Is a Second Home in Your Future?

At a certain point, maybe as the last college tuition payment is on the horizon, many people feel suddenly flush with cash and begin to talk more seriously about buying that second home. Here are a few questions I often ask clients to guide our discussions:

Is this a vacation home or a retirement home? There’s a big difference. If the home’s out of state, we’ll want to consider the state tax consequences of the move. Also, if it’s a retirement home it’s important to evaluate everything from necessary home renovations to health care options and community programs for seniors.

Is this a home you plan on renting? Many people use rental income to defray the cost of the second home. However, if you’re buying a condo, you need to make sure the association permits rentals. Also, putting your home on the rental market might require a bigger investment up front to attract would-be renters with attractive features like a dishwasher, an updated bath, central air, or even beach permits.

Do you have time to manage the property? Many people underestimate the time involved in advertising a vacation home, screening potential renters, and ensuring that the home is properly cleaned. It might be worth it to explore how much a local real estate agent would charge to manage that for you. Even if you don’t rent, there’s still plenty of home maintenance — cutting the lawn, cleaning gutters, and plowing the driveway — to handle or contract out. In fact, sometimes those costs push folks to consider a condo where one fee covers all that maintenance.

For those debating whether the investment is “worth it,” In (Second) Home Free, Kevin McKinley offers an interesting calculation. He suggests adding up the total annual costs of the second home (mortgage payment, taxes, insurance), then dividing that amount by the number of days you plan to be there each year. He writes, that if the “figure is equal to or exceeds what you would pay to stay for a night at a luxurious resort or hotel, it may be more sensible to do just that.”

McKinley’s math brings up another good question: If you buy a vacation home, even one you plan on retiring to, will you feel tied down? Some people report anxiety about getting their “money’s worth” out of a recently purchased home. That is, rather than travel elsewhere, they feel compelled to use their home on vacation. If that sounds like you, think about if where you buy is where you want to vacation year after year.

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