Need advice on buying vacation/future retirement home close to be

classicaloneOctober 26, 2010

I need advice on our (husband and myself) planned purchase of a vacation/future retirement home. Hopefully the helpful people here will supply it!

First some background:

We’ve lived in the northern VA suburbs of DC for over 25 years, and we’ve always know:

that we didn’t want to live here forever, especially not once retired,

that we wanted to live very close to the ocean

that we want to live further south than where we are. I wanted farther south (FL) than hubby, who thought NC was fine; we’ve settled on Charleston SC area

Hubby will retire in 4 years; I plan to work for at least 8 more years.

We have no debt other than our house and it would sell today for at least 300K more than our mortgage, but we don’t plan to sell until I retire. Our retirement accounts are fairly substantial, but we’ve never had a whole lot of other savings until we recently inherited some money which is just sitting in a savings account because we couldn’t figure out where/how to invest it.

For years I thought we’d never be able to afford to live really close to a beach. But with the housing prices being quite low and interest rates being low, in addition to both of us making more now than we’d previously expected to make, plus the inheritance, we realize that we could afford to buy a house within a few blocks of a beach now. Presumably we could also afford to buy one later also, because it’s unlikely that house prices will go up tremendously in the next 4 - 8 years, but it is a possibility that they will. Also - interest rates are so low now and I don’t believe they will stay that low over the long haul.

So - (and sorry this is so long ) we’ve decided that it makes sense to buy now. The idea is that we can use the house as a vacation house now and probably retire to it later. At that time we’d sell our primary residence here in VA.

We’ve started looking at houses for sale (via internet) on the beaches north and south of Charleston, and we’re fairly sure we want to buy on Isle of Palm, which is just northeast of Charleston. We’re planning a trip there in a couple of weeks to look at houses, and hopefully find one and make an offer. The ones in our price range are a couple of blocks from the beach - and a couple of blocks from the inter-coastal waterways - about the middle of the island.

The things I need advice about are:

Does anyone have any advice, based on experience or otherwise, about living on a beach island?

What are the things we should look at and consider about moving to a new state that we might not be thinking about? I know the sales tax is a lot higher there, and the state income tax is about the same, but what are the other issues I should think about?

There are LOTS of houses for sale on Isle of Palm, as well as everywhere we’ve looked in the Charleston area. But on Isle of Palm, I think it’s about 49% of houses that are for sale. That is a huge amount!

What do you think that means for housing prices there? With that many homes on the market are the prices likely to keep going down for a while?

How can we determine what’s a fair price for a house there? Normally you look at comps, but with so many houses on the market I’m afraid the prices will keep falling and we could find that similar houses to the one we buy sell for less in the coming months and years, which I’d like to avoid.

Once we find some houses that we like, I’m thinking we should figure out what is the lowest price per square foot that a comparable house is listed for/ or has sold for very recently, and offer slightly below that. Does it make any sense to do that?

What’s the best way to find/select a realtor there?

On financing - what’s the best way to find the best mortgage rate? And at a place that will be easy to work with and quick? Our current mortgage is with our Credit Union, which is a very good one, and we’re very happy with it, but I’d like to get the best rate. I know Dave Donhoff is a big fan of ARMs, but we’ve only had 30 year fixed mortgages (and I guess paid money we could’ve saved) but I’m wary of uncertainties in general, and especially where money is concerned. Dave or others - with the info I’ve given what is your advice on the type of mortgage to get? When we do sell our current home, should we conservatively invest/save the money we get versus paying off the mortgage on the new beach home?

Thanks in advance for any and all advice. And sorry this is so long.

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If you view this purchase as a home and not an investment,then perhaps doing so in the near future would be better for you..I am of the opinion that the housing market doesn't stabilize until 2nd homes and vacation/retirment homes are at bargain basement prices..While they have fallen,not enough for me...

    Bookmark   October 26, 2010 at 11:35AM
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You have a lot of questions and most of them I don't have an answer to. The only advice I have for you is to really give a lot of thought to this statement.

"We have no debt other than our house and it would sell today for at least 300K more than our mortgage, "

If I were you I wouldn't bet too strongly on the selling price of anything in the current market.

