Second Home - Retirement Home Thoughts

[brian313313]

Hi,

I'm a project addict. I love building things. I have an idea of starting on our retirement home build but my wife is nixing it because MMM says a second home is never a good idea. I think if I can get some support here then maybe she will consider it more. Perhaps this will talk me out of it too. Maybe there are some things I'm not thinking about.

The plan would be to either buy vacant land and build a home or buy a fixer-upper. I have never built a home from scratch, but have pretty much done everything independently. I once bought a fixer-upper and tore it down to the foundation. I used the foundation, septic, well, and build a temporary structure for the electric panel. I hired out carpeting because it's cheap and it's more than a one-person job. Also the HVAC because of local regulations. Other than that I did all the work myself. If I go for the build-from-scratch I have a friend to help with the process from a planning standpoint. He is retired now but has built many spec homes and is the one who taught me construction initially. I have done a lot of construction in addition to the example provided. That was just the closest to build-from-scratch.

Reasons I think it's a good idea:
1. Gives me something to keep me occupied and put my physical energy towards building equity = $.
2. I work from home 80% of the time. I figure I can build in TN and when done, change my residence to a state with no income tax. That saves 5%. I use standard deduction so it should be the full 5%.
3. I can get out of the city for the weekends. Plenty of hiking/kayaking in TN. I am not a city person but since I do software development as a contractor, I stayed in town in the center of the tech area to keep my options open.
4. I don't want to sell our current home now. First, I've only been here 18 months and have built some sweat equity. In six months, that will be tax-free. Second, this area is becoming more in-town than suburbs. High-rises and live-work-play communities are in the process of being built. There is no vacant land left in a mile or so. We have seen some pretty good appreciation this last 18 months and expect that will continue after the construction is done. Also, the consulting company I'm sub-contracting through is two miles from here.
5. If/when we moved to the other place full-time, this current home could be sold and we'd have enough for retirement. Specifically, we have 200k equity in our condo...it's paid for. I can't get financed because of being self-employed and the new Fannie-Mae rules. My "income" is too low. Still, with property tax & association fees we add another $550-600/month for this condo. A free-standing home should be much less monthly for tax & additional maintenance. The value should be closer to 100k and the association fees are for things I don't care about or can do myself. I've run the numbers and I could retire with a 100k free-standing home. I'm not actually ready to fully retire yet though. I have already reduced hours though.
6. My wife & I have an ideal home that is very difficult to find. We want a small home (not tiny) but I also want 1-2 acres and a project area. A small home is less to heat/cool/maintain. The project area can be ignored if my attention goes elsewhere.

Reasons it may not be a good idea:
1. Cash tied up not making returns.
2. My wife doesn't want to move to TN. When we moved, we considered moving out into the country at that time because I WFH so much. We saw two homes less than a mile from each other. One in GA, the other in TN. She would not consider TN because she couldn't tell her mother she moved out of state. Later, I discussed this with her mother and her mother thought it was a good idea. I think we can work this out now but it will still be an issue to be dealt with.

Thanks.

[FINate]

Maintaining a second home is very likely a money loser. The fact that you didn't even bother to lay out a plan for generating vacation rental income indicates you haven't thought through the full range of perpetual costs.

State tax authorities are generally very good at sluicing out cases of people superficially changing residences to avoid taxes. Don't do it unless you're really going to change residences across state lines. Schools, clubs, associates, doctors, dentist, vehicle registration ... everything needs to be in the new state.

Your entire proposal as described here is very one sided. Your list of cons needs to be fleshed out more, you need to think through it more and come up with something much more balanced. You've already convinced yourself that it's a good idea, now convince yourself that it's a bad idea. If you can do both, and the pros still outweigh the cons then it might be ok, however...

You're talking about building this as a potential retirement home, and selling your current place down the road, but your wife doesn't even want to move to TN. You're getting ahead of yourself, slow down a bit. Making big plans independent of your wife is only going to cause marital strife. Not sure about your wife, but mine can detect from a mile away when I'm trying to drive my own agenda rather than really listening and having honest discussion.

My recommendation: Deconflate the desire for a building project, a second home, and a retirement home and treat these as separate issues. If you want a project home, then find something close to home and treat it as a side hustle, with a clear business plan for how you'll make profit. Build/remodel, then sell. IMO, a second home is a money loser, almost never a good idea. As for a retirement home, sounds like you and your wife need to have a lot more discussion about your long term plans, which may mean finding some compromise or maybe even you allowing your wife to carry the argument to stay put.

[itchyfeet]

I’ve been itching to buy a post FIRE home too, but have fought back the urge.

It’s just not the best financial move I can make. It might work out ok, or it might delay my FIRE date.

I just keep telling myself to stick to the plan. Get to my number, FIRE, sell my expensive city house and then decide where I really want to live instead.

Even if I FIRE in December, it’ll take me time to repatriate, sort out my life, tidy up our place which has been rented for prob 5years by the time we get back there and then sell it.

 I doubt I’ll sell until 2021. Best I wait until I know how much cash I have before I spend money on another place.

