Personal Finance Advice and Education! (4 Viewers)

[-OZ-]

Alright, so we're currently having a friendly disagreement. 

Sometime in the next year we'll have enough saved up, and I'll be making enough to easily pay the mortgage, for a lake house about an hour north of us. Wife is totally on board with buying a place on the lake, I'm a bit cautious with the maintenance (a little less with the money). My pension would cover both mortgages, plus my job is going well. 

For those who own cottages or second homes, what have you learned? Would you buy again? Wait until your home is totally paid off? 

We enjoy shopping at thrift stores and estate sales for furniture, most likely furnishing it won't be terribly expensive. We'll allow our family to visit and add furniture, we completely trust them and frankly my FIL and BIL are better at fixing stuff than I am. We won't ask them for money but if they want to do some work on it, I'm all for it. This will be on a lake with a deck, so I'm hoping my FIL will dock his boat there. 

I think I want to rent it out, Airbnb or VRBO, no idea how much that would net but all I'd want is enough for maintenance and improvements. 

The house we'd be looking for will probably be around $600k, which is almost double our full time home and put us at around $1 million in real estate. 

Any thoughts? Lessons learned? 

 

[Chadstroma]

Alright, so we're currently having a friendly disagreement. 

Sometime in the next year we'll have enough saved up, and I'll be making enough to easily pay the mortgage, for a lake house about an hour north of us. Wife is totally on board with buying a place on the lake, I'm a bit cautious with the maintenance (a little less with the money). My pension would cover both mortgages, plus my job is going well. 

For those who own cottages or second homes, what have you learned? Would you buy again? Wait until your home is totally paid off? 

We enjoy shopping at thrift stores and estate sales for furniture, most likely furnishing it won't be terribly expensive. We'll allow our family to visit and add furniture, we completely trust them and frankly my FIL and BIL are better at fixing stuff than I am. We won't ask them for money but if they want to do some work on it, I'm all for it. This will be on a lake with a deck, so I'm hoping my FIL will dock his boat there. 

I think I want to rent it out, Airbnb or VRBO, no idea how much that would net but all I'd want is enough for maintenance and improvements. 

The house we'd be looking for will probably be around $600k, which is almost double our full time home and put us at around $1 million in real estate. 

Any thoughts? Lessons learned? 

9 out 10 if not more people that I have ever talked to that have done something like this wished they had not. However, maybe the whole Airbnb stuff changes things?

 

[Binky The Doormat]

9 out 10 if not more people that I have ever talked to that have done something like this wished they had not. However, maybe the whole Airbnb stuff changes things?

Same thing here - we haven't considered it based on the handful of people we have known that did it ...and regretted it.  

 

[-OZ-]

Same thing here - we haven't considered it based on the handful of people we have known that did it ...and regretted it.  

Regret the cabin or doing airbnb? 

 

[ghostguy123]

I was just talking to a coworker of mine who wants to buy a vacation home.

I was like "why don't you just use that money and go on vacation to different spots or even similar spots without all the hassle and headache"?

Just a blank stare.

 

[pecorino]

Alright, so we're currently having a friendly disagreement. 

Sometime in the next year we'll have enough saved up, and I'll be making enough to easily pay the mortgage, for a lake house about an hour north of us. Wife is totally on board with buying a place on the lake, I'm a bit cautious with the maintenance (a little less with the money). My pension would cover both mortgages, plus my job is going well. 

For those who own cottages or second homes, what have you learned? Would you buy again? Wait until your home is totally paid off? 

We enjoy shopping at thrift stores and estate sales for furniture, most likely furnishing it won't be terribly expensive. We'll allow our family to visit and add furniture, we completely trust them and frankly my FIL and BIL are better at fixing stuff than I am. We won't ask them for money but if they want to do some work on it, I'm all for it. This will be on a lake with a deck, so I'm hoping my FIL will dock his boat there. 

I think I want to rent it out, Airbnb or VRBO, no idea how much that would net but all I'd want is enough for maintenance and improvements. 

The house we'd be looking for will probably be around $600k, which is almost double our full time home and put us at around $1 million in real estate. 

Any thoughts? Lessons learned? 

Wife and I bought a house in Florida a couple years after the housing crash and it was the best financial decision we’ve ever made. It had been listed at 220K before 2008 but we got it for 89K. We have used it about four months total in the past 7 years because it is otherwise rented. The rent covers all expenses (we have a mortgage on it and insurance is a bear.) it will be paid off in about another 7 years, when my daughter will be ten. We plan to use it as a vacation house then and eventually be snow birds in retirement. Could also sell it if we need capital—it is worth about 190K now

Despite our glowingly positive experience, I hesitate in your case because of that enormous number, 600K. I just wouldn’t want that debt hanging over my head, and the taxes and insurance could also feel like a gut punch.

