Would like to buy lake cottage back from new owners - Cash vs finance

[Spendysaurus]

Hi all,

When my mother died in 2014, my aunt became the executor of the estate and decided to sell the family camp.  It was built by their father in the 50's.  He died of a heart attack while assembling the garage.  At the time she was selling it off I didn't put up a fight because we were planning to move out of state.  We did move and then moved back in 2017.  Now that we are here raising 2 boys, I'd like to get the camp back. 

The new owners paid $60k for it.  I estimate that they would want $90k to sell it in the next 5 years or so, even if they are willing.  OK, so $90k isn't that much dough. I'd like to finance it. Our home is paid for and is worth $500k.  Our retirement investments are worth $400k. We have about $40k cash right now. The accounts are mostly in SDY and VTSAX.  My wife would just prefer to pull the money to purchase from the investment accounts.

I imagine that in a few years mortgage rates will be over 5%, which definitely affects this decision.  What do you all think?

[DoNorth]

I would finance.  Money is still historically cheap and liquidity leaves a lot of options.  I haven't jumped into the new tax law much, but I think there is still a mortgage interest deduction on second homes so that might play into your decision.

I bought a lake cottage with financing in 2011, paid it off within 2-3 years, bulldozed the cottage in 2014 and built a new home with cash/credit that eventually rolled into a mortgage.  Throughout the construction process (I built it myself) I really wish I hadn't paid it down so quickly and instead kept the cash to eventually build the new house.  Because I didn't have as much liquidity as I would have liked, I had to stop a few times along the way during the construction process and it drew the process out much longer than I would have preferred.

[AnotherFI_IT_Guy]

You might look at taking out a HELOC or Home Equity Loan against your primary home.  That could be easier and maybe get you a better rate than borrowing against the camp directly.

[Sibley]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

[BikeFanatic]

I vote also for the Heloc Some have had rates as low as 2% - for a family 90 K is a good deal for a vacation home, kids need a good place to grow up exploring nature, biking.

[Another Reader]

My guess is that they wanted this camp, bought it, and are not likely to sell it back to you just because you are attached to it.  Before I wasted a lot of time on finding ways to finance the purchase, I would talk to the buyers to see if they would consider parting with it.  For all you know, they may have completely redone the property and the image you have in your mind of the way it was might not be accurate today. 

[frugaliknowit]

Why do you want to buy this cottage (other than for emotional reasons)?  Assuming it's because you REALLY WILL USE IT to the extent that the purchase makes sense, my question would be how old you guys are and how close to FIRE are you?  If within 10 years, then NO mortgage, because there's too much risk in borrowing for vacation property so close to firing/retiring.

If you ARE buying it for emotional reasons:  (tough hug) DON'T, rent as needed.

[partdopy]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

I thought the point of MMM was to use your money to maximize your own happiness?  Unless you are aware of what OP's happiness per dollar ratio will be from this transaction, maybe just advise him on the best way to purchase it.  I'm sure if advice on whether to buy or not was needed it would be requested.

If I was buying, I would finance due to today's low interest, but only if I was very comfortable with my bills to income level.

[Cromacster]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

I thought the point of MMM was to use your money to maximize your own happiness?  Unless you are aware of what OP's happiness per dollar ratio will be from this transaction, maybe just advise him on the best way to purchase it.  I'm sure if advice on whether to buy or not was needed it would be requested.

If I was buying, I would finance due to today's low interest, but only if I was very comfortable with my bills to income level.

If you want to get down to it, I'd argue the point MMM tries to get across is to maximize your happiness without using money.

[Spendysaurus]

I would finance.  Money is still historically cheap and liquidity leaves a lot of options.  I haven't jumped into the new tax law much, but I think there is still a mortgage interest deduction on second homes so that might play into your decision.

I bought a lake cottage with financing in 2011, paid it off within 2-3 years, bulldozed the cottage in 2014 and built a new home with cash/credit that eventually rolled into a mortgage.  Throughout the construction process (I built it myself) I really wish I hadn't paid it down so quickly and instead kept the cash to eventually build the new house.  Because I didn't have as much liquidity as I would have liked, I had to stop a few times along the way during the construction process and it drew the process out much longer than I would have preferred.

Thank you for your time and story, this supports my thinking.

[Spendysaurus]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

I'm sorry, are topics non-FIRE related offensive to some here?  Not being sarcastic, this kind of response is unexpected, that's all.

[Spendysaurus]

My guess is that they wanted this camp, bought it, and are not likely to sell it back to you just because you are attached to it.  Before I wasted a lot of time on finding ways to finance the purchase, I would talk to the buyers to see if they would consider parting with it.  For all you know, they may have completely redone the property and the image you have in your mind of the way it was might not be accurate today.

I absolutely am aware of this possibility.  They have done some work to the place - windows, siding, bathroom, etc.  But the few times I've driven by, nobody is there so we're just hoping that they have regretted their decision.  Either way, I would like to purchase an unnecessary 2nd property.

