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  • FIREman
    replied
    Originally posted by Marko-ER View Post

    ^^^This^^^

    Too early. Maybe 10-15 years into attending salary, and if your second home was under 350 (or at least under 500K) AND you had a track record of going there and enjoying it year after year for 5+ years, then maybe. Frankly, I am surprised at the question from someone whose nick is FIREman.
    Marko-ER Hey, thanks for your input. I posed the question because I do value the input of this community. This forum is where we turn to for support when faced with these types of decisions/temptations. Could we buy it? Yup. Could we still become FI, yup, we know it would just take longer.
    I'm glad I posted the question because with everyone's input it helped reaffirm in our minds that its too soon to buy. We made our next goal of reaching 1mil in net worth, and that should happen in the next 1.5-2 years based on our current savings rate. When we reach that goal we will re-assess. But, knowing how we are, we'll be excited about the momentum and compound interest and we won't want to do anything too risky to mess it up. This is a place that we have visited A LOT over the past 8 years or so. We already have two weeks booked there this summer, and will likely squeeze in another 3 or 4 long weekends. And believe me, I wish we could just buy something there for 350-500k! If a sweet little condo came up in that range we'd jump on it but thats unlikely, in that price range there is nothing unless you go to the next town over which we wouldn't do. Walkability & biking is the best part of this little town.

    Anne Appreciate your input as well, makes me so excited for the future and gives us even more drive to keep saving and gaining momentum!

    Molar Mechanic Would love to check back with you and see what your experience renting has been like, Our friends use AirBnb and have had great success with it.

    Leave a comment:


  • Molar Mechanic
    replied
    Originally posted by Gamma Knives View Post

    I enjoy hearing another point of view. Sometimes I debate about getting something similar (but no spouse to get real estate prof status). I also am excessively debt adverse (I understand the numbers I just really don't like having debt).

    Are you using a site like vrbo or airbnb for renting? Maybe in a year you can do a guest post of your experience?
    I'll update the board at the end of the summer. We'll likely use AirBnB for the listings.

    We're having an unfinished room built out to be a 4th and 5th bedroom, so it won't be listed for rent until hopefully Memorial Day. The summer season is what is important.

    Leave a comment:


  • Gamma Knives
    replied
    Originally posted by Molar Mechanic View Post
    I'll take the contrarian view...mostly because I did a very similar thing in the last six weeks. This forum is VERY risk averse. There is significant depth of knowledge in the strategy here, but little breadth into other strategies such as real estate. I'm in fact a buy and hold index guy, but that isn't the only way to invest.

    Here is my deal:
    $850k purchase price. Loan is about $680k @ 2.75% for thirty years (had to pay one point). Payment is ~$2,250 per month, of which about $1,300 is spend on interest. Property taxes are TBD, but no worse than $12k per year. Insurance is about $3,500.

    As a 100% rental, I could expect to clear about $120k per year for this home as an honest estimate, so I planned my numbers based off of being nowhere near that.

    For me to be cash flow positive, which is my goal for this property (I have other real estate investments with other, loftier goals), I need to clear about $40,000 per year after fees and maintenance. That means I need about 65% occupancy in the summer months plus whatever I can rent in the shoulders. (This property is near a college football power, so the 7 gameday weekends are actually the most expensive rentals per day).




    Let’s assume I breakeven only on cashflow. $975 per month of that is going towards my principal on the loan, so I’ve already increased my net worth by $11,300 as the loan balance shrinks. I also have a tax write-off of all the interest, taxes, and depreciation, and expenses. That is ~$30,000 actual expenses + $21,471 in depreciation for this house per year. My taxes just went down by $22,000 ($30,000+21,471 x 42%). I'm $35,000 ahead for having done this.

    Appreciation: 3% is conservative in this area, as it is a lake in a sought-after area, and most of the buildable lots are built. That is $30,000 in appreciation the first year. If it averages 5%, then it will have appreciated $530,000 in 10 years.

    That is $63,000 in benefit in the first year if I can get it to cashflow at breakeven. Assuming my wife can qualify as a real estate professional this year, which shouldn’t be an issue, and we’ll actually depreciate $120k in the first year, deferring $50,000 in taxes.

    There will be headaches, and there is risk involved. In exchange for that, we get a nice investment with a lot more upside than down, a great lake house for 14 days of personal use and unlimited visits for “maintenance”.
    I enjoy hearing another point of view. Sometimes I debate about getting something similar (but no spouse to get real estate prof status). I also am excessively debt adverse (I understand the numbers I just really don't like having debt).

    Are you using a site like vrbo or airbnb for renting? Maybe in a year you can do a guest post of your experience?

    Leave a comment:


  • Anne
    replied
    Originally posted by seattlee View Post
    FIREman,

    Buy the vacation house. Odds are you make a profit or break even on it and enjoy it immensely.

