Alternate retirement strategy?

[ua_guy]

Thanks for any advice in advance.

I'm going to be 30 this year and I'm putting about 17% of my pre-tax income into a traditional retirement savings 401k. I have no confidence in the future or stability of financial markets, so I'm starting to think that I should "diversify." The option that seems to fit best is buying a piece of property that I can pay off in the next 3-5 years. Based on an inquiry we placed with lenders, we could be approved for $100k no problem, and we do have a cash downpayment.

The goal would be to find a piece of property with natural features and acreage for an immediate-term cabin/vacation structure (likely dry, one or all utilities may be missing) with the potential to place a structure for our retirement years (vastly improved cabin w/ utilities). There are so many possibilities with this idea; and after some searching, and scouting some places, I want to be somewhere near a resort area. Obviously you can buy property just about anywhere, but I want to be in an area that favors recreation and vacation, versus trailer sprawl. I want my distant and unseen neighbors to also be vacationers--and not meth cooks.

Here's the deal: I'm in a nasty upside down mortgage on my current property in suburbia and I don't have a lot of assets as most of my money has gone to repairs, the mortgage, etc. I can't tell you the future of this property--at many points I've thought about strategically defaulting. My job keeps me here, so I haven't done anything. I just keep paying the mortgage and cautiously repairing and improving the place (it needs work).

This 2nd property would purely be a weekend deal as we get a structure in place. Everything about my home in suburbia would stay the same. I estimate total spend to be about $100k between the structure and property, and any improvements. Figuring a 5-year payoff, at the end of 5 years I'd effectively have a "plan b" and could begin contributing to my retirement savings in traditional means. In the future, it would exist as a vacation property and a cash asset, a "plan b" if one or both of us lost our jobs, or, as we've nearly worked ourselves to death in our early 30's and have almost nothing to show for it, we might decide that we want to drop out of life for a bit and travel. Considering that, an uncertain future of wealth here in America, at least we'd have a pot (or tree?) to piss on if everything went south, and a place to stay when we returned home. I have no desire to pay off my home in suburbia early--it's already $100k underwater, and it's a 50 year old structure that I'll be amazed if it's still standing in 27? years when our $0.5 million mortgage comes to term.

Is this crazy? Does anyone have any thoughts? Does this sound like a wise financial decision, or imminent disaster?

[riverwed070707]

Thanks for any advice in advance.

I'm going to be 30 this year and I'm putting about 17% of my pre-tax income into a traditional retirement savings 401k. I have no confidence in the future or stability of financial markets, so I'm starting to think that I should "diversify." The option that seems to fit best is buying a piece of property that I can pay off in the next 3-5 years. Based on an inquiry we placed with lenders, we could be approved for $100k no problem, and we do have a cash downpayment.

The goal would be to find a piece of property with natural features and acreage for an immediate-term cabin/vacation structure (likely dry, one or all utilities may be missing) with the potential to place a structure for our retirement years (vastly improved cabin w/ utilities). There are so many possibilities with this idea; and after some searching, and scouting some places, I want to be somewhere near a resort area. Obviously you can buy property just about anywhere, but I want to be in an area that favors recreation and vacation, versus trailer sprawl. I want my distant and unseen neighbors to also be vacationers--and not meth cooks.

Here's the deal: I'm in a nasty upside down mortgage on my current property in suburbia and I don't have a lot of assets as most of my money has gone to repairs, the mortgage, etc. I can't tell you the future of this property--at many points I've thought about strategically defaulting. My job keeps me here, so I haven't done anything. I just keep paying the mortgage and cautiously repairing and improving the place (it needs work).

This 2nd property would purely be a weekend deal as we get a structure in place. Everything about my home in suburbia would stay the same. I estimate total spend to be about $100k between the structure and property, and any improvements. Figuring a 5-year payoff, at the end of 5 years I'd effectively have a "plan b" and could begin contributing to my retirement savings in traditional means. In the future, it would exist as a vacation property and a cash asset, a "plan b" if one or both of us lost our jobs, or, as we've nearly worked ourselves to death in our early 30's and have almost nothing to show for it, we might decide that we want to drop out of life for a bit and travel. Considering that, an uncertain future of wealth here in America, at least we'd have a pot (or tree?) to piss on if everything went south, and a place to stay when we returned home. I have no desire to pay off my home in suburbia early--it's already $100k underwater, and it's a 50 year old structure that I'll be amazed if it's still standing in 27? years when our $0.5 million mortgage comes to term.

