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2nd house as an investment
09-13-2012, 07:19 AM
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#1
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Confused about dryer sheets
Join Date: Feb 2011
Posts: 4
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2nd house as an investment
I have a second "lake house" that I consider an investment. When I look at all my other investments, how should I classify this 2nd house? If my other investments are, stocks, bonds,and cash, this is real estate. Should this "investment" influenence my other investments? I like to think about it as a bunch of money waiting for me to cash it in. It would be about 1/3 value as my other investments combined, approximately $400K.
Thanks
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09-13-2012, 07:32 AM
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#2
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Administrator
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,585
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Quote:
Originally Posted by kuli48
I have a second "lake house" that I consider an investment. When I look at all my other investments, how should I classify this 2nd house? If my other investments are, stocks, bonds,and cash, this is real estate. Should this "investment" influenence my other investments? I like to think about it as a bunch of money waiting for me to cash it in. It would be about 1/3 value as my other investments combined, approximately $400K.
Thanks
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Theoretically a second house could be considered an illiquid real asset, which would be an uncorrelated asset class additional to the three you named. In my personal experience, however, a second house is more of an expense trap than anything else.
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09-13-2012, 08:01 AM
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#3
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Confused about dryer sheets
Join Date: Feb 2011
Posts: 4
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Quote:
Originally Posted by MichaelB
Theoretically a second house could be considered an illiquid real asset, which would be an uncorrelated asset class additional to the three you named. In my personal experience, however, a second house is more of an expense trap than anything else.
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Thanks Michael
It is an expense, but it has appreciated, and I use it often. I am 64, and in another 5 - 10 years I will sell it. Should it have any influence over my current investments and if it does how should I classify it. Should I consider it when I allocate my other investments?
Thanks
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09-13-2012, 09:28 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Sep 2006
Posts: 1,691
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I would classify (the conservative estimate of equity in it) as real estate. I would not let it affect my other investments unless you plan on buying a REIT that invests in vacation property, then I would.
TJ
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09-13-2012, 12:11 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,199
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Whether or not you consider it an investment, it's not.
A 2nd house on a lake is just like a 2nd car which is a BMW Z4 convertible.
It's a consumption item that may, in the fullnes of time, be sold for cash.
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09-13-2012, 12:53 PM
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#6
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,317
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Quote:
Originally Posted by rayvt
Whether or not you consider it an investment, it's not.
A 2nd house on a lake is just like a 2nd car which is a BMW Z4 convertible.
It's a consumption item that may, in the fullnes of time, be sold for cash.
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If you plan to sell it I see no reason not to view it as an asset like any other. The cash it provides at sale is the same green stuff equities or bonds turn into when you sell them. Whether it has a good ROI as an investment is another issue.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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09-13-2012, 02:28 PM
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#7
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Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,199
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You're kidding, right?
You can convert a stock or bond or REIT into cash in one day. A piece of real-estate may take YEARS to sell. Every day I drive buy a nice house sitting just off the tee-box of the 10th hole of a golf course. This house has been for sale for TWO years and still has not been sold.
The OP can consider it as whatever part of his asset allocation he wants, but the danger is that it'll not actually fulfill the asset class that he calls it.
A REIT is in the real-estate investment asset class.
A specific house is just one illiquid thing that happens to be real-estate.
If you're wrong, you wind up fooling yourself, and putting yourelf at risk of having to re-enter the work force as a Walmart greeter, at age 75.
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09-13-2012, 02:36 PM
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#8
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Recycles dryer sheets
Join Date: May 2010
Posts: 497
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I think that vacation homes do not move in value the same as residential property. People that own them can afford to not sell during a dip in price.
I bought a vacation home three years ago(after the big dip) and watching the ones for sale in the area I would say they are staying about the same at best. But near my full time home the prices are going up with very little on the market.
Just a guess but I say the dip on vacation homes was about half percentage wise as residential. So when they go back up I say it would follow suit.
__________________
You've got to ask yourself one question: Do I feel lucky? Well, do ya, punk?
Retired July '11 investments in very low cost index and mutual funds, balance once a year at best.
