Author Topic: Case Study: Buy rural retirement home ahead of schedule? Or keep the cash?  (Read 793 times)

Russelsage

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Hello,

I'm 35 years old.  Currently live in LA and work in entertainment.  Single and unmarried.

Income:
100-130k gross.  Varies by year, but in that range.

Investments:
100k in Vanguard IRA
265k in Taxable Vanguard Mutual Funds
20k Cash/Emergency Fund as you never know what can happen with entertainment biz

I currently save $1125 weekly split up into 3 separate taxable mutual funds as well as $5500 a year into whatever IRA type I am eligible for the year based on my AGI.

So total I save $64,000 a year.

This is the most I can save with my current income as after taxes I generally net around 85k, and yearly my living expenses are about 24k which is pretty good considering how insanely expensive LA is.  My plan was to continue working for 5-7 years, at 5 years I should have around 850k, if I really want to go nuts and work 7 I'd have a bit over a million.  I was then planning on most likely leaving LA unless some unknown opportunity came up that made it worthwhile for me to stay.

My question:
Recently my grandmother's old house in the Adirondacks in Upstate New York (she passed a couple years ago) which she sold for 169k in 2010, is now being sold for 187k.  The new owner put on a new roof and poured a new concrete floor in the garage as well as a few cosmetic improvements inside.  It is a very fair asking price.

I always said I would love to buy this property back to retire in as it is on 18 acres and has deeded private lake rights, as well as being adjacent to my parents property, which they own about 30 acres.  I did not plan for it to come on the market so soon and I am wondering if I should buy it for the future.

The Adirondack area is slowly stating to blow up as it is so close to NYC, Montreal, Lake Placid, Burlington, etc.  An international airport is slowly developing, big tech and industry are taking advantage of dirt cheap commercial property, land is cheap and you cannot buy anything like it anywhere else in the world for any price, and to try to even get close would cost millions.  This particular property has lake access, but taxes are cheaper than normal for NY because the lakefront property has written into the deed that you cannot build on it, and it only a small section, but useable to walk down to the dock and launch a canoe, etc.  The winters are cold, but if I'm FIRE, I don't have to worry about shoveling out my car to get to work.

Basically if it was 5-10 years from now I feel like it would be a no brainer, but since I am still 5-7 years from my goal, and the future is unknown, I'm wondering if I should not purchase it.  I have 104k in my VWIAX fund I started in 2006 specifically earmarked as my "house fund", which I could put down and have a tiny 10yr mortgage which I could then finally have something to deduct on my taxes, or I could liquidate some more and just pay cash.  On the con side if I take out that much now my 5-7 years to a million will be extended, however on the pro side I would have the house that I want and could retire in.

My parents who live close would be willing to check up on it, but I certainly would not rely or burden them with being caretakers.

Anyway I just was hoping to get some other people's 2 cents on what they think I should do.  Access is difficult so it would not be ideal to be rented in the winter due to the long private road leading to the driveway.  I'm also not really interested in being a landlord and finding a reliable company to handle that type of thing may be difficult, as it is a very rural area.

Not wanting to be morbid, but when my parents pass, I could buy out my sister's part of the inheritance most likely at face value and then own 2 houses and about 50 acres in the gorgeous Adirondacks if I choose.

Or, I could do nothing, and just stay on my savings plan and be a millionaire at 42 and figure out what to do then as for all I know my situation and plans may be completely different, and again someday when my parents pass, buy out my sister and have my parents house with 30 acres which also has deeded lake rights to the same lake.  But I love my parents very much and wouldn't mind living close to them and think it may be enjoyable as I don't plan to have children so I would be close to family, and the rest of my family lives in NJ which is only 4 hours away.

Sorry if this was wordy just trying to get it all out.

Thanks for any tips!

-Shawn
« Last Edit: September 29, 2017, 10:30:48 PM by Russelsage »

waltworks

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Re: Case Study: Buy rural retirement home ahead of schedule? Or keep the cash?
« Reply #1 on: September 30, 2017, 09:27:52 AM »
What would be the plan for the house in the interim? Would you rent it out?

I think the biggest hurdle here is not financial. You can easily afford the house, and even a token effort to rent it out would presumably cover most of your costs. You would be losing money vs investing in many other things, probably, but it's a unique opportunity for you.

