Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Vacation Rental - to Buy or Not to Buy - that is the question
Old 02-22-2021, 08:38 AM   #1
Dryer sheet aficionado
 
Join Date: Jul 2020
Location: Cleveland, TN
Posts: 38
Vacation Rental - to Buy or Not to Buy - that is the question

I am 59 1/2 and within a year or two of retiring. Looking at having a place at the beach that we can rent and go to when we want (6-hour drive) and to build equity in a beach property that we may eventually sell (as well as our primary residence) and move there permanently. Question is, do we "borrow" from my 401K to get the down payment to the 20% equity needed to save the mortgage insurance premium?
nadnerb is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-22-2021, 08:43 AM   #2
Thinks s/he gets paid by the post
VanWinkle's Avatar
 
Join Date: Oct 2017
Location: Brighton
Posts: 1,720
If you have to borrow from your 401K to make this happen, you're not in a fiscal position to buy this property in my opinion. If you can power save the cash for the down payment in a couple years, then it may make sense although you will likely want a cash cushion for you spending before allocating to a down payment.

Best to you,

VW
__________________
Retired May 13th(Friday) 2016 at age 61.
VanWinkle is offline   Reply With Quote
Old 02-22-2021, 08:57 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 6,655
Have you run any numbers at all on this?

The answer to your question is no...
ivinsfan is offline   Reply With Quote
Old 02-22-2021, 09:21 AM   #4
Dryer sheet aficionado
 
Join Date: Jul 2020
Location: Cleveland, TN
Posts: 38
Quote:
Originally Posted by VanWinkle View Post
If you can power save the cash for the down payment in a couple years, then it may make sense
One other option may be to refi our primary residence (which I was planning on doing anyway) and pulling some equity our of there. Thoughts?
nadnerb is offline   Reply With Quote
Old 02-22-2021, 09:25 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 6,655
Quote:
Originally Posted by nadnerb View Post
One other option may be to refi our primary residence (which I was planning on doing anyway) and pulling some equity our of there. Thoughts?
Do you want a general answer or an answer that works for you personally? If it's the latter more specific numbers would be helpful.
ivinsfan is offline   Reply With Quote
Old 02-22-2021, 09:26 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Mar 2011
Posts: 6,280
AFAIK, if you borrow from your 401K any future cap gains tax on the sale of that property are paid as ordinary income.

Reading between the lines here, it sounds like you're stretching yourself.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is offline   Reply With Quote
Old 02-22-2021, 09:33 AM   #7
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,111
Bad idea in my opinion. If you donít have the cash for a down payment, you canít afford it. If you took a loan on your 401k and retired soon, youíd either have to pay back the loan or pay taxes on the withdrawal when you leave your employer.
Dash man is offline   Reply With Quote
Old 02-22-2021, 09:57 AM   #8
Full time employment: Posting here.
 
Join Date: Mar 2014
Location: Dallas
Posts: 627
Quote:
Originally Posted by nadnerb View Post
I am 59 1/2 and within a year or two of retiring. Looking at having a place at the beach that we can rent and go to when we want (6-hour drive) and to build equity in a beach property that we may eventually sell (as well as our primary residence) and move there permanently. Question is, do we "borrow" from my 401K to get the down payment to the 20% equity needed to save the mortgage insurance premium?
I wouldn't withdraw from 401K for ANYTHING this close to retirement. Just rent until you are sure. You can sell your primary home while you live in an extended rental. Lot less risk in case you change your mind and you don't have to come up with the extra cash.
pjigar is offline   Reply With Quote
Old 02-22-2021, 10:45 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
calmloki's Avatar
 
Join Date: Jan 2007
Location: Independence
Posts: 6,617
To be clear: you are talking about renting a beach house out to others AirB&B style and having it for vacations when you wish, then moving into it or selling it and moving to the beach after retirement?

