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Buying a Vacation/Retirement Home (Part 2)

February 18, 2011 by Lazy Man 3 Comments

Last week, I found a few spare minutes to relate my initial experience of buying a Buying a Vacation/Retirement Home. Unfortunately, due to the lack of time between appointments to see houses, I skipped over some important details. It was clear in reading the comments that the post wasn’t what it should have been.

In the post, I mentioned that we traveled 3000 miles from San Francisco to Newport, Rhode Island to look for a Vacation/Retirement house. If you didn’t read my previous post, “Time to Buy that Vacation/Retirement Place?“, the wisdom of that action may be questionable (it may be questionable anyway). The idea is that it seems the perfect time to buy the place we think we may live (winter, during in a housing downturn, with great interest rates). It will likely be an investment property in the short term – the idea is to rent it most of the year until we plan to use it ourselves. For a lot of people in their 30’s that would be a long time. For us it would be around 8 years when my wife leaves the military with a pension and I continue to build online businesses which largely fits my definition of retirement. Managing the property from a different coast for 8 years would be a hassle and the question is whether the good outweighs the bad. I think that’s a very subjective question and I’d love to hear thoughts on it in the comments.

The other thing that I mentioned in the last post was that we looked at houses that were more than 100 years old. If you are looking for prime property in Newport, Rhode Island, that’s the kind of thing you are going to find. It’s not like people just discovered new land in the prime locations to live. We ran up against one of the biggest challenges in looking at photos and determining if the place was any quality. It’s very easy to confuse linoleum with tile. It’s very easy to place a cutting board over a cracked tile in a counter. We didn’t go out looking for places that were 100 year old money pits to manage from 3000 miles away, but it may appear that way because of how I wrote the article.

A lot of people asked the tough financial questions that I was hoping I’d slip by without addressing. The ones about whether the homes we are looking at would be cash flow positive and such. Well, I figure cash flow positive depends a lot on what you are putting down. If you are putting 20% down it usually is very difficult to find. I don’t want to say it is impossible, but I’ll just say that I found maybe one in the pile of places we looked at. It’s close and may not be cash flow positive by the time you factor in the costs of maintaining it. I don’t think this purchase could be looked at from a pure investment perspective – but that’s a long story worthy of an entire separate post.

To pick up where I left off on the last post, we went to look out for a second day on house hunting on Wednesday of last week. We learned to avoid some of the 100 year old homes altogether. By the end of the second day we had looked at another dozen properties. We added two more places to the list of possibilities, bringing the total to 3. However, we had two front runners and pushed the other back to only pursue if we got tremendous value for it. One was a place near the top of our price range, in a great location a couple blocks from the beach, asking $224/sq foot with almost no land (under .10 acres). The other was smaller, in a questionable part of town, asking around $130/sq foot with a little more land. The “questionable” part of town is relative in a nice place like Newport. The next street over has million dollar homes, and it has great views, but there is some low-income housing behind it. Perhaps the most valuable land in Newport on the water with a breathtaking view of the Cliffwalk mansions was just across the street, but it was currently occupied by an eyesore of an abandoned Navy hospital. The land was recently given back to the county, but no one knows for sure what it will be. The small house itself was very nice, with lots of updates.

We were torn between the safe home at the top of our range, or the one that was priced at a bargain rate to start with a lot of upside depending on how the land develops (I figure it can’t get worse). I decided to ask some friends for advice. I described both places as best I could. I was surprised at what I heard back, but I guess I shouldn’t have been. They almost all went for the safe place at $224/sq. foot. I found myself defending the $130/sq foot place. I quickly realized that I probably shouldn’t have asked for advice at all. They weren’t there to witness both places, and going off my own description, I realized the choice was pretty clear. It’s a classic case of “garbage in, garbage out.” I couldn’t accurately convey all the pluses and minuses of the two properties. I couldn’t ask that they factor in my own risk aversion of losing $100K in equity as I did with my condo by buying at the height in 2004 (see: I Made a Mistake and Checked Zillow .com Today). The small house was kind of like a beat down stock with dependable earnings – I didn’t see much downside and some good upside. The other house is going to follow the market. For the most part it is going to be what is going to be – it doesn’t have the upside of someone improving the area around it.

As we started our third day of house hunting it was a two horse race and it was hard to say which was winning…

…to be continued.

Filed Under: Real Estate Tagged With: Newport

Time to Buy that Vacation/Retirement Place?

