses. To answer your question, DW fell in love with this particular property out of dozens that we had looked at that day, and the community of The Villages was nearing the end of their development of new homes.

gasdoc



Thanks, gasdoc - that makes sense. Nice to have your ideal retirement home lined up and to even be cash flow positive in the interim.


:happy But I wouldn't do it in your situation.

gasdoc

rjbraun
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Re: Second home or not ready

Post by rjbraun » Wed Mar 01, 2017 4:23 pm

gasdoc wrote: :happy But I wouldn't do it in your situation.

gasdoc

Yup, I agree :happy To the extent I even toy with the idea, I am resisting. Hard.

I can find no justification for why we would / should do it. Thanks for the confirmation!

blessed
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Re: Second home or not ready

Post by blessed » Thu Mar 02, 2017 3:29 pm

knpstr wrote:Just curious on how you guys contribute (let alone max) to IRAs when your income is over the limit?

For example, in 2016 and a MAGI of over $194,000 for married filing jointly, you aren't eligible to contribute. Just seems like $156,000 is a lot of deductions! (well $166,000 if you are indeed maxing)

:beer


The back door roth is pretty straight forward, we do it every year. :beer

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Re: Second home or not ready

Post by PVW » Thu Mar 02, 2017 4:15 pm

blessed wrote:
The back door roth is pretty straight forward, we do it every year. :beer


Why are you doing backdoor roth conversions? I'm not implying you shouldn't, but it's not obvious that you should.

https://www.bogleheads.org/wiki/Roth_IRA_conversion

blessed
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Re: Second home or not ready

Post by blessed » Thu Mar 02, 2017 5:14 pm

PVW wrote:
blessed wrote:
The back door roth is pretty straight forward, we do it every year. :beer


Why are you doing backdoor roth conversions? I'm not implying you shouldn't, but it's not obvious that you should.

https://www.bogleheads.org/wiki/Roth_IRA_conversion


We do the back door Roth for the tax-free growth. I'm not eligible to contribute to a tax-deductible IRA so unless I'm missing something it seems like the Roth is the only other tax-advantaged opportunity I have.

I'm always open to hear other opinions if you feel otherwise.

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Re: Second home or not ready

Post by PVW » Fri Mar 03, 2017 8:12 am

If your marginal tax rate is the same now as it will be in retirement, there is no advantage or penalty for a backdoor Roth conversion. You either pay taxes now on the conversion, or later on the withdrawal. Taking money out of a traditional/rollover IRA is best done when you are in a low tax bracket. A conversion is often done to take advantage of situations where your tax rate is low (e.g., during unemployment or early retirement). If your marginal tax rate will be lower in retirement, then you should keep the traditional IRA and pay taxes on it during retirement.

There are many complicating factors. It's difficult to predict your future tax rate and any changes to the tax code. The conversion is added to your income, so it can push you into a higher marginal rate. A source of tax free money in retirement can help with tax planning.

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Ozonewanderer
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Re: Second home or not ready

Post by Ozonewanderer » Fri Mar 03, 2017 11:02 pm

I want to disregard the financial perspective because it is obvious that the additional expense is a drain and the possibility of a capital gain is about the same as investing in equities over the long term.

I have had two homes for a while (different two homes over the past 12 years) and the real issue is what a pain in the ass it is. There is always something to fix at one of the two houses. When you do go to your "vacation home" you will probably find yourself working on a DIY repair project instead of relaxing. And because you have sunk so much money into the second home you feel kind of obligated to vacation there so you don't travel to new exotic places as much.

If I could do it all over again I would seriously consider just renting regularly at a place I liked and travel more.

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sergeant
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Re: Second home or not ready

Post by sergeant » Sat Mar 04, 2017 12:17 am

PVW wrote:If your marginal tax rate is the same now as it will be in retirement, there is no advantage or penalty for a backdoor Roth conversion. You either pay taxes now on the conversion, or later on the withdrawal. Taking money out of a traditional/rollover IRA is best done when you are in a low tax bracket. A conversion is often done to take advantage of situations where your tax rate is low (e.g., during unemployment or early retirement). If your marginal tax rate will be lower in retirement, then you should keep the traditional IRA and pay taxes on it during retirement.

