Author Topic: Mountain Property - good retirement investment?  (Read 6207 times)

irishexile

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Mountain Property - good retirement investment?
« on: March 25, 2016, 09:22:18 AM »
Hi,

My family moved to San Francisco about two years ago (#1 MOST expensive city in US, I know - very mustachian!), but it was deliberate to be close to family after living in Europe for 11 years. Also, we rent off my sister for less than half market rate - the only way SF is possible.

I feel like we are making good progress towards retirement plans - 401k, 403b through work, Vanguard investments, Betterment, savings, no debt, and living well within our means. My wife and I are mid-30s with 3 kids and came across MMM about 3 years ago so I also feel we're well behind in other respects.

With careful budgeting we could potentially buy a mountain property in Nor Cal with great mortgage rates and begin to pay off this with the long term plan of hitting 55 with a retirement property paid off. It would also serve as a great vacation home for us meanwhile and a potential rental earner if we offered it through Air BnB or similar at peak times to attack that mortgage even more.

I'd appreciate any views/advice/criticisms/experiences from others as to whether this seems a sound investment or if I'm way off!

Cheers, Johnny

bobechs

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Re: Mountain Property - good retirement investment?
« Reply #1 on: March 25, 2016, 09:57:56 AM »
Rather than buy a distant house that you have no urgent use for, why not take all the money you were going to pour into that project for the next twenty years put it into a stock market fund and let it grow?

Then when you are ready to retire, shop a retirement location and house.  Buy it then. Trust me, they will still be selling houses in twenty years.

lhamo

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Re: Mountain Property - good retirement investment?
« Reply #2 on: March 25, 2016, 11:30:06 AM »
Think long and hard about whether you really want to be in a fairly remote area as you get older.  Access to medical care, etc. is a real issue as you age.  My mom is able to stay in her home in a rural area (about 20 min drive from the nearest sizable town where her doctors, etc. are) only because  my sister lives next door and my brother and i are also available to take her to appointments.  She had to stop driving a few years back out of safety concerns.

Also, most people use vacation property much less than they anticipate.  My brother had a beach house in Oregon that they bought when they lived in Portland.  They used it enough to make it worth the investment until they moved up to Seattle, then probably only went 2-3 times a year.  They also weren't able to keep it rented as much as they had planned.  Personally, based on their experience and that of other people I know, we will probably never buy a vacation property.

CowboyAndIndian

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Re: Mountain Property - good retirement investment?
« Reply #3 on: March 25, 2016, 05:25:24 PM »
Both bobechs and lhamo have hit the nail on the head.

Your views and what you want with life will change in 20 years. If you are in your mid 30's, recollect what you thought about when you were 20. Does it still hold true?

Take my example. If I had bought a place 20 years ago, it would have been in a remote area. I had some misguided idea of living completely off the grid. Now, I am planning to retire in downtown St. Pete.

Maybe create a separate account, label it as retirement house account. Invest wisely. 20 years from now, buy the house.


irishexile

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Re: Mountain Property - good retirement investment?
« Reply #4 on: March 25, 2016, 07:56:40 PM »
Thanks for the feedback everyone, some great points made. I couldn't agree more that opinions/world views change - I shudder to think of my early 20's self! I'm not convinced aging health would play a significant factor in a decision now, nor at 55 - there are just too many unknowns in later life. Both my wife and I are in the fitness industry and very healthy, and both sets of parents are almost 70 and in great health.

I guess, idealistically, any property bought now could provide opportunities for building memories with our kids and possible grand kids, and also somewhere to call home once FI is reached. Living and renting in SF there is simply no way to do that here, but moving from SF means a potential massive cut in pay so less opportunity to invest/save.