Is this crazy? Does anyone have any thoughts? Does this sound like a wise financial decision, or imminent disaster?

Imminent disaster.

I don't understand how a piece of property with a cabin can be a plan b if you lose your jobs, especially if things are already tight for you. I think it's all well and good to start saving for such a property that you can retire on, but I wouldn't give up a dime until the rest of my financial house was in order and I had money to blow. Until retirement or at least until you decide to make it a permenant residence its just going to be a money pit -- taxes, upkeep, etc. The money will work harder for you in an investment account. Also, I'd be pretty surprised if any financial institution gives you $100k to build a cabin with no utilites.

[disneysteve]

I agree with riverwed. How does building a cabin replace saving for retirement, especially if you plan to keep the place for yourself? Perhaps buying an investment property that you would rent out could serve as part of your retirement portfolio but not a property that you will personally live in.

Just because a lender said you'd get approved for a 100K loan doesn't mean you can actually afford a 100K loan. The lenders really don't care if you can afford it or not, so keep that in mind, too.

You say that you don't have a lot of assets and are upside down on your primary residence. I think buying a vacation home shouldn't even be on your radar right now. You have far bigger problems to fix first.

[ua_guy]

Imminent disaster.

I don't understand how a piece of property with a cabin can be a plan b if you lose your jobs, especially if things are already tight for you. I think it's all well and good to start saving for such a property that you can retire on, but I wouldn't give up a dime until the rest of my financial house was in order and I had money to blow. Until retirement or at least until you decide to make it a permenant residence its just going to be a money pit -- taxes, upkeep, etc. The money will work harder for you in an investment account. Also, I'd be pretty surprised if any financial institution gives you $100k to build a cabin with no utilites.

The purchase would be considered a land purchase in the $70k range. Probably put it on a 7-year loan, and then spend $20k-$30k of our own cash to put up a structure, with the idea of fully owning the place in under 5 years. I also think you under-estimate my willingness and openness to living off-grid. My partner and I do not have children nor do we intend to at this point.

I'm not sure I understand how my money can work any harder for me in an investment account right now, in fact, if anything, over the last couple of years, I would have been better off sticking it under a homeless person's pillow.

The idea is not to change anything about our current residence. Could we sink the same amount of money into it to pay it down? You bet, but it's not worth it, and if we lose our jobs, the bank takes it all, regardless of what we've put into paying down the mortgage.

[snafu]

My suggestion is to learn more about investing so that you can better monitor/make decisions/ control over your 401K. Retirement savings benefit from l-o-n-g term compounding. The equity [stock] markets run like a rollercoaster and we can benefit when the downward ride allows us to buy 'on sale.' Alternatively, when interest rate go down, Bonds go up in value, when interest rates rise, Bonds [inversely] go down in value.

While you may have naively bought into the bubble, I wonder why a home inspection failed to identify faults in that older construction. Did you buy that particular house as your residence or did you see it as an 'investment?" Are you eligible to refinance at a better rate? Would it be cost efficient to rent the house and move to an apartment? Have you sought expert advice on the consequences of default, walking away?

While your current employment holds you in your area now, where will you be at age 55? It is rare to remain with one employer for an entire career. Like others, I don't see the value in raw land for personal development for retirement. There are too many variables for someone your age. Investing in a REIT makes sense, easily bought and sold should plans change. Economy in Australia and Brazil are good just now...what about investing n something international? Just some thoughts to explore...

[Mr Nice Guy]

You can't afford one house so you want to buy two?

Horrible idea.

Especially if you plan on using your 401k as a downpayment. I don't think the penalty-free withdrawl implies to vacation homes or investment properties.

[jpg7n16]

This is how your post reads to me. I think you need to make up your mind on what you believe first.