    Bookmark   October 26, 2010 at 11:57AM
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I know nothing about SC, but based on issues with beach properties here, I would make sure you factor the following in:

Flood insurance
Property taxes

Is there any rental market in this area? My cousin has recently purchased two homes in vacation areas and is making a bundle renting them.

If you get a mortgage I would factor in what happens if they eliminate the mortgage interest deduction on second homes (how it affects your budget as well as the "resellability" of the house).

    Bookmark   October 26, 2010 at 1:51PM
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I wouldn't want a second home that was more than an hour's drive from 'home'.

I wouldn't buy a home or even a lot until I was within a year of moving into it.

I wouldn't buy anywhere I had not at least vacationed for a couple of years.

Vacation rentals CAN work well, but you will have to pay someone to look after the property for you if you are far away. You need to be insured and the property needs to be licensed as a vacation rental.

We bought a vacation rental condo on Maui nine years ago and use it for a month every winter. Until this Recession it was rented 86% every year for a good price and more than carried itself. NOT 2009-10! I'd be very concerned if half the units in our complex were for sale! (How is your Isle of Palm municipality going to provide services if half the homes aren't paying taxes?)

How will climate change affect the island?

Is this primarily a 'second home' community? Do you want to live where there is a lot of coming and going?

Sorry to rain on your parade. I think you are acting prematurely and are overly 'lured' by the seemingly bargain pricing. (I also agree that RE has a ways to fall.)

    Bookmark   October 26, 2010 at 3:05PM
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I lived on the Isle of Palms the summer of 1969 and really enjoyed it. I don't know what the island is like these days; I do know there are many more people and houses. The Charleston area, where I lived until 6 years ago, can be a great place to live with lots of varied things to do. It's a fairly sophisticated area, & medical services are very good. Keep in mind that South Carolina is a very conservative state, not just politically ( a plus or minus depending on your point of view). If I were you, I'd begin reading the Charleston Post and Courier; you'll begin to get a feel for the area.

Disadvantages of living on Isle of Palms:
1. Hurricanes. You'll have to evacuate, the traffic will be a nightmare, and, if one hits, the authorities won't allow you back on the island for days. As has been said, insurance costs may be a shock.
2. Traffic during the summer, esp. weekends is very bad. There's only one road onto the island, through Sullivan's Island into Mount Pleasant. Getting on and off the island in an emergency can be next to impossible.
3. You'll probably have to do most of your shopping in Mount Pleasant.

I know nothing about the real estate market there except that a friend sold his beach-front house at a loss, bought a condo, and now can't sell it. His retirement plans are on hold.

    Bookmark   October 26, 2010 at 4:00PM
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We vacationed in Charleston a few weeks ago. It was our first time visiting Charleston and we fell in love with it. We spent some time on Isle of Palms and James Island and Folly Beach as well. Something you need to consider is Hurricane Insurance. Hurricane Hugo made a direct hit on Isle of Palms in 1989 -- Cat 4 when it hit land.

We noticed a lot of homes for sale. I think vacation homes in general are not selling right now. So there indeed would be some bargains out there. The rental market is phenomenal....a lovely place to vacation. But along with vacation rentals comes the associated traffic. Do you want to live in a community that has a lot of vacationers every year? Also although some of the properties are close to beaches, you really need to make sure the property has beach access. We found lots of beach access on Folly Beach and James Island, not so much on Isle of Palms -- many many warnings on Isle of Palms about strong currents and not swimming. So investigate it thoroughly. I would advise renting a house there for the summer and seeing if you like it before you invest. Good luck.

    Bookmark   October 26, 2010 at 4:01PM
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We currently are renting a home on an island off the Southeast GA coast. We are ready to buy but are staying on the sidelines because the prices keep falling. Coastal prices are much more reasonable than they have been in a long time but I don't think the market has hit bottom yet.

As mentioned above, be sure that the the taxes, homeowners and flood insurance are within your retirement budget. Homeowners is stunningly expensive where we live.

About island living ... you are from the DC area, so you are familiar with humidity. The summer humidity is beyond brutal (in fact, I don't know why people vacation here in the summer). In the winter, the high humidity combined with the colder weather can be uncomfortably damp and chilly. The ocean air is harsh on buildings so depending on the features of your home, you may have to do more painting, repairing rot, power washing, etc. than you might expect. Our traffic is pretty busy in the summer, but we've learned to work around it. The winters can be a little depressing. It's cold, damp and seems a bis isolated after the summer hustle and bustle. Thankfully, the winters are short.

