Nearly 50% of our clients live in or rent more than one home throughout the year. Deciding whether to buy or rent a second (or additional) home is more challenging than ever. With an abundance of options and rising costs in the most desirable locations, the decision can feel overwhelming. Whether you’re dreaming of a retirement vacation home, planning for the future, or reassessing your current multi-home situation, this article offers valuable insights.
We’ve put together a quick overview of Bryce Sanders’ piece from Rethinking 65, where we explore the pros and cons of renting a vacation home, selling your primary residence and relocating to a resort community, or purchasing a second home.
Buy a Vacation Home
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Pros
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Cons
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- It is yours. You can use your beach house whenever you choose, decorate it how you please, and use it to entertain friends. Ideally it is within a two-hour drive or flight from your primary residence.
- The property is a real estate investment. It contributes to your net worth and can appreciate over time. You can rent it out during the high season to earn some income, and it may have preferential tax treatment
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- This might be the most expensive option. Think down payment, monthly mortgage payments and opportunity costs.
- It could be a tax burden because it is non-homesteaded. You are paying property taxes, which are capped by the $10,000 SALT deduction cap [https://taxfoundation.org/blog/salt-deduction-cap-design-options/] Understanding you will have to choose only one of your properties to take the homestead exemption for (you can only claim residence in one). The homestead exemption may offer ongoing reductions in property taxes depending on state laws. For example, in MI, the difference between homestead taxes and non-homestead taxes is about 30% (meaning someone who owns a property in MI as a non-homestead, pays about 30% more in property taxes than someone who has the homestead exemption), but varies from state to state. The homestead tax can be a percentage of the property’s value or a fixed amount.
- Rental-property realities. Renting it out means you cannot use it during the most desirable months. And if you don’t want to interact with tenants, you probably need to hire a management company.
- Beachfront property gets damaged. Insurance can be expensive.
- Break-ins are possible. Consider security problems. You cannot be in two homes at once.
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Rent a Vacation Home
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Pros
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Cons
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- You can choose the weeks you want to visit. Stay for a week or a month.
- You can vary the properties and location. You might get tired of that town. Try another one. You might prefer the Caribbean in the winter. The major hotel chains have brands catering to the extended stay business traveler. These units usually have a couple of rooms, a kitchen, and maid service.
- Maintenance isn’t your problem. If the toilet stops working, you call the management company or the hotel front desk.
- No carrying costs. You do not need to pay the insurance or property tax bill. You do not worry about lost revenue because of unsold weeks.
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- Renting is expensive. When you rent a beach house in the high season, the rental cost is multiple times higher than during the off season. Hotels might charge “surge pricing” if an event is taking place during a particular weekend.
- The cost rises every year. Owners face this problem too, but not to the same extent. Expect that the quoted rate for renting for a month during the summer will be “all the market will bear.”
- You are not building equity.You might pay to stay in the same beach house for ten years, but at the end of that time, you have nothing to show for it.
- Availability can be an issue. Others might book your favorite place before you do, and there may be no availability anywhere worth staying during a very popular week.
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Relocate to a Resort Community
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Pros
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Cons
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- (Possible) lower cost of living. If moving from a city in the Northeast to a beachfront community in the Mid-Atlantic or Florida, prices should be cheaper. This can help stretch retirement dollars.
- Friends will visit. You left behind many friends when you moved. They will not lose touch, knowing you own a house at the beach. They see you as a rent-free hotel.
- You are only maintaining one house. Now you can live the dream while paying only one set of bills. This could free up more cash to put more equity into one home.
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- Boredom. If you are moving from a major metro area, you are giving up cultural life and better shopping. You could always head to the beach if you wanted a change of scenery. Now you live at the beach.
- Availability of quality medical care. If you lived in a big city, you had great hospitals nearby. Living in a beachfront community, you might need to travel a distance for specialized medical care.
- Airport access. When you lived in the city, you could fly almost anywhere direct. Airfares were cheap because of the competition. Now you may live near a regional airport. Suddenly, air travel is less convenient and much more expensive.
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