 

[-OZ-]

Wife and I bought a house in Florida a couple years after the housing crash and it was the best financial decision we’ve ever made. It had been listed at 220K before 2008 but we got it for 89K. We have used it about four months total in the past 7 years because it is otherwise rented. The rent covers all expenses (we have a mortgage on it and insurance is a bear.) it will be paid off in about another 7 years, when my daughter will be ten. We plan to use it as a vacation house then and eventually be snow birds in retirement. Could also sell it if we need capital—it is worth about 190K now

Despite our glowingly positive experience, I hesitate in your case because of that enormous number, 600K. I just wouldn’t want that debt hanging over my head, and the taxes and insurance could also feel like a gut punch.

Good points. The taxes and other costs would be significant.

 

[-OZ-]

I was just talking to a coworker of mine who wants to buy a vacation home.

I was like "why don't you just use that money and go on vacation to different spots or even similar spots without all the hassle and headache"?

Just a blank stare.

Agreed to a point, I think you said the same to me a while back. 

Right now it has everything to do with the kids. Traveling to different locations with 5 young ones isn't fun. Going to a house and area we know is more relaxing. 

But they do grow up. 

In her mind, we'd be there every other weekend, spend a week once in a while and she'd take the kids some over the summer while I'd work. I'm skeptical about that actually working. 

So while I share her romantic notions of having a getaway place, I'm looking at the work that goes into it and how little time we seem to have right now.

She grew up going to her grandparents house on a lake in New York (beautiful area upstate), I grew up going to our friends cottage most weekends, mowing the yard and doing other chores, helping them out, before we got to have fun. 

 

[guru_007]

Agreed to a point, I think you said the same to me a while back. 

Right now it has everything to do with the kids. Traveling to different locations with 5 young ones isn't fun. Going to a house and area we know is more relaxing. 

But they do grow up. 

In her mind, we'd be there every other weekend, spend a week once in a while and she'd take the kids some over the summer while I'd work. I'm skeptical about that actually working. 

So while I share her romantic notions of having a getaway place, I'm looking at the work that goes into it and how little time we seem to have right now.

Me and my wife were in a similar situation a few years back.  We wanted a lake house, within a few hours drive, where the whole family could hang out for a long weekend together.  Cost was not an issue.  We spent a number of months looking at different lakes in the area, renting out houses/cabins/camping out to see if we could settle on at the very least a lake to start house hunting.

The searching was the fun part.  In the end, we decided not to pull the trigger for a number of reasons which I'll try to detail.  

-We couldn't figure out just how often we would be able to make use of the lake house. Kids have activities, tournaments, getaways nearly every single nice weekend during the school year.  And in the summer, the older kids work quite a bit.  We thought we would be lucky to get there 5-6x per year :X

-We thought about the VRBO route for the other weeks, but my wife wasn't down with other people shuffling through our stuff, as well as other costs such as upkeep, cleaning, etc...

-Although the mortgage wouldn't be a problem, I didn't think the real estate appreciation would much cover the costs over the next 15 years as you need to factor in insurance, maintenance, etc...  I mean our AC just went out here last year and it was a 9k hit, but just a bump in the road really.  If the roof went at the lake house the following year, well, double maintenance costs could really hurt your cash flows.

-Lastly, we have our hearts set on early retirements.  Taking on another mortgage, even one we could easily take on, would be money we would not be able to save/filter to our brokerage account to grow cash (crossing fingers) so that we could bridge the time we retire until the time we can tap into things like SS, medicare, and 401k's/IRA's.  I mean, the choice was basically put 25-40k/year away to invest in stocks/bonds or a mortgage on a lake house which hopefully would appreciate a bit.

So, in the end, we just factored in getting away to a lake house a few times per year renting someone else's lake house via homeaway, VRBO, etc... and invest the rest.  That way we still get the lake house mini-family vacation without having the responsibility of owning a second home.  

All that being said, I do believe if we were better off financially a bit younger (Say late 20's, early 30's as opposed to mid-late 30's) we would have probably pulled the trigger on a second home.  I think we became more skittish/conservative when we saw that we could still travel/vacation a bit and retire within 10-15 years, rather than retirement as a 25-30 year timeline.  

 

[-OZ-]

Me and my wife were in a similar situation a few years back.  We wanted a lake house, within a few hours drive, where the whole family could hang out for a long weekend together.  Cost was not an issue.  We spent a number of months looking at different lakes in the area, renting out houses/cabins/camping out to see if we could settle on at the very least a lake to start house hunting.

The searching was the fun part.  In the end, we decided not to pull the trigger for a number of reasons which I'll try to detail.  

-We couldn't figure out just how often we would be able to make use of the lake house. Kids have activities, tournaments, getaways nearly every single nice weekend during the school year.  And in the summer, the older kids work quite a bit.  We thought we would be lucky to get there 5-6x per year :X

-We thought about the VRBO route for the other weeks, but my wife wasn't down with other people shuffling through our stuff, as well as other costs such as upkeep, cleaning, etc...

