Would you buy this home in our situation?

[dobig]

So we are currently sitting right at $1.7 portfolio value with no debt and currently rent. We are in a situation where my wife may lose her job in a few months due to company aquisition. If aquisition goes thru we should be at + $2.1 due to retention bonus acceleration, RSU acceleration, retention stock. At that point we would be at +35x retirement calc factoring in current pension (military) and note receivable at age 52.


We are not big travelers. We enjoy doing things around our property and being outside. An opportunity came up to purchase a unique place that is a monster purchase but would be ideal for us. Home price would be $1.1 million and is a larger acreage property with ag land. Due to the type of property best rate we'll be able to get is 7.1% so totals with tax and insurance will come to $7,100/month with 20% down. What makes this property appealing besides the home and land are the recurring revenue streams. Current gas well revenue is $70k/year. Thi will slowly deplete over time. Excellent farm land leased to farmer for $4,000/year (way below market rate but we don't care). Property also has two additional small homes. One used by owners daughter and the other by month to month tenant who has been there for years and pays $800. There is also a horse barn with a few stalls and riding area that are in poor condition but fencing seems good and there are currently 4 horses being housed. Main home is old but in impeccable shape and nicely redone.


So the question is, would this be a bad purchase considering our current situation or would the recurring revenue along with rental potential make this viable even if we want to retire in a few years?

 

[Kings over Queens]

Looking quickly at the numbers it fairly close to break even or a little positive, assume full tenancy. At the same time, I don't know why, but it seems to me like owning this property is going to be a lot of work. Me, personally, would not be interested in dealing with it.

You need to live somewhere, no idea how much rent is where you live. Also no idea of job opportunities for your wife.

I can't envision going into retirement laden with debt unless there was so much positive income stream. For those reasons, I'm out.

 

[street]

I think there is a lot of upsides in what you are telling us about the property. I would say if you both agree on the purchase, I believe it is a doable event.

For me land has always been a good investment and have done extremely well when I have sold land.

You will own the land and will be able to sell if you have too. Land is an investment not an expensive toy that depreciates as soon as you get it home.

I say do it pay it off with no loan.

 

[dobig]

I think there is a lot of upsides in what you are telling us about the property. I would say if you both agree on the purchase, I believe it is a doable event.

For me land has always been a good investment and have done extremely well when I have sold land.

You will own the land and will be able to sell if you have too. Land is an investment not an expensive toy that depreciates as soon as you get it home.

I say do it pay it off with no loan.

Geez, I'm not the brightest person in the world. Not sure why it didn't occur to me just to pay cash and use the income stream from the property rather than pay 7.1% interest for a loan. Should have almost enough in taxable to do it and it's mostly sitting in interest bearing money markets or individual bonds purchased recently so no selling stocks and capital gains to worry about.


I have bought numerous pieces of timberland over the years but never ag land. I do know good land when I see it and this land gave me little chills on my spine when I saw it. Gently rolling, good soils and pretty views. I'm a sucker every time.

 

[Retired Expat]

Geez, I'm not the brightest person in the world. Not sure why it didn't occur to me just to pay cash and use the income stream from the property rather than pay 7.1% interest for a loan. Should have almost enough in taxable to do it and it's mostly sitting in interest bearing money markets or individual bonds purchased recently so no selling stocks and capital gains to worry about.


I have bought numerous pieces of timberland over the years but never ag land. I do know good land when I see it and this land gave me little chills on my spine when I saw it. Gently rolling, good soils and pretty views. I'm a sucker every time.

So you said you will have money coming in when you reach 52 which means you are not? With that kind of time horizon there is much you could do to make more money from the land. Farming, camping, hospitality or perhaps subdivide and sell off a lot or two or put up a couple houses. On you can still find other income sources or jobs. If I was your age I would do it!

 

[marinauser]

Am I the only one that finds it unusual that the mineral rights would be transferred to the new land owner? In my experience that would not happen.

 

[COcheesehead]

Am I the only one that finds it unusual that the mineral rights would be transferred to the new land owner? In my experience that would not happen.

All depends how things are written. I personally have never had any underground rights transferred to me.

 

[dobig]

In my state it use to be unusual to buy land without the ogm rights (oil, gas and mineral). In fact I can't recall one of the 11 tracts I've bought over the years that I didn't get the ogm's and in only one case did I not get 100%. That time the seller retained 50%. After the shale boom things have changed but it's still not unusual to get ogms with a property if they are not in a good Marcellus or Utica shale area.

