Thoughts or Ideas on Second Home... Financial or Tax Thoughts
 

Good morning, I am seeking information from those who are more seasoned and experienced than myself in this area. Allow me to paint the scenario, and if interested I would value input, and thoughts or considerations I may have not looked into or even thought of.

Situation: Age 55, with a wife of 42. Looking to purchase in the Villages and do not want to spend more than $300k for a home down there. This would be a second home, and used as such, not sure of renting it out yet as the distance of caring for and who to watch over it may/may not be an issue. That being said, it will eventually be our retirement home, and visits until that time, or we are allowed to work from our current jobs and office down there. That is neither here nor there for the conversation. (Unless something is valuable I should know.)

I owe less than $105k on current home.
I have roughly $150K sitting fairly liquid to use on a purchase of the home down there to minimize the mortgage loan.

Questions and thoughts I am seeking are:

Should I pay off the current home, and not have the mortgage, and take out the full mortgage on the future retirement home and put at least 20% down to avoid PMI on that home?

Do I not pay off the current home, and then put $100k+ on the down payment on the future retirement home? Keeping roughly $40k+ in a money market for any boo-boos that may occur for a rainy day fund?

I am trying to ascertain the info to help make a better education decision for the finances, and since I am not in that industry, I don't know what I don't know. Therefore the questions may not be right?

Feel free to ask questions and I will check back and respond. What decisions did you all make, or what are the thoughts on what is best?

I appreciate the information?

What is the interest rate on the current home?

Is the idea to claim Florida as your primary residence to avoid state income tax?

I think they most important question is how much time will you be spending in The Villages? If it is not a lot, why not wait until you retire to buy another house? The Villages house will be a huge ongoing expense.

It would be eventually to homestead, but not until I sell me current location down the road. That chunk will be part of my retirement and not taxable. ;)

My background: corporate finance and financial planning.

We were in a similar situation:
purchased TV home with mortgage
refinanced primary home to pay off TV mortgage, just lucky we missed the absolute low refi rate by a week in Jan 2021
both houses are about the same value at purchase and currently
tax note: the refinance NOT INVESTED back into the same house, made the mortgage interest not tax deductible, however, didn't effect tax return.

The option of paying off primary was possible as only $10K remained on mortgage but we couldn't pay cash
for the TV house due to paying down the primary mortgage early.

However, remember the future is uncertain, so if you were to default on a mortgage,
which house would you want to keep?

Buying a house and not using it or renting it, is a costly purchase, especially if you rent the money,
and pay home ownership fees,
If not your homestead location, your tax base on the TV home goes up in tax value at 2X the homestead tax rate.
so estimate increase in tax base increase of 7 % per year over a 3% increase for a homesteaded home.

However, at your ages, I would suggest waiting for a bit and saving up a bit more and watching
The economic uncertainty is so high right now, more so than in a very, very long time.
Being able to work from home for the winter months makes the home ownership very doable for the cost.
Without it, and if your income is at any risk in any way, and having been employed for 20 years is not a guarantee,
its adding huge additional expenses for what reason right now?

please feel free to pm me if you want.

Have you done any detailed, line time expense, financial forecasting to determine
when you will run out of money if you made this purchase?

pm me if you have any financial forecast questions

It is right around 4% for current home.


@retiredguy123

As for spending time down there, at current 4-6 weeks, but Not sure I want to pay for a place 10 years now at those future costs with income becoming smaller as I will be retiring. Could also rent out if we chose.

If you are only going to spend 4 to 6 weeks in The Villages, buying a house now would make no financial sense. No one knows what houses will cost 10 years from now. And renting out the house may not make any money at all. Buying a house in The Villages today is definitely not a surefire 10-year investment.

Agree with the advise above.

Adding, The Villages is evolving and growing rapidly so your choices wil be different in the future.

Be aware 300K homes tend to be interior lots that historically do not appreciate as much as more in demand locations.

Combining your savings with the proceeds of you current home can put you in a more desirable location.