For us, our post FIRE plans are foggy at best, so it really would be silly to get ahead of ourselves...... but I still can’t resist looking at realestate lol.

[FINate]

Looking at RE is fun, and dangerous :) Too easy to fantasize about how great it would be to have a cabin in the woods or on a lake.

I came very close to pulling the trigger on a second home in the Lake Tahoe area during the last housing bust. There were some great deals at the time, but still glad we didn't do it. Once we started adding up all the expenses it just didn't make sense, even with the great deals at the time:

• Opportunity cost: Either you pay cash or take out a loan, either way you have a bunch of capital tied up in a non-performing asset. On a $200k property that's like $8k a year.
• Property taxes: Another $3k or so depending on specifics.
• Assorted utilities: Heating to prevent frozen pipes in winter, power from the grid, internet. Figure about $200/month ($2400/year) for these.
• Insurance: Guessing $1000/year.
• Maintenance: Guessing another $1000/year.

So before you've ever even visit your vacation home you're out of pocket about $15k, each and every year. That number can come down with lower property values, maybe to $10k or less, but the point is that it's costing a lot just to keep a second house around. A house that mostly sits empty, draining your money.

Now pull up VRBO/AirBnB and look at what vacation homes rent for. You can get a ton of renting for $10k-$15k/year. And you're not tied down to any one place. Nor do you have to worry about making repairs, yardwork, clearing snow, etc.

For a fraction of what we would have spent to buy and maintain a second home, we now have the flexibility to go almost anywhere for vacation. Southern California Beach vacation, camping in the high desert, cabin in the woods, wine country, small central coast town, roadtrip...no problem, we aren't tied down.

[iris lily]

We went back and forth over several months when a property came up in a town we love and in the location that is prime with the lot we want. The house, well, it needs work. We pulled the trigger, made an offer, and got the house, not a surprise because it sat on the market for 4 months.

It is our weekend house.

When I was working a full time job, the last thing  I wanted was to have a second house. But now that we are retired, I can envision this working. I am still not sure aboit it, it might betoo kuch to take care of, but we will see.

Hey, we also thought we might retire in TN! But at the moment that is not a plan. We are in St. Louis and our weekend house is in a tourist town 1.5 hours away driving or by train.

Our weekend house is big enough that it could be a retirement house until we are past age 75.it has a huge lot and that is what we wanted, but there will be maintenance.. It has the all important two bedrooms and a bathroom on  the first floor.

[frugaliknowit]

Instead of buying a FIRE home, why don't you do remodeling type work on the side?  This way, you'll get paid and take care of your "project itch"?

No, don't buy a second home.  Guaranteed MONEY PIT.

[brian313313]

Thanks for the input. A lot of good ideas and things being pointed out. The one thing to point out is my primary reason for considering this now is so I can have a project area. The home itself could be the first project. Buying a home in the area I'm in would kill any ideas of RE I have or taking it easy. They're all too big and too expensive. As far as flipping/working on the side, there are a few problems. I'd have to tie up too much money because of the high RE values around here, plus I can't get a home loan because of the new FNMA regulations. I couldn't work for others because they'd expect more progress and I'm still working full-time.

[iris lily]

OP, I think it is GREAT that you are handy and can do lots of work yourself and you enjoy it, and want to stay busy. There is nothing like working on your own home.

I really dont know what to tell you. Our seond home will most definately be a money pit but that is ok, we are old and can afford it and my DH does all kinds of work and he will be doing a ton of the landscaping (think major terracing, fencing) as well as likely a lot of the house renovation.

I will out my foot down about him dong the rough construction of the addition we plan, but once it is framed in I imagine he will do the finish work. He is too old to be digg Ng foundations and putting up framing and roofs, but he is good at finish work and enjoys it.

But back to you...yoir wife is lucky to have a guy who knows how to make stuff and fix stuff. I agree that you need to find projects for channeling that.

[brian313313]

Dig? That's what backhoes are for :). My wife does appreciate that I can do the work though. Thank you. She keeps me busy until everything is done which is where we are on our current condo. We hired a lot of the work out here though because of money reasons. It was better to move in quicker than to pay rent for a couple extra months. We had the floors & kitchen done. I did the bathrooms and everything else though. A story she likes to tell is that when we first met, I was remodeling my only bathroom. I had to skip taking her out on a second date the next weekend and told her not to read anything into it but I had to finish the bathroom. It went over schedule. Anyways, she thought that I was in big trouble. In the end, she wound up helping me finish it. Not that weekend but the next. We tiled it together. Then I married her.

My issue is that I want the garage or workshop now. I can't wait a couple years because I'll have nothing to do soon. I'm not the type to sit around and watch TV. I started with the idea of just buying some land and putting a pole barn garage on it. It would need a bathroom though. I wouldn't put a septic in for just the single bathroom, knowing I'd want a bigger one later. Same with the foundation...it's better to build them once.

[Villanelle]

The fact that you are not at all on the same page about the location of FIRE means, to me, that this should be a non-starter. 

[brian313313]

Location is not the issue between my wife & I. It's the timing. My wife wants a home in Georgia while her mother is still alive.