PFFAP-PYP-24-0129-064-Ben and Nate Valentines
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Welcome to the physician family financial advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need for retirement and college.
nate: Welcome to the physician family financial advisors podcast. This is your host. I'm Nate Reneke, certified financial planner and primary advisor here at Physician Family.
ben: And I'm Ben Utley, certified financial planner and service team leader here at Physician Family.
nate: So today we are going to do another special Valentine's Day episode by answering the question, physician vacation home, swipe
ben: right or left? Yeah, you know, last year, Nate, I don't, I don't remember what the title was.
I just remember it had the word sex or sexy in it, and it was like our most downloaded episode [00:01:00] ever. So, uh, you know, it was really tempting to do that again this time, but, but not. So, uh, you know, when we start these shows, we're planning them. I usually ask you, like, what are you hearing about? Right. So we're, we're bringing the, the top of mind topics right out as we hear them.
So. Uh, when I asked you that question, you said you're hearing a lot of physicians and, and our clients asking about whether or not, uh, vacation homes is, is a good match for them. So, um, tell me what you're hearing when people give you reasons for why they, they want a vacation home. And maybe we can, maybe we can play a little, a little home game as if we're on the app.
We can, we can swipe right or swipe left on these.
nate: Okay. Yeah. Yeah. So. So, you know, a lot of times when people ask me about vacation homes or they, they want one, they haven't quite fleshed out all their ideas. So these are the things that end up saying, I don't know necessarily if it's always exactly what they mean, but this is the words that come out of their mouth.
Okay. So, uh, we're going to leave room for the fact that, um, [00:02:00] They, they, there may be other reasons that we don't hear about, but what I'm hearing, um, one of the main reasons that they say they want one is they think that it could be a good
ben: investment. Hmm. Okay. So good investment. But like, uh, when I've heard that, I hear, okay, well, we could, we could get it and then we could rent it out part of the time and, you know, we could, we could be in it sometimes and, you know, our, our friends could borrow it, but, uh, you know, it's a tax write off.
That's, that's something that I hear. So, uh, tell me, tell me more about that. Like, what's your, what's your take on this?
nate: Yeah, you're right. That's exactly what I'm hearing too. So as far as being a good investment, I don't believe that to be the case. Um, it, it seems sort of, you know, to be blunt, it seems like a bit of a justification.
Oh, kind of a stretch. Yeah. A bit of a stretch. And the reason for that is I think people [00:03:00] underestimate the cost of their own home. And they, they also underestimate the cost of vacation homes. So I kind of did some quick math. Let, let's say you bought a million dollar vacation property. Uh, generally just rule of thumb.
We do this for when we're planning for retirement. We look at the cost of their personal residence. And usually the maintenance on that is like one and a half percent per year. Okay. And you have taxes, insurance, and potentially a mortgage. And even if you bought it in cash, a million dollar house, just the maintenance taxes and insurance, it's like 30, 000 a year, right?
So throw in some interest there. If you have, if you have to get a mortgage on your vacation home, it's pretty tough to break even. Right. And, uh, especially if you're using the property to its fullest, like you're in it all the time, or your friends are in it all the time, um, even harder to break even. [00:04:00] Yeah.
So
ben: the thing, the thing I see when I, when I see these things is people get these vacation homes and, uh, you know, they, they forget about the maintenance, right? That's part of it. But also I think it's, you know, if, if I were a physician, I were buying a vacation home, I want a nice home. Right. You know, I want it on the edge of a lake.
I want it on the side of the mountains. I want it close to a ski slope and you know, the kind of properties that make good rental properties where you typically they cashflow and it's a, what people consider a good investment, they're just not the kind of properties I'm seeing our clients, uh, wanting to stay in.
You know, I'm not, I'm not seeing the husband and wife couple viewing this as like, Oh, this is such a great place and it's rentable, you know, it's almost like those two uses are incompatible. It's, is that kind of what you, what you see too?
nate: I certainly see that. Yeah. And, um, You know, this is sort of the, when you're looking to buy a house, this [00:05:00] is personal residences too, um, but when you're looking to buy a house and you're, and you're buying it for two completely different reasons, and you're trying to join them together, you know, a house that essentially what you're saying is a house that rents well, isn't necessarily for you.
