Posted by Canadian Dream on June 29, 2011
It’s officially summer here now with the forecast high finally into the 30+ range right before the July long weekend. So now a lot of people start heading out to their cottages/cabins more often and their guests start to think: I could get used to this and vacation property lust starts to kick in.
Despite the initial reaction to the contrary I do get vacation property lust myself once in a while. My parents have had a cabin now for about a decade so I’ve been very familiar with the lifestyle and even I have to admit there is something about the place that is just relaxing to be at.
Yet what is is really like to own a second property? Well to be honest from what I’ve seen it is a bit of pain in the ass if you already have a house to look after. Maintaining two sets of yards sucks when you have a short summer already, you will likely have a little trouble remembering what is in each fridge, you will wash a lot of sheets if you have guests, and you can bet your insurance bill just got a lot higher with another property. Yet is it worth it?
The answer strangely enough can be: yes. You just have to accept up front that a second property will not be an investment, but rather a decision purely based on what makes you happy. Just don’t have any delusions about the decision being a financially smart one. Unless you have a huge annual vacation budget already and are willing to give up almost all other travel, you are likely not to break even. Also your ongoing costs will likely be substantial so your retirement plans will also likely take a setback if you choose to have that vacation property.
Yet a second property doesn’t have to be so bad with a little careful planning. I’m familiar with one family that recent got a little lot in a wooded valley just 15 minutes from their house. The yard does not have a lawn to maintain and it is just big enough to have a trailer on the site. So their total investment is a mere $60 to $80K to have a place they can visit every single weekend in the summer if they want. It is somewhat of an odd setup, but it does keep their costs down and keeps in mind the big issue of having a cottage is making sure it is close so you use it.
So if you really want that vacation property, go ahead and look at your options. I would caution that you should interview several existing vacation property owners prior to buying to make sure you know what you are getting into. Do you have a cottage or cabin? If so, it it worth it? If not, do you want one?
Posted by Dave on June 14, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
Sometime in the middle of the 40+ hours of studying for a taxation exam I wrote last Thursday I gained a roommate. My sister moved cities and is now living with my wife and I for the foreseeable future as she can’t afford to live on her own due to her finances (debt) being out of control. It seems that in the couple of years since she got out of college she has managed to rack up a considerable amount of debt, to the point that living by herself at and being able to eat is now a choice between the two.
So, I have essentially become a “parent” to a 24-year-old girl. From a financial perspective, it is most definitely not ideal because of the extra cost of supporting another person. It’s nice hanging out with my sister, since the last time we lived together was when she was 11 and I was 18, which meant we really didn’t have much in common, so we have a chance to connect now as adults.
Due to her financial state and the fact that she is now living for free in my house we have essentially taken over running her finances, mostly through setting up “rules” that we expect her to follow. If she doesn’t follow the rules, we’ll give her a couple of months to get first and last month’s rent and she is welcome to live her life how she would like.
So, what are the rules?
1) Pay off the debt as quickly as possible. We looked at her monthly expenses, her wages at her current job, and her debt. We gave her $50 a month to spend on whatever she wanted and told her to the rest needed to go to pay down her debt.
2) Follow Up on progress. We told her that we would like to see a copy of her pay stub and credit card statement to ensure that she was doing what she said she was doing…..We figure if we are going to be supporting a roommate we would like to ensure that she is carrying out her end of the bargain.
3) I’m not the bad cop. Not really a rule, but we explained that we weren’t the bad guys here. What we are intending to do is to help her get out of debt, an opportunity to start fresh – we would prefer that she takes it and not resent us for being the “heavy” in this situation. I’m sure at some point she will, but we thought we would discuss it prior to it happening.
So far (it’s been a week) the arrangement has been agreed to, I’m not sure how it will go over the next year or so she will be staying with us, I guess we’ll have to see. My wife and I understand that someone who has lived with very little financial structure or discipline this will be a big change, but we hope she makes the most of the opportunity.
Have you helped a family member out before? How did it work out?
Posted by Canadian Dream on June 3, 2011
I have an interesting email earlier this week which I won’t post the entire email, but in summary Rochelle asked:
My question is about how you manage to keep your “eye on the prize”? How do you keep strong during your end-game? Have you had to deal with any of these major temptation delays? Do you fear being debt free and potential let down you might feel once you have attained that goal?
I have literally asked myself almost the exact some questions several times in the last couple of years. Perhaps not all at once, but almost the exact same wording.
The answer depends heavily on your motivation for becoming debt free in the first place. My personal motivation for becoming debt free has largely for the desire to have that added flexibility once we hit that state. At that point I can either continue to work at my current job or switch careers to something else that pays less if I want. Since I’m personally still not sure about if I will fully go for full financial independence or just a semi-retired state I personally put a greater value of paying off my mortgage that people with other plans.
Yet the one issue that seems to keep coming up is should I accept some debt for investment purposes. In this case I have been faced some major temptations over the last year as I’ve looked around at some investments which potentially could earn me more than paying off the mortgage. While I keep considering stopping the additional payments to do this, I keep reminding myself of my motivation of getting rid of the debt in the first place.
In Rochelle’s case the motivation might be different, so an investment might make sense if being debt free isn’t essential to her plans. If being debt free is desired, then here is how I’ve dealt with the issue: keep busy with other things.
Honestly, that is the best idea in the world when you have a problem you aren’t sure how to solve. By working on the other areas of your life, you make progress on things that are important to you but also free up your mind from the treadmill of your current thought to realize how you feel about it. Problems like this are often best solved when you come at them sideways, the emotional part of the decision is actual the major issue. On the money side it is usually more clear cut: will you make more money going into debt than staying out of it? The emotional side is where the problem lies thus logic here won’t be particularity useful.
So while at times the decision seem obvious that I should push off paying down the mortgage to invest instead, I’ve chosen a different path because it feels right to me. It took me a while to realize that the issue was not in my logic, but rather how I felt. I hope that helps.
Anyone else got some ideas on what Rochelle should do?
