Vacation house? Need objective third party

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bromeliad
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Vacation house? Need objective third party

Post by bromeliad » Mon Sep 10, 2018 11:58 am

My spouse and I are considering purchasing a vacation house. We are both 45, two kids in elementary school, have a HHI of $1.5M, own a home worth about $1.2M ($500K left in 15-year mortgage, 12 years left), and have about $1.5M in retirement, $250K for two kids' college funds to which we are still contributing (as a tenured professor, my kids also would qualify for tuition free enrollment, should they decide to attend my university), and about $500K in various checking, CD, and savings accounts. No debt other than the mortgage. We do pay for private school tuition and camps ($70K/year), but are otherwise quite frugal.

We would like to purchase a vacation home, but are having cold feet. This is a waterfront lake house in my spouse's home state (a short flight away near the in laws) where the kids and I would spend the summers, with my spouse spending as much time there as possible (he travels frequently for work). The lake house is $700K. We could buy it in cash with a cash-out refinance of our primary home--$250K from current checking and $450K from the refi. We have been spending the last 10 summers at this lake, and a vacation house we realize is an emotional investment (although we could probably rent it out for $3000/week during the summer, if we needed to). We love our summers on the lake, and feel like we want to put roots down there. We both grew up working class, so there is a lot of emotional baggage/worry about spending this money on a luxury. My spouse is driving himself crazy with "what if" scenarios...

Thoughts?

runner540
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Re: Vacation house? Need objective third party

Post by runner540 » Mon Sep 10, 2018 1:37 pm

If your income is $1.5MM and you are frugal other than $70k private school, just pay for it with cash (you can quickly save up $450k within a year). Don't take money out of your primary home.

If your spouse is concerned, it may be because he/she doesn't feel that the $1.5MM income is very secure, OR thay he/she is burnt out and doesn't want to "have" to keep earning at that level. Keep talking, not to persuade but to understand.

Another way to approach major luxury purchases is to pair it with major charitable giving.

Thegame14
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Re: Vacation house? Need objective third party

Post by Thegame14 » Mon Sep 10, 2018 1:46 pm

with that income, pay off the house in one year, then save in year 2-3 and buy in cash.

ResearchMed
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Re: Vacation house? Need objective third party

Post by ResearchMed » Mon Sep 10, 2018 1:52 pm

When your children are older, will they still want to spend summers away from friends?
Or might there be school teams/clubs that have summer participation?

Things can change a lot in just a few years.

OTOH, when they are much older, perhaps you'd have a place for the grandchildren to visit (perhaps along with parents).
But... that's counting your chickens before there's even a sparkle in any eyes, to mix metaphors :wink:

You should be able to afford it.

However, with that kind of income, is your retirement savings keeping up?
Perhaps you should focus there a bit more for a while?

RM
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damjam
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Re: Vacation house? Need objective third party

Post by damjam » Mon Sep 10, 2018 1:55 pm

For the moment I'm not going to touch on the financial aspect of this decision.

Instead I'm wondering how much consideration you have given to the maintenance issues?

My FIL owns a very nice little compound about 1.5 to 3 hrs away depending on traffic conditions. Of late he has needed to travel out there a number of times to deal with various issues. He's retired and probably creates some of the maintenance just to keep busy. However, some issues are quite real and needed to be addressed ASAP - like a leaking roof, replacement of siding on the pool house, etc. Although he has an extensive and trustworthy list of contractors to handle issues as they arise, he still needs to check the work. During the winter the dock bubbler needs to be checked often (it keeps the water from freezing immediately adjacent to the dock, keeping the posts from being forced out of the sand). And on and on.

How will you handle these type of issues when the property is a flight away? You said family is nearby, will they be able to check on things for you, help you find contractors and the like?

Sometimes buying a second home works out financially, if the area it is located in rises in value. However, it's my opinion that usually this type of thing is an expense and not an investment.

Can you afford it? Maybe, but maybe you should evaluate your entire financial situation and goals. Where do you and your spouse want to be in 10, 15, 20 years? Have you determined whether you're meeting your financial goals? Without knowing the answer to that question you really can't answer whether you can or should afford this purchase.

If your interested in having your financial picture looked at by the knowledgeable posters here, follow the format suggested in this post:
viewtopic.php?t=6212

Personally I found putting together the above information was very eye opening for me and I never even posted it.

From the information given, I question why you haven't saved more for retirement.
Last edited by damjam on Mon Sep 10, 2018 2:15 pm, edited 1 time in total.

PhilosophyAndrew
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Re: Vacation house? Need objective third party

Post by PhilosophyAndrew » Mon Sep 10, 2018 2:01 pm

OP, is the income you cite new? If so, how secure is it?

If the income is not new, something may not add up — one would expect to see a higher net worth from a frugal family with a long-term income that high. What are your annual expenses, and how much extra expense would makigngigs purchase incur?

If the income is new, I would focus on funding retirement, higher education, and other needs before taking on a huge new expense.

It is nice that your children can agree your institution for fee, but what if it turns out they this is not a good for for their needs?

Andy.

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GoldStar
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Re: Vacation house? Need objective third party

Post by GoldStar » Mon Sep 10, 2018 2:14 pm

With a HHI of $1.5M I would think you can afford it but no idea what your household expenses are. They must be high since your savings are light for your income for someone that claims to be "frugal" - maybe "frugal" means something different to you than it does to me - sounds like you have a lot of expenses since:
At 45 with a HHI of $1.5M with $1.5M in retirement accounts, $250K in college-savings, $700K equity, $500K in cash accounts.
This puts your Capital to Income Ration at (2.95/1.5 =) 1.97. It should be higher than this for someone in their mid 40's if you are frugal (in the high 3's).
OR - your HHI recently increased drastically.

(EDIT Add: Here's a reference for Age/Capital to income ratios: https://www.whitecoatinvestor.com/your- ... ome-ratio/. Perhaps I missed a big piece of your savings somehow).
Last edited by GoldStar on Mon Sep 10, 2018 2:17 pm, edited 1 time in total.

bromeliad
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Re: Vacation house? Need objective third party

Post by bromeliad » Mon Sep 10, 2018 2:16 pm

OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?

runner540
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Re: Vacation house? Need objective third party

Post by runner540 » Mon Sep 10, 2018 2:22 pm

bromeliad wrote:
Mon Sep 10, 2018 2:16 pm
OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?
10 weeks x $3k = $30k for your summer

I am taking a SWAG that carrying costs (taxes, insurance, maintenance) of a $700k house will be at least $30k per year. So regardless, you have a $30k expense. The question is, is the potential appreciation, ability to customize, use year round, etc., worth tying up $700k of capital in a single asset??

Also, I really encourage you to have multiple heart to hearts with spouse about whether he's happy with the demands and tradeoffs of his new job.

Edit - I sent a PM
Last edited by runner540 on Mon Sep 10, 2018 2:32 pm, edited 1 time in total.

