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is it too early to be thinking about this
Old 02-18-2008, 12:53 AM   #1
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is it too early to be thinking about this

Hi all,

I've been considering buying a vacant lot in rural Big Island, HI for retirement home purpose. But retirement being at least 10 - 15 years away, am I being silly to be thinking about buying now. (We're in the mid 30's and hope to retire by the age of 50.) I meant think of the 10+ years of property taxes(not that much, $200 - $300 per year) and maintenance before I actually get to use the land, but part of me wants to get in on it now since price is going down.

Other info: The lot prices range from $20k - $50k depending on size and location. We live in Calif.

So for those of you who bought land and built a retirement home, how many years in advance did you buy? Did you wish you should have waited until closer to retirement age?

thanks
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Old 02-18-2008, 05:56 AM   #2
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I say get it now. Your taxes and maintenance fees are small. And prices will go up.

I bought a vacation condo almost 6 years ago and wont be fully retired for another 3 years. But I'm glad I did because condo prices have doubled.
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Old 02-18-2008, 06:29 PM   #3
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This isn't quite the same thing, but DH and I hung onto our house in CA when we moved a year ago, in large part because we thought we might want to live there for a while after ER (8-10 years away). We could never afford to buy something in that neighborhood again, even with the bubble bursting. In the meantime, it will probably cost us $3-5K per year (mortgage, taxes, and upkeep, minus rent). One year in, we're still happy with that plan.

One other thought - have you lived/stayed in the area that you're considering for an extended period of time? DH and I lived in our house for 5 years so we know we like the area and what's around. We almost certainly wouldn't have bought a place that far out without being sure we liked it.
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Old 02-18-2008, 06:53 PM   #4
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I'd say forget it for now. So much can happen in 10-15 years. If you're buying it now because you think it will appreciate more than inflation, you need to view it as a simple investment, and compare it with other investments.
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Old 02-18-2008, 08:32 PM   #5
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Originally Posted by ER_Hopeful View Post
Hi all,
I've been considering buying a vacant lot in rural Big Island, HI for retirement home purpose. But retirement being at least 10 - 15 years away, am I being silly to be thinking about buying now. (We're in the mid 30's and hope to retire by the age of 50.) I meant think of the 10+ years of property taxes(not that much, $200 - $300 per year) and maintenance before I actually get to use the land, but part of me wants to get in on it now since price is going down.
Other info: The lot prices range from $20k - $50k depending on size and location. We live in Calif.
Welcome to the board, Hopeful.

I don't know if anyone on this board lives on the Big Island, but if you don't already have someone you trust on the Big Island then you might want to repeat this post at HawaiiThreads.com. Several of the active posters are all over that island and can keep you up to date on local gossip that's not in the newspapers.

It's easy to be cynical about why Hawaii land is available to a Mainland buyer. If it wasn't snapped up then there could be an unpublicized problem. I may be preaching to the choir, but local issues include whether the title is leasehold or fee simple (most of the leaseholds are gone but), whether it's involved with ceded lands or anything associated with the Department of Hawaiian Home Lands, and whether the lot has been surveyed & verified clear of archeological or native Hawaiian remains. Even if it's just rumored to be haunted or has one petroglyph you'd have trouble finding a local contractor. You'd be the latest in a long line of unhappy landowners who couldn't build on it for one of those reasons.

If all that is OK, then how come none of the locals want to snap up the property? The next thrill would be making sure that you're not too close to the newer Kilauea lava flows and that you're not sitting on top of old lava tubes (issues with unstable soil, subsidence, and more archeological/human remains). And then there's zoning, especially if it's agricultural or conservation. A lot of the "luxury ag" lots have been under fire lately from residents & legislators concerned about "gentrified farmers". Is there a public right-of-way across your property for beach access? Was the lot affected by any of the Oct 2006 earthquake damage? Has your neighborhood been affected by the recent bankruptcy of a DHHL housing contractor? Does your property have a cesspool that's required to be converted to septic or sewer? Any contamination from previous agricultural herbicides or pesticides, especially cane/pineapple/coffee? If it's well water, does the latest water report indicate salt-water intrusion or pesticides or herbicides? Is the land part of a developer's parcel intended to be a condo or a homeowner's association? Have you been able to find a company that will issue you homeowner's insurance (because most of the major companies have stopped writing coverage here)? What else is planned for the area?