There are many complicating factors. It's difficult to predict your future tax rate and any changes to the tax code. The conversion is added to your income, so it can push you into a higher marginal rate. A source of tax free money in retirement can help with tax planning.


They do a Backdoor Roth! Check the Wiki.
Lincoln 3 EOW!

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Watty
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Re: Second home or not ready

Post by Watty » Sat Mar 04, 2017 1:45 am

ponyboy wrote:You guys have a high combined salary...but your investments at $600k is really low. Thats a red flag in my book.


+1

I'm not sure what you expenses are but when you retire you will likely need about 25 times your expenses to have a 4% safe withdrawal rate.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

You are not anywhere near that yet.

Wricha
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Re: Second home or not ready

Post by Wricha » Sat Mar 04, 2017 6:38 am

FWIW, I have a slightly different take. I have had a second home (4 different places) since I was 45. Yes there are expenses but if you really like the area, no kids, fairly high income you can use more often than most (long weekends etc.). The big decision rent or not I did for one place and I find that the house really wasn't mine I was just another renter. There is nothing like jumping on a plane with just an iPad (don't rent) and being some where warm and that you enjoy with all your stuff already there. If I counted all the expenses of ownership and house appreciation I believe I would be even or slightly ahead.
In you case, I would wait till you can pay off existing home with your cash flow. Demonstrate you have the financial discipline to pay off your house. You should have more assets than you have before taking on additional debt.

beattherush
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One thing to be careful about

Post by beattherush » Sat Mar 04, 2017 7:45 am

Coastal property in Florida generally is a) wildly underpriced for home insurance and b) starting to experience higher claims due to climate related issues, particularly in Dade. The Florida homeowners market has been artificially controlled for many years and there are significant issues long term.

Whatever you are seeing for homeowners and flood insurance (two separate things), I'd triple it as a starting point for what you might be paying in future years. If they experience a Katrina-level event, particularly in Miami, the sky's the limit. And Florida won't get bailed out by the Feds; it creates too many problems elsewhere.

One other observation: $2500 a month buys you one serious vacation budget. For me, the experience utility on that would outweigh the likely marginal returns on a beachfront home. That market is pretty seriously overpriced, and once there is a run for the exits, it won't be pretty. There are early signs in Miami already, and a lot of policy folks are worried about the "beachfront bubble". Problem with this one is it might not recover. The ocean is unlikely to recede in the near future.
Last edited by beattherush on Sat Mar 04, 2017 8:03 am, edited 5 times in total.

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Re: Second home or not ready

Post by TRC » Sat Mar 04, 2017 7:45 am

How far is it from your house?
Do you have kids and do they have sports / friends activities on weekends?
Do you plan to rent it?

We bought a beach condo 2 hours from our house back in 2010. Our primary residence was paid off, our investments were very high and we put down 50%. That being said, after the first summer, it got a little old. 2 hour drive each way (without traffic), food shopping, missing out on social / kid stuff back home, primary house stuff getting neglected (yard care). However, our unit is in a VERY desirable area so now we rent it for $3,500/week in July & August and save a couple weeks for our use. We break even and it's getting paid off rapidly (9 years left on the note) and I now view it more of an investment than anything else. Had we not been able to rent it, I would have regretted the purchase. If I were you I would rent for a season or two to really see if you like the lifestyle.

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Re: Second home or not ready

Post by feh » Sat Mar 04, 2017 7:58 am

blessed wrote:Any opinions on if this is a good idea?


I wouldn't do it. Given your income, you should have more saved for retirement.

