Buy 2nd Home Now or After Retirement?

[karluk]

Thanks. Have a nice day.

You're welcome.

 

[pb4uski]

I refied our home just before I retired. I knew I was leaving work but their application didn't ask that question and I felt no obligation to disclose it.

The process is a bit stupid though. If someone has significant assets, does a lender really think that they will let their home go into foreclosure and lose any equity they might have in the process?

We had two homes pre-retirement; moved into our vacation home (up north but on the water) and sold the home we raised our kids in. Getting down to one home and one set of home expenses is part of the reason I felt comfortable retiring.

While we snowbird, I'm in no hurry to buy a winter home. I can rent for a few months for much less than the opportunity and carrying costs of a winter home. I figure that for each $100k of value a winter home would cost me about $7k and I can rent a nicer place for 3 months for less than that. Besides, we're unsure of where we would really like to spend our winters (FL? AZ? TX barrier islands? GA? SC? HI? Carribean?)

If we found a place we really liked I would consider a second home, particularly if it was located in a popular summer location so we could rent it during the summers and generate income so it could carry itself (like SC or TX).

 

[45th Birthday]

Why do you want to get new debt when retired? If you cannot afford to own it outright, buying seems to be a bad idea.

In my case, I could easily afford to pay off all loans and not borrow to buy. Instead, I look at mortgage debt as a tool to help me improve financial performance. I don't have an emotional reaction against debt, no more than I do against buying a particular asset class. If the risks and rewards make sense, I do it. When I can borrow at extremely low costs, it makes good sense. The latest is just a touch over 3% fixed-a no-brainer. I do use shorter maturities primarily to lower the costs. Even if I didn't pay extra or sell a property and repay the debt, it will all be gone before I turn 68.

 

[haha]

Neither, homes are demanding of my time and money.

Agree. modern people are not really comfortable with idleness, no matter what we say. So retirement may bring small business purchases, second (or third home) purchases, volunteering campaigns, regular remodeling projects whether DIY or contracted, ad infinitum. Any of these things, and any boat beyond an aluminum rowboat or canoe are fine for truly wealthy people-$25+ million. Otherwise, it is just a continuation of slavery only under a different name, and with the cash flow often going in the wrong direction.

 

[RobLJ]

Everyone is different. We bought the cabin in Colorado almost 5 years ago, before the crash, refinanced to a 15 year at 4.5% in 2009, and paid off our first and second on the Houston home (the latter to send the boys through college) last year, so the cabin is the only house debt and not very significant.
It's a day's drive from Texas, but we're likely to move to the PacNW next year (or two), so the question of whether we keep the cabin is in the air. We could lease it or sell it if we decide not to keep it. The boys and their SOs meet us over X-Mas, at times over Thanksgiving (skiing), and once or twice in summer to flyfish, so we'll see what happens.
If you're planning to loan the money, I would do it before retiring.
My grandfather built his cabin, partly out of condemned Oklahoma house lumber, when I was 6, below Aspen, so describing the cabin as sentimental value is a bit of a misnomer. Kind of a modern-day River Runs Through It childhood, but we might sell it and buy something similar closer in the PacNW. That won't be decided for 3-5 years--we're likely to move West next year or maybe early 2016.

Our home up north has less than $20k mortgage left. Market value of approx $300,000. I'm planning on FIREing before the end of 2015. We want to get a second home in Florida, at least to snowbird for the next few winters. After that, may rent/sell the home up north. We will very likely get a mortgage to buy the house/condo in Fla.

My salary is in the very, very low six figures and I'm sure I'd qualify for a mortgage. I could take a HELOC to fund the new place as well.

Question: besides the obvious improved qualification (based on salary) to get a mortgage, what are the pros and cons of buying real estate before or after retirement? Has anyone gone through a mortgage process while in retirement?

PS: BiggerPockets has a lot of real estate info, but the wisdom from this forum seems more appropriate and valuable to me��

 

[JDARNELL]

I too have toyed with this idea. Tired of the winter here in Colorado and really want to get out and ride the HOG. Too much gravel on the roads still. However I rented a condo in Scottsdale for Spring training and AZ bike week. Spouse is there now with one of the baseball moms from son's team. I leave this week with the kids and two motorcycles. Buddy will fly in once wife and kids come home and we will ride for another week. For years we have toyed with the idea of having a second home to escape the weather. Life schedule has got in the way. However, I am getting to start a new position that will allow me to work from anywhere, kids more active in baseball with more trips to AZ, and the desire to get more riding in may be a catalyst to add a second place. However I go back and forth on the perceived lost opportunity cost of having another place plus I must admit if I am going to do it I want a nice place in a gated community where everything is done. Maybe I will just do a longer rental as its probably cheaper in the long run.