Uh, a dream home. Yeah. And I, I, I constantly am seeing that. So tough to rent really expensive homes. So I'm,
ben: I'm hearing it's kind of like, it's kind of a crappy vacation home and it's kind of a crappy investment. Like it's kind of, it's kind of a nothing cause it's, it's not anything, it's everything, which means it's kind of nothing.
Is that, that's right.
nate: So we're going to swipe left on this one.
ben: Okay. Austin. See you back in the pile.
nate: Okay. Okay. So the next thing I hear, uh, is they would love to share it with family and friends. Okay. And when I hear share and you kind of dig deeper into that, a lot of times that means go in on the property with family or let friends stay in it for free or colleagues.
Our colleagues. Yeah. Um, [00:06:00] and look, when you're buying this nice vacation home, it, it is a desirable place to allow. You're friends and family to stay, you know, that that's a cool thing to do, but it can result sometimes into a bit of a nightmare, especially if you are sharing or if you're going in on this quote unquote investment with your family,
ben: right?
Especially like have these. Right? Because then you have half, somebody else has half, no one has a controlling interest in it, and typically the kind of people you go in on these things with are not the kind of people you want to control through litigation. Right. So even if you had 51 percent interest, it would probably be not good to, you know, have to sue your brother in law or sue your partner or your colleague to get control of it.
And, uh, I just found that, you know, it's, it's hard to share a dream with. You know, maybe, maybe you and your spouse could share a [00:07:00] dream, but it's hard to share that dream with you and your spouse and their spouse and them and their kids and their in laws. You know, it's just, it kind of gets a little bit all spread around, but I have seen circumstances where this does actually work out when they're super clear boundaries and where there's operating agreements and all that.
So when it's more like a business relationship, this is when I see it, uh, I've seen it more likely to work out, but less likely to work out then. Yeah.
nate: I've heard, um, I've had some pretty intense conversations or listening in on some tense conversation between husband and wife, picking out the tile in their bathroom.
Oh wow. And you're like, well, what about if it was someone else's husband? Yeah. You know, that's, it's just, it's just tough, but, uh, in the same vein that the sharing with your family, I think I hear, I hear a lot about what we would call like a heritage home passing this home down to your [00:08:00] children. Yeah.
You've heard that over the years. And what, what do you think about that? Well,
ben: uh, you know, since that's, we're doing our Valentine's episode, I'm going to cast this all in terms of, of love L O V E. I guess it's a little bit like, um, passing it down. It's like picking out a spouse for a six year old that they, that they're going to marry when they're in their twenties, right?
So, first off, hard to know what your kid's going to turn out to be. Second, hard to know what kind of spouse they're going to like. Right. And whether or not they're going to love or hate this person, um, you know, you may envision that this is a heritage home where you go back to over time. But, uh, anybody who's had kids for more than a decade knows that kids are full of surprises.
They're really unpredictable. And you might get that kid who wants to keep this in the family for generations, but also get that kid who's like, I don't want to go there ever again. I didn't get to [00:09:00] see my friends, you know, mom and dad pulled me around in a boat on the lake. And they, they, they forced me to eat sandwiches and, and, you know, play with fish.
And, and I missed out on, you know, Instagram moments with my friends or something like that. I mean, I'm not making this up, right. So, uh, yeah, so that's my thought on it is it's, it's very premature. And, uh, it's, it's hard to imagine the future and. Kind of prone to failure. I think
nate: it is. That's a good way of putting it.
It is prone to failure. And if you're setting your dream on, you know, passing this down to your children, you might get let down. So this is a, this is a swipe left, but we have seen it work. Just not all that often. It's, it's usually
ben: it's happenstantial where mom and dad find a place that they love and they take the kids.
