Rivers can provide us answers to our questions. All too often rivers prompt us to ask better questions. Should future retirees buy a rental property today for their retirement home tomorrow?
I slide back into my hammock hung between two ancient pines. The river cleared yesterday for the first time this spring. It’s voice amplified with recent run-off. Every river has a personality. The way it looks and sounds is different everyday. It’s true what Heraclitus said, “you can’t stand in the same river twice”. Too early for the trout to return.
Green shoots pop up next to dead grass, the little birds begin to arrive chasing the bigger birds drafts. Suddenly color is in the air with small robins, finches, and blue jays returning to make new nests. Sunrise is preceded with their delightful lively chatter. Woodpeckers peck proudly. Controlled burns leave a lingering scent in the air. Deer graze contentedly, then legs folded beneath them rest in the shade, happy winter has passed. Horses pick at poor tasting pasture anticipating the sweet grass to come.
Turning on my side I ask my question directly to the river. Should future retirees buy a rental property today for a retirement home tomorrow? Buying a retirement home or a second home for retirement is a big financial consideration. The log cabin above helps illustrate just how far one can go construction wise when one puts their mind to it.
However I caution one to be careful not to put the cart before the horse. Lets assume you and your spouse or your financial partner are living slightly below your means and have money burning a hole in your pocket. Lets assume you have 6-9 months of your bills saved in your emergency fund, you have paid off all of your non-mortgage debt, you are saving 15-20% of your income, have the right insurance, a secure job and your nest egg is right on track, your children’s education costs are covered, all multi-generational responsibilities (caring for others) are covered, your long-term care policies (LTC) are planned and paid for, your primary home mortgage will be paid off before you retire, you’ve accounted for inflation, retirement income tax implications, rising health care costs, household replacement costs, and have some wiggle room for unexpected family emergencies even including divorce without hurting your nest egg. Congratulations on having balanced your life-time checkbook!
I will address living outside the country in future posts but for now lets focus exclusively on living within the U.S. In the event you have in fact balanced your life-time checkbook and have cash available for investing in retirement real estate. The timing is great given current market conditions. I recommend future retirees not buy a rental property, a house, condo etc. with the idea of renting it out between its purchase date and when one retires for one’s own use.
Buy a Piece of Dirt
I recommend instead buying a piece of land somewhere you and your spouse and or your financial partner would enjoy spending several months each year. My problem with buying rental property today is that a home or condo typically requires the configuration be suitable for renters today and for you tomorrow which is tricky. Often times one ends up gutting the property and completely remodeling anyway before using it in retirement. One also risks haven taken a step backward from a financial liability standpoint. It is possible to unbalance one’s life-time checkbook after all the hard work it took to get it balanced in the first place.
Cash is king at the moment. Plenty of land owners would benefit from a little cash infusion. Most will carry paper if necessary. I recommend paying for everything in cash on a piece of land that can be subdivided in the future into two or more parcels. That way when you retire you can sell one or more parcels and use that money to help build a log cabin like the one in the first picture; perhaps a bit smaller depending on your needs. You will likely discover when you retire you can be just as happy in a smaller place as a bigger one. Consider location, location, location.
I don’t recommend a loan or using a line of credit from your bank or credit union to finance this purchase. If this is the only way to finance your retirement home it is best to wait and save until you have enough cash to make the purchase. I recommend a straight cash purchase or at least cash down (50%) with the owner carrying paper enabling you to make manageable payments over time. Your real estate taxes are minimal, a few hundred a year.
Construction of one’s retirement home is made easy by the many pre-assembled log cabin manufactures such as www.whitefish.com and dozens of others online. This approach enables one to customize the floor plan and design to one’s exact needs once retired. Your ability to determine your specific needs will be much more exact once you retire. Once ordered the manufacturer will drop off all the required materials on your lot. Then you can hire a local carpenter interested in 6 months of work and you move in later no fuss, no muss. A-frames, log cabins etc. are fun to design and live in regardless of the area of the country you select ocean, desert mountains etc.
Prior to construction can pull your double wide trailer, RV, bull dog camper, or pop-up trailer (paid for in cash of course) onto the property for a little practice run. It is good to be absolutely sure this is really where you want to be at least a few months each year of your retirement. After trying out the location perhaps you discover maybe this isn’t the ideal location after-all. Maybe things have changed over the years in the area, maybe you’ve discovered somewhere better, perhaps a location closer to family, recreation, medical services, travel or employment opportunities. Selling vacant land is easier, less stressful than selling an older even well maintained rental property. Enjoying so little overhead makes one a patient seller while having the ability to use the land. In the event one has picked the right spot one can always pull one’s double wide trailer, RV or bull dog camper or pop-up trailer onto the property to supervise and monitor construction. By opting to perform certain construction tasks yourself you can further lower your construction costs. It is also a good idea to plant plenty of fruit and nut trees early on in the land ownership process.
Places one loves to be in today can change tomorrow. People can change too. Real Estate markets always change. By avoiding a loan or line of credit, and avoiding owning an aging asset (maintenance, taxes etc.) one is provided with the options one needs to actually enjoy the process of planning, building and living in one’s custom retirement home. With numerous house swapping opportunities, cruising the high seas and the RV lifestyle one has many options to keep where one lives interesting in retirement. The freedom to patiently adjust ones retirement home plans without pressure or stress nor concern for unbalancing one’s life-time checkbook is priceless.