A Journey of Mindfulness--the Remaking of Life in Midstream.

[IlliniDave]

*Also opportunity cost - no one is getting healthier with age. What is 100 yo iDave more likely to regret? Not working those extra 6+ months or postponing going after his dreams for longer?

I agree, it is a slippery slope! And a part of the reason why I'm still working three years after I probably could have checked out.

My dad retired early, got an incentive that made his pension larger than if he would have worked to FRA, and more than he was making at the time. He didn't think he was old enough to retire, and as was common with his retired colleagues, he planned to take the mandatory 2 semesters "off" then return as an adjunct faculty member and teach a lower course load. He did go back one semester, taught one course. Didn't like it, and bowed out for good at the end of it. He credits that experience with helping him move forward with his retired life without regrets or looking back.

So if look back at this hypothetical experience and can say it helped reinforce an ER decision I'd tend not to regret it. Honestly, once some time goes by I can't imagine spending much time dwelling on it at all. To go back an reexamine the long, long list of impactful decisions that I could have decided otherwise and been better off is too depressing.

[IlliniDave]

... Why was it a disaster? ...

Thanks, RML. All good things to beware of.

I don't think the piece of property in question would be something I'd try to build a residence on. It's too off grid. My vision with it is threefold.

1. Diversifies my assets. It's a tract I can comfortably afford and while it won't skyrocket in value, it likely won't plunge either. It'll provide a lifetime supply of firewood, as well as forage and hunting opportunities.
2. Use it as a retreat when life at my semi-off-grid cabin becomes too "hectic". To that end I'd probably create a nice primitive campsite or even construct a small seasonal cabin on it.
3. Legacy. Multiple choices to donate it (or even pre-arrange a purchase from my estate) to a number of wilderness preservation organizations in the area. That's why I'm targeting property that is primarily wetland.

If some day the state or federal gov't decides to build a road closer to it and run power into the area it might be tempting to build on, and/or provide a hefty capital gain. But that's unlikely.

[Riggerjack]

The 80 acres sounds like fun. I am assuming you have water access close by? Not much point in land without access.

But firewood, room for big projects, and just a place to be alone all have value. And trees that fall in the forest are fine where they are. Not having a road can be handy in this respect.

But be aware that when buying large lots that the price per acre tends to be much lower than small, 5 acre residential lots. Look at what timberland and ag land are selling for, for an idea of value.

[IlliniDave]

The 80 acres sounds like fun. I am assuming you have water access close by? Not much point in land without access.

But firewood, room for big projects, and just a place to be alone all have value. And trees that fall in the forest are fine where they are. Not having a road can be handy in this respect.

But be aware that when buying large lots that the price per acre tends to be much lower than small, 5 acre residential lots. Look at what timberland and ag land are selling for, for an idea of value.

There actually is a private unpaved road to it (one of the potential downsides is shared maintenance, haven't ascertained the specifics about that) to get to it from the highway and connect to an adjacent tract that for sale by the same owner. It dead ends more/less at the property line. But it's a few miles off the nearest state road, so power is not available. There's a good bit of water, a stream flows through it and it's got 3 small beaver ponds and about 60% of a large one that I eyeballed via aerial image to be about 8 acres. Of the 80 acres probably 50-60 are marsh/wetland. So in a pinch with really a good filter or boiling could be drunk (but I have a cabin with a well just a few miles away).

I don't know what timberland sells for, but the asking price is about half what similar tracts of predominantly high ground are listing at (high ground just means not wetland/bog, not high elevation), and about a quarter of what a power-available tract would sell for, and an eighth what an undeveloped high ground track with power/cell coverage would go for. Still, the asking price is probably 25% too high. That's comparing to hunting tracts and the like in less interesting parts of that region of the state. There's a an amount of lake front property up there that can sell for $3K/frontage foot on some bodies if it is minimal depth from the shoreline (house would have to sit back 100 ft from the water, so I think 160' is the minimum). I saw one ~50 acre tract that had frontage on three different el-primo lakes listed at $2M

Unfortunately there is a significant real estate boom in the area, triggered initially by wealthy coasters looking to flee covid. Also, telecommuting being more of a thing means more people from "The Cities" (Minneapolis/St Paul) are looking to relocate there. Fortunately for me they generally need good connectivity/reliable utilities to work out of their homes, so I'm not in competition with them.