December 14, 2011 by Lazy Man 9 Comments

Two weeks ago, I lamented about how I bought my home at the wrong time. In fact, I’m technically upside-down on the place. That means that my mortgage is slightly more than the place is worth. So why do I ask the ridiculous question in the title? … because my wife and I are seriously considering it.

Before you reserve me a padded room and form fitting white jacket, let me explain myself. We are looking at two huge factors driving this decision

  1. An Ideal Time to Buy

    Historically, it is a great time to buy. You’ve probably heard that more than a few times in other places, but it is true. The cost of buying a home in many places are very low and the interest rates are low. When I bought in 2005 before, interest rates were historically low (who knew that 5.875% would look high now?), but real estate prices were high. I think the pendulum has swung in the other direction with real estate prices (in some areas) and interest rates are much lower now.

  2. We May be “Retiring” in 8 Years

    You noticed that retiring was in quotes up there? Good. It seems like retirement means different things to different people. I even wrote about it once: What’s Your Definition of Retirement ? By some definition, when I’m working on my side businesses, I feel like I’m retired.

    This definition of retiring would be my wife collecting her pension with 20 years in the military and finding the next hit boy band. (We joke about that last part.) However, a military pension, plus online income totals a decent sum of money – even without traditional retirement vehicles like Roth IRAs, 401Ks, and the like.

    That sum of money is relative though. It doesn’t buy much of a glamorous lifestyle in San Francisco. In a few areas of the country, it can go a long way. So we naturally looking to extend our dollar since the majority of our income won’t be tied to any physical location.

The Straw Man Plan

We thought a bit about where we’d want to live. Texas has a cheap cost of living, but I’m not sure you can really put this Boston couple in Texas. They’d probably find my allegiance to the Patriots quite annoying. We do have a couple of friends there, so we aren’t ruling it out. We also looked at Nevada as it is a nice tax-friendly place with good weather. We can’t rule that out either. However, the leading place we’ve been discussing is the Jacksonville area. We have a few sets of friends there and perhaps we can convince another friend (half the couple seems very interested, the other half… not so much). Jacksonville seems to be a nice tax-friendly area, free of snow, with some relatively cheap real estate.

The other area we are considering is Newport, Rhode Island. This is more of personal thing with us as we both have ties there. In fact, my wife and I got married there. There are two keys for us considering Newport. It is “The Hamptons” of New England in the summertime. That makes it a great place to rent out in the summer. In the winter, Newport dies down. However, there’s the military base that has a Naval War College, which means you get a lot of Navy cadets (I hope that is the right term for them), who make great tenants… especially when I’m married to someone who can pull rank on them ;-). Lastly, Newport, RI is close to our Massachusetts roots and family.

Between the two places, we’d have a place to spend our winters away from the snow (very important to the wife) and a place to vacation in the summer. The idea would be to buy the Newport one first because it would be easier to rent until we are ready to retire. We’ve all the heard the horror stories about renting out Florida real estate right?

There are a pile of holes in the plan, but it is serving as a good straw man for now.

The Risks

Of course, there are always risks to consider. Here are couple of the ones we are looking at:

  1. Current Real Estate Holdings

    As I mentioned above, I’m upside-down on my current rental property. However, it is occupied and while the cash flow isn’t positive, it it is barely negative. A couple of cost cutting measure like our cable bill or my cell phone bill and apply those savings towards the property and cash flow problem is quickly resolved.

  2. Do We Have the Money?

    We have a two year emergency fund right now. My wife’s military job is quite possibly one of the most secure jobs in the nation right now. It is enough to for the two of us to live comfortably on. There are ups and downs in my income. When I have a contract job to supplement my online income, it is enough for the two of us. However, when I’m between contracts or just focusing on my side businesses, those businesses are just enough to support me in our area. (We could always move to a more affordable place in a hardship, of course.)

  3. What if We Can’t the Rent the Place

    This is the single biggest issue. Having an empty rental property is really a drain on the cash flow. We really need to put our homework in and understand the real estate market in Newport completely. We’ll have to go on the Navy base and see what the options are for renting to the cadets.

I’m sure there are more risks that we haven’t considered. Perhaps you can help me fill in the gaps in the comments below?

The interesting thing is that as we were considering this, I opened up this month’s issue of Smart Money and James B. Stewart’s Common Sense column mentions buying that vacation/retirement place now… for the exact reasons were were considering… he’s looking for “something that’s cheap and likely to appreciate.”

