Buy 2nd Home Now or After Retirement?

[Siestatime]

Our home up north has less than $20k mortgage left. Market value of approx $300,000. I'm planning on FIREing before the end of 2015. We want to get a second home in Florida, at least to snowbird for the next few winters. After that, may rent/sell the home up north. We will very likely get a mortgage to buy the house/condo in Fla.

My salary is in the very, very low six figures and I'm sure I'd qualify for a mortgage. I could take a HELOC to fund the new place as well.

Question: besides the obvious improved qualification (based on salary) to get a mortgage, what are the pros and cons of buying real estate before or after retirement? Has anyone gone through a mortgage process while in retirement?

PS: BiggerPockets has a lot of real estate info, but the wisdom from this forum seems more appropriate and valuable to me😉

[tryan]

We built the lake house in my last year in megacorp. Then tried getting a loan refi'd while retired ... was rejected for the refi (credit score +750).

The conversation went something like this:

Please send us your W-2

Haven't had a W-2 in years

Ok, send us 2 years taxes

Here you go ...

No thank-you

[Jack_Pine]

Quote:

Originally Posted by tryan We built the lake house in my last year in megacorp. Then tried getting a loan refi'd while retired ... was rejected for the refi (credit score +750). The conversation went something like this: Please send us your W-2 Haven't had a W-2 in years Ok, send us 2 years taxes Here you go ... No thank-you

I never understood this. Why will they not accept that you have more than enough assets to cover the loan? I can show a W@ but I could loose that job at any time..............

[karluk]

I'm probably not the best source of advice, since I have no plans to buy a second home. But if I were, my main concern would be to avoid buying in an unfamiliar part of the country and risk belatedly discovering that the area wasn't to my taste. That concern would cause me to seriously consider renting for a year or two before buying and actually see how I liked living there. So, assuming financing isn't an issue, I would opt for waiting until after retirement.

[TimSF]

I think financing will be an issue, though possibly less so if you are willing to put up substantial cash up front. We were rejected for credit cards in ER! What about paying cash for the fl home? We bought our second home a few years before retirement then sold the primary when we retired and moved. That worked well.

[lowflyer]

Dan Gilbert head honcho from Quicken Loans was on CNBC this morning and was talking about this very thing. Someone with 95% LTV, minimal cash, but with a job and W2 can get a loan. Someone with 50% LTV, huge credit score, lots of assets and cash can't get approved. This isn't news, but even he was shaking his head about it. Says it's just the way it is.

[tryan]

No such problems in the car loan arena ... DW and I decided to grab 1.9% financing on a 2 yo vehicle based on our credit score. Figured I'ld probably make better returns where the wad is parked ( that happened last year!).

[travelover]

Quote:

Originally Posted by lowflyer Dan Gilbert head honcho from Quicken Loans was on CNBC this morning and was talking about this very thing. Someone with 95% LTV, minimal cash, but with a job and W2 can get a loan. Someone with 50% LTV, huge credit score, lots of assets and cash can't get approved. This isn't news, but even he was shaking his head about it. Says it's just the way it is.

Yea, it is not like he is in a position to do anything about it.

[RetireAge50]

Neither, homes are demanding of my time and money.

[foxfirev5]

My DW and I may rent for a couple winters a month at a time to be sure we want to spend more than a few weeks in Florida. Right now we have two homes, one in town and one on a lake. We will carefully consider our next move as to not get in over our heads.

[W2R]

Quote:

Originally Posted by Siestatime Question: besides the obvious improved qualification (based on salary) to get a mortgage, what are the pros and cons of buying real estate before or after retirement?

There are non-financial aspects of this decision as well.

Many of us find that our desires and point of view changes in retired life, as compared with what they were when we were working.

Some people find that the drive to get away on vacations or to move miles away, diminishes once they have retired. There is no longer anything to get away from, no need to physically remove oneself from the source of stress because it is no longer an issue.

So, my suggestion is to consider waiting for at least a year after retirement before buying the second home.

[Dash man]

You could consider refinancing your current home to get the cash to buy a Florida home after you ER. That said, I agree that you should rent before you buy in Florida. We bought a second home there a few years ago, but wouldn't have bought there now if we had known the area better. We will keep the home for rental income, but plan to buy something else next year now that we know the area better.

