How should we finance our second home?
![[Post New]](/jforum/templates/default/images/icon_minipost_new.gif){kind=icon}
Anonymous
|
We are about to retire in about a year and want to look at getting a condo in a warm climate where we can spend a few months out of the year. Our current home worth about $1.3M has about $400K on the mortgage left with a very good rate.
We have a net worth of about $13M which includes retirement investments, deferred comp, stock grants and options, as well as some taxable investments. We also have about $400K in a money market (knowing we would need it for a down payment at some point). By the time DH retires, the net worth will grow significantly with two more deposits in the deferred comp account and additional stock grants. I envision another $1M added at the very least. With interest rates still very high, does it make more sense to just pay cash for the second home? We are looking at homes in the vicinity of $1M to $1.5M. Or should we just wait until interest rates come down? |
Anonymous
|
I would rent for awhile. Renting is not throwing many away in this case. condos have a lot of problems and you want to rent in the building first or even the exact unit.You have enough investments to pay for the few months you want to spend there.
|
Anonymous
| Cash and pay off your house. |
Anonymous
| Why would you retire if your house isn’t paid off? |
Anonymous
+1. If you have to finance your second home, why have a second home, OP? True question. It is a home or a condo?? |
Anonymous
Not all condos have "a lot of problems". You can research the condo buildings while searching for one. Key is to read the monthly meeting minutes for the HOA, see how the financial state of the HOA is---they should be working towards having it fully funded, but not be fully there (even 30-40% there is great). But more importantly, they should address issues before they become major issues. So read the last 3-4 years of HOA meetings and understand how they handle maintenance. For example: we purchased a condo in a city. We ended up in a 15 yo building where they actually push to do preventative maintenance yearly to avoid any major surprise assessments. They HOA fees go up yearly to manage this and to keep the coffers moving towards "fully funded". They do maintenance preventatively well before several other buildings we looked at---you pay for it in HOA fees upfront but it's typically much less costly than waiting. Also figure out what your HOA fees include. For us, it includes all insurance on your condo, except your belongings. So yes, if my condo catches on fire, the brand new kitchen I put in will be replaced under their insurance, not my personal insurance. IT also includes Earthquake insurance (live in area where it's needed). So I save about $3-4K/year on my personal insurance (based on what a house would cost to insure of the same value) and that helps understand why HOA fees are a bit higher---that's 350$ per month that I would pay somehow---be it thru the HOA or my own self insurance. I no longer have a roof to maintain---HOA does that. Windows get washed 4x/year, dryer vent gets cleaned yearly, HVAC filters get changed every 3 months, I dont' have a personal H20 Heater---so I don't have to replace it every 7-8 years or worry about a leak, etc. Once you consider everything that is actually included/paid for by your HOA fees, it's often a good deal. Obviously the HOA fees will go up as a building ages---just like a 22 yo home that needs new siding/painted siding/new roof/new furnance/new H20 heater, etc will cost you more than a 5 yo home. |
Anonymous
| Cash. With that net worth you should pay for your condo with cash. |
Anonymous
How old are you guys? - I wouldn't pay off your primary residence. You have a low rate. - Put down enough money on the new home and finance the rest so that your monthly payment is manageable. You can always refinance the home once rates come down. I don't know how difficult it would be to get financing in retirement though. |
Anonymous
| Pay cash. |
Anonymous
| We retired young. We have barely half your net worth. Like you we kept the low interest rate mortgage on our primary residence. No reason to pay it off. We paid all cash ($700k) for our second home. |
Anonymous
Hopefully this is a joke… They have a net worth of at least 13 million dollars. Who cares if their house is or isn’t paid off? At that net worth I’d probably just pay cash for the second home and keep the mortgage on the primary. |
Anonymous
| Also, be really careful with the deferred comp / stock grants/options. By the time you retire, do what you can to diversify. I've watched several of my parents' peers get REALLY burned by this, and the sure thing money goes poof. |
Anonymous
Same. I can think of some defense contractor shares that have had some rocky times |
Anonymous
OP here. We financed our home before we accumulated all of this wealth. It's a low mortgage rate. What do you mean "home or condo"? Can a condo be a home? |
Anonymous
OP here. Yes, a good portion of our wealth is company stock/options (about 20%). This stock has been a very lucrative investment over the years and our net worth would not be what it is without it. We have sold of some of the stock already in the past for the purpose of diversification, and will exercise our options by 2028. Not sure how long and how much of the stock we will hold at this point...this is a discussion we continue to have with our adviser. But holding the stock so far (for the past 10 years) has been extremely profitable. The deferred comp (about 19% of net worth) is different. This is invested in various stocks and bonds and allocated appropriately for our investment goals. |