    People on this forum are too worried about making a mistake and maximizing retirement savings with every dang decision. At age 33 and 35 with that kind of income and retirement savings (and no kids), you will do absolutely beautiful financially in the long term. If buying this vacation home is the "mistake" that makes your retirements savings "only" $14M instead of $15M when you are 70, then who cares. And likely, this will not be a financial mistake at all. If you don't love it, just sell it and eat the losses and move on to something else.

    The worst case scenario is that it is not an optimized financial decision (you are financially able to absorb this decision however it plays out). Best case scenario, you have the time of your life and make some lasting memories with friends and family and make some money while you're at it.
    I can’t speak for everyone on this forum, but I know the reason I told OP to wait is not due to being “worried about making a mistake and maximizing retirement savings with every dang decision.” Rather, it’s because I’ve seen how powerful compounding has already started to be with the money I saved in my 30s and now, less than a decade down the road from where OP is, I have so many options. I haven’t changed anything, but knowing that I can quit, take a sabbatical, take time off to help my family if they need it and I want to, go part-time/take longer vacations, never worry about doing extra work or a side gig that I don’t want to do, etc, etc, etc, is worth the delayed gratification of the things I didn’t buy in my 30s (and I still bought plenty...but didn’t go crazy with the big purchases). Whatever you buy, it is unlikely to have anywhere near the impact on your happiness that having the ability to have options when life presents challenges does....and in 5-10 years if life is going smoothly, OP now has a million or three, and still wants the beach house then that’s the time to buy. JMO.

    Leave a comment:


  • Marko-ER
    replied
    Originally posted by Hatton View Post
    My physician friends who have expensive second beach homes and leased high end cars are all still working while I am comfortably retired. Food for thought.
    ^^^ This too ^^^

    Leave a comment:


  • Marko-ER
    replied
    Originally posted by CordMcNally View Post
    Don't look at this as an investment, look at it as a lifestyle choice. A likely poor lifestyle choice.
    ^^^This^^^

    Too early. Maybe 10-15 years into attending salary, and if your second home was under 350 (or at least under 500K) AND you had a track record of going there and enjoying it year after year for 5+ years, then maybe. Frankly, I am surprised at the question from someone whose nick is FIREman.

    Leave a comment:


  • seattlee
    replied
    FIREman,

    Buy the vacation house. Odds are you make a profit or break even on it and enjoy it immensely.

    People on this forum are too worried about making a mistake and maximizing retirement savings with every dang decision. At age 33 and 35 with that kind of income and retirement savings (and no kids), you will do absolutely beautiful financially in the long term. If buying this vacation home is the "mistake" that makes your retirements savings "only" $14M instead of $15M when you are 70, then who cares. And likely, this will not be a financial mistake at all. If you don't love it, just sell it and eat the losses and move on to something else.

    The worst case scenario is that it is not an optimized financial decision (you are financially able to absorb this decision however it plays out). Best case scenario, you have the time of your life and make some lasting memories with friends and family and make some money while you're at it.

    Leave a comment:


  • Molar Mechanic
    replied
    True. It took me becoming financially comfortable to take bigger risks, but I wish I had done it sooner. With the exception of bonus depreciation and maybe tax rate, the math is the same for OP.

    I did forget one thing...I wouldn't touch ocean front property with a 10 foot pole.
    https://www.financialsamurai.com/how...estate-values/

    Leave a comment:


  • Anne
    replied
    Originally posted by Molar Mechanic View Post
    I'll take the contrarian view...mostly because I did a very similar thing in the last six weeks. This forum is VERY risk averse. There is significant depth of knowledge in the strategy here, but little breadth into other strategies such as real estate. I'm in fact a buy and hold index guy, but that isn't the only way to invest.

    Here is my deal:
    $850k purchase price. Loan is about $680k @ 2.75% for thirty years (had to pay one point). Payment is ~$2,250 per month, of which about $1,300 is spend on interest. Property taxes are TBD, but no worse than $12k per year. Insurance is about $3,500.

    As a 100% rental, I could expect to clear about $120k per year for this home as an honest estimate, so I planned my numbers based off of being nowhere near that.

    For me to be cash flow positive, which is my goal for this property (I have other real estate investments with other, loftier goals), I need to clear about $40,000 per year after fees and maintenance. That means I need about 65% occupancy in the summer months plus whatever I can rent in the shoulders. (This property is near a college football power, so the 7 gameday weekends are actually the most expensive rentals per day).




    Let’s assume I breakeven only on cashflow. $975 per month of that is going towards my principal on the loan, so I’ve already increased my net worth by $11,300 as the loan balance shrinks. I also have a tax write-off of all the interest, taxes, and depreciation, and expenses. That is ~$30,000 actual expenses + $21,471 in depreciation for this house per year. My taxes just went down by $22,000 ($30,000+21,471 x 42%). I'm $35,000 ahead for having done this.

    Appreciation: 3% is conservative in this area, as it is a lake in a sought-after area, and most of the buildable lots are built. That is $30,000 in appreciation the first year. If it averages 5%, then it will have appreciated $530,000 in 10 years.

    That is $63,000 in benefit in the first year if I can get it to cashflow at breakeven. Assuming my wife can qualify as a real estate professional this year, which shouldn’t be an issue, and we’ll actually depreciate $120k in the first year, deferring $50,000 in taxes.

