A dream home is what we all dream of. A dream home is like a forever home to live a great life.
Every time I travel for business, one of my favorite activities is to attend a broker’s tour to get a feel for the local real estate market. The activity is free and enables me to talk with people who have intimate knowledge of the local economy.
All indicators in Oahu show there’s weakness in the luxury market, defined by homes priced over $2M. The pattern is the same in SF and NYC, which makes me worry since weakness tends to start at the top and work its way down.
For kicks, I visited one property in Kahala, my favorite neighborhood in Oahu, with an asking price of $6.7M. It has 9,000 square feet of living space on a 15,000 square foot lot. Every single room felt like I was in a Las Vegas casino or on a cruise ship. It felt gaudy. When I asked where the sellers were going, the agent told me the owners finally bought a beach front property across the street for $20M!
Eleven years ago they had wanted a beach front home, but “settled” for this $6.7M house instead. Last year they finally bought their dream home and have spent the past year remodeling.
Here’s the kicker: the husband is turning 81 this year! He’s a real estate developer from the San Francisco Bay Area.
Waiting until you’re 80 to buy a dream home is perplexing. Perhaps when he was 70 he simply couldn’t afford $15 – $20M? Alternatively, maybe some time in his mid-70s he realized that he had way more money than he’ll ever need. He could die tomorrow, so why not ball up and buy the property he’s always wanted?
The Dream Home And A Race Against Time
I’m sure there have been many times in this seller’s life when he has thought to himself, “I can’t take it with me, so why not enjoy my money to the maximum now?” Nowadays, I think about more responsible ways to spend my money all the time. But it’s just so hard for me and many others who’ve been so frugal all our lives to open up.
“Consumption smoothing” is an important concept to address because it helps improve the quality of our lives. You don’t want to die with too much left over because that means you worked too hard and saved too much earlier on. You don’t want to die in debt either, because that means you didn’t properly manage your finances, felt constant money stress and are likely leaving surviving kin with a financial burden.
Imagine taking 30 years before becoming really rich. During this time perhaps you lived very frugally. Is your life today really better than the person who spent much more freely from ages 20 – 50? Hard to say. I’d much rather enjoy a more consistent spending pattern. We just tend to save more than we need because the future is uncertain.
At almost 40, I feel the race against time more than ever. I have this stretch goal to buy a dream home in Hawaii before the age of 50. I’ve got 11 years to come up with the money. Yet each year I try and save is one less year I’ll get to enjoy this dream home. The home has to be at least 50% nicer than my existing home or else why bother? As a result, the new home will also cost at least 50% more.
I chose age 50 because I’d like to actually enjoy my current home for at least 10 years before I die. Ten years goes by quicker the older you get. My hope is that I live until 80, but just in case I don’t, I’m hedged from an early death, unless I die at 51!
Don’t hate me for my desires. I’m content living for the rest of my life in my cozy ~1,910 square foot home. It’s got a nice master bathroom, three bedrooms, one office, parking and panoramic views of the Pacific Ocean. What more does a family of four really need? It’s just fun to have goals. They make working and saving more meaningful.
A FASTER RACE AGAINST TIME
Although I feel the time crunch, my parents at ages 68 and 70 feel it even more. I’m lucky both are still alive. I have every intention of spending as much time with them as comfortably possible and also taking care of them if that becomes necessary.
They presently live in a perfectly fine middle class house. It just hasn’t been updated in the 30 years since it was built in 1986. I’ve been coming back to this house to visit for almost my entire life. Meanwhile, both our fortunes have grown significantly since 1986. For example, I, for one as a nine year old, had a net worth of maybe three bucks in quarters. Now I’m free!
Remodeling is a PITA, so I thought of a great idea. Instead of remodeling the 30-year-old home that might take six months and a lot of stress, why not rent it out and have them move to a new dream home! Renting out a home that hasn’t been updated in 30 years feels terrific. I won’t feel as bad if the tenants bash the walls or break the appliances.
I’m not sure my parents ever expected me to do very well financially. After all, I went to a state school that was not a magnet for the highest paying jobs. But my money is in the bank and I’m happy to spend it on them now. When I talked to my father, he also has a decent amount of excess savings despite having a pension. Why not combine our finances to enjoy a fantastic property instead?
