Wednesday, August 20, 2014

Snowbirding versus Full-Time RVing

Retirement should be a time of relaxation and enjoyment, without the worry about finances and money.   But if you don't think about the money you are spending, you could end up in a world of trouble.

For the 401(k) generation, retirement choices are going to be vastly different than those of the previous generation.   Retirees with fixed pensions have a pretty good deal, as they know how much per month they have to spend, and generally, if they spend less than that amount, they will do OK.  

For those of us living off our savings, however, it is a little trickier.   When a purchase of something like a boat or a motorhome represents 1/4 of your retirement savings, you think twice, or three times, before making such a purchase.  If you are at all smart, you don't make such purchases.

But as I noted before, many folks on pensions, lured by "low monthly payments" on 20-year notes, buy these depreciating nightmares, and end up "upside-down" and unable to sell their purchase later on, when death or illness forces such a sale.  I have written about this before and it is a common occurrence amongst retirees.

Recently, I was talking with some "snowbird" friends who have a house in New York for the Summer and a house in Florida for the Winter.  Snowbirding is fun, and I did it for nearly a decade before giving up and deciding it was cheaper and easier to have one house (or at least have cheaper houses!).   Charlene and Derrick both are retired from a large company and have nice pensions.  They have two houses, each worth about $125,000, for a total equity of about $250,000.   They spend six months each year, in each house.

Their friends Suzy and Frank are also retired from the same company.   After a few drinks, Frank berates Derrick for being so "foolish" as to waste money on owning two  homes, when he can enjoy the carefree lifestyle of full-time RVing!   Suzy and Frank have a $250,000 motorcoach, which is nice, but certainly not a "high end" unit (which cost a half-million or more).   They spend six months a year at a campground in Florida, and six months at a campground in New York.

Frank touts his low-cost lifestyle.  No maintenance on two homes!  No property taxes!  Just carefree living!

Is Frank right?  These two couples make the same amount of money in retirement, but have chosen to spend it differently.   Frank and Suzy own a rapidly depreciating asset which is worth 50% less, every five years.   They live in trailer parks for months at a time, chock-a-block next to other campers.   While they don't pay property taxes or have to mow lawns or clean gutters, they do have to pay lot rent, and pay for fuel for the motorhome, which at 5-8 mpg, is a lot of money.    They also have to pay for maintenance on the motorhome, which as it ages, gets expensive, and very fast.  Just a set of tires for such a "motocoach" can cost thousands and thousands of dollars.

It got me thinking.   The touted "RV lifestyle" is nice and all, but it is really any savings?   Charlene and Derrick's houses are very nicely appointed - far nicer than any motorcoach could ever hope to be.   And yet they cost about the same to purchase.   The cost of taxes and maintenance on the homes is not a lot more (if about the same) than the cost of lot rent, fuel, and maintenance on Frank and Suzy's motorhome.

And the big kicker is, even if housing values stay flat, Charlene and Derrick will likely get all their money back when they sell either or both of their homes - and likely make a tax-free profit.   Frank and Suzy will be lucky to get half of the money they spent on their coach, back.  And in fact, they may be "stuck" in the RV, as the balance on the loan is more than the coach is worth.

Which may be the real reason Frank runs down Charlene and Derrick's lifestyle choices.  Frank is self-justifying a bad decision.  He sees Charlene and Derrick with not one, but two very nice houses, while he and his wife are forced to live in trailer parks.

Frank did admit, in a moment of candor, that maybe buying the motorhome was a mistake.  "I wish I hadn't bought a brand-new model," he admits, "as the depreciation is murder!"  And that is true - he would have been better off buying the same model for $100,000, five years old.   But even then, that is a lot of money to spend on a depreciating asset, if you are a middle-class person.

But what about travel?  What about it?  Yes, Frank and Suzy do travel to visit relatives on their annual sojourn between New York and Florida.  But at 8 mpg (on a good day) it is expensive to drive very far out of your way.   And staying for short-terms at RV parks is expensive.  Rates can run to $60 or even $100 a day - or more!   Unless you get a "monthly rate" it becomes expensive - fast.

And Charlene and Derrick travel as well - in their car, which gets 25 mpg on the highway.  Yes, they have to pay $60 for a motel room now and then, but compared to lot rents, this is not that much of a difference.

We have been traveling in our small camper trailer ($8000, paid-for, in cash, thank you) for the last couple of months.   We met one couple who are retiring next week, and just bought a high-end motorcoach.   They are all excited now, but I wonder what will happen if they have to sell it in a few years, and find out they are "upside-down".

Another couple cheerfully reported that they sold their house and took the proceeds and bought a new motorcoach.   Now, instead of having a nest-egg, they have a mountain of depreciation.   I didn't have the heart to say anything.  It's not like they can do anything at this point anyway.   Funny thing, though, with this "money-saving" RV lifestyle, the couple was complaining that they had to "scrimp" on things to make ends meet - and get cheap site fees, often near the Interstate on-ramp.   In other words, the "money-saving" RV lifestyle isn't saving much money.

RVing isn't cheap.  Even with our cheap trailer, which is paid for, we spend about $60 a day on fuel, when traveling.   And even State Parks are $20 a night.   Private campgrounds can be $35 as night to a whopping $125 (in New Orleans).   Now bear in mind that the cost of living in our "paid for" house is about $35 a day (including taxes, utilities, insurance, everything).  And that's for a $450,000 house.   A cheaper house would cost far less.  And in retirement, well, you've had 30 years to get your house "paid for" so there should be no mortgage.

In other words, RVing is a luxury, not a cost-saving "alternative lifestyle".   If you want to "see America" (and Canada and Mexico) as we have done (and are doing) it can be very, very expensive, as you are on the move a lot, and thus pay more in fuel and lot rent.   But even if you stay in one place for months at a time, the costs could equal or exceed that of owning or renting a home or apartment.   There are no real savings in living in a trailer.

Yea, poor folks live in trailers.  That is why, in part, they are poor.  They make poor financial decisions.  They buy mobile homes and make payments on them, and they depreciate.  After a decade, they buy a new one, and so on.   They end up with nothing but receipts for lot rent and payments to the finance company (at onerous rates).

Smarter and wealthier people buy a home instead - for about the same amount of money spent on payments on a new double-wide, plus lot rent, you could buy an inexpensive home.   But it does require that you save up money for a down payment, and of course, have good credit.  The poor have neither, so they take crappy deals and stay poor.

And that is one dirty little secret of the RV game.  It is not exactly an "upscale" lifestyle.   The most expensive RV's are designed to the tastes of the most plebeian folks - slathered with mirrors, twinkle lights, fake brass trim, and other gaudy accessories that poor folks think of as "classy".   You can spend all you want to have the most bad-ass trailer in the trailer park, and still be in a trailer park.

We enjoy our little, cheap RV.  It is a home-away-from-home and not that expensive to own or maintain.   But "investing" in an RV "lifestyle"?   It makes no sense at all, from a financial perspective.