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Old 04-07-2015, 11:07 AM   #21
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I would imagine you would be fine. The thing many seem to downplay (or not consider) is that at some point in the future you will have an asset that you can (and most likely will liquidate). And it is an asset that will most likely appreciate at the inflation rate overtime.

Is it the optimal financial use of assets, no. But that is not the correct question in my mind. Taking $700,000 out of the mix for 15 or so years even with the additional expense of ownership is not likely to be the reason you have to eat cat food given your net worth.
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Old 04-07-2015, 11:18 AM   #22
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....proposed purchase is a winter condo for $600K-$750K (depending on unit) with yearly expenses of $24,000 - $28,000/year (HOA,RE taxes,utilities)....
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While I think we can swing this should we??...
FWIW, I get a annual cost of:

Operating costs:...........$24,000.......$28,000
Opportunity cost:...........33,000.........41,000

Total............................$57,000......$69, 000

Assumes opportunity cost on the purchase price at 5.5%.

Can you? Probably. Should you? Your money, your decision but I think it is a bit crazy. i would either rent or find something less extravagant.
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Old 04-07-2015, 11:19 AM   #23
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Just curious, where is your current home and the proposed condo?
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Old 04-07-2015, 11:31 AM   #24
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Just curious, where is your current home and the proposed condo?
midwest (hate the dead of winter-cold/ice/wind,etc)

northern miami area!
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Old 04-07-2015, 11:38 AM   #25
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midwest (hate the dead of winter-cold/ice/wind,etc)

northern miami area!
Also known as the northern tip of Latin America

We spend our year in-between these two areas. Whatever amount you budget to carry the 2nd home, expect to spend more. That's just the way life is when you are away from a property for 6 months - it gets even more expensive to maintain.

Back to your original question, there's no doubt you can afford the condo. It does look like your financial independence, as you define it (working because you want to, not because you have to) may be at risk, for a few more years. A trade off only you can judge.
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Old 04-07-2015, 11:45 AM   #26
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So, potential annual cost of holding the condo is 57-69K a year...the thing that totally turned us off a "winter home" is take that number and divide by the time you actually live there. You mentioned 4 months a year so the actual cost per month needs to be figured on the amount of time you actually stay there.Of course you also need to make that calculation on your primary home as you have things you need to pay for there on a year round basis.

Paying a large monthly condo fee is one thing when you partake of all the benefits year round and quite another when you are a part time resident. I assume a large part of the 24-28 is in HOA fees.

These type of calculations were what made us decide not to buy a winter home, and our carrying costs would have been a lot lower then yours. As I mentioned in an earlier post these kind of numbers really make you feel tethered down to the winter home, since it carries so much in sunk costs.
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Old 04-07-2015, 11:46 AM   #27
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You could probably do it, seems like you have enough money. But you might consider if you really want to do it. Seems like having all this expensive real estate sitting empty and always needing maintenance and money would be a mental drain.
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Old 04-07-2015, 11:52 AM   #28
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Quote:
Originally Posted by pb4uski View Post
FWIW, I get a annual cost of:

Operating costs:...........$24,000.......$28,000
Opportunity cost:...........33,000.........41,000

Total............................$57,000......$69, 000

Assumes opportunity cost on the purchase price at 5.5%.

Can you? Probably. Should you? Your money, your decision but I think it is a bit crazy. i would either rent or find something less extravagant.
+1. Personally, for that high of a price relative to your total net worth I would rather have the security from the extra savings and just rent / visit different places. Or buy one house in a place where it is a pleasant temp all year round.

Here are some thoughts to help you make your decision from the Thomas J. Stanley blog (The Millionaire Next Door) -

Second Homes... Part I

"Most millionaires can afford to purchase and maintain a vacation home. Yet, as I mentioned in Stop Acting Rich, 64% of the millionaires surveyed never owned a vacation home, beach bungalow or mountain cabin, not even a lean-to or a tree hut in the woods. ......Most millionaires rent instead of buying vacation homes."
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Old 04-07-2015, 11:55 AM   #29
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....Paying a large monthly condo fee is one thing when you partake of all the benefits year round and quite another when you are a part time resident. ...
When we looked at FL condos recently that is the dilemma that we ran into. If we only use it 3-4 months then owning is much more expensive than renting even if one is paying prime season rental rates for the strata of properties that we were looking at. YMMV.
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Old 04-07-2015, 12:09 PM   #30
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When we looked at FL condos recently that is the dilemma that we ran into. If we only use it 3-4 months then owning is much more expensive than renting even if one is paying prime season rental rates for the strata of properties that we were looking at. YMMV.
+1. Same here.