PhilosophyAndrew
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Re: Vacation house? Need objective third party

Post by PhilosophyAndrew » Mon Sep 10, 2018 2:29 pm

OP, how long does your spouse plan to work in the new position? I know from family and friends that this can be a high-stress, high-burnout job, and so I recommend, first, reflecting hard and honestly avoutt how long your spouse might wish to remain in that job and, second. assessing your family’s finances accordingly.

If it were me, I would rather spend $30k per summer on travel and invest the rest. That would also give your family greater flexibly in vacation timing and location should your needs and preferences change as everyone ages.

Andy.

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Re: Vacation house? Need objective third party

Post by ge1 » Mon Sep 10, 2018 2:36 pm

Just a few thoughts from somebody who has owned vacation homes and owns one now:

- 700k for a vacation home is expensive, even for your income level and especially given your net worth. We used to own a vacation home in that price range and after moving which limited our use of the house we sold it and built a cheaper vacation home closer to where we live now.

- Maintenance - make a detailed budget what the maintenance costs will be, i.e. utilities, house checks, lawn mowing etc. It adds up quickly.

- Vacation homes are amazing and you and your family will make a lot of great memories - just don't fool yourself into thinking it could be a good financial decision. It's a luxury (and there is nothing wrong with that) and it's expensive.

- I'm sure others feel different, but I would caution against including any rental income in your decision. At least for me, a vacation home is a place where we have our stuff, fun outdoor gear etc, a place my friends can use - and not a place I want to rent out to strangers and I need to lock away my stuff.

good luck

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Re: Vacation house? Need objective third party

Post by Goal33 » Mon Sep 10, 2018 2:44 pm

Because your income is so high, I'd expect you to buy this vacation home in cash. Also, I'd expect you to have your primary home paid off before you buy a vacation home in cash. So, basically, you need to save up around 1 million dollars IMO to buy this home which should not be a big deal given that large income. If something happens to the large income in the meantime, you'll be lucky you didn't buy.
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skime
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Re: Vacation house? Need objective third party

Post by skime » Mon Sep 10, 2018 2:55 pm

If it were me, I would ask myself why I only have approximately $2mm saved on an income of $1.5mm.

I would be more concerned with building a substantial asset portfolio long before I would consider an emotional purchase of a cash flow drag.

At the moment it seems as if you have a bit over 1x gross income saved. If something happens to that income stream, things could get uncomfortable quickly if you want to keep up your current lifestyle. At 45, you should have significantly more liquid assets than that.

Shoot for 20x gross income in liquid assets before you go looking for a second home. You'll never have to think twice as to whether you can afford it or not or if it's a good decision or not.

Always question your motivation when it comes to financial decisions. In this case it seems as if emotion is in the driver's seat. That's never a good thing when it comes to economic decisions - especially big ones like buying a home.

Nate79
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Re: Vacation house? Need objective third party

Post by Nate79 » Mon Sep 10, 2018 2:58 pm

This is lifestyle creep - only 2 years into this very high income and already thinking about a very expensive vacation home. I would wait a few years, pay off your current home, beef up investments, and save up and pay cash for the vacation house.

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greg24
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Re: Vacation house? Need objective third party

Post by greg24 » Mon Sep 10, 2018 3:00 pm

That is a pricey vacation home, which you may end up not using very often.

I agree with the posts that say you should pay off your primary residence and save up the money to buy a vacation home for cash.

Daedalus214
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Re: Vacation house? Need objective third party

Post by Daedalus214 » Mon Sep 10, 2018 3:12 pm

If this is a summer vacation home, then it would be empty for approximately 9 months of the year. Since you cannot easily drive there to check on it, and the kids are in school anyway, you might be concerned letting it stand empty for those nine months. Also, do not fool yourself into believing that this is an investment, it's a fun place for the family to spend the summer. There is no better feeling than turning off the lights, locking the front door, and driving away after a wonderful summer without worrying about the, "Summer House."

From my experience, it is better to rent boats and summer homes than purchasing. Sometimes you cannot put a price on freedom and peace of mind....

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Re: Vacation house? Need objective third party

Post by Darth Xanadu » Mon Sep 10, 2018 3:13 pm

greg24 wrote:
Mon Sep 10, 2018 3:00 pm
That is a pricey vacation home, which you may end up not using very often.

I agree with the posts that say you should pay off your primary residence and save up the money to buy a vacation home for cash.
+1 The lake isn't going anywhere. I would re-prioritize.
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Dandy
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Re: Vacation house? Need objective third party

Post by Dandy » Mon Sep 10, 2018 3:51 pm

where the kids and I would spend the summers, with my spouse spending as much time there as possible (he travels frequently for work)
I have enough trouble keeping with one house I never wanted 2. :D From friends that had a vacation place

1. many found that as the kids age they often didn't want to travel far from their friends or if married had other options they often preferred. this was especially true if the vacation home took time and/or air travel to get to.
2. Some also felt somewhat limited in that they felt they "had" to vacation in their vacation home or it was a waste. So that made an island vacation or a Europe river cruise less likely.
3. When it is not close there can be issues in getting it in shape for the winter. one friend forgot to do that and had to make a very long trip to do it. Another friend didn't and paid the price.

there are many who did enjoy their vacation home so just be aware there are some things to consider. For me I like renting and if I like the place I rent there several times. Stone Harbor, Bermuda, Aruba, Key West, Hilton Head, Miami, Rhode Island, Finger Lakes, Charleston, etc.

But, I also like the freedom to vacation elsewhere and don't worry about repairs, storm damage, spending time on vacation getting groceries, cleaning, taxes, furnishing, insurance, etc. My wife also likes not to have to cook, shop or make beds on vacation(me too). :D

harvestbook
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Re: Vacation house? Need objective third party

Post by harvestbook » Mon Sep 10, 2018 6:07 pm

Dandy wrote:
Mon Sep 10, 2018 3:51 pm
where the kids and I would spend the summers, with my spouse spending as much time there as possible (he travels frequently for work)
I have enough trouble keeping with one house I never wanted 2. :D From friends that had a vacation place

1. many found that as the kids age they often didn't want to travel far from their friends or if married had other options they often preferred. this was especially true if the vacation home took time and/or air travel to get to.
2. Some also felt somewhat limited in that they felt they "had" to vacation in their vacation home or it was a waste. So that made an island vacation or a Europe river cruise less likely.
3. When it is not close there can be issues in getting it in shape for the winter. one friend forgot to do that and had to make a very long trip to do it. Another friend didn't and paid the price.
We have a modest vacation home that is 6-7 hour drive at the coast. We suffer a bit from 2 and 3- I feel like it limits our vacation options, both because we feel like we ought to go there and also the continual need to check up on things. I wouldn't mind selling it but it's emotional baggage--it's been in the family as a renovation project for nearly two decades and is finally almost done. But ultimately it's probably delayed my retirement by two years, so it definitely is a luxury.