[RockyMtnLiving]

There actually is a private unpaved road to it (one of the potential downsides is shared maintenance, haven't ascertained the specifics about that) to get to it from the highway and connect to an adjacent tract that for sale by the same owner. It dead ends more/less at the property line.

Again, some cautions based on personal scar tissue on these topics. Does the perceived road access include a formal easement? When undeveloped land is chopped up, which appears to be the case here, the mere existence of a road doesn’t mean you can legally use it. And it doesn’t matter what the seller says, thinks, or may remember about that road. And it doesn’t matter what you see on satellite imagery. What matters is what the deeds say at the county courthouse (and for adjoining lots, you need to look at both deeds, not just the deed for the one you are purchasing — you actually need to look at all the deeds for all of the properties that the road(s) crosses). So I would hire a local lawyer to do some due diligence. Lots without legal access are not uncommon; local zoning should prevent that, but it doesn’t always work.

In our case, it turns out a railroad used to traverse the land in the early 1900’s. A title search showed that the RR, long since defunct, still owned it. And that meant there were potential descendants of the RR out there somewhere who could claim a strip across our acreage, or that the county could somehow claim it and put a highway across the land. So we had to go through a public process to condemn that strip to eliminate any such claims from being brought against us.

And I would never buy anything, let alone real estate, sight unseen. You need to see the land and walk it. Maybe there is a junk yard in a corner — one never knows. Or a squatter who is poised to claim adverse possession.

Lots with water are potentially problematic (wetlands that are under some amount of environmental jurisdiction).

Taxes also matter. Is the land zoned residential? Agricultural? Would you want to change the zoning status to reduce taxes or enable some amount of improvements, no matter how minor?

[IlliniDave]

RML,

I'm still just window shopping, but it happens that RE agent I'm working with is somewhat of an expert in these matters (from having been dealing with all manner of these issues in trying to disposition her parent's estate, which includes hundreds of acres of similar remote land. The land up there is divided into 40 acre chunks which is the unit the federal government in the past sold off the land. The recently built road was built by the owner of the 2 "40s" I'm looking at, who is also selling two other 40s, one adjacent to the north and one adjacent to the west. That owner secured an easement across federal land to connect from the state highway north of the properties, through his 40 north of the two I'm looking at, through the northwest corner of one of the two I'm looking at, to the line of the property west of what I'm looking at. Typically these private roads are gated at the highway so there won't be any random traffic. So there's an easement across one of the two 40s for the one neighboring property using the same road that would be used to access the property in question. There's always the possibility someone may come along and petition for an easement in the future.

In Minnesota a person can't be blocked from accessing their property, and unless there are extenuating environmental concerns (where the federal gov't would intervene) road easements will be granted.

My interest is not high enough yet to obsess over the easements. I have a high degree of confidence they have been described to me accurately.

More worrisome actually is that one of the National Forest Service recreational trails cuts across the property. They don't get much use in the summer because of all the nearby water-related opportunities, but dog sledders and snowmobilers use them to access federal land for hunting and ice fishing in the winter. There's actually a lot of ground up there that is only practically accessible in the winter. But I wouldn't be thrilled with even sparse foot traffic during the warm part of the year. I won't be there in the winter.

There are always compromises, especially when one is shopping on a budget. A property with road access and no easements or reasonable probability of future easements, would cost a good bit more, and my goal is not to have a doomsday prep bunker where no other human may set foot. I just want a patch of iconic northwoods country that's relatively unspoiled where I can go play on occasion and then be a conduit for the land to be preserved as conservation land in the future. If I was looking to make a homestead out of it, the bar would be a little higher.

