Buy retirement home now?

Question

My husband & I have been discussing and weighing the following two options below for a few weeks now and I'd like some fresh takes from you.

Some details about us:

- Currently live in queens, ny.

- Plan to relocate to Raleigh area when we retire. We have very close family in Apex.

- Upon retiring, we want to reduce our expenses and improve quality of life - after visiting and loving Raleigh area for the last 10 years, we believe it will be the most beneficial move. If we retire on $2m, that $2m will go a much longer way down in Raleigh than in NY.

- We have not relocated there as a working couple because I am in the fashion industry (tough to transfer skill set - fashion is mostly east or west coast). My husband has his own IT biz here in NY (he will most likely lose most, if not all, his clients if we move now because he very often needs to be on site). In total, we make $300k annually and make it through in NY ok, nothing more. If we move, I will have to shift my career to a different industry altogether and start anew and he will have to build his biz anew or get a corporate job (at least to start with). If so, our income will probably drop half to $150k, which we are not comfortable with. Long story short, we don't feel relocating now is really an option due to our careers, at the moment.

Targeting Wake Forest or Northwest Raleigh (NEED to be close to big park! Umstead! Bond! Etc.).

Currently, we have $70k to spend. We save $30-40k cash each year. So by end of next year, we will have $100k to spend. We could increase cash savings, but we also like to max out the 401ks and IRAs also.

Here are our two options:

1. purchase our retirement home now (meaning within next year or so). Rent out until retirement. Move in when retirement time comes. Probably break even here with no or minimal cash flow. Benefit here is knowing we have our ideal future home in a great area. Will be 3+/2+, 2k sq ft, ~1 acre.

2. Purchase a couple of homes that we won't retire into, but will cash flow better. Sell later to fund purchase of retirement home.

Both options will be traditionally financed. 20% down, 30 yrs fixed, etc.

I realize I am asking the opinion of investors, so most likely, your take will be #2 because it provides more return for the money. Curious if any of you will choose #1 and why?

I hope I've provided enough info - very lengthy post. If not info., just ask!

Let's hear it!

Much appreciated!

Betty

Lynn McGeein · Answer

Not sure what the time window is for your retirement, but wanted to point out a few other reasons 2 is likely better than 1.  First, when you say "break even with no or minimal cash flow," are you just speaking in terms of mortgage?   A home you want to retire and live in for the rest of your life on approx. an acre will likely not cash flow or break even with all costs added up, even if you find perfect tenants who will care for it and take care of the acre landscaping and mowing on their own, especially if you are long distance and working with property management as it will be difficult to do any maintenance or repairs yourself.  Also, it will probably have more expensive upgrades than the rental homes you would buy (see the threads on these forums about hardening your rentals), so a higher price to pay if you get a bad tenant who damages it.   In addition, it's always risky to lock in now what you want to live in 5 or 10 years from now as you have no idea where life leads in that time frame.  And if you do choose the smaller rentals, you may find you don't have to sell them and potentially have more income lined up in retirement.

Kent Verge · Answer

We just did option 1 with a "maybe retire here" home. It may not be our perfect final stop, but it will get us into the area when ready to retire with no rush to find something better. The rehab will be nicer than normal but not over the top; again, something we'd be comfortable in with a few later upgrades. The best part is that it will have a nice cashflow now so it feels more like an investment property.

In other words, I think you can do both if you're willing to be flexible a bit.

Account Closed · Answer

Aha! Just managed to figure out the mention feature! Ok...onward!

@Shane Pearlman - ton of thanks for your thoughtful & thorough response. Your parents call seem to have been on point - congratulations! What a fantastic move! In answer to your questions:

1. Does 100k get you the house you would actually want to retire in within today's price range? We've been snooping around on Redfin a bit, so we have yet to do an in depth search. At the moment, it seems like we would be able to get what we would like. The property won't be all done up like the home of our dreams and that's ok because it would be a nice rental. We expect to do some upgrades at moving time with any property we purchase now. Even if the property was bright and shiny new now...it won't be so much 15 years from now, when we go down there. Even if we spend the whole 100k on the purchase, we would not purchase a 500k property. That would be make a horrible rental, numbers-wise with really negative cash flow. Even if we spend 100k, we would target the 300k range, I think. Or flip side, if we target 300k-ish property range, then we would only spend 60k as downpayment with small upgrades, if any, on the side.

2. What is your planned retirement time frame? 15 years or so. Not sooner than that.

3. What are the odds you would change your mind? Not likely, although who can say with 100% certainty? Barring unexpected major life changes, we feel confident with our trajectory.

4. What does the market cycle looks like right now? Over heated? Stable? In a dip? I'm in no way an expert on this, especially since we don't currently live down there. Based on what I know, I believe the market is stable. The job market is wonderful (a lot of tech, gaming, medical, education, etc.). Population growth is on a tremendous upswing with a lot of transplants from other states. Schools are fantastic, medical facilities are top notch. Any locals/experts with more or differing information and insight, please chime in!

