After 5 Years sailing the seas Wife says we need to buy a house again

[FireCat]

After spending 5 years post retirement aboard our sailboat we are back on land house shopping in this crazy market. Our questions revolve around spending cash and retirement savings on the purchase. We know we are going to overpay for the house already

I am considering a 40% downpayment and a mortgage for the rest. Any advice is greatly appreciated.

Home purchase $750-$950k
Cash on hand $520k
Retirement accounts 70/30 VTI/BND $1.1Mil.
ROTH's $220k
TIRA $730k
Taxable $150k

We have been living well off my cola Govt. pension, but depending on size of mortgage will be needing to draw up to $70k per year from retirement accounts which we can easily adjust annually by forgoing international travel and other stuff we don't need to do in down markets. Depending on which spending models used in Firecalc I get good results.

Another related question is when using Firecalc what spending models are folks using? Huge differences among the three choices. In my modeling I have always used constant spending power with 3% as the constant. Using the other two gives much more favorable results for my current scenarios.

Me 58 Pension with no SS coming
Spouse 61 no pension, but will get SS looking at delaying until 67 at about $22k annually.

Hope all are well.

 

[euro]

Are you locked in on location and size of house? I know that the market is nuts right now but there are a lot of places (even near costal areas - I assume you'll look to keep sailing/boating) where you can find very decent housing for $300-500k? Also, given you are coming off of 5 years of tight quarters, maybe rent a place for a while to really find out what you need vs. what you might THINK you need? I could imagine going for something way too large after such a cramped lifestyle.

 

[FireCat]

Yes we are kind of locked into living near our kids in PNW where housing prices are crazy. House price is pretty locked in unfortunately for the area we are looking at.

 

[euro]

Yes we are kind of locked into living near our kids in PNW where housing prices are crazy. House price is pretty locked in unfortunately for the area we are looking at.

That's tough then, but I DO envy you! I used to live in Seattle and still love Pac10 country!

 

[Exchme]

If you can vary your expenses, then your success chances will go up. You didn't give us enough data to help you, but dropping $900K on a house out of a portfolio of $1.6M seems likely to cause financial pain later.

Before you get too deep into the real estate discussion, find out what mortgage you qualify for, retirees often find it hard to get them and you don't have an overwhelming amount of assets.

 

[figuy1]

Are you sure you're going to stay in one place for 10+years and not get the itch to sail again? If not, it might be worth it to consider looking for long-term rentals if you're in a really expensive market like Seattle. I know rental properties are generally not as nice as ones you'd buy, but if you still get the itch to travel/sail for extended periods throughout the year its much less to worry about.

I'd personally use your taxable + cash to get as close to no mortgage as possible. For example, if you only put ~40% down and take out a $500k mortgage for 30 years @ 2.75%, your payments will be $2041/mo which if you're assuming 3% SWR, you'll need $816k in investments to cover the payment in addition to ~$350k down. Plus, pulling more from the retirement accounts each year to cover the mortgage, will likely bump you into a higher tax bracket.

On the other hand, if you use the cash and as much of the taxable account for a down payment, you'll need much less capital to safely cover the mortgage. I would personally do something like $650k down + $200k mortgage and only have an $816/mortgage that you need to cover which would only eat up ~$325k of your investments to cover @ 3% SWR.

[mod edit]

 

[CSdot]

and you don't have an overwhelming amount of assets.

I understand the point being made ($900K house on $1.6 net worth), but I still find it sad that we are living in a time when being a millionaire and having $1.6M merits this comment.

 

[ExFlyBoy5]

I wouldn't dissuade you from buying, but I would make DAMN sure that wherever you buy you will be happy sitting there FOR YEARS. Whether or not there is a R/E bubble is the subject of disagreement these days but if I were to be looking to buy, I would MOST certainly consider the adage, "Hope for the best but plan for the worst" since there is a decent chance that R/E values could take a significant hit in the near future.

 

[ExFlyBoy5]

I understand the point being made ($900K house on $1.6 net worth), but I still find it sad that we are living in a time when being a millionaire and having $1.6M merits this comment.

AND a government COLA protected pension. First world problems, for sure.

 

[Kerfuffle]

Why buy? Why not rent and stay flexible?

 

[Sunset]

Go back to sea for another year, maybe the housing market will crash by then...

