Owning a vacation home is seen as a life goal for millions of Americans, but is it the right choice for you?
Owning a second home is a dream that many Americans share. Who doesn’t picture themselves living the good life in a beach house from time to time, or spending time in a cozy cabin somewhere in the mountains with their family? While we all like to think about these dream homes, only a relative few are able to actualize these goals. Like any major decision, purchasing a second home comes with pros and cons that you should be familiar with before you make a final choice. Owning a second home may be a dream, but it’s up to you to decide whether it’s the right move for you. Luckily, your good friends at Cardinal are here to help you figure it out.
PRO: UM, YOU HAVE A SECOND HOME.
Owning a second home is a dream for millions of people, and making that move is a great accomplishment! Owning another house in a place away from home is a good look, and it comes with a lot of perks. Weekend getaways are easier, and you’ll always have a place to stay on a family vacation. The only problem is…
CON: IT’S SECOND HOME OR BUST.
Many people with second homes tend to get tied down to one location when it comes to traveling. If your vacation home is a beach house in Florida, it’s hard to justify—much less afford—an alternate vacation overseas unless you’re just loaded. This logic can also box people into feeling that they need to constantly visit their second home to make the investment worth it, which isn’t wrong by any means. It just means you need to be sure that your second home is a place you won’t get tired of in five to 10 years.
PRO: YOU CAN RENT IT OUT WHILE YOU’RE NOT THERE.
Renting out your second home is a popular way to generate extra income among people with vacation homes across the country. Many popular retirement spots have very active rental markets that bring in premium rents during the busier seasons. It’s pretty easy to list your home on the internet and find people who will want to stay in your home. The catch is…
CON: RENTING OUT YOUR HOME IS A LOT OF WORK.
Many people say that renting out a second home on your own is like having a second job. If you’re already retired you might welcome the extra work, but if not, it could be tough to deal with. There are rental management services that can rent out your unit for you, but they’ll take a substantial piece of your revenue depending on the services they offer.
Renting out a second home on your own is like having a second job.
PRO: YOU’LL HAVE A PLACE TO RETIRE.
Buying a second home in a place you would want to retire can go a long way in making a smooth transition when the time comes. It presents great opportunities to vacation and get acclimated to the area before you move there for good. You can get to know your neighbors and establish community ties that may prove useful down the road. On the other hand, it may convince you to retire somewhere else. Using a second home as a trial run for retirement is a great idea if you’re not quite sure what you want to do when it comes time to stop working.
Owning a second home should be enjoyable, not another financial burden to stress you out.
CON: IT COSTS A LOT OF MONEY!
THIS JUST IN: Houses cost money to own and operate. ALSO JUST IN: A second house would cost even more to own and operate. Ideally, a second home would be smaller than your primary home, but most people have higher standards for second properties they intend to own rather than rent, which can sometimes translate to higher prices. Depending on where you plan on purchasing a second home, the cost may be higher than your primary home. On top of that, you’ll have to pay homeowners insurance, real estate taxes, HOA dues, utility bills, and other expenses like furniture. Now, these costs can be offset by renting out your second home, but like I said earlier, it’s easier said than done.
PRO: BUT YOU CAN GET TAX DEDUCTIONS!
Even if you choose not to rent out your second home, you can still get a sizeable income tax deduction. For example, you could write off both the full amount of the real estate taxes you pay on the property as well as the mortgage interest you pay on the loan used to buy the home. These tax deductions may not offset the costs completely, but they can reduce them to the point of making them a lot easier to manage. Check with your tax professional for a better understanding of the deductions your second home may make you eligible for.
SO HOW DO I DO THIS?
First you’re going to want to determine your ideal second home location. Think about the future. Will this be a retirement home? On the ocean? Many resort areas have a wide range of properties to fit a variety of different budgets, and the larger the area you’re considering, the easier it may be to find a property you like enough to buy.
Next, you’re going to want to establish a price range. Owning a second home should be enjoyable, not another financial burden to stress you out. Try not to reach. Pick a home with a price that’s within your means. If not, you’ll end up more financially strained than you’d like to be.
Finally, you’re going to want to talk to a local real estate agent. A good real estate agent that knows the local market will be invaluable in your search for a new home. They can help guide you through the purchase process, and may be able to help you manage the home while you’re away.
Using a second home as a trial run for retirement is a great idea if you’re not quite sure what you want to do when it comes time to stop working.
A FINAL WORD.
Basically, owning a second home really comes down to whether you have the means to purchase and maintain one without bringing too much financial strain on yourself. Owning a second home may sound like a dream come true, but it’s definitely not for everybody. If you think you can manage, go for it! If you’re second guessing, do your own research. It’s super important to make sure you’re prepared before you pull the purchase trigger. If you’re not so sure, call Cardinal. We can help you through the process and give you real options on how you can responsibly get into a second home.