I paid cash. I couldn't imagine going into debt for a second home. Just the loss of having that money invested instead is bad enough. But I will say we live a completely different life there, so in one way it's a nice change of pace and different community. If you truly enjoy it, well, there's more to life than money. Good luck.
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London
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Re: Vacation house? Need objective third party

Post by London » Mon Sep 10, 2018 7:52 pm

I'm not big on vacation houses but it appears you can afford it at face value. At this income level the old adage applies, "you can have any thing you want but not everything you want". Make sure you're other expenses don't explode and you'll be fine.

Just keep in mind, now you have to work.

SoAnyway
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Re: Vacation house? Need objective third party

Post by SoAnyway » Mon Sep 10, 2018 8:31 pm

bromeliad wrote:
Mon Sep 10, 2018 2:16 pm
OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?
Agree with prior posts re. the hassles of ownership esp. from a distance, "lifestyle creep", and the heart to heart with DH about whether he's only going to stay in the higher-paying job to keep you happy. If I were he, I'd tell you to relax, we can afford to keep renting until we've got a handle on things. A couple observations:
1. Hiring a "property management company" doesn't solve your problems; you (or your DH) will dread every phone call/email you get from them about this-or-that thing that you need to pay to fix. (Google on this site and you'll see just that.)
2. In RE, there's no such thing as a "unique buying opportunity" so don't get caught up in it, OP. Properties come and go. When you're ready financially - both of you, per the above discussion - to pull the trigger, check out what's on the market. If nothing suits you, notify the owners in that area that you'd like to discuss paying a fair market price for their property. EVERY property owner has a "make me move" price. ; )

bigcmagor
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Re: Vacation house? Need objective third party

Post by bigcmagor » Tue Sep 11, 2018 1:37 pm

We bought ours for cash ten years ago at age 46. We've used it increasingly over the years and it is now our domicile, being in a no income tax state. As others have mentioned, it can be expensive and even a hassle at times, but having a good relationship with at least one neighbor will mitigate many concerns. Holding the combined investment in both homes to less than 20% of net worth enabled us to proceed with our plans to retire next year at 57, although the low annual expense requirement played a larger role in the retirement decision than the initial investment. For context, both of our homes combined are worth less than the second home you are considering.

I was happily employed at 46 and utterly burned out at 55. I would be quite depressed at this point if we didn't have the opportunity to retire because we allowed our lifestyle to inflate to a point that required a major downward adjustment in living standard to enable it. The larger the expenses, the larger nut required to maintain your lifestyle expectations - and you both may find you prefer not working to the grind sooner than you realize. This should be part of the discussion.

Good luck with your decision.

dave_k
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Re: Vacation house? Need objective third party

Post by dave_k » Tue Sep 11, 2018 2:04 pm

My wife and I bought a waterfront vacation house that's near my in-laws (in fact we bought it from them), for an even larger fraction of our savings than what you are considering, and we're happy we did. However, our situation was different in the following ways:
  • We got it at market bottom prices a few years ago
  • We're only there several weeks a year, and not in peak season
  • It's in an area where it rents well when we're not there, covering the costs
  • An agency handles most things, but we do a lot of work on the place when we're there on "vacation"
  • We plan to retire to it (the majority of the year) within several years
Because of these things, the fact that I don't mind DIY maintenance and renovation, or that much of our vacation time is spent there, this works for us. I'm not sure I'd do what you are considering though, mainly because it doesn't sound like it could be rented and cover the costs. It's a luxury you can afford, but the question is what impact will it have on long term plans, and is it worth it?

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Re: Vacation house? Need objective third party

Post by Admiral » Tue Sep 11, 2018 2:14 pm

Putting aside the finances of affordability, a vacation home that requires an airline flight?? Better factor that in to your budget (not to mention the hassle in general of air travel). Seems like you would get even less use out of it than if it were closer (car ride). With your huge income you could rent incredible places anywhere in the world whenever and for as long as you want, and it would still cost way less.

I can tell you that as kids approach teenage years, they want to hang out with their friends, less so with their parents. So factor that in as well.

Whatever you decide, I would not get a second home unless I could pay for all or most of it in cash.

l2ridehd
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Re: Vacation house? Need objective third party

Post by l2ridehd » Tue Sep 11, 2018 2:15 pm

I have owned several vacation homes over the years, lakefront, mountains, ski places, and I can tell you that I would not do it. Although they are great to have, every time I went there for a couple weeks vacation, I spent most of my time working on them. There was always something that had to be done. Painting, fixing a dock, upgrading something, dripping faucet, leaking roof, etc etc. For what I was paying in property taxes on my last lakefront home, I can rent a really nice place for 3 or 4 weeks and not have to fix anything.

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Re: Vacation house? Need objective third party

Post by Pigeon » Tue Sep 11, 2018 2:26 pm

I think you can certainly afford it. I do think you should be mindful of lifestyle creep, but you could pay this and your mortgage off in short order if you put your mind to it.

Personally, I had a stepmother who had a vacation house as did my inlaws. In these cases, they were a relatively short (2hrs or less) drive. I wouldn't take a vacation house as a gift. While both sets of parents would tell you they loved their second houses, they were a constant source of stress. The maintenance never stops. My step siblings and dh's siblings all got to a point in junior high school where they didn't want to go, but much preferred to be home with their friends and activities.

When the kids grew up and got married, nobody really wanted to vacation in mom & dad's house, and especially not in the inlaws house. So that was another source of hurt feelings all around.

My inlaws wanted us to buy their home for a song when they got too old to maintain two houses, and even though it was a nice home on an idyllic piece of property, we had no interest. My stepmother passed away this year and last I heard, the vacation house is a significant source of discord for her children and grandchildren.

I can't imagine taking on the burden of a vacation home that was a plane ride away when you can just rent whenever you want to.

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HomerJ
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Re: Vacation house? Need objective third party

Post by HomerJ » Tue Sep 11, 2018 2:42 pm

bromeliad wrote:
Mon Sep 10, 2018 11:58 am
My spouse and I are considering purchasing a vacation house. We are both 45, two kids in elementary school, have a HHI of $1.5M, own a home worth about $1.2M ($500K left in 15-year mortgage, 12 years left), and have about $1.5M in retirement, $250K for two kids' college funds to which we are still contributing (as a tenured professor, my kids also would qualify for tuition free enrollment, should they decide to attend my university), and about $500K in various checking, CD, and savings accounts. No debt other than the mortgage. We do pay for private school tuition and camps ($70K/year), but are otherwise quite frugal.

We would like to purchase a vacation home, but are having cold feet. This is a waterfront lake house in my spouse's home state (a short flight away near the in laws) where the kids and I would spend the summers, with my spouse spending as much time there as possible (he travels frequently for work). The lake house is $700K. We could buy it in cash with a cash-out refinance of our primary home--$250K from current checking and $450K from the refi. We have been spending the last 10 summers at this lake, and a vacation house we realize is an emotional investment (although we could probably rent it out for $3000/week during the summer, if we needed to). We love our summers on the lake, and feel like we want to put roots down there. We both grew up working class, so there is a lot of emotional baggage/worry about spending this money on a luxury. My spouse is driving himself crazy with "what if" scenarios...