It's probably zoned recreational, but it might be zoned non-homestead. Dunno what the difference is, really.

[RockyMtnLiving]

They don't get much use in the summer because of all the nearby water-related opportunities, but dog sledders and snowmobilers use them to access federal land for hunting and ice fishing in the winter. There's actually a lot of ground up there that is only practically accessible in the winter. But I wouldn't be thrilled with even sparse foot traffic during the warm part of the year. I won't be there in the winter.

Sounds as if you have it all covered.

Out here, there are two groups of people in the winter (which is Oct to May): snowmobilers and those who despise them. The former make a horrendous amount of noise; it literally is a whine that can be heard for miles. They also pretty much preclude the land from other recreational uses — e.g., cross country skiers generally don’t use the same trails, as they don’t want to get run over.

As a consequence, on federal land here (we sit between two national forests) snowmobiles can only be used in limited designated areas. BLM really restricts them, as far as I can tell. I know you said you won’t be there in the winter, so this is another non-issue for you. Still, if one wants the option of winter solitude even on a rare occasion, being anywhere near a trail used by snowmobilers is apt to hinder that goal.

[IlliniDave]

Sounds as if you have it all covered.

Out here, there are two groups of people in the winter (which is Oct to May): snowmobilers and those who despise them. The former make a horrendous amount of noise; it literally is a whine that can be heard for miles. They also pretty much preclude the land from other recreational uses — e.g., cross country skiers generally don’t use the same trails, as they don’t want to get run over.

As a consequence, on federal land here (we sit between two national forests) snowmobiles can only be used in limited designated areas. BLM really restricts them, as far as I can tell. I know you said you won’t be there in the winter, so this is another non-issue for you. Still, if one wants the option of winter solitude even on a rare occasion, being anywhere near a trail used by snowmobilers is apt to hinder that goal.

I hear you on the snowmobiles. For winter solitude I'd probably go with the cabin. And I just checked and it looks like snowmobiles aren't allowed on the trail in question. However, a lot of residents on the remote properties use them to get off their properties/private roads onto main roads. They are just a fact of life up there. Because of the wilderness preserve they are prohibited from some public land areas, and there's actually a network of designated trails reaching all the way into Ontario that the recreational-types stick to. Their restriction over a lot of the public land is why there's a bit of a dog sled "industry" in the area.

I think the main thing is that a property like this would likely just be an adjunct facet of my lifestyle, and a way I could get some overlap. Web of goals we'd say here: somewhere to park a little wealth (< $100K), provide me with convenient recreational opportunity, and ultimately feed into some of my "charitable" impulses. As I mentioned, if I were looking for a permanent residence, the bar would be higher.

[IlliniDave]

A jump to 4% inflation makes a noticeable impact to my projections. I go from a probable modest upward trajectory in stash value to more of a treading water profile. Inflation has the chair at the head of the bugaboo banquet table.

The 80 acres I was looking at is already under contract. Snooze you lose, eh? It just had too many things working against it to make an offer on it without walking it first. My attention has now turned to a 6-acre piece of waterfront property that lists for about twice what the 2x40s did. This property I would be looking at as a potential future home site in the event that when my utility in Illinois wanes, I opt to move my official residence north. If I opt against building on it, it would be just be an asset I'd use to park a dollop of wealth and it's big enough I could use it as a camp site to fish in a small secluded lake.

My position right now is to not pursue the 6-month part time "off ramp". I think the crashy, tumbly, screech-to-a-halt conclusion would be better for me.

Quite a lot of physical material made its way off of my house/yard last week. Next time I get all excited about how well I'm doing with a sustained clutter purge, someone call BS on me. I'm really just clever about hiding and organizing.

