Good or bad idea??

[JMcLellan]

My wife and I are becoming very passionate about owning a lake property. This idea has morphed from buying a small cabin to use seasonally as a 2nd property to buying a home on the lake right next to our house. Why drive a couple hours away to go enjoy the lake when we could just do that at our main home?

The price to buy a decent place on this lake is 3x to 5x the cost of buying a cabin a couple hours away which is currently out of our budget unless all we wanted to do was spend our money on a mortgage and eat ramen. However, what if someone just said eff it, and took out a large chunk out of retirement right now and made a bet that this lake home could be worth way more later than keeping the money in retirement funds (or at least would stay on par with their retirement funds)? Assume the lake home would be $1.4 million: down payment would be using $500K from retirement plus $300 to $350K from equity in our house we would realize upon the sale. We would take on a $550 to $600K mortgage on the lake home then assume about 10k per year in property taxes to start.

There would be early withdrawal penalties and the tax year when you take out a big chunk you would be pushing a lot of money into higher tax brackets and would take a hit there. But how much would this really hurt us if our lake home was worth a crap ton more in the future? And then there is the whole return on enjoyment factor of having the lake place now and being able to use it.

This idea popped into my head a few weeks ago and I've been mulling it over. Am I stupid, or could this actually work? My wife and I are planning to work another 15 to 20 years and will continue to get paid and continue contributing to retirement funds. I welcome any feedback, feel free to call me crazy. I know, I should be talking to my financial planner instead of people on a car forum but all he is going to say is "don't do it" because he only makes money the more I save with him so there is that bias. I trust people on here will shoot it straight.

[vreihen16]

<----- Bought a five acre wooded tree farm on a motorboat lake in SC a few years ago to build our retirement garage mahal.

The mortgage on our modestly-sized house in upstate NY will be paid off in December, so we can sell up here at any time and throw all of that money into the construction fund for down yonder and come out with no mortgage. Much different financials than you are working with.

If retiring by a lake is your goal, my vote is to make it happen now while you can still appreciate it. I have not even walked down the path to the dock since the day we closed on the tree farm, because I can't walk the hill back up.....

[hubbahubba]

Have you ever lost money on a house? I haven't. Location, location, location. A lake house has that. Go for it. Invite your BPOT friends to the housewarming.

[eliphil]

What he said , real estate in the right location is a winner however many are predicting a burst bubble w real estate coming although no one knows for sure or can time it right. If it were me I’d wait until after the election and see if you can detect what’s going on in the market. I bought my house in 99 prices were about 25 % from their high. Two years later the bubble did burst and people that bought at the top took years to recover.

[JerryW235]

We were in a similar position back in '98. We were living in the Atlanta area, and decided to buy a lake house on Lake Hartwell, on the border of GA and SC, about a 2 hour drive. The plan was to use it on weekends and vacations, and eventually retire there. So, we did it, took on another mortgage and tax payment about the same as our primary residence, but we were both working and managed to afford it. Used the lake house as we planned, made great memories and friends there, moved there full time in 2015, I retired in 2016, and my wife in 2018. Best decision we ever made, no regrets from day one. Certainly made improvements to the house and property over the years, added a dock and all the other lake house accessories, but now it's worth about 3 times what we paid for it. It's as much an emotional and quality of life decision as a financial one. We have a lot of friends here that did the very same thing, and no one regrets it. People that move away usually do it for health or family, not financial or lifestyle reasons.

[ASAP]

Originally Posted by eliphil

What he said , real estate in the right location is a winner however many are predicting a burst bubble w real estate coming although no one knows for sure or can time it right. If it were me I’d wait until after the election and see if you can detect what’s going on in the market. I bought my house in 99 prices were about 25 % from their high. Two years later the bubble did burst and people that bought at the top took years to recover.

All of this is 100% dependent on the equity in the place you buy... people that do 5% and 10% down loans... they could be massively screwed... if you're buying cash or buying w 50% down, ultimately it just comes down to how comfortable you are w losing a bit of money... which ultimately doesn't matter if you are staying long term... now i don't know the original poster's financial situation but the costs he described seems outrageous and the pull from the retirement funds doesn't seem like a great idea and then throwing a loan on top of that...

[chassis]

Originally Posted by JMcLellan

My wife and I are becoming very passionate about owning a lake property. This idea has morphed from buying a small cabin to use seasonally as a 2nd property to buying a home on the lake right next to our house. Why drive a couple hours away to go enjoy the lake when we could just do that at our main home?

