The Pros and Cons of Having a 2nd Home

Kathleen M. Manickas, CRPC^®, CDFA^®, Financial Advisor

Spanos Group of Raymond James

Owning a second home in retirement can be a dream come true for many, offering a place to escape, relax, and enjoy life. However, it’s essential to weigh the pros and cons carefully before making such a significant investment.

The Pros

1. Vacation Destination: A second home can serve as a perfect getaway spot, allowing retirees to enjoy vacations without the hassle of booking accommodations. It provides a sense of familiarity and comfort, making vacations more enjoyable for people who enjoy returning to the same location.
2. Rental Income: If the second home is in a desirable location, it can be rented out when not in use, generating additional income. This can offset the costs of ownership and provide a steady stream of income.
3. Investment Opportunity: Real estate often appreciates over time, making a second home a potentially lucrative investment. It can diversify your portfolio and provide financial security.
4. Tax Benefits: There are various tax deductions available for second homes, including mortgage interest and property taxes (although this has been limited due to the SALT deduction limit (resulting from the 2017 Tax Cut and Jobs Act), which is due to sunset on 12/31/25). These benefits can potentially reduce the cost of ownership.
5. Legacy for Family: A second home can be passed down to children or grandchildren, creating a legacy and a place for family gatherings.

The Cons

1. High Costs: Purchasing a second home involves significant upfront costs, including the down payment, closing costs, and ongoing expenses like maintenance, property taxes, and insurance. Additionally, interest rates for the purchase of a second home tend to be higher than those of a primary home because it’s a riskier investment. These costs can strain retirement savings.
2. Management Challenges: Managing a second home, especially if it is rented out, can be time-consuming and stressful. It may require hiring property managers or dealing with tenant issues.
3. Market Risks: Real estate markets can be volatile, and the value of the second home may not increase in value as expected. Economic downturns can affect rental income and property values.
4. Limited Use: Depending on the location, the second home may only be usable during certain seasons. This can limit the enjoyment and practicality of owning such a property.
5. Opportunity Cost: The money spent on a second home could be invested elsewhere, potentially yielding higher returns. It’s essential to consider whether the investment aligns with overall retirement goals.

Owning a second home in retirement offers numerous benefits. However, it also comes with significant costs. Careful planning is crucial to ensure that the decision aligns with financial goals and lifestyle preferences.

Self-Reflection Questions:

1. How will the purchase and maintenance of a second home affect your overall retirement budget?
2. Is there a realistic expectation of consistent use of the second home?
3. Are you prepared to handle the management and upkeep of a second property?
4. Have you researched the real estate market in the area where you plan to buy?
5. Does owning a second home align with your retirement lifestyle and goals?
6. Have you consulted with your financial advisor, attorney, and tax professions about the implications of purchasing a second home?

References:

1. Holmes, Tamara; AARP (2021); “Pros and Cons of Owning a Second Home in Retirement”

2. Marotta, David John (Contributor); Forbes (2021); “Don’t Let A Second Home Ruin Your Retirement”.

Opinions expressed are not necessarily those of Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The forgoing is not a recommendation.