Things to consider when thinking about a second home
By David Parrish
While at the beach I couldn’t help myself. As I have frequently (almost always) done in the past, I found myself thinking wouldn’t it be great if we had a home here.
Do you dream of owning a second home? More and more people are turning to second homes for a variety of personal and financial reasons. Here are a few things you’ll want to consider to inform your second home strategy.
If you’ve ever dreamed of owning a second home, it’s never too early to begin planning how to make that dream a reality. Whether you’re ready to buy now or think it may be a little while before you make the move, there are several key considerations that will inform your “second home strategy.”
1. Identify why you want a second home. What role will this second home play in your life? Is it designed to be a family retreat? Are you hoping to supplement your income with a cash-flow positive rental? Is your second home going to be a retirement destination? It could be all three, of course, but you’ll want to understand the unique requirements each situation dictates. This will include location, tax impact and the home’s amenities.
2. Begin with your location. Many second home purchases are made for seasonal reasons, with many flocking to the South and the West for winter months. This may be the norm, but it might not be so for you. Where do you want to be? Have you experienced the location firsthand, or is a visit in order? If you imagine kids and grandkids making the journey to share this home, will it be conveniently located? It’s one thing to fly into Tampa, but quite another to reach remote parts of Arizona or Nevada.
3. Eyeball the upkeep. You may think you want a two-acre lot with a big lawn, but imagine paying to keep that lawn in shape for all the time you’re not in your second home. The same goes for homes with large square footage, pools and elaborate gardens. Mitigating your exposure to upkeep can be an important factor in holding your second home for the long term.
4. Figure out financing. This is especially important if you don’t have the financial picture ironed out yet. Securing a mortgage for a second home can be tricky, and a number of buyers look for all-cash purchases of relatively inexpensive homes. Regardless of how you do it, financial planning is a must.
5. Talk taxes. How a second home impacts your tax picture is a vital part of a second home strategy. The tax implications can vary widely depending on how you choose to utilize the home, whether for personal residency or as a rental. Even how long you choose to rent out a second home each year can have unique tax implications. Laws change, so take the time to review your strategy periodically with your accountant.
May the market be with you, and enjoy your vacation.