An exception to the "One House" rule?

[Path2FIRE]

What if the total mortgage debt on both homes combined is less than 2 times annual gross income? Or even equal to 1 times annual gross income?

I find myself asking these questions because I loosened the purse strings a bit and am in the process of purchasing a lake house about 90 min from my primary home. It is also 90 min (the other direction) from my home town and family who I hope to share it with for years to come.

I purchased my primary residence a couple years ago in a lower cost neighborhood at a very reasonable price with a 15 year fixed mortgage at an interest rate of less than 2.5%. The lake house will have the same mortgage setup but at just under 3% because rates have edged up a bit. My total mortgage debt between both properties will be roughly equal to 1 times my annual gross. It goes without saying ... I have no non-mortgage debt and am well on track otherwise.

Thoughts?

[PhysicianOnFIRE]

Go for it.

The value of our 2 paid-off homes is roughly equal to my annual salary. Writing this from our lake home.

[FIREshrink]

Go for it. The house is close enough that you will really use it, and affordable. You can't take it with you.

[q-school]

Enjoy!

[jfoxcpacfp]

If this is a primary goal for your family and the reason you manage your money so well is in pursuit of your primary goals, why not? Be sure to take extra costs of a second property into account when you are calculating your future budget - maintenance, RE taxes, insurance, any refurb and furniture. Not to mention that boat you've got your eye on   .

Also, with family so close by, be sure to have some clear ground rules in place in advance of the necessity of making uncomfortable decisions after somebody has abused the privilege. I speak from experience...

[VagabondMD]

I cannot stand even owning one house. The idea of a second house makes me nauseous.  :mrgreen:

[AZdoc68]

Path2FIRE wrote:

What if the total mortgage debt on both homes combined is less than 2 times annual gross income? Or even equal to 1 times annual gross income?

I find myself asking these questions because I loosened the purse strings a bit and am in the process of purchasing a lake house about 90 min from my primary home. It is also 90 min (the other direction) from my home town and family who I hope to share it with for years to come.

I purchased my primary residence a couple years ago in a lower cost neighborhood at a very reasonable price with a 15 year fixed mortgage at an interest rate of less than 2.5%. The lake house will have the same mortgage setup but at just under 3% because rates have edged up a bit. My total mortgage debt between both properties will be roughly equal to 1 times my annual gross. It goes without saying … I have no non-mortgage debt and am well on track otherwise.

Thoughts?

Click to expand...

I neither subscribe to nor practice the "one house rule".  I understand why it exists as for most people it makes perfect sense.  But doctors and other highly-compensated individuals aren't "most people".

Obviously, I wouldn't advise anyone to purchase a 2nd/vacation home unless they could comfortably afford it without unduly compromising their ability to save for the future, especially by first maxing out all tax-advantaged account vehicles (as seems to apply here to you).

Common-sense guidelines apply here as you seem to already know:

Make sure it's a place you and your family want to visit and return to often, year after year after year.

Make sure it's a place you can get to fairly easily, conveniently, and inexpensively (otherwise, I assure you that you will tire of going and eventually cease visiting).

Plan on holding it for a long time, as implied above, ideally as a place you could see spending extended periods of time at in retirement when you have much more leisure time.

Plan on the carrying costs above principal & interest (insurance, property tax, HOA, utilities, cleaning, maintenance, repair) to average about 2.5% of market value per year.  You may be able to defray some of these expenses by renting it out when you know it would otherwise be sitting empty.  I rent out my vacation house judiciously only to people I know and trust--friends, friends of friends, relatives & friends of my close neighbors, etc.

 

Owner-occupied residential real estate is often a hotly-debated topic in circles like this one--the whole "own vs rent" thing.  I agree that on a purely numerical basis renting usually beats buying and this is probably even more true for vacation properties.  But...there are psychological and lifestyle benefits that come with ownership (control, privacy, ease of access, stability, "pride of ownership, etc).  These considerations for me are important and worthy enough to justify the "ownership premium" you pay by buying rather than serial renting.

I think if you can comfortably afford it, the location meets your family's recreational requirements and desires, and you judiciously consider the carrying and transaction costs, you should go for it.  Have fun and enjoy.

[Hatton]

I think the one spouse rule  is a bigger financial guideline than the one house rule. I also have a lake house that is one hour away.  Proximity is important because then you will use it enough to justify it.

[Fullhouse11]

I think the one house rule for physicians falls in line with "live like a resident."  Maybe you could change it to one mortgage rule.  I would have waited until you had at least half of your primary residence paid off.

I get that your mortgages combined will be less than what one house may be, but it sounds like you are moving the other direction if financial independence or wealth accumulation is your goal.  When you look at your assets only, what percentage will be real estate?  If you will have $800,000 in real estate assets (regardless of the mortgages on them) and less than that in other investments, that is a lot.  And it's not "investing in real estate," it's personal consumption.  I'm somewhat conservative when it comes to things that "make you look like a doctor," probably because I am a fan of the Millionaire Next Door.  Big houses, expensive cars and second homes are in that category that make people ask what you do for a living.

