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Old 09-13-2012, 10:02 PM   #21
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2nd house is a real estate asset. Maybe or maybe not a good investment. Would not clasify it as an active investment in a portfolio if used vs. being a full 100% rental. If owned and managed for rental purposes, just as a duplex, four plex, or 8 plex it produces income/losses and truly has the purpose of not only being a vacation/2nd home. Again, even if a vacation/second home that is not rented it is an asset.
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Old 09-14-2012, 02:57 AM   #22
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until the day comes that any of my real estate rental or not produced positive returns they are liabilities.

you can call anything an asset even your furniture but if its not adding to the pot and costing you money then its taking away and anything taking away is a liability.
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Old 09-14-2012, 06:50 AM   #23
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until the day comes that any of my real estate rental or not produced positive returns they are liabilities.

you can call anything an asset even your furniture but if its not adding to the pot and costing you money then its taking away and anything taking away is a liability.
My primary home - a waterfront 3/2 on Lake Travis - become my second home three years ago when we bought a bargain foreclosure near downtown Austin.

Since then, the lake has dried up, the dock is sitting on the ground, and thank goodness I was able to lease it out on a two year lease which is up at the end of this month but they want to continue month to month for awhile in hopes the water comes back........

My carrying costs on that property are about $25K a year. It's true market value hasn't changed much over the last several years, I still stand to gain a $225K-$275K profit when I sell it, but the window of sales opportunity on properties like this is very narrow. To put it in other terms - it is subject to the availability of "goofy" money. And right now, there isn't a large supply of "goofy" money available.

So I'll continue to sit on it, maintain it, pay the mortgage and property taxes on it, watch as certain outdoor areas I built myself deteriorate over time and need to be restored/maintained, and watch the market closely to determine when the G1 (goofy money index) increases.

My point is - it's both an asset AND a liability - just depends on the point in time you are considering.
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Old 09-14-2012, 07:26 AM   #24
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If you can sell it for more and get some capital gains then its an asset.

in our case we sold at a loss, it was a liability.

it cost us money to keep it each month and it reaped no gains .

it was a consumption item . no different than jewelry or art that hangs on your wall that you will never part with.
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Old 09-14-2012, 07:34 AM   #25
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until the day comes that any of my real estate rental or not produced positive returns they are liabilities.

you can call anything an asset even your furniture but if its not adding to the pot and costing you money then its taking away and anything taking away is a liability.
The mortgage (if any) and recurring expenses are liabilities. The equity is an asset (not necessarily precisely known until you go to sell). Describing it as anything else is just a personal definition of what it all means to us.
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Old 09-14-2012, 09:18 AM   #26
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duplicate bills for everything ,even when we werent there, lost opportunity costs and the closing costs in and out were a big nut.
I'm hoping to unload our White Mountains condo by year end. Had it for 10 years while kids were still home. Now we get up there so infrequently we can't justify the expense. Just have to get over the last hurdle: wistful wife when we visit.
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Old 09-14-2012, 10:04 AM   #27
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My take....

There is a distinct difference between a vacation home and a second home.

A vacation home is a place where you go weekends, a week here a week there. The lack of utilization on a more permanent basis does lead one to feel "guilty" that it just sits there a good amount of time. Even if you are renting out on a part time basis more often than not it is sitting empty a good amount of time. Add in the often mentioned "done everything there", "feel a need to go for every vacation" and "desire to go other places" and it is easy to come to the decision that a vacation home is not necessarily a great allocation of capital.

A second home is different in that it is a residence that is more or less permanent for a significant amount of time each year (5+ months a year).

Having owned both nearby "vacation homes" and now owning a "second home" i now truly see each in a different light. I don't feel as guilty about the second home as I view it as a place that I actually "live" in for a good portion of the year.

In either case of course they are an asset. Is it liquid? No, but what real estate is?

In the end it always comes down to what you can afford and how you want to allocate your capital. Everyone's situation is different.
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Old 09-14-2012, 01:21 PM   #28
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I have a second "lake house" that I consider an investment. When I look at all my other investments, how should I classify this 2nd house? If my other investments are, stocks, bonds,and cash, this is real estate. Should this "investment" influenence my other investments? I like to think about it as a bunch of money waiting for me to cash it in. It would be about 1/3 value as my other investments combined, approximately $400K.