 

[Flyfish1]

Wow, 5 years is a long time on the boat. I get it, we are ex sailers, now dark side boaters...

Just a suggestion try other modeling software. I like FIRECalc, but it is one program. Try extended I-orp, flexible retirement planner or the ultimate retirement planner.

Housing market is nuts, might want to rent for a year or two and wait it out.

 

[W2R]

I wouldn't dissuade you from buying, but I would make DAMN sure that wherever you buy you will be happy sitting there FOR YEARS. Whether or not there is a R/E bubble is the subject of disagreement these days but if I were to be looking to buy, I would MOST certainly consider the adage, "Hope for the best but plan for the worst" since there is a decent chance that R/E values could take a significant hit in the near future.

+1

Here are my ideas:

(1) I wonder if maybe housing prices are better in eastern Washington? Just a thought. It's still the PNW. OK, I have never been to Washington state so I don't know anything about it.

(2) Alternately, could you live aboard your boat anywhere near your preferred location? I assume not but just thought I'd bring that possibility up.

(3) Or would your kids let you pay for a small building to be built in their back yard, for you to live in?

I have no idea what will happen with housing prices, but I am very glad that we are already in our "forever homes". I keep reading that inflation is beginning to take off, too, and that could be awful for some of us if it becomes too extreme. Like ExFlyBoy5, we are hoping for the best but trying to prepare for the worst, if we can figure out how to do that.

 

[Huston55]

Why buy? Why not rent and stay flexible?

This^^^

WADR, I don’t think a $1.6M net worth couple should buy a ~$1M house, or anything close. I get that you have a pension + SS. But, sinking that much of your NW into one (likely overpriced) asset is a very risky move, especially in this housing market. Find a nice rental in your desired location, sign a multi-year lease, and enjoy yourselves while you confirm living ‘on the hard’ in the PNW is really right for you, and wait out this crazy RE market while you do that.

BTW, I’m moving in the opposite direction. I FIREd, sold my RE, signed a multi-year apartment lease, and bought a boat which I’m considering living on full time. Even though I’m going in the opposite direction from you, I can tell you that the flexibility of owning no RE is an absolute blessing, at least for the next several years. What we have in common is that we’re both moving into a completely different environment where flexibility and backup plans/resources are essential.

Best of luck whatever you decide.

 

[mrfeh]

If you can vary your expenses, then your success chances will go up. You didn't give us enough data to help you, but dropping $900K on a house out of a portfolio of $1.6M seems likely to cause financial pain later.

+1

Depending on the pension, this may be doable, but with those top line numbers, I wouldn't spend so much on a house.

I also wouldn't want a mortgage in retirement, but that's just me.

 

[Scuba]

I’m also in the “why not rent” camp. It’s possible your kids may decide to move, or may be required to if they have unexpected changes in employment. Many companies are moving out of HCOL areas to states with more favorable tax rates and business regulatory environments. How would you feel buying a $900K home and then having your kids move away a year later?

Real estate prices are unpredictable and change rapidly but rents are slower to catch up. If I were in your situation, I would rent and assess what area you want to be in longer term, what type of property and how much space you want, etc.

 

[jollystomper]

Add me to the "rent first" group. It is not just spending to buy a home, but also spending time and money on all those things needed to maintain the home. I can imagine it will be quite a lifestyle change from living on a boat.

It makes more sense, to me at least, to start with renting a nice apartment or condo ( living on a boat my guess is you do not need more than that for your possessions), and take the time to both explore the area from a real estate/living perspective *and* get a better feel for what your childrens plans may be for their own future mobility.

 

[Exchme]

Add me to the "rent first" group. It is not just spending to buy a home, but also spending time and money on all those things needed to maintain the home. I can imagine it will be quite a lifestyle change from living on a boat.

It makes more sense, to me at least, to start with renting a nice apartment or condo ( living on a boat my guess is you do not need more than that for your possessions), and take the time to both explore the area from a real estate/living perspective *and* get a better feel for what your childrens plans may be for their own future mobility.

Yes, it wasn't discussed, but after 5 years, does OP need to buy a car, home furnishings, etc or at least have to pay for a move of the belongings? That can be another chunk of change. I agree about being careful about selecting the location entirely because of the kids, they still have careers to manage and may need to move.

