Can we afford a condo?

[ivinsfan]

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.

 

[RetireAge50]

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.

 

[daylatedollarshort]

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."

 

[pb4uski]

....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.

 

[sheehs1]

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.

 

[hesperus]

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.

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.

 

[newenglandpat]

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

 

[Moemg]

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 .

 

[newenglandpat]

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'!!

 

[pb4uski]

...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.

 

[hesperus]

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.

 

[newenglandpat]

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!!

 

[daylatedollarshort]

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.

 

[newenglandpat]

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!!!

 

[newenglandpat]

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 $$$ !!!

 

[ivinsfan]

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.

HAHA, the OP is seeming to play devil's advocate with a lot of the comments that say wait awhile, or that his numbers are a little bit tight. But if you are that committed to buying it, why are you asking a bunch of strangers on an internet forum?

The one thing I have picked up from reading here and from my own life is that once you actually FIRE, it's surprising how many things in your life change including how you decide to spend your time and where you want to live or how much you want to travel. And a lot of these things catch you by surprise. Waiting until you actually have a year or 2 of FIRE under your belt,might be a good idea.

 

[haha]

I have friends who live in Aspen and Boca Raton. The lifestyle seems exhausting to me, but they have plenty money so much of it is farmed out. They also have a large family that can share in use but not in expenses.

You would have to pay me to have a second home. A first home is trouble enough. But that is minority position. It always looks like work and worry to me, but owners usually claim to love it.

Can you afford it financially? Leave that question in your will, when you finally punch out your heirs can try to answer it

Ha

 

[seraphim]

Condo fees have a tendency to increase on an annual basis, plus the board can hit you up with special fees for emergencies or items not covered by monthly fees. Just a thought to consider.


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[seraphim]

I have friends who live in Aspen and Boca Raton. The lifestyle seems exhausting to me, but they have plenty money so much of it is farmed out. They also have a large family that can share in use but not in expenses.

You would have to pay me to have a second home. A first home is trouble enough. But that is minority position. It always looks like work and worry to me, but owners usually claim to love it.

Can you afford it financially? Leave that question in your will, when you finally punch out your heirs can try to answer it

Ha

I doubt it's a minority position. People talk about their second homes. People don't talk about not having second homes. It would be an interesting poll...

But I agree with your position about extra work. Our second home is in the driveway, so we're not constrained to any geographical location.



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[ivinsfan]

I think one home owners would be the majority on this board, excluding rental homes.

But I also think people that own 2 homes will say they are great,what else would they say? A few here might even have more then 2 homes!

 

[sheehs1]

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!!

And isn't that a comforting thought!

As a side note and to throw something else out to think about :

3% inflation on $100,000 over 40 years = $326,203
Over 20 years = $180,611. Granted that is the calculated affect on the 40th and 20th year. All meaning your purchasing power of that $100,000 will be severely eroded over those time frames and your need may be greater proportionately.

None of us really knows what inflation will do and presumably we will all stay invested, so some percentage may be relative. Don't know. But when I look at what has happened since 1978 which is 37 years, I am amazed at the affects of inflation. No reason to think the next 40 won't be similar. There could also be the opposite - deflation along the way. It is all an unknown and the best we can do is to "try" to prepare and have "some fun" along the way.

It looks like you may have the first 20 years (or more) buffered for inflation covered already….IF…

 

[newenglandpat]

HAHA, the OP is seeming to play devil's advocate with a lot of the comments that say wait awhile, or that his numbers are a little bit tight. But if you are that committed to buying it, why are you asking a bunch of strangers on an internet forum?

The one thing I have picked up from reading here and from my own life is that once you actually FIRE, it's surprising how many things in your life change including how you decide to spend your time and where you want to live or how much you want to travel. And a lot of these things catch you by surprise. Waiting until you actually have a year or 2 of FIRE under your belt,might be a good idea.

I posted this because i really wasn't sure if we could afford this. After going through this exercise, running firecalc, looking at this from many different angles I do think we could do this now BUT i am still quite nervous leading me to want to wait 2 years or so when barring a bad bear market this should be a no brainer. During that time we will continue to refine our thinking into what we want,where,etc. as I said a few posts up if a distressed unit came up that met our needs we might just do it otherwise waiting seems to be the way to proceed!

 

[timemoveson]

One more perspective

Here is one more perspective from someone with 3 homes, that just sold one of them.

I have the OPs assets and more.

The 2nd home we have is fantastic and used very extensively (about 2 hours from our primary residence, is real land and majestic house, and has 4 season usage). It is a definite keeper until it cannot be cared for and will likely yield at-market gains over time as well as provide constant enjoyment, I believe.

The 3rd home was purchased a few years ago after studying the target market (hot and very nice), going many times to visit and understand what we were getting into, and carefully purchasing and thoughtfully and frugally renovating it. And it was partially rented to help defray costs. Despite all this, we absolutely did not get value from it. It wasn't used. Our lifestyle needs and preferences changed. It was an albatross. And we could afford it and could have kept it. We chose not to to simplify our lives and repatriate the capital to put to much better use to further our overall goals. It took a long time to sell and the whole adventure was nothing but annoying and trouble we should have never entered into.

Think about it really hard. Please.

 

[pb4uski]

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!!!

True that there might be some appreciation that offsets your opportunity cost, but like you say, who knows? Also, it could go the other way. Unless you will adjust your AA or include the condo in your portfolio then I think your portfolio rate is the more valid comparison rather than equity returns. But I concede that the opportunity cost should be the expected return on the assets you are liquidating to buy the condo less the expected appreciation rate on the condo.

As I said in a prior post, when we looked at it we concluded we would need to use it 5-6 months a year for it to make sense and we are more in 3-4 month mode at this point though we have had small amounts of snow 3 out of the last 4 nights and there is allegedly more coming so we may rethink that 3-4 month thing.

Owning another property many miles away is stressful for me. While we were in Florida I worried abut our place up north and we also had a no heat situation while we were in Florida. (Luckily I had installed temperature monitoring via the internet before we left for Florida and i could see something was wrong and had my heating guy stop by and check it out). I suspect that I would also worry about the Florida place while I was up north too.

 

[Moemg]

I suspect that I would also worry about the Florida place while I was up north too.

Especially during hurricane season !