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So You Want a Second Home? 5 Things to Ponder
One of the many regular questions I get from clients and friends, is should they or could they buy a secondary home? I’ll tell you this, there is no one size fits all answer, but there are a lot of things worth considering before making this very large leap. I thought it would be helpful for me to list some of the key drivers to consider when purchasing that desirable secondary home.
Obviously, you can’t go too far into this debate without going through the costs. Now there are the obvious costs that you must factor in. For instance, mortgage payments, insurance, and taxes are the three big ones. However, then you have to factor in all the other costs of housekeeping, lawn care, heating & electricity, furniture, and everything else that goes into a house ownership.
The rule of 1% says to assume the value of the house and multiply it by 1% and that gives you a rough idea of maintenance cost (i.e. $1,000,000 house value $10,000 in maintenance costs). I think more realistically assume 2% of the house minimum because let me tell you all these items add up quickly in a second home.
OK, assuming you pass the affordability test now you must look at the net impact on your finances. Assuming you are going to keep two homes, what impact does putting all these dollars to work on a second residence versus your other financial goals have? Clearly, it is fewer dollars being put away for college and/or retirement.
Have you modeled the net impact on these potentially very important financial goals? If you haven’t, make sure you do so you are well aware of the net impact on your financial health. Let me be clear, this doesn’t mean to not do it, rather be the educated buyer.
This is one I think many people simply dismiss; how often will you end up using this house now vs later? Don’t get me wrong, I do understand the allure and benefit of a second home. However, how often will you use it? I’ll hear a lot of clients say we want to buy in Florida now, so we can retire there in 10 years. Then they’ll follow it up with – we will use it occasionally now but thought it would be a good idea to lock it up today. I couldn’t disagree more with that sentiment.
Why do you want to retire in 10 years to a house that will be 10 years older? It will need 10 years of repair, 10 years of wear and tear, and 10 years closer to needing to remodel it. Let all that happen on someone else’s watch if you ask me and wait 10 more years.
You’ll generally find you will buy the right spot for you when you intend to use it along with being sure you are purchasing in the right place for you 10 years from now. Additionally, if you plan to buy a place now and simply use it occasionally perhaps consider renting. Renting can be so much more economical and not have all these dead costs that you are not utilizing.
Are you ready to spend every weekend at the Jersey Shore or Delaware beaches in the summer? Maybe a few other weeks throughout the year? I ask because that is what it takes to justify these types of things. Are you going to the cabin all winter, or do you want to go skiing one weekend and to the Bahamas another?
You get the point, owning a second home comes with an obligation to want to use it often. It also, for most people, will replace other family-type trips like vacations. Make sure you are ready for this opportunity cost before you pull the trigger on a second home.
This one is not talked about nearly enough. Are you ready to make a second home part of your identity and lifestyle? That is what it takes in my mind to justify it. Not everyone is at a point in their lives where they are ready for that commitment. However, that is the reality of a second home. You’ll have your beach life and your normal life. You’ll have your mountain life and your home life. You’ll have your southern life and your northern life.
This is some of the deeper dialogue worth having with yourself and your partner. Make sure you AND YOUR FAMILY are ready for this type of commitment. You don’t want to be in a place where your kids hate going down and missing their home friends all summer. Next thing you know you are down there alone or barely going down because you are not mentally all in on this lifestyle.
There are plenty of other things to consider in this second home-buying equation. However, if you can get through these five and still feel good about things, then as the great Jimmy Buffet says, Sail on Sailor.
Stay wealthy, healthy, and happy.