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Should we buy the beach house?
Old 10-25-2020, 03:32 PM   #1
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Should we buy the beach house?

Hi total strangers!
This seems like a good place to lay out all of my future financial plans and anxieties. Seriously. My family is already on board with the plan, which scares me. We never agree about anything.

Here's the basics:
I just retired in June. Small teachers' pension. Another pension coming from another state in a few years.
DH retired last year. Bigger teachers' pension. On a 2 year gig as a college prof which ends in June, paid through summer.
I am also a travel agent as a side gig, and we all know how lucrative that's been lately
We have a small seasonal rental condo; it doesn't make us much money due to increasing HOA--almost nothing this year due to Covid, but we love the location and want to upgrade in the community.

Assets:
1.1M in 457s, etc. Our FIRECalc numbers are always 100%--even when I fudge them and use worst case scenarios--like a pandemic, for example.
Cash out refi on our primary residence house coming tomorrow: 125K
Refi mortgage will be the only debt: 15 yr at 1.99=2300/mo

Our dilemma:
We want to buy real estate in the beach community where our seasonal condo is. The market is ridiculous right now. Properties are being sold above asking price within days. The place we like has been sitting since March. It's weird, there's an illegal addition, it's going to take some work. Still, it could be a really great rental unit once we fix it up (we can DIY a lot and we have builders/plumbers/electricians in the family). Because it's a home, not a condo, it can be rented even if the pandemic continues. It's year round, not seasonal, and has the potential for 2 or 3 units so we could use part and rent part.

We initially got the refi going to buy the house next to us at home. It's a hoarder house and will take a LOT to make it livable. One week's rent in high season in the beach community would be a high monthly rent with renovations.

This is the beach community that my family grew up going to. We love it, my sister has a place here, and we would be able to have family gatherings. My more fiscally conservative husband is even on board.

So should we buy the beach house?
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Old 10-25-2020, 05:26 PM   #2
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a couple of questions....

What is the vacation rental politics in the beach community? (Here in San Diego there are warring factions of 'ban-all-vacation rentals' vs 'I've had this vacation rental in my family for 3 generations' Big money is trying to preserve it (VRBO, Airbnb, etc.) neighbors are upset about 'party houses' next door. I would NOT buy a home where I needed vacation rental income here in San Diego... Too volotile a situation here. Your area might be completely different.

Are you relying on the rental income to make it pencil out that might make me nervous. You mention the Pandemic... it could have more shutdowns in our future as the numbers creep up.

You mention it's been sitting since March - I would definitely do a serious inspection. There may be big, expensive issues to make it habitable.

Is this a home you can make the home of your retirement dreams? That would weigh heavily towards going for it.
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Old 10-25-2020, 05:42 PM   #3
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Life is short. If you want a beach house, buy it.
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Old 10-25-2020, 05:46 PM   #4
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Great questions--thank you!
This house is in a more residential area; it's 1/2 mile from the sandy beach. I get the impression that the neighbors live there year round. This was owned by an elderly woman and her son, and though it's year round, they were seasonal. So having renters come in and out will definitely be different for the neighbors, who are close by. Cookies probably won't do it lol. That is a concern.

We are calling an engineer tomorrow to see what we can do legally.

What my sister has done is gotten initial rentals through vrbo, etc, and then told them to contact her directly for the following year, which makes everyone happy: no fees, etc.

We would like to make one unit our second home, and plan to make it awesome and rent it for the high season (which is very short in New England).

Thanks for all of your questions--they're helpful!
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Old 10-25-2020, 05:50 PM   #5
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Quote:
Originally Posted by Ronstar View Post
Life is short. If you want a beach house, buy it.
Thank you. This is what we're thinking. My husband was a no 2 years ago, but the beauty of crises is that they focus your thinking.
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Old 10-25-2020, 06:50 PM   #6
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Quote:
Originally Posted by Ronstar View Post
Life is short. If you want a beach house, buy it.
I agree. I'm 65, and within the last year or two, several good friends of mine have either gotten very sick or died (not COVID, other things......cancer, heart disease, etc). That really reinforces the point that life is short, and if you have the means to do something that you want to do while you are healthy, go for it. DW and I bought a small house in Florida two years ago now, and we are enjoying the heck out of it. I had reservations about buying it, but was talked into it, and I'm glad we did. We're healthy now, and hopefully we will get several more years of enjoyment out of it, at least. No regrets at all.......
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Old 10-25-2020, 07:29 PM   #7
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On the other hand...how much would you use it yourself v renting it out? Is it a place you will eventually move to full time? Have you run the numbers on the upkeep, taxes, insurance etc? Beach properties take a lot of upkeep. What about hurricanes? I have owned rentals and now own a second home I don't rent..they are all money pits. If I had to do over again I would just rent a place for the months I want to be where my second home is. Renting a place is much less headaches and usually cheaper in the long run.
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Old 10-25-2020, 07:38 PM   #8
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One question is with a beach house what its elevation, and which coast is it on? (are hurricanes a problem?) You might check which flood insurance zone the house is in and also look at the elevation and consider that a 20-30 foot storm surge is a possibility if in a hurricane prone area (ignore if on inland lakes etc)
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Old 10-25-2020, 08:32 PM   #9
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Quote:
Originally Posted by roadtripper View Post
.... It's weird, there's an illegal addition, it's going to take some work. ...
Assuming that you will have a mortgage on the property, will the lender require that the illegal addition be sorted before loaning money for the purchase? Can it be sorted? What is the worse case scenario... that the illegal addition will need to be torn down?
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Old 10-25-2020, 09:19 PM   #10
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As someone asked, west coast or east coast?
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Old 10-26-2020, 06:39 AM   #11
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^ OP mentioned New England so I assume east coast.
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Old 10-26-2020, 07:13 AM   #12
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DW and her two siblings own the family beach house inherited from their parents. Free and clear. It is in a rental program. They will cover their nut in 2020 but are not banking any for the inevitable capital expenditures in the future. Paint jobs and AC compressors last about half as long as usual at houses near the ocean. Renters are hard on a house. Thank goodness they got an elevation survey done to find the correct elevation and found out they were on one of the highest points on the island - otherwise flood insurance was about to explode. (Insurers will assume the worst.)

