2nd/Retirement home

[KellyB]

Anyone have advice/experience with having 2 homes? Need to talk through a big upcoming decision.

My spouse and I are 54 and 52, and planning to retire in 10 years. Our current home has $80K left on the mortgage at 3.75% with 7 years left, only other debt is $19K at 0% with 4 years left.

We have decided to retire to a beach community about 1.5 hours from our current home, where we have vacationed frequently and some friends/family already have properties. We found a condo that is 1 floor and unit that we'd be able to live in even as years advance. The community has 22 condo buildings, all are built except the last one, where we will have our unit.

If we choose to buy, we will put down $20K this year, and condo will take about 18-24 months construction, giving us an additional 2 years to save/get closer to retirement. When we take ownership, we will be about 8 years from retirement and 5 years from House payoff. So we will be carrying 2 mortgages for 5 years. Condo mortgage will be $250K after the additional downpayment.

I've already worked the monthly expected expenses into our current budget and will save a years worth upfront for a condo emergency fund. My plan is to pay for the monthly expenses with our cash flow, and pay the mortgage out of investment savings. Our net worth is $1.5m now, with $150K being non-retirement that we could tap for downpayment, expenses, mortgage, etc. if/when needed. We may also be able to defray some costs by renting out the condo during summers, but I am not counting that into my financials at this time.

I think this is do-able, but I've never had 2 mortgages at once, and I've been focused on paying down/off my current mortgage, so taking on more "debt" (even though it will also be an asset) feels a little strange. However, the reason we don't want to wait the 10 years is we feel the condos will go up in price faster than our current home, making it somewhat unreachable to buy the same place in 10 years. At retirement we would sell our current home probably for $250K and pay off the condo.

Should I take a deep breath and make the plunge? I'd appreciate some thoughts/advice, especially from those who have had 2 mortgages.

[lorraineb]

Will you be renting out this condo when you aren't using it in those years? Is the reason that you are buying now because you don't think the place will be available in 5 years, or do you think it will appreciate substantially during that time? How much will you be using it as a vacation home?

[HappySaver]

How much will it cost you annually to own the condo? Not including mortgage principle, since that is investment money, but including mortgage interest (after tax deduction), taxes, insurance, HOA fees, utilities, cable/phone, and other maintenance.

How does that number compare with the amount of money you already spend on hotel/rental while vacationing there? You can subtract that as well, since you'll be spending it anyway.

How does that final amount seem to you? Reasonable? If you multiply it by 8, that is how much money above and beyond the condo price you are spending to buy "now" versus when you retire. Do you think prices will go up by that much in 10 years? Not that anyone can predict the future.

[snafu]

Are you and DH in good health with a modest history of ailments? Do you have a family history of serious illness which have a genetic component? Does the condo come outfitted with furniture, set up by a decorator? How will the condo be used/managed during the next 10 years before you are ready to retire full time? While vacationing in the area are you comfortable in smaller square footage? What is the size of your home compared to the condo? Are the shops and services you use regularly available in this new build?

While we're not near retirement, we downsized from house to condo about 6 years ago to facilitate our desire to work in foreign countries. It's mostly terrific but there are times when size matters. I bought an old build because the services I use the most are not convenient at new build - 6 years into condo living. I'd pay careful attention to security on a main floor.

Will you be re-using items from your existing home? What will you do with all the stuff in your current home? In 10 years will you have the motivation and patience to divest yourself of all the stuff in every cupboard, cabinet shelf etc?

[Retired To Win]

We had 2 mortgages for the same reason you are thinking of assuming a second one. Our second home was 350 miles away from our main one, so you are in a much better logistical position. Even being further away, though, we had no problems.

Lenders did not blink an eye when we applied for a second-home mortgage. And, in case you did not know, the interest and taxes on the second home can also qualify as itemized deductions for federal tax purposes.

You've already done what we should have done: vacationed/visited the area first before buying. We did not and became disillusioned. Thankfully, we were able to sell off that second property at a profit.

Good luck!

[feh]

I would wait to buy the new place until you actually retire. It doesn't make sense to me to have 2 mortgages.

[JoeP]

If you're ok incurring new debt now because you speculate condo prices may go up, then that's really a call for you to make.

[autoxer]

I've already worked the monthly expected expenses into our current budget and will save a years worth upfront for a condo emergency fund. My plan is to pay for the monthly expenses with our cash flow, and pay the mortgage out of investment savings. Our net worth is $1.5m now, with $150K being non-retirement that we could tap for downpayment, expenses, mortgage, etc. if/when needed. We may also be able to defray some costs by renting out the condo during summers, but I am not counting that into my financials at this time.

Have you projected your retirement spending? How much you plan to spend each year in retirement and how large your nest egg needs to be to provide that? And how will carrying two mortgages affect your ability to save towards retirement?

One thing about the speculation. If you carry a $250k, 30 year mortgage @ 4% interest for 10 years, you will spend ~$90k in interest. On top of that is more property tax, more insurance and more utility bills than if you only owned one home. Add these extra costs to the current purchase price and compare that to what it might cost to buy the same condo in 10 years. Would it still make sense to buy now?

[KellyB]

Response

Thanks all for your comments, lots to think about.

Will you be renting out this condo when you aren't using it in those years? Is the reason that you are buying now because you don't think the place will be available in 5 years, or do you think it will appreciate substantially during that time? How much will you be using it as a vacation home?

Probably will not rent it, it is an option if needed. Thinking of buying now as our current house will not appreciate at the rate the condo will (we think) due to the condo being a beach community.

Have you projected your retirement spending? How much you plan to spend each year in retirement and how large your nest egg needs to be to provide that? And how will carrying two mortgages affect your ability to save towards retirement?

Yes, retirement spending looks ok. Need to run the numbers of how the added mortgage will affect the numbers, thanks for that thought.

Snafu - good health now, although I am diabetic so future health could be an issue. One floor living, though on 2nd floor (elevator access). We will furnish condo ourselves, will have to buy new mostly, and I counted that $$ into the $350K outlay. Eventually sell/give away current home items that don't fit in condo space. Security not an issue. Size should be good, may only be an issue in later years when our kids have kids and everyone wants to stay at the same time. Shops/services should be fine. Condo will only need management if we decide to rent it, and we'd use professional property management probably.

[KellyB]

Have you projected your retirement spending? How much you plan to spend each year in retirement and how large your nest egg needs to be to provide that? And how will carrying two mortgages affect your ability to save towards retirement?

One thing about the speculation. If you carry a $250k, 30 year mortgage @ 4% interest for 10 years, you will spend ~$90k in interest. On top of that is more property tax, more insurance and more utility bills than if you only owned one home. Add these extra costs to the current purchase price and compare that to what it might cost to buy the same condo in 10 years. Would it still make sense to buy now?

Hmmm, this is definitely something to think about. More numbers to run! Thanks...