-Although the mortgage wouldn't be a problem, I didn't think the real estate appreciation would much cover the costs over the next 15 years as you need to factor in insurance, maintenance, etc...  I mean our AC just went out here last year and it was a 9k hit, but just a bump in the road really.  If the roof went at the lake house the following year, well, double maintenance costs could really hurt your cash flows.

-Lastly, we have our hearts set on early retirements.  Taking on another mortgage, even one we could easily take on, would be money we would not be able to save/filter to our brokerage account to grow cash (crossing fingers) so that we could bridge the time we retire until the time we can tap into things like SS, medicare, and 401k's/IRA's.  I mean, the choice was basically put 25-40k/year away to invest in stocks/bonds or a mortgage on a lake house which hopefully would appreciate a bit.

So, in the end, we just factored in getting away to a lake house a few times per year renting someone else's lake house via homeaway, VRBO, etc... and invest the rest.  That way we still get the lake house mini-family vacation without having the responsibility of owning a second home.  

All that being said, I do believe if we were better off financially a bit younger (Say late 20's, early 30's as opposed to mid-late 30's) we would have probably pulled the trigger on a second home.  I think we became more skittish/conservative when we saw that we could still travel/vacation a bit and retire within 10-15 years, rather than retirement as a 25-30 year timeline.  

That's very similar to where I think we're at, except the early retirement. I have no plans to fully retire until I'm 62, 20 years with the federal government as a civilian. Not that we couldn't afford to, but I enjoy the job and I have a hard time seeing us passing on one of the best benefits of federal service, a pension of more than $30k (in today's dollars). 

I think we'll just need to nail down our real priorities. We also want to travel more, including intentionally but that's after the kids are older. 

There's a very big part of me that says just pay off our home, then use that mortgage money plus whatever, to travel more. Even with the 5 kids.

 

[Bull Dozier]

Wait, are people saying that 9 out of 10 people they know regret their vacation home, cabin, or second home on a lake?  This may be a regional thing, but this is a regular thing in MN.  I know several people with cabins "up north" and I don't know any of them who regret having it.  Sure, there are occasional grumbles about having to open it up in the spring, or pull the dock in in the fall, but generally all that I know love having it, and as the families get older, they become shared and people love to have as much time there as they can.

It's probably a personal taste thing.

If we're talking about buying a second home to maintain and rent out for years before you can move in to it, then that may be a different animal.

 

[Buckna]

Wait, are people saying that 9 out of 10 people they know regret their vacation home, cabin, or second home on a lake?  This may be a regional thing, but this is a regular thing in MN.  I know several people with cabins "up north" and I don't know any of them who regret having it.  Sure, there are occasional grumbles about having to open it up in the spring, or pull the dock in in the fall, but generally all that I know love having it, and as the families get older, they become shared and people love to have as much time there as they can.

It's probably a personal taste thing.

If we're talking about buying a second home to maintain and rent out for years before you can move in to it, then that may be a different animal.

Yeah, I'm in Colorado, having ski properties or a small place in the mountains is pretty common (among those that can afford it... so your average FBG.) My own wife has mentioned this to me from time to time so I figure if I can hold out 10 years or more before we buy one I won't mind the expense by then. Now I don't know how common the people are that live here and also own a beach house all the way in Florida and regret that beach house for example.

 

[ghostguy123]

Wait, are people saying that 9 out of 10 people they know regret their vacation home, cabin, or second home on a lake?  This may be a regional thing, but this is a regular thing in MN.  I know several people with cabins "up north" and I don't know any of them who regret having it.  Sure, there are occasional grumbles about having to open it up in the spring, or pull the dock in in the fall, but generally all that I know love having it, and as the families get older, they become shared and people love to have as much time there as they can.

It's probably a personal taste thing.

If we're talking about buying a second home to maintain and rent out for years before you can move in to it, then that may be a different animal.

They probably mean it doesnt make FINANCIAL sense.  Not when you can use VRBO and get kickass places for like 2 grand a week, not to mention you arent limited to the exact same location/house every time.

That seems to obviously beat the hell out of a 600k vacation home.

 

[Aaron Rudnicki]

Wait, are people saying that 9 out of 10 people they know regret their vacation home, cabin, or second home on a lake?

yeah, that statement didn't make much sense. need @Chadstroma to clarify.

 

[Buckna]

They probably mean it doesnt make FINANCIAL sense.  Not when you can use VRBO and get kickass places for like 2 grand a week, not to mention you arent limited to the exact same location/house every time.

That seems to obviously beat the hell out of a 600k vacation home.

Even then I think this is going to be pretty situation specific. A 600K vacation home on some random lake that you rarely can rent out? Sure, that might be a labor of love as opposed to a financial money maker. A condo in Vail on the other hand...