I know many that have had buyers regret as they ended up not using it as much as they thought, would have rather traveled to other places and after a couple or more years, they have either tried to sell or they rent it to recoup the carrying costs.
On the flip side, I also know many that love their second homes.
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Old 04-07-2015, 12:24 PM   #31
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We went through a similar decision process recently.
I am also 56 (DW 47) and sitting on investable assets slightly more than yours, and have often considered a vacation home. We went to Crested Butte CO last year and rented a house and came back all gangbusters about buying there. However, after a little time, we realized we are still pretty young, and our idea for a permanent 2nd home may change over time. We can easily afford to rent a nice home anywhere, so for now we are going down our bucket list of places we like and may want to have a second home. At 56, I just worry about committing a large chunk of assets to a place so early in our retirement years. If we do something in the next few years, it'll be in a more modest range, and preferably without a large HOA.


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Personally, I would have more modest ambitions for my vacation property. Yes, of course you can sell it if things don't work out, but vacation property is discretionary and is the first to lose value in a downturn.
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Old 04-07-2015, 12:50 PM   #32
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ran firecalc with my info as follows;

1st senario; $150,000 draw each year starting in 1 year with SS at $50,000 kicking in 2028 = 95.2% success rate for 40 years (gets us to age 96)

2nd senario: all parameters same except for $140,000 draw each year = 98.1% success rate.

both of these simulations are in excess of what I actually need per year (84k bumped to 100k + 30k for condo)=130K/yr

my question; is firecalc accurate as it uses all long term bonds and 75% equities which is a bit aggressive I would think
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Old 04-07-2015, 01:26 PM   #33
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Can you afford to buy it ? Sure but remember you may be flushing a lot of money down the toilet . In the last down turn condos valued at $755,000 were selling for $200,000 if they could find a buyer .
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Old 04-07-2015, 01:52 PM   #34
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Can you afford to buy it ? Sure but remember you may be flushing a lot of money down the toilet . In the last down turn condos valued at $755,000 were selling for $200,000 if they could find a buyer .
we have looked at that data for the subdivision we are interested in and the % downturn was more like 30% but you are right you never know!! however, we wouldn't sell if that happened, just be pissed that we missed that 'fire sale'!!
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Old 04-07-2015, 01:58 PM   #35
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...my question; is firecalc accurate as it uses all long term bonds and 75% equities which is a bit aggressive I would think
You can change the asset composition to be more like what you plan to do. Just go into the box that says 75% and change the number.
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Old 04-07-2015, 06:12 PM   #36
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You have received a number of thougthful responses. It appears you you are crunching numbers to justify the purchase. You obviously want it. In that case just do it.
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Old 04-07-2015, 07:35 PM   #37
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You have received a number of thoughtful responses. It appears you you are crunching numbers to justify the purchase. You obviously want it. In that case just do it.
and I appreciate all the thoughtful responses! I really do think we could afford this at this time. But my initial thought was to wait a couple of years and think through our decision making sure this is what we really want to do. In the meantime our portfolio will continue to grow making me super comfortable going ahead with a purchase. We can continue to 'dry run' by using rentals in the area as we did for a small part of this winter. We are following this market very closely and if a distressed unit with the view and floor plan we want becomes available we might just pull the trigger otherwise we will continue to wait and evaluate.

as a side note if we didn't purchase at all and I QUIT work today, according to firecalc we could get $175,000/yr for 40 yrs with 93% certainty!!
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Old 04-07-2015, 08:02 PM   #38
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as a side note if we didn't purchase at all and I QUIT work today, according to firecalc we could get $175,000/yr for 40 yrs with 93% certainty!!
Not interested in a 100% at age 110 target? I decided I pretty much have to do that based on family history, adding in a cushion for medical advances and a documentary I watched recently on lab grown replacement organs becoming a reality before too long.
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Old 04-07-2015, 08:09 PM   #39
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Originally Posted by pb4uski View Post
FWIW, I get a annual cost of:

Operating costs:...........$24,000.......$28,000
Opportunity cost:...........33,000.........41,000

Total............................$57,000......$69, 000

Assumes opportunity cost on the purchase price at 5.5%.

Can you? Probably. Should you? Your money, your decision but I think it is a bit crazy. i would either rent or find something less extravagant.
I am not sure you are correct about the opportunity cost of the unit itself (600-750K) because that money is invested (in the condo) instead of in the equity markets. now will the appreciation be the same? who knows?

the HOAs/taxes/utilities are in essence 'consumed' and not recoverable so I agree with you on that part.

So, if we were to rent for 4 months say a real fancy unit and use up the 24-28K each year the opportunity costs of the 'consumed' portion would be the same as renting. Only the 600-750K would be in my portfolio!!!
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Old 04-07-2015, 08:12 PM   #40
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Not interested in a 100% at age 110 target? I decided I pretty much have to do that based on family history, adding in a cushion for medical advances and a documentary I watched recently on lab grown replacement organs becoming a reality before too long.
yes I see your point but, I currently 'exist' on less than 1/2 of the 175K and everything i read says we tend to spend less as we get older. my kids can accumulate their own $$$ !!!
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