Puna is pretty hot for developers now and getting a bit gentrified, so I don't know what prices (and traffic) will look like in 10-15 years. Kailua-Kona is probably overbuilt and could no doubt decline further. Pahoa is a nice area but some of the communities there are dropping in value as the homes get old and the neighborhoods change from long-time owners to vacation rentals.

If you're comfortable with all the above issues, the state economist has said that property values are probably going to be flat for another 6-10 years and then start heading up again. Of course that's statewide and local conditions will definitely vary!

Have you considered how your tastes may change over the next 10-15 years? (Hopefully you'd be able to sell if your circumstances changed.) Do you have any family or relatives on the Big Island to help you settle into the community? Would you be commuting to the Mainland to visit other family/friends/grandchildren? I've been here for nearly 20 years and would be happy to live a rural Big Island lifestyle (spouse & kid not so much), but even after another 20 years there I'd still be "that malahini" and never a kama'aina. Hopefully you've already lived here for a while and feel confident about making the transition-- it can be a huge change.

I hope everything works out fine! Let me know if you need me to go over there and check out a longboard break or two...
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Old 02-18-2008, 08:57 PM   #6
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I'm gonna say no.

I do not like the idea of 'investing' in a non-rental property. as you can see there is tax and maintance involved for a piece of land that's just sitting there. So "?" is buying a piece of land better than buying stocks? I don't think so.

Do you think the land will double in 7 years?

Historically stocks have performed better than land.

That's only part of the question. Is it easier to sell land or stocks?

Does it cost more to buy and sell land or stocks?

Do you have to pay tax and maintaince on stocks?

Part of (most of) the benifits of buying land is you can buy on margin, in other words you can put 10% down and if the property goes up than you get the appreciation on the whole deal.

I think the cons outweigh the pros (IMO)

Also it's hard to know if you are going to want to live there in 10 years if you don't you have to sell it. Many people recomend don't buy your retirement home till you are going to use it and you have sold your current home, reason you don't need two homes. This is mainly for non-rental property. If you are buying a condo in wherever and you are getting income from it that's different than just buying a hunk of land and waiting for it appreciate.

just my 2c

----->>Stocks vs. Real Estate | 1 | CNNMoney.com
Quote:
Stocks win the bout four rounds to three, with one round a draw. But the fight is in truth considerably more lopsided.

Stocks roll up large margins of victory in performance, costs, diversification and effort you need to expend as an investor.
Real estate's only big win is in leverage. Using that leverage to buy a home you can afford makes sense. You're building equity and collecting other benefits as well. (And no landlord can stop you from owning a big, hairy dog or throwing a party for 200 of your noisiest friends.) But jumping into the real estate ring thinking you'll use others' money to score an investing knockout is plenty risky. And the big prize, as you may have noticed if you've tried to flip a condo lately, is more elusive than it might have seemed.
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Old 02-18-2008, 09:11 PM   #7
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Historically stocks have performed better than land.



----->>Stocks vs. Real Estate | 1 | CNNMoney.com
Housing's rate of return, he argues, has to trend back to the mean of about 3% a year - barely above the inflation rate. If that's starting to happen now, he says, we could be facing many years of losses.

I have not seen anything to support either of these statements. You might want to check the thread on the "REAL real estate appreciation rate"


4% Appreciation my *ss
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Old 02-18-2008, 09:42 PM   #8
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4% Appreciation my *ss
would be nice if you post some definitive info instead of rolling your eyes as if that's an argument.

from the same page you quoted:
Quote:

But over the long run stocks win easily. A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2004 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs).
The results? Housing delivered a solid but unimpressive annualized return of 8.6%. Commercial property did better at 9.5%. The S&P, however, delivered a crushing 13.4%.
from another article (note I am giving real info not just disagreeing with you).-->http://www.nytimes.com/2005/08/19/re...ll&oref=slogin

Quote:
It turns out, though, that the last five years - when homes in some hot markets like Manhattan and Las Vegas have outperformed stocks - has been a highly unusual period.