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Re: Second home or not ready

Post by blessed » Sat Mar 04, 2017 10:59 am

Ozonewanderer wrote:I want to disregard the financial perspective because it is obvious that the additional expense is a drain and the possibility of a capital gain is about the same as investing in equities over the long term.

I have had two homes for a while (different two homes over the past 12 years) and the real issue is what a pain in the ass it is. There is always something to fix at one of the two houses. When you do go to your "vacation home" you will probably find yourself working on a DIY repair project instead of relaxing. And because you have sunk so much money into the second home you feel kind of obligated to vacation there so you don't travel to new exotic places as much.

If I could do it all over again I would seriously consider just renting regularly at a place I liked and travel more.


That is a very valuable perspective. I am not a handyman by any means so I could see that becoming a real issue.

Thanks

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Re: Second home or not ready

Post by blessed » Sat Mar 04, 2017 11:02 am

PVW wrote:If your marginal tax rate is the same now as it will be in retirement, there is no advantage or penalty for a backdoor Roth conversion. You either pay taxes now on the conversion, or later on the withdrawal. Taking money out of a traditional/rollover IRA is best done when you are in a low tax bracket. A conversion is often done to take advantage of situations where your tax rate is low (e.g., during unemployment or early retirement). If your marginal tax rate will be lower in retirement, then you should keep the traditional IRA and pay taxes on it during retirement.

There are many complicating factors. It's difficult to predict your future tax rate and any changes to the tax code. The conversion is added to your income, so it can push you into a higher marginal rate. A source of tax free money in retirement can help with tax planning.


I think you're misunderstanding. I do a backdoor roth every year and there is effectively no tax on the conversion as it is done within a day of the contribution to the traditional. The back door roth seems to be a no-brainer, unless I complete misunderstand something.

blessed
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Re: Second home or not ready

Post by blessed » Sat Mar 04, 2017 11:08 am

Watty wrote:
ponyboy wrote:You guys have a high combined salary...but your investments at $600k is really low. Thats a red flag in my book.


+1

I'm not sure what you expenses are but when you retire you will likely need about 25 times your expenses to have a 4% safe withdrawal rate.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

You are not anywhere near that yet.


Thanks for the advice. With our 401k plus matching, 11k in Roth, and 7k per month into a brokerage account we will be investing around 145k/year going forward. Sounds like the BH consensus is that I should concentrate on building net worth for now and maybe revisit this subject a few years down the road.

blessed
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Re: Second home or not ready

Post by blessed » Sat Mar 04, 2017 11:09 am

Wricha wrote:FWIW, I have a slightly different take. I have had a second home (4 different places) since I was 45. Yes there are expenses but if you really like the area, no kids, fairly high income you can use more often than most (long weekends etc.). The big decision rent or not I did for one place and I find that the house really wasn't mine I was just another renter. There is nothing like jumping on a plane with just an iPad (don't rent) and being some where warm and that you enjoy with all your stuff already there. If I counted all the expenses of ownership and house appreciation I believe I would be even or slightly ahead.
In you case, I would wait till you can pay off existing home with your cash flow. Demonstrate you have the financial discipline to pay off your house. You should have more assets than you have before taking on additional debt.


Good advice, thank you.

gr7070
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Re: Second home or not ready

Post by gr7070 » Sat Mar 04, 2017 11:33 am

I've enjoyed this thread a lot. A second home in retirement has been something we fantasize about.

Renting for a month or so at a time now and again sounds like a better option for us when we eventually retire...

As for the OP:
I don't see how the backdoor Roth makes tons of sense???
I'd also plow a ton of taxable money into a total market index and paying down the primary .
Whatever I'd ultimately decide upon I'd operate from a mostly cash position when i did it.

hoops777
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Re: Second home or not ready

Post by hoops777 » Sat Mar 04, 2017 7:37 pm

You will probably get tired of Destin and a second home can be a headache for so many reasons,and Florida has a ton of them.You are a wealthy guy,why not travel to different places.
K.I.S.S........so easy to say so difficult to do.

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