Buy retirement home now or let money compound?

[Bearded Man]

I found a cottage about 5.5 hours away from where I live now, just across the border in northern Idaho. It is 1 bedroom, 1 bath, nice kitchen, living room, etc. I can swoop it up for about 23K. It is completely remodeled. It is in a small mining town.

Thing is, I would not be moving there now, but even so, I could potentially rent it out on an annual lease, or use it as a vacation rental for weekend getaways until I do. I have a few rental properties where I'm at now so it would still be within driving distance if I absolutely had to go to the properties (like when I show a property). Other than that, I can pretty much coordinate all repair/maintenance etc. remotely.

So why buy it now? It just seems like a layer of safety. Anytime I want or if I lost my job and didn't want to tap my savings, investments or rental income so it can keep growing but still wanted to take a break I could just rent out my house I have now (already a  land lord anyway) and head for the cottage in the suburbs of a small town, about 30 minutes from a major city. Or whenever I decide it's time to pull the trigger, I move, plan/home already in place.

Otherwise, I could just invest the money in index funds or a REIT as well as the rest of it and let it grow until I decide I want to retire, because at that point my tastes might be different, and letting the money compound gives me more purchase options. But it doesn't provide an added layer of safety NOW by having another paid off house to move into if SHTF (I have one paid off house but with tenants in it on an annual lease, and I prefer to rent it out over living there). I do have some side income from my rentals, a hefty emergency fund, and can find high paying work easily even in the last 7 years. But that could change if there was some major economic collapse, and the cabin can save the day. Right now I primarily want to keep working to let existing assets grow even more from compounding and saving income from job.

[frugaliknowit]

I don't see how it is a layer of safety.  It's additional overhead.  You don't want to live there.  Why tie up money in it unless there is a compelling return you think you can achieve with it.  Keep your money productive.

[MDM]

Thing is, I would not be moving there now, but even so, I could potentially rent it out on an annual lease, or use it as a vacation rental for weekend getaways until I do.

If this is a realistic retirement destination, and the specific house fits your desire, and $23K is not a large fraction of your stash, then why not?  It's not likely investment grade, but if you would actually use it....

[forummm]

It seems like you are not that close to retiring. If this is not really an investment for you (i.e. you'll definitely be renting it out and definitely expect to make money off it), then it's a drag on your portfolio for sure. Not only the lack of return on your money, but also the costs of taxes, upkeep, etc. If you would actually use it yourself, then you could decide if the weekends/weeks you spent there was worth the cost to you--and that this remote mining town is where you'd choose to spend your vacations.

It sounds like you want to lock this place up because you like the situation. But if you waited 5 years (or however long) until you are actually ready to retire, are the odds really worse that you couldn't find something else you like about as much? Especially given that your interests may change in the intervening years?

[pdxvandal]

Wallace?

[NICE!]

I wouldn't do it, but I like being pretty liquid and I'm a world traveler/live-r.

Questions:
How far away is FIRE?
Are you sure this is what you'll want to do then?
Have you looked at the overhead costs (property taxes, property management fees, etc)?
Is this an emotional need and not a financial decision?

[Bearded Man]

It's more of a "seize opportunity" decision. I don't see anything wrong with it, no one has presented a numbers based argument that this will cost me money. I can rent it out fairly easily.

But no, although FI, I don't plan on retiring for another 7 years until I'm 40. Even then, I may very well just decide to change careers to a low stress job and let my investments compound even more until I decide I've had enough.

But having this place gives me that much more options, I can move there and "slow down" anytime I want, doing the hobbies I love; hunting, fishing, camping and hiking. Heck, it's a ski town...

[seattlecyclone]

Do you have any reason to believe that a similar home won't be available in that area for a similar price when you actually want to move there? If not, why buy now?

[zolotiyeruki]

Do you have any reason to believe that a similar home won't be available in that area for a similar price when you actually want to move there? If not, why buy now?

This, exactly this.  If you let your $23k sit and compound for those same 7 years, it'll likely be worth $40k+ be the time you retire.

I've seen family members (and myself) get really excited over a Good (limited-time-offer) Deal.  What I've observed is:
1) spending/investment decisions made in haste generally don't end well.
2) there will always be other opportunities

IMO, back away--you don't need it now, you won't need it for several years, and 7 years from now, it may not be what you want.

[bruce88]

The good is the price and a location you like and can eventually retire to.

The bad are taxes, upkeep (mowing, repairs), and utilities for 10+ years.

BUT-it could be a nice investment if it appreciates.  AND it is not that much to invest if you want to have a little fun (provided your stash is large enough for this to not hurt you if it goes south).

That amount of money is a small price to learn a little about vacation homes.  And, if you purchase it as an "investment" property, and rent it out some, you will have lots of nice tax breaks.  (Read up on vacation home rentals re:  IRS rules.)

WHY NOT-go ahead and live a little?

[iamlindoro]

WHY NOT-go ahead and live a little?

It is always someone with a post count under 50 urging people to live a little.  Sigh.  Living a little is what generally gets people into hair-on-fire emergencies.

OP, you mention that nobody has given you a numbers-based analysis of why it's a bad investment-- I would offer you the same challenge.  You haven't given any compelling data to show that it *is* a good investment.  Post your full analysis of the property as a real estate investment, including expected incoming and outgoing costs, and we can give you a data-based response.

[MrsPete]

If this is a realistic retirement destination, and the specific house fits your desire, and $23K is not a large fraction of your stash, then why not?  It's not likely investment grade, but if you would actually use it....