But I don't think most people buy second homes/vacation homes thinking that they'll use it every major holiday and 25% of available weekends and rent it out the rest of the time and it will pay for itself. Or at least I hope they don't think that... Now that I think about it though, that may be just the kind of people Chadstroma was referring too. (Reminds me of my wife the first time she brought the idea up and I had to explain to her the reality of the numbers.)

 

[Grahamburn]

My family loves our beach condo and we use it every chance we get.  Headed there the weekend before the 4th of July actually.  When it isn't in use by us it is typically being rented through VRBO.  It pays for itself every year and even makes money some years.  If you're willing to rent it out and you're going to use it there's no reason not to purchase a vacation home.

In @-OZ- situation it seems like an earlier retirement isn't something that moves the needle so it definitely makes a lot of sense.  It also sounds like the purchase of the home wouldn't preclude his family from enjoying other vacations as well.

 

[-OZ-]

My family loves our beach condo and we use it every chance we get.  Headed there the weekend before the 4th of July actually.  When it isn't in use by us it is typically being rented through VRBO.  It pays for itself every year and even makes money some years.  If you're willing to rent it out and you're going to use it there's no reason not to purchase a vacation home.

In @-OZ- situation it seems like an earlier retirement isn't something that moves the needle so it definitely makes a lot of sense.  It also sounds like the purchase of the home wouldn't preclude his family from enjoying other vacations as well.

The main difference is the loss of the roughly $30,000 in mortgage and whatever in maintenance each year that wouldn't go into retirement investments. We can't put all of that into tax benefited accounts anyway. 

The beach condo sounds like a great idea too...

 

[NeverEnough]

Even then I think this is going to be pretty situation specific. A 600K vacation home on some random lake that you rarely can rent out? Sure, that might be a labor of love as opposed to a financial money maker. A condo in Vail on the other hand...

But I don't think most people buy second homes/vacation homes thinking that they'll use it every major holiday and 25% of available weekends and rent it out the rest of the time and it will pay for itself. Or at least I hope they don't think that... Now that I think about it though, that may be just the kind of people Chadstroma was referring too. (Reminds me of my wife the first time she brought the idea up and I had to explain to her the reality of the numbers.)

Most people can't afford a home to live in, or the one they already own, forget about adding a vacation home.

I recently gave up on house shopping due to the #### market for buyers. Is the market in FL just as bad? Maybe I should just buy a cheap home there to rent out. I have friends that live in SOuth Fl so I have some help if need be.

 

[Grahamburn]

The main difference is the loss of the roughly $30,000 in mortgage and whatever in maintenance each year that wouldn't go into retirement investments. We can't put all of that into tax benefited accounts anyway. My expected promotions will cover that in the next two years, so we'd roughly be where we are now but with the vacation home. 

Depending on the area you may be able to break even with the rental income.  For a $600k home on a lake you can probably charge between $2k-$3k a week depending on the location of course?  You'd make up the $30k fairly easily if you're active about renting it. 

Another cool thing we've been able to do with ours is trade it for a stay at another VRBO member's home for a stay in ours.  We've been to Breckenridge, Wisconsin, a house boat in Minnesota, etc.  This has become a little more difficult in recent years with VRBO though as they have nuked direct access to the owner.  There are always work arounds though of course.

 

[-OZ-]

Depending on the area you may be able to break even with the rental income.  For a $600k home on a lake you can probably charge between $2k-$3k a week depending on the location of course?  You'd make up the $30k fairly easily if you're active about renting it. 

Another cool thing we've been able to do with ours is trade it for a stay at another VRBO member's home for a stay in ours.  We've been to Breckenridge, Wisconsin, a house boat in Minnesota, etc.  This has become a little more difficult in recent years with VRBO though as they have nuked direct access to the owner.  There are always work arounds though of course.

We'll need to check occupancy rates but similar places in the area go between $400-$700 per night. Sometimes you can find them for $200. 

It's certainly not Myrtle Beach or Hilton Head, but the town and area are well known / recognized.

 

[Binky The Doormat]

Regret the cabin or doing airbnb? 

sorry - regret buying a vacation home and attempting to defer some of the costs with renting it out.  It became a giant hassle for them and not worth it.  They all have sold and rent someplace themselves when they vacation.  

Not saying it can't work, it just didn't work for the people I know.  

 

[Chadstroma]

yeah, that statement didn't make much sense. need @Chadstroma to clarify.

The vast majority of people that I have talked to that bought vacation homes were negative on that decision. There were some who loved it. I think it comes down to how they thought they would use it vs how they actually used it. Those who were right about how much they used it seemed to be the ones that liked it. Most seemed to think they would use it more than they did and regretted buying.

