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Too much $ in IRA's how to buy a condo
Old 01-21-2023, 09:10 AM   #1
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Too much $ in IRA's how to buy a condo

We currently are 59 years old and are renting. No kids. Our total annual expenses are $50k per year. We would like to buy a condo in the next 2 years in the $700k range. We have only $530k in non retirement accounts. What would you do? We'd have to wipe out DW Roth to buy it and fund Retirement til 65 years old.. I’d hate a mortgage but that may make sense…Thoughts?

Our plans for various reasons
SS at 65 $2667/month or $32k /yr
DW SS at 62 $1513/month or $18k/yr
Pension at 65 $213/month or $2.6k/yr
DW pens at 65 $1336/month or $16k/yr

Total $5729/ month or $68,600/year

Current holdings all in MM or Treasuries/Ibonds

My IRA $270k
My Roth $325k
DW IRA $330K
DW Roth $350K
Brokerage $530k
(Taxable)
Ibonds $70k
HSA $75k
Checking $25k

Total $1,975,000


Thank You,


Wally
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Old 01-21-2023, 09:23 AM   #2
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I was in a similar situation eight years ago, with too much money in my tIRAs and wanting to buy 2nd home (Florida condo).

I ended-up getting a 2.89% mortgage for 10 years.

It has worked out well for me, as the bulk of my tIRA funds were still making money for me in the market (until 2022 ). Taking the mortgage payments out of my tIRAs slowly reduced the overall tIRA value, thus reducing the amount of RMDs I am now having to take.

In addition, I was also doing ROTH conversions for a while to further help reduce my overall tIRA holdings.

On the bright side, I've been spending 7 months a year at my condo and it has doubled in value since I bought it.

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Old 01-21-2023, 09:45 AM   #3
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Not a lot but you could each take $10K from your respective tIRAs without penalty as a "first time homebuyer" (not owned for 2 years) towards the condo. I'd go for a mortgage (not sure how hard that would be without income) to maintain liquidity and maybe aggressively pay it off depending on the rate and available cash flow.
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Old 01-21-2023, 09:50 AM   #4
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FWIW, my numbers were not too far off from you (younger and single and bought a cheaper place) and I bought for cash before my planned FIRE date which ate up about half my liquid taxable assets. I don't regret it but in hindsight I might have taken the cheap money in this inflationary environment as I'd be slightly ahead in total NW (but my goal is freedom, not wealth). It is nice to be able to live off of a low cashflow -good for peace of mind and management of taxable income.
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Old 01-21-2023, 10:02 AM   #5
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You don’t say how much your rent is, if you can trade a rent payment for a mortgage payment without using up too much of your taxable assets, I would do that. Rent will continue to go up, a mortgage is set for the term.
You may have issues getting a mortgage without predictable income so you may have to wait for some of those pensions to kick in.
With condos make sure you understand the reserves and ask to see the reserve study. If they don’t have a reserve study - run. If the HOA does not have adequate reserves, buyer beware. The last thing you want is an unexpected special assessment.
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Old 01-21-2023, 10:15 AM   #6
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Curious why you'd wipe out DW Roth and not 50% of hers, 50% of yours.
If I was your wife that would not happen without a very good reason.
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Old 01-21-2023, 10:29 AM   #7
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Why not get a mortgage and hold onto all your assets? Pull a little from the IRA and increase your monthly income instead of wiping one out. Just a thought.
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Old 01-21-2023, 10:37 AM   #8
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You don’t say how much your rent is, if you can trade a rent payment for a mortgage payment without using up too much of your taxable assets, I would do that. Rent will continue to go up, a mortgage is set for the term.
You may have issues getting a mortgage without predictable income so you may have to wait for some of those pensions to kick in.
With condos make sure you understand the reserves and ask to see the reserve study. If they don’t have a reserve study - run. If the HOA does not have adequate reserves, buyer beware. The last thing you want is an unexpected special assessment.
+1 If you made enough of a downpayment so your PITI (principal, interest, taxes and insurance) was equal to your rent, how much would your downpayment need to be?

On the second part, definitely look at reserve adequacy and factor that into your thinking on an offer.
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Old 01-21-2023, 10:57 AM   #9
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OP here.


Thanks for the input.



Our rent is only $1200/ month and electric is $100/ month. Insurance is $500 a year. It's on 3rd floor no elevator, we are in great shape but it still stinks. Nice location but we want to be on the beach not 2 miles away..


For simplicity I said "wipe out her IRA" but yes would do Half mine and half hers.


I've been transferring $5k month to checking for a year now so it kinda looks like income. Hoping for a little pull back in prices next year or two but suspect in 5 years prices are going to start go up a lot. Could have bought condo for $450k 4 years ago. That unit just went under contract they were asking $780k for it....


Thanks Again,


Wally
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Old 01-21-2023, 11:05 AM   #10
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Originally Posted by wallygator69 View Post
I've been transferring $5k month to checking for a year now so it kinda looks like income. Hoping for a little pull back in prices next year or two but suspect in 5 years prices are going to start go up a lot. Could have bought condo for $450k 4 years ago. That unit just went under contract they were asking $780k for it....


Thanks Again,


Wally
That will look like monthly income to a mortgage company, so I think you’re in good shape to get a mortgage, in addition to whatever tax free IRA withdrawal benefits are available for a new home purchase.
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Old 01-21-2023, 11:43 AM   #11
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OP here.


Thanks for the input.