And the kids happen to fall in love with it and they're adults and mom and dad still own it. And then it gets passed down. I think very seldom is that it's a property purchase with the intention of having it passed to the kids someday. You know, it's, uh. I like a lot of things [00:10:00] with kids. It's serendipitous, you know, something just happens to work out, but it's nothing like what you planned.
nate: Okay, so we have, uh, good investment, swipe left. We have heritage home, uh, probably swipe left. So, the last one that I really hear. Is, and it takes a while for, for the people to admit this. I'm not exactly sure why, um, this isn't, uh, in my opinion, uh, an okay reason to want something, but they just want it like a vacation home.
People want it for a reason. I mean, you, you get to escape from your, your hometown. Uh, it's, uh, usually a bigger space than you end up renting and you can buy a nice house. You can stay in it. You can expect to cook in it and know everything about it. It makes sense to me for people who just want it and you just love it and that's okay.
ben: I think the reluctance here is, um, That I think the, the, the [00:11:00] outward perception of finances for physicians is that, you know, they've been taught, you got to save, you got to save, you got to save, you got to be diligent with it. You know, uh, the, the podcasters and bloggers scream, you got to save and spending gets a bad rap, you know, it's, it, it makes it not okay to spend money and, you know, part of the reason we make money is to be able to have joy as we're building a life for ourselves.
So, uh, I think that goes under the bus. Much of the time it's, uh, people, people forget about it. It doesn't get much airtime. It's not sexy to talk about spending money. In fact, it's a little bit kind of the forbidden fruit. But, um, I just think that people lack permission to, to spend money on good things.
You know, things that are really going to have a kind of a return on happiness.
nate: Yeah, I agree. And when we finally get down to that point, after we've sort of swiped left on some of the previous points, um, I think they do start to get a bit more comfortable [00:12:00] with physicians will get more comfortable with the idea that they're just spending a month's money on something that they really love.
Um, and then I think it's a really great idea to start figuring out what makes a good vacation home. So if you're going to love this thing, uh, Oh, I was thinking about, uh, how back to Valentine's day, people have a spouse checklist before they get married.
ben: Some do,
nate: some do. So they have kind of this thing.
What are the things I would really want out of this? And, um, rather than talking about like the finishes in this house or, or, or anything, you know, that you normally think about buying a house. Uh, you've had some great questions for physicians about what makes a good specifically vacation home. Okay. So I think it's a possibility that if you just really want one, you can swipe right.
Um, but that comes with, uh, the, the vacation home should come with a few things. So first question, I want you, I want to hear your thoughts on this. Um, you've [00:13:00] asked people how far is the vacation home away from your personal residence? So what do you, what are your thoughts about that?
ben: Right. My thoughts are closer is better.
And I'll go with a, like a dating slash marriage analogy here too, in honor of our Valentine's Day episode. So, um, Imagine that you're, you're choosing, you're choosing a spouse, you're dating, and the only way you can date is from like 3000 miles away, right? So your, your dating life might turn into a marriage and that marriage might work out, you know, marriages tend to work out where you're sleeping and under, at least under the same roof with people, if not the same bed, right?
And I think that vacation homes kind of follow that, that same rule. So, uh, my rule of thumb is that. You want to have something that you can drive to in less than a half a day, you know, six hours max. And I say drive to because part of the joy of owning something as cool as a vacation home, especially if it's on a lake or a river or the ocean or the edge of a mountain or someplace [00:14:00] beautiful, is that you can bring people.
Right. And so it's one thing to say, gosh, we're going to, uh, you know, we're going to fly here from New York and we're going to go ski and, uh, big sky, which is, you know, thousands of miles away versus, you know, what I see with some people in Maine. So in Maine, they have. Quote, unquote camps and a camp could be anything from a shack in the woods, all the way to a palace right on the edge of the ski slope.
But the thing that they have in common is it's like another home where you get in the car, you drive out of your home and you go there. And so it's really easy for you to say to a colleague or, uh, somebody, you know, your kids on the same soccer team that, Hey, we're going up to the, uh, the camp. Next weekend and let us swing by and pick up your son or your daughter to hang out with our kids.