[Qazwer]

Inflation matters in regards to what assets you have and how those assets react to inflation. Stocks may or may not keep up. Long term fixed income will not. Short term may or may not.
Cash definitely will not
To make things even more confusing, current inflation numbers are in comparison to the depth of the COVID recession last year - what happens after that data clears hard to tell

[IlliniDave]

Agree the future is pretty unknowable and there some anomalous forces at work. My weaknesses in that regard are counting on a non-CPI-indexed fixed income to bear the brunt of my basic spending through the bridge years, a bunch (relative to my LT norms) of cash built up, and an overall intermediate-term bond exposure. Plus it seems like I might soon get an influx of cash I wasn't expecting. An item I plan is to shift some additional portion of the stash into real estate, probably undeveloped land. I don't see that as a savvy investment move, more as way to store resources and diversify reaction to inflation. If I don't make a move real estate as a % of my net worth will fall down to around 15% once I sell/relocate/buy. I think I'd like it closer to 30%, maybe as high as 40%. And if I can grab the right property, I can wind up with interim recreational opportunities and a potential post-Illinois home site to go along with a more balanced asset diversification. I've sort of realized/reaffirmed that absent any family considerations, I'd relocate to the northwoods full time immediately after retiring, which prompts me to lean in that direction for "portfolio" real estate.

[RockyMtnLiving]

At age 57, real estate represents about 8% of our NW; a decade ago, it was about 33%. Probably 20 years ago, it was probably 50% (maybe more). So as we've gotten older, the real estate percentage of our NW has decreased. Why do you want such a high percentage of your NW in real estate? I might expect to see that in somebody at the start of their career who had just purchased a house and hadn't had the chance to build up financial assets yet.

The Vanguard Total Bond Market ETF (BND) has a dividend yield of 2.3% (https://www.marketbeat.com/stocks/NASDA ... %202.32%25.) so even if you don't trust bonds in a rising interest rate environment, at least that money is still working for you. At least that is how I view it.

Undeveloped land, in contrast, earns nothing. Indeed, it costs money to merely hold it (e.g., property taxes). And you would need to account in your retirement budget for future development costs, including a house. I'm guessing that sum would easily run well into the six figures. So actually, you could end up (and here I'm guessing) effectively committing 60% of your hard-earned NW to this approach (40% for the land + 20% for development/house/etc.).

Tl;dr: Another strategy might be to still hold bonds, then only purchase undeveloped land if/when you are ready to pull the trigger on undeveloped land and had a budget in place for development costs. I know everybody is trying to find an asset class to shield themselves from a likely rising interest rate environment. Just putting such a high percentage of NW in undeveloped land as a strategy on the cusp of retirement would make me nervous.

[IlliniDave]

Why do you want such a high percentage of your NW in real estate? ... Just putting such a high percentage of NW in undeveloped land as a strategy on the cusp of retirement would make me nervous.

Why? Inflation and SWAN.

I think I gave the wrong impression. The undeveloped land will be maybe 7-15% of my net worth which would get me in the 20-28% range total (I'll still own a house, a cabin, and a fractional interest in a rental farm property). I will probably inherit additional interest in the farm property and a portion of the land my dad's vineyard is on as time goes on, so that should bump it up to about 30% give or take for all real estate. If I decide to build on the land I'd be selling the house and cabin so that would be roughly a wash.

And that still leaves me with a pile of financial assets large enough I'm embarrassed to mention the total here.

The main bond fund I have to invest in within my 401k tracks the Barclays US aggregate index which is currently under 1.5% yield (ETA, I checked on the morning of 5/21 and the yield is 1.54% with the total return down 2.69% YTD on the index). With inflation at 4% that's about -2.5%/yr (yield - inflation) which is greater than the ~1%/yr I pay in tax on the cabin (which includes a premium for being lakefront). Even if I buy undeveloped lakefront in the adjacent county I'm looking at around 2%/yr in taxes. Half that if it's not lakefront, and less still if I occupy it and get a homestead exemption. So it's about a wash for at least the first 10-15 years (the average duration of the bond fund is somewhere in that range I think) assuming inflation hovers in the 3-4% range. If it's higher the land is the better bet, if it's lower the bonds are the better bet. On the taxable side I have tax exempt bonds which yield a little less. Even after the hypothetical purchase i'd probably still have a pile of bonds that at today's value would be worth about as much as all the real estate. And I'll still have a pretty big pile in the stock market as well. So I don't feel like I'll be illiquid and so can "afford" to dedicate some assets to playing a long game against inflation.