[Spendysaurus]

Why do you want to buy this cottage (other than for emotional reasons)?  Assuming it's because you REALLY WILL USE IT to the extent that the purchase makes sense, my question would be how old you guys are and how close to FIRE are you?  If within 10 years, then NO mortgage, because there's too much risk in borrowing for vacation property so close to firing/retiring.

If you ARE buying it for emotional reasons:  (tough hug) DON'T, rent as needed.

My grandparents owned all the lots on the road and it was one of the first erected there.   It was in the family for 60+ years so it doesn't feel right not having a family presence there.  We would drive from California/Washington during the summers as a kid, 3,000 miles to the east and spend summers in the lake.  So YES, primarily for emotional reasons but now that I have 2 boys who love being outside, I would have them there almost every weekend from May - September.

We are in our 30's.  I have a 6 figure salary doing stuff I enjoy.  I don't want to retire early though I respect other's desires to do so.  If I couldn't work, we would downsize and seek independence.  But I'll ride this career thing out, I think. 

[Spendysaurus]

Thanks for the recommendations in regards to the HELOC option.  That makes most sense and would avoid the hassle of a new purchase process.  I looked into that 6 years ago and rates were 2% but I know they've gone up since then.

[boarder42]

Screw a help just remortgage your house and invest it all today. In 2 years it would return enough money for you to buy that house. Then finance it too if you're going to make the poor financial decision to own multiple houses for personal use at least mortgage them and put your money to work.

[Sibley]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

I'm sorry, are topics non-FIRE related offensive to some here?  Not being sarcastic, this kind of response is unexpected, that's all.

@Spendysaurus , no, not offensive. Just sometimes incompatible. What MMM is espousing isn't mainstream, and since the forums have attracted a much larger audience, a lot more firmly mainstream people are showing up. Sometimes a Facepunch is required to make this clear. Since no one else had applied it, I did. My point stands - no one NEEDS a second home. Particularly if you can't afford it outright. The actual mechanics of funding source may vary, but if you can't come up with cash in a reasonable period of time, or are still working towards FI, then you can't afford it.

(If you don't understand what a Facepunch is, please read the blog.)

[katsiki]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

To be fair, the question was posed by "spendy"-saurus.  :>

[Spendysaurus]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home? Unless you're already FI, you can't afford it. Even if you're FI, you do not need it.

I'm sorry, are topics non-FIRE related offensive to some here?  Not being sarcastic, this kind of response is unexpected, that's all.

@Spendysaurus , no, not offensive. Just sometimes incompatible. What MMM is espousing isn't mainstream, and since the forums have attracted a much larger audience, a lot more firmly mainstream people are showing up. Sometimes a Facepunch is required to make this clear. Since no one else had applied it, I did. My point stands - no one NEEDS a second home. Particularly if you can't afford it outright. The actual mechanics of funding source may vary, but if you can't come up with cash in a reasonable period of time, or are still working towards FI, then you can't afford it.

(If you don't understand what a Facepunch is, please read the blog.)

I've been reading the blog on and off for 5 years.  I find the writing and idioms to be stilted and not for me to practice.  I've considered the FIRE thing for my life but have concluded that it's not for us.  I prefer the creative expression that I get through new product development in the medical device world as an independent consultant.  Makes me feel like a normie, which I like.  Plus, have you ever raised children in a tiny to medium size home without a yard?  I tried that when I was younger and hated the restrictions.

This post was not meant to be argumentative.  I do value the opinion of those who are more frugal than we are, that is all.  Thank you for those who have provided feedback.

[RWD]

You realize that you're on the MMM forums, asking the best way to buy a unnecessary vacation home?

I'm sorry, are topics non-FIRE related offensive to some here?  Not being sarcastic, this kind of response is unexpected, that's all.

@Spendysaurus , no, not offensive. Just sometimes incompatible.

I've considered the FIRE thing for my life but have concluded that it's not for us.

Have you visited the Bogleheads forums? It might be more up your alley.

[nkt0]

Calculate maintenance, electricity, taxes, snow cleaning, everything. Often this amount is higher than you think.

Agree with @Linda_Norway. Do these calculations and see what your anticipated "cost per use" is. Don't forget to include the travel costs to/from the cabin!

Of course, if you don't care about the added expense and just want to know whether to use cash or mortgage…well, that depends on your tolerance for risk (one way or the other). Sounds like you have the means, so either decision should work out okay.

[RWD]

Our cabin costs me approx 1800 USD a year, it is without mortgage. I guess that if we hadn't owned it, we would have hired a cabin a couple of times a year, so we save some of the money on that.

Don't forget to account for opportunity cost. That $80k could be invested in the market instead.

[RWD]

Our cabin costs me approx 1800 USD a year, it is without mortgage. I guess that if we hadn't owned it, we would have hired a cabin a couple of times a year, so we save some of the money on that.

Don't forget to account for opportunity cost. That $80k could be invested in the market instead.

And the impairment (is that the correct word for becoming worth less?). Based on what the neighbour's cabin sold for, our cabin is worth less now than what we paid for it many years ago.

"Depreciation" is probably the word you're looking for?

[Cassie]

I would see if they wanted to sell it. If yes finance it if your money earns more than the interest rate. If not pay cash.