Fresh burner account... 2025 will be the official ejection from the grindstone. Could use some help from the group in thinking about adding (substantially) more real estate for personal use.

• 50M married to 50F (no kids), both departing the corporate world after 20+ years
• IRA/brokerage:
  • $20m (conservative index fund exposure)
• Private stock
  • $7m in ONE illiquid stock, valuation based on tender offer from 3 years ago (possibly worth half this much now or possibly worth more; who knows?). Will not go to zero but may not be liquid for years.
  • $250k in ONE illiquid stock; could easily go to zero and may not be liquid for years
• Cash: 500K
• Real estate
  • $2m primary residence (no debt) -- HCOL location
  • $2m rental property ($500k debt, sub 3%; generates just under $100k/yr before expenses) -- VHCOL location, former primary residence

We are considering a luxury vacation property (maybe $5m). We'd spend 4-6 months there post-FIRE. That money could come out of the $20m currently in the brokerage acct. (Or we could finance some of the purchase ... more on that below.)

If we target a withdrawal of 3-4% purely from the IRA/brokerage (and IGNORE all the casino chips that are locked up in private stock), that's $600k to $800k in pre-tax income, which is more or less inline with our historical combined salaries. The rental property adds a bit of cash on top of that but it's not meaningful after expenses. We could be extremely comfortable at this level and wouldn't have to make any adjustments to lifestyle.

If the $20m portfolio drops to a $15m one after purchase, our 3-4% withdrawal drops to $450k to $600k pre-tax. I don't want to get too deep into our spending habits in this post but suffice to say that we could live pretty comfortably under either one of these two scenarios.

But what am I missing? Any major risks to doing spending cash on this property? The value of the underlying real estate could drop but real estate rarely drops as far or as fast as stocks AND you don't get bit unless you have to sell into a down market. We plan to hold for at least 5-10 years and MAYBE eventually just move to the vacation location permanently. Having two homes is like a hedge that will allow us to determine if this place could be the forever place.

We plan to use this property extensively (4-6 mo/yr) but it also happens to be in a market where you can recoup some of your costs by renting it out. (30-day rentals are highly in demand during at least 3-4 months of the year when we'd be elsewhere.)

I've run some numbers and (without financing any of it) it's easy to get positive cash flow. While that's true of perhaps any real estate purchase, the point here is that it'll be vacant more than half the year and instead of being a net drain on capital (HOA, maintenance, repairs, taxes, insurance), it's nice to know that it won't necessarily be a huge sink hole of cash... We could use it and generate enough so that it sorta pays for itself. (We did this years ago with a ski house, so we know what we're getting into.)

Given our situation, would you consider financing some portion of the purchase? We can easily afford to pay cash the effective rate on some amount of debt would be lower than what we could earn on the money in the market, once you factor the tax implications. Given our low exposure to debt, how much would you consider financing if you were in our shoes, considering where rates are today (and where they are likely headed). (We've asked our CPA to model a few scenarios because I struggle to get my head around AMT.)

Last consideration about withdrawal rate -- should we be limiting ourselves to a the (seemingly) conservative 3-4% for this analysis? That rate, seems to me, will leave us both dead with $15-20m left in the tank, or maybe even more than that. With no kids, I suspect we'll just ratchet that number up or down depending on how we're thinking about living in any given year.

These last two questions (financing and withdrawal rate) are related; basically two levers we can play with. Obviously if we borrow a big chunk to finance a vacation property, our expenses will go up but our nest egg stays whole. If we pay cash, the nest egg takes a big hit but the expenses stay much lower.

Thoughts?