Vacation home considered part of your retirement assets?

[LateToFIRE]

I've mentioned elsewhere my "crazy" RE vs NW play. When I lived in a tri-level on the mainland (about $150K value) I did not count it in my NW. At the same time, I had a town house in the Islands which was rented out. (about $300K value at the time.) I counted the town house as part of my NW (invested.)

When I moved to the Islands, "suddenly" my invested NW went down because the Town House was my now my home and my previous house was an asset (that I was about to sell.) It gets complicated and it's also a bit philosophical so YMMV.

Lol, yeh, gets kinda complicated sometimes, I know exactly what you're sayin: swap one, sell one, buy another one, yada, yada... sometimes don't know if you're coming or going.

 

[Sojourner]

Networth - yes

Portfolio to determine your SWR - No

+1

Real estate used exclusively for personal enjoyment (e.g., primary residence, vacation home) should not be considered when calculating SWR. Just like if OP went out and bought a $100k car, that $100k is no longer available for generating any retirement income for funding day-to-day living expenses.

 

[LateToFIRE]

+1

Real estate used exclusively for personal enjoyment (e.g., primary residence, vacation home) should not be considered when calculating SWR. Just like if OP went out and bought a $100k car, that $100k is no longer available for generating any retirement income for funding day-to-day living expenses.

I don't think this is a universally applicable approach, granted my situation is not the norm. What i expect is that as wife and I age and enter our 80's (or maybe sooner), our sizable retirement property will simply become too much to manage - either its just too large to physically navigate or it will just require too much effort/management to maintain or we simply won't get the same kind of enjoyment from it owing to the 1st two issues or we'll want to move to a warmer climate.

And especially if/when one of us passes away, I really doubt the other would want to live in a large, isolated home/property alone. So we anticipate probably selling at some point within next 20 years - and the net proceeds would most certainly be a figure somewhat greater than $1M.

I don't plan on needing it, but that money could go a long ways towards alternate housing options, with plenty leftover, even in 2043 dollars.

So, how should I think about a personal use asset that can deliver that kind of $$$ wallop? I'm certainly not going to ignore it in my planning.

P.S. Car = depreciating asset, not a fair comparison

 

[rmorris50]

Your annual household cash flow (money flowing in the door minus money flowing out the door) for the rest of your life is impacted by what your assets are invested in over time and the value of those assets over time. So the question is how buying and selling real estate over time ends up impacting those projected cash flows.

Bust out excel and model both scenarios out

 

[Sojourner]

I don't think this is a universally applicable approach, granted my situation is not the norm. What i expect is that as wife and I age and enter our 80's (or maybe sooner), our sizable retirement property will simply become too much to manage - either its just too large to physically navigate or it will just require too much effort/management to maintain or we simply won't get the same kind of enjoyment from it owing to the 1st two issues or we'll want to move to a warmer climate.

And especially if/when one of us passes away, I really doubt the other would want to live in a large, isolated home/property alone. So we anticipate probably selling at some point within next 20 years - and the net proceeds would most certainly be a figure somewhat greater than $1M.

I don't plan on needing it, but that money could go a long ways towards alternate housing options, with plenty leftover, even in 2043 dollars.

So, how should I think about a personal use asset that can deliver that kind of $$$ wallop? I'm certainly not going to ignore it in my planning.

I suppose you could figure the future sale of real estate into your planning, if you were to look at it holistically and adjust for various expenses, risks, etc. For example, owning real estate for the next 20 years will result in additional living expenses such as RE taxes, insurance, and other maintenance costs, as opposed to owning shares of an S&P500 ETF, which doesn't cost anything but generates income via dividends. I am not sure, however, how you could anticipate the details of a future sale of RE (the timing, the proceeds, the cost of "alternate housing options") accurately enough to figure it into a present-day SWR calculation via FIRECalc.

 

[LateToFIRE]

I suppose you could figure the future sale of real estate into your planning, if you were to look at it holistically and adjust for various expenses, risks, etc. For example, owning real estate for the next 20 years will result in additional living expenses such as RE taxes, insurance, and other maintenance costs, as opposed to owning shares of an S&P500 ETF, which doesn't cost anything but generates income via dividends. I am not sure, however, how you could anticipate the details of a future sale of RE (the timing, the proceeds, the cost of "alternate housing options") accurately enough to figure it into a present-day SWR calculation via FIRECalc.

Fair points on cost of ownership. I'm an experienced owner, have bought and sold property several times now, each time extracting very significant profits, both resi and commercial r.e., so quite adept at anticipating the expenses and friction costs, understanding market dynamics, etc.

As for anticipating the resale value, that's no more difficult (or easy) than anticipating the future return on stocks - so how is it more difficult with r.e.? You tell me where the stock market will be in 20 years and I'll oblige by telling you where r.e. mkt will be. Personally, I think my SWAG on r.e. (in my location) likely to be a lot more accurate than anyone's SWAG on stocks.

