Buying a retirement home

[ohgillian]

H and I are mid-40s, and have always planned that we will sell our current home once the children are out of the house. That's about 10 years from now, although we aren't in a rush to leave the second the youngest leaves for college/whatever her next steps are. We don't hate the house by any means, it's fine, it's a nice house, but we aren't attached and would want to downsize.

We have just started discussing whether it would make sense to buy a retirement home now and rent it out for the next decade plus. I mean, we literally talked about it this weekend for the first time. 

How do I go about even thinking about this? There's the financial aspect of the buying/mortgage, upkeep, etc. There's the management company aspect (we do not want to go use this house some weekends in the meantime; we aren't looking for a 2nd home per se). There's location -- we have spent a fair amount of time in another area of our state and that's where it would be, but we'd need to learn the area better, read up on the county and state's long term transit and development plans for the area. I just - I'm not sure where to start thinking about it? 

I don't know if this is relevant, but we know other people who have retired there. It's not uncommon for people in our part of the state to retire to this other part of the state. We also have friends who have already done similar to what i'm describing, but they are managing it as a VRBO and they go there sometimes for now. 

I don't know what my question is exactly, but maybe you've been through something similar. Thanks.

[flygirl]

Why do you want to buy it now vs when you’re ready to downsize? I personally wouldn’t want the added stress of having a second property to manage, but I can see why you’d want to do it if it’s a place where it’s hard to find houses or you have a very specific place you want to retire.

[ssmjlm]

To me, that's too much putting the cart before the horse. 10 years is a long time and a lot of things could change in that time rendering the house useless to you in retirement.

Also, I know you say the kids will be out of the house, but they could come back. There's also things like accessibility, health, travel, etc that could affect if you really want to be in the same area. If all of the kids aren't local, is it close to an airport, etc?

And, if it is a rental, there's the cost to buy, cost to maintain, and then cost to move into it as your own, as you probably will have different tastes for it as a rental vs your retirement home.

ETA: One of the reasons my parents decided to NOT use our beach house for their retirement home is the lack of access.  While there is a hospital and more doctors are moving into the area, if you end up with a prolonged illness, you will have to travel for better care.  Also, the closest airport is 90 minutes away.

[ohgillian]

Feb 23, 2021 9:53:29 GMT -5 flygirl said:

Why do you want to buy it now vs when you’re ready to downsize? I personally wouldn’t want the added stress of having a second property to manage, but I can see why you’d want to do it if it’s a place where it’s hard to find houses or you have a very specific place you want to retire.

Well it's a great question for me to consider. I guess I'm thinking about the flexibility we'd have keeping an eye on the market over a longer period of time, meaning we'd have time to be very choosy. But more than that, it's an area that has experienced a lot of growth population wise, and we think we might come out ahead financially getting in now versus in 10-ish years. We wouldn't be "priced out", but, housing prices are expected to keep rising in that area more than the national or state average, so it would be more expensive. 

I think it's a combination of those two factors. This is a good question and one for H and I to discuss. 

[icedcoffee]

I wouldn't unless it was a second home you'd use regularly until then as a vacation home. Otherwise, why bother? Things can change a lot in 10 years. Super hypothetical, but what if one of your kids moved somewhere else and they wanted you to move near them? Lots of people do that. Would you consider it?

My parents once thought they might retire to their second home, but as their kids aged they realized they didn't want to. It's super far from where me and my sister have landed and it's far too remote to live there full time.

Things change. I vote no.

[ohgillian]

Feb 23, 2021 10:00:14 GMT -5 ssmjlm said:

To me, that's too much putting the cart before the horse. 10 years is a long time and a lot of things could change in that time rendering the house useless to you in retirement.

Also, I know you say the kids will be out of the house, but they could come back. There's also things like accessibility, health, travel, etc that could affect if you really want to be in the same area. If all of the kids aren't local, is it close to an airport, etc?

And, if it is a rental, there's the cost to buy, cost to maintain, and then cost to move into it as your own, as you probably will have different tastes for it as a rental vs your retirement home.

ETA: One of the reasons my parents decided to NOT use our beach house for their retirement home is the lack of access.  While there is a hospital and more doctors are moving into the area, if you end up with a prolonged illness, you will have to travel for better care.  Also, the closest airport is 90 minutes away.

It may very well be. We haven't decided to do this by any means so that's a good perspective to keep in mind.

I know that no one can predict the future (who would have predicted covid?) but H and I have always felt strongly that barring a major catastrophe, we aren't open to the kids coming back to the house. Honestly, that's one reason we have always planned to downsize. I will support them financially if needed, and with endless love, but we don't want them back home. That may be a UO. 

Airport is a great point and one that I thought of this morning. I do want to be able to spend part of the year near the kids (assuming they want us) and we like to travel, so that would be important. The area in question has a decent regional airport. 

Healthcare is also something we have talked about and we agree is important to us. Not just primary care but good access to higher levels of care. 