Probably a conversation had over delicious IPA than the internet!

paddedhat

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Re: Mountain Property - good retirement investment?
« Reply #5 on: March 27, 2016, 09:10:06 AM »
I built millions of dollars worth of spec. homes in a mountain resort setting, and sold them to folks just like you. They all have dreams of using their vacation home as family gathering place, some think they will hit it big once they list it on VRBO, and not only cover the costs, but make a good buck on short term rentals. Most think it will be a great place to escape to, many weekends a year, then become a great location to retire to, some day.

When I started, I was hooked up with an older, and absolutely ruthless shark, of a broker/realtor. She would cynically list all the fantasies that buyers had, and how it typically took five years until they showed up back at the office, and listed the place for sale, dreams squashed, bucket list checked.  She even boasted of selling the same house, FIVE times, during her career. About five years into my stint as a builder, I started to notice that she was dead on. It's been almost a decade since my first project, I live in the neighborhood, and I can safely say that the majority of my original owners have moved on. Given the unhealthy regional real estate market, most of those sellers got their asses handed to them, and frequently lost at least 25-40% of their total investment, after all costs are totaled. Until you sit down and really do an honest analysis, it's hard to imaging how much money it takes to buy, repair, upgrade, furnish, insure, and pay taxes on, a second home. Particularly if, like most, you dump it in a few years, and incur all the costs of the resale. I have seen customers who took a $50K hit on a $157K place, and only used the property a dozen times in the few years they owned it. Nothing like finding out you lost $4-5K per weekend at YOUR vacation home, when you could of rented the place next door for $400 a weekend.

irishexile

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Re: Mountain Property - good retirement investment?
« Reply #6 on: March 27, 2016, 12:49:06 PM »
Thanks for the perspective paddedhat. I'd be interested in why so many of the original owners moved on? Why did it not work for them - was it largely financial, or life changes, or just not what they had hoped for?

I think one difference may be the drive and desire to become FI with an investment like this being key to an early and successful retirement, as opposed to a wistful idea of a nice vacation home (only adding to the mounting debt they already carry?). One other factor is that area we are considering is the same that my wife's family owns a cabin in. Over the years we have vacationed there many many times, in summer, winter and off season so I'm under no illusion that it's all peachy! Summer fire season, drought, winter snow and frozen pipes etc... plus then the proximity to stores, work opportunities, medical care etc.

I suppose my motivation to consider investing in a property like this now rather than later is influenced heavily by the 'rent trap' I feel I'm in. Having uprooted our kids from Scotland to move closer to family in US, we have committed to living in SF for the next 10 years so they can all finish off high school and make connections and relationships here. The reality of this is that in 10 years we'll have paid a ton in rent and nothing to show for it! This was one of the sacrifices we had to weigh up before deciding to move.

Is there an opportunity to have a different future scenario with a property investment?

paddedhat

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Re: Mountain Property - good retirement investment?
« Reply #7 on: March 27, 2016, 01:52:36 PM »
Thanks for the perspective paddedhat. I'd be interested in why so many of the original owners moved on? Why did it not work for them - was it largely financial, or life changes, or just not what they had hoped for?


From my experience the majority of my customers ended up selling for reasons other than financial difficulties. It seems to me that it is often a case of the reality of second homeownership failing to meet expectations. Life in the city, two to three hours away, is all consuming, and the dozens of times a year they envisioned being there, ends up being once every two months. The customer often is in their 40s or 50s and thinks it will be a great bonding experience for their family full of moody teens, who would rather do anything other than waste a weekend with mom and dad, a hundred miles from all their cool friends and activities. They didn't think about the fact that a yard and landscaping is a choice of paying somebody $10K, or spending every weekend of a summer working like a dog to DIY it. In the end it takes about five years for the novelty to wear off and reality to set in. The reality is that they can afford it, but they also have learned that they no longer want it bad enough to spend the money.  Now this is all in the context of a narrow socioeconomic group. My customers were middle class and ran the range of union tradesmen, middle management, small business owners, etc....  generally there is no group pressure to keep the place, since they don't run with a crowd that all have one.  I have also spent a lot of time with friends who are/were executives and partners in big firms. In that crowd, a second home is a bauble that you have to have to maintain status, like the club membership and trophy house. They might find the second home to be nothing but a PITA, and in some cases end up using it 2-3 times a year, but it's still a must have.

