Second home or not ready

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PVW
Posts: 270
Joined: Mon Dec 29, 2014 11:01 am

Re: Second home or not ready

Post by PVW » Sun Mar 05, 2017 2:43 pm

blessed wrote:
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.


Yes, sorry, a misunderstand on my part. I thought you were converting an old traditional pre-tax or rollover IRA to a Roth. But it sounds like you are converting a non-deductible IRA to Roth (i.e., a Backdoor Roth, just as you said).

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HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

Re: Second home or not ready

Post by HomerJ » Sun Mar 05, 2017 2:52 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?


You make a ton of money, so you probably can afford it, but it looks like that income is rather new (since your savings are low for someone saving $60k a year in tax-deferred, and with $84k in after tax disposable money).

I'd rather see you have the first house paid off first, before immediately kicking up your expenses again. I would never buy a second home without the first one paid off. You're going to have to furnish that new house, and maintain it, and pay utilities.

How secure are your jobs? I'd hate to have TWO mortgages totaling $5000 a year hanging over my head. Plus all other expenses from owning two homes.

But again, you make a ton of money. so I give you a maybe. You better not start spending on anything else like cars and fancy vacations. Your vacations should be mostly to this new beach house. You need to take that leftover $4000 each month and start paying down debt for the next 5 years before you think about upgrading your lifestyle again.

My opinion only of course :)

travellight
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Joined: Tue Aug 12, 2008 5:52 pm
Location: San Diego

Re: Second home or not ready

Post by travellight » Sun Mar 05, 2017 3:08 pm

That is much more than I would want to pay for a lifestyle decision/second home. I would want to pay less than 25% for a fun home compared to my primary residence. I have a second home and it was about 1/8 the cost of my primary home. I paid it off in 10 years and don't regret the decision at all but all the points made against it are valid.... you do feel a little bit locked in to going there rather than traveling elsewhere.

One benefit though is that if you do rent it out and manage it yourself and save some time to use it yourself, I think your travel costs to your second home are tax deductible. I also like the idea of a paid off second home for retirement but I think this one is too high a cost. I would do it now only if I could pay cash for it.

TOJ
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Joined: Wed Mar 02, 2016 9:19 pm

Re: Second home or not ready

Post by TOJ » Sun Mar 05, 2017 3:12 pm

Owning a single house gives me plenty to do and spend money on. I'd rent the vacation spot.

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HomerJ
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Joined: Fri Jun 06, 2008 12:50 pm

Re: Second home or not ready

Post by HomerJ » Sun Mar 05, 2017 7:29 pm

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.


This is why I would recommend a condo for a second vacation home. Upkeep is much less (still have to fix your own stuff inside like a leaky dishwasher or a toilet). But not having to deal with yard work or have to worry about roof repair or pool maintenance makes things much easier.

Our second home is a lake condo with two pools, and docks that are all maintained by a property manager. Now, of course, we have to pay HOA fees, but we cover our HOA fees, insurance, and property taxes each year by renting 4-5 weekends a summer.

Our second home is about 2.5 hours away from our primary home... That's just about as far I would recommend. Did you say how far away you are from Destin?

FYI, we didn't buy it until the first house was paid off.

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Ozonewanderer
Posts: 617
Joined: Mon Apr 12, 2010 12:27 am
Location: Central NY, South FL

Re: Second home or not ready

Post by Ozonewanderer » Sun Mar 05, 2017 7:39 pm

HomerJ wrote:
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.


This is why I would recommend a condo for a second vacation home. Upkeep is much less (still have to fix your own stuff inside like a leaky dishwasher or a toilet). But not having to deal with yard work or have to worry about roof repair or pool maintenance makes things much easier.


Ha ha. One of my second homes was a condo in a high rise building. On separate occasions a leaking toilet seal dripped water into the unit below me and another time the washing machine did not shut off and it overflowed into my living room and of course the poor unit below me.

After this second time I decided to sell the condo and buy a single family house for my winter home. The HOA took care of yard work and pool maintenance, but I was still paying for it. And in the condo I had several extra assessments.

blessed
Posts: 19
Joined: Mon Feb 27, 2017 9:55 pm

Re: Second home or not ready

Post by blessed » Sun Mar 05, 2017 8:36 pm

HomerJ wrote:
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?


You make a ton of money, so you probably can afford it, but it looks like that income is rather new (since your savings are low for someone saving $60k a year in tax-deferred, and with $84k in after tax disposable money).

I'd rather see you have the first house paid off first, before immediately kicking up your expenses again. I would never buy a second home without the first one paid off. You're going to have to furnish that new house, and maintain it, and pay utilities.

How secure are your jobs? I'd hate to have TWO mortgages totaling $5000 a year hanging over my head. Plus all other expenses from owning two homes.

But again, you make a ton of money. so I give you a maybe. You better not start spending on anything else like cars and fancy vacations. Your vacations should be mostly to this new beach house. You need to take that leftover $4000 each month and start paying down debt for the next 5 years before you think about upgrading your lifestyle again.

My opinion only of course :)


Thanks for your advice/opinion, which I happen to agree with. We're going to hold off for now and focus on getting rid of our current mortgage. That will help me sleep much better at night.

Yes, our savings are rather new, we had a huge education debt to climb out of and we also funded the college education of two nieces. Our jobs are secure, looking forward to aggressively growing our net worth moving forward.

Thanks

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