The price to buy a decent place on this lake is 3x to 5x the cost of buying a cabin a couple hours away which is currently out of our budget unless all we wanted to do was spend our money on a mortgage and eat ramen. However, what if someone just said eff it, and took out a large chunk out of retirement right now and made a bet that this lake home could be worth way more later than keeping the money in retirement funds (or at least would stay on par with their retirement funds)? Assume the lake home would be $1.4 million: down payment would be using $500K from retirement plus $300 to $350K from equity in our house we would realize upon the sale. We would take on a $550 to $600K mortgage on the lake home then assume about 10k per year in property taxes to start.

There would be early withdrawal penalties and the tax year when you take out a big chunk you would be pushing a lot of money into higher tax brackets and would take a hit there. But how much would this really hurt us if our lake home was worth a crap ton more in the future? And then there is the whole return on enjoyment factor of having the lake place now and being able to use it.

This idea popped into my head a few weeks ago and I've been mulling it over. Am I stupid, or could this actually work? My wife and I are planning to work another 15 to 20 years and will continue to get paid and continue contributing to retirement funds. I welcome any feedback, feel free to call me crazy. I know, I should be talking to my financial planner instead of people on a car forum but all he is going to say is "don't do it" because he only makes money the more I save with him so there is that bias. I trust people on here will shoot it straight.

Do you have a mortgage on your existing principal dwelling (home)?

Your proposal is to own one property, on the lake, correct? You seem to have vascillated between owning two properties, vs owning one.

[JMcLellan]

Originally Posted by chassis

Do you have a mortgage on your existing principal dwelling (home)?

Your proposal is to own one property, on the lake, correct? You seem to have vascillated between owning two properties, vs owning one.

The intent would be to sell our current home and buy a lake home, owning only 1 property. We do have some remaining mortgage on our current house.

[JMcLellan]

Originally Posted by ASAP

All of this is 100% dependent on the equity in the place you buy... people that do 5% and 10% down loans... they could be massively screwed... if you're buying cash or buying w 50% down, ultimately it just comes down to how comfortable you are w losing a bit of money... which ultimately doesn't matter if you are staying long term... now i don't know the original poster's financial situation but the costs he described seems outrageous and the pull from the retirement funds doesn't seem like a great idea and then throwing a loan on top of that...

Exactly why I am throwing this out there for people to poke holes in it. What is the risk of pulling from retirement now and making the bet that I won't lose long term with the lake property?

[eliphil]

Originally Posted by ASAP

All of this is 100% dependent on the equity in the place you buy... people that do 5% and 10% down loans... they could be massively screwed... if you're buying cash or buying w 50% down, ultimately it just comes down to how comfortable you are w losing a bit of money... which ultimately doesn't matter if you are staying long term... now i don't know the original poster's financial situation but the costs he described seems outrageous and the pull from the retirement funds doesn't seem like a great idea and then throwing a loan on top of that...

Sometimes life gets in the way of plans, he better be confident that he can stay a minimum of 10 years

[mjj]

Pulling from retirement early and the double whammy on the tax year is a problem. Even if your lake house escalated in value exceeding your retirement, you still need liquid money to live on. That means you might actually have to sell the lake house to fund your retirement.

I have a primary residence and a lake house. There are expenses that are above and beyond a normal residence. Boats, Lifts, PWC’s, Water accessories, dock expense, etc…. Property taxes and insurance on a million dollar property are noteworthy.

The one thing that is hard to describe is by having a primary residence and a lake house, the lake house always feels special. Like you are on vacation. You can forget about work and all of the daily routine/lists. When it is your primary residence, I am not sure if that feels different.

[JMcLellan]

Originally Posted by mjj

Pulling from retirement early and the double whammy on the tax year is a problem. Even if your lake house escalated in value exceeding your retirement, you still need liquid money to live on. That means you might actually have to sell the lake house to fund your retirement.

I have a primary residence and a lake house. There are expenses that are above and beyond a normal residence. Boats, Lifts, PWC’s, Water accessories, dock expense, etc…. Property taxes and insurance on a million dollar property are noteworthy.

The one thing that is hard to describe is by having a primary residence and a lake house, the lake house always feels special. Like you are on vacation. You can forget about work and all of the daily routine/lists. When it is your primary residence, I am not sure if that feels different.

This is very good perspective. I do think the tax hit upfront would be a pain for sure.

Your callout on possibly needing to sell the lake house to fund retirement expenses could be the deal breaker unless we were able to build up our retirement to where it needs to be from now until we retire. Wife is 41 and I'm 43 and we expect to work until about 60 years old or so.

I hear you on the boat and lake related expenses. We spend quite a bit every year owning a boat, having a slip, maintenance, and storage costs.

[Maynard]

I'd vote for the 'do it while you can' perspective, provided the numbers aren't too tough.

It seems like you are needing to calculate this as if it were taking money out of retiement and putting it into an alternate investment (house). Surely they have some basic calculator to help simplify that and tell you how much the house has to appreciate to break even (and then figure how much retirement you'll need, how much you'll build up over rest of your careers).

