Serious Retirement Downsizing

Whenever I write about retiring in another country or in a tiny/small house as a way to save money or otherwise makeup for a smaller than maybe needed portfolio to cover retirement expenses, someone invariably will mention that there are some very inexpensive places to live along the Gulf Coast and other parts of Texas.

Last week we went on a road trip through New Mexico and spent a little time in McKinley County (my wife runs an animal rescue here in Prescott, AZ and they get a lot of dogs from the reservation near Gallup) which fits the bill of being very inexpensive. The area, broadly speaking has some socio-economic challenges but there is plenty of beautiful scenery including El Morro National Monument and El Malpais National Monument which are very close by in Cibola County.

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There is some very cheap acreage here, very cheap, like 5-10 acres for $15,000-$30,000. Most of what we saw online has been on the market for a few years and so while that price range might be low in nominal terms there very well could be some favorable negotiations to be had. Some of what we looked at had no structures and some did have a structure that could have been the start of something inhabitable but weren’t there yet.

New Mexico allows for tiny houses on property, the state is going through a legislative process to figure out how to tax them which is looking relatively unfriendly based on a bill that recently passed the lower chamber of the state legislature. As we’ve talked about in previous posts, despite what you see on HGTV, there are used tiny houses for sale in the mid-teens. Property tax in the state is one of the lowest averaging $1000 per year (compared to $2000/month in some eastern states. In McKinley County the property tax for what we’re talking about here could be a low as $691/year as the minimum assessed value for taxation is $50,000.

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Trying to bring power to any tiny house in this area could be very expensive depending on the situation. It might be much cheaper to buy used solar panels, which are much cheaper than new, to build a system. Getting information on how many panels you might need was difficult but one blog post showed nine panels for a tiny house in an area that looked colder and further north than New Mexico. Western New Mexico is one of the best places in the county for solar power. Used panels look like they could be in the $100-$200 range which all in could be much cheaper than bringing power lines on to your property. Water is a little easier. If a property needs a well and the economics don’t make sense you can get a tank and have the water delivered. We had water delivery here in Walker at our old house for many years, the well water was no good from the mining that occurred here many decades prior. The kind of 2500 gallon tank we had looks like it now costs $859. We spent $100/month (2500 gallons) but it might cost more these days. Things like internet and TV can be had through satellite and while a cell phone can be used through the internet a signal booster might be a good idea too. In this scenario having a portable generator or two would also make sense.

The expenses here to set up shop might look like $15,000 for the land, $20,000 for a tiny house, $4000 for the solar set up (remember used equipment), $2000 for water (tank and plumbing). That adds up to $41,000, maybe round it up to $50,000 all in for whatever I might be missing.

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Where the context of exploring this idea is people who are undersaved as opposed to no retirement savings, decisions would need to be made involving how to pay for this move and whether or not to sell what is a hopefully paid for house by the time this sort of retirement transition could occur. As of last month, the median home price in the US was $253,500. Swapping a house for this sort of little ranch in Western New Mexico might leave about $200,000 left over. Here is one estimate that the average 401k balance for people in their 60’s is $172,000 which is fine start but would be difficult by itself for most folks to sustain a retirement. This scenario then could more than double the nest egg able to generate $14,880 per year assuming the 4% rule plus another $2400 from Social Security (the average if each partner gets their own benefit). That can be manageable even if not extravagant, all the better for someone who can monetize a hobby or otherwise generate a part time income.

One part time income that could come into play in this situation is buying two or three tents and putting them on Airbnb. In this part of New Mexico, the scenery is truly stunning and as I recently heard (or read), never underestimate a hipster’s willingness to pay $100 to sleep in a tent. While I don’t know about $100 per night, I have seen this sort of thing in my travels and there is demand. For a quick road trip and not having to hassle with the tent, that will be worth money to plenty of people.

Back to the decision to sell or not, Western New Mexico is the middle of nowhere and while a fit 65 year old can probably do just fine being away from a medical center, at some point (different for all of us), age becomes a problem. Once you sell a house in a larger city you may not be able to get back in. What is the fair market rent for a house like yours in your current town? Keeping your house and renting it out accomplishes a couple of things; it generates a rental income, preserves the value of the asset (principal not being spent) and leaves open the option to return. The down side would be having to come up with the $50,000 (or whatever) to set up shop, it might be difficult to borrow in this situation unless home equity is tapped.

This sort of thing could work for me, it’s not really a stretch to go from northern Arizona to Western New Mexico, but the point is not that it should be able to work for too many other people like moving to another country could work for some people not most. For you or anyone you know who is looking at retirement with a lot less than what they think their number should be, they need to figure some things out. The appeal of this sort of downsizing is that I think it reduces the probability of needing to work in a job that you wouldn’t want to do but the details are way too specific to work broadly but people can figure out their own narrow solution once they admit they have a dollars and cents problem.

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