So your kids have something to do and it's not a major commitment because you know, if you have a surgical schedule and you know, you think you have the weekend off and something blows up. You can drive back to the O. R. in half a day, right? So if something [00:15:00] absolutely blows up, you can, you can move back, right?
So I, and I think that the proximity makes it more likely that it will get used, right? So I think that proximity equals use and use equals joy. So proximity equals joy,
nate: right? Yeah. I, I had a client who had a house out in Lake Tahoe and he, he, it was hard for him to give nights away. Okay. So it was, you know, a full day to get there from where he was at.
And so I'm with you on that. You want to be able to use something and I, you know, I personally, anytime I buy something, the more I use it, the more I just feel great about the
ben: purchase. Yeah. Like, like you, uh, and I'm taking the purchase analogy out of here, but the more time I get to spend with my life, with my, Like you, the more time I get to spend with my wife, the, the more I like her.
nate: Right. Okay. So, a half day's drive or so, that would be a, a check.
ben: Yeah. That's a check. That's a good,
nate: good to have. Okay. So, the, [00:16:00] the next one is, are there readily available rentals nearby? So, the you Can you Break down that question. Oh, yeah, this is great. So
ben: it cuts both ways. So let's say there's a place that you want to go on vacation, and there's a whole bunch of rental properties there.
Okay, well, that might be a good case for simply renting. I mean, you could stay in a different place every time they say variety is the spice of life. So, you know, to get to bounce around and have a different property each time can be fun, right? It mixes up. Yeah. Yeah. things up. By the same token, though, if you're looking at buying a vacation home in a place that has a lot of rental properties, it may be difficult for you to let go of your property when the time comes because, you know, the prices might be depressed in that area.
You're going to have competition. And I find that these vacation homes tend to be let go at times when the, when the economy is becoming depressed or we're going on the downslope and they tend to be priced up. And unfortunately, I see physicians getting caught in that whipsaw where they'll, they'll buy into [00:17:00] something as the price is rising on vacation homes, because that's.
That's the opposite of what you want to do with an investment, but this isn't really an investment still, though you can get caught in the lip saw and lose a lot of money on these things. So I also think that it makes more sense to Uh, yeah. approach that you would take if you were to own something. If there isn't rental properties around.
So, uh, for example, there's a, uh, ski place down in California called Mammoth. Uh, I had a client who moved down there and they had to buy a home because there's just no place to rent around it. So, uh, it makes sense in situations like that. So that's, that's definitely on the, uh, put a pen on the, on the must have in, uh, marrying your vacation home.
nate: Right. And I have a little bit of a different angle on that one, too, that I wanted to say. If there are a bunch of rental properties, let's say you can rent it for the weekend for three grand. Okay. [00:18:00] And there's always properties available. Um, in our previous example of the million dollar home, you could rent that vacation home.
10 times a year for the same price as property taxes and insurance and
ben: upkeep. I'm nodding my head so violently, yes, that I'm afraid I'm going to get whiplash. Right. So there's
nate: some things or you might need to buy it or feel like you need to buy it to enjoy it. But then there's other times where you just think, well, why don't I adjust my life?
So I'm just willing to rent more, you know,
ben: and there's this prevailing thought of got to own it. Right. When this is all said and done, you're looking back, you know, 20 years, back over a lifetime of these kind of things, what you're going to remember is how you felt while you're in it, your kids are going to remember the time that they spent with you while they're in it, the kids are not going to know about equity, they're not going to know what rate you got, they're going to know, not going to know whether you paid it off or whether you made money on it, they're just going to remember the way they felt when they were with mom and dad and you were relaxed in that property.
nate: Yeah. So, [00:19:00] uh, if there are no available rentals in the place that you love to go, that would be a check for potentially buying the house. Okay. So here's the last one. So it's how far away is it? And are there rental properties available? The last one is. Simply, can you afford it? Okay. So loaded question. Um, but maybe an easier question is, could you buy it right now?
