A 50-year-old with $30M in net worth is considering a $5M vacation home purchase.
After the purchase he would still have $15M in liquid assets generating $555K annually at a 3.7% withdrawal rate.
His investment property already produces $100K in annual income with minimal debt.
Have You read The New Report Shaking Up Retirement Plans? Americans are answering three questions and many are realizing they can retire earlier than expected.
Buying a second home can be a big decision as you’re making a commitment of both time and money. One Reddit poster is deciding whether he wants to make this commitment. He posted recently sharing details on his numbers and asking for advice on whether spending big money on a luxury property made sense given his financial situation and goals.
So, should he move forward with the purchase? Let’s take a look at his situation for more insight.
The Reddit poster explained some details about his finances when he asked whether he should purchase a home. He’s 50 years old, married to someone the same age, with no children. They have somewhere around $7.25 million in illiquid private stock with an uncertain valuation. They also have $500,000 in cash, $20 million in an IRA and brokerage account with conservative investments, a $2 million primary home with no debt, and a $2 million rental property that they owe $500K on.
His question is whether he should spend around $5 million to buy a luxury vacation property in an area where they plan to spend four to six months each year after retiring. He’d either withdraw the money from his $20 million in investments or could take a mortgage to pay for it, and he potentially could rent out the property when he isn’t using it to recoup some of the costs.
While he feels like this plan might be a viable one, he also wanted to make sure he wasn’t missing anything.
A quick look at the Redditor’s numbers shows that it’s very clear he can afford to buy the home.
Even if he pays for the property in cash — which he may want to do given the high mortgage interest rates currently available — he’d be left with $15 million. At a 3.7% safe withdrawal rate, this would produce $555,000 in annual income. Without housing debt, it seems very likely that the OP should easily be able to live off that much income — especially since his investment property produces $100K in income.
The only remaining questions, then, will be whether purchasing the property will be a good fit for his lifestyle and something he enjoys.