In your case, taking every dime you would be spending on a vacation home, and dropping it into a low cost ETF will leave you exponentially further ahead, in a decade or two. Remember all of Cali. suffers from a cyclical housing market. SF looks bat shit crazy at the moment, but some day in the not too distant future it will tank again. At that point, housing out in mountains will be dropping, and you will have many opportunities open. Good luck.

slugsworth

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Re: Mountain Property - good retirement investment?
« Reply #8 on: March 27, 2016, 04:11:23 PM »
"Nothing to show for it" except your kids growing up near family, making way more money than you could elsewhere, and all of the other reasons you choose to move to SF rather than Omaha, or staying in Scotland or moving to any of the other places in the world.

It sounds like you've got access a vacation house. Keeping your money invested in something that is built to make money rather than loose it will make more sense over the next 20 years.

There is no rent trap if you save money and can buy when you want. As one of the other responses said, they will still be selling houses later.

bobechs

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Re: Mountain Property - good retirement investment?
« Reply #9 on: March 27, 2016, 04:23:40 PM »
OP: I can sense considerable resistance on your part to what literally everyone in this discussion is saying to you.

Maybe you are indeed that special case which all this does not apply.  Maybe.

Or maybe, just maybe, you will willingly make yourself the next big catch in the hands of that real estate sales maestro who is trolling for one like you, even as we speak. 

Beware the hook, Charlie.


irishexile

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Re: Mountain Property - good retirement investment?
« Reply #10 on: March 27, 2016, 06:29:37 PM »
OP: I can sense considerable resistance on your part to what literally everyone in this discussion is saying to you.

That's a fair point bobechs. In reality it's a case of head vs heart, and being the eternal idealist/optimist thinking it could work, that this could be the 'special case' as you say. I do appreciate all of the input and will definitely take it on board. It's safe to say that this investment is on hold for the foreseeable future and I'll continue to save as much as possible in the vanguard account.

Thanks everyone!

DirtDiva

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Re: Mountain Property - good retirement investment?
« Reply #11 on: April 01, 2016, 06:22:30 AM »
HI, Irishexile.  I had exactly the same thoughts a couple of years ago.  I did extensive reading on the subject and came to the conclusion that we don't need the upkeep hassle or the expense.   Peoples' plan of owning a mountain home/lakeside cottage  as an investment rarely pans out.  Realistically, vacation homes are consumer items.

Here's another great discussion to peruse:
https://www.bogleheads.org/forum/viewtopic.php?f=2&t=184085&hilit=mountain

ohmylookatthat

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Re: Mountain Property - good retirement investment?
« Reply #12 on: April 02, 2016, 06:50:07 PM »
just rent a place in tahoe and invest whatever else you have saved. 20 years down the road it will be a smarter move

Kaplin261

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Re: Mountain Property - good retirement investment?
« Reply #13 on: April 03, 2016, 05:22:25 AM »
OP what you want can be done if you plan and do the research. You currently earn 7% on your investments with vanguard. Property on average matches inflation so you will earn 3% however you are getting a loan and will only put upfront 20% of the sale. With interest rates right at inflation now is the time to do something like this.

You need to look at this as an investment not as a place to make memories. By a piece of property that is below market value, check the mls listings daily and make an offer quickly when one goes up 30% below market value.

Do not buy property that has a house to maintain.

mskyle

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Re: Mountain Property - good retirement investment?
« Reply #14 on: April 03, 2016, 06:30:42 AM »
I have very definitely seen this "people outgrow the vacation house" phenomenon many times in my family. At best, your willingness to use the mountain house as a vacation home is going to wax and wane as you move through life; there will come a winter where you only make it up for one weekend. My sister and my dad have a place like this, and the first couple years I was up to visit all the time; now they go up less, and I go up even less than they do, which is maybe for the best since the kids are growing up and there's not as much room for additional guests as there was when they were babies.