In fact, by a wide margin over time, stock prices have risen more quickly than home values, even on the East and West Coasts, where home values have appreciated most.
But the truth is that much of the gain came from simple price inflation, the same force that has made a gallon of milk more expensive today than it was three decades ago. The Jacobses also invested tens of thousands of dollars in a new master bathroom, with marble floors, a Jacuzzi bathtub and vanity cabinets.
are you forgetting a lot of the 'appreciation' of a home comes along with people spending money to improve it ie. home depot projects, landscaping, finish basement etc..?
Quote:
Add it all up, and they ended up making an inflation-adjusted profit of less than 10 percent over the 35 years.
That return does not come close to the gains of the stock market over the same period. The Standard & Poor's 500-stock index has increased almost 200 percent since 1970, even after accounting for inflation.

That does not mean real estate is a bad investment. It is often an important source of wealth for families. But its main benefit is what it has always been: you can live in the house you own.

Including the value of living in a house - that is, the rent that a family would have to pay to live in an equivalent house elsewhere - homes in New York have returned more than 15 percent a year since 1980, according to an analysis by Mr. Lys.
But only five percentage points of this return comes from sheer price appreciation, as opposed to the value of shelter. Mr. Lys accounted for property taxes, spending on renovations, interest payments and the tax deductions on those payments, and the fact that most house purchases are made with mortgages.
When the sale of a house brings in a cash windfall, homeowners tend to focus on the fact that they made a down payment that was just a fraction of their house's value, lifting their return. But many forget just how much money they spent on property taxes, a new roof and the mortgage interest.
Add to all these factors the corrosive effect of inflation, and the returns are even lower.
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Old 02-18-2008, 10:03 PM   #9
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I'm gonna say no.

I do not like the idea of 'investing' in a non-rental property. as you can see there is tax and maintance involved for a piece of land that's just sitting there. So "?" is buying a piece of land better than buying stocks? I don't think so.

I didn't see anywhere in the original post asking if it was a good investment... not all of life is stocks and bonds and dollar signs you know.

OTOH, I think Nords gave the most definitive answer on the potential challenges and why buying land might be a bad deal there.
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Old 02-18-2008, 10:13 PM   #10
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I didn't see anywhere in the original post asking if it was a good investment... not all of life is stocks and bonds and dollar signs you know.
He did ask advice and I point out how an investment in stocks should be better than real estate especially if he's not living there.

If he doesn't live there for 15 years he's paying 15 years of property tax for nothing.

He says the property tax is $300 a year (now), and he hopes the property will go up so the property tax will also. Figure tax goes up 8% a year he's looking at close to $900 a year 15 years from now just for property tax.

Interest on a loan (?) say that's another $500+ a year.
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Old 02-19-2008, 09:44 AM   #11
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I didn't see anywhere in the original post asking if it was a good investment... not all of life is stocks and bonds and dollar signs you know.
Well, this is what the OP wrote:

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Originally Posted by ER_Hopeful View Post
[R]etirement being at least 10 - 15 years away, am I being silly to be thinking about buying now.... I mean think of the 10+ years of property taxes(not that much, $200 - $300 per year) and maintenance before I actually get to use the land, but part of me wants to get in on it now since price is going down.
What he apparently wants to know is whether the raw land's value is likely to increase quickly enough that it makes more sense to buy now (even though he is not currently in a position to enjoy it), rather than otherwise invest the money and wait to buy later. And that's the question that TromboneAl and rai-zero have attempted to answer.
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Old 02-19-2008, 09:51 AM   #12
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Well, in that case, I apologize... I thought it sounded very much like an emotional purchase decision and not a rational one.

I guess it's a good deal to buy now if appreciation in Hawaii will be like the last 10 years but it's not a good deal if it's going to be like the years before that.

I think Nords brought up the most pertinent information, which is that it's going to be borderline dangerous to buy land so far away without local knowledge and expertise.

edit: fwiw, I'm struggling with a similar issue right now.

We're planning to semi-RE in 10 years but we'd like to build our next house and get the land now. In the places we're looking, we can either use the house every weekend or at least a few times a month (depending on which area we choose). However, we're not sure how much our tastes will change by the time we're 40 and I'd hate to purchase the land based on some real or artificial compromise now only to find out it's not working for us in the future... especially once we have a house on there (in all likelyhood, the house we build will have a much smaller audience for resale)
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Old 02-19-2008, 10:01 AM   #13
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From a purely economic standpoint stocks are much more likely to be the better investment. However, how does he feel about it?