JDARNELL

 

[SVHoper]

.... The area is one of the leading areas for sink holes, which affected a rental property we had purchased nearby. We've learned there are sink hole maps online that anyone thinking of purchasing a home in Florida should review...

Hi Dashman,

Thanks for taking the time for your very detailed answer. I am glad to hear that you and your family still got a lot of value from your property, even if you don't want to make it your main retirement residence.

Sink holes and sink hole maps are certainly something I have never considered.

Best of luck with your new home.

 

[Elbata]

My wife and I are going to Palm Springs tomorrow to look at a few condos.

We'll pay cash if we buy, but I'm torn on purchasing.

Here are a few pros and cons for me:

Pros:

We can bring our dog to stay with us.
There are tennis courts and swimming pools.
Of course golf.
We like visiting Palm Springs and could easily hang out a week or 2 at a time.
Use for a Home Exchange to travel world more cheaply.
Rent out condo.
I'm handy, can do most repairs.

Cons:
Don't like spending $100K and incurring more bills instead of growing wealth.
Don't like owning property that's not within 50 miles.
Usually try to maintain simplicity rather than complicate life.

 

[pb4uski]

We spent a week in Palm Springs in January. Nice area. We were surprised how cool it gets at night. I'm surprised you could get a condo for $100k. We dropped in on a couple open houses and were surprised at the asking prices - they seemed high for what you get.

 

[tryan]

Rent out condo.

I would look at Homeaway and VRBO so see what the competition is. You'll also be able to see the bookings they have via the calander.

I tried Home Exchange with our lake house ... pretty much a waste of time. WAY too many homes in the 'burbs of the midwest that considered their house an even trade. NOT HAPPENING. Spent way too much time responding to useless inquiries. Then when we wanted to go someplace you quickly realize displacing an entire family from their house for a week is challenging.

 

[Jack_Pine]

I could pay cash, but prefer to keep my cash more liquid. Also,

1). I will have a decent pension
2) my DP (darling partner) will continue working for several more years until an annuity and my SS kicks in.
3) eventual sale of primary home in near future would payoff the debt
4) real estate in south Fla is significantly undervalued (I believe)

Believe me, I'm debt adverse, but with property values and mortgage rates this low, I think we have a perhaps once in a lifetime opportunity.

We bought 1.5 years ago because is was very close to the bottom of the market. We got a very good deal and I believe there are still deals to be had. We are helping a few family members who are looking right now.

We love owning, maybe just us. It also lets us bring our dogs which is a requirement.

 

[Meadbh]

Fractional ownership may be a good economic compromise for many people. However, I suspect it is difficult to find a fraction in a dog-friendly resort.

 

[NoMoreJob]

There are non-financial aspects of this decision as well.

Many of us find that our desires and point of view changes in retired life, as compared with what they were when we were working.

Some people find that the drive to get away on vacations or to move miles away, diminishes once they have retired. There is no longer anything to get away from, no need to physically remove oneself from the source of stress because it is no longer an issue.

So, my suggestion is to consider waiting for at least a year after retirement before buying the second home.

I agree, and if possible rent in the area you are considering purchasing before making the commitment. You may find that you love it and you may find that it's not what you expected.

We've found that social opportunities and activities (hiking, biking, working out, etc.) have become much more important to us in retirement but it took us a couple of years to figure that out. Had we purchased before we finished working I'm sure we would have ended up in the wrong place.

 

[NoMoreJob]

I too have toyed with this idea. Tired of the winter here in Colorado and really want to get out and ride the HOG. Too much gravel on the roads still. However I rented a condo in Scottsdale for Spring training and AZ bike week. Spouse is there now with one of the baseball moms from son's team. I leave this week with the kids and two motorcycles. Buddy will fly in once wife and kids come home and we will ride for another week. For years we have toyed with the idea of having a second home to escape the weather. Life schedule has got in the way. However, I am getting to start a new position that will allow me to work from anywhere, kids more active in baseball with more trips to AZ, and the desire to get more riding in may be a catalyst to add a second place. However I go back and forth on the perceived lost opportunity cost of having another place plus I must admit if I am going to do it I want a nice place in a gated community where everything is done. Maybe I will just do a longer rental as its probably cheaper in the long run.

JDARNELL

Definitely cheaper in the long-run. Look at the carrying costs of owning a second home - property tax, insurance, HOAs, utilities, yard maintenance, exterminator, repairs, routine maintenance, large periodic maintenance, someone to keep an eye on the place, etc. Now add on the opportunity cost of what that money could be earning and the interest cost if the home is financed and the cost is HUGE!

