Real estate upgrade?

[summerblues]

60 years old, single w/no children. Plan to retire this month. NW is $2.1 million:

IRA (almost all non-Roth): 1,200,000
Home: 400,000 (no mortgage)
Taxable Investments/Cash: 510,000
No Debt

Will receive $2600/mo in SS when close to 67 years old.

Live in urban area so no car. Will pay $460/mo COBRA for 18 months, then ACA premiums until Medicare eligible. My question deals with home costs. Thinking of selling my current home and moving to an area where a decent condo costs about $650k-$700k. Would also need to buy a car. I live pretty frugally. Is it too risky for someone in my circumstances to pay that much for a home? What is the max amount you would sink into a home (no mortgage) if you were me? Also, would it be possible for me to get a mortgage with no job, a high credit score, and these assets? Any feedback would be greatly appreciated.

 

[Dtail]

Welcome to the forum.
You haven't stated what your expenses are, as that aspect would enter into the equation.

 

[summerblues]

Welcome to the forum.
You haven't stated what your expenses are, as that aspect would enter into the equation.

Thank you for the welcome! Ballpark total living expenses per year (including health care premiums, HOA, prop tax etc): $70,000.

 

[Senator]

With a new place, your expenses will go up quite a bit. Property taxes, HOA fees, a car and insurance.

Think twice...

 

[summerblues]

My current yearly living expenses are approx $60,000 (that includes HOA, prop taxes etc). Thinking my expenses will go up to $70,000 if buy new place, well maybe they will be $80,000....

 

[Senator]

My current yearly living expenses are approx $60,000 (that includes HOA, prop taxes etc). Thinking my expenses will go up to $70,000 if buy new place, well maybe they will be $80,000....

If you are going to do it, do it while you still have a job. Will you be selling stock, etc. that you need to pay capital gains taxes on? Potentially pushing you into a higher tax bracket?

 

[summerblues]

If you are going to do it, do it while you still have a job. Will you be selling stock, etc. that you need to pay capital gains taxes on? Potentially pushing you into a higher tax bracket?

Would not have to sell much stock. I understand what you're saying about a job but my current income is not that great anyway. I scaled back my work the past 2 years due to health situation of a parent. I know my financial situation is not gold star so maybe a new home isn't a good idea. Hoping to leave East Coast for West Coast.

 

[Dtail]

I put your numbers into Firecalc using a 50/50 AA (not sure if your AA is close to that).
I received an output of maximum spending of 83k.
If I subtract 300k from the investment assets (which roughly relates to the outgoing cash for your net condo investment plus a car), the max spend is 73k.

So it sounds like you could be okay, but the numbers are close to your estimated expenses.
I would look into the whole situation a little more carefully.

Lastly, when you calculated your SS number, did you use zeros for income earned for the years of 60 through 67?

 

[DrRoy]

I think you could swing it, but how about finding a way to spend less on the house?

 

[pjigar]

You would be on a thin edge after new condo purchase. You are in a comfortable retirement zone with current numbers. Runs FireCalc with new assumptions. I wouldn't do it. I like to be safe than sorry.

 

[summerblues]

I put your numbers into Firecalc using a 50/50 AA (not sure if your AA is close to that).
I received an output of maximum spending of 83k.
If I subtract 300k from the investment assets (which roughly relates to the outgoing cash for your net condo investment plus a car), the max spend is 73k.

So it sounds like you could be okay, but the numbers are close to your estimated expenses.
I would look into the whole situation a little more carefully.

Lastly, when you calculated your SS number, did you use zeros for income earned for the years of 60 through 67?

Thank you for running the numbers. Yes, zero income until 67 will get me 2600/mo SS. I do think I need to scale back condo purchase cost. Reason I chose my current home was because I did not want to sink in too much of my assets. Sometimes I think I'm too cautious but think I need to stick with that in next home and cut back on home cost so I'm not living on the edge.

 

[summerblues]

I think you could swing it, but how about finding a way to spend less on the house?

You're right -- think this is the way to go.

 

[summerblues]

You would be on a thin edge after new condo purchase. You are in a comfortable retirement zone with current numbers. Runs FireCalc with new assumptions. I wouldn't do it. I like to be safe than sorry.

I've always been cautious but was thinking I've been too cautious. Realizing now that I do need to stick with that path and not throw too much of my $ into a condo. Thank you for your input.

 

[Finance Dave]

If you take your net worth of $2.1M, subtract $.65M for condo, that leaves $1.45M. Using the 4% rule, that's about $58,000 the first year. You won't get SS yet...not sure whether you are planning on 62 or 67 or 70....but once you add in $2,600/mo that puts you near $90,000/year in income (not completely accurate because the $58k/year will increase with inflation by the time you get to SS age). That's enough once you get there, but you have a transition period coming up with some unknowns. I agree with others you are a bit close depending on a few factors, but I think some small tweaks (1 more year? $500k condo? work part time? cut other expenses?) could make it doable.

 

[Ian S]

Also, would it be possible for me to get a mortgage with no job, a high credit score, and these assets? Any feedback would be greatly appreciated.

