Buying a Second Home - Adviser Investments

Buying a Second Home

August 23, 2019

As summer wanes, many vacationers start to wonder what it would take to turn their favorite mountain, beach or lake home into a permanent family retreat.

Of course, buying a second property could have a serious impact on your finances. Before pulling the trigger, ask yourself the following questions:

Who will use it? Will the property be solely for your use, or do you plan on renting it out? Renting can defray costs, but don’t underestimate the time, hassle and expense of being a landlord. The need to hire a local property manager or professional cleaning staff can put a serious dent in the profits from any rental income. Plus, tax laws are different for rental properties than they are for those used solely as second homes.

How will I pay for it? We generally advise clients to pay off the mortgage on their primary home before buying a second property, even if they plan on renting it out. Demand for vacation rentals can be unpredictable, making a second home purchase a risky one if you need rental income to make the numbers work.

Do I understand the total costs? A second property will add a slew of new fixed expenses to your budget: Property taxes, insurance payments, mortgage payments, maintenance costs and utilities are all items you should have solid estimates for when considering a purchase. It’s also wise to allow for a rainy-day fund for unexpected expenses that pop up.

Demand for vacation rentals can be unpredictable, making a second home purchase a risky one if you need rental income to make the numbers work.

Have I priced other options? How many weekends and vacation days will you realistically be able to spend in your new place? Compare ownership costs with costs for a similar rental in the area. Continuing to rent may prove a more affordable, flexible and less stressful alternative.

Can I still meet my financial goals? Making room in the budget for a second home shouldn’t derail your other long-term goals, like paying for college or retiring.

If you’re considering a second home and have questions about the numbers, we would be happy to help you think and work through your options. Contact your portfolio team if you are interested in creating a financial plan.

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