I'm going to be 30 this year and I'm putting about 17% of my pre-tax income into a traditional retirement savings 401k. I have no confidence in the future or stability of financial markets, so I'm starting to think that I should "diversify." The option that seems to fit best is buying a piece of property that I can pay off in the next 3-5 years. Based on an inquiry we placed with lenders, we could be approved for $100k no problem, and we do have a cash downpayment.

"The economy sucks. Real estate is a great investment, and I have lots of extra money."

The goal would be to find a piece of property with natural features and acreage for an immediate-term cabin/vacation structure (likely dry, one or all utilities may be missing) with the potential to place a structure for our retirement years (vastly improved cabin w/ utilities). There are so many possibilities with this idea; and after some searching, and scouting some places, I want to be somewhere near a resort area. Obviously you can buy property just about anywhere, but I want to be in an area that favors recreation and vacation, versus trailer sprawl. I want my distant and unseen neighbors to also be vacationers--and not meth cooks.

"The economy for high priced luxuries is great and getting better. Real estate is a great investment."

Here's the deal: I'm in a nasty upside down mortgage on my current property in suburbia and I don't have a lot of assets as most of my money has gone to repairs, the mortgage, etc. I can't tell you the future of this property--at many points I've thought about strategically defaulting. My job keeps me here, so I haven't done anything. I just keep paying the mortgage and cautiously repairing and improving the place (it needs work).

"Real estate investing sucks and costs a lot of money. I don't have any extra money. I can't keep up with 1 property."

This 2nd property would purely be a weekend deal as we get a structure in place. Everything about my home in suburbia would stay the same. I estimate total spend to be about $100k between the structure and property, and any improvements. Figuring a 5-year payoff, at the end of 5 years I'd effectively have a "plan b" and could begin contributing to my retirement savings in traditional means. In the future, it would exist as a vacation property and a cash asset, a "plan b" if one or both of us lost our jobs, or, as we've nearly worked ourselves to death in our early 30's and have almost nothing to show for it, we might decide that we want to drop out of life for a bit and travel. Considering that, an uncertain future of wealth here in America, at least we'd have a pot (or tree?) to piss on if everything went south, and a place to stay when we returned home. I have no desire to pay off my home in suburbia early--it's already $100k underwater, and it's a 50 year old structure that I'll be amazed if it's still standing in 27? years when our $0.5 million mortgage comes to term.

"Real estate is great, I could keep up with 2 properties. I can pay off $100k in 5 years. The economy sucks. I can't pay off $100k. The long term outlook for real estate sucks."

Is this crazy?

Possibly bipolar.

[riverwed070707]

The purchase would be considered a land purchase in the $70k range. Probably put it on a 7-year loan, and then spend $20k-$30k of our own cash to put up a structure, with the idea of fully owning the place in under 5 years. I also think you under-estimate my willingness and openness to living off-grid. My partner and I do not have children nor do we intend to at this point.

I'm not sure I understand how my money can work any harder for me in an investment account right now, in fact, if anything, over the last couple of years, I would have been better off sticking it under a homeless person's pillow.

The idea is not to change anything about our current residence. Could we sink the same amount of money into it to pay it down? You bet, but it's not worth it, and if we lose our jobs, the bank takes it all, regardless of what we've put into paying down the mortgage.

All other flags aside, I speak from experience when I say banks don't just hand out land loans. The terms are stiff and the limits are low. NO ONE is going to finance land to put a cabin on unless you have collateral to put up against it (like a primary home) which from your post it sounds like you don't. If you default, the land isn't worth $70k to them and land is hard to sell. Too risky because people could start building and never finish, say their going to build and never start, etc.

If losing your job means you're going to lose your home, I suggest you start working on your efund. Additionally, losing you job could also mean losing your property if there is still a loan on it so I don't see how that fixes anything.

You sound discouraged by your situation and looking for a way to change directions. Can we help? Have you had a look at your whole financial picture lately to see where you might make some improvements toward reaching your future goals?

[bjl584]

The purchase would be considered a land purchase in the $70k range. Probably put it on a 7-year loan, and then spend $20k-$30k of our own cash to put up a structure, with the idea of fully owning the place in under 5 years. I also think you under-estimate my willingness and openness to living off-grid. My partner and I do not have children nor do we intend to at this point.