You don't say how far out of training you are.  If you are more than 10 years out and are on track to meet your retirement financial goals, then that would make a difference.  If you are only looking at your income as a reason that you can purchase a second home, then I would say settle down a little and don't spend it before you make it.

It sounds like you have already purchased the home, so enjoy and be generous with the family that will be using it with you.

[Path2FIRE]

Thanks for the thoughts and feedback everyone.

Some more details...
I am not yet 10 years post training. We will be at the lake house alot ... I have 35 vacation days per year and no weekend work responsibilities. I am saving roughly 50% of my after tax income and maxing out all available tax-advantaged accounts. Even with this high savings rate we have plenty left over to spend and enjoy. We do not plan on changing this savings rate. We always pay into the retirement accounts before aloting remaining income for our monthey budget. We have an excess in this monthly budget that more than covers the mortgage/utilities/dock fees/etc of the lake house. Essentially, I am passing on increasing my saving rate (to over 50% take home pay) in favor of enjoying my hard earned money with the people I care about in a location that will help me preserve my sanity.

Thanks again.

[AZdoc68]

Path2FIRE wrote:

Thanks for the thoughts and feedback everyone.

Some more details…
I am not yet 10 years post training. We will be at the lake house alot … I have 35 vacation days per year and no weekend work responsibilities. I am saving roughly 50% of my after tax income and maxing out all available tax-advantaged accounts. Even with this high savings rate we have plenty left over to spend and enjoy. We do not plan on changing this savings rate. We always pay into the retirement accounts before aloting remaining income for our monthey budget. We have an excess in this monthly budget that more than covers the mortgage/utilities/dock fees/etc of the lake house. Essentially, I am passing on increasing my saving rate (to over 50% take home pay) in favor of enjoying my hard earned money with the people I care about in a location that will help me preserve my sanity.

Thanks again.

Click to expand...

Path,

I agree with you completely and have the same motivations.  There are people at sites like this one who seem to think you should live like a pauper so you can retire at 40 or something like that.  While I agree that being extra frugal is the lesser of two evils compared to being utterly extravagant and wasteful, prudent and financially responsible docs can manage to save adequately AND indulge in some luxuries (the fruit of your labor and education, after all) at the same time.

My only regret in purchasing my 2nd home is that I didn't do it a little sooner when the housing market bottomed in 2009 or so.  Even so, I love going there, use it frequently, can rent it out if/when I choose to generate some extra income, and I plan to live there all summer every year when I fully retire in less than a decade.

Don't feel guilty--you can afford it and are doing it the right way so enjoy it.

[FIREshrink]

Path2FIRE wrote:

Thanks for the thoughts and feedback everyone.

Some more details…
I am not yet 10 years post training. We will be at the lake house alot … I have 35 vacation days per year and no weekend work responsibilities. I am saving roughly 50% of my after tax income and maxing out all available tax-advantaged accounts. Even with this high savings rate we have plenty left over to spend and enjoy. We do not plan on changing this savings rate. We always pay into the retirement accounts before aloting remaining income for our monthey budget. We have an excess in this monthly budget that more than covers the mortgage/utilities/dock fees/etc of the lake house. Essentially, I am passing on increasing my saving rate (to over 50% take home pay) in favor of enjoying my hard earned money with the people I care about in a location that will help me preserve my sanity.

Thanks again.

Click to expand...

You can afford it but that is a separate question from whether it is a good/wise purchase. For instance, you get 7 weeks of PTO per year. Do you plan to spend them all at the lake house? If so, it could be a great buy.

On the other hand, we seriously considered a cabin for several years, but eventually - as the kids got into more and more sports and activities - realized we had hardly any weekends 'free' from commitments. Furthermore, we realized we didn't want to spend most or all of our PTO in the same place. Sometimes we go to Hawaii, sometimes we go camping/hiking/backpacking, and to different places each time. We plan to go to New York this fall with the kids, Europe next summer, etc. We went on a 2 week cruise. I'm not sure we would have done all these things if we had a cabin and felt an obligation to use it.

We ended up buying a truck and I plan to buy a travel trailer this summer. That lets us bring our 'house' with us but see our beautiful part of the country freely, traveling to the beach one weekend, the mountains one weekend, the lake another weekend, taking road trips if we want. The total price all in was under 6 figures so modest in the scheme of things and it should last us 10 if not 20 years.

It's a personal lifestyle choice.

[adventure]

We've talked about a second place. No room in the budget at the moment. But, we haven't really discussed how much we'd stay/visit/have family use/etc, if we had it. might be good to decide that first.