The problem is that you might not be single (or have the same overall life plan) in 5-7 years. You might meet an amazing person who wants to live in Nepal, or your parents might pass away sooner and leave you their house, etc, etc. You have a great plan to succeed financially, but your idea of what to do next (sit in your house all winter?) seems a little lacking. That might just be because you didn't want to put that in your post, though.

Anyway, I'd lean toward buying it, as long as you have a plan to keep the place from being a total financial albatross and you *really* want to go live there.

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Telecaster

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Re: Case Study: Buy rural retirement home ahead of schedule? Or keep the cash?
« Reply #2 on: September 30, 2017, 11:15:19 AM »
I personally wouldn't buy it and let it sit empty for that long, even if your parents check on it from time to time.    There are too many things that can go wrong with a house that you won't catch in time unless somebody is living in it.  The sound of water running down the inside wall when it rains, a pipe freezes and bursts in winter, raccoons move in that you only hear at night, etc. not to mention any number of minor maintenance issues that build up over time.    There are any number of people on these boards who know how to manage rental properties remotely, find good management etc.   Even if it doesn't break even as a rental, at least the maintence will be on going.  Plus you can deduct the depreciation and other expense.  Which is a whole other topic, but rental real estate is attractive from a tax standpoint.  Well worth looking into. 

I second Walt's advice that you should keep in mind that your plans might change.  For that reason, and for other reasons I wouldn't put down the full $104K.  Just put down the minimum down payment, usually 20% ($37.4 in this case).  Might need to be higher since the house isn't owner occupied.  Then get a nice long 30-year fixed mortgage.   That will give you a lot more flexibility down the road, and probably help your net worth too. 

CrispKale

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I'd feel great about this if you were more on board with plan b of renting it out or finding a live-in caretaker. 5-7 years can be a lifetime especially when you will have the funds to do pretty much whatever you want at retirement time. Will your future partner want to live next door to your family? How often do homes in this area come on the market? As the area may be booming do you want to take on a older home or at retirement time look to see what newer homes  have come into the area? Sounds as if your savings will cover you no matter the choice just be careful of painting yourself into a tight corner.
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Pigeon

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I vacation regularly at a house on a lake in the Adirondacks.  I love that area so much.  My heart says buy it and rent it out as much as is possible.

My brain says forget it.  I think you are vastly overstating the area "blowing up."  I keep an eye on the real estate on some of the smaller lakes near Lake Placid and Saranac.  There are a fair number of lake houses on the market and property values don't seem to be skyrocketing.  Many of these houses stay on the market a very long time.  I also live a couple of hours south, in one of the areas that's seen investment by the tech industry, but also has a good, diversified base.  The economy is solid, but is by no means on fire.

If you do decide to do this, I'd try to rent it out as much as possible seasonally.  http://www.adkbyowner.com/ will give you an idea of how much it will rent for.  While we typically rent the same house every year, I always look over all the possibilities.  Houses in decent shape do tend to be booked up pretty steadily every summer, so while you'll have to pay for someone to manage the property, you should be able to get some income to offset the expense of owning.

In general, I'm not a big fan of buying property until you are ready to use it.  (But I can understand wanting to own a house on a lake here.)

Laura33

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There is clearly a large emotional component of this decision.  And confirmation bias is the most powerful force in the universe -- meaning that your brain is actively looking to justify doing what you want to do, and is blind to information to the contrary.  So my advice is to force yourself to consider the downside risks, then ask whether it's still something you want.

E.g.:  assume the area doesn't grow and even drops in value (there are many rural areas for which this is true).  Will you still be happy in 10 years if the house is worth $170K?

What if your parents move elsewhere?  Will you still want to move to this place?  What about if your parents start to need more help?  What if both 1 and 2 happen?  Are you ok selling at a loss and moving on?

Are you ok if the purchase means working another 10-12 yrs instead of 5-7?

Etc.

FWIW, I would encourage you to put down no more than 20%.  Rates are ridiculously cheap now, and your money will likely do better in the market (plus provide you more of a tax deduction, assuming you have enough deductions to make itemizing worthwhile).  Also consider renting it full-time until you are ready to FIRE -- even if you dont break even, you save the costs of a caretaker, basic upkeep, etc., not to mention having immediate notice if you get an ice dam or something. 
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