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09-13-2012, 03:04 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2006
Location: Washington, DC
Posts: 11,317
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Quote:
Originally Posted by rayvt
You're kidding, right?
You can convert a stock or bond or REIT into cash in one day. A piece of real-estate may take YEARS to sell. Every day I drive buy a nice house sitting just off the tee-box of the 10th hole of a golf course. This house has been for sale for TWO years and still has not been sold.
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Not kidding. You would have to be brain dead to view a house as being as quick to unload as stocks or bonds but then you wouldn't keep the darn thing if you needed instance cash from it. But, quickly unloading a huge block of stocks (which would be the equivalent of selling a vacation house) could be almost as troubling. If you wanted a fast $500K right after a 50% downturn in the market turning to your stocks would be problematic as well. Not so liquid in such circumstances and really no different than selling a paid off house at a 50% loss.
I have all I need to live the life I enjoy including maintaining and using a second home. But if the markets go terribly south as some are predicting I can always sell that second home, albeit with a potential wait or significant loss depending on the timing. Nut eEven at a drastically reduced price I would walk away with a big chunk of cash and a large reduction in taxes/maintenance. Do I consider that house an asset? You bet.
__________________
Idleness is fatal only to the mediocre -- Albert Camus
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09-13-2012, 04:15 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,794
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I won't take "sides" on whether a second house is an investment (and especially whether it is a "good" investment.) I will say, that when WE owned a second house (which we rented out for many years) WE included its estimated value in our overall investment portfolio. Looking back, I'm certain we could have done better in other investments (stocks, bonds, etc.). BUT, owning the property did for us what we wanted. It held a place for us in paradise which moved with the local RE market. It more or less paid for itself through rents. So, whether it was a GOOD investment or BAD, it had additional virtues.
We have NEVER considered our PRIMARY residence as an investment, but one could make a case for that as well, I suppose. Just how you look at it and what makes you feel good enough to sleep at night. To the OP's original question, though: WE always avoided RE type investments (REITs, in particular) because we believed we had enough RE exposure already. As you have seen from other's comments, YMMV.
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Anything which can be used can be misused. Anything which can be misused will be.
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09-13-2012, 04:33 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,115
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we sold our 2nd home in july after 5 years. its was nothing but a liability and not an asset in our eyes.
duplicate bills for everything ,even when we werent there, lost opportunity costs and the closing costs in and out were a big nut.
the house would have to have gone up 15% just to cover the closing costs.
i would never do it again.
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09-13-2012, 04:36 PM
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#12
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Posts: 1,994
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I would consider it a hard non liquid asset much like your primary home. In that regard, I would not consider it the same as stocks, bonds or CD's, Bank accounts..etc.
Consider it a form of diversification as Michael B said non-correlated with stocks and bonds. What it will be worth versus what you paid for it and paid to maintain it remains to be seen.
Recently did a quick calculation on a 2nd home we too were interested in. Results of the calculation were: If I put 50% down due to expenses and mortgage I might be lucky to make 1% a year net positive cash flow. If or when I paid it off or if I paid full price cash I still would not have made but 2.8% a year on it based on the value of what I put in it. For the amount of money we are talking about, I could do better in the stock market with dividend paying stocks or bond funds...etc.
As I pointed out to my husband, one scenario eats money the other one makes us $30,000 a year (4%-5% divi or bond yields in stockmarket). This goes along the lines of what Michael B said.
We did not buy the 2nd home. We keep looking but I have not found the right scenario.
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09-13-2012, 04:52 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,115
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we paid cash for our 2nd home in the poconos. it ran us about 8-10k a year to keep going and i figure i lost another 10k in lost interest had i just bought a muni instead.
thats 20k a year ...
the worry during the winter when we would lose power or have storms really was the clincher. it is just to much worry to be worth it in my opinion.
between 5 years of ownership and closings costs on the buy and sell i figure that was 100k out the window overall.
in my book it gets logged on the liability side.
