Second home

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Topic Author
Gingersfe
Posts: 3
Joined: Sat Dec 08, 2018 10:01 pm

Second home

Post by Gingersfe » Sat Nov 09, 2019 11:41 pm

Hi All: long time reader, first time poster. DH and I are considering buying a second home/condo somewhere south of us to escape cold, rainy winter months. Can we afford this? If so, how much should we spend? It could be we should stick to seasonal rentals. Both retired, I am early 60’s, DH older, early 70’s. No pensions, investments total approximately $6.8 million; additional income of $54 k per year from social security and a small trust. No debt or mortgage, own current home outright. Our annual expenses have been running $175-185,000 per year including taxes, but at least 15k of that is travel expense that could be reduced by purchase of 2nd home. Very conservative allocation: 40% equities, 17% bonds, 43% cash. Thanks for your input!

Silk McCue
Posts: 3310
Joined: Thu Feb 25, 2016 7:11 pm

Re: Second home

Post by Silk McCue » Sun Nov 10, 2019 7:46 am

Welcome to Bogleheads with your first post!

Of course you can afford it. I'm not certain why that is even a question unless you are considering buying some exorbitantly priced property. You currently only need a 2% withdrawal rate off your holdings combined with SS to cover your high cost of living standard at 175/185k. You have enough cash alone to cover that for 20 years.

Whether you should is a different issue. Having the flexibility to rent in varying locations certainly has its upside benefits without having to handle the responsibility of maintaining a property in another state with with its associated needs. You can write a check today for one if you want. Just don't overbuy if you choose to do so.

Cheers

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HueyLD
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Joined: Mon Jan 14, 2008 10:30 am

Re: Second home

Post by HueyLD » Sun Nov 10, 2019 8:07 am

Affordability won't be a concern as long as you don't spend BIG on the second home.

However, you may want to start your snow bird or rain bird residence by renting first. Unless you are so positive that you will love the second home location, it is costly to own a second home and sell within a short period of time because you realize that the location sucks.

In addition, owning two homes means that you will likely have to hire maintenance crew to take care of your homes when you are away from them for months. A number of things can happen when a house is unoccupied. In addition, your home insurance premiums will go up due to extended absence.

If you are on Medicare Advantage, you may not be covered in the second home location and you can get sick in the new location. Every older second home owner I know is on traditional Medicare.

It is doable if you can handle the additional stress and responsibility associated with two home ownership. And as people get older, they tend to slim down to one home again. The trigger can be poor health, death of spouse, not wanting to drive long distance every year to travel between two homes, etc.

Good luck.

GmanJeff
Posts: 512
Joined: Sun Jun 11, 2017 7:12 am

Re: Second home

Post by GmanJeff » Sun Nov 10, 2019 8:30 am

The responses so far are on point. Affordability depends on how much you spend on the second home, both to purchase and then to maintain it, including insurance, real estate taxes, condo fees and assessments (if applicable), etc.

Equally valid are those observations that second homes may become less attractive over time. You tie up some amount of your financial assets and cash flow, do not have the flexibility to cut back on associated expenses without an outright sale, you limit your range of potential travel destinations because you'll feel obligated to use the second home in preference to traveling elsewhere, and as you age you'll likely find traveling to the second home (or to anywhere) each year becomes less and less appealing.

An entirely different question is around the wisdom and long-term impact of maintaining 43% of your financial resources in cash, but you didn't ask about that.

Topic Author
Gingersfe
Posts: 3
Joined: Sat Dec 08, 2018 10:01 pm

Re: Second home

Post by Gingersfe » Sun Nov 10, 2019 12:34 pm

You are right about too much cash, I know, though I am very loathe to buy in this market, and will likely always keep a low equity stake.
Thanks for all the advice!

Silk McCue
Posts: 3310
Joined: Thu Feb 25, 2016 7:11 pm

Re: Second home

Post by Silk McCue » Sun Nov 10, 2019 12:58 pm

Gingersfe wrote:
Sun Nov 10, 2019 12:34 pm
You are right about too much cash, I know, though I am very loathe to buy in this market, and will likely always keep a low equity stake.
Thanks for all the advice!
Are you at least using a multi year CD ladder to maximize your return on what you refer to as cash? If not, where are you holding Cash?

Cheers

Topic Author
Gingersfe
Posts: 3
Joined: Sat Dec 08, 2018 10:01 pm

Re: Second home

Post by Gingersfe » Sun Nov 10, 2019 1:06 pm

It’s invested in highest yielding cds I can find, plus a large chunk in vmsxx. I’m getting an average yield of a little over 2% for all the cash.

Jay6821
Posts: 3
Joined: Tue Oct 20, 2015 8:17 pm

Re: Second home

Post by Jay6821 » Sun Nov 10, 2019 8:48 pm

With a 6.8 million portfolio, you only need to withdraw ~ 2% a year, which combined with your other income, would meet your lifestyle needs. With a 2% withdrawal rate, assuming you have 40 to 50% stock exposure, your portfolio has about a 95% chance of still funding your needs 35 - 40 years from now. Now those are just rough estimates, but a 2% withdrawal rate is very conservative. However, a problem could arise if the second home you purchase is very expensive. That would decrease your portfolio, while at the same time increase your monthly living costs.

bltn
Posts: 562
Joined: Mon Feb 20, 2017 9:32 pm

Re: Second home

Post by bltn » Sun Nov 10, 2019 9:34 pm

We built a second home in a coastal community a half day s drive from our other home. We ve had both homes for the last eleven years. Maintenance costs for the beach home have been very high. We find that we don t travel to other places much anymore. But we really like the location of our beach home and really like our neighbors, so we don t rally miss our other travel. And the value of our second home has risen quite a bit.
As we get older, we find we prefer the change of pace provided by our second home to other travel. ( I m just a very boring person and my wife puts up with it! )
I also would advise not overspending on your second home.

123
Posts: 5155
Joined: Fri Oct 12, 2012 3:55 pm

Re: Second home

Post by 123 » Sun Nov 10, 2019 9:38 pm

I'll agree with the chorus that you can certainly afford a second home. As stated a second home would come with its own share of financial and physical maintenance issues that would have to be dealt with. If perhaps the second home is near children or other family maybe those burdens might be lighter, one of the main problems with a second home is that it usually empty a significant period of time and that leads to various problems.

With your asset base you likely have the luxury of NOT buying a second home. You can rent as desired (Airbnb for example). While there is a lot to be said for a second home that you can stock with clothing etc and is ready to go as soon as you open the door the maintenance issues can dull the luster of that rather quickly.
The closest helping hand is at the end of your own arm.

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