Thoughts?
My advice for vacation homes is the first home needs to be paid off, and one really should pay cash for the vacation home or you can't afford it.

You guys don't have a lot of money saved with a household income of $1.5 million. I mean, you have a lot of money, but I'm guessing you haven't been making $1.5 million for too many years.

Will that kind of income continue?

I mean, if you assume you're going to make that much money for the next 5-10 years, of course you can afford the vacation house.

But me? I'd rather make the money first THEN spend it.

Lake houses cost money. Another property tax bill, another insurance bill, another utility bill, maintenance, etc. Do you really want a mortgage on top of that as well?

If you pull $450k from your current mortgage to buy the vacation house today, you should commit to paying that off in 1-2 years. If you can't come up with $450k in 2 years on your income, then you shouldn't buy the vacation house.
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HomerJ
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Re: Vacation house? Need objective third party

Post by HomerJ » Tue Sep 11, 2018 2:45 pm

Goal33 wrote:
Mon Sep 10, 2018 2:44 pm
Because your income is so high, I'd expect you to buy this vacation home in cash. Also, I'd expect you to have your primary home paid off before you buy a vacation home in cash. So, basically, you need to save up around 1 million dollars IMO to buy this home which should not be a big deal given that large income. If something happens to the large income in the meantime, you'll be lucky you didn't buy.
This. You said it better than I did.
Last edited by HomerJ on Tue Sep 11, 2018 2:46 pm, edited 1 time in total.
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GreenGrowTheDollars
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Re: Vacation house? Need objective third party

Post by GreenGrowTheDollars » Tue Sep 11, 2018 2:45 pm

I'd skip this house...but consider a season-long rental for next summer as a way of trying out summer life. I have friends with vacation homes in MIchigan/Wisconsin/North Carolina and their kids seemed to very much like the annual sojourns.

Meanwhile, consider focusing on paying off the mortgage and building up a bunch more cash.

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Re: Vacation house? Need objective third party

Post by psteinx » Tue Sep 11, 2018 3:13 pm

Echoing other posters:

When I was growing up, my parents had 2 vacation properties.

First, some undeveloped, but pretty land about 2 hours from our house that we would use for camping. It was fun and well used, for about 4 years. There is certain flexibility you get from owning your own camping land, versus camping at a state park or whatever. The initial cost wasn't THAT high, and of course, maintenance is minimal. That said, the window during which it was really enjoyed wasn't that long.

At some point after selling the land, they bought a "lake chalet" - a nice, fairly upscale dwelling on a man-made lake, in a large development with many such lakes and dwelling, and certain features like golf. It was maybe 75-90 minutes from their house. It was much more expensive, both initially and, I assume, on an ongoing basis, and introduced more of the maintenance type headaches that others mention. Because it didn't feel that different from being at home (i.e. it wasn't camping, the lake it was on was modest in size and possibilities), the novelty wore off pretty quick, and there wasn't a lot of interest in loading up the car, packing food, going on a long-ish drive, only to spend a couple days in a somewhat less comfortable version of home, albeit with some amenities not readily available at home. Moreover, this was around the time my older siblings were in college, and I was soon to depart for same. I'm not sure exactly how long they held it, nor my age nor college status when it was sold, but overall, I think it was underused and somewhat of a disappointment.

OTOH, I had an uncle who lived in/near Vegas, and split a mountain top getaway with 3 other friend/acquaintance families, multiple decades ago. From what I heard, this worked pretty well. One quarter of prime season weeks is perhaps about the right number for many people, and sharing the price with others you get along with reduces the cost and upkeep-time burden. But this requires having the right folks to go into the situation with, and of course could present problems if one family wants out after 5 years and the others want to stay in.

Generally, I would think that the most appealing vacation home situation would be where you could get a SUBSTANTIAL change of scenery/geography, at a fairly close distance to home. If you live 75 miles from the coast and can buy a beach house, or in a flat-ish area but are very close to appealing mountains, or something like that, I can see the appeal.

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Re: Vacation house? Need objective third party

Post by Nowizard » Tue Sep 11, 2018 4:01 pm

having owned two vacation homes, I would not repeat the error a third time. We currently rent a vacation home, and it has the advantages without the disadvantages. Vacation homes can be like boats in that the happiest days are the one when you purchase and the one when you sell. Very expensive if you figure what a daily cost is for days present, and having to fly to get there is a red flag in terms of enjoyment. It means more difficulty in winter months due to weather and inconvenience in flying. You will need someone to watch over it, and, having also been raised in a family with modest income, it is very easy to feel the necessity to go there over other vacations or activities. This is not meant to be a downing comment, but we purchased due to a psychological desire but found that the psychological concerns eventually out weighed the pleasure. Another factor is that it would be difficult for you to have friends visit with any regularity due to distance. Renting has been a pleasure, though that is not a universal way to meet this desire.

Tim

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Re: Vacation house? Need objective third party

Post by dave_k » Tue Sep 11, 2018 4:25 pm

Having said above that I'm not sure I'd buy the house the OP is considering, and that it can be a lot of work, and even though I understand the negative sentiment, I want to point out that it's not necessarily so bad:

Even though we have to fly to get to it, we still use our vacation home for as much time as we can get away with given limited vacation time. We just concetrate it into 2-3 trips per year. In our case it helps that the trips can be written off and covered as an expense against the rental income.

If the vacation home (or even the primary one) is in a nice enough location, friends and family may be happy to fly to visit. Since buying a lake house and a beach house we've had people fly to visit us quite a bit, and rarely ever before that.

Also - We own a boat, get plenty of use out of it, and are quite happy with it (referencing Tim's comment above). :happy

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Re: Vacation house? Need objective third party

Post by DC3509 » Wed Sep 12, 2018 9:39 pm

skime wrote:
Mon Sep 10, 2018 2:55 pm
If it were me, I would ask myself why I only have approximately $2mm saved on an income of $1.5mm.

I would be more concerned with building a substantial asset portfolio long before I would consider an emotional purchase of a cash flow drag.

At the moment it seems as if you have a bit over 1x gross income saved. If something happens to that income stream, things could get uncomfortable quickly if you want to keep up your current lifestyle. At 45, you should have significantly more liquid assets than that.

Shoot for 20x gross income in liquid assets before you go looking for a second home. You'll never have to think twice as to whether you can afford it or not or if it's a good decision or not.

Always question your motivation when it comes to financial decisions. In this case it seems as if emotion is in the driver's seat. That's never a good thing when it comes to economic decisions - especially big ones like buying a home.
I found a lot of the responses in this thread -- like the one above -- to really show the limitations to the rote advice offered by these boards, unfortunately.