Thanks
Yes, I would count it as real estate, but I agree with Michael that it's not an investment. You mention that it goes up in value, but do properly call it an investment you'd have to calculate in all the expenses (property taxes, utilities, time spent winterizing, repairs, decorations, etc.). It's definitely an asset (unless you have a loan and are upside down), but I would not call it an investment until you've done a full expense/NPV analysis.
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Old 09-14-2012, 01:38 PM   #29
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All i know is i sold mine in july and our cash flow is sooooooooooooo nice now.

no stresses either waiting for the next repair bill or headache
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Old 09-14-2012, 04:39 PM   #30
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My carrying costs on that property are about $25K a year. It's true market value hasn't changed much over the last several years, I still stand to gain a $225K-$275K profit when I sell it, but the window of sales opportunity on properties like this is very narrow. To put it in other terms - it is subject to the availability of "goofy" money. And right now, there isn't a large supply of "goofy" money available.

My point is - it's both an asset AND a liability - just depends on the point in time you are considering.
I'm curious Lake Travis. Did you factor in your carrying cost (3 X$25K), taxes and insurance into your calculated profit of $225-$275. Or did you calculate profit based on purchase and potential sales price?
I tend to look at what all the buckets cost me before I look at profit. For ex: If carrying cost is $25K X 4 years = $100,000K (let's forget about any rent situation for now). If I sell it for a sales profit of $200,000 at the end of 4 years then I've really only made $100K. I don't factor in potential appreciation because who the heck knows?
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Old 09-14-2012, 04:52 PM   #31
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I'm curious Lake Travis. Did you factor in your carrying cost (3 X$25K), taxes and insurance into your calculated profit of $225-$275. Or did you calculate profit based on purchase and potential sales price?
I tend to look at what all the buckets cost me before I look at profit. For ex: If carrying cost is $25K X 4 years = $100,000K (let's forget about any rent situation for now). If I sell it for a sales profit of $200,000 at the end of 4 years then I've really only made $100K. I don't factor in potential appreciation because who the heck knows?
Good point. My carrying costs are completely covered as long as it is leased out, and the principal owed declines by about $7K per year.

The property would list for approximately $500K. I currently owe $190K and property taxes are roughly $9600 a year. Anticipated future appreciation of 4% per year (typical historic average for comparable properties over the last couple decades) would almost completely offset my annual carrying costs even with no lease and after interest and property tax deductions.

So I suppose I'm being a bit conservative on what I would net on sale.
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Old 09-14-2012, 06:51 PM   #32
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I have a second "lake house" that I consider an investment. When I look at all my other investments, how should I classify this 2nd house? If my other investments are, stocks, bonds,and cash, this is real estate. Should this "investment" influenence my other investments? I like to think about it as a bunch of money waiting for me to cash it in. It would be about 1/3 value as my other investments combined, approximately $400K.

Thanks

IMHO, a 2nd house is an illiquid investment with carrying costs that are offset by rental income (if any). Its essentially capital appreciation (depreciation) risk that over time might provide an inflation hedge.

I do think you should think about it alongside other real estate assets in your investment mix...particularly because this chunk of your assets likely isn't yielding anything in real time so...and so that you're forced to stare it down as part of asset allocation. While its not immediately liquid you could monetize the house (sell or pull equity via a loan) and invest it elsewhere.

My $0.02.
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Old 09-14-2012, 07:02 PM   #33
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Good point. My carrying costs are completely covered as long as it is leased out, and the principal owed declines by about $7K per year.

The property would list for approximately $500K. I currently owe $190K and property taxes are roughly $9600 a year. Anticipated future appreciation of 4% per year (typical historic average for comparable properties over the last couple decades) would almost completely offset my annual carrying costs even with no lease and after interest and property tax deductions.

So I suppose I'm being a bit conservative on what I would net on sale.
Got it. As long as you don't go into your own pocket for carrying cost..and even if you do... as long as there is some appreciation..that 's a better situation.

I think for myself...it is hard for me to get over say a $500,000 dollar property costing me $25,000 a year versus making me $25,000 a year......

Each to his own because I have not factored in the enjoyment factor. For us it is one of those things ..."will I enjoy it if it sits empty 1/2 the year...and I know it's empty even while renting 3 months out of the year. For me, I think I'd still have it on my mind.
I have owned a beach front cottage with my siblings in the past. It has never fully carried itself. I sold out in 2004 because joint ownership was not working. I get phone calls from 2 of the 3 siblings every couple of months...complaining about the fact they still own it and it is costing them more than than thought. $60K for new windows and doors recently... that sort of thing. Really makes one think twice!
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Old 09-14-2012, 07:19 PM   #34
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All i know is i sold mine in july and our cash flow is sooooooooooooo nice now.

no stresses either waiting for the next repair bill or headache
This.

