2019-2024 were successful years for my business. At 40 years old, I’ve managed to save about $900k in cash after paying off all debt, supporting my family, and living comfortably. I’ve also purchased raw land, including a beachside lot. Now, I’m looking to diversify into real estate.
The Plan
Build a House on Beachfront Property: Use $500k to construct a home on my $200k beach lot. Total cost: $700k.
Short-Term Rental Income: Expected to net $30-35k annually after expenses.
Financing Strategy: Use $300k cash and take out a $200k loan, with payments around $2,500/month.
Projected Value: Once complete, the property is estimated to be worth $800-900k at current market value.
Long-Term Goal: The rental income helps pay off the loan, and the property becomes a fully owned asset by age 70, ready for retirement or sale.
Seeking Advice
Does this plan align with sound financial principles? While my wife has a healthy stock market portfolio, I’m exploring real estate as a diversification strategy. Feedback and insights, particularly around risks, alternatives, or considerations, would be greatly appreciated.
Your plan hinges on assumptions about rental income and property value appreciation. Have you considered the impact of fluctuating interest rates, property taxes, insurance (especially for beachfront properties), and maintenance costs?
Building a home for short-term rental requires a lot of time and effort. Have you managed short-term rentals before? Consider the costs of hiring a property manager if you plan to outsource day-to-day operations.
Why not use a SEP IRA or solo 401k to build tax-advantaged retirement savings? You could invest part of your cash in diversified assets while still pursuing real estate.
This is a lot of money tied up in a single property. If something happens to the real estate market or the property itself, it could significantly impact your portfolio. Have you considered REITs or other real estate investments for better diversification?
Beachfront properties come with unique risks: rising insurance premiums, property taxes, and the potential for storm damage. Make sure you account for these in your calculations.
Your projected rental income seems reasonable, but make sure to validate it against comparable properties in the area. Also, double-check building costs and permitting timelines to avoid unexpected delays.
If real estate is your expertise, this could be a great move, especially if your numbers are conservative. Just make sure to balance this with continued investments in equities or other income-generating assets for diversification.
Instead of waiting until 70, can you optimize your investments to retire earlier? Diversifying with real estate is fine, but don’t lose sight of the big picture.