Having a place where your family can gather can be really great! It's not generally the most financially conservative decision though, and it can also be a bummer when the family does not in fact gather there.

Also, health really can be fragile - my dad (an extremely fit guy who *did* buy the mountain house), is going to be having a hip replacement in his early sixties. He's been skiing and hiking right up to the date of his surgery, but I think he and his wife would go crazy if he had to have surgery and recuperate in the mountains, too.

paddedhat

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Re: Mountain Property - good retirement investment?
« Reply #15 on: April 03, 2016, 04:56:55 PM »

Do not buy property that has a house to maintain.

Are you suggesting that the OP buy a bare lot, or what?  Believe me, having personal experience in this, you do not want to buy a piece of ground in CA. with the expectation of building on it, decades from now. Most folks in normal parts of the country can't even begin to imagine what an unbelievable mess it is to build anything in CA. and how horrendous it is to even get past permitting, and win the battle for the right to build, in many communities. It is perfectly reasonable to assume that an empty lot could, in twenty years become A. Unbuildable for dozens of reasons that only the Cali, bureaucracy could dream up, or B. end up being ridiculously expensive to build on, due to the never ending parade of new regulations, code revisions, impact fees,  and God only knows what else. 

Kaplin261

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Re: Mountain Property - good retirement investment?
« Reply #16 on: April 03, 2016, 05:31:12 PM »

Do not buy property that has a house to maintain.

Are you suggesting that the OP buy a bare lot, or what?  Believe me, having personal experience in this, you do not want to buy a piece of ground in CA. with the expectation of building on it, decades from now. Most folks in normal parts of the country can't even begin to imagine what an unbelievable mess it is to build anything in CA. and how horrendous it is to even get past permitting, and win the battle for the right to build, in many communities. It is perfectly reasonable to assume that an empty lot could, in twenty years become A. Unbuildable for dozens of reasons that only the Cali, bureaucracy could dream up, or B. end up being ridiculously expensive to build on, due to the never ending parade of new regulations, code revisions, impact fees,  and God only knows what else.

Well this kinda changes things a little bit.

bobechs

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Re: Mountain Property - good retirement investment?
« Reply #17 on: April 03, 2016, 11:21:35 PM »

Do not buy property that has a house to maintain.

Are you suggesting that the OP buy a bare lot, or what?  Believe me, having personal experience in this, you do not want to buy a piece of ground in CA. with the expectation of building on it, decades from now. Most folks in normal parts of the country can't even begin to imagine what an unbelievable mess it is to build anything in CA. and how horrendous it is to even get past permitting, and win the battle for the right to build, in many communities. It is perfectly reasonable to assume that an empty lot could, in twenty years become A. Unbuildable for dozens of reasons that only the Cali, bureaucracy could dream up, or B. end up being ridiculously expensive to build on, due to the never ending parade of new regulations, code revisions, impact fees,  and God only knows what else.

Well this kinda changes things a little bit.

Nahh, it wasn't even a good idea to begin with.

misshathaway

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Re: Mountain Property - good retirement investment?
« Reply #18 on: April 04, 2016, 06:11:13 AM »

Are you suggesting that the OP buy a bare lot, or what?  Believe me, having personal experience in this, you do not want to buy a piece of ground in CA. with the expectation of building on it, decades from now. Most folks in normal parts of the country can't even begin to imagine what an unbelievable mess it is to build anything in CA. and how horrendous it is to even get past permitting, and win the battle for the right to build, in many communities. It is perfectly reasonable to assume that an empty lot could, in twenty years become A. Unbuildable for dozens of reasons that only the Cali, bureaucracy could dream up, or B. end up being ridiculously expensive to build on, due to the never ending parade of new regulations, code revisions, impact fees,  and God only knows what else.