The OP says the household income is $1.5 million -- million. 20x gross income means that the OP needs to save $30 million dollars before you would approve of the OP buying a vacation home -- really? You will surely be the richest person in the graveyard with this strategy. In the meantime while the OP is saving for his $30 million dollar bank account, his kids will grow up, and who knows what else will happen.

To the several people who posted that the OP must pay for this in cash or else it is a bad decision -- why? Again, we are talking about a yearly salary of $1.5 million -- that equates to $125,000 per month. The OP already has made a very big dent in the regular mortgage and has it on a 15 year plan. Even if the OP only puts down 20% on the vacation property -- that leaves a mortgage of $580,000 -- at today's interest rates that is about $2800 per month -- or about 2% of his pre-tax income. The OP is nowhere near the levels of 28% PITI that is usually suggested as a rough guideline. I actually imagine that several of the people who responded to this thread have mortgages that occupy a much higher percentage of their monthly income than the OP.

As to the several people who responded -- but he makes $1.5 million, why hasn't he saved more? Of course, the OP already has about $2 million in assets which blows away the savings of most normal Americans. Even if the OP never saved another dime -- if OP invested that and only that and rode out the waves for the next 20 years -- OP will come way further ahead than nearly everyone else. But as the OP stated very clearly in the thread -- up until recently, the breadwinner was working in a government job and the significant increase was a recent event. This means that most (all?) of the savings has come through a government salary. This is another fallacy I see on these boards -- you experience a significant salary increase and then the goal posts move and everyone writes in asking why you haven't saved more. Bottom line is that OP was clearly living a frugal lifestyle by any objective measure and the net worth will likely climb to extremely high levels with the new salary.

The short answer is: of course, the OP can afford this purchase. $700K isn't that much of a splurge, at least for those of us who live in HCOL areas. The other replies about whether you will use it a lot, the cost of repairing things, etc. -- those are all fair points and should be balanced in the decision equation. But if you think the vacation home will create priceless family memories -- I think that should be the overriding factor. You aren't working simply to make money or saving just for savings sake. What's the point of money if you never enjoy it -- especially on your family?

There are a lot of "rules" on this Board -- for most people, including myself, they are useful. But for people at the very highest ends of the income spectrum -- and yes $1.5 million counts -- the rules can be relaxed and individualized solutions are more appropriate.

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Re: Vacation house? Need objective third party

Post by runner540 » Wed Sep 12, 2018 10:00 pm

DC3509 wrote:
Wed Sep 12, 2018 9:39 pm
skime wrote:
Mon Sep 10, 2018 2:55 pm
If it were me, I would ask myself why I only have approximately $2mm saved on an income of $1.5mm.

I would be more concerned with building a substantial asset portfolio long before I would consider an emotional purchase of a cash flow drag.

At the moment it seems as if you have a bit over 1x gross income saved. If something happens to that income stream, things could get uncomfortable quickly if you want to keep up your current lifestyle. At 45, you should have significantly more liquid assets than that.

Shoot for 20x gross income in liquid assets before you go looking for a second home. You'll never have to think twice as to whether you can afford it or not or if it's a good decision or not.

Always question your motivation when it comes to financial decisions. In this case it seems as if emotion is in the driver's seat. That's never a good thing when it comes to economic decisions - especially big ones like buying a home.
I found a lot of the responses in this thread -- like the one above -- to really show the limitations to the rote advice offered by these boards, unfortunately.

The OP says the household income is $1.5 million -- million. 20x gross income means that the OP needs to save $30 million dollars before you would approve of the OP buying a vacation home -- really? You will surely be the richest person in the graveyard with this strategy. In the meantime while the OP is saving for his $30 million dollar bank account, his kids will grow up, and who knows what else will happen.

To the several people who posted that the OP must pay for this in cash or else it is a bad decision -- why? Again, we are talking about a yearly salary of $1.5 million -- that equates to $125,000 per month. The OP already has made a very big dent in the regular mortgage and has it on a 15 year plan. Even if the OP only puts down 20% on the vacation property -- that leaves a mortgage of $580,000 -- at today's interest rates that is about $2800 per month -- or about 2% of his pre-tax income. The OP is nowhere near the levels of 28% PITI that is usually suggested as a rough guideline. I actually imagine that several of the people who responded to this thread have mortgages that occupy a much higher percentage of their monthly income than the OP.

As to the several people who responded -- but he makes $1.5 million, why hasn't he saved more? Of course, the OP already has about $2 million in assets which blows away the savings of most normal Americans. Even if the OP never saved another dime -- if OP invested that and only that and rode out the waves for the next 20 years -- OP will come way further ahead than nearly everyone else. But as the OP stated very clearly in the thread -- up until recently, the breadwinner was working in a government job and the significant increase was a recent event. This means that most (all?) of the savings has come through a government salary. This is another fallacy I see on these boards -- you experience a significant salary increase and then the goal posts move and everyone writes in asking why you haven't saved more. Bottom line is that OP was clearly living a frugal lifestyle by any objective measure and the net worth will likely climb to extremely high levels with the new salary.

The short answer is: of course, the OP can afford this purchase. $700K isn't that much of a splurge, at least for those of us who live in HCOL areas. The other replies about whether you will use it a lot, the cost of repairing things, etc. -- those are all fair points and should be balanced in the decision equation. But if you think the vacation home will create priceless family memories -- I think that should be the overriding factor. You aren't working simply to make money or saving just for savings sake. What's the point of money if you never enjoy it -- especially on your family?

There are a lot of "rules" on this Board -- for most people, including myself, they are useful. But for people at the very highest ends of the income spectrum -- and yes $1.5 million counts -- the rules can be relaxed and individualized solutions are more appropriate.
You make some good points. But if it were as obvious a "yes" as you think, then OP and spouse (1) wouldn't disagree, and (2) wouldn't have questions about how to finance it. If someone comes on here and wants to finance a car that is half their annual income, and their spouse is not on board, they would hear that they should lower their budget, and/or wait until they can pay cash.

While the absolute numbers of income and net worth here are big, we don't know how close they are to their goals. And whether that $1.5MM income continues for 1-2 more years, or 1-2 more decades.

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Re: Vacation house? Need objective third party

Post by DC3509 » Wed Sep 12, 2018 10:14 pm

bromeliad wrote:
Mon Sep 10, 2018 2:16 pm
OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?
The OP made clear that the $1.5 million is "relatively safe" and "likely to go up" if anything. That's another thing about people making $1.5 million -- if you are lucky enough to make that salary at any point in your career, the chances are extremely high that you have a very specialized skillset or knowledge that justifies the salary and makes you competitive for that salary in the marketplace, at least for the reasonable future. Janitors and even middle management aren't pulling in anything close to $1.5 million.