    Bookmark   October 26, 2010 at 6:40PM
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Hi Classicalone! I am not a real estate professional, or a financial expert, but I would like to tell you about our vacation/retirement forclosure condo that we purchased last spring in Naples, Florida. I call this a BUY AND HOLD property. Joe is going to retire in 5-6 years and we will hopefully be able to "snowbird" for at least a few years while the "kids" are still in their 20's. There are 2 points I would like to share with you.

First, every April for the past 6 years we would vacation in Naples, Fl and stay at BIL and SIL condo. Each year we would get to know more and more of the area and met with realtors for the last 3 years. I watched the prices go up and watched them come down and researched and researched the market, the lifestyle, the different areas and communities. Go on your vacation in 2 weeks and look around, explore, research and ask questions. Do NOT impulse buy, instead, come home and book another trip if possible and research from home. There are soooooooo many options for "our generation" retirees, which is why so many new retirees will visit and rent through the winters while trying to decide where to settle.

Secondly, when the "Forclosure Fraud mess" with the banks begin to clear, it is expected that more properties will flood the inventory at even lower bargain prices. I think you have time to do your homework, go exploring, and then be really prepared to make a wonderful purchase in the very near future.

It costs us about $5500 a year to run the condo and last year we made about $4000 in winter rentals. We are planning to vacation there 2 weeks every November and 2 weeks every April (we can't wait to get there in about 10 days from now)!

It is very exciting to have a plan or a dream and then be able to execute it. The minute we step off that plane we feel "at home" with friends and family there and we get very caught up in the life-style. We are 100% sure this was the right purchase for us - beyond a shadow of a doubt!

Take the time now so you will be thrilled and completely confident in the purchase you make - that it is "right" for you and your financial future!!! Oh and come back to the forum after your vacation and keep me posted. I LOVE talking about retirement!!!

    Bookmark   October 26, 2010 at 8:40PM
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Just moved from a tiny island town and while it seems like a great adventure, it's not where you want to live on the verge of retirement. Just too much risk in various ways, even without 'weather', but it's also always going to be a factor apart from everything else.

    Bookmark   October 26, 2010 at 8:43PM
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Thanks everyone for your input. It's given me a lot to think about. After reading the responses, I think that I was getting overly anxious. I even called my credit union to get apply for pre-approval for a mortgage. And I did check on insurance costs which I found out would be really large. I guess I'm just worried about missing which might, in hindsight, have been the "perfect" buying time, and that prices might start going up faster than expected, or that interest rates might go up a lot. When we bought our first house a good interest rate was 14%!

Now I think we'll slow down quite a bit - visit the area a number of times, think about it a lot more.

I still am pretty sure that eventually we will end up buying a place on a beach island, or as close by as reasonable on the mainland, sometime before the prices go back up, but I don’t want to buy before they’ve bottomed out, so waiting seems to make sense. Also I probably ought to give living on the mainland near a beach more consideration, especially if the mainland community is more of a real community and the beach/island isn’t. That’s more what I’d thought we’d do before realizing that the beach home prices were down so much.

I will post again after our visit there. Thanks again for the responses.

    Bookmark   October 27, 2010 at 8:36AM
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I'm quite relieved to read your post. This is a complicated investment if it's intended to be not just a vacation home, but a 'forever' home. Sometimes the two don't mesh!

We have no intention of ever living full time at our Maui condo, although we may stay longer in winter than just one month. This winter it will be six weeks. We'll see -- could be we need something bigger than 1000 sq ft if we're there longer, despite all the 'outdoors' living in Hawaii.

BTW, we also have the 'jungle rot' situation. Wherever you are exposed to salt air and humidity, you have unique problems. You need 'The Bug Man' and have to replace all sorts of things more frequently. The 'island' thing means limited resources and workers. In Hawaii most things are 'order it and wait'. In addition, when the surf is up, forget about seeing that plumber, carpenter, electrician scheduled to come to your home! Same thing if someone's Auntie needs a ride to her cousin's -- island culture. "Island time" has its appeal and a downside, too.