It doesn't make enough $ to even fund the rainy day fund. Alternatively, the family is not happy that they can't use it whenever it suits them because of those pesky renters. It's a PITA and even with a management company, it still takes a lot of the siblings time.

A vacation house you both rent and use can be a slippery slope.
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Old 10-27-2020, 06:15 AM   #13
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Quote:
Originally Posted by roadtripper View Post
Hi total strangers!
This seems like a good place to lay out all of my future financial plans and anxieties. Seriously. My family is already on board with the plan, which scares me. We never agree about anything.

Here's the basics:
I just retired in June. Small teachers' pension. Another pension coming from another state in a few years.
DH retired last year. Bigger teachers' pension. On a 2 year gig as a college prof which ends in June, paid through summer.
I am also a travel agent as a side gig, and we all know how lucrative that's been lately
We have a small seasonal rental condo; it doesn't make us much money due to increasing HOA--almost nothing this year due to Covid, but we love the location and want to upgrade in the community.

Assets:
1.1M in 457s, etc. Our FIRECalc numbers are always 100%--even when I fudge them and use worst case scenarios--like a pandemic, for example.
Cash out refi on our primary residence house coming tomorrow: 125K
Refi mortgage will be the only debt: 15 yr at 1.99=2300/mo

Our dilemma:
We want to buy real estate in the beach community where our seasonal condo is. The market is ridiculous right now. Properties are being sold above asking price within days. The place we like has been sitting since March. It's weird, there's an illegal addition, it's going to take some work. Still, it could be a really great rental unit once we fix it up (we can DIY a lot and we have builders/plumbers/electricians in the family). Because it's a home, not a condo, it can be rented even if the pandemic continues. It's year round, not seasonal, and has the potential for 2 or 3 units so we could use part and rent part.

We initially got the refi going to buy the house next to us at home. It's a hoarder house and will take a LOT to make it livable. One week's rent in high season in the beach community would be a high monthly rent with renovations.

This is the beach community that my family grew up going to. We love it, my sister has a place here, and we would be able to have family gatherings. My more fiscally conservative husband is even on board.

So should we buy the beach house?
@roadtripper This post seems to me that you have already decided to buy the house. Is this correct?

Is adding real estate to your life what you want? Do you want to spend more time, money and effort on real estate? This is required when real estate is owned. If you pay a management company, itís just a different blend of time, money and effort.
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Old 10-27-2020, 08:06 AM   #14
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I too have a lake house that's been in our family since 1945. It's an hour away so maintenance is not such a hassle. $100 utilities, $100 property taxes and $100 insurance don't amount to a large monthly cash outlay.

We may rent it out from time to time, but not enough to get into any income tax issues.

And now that we are of retirement age, we're not interested in having more real estate to deal with. We've made our money and are enjoying it.

I understand how you consider the beach your home away from home, especially since you've been going there your whole life. I'd say go for it on the beach house, especially since you have the skills to improve the value of the place. There's just so much property in such places, and prices can only increase.
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Old 10-27-2020, 12:10 PM   #15
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Thanks again for all of the thoughtful replies, advice and suggestions.

We are still waiting to see if we can make the illegal addition legal; without it, we won't buy.

Not in a flood zone, few hurricanes in New England. Less than 2 hours from where we live, so we would handle issues ourselves.

I will keep you all posted!
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Old 10-27-2020, 12:41 PM   #16
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Quote:
Originally Posted by roadtripper View Post
Assets:
1.1M in 457s, etc. Our FIRECalc numbers are always 100%--even when I fudge them and use worst case scenarios--like a pandemic, for example.
Cash out refi on our primary residence house coming tomorrow: 125K
Refi mortgage will be the only debt: 15 yr at 1.99=2300/mo
How is $125K for a 15yr @2% coming out to 2300/mo? Also, where/how are you getting a cash-out 15-yr refi at 1.99%?
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Old 10-27-2020, 05:09 PM   #17
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^^^ I think $125k is the cash out... the new mortgage would be for the sum of their previous mortgage + $125k (and probably + closing costs)... ~$357k by my calculations.
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Old 10-28-2020, 07:17 AM   #18
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^^^ I think $125k is the cash out... the new mortgage would be for the sum of their previous mortgage + $125k (and probably + closing costs)... ~$357k by my calculations.
Ah, that would make sense. Still would like to know where OP is getting a 1.99% 15-yr refi (and with cash out, to boot). I guess they could be paying a bunch of points but figured that would have been included.
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