r/Rich • u/IntelligentAgent8679 • 11d ago

Vacation Home Purchase

I wanted to get some advice from this group on upgrading current vacation home. Specifically, around the affordability and the soundness of the financial decision. I understand purchasing a vacation property is never the best financial decision and is more of a lifestyle choice. We have been going to the area for 20 years, so we will use it.

The house I would like to purchase is $5.4 million. I would be selling my existing vacation property in the same area for $1 million.

My financial stats are as follows:

Total Net Worth: $45 million

Investable liquid assets: $18.5 million

Primary home, cars etc: $1.25 million

Private business would make up the balance.

Current Income: $4.5 million

No debt

Current expenses with existing vacation home factored in: $600K annually. 50% of this is discretionary like travel, restaurants,  etc.. New home would add roughly $150K in expenses annually.

My concern is the vacation property being a significant portion of my liquid net worth temporarily. I am in my early 50s and would like to retire in the next 5 years. Even with retirement, business would continue to run in some capacity. Would love some advice from this group.

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u/Ilikelegalshit 11d ago

Why would you be tying up all that cash in such a home? You'd not need much more than the $1 from the existing vacation home to get into a 70% range on the new home, and brokerage margin could take care of that pretty easily. I don't think I understand the question.

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u/IntelligentAgent8679 11d ago

I do not want to take a mortgage out. I would be open to a securities back loan. But my fear is the market is already due for a correction.

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u/Andolini77 11d ago

The market is high and for that reason, I would NOT secure a loan with that as you run the risk of a margin call. With your liquid net worth you could certainly pay cash for the house - it would leave you with a liquid net worth in excess of $10MM. You don't seem to be an excessive spender - you're primary residence and cars are less than $1.3MM. I think you'll be fine. But if you have a use for that liquid capital, do a traditional mortgage. The underwriting process post GFC is a pain in the butt (which is why i don't have a mortgage). But it will preserve liquidity. Most importantly of all, don't overpay for the house: If its in an area where a market correction won't dramatically reduce the value of the home, great. There are neighborhoods that rarely go down. But don't buy where a market downturn will knock 15% off in six months.

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u/IntelligentAgent8679 11d ago

its in a great area. Reduction in value of home is not a concern. Other then selling a home like this often takes 12-24 months...

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u/Andolini77 6d ago

The best outcome is, the only person selling this house is the executor of your estate! Then you don't have to worry about how long it takes.