I'm not sure I understand how my money can work any harder for me in an investment account right now, in fact, if anything, over the last couple of years, I would have been better off sticking it under a homeless person's pillow.

The idea is not to change anything about our current residence. Could we sink the same amount of money into it to pay it down? You bet, but it's not worth it, and if we lose our jobs, the bank takes it all, regardless of what we've put into paying down the mortgage.

If your investments aren't working for you, then you are investing in the wrong things.

The strategy of building a cabin out in the woods and living off the grid like something from "Doomsday Prepers" is all well and good, but it sounds like you can't afford it. Itr takes considerable money to set up the infrastructure required to live off the grid. Solar panels, water pumps, woodburners, windmills, etc.

[97guns]

the ONLY way i would throw 70K at a property is if it can immediatly cash flow, if it does not cash flow for you its just gonna be another expense and will screw you. i am a huge proponent of rental real estate for retirement but i would stay away from any structure more than 30 years old, with this market newer houses are plentifull.

i worked with a guy that was underwater almost 200K, he applied for a loan and got into another house then defaulted on the inderwater property.

[BuckyBadger]

That is a terrible idea, for all the reasons already stated. A down market is an opportunity to get in for cheap, and a 401k is LONG term. Like 40 years. The last thing in the world that you want to be doing is becoming a long distance property owner.

I'm not sure I understand how my money can work any harder for me in an investment account right now, in fact, if anything, over the last couple of years, I would have been better off sticking it under a homeless person's pillow.

Two years on a 30+ year time frame should be nothing more than noise in your investments. Pour your money into a nice target date retirement fund, or start a lazy three fund portfolio and make sure that you assess and adjust your asset allocation as you draw closer to retirement age.

[ua_guy]

Hmm. Perhaps I've conveyed the wrong image.

I do have an emergency fund. I have extra cash. Good income. I've been saving for retirement, and at age 30, attempting to catch up where I didn't have much/any money to contribute when I was younger. I have some vehicle debt, but that all pays off within the next few years, and all the vehicles are currently well above-water and could be sold or jettisoned for some additional cash if the need presented itself.

I realize that a few years of a down market is a blip in an otherwise geological 401k timescale. Aside from doomsday theories, I do think the market could absolutely tank again and people can/will lose their shorts in traditional investments. Look at the pending trouble in Europe--I'm almost certain we will also realize their frustrations and troubles in some way. The big question is...will my 401k even exist in 40 years?

The fact is, I could put $150k into my current home just to bring it down to market value and also make the necessary repairs so it's a fully sale-able home to right myself financially, so I'm a shining example of an American with only manageable primary mortgage debt and nothing else. However, in business sense, that's about the dumbest idea ever because the house will never be WORTH that, and I could also never get out of the house if life suddenly changed, i.e. I have to move because of a job, etc. From a business sense, I should be running, not walking away from this property without dropping an additional penny into it. For other reasons, I'm not. The simple fact is that our current property (which we would still live in) is not worth, nor can we afford to, pay it off. The instability in the job market overall is still too great to seriously dump cash into it, only to potentially end up with absolutely nothing.

Real estate isn't necessarily a good "investment." Historically, it has been, but real estate is about either generating income (rental properties), or having a place to live. Also, now is a great time to buy since prices are relatively low. As noted- the goal isn't to switch to off-grid living. But a vacant piece of land, or land with an inconsequential structure would be a fun weekend getaway while the property exists as a future place to retire of build a structure to eventually live in.

The financial benefits are: A) having a paid off asset in the short term, B) Having a place to live temporarily, that cannot be taken by the bank, if things REALLY go south, and C) A temporary diversion of retirement funds that would generate a fully owned asset that could lay the framework for zero mortgage/land debt in our retirement years.