I agree with you and @Kent Verge - if we find a good enough deal on the right place, we should move on it. It will get us into the area we want at lower rates.

Shane Pearlman · Answer

Account Closed did a nice job on the against.).

In 2011, my parents called me. "Shane, we have never seen such a substantial dip in real estate prices during our life times tied to such low interest rates. This is bigger than the early 80s. I know you aren't quite ready yet financially for your next big move, but don't pass this up." We were living in a duplex in the mountains in a great town, a good investment, but not the dream. We had been talking about living on the ocean near some of my favorite surf breaks for years, but the reality of a 1.2M+ SFR seemed out of reach. I began our hunt and started to find some options. It took 3 months of persistence, but I found a treasure. 2,670 square feet of custom amazingness, just above the ocean for 735k. I thought they had made a mistake, but a mixture of poor marketing, bad timing, prices bottoming out and an unhelpful realtor gave me the opportunity to live in my dream village. We borrowed some extra family money as we had to put 30% down and put a bit of elbow grease into it. Now I walk with my daughter to the surf. In the last  3 years, prices have risen such that I could no longer afford to by my home. According to zillow (which isn't terribly accurate) it is now worth about 1.43M.

So, there are factors with market timing which could drive you to take advantage.

You could also find the perfect home / the perfect piece of land. I have 2-3 homes I have had my eyes of for a decade. I've introduced myself to the owners and ask them if they plan to sell about every 3 years.

Interest rates will rise. If you can lock a 4.25% loan at 30 years, that might have a serious impact on affordability. Realistically, this one can be resolved with an equation comparing the impact of a bigger down payment afforded by better investing the funds, but having to take a higher cost loan. I started to work on the formula for you but quickly realized it is so full of assumptions it rapidly became B.S.

Net result was a bigger down payment, but of course the retirement property you are planning to buy will likely be more expensive AND the interest rates are going to be higher. I'm personally betting on a huge upswing in inflation / interest rates in the next few years, which reduces the amount of house you can cary with a loan. Hard to say which is better.

My advice (which is worth exactly what you paid for it)

If you can get a good enough deal on the right place, buy it now as long as it doesn't put your financial health at risk. Until then, invest wisely, and spend the time looking. The interest rates are a major part of the equation, but the super sale seems to be wrapping up, so don't get caught with someone you aren't positive is the one.

Elizabeth Colegrove · Answer

Account Closed

We are active duty Navy so we move alot and home isn't home. It's all relative and based on what the Navy's current "requriements". So I understand the idea of having a retirement home that you have "locked" into price wise and located. The security is nice and its as if you are getting there to a goal.

That being said, we have been doing option #2. We have been putting together a "rental empire" to provide cash and allow early retirement. We plan on "maybe" buying a retirement home to "lock" in the price in an expensive area such as Sausileto since we want to retire in 15 years. That being said right now, it make most sense to build equity and cash flow. As long term that is what will "really" guide you towards being able to buy that house of your dreams.

Account Closed · Answer

@Michael Jobe

Thanks for the tip re: mentions!

As far as price point, $100k would be what's available for the downpayment with traditional financing. Is that what you meant, as well?

Account Closed · Answer

Thanks everyone, for your thoughts and insights!

Our approximate retirement time frame is 15 years from now, so we are thinking about some time away :)

Lynn - you bring up very valuable points. I believe with #1, the best scenario would be to break even, with some loss likely.

Dawn B. & Elizabeth C. - you nailed it in terms of our heads are at! Psychologically and emotionally, we would love to have our retirement home in place at today's prices and rates.

Thanks again for your input - it's highly valuable since it brings some much needed and fresh perspective.

Michael Jobe · Answer

Ahh I see what you meant now Account Closed

I thought you were wanting to purchase at the $100k price point but putting $100k down makes much more sense! I'm still sticking with option #2...maybe put down $25k on four different SFHs or look for a large apartment complex if you're really feeling froggy. Regardless of the decision, just make sure you have a solid disposition strategy for the asset(s) whenever that time comes.

Michael Jobe · Answer

Account Closed

To get the mention feature to work correctly, you must type the '@' and then the first few letters of the person's name you want to mention then click on it in the box that pops up below. If it's highlighted in blue, you've done it correctly and they will receive an email notification.

As far as your original post, I think option #2 is the better choice. A 3BR/2BA 2,000 square foot home on an acre lot in this area is going to cost more than $100k unless you purchase a fixer-upper. By spreading your money around on a few rental properties, you'll get a better return on your investment while building equity. Just my .02 cents but let us know what you decide!

Elizabeth Colegrove · Answer

Account Closed - in that case the important is how much the prices going to increase. We have put buying our retirement home at the "end" because the "emotionally" gain isn't worth losing all the invest value. We are 15 years out so I get it! Feel free to pm me if you want to compare notes.

Buy retirement home now?

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