I never saw enough information to know the amount of the pension, how much of the $70K portfolio draw was mortgage, base expenses, easy to get rid of expenses in bad market years, whether the OP put in reasonable values for property taxes, insurance, maintenance on the house plus boat moorage, etc.

A word of caution about handling the IRA in FireCalc. It is not a tax program, so OP needs to be aware of the taxes due on the withdrawal/conversion of the IRA since it is a good size chunk of total assets. If he's going to be in the 12% bracket, OP should either increase expenses in FireCalc to allow for it the taxes on withdrawals/conversions, or more easily, OP can just cut the IRA size input to FireCalc by 1/(1-tax rate) instead. That is, a 12% average tax rate on conversions/withdrawals requires a 13.6% reduction in the IRA size when doing FireCalc studies. That reciprocal really starts to bite as tax brackets increase.

 

[W2R]

I’m also in the “why not rent” camp. It’s possible your kids may decide to move, or may be required to if they have unexpected changes in employment. Many companies are moving out of HCOL areas to states with more favorable tax rates and business regulatory environments. How would you feel buying a $900K home and then having your kids move away a year later?

Good point! I think that Scuba's post converted me to the "you should rent first" point of view. Kids move, often having no choice about it due to work, and they shouldn't have to feel bad about your situation if/when that happens.

My kid lives in Portland, Oregon, and loves it - -she has lived there for 22 years. Yet just recently her DH got a job offer that may have them moving to one of two other states with little advanced notice. These things happen.

 

[chassis]

+1 on renting

+1 on seems like too much house to buy

Firecalc is sorely limited and not too usable. Portfoliovisualizer “financial goals” is excellent and does far more, better and easier, than firecalc.

 

[Chuckanut]

I agre with Scuba. Unless at least one kid owns a thriving business that can't be moved, they may pick up and move on you. I've known people who moved across country to be 'close to the kids', only to have the kids move in a few years for a better job or whatever.

I am facing that decision myself. I think I might rent a place near them for a few months out of the year and wait and see what happens. It's hard to keep moving about.

Another strategy employed by a friend is to buy an smallish condo - say 2 bedrooms 2 bath - in an area they would enjoy living in at least half the year, and then rent close to one or more of the kids during the other half. Of course, that requires money.

 

[Brat]

Where you want to live in PNW will seriously impact your housing cost.

DH & I lived on Bainbridge Island for several years, returned back to Portland.

In Seattle metro consider Bremerton and surrounding communities. Decent health care, convenient to a ferry.

As much as I love Bellingham I would avoid communities that will be devastated by the eventual Cascadia earthquake.

Further south Ridgefield and Battleground are good choices.

If you are looking at Oregon let me know.

 

[Golden sunsets]

After spending 5 years post retirement aboard our sailboat we are back on land house shopping in this crazy market. Our questions revolve around spending cash and retirement savings on the purchase. We know we are going to overpay for the house already



I am considering a 40% downpayment and a mortgage for the rest. Any advice is greatly appreciated.



Home purchase $750-$950k

Cash on hand $520k

Retirement accounts 70/30 VTI/BND $1.1Mil.

ROTH's $220k

TIRA $730k

Taxable $150k



We have been living well off my cola Govt. pension, but depending on size of mortgage will be needing to draw up to $70k per year from retirement accounts which we can easily adjust annually by forgoing international travel and other stuff we don't need to do in down markets. Depending on which spending models used in Firecalc I get good results.



Another related question is when using Firecalc what spending models are folks using? Huge differences among the three choices. In my modeling I have always used constant spending power with 3% as the constant. Using the other two gives much more favorable results for my current scenarios.



Me 58 Pension with no SS coming

Spouse 61 no pension, but will get SS looking at delaying until 67 at about $22k annually.



Hope all are well.

As others have said, your proposed housing vs total assets is totally out of wack. My question is what was your housing to total asset ratio prior to the move to the sailboat? Was it the same ratio, or something more reasonable?

 

[mboley]

I think it may be more difficult than you think to get a loan. I just recently did get one, but it was only $215K. Lenders like your pension, but your portfolio?, it doesnt count for as much as you may think.

My understanding is the formula for a 30 year loan is your liquid assetts X 70% ÷ 360(mo). So a one million dollar portfolio only counts for another $1944 income per month income in the lenders view.

 

[RetireeRobert]

Happy wife happy life! Whatever you do, just keep the DW happy.