    Bookmark   October 27, 2010 at 3:02PM
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Think "dental emergency" late on a Sunday, and the hour long drive to get help from anywhere.

    Bookmark   October 27, 2010 at 5:26PM
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Another idea is to read the local newspapers on whatever city on line to see what activities, crime, articles etc. That is cheaper that subscribing. Just remember where ever you go, check medical, shopping, activities, senior citizens events, family life, and the big thing is who will take care of you when and if you cannot.
Since I am not familiar with the east coast, but am on the west coast and norther tier states I cannot advise weather etc. Since you do have time, schedule your vacations for the areas you wish to check out, different times of the year and talk to people in the area.

    Bookmark   October 28, 2010 at 12:14PM
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To clarify some things about our ideas to buy on Isle of Palms - while we're going to hold off on buying, and may not ever buy on the island itself, the area around it seems to be exactly what we're looking for our retirement years.

The island is less than 13 miles to downtown Charleston, and only 20 miles to the Charleston Int'l airport. Even closer than Charleston is Mount Pleasant, about 4 miles away (across the Inter-coastal waterway and a marsh), which has plenty of shopping, restaurants, medical care including a decent hospital.

In addition to wanting to live close to the ocean, we want to live near good medical care (this is most important), shopping (I'm not going to stop doing DIY projects on any home I live in until my body gives out - it's my hobby), airports, etc.

I love the beach - every vacation we can we go to a beach - we've visited many of the east coast beaches over the years - I never get tired of it. My husband loves salt water fishing. We have a boat that he takes onto the Chesapeake Bay all the time to fish, and we go tubing on the Potomac River with our grown kids and grand kids (who are still very little). We've planned on retiring to as close to the (right) beach as possible for at least 20 years and I think it's safe to say that we're not going to change our mind about that between now and when we actually retire.

And I definitely don't want to ever live someplace rural again - did that as child and have family still there - definitely not for me. Even if we were young I don't want to live in a place where there aren't plenty of doctors, including all types of specialists, and I don't want to live someplace, where if one of us was in the hospital, the other would have to drive over an hour back and forth. I'm honestly surprised at how many people I know who retire who don't care about that aspect at all.

So - given what we know we want/need, we've been considering all the areas close to the Atlantic between Wilmington NC and Jacksonville FL. A few years ago we visited every place that even seemed to come close to what we want. But when we were looking before our income and savings were a fair amount less than they are now, and housing costs and interest rates were higher, so it limited where we would be able to afford to buy, so we didn't consider some of the areas we could afford now.

And this is a retirement place we're talking about - being able to vacation in it before retirement is a bonus. We could wait until we retire to buy, but as I said in the original post, I don't want to miss an opportunity to buy while the prices are low AND the interest rates are low.

But I do think we need to slow down and take our time - visit and stay there during different seasons, including the heavy tourist season, and make sure that it's what we want. We may find that living on an island/beach itself is not that great and that we should go back to what we always considered to be our only option - living on the mainland, but close to the beach.

People seem to think that prices will be low for a while - I don't want to buy and then see prices drop even lower - and that interest rates will be low for a while too. So I realize that there is no rush - but I still don't want to kick myself years from now for missing any "deals of the century".

I know this was long - sorry about that - but I think my first post gave the impression that the whole idea of buying at/near a beach, and this one in particular, was hurried and not thought out. While rushing into it right now is undoubtedly a bad idea, I don't think the concept of buying a home sometime soon for retirement in a few years, if the prices and interest rates are really low now, is a bad idea.

    Bookmark   October 29, 2010 at 8:37AM
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It isn't necessarily a bad idea, but you really need to crunch the numbers. Letting a house sit empty for 8 years (except for vacations) is usually a big money loser. Once you add up the interest costs, insurance, repair costs, landscaping etc. you are talking about serious money - and risk. It is often better to just stockpile the money you would have been spending on the house for the 8 years and put yourself in a position to buy a place with (mostly) cash.

Just total ballpark, assuming your mortgage and insurance is $2k month and you spend a couple grand a year each on upkeep and repairs, you are looking at $225k over 8 years - not including any growth on the money you are saving. That is a really expensive way to test if you like an area.