BIL bought a piece of property in MD when it was cheap and planned to build a house on it, which he did 10 years later. The land was about $10K 25 years ago when he bought it, it's easily $400K now. There is no way he could afford that land now and he knows it. For him it worked. But he was local, grew up there, and not thousands of miles away so he knew the area.

Would randomly picked stocks, which he knows nothing about, have done as well?

At those time distances anyone's crystal ball is cloudy.
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Old 02-19-2008, 03:17 PM   #14
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We're planning to semi-RE in 10 years but we'd like to build our next house and get the land now. In the places we're looking, we can either use the house every weekend or at least a few times a month (depending on which area we choose). However, we're not sure how much our tastes will change by the time we're 40 and I'd hate to purchase the land based on some real or artificial compromise now only to find out it's not working for us in the future... especially once we have a house on there (in all likelyhood, the house we build will have a much smaller audience for resale)
Since retirement is at least 10 years away, this will be a second home rather than a replacement for your current home. And second homes tend to be expensive luxuries, both in terms of money and time. But to my mind, it is easier to economically justify a weekend getaway place than the purchase of raw land in Hawaii when you live in California.

Making any sizeable investment implies some element of risk, so don't feel too badly about your uncertainty.

In the long run, your tastes probably will change, even if only involuntarily (i.e., at some point it's likely that you won't physically be up to caring for the property). But in the long run, we're all dead; so you might as well please yourself now while you have the chance.

Land is rarely a great investment but seldom is it a big loser, either. If you subsequently change your mind about where you want to live in retirement, you should be able to get out without losing your shirt.
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Old 02-19-2008, 06:47 PM   #15
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I am really interested in hearing more responses to the OP's query. I've been considering the exact same question. The main reason is that I can't tell you how many times I've heard someone say about a particular location, "I remember when you could buy a lot here for [trivial amount of money]. If only I'd bought then. There's no way I could ever afford one of these lots today."

I'm in Utah, and would like to buy land for a summer cabin in Alaska. I'm only 31, but very confident I'd like to have that cabin someday.

I think there are a couple other factors that militate in favor of buying the land now, which haven't been mentioned yet:

1) Buying the land now locks you in to the real estate investment. With stocks, your investment is pretty liquid, which, of course, is typically a great thing. But what if you're worried you'll fritter your money away on home improvements or cars or vacations if you essentially don't put it out of reach in a real estate investment? I think this could be a factor worth considering, depending on the individual.

2) Another reason to buy the land now, instead of stocks, is if you have reason to believe the land is relatively underpriced now. I could never claim to be an expert in any particular stock, at least not compared to the thousands and thousands of people who are professional investors. But there are a couple real estate markets where I know a lot more than most. In these markets, I would be better than most at valuing the land. If I see real estate in these markets that seems undervalued and poised for big appreciation once it is "discovered," then that might be a better investment for me than stocks.

I've decided not to rush into my land purchase. There is absolutely no rush. Something will always be for sale. In the meantime I'm saving money so when the perfect opportunity comes along, I'll be ready to pounce on it.

I hope some more people share their thoughts on this subject.
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Old 02-19-2008, 07:51 PM   #16
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I am really interested in hearing more responses to the OP's query.
Here's some more info that's applicable to Hawaii without giving away the OP's proposed location. (Hey, Hopeful, check your PMs.) Think about these issues:

First, a local Hawaii discussion board is full of people with extended family or who are willing to drive around an area and post photos. I strongly recommend to anyone contemplating a Hawaii purchase or relocation that they register at HawaiiThreads.com (http://www.hawaiithreads.com/index.php) and post their question. We get that all the time.