[krystee]

I probably wouldn’t, unless you simply want to invest in a rental as part of your portfolio. My parents have “known” for decades they want to retire to their cabin six hours away from where they and we live—like from the moment they bought it and for 25 more years after that.

Guess who doesn’t want to actually retire there anymore?

Once they had grandkids, they realized they want to stay close. Now they’re weighing not just not retiring there but possibly selling it so they can buy a vacation property about two hours away and live at that closer vacation home about 30% of the time. It’s close enough that they’d have frequent visits from all of us (the other one is six hours away).

All that to say, it was still very worth it to have bought their cabin because we have had 30 years of amazing memories there. Since you wouldn’t be vacationing in yours, I think it would only be a good idea I f it would be profitable to rent it out now and you have a desire to be a landlord and make money on a rental property. It’s a bonus if you decide to keep it and retire in it some day.

[busterpup]

I wouldn't do it unless it was a really strong buyers market in the area where you want to buy so you can get a really amazing deal on the house you want.

[steamboat185]

I wouldn’t. Housing markets are currently pretty insane in lots of places. I know condos that were selling for 99k 3 years ago are now going for 280k here. Most of that is the Covid panic buying. Personally I have no desire to try and get into a new market now as so much can happen with property values in 10 years.

[toutsuite]

I may be the lone voice of dissent here but I would seriously consider it if you could financially carry the mortgage without issue if the house is not rented out all year and if you were sure you were going to end up in that area. Admittedly I’m biased because we did something similar and it has worked out well for us. Regardless, I do think there is value buying in now while rates are low, letting the property appreciate (assuming it will if there is growth potential), and letting others pay down your mortgage increasing your leverage. This saves you time and money and let’s you pay off the balance quicker while employed even if it isn’t a cash flow positive investment. Finally, I do believe property is a good mix to add into any financial portfolio. Appreciation and prices with property tend to be more stable and less volatile and are a good way to diversify assets. Con is you will not have the same liquidity since your money will be tied up with the property, and with rentals come headaches/stress especially if you manage it yourself. That said there are full service property managers who can do it for you if you aren’t as concerned about profit margins.

Now if it would be a hardship to carry two mortgages and maintenance fees for the ten years you would be looking at, I would reevaluate whether it was worth it. It may not be a showstopper but I would give serious thought to how much house I could afford without it becoming a true hardship if you were unable to rent it (ie. County bylaws change vis-a-vis short term rentals, significant maintenance work is required and unavailable for rent, etc.)

[ohgillian]

Thanks for all the replies. It's a helpful reality check to hear that most people think it's a bad idea. I don't necessarily think it is, but this thread does make me want to work harder for H and me to figure out what we think the pros and cons are. 

Feb 23, 2021 12:33:45 GMT -5 toutsuite said:

I may be the lone voice of dissent here but I would seriously consider it if you could financially carry the mortgage without issue if the house is not rented out all year and if you were sure you were going to end up in that area. Admittedly I’m biased because we did something similar and it has worked out well for us. Regardless, I do think there is value buying in now while rates are low, letting the property appreciate (assuming it will if there is growth potential), and letting others pay down your mortgage increasing your leverage. This saves you time and money and let’s you pay off the balance quicker while employed even if it isn’t a cash flow positive investment. Finally, I do believe property is a good mix to add into any financial portfolio. Appreciation and prices with property tend to be more stable and less volatile and are a good way to diversify assets. Con is you will not have the same liquidity since your money will be tied up with the property, and with rentals come headaches/stress especially if you manage it yourself. That said there are full service property managers who can do it for you if you aren’t as concerned about profit margins.

Now if it would be a hardship to carry two mortgages and maintenance fees for the ten years you would be looking at, I would reevaluate whether it was worth it. It may not be a showstopper but I would give serious thought to how much house I could afford without it becoming a true hardship if you were unable to rent it (ie. County bylaws change vis-a-vis short term rentals, significant maintenance work is required and unavailable for rent, etc.)

Thanks for this. I do think that part of the appeal is that we don't have much real estate in our portfolio. (That sounds pretentious. What it means in reality is that we have the home we live in, and a vacant commercial lot I inherited that we haven't figure out how to dispose of.) 

Your post has me wondering if we should just buy in cash, versus financing. Rates are so low, it seems silly to tie up money in a property when it could be invested, but we could buy outright, (depending on cost) so that's something to talk to our planner about. I do think a full-service management company is what we have in mind. I don't need a profit stream from the house right now; maybe it could just pay for 75% of its own costs and that would be fine.

[mich1]

If you know where you are going to wind up, it's not a bad idea. Here's what friend of mine did.

They were finishing out their career in KY, but knew that they wanted to move back to Austin to be with their family. While they were down there, they found the perfect retirement home. It needed cosmetic work but it was habitable, but would have structurally worked for aging in place. They bought the house and rented it out for about 10 years. Before they knew that they were going to retire, they gave the renters adequate knowledge and the house remained empty for nearly a year while it was renovated and upgraded. Luckily, they had family in the area to help overlook the renovations that they wanted done.