So, um, yeah. So what's the benefit of buying
ben: it sooner? I can just feel my muscles tightening up about this as I put myself in the physician's role and I'm like, Oh, gosh, you know, it's so expensive. I really want it. I can, you know, I've fallen in love with this thing, right? It's it's, I'm not thinking about as an income producer anymore.
It's close enough. I can, you know, my wife and I've gone out there and we just loved it. And it's like, Oh, can I afford it? I mean, it's like, it feels like buying something frivolous. I think that's the impression I get from some of the folks that we [00:20:00] serve. And they're like, I just can't justify it. But at the end of the day, you're buying a house.
You're buying land, you know, you might be buying a unit in a condo if you're buying on an island someplace and the thing about it is it's not like, it's not like a pair of shoes or an iPad, something that's going to depreciate in value rapidly, it's property. And I think the big justification here, like the, the, the big easy for us to say yes to these things is simply, Hey, don't think of this as an expense and certainly don't think of it as an investment, but don't think of it as a long term commitment either, right?
Because this is something that you can sell later on. Usually for comparable value that you paid for it. So in most cases, the worst case scenario is that you're going to break even if you hold it long enough, you're probably going to be ahead of what you paid for it. Notice I didn't say make money because right there's, there's maintenance costs, but you know, we, we see this in, [00:21:00] in, you know, part of a client's overall plan and I'm going to, I'm going to save the, I'm going to save the big punch for you, Nate.
So tell us where this fits in the plan.
nate: Yeah, so I'll use an example. So I just helped, uh, write a retirement plan for someone who wanted to buy a ski house. And, um, he has the cash to do it, but he feels like it's sort of frivolous, just like you said. And so when we write his plan, what we did was we said, um, This, so this would be a successful version of buying a vacation home and wrap it into your plan.
You buy the house and then you set a date in the future for when you can sell it and reapply kind of that money to your investment accounts. Right. So, uh, I think it was a 2 million ski house and we determined what age can you no longer ski. Right. And it was somewhere in the seventies. He thought I'll probably want to get up there and ski all the time for 10, 15 years.
So at 75 years old in his plan, we sold [00:22:00] it. At a reasonable, um, you know, inflation rate for
ben: conservative assumption on increasing value,
nate: right? Yeah. And, uh, either way, if he wasn't going to buy the ski house, he's going to spend the money on vacation. So it seemed to make sense. He had the cash. He wasn't going to have a mortgage.
And that to me seemed like a great fit. It
ben: seemed like a total check mark, even as a great fit, the place where I see this go wrong. And I have seen this is where someone buys that vacation home and they're insistent on having two homes all the way from retirement until the end, right? Because having two homes, I mean, that's something some physicians can pull off, but the vast majority of our clients, you know, most of whom earn more than a half million dollars a year, it's still a stretch for them to have and keep and maintain and use.
Two homes in retirement, so that's not super great. But you know, like you're saying, if we can use this as an asset to fund retirement, whether it's [00:23:00] sold to reinvest or whether it's it's liquidated over time and, uh, you know, used to, to spend and pay for things. I mean, heck, it could even fund like long-term care needs in the future.
Or, you know, another strategy is to buy one in a beautiful place and then actually retire in that home and sell the home that you're living in. Right. So, but, uh, two homes is typically, you know, it's kind of like two spouses, right? One spouse is a happy life. Two spouses is instant misery. And I think the same thing goes with, uh, the long term ownership of homes.
Yeah, totally.
nate: Totally agree. Right.
ben: Good. Okay. So I feel like we've kind of, uh, broken it all down. So, uh, give us a, give us the big takeaway here, Nate.
nate: So, if you dream of a vacation home as a good investment and something you can pass down to your children, that dream could turn into a nightmare. So swipe left and rent.
But [00:24:00] if you're an established physician, well prepared for retirement, you can swipe right on a vacation home.
ben: It's true love, true love. Awesome. So, hey, I want to say happy Valentine's Day to everyone here. I hope your life is filled with love and fun and romance. And until next time, remember, you're not just making a living, you're making a life.
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