Yes, you can get a mortgage using an asset based approach. That's what we did earlier this year. I'd guess you'd qualify for at least $300K. You'd have to find someone knowledgeable about that type of financing. A couple more hoops to go through but doable and you'll get normal rates of interest.

 

[summerblues]

Yes, you can get a mortgage using an asset based approach. That's what we did earlier this year. I'd guess you'd qualify for at least $300K. You'd have to find someone knowledgeable about that type of financing. A couple more hoops to go through but doable and you'll get normal rates of interest.

That is very helpful info. Thank you.

 

[W2R]

Since you are so close to retirement, maybe it would help to retire first and wait a year or two before buying a more expensive house or condo. Then you could see how much you are spending in retirement, and how much you have left over. Also you could save what is left over to add to your savings for the condo (or down payment if you decide to get a mortgage).

Also, this would give you a chance to adjust to retirement. Sometimes people find that they want different things in retirement than they previously thought they would want. I am thinking of Frank and me; we thought we wanted to move away from here after retirement, but once we had been retired for a while, we changed our minds.

Finally, if you are moving across the country, many would consider it to be advisable to rent in your new location for a year or two before buying, to become more familiar with advantages and disadvantages of particular neighborhoods or condo developments.

 

[summerblues]

Since you are so close to retirement, maybe it would help to retire first and wait a year or two before buying a more expensive house or condo. Then you could see how much you are spending in retirement, and how much you have left over. Also you could save what is left over to add to your savings for the condo (or down payment if you decide to get a mortgage).

Also, this would give you a chance to adjust to retirement. Sometimes people find that they want different things in retirement than they previously thought they would want. I am thinking of Frank and me; we thought we wanted to move away from here after retirement, but once we had been retired for a while, we changed our minds.

Finally, if you are moving across the country, many would consider it to be advisable to rent in your new location for a year or two before buying, to become more familiar with advantages and disadvantages of particular neighborhoods or condo developments.

All very good points. I'm thinking about doing extended Airbnb stays in some areas. Would keep my current place on the East Coast until I'm fully confident about moving. Going to head out in the next 2 weeks to see a new build condo community on West Coast that I'm interested in. Very ready for a change but many worries too. I have many advantages where I currently live -- access to great health care, excellent public transportation -- so have to be confident to give that up and move.

 

[tb001]

I wouldn't characterize the OP as being on the 'thin edge' if they chose this route. My calculations give 70-75K in spending at 95-100% success rate. While 95-100% success rate is what I target as well, it means in the vast majority of scenarios the OP will have far more $ than they need.

While the $ put into new housing isn't liquid, it isn't a zero either. If the SORR risk isn't favorable, the OP has an asset that can be sold.

That said, it doesn't sound like you have a great handle on expenses and I would want more certainty or more buffer in that number personally. Also, keep in mind, there are significant switching costs associated with a cross country move and new home. COL on the west coast is something to make sure you've taken into account as well--depending on where you are now vs where on the west coast, there can be significant differences in groceries, utilities, etc...

It's the unknowns that would worry me.

 

[Ian S]

All very good points. I'm thinking about doing extended Airbnb stays in some areas. Would keep my current place on the East Coast until I'm fully confident about moving. Going to head out in the next 2 weeks to see a new build condo community on West Coast that I'm interested in. Very ready for a change but many worries too. I have many advantages where I currently live -- access to great health care, excellent public transportation -- so have to be confident to give that up and move.

I would suggest doing the firecalc and i-orp calculations yourself. That way you can see how close to having it all work out that you actually are.

 

[nancyfrank232]

OPs NW and cash flow are both too low to purchase a $700k condo

The money is best invested to bolster cash flow instead of purchasing an expense-generating condo

I wouldn’t do it

 

[summerblues]

OPs NW and cash flow are both too low to purchase a $700k condo

The money is best invested to bolster cash flow instead of purchasing an expense-generating condo

I wouldn’t do it

Yes, running the numbers I think the max I could spend on a condo is $600k. Unfortunately, the areas I'm interested in moving to are HCOL with expensive housing.

 

[summerblues]

I would suggest doing the firecalc and i-orp calculations yourself. That way you can see how close to having it all work out that you actually are.

Yes, both are very helpful. Thank you.

 

[nancyfrank232]

Yes, running the numbers I think the max I could spend on a condo is $600k. Unfortunately, the areas I'm interested in moving to are HCOL with expensive housing.

Invest the money in a balanced cash flow-generating portfolio and rent in the HCOL location. Enjoy living the life

This gives you the flexibility of leaving whenever you want and reduces the risk of significant capital loss

 

[summerblues]

Invest the money in a balanced cash flow-generating portfolio and rent in the HCOL location. Enjoy living the life

This gives you the flexibility of leaving whenever you want and reduces the risk of significant capital loss

Yes, this is probably the wise thing to do -- at least initially. Rent, then buy later if I love the area. Just anxious to buy a nicer place because my current East Coast home isn't anything special. But renting is probably the smart way to go now.