Second, Hawaii realtors are skilled at creating a feeling of artificial urgency with investors from both Silicon Valley & Japan who have more money than sense. Don't get stampeded. If a property has to be marketed off the island then there's a reason (and it's usually not good news). There's a chance I could be wrong, but spouse and I look at real estate as a hobby and I've seen the tactics dozens of times on four different islands. Unlike most of the rest of the world, Kilauea volcano on the Big Island really is making more land-- but it's not the kind where you want to be in on the "ground floor". Kona coffee growers clearing land with bulldozers have had them break through their cropland into undiscovered lava tunnels. If they're having a really bad day, the lava tunnels will contain archeological items or even human remains.

Third, the state has been battling the EPA in federal court for years over sewage issues. One aspect of the consent decree is that Hawaii can no longer use cesspools. Recently a large leasehold co-op complex actually shut down and evicted all their tenants just to convert over to septic. Many parts of the islands (especially the rural areas near lava fields) are not suitable for septic but also may not be anywhere near a municipal sewer system. I'll defer to REWahoo on all further septic questions.

If you're in a rural neighborhood then electric service may have been run to the area but not to a specific neighborhood, let alone a street. Utility poles and service feeds are expensive. It's not unusual to see catchment water systems on Oahu, let alone on the Big Island, Kauai, and Maui. When the drought comes it gets you first, and water trucks are expensive.

Finally, the latest of the island's "hot growth" areas has been Puna on the Big Island. I've vacationed in a somewhat similar area near Pahoa called Kapoho Beach. It's all 1969 crumbly lava field and all the houses are up on posts because pouring a slab is very expensive on that uneven (and unstable) ground. The lava rock makes the area hot like you wouldn't believe during the summer and the off-road lava is very sharp. The lack of tall-tree vegetation (other than a few palms and maybe papaya) makes you feel exposed to the elements. Footing is unpredictable and it's quite easy to turn an ankle or slice yourself alongside a piece of lava. There'll be no romantic moonlight strolls along the water's edge because the lava field goes down to the water and abruptly ends at shelves that are eventually undercut by the pounding surf and collapse into the water. The days will be in the high 90s and the tradewinds might not make it to your side of the island.

The neighbor islands, especially Kauai & Maui but also the Big Island, are struggling with explosive traffic growth. Commuting on a two-lane road is a lot worse than creeping along on a six-lane highway.

Adjust your food budget. I'm not very familiar with neighbor-island prices any more, but I wouldn't be surprised at $3.50-$4 gas and $6-$7/gallon milk. Zoey & JB may be able to correct me on this one.

Adjust your energy budget. Electricity is 23 cents/KWHr on Oahu and as high as 35 cents/KWHr on other islands. Heaven help you if you live at an altitude requiring heat (and yes, it can get down to the low 40s in some parts of the state).

If, after you hear from the locals on HawaiiThreads, you feel the project still merits your effort then you need to rent a home in that area for at least two weeks (six would be better). You'd definitely want to get to know your potential neighbors and ask them what they'd do in your position. Be sure to ask them about the Oct 2006 earthquake and hurricanes like last year's Flossie or 1991's Iniki or 1982's Iwa.

It's a whole different culture here and there's no way to tell how you'd feel about the lifestyle, the relative lack of amenities, or making the transition. We love it but we lived all over the world before we moved here. Spouse's parents tried it for six years, hated it, and moved back to the Mainland. I conservatively estimate that their experiment cost them over $250K in missed appreciation of their old neighborhood. Your transition may work out fine but you have to get to know the area before you throw a bucket of money into it.
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Old 02-20-2008, 03:33 PM   #17
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Spouse's parents tried it for six years, hated it, and moved back to the Mainland. I conservatively estimate that their experiment cost them over $250K in missed appreciation of their old neighborhood.
Six years?! That's one heck of a long trial period. If indeed they really hated Hawaii, I would have thought that they would have bailed out after no more than a year or two.

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Your transition may work out fine but you have to get to know the area before you throw a bucket of money into it.
Excellent advice. While this is definitely true of living on an island, more generally it holds true for any new retirement location. If possible, rent before you buy.
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Old 02-20-2008, 03:51 PM   #18
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Six years?! That's one heck of a long trial period. If indeed they really hated Hawaii, I would have thought that they would have bailed out after no more than a year or two.
They came here to spend more time with their only grandkid, who was nine years old at the time. As the years dragged on they realized that she didn't need them in their lives so much anymore. (Either that or we burned them out on childcare during our annual two-week travel!) They had other things they wanted to do that were complicated by a five-hour flight to the Mainland.