 

[-OZ-]

The vast majority of people that I have talked to that bought vacation homes were negative on that decision. There were some who loved it. I think it comes down to how they thought they would use it vs how they actually used it. Those who were right about how much they used it seemed to be the ones that liked it. Most seemed to think they would use it more than they did and regretted buying.

So basically, set reasonable expectations. Which is good advice for most aspects of life. 

 

[fred_1_15301]

Apologies if this has already been covered in this thread.  What are people’s thoughts on investing in AXA Structured Capital Strategies Annuity?  It appears to be an insurance on your investment where you’re locked into an investment option (eg S&P 500) for 6 years.  The maximum annual rate of return is around 11% but it protects you from the first 10% loss each year.  So if at the end of year 1 the market (S&P 500) is up 15%, I’m only up 11%.  However, if the market is down 9%, I’m down nothing.  There are no other fees or costs associated with the investment.

 I’m 40 so still have quite a few years left before retirement.  Thus, I’m not very concerned with short term market volatility.  Being locked in for 6 years doesn’t matter to me because I don’t plan on touching that money for many years.

  Thoughts?

 

[Charlie Harper]

I was just talking to a coworker of mine who wants to buy a vacation home.

I was like "why don't you just use that money and go on vacation to different spots or even similar spots without all the hassle and headache"?

Just a blank stare.

That's pretty much my viewpoint....and the reason why I don't understand time shares.

 

[BigJim®]

Wait, are people saying that 9 out of 10 people they know regret their vacation home, cabin, or second home on a lake?  This may be a regional thing, but this is a regular thing in MN.  I know several people with cabins "up north" and I don't know any of them who regret having it.  Sure, there are occasional grumbles about having to open it up in the spring, or pull the dock in in the fall, but generally all that I know love having it, and as the families get older, they become shared and people love to have as much time there as they can.

It's probably a personal taste thing.

If we're talking about buying a second home to maintain and rent out for years before you can move in to it, then that may be a different animal.

My family has owned a cabin 'up north' for 30 years and it was the staple that brought the kids (me and my sibs) together for family time even after we moved away from home, went to college, got married, etc. Now that my parents have passed, we're the next generation raising our own kids to enjoy time there. The 9 out of 10 figure has to be a made up stat. Since this is in a personal finance thread, I'll also mention lake property is always in demand. It was recession proof here in Minnesota. Last year we upgraded to a 5-acre family compound up the shore from our prior one, and turned my parents' $44K investment into $269K with virtually zero property improvements. Also notably, unlike the rest of the estate we inherited which became taxable income after basis, we benefited tremendously from a stepped up basis inheriting the cabin property. It made me wonder why estate planners don't put more money into real estate investments vs asset accounts.

 

[GoBirds]

Me and my wife were in a similar situation a few years back.  We wanted a lake house, within a few hours drive, where the whole family could hang out for a long weekend together.  Cost was not an issue.  We spent a number of months looking at different lakes in the area, renting out houses/cabins/camping out to see if we could settle on at the very least a lake to start house hunting.

The searching was the fun part.  In the end, we decided not to pull the trigger for a number of reasons which I'll try to detail.  

-We couldn't figure out just how often we would be able to make use of the lake house. Kids have activities, tournaments, getaways nearly every single nice weekend during the school year.  And in the summer, the older kids work quite a bit.  We thought we would be lucky to get there 5-6x per year :X

-We thought about the VRBO route for the other weeks, but my wife wasn't down with other people shuffling through our stuff, as well as other costs such as upkeep, cleaning, etc...

-Although the mortgage wouldn't be a problem, I didn't think the real estate appreciation would much cover the costs over the next 15 years as you need to factor in insurance, maintenance, etc...  I mean our AC just went out here last year and it was a 9k hit, but just a bump in the road really.  If the roof went at the lake house the following year, well, double maintenance costs could really hurt your cash flows.

-Lastly, we have our hearts set on early retirements.  Taking on another mortgage, even one we could easily take on, would be money we would not be able to save/filter to our brokerage account to grow cash (crossing fingers) so that we could bridge the time we retire until the time we can tap into things like SS, medicare, and 401k's/IRA's.  I mean, the choice was basically put 25-40k/year away to invest in stocks/bonds or a mortgage on a lake house which hopefully would appreciate a bit.

So, in the end, we just factored in getting away to a lake house a few times per year renting someone else's lake house via homeaway, VRBO, etc... and invest the rest.  That way we still get the lake house mini-family vacation without having the responsibility of owning a second home.  

All that being said, I do believe if we were better off financially a bit younger (Say late 20's, early 30's as opposed to mid-late 30's) we would have probably pulled the trigger on a second home.  I think we became more skittish/conservative when we saw that we could still travel/vacation a bit and retire within 10-15 years, rather than retirement as a 25-30 year timeline.  