Benefits of buying a new dream home:
* Newer house should mean less things to fix. Many of the houses I’m considering have been rebuilt since 2013.
* The dream house will be on one level to make walking around easier for my parents. Since my knees are starting to hurt more, I appreciate less steps as well.
* More privacy. I’ve noticed many of these nice homes in Kahala have tall walls and huge trees surrounding the property. It feels amazing to shut your gate and go skinny dipping in your pool if desired.
* My parents can live in a much nicer place for the rest of their lives.
* A larger, single level house means it’ll be easier to cohabitate eventually and take care of my parents.
* My parents benefit from a large injection of funds from me to live a better life, while I’ll get the satisfaction knowing my money is being put to great use.
* If we can get a mortgage, we’ll be taking full advantage of record low interest rates.
* Every time I visit, I’ll be able to stay at a nicer home. My realistic scenario is to spend for 4-6 months a year in Hawaii, live in San Francisco for 3-6 months during tennis league season and travel for 2 months a year.
* The house will eventually be mine to enjoy full-time when I’m much older. Perhaps the cycle can repeat again with my own children.
* Potentially generate $40,000 – $50,000 in annual rental income from the old house.
* Maximum consumption smoothing as the money that’s just being saved and invested by me gets used to provide my parents a more comfortable life.
* Could make money on the investment. Inventory in Kahala has spiked by 50% over the past year. This means low ball offers are more likely to be accepted. I’ve got this incurable habit of trying to take advantage of opportunity.
The negatives of buying a dream house:
* More property taxes, maintenance and expenses. I could just invest money with a real estate crowdsourcing company like Fundrise for potentially double digit profits and no hassle.
* Massive new mortgage since we can’t pay $3M+ cash. I’ve been on a mission to pay down my mortgage over the past two years and it’s felt great.
* Need to find new tenants for the old house. Will hire a property manager to make management easier.
* What if my parents don’t like the new house or the neighbors?
* Moving is stressful.
* More responsibilities.
* There’s less freedom living with your parents, although we’re looking at bigger houses with 4,000 – 5,000 square feet of living space. For example, one 5,000 square foot house we viewed has a separate 420 square foot cottage where my mother said she’d enjoy staying.
* Could lose money if I get into financial trouble and need to sell.
LIVE IT UP WHEN YOU CAN
A simple life is fantastic. It’s the reason I was strongly considering selling one of my rental properties earlier this year. But now that the new tenants have moved in, I no longer have the strong desire to sell. It’s just having to deal with an HOA that bums me out the most.
Buying a dream home is a complete 180 from my earlier thinking. But the reason for the change is mainly because I want to provide what’s best for my parents with the time they have left. They live in a tired two story house with a noisy neighbor. By leaving the logistics up to me, I can rent out their old house, free up $40,000+ a year in retirement income for them, and let them live in an amazing new house if we can combine our finances.
Ultimately, money is meant to be spent. It’s seems like a waste to have so much left over in savings after you die if you live a middle class lifestyle. If you lived a top one percenter lifestyle and then had money left over, that would be a different matter.
If my finances can help make my parents’ lives better, what’s there to lose? It just comes back around. Then again, staying in this old house in Kaimuki with newly installed local AC units and newish windows seems perfectly fine as well. After all, the beauty of Hawaii is in the outdoors. Now if I can just convince my father to upgrade to faster WiFi…….
Related:
Buy Property For Lifestyle First, Rental Income Second, And Principal Appreciation Last
Retiring In Hawaii: The Pros And Cons
Recommendations
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Maybe approach the houses you want to buy or scour the rentals that are stagnant and offer to rent them for $5000-$8,000 and rent you kaimuki house for $5000. You are the negotiator. I had seen a very nice Hawaii loa house in Aina Haina school district the house was beautiful the owner did a 10 year lease at a reasonable price as they just wanted consistent income without hassle and risk of someone wrecking their investment. Home sellers sometimes worry about how are they going to invest their money and get a return, as stable longterm renter u can solve that problem for them.