[Throwdownmyaceinthehole]

I've found I can rent a place for three months on just about any beach, for the same price as property tax, insurance or condo fees not including any mortgage. As much as I want a beach house, I just can't financially justify it.

[Jack_Pine]

We find owning and renting when we are not there works great. Great for having dogs as well (money wise as well)

Could not justify renting for us....YMMV.

[Siestatime]

Thanks all for the advise. The polar vortex really got us motivated to look at better climate options. Florida is not completely unfamiliar to us, but I will concede that we haven't spent an entire winter there. It's an attractive state to transition to in retirement due to income/property/estate tax rates (if not the weather!). Also, the real estate market is behind the recovery curve, so there are still attractive deals to be had. My suspicion that it will be tougher - if not impossible - to get a mortgage in retirement is reinforced by tryan and lowflyer's post. Additional comments welcome!

[SVHoper]

Quote:

Originally Posted by Dash man ...We bought a second home there a few years ago, but wouldn't have bought there now if we had known the area better. We will keep the home for rental income, but plan to buy something else next year now that we know the area better.

Hi Dash man,

I am interested in understanding reasons behind real estate choices: would you mind sharing what you know now that you didn't know when you bought and I suppose related to this - what attracts you to the area where you intend to purchase.

Thanks!

[MichaelB]

Quote:

Originally Posted by Siestatime I'm planning on FIREing before the end of 2015. We want to get a second home in Florida, at least to snowbird for the next few winters. After that, may rent/sell the home up north. We will very likely get a mortgage to buy the house/condo in Fla.

You don't need to own elsewhere to get away for the winter. Renting your primary while you are away means becoming a landlord. Owning a second home is having something else to worry about and maintain.

Snowbirding with a second home is a totally different lifestyle and can cost a lot (the voice of experience here). I think the best advice is to rent until you are sure you know what you want.

[Dash man]

Quote:

Originally Posted by SVHoper Hi Dash man, I am interested in understanding reasons behind real estate choices: would you mind sharing what you know now that you didn't know when you bought and I suppose related to this - what attracts you to the area where you intend to purchase. Thanks!

We bought a place near Tampa back in 2006 for several reasons. We plan to move there after my DW retires next year and we have family in that area. Additionally, my in-laws are snow birds and we let them use the place every winter. Other family members have used the place over the years for visits along with our own regular visits. It's a four bedroom on a pond in a residential development an easy drive to and from the airport and about 35 minutes from the beach, and near the spring training baseball. It has nice walking areas and isn't too far for shopping. We wanted to be far enough inland to not worry about water damage from hurricanes.

The location turned out to be particularly overbuilt and was hit hard by the real estate bust in Florida, leaving a lot of empty homes and the problems that occur with that. The area is one of the leading areas for sink holes, which affected a rental property we had purchased nearby. We've learned there are sink hole maps online that anyone thinking of purchasing a home in Florida should review. Traffic is also a problem in many areas around Tampa. That 35 minute trip to the beach can turn into a couple of hours if not timed properly. Home owner associations are another issue as many are overly zealous in enforcement of everything while others fail to enforce standards. People are not permitted to park in the street and there aren't any visitor parking areas in our neighborhood. Neighbors' cars are stinking out into the street from their driveway or they park illegally on grass areas. Some neighbors park in our driveway knowing we're not there full time, blocking our access to our own driveway when we do show up. Obviously this will not be an issue if we live there full time, but it is irritating.

We plan to buy another place south of Tampa closer to the water or on a canal. It is out of the sink hole areas. The home we'll buy will be in an area with more space between neighbors and adequate parking, and has a reasonable association. We'll still want nice walking areas and close to shopping, but hope less commuter traffic and just have to worry about retirees and beach goers. Our next place will also be a single story home so we don't have to worry about stairs as we age.

[45th Birthday]

We bought a second home before I FIREd, but have not had a problem getting a HELOC on it (first paid off). Nor have we had a problem getting a first (refi) and a HELOC on our primary after FIRE. We are under contract to buy a third place in FL (climate, taxes). Pre-approved for a loan for more than we want to borrow at an excellent rate, final approval pending. So, not a problem at all for us. However, we have a high six figure income and a low eight figure net worth. My advice would be to ask around. Check credit unions and community banks.

[kcowan]

Why do you want to get new debt when retired? If you cannot afford to own it outright, buying seems to be a bad idea.