Our rent is only $1200/ month and electric is $100/ month. Insurance is $500 a year. It's on 3rd floor no elevator, we are in great shape but it still stinks. Nice location but we want to be on the beach not 2 miles away..


For simplicity I said "wipe out her IRA" but yes would do Half mine and half hers.


I've been transferring $5k month to checking for a year now so it kinda looks like income. Hoping for a little pull back in prices next year or two but suspect in 5 years prices are going to start go up a lot. Could have bought condo for $450k 4 years ago. That unit just went under contract they were asking $780k for it....


Thanks Again,


Wally


I was in the same boat you are a year ago. I had to set up a monthly withdrawal from my tIra and provide several statements to the lender to qualify for a loan because they said my SS and military pension were not enough income to qualify for loan. I did that, loan company happy, gave me a VA loan at a fair rate. Once I closed on the house I waited a couple months then terminated the tIra withdrawals. The lender even told me I could terminate after closing, just needed to get through underwriting. All is good now - YMMV…
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Old 01-21-2023, 12:11 PM   #12
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wallygator69,

I got my snowbird condo mortgage through Third Federal Savings and Loan* several years before my pension began. I had to show them proof of funds, insurance papers, etc. but had absolutely no issue getting pre-approved for more than I ended-up spending on my condo.

At closing, my lawyer said he'd looked up Third Federal and was surprised to learn how big they were in the home mortgage business across the U.S.

*https://www.thirdfederal.com/ if you care to check their rates


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Old 01-21-2023, 12:50 PM   #13
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A loan of about $210,000 at 6% will get you close to your current rent. Assumes a 30 year. You might even look at an ARM because rates are likely to come down.

If you can pile up some other deductions and itemize, the interest may also be tax deductible.
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Old 01-21-2023, 01:01 PM   #14
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I would go with a mortgage. If you only made a 20% downpayment that would leave lots of assets to provide income/cashflow for mortgage payments. You can consider putting down more but for every $ more than is more money tied up in real estate that is illiquid.

You can back into how much PITI is comfortable for you and adjust your downpayment to fit.
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Old 01-21-2023, 01:30 PM   #15
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We are looking at a rental purchase, so not our primary home. My hope is to put down about 40-50% from retirement funds and get a mortgage that is about rental income minus expenses, so making it pay for itself.
I would play with a mortgage calculator to see what down payment would get your mortgage down to manageable number. Looks like you will have about $18K more income than your current expenses, so maybe a mortgage of $22K or so each year or $1,800 to $2,000 a month might be doable. Depends on your comfort level. We are thinking rates will decline in a couple years so we can refi and get lower payments or reduced term. You do have some cushion if things don’t go 100% like your plan.
Just my thoughts
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Old 01-21-2023, 02:11 PM   #16
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Originally Posted by wallygator69 View Post
We currently are 59 years old and are renting. No kids. Our total annual expenses are $50k per year. We would like to buy a condo in the next 2 years in the $700k range. We have only $530k in non retirement accounts. What would you do? We'd have to wipe out DW Roth to buy it and fund Retirement til 65 years old.. I’d hate a mortgage but that may make sense…Thoughts?

Our plans for various reasons
SS at 65 $2667/month or $32k /yr
DW SS at 62 $1513/month or $18k/yr
Pension at 65 $213/month or $2.6k/yr
DW pens at 65 $1336/month or $16k/yr

Total $5729/ month or $68,600/year

Current holdings all in MM or Treasuries/Ibonds

My IRA $270k
My Roth $325k
DW IRA $330K
DW Roth $350K
Brokerage $530k
(Taxable)
Ibonds $70k
HSA $75k
Checking $25k

Total $1,975,000


Thank You,


Wally
What is the basis in the taxable account? One strategy is to sell holdings in the taxable with long term capital gains and replace them essentially in-kind in the ROTH and or tIRAs. That will free up cash for down payment and to have a smaller mortgage. If you have losses (especially short term or can match to ST gains), you could sell in the taxable and buy similar but different enough to not have a wash sale issue (agian in the ROTH or tIRAs). I have done the above this past six months to raise cash for possible move.

Another strategy would be to take $ from the tIRAs up to the top of the 12% joint bracket ($89449 + standard deduction in 2023) as a money source for the mortgage payments.
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Old 01-21-2023, 03:20 PM   #17
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Personally, I'd take 50% of the down payment from both ROTHs, split equally. I'd consider selling some brokerage funds, to maximize the LTCGs exclusion, if you haven't already done that for living expenses. Then take out a loan for the remainder (let's say $300K). Refinance later, once interest rates have dropped. And consider changing your AA so that you have a chance of keeping up with inflation.
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Old 01-21-2023, 04:09 PM   #18
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^^^ Nah, use the taxable rather than the Roths... once the money is out of the tax-free Roths it can't go back but it can with taxable... and they have plenty in taxable and two years to convert it to cash sufficient for the down payment.
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Old 01-22-2023, 06:17 AM   #19
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OP Here,


Thanks everyone for the input.


Reserve study for condo is great idea. Didn't know the correct vernacular.


Taxable is all in Treasuries so no LTC or losses...


Will look into Third Federal Savings and Loan Thanks!


I think a 40 to 50% mortgage would be the way to go.



Thanks again to everyone!


Wally
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Old 01-22-2023, 09:01 AM   #20
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I think a 40 to 50% mortgage would be the way to go.
Then you may also be interested in this thread on getting a mortgage in your situation: https://www.early-retirement.org/for...ml#post2759928
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