    Bookmark   October 29, 2010 at 9:31AM
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billl - when you put it like that it does seem like it's probably not a good financial decision. Given your scenario, the only way it would make sense to buy now is if the house would cost greater than $225k more after 8 years than it does now. That rate of increase was definitely happening in the years 2002 - 2006 in many areas of the country, including where we're looking, but it's very unlikely anywhere over the next 8 years.

Thank you for putting it in black and white like that.

I'm beginning to think that I'm so anxious to actually be retired, that I'm feeling like I can hurry it by taking steps towards it now.

    Bookmark   October 29, 2010 at 11:37AM
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Yes, it's true that Mount Pleasant is close to the Isle of Palms in miles, and the shopping & medical facilities are quite good there, but wait until you try to get to MP from the Isle on a Sunday afternoon in July.

If I wanted to live on/near a beach, the Charleston area is definitely the area I'd pick; you're right about that aspect of your plan. Charleston is a very special place, and I miss it a lot.

After having lived through Hurricane Hugo (40 miles inland), I personally would never live on a beach. It wasn't the hurricane itself that was so bad, it was the weeks and months of cleanup and repair. Stress was unbelievable. But----- it may never happen while you live there.

Best wishes!

    Bookmark   October 30, 2010 at 8:58AM
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I live in a coastal area with hurricane potential. Regarding Insurance, we have normal insurance(fire,theft, etc), flood insurance and wind insurance. The wind and flood can vary greatly from home to home. It all depends on when the home was built, what is the elevation of home and what is the required elevation of home and this is defined per lot (a neighbor might be required to be 1 ft higher). The newer homes usually have cheaper insurance because built to more stringent wind/hurricane rules over past 10 years or so. Type of roof(shape, material), type of construction materials all can affect the insurance premium. Also for flood, the homes 30 years or newer often can have cheaper flood insurance because older homes often can be built lower than the new rules require (this varies, so not a concrete rule-of-thumb regarding age, but a more general rule-of-thumb).

There are many, many factors that can affect the insurance price. Also shopping from carrier to carrier can yield a massive price difference for wind and regular insurance. In my area, once carrier can be $800/yr and another $3500yr for essentually same coverage on same home. No kidding.

So just because you got the lowest quote for one home at $4000 year, do not assume all simular homes cost this much to insure. Another similar home might cost $1000/yr to insure or $5000/yr to insure. Bottom line, get quotes on every home you are considering before you sign contract. In time you will learn which insurance carriers are more expensive and avoid them. Often the State has lists of carriers and their grades and what they generaly charge. You can use an insurance broker for quotes and they know which carriers are sky high and which ones are good companies that offer fair prices.

    Bookmark   October 30, 2010 at 12:09PM
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More important than picking an insurance carrier by price - check the state's dept. of insurance annual records about customer complaints. Most states have this on-line. Our state has them ranked in order of # of complaints (least # of complaints rank higher).

    Bookmark   October 30, 2010 at 9:02PM
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Just want to throw in $.02 from a NC coast prospective. The population change in the summer is very frustrating for "locals". Traffic and crowds in the stores are annoying for people who have retired there.

Now Isle of Palms is in a very different environment with greater population density and a bigger city nearby, so these problems might not be as bad. But there is no doubt you will face them.

I personally could see retiring to 2 places. The beach for the off season and some place farther north (or mountains) for the summer. You could rent the retirement home in the summer to make it work. I know - most people don't want to rent their retirement home. But that really is the best of both worlds. You could use your northern home as the hurricane retreat.

We are looking at beach property now for vacation/weekends. I do think it isn't a bad time to buy. I think in NC at least, the prices have a floor because of the rentability. $600k houses that rent for $40k a year - it starts being a reasonable investment (albeit not a good return but not money losing). That house probably wouldn't fall to $400k unless the vacation rental market fell apart. While that is possible, the deepest part of the recession saw rental income only fall a small amount. In the end, a beach rental split with 2 families is a cheap vacation compared to most.

Insurance can be $2k or $12k (mostly for non federal flood to get above $8k).

    Bookmark   October 31, 2010 at 5:51AM
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Did you end up buying, or are you still waiting? I've never been to Palm Island, but I am familiar with some gated communities in the Charleston area: Daniel Island and Kiawah Island.

Here is a link that might be useful: South Carolina Gated Communities

    Bookmark   November 22, 2011 at 2:48PM
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