Not limited to CA. I inherited land in Florida 13 years ago. At the time it was within an area the state had recently designated as "scrub jay habitat" and only buildable with a bunch of additional steps. Really impacted the land value. Since then I'm not sure whether the law changed or the habitat boundaries changed, but scrub jays are no longer a factor. I just listed it a month ago. Hopefully no other endangered species will venture near it until it is sold.

Kaplin261

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Re: Mountain Property - good retirement investment?
« Reply #19 on: April 04, 2016, 06:25:27 AM »

Do not buy property that has a house to maintain.

Are you suggesting that the OP buy a bare lot, or what?  Believe me, having personal experience in this, you do not want to buy a piece of ground in CA. with the expectation of building on it, decades from now. Most folks in normal parts of the country can't even begin to imagine what an unbelievable mess it is to build anything in CA. and how horrendous it is to even get past permitting, and win the battle for the right to build, in many communities. It is perfectly reasonable to assume that an empty lot could, in twenty years become A. Unbuildable for dozens of reasons that only the Cali, bureaucracy could dream up, or B. end up being ridiculously expensive to build on, due to the never ending parade of new regulations, code revisions, impact fees,  and God only knows what else.

Well this kinda changes things a little bit.

Nahh, it wasn't even a good idea to begin with.

Bobechs, could you explain your great wisdom? I am curious to why you think raw land or mountain property is a bad idea.

arebelspy

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Re: Mountain Property - good retirement investment?
« Reply #20 on: April 04, 2016, 07:06:48 AM »
I'd appreciate any views/advice/criticisms/experiences from others as to whether this seems a sound investment or if I'm way off!

It is not a good investment, no.

If you want it, emotionally, that's one thing.  And may be okay.  But it will slow your path to FIRE, in all likelihood (even if your FIRE includes owning this, outright--buying a cash flow negative property now and banking on appreciation to make more gains than the market over decades is a bad bet, IMO).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
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Jack

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Re: Mountain Property - good retirement investment?
« Reply #21 on: April 04, 2016, 07:58:11 AM »
Bobechs, could you explain your great wisdom? I am curious to why you think raw land or mountain property is a bad idea.

My parents bought a lot in the North Georgia mountains decades ago. They never built on it (so they never got any rental income), but they sure paid those taxes and HOA fees!

If I recall, they finally got rid of it a few years back, but even with 20+ years of "appreciation" they still took a loss on it.

Kaplin261

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Re: Mountain Property - good retirement investment?
« Reply #22 on: April 04, 2016, 11:48:19 AM »
I'd appreciate any views/advice/criticisms/experiences from others as to whether this seems a sound investment or if I'm way off!

It is not a good investment, no.

If you want it, emotionally, that's one thing.  And may be okay.  But it will slow your path to FIRE, in all likelihood (even if your FIRE includes owning this, outright--buying a cash flow negative property now and banking on appreciation to make more gains than the market over decades is a bad bet, IMO).

So if OP is in a 28% tax bracket(itemizes), buys 20% below market value, gets a 3.5% 30 year loan,puts up 20% down payment and the property appreciates 3% annually. How would the investment compare over a ten year span compared to putting the same amount of money into a vanguard account?


arebelspy

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Re: Mountain Property - good retirement investment?
« Reply #23 on: April 04, 2016, 11:56:48 AM »
I'd appreciate any views/advice/criticisms/experiences from others as to whether this seems a sound investment or if I'm way off!

It is not a good investment, no.

If you want it, emotionally, that's one thing.  And may be okay.  But it will slow your path to FIRE, in all likelihood (even if your FIRE includes owning this, outright--buying a cash flow negative property now and banking on appreciation to make more gains than the market over decades is a bad bet, IMO).

So if OP is in a 28% tax bracket(itemizes), buys 20% below market value, gets a 3.5% 30 year loan,puts up 20% down payment and the property appreciates 3% annually. How would the investment compare over a ten year span compared to putting the same amount of money into a vanguard account?

