Purchasing a Second Home

Do you envision a home at the beach with the sun shinning over crystal blue waters and miles of sand just waiting for you to spend time relaxing on? Perhaps you see yourself walking into your ski house armed for the coming week with the ability to work out of your home office during the day and ski in the evenings.  You see friends and family gathering at your house to enjoy all that the second location has to offer.   Maybe you see an investment property that you spend one to two weeks a year enjoying and then rent out the house for the remainder of the year to pay for it all.

Regardless of if you are purchasing for personal use or for an investment, there are some things that you need to consider.

First, can you afford a second home.  Where does it fall within your list of financial priorities?  Often times, a client will come into my office with the goal of purchasing a second home.  When we go through their list of priorities, we find that it is more important to them to retire by age 55 than it is to purchase the second home.  Anything is possible, but I recommend running the numbers to see the impact that the purchase has on your overall plan first.

Next, if you are going to rent out the house, what will be the costs?  Will you self-manage, or will you work with a local real estate manager?  How much does VRBO charge for a listing?  What do you need to keep in reserve for the weeks that go unrented or any damages that may occur to the property?

Do you have the time to upkeep two properties?  While I don’t have a second home, my family has always owned one.  It takes time and money to keep up a second property.  Do you have the time to mow two yards a week or will you pay someone to do so for you?  Don’t forget that you’ll be paying two cable bills, two electric bills, two homeowner’s insurance bills, two property tax bills, etc.

Second homes provide a place to relax, a place to gather with friends and they can potentially be good investments.  Just be sure to think through your purchase and the impact that it will have on your overall financial plan, your actual free time and your cash flow before diving in.