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401k vs vacation home
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MacNNFamous
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Mar 16, 2022, 10:28 PM
 
so my 401k took a massive shit.

I've also been looking at vacation property, in a desirable area. The more I look, the more I'm astounded at the increase in prices; I see stuff listed for 1000%, 1500%, 2000% since it last sold 15-20 years ago.

2000% return is crazy.

So like... I know cashing out a 401k is dumb, but is it dumb if you buy DOPE ass property in a desirable area?

I grew up in Madison, and lakefront has always been $$$. My entire life... I cannot think of one single time that property that was desirable, such as lakefront, went downwards. Ever. It only goes up. Forever.

So like... cashing out a 401k.... and buying a vacation home in a desirable area, is that dumb? I mean then you could actually USE your 401k while you were still able bodied, as opposed to being old/decrepit.
     
OreoCookie
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Mar 17, 2022, 12:19 AM
 
A lot of people with money seem to be shifting towards real estate, especially private properties (as opposed to business properties). I think there are a few factors to consider, though, especially when you are building close to water: climate change.

However, I think the risk is higher if you opt for a vacation home as an investment. Probably, a rental property is a safer investment. Many vacation homes aren't built to the same standards as regular homes, and are not located in areas where people move to find regular work. So if the thinning out of the middle class continues, so will the number of prospective buyers.

Rental properties will probably become more important: more people are working from home, so living in a nice home will be a higher priority for them.

Oh, and one last thing: the appreciation of real estate can also work against you. Friends of mine who bought apartments, but wanted to upsize had to move to a cheaper city. Their property was worth more, yes, but so was everyone else's. And going for a bigger place in the same region was really a financial stretch for some of them, others just changed cities.
I don't suffer from insanity, I enjoy every minute of it.
     
The Final Shortcut
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Mar 17, 2022, 05:15 PM
 
It’s the sort of thing you want to immediately make fun of, and then you look at what’s actually happening and realize it might be a smarter move for all the wrong reasons
     
MacNNFamous  (op)
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Mar 17, 2022, 05:53 PM
 
Yeah... like... I know it's really dumb, it is generally accepted knoweldge that cashing out a 401k before you retire is a terrible idea... ... but then i'm looking at numbers.... and.... I'm not sure it's dumb.

Like... it might be a smart move, depending on how desirable the area is. More risk? I mean. I don't really know.

Markets can take a shit.

But DESIRABLE property, in a desirable area? Like lakefront/waterfront at any major city? That property is NEVER going down in value. EVER. I don't care what crash happens, waterfront at a city... has anyone heard of the property values ever going down in those situations? Because they haven't in my lifetime.
     
Thorzdad
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Mar 17, 2022, 08:45 PM
 
Aren’t there are penalties for cashing out a 401k before you hit retirement age?
     
MacNNFamous  (op)
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Mar 17, 2022, 09:11 PM
 
Yeah, 10% hit. But like... if you buy something that appreciates more than 10%.... well.... is it dumb? idfk.
     
warnergt
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Mar 17, 2022, 09:31 PM
 
Don't take the 10% hit.
Roll your 401K over into a self directing IRA.
Some IRA's allow you to invest your money where you want.
A rental property would be one such area.
From my understanding, by law, you can only stay there two weeks per year for it to qualify as a rental property investment.
But this would allow you to put your money into property and get it out of the extremely volatile stock market.
     
andi*pandi
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Mar 18, 2022, 03:49 PM
 
They say, for someone your age to ride out any fluctuations in the markets etc. My 401k was doing pretty good but I had it in conservative stuff.

Maybe I should go check it...

All the cheap vacation property got snapped up in april 2020. Not sure any deals left to be had.
     
MacNNFamous  (op)
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Mar 18, 2022, 03:54 PM
 
Well. I'm not cashing out my 401k, but I'm yolo'ing it on refinancing my place to afford some land. Fuck it. Land only goes up if its' in a dope area.
     
andi*pandi
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Mar 18, 2022, 04:03 PM
 
I just checked my 401k. Oh my. I mean, it's possible it's gone down some in the last month due to current events, but even so, since the last time I checked it, it's done very very well.

Refinancing is a great move, before interest rates spike again.
     
BLAZE_MkIV
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Mar 18, 2022, 05:18 PM
 
Escpecially if you can get a mortgage interest rate that's below the rate inflation. Then the bank is paying you.
     
The Final Shortcut
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Mar 18, 2022, 09:35 PM
 
This being Cash I’m just assuming this is an inevitable outcome regardless of requested advice.

But I’m not totally confident you’re considering the right financial things here. “Land goes up” isn’t enough. Given that you’ll have to pay property taxes, utilities, what sounds like a mortgage, the not-inconsiderable annual property maintenance—it’s an investment that has expensive operational costs. If the property didn’t go up, it would be a significant loss. And I don’t know how personal income tax works down there, but unlike a principal residence a second home typically isn’t tax-free.

All that to say we’re talking investment here. The land could go up quite a lot and it might not be that great of an investment. You might be able to not pay borrowing costs and rent a lakeside Airbnb five weekends a year and make more money….
     
MacNNFamous  (op)
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Mar 19, 2022, 12:32 PM
 
Nah, I'm not touching my 401k. I think. For now anyway.

It's just.... if I look how much I have into it, and I put that money in the right lakefront house.... seems like it would be higher return than 20%, with basically no risk.
     
The Final Shortcut
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Mar 19, 2022, 01:18 PM
 
20% net?

How much is a nice lakefront house there anyway?
     
MacNNFamous  (op)
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Mar 19, 2022, 02:39 PM
 
Depends on the city. In madison, lake front property is typically 750k+. In other areas of the state, you can get it for $200-400k.... but those same homes were maybe 120-200k not even 10 years ago. Seems like with millennials becoming the dominant age bracket with spending money and entering max salary years, demand will go even higher on badass property. Not meh suburban homes...
     
andi*pandi
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Mar 19, 2022, 10:29 PM
 
Especially if you can work from home and aren't required to be near a certain place of work, and don't care about schools/other conveniences.
     
MacNNFamous  (op)
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Mar 20, 2022, 01:55 AM
 
^ DING

I've been at home for 2 years.... I'm basically going to tell them I'm not in this time zone over winter.
     
andi*pandi
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Mar 22, 2022, 10:19 AM
 
Go for it. We will all be jealous of your badass retreat!
     
   
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