We are on the fence now considering building on a lot we have paid off. It's less than an hour away and we would probably only mortgage 1/3 the value of the property and can afford it. It's just so tough to pull the trigger when you know the numbers don't work compared to investing. Telling myself though it's more for the family moments you csn never get back as our kids are 7 and 4. 

 

[fred_1_15301]

Apologies if this has already been covered in this thread.  What are people’s thoughts on investing in AXA Structured Capital Strategies Annuity?  It appears to be an insurance on your investment where you’re locked into an investment option (eg S&P 500) for 6 years.  The maximum annual rate of return is around 11% but it protects you from the first 10% loss each year.  So if at the end of year 1 the market (S&P 500) is up 15%, I’m only up 11%.  However, if the market is down 9%, I’m down nothing.  There are no other fees or costs associated with the investment.

 I’m 40 so still have quite a few years left before retirement.  Thus, I’m not very concerned with short term market volatility.  Being locked in for 6 years doesn’t matter to me because I don’t plan on touching that money for many years.

Thoughts?

Apparently withdrawals are taxed as ordinary income and not long term capital gains so that may make my decision easy.  

 

[Judge Smails]

Most of my friends who have bought vacation homes simply don’t use it enough after the first year when it’s shiny. That’s their regret

 

[-OZ-]

We are on the fence now considering building on a lot we have paid off. It's less than an hour away and we would probably only mortgage 1/3 the value of the property and can afford it. It's just so tough to pull the trigger when you know the numbers don't work compared to investing. Telling myself though it's more for the family moments you csn never get back as our kids are 7 and 4. 

Yep. But we'd still be investing. There comes a point when the extra money you'd be investing isn't as important as the memories.

 

[-OZ-]

I'm realizing I have to get out of the Dave Ramsey / FPU stuff. 

I've enjoyed facilitating the classes and I do believe his system is very good for those who are in bad shape financially. 

But the one size fits all concept is overdone. Credit cards are not evil. Carrying thousands in cash is not smart. Paying off the mortgage instead of enjoying life and investing is not necessarily the right choice. Telling everyone to pay off every loan instead of using the federal student loan forgiveness program is overkill (probably right for some, not others). Telling people you can only pay cash for a rental home seems too conservative. 

I joined the Facebook group recently and while I do enjoy seeing people succeed, there are far too many times where I think the right answer to their work question is different than the acceptable answer. 

Following the program will get you to success, usually B level success. It will alleviate risk. But it's not the only way as he insists. 

I've been perusing the early retirement.org site, a lot of the posters there make a lot of sense. 

Does anyone want to share why they'd disagree with the idea the keeping a low rate mortgage can be better in the long run?Http://www.early-retirement.org/forums/f28/mortgage-and-my-mind-92516.html

 

[Juxtatarot]

Does anyone want to share why they'd disagree with the idea the keeping a low rate mortgage can be better in the long run?Http://www.early-retirement.org/forums/f28/mortgage-and-my-mind-92516.html

There is nothing wrong with keeping a low rate mortgage.  There is also little to nothing wrong with paying it off early and considering home equity part of your “cash” position. I think this is one of the most overthought topics in personal finance.

 

[-OZ-]

There is nothing wrong with keeping a low rate mortgage.  There is also little to nothing wrong with paying it off early and considering home equity part of your “cash” position. I think this is one of the most overthought topics in personal finance.

I'd agree with that to a large degree. There's benefits to decreasing risk, but for those of us with pensions that cover the mortgage and won't grow with the market, it seems the known price of the mortgage is worth keeping as an inflation hedge. 

 

[Juxtatarot]

I'd agree with that to a large degree. There's benefits to decreasing risk, but for those of us with pensions that cover the mortgage and won't grow with the market, it seems the known price of the mortgage is worth keeping as an inflation hedge. 

Yes, those with significant defined benefit pensions shouldn't need much of a cash position making paying off the mortgage early even less important.  Honestly, with a lot of these government pensions, one shouldn't need to worry about retirement.   One of the big concerns with people with defined contribution pensions is living longer than planned for.  Government employees don't really need to worry about that.

 

[pecorino]

There is nothing wrong with keeping a low rate mortgage.  There is also little to nothing wrong with paying it off early and considering home equity part of your “cash” position. I think this is one of the most overthought topics in personal finance.

Don’t know if I agree it’s “overthought.” The time value of money is tricky for many to really grasp and the concept of opportunity cost is only slightly less obvious. For instance, I have a mortgage of 55K at 4.25%. I could pay it off next week if I wanted to, but it is not a simple calculation to know if it is in my best interest. ROI on that money fluctuates, but it is mostly well above 4.25%. Not to mention that if I let the mortgage carry on, my monthly payments in 2025, say, are not really equal to the payments now because of inflation and because I’ll likely be making more income then.

For me, it comes down to a gut decision because I don’t want to crunch the numbers with estimates I cannot possibly know (like inflation). Instead, i reason that 4.25%, all in all, is a reasonably cheap rate and I’ll eschew paying off my mortgage due to the other opportunities that are out there.