Their entire family lived there, so there was no doubt that they were going to return to the area. If you plan on being around your kids, your kids can wind up anywhere and it might be no where near where you want to retire. Are you going to be ok with this?

[goldengirlz]

From an investment perspective, I do think it’s good to be diversified but — very generally speaking — stocks tend to outperform real estate.

www.google.com/amp/s/www.fool.com/millionacres/amp/real-estate-investing/articles/real-estate-vs-stocks-which-has-better-historical-returns/

In addition to lower annualized returns, there’s the added headache of maintenance, renovations, insurance, and just being a landlord. But I do see the appeal of putting a toe in the market now and looking for the perfect property. Location, location, location, right?

H and I have a dream of retiring somewhere along the California coast and every so often we talk about purchasing now and using it as a vacation home. But we have so many competing financial priorities — plus climate change (and life) is so uncertain — that at the end of the day, we know that it’s probably best to keep our assets relatively liquid. (We’re also younger than you, and H started his career less than a decade ago, so it’s hard to imagine retirement! In 10-15 years, maybe we’ll be singing a different tune.)

[aprilsails]

My parents are actively considering their options now since retirement is 5 years away and my Stepbrother has finally moved out (he’s 32 by the way). They will stay in their current home until retirement since my Stepmom runs a home daycare. Covid has made them more anxious since it showed them that they want to retire sooner than later, and also they would rather have a local vacation home type place as compared to banking on travelling lots.

My Dad along with my Sister and I (and our husbands) are considering going in on obtaining a family vacation property. This would likely consist of a main house that would be 4 seasons for my Dad and Stepmom, and then seasonal cabins or campers for our families. We need lakefront in a fairly specific area so this is going to be a long term project to find the right spot.

I don’t think it’s a bad idea to start looking at what is available and to educate yourself on the market in the region. I would also talk to a local real estate agent to get an idea of the rental market and potential profits/downfalls. Not having to move quickly gives you the benefit of looking through the available options and to really think about what you want.

[mich1]

Feb 23, 2021 22:16:12 GMT -5 aprilsails said:

My parents are actively considering their options now since retirement is 5 years away and my Stepbrother has finally moved out (he’s 32 by the way). They will stay in their current home until retirement since my Stepmom runs a home daycare. Covid has made them more anxious since it showed them that they want to retire sooner than later, and also they would rather have a local vacation home type place as compared to banking on travelling lots.

My Dad along with my Sister and I (and our husbands) are considering going in on obtaining a family vacation property. This would likely consist of a main house that would be 4 seasons for my Dad and Stepmom, and then seasonal cabins or campers for our families. We need lakefront in a fairly specific area so this is going to be a long term project to find the right spot.

I don’t think it’s a bad idea to start looking at what is available and to educate yourself on the market in the region. I would also talk to a local real estate agent to get an idea of the rental market and potential profits/downfalls. Not having to move quickly gives you the benefit of looking through the available options and to really think about what you want.

When you start looking at retirement homes, especially in vacation properties, you might want to consider availability to healthcare.  Being out in the boonies if someone has to travel 100+ miles to see a specialist gets difficult.  

[aprilsails]

Feb 24, 2021 20:37:37 GMT -5 mich1 said:

Feb 23, 2021 22:16:12 GMT -5 aprilsails said:

My parents are actively considering their options now since retirement is 5 years away and my Stepbrother has finally moved out (he’s 32 by the way). They will stay in their current home until retirement since my Stepmom runs a home daycare. Covid has made them more anxious since it showed them that they want to retire sooner than later, and also they would rather have a local vacation home type place as compared to banking on travelling lots.

My Dad along with my Sister and I (and our husbands) are considering going in on obtaining a family vacation property. This would likely consist of a main house that would be 4 seasons for my Dad and Stepmom, and then seasonal cabins or campers for our families. We need lakefront in a fairly specific area so this is going to be a long term project to find the right spot.

I don’t think it’s a bad idea to start looking at what is available and to educate yourself on the market in the region. I would also talk to a local real estate agent to get an idea of the rental market and potential profits/downfalls. Not having to move quickly gives you the benefit of looking through the available options and to really think about what you want.

When you start looking at retirement homes, especially in vacation properties, you might want to consider availability to healthcare.  Being out in the boonies if someone has to travel 100+ miles to see a specialist gets difficult.  

We are lucky to live in an area with fantastic healthcare access and lots of lakes not too far from the big city. At worst, my parents will be 30 minute drive to a smaller regional hospital and a 1hr drive to incredible specialists if they need them. The lakes we are considering would be within a 30-45 minute drive of my primary residence. My parents do not wish to be further away than that from their grandchildren, and it actually makes work commutable for us if we were to go for an extended WFH style visit (we’ve done this before from my Grandparent’s cottages in the same region). My Mom is going to take over her parents’ cottage/house in the next 2-5 years. My Dad’s parents sold out their place unfortunately, and we’ve been renting for a month each summer from family friends for the past decade.