Also probably worth looking into tax dodges for this; isn't there a way to sort of borrow your retirement money from yourself?

[chassis]

Originally Posted by JMcLellan

The intent would be to sell our current home and buy a lake home, owning only 1 property. We do have some remaining mortgage on our current house.

This is an emotional question for you, not a financial one.

The original post talks about passion, then justifies the passion with the word "but", followed by ..."crap ton more"...

Principal dwelling real estate for a non-RE professional such as yourself delivers a poorer total return than the same capital invested in equities. High carrying and transactional costs combined with poorer price appreciation, with the added insult of illiquidity means the lake house is an unattractive endeavor, when viewed soley through a financial lens.

If you want to do this, do it. Be clear about the basis on which you would be acting - emotional. Nothing wrong with emotional actions.

[2000cs]

My work was not close to a “weekend lake” so we bought a house in FL on the ocean during Covid and I was able to WFH a lot there. Retired and ultimately decided to move to a lake in TN for grandkid proximity, bought a boat and love the view and life. As long as I can afford it, we will live on waterfront.

Two houses never interested us; twice the maintenance, all the catch-up work on the second property, feeling tied to one destination for vacations, etc. Still feel that way - will winter at a rental on occasion, but only want one house.

As far as an investment goes, RE is generally good but so specific to the area and property. Long term should work if property is maintained; tax advantaged if rented but who wants to deal with that? REIT for investment; owned property for living is how we decided to do it.

If I was in your situation I’d buy on the lake, something you can “make your own” over time, move there, and commute or WFH over time, even possibly keeping a condo or apartment in the work city until retirement. Make the lake the full time residence.

[sygazelle]

Originally Posted by JMcLellan

My wife and I are becoming very passionate about owning a lake property. This idea has morphed from buying a small cabin to use seasonally as a 2nd property to buying a home on the lake right next to our house. Why drive a couple hours away to go enjoy the lake when we could just do that at our main home?

The price to buy a decent place on this lake is 3x to 5x the cost of buying a cabin a couple hours away which is currently out of our budget unless all we wanted to do was spend our money on a mortgage and eat ramen. However, what if someone just said eff it, and took out a large chunk out of retirement right now and made a bet that this lake home could be worth way more later than keeping the money in retirement funds (or at least would stay on par with their retirement funds)? Assume the lake home would be $1.4 million: down payment would be using $500K from retirement plus $300 to $350K from equity in our house we would realize upon the sale. We would take on a $550 to $600K mortgage on the lake home then assume about 10k per year in property taxes to start.

There would be early withdrawal penalties and the tax year when you take out a big chunk you would be pushing a lot of money into higher tax brackets and would take a hit there. But how much would this really hurt us if our lake home was worth a crap ton more in the future? And then there is the whole return on enjoyment factor of having the lake place now and being able to use it.

This idea popped into my head a few weeks ago and I've been mulling it over. Am I stupid, or could this actually work? My wife and I are planning to work another 15 to 20 years and will continue to get paid and continue contributing to retirement funds. I welcome any feedback, feel free to call me crazy. I know, I should be talking to my financial planner instead of people on a car forum but all he is going to say is "don't do it" because he only makes money the more I save with him so there is that bias. I trust people on here will shoot it straight.

There are so many factors to consider, but if you and your wife have steady incomes and you don't see that changing, I'd say follow your dream with a couple of suggestions:

1) Make sure you do your research and buy right. Don't fall for the first amazing home on a lake that you see. Look at different locations with different realtors. Have a very specific list of likes and don't likes. Don't settle. Just keep looking until the right home materializes.

2) Go to the city or town and look at the general plan. You need to know the zoning of the property around your property and the likelihood of that zoning changing.

3) Get comps on actual sold homes to make sure the asking price is substantiated by the market. Don't be afraid to offer less than asking if you think the asking price is too much.

I'm missing a bunch here but other posters will fill in. Just do your homework and don't be in a rush.

If it's a dream, give up other expenses to make it work if you have to. Good luck!

[JMcLellan]

Originally Posted by chassis

This is an emotional question for you, not a financial one.

The original post talks about passion, then justifies the passion with the word "but", followed by ..."crap ton more"...

Principal dwelling real estate for a non-RE professional such as yourself delivers a poorer total return than the same capital invested in equities. High carrying and transactional costs combined with poorer price appreciation, with the added insult of illiquidity means the lake house is an unattractive endeavor, when viewed soley through a financial lens.

If you want to do this, do it. Be clear about the basis on which you would be acting - emotional. Nothing wrong with emotional actions.

