I'm considering the purchase of a second home. I would appreciate advice on the best way for me to approach financing that purchase.
I would like to just pay cash, but I can't, because most of my money is in tax deferred accounts.
I understand that I would be financially better to just rent someplace in the area I'm looking at, but I'm in a "Blow that dough" frame of mind right now, which is definitely out of my comfort zone, but I don't care.
My situation:
- Zero debt.
- Paid off home valued at $350K to $380K.
- LBYM life style.
- Two paid off vehicles. A newer car, and an old truck.
- I'm looking at places that cost $300K to $400K. I really like a place I found for $460K, but so far I'm too cheap to go for it.
- All but $150K if my money is in a tax deferred IRA roll over account.
- If I withdrew $500K from my IRA account to pay for this home, I believe I could still live comfortably on a 4-5% withdrawal rate and my SS. This is what makes me think I can afford to do this.
What I'm considering doing:
- Fairly large ($100k) down payment to keep the loan as small as possible.
- Withdraw more money from my IRA each year, pay down the loan faster, but pay more taxes.
Note: I'm currently withdrawing money up to the 22% tax bracket, so I'm paying 12% fed tax rate. My withdrawals are about 50K/year. I could start withdrawing up to the top of the 22% tax bracket, about 100K/year, and pay down the loan faster. Is this crazy talk? I would be paying 22% tax rate instead of 12% tax rate on about 50K a year. So $5K more a year in taxes, minus some deductions for paying mortgage interest.
- So I could pay $50k extra per year against what I owe. The loan could be paid off in 5-6 years.
- The only alternative I see is to pay the place off slowly, and just deal with paying the interest, and owing a bunch of money. Not my style, but possibly not a bad move.
- I've also considered just going the RV route for now, or buying a much less expensive place that needs to be restored.
- I could also downsize my existing residence to help pay for the second place, but I would like to keep that as a back up plan if I'm over spending, or I decide to live in the second place full time.
Any positive or negative feedback on these thoughts would be appreciated. If you have a better approach, I'm very interested.
Thanks, JP
I would like to just pay cash, but I can't, because most of my money is in tax deferred accounts.
I understand that I would be financially better to just rent someplace in the area I'm looking at, but I'm in a "Blow that dough" frame of mind right now, which is definitely out of my comfort zone, but I don't care.
My situation:
- Zero debt.
- Paid off home valued at $350K to $380K.
- LBYM life style.
- Two paid off vehicles. A newer car, and an old truck.
- I'm looking at places that cost $300K to $400K. I really like a place I found for $460K, but so far I'm too cheap to go for it.
- All but $150K if my money is in a tax deferred IRA roll over account.
- If I withdrew $500K from my IRA account to pay for this home, I believe I could still live comfortably on a 4-5% withdrawal rate and my SS. This is what makes me think I can afford to do this.
What I'm considering doing:
- Fairly large ($100k) down payment to keep the loan as small as possible.
- Withdraw more money from my IRA each year, pay down the loan faster, but pay more taxes.
Note: I'm currently withdrawing money up to the 22% tax bracket, so I'm paying 12% fed tax rate. My withdrawals are about 50K/year. I could start withdrawing up to the top of the 22% tax bracket, about 100K/year, and pay down the loan faster. Is this crazy talk? I would be paying 22% tax rate instead of 12% tax rate on about 50K a year. So $5K more a year in taxes, minus some deductions for paying mortgage interest.
- So I could pay $50k extra per year against what I owe. The loan could be paid off in 5-6 years.
- The only alternative I see is to pay the place off slowly, and just deal with paying the interest, and owing a bunch of money. Not my style, but possibly not a bad move.
- I've also considered just going the RV route for now, or buying a much less expensive place that needs to be restored.
- I could also downsize my existing residence to help pay for the second place, but I would like to keep that as a back up plan if I'm over spending, or I decide to live in the second place full time.
Any positive or negative feedback on these thoughts would be appreciated. If you have a better approach, I'm very interested.
Thanks, JP
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