 

[dobig]

So you said you will have money coming in when you reach 52 which means you are not? With that kind of time horizon there is much you could do to make more money from the land. Farming, camping, hospitality or perhaps subdivide and sell off a lot or two or put up a couple houses. On you can still find other income sources or jobs. If I was your age I would do it!

No currently getting that income and we are leaning towards buying the property. Talking with realtor tomorrow after we discuss it more.

 

[DrRoy]

It seems like the income will balance the monthly costs. Save the excess income in the early years to cover the reduction from the gas.

 

[LateToFIRE]

Seems to me that the numbers could work, with some possible financial upsides, so this really comes down to a lifestyle decision. You sound a bit like wife and I - we get more enjoyment and satisfaction from doing things around our rural-ish retirement property - kinda been there, done that on travel, like to stay close to home. You're certainly young enough to have the energy to maintain the property - but you might want to consider what that might be like as you age - feels like we have a small army of help tending to ours and what you're looking at sounds much bigger.

Also, in terms of financing it, I'm a big believer in giving yourself as much financial flexibility as possible. Someone suggested paying cash - I'd split the difference- would maybe put a bigger down payment in, but would definitely mortgage it up. Will be way harder to borrow in retirement. And who knows, 7% might look attractive in the future (or you can possibly refi or repay if not). But, leave yourself with more, not fewer options to make decisions down the road once you've settled in and have the complete picture.

P.S. Oh, and obvious I am sure, but make sure you've got an attorney with strong expertise in mineral rights looking all this over.

 

[Stormy Kromer]

How many acres of farmland ?

 

[old medic]

I would think its a chance to jump on a dream.

 

[dknighd]

I'd be a little nervous having about 1/2 your assets tied up in house. But I guess some of those assets would be income producing. So perhaps reasonable.


I have no idea how gas leases work. Apparently the revenue will go down. But how fast, and how long will it last? Who cleans up after the well no longer produces?
It appears most of the projected income comes from the gas well. So I'd want to learn more about them.

The rest comes from renting. Do you want to be a landlord.



You are currently renting, so, you could consider part of the $7100 as imputed rent. How much are you currently paying for rent?


Honestly, this is a tough call. If I still liked the prospects, after doing my due diligence, I'd probably buy it. Especially since it seems to be something you really want.


I wonder if the bank would give you a better rate if you put more money down. Perhaps if you convince them your were putting down 20% of house part, and paying 100% of AG/gas part, they'd give you a regular homeowner rate?


The problem with this purchase is you would be relying on the income it produces. Unless you could afford to pay $7100 with out that, I'd be nervous. But it would not stop me if this was something I really wanted.


The other problem is it would take time to do due diligence. If the property was a really good deal somebody else could snap it up during that time.

 

[dknighd]

P.S. Oh, and obvious I am sure, but make sure you've got an attorney with strong expertise in mineral rights looking all this over.

+2

 

[dknighd]

I would think its a chance to jump on a dream.

I agree.

 

[Aerides]

Main home is old but in impeccable shape and nicely redone.

I would recommend you hire an inspector to make that assessment. Especially for a larger property, upkeep becomes a bigger factor. You need to know if that roof has 3 years left on it or 20, and what it will cost to repair, same for any other structural stuff. Find out now, with an objective eye.

 

[street]

Mineral rights are sold and bought every day. A producing well site is worth a lot to the companies in the business of buying minerals. It might be an avenue for you to look at after you buy the place to replenish some of the costs in the purchase of the land.

If you sold the minerals, you could also negotiate all surface rights which would still give you some income from that site being on your land.

You are young enough in age and I would very much encourage you buy straight out and be in control from the git go. You can always sell, and you can maybe make it more profitable income wise after you buy.

I always get excited when land opportunities come about.

 

[Flyfish1]

Mineral rights are sold and bought every day. A producing well site is worth a lot to the companies in the business of buying minerals. It might be an avenue for you to look at after you buy the place to replenish some of the costs in the purchase of the land.

If you sold the minerals, you could also negotiate all surface rights which would still give you some income from that site being on your land.

You are young enough in age and I would very much encourage you buy straight out and be in control from the git go. You can always sell, and you can maybe make it more profitable income wise after you buy.

I always get excited when land opportunities come about.

Agree! Go for it.

