Too addicted to quit?

[msbearkeley]

Hi - hoping for advice on best approach with cash on hand....we want to buy a waterfront home but afraid of making a mistake when we are so close to retiring in May 2015....help!

About us....45, DH is 47, no kids. Plan is to live like Billy and Akeisha, renting a house in different parts of the world while we are young, having a small home base in the US to come home to from time to time.

About the house....it's a small low maintenance waterfront house (200k) on a river with awesome fishing in a location we enjoy...around the corner from our current home that we plan to sell in 2 years or when the market picks up (current value of about 600k, loan at 400k). House is priced low, expect it to go up in value long term, short term, can rent it out for same price as mortgage, taxes, reserves....just breaking even. When we start traveling, this house will be our home base in the fall (best fishing) and rent out to trusted summer renters for 6 months if we needed to / want to.

Dilemma....we LOVE looking at houses and buying them....in addition to our home, we have 5 single family homes and 4 condominiums (1 building) that we rent out. We have had good luck and bad luck over the years, so worried we could be making a mistake....But, thanks to our jobs, we have survived and now at a place where we can comfortably retire in a few months.....except now we want to buy another house for 200k, a few months from being unemployed.....are we being stupid, or does it make sense?

Financial summary:

Rental income after mortgage, expenses, reserves: 50k
Owner financing income: 24k on a 30 year mortgage (318k if he pays it off)
Non retirement accounts: 400k (225k cash, rest in 60/40 equities/bond split)
401k: 1.1m (70/30 equities/bond)
Real estate equity: 1m based on current market (very conservative)
Pension starting in 15 years: 34k

High income now but we live well below our means...conservatively projecting cost of living expected around 80k until we move internationally, expect 60k a year.

What would you do? Thanks!

 

[W2R]

What would I do?

I'd sell all of those properties except for one condo, and use that as my "lock and leave" home base. I'd invest the profits in taxable index funds at Vanguard. Then I'd take off and explore the world (if I wanted to do so, like you).

But really, the question is what do you want to do?

 

[Meadbh]

About the house....it's a small low maintenance waterfront house (200k) on a river with awesome fishing in a location we enjoy...around the corner from our current home that we plan to sell in 2 years or when the market picks up (current value of about 600k, loan at 400k). House is priced low, expect it to go up in value long term, short term, can rent it out for same price as mortgage, taxes, reserves....just breaking even. When we start traveling, this house will be our home base in the fall (best fishing) and rent out to trusted summer renters for 6 months if we needed to / want to.

What happens if the river floods and the market does not pick up?

 

[38Chevy454]

Having all those rental properties and wanting to travel around the world do not seem to agree. I would sell off all of them and put into regular investment accounts like W2R suggested. No hassles, much lower risk, and ability to travel without worry on the rentals.

You need to shift your attitude from savings, accumulation and buying to one of selling and living off the proceeds. With all of your savings, and assets from the rentals, you have approx $2.5M potentially available. That is enough without any pension or other income to give you your expected expenses of $80K.

So change your outlook and start enjoying traveling.

 

[harley]

I sort of agree that the traveling lifestyle does not meld well with being a landlord. If the finances work for it, I too would get out of landlording and just have a single home base. However, in my case it would be the new house on the river. Cheap (but comfortable), easily replaced furniture in case of a flood, precious items stored off premise, but I think the pleasure of life on the water would be worth it. Personal opinion, though, and worth what it costs.

 

[msbearkeley]

Thanks for the quick feedback! Yes, plan would be to eventually sell all real estate when it makes sense financially / tax wise except for the home base...selling condos soon but rest, .....still several years away though due to market conditions and tax benefits (1231 loss, home sale exclusion, etc). With that said....buying a riverfront home now in a familiar area....or maybe find another property later on (when we need it after we sell current home in 2 years) in a place we might like better (Good excuse to feed our addiction long term as well if we keep looking)....

Not concerned about flood...beyond 100 year zone.....interesting comment about mindset....and changing outlook - psychology of early retirement might be an interesting discussion! Have to research that further....

 

[JoeWras]

Having all those rental properties and wanting to travel around the world do not seem to agree.

+1.

Pick one or the other.

 

[foxfirev5]

Personally I prefer more traditional sources of income. The owner financing and rental income would not work for me if I were planning to travel the world. I would reduce the real estate holdings and invest in higher yield relatively liquid investments. While the risk may appear higher is it really more than you have now with your concentrated holdings?
At your age my family built a waterfront home and still use it as a retreat. It's our plan C or D financial backdrop. However despite decent offers, we won't be renting it out. In all honesty I'd be a very intolerant landlord which is probably why I stick to my current investment plan vs active RE management.

 

[chris66]

As much as rental properties and travel do not seem to go together. Waterfront and low maintenance also are an unusual combination. Water is an awesome force.

 

[haha]

I live in WA and I always see to it that I live on a good hill. Pretty much all rivers flood, and that is a big mess.

Ha

 

[ggbutcher]

I live in WA and I always see to it that I live on a good hill. Pretty much all rivers flood, and that is a big mess.

Ha

Grew up in Louisiana, my dad would say, "you don't want to live where the water wants to go." We were at 15ft above sea level, but most of the surrounding area was 5-10ft. Not much of a hill, but enough...

 

[ChainsBeGone]

An old and wealthy boss once told me not to invest in anything you need to fix or feed. I know that it's not a wise maxim for all investors in all circumstances, but it would seem to be wise advice for one who wants to do a lot of traveling.

 

[jetpack]

It's easy enough to check the flood plain maps in the area. Right now, flood insurance is a mess, so, I'd advise against buying any places that flood. However, you can be next to the river, up 15' and be ok. it depends on the river.

 

[calmloki]

We've lived on rental income for many years - and really relate to your love of buying homes - there are just so many cool styles and locations. That said, I'm with W2R. Travel and landlording are not a good mix, and lower maintenance fits better with travel. We have SoCal and Oregon homes for our use and do the snowbird thing - frankly, prepping each house for leaving and starting each house up and keeping them in good order while we are gone is a hassle - as is keeping the rental fleet afloat.

We are starting to push funds into the market (up to 8% of our net worth now! whoop whoop), but we have also derived a fair amount of joy and return by funding short term hard money loans. All the fun of buying a place without the long term commitment, all the joy of seeing potential become reality with none of the hard work. You can also lose your azz if thing go gunnyfruit, so one gets that real estate purchase rush.

Speaking of rush - there isn't one. How about do nothing and see how retirement and world travel works out? Maybe you will decide you need that jungle hut in Malaysia rather than a river place where you are.

 

[Milton]

Plan is to live like Billy and Akeisha, renting a house in different parts of the world while we are young, having a small home base in the US to come home to from time to time.

[W]e LOVE looking at houses and buying them....in addition to our home, we have 5 single family homes and 4 condominiums (1 building) that we rent out.

Are we being stupid, or does it make sense?

There is a disconnect between your plan and your actions.

To answer your question: it does not make sense.

 

[kgtest]

I owned a 6 plex that was about 100miles from where I lived and I ended up selling it 5years later because it was too much of a drive and time consumption.

That was 100 miles away. Best case scenario, a pipe bursts, a tenant causes a disturbance or simply leaves without notification...then its time for you to stop your life and jump into action...or face the loss.