We rent out our house full time, for the last 5 years.
We have barely broken even on a cash flow basis, sheltered from income taxes with the non cash expenses
and that is without a mortgage. So there is one part of your due diligence, but that includes 20% property mgmt fee. If you do it yourself, which i don't recommend from far away, then you can make some money
BUT renting it out full time will not cover the expenses because the rental market is drying up with both the economy, and the expansive number of houses being built. more people are buying here and renting. rentals come mostly from people excaping winter or while looking for a house to buy. a very few come to live for 12 months, if you are very, very lucky

If you do the financial analysis correctly, you can easily rent for the amount of time you would be here,
for less money than buying a home. . . . many, many articles on that in financial publications.

and with renting, you actually get two pieces of information you don't have now:
1) what the actual life style is about, especially for a wife 20+ years away from retiring, hanging out with her aunts and uncles, or great aunts and great uncles in some cases
2) what kind of house you will feel comfortable with, location, and limitations.

Just recently golfed with several people from Indiana, who are here renting for 4 months, and have done so for the last several years. All are retired. . they are thinking of owning, and have been exploring the idea with actual experiences. .

that approach is in your best financial interest. .
good luck in your decision.

former finance guy,
now just a financial advice poster to people who don't need it as they are already living the retirement dream

A little tight
 

That budget seems somewhat tight. For sure you would have an amenity bill of 200 per month, utilities (water can be more costly in the summer because of required irrigation), as well as other charges like fire etc. Taxes will be based on what you pay for a home. You are also required to maintain your lawn and lawn services run about 100 a month? Insurance can be high and it seems to just go up. That would coincide with your homes condition, type and price but is certainly required if you financed.

If you buy north off 466 a bond won’t exist (unless you buy in the new rebuilt area in Spanish Springs). Bonds vary but can mean at about 150 a month.

That brings a brass tacks expense to at least:
Amenity Fee 200 per month or 1200 a year
School and Property Taxes at about 4000 a year
Utilities at a minimum 100 per month or 1200 a year
Maintenance of lawn ( cutting and pest fertilization) at about 100 a month 1200 a year
Maintenance Fees (ie. Fire etc) 75 a month or 900 a year

This minimalist budget is already at 8700 a year. I didn’t include a mortgage payment because right now we don’t have the finer details to even estimate. The 8700 number is just the automatic drain turned on you may not ever recoup.

You would make more money putting your extra cash in a high yield savings.

We bought a new, PV as an unfurnished long term rental 2 years later bought a cottage sold the PV, continued to long term, which we sold purchasing the next 3/2 with cart garage. When it was time to retire we bought a home that fit our final needs.

Since there wasn’t any furniture to move from house to house not a problem. Time span from first house in 10 years. Managing long term is pretty easy, and renters usually wanted a multi year lease. Would we do this in todays market, maybe, but the first house is going to cost more than $300,000, if you want to sell it for something that suits you lifestyle better, years down the road

Agree
 

Agree. In today’s market you should consider view lots if you are in it for an investment. A lot on a pond or wildlife refuge would appreciate or appreciate much more than an internal lot. I would not consider a corner lot (irrigation costs and lawn maintenance). I would also steer clear of some golf course lots due to golf ball problems, others are much less susceptible to ball damage. Expect an extra premium for the view lot of about 150k in today’s market. Also consider much higher taxes based on your actual purchase price. Further, you are in that type of home at least 10k a year in sunk cost expenditures.

Most will tell you not to rent because you’re throwing money down the drain. I don’t think so after all the lawn care, termite stuff, home watch services, etc, etc it’s not a bad option at all. If your rent far enough out you can get a nice place for reasonable cost.

When we moved here wife wanted to be snowbirds or snowflakes. Decided wanted less complications so decided we would be owners of only one house. So glad we did that route

OP one thing you haven’t said, how many SF would you feel comfortable to live in? At $300,000 think 1140sf. High season rental start at $4,000 and up Jan-Apr. …

summer is much less, but do you really want to be in FL in 90 degree plus days.

If your plan is less than a month per year, for 10 years. Put away $1400 a month ( the funds needed to run a base home in your price range) in an account that you can make money on.

In 5 years TV could be 10 miles south of Eastport by then. Homes south of 44 will be 6 plus years old. Young enough not to have to gut and start replacing major things, old enough that lots of improvements made, that the owners will never recoup. Then make decisions, of course consulting with your financial guy would help you make smarter decisions.