And I can generate rental income from r.e. instead of using it or selling it - far more tax efficiently than dividends I should add. I am an experienced landlord so no learning curve on that.

And to your point on FIREcalc, I run it both ways, with and without anticipated proceeds from the sale of r.e. - there is a tab for portfolio changes only you have to enter the net amount after fees, taxes, etc.

So, look, I readily admit that my situation is atypical - the value of my r.e. holdings exceeds conventional cost of housing by an order of magnitude, so there is a high level of confidence that there is excess value. And I have bought carefully with an eye towards preservation of value in location(s) that are (and will likely continue to be) highly sought after by very deep pocketed buyers.

My main point was that one size does not fit all. There are cases where including the value of a home should make some sense. I do feel like r.e. is one of those things that scares folks because they don't understand it too well, so the standard opinion is - don't include it or you'll be sorry.

 

[brett]

Seems to me that the answer is very personal and would depend on one's net worth, lifestyle, run rate retirement income from pensions, SS, annuities, etc.

 

[kcowan]

We made the decision to buy a snowbird condo in 2007. It worked out well so in 2019, we upgraded the investment by a factor of two! Never counted either there or at home in our SWR.

The snowbird property has increased substantially and one of our sons has expressed interest in taking it over eventually. We spend 6 months there, 5 months at home and 1 month traveling.

Like others have said, do for it as long as you can handle the HOA/maintenance fees as part of your SWR.

 

[Sojourner]

As for anticipating the resale value, that's no more difficult (or easy) than anticipating the future return on stocks - so how is it more difficult with r.e.? You tell me where the stock market will be in 20 years and I'll oblige by telling you where r.e. mkt will be. Personally, I think my SWAG on r.e. (in my location) likely to be a lot more accurate than anyone's SWAG on stocks.

I certainly concede that it wouldn't be any easier to anticipate the precise value of an S&P fund on some specific date in the future than it would be to anticipate the resale value of a specific RE asset in the future. However, from the perspective of SWR analysis and planning, having $X in an S&P fund is far more "reliable" as an input than having a $X home located at a specific physical address. There are reams of historical data regarding the performance of the S&P over many, many decades, which allows FIRECalc to do detailed modeling and analysis. Nothing of the sort can be done for RE at a specific location (to my knowledge), which makes holding individual RE assets problematic for determining SWR.

So, look, I readily admit that my situation is atypical - the value of my r.e. holdings exceeds conventional cost of housing by an order of magnitude, so there is a high level of confidence that there is excess value. And I have bought carefully with an eye towards preservation of value in location(s) that are (and will likely continue to be) highly sought after by very deep pocketed buyers.

My main point was that one size does not fit all. There are cases where including the value of a home should make some sense. I do feel like r.e. is one of those things that scares folks because they don't understand it too well, so the standard opinion is - don't include it or you'll be sorry.

I agree that, in your case, including RE assets in your determination of SWR might very well be feasible. Sounds like you are diversified enough and have the experience, knowledge, and a RE portfolio sizable enough to do reasonably accurate modeling. I am not sure this is the case for OP, however. He was asking about the purchase of one vacation home constituting something like 25% of his net worth. In that case, IMHO, including the value of the vacation home in his nest egg for SWR purposes could be quite risky.

 

[Retired Expat]

It is part of your net worth, although not part of your portfolio of investible assets.

It could be liquidated in the future, i.e. to pay for long term care - but the value of the home at time of liquidation would be uncertain (as would be the value of certain equities).

Of course, the carrying/ maintenance costs should be a consideration in your decision making process.

We have two homes and the vacation home is completely considered a later retirement asset as I know that in my 80’s I won’t want to travel or worry about maintaining such an asset. Quick note however, our 2nd home more then pays for it’s carrying costa and maintenance as a short term rental. It has also appreciate far more than my other investments since we bought it. Also it is about 24 hours travel door to door between our homes!

Friends of ours have a vacation condo near us. Well he being much older than his wife passed away not to long ago. She elected not to sell and is still coming for the summer high season and occasionally during the year but will need to see if she keeps that up. Should DW ever leave me or be taken, i doubt I would keep both places but for now we love it!

 

[SJhawkins]

Been thinking about this subject for some time now, like a couple of years. Hopefully you will make a quicker decision!

Think will know when the time is right, hopefully.

 

[cat4ever]

I'm in this situation, and I think of the vacation home "investment" as part of my portfolio, but at about 75% of its estimated value when calculating WR. I'm of the impression that the RE market IS a less volatile investment than say and S&P fund, and it does come with ongoing costs which I think of as a higher "management fee" than an S&P fund would have (which would hopefully be zero), but that difference would be offset some by lower ongoing vacation costs.

There are many ways to think of it I guess, but that's just kind of what my gut tells me. I don't think completely writing it off as a loss is the right thing, which is the feeling I get when people say to make it part of your net worth but not your portfolio.

