Our dream and the reason for our empire-building habits, is to retire early in our early 40’s. Now, I am the first person to tell you I am more than a little unique. And that’s probably why I am going to sound crazy when I tell you that as 20-somethings we are already well into our financial planning for our retirement. Our dream is to to send our future kids off to college, put our home on the vacation rental market, and sail off on a 42 foot custom schooner (doesn’t hubby have great taste?).
Since I will still require a home for our kids and (and us) to come back to and because our expensive tastes, we need a budget. Over the years we have come up with three ways to fund our retirement home. Here’s what we do and how you can do it too!
Ways to Fund a Retirement Home
1. Use Cash Flow to Cover the Mortgage.
The easiest answer way we thought of is using our cash flow (retirement accounting & empire) and hope that will cover the mortgage. We can do this by simply adding enough houses over the years to make sure the cash flow meets our needs.
- No worries about having the house paid off.
- Can buy the house right before retirement to allow maximum flexibility.
- Potential tax deduction for having a home.
- Allows you to leverage your mortgage if your mortgage interest rate is lower than the yielding interest rate on your other investments.
- Depending on the mortgage amount, it could be a significant additional income requirement.
- It’s a large load of debt right before the beginning of retirement, a time where people want to eliminate debt.
2. Rent the House Out.
Another option we are thinking about is buying a house that would make a great vacation or short-term rental.
- Leave it fully furnished
- Leave vacant only amount of time wish to occupy.
- Potential Tax Right offs for having a rental
- Potential damage to the furniture or items stolen
- Personal affects would have to be locked away
- Home would have to be bought in an area that this type of arrangement would be appealling.
3. Sell Assets to Pay Cash.
If you pay cash for the house you wouldn’t have to worry about any payments other than cash.
- Paid off home with no mortgage payment.
- No worry about fluctuation in income to cover assets.
- Large amount of assets tied up.
- Lack of ability to capitalize on great yield-producing rates.
Buying a retirement home is not going to be for everyone. In some areas where renting is cheaper than having mortgage, renting might make more sense. In other areas being a nomad and living on a sailboat or camper might be better. There are tons of different ways to be successful. Unfortunately, the key to success is planning. So make sure you talk to a CPA, lawyer, financial planner so that you have a plan ready!
How are you planning on paying for your retirement fund?0