 

[CR69]

Don’t know if I agree it’s “overthought.” The time value of money is tricky for many to really grasp and the concept of opportunity cost is only slightly less obvious. For instance, I have a mortgage of 55K at 4.25%. I could pay it off next week if I wanted to, but it is not a simple calculation to know if it is in my best interest. ROI on that money fluctuates, but it is mostly well above 4.25%. Not to mention that if I let the mortgage carry on, my monthly payments in 2025, say, are not really equal to the payments now because of inflation and because I’ll likely be making more income then.

For me, it comes down to a gut decision because I don’t want to crunch the numbers with estimates I cannot possibly know (like inflation). Instead, i reason that 4.25%, all in all, is a reasonably cheap rate and I’ll eschew paying off my mortgage due to the other opportunities that are out there.

Same here. I got a 15 year @ 2.75% two years ago and there's no way I'm paying that off early.

 

[-OZ-]

Same here. I got a 15 year @ 2.75% two years ago and there's no way I'm paying that off early.

Paying that off when the 10 year t-bill gives 2.85% doesn't make sense. 

 

[Tiger Fan]

Same here. I got a 15 year @ 2.75% two years ago and there's no way I'm paying that off early.

I've seen some 3% CDs being advertised recently

 

[culdeus]

Lake properties in Texas are really risky right now with global warming.  I would imagine most vacation properties are in the same boat (so to speak).  The appeal of these vacation spots are seasonal and water driven. If there isn't a season, or there isn't water in the lake the value of the property goes to near zero.  

Saw so many people snap up properties at insane low prices in the last drought.  They are looking like geniuses now, but another few years and the lakes are dirt again in a couple years, then what?  These gas wells take 250k gallons of water to complete. A DAY.  Trump isn't going to stop that.  

My parents best friend dumped their house in town and moved out to lake property in the winter.  They had a boat taken to their dock and winterized.  Was 18 months before the dock had water enough to take it out.  As soon as the water came back up they stuck a sign in the yard and bailed.  Lit easily $100k on fire, probably more just guessing on the boat and property value declines.  

I'm not sure what ski resort properties look like these days, or other seasonal properties, but I imagine they are in similar situations.  We rent a house in the destin area every year.  Each year the jellyfish get worse and worse, and the water gets cloudier and cloudier.  All these are risk factors that make me say, #### it, I'll just rent and let others take the risk.

 

[Rattle and Hum]

 For instance, I have a mortgage of 55K at 4.25%. 

Same here. I got a 15 year @ 2.75% two years ago and there's no way I'm paying that off early.

Paying that off when the 10 year t-bill gives 2.85% doesn't make sense. 

I wonder what would the return be if you paid off these notes and, instead, dollar-cost-averaged into the stock market with the old monthly payment for 15-20 years? I know that is impossible to answer. I do think it makes the case for paying off the mortgage now a little more palatable given the recent (7 year) stock run-up. Not only would you have the house but you'd also have the account with equities.

 

[bcnfinance]

Lake properties in Texas are really risky right now with global warming.  I would imagine most vacation properties are in the same boat (so to speak).  The appeal of these vacation spots are seasonal and water driven. If there isn't a season, or there isn't water in the lake the value of the property goes to near zero.  

Saw so many people snap up properties at insane low prices in the last drought.  They are looking like geniuses now, but another few years and the lakes are dirt again in a couple years, then what?  These gas wells take 250k gallons of water to complete. A DAY.  Trump isn't going to stop that.  

My parents best friend dumped their house in town and moved out to lake property in the winter.  They had a boat taken to their dock and winterized.  Was 18 months before the dock had water enough to take it out.  As soon as the water came back up they stuck a sign in the yard and bailed.  Lit easily $100k on fire, probably more just guessing on the boat and property value declines.  

I'm not sure what ski resort properties look like these days, or other seasonal properties, but I imagine they are in similar situations.  We rent a house in the destin area every year.  Each year the jellyfish get worse and worse, and the water gets cloudier and cloudier.  All these are risk factors that make me say, #### it, I'll just rent and let others take the risk.

Very interesting. I certainly see this being an issue. It makes me wonder which areas are likely to benefit from this. 

 

[-OZ-]

I wonder what would the return be if you paid off these notes and, instead, dollar-cost-averaged into the stock market with the old monthly payment for 15-20 years? I know that is impossible to answer. I do think it makes the case for paying off the mortgage now a little more palatable given the recent (7 year) stock run-up. Not only would you have the house but you'd also have the account with equities.

Why not just put the money into the market while paying the ~3% mortgage? If you want to, when you have enough in that account pay the mortgage. That's pretty much my plan. You're accepting market risk but over 15-20 years most likely. The only other problem IMO are the taxes in a non retirement account.

