How to Decide If You Should Buy a Second Home
Most people dream of having a second home, usually something in the mountains or on the beach. But those dreams come with a great number of headaches. So you have to ask yourself: Is a second home worth the stress?
My husband and I have been talking about this quite a lot in recent years. He loves the water and has always wanted a house on the beach. I love the idea of a place that solely exists as a retreat from normal life.
But the more research I do, the more I question whether it would be worth it. The key factor in deciding if a second home is right for you is to ask yourself some hard questions and be brutally honest.
The Costs of a Second Home
First question: Can you afford it?
This is where brutal honesty must come in. Do you have enough disposable income? Do you have any disposable income? And by disposable I mean that literally.
Can you afford to not have the money you want to spend? Add up the cost of the home you’re eyeing, figure in property taxes, utilities, maintenance, etc. Don’t forget the cost of traveling to and from this property and furnishing it. Two houses means you’ll need two of everything.
Now pretend that money was to completely disappear from your bank account.
How anxious are you feeling? If you feel sick to your stomach before the money has even been spent, stop right here. You need to be emotionally able to deal with the financial burden before you buy a second home.
Second question: If you still feel good about buying a second home, would you be willing to consult a professional?
Pretend you’re talking this out with a professional financial manager. Do you feel confident in the numbers you present to them in the first meeting? Do you think they would agree that your income supports this purchase?
How do you think they’d react to you taking out a second mortgage? Can you afford to make two house payments every month?
Bottom line, if you aren’t consulting a financial planner because you’re afraid they’ll shoot down your dream of owning a second home, you can’t afford a second home.
“You need to be emotionally able to deal with the financial burden before you buy a second home.”
Third question: How often will you use your second home?
Do you see yourself going to your vacation home every weekend? Once a month? A few weeks a year? And how likely are you to use it as often as you think? Do you have other obligations that will cut into the time you’d like to spend there?
If your plan is to only be in the home for less than half the year, you should really think if owning it is better than renting. The answer might be yes. But consider the cost of maintaining a home that sits empty most of the year.
Will you regret having spent that money if you don’t get to enjoy the home often enough? That’s a big burden to carry if you get buyer’s remorse.
Fourth Question: Do you plan to rent it out when you’re not there?
Lots of people think renting is the solution to offsetting the costs of a second home. But consider that you have to pay cleaners, maintain anything that breaks, deal with tenant issues, have insurance that will cover it as a rental property, pay more in utilities, and constantly pay to market the property.
On top of those costs, remember that the IRS considers a home a rental property if you rent it out more than two weeks a year. That means you lose any tax breaks that would have applied to a primary home and you have to pay taxes on your rental income.
Fifth Question: How long do you plan to own the property?
If you plan to transition to this home once you retire then a second home might make sense for you. Will you sell your primary home once you transition to this home in order to offset the cost? What about after that? Is it your plan to hand the home down to your children? Will they want it?
If you’re thinking of passing this home down through the generations it would be a very good idea to talk to your children or grandchildren about this (when applicable). There’s a good chance they may not want it. To say nothing of the fact that you might accidentally saddle them with a financial burden they can’t afford.
Sixth Question: Can you mentally handle the responsibility of maintaining a second home?
There is a lot of additional baggage that comes with owning a second home. Many people find it difficult to handle the responsibility of owning one home, let alone two. There is general upkeep, cleaning, maintenance, lawn service, etc. If you don't want to handle those obligations, can you afford to hire someone to do it for you?
The stress of owning a second home may be too much to handle in the end. Or owning a second home where you can get away and just relax may be the perfect thing for you. But be honest with yourself about it.
If you’ve made it this far and are still considering buying a second home then perhaps you’re making a good choice. In the end, I believe it all comes down to finances. So, can you afford it financially? Is a second home worth the stress it comes with?
Note: Even after all of that, I still love the idea of owning a second home. So keep an eye out over the next few months for these blog posts about owning a second home:
How to Winterize Your Summer Home
Opening Your Second Home for the Season
Pros and Cons of Owning a Vacation Home
How to Decorate a Vacation Home