I don't know the OP but based on the replies -- OP grew up in more modest circumstances, worked for the government, apparently worked very hard to get to this point, and has saved up more money than most people will ever have. My very strong suspicion is that OP is now surrounded by people who have vacation homes and the like and there is some cognitive dissonance between a humble work hard background and the new found wealth. Thus, the post here. If the OP had no money saved, or the salary was only guaranteed for say a year, or the vacation home was $10 million -- my feeling might be different too. I just feel like a lot of people see the words "Vacation Home" in a forum subject line and immediately leap to "must be paid in cash" or other rote mantras. These seriously can lead people with extremely high incomes to being the richest person in the graveyard and defeat the purpose of making money. Nobody is going to throw a parade for you when you have your $30 million dollar bank account.

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Re: Vacation house? Need objective third party

Post by HomerJ » Wed Sep 12, 2018 11:25 pm

DC3509 wrote:
Wed Sep 12, 2018 10:14 pm
bromeliad wrote:
Mon Sep 10, 2018 2:16 pm
OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?
The OP made clear that the $1.5 million is "relatively safe" and "likely to go up" if anything. That's another thing about people making $1.5 million -- if you are lucky enough to make that salary at any point in your career, the chances are extremely high that you have a very specialized skillset or knowledge that justifies the salary and makes you competitive for that salary in the marketplace, at least for the reasonable future. Janitors and even middle management aren't pulling in anything close to $1.5 million.

I don't know the OP but based on the replies -- OP grew up in more modest circumstances, worked for the government, apparently worked very hard to get to this point, and has saved up more money than most people will ever have. My very strong suspicion is that OP is now surrounded by people who have vacation homes and the like and there is some cognitive dissonance between a humble work hard background and the new found wealth. Thus, the post here. If the OP had no money saved, or the salary was only guaranteed for say a year, or the vacation home was $10 million -- my feeling might be different too. I just feel like a lot of people see the words "Vacation Home" in a forum subject line and immediately leap to "must be paid in cash" or other rote mantras. These seriously can lead people with extremely high incomes to being the richest person in the graveyard and defeat the purpose of making money. Nobody is going to throw a parade for you when you have your $30 million dollar bank account.
The 20x gross income statement was silly, I agree.

But paying cash for luxuries isn't silly. If you can't afford to pay cash for a luxury, you probably shouldn't buy it.

Sure, with $1.5 million income they could easily afford the mortgage. They could also easily save enough to pay cash for it very soon.

Here's the thing... We don't know their expenses. If their expenses are fairly low, they can easily save enough to pay cash for it in a year or two.

If their expenses are high, and they CAN'T save enough to pay cash for it, then they really can't afford it.

Now, if it's a once-in-lifetime perfect house, I would tell them to buy it now, but only if they think they can pay it off within a couple of years.

Because if they don't think they can pay off the extra $450k mortgage in 2-3 years, then they really CAN'T afford this.
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Re: Vacation house? Need objective third party

Post by HomerJ » Wed Sep 12, 2018 11:33 pm

DC3509 wrote:
Wed Sep 12, 2018 10:14 pm
That's another thing about people making $1.5 million -- if you are lucky enough to make that salary at any point in your career, the chances are extremely high that you have a very specialized skillset or knowledge that justifies the salary and makes you competitive for that salary in the marketplace, at least for the reasonable future.
I'm not quite sure this is always true... Seems like there are LESS jobs at that level, so if you do lose employment, it's not easy to replace such a job.

Depends on the career. I think it sounds like the income here comes from a lawyer job. If he/she first worked in government, it may be a new lobbying job, and elections can certainly change THAT environment overnight.

There are plenty of $1.5 million jobs that one can't count on making that kind of money for 10-20 years straight.

I think they could easily afford another mortgage, and they know the stability of their job far better than we do, but I don't think it's crazy advice to make the money FIRST, and THEN spend it.
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Re: Vacation house? Need objective third party

Post by peterinjapan » Wed Sep 12, 2018 11:48 pm

When my kids were small, we rented (for two years), then bought a nice vacation home (well, a kind of "luxury apartment" with a hot springs bath) up in the mountains above Karuizawa, Japan. We have many great memories with the kids, and enjoyed doing things you can only do on a mountain like play with snow. Then the kids grew up, and we sold the place, taking about 2 years to do so because moving property in Japan is a challenge.

Bottom line: if you have a time constraint, like having wonderful kids you want to spend time with in a special place, consider that too. You can't do that when they grow up and get busy with their lives.

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Re: Vacation house? Need objective third party

Post by Watty » Thu Sep 13, 2018 12:10 am

GreenGrowTheDollars wrote:
Tue Sep 11, 2018 2:45 pm
I'd skip this house...but consider a season-long rental for next summer as a way of trying out summer life. I have friends with vacation homes in MIchigan/Wisconsin/North Carolina and their kids seemed to very much like the annual sojourns.

Meanwhile, consider focusing on paying off the mortgage and building up a bunch more cash.
+1

That is what I was going to say.

With kids you need to also seriously consider the drowning risk. If you had a neighbor where you live now that had an unfenced pool you would likely be real concerned about that.

One consideration with having a summer house is that you may also want to take some vacations to other places. If you only have ten weeks in the summer where everyone's calendar lines up then taking a two week vacation somewhere else is a large percentage of that.

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Re: Vacation house? Need objective third party

Post by Cruise » Thu Sep 13, 2018 12:32 am

OP:

I haven’t noticed the source of your husband’s income. From your description of him as a partner, I assume he is an attorney or CPA, one with specialized knowledge which enabled recruitment from government work into a lucrative private sector position. This is a gravy-train, except possibly in times of market collapse. There have been several times in the past few decades when big firms retrenched and fired associates. Big partner salaries require lots of associates and organizations with money to spend. Is your husband’s line of work recession-proof?

Are you a law/medical faculty with iron-clad tenure? There is retrenchment in Universitrs as well.

Is the vacation home in a state that will tax your income, and that would add a significant burden?

Given your levels of education and IQ, I’d be surprised if you didn’t want to show your children a variety of foreign and domestic wonders for their summer vacations.

Ultimately, the final decision comes down to values and levels of risk-aversion. In my case, my wife and I valued flexibility in vacation destination, no added tax burden, and using our money to fund a diversified equity portfolio.

Good luck on your decision.

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Re: Vacation house? Need objective third party

Post by DC3509 » Thu Sep 13, 2018 12:34 am

peterinjapan wrote:
Wed Sep 12, 2018 11:48 pm
When my kids were small, we rented (for two years), then bought a nice vacation home (well, a kind of "luxury apartment" with a hot springs bath) up in the mountains above Karuizawa, Japan. We have many great memories with the kids, and enjoyed doing things you can only do on a mountain like play with snow. Then the kids grew up, and we sold the place, taking about 2 years to do so because moving property in Japan is a challenge.

Bottom line: if you have a time constraint, like having wonderful kids you want to spend time with in a special place, consider that too. You can't do that when they grow up and get busy with their lives.
+1

Very well put -- and especially when you have presumably worked very hard and most definitely have the financial means to do something.