 

[meleana]

I would just rent a place. Having two homes is expensive and not to mention a hassle.

 

[catii]

To me, "nest egg" is any disposable income, & "net worth" is everything that we own. Using that criterion, OP really needs to decide if he/she csnlive on the remaining $750K or so, plus SS, etc.

When we moved to Hawaii, we owned a house in Phoenix (inherited) that we rented out, our previous home in New Orleans that we also rented out, an apartment in New Orleans, acreage in Yuma, & a rental property not far from where we now live. It was almost a full-time job keeping track of everything, & tax time was insane! Over the next two years, we gradually sold off everything except the Yuma land & our Hawaii rentals, & plunked everything into Roth IRAs. Never regretted that, especially now, when everything is paid off!

 

[youbet]

we gradually sold off everything except the Yuma land & our Hawaii rentals, & plunked everything into Roth IRAs. Never regretted that, especially now, when everything is paid off!

How were you able to "plunk everything into Roth IRA's"? Were you still working and did it over many years? Or?

Just curious since annual Roth contributions allowed are small and you must have earned income of at least the amount you contribute.

 

[Gumby]

Potentially Roth conversions.

 

[youbet]

Potentially Roth conversions.

You thinking something like convert your existing TIRA to Roth and use the proceeds from sale of the real estate to pay the taxes or something like that?

 

[Gumby]

You thinking something like convert your existing TIRA to Roth and use the proceeds from sale of the real estate to pay the taxes or something like that?

Yes.

 

[jeffmete]

We bought an ocean condo in Florida 3 weeks before covid hit. The seller was still 100K underwater from when they purchased in 2006. If they would have waited another 6 months they would have at least broke even and if they waited another year, they would have made a couple 100K. My point is real estate can be extremely fickle..

 

[Ronstar]

I did not consider our vacation home as an investable asset. But my assumed value of it was part of our net worth.

After I sold the vacation home, I added the proceeds of the sale to our cash account and it became part of our investable assets.

 

[LateToFIRE]

We bought an ocean condo in Florida 3 weeks before covid hit. The seller was still 100K underwater from when they purchased in 2006. If they would have waited another 6 months they would have at least broke even and if they waited another year, they would have made a couple 100K. My point is real estate can be extremely fickle..

Sure, but stock market is actually even more volatile.

 

[Koolau]

Sure, but stock market is actually even more volatile.

One difference is that housing markets tend to be local or regional while stock markets are more global. You could have a good housing market in one area and a down market in another area. Of course, there are times when the housing market is just up or down - almost no matter where you are.

When we bought and sold last time, we even saw variations on which side of our Island was involved. We were able to use it to our advantage.

 

[Buckeye]

So the thing to remember is, real estate goes up, down, and sideways, and doesn't always sell fast.

Buy in 2020, sell in 2023? woo-hoo. You just made a tidy profit and will sell super fast to a cash buyer.

Buy in 2007, sell in 2010... Yeah good luck with that. In many markets houses dropped in half, and then took months and months to sell.

I don't think we're anywhere close to another 2008 situation in real estate, but I also don't think the next 3 years can repeat the last 3.

If you are actually buying in FL, the real estate market is probably the least of your worries. Having your home flattened by a hurricane and getting 10 cents on the dollar from your insurance company for the required repairs is a much bigger threat to your net worth. And it's not just hurricanes. My neighbor had half a tree fall and take off a corner (about 8' deep) of his house. The insurance company (Allstate or State Farm, $500 deductible) offered him $1000 for the repair. It's going to get ugly!

 

[Koolau]

If you are actually buying in FL, the real estate market is probably the least of your worries. Having your home flattened by a hurricane and getting 10 cents on the dollar from your insurance company for the required repairs is a much bigger threat to your net worth. And it's not just hurricanes. My neighbor had half a tree fall and take off a corner (about 8' deep) of his house. The insurance company (Allstate or State Farm, $500 deductible) offered him $1000 for the repair. It's going to get ugly!

Does FL have a "pool" system (only so many dollars for everyone for a term.) - a few destroyed houses in a year and everyone is whole. Lots of houses destroyed and they split the pool. That's the way it is in Hawaii.

Otherwise, I would have to see documentation of the $1000 offer for that damage. My "detector" has alerted. YMMV

 

[Buckeye]

Does FL have a "pool" system (only so many dollars for everyone for a term.) - a few destroyed houses in a year and everyone is whole. Lots of houses destroyed and they split the pool. That's the way it is in Hawaii.

Otherwise, I would have to see documentation of the $1000 offer for that damage. My "detector" has alerted. YMMV

No, no pool system. My neighbor's story doesn't even raise an eyebrow in FL. Read the stories about what's going on in the Ft. Meyers area from the last hurricane. It's awful. I don't know how a lot of these folks are ever going to recover.