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