Investing vs. Saving

[CheapMom]

I just did a totla double post so I will pose a new question.
DH and I are considering cutting our monthly savings WAY back and buying a vacation home. We have a good bit of accessible savings now and it will continue to grow just at a slower rate. We figure the vacation home will appreciate in value (It is in one of the few areas of the country where real estate is till affordable) BUT we will have less disposable income (that may be a good thing- I mean how many frivolous things do we really need to buy)
OK financial gurus- ASSUMING we make a sound real estate deal- is this wise?

 

[kfeuer]

So are you saying you're going to cut retirement savings to get the vacation home? I'll leave it to the financial gurus to comment on this, but your question reminded me of a story.

My old boss's wife had a well-to-do mother who passed away. All her kids got a large chunk of money. Two of the kids put the money into conservative investments (probably too conservative) and the third put his money into a lake house. At the time the 2 other kids were shaking their heads at him thinking he was just wasting money. Fast forward 10 years and the value of his lake house had doubled (I know it's got to be worth even more now, real estate in that area has shot up lately) and the other 2 had only seen modest gains.

Of course real estate investments don't work out that well for everybody, but if you're in the right place at the right time you can make a killing!

 

[disneysteve]

The big advantage of investing in real estate is leverage. You can buy a $500,000 home for $50,000 or less upfront. If the home appreciates just 10% in value, you have essentially doubled your money as you would now have $100,000 in equity. If a $50,000 investment in the market went up 10%, you'd only have $55,000.

Of course, a home brings with it other expenses. Purchase costs, taxes, insurance, maintenance, etc. But it can still be a great investment as long as you do your homework and have all your financial ducks in a row otherwise.

What will happen to the market in the coming years? Nobody knows. Certain areas will probably continue to see appreciate, though likely not as quickly as in recent years. But even a 5% annual appreciation can beat the market due to the leverage. Of course, in many areas prices are flat already and may even be falling a bit.

 

[CheapMom]

So are you saying you're going to cut retirement savings to get the vacation home? I'll leave it to the financial gurus to comment on this, but your question reminded me of a story.

It isn't our retirement savings per say- We have 401Ks and a few other investments earmarked for retirement right now.
It is a waterfront lake house that we are looking at.