[RockyMtnLiving]

That makes sense, and I apologize for misunderstanding. Reading comprehension isn't one of my strong suits. And again, thank you for letting me peek over your shoulder from time to time on your journey.

Take care.

[IlliniDave]

No need to apologize! The conversation helps me organize my thoughts and plug holes in the plan. And the recent sidebar regarding land has been especially fruitful giving me a palette of things to put on my watch list. So, sincerely, thanks for that.

[Mister Imperceptible]

Source:Existing Home Sales Unexpectedly Tumbled In April For 3rd Straight Month As Prices Soar





In inflation-adjusted terms housing did poorly in the early 1970s (first inflationary shock) and well in the late 1970s (second inflationary shock). In both instances you would have been better having a fixed rate mortgage.

The first chart ends in 2018. In 2021 housing is now where it was in 2005-6 in real terms. Then look at secular low mortgage rates. Real estate can protect from inflation but like bonds are susceptible to interest rates rising. Given the current price of housing, can it protect against inflation as it did in the 1970s? From 2006-2012, housing did not offer any protection.

I would think the undeveloped land or farm property will outperform the housing typically pursued whose price is a derivative of the rates market. If you are concerned about inflation, mortgage everything and carry cash balances against the mortgage. Precious metals are cash. Firearms are also liquid. Inventory of whatever else needed can be stocked.

Time might be better spent scouting for land and preparing than working a part time job. Although getting a mortgage maybe easier with a job.

[7Wannabe5]

This is the most relaxing thread on the forum.

[IlliniDave]

...
Time might be better spent scouting for land and preparing than working a part time job. Although getting a mortgage maybe easier with a job.

It does seem like a time that could be favorable for trying to leverage debt. At least for those with more appetite for aggression than I have. Undeveloped land (and recreational property in general) are subject to some of the same forces as housing, but in my (limited) experience tend to be more expensive to mortgage. I've considered getting a mortgage if I buy my aunt's house, but that just leaves me with more cash to find something to do with. Awful problem, I know.

[IlliniDave]

This is the most relaxing thread on the forum.

Haha. I chuckle because this stretch is unexpectedly stressful for me. I expected a little more exuberant anticipation, a little less how in the world am I going to get there from here.

[IlliniDave]

My intuition is pretty good some times.

It's pretty nerdy, but I came up with a handful of "financial readiness criteria" for some of the metrics I've been automatically generating for the last few years. Underpinning them is a simple way to get a broad brush estimate of future returns, which is a tweak of the Gordon equation with the Bogle "extension". Periodically I'd update a list of parameters (Shiller PE, inflation, dividend yields, bond benchmark yields, etc., and update a formula to guesstimate a return average over the next ten years.

Initially during covid I quit updating the parameter list because I didn't think the transient behavior was meaningful. But as a recovery looms I'd been meaning to do an update but never quite got around to it. Translation: because intuition, I didn't want to know the answer.

Despite the internal opposition I finally got around to updating yesterday; and ... yikes! Now I only pass 2/5 readiness criteria and those two are just some initial/minimum asset level checks. In other words, strictly speaking, I now fail my retirement readiness check!

It's early in the coming-out-of-covid transition so there's room for the parameters to improve so I'm not intending to do anything except to monitor the situation. Because my asset level is higher than it was when I made the checklist, some of the thresholds might be OBE or at least due a revision.