I'm still struggling with the idea as I'm not 100% sure accumulating additional debt, although temporarily, is the best idea, but it seems to be a better hedge strategy than going TU on my mortgage. While I don't care about the personal moral implications, it's not necessarily the right thing to do, given our economy. It certainly can't help. But, I do see that some of you on here are deathly afraid of carrying any debt at all, and while I appreciate the advice, I think that might be hurting your own situations more than it could help mine. We only go around once--so there's something to be said about taking some risk. Otherwise, get busy dying?

[BuckyBadger]

...Having a place to live temporarily, that cannot be taken by the bank, if things REALLY go south, and C) A temporary diversion of retirement funds that would generate a fully owned asset that could lay the framework for zero mortgage/land debt in our retirement years...

It's an asset. If things REALLY go south, I'm sure it can be seized like anything else you own.

*POOF*, it's gone.

[97guns]

Hmm. Perhaps I've conveyed the wrong image.

I do have an emergency fund. I have extra cash. Good income. I've been saving for retirement, and at age 30, attempting to catch up where I didn't have much/any money to contribute when I was younger. I have some vehicle debt, but that all pays off within the next few years, and all the vehicles are currently well above-water and could be sold or jettisoned for some additional cash if the need presented itself.

I realize that a few years of a down market is a blip in an otherwise geological 401k timescale. Aside from doomsday theories, I do think the market could absolutely tank again and people can/will lose their shorts in traditional investments. Look at the pending trouble in Europe--I'm almost certain we will also realize their frustrations and troubles in some way. The big question is...will my 401k even exist in 40 years?

The fact is, I could put $150k into my current home just to bring it down to market value and also make the necessary repairs so it's a fully sale-able home to right myself financially, so I'm a shining example of an American with only manageable primary mortgage debt and nothing else. However, in business sense, that's about the dumbest idea ever because the house will never be WORTH that, and I could also never get out of the house if life suddenly changed, i.e. I have to move because of a job, etc. From a business sense, I should be running, not walking away from this property without dropping an additional penny into it. For other reasons, I'm not. The simple fact is that our current property (which we would still live in) is not worth, nor can we afford to, pay it off. The instability in the job market overall is still too great to seriously dump cash into it, only to potentially end up with absolutely nothing.

Real estate isn't necessarily a good "investment." Historically, it has been, but real estate is about either generating income (rental properties), or having a place to live. Also, now is a great time to buy since prices are relatively low. As noted- the goal isn't to switch to off-grid living. But a vacant piece of land, or land with an inconsequential structure would be a fun weekend getaway while the property exists as a future place to retire of build a structure to eventually live in.

The financial benefits are: A) having a paid off asset in the short term, B) Having a place to live temporarily, that cannot be taken by the bank, if things REALLY go south, and C) A temporary diversion of retirement funds that would generate a fully owned asset that could lay the framework for zero mortgage/land debt in our retirement years.

I'm still struggling with the idea as I'm not 100% sure accumulating additional debt, although temporarily, is the best idea, but it seems to be a better hedge strategy than going TU on my mortgage. While I don't care about the personal moral implications, it's not necessarily the right thing to do, given our economy. It certainly can't help. But, I do see that some of you on here are deathly afraid of carrying any debt at all, and while I appreciate the advice, I think that might be hurting your own situations more than it could help mine. We only go around once--so there's something to be said about taking some risk. Otherwise, get busy dying?

going into debt for cash flowing real estate is leveraged debt and in my book that is good debt. anytime you can get the customer to pay the rent(mortgage and other expenses) and pocket the difference its a no loose situation.

i retired 3 years ago by moving everything i had into RE, my sole source of income is and will always be real estate. if it were not for RE i would still be working 9-5, contributing to the 401K and hoping i will retire in another 20. every investment out there is a risk and you have to take the calculated risks to give yourself the opportunity to hit something big.

since 2009 ive made 12-15% return on my money and am 60K away from doubling up my net worth in that short time by applying all rents to precious metals.

its working great for me and i wont be changing anything anytime soon, my entire portfolio has never done better in a 3 year period.

[greenskeeper]

I agree with the markets aren't what they used to be.

I am putting more of my savings into paying off my house ASAP (I can live a lot cheaper with no mortgage payment) as well as investing in physical gold/silver.

I still put some towards the old 401k, but not nearly as much.