Pulling equity from your current home is smart, as the interest would be very low, and in many investment rental cases I'd say go for it. Judging by what you say however I'd say no. This from someone who has had 54rentals (now 27). Your call though.
__________________
"Be kind whenever possible. It is always possible." Dalai Lama
calmloki is offline   Reply With Quote
Old 02-22-2021, 12:11 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 10,788
Quote:
Originally Posted by marko View Post
AFAIK, if you borrow from your 401K any future cap gains tax on the sale of that property are paid as ordinary income.
Why would this be?
RunningBum is offline   Reply With Quote
Old 02-22-2021, 12:17 PM   #11
Recycles dryer sheets
 
Join Date: Jul 2016
Location: gypsy traveller
Posts: 319
From what you have said, I don't think you can afford to buy. Be a happy renter when you go to the beach.
HarveyS is offline   Reply With Quote
Old 02-22-2021, 01:31 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 4,686
We have many, many friends that have Gulf Coast condos and houses in the area. Most are rented through the internet much of the Summer.

And none of the rental units pay for themselves.

Our friends are all retired, and they come and go from down there. Most time spent is in the off season, as staying there in the Summer reduces their income off rentals.

What's funny is that they're all decorated with cheap furniture. Those that furnish them with luxury furniture says the people renting condos just don't take care of their personal belongings.

In reality, we would want larger and nicer surroundings in retirement than most of the condos and many homes along the Gulf Coast. My best friend has a first home in Seaside, and it's worth $2,000,000.
Bamaman is offline   Reply With Quote
Old 02-22-2021, 02:43 PM   #13
Dryer sheet aficionado
 
Join Date: Jan 2021
Location: Northern California
Posts: 32
I agree, without more details, it doesn't seem you are in the position to buy. Property is pretty inflated in many vacation-oriented towns, due to people rethinking priorities in COVID and buying 2nd homes.

I have made profit on vacation rentals, but in year round markets. And those streams took a huge hit during COVID. I went into the last with the same objective (buy early, rent it out before retiring) but always with the perspective that I would be prepared to pay for the full property, if necessary, and that any income was gravy. When we rent, we equip the place out with relatively decent furniture/decor that enables us to market at a premium with a longer minimum stay, that discourages partiers and those that pay less respective care to the rental.
oiseux is offline   Reply With Quote
Old 02-22-2021, 03:36 PM   #14
Dryer sheet aficionado
 
Join Date: Apr 2016
Posts: 43
Many years ago I turned down a real estate opportunity that my colleagues were going into, many of then taking a HELOC to do so. They even had a broker come to the meeting.
A few days later I spoke to a respected gentleman in the community who agreed with me and said , "Never leverage a core asset for an investment , 401K, IRA , home equity".
To me it was sound advice , I have not wavered since then.
NJSail is offline   Reply With Quote
Old 02-22-2021, 05:22 PM   #15
Thinks s/he gets paid by the post
 
Join Date: Jun 2017
Location: Western NC
Posts: 2,448
Quote:
Originally Posted by Bamaman View Post
We have many, many friends that have Gulf Coast condos and houses in the area. Most are rented through the internet much of the Summer.

And none of the rental units pay for themselves.

Our friends are all retired, and they come and go from down there. Most time spent is in the off season, as staying there in the Summer reduces their income off rentals.

What's funny is that they're all decorated with cheap furniture. Those that furnish them with luxury furniture says the people renting condos just don't take care of their personal belongings.

In reality, we would want larger and nicer surroundings in retirement than most of the condos and many homes along the Gulf Coast. My best friend has a first home in Seaside, and it's worth $2,000,000.
Yep, don't forget the wear and tear for any rental...it is significant.
ncbill is offline   Reply With Quote
Voice of Experience
Old 02-23-2021, 07:05 AM   #16
Dryer sheet wannabe
 
Join Date: Mar 2018
Posts: 13
Voice of Experience

I kept waiting form someone else with actual experience to reply .... as you are looking for validation of making this dream happen.

Background: I retired in 2018 after many years in Corp America. I have also been an active RE investor since 2003, surviving the great recession. We flipped properties and own long term rentals, even today as part of our retirement portfolio. This was always my 2nd business on top of a FT career.

Dreamed of owning a place at the beach for years, but never could make the numbers work to drive cash flow. Finally found a steal (4 bedroom 2 blocks from beach) on Hilton Head and had this in our portfolio 2014-2019. We paid cash and completely remodeled the villa. I managed my own rentals using a local island company to coordinate onsite support. We only rented for 7 months a year and maintained a 5 star rating. I was the only person I knew to make a consistent positive cash flow every year. Realtors tell you that VRBO's at best break even, most are money pits.

