So here’s our potential plan: pay off our house in the next 3 years, sell it for around $125,000, and then use that as a huge downpayment on a $500,000+ beach house. We’d love to know your thoughts before we buy a house on the beach. Here are my assumed pros and cons to this plan.
Pros to Buying the Beach House
1) We’d own a hunk of land that would almost certainly appreciate in value since there is a very limited supply of waterfront land in our area.
2) We could enjoy our dream location for the rest of our lives. Both my wife and I love the water. We can’t get enough of the atmosphere, the views, or the sounds of lapping waves on the shore each evening. Having a property on the lake would be heavenly.
3) We’d be able to entertain often. With a house on the water, we’d have plenty of friends stopping by and visiting. We’d definitely love that.
Cons to Buying the Beach House
1) While having a downpayment of $125,000 sounds like a lot, we’d still have a mortgage of nearly $400,000, which equates to a $2,800/mo. payment on a 15 year loan.
2) High insurance and taxes. With a more expensive house, we’d obviously have to pay much larger amounts in these categories. Our insurance would probably jump to over a thousand bucks a year, and I imagine taxes would eat up another $7,000 per year. If we’d put these additional costs into the monthly payment, it’d raise it to about $3,500/mo.
3) We’d lose the opportunity to invest that money instead, which would have most definitely earned more than the value of the house, especially if you factor in all of the interest we’d be paying to the bank for that mortgage.
Plan A – Buy an Intermediate House and Then The Beach House
We have an awesome neighborhood nearby with some pretty sweet historical houses. Most of them have a price tag between $250,000 and $350,000. If we paid off our house in 2015 (as we’re planning), we could probably save enough within the next 3 years to buy the intermediate house outright.
Then, if we bought the house right, we could probably gain some value in it and save another $75,000 in the next 3 years, which would allow us to buy the beach house for cash (this means that we’d have to wait 9 years for the beach house).
Plan B – Stay In Our Home and Invest
Our house will be paid off in 3 years. After that point, our additional money would go toward rental properties. I figure that we could muster up $75,000 just a few years after the house payoff and put a hefty down-payment on a quad-plex, which would earn a cash flow of over $1,000 per month (above and beyond our aggressive mortgage payment).
If we invested this money conservatively for the next 6 years and continued to save our usual amount from our day jobs, we would be completely debt-free again, with our house ($150,000), our quad-plex ($200,000), and $150,000 in cash.
At this point, we could either sell it all and buy the beach house outright, or we could use the $2,000 per month of cash flow from our quadplex (remember, it’s fully paid for, so all of the cash flow goes to us) and use it on the new beach house, which would allow us to pay off the beach house in another 4 short years (plus we’d still have the equity and the cash flow of the quad-plex).
What Plan Would You Pick?
So, what’s your choice? What do you think would be the best move for us? Should we move to the beach house immediately so we can enjoy it for the rest of our lives? Or, should we choose option A or B? Or, maybe you’ve got another plan that could work. Let me know your thoughts! 🙂
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.