[USER]

I’d love to get your thoughts on a second home purchase vs freedom to retire sooner.

-41/43 y.o
-combined income $375k
-primary residence almost paid off $70k left at 2.8%
-no debt

-2 paid off cars a few years old
-3 young kids under 10 with tons of educational years to come at not cheap prices.

-$50k emergency fund
-$1.9 invested in index funds in retirement and brokerage
-$400k cash I’ve been saving for a second home.

We want to retire to a HCOL and have sat on the sidelines as prices have soared, and continue to. We’re NOT experienced land lords and don’t pretend to be.

One cost of purchase would be a company to help monitor/watch our place/fix it when needed.

Do I have the green light to buy a $1mm property? I’d use the $400k as down payment, and finance the rest (though I don’t want to at almost 7% I would).

I’d rent it out and cover the remaining costs since rental won’t cover full mortgage+ Expenses but it will cover a lot.

Am I putting myself in a position to fail?
Is this going in too deep OR is it fine given my stats?

I’m sitting on the fence and can’t pull the trigger.

Thanks for your friendly input.

[Suzanne]

As someone who used to have 15 rental properties… don’t be a landlord. Invest your $$ wisely, and the stock market growth (long term) will grow faster than property prices will rise.

One bad tenant can cost you $20k easily.

Even fabulous tenant will start dating a bad-news boyfriend.

And maintenance cost only go up over time as the property ages.

[Jin]

If it were me I would not do it. Too much risk for my taste, including the risk that I (or more likely my wife) may change our minds as we get closer to or into retirement.

[Brad]

Why? Will you rent it out until some unknown time in the future when you would move in? I wouldn’t.

Wait until closer to that time.

[Jule]

You need to treat this as a business since you are renting it out. Having said that, why would you go into a business that will lose money and you have to cover the monthly expenses, on top of the maintenance and vacancies?

It would be a hard pass for me. It’s one thing if it would truly broke even, but it sounds like even with potential appreciation, taxes, insurance, repairs, maintenance, a property manager, etc.

you would be bleeding money every month.

You’d be much better off by investing it in the stock market and when you are ready to move in the house – if that’s the objective – then buy the house.

[Holly]

We are small-time landlords. Tenants are destructive! Our properties were purchased inexpensively.

I can’t imagine renting out a $1M property.

[Lori]

No. Invest your money in the market, take the proceeds, rent a place for 4-6 months.

You won’t be stuck with one location

[Kerri]

I wouldn’t. Your lives may look completely different than you think in retirement and the house you buy now may not suite your needs.

[Melissa]

2 house insurance plans, 2 property tax bills, 2 places to possibly get hit by natural disasters.

This sounds scary as all get out to me.

You and your spouse have to decide how much risk to take on.

[Mia]

Sounds like youre saying you could have zero debt and house paid off and still have $2.2MM in the bank now.

If you can cash flow pre-college education then that’ll be pushing $5MM cash by the time they hit college age but totally free to retire or step back from work once kids are out of the house.

Vs if you buy a $1MM house now you’ll likely still have, what, $500k mortgage while paying for colleges?

There’s nothing wrong with it but what’s the dowside of option A? It sounds peaceful and secure.

[Hermine]

Could you buy something smaller, more affordable? In 2021 we bought a home in my home town in a HCOL area, where I hope we will retire one day, and we rent it out now.

Cash flow is minimal or zero (management company) but we got a small cute place and used only half the funds we had available, and invested the rest.

It makes me very happy to know I will always have a place there.

It is a small place but cute and in a great location and if we end up living there forever we can always sell it and buy something bigger then.

We would have a leg up if we wanted to go bigger, but the risk right now is minimal.

[Katie]

Research tenant laws in the HCOL place you want to buy in. They are usually all in favor of the tenant. I was a landlord for 16 years in Massachusetts.

There are years it’s great and there are years it’s a nightmare. We lived 30 minutes away from our units.

Our nightmare tenant took a year to evict. Multiple court appearances. They destroyed their unit. I think it cost us around 25k to get the unit ready to rent again.

It wasn’t worth pursuing them to get our money after. The stress of that year aged us both and we were in our 30’s.

Spent one day at an amusement park with my kids on vacation on the phone half the day dealing with these nightmare tenants.

My husband spent part of the day on his 40th birthday unclogging a toilet that was clogged with paper towels and the tenant claimed to have no idea how they got there.

One Thanksgiving he had to rush through dinner to get to a tenant who kept calling because their heat wouldn’t turn on. In the end after going there we found out their gas had been turned off for non payment.

Some years were easy and very profitable and some years we lost money and were under constant stress and had 5 small children.

We sold and put our money in the market and love not being landlords. And we bought when prices were a lot cheaper.

I wouldn’t spend a million unless it was on a building with multiple units to mitigate risk. Landlording is not passive or easy.

[Arif]

When do you plan on retirement and what is your liquid networth goal? We’re in a similar position and have decided we have enough liquid assets to let it grow and put a large separate chunk of cash into a second home.

We plan on retiring in 3 to 5 years.

I suggest putting hard numbers to your future goals (college, net worth, etc.) to see how far or how close you are.

[Caro]

What’s the point? It is a “good rental property” by definition? At 1 mm? I don’t know with HCOL but eh.

Doesn’t sound like something I would recommend.

I’d channel those funds to the kids’ education instead.

[Tony]

You should probably spend a significant amount of time on Bigger Pockets learning the ins and outs of rentals and practice calculating cap rates.

As someone else mentioned, rentals in HCOL areas don’t usually make sense because the margins are usually either razor thin or don’t cash flow, or in tight markets there are rental control laws or other regulations that discourage rental investment.

In many areas with vacation rentals, the properties for sale are inflated based on STR revenue, which makes it difficult if your plan is to eventually move it from a business to personal use.

With such an expensive purchase I’d probably spend a few months educating myself on the rental market and track sales on Zillow before diving in.

I just bought a 2nd home in Nov 2023, but I literally spent about 15 months tracking listings and sale prices and understanding the vacation home rental market where each cluster of listings were located before one fixer upper fell in my lap.

[Jeff]

You do you. I’m working on simplifying my life rather than complicating it. Less is more as they say.

You don’t give a reason why you want to buy a second home?

If it’s for weather during Winter/Summer months I’d just rent something furnished.

[Author]

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