It became an ugly situation. IMO they expected the islands (plus their family/neighbors/acquaintances) to adjust to their standards, and it took a long time before they gave up the struggle.

Signs that you're gonna have trouble acculturating:
- You equate intelligence with an ability to speak unaccented English using a full vocabulary, especially articles & adjectives.
- You equate a lack of intelligence with anyone who speaks pidgin.
- When greeted with either pidgin or accented English, your idea of clarifying your previous statement involves speaking louder and slower.
- You don't like spicy Hawaiian (Thai, Chinese, Japanese, or other Asian) food.
- You don't like uncooked ... food.
- You think luau is a funny show sponsored by Kodak instead of a cultural tradition.
- You make fun of the Hawaiian sovereignty movement-- in front of people who are either Hawaiian or have Hawaiian family.
- You make fun of golf and of people who use greenskeeper's mowers to keep their zoysia lawns looking like greens.
- You refer to people your older brother fought during WWII as "the Japs".
- Even after five years here you keep saying "Back in the States..."
- Your idea of "going to the beach" involves sitting in a chair under a tree. That's it. For several hours.
- You correct your granddaughter's pidgin.
- You tell her daughter how to run her household.
- You tell your son-in-law how he should invest his ER portfolio.

I remember one night near their "We're moving" announcement when FIL & were at a Fidelity (free) client-appreciation dinner. One man had just relocated to Hawaii from Brazil to spend some time with his (adult) son. My FIL asked him if he missed Brazil (some things yes, others no) and was asked if he missed the Mainland. FIL said he missed being able to get into the car and drive long distances in a straight line. I laughed at what I thought was his funny joke and said "You've never once mentioned missing that before!"

A couple weeks later he called and said they were moving back to the Mainland. A couple days later spouse spoke to her mother, who said "What? We're not moving." A week later I spoke with her mother, who said "When we move, we're going to..." and so it went.

So once again we're separated by five time zones, which seems about right. Spouse has called them a couple times in the last year. I haven't spoken to them since they took the shuttle to the airport. Not even an e-mail.
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Old 02-20-2008, 05:26 PM   #19
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sounds like I'll fit right in the nanosecond my flight(whenever it maybe) leaves LAX.

Thanks again, Nords.
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Old 02-25-2008, 05:34 PM   #20
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Quote:
Originally Posted by SLC Tortfeasor View Post
I am really interested in hearing more responses to the OP's query.
My little story. We bought waterfront in NC (Outer banks) about 1 1/2 years before we planned on moving (this summer). Below was our process (not saying it we wouldn't change anything just how we ended up doing it) :
  1. Had no idea where we wanted to end up 15 or 20 years ago. Heck, I was just learning how to manage a relationship (still learning actually) and saving money, let alone retirement. After 20+ years of family vacations-travel we not only honed in on the region, but the town, neighborhood and exact location in the neighborhood we wanted
  2. Didn't want to purchase a 2nd property unless we either owned both outright or had one small mortgage that could be paid off any time without any real dent in cash holdings (conservative types and I was already taking plenty of risk starting-running a biz)
  3. Wanted a good deal but we weren't making "investment potential" a huge priority. We knew a retirement home would be an emotional purchase for us. In 30-40 years it won't matter all that much anyway
  4. DW didn't want to the sell primary home without having retirement home in hand for non-financial reasons. We're entering semi-ER with a 9 yr old who's non too thrilled about leaving the only home and friends she's ever known. Buying slightly in advance has lessened the emotional stress for DD and DW (call it the nesting gene factor)
I felt some mild stress owning 2 homes while the RE market was tanking this last year even though there was very little added financial burden (just a higher % of assets devoted to real estate and taxes-insurance). The bigger worry was selling our primary home in a slow market since we were committed to moving. I went all out the last 3 months prepping the primary place to sell and it paid off nicely.

I probably would have been happy selling the primary house and just renting in NC while the market was sliding to get an even better deal but no way DW and DD were going to buy into that. Definitely not complaining though. The boat is docked behind the house, the females are happy, and I'll be livin in kiteboarding-windsurfing-hobiecatting mecca. Got's all I want.
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