In retirement, DH and I don't want to be burdended with a second property. As previously mentioned in this thread, we recently sold our second place and are now down to one. Such a relief.

We've never forget dealing with both properties when we didn't have a renter and the snowpocalypse hit. 3' of snow, risking our lives to go to the rental place to shovel it out, worring about ice dams and roof cave ins, having a heart attack, etc, etc, etc.
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Old 09-14-2012, 07:29 PM   #35
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We lived in constant stress all winter . With temperatures close to zero alot our fear was always the heat crapping out.

We had a box monitor it with a dialer. It would call us at 2 am and we wouldnt know if we had no heat because of a power outage in the area or something unique to just us.

Every event was a race against time as even though the water is off when we leave the house is still filled with water since we still would come up in the winter.
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Old 09-15-2012, 05:09 AM   #36
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I have a second "lake house" that I consider an investment. When I look at all my other investments, how should I classify this 2nd house? If my other investments are, stocks, bonds,and cash, this is real estate. Should this "investment" influenence my other investments? I like to think about it as a bunch of money waiting for me to cash it in. It would be about 1/3 value as my other investments combined, approximately $400K.

Thanks
I think a vacation home or a second home is generally just another non-financial, illiquid, personal asset, just like your main home and your car. You should include it's estimated FMV in net worth calculations, but it should not be considered in any asset allocation decisions related to your investment portfolio of financial assets.

On the other hand, I own a small rental house near a university that generates reliable positive cashflow with an equivalent pretax return of around 7%. I do consider this to be an investment and I include it's estimated FMV, along with financial assets, when I make asset allocation decisions. My asset allocation is currently 50% bonds, 30% stock, and 20% real estate, which includes some REIT and the rental house.

However, I think it is perfectly acceptable to consider certain non-financial personal assets as part of the FUTURE investment portfolio, if you know you are going to convert to cash at some point. This could include a vacation home, an extra car/boat/RV, or even a portion of your main home (if you plan to downsize and use the net proceeds for investment purposes). FIRECalc has a section on 'portfolio changes' for specifically this purpose. I think the OP fits this scenario.

My advice to the OP is: Don't consider the lake house as part of your investment portfolio and don't let it influence your asset allocation decisions until after you sell. Until then, just list it alongside your main house as a non-financial personal asset that increases your net worth but has no bearing on your current investment portfolio. But DO consider it's estimated sale value (and timing) in your future retirement income planning, including asset allocations at that time.
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Old 09-15-2012, 05:58 AM   #37
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DW and I own a lake house. It definitely won't be listed under our investments. It is a recreation expense that we could unload if we got in a bind or got tired of it. We've gone the RV route years ago and found this more to our current tastes. On the the plus side rather than depreciate it appreciates slowly. I think that listing it as an investment gives you a false sense of wealth. I put it on the balance sheet but that doesn't mean much. To me liquid investments are what I'll live off in retirement.
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Old 09-15-2012, 06:22 AM   #38
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We have a vacation condo. I don't consider it an investment. I consider it and its expenses as vacation/recreation expenses. But I include its value as an asset the same as our house.
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Old 09-15-2012, 08:22 AM   #39
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Real Estate rule of location, location, location applies here. I don't see how you can go wrong with a house at Lake Travis near Austin. I have an inherited cabin on Lake Texoma on three lots that has sentimental value far beyond the minimal carrying costs. It was built by my father in 1961 and I grew up going there.

And it doesn't hurt that the Dallas area is approaching 7 million and growing that direction.
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Old 09-15-2012, 03:28 PM   #40
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...My asset allocation is currently 50% bonds, 30% stock, and 20% real estate, which includes some REIT and the rental house.
...
My advice to the OP is: Don't consider the lake house as part of your investment portfolio and don't let it influence your asset allocation decisions until after you sell. Until then, just list it alongside your main house as a non-financial personal asset that increases your net worth but has no bearing on your current investment portfolio. But DO consider it's estimated sale value (and timing) in your future retirement income planning, including asset allocations at that time.
I agree with almost all of Cobra9777's view. The only thing I would say is that I personally let the non-income producing assets (home) influence my desired real estate % of my asset allocation. For example, if I didn't have $ sunk in home, I would increase my desired asset allocation percentage for real estate... but then I am tilted more heavily to real estate than most.
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