I hear friends refer to their second homes as "investments" and I have to chuckle to myself.

 

[REWahoo]

I get together for lunch two or three times a year with three retired former co-workers, all who have second homes - heck one has two second homes, a lake house nearby and a condo on a golf course in FL. I sometimes feel a bit left out when the conversation inevitably gets around to complaints about homeowners insurance, condo association assessments,

... property tax, HOAs, utilities, yard maintenance, exterminator, repairs, routine maintenance, large periodic maintenance, someone to keep an eye on the place, etc.

But then I get over it.

 

[FIREd]

I get together for lunch two or three times a year with three retired former co-workers, all who have second homes - heck one has two second homes, a lake house nearby and a condo on a golf course in FL. I sometimes feel a bit left out when the conversation inevitably gets around to complaints about homeowners insurance, condo association assessments,
But then I get over it.

But you have a second home. Yours happens to be on wheels.

 

[REWahoo]

But you have a second home. Yours happens to be on wheels.

OK, you got me - but my list of complaints/costs is far smaller (and so is the 'mortgage'):

[-]homeowners[/-] insurance,
[-]condo association assessments,[/-]
[-]property tax,[/-]
[-]HOAs,[/-],
[-]utilities, [/-]
[-]yard maintenance, [/-]
[-]exterminator, [/-]
repairs,
routine maintenance,
[-]large periodic maintenance, [/-]
[-]someone to keep an eye on the place, etc.[/-]

Oh, and if I don't like my neighbors I can easily exchange them.

 

[MichaelB]

Second home or RV, both are [-]money pits[/-] expensive pastimes. Some people go to great lengths to rationalize their choice and can provide a well thought-out list of vacation or travel expenses avoided (aka financial analysis and justification), but there is no denying that each cost big $$ and are high maintenance. They are lifestyle choices, and seen in that context, are legitimate options.

The point I would make is that as a lifestyle option, owning a second home has a very high upfront cost which is usually fully committed before the first day of enjoyment. It makes sense to rent, just to test the waters, for a year or so, to make sure the benefit will be appreciates before the contract is signed.

 

[Jack_Pine]

I would not call it rationalizing. We don't like to do airport travel that much os having a place we feel comfortable with works for us. It's paid for and we can afford it so I could care less if that money could grow even more.

BTW, have an RV as well. It's a lifestyle thing for us (dogs).

 

[travelover]

Second home or RV, both are [-]money pits[/-] expensive pastimes. ........

Here in SE Michigan it seems like every other person has a place "up north". And why are they going up to the cottage this weekend? To mow the grass, to fix the roof, to paint, to winterize the water system, to open the place for guests..........

 

[haha]

Here in SE Michigan it seems like every other person has a place "up north". And why are they going up to the cottage this weekend? To mow the grass, to fix the roof, to paint, to winterize the water system, to open the place for guests..........

Time for thinking and woolgathering can cause trouble in those years between work and the grave. So best that this time be filled up tight with busywork.

Ha

 

[heirloom]

Don't forget Fl. used to be all swamp at one time, and most of it is in flood zones, especially southern Fl. The fed. gov. wanted to increase flood ins. 18% yearly because of the money they now owe due to the storms in NJ and NY.
Fl. gov. got it changed for the time being. Just type Florida flood insurance in yahoo or google and there will be all kinds of articles.

Soooo, if you pay cash, you won't need flood insurance. You get it only if you want it. You will have 3 insurances, flood, hurricane and regular residential ins.

We went to Englewood for 5 wks. this yr. and we both love it. While there, we listened to Charlotte county meetings on television each week. They were talking about how all of Charlotte county is a flood zone and they have to get prepared in case they get a hurricane like NJ and JY got. When Charlotte was built back in Edison and Ford days they didn't put enough fill in the ground for floods from the ocean. Go to the county office to see what level of flood plane your place is in. Level 10 is best. Your insurance depends on your flood level.

ANOTHER thing we noticed on these meetings...Fl. depends on money from us snow birds PLUS writing up notices on homes if the roof needs replaced, home needs painted, grass needs cut...and all that stuff. If you get any maintenance done on your home(instead of doing it yourself) make sure it is done by a person that is qualified in the area you live. A lady who lives in West Palm owns a rental home in Port Charlotte. The new roof was put on by a business from West Palm. They made her get a new contractor that was Char County qualified, tear the roof off and put a new one on.

Just some food for thought. We are still consider purchasing though bc hubby will do the maintenance and we'll pay a local person to cut grass.