 

[pb4uski]

So we are currently sitting right at $1.7 portfolio value with no debt and currently rent. We are in a situation where my wife may lose her job in a few months due to company aquisition. If aquisition goes thru we should be at + $2.1 due to retention bonus acceleration, RSU acceleration, retention stock. At that point we would be at +35x retirement calc factoring in current pension (military) and note receivable at age 52.


We are not big travelers. We enjoy doing things around our property and being outside. An opportunity came up to purchase a unique place that is a monster purchase but would be ideal for us. Home price would be $1.1 million and is a larger acreage property with ag land. Due to the type of property best rate we'll be able to get is 7.1% so totals with tax and insurance will come to $7,100/month with 20% down. What makes this property appealing besides the home and land are the recurring revenue streams. Current gas well revenue is $70k/year. Thi will slowly deplete over time. Excellent farm land leased to farmer for $4,000/year (way below market rate but we don't care). Property also has two additional small homes. One used by owners daughter and the other by month to month tenant who has been there for years and pays $800. There is also a horse barn with a few stalls and riding area that are in poor condition but fencing seems good and there are currently 4 horses being housed. Main home is old but in impeccable shape and nicely redone.


So the question is, would this be a bad purchase considering our current situation or would the recurring revenue along with rental potential make this viable even if we want to retire in a few years?

Sounds like this property is a good match. It is a lot of your net worth though. Could you subdivide and sell off the two small homes and keep the rest? Perhaps sell off the gas well revenue to reduce your upfront cost and mortgage?

Another alternative worth considering using your taxable funds for the purchase and then replenish as you can from the gas well revenue, land rent, etc.

Not sure who your brokerage account is with but Schwab offers a discount off of mortgage rates... 25 bps for $250k-999k in qualifying assets and 50 bps for $1-5m of qualifying assets. Might be a good time to consider an ARM.

 

[dobig]

Seems to me that the numbers could work, with some possible financial upsides, so this really comes down to a lifestyle decision. You sound a bit like wife and I - we get more enjoyment and satisfaction from doing things around our rural-ish retirement property - kinda been there, done that on travel, like to stay close to home. You're certainly young enough to have the energy to maintain the property - but you might want to consider what that might be like as you age - feels like we have a small army of help tending to ours and what you're looking at sounds much bigger.

Also, in terms of financing it, I'm a big believer in giving yourself as much financial flexibility as possible. Someone suggested paying cash - I'd split the difference- would maybe put a bigger down payment in, but would definitely mortgage it up. Will be way harder to borrow in retirement. And who knows, 7% might look attractive in the future (or you can possibly refi or repay if not). But, leave yourself with more, not fewer options to make decisions down the road once you've settled in and have the complete picture.

P.S. Oh, and obvious I am sure, but make sure you've got an attorney with strong expertise in mineral rights looking all this over.

I think we might just go cash and then do a home equity loan or line of credit.


And yes, our longtime family attorney has years of experience doing title research on ogms which is different than a regular title search.

 

[dobig]

How many acres of farmland ?

Aeriels looks like roughly 80 acres of good cropland.

 

[dobig]

Mineral rights are sold and bought every day. A producing well site is worth a lot to the companies in the business of buying minerals. It might be an avenue for you to look at after you buy the place to replenish some of the costs in the purchase of the land.

If you sold the minerals, you could also negotiate all surface rights which would still give you some income from that site being on your land.

You are young enough in age and I would very much encourage you buy straight out and be in control from the git go. You can always sell, and you can maybe make it more profitable income wise after you buy.

I always get excited when land opportunities come about.

That is the way we are leaning. Stocks rise and fall. Good land just seems to go up.


I couldn't sleep last night excited to hear back about our offer. We were the first call, made the most compelling offer we felt comfortable with and are trying to tie it up before the open house tomorrow. There's just something about a good piece of land that is better than Christmas morning.

 

[dobig]

I would recommend you hire an inspector to make that assessment. Especially for a larger property, upkeep becomes a bigger factor. You need to know if that roof has 3 years left on it or 20, and what it will cost to repair, same for any other structural stuff. Find out now, with an objective eye.

Metal roof and stone house. 1850 but it looks like someone might have had some fun with those gas royalty checks when they were 5-7x what they are now. Barn and outbuildings need attention and upkeep but we thought about leasing it out to someone with horses. Some investigation led us to find back in the day this was a well thought of horse facility so I would think it could be brought back. We will be buying as-is with the right of refusal if property inspections go south.

 

[dobig]

And just heard back from realtor. The seller wants to meet today at 3 to see the "color in our eye and look of our chin". Old school.



Gotta go. Will update later.