The stress nearly killed me and almost caused a divorce. Trying to coordinate rentals, property mgt, and contractors during the season consumed a ton of time. I spent every off-season doing maintenance and repairs. Tax time sucked as expense tracking was significantly higher than any long-term rental we own. Oh yeah, don't forget all the taxes; everyone has their hand out.

Do I regret the decision ? No, I was chasing a dream and I found a way to not lose money every year.


Would I borrow from retirement funds ? Absolutely not. Would I give up $12k a year (operating expense) from retirement funding ? Nope.
__________________
Retired at 59 and blessed to enjoy a good life
2018 is offline   Reply With Quote
Old 02-23-2021, 07:17 AM   #17
Moderator
Aerides's Avatar
 
Join Date: Nov 2015
Posts: 7,807
Going into debt to start a rental, as your first landlording-RE experience (assuming, since you've not mentioned in prior threads), when also planning to retire? Nope.

Even without the debt aspect, still, nope.

And since it's 6 hours away you'll of course need a management company, no you can't just airbnb your way to profit on a single property you can't see every day.

If you really want to eventually get a beach house, just budget for a nice trip down there every year and scope our specific locations, and move when you are ready, if you still want to.
Aerides is offline   Reply With Quote
Old 02-23-2021, 07:36 AM   #18
Thinks s/he gets paid by the post
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 3,111
We bought a Jersey Shore home in 2017. Our plan has been to only rent it for a few weeks each summer to pay the property taxes and insurance. We paid cash for the 4 bedroom 2 bath home two blocks from the beach. Weíve easily paid the property taxes and insurance each year from the rent and havenít made enough to pay any income tax. We use a realtor and AirBnB to find tenants. We allow our kidís families to use it when itís not rented. Itís just over a two hour drive for us, so itís easy to get to for us whenever we want to go. Weíve made some good memories there.
We donít need the rental income and will eventually stop renting it out. But $4,150/week for three or four weeks is hard to stop. Most tenants take good care of the place, but we have had a couple that weíve blacklisted for future rentals.
It will soon need new siding and a new roof, but otherwise was updated before we bought it. We got a pretty good deal because the sellers didnít replace the concrete driveway or sidewalks that were in disrepair, making the curb appeal pretty poor. Concrete is pretty cheap, and would have brought more interest if they had fixed it.
Dash man is offline   Reply With Quote
Old 02-24-2021, 01:31 PM   #19
Dryer sheet aficionado
 
Join Date: Jul 2020
Location: Cleveland, TN
Posts: 38
Quote:
Originally Posted by calmloki View Post
Judging by what you say however I'd say no. This from someone who has had 54rentals (now 27). Your call though.
What was it I said that makes you change your opinion?
nadnerb is offline   Reply With Quote
Old 02-24-2021, 01:36 PM   #20
Dryer sheet aficionado
 
Join Date: Jul 2020
Location: Cleveland, TN
Posts: 38
Quote:
Originally Posted by Aerides View Post
Going into debt to start a rental, as your first landlording-RE experience (assuming, since you've not mentioned in prior threads), when also planning to retire? Nope.

Even without the debt aspect, still, nope.

And since it's 6 hours away you'll of course need a management company, no you can't just airbnb your way to profit on a single property you can't see every day.

If you really want to eventually get a beach house, just budget for a nice trip down there every year and scope our specific locations, and move when you are ready, if you still want to.
Thanks - from my initial (albeit back of a napkin) calculation, it would be a neutral cash-flow endeavor. If I took money out of my primary residence to finance the down payment, I would trade the 2% interest for the possible capital gain on the beach house which seems like a good deal. If I waited, the value of the beach property would grow much faster in my opinion. SO the capital gain on the beach house and capital gain on primary residence would fund a permanent retirement beach house.
nadnerb is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Mulling a FL vacation rental purchase omni550 Life after FIRE 22 08-06-2012 07:07 PM
Convert vacation condo into rental - worth it? Tree-dweller FIRE and Money 5 03-08-2012 06:29 PM
Anyone own a vacation rental? brewer12345 FIRE and Money 7 12-31-2011 08:15 AM
Hi I'm an Acupuncturist (53 yo) Should i buy a rental vacation home? daibai Hi, I am... 10 07-10-2011 10:52 AM

» Quick Links

 
All times are GMT -6. The time now is 01:15 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.