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Re: Vacation house? Need objective third party

Post by DC3509 » Thu Sep 13, 2018 12:41 am

HomerJ wrote:
Wed Sep 12, 2018 11:25 pm
DC3509 wrote:
Wed Sep 12, 2018 10:14 pm
bromeliad wrote:
Mon Sep 10, 2018 2:16 pm
OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?
The OP made clear that the $1.5 million is "relatively safe" and "likely to go up" if anything. That's another thing about people making $1.5 million -- if you are lucky enough to make that salary at any point in your career, the chances are extremely high that you have a very specialized skillset or knowledge that justifies the salary and makes you competitive for that salary in the marketplace, at least for the reasonable future. Janitors and even middle management aren't pulling in anything close to $1.5 million.

I don't know the OP but based on the replies -- OP grew up in more modest circumstances, worked for the government, apparently worked very hard to get to this point, and has saved up more money than most people will ever have. My very strong suspicion is that OP is now surrounded by people who have vacation homes and the like and there is some cognitive dissonance between a humble work hard background and the new found wealth. Thus, the post here. If the OP had no money saved, or the salary was only guaranteed for say a year, or the vacation home was $10 million -- my feeling might be different too. I just feel like a lot of people see the words "Vacation Home" in a forum subject line and immediately leap to "must be paid in cash" or other rote mantras. These seriously can lead people with extremely high incomes to being the richest person in the graveyard and defeat the purpose of making money. Nobody is going to throw a parade for you when you have your $30 million dollar bank account.
The 20x gross income statement was silly, I agree.

But paying cash for luxuries isn't silly. If you can't afford to pay cash for a luxury, you probably shouldn't buy it.

Sure, with $1.5 million income they could easily afford the mortgage. They could also easily save enough to pay cash for it very soon.

Here's the thing... We don't know their expenses. If their expenses are fairly low, they can easily save enough to pay cash for it in a year or two.

If their expenses are high, and they CAN'T save enough to pay cash for it, then they really can't afford it.

Now, if it's a once-in-lifetime perfect house, I would tell them to buy it now, but only if they think they can pay it off within a couple of years.

Because if they don't think they can pay off the extra $450k mortgage in 2-3 years, then they really CAN'T afford this.
Why -- in this specific circumstance? Why is it a financially irresponsible step to pay 2% of your gross income per month for a piece of property that provides wonderful family memories and is likely appreciating in value anyway and keep the remainder of your funds in the market?

For people who make $125K per year -- I agree with you. For people who are making $125K per month -- it is a totally different ballgame and the regular rules are not always applicable.

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Re: Vacation house? Need objective third party

Post by DC3509 » Thu Sep 13, 2018 12:46 am

Cruise wrote:
Thu Sep 13, 2018 12:32 am
OP:

I haven’t noticed the source of your husband’s income. From your description of him as a partner, I assume he is an attorney or CPA, one with specialized knowledge which enabled recruitment from government work into a lucrative private sector position. This is a gravy-train, except possibly in times of market collapse. There have been several times in the past few decades when big firms retrenched and fired associates. Big partner salaries require lots of associates and organizations with money to spend. Is your husband’s line of work recession-proof?

Are you a law/medical faculty with iron-clad tenure? There is retrenchment in Universitrs as well.

Is the vacation home in a state that will tax your income, and that would add a significant burden?

Given your levels of education and IQ, I’d be surprised if you didn’t want to show your children a variety of foreign and domestic wonders for their summer vacations.

Ultimately, the final decision comes down to values and levels of risk-aversion. In my case, my wife and I valued flexibility in vacation destination, no added tax burden, and using our money to fund a diversified equity portfolio.

Good luck on your decision.
Taking off significant time to show "foreign and domestic wonders" is not always viable for extremely busy attorneys or CPAs People at the top of these professions do not get time off in the traditional way -- truly being off the grid. What they can sometimes swing is a reduced work schedule whereby they only work mornings or evenings or are only responding to emails on certain days, etc. These types of "vacations" are much more compatible with a vacation house than trooping around Europe is.

In any event, I don't even think the OP has to pick. If OP wants to buy a vacation house and then say every third or fourth year the OP wants to take a bigger vacation because he has the available time -- at a salary of $1.5 million -- this is absolutely possible.

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Re: Vacation house? Need objective third party

Post by daveydoo » Thu Sep 13, 2018 12:56 am

In the area we were looking, for the price of one year's property taxes alone we figured we could rent a spectacular place for many weeks. And that's about all we have time for anyway. So we never pulled the trigger. Also, we realized that we were too busy to even schedule time to look for properties to buy -- and that's the fun part. And then having a generally unoccupied property in a location with weather extremes, fire danger, etc. -- I knew I'd be spending most of my time there doing maintenance rather than enjoying myself with family (like I did when we used to rent others' homes in same community) or else watching the news from far away during fire season wondering how vulnerable my property was.
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Re: Vacation house? Need objective third party

Post by damjam » Thu Sep 13, 2018 1:43 am

DC3509 wrote:
Thu Sep 13, 2018 12:41 am
HomerJ wrote:
Wed Sep 12, 2018 11:25 pm
DC3509 wrote:
Wed Sep 12, 2018 10:14 pm
bromeliad wrote:
Mon Sep 10, 2018 2:16 pm
OP here. Thanks for the thoughtful responses. This level of income is new--within the last two years. Moved from gov't to private practice on the partnership level, so while this level of income is not totally guaranteed, it is relatively safe, and it seems that husband's income is likely to go up. We also saved and paid for in cash a major house reno last year ($300K). (The house was a fixer-upper we purchased five years ago for about half of its current market value.)

As for maintenance, we would hire a property management company. Historically houses on this waterfront are snapped up quickly, and this house presents a fairly unique buying opportunity for us. We could wait another couple of years and rent, but if we are renting a summer house in this location for $2500-$3000/week, it seems that buying might not be such a bad idea?
The OP made clear that the $1.5 million is "relatively safe" and "likely to go up" if anything. That's another thing about people making $1.5 million -- if you are lucky enough to make that salary at any point in your career, the chances are extremely high that you have a very specialized skillset or knowledge that justifies the salary and makes you competitive for that salary in the marketplace, at least for the reasonable future. Janitors and even middle management aren't pulling in anything close to $1.5 million.

I don't know the OP but based on the replies -- OP grew up in more modest circumstances, worked for the government, apparently worked very hard to get to this point, and has saved up more money than most people will ever have. My very strong suspicion is that OP is now surrounded by people who have vacation homes and the like and there is some cognitive dissonance between a humble work hard background and the new found wealth. Thus, the post here. If the OP had no money saved, or the salary was only guaranteed for say a year, or the vacation home was $10 million -- my feeling might be different too. I just feel like a lot of people see the words "Vacation Home" in a forum subject line and immediately leap to "must be paid in cash" or other rote mantras. These seriously can lead people with extremely high incomes to being the richest person in the graveyard and defeat the purpose of making money. Nobody is going to throw a parade for you when you have your $30 million dollar bank account.
The 20x gross income statement was silly, I agree.