    There will be headaches, and there is risk involved. In exchange for that, we get a nice investment with a lot more upside than down, a great lake house for 14 days of personal use and unlimited visits for “maintenance”.
    I think the difference is that you are older (I think) and have a lot more money (again, I think) than OP. So if you have to divert money from building other accounts to paying for this property for a few years if something happened preventing break even no big deal.

    Leave a comment:


  • Molar Mechanic
    replied
    I'll take the contrarian view...mostly because I did a very similar thing in the last six weeks. This forum is VERY risk averse. There is significant depth of knowledge in the strategy here, but little breadth into other strategies such as real estate. I'm in fact a buy and hold index guy, but that isn't the only way to invest.

    Here is my deal:
    $850k purchase price. Loan is about $680k @ 2.75% for thirty years (had to pay one point). Payment is ~$2,250 per month, of which about $1,300 is spend on interest. Property taxes are TBD, but no worse than $12k per year. Insurance is about $3,500.

    As a 100% rental, I could expect to clear about $120k per year for this home as an honest estimate, so I planned my numbers based off of being nowhere near that.

    For me to be cash flow positive, which is my goal for this property (I have other real estate investments with other, loftier goals), I need to clear about $40,000 per year after fees and maintenance. That means I need about 65% occupancy in the summer months plus whatever I can rent in the shoulders. (This property is near a college football power, so the 7 gameday weekends are actually the most expensive rentals per day).




    Let’s assume I breakeven only on cashflow. $975 per month of that is going towards my principal on the loan, so I’ve already increased my net worth by $11,300 as the loan balance shrinks. I also have a tax write-off of all the interest, taxes, and depreciation, and expenses. That is ~$30,000 actual expenses + $21,471 in depreciation for this house per year. My taxes just went down by $22,000 ($30,000+21,471 x 42%). I'm $35,000 ahead for having done this.

    Appreciation: 3% is conservative in this area, as it is a lake in a sought-after area, and most of the buildable lots are built. That is $30,000 in appreciation the first year. If it averages 5%, then it will have appreciated $530,000 in 10 years.

    That is $63,000 in benefit in the first year if I can get it to cashflow at breakeven. Assuming my wife can qualify as a real estate professional this year, which shouldn’t be an issue, and we’ll actually depreciate $120k in the first year, deferring $50,000 in taxes.

    There will be headaches, and there is risk involved. In exchange for that, we get a nice investment with a lot more upside than down, a great lake house for 14 days of personal use and unlimited visits for “maintenance”.

    Leave a comment:


  • Tim
    replied
    Originally posted by Tangler View Post

    Stuff or Freedom? Which one? not both!
    Stuff and Freedom are the payoff if you execute your plan well and have a little luck. You can have everything you want, just not right now.

    Leave a comment:


  • Fullhouse11
    replied
    Originally posted by Tim View Post

    Cute, "I am vacationing at my $20m pig farm in Iowa" is not impressive to most folks. Who wants a pig farm? Who wants $20m. Different languages.
    Here is what impresses: The last sentence is the only words comprehended.

    "The options were bought at a stake price of $500 and expiration of March 18, 2022. Pelosi paid between $500,000 and $1,000,000 for the options, according to the disclosure.
    Pelosi also disclosed that she bought 20,000 shares of AllianceBernstein Holdings (NYSE: AB), 100 calls of Apple Inc (NASDAQ: AAPL) and 100 calls of Walt Disney Co (NYSE: DIS).

    Tesla shares have risen from $640.34 at the time the calls were purchased to over $890 today. The call options were valued at $1.12 million as of Monday."
    Quit trolling me please.

    Leave a comment:


  • Anne
    replied
    I think a good ROT for second homes is you should be able to buy it with cash without blinking an eye. Whether you use cash or financing at that point is your decision, but you should at least be able to let go of all that cash at that point without affecting any of your other future plans. When you are at that point if you still want it go for it.

    Leave a comment:


  • Tangler
    replied
    Originally posted by Hatton View Post
    My physician friends who have expensive second beach homes and leased high end cars are all still working while I am comfortably retired. Food for thought.
    Stuff or Freedom? Which one? not both!

    Leave a comment:


  • Tangler
    replied
    Originally posted by Hatton View Post
    You realize that your vacation travel will always be to this place. Are you sure you want to lock yourself into this at such a young age.
    This + financial reasons are why my wife "convinced" me we could not buy a place at the beach. Just rent. You can rent for a long time at a lot of places and not hurt your finances.

    A second home is a money pit. You are going to lose money. You will. It is a consumption item and it means you will need to work longer before you reach FI.

    When thinking of buying all you can imagine are the good parts. Flooding, Hurricanes, Yucky renters, bad management companies, termites, or fire or just wear and tear.

    Do you want to paint and do work fixing this place every free weekend? Do you want to pay someone else to do this?

    You cannot afford it and become FI early........... sorry.

    Leave a comment:

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