This is exactly what I was going to say.  If you're sure you like the house, like the area, and you can easily afford it -- go ahead and get it, especially because you can rent it out until you're ready to make your retirement move.

The one thing that would concern me is that it's SMALL.  I assume you're single.  If you end up marrying and/or having children, you'd probably want "more house".  Is this house laid out in such a way that you could add on easily? 

This, exactly this.  If you let your $23k sit and compound for those same 7 years, it'll likely be worth $40k+ be the time you retire.

And by the time you want to buy, the cost of that house may have increased to 40K.  The OP is making a guess about the future, and it's impossible to say with 100% clarity whether he will make the right or wrong decision by buying now.

[Gone Fishing]

We bought our current house with no idea of when we would be able to move into it. Prior to seeing it, we had looked at tons of properties, and knew the minute we saw it that it was a good deal.  We put in an offer that day. It had only been on the market for a few days and they had an open house scheduled for the weekend.  They accepted our offer, but still put on the open house.  They got two back-up offers.  After buying it, we rented it out for enough to cover the ITI portion of the mortgage payment (we did 100% financing back when it was still available).   As it turned out, we were able to move into it after 24 months or so.  I routinely scouted other listings for several years and never came across anything comparable.  The property has not appreciated much over the 9 years I have owned it, certainly less than the S&P, but that does not matter because I do not plan on selling it, and it keeps my taxes low.  I consider it a win.

Here are my thoughts:

How "rare" is the property?  In our area, newer, smallish houses with 5-10 acres were and still are very rare. The come on the market infrequently and sell quickly when they do.  If you have been scouting the market for some time, you should have a good feel for value.

You say you are FI.  If you are like most on this forum, you probably have a stache of around $500-$1,500k.  If that is the case, the opportunity cost on $23k is minimal.   

It is not too difficult for a $23k property to double or triple in price if the market heats up.  Baby boomers are retiring in droves and looking for little get-away type properties.  It is not too hard to imagine them driving up property values over the next 5-10 years. 

Many think the stock market is expensive at the moment and will yield lower returns over the next 5-10 years.   

[couponvan]

From someone who did the exact thing you are looking at doing four years ago, I would probably wait.  Right now I feel like I am working to pay for a second house, which needs a lot of work still.  You did say this one was updated, so it has that in its favor. If I had it to do over, I would probably just rent a house for a week in Summer or continue to visit my friends' houses!

I would check on the cost of the following:
1) insurance - our second house costs as much as our main home due to age of house and distance from fire station.
2) pest control - if you aren't there, the critters will be.  There are way more critters in the country.
3) can you pay cash? Closing costs on anything under $50k seem ridiculous. Same appraisal costs, etc.
4) hoa costs - if any
5) taxes - what was last year's tax bill? You may be surprised by that one.  Our house was valued much higher than we bought it for and we spent THREE YEARS fighting the tax bill. It finally got lowered last year, but we didn't get a refund of prior taxes paid. Grr.
6) utilities - what has the last 12 months usage been like? High bills may be a sign of poor insulation.
7) extra work - do you really enjoy spending your weekends at your vacation place working?  Grass mowing, power washing, window washing, laundry, dusting, mopping up before you leave, etc. it's not like going to a hotel.

Also you will find yourself less willing to work and more dreaming of just quitting and retiring if you actually HAVE the retirement place already.  I know I do anyway! For now, we are keeping both, as we use it about 4 months out of the year, or family is there, and ours has gone up in value significantly since we bought it.  Selling it would probably take years though - these places are a dime a dozen and definitely NOT a liquid asset.

[OldPro]

Here is my serious advice.  Do what you want.

[Bearded Man]

I'm still undecided, but it looks like I have time to make the decision as it's still available and slowly coming down in price. I've looked at other options such as relocating to sink hole prone central Florida, or increasingly attractive Indianapolis, IN. There is no perfect solution...yet.

Living in Idaho allows me to do what I love most, outdoor stuff. It's still close enough where I could drive to checkout one of my rentals in the greater Seattle area or show a unit, not to mention be within driving distance to roots. And I can have it for about 20K now, move in ready, completely remodeled, and use it as a rental or bed and breakfast (pay a neighbor who also runs a B&B to manage it). Due to it's price, no it doesn't really hurt me if it doesn't work out, but unlike other real estate I own, it won't be so easy to sell it, and it's not an investment that goes up in value, it's purely something that allows me to spend very little money to reduce my living expenses.

Yes, it's not that big (the house). Yes, Idaho is cold during the winters and has state income tax. But Ocala Florida has sink hole issues, even though I love the weather and would only be about an hours drive from Tampa or Orlando for jobs if I get the itch to work. Indianapolis would be great to live in as a land lord since I can buy dirt cheap rental property there for good cash flows (though not much appreciation, so lower overall return).

But it would require me to either sell my Washington properties with hefty real estate and excise transaction costs and a loss of ridiculously high appreciation, even if I 10-31 exchange into properties in Indianapolis. Alternatively, I could hire a PM to manage the properties and keep them, but at a huge cost; 15K a year with current estimates, assuming I don't close on deals currently in progress (short sales I signed a long time ago). Living in Idaho allows me to find cheap housing while still being close enough that I could manage the properties. No, a 5.5 hour drive one way isn't ideal, but it would be rare, only when there is turnover. Everything else to date I've pretty much hired a guy off craigslist to fix without me ever going there in person.

[electriceagle]

Run the numbers for it as a rental. If the math works out, buy it as a rental and retire to it later. If the math doesn't work out, leave it alone.