Interesting timing on your article! So I can confirm that sales on homes above $2M are weak compared to the rest of the housing market. I put my home for sale in early May and have had an average of 2 showings a week, activity is still strong. I think there are lots of tire kickers of course, but I live in an affluent area, my home is (okay I’m biased) specular waterfront on a peninsula. Feedback is its not pricing, but all the higher end buyers are really cautious right now and understandably so. I’m fortunate that I paid cash at the absolute bottom of the market and my value has skyrocketed, I think some people see that and they think they’ll just wait for the next crash as well, but that may not happen for a long time…nobody knows and as you say life is short and you cannot take it with you. I’m happy as a clam staying put if need be but I’d rater have a smaller property in an awesome location (Hawaii like, but not necessarily there). Long term you cannot go wrong being in the extremely desirable locations like that. I would suspect though that a lot of the owners are similar to me though and the place is paid for so they have infinite staying power, what you need to find is that one guy that overextended himself and is now distressed. Those deals absolutely happen all the time, having cash and being ready to pounce is the key. Cash, close in 7 days will get you some real deals.
On the shared property with your parents I’m a little mixed. If it were not Hawaii I would say no way, but I can see why that is an appealing option for you. Let me tell you what your future self will be thinking…like you alluded to many times life is happier the more options you have and the more simple it is. 10 years from now having to carry $40k a year in maintenance and taxes expense on your dream home is not going to be as appealing as it is today. You will long for the freedom of being more liquid. Now if you find that forever home that is distressed and has a spectacular view or is oceanfront, I can see pulling the trigger. Having a really nice house that simply looks out to a pool and great landscaping will get old. I’ve spent the first 18 months of my early departure from the workforce traveling and soaking up different environments, talked to tons of locals and other people in similar situations. The one common theme that has developed is the following…”after a few years even paradise gets old and you need to hit the reset button.” Some people are different though and I can understand wanting to have a permanent home in a place like Hawaii. My plan is to have a small but simple place that I can lock the door behind me and be able to leave for months at a time and not have to think about from a maintenance or a carrying cost standpoint. I don’t think you can make a huge mistake with what you are talking about since you know the area so well and your family is there, but my guess is your future self would like the options that additional liquidity provides at such a young age. Look forward to hearing how it shakes out!
“10 years from now having to carry $40k a year in maintenance and taxes expense on your dream home is not going to be as appealing as it is today.” – I believe your statement. And the only way it stays appealing is if the home appreciates tremendously, or if I boost my net worth and income by 2-3X from here. I already pay more than that each year in property taxes and maintenance for my real estate portfolio. So getting to $100K/year in carrying costs sounds terrible.
Pressing the reset button is why travel is great. Travel more! Going to Asia for four weeks last year gave me a lot of perspective. Going to Europe for three weeks this year helped kill the mundane. On the recent 10-day Hawaii business retreat helped keep the spirits high at my company.
Having a wonderful home base or two feels amazing to come back to. It’s nice to explore other great homes.
Totally agree, the nice thing is when you purchase from a position of power the worst thing that can happen is you lose a tab bit of your net worth % when you go to sell if you are forced into it for some unforeseen reason. I completely get having a nice place to come home to and the fact that your family is there and know it so well would have me not worried too much about making the call to do it. Also, a phenomenon that I recognized that happens to highly motivated people is when they do make a big purchase like that it kicks their dollar earning drive into overdrive. I was 39 when I wrote a $1M+ check for what I thought would be my 20 year to forever home…6 years later I would absolutely do the same thing again, it has been fantastic, but I’m ready for the next adventure so clipping this coupon and going onto the next seems like a great idea. 6 years from now I could see plunking down a big chunk of change again, but for now its not on my radar. I spent a month in Asia, a month in Latin America, a month exploring the national parks out west, 6 weeks in the Caribbean, and it has just heightened my desire to see more of the world and not have a big place to worry about. I think about it like this, I love where I’m at but how do I know its the best place if I haven’t been everyplace yet : ) Funny thing is that I go real estate shopping while I’m visiting these places too (well not in China lol)These are good first world problems to have!
I’ve got an easy answer for you regarding the best place to live. If you haven’t lived in San Francisco, I can unequivocally tell you that San Francisco is it!
I’ve lived on the East Coast, the south, the West Coast, and I visited the North West and Midwest many many many many many times before. San Francisco is #1!
