House, Cottage or Investments?

by Brad Ferris on February 19, 2013

Reader Kristin asks,

“I’m just wanting to pick your brain for a second. I am a recent university grad, my husband and I bring home about $100,000 a year, we don’t have very much debt, he had two credit cards each with small balances, although out credit could be a little better. We would like to buy a cottage and a home and have recently decided to buy the cottage first, for $100,000-$140,000, pay it off as fast as possible by making extra payments and buy the house after the cottage is paid for. I was just curious as to your thoughts on this as we are looking for as many opinions as possible before making our final decision.”

I don’t think your plan is a poor one Kristin if those are the things you would like in life.  A contrasting thought would be the following though…

If your rent is reasonable and your goal is to save up and pay off that amount in a short period of time why not look at a set of low-cost index mutual funds or ETF’s?

With a cottage you will have other expenses; property taxes, utilities and maintenance.  Rather than put $2,000 a month towards a cottage that I honestly doubt you will use 100% of the time, why not invest the $2,000 a month and rent a cottage for the weeks and/or weekends you’re looking to spend away from your current residence?

I would much rather have a portfolio of income generating investments worth $140,000 in the next 5-7 years than a home worth that much.  Remember that unless the cottage is generating income for you after you purchase your home you won’t be using it 100% of the time.  A portfolio of $140,000 dividend paying stocks could easily pay for 1-3 weeks each summer at a very nice cottage without the additional costs of the mortgage, property taxes, utilities and maintenance.

I’m not saying your plan is a bad one; simply that you might want to consider alternatives and evaluate each one on your individual wants, needs, finances and lifestyle.

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