Why Buy Land Now?

This group (of younger couples) is crunching the numbers and making hard decisions about their personal finances. In some cases, they’re receiving an inheritance or a stock grant and are choosing to invest in their future real-estate needs rather than the stock market. In other cases, they’re altering their expectations about how long they’ll work and the kind of returns they’ll earn on their nest egg in order to pursue an emotional investment.

Nevertheless, people who receive an inheritance or other cash infusion are often deciding to put that money into retirement real estate instead of stocks. Others are pulling some of the non-retirement-plan money from their nest egg. Either way, says Suzanne Krasna, a financial planner in Walnut Creek, Calif., the bottom line is to figure out if your income can support the additional liability of this house after you’ve met other obligations — such as building an emergency savings account, contributing to a child’s educational savings and fully funding your retirement plan — and after accounting for your current lifestyle.

No one knows how many younger buyers are out snapping up their retirement homes. But real-estate agents and financial planners around the country say they’re increasingly assisting younger buyers spending $100,000 to $500,000 for a house to call home in retirement. Partially at play is a cultural shift planners say they see among younger savers who aren’t content to just accumulate assets to use in retirement. Instead, this younger generation wants to put some of its nest egg to work today as an investment in family.

Gregg Yaeger, a vice president at Chicago’s Northern Trust Corp., says he has dealt with several younger clients doing this in recent years, including a 37-year-old client currently buying a retirement house on a lake in Michigan. “He wants this place specifically to retire,” Mr. Yaeger says, “but he also wants it now as a place to build a bank of memories with his kids.”

The question many people face is how to afford the future today. After all, beyond the price of the house there is maintenance, insurance, taxes and other costs. Phillip Cook, a financial planner in Torrance, Calif., says he discourages his clients from pursuing this strategy because “most of the rationale is emotional, and financially I think that’s a mistake. Do you really think you know where you want to live 25 or 35 years from now?”
Younger buyers, however, don’t necessarily see these homes as investments. They recognize that real estate has intrinsic value and that their retirement dollars remain at work in some fashion, since, if they do live in this house at retirement, they can sell their current primary residence to supplement their retirement savings.

Most, though, are like Anuraj Bismal, 40, and his wife, Ann. The pair pulled money from their nest egg and bought 38 acres and a 100-year-old farmhouse in far northeastern Pennsylvania, about 2½ hours from their Montclair, N.J., home because, after each seeing parents die in recent years, they’ve come to the conclusion that “the moment is now,” says Mr. Bismal, a financial executive with a major Wall Street firm. So, the Bismals spend most weekends at their Pennsylvania house, and Mr. Bismal expects they’ll spend part of every year in retirement there.
“I could care less if I make $1 on this place,” he says. “For me, this is very basic: I want to live my life now.”