And I also grew up overseas for 13 years, and San Francisco is my favorite place for worklife balance.
https://www.financialsamurai.com/west-coast-living-yes-it-really-is-that-much-better/
Sup, love your site. I live in Honolulu near Bishop Museum. If I had your money, this is what I would do, learning from personal experiences.
Remodel your parents house to make it VERY handicap/elder friendly with a/c! I’m talking about the entire house (bathroom, bedroom, entrance) being wheelchair (handicap accessible) friendly.
Reason #1: Safety and comfort for you and your parents when they get fragile and immobile. If your elder parents get hurt, they can’t enjoy life. So trying to minimize accidents so they can live comfortably is important too. Plus, it’ll be less stress for you when caring for your parents, unless you hire a skilled nurse?
Reason #2: You can use the family home for yourself and other family members in the future to care for one another.
Reason #3: Since there will be a ramp, you can purchase a “mobility wheelchair van” for around $30k – $50k. That way you can transport your parents with ease to grab shave ice, some poke, or coffee.
Reason #4: You can build an Additional Dwelling Unit (ADU, legal in 2016) on their property and live together, but in separate quarters.
Reason #5: Home is home.
Good luck in your decision!
It’s funny, my mother and I are literally having the same conversation. She’s worried about not having money in retirement – which is only two years away. Sadly, she doesn’t have the money and just got a refi on her mortgage for 30 years. Even her refi is out of her budget when she retires.
So, I’m buying her house and renovating it. She’ll live with us until she either passes or is forced into an assisted living home; however, until that day, she has a place to stay and financial freedom for the first time in her life. The downside is definitely being that 27 year old “living with his mom”, but it puts my son in a far better school district when he starts in a few years, and I get a home worth nearly $220,000 (after renos) and only purchasing it for $75,000 plus renovations. I’m looking at around $45,000 in total renos to update the house from 1983. So long as the market stays stagnant or gets better in 10 years, I’ll get my utility and money out of these upgrades.
Yes, of course, you are not getting any younger, you’ll have your dream house, good investment and your parents seem to be flexible. It’s a win-win situation.
I voted “other”. I say go for it, but use the rental income to offset some of the expenses of the new place (i.e. taxes, maintenance, insurance, etc) but not to be used for the principle or interest payments as that could really muck things up when your parents pass away.
Or to make it simpler, have your parents capture the income and then pay you some form of rent.
I am also a fan of the idea of you unloading some SF real estate and diversifying with HI real estate.
Hi Sam,
You’re plan makes long-term sense. And since you plan to spread you’re time between HI, San Fran, an traveling, everyone won’t go crazy with one another all the time, lol j/k. I’ve always said that spending on people (friends, family, donations) and creating memories gives greater pleasure than buying things. I hope to see you’re dream home plans come to fruition in a future post.
We had that talk earlier in the year. My parents just retired last month, and have been looking to downsize for awhile, while we were looking to expand our house. The plans are in the work for building a new house with 900 sq ft in-laws quarters, with separate kitchen, living room, bedroom washer/dryer etc on the first level, with only a shared foyer. Most things are kept separate so we have our privacy, and aren’t in each others hair all the time, but taxes, yard up keep, utilities etc. are shared, leaving my parents more freedom to travel and enjoy retirement without house upkeep worries. As they age, we have the bonus of them living ‘very close’ if they need additional care.
I’m from Kahala, there are signs everywhere…part of it is the sale of a large portfolio of real estate from an eccentric japanese billionaire who got caught on tax evasion charges.(google kawamoto Kahala) I think you could get more rental income than 5k/month on a place like that, I was looking at a Rental on Papu Circle and it was $15k/month in rent and the house wasnt nearly as nice as that. Its amazing how much prices differ from makai side of Kahala Ave to Mauka Side of Kahala Ave to Aukai Ave. Kaimuki isnt so bad, a lot of million dollar place there! Anyway, hope you get your dream home!
Hi Ben,
The $4K-$5K/month is for our existing Kaimuki home, not a the potential new Kahala home we’re thinking of.
Speaking of Aukai Avenue, what do you think of that street?
Just spoke to someone else who said Kaimuki is better due to the location, restaurants, and shops.
Know about Kawamoto. Opportunity!
Did you buy a Kahala home, or did your parents? What do you / they do? I’m always curious as to who can afford these homes.
S