Yes, this is an emotional decision for us and I'm willing to potentially have less money in the future to enjoy a lake home now. Also, my family cabin that my grandpa built back in the late 60's and now which my parents own will be sold off in the next 3 to 5 years as my parents want to cash out. I always thought that property would stay in the family but it looks like it won't turn out that way.

[RickFLM4]

The tax impact, as I think you know, is not just the penalty but the actual tax on what you take out. So if you have $500K down payment from retirement, I think you’d be looking at an additional $150K+ in current taxes. This, along with the prospect of needing to sell the house to live in retirement as someone else pointed out, would be a turnoff to me. We all “plan” to work a certain amount of time and save a certain amount of money, but sometimes shit happens and it would suck to need to sell the house at an inopportune time.

We went the second property route. But the combined cost of our primary + second is quite a bit less than a bank would say we could afford. I like it that way because it lets us get away, have the upside in property values from 2 properties and not touch retirement savings. If I were to do it over, I might get something closer than a 10+ hour drive so we could use it more, but I like having the second property (which is a condo). If you can get something you’d like 2 hours away and not touch retirement money, personally I’d do that.

[sygazelle]

Someone made the comment on tax impact of withdrawl from retirement. It's a point I missed completely. Y ou should do an after-tax impact analysis. If you can qualify for a bigger mortgage and taking less from your retirement account, consider doing it. Stretching is okay at your age with two incomes. Just do less Starbucks, less M2s (haha)....

Another key factor is mortgage rate. If you have a low rate now, you may want to keep your current house just because of the low rate. If it's in the 3-4% range and the current rate is 71/2%, that's a huge negative impact.

To realize your dream, it may be worth it anyway. Just do your homework so you are not surprised.

Again, good luck!

[floridaorange]

I vote for wait until you can get a deal and don’t pay retail for the lake house.

[vreihen16]

Buy in the off-season.....

[RockCrusher]

Originally Posted by JMcLellan

My wife and I are becoming very passionate about owning a lake property. This idea has morphed from buying a small cabin to use seasonally as a 2nd property to buying a home on the lake right next to our house. Why drive a couple hours away to go enjoy the lake when we could just do that at our main home?

The price to buy a decent place on this lake is 3x to 5x the cost of buying a cabin a couple hours away which is currently out of our budget unless all we wanted to do was spend our money on a mortgage and eat ramen. However, what if someone just said eff it, and took out a large chunk out of retirement right now and made a bet that this lake home could be worth way more later than keeping the money in retirement funds (or at least would stay on par with their retirement funds)? Assume the lake home would be $1.4 million: down payment would be using $500K from retirement plus $300 to $350K from equity in our house we would realize upon the sale. We would take on a $550 to $600K mortgage on the lake home then assume about 10k per year in property taxes to start.

There would be early withdrawal penalties and the tax year when you take out a big chunk you would be pushing a lot of money into higher tax brackets and would take a hit there. But how much would this really hurt us if our lake home was worth a crap ton more in the future? And then there is the whole return on enjoyment factor of having the lake place now and being able to use it.

This idea popped into my head a few weeks ago and I've been mulling it over. Am I stupid, or could this actually work? My wife and I are planning to work another 15 to 20 years and will continue to get paid and continue contributing to retirement funds. I welcome any feedback, feel free to call me crazy. I know, I should be talking to my financial planner instead of people on a car forum but all he is going to say is "don't do it" because he only makes money the more I save with him so there is that bias. I trust people on here will shoot it straight.

Reads like a bad idea.

Tapping one's retirement to buy a lake side home and hoping the home's value goes up on par with sensible investments in retirement accounts is a lot of hoping.

Even if the place did experience an increase in value you might be faced selling the house to fund your retirement.

(As an aside my advice to a "young" couple is to save for retirement as if there will be *no* SSA.)

The cost of a lakeside home is more than just the purchase price. There's likely a water well, septic system. These can need thousands of dollars of attention. This just adds to the upkeep cost a house normally requires over the years.

You'd probably want/need a good emergency electric generator to power your house when the power goes out. (A family member has a house on a lake over in OK and she reports every time the wind blows she loses power. And has to deal with road blockages until the fallen trees/power lines are dealt with. She was an ER doctor in another town and she had to have a place to stay near her hospital so she could be sure of showing up on time for her shift.)

And home owners in some areas are facing horrendous increases in insurance costs. A home snuggled in amongst all the pretty trees looks like a postcard picture but forest fires have a way of ruining that.

Speaking of trees last May this area (Benton County, AR) had several tornadoes hit. Lots of big pretty trees came down. And some came down on the house or the neighbor's house.

Bottom line is I think doing what you want to do and doing it the way you want to do it is a bad idea.

If you could swing the lakeside home purchase without tapping your retirement and without reducing the amount you set aside for retirement that might be ok. You'd have to work the numbers, without the rose colored glasses on, and see.