You're missing some big components: how much negative cash flow along the way, how much in closing costs, what are your expense assumptions along the way, what tax assumptions are you making, etc. etc.

It's a complex question.  But I can tell you I've run the numbers many, many times on rentals versus index funds (there's a thread around here on it, somewhere).  The assumptions have to be pretty decent for rentals to win.  There are definitely properties out there where they do.  If you buy right, rentals can win.

But I'd put money on a mountain vacation home in California not coming close to hitting the numbers required for that to be the case, unless, like I said, you bank on a lot of appreciation (not standard 3%--i.e. 0% real, just keeping up with inflation, as you have).
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Pigeon

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Re: Mountain Property - good retirement investment?
« Reply #24 on: April 04, 2016, 11:56:56 AM »
I will echo what most have said about owning a vacation home, but different real estate markets.

My ILs had a vacation home in southern VT, about an hour and a half from their home.  They were skiers and boaters and the house was in an area with both.  They got an amazing deal on season ski passes for the whole family for nearly free.

While there were some fun family times, by the time the kids started to be in junior high, that house was a constant source of bickering.  The kids wanted to be on sports teams at school and that meant they had stuff to do on weekends.   Then they got of an age to want to do a little dating.  Spending every weekend with mom and dad wasn't high on the agenda.

My step-mother also had a vacation home on a lake about an hour away.  She and my dad were both widowed and remarried after her kids were grown, but I could see it was a source of constant friction in her family, too.  She's very controlling, and didn't want the adult children to be there without her, but spending the weekend with her was not the grown children's (or their spouses) idea of a good time.

These houses are a big source of work.  They have associated maintenance, as all houses do.  So, a significant amount of your vacation hours are dedicated to cleaning and fixing stuff.  You have to haul food back and forth, which is a royal pain.

They are also always hanging over your head.  My step-mother would work herself into a lather when she would think about all the money the vacation house cost for the amount it was actually used.  She felt a great deal of pressure to force them all to go there.

When my ILs decided they were too old to maintain the vacation home, they really wanted their sons to take it over.  I wouldn't have that house as an outright gift.  It's way too much work, I don't want the pressure and I'd rather not go to the same place all the time for my vacation.  No way.  Fortunately, dh feels the same.

In my case, both of these houses are an easy drive from where we live, with very little traffic.  I would guess that wouldn't be true in your case and the longer it takes to get there, the less you would actually use it.

irishexile

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Re: Mountain Property - good retirement investment?
« Reply #25 on: April 09, 2016, 10:28:37 AM »
Thanks for the additional inputs and perspectives. I definitely appreciate hearing the personal experiences of others and their families.

Interestingly, I had also considered a plot of land as a second option having seen many inexpensive plots, but as paddedhat pointed out, CA building restrictions and bureaucracy are insane. You can barely repaint your interior walls without a city work permit here in SF!


gardenarian

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Re: Mountain Property - good retirement investment?
« Reply #26 on: April 09, 2016, 05:29:36 PM »
I lived in SF and bought a "mountain house" in La Honda - only 45 minutes from the city. I really needed to get away from all the noise and congestion, and the Santa Cruz mountains are beautiful.

I rented it out on Airbnb and made enough to cover my costs. (I bought the property for cash.) I paid $165k and sold it for $420k three years later (Jan. 2015.) I did do a lot of landscaping (I enjoy gardening) and cosmetic work on it.

It is just beautiful down there - San Gregorio, La Honda, Loma Mar, Pescadero. It was great to have a place to escape to - no airplane noise, empty beaches, redwood forests. Takes a lot of gas to get there though, if you're planning on going on a weekly basis.

I've since moved to Oregon, and have the best of both worlds.

clarkfan1979

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Re: Mountain Property - good retirement investment?
« Reply #27 on: April 14, 2016, 05:08:32 PM »
If you would like to do it, go for it. Just don't call it an investment.