Buying a Second Home - Adviser Investments

Buying a Second Home

June 25, 2021

As many of us begin to turn travel daydreams into reality this summer and fall, some of you may be wondering what it would take to turn your favorite mountain, beach or lake home into a permanent family retreat.

Of course, buying a second property could have a major impact on your finances. Before taking the plunge, ask yourself the following questions:

  1. Who will use it? Will a second home be just for you and your family, or do you plan to rent 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 rentals than they are for properties used solely as second homes. How will you account for your new property on your tax returns?
  2. 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. As the pandemic made clear, demand for vacation rentals can be unpredictable, so a second home purchase can be risky if you’re relying on rental income to make the numbers work.
  3. Do I understand the total costs? A second property will add a slew of new fixed expenses to your budget. As with any home purchase, you’ll want to have solid estimates of property taxes, insurance payments, mortgage payments, maintenance costs and utilities when considering a purchase. It’s also wise to create a rainy-day fund for unexpected expenses that pop up.
  4. 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 prices for a similar rental in the area. Continuing to rent may prove a more affordable, flexible and less stressful alternative.
  5. Can I still meet my financial goals? Don’t let a second home derail your progress toward other long-term goals, like paying for college or retirement.

If you’re considering a second home and have questions about the numbers, we would be happy to help you do the math and think through your options. After all, we are The Planner You Can Talk To. Let us know!

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

The Planner You Can Talk To is a trademark of Adviser Investments, LLC, registration pending.

© 2021 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.