When working with client’s to and through their retirement, a question that often comes up is if they could afford or should buy a second home. For those who like to travel, this can seem like a good idea as you will have some equity in your second place of residence while also enjoying your golden years.
In this blog we wanted to discuss some of the positives, the negatives and things to be aware of when it comes to buying a second home near or in retirement.
So picture this: You’re a few years away from retirement, you’ve saved what feels like a substantial amount of money, if you have children- your children are grown and independent, and you’re looking forward to enjoying the fruits of your labor.
You may currently own a second home or are considering purchasing one in the not-too-distant future.
This home could be a potential vacation home, your full-time residence in retirement, or even a rental property while you’re not using it.
Whatever the case may be, it’s imperative to understand all that surrounds making a choice like this and the responsibility that comes with it so let’s look at some of the pro’s of owning a second home.
Positive: Having your Escape
In society today where everyone is connected to everything through technology and Social Media, it can often be difficult to find an escape.
The need to disconnect, unplug, or get off the grid, seems greater than ever and increases on what seems like a daily basis.
Having a place where you can escape, recharge, and spend time how you want can be a game changer and is the first positive aspect to consider when thinking about a second home near retirement.
It may be somewhere sentimental or somewhere you’ve always dreamt of being, but either way, the benefits both mentally and physically can be tremendous.
Positive: Potential Income Stream
The next positive is for those who feel they might not be living in the second home full-time and may want to make some extra money on the side.
Small hint for you here- Brian Chesky Co-Founded a company which eventually went public that makes this process so much easier than it once was.
If you don’t know who Brian Chesky is, he co-founded a multi-billion dollar business you may have heard of which is Airbnb and the second potential positive of owning a second home near or in retirement is having the option to rent it out when you’re not using it.
Negative: Unexpected Expenses
Anyone that has owned a house over time can probably attest to experiencing unexpected expenses and inconveniences through their time as a homeowner.
Being that one of the major points of caution we have in retirement is the occurrence of unexpected expenses, we need to address the first potential downside of owning a second home and that is the chance of unexpected expenses.
As we know, costs can add up fast, and owning two homes can mean double the mortgage, repairs, taxes, HOA fees, and insurance.
And let’s not forget the big expenses, like a new roof or HVAC system.
Negative: Higher Potential Costs for Purchase
Next is something that may not be top of mind for many but seems to be true across the board.
Aside from unknown expenses and situations that could take place with owning a second home, the potential for known expenses to be a burden may increase as well.
If you need to utilize a mortgage to purchase your second home the interest rate can be quite a bit higher than on a primary residence as the lender sees it as more risky.
These situations provide great reinforcement as I talk to our clients about the importance of making sure we are on the same page as far as their financial plans are concerned.
The Final Word:
Although you may be eager and ready to jump in and buy your dream vacation home immediately, try to avoid any feelings of the fear of missing out and know that renting in the area on a few different occasions could help enhance your decision making capabilities.
Also, make sure to consult an attorney as it may make sense to discuss putting the home in a Trust or an LLC for various types of protection.
And lastly- If you’re making a decision to buy in a low or no-income tax state, remember that you must spend 183 days or more to count as a resident for tax purposes.
Feel free to visit us at www.rocklinewealth.com for more insights on retirement strategies, and how we can help you reach your financial goals.
Disclaimer:
Rockline Wealth Management (RWM) is a registered investment adviser located in Plainview, NY. RWM is registered with the U.S. Securities and Exchange Commission. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
Rockline Wealth Management does not offer tax or legal services. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client's investment portfolio. Asset allocation and diversification do not ensure or guarantee better performance and cannot eliminate the risk of investment losses.
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Real-life and fictional examples given in this video should not be viewed as guaranteed outcomes when investing. Past performance is not indicative of future results and every individual’s investment circumstances are different. Individuals should consult their financial professional before implementing their investment plan.
Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change.