 

[Slapdash]

Would appreciate some feedback on the rent vs sell decision:

My wife and I just got an offer excepted on a house about a mile away from where we live currently, leaving us with the need to make a decision about our current home.  It is a townhome in a hot neighborhood with a lot of growth (train stop just opened up a ~7 minute walk away).  I could sell it today and probably net around $110k-$120k in cash.  My costs are about $1350 a month, so you would factor in management fees and reserve for repairs (~10% each?) too.

So my question is more about what factors I should use to think about this?  Is there some type of formula/rule of thumb people consider as to what the breakeven point is?  Perhaps a level of cash reserves you'd want to dedicated to a rental besides equity? 

On the emotional side: I like the place,  and it is in an awesome neighborhood that continue to appreciate in price. Just not something I've much discussion on the pros and cons financially on.

 

[Rattle and Hum]

Why not just put the money into the market while paying the ~3% mortgage? If you want to, when you have enough in that account pay the mortgage. That's pretty much my plan. You're accepting market risk but over 15-20 years most likely. The only other problem IMO are the taxes in a non retirement account.

That's comparing apples & oranges to simple apples...the additional investment beyond the mortgage payment is the oranges in your scenario. Not everyone has the oranges to throw at their strategy: Sounds like you do which is great. 

 

[-OZ-]

That's comparing apples & oranges to simple apples...the additional investment beyond the mortgage payment is the oranges in your scenario. Not everyone has the oranges to throw at their strategy: Sounds like you do which is great. 

if the discussion is whether to pay off a mortgage quicker, the assumption is there's more money that can be used to pay it off. Or invest. 

 

[ghostguy123]

Can't you just view paying off your house as a way of diversifying your assets?  It's a guaranteed (for example) 4% return on your money that you don't have to pay taxes on.  I would think it would also depend on your income and other investments.  For example, if you want to max out your 401k/403b but can't do that if you pay off the house, then by all means keep the  mortgage while maxing out the retirement account. 

There are probably some very isolated cased where it's an obvious move to either keep the mortgage or pay of the mortgage, but for 99% of people I would think the "right" thing to do would boil down to personal preference and also knowing yourself and how you handle money.  

 

[CR69]

I wonder what would the return be if you paid off these notes and, instead, dollar-cost-averaged into the stock market with the old monthly payment for 15-20 years? I know that is impossible to answer. I do think it makes the case for paying off the mortgage now a little more palatable given the recent (7 year) stock run-up. Not only would you have the house but you'd also have the account with equities.

But you're taking a large sum, let's say $100k, to pay it off and then investing $1k/mo in the market. So the real scenario is would it be better to invest $100k in the market today versus $1k over the next 13 years. The math on that is just about the exact same ($240,948 vs $241,687 @ 7%/yr) but investing the money now leaves you with liquid assets if needed instead of having them tied up in the home which are harder to access. 

Personally, I will be putting that cash into other real estate deals which will earn far more 7% per year. I won't ever be able to borrow money that cheap again so I'll keep the mortgage instead of having to borrow an extra $100k from a private money lender at 8-10%.

I don't think there's a bad answer to this question though. Some people would prefer the security of not having a mortgage or have different goals and that's OK.

 

[Rattle and Hum]

if the discussion is whether to pay off a mortgage quicker, the assumption is there's more money that can be used to pay it off. Or invest. 

That's true...and I'm a dope for missing that   

Paying off the mortgage and dollar-cost-averaging will help the person that finds them self in a bear market.  If the market keeps going up by more than 4% a year the strategy of keeping the mortgage & investing will pay off. So, as always, I guess it comes down to risk.

 

[-OZ-]

Another question, which I could probably just Google but maybe some of you have experience with this.

I opened my Roth back in 2000, and stopped contributing in 2012 when the TSP started their Roth. I can take the contributions out without penalty, but do you just leave the gains in until you're 59.5? Understand I could take everything out and pay around 25% tax plus 10% penalty but I'd prefer not to do that. 

How tightly does the IRS scrutinize this? If I remember correctly I maxed for 12 years, $2,000 2000-2001, $3,000 2002-2004, $4,000 2005-2007, $5,000 2008-2011. So that's $42,000. But I transferred brokerages around 2008 so my current brokerage won't have records before that. 

I know, you're probably thinking it would be stupid to cash out for a down payment on a 2nd home, and you might be right. Assume you're not overly worried about retirement and we'd max the tsp and her Roth going forward.

What am I missing? We'll probably have the down payment next year without doing this but if we find the right place before we have the full amount without tapping my Roth, I'd like to just have full information. 

 

[Moe.]

In my experience they don't scrutinize that very tightly, you're not doing anything against the rules anyway. You should be fine to remove what you need and report it as basis only. No issues with leaving the gains in the account if that's what you want to do. Do you still have the tax forms  from the years in which the contributions were made?