Filed Under: Real Estate, Retirement Tagged With: cash flow, Jacksonville, Newport

7 Frugal Vacation Ideas in Newport, Rhode Island

August 1, 2011 by Lazy Man 6 Comments

I was really racking my brain for an article idea for today when it came to me. Do what you always do: write about what’s impacting your life. My wife and I got married in Newport, Rhode Island a little over two years ago now and we made a point to set aside a few days to relive one of America’s more storied cities. In fact, if we ever finishing moving and decorating, our bedroom will have a great nautical theme. It’s ironic for the guy who doesn’t really like the beach or sea food.

Newport, Rhode Island is a place where people have a lot of money. When we were looking for wedding photographers, the cheapest one’s cheapest package was over $5,000. That gives you an idea of the kind of money that flows. So my theory is, if you can find ways to save money in Newport, RI, you can find ways to save money anywhere. With that in mind here are 7 ideas for saving money in Newport Rhode Island:

  • Atlantic Beach Club – On Tuesday we went to the Atlantic Beach Club on Easton’s Beach (better known as “ABC” at “First Beach”). Some might call me a cheater since ABC is about 100 yards over the Newport line into Middletown, RI – they can leave the site now :-). The Atlantic Beach Club has some beach volleyball and the locals were there playing at noon on a Tuesday. They often have live music in the afternoons. Parking is $10 a car, but since we were their for the restaurant the charge got waived. A pitcher of domestic beer (including some personal favorites like Sam Adams Summer and Wachusett Blueberry) were $15. So for $5 more than than parking, you get a pitcher of beer . After our light meal and drinks, we went down to the beach for a bit, and then walked to…
  • Newport’s Historic Cliff Walk – The walk is a 3.5 mile mostly paved trail behind many of Newport’s famous mansions. As the website says, “What makes Cliff Walk unique is that it is a National Recreation Trail in a National Historic District.” My wife and I went about a mile and a half of it this time, before we realized that without water or our day packs, it was silly to continue much further in the 95 degree heat. (Plus, I had done the whole thing a few years back, so I didn’t feel like I was missing much).
  • Window Shop – Thames Street and America’s Cup Boulevard have some great small local business. They always attract a small crowd in the summer time. For years, I’ve walked by the Re-Sails, a store that recycles sails into coats, bags, and other goodies. The high price has stopped me from buying, the jackets cost $250 and up. We stopped at one place, Bite Me, Live Bait and picked up some signs: Cliff Walk with arrow and Mansions with an arrow for our bedroom theme. We passed on a sign that I found humorous: “No Malicious Cannonballing”. I was going to get the B.O.A.T. – Break Out Another Thousand shirt for a friend, but they didn’t have his size. Also, it’s one of those things that can sometimes hit a little too close to home.
  • Go on a Historic Tour – Newport is home to the church where JFK got married… just take a trip to St. Mary’s Church. You can also have a beer at America’s oldest tavern, the White Horse Tavern, established in 1673. There’s some controversy there as it’s not the longest running tavern – it wasn’t a tavern for some time. We had dinner there, which was pricey and fantastic, but if you are on a budget, save your money and have a drink there.
  • Visit a State Park – There’s Fort Adams and state parks. Pack your kite, Frisbee, and picnic basket. While it’s not particularly unique to Newport, it’s a day well spent.
  • Tennis Hall of Fame – Since, American tournament tennis began in 1881, it is the natural home to the Tennis Hall of Fame. The adult rate is $10 and kids get in for $5 (under 5 are free). I would say more about it, but I’ve actually never been. It seems like there were always something else to do.
  • Newport Grand – In previous years, I could give this a higher recommendation. This used to be home to daily Jai Alai matches, but sadly it’s been converted to a building full of slot machines. On the bright side it’s open until 1AM or 2AM most nights. My wife and I stopped in and despite coming away disappointed, played an hour of Deal or No Deal themed slot machines. She won $7 and I lost $3. Making $4 to be mildly entertained isn’t horrible.
  • Bonus: Top Side Pub – If you have military connections, the Naval Station in Newport has a place called Top Side Pub is a great place where you can get a small steak for under $8 and a pitcher for around $10. It’s right on the water looking at the famous Newport bridge. Not so coincidentally, the Officer’s Club that it’s affiliated with also served as the location for my wife and my wedding reception.

Have you been to Newport? If so, what are your favorite places or things to do (frugal or otherwise)?

Filed Under: Spending Tagged With: Newport, Rhode Island

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