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09-13-2012, 04:58 PM
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#14
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Thinks s/he gets paid by the post
Join Date: Sep 2007
Posts: 1,199
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After having owned a couple of timeshares for 20+ years, and having friends who had a vacation house, my opinion that vacation 2nd homes are generally a bad idea.
You go to the same dang place every year, and by the 5th time you have done & seen everything you want and it's just boring. Plus the continual on-going costs have to be paid, like an open wound, whether you go there or not.
Long run, it is much cheaper and better to rent a place wherever you want to go. Even $2000 for a week is cheaper overall than buying a place. And you can go to a different place every year.
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09-13-2012, 05:04 PM
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#15
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Thinks s/he gets paid by the post
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,688
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Quote:
Originally Posted by donheff
If you plan to sell it I see no reason not to view it as an asset like any other. The cash it provides at sale is the same green stuff equities or bonds turn into when you sell them. Whether it has a good ROI as an investment is another issue.
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+1
Real estate is an asset. It has value which can be realised (even if less liquid than some other asset classes).
Whether it is a good investment is a separate issue. In this case, since you use it yourself, ROI will be harder to calculate (personal utility should be taken into account). I would just think off it as a large illiquid store of uncertain value.
__________________
Budgeting is a skill practised by people who are bad at politics.
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09-13-2012, 05:06 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2005
Posts: 6,115
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we found that with having a 2nd home we felt guilty about not getting there enough and it costing so much that we rarely went anywhere else.
we got bored too. after we saw it all and done it all it wasnt exciting anymore.
the clincher was when we realized we didnt want to live there full time after we retired.
the winters were brutual in the pocono mountains. there is no public transportation if you cant drive.
limited medical facilities .
limited things to do without driving an hour.
all in all once we realized the rural life wasnt really what we wanted we felt every bill we paid.
with little to no appreciation the last 5 years it was just one major liability.
i disagree with you on real estate being an asset as a general term ..
an asset should support itself or generate income or generate capital gains.
it did none of the above so until the day it does its nothing but a liability and i wont call it an asset.
anything that cost you more then it brings to the party is a liability not an asset..
even if its something thats worth more then i paid, if i have no intention of selling it then i consider it a consumption item.
the original art work i own falls in that catagory.
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09-13-2012, 05:11 PM
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#17
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Posts: 1,994
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Quote:
Originally Posted by rayvt
After having owned a couple of timeshares for 20+ years, and having friends who had a vacation house, my opinion that vacation 2nd homes are generally a bad idea.
You go to the same dang place every year, and by the 5th time you have done & seen everything you want and it's just boring. Plus the continual on-going costs have to be paid, like an open wound, whether you go there or not.
Long run, it is much cheaper and better to rent a place wherever you want to go. Even $2000 for a week is cheaper overall than buying a place. And you can go to a different place every year.
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+1
That is always where I end up too rayvt.
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09-13-2012, 05:42 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2007
Posts: 5,596
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All I can add is DH and I are so relieved to be rid our our second house. We've owned two houses for nearly 15 years and are happy to be down to one paid for place.
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I purr therefore I am.
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09-13-2012, 08:12 PM
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#19
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Administrator
Join Date: Jan 2008
Location: Chicagoland
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Quote:
Originally Posted by kuli48
Thanks Michael
It is an expense, but it has appreciated, and I use it often. I am 64, and in another 5 - 10 years I will sell it. Should it have any influence over my current investments and if it does how should I classify it. Should I consider it when I allocate my other investments?
Thanks
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My view - a second house is an asset and you can classify it as a real asset in your portfolio. Additional to stocks, bonds, cash, and REITS. It is not liquid but should increase in value more than inflation, the yield is negative, but it is still an asset. Can't say anything else because it depends totally on the local circumstances and market conditions, but it is uncorrelated to your other portfolio assets.
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09-13-2012, 08:53 PM
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#20
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Recycles dryer sheets
Join Date: Nov 2004
Posts: 245
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My wife and I own our home outright on Cape Cod. Since I retired we spend five months out of the year (Nov~May) in AZ. We have a long term rental in a very nice home. Much less expensive, much less hassle, than owning the place.
Everyone has different needs. YMMV
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