But paying cash for luxuries isn't silly. If you can't afford to pay cash for a luxury, you probably shouldn't buy it.

Sure, with $1.5 million income they could easily afford the mortgage. They could also easily save enough to pay cash for it very soon.

Here's the thing... We don't know their expenses. If their expenses are fairly low, they can easily save enough to pay cash for it in a year or two.

If their expenses are high, and they CAN'T save enough to pay cash for it, then they really can't afford it.

Now, if it's a once-in-lifetime perfect house, I would tell them to buy it now, but only if they think they can pay it off within a couple of years.

Because if they don't think they can pay off the extra $450k mortgage in 2-3 years, then they really CAN'T afford this.
Why -- in this specific circumstance? Why is it a financially irresponsible step to pay 2% of your gross income per month for a piece of property that provides wonderful family memories and is likely appreciating in value anyway and keep the remainder of your funds in the market?

For people who make $125K per year -- I agree with you. For people who are making $125K per month -- it is a totally different ballgame and the regular rules are not always applicable.
Look I agree that sometimes posters here can overstate how conservative someone should be when it comes to finances. I imagine it is because of life lessons. People do experience sudden, sometimes tragic, life changes. Permanent loss or reduction in income is not that unheard of. What is a trivial amount of money today becomes an unsustainable burden tomorrow.

How do we know the property is "likely appreciating in value." Real Estate does not always go up in value. Need I remind you of the 2008 debacle?

None of us knows the future.

I sensed when reading the OPs posts that they were without a long term plan. That 125K per month represents an incredible opportunity. Do the OP and spouse want to choose what that money can do for them or do the want to just meander from one "unique opportunity" to another? Do they want to shoot for financial Independence at a comfort level that almost no one can achieve, or do they want to fill their lives with material things and stay chained to their current employment? Possibly something in between is what they want. Only they can answer those questions.

I'm just hoping that they will start asking themselves those questions before leaping into major commitments.

gotester2000
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Re: Vacation house? Need objective third party

Post by gotester2000 » Thu Sep 13, 2018 7:17 am

OP,

You are doing great and FI by normal standards. You can afford the vacation home.

However, its better to payoff your primary home and invest your income. As for vacations, with your income I would not mind renting 3k/week for how many weeks you would like. You wont have to maintain it and you are not tied up going to same place every time. IMHO vacation home is a lifestyle creep.

SQRT
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Re: Vacation house? Need objective third party

Post by SQRT » Thu Sep 13, 2018 8:57 am

Vacation homes are luxury lifestyle items. As such my opinion is you should generally pay cash for them. This will help you decide if you can afford them (certainly looks like you can) and if you really want it badly enough. Would you borrow money for an expensive watch, or Ferrari? I wouldn’t.

We bought our first vacation property in 1997. Lake house about 2 hour drive from the city. Paid cash but had some misgivings as it seemed fairly expensive at the time. Was a great place to chill out from our high pressure careers. In retrospect, it was one of our best decisions. Love the place (still). Entertain family and friends extensively there. Will bequeath to daughter who also loves it. Best viewed as a lifestyle choice though, not an investment choice. Memories created there are fabulous.

Lake houses need a lot of maintenance. After all they are usually wooden structures out in the woods. As such they are basically slowly rotting away. Count on about 5% maintenance/taxes/ etc average per year.


We are now retired (12 years) and spend most of our summers there. Remains our “favourite place” in the world. We still travel extensively despite having 2 more vacation places (mountains and snow bird place).

Went back to read some more posts. A number have mentioned “lifestyle creep”. Really? What is the point of being successful and making a lot of money if it isn’t to increase your lifestyle? You know, you can still spend a lot (I certainly do) while still LBYM.
Last edited by SQRT on Thu Sep 13, 2018 9:48 am, edited 2 times in total.

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HomerJ
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Re: Vacation house? Need objective third party

Post by HomerJ » Thu Sep 13, 2018 9:17 am

DC3509 wrote:
Thu Sep 13, 2018 12:41 am
Why -- in this specific circumstance? Why is it a financially irresponsible step to pay 2% of your gross income per month for a piece of property that provides wonderful family memories and is likely appreciating in value anyway and keep the remainder of your funds in the market?

For people who make $125K per year -- I agree with you. For people who are making $125K per month -- it is a totally different ballgame and the regular rules are not always applicable.
Man, memories are short.

Because, less than 10 years ago, we had a housing crash at the same time that we had stock market crash at the same time people were losing their jobs.

So going into more debt on another house, investing your savings into the stock market, and counting on your plum job lasting 10-15 years is indeed risky. Because it is possible to suddenly find yourself making less, with your invested money cut in half, and houses worth less than you owe.

Probably not very risky. Probably fairly low risk. But not zero risk. It JUST happened.

Look, we don't know their other expenses.

If you're making $125k a month, and you can't pay off a $450k loan in 2-3 years, then you can't afford the $450k loan. That's all I'm saying.

If the OP is fairly certain the income is stable, and they're saving $40k a month, then sure go ahead and buy it. They don't have to pay it off right away. They can invest that $40k a month into the markets instead, and pay it off later... I wouldn't, but you're right, that's not a bad plan at all.

But it seems they're worried about whether or not they can afford it. The best way to get past that fear is to pay it off quickly.

More and more monthly payments is a lot of pressure to put on the breadwinner... That vacation house is ALREADY going to cost them more each year in property taxes, furnishings, insurance, upkeep, utilities. They don't need another mortgage payment on top of that.

They just started making the big bucks. They'd probably feel a lot more comfortable buying something like this in 2 years with cash. That's when you know you're rich. Adding another mortgage should not make anyone feel rich. That's just more debt and more obligation.

I'd say save for a year, rent all next summer and keep looking.
The J stands for Jay

Admiral
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Re: Vacation house? Need objective third party

Post by Admiral » Thu Sep 13, 2018 9:43 am

Look, there's an easy way for the OP to make the decision (or help us help them make it):

What is left from your take-home, each month, after all expenses are accounted for? (This means after taxes, retirement savings, car payments, tuition, costs of daily life, etcetera.)

And, second, what is the likelihood of that amount staying the same (job stability)?

If you are left with $50,000 a month (for example, which could easily be the case on $1.2m of income) it would take you almost no time at all to pay off your current mortgage. A year? Two years? You say you are "quite frugal" but that means different things to different people.

Once you've dispensed with your primary mortgage, THEN I would say it would be OK to finance the lake house...which you could also pay off quickly.

Would it be so horrible to wait a year?

Dottie57
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Re: Vacation house? Need objective third party

Post by Dottie57 » Thu Sep 13, 2018 11:02 am

I don’t see the appeal. Rent for a month on the lake.

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