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Buying a second home: pros and cons

Peter Warden
Peter WardenThe Mortgage Reports Contributor

In this article:

Every time you fall in love with a vacation destination, you play with the idea of buying a second home. But will the reality live up to the daydream? Advantages include:

  1. It’s yours. You can use it whenever you want
  2. You can earn extra money by renting it out
  3. You can travel light if your vacation things are already there

Of course, there are drawbacks. Learn how to minimize them, and if vacation home ownership is right for you.

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Why are people buying a second home?

The 2017 National Association of Realtors (NAR) Investment and Vacation Home Buyer’s Survey reveals some useful information about people buying a second home. For example, when it comes to buyers of vacation homes, respondents to the survey revealed three main motivations:

  1. To provide a base for personal vacations and a family retreat — 42 percent
  2. Ultimately to create a home that will become their main residence when they retire — 18 percent
  3. The home was so competitively priced they couldn’t resist the bargain — 12 percent

Twenty-nine percent of those buying a vacation home either tried and succeeded or tried and failed to rent out their home in 2016 and planned to do so again in 2017.

Related: How to finance a second or vacation home

How much?

In 2016, the median sales price for primary residences was $215,000. For vacation homes, it was $200,000. This suggests those buying a second home are hardly holding back.

But, of course, such averages conceal huge variations. At one extreme, you can still buy a shack on a couple of acres in the Appalachians for under $20,000. At the other, the Henry Ford estate in the Hamptons is listed for $175 million. Both could end up as vacation homes.

Where?

In the NAR’s survey, the median distance between the buyer’s main residence and the vacation home was 200 miles. However, that median again disguises some wide variations. Thirteen percent were less than 50 miles apart while 21 percent were 1,000 miles away or more.

Related: NJ town takes the crown in vacation home rankings

Favorite locations for vacation homes were:

  1. Beach — 36 percent
  2. Lakefront — 21 percent
  3. Country — 20 percent
  4. Mountain — 14 percent
  5. Ranch — 7 percent
  6. Other — 3 percent

You’ll choose for your second home the location that most appeals to you. But it’s worth noting that a majority (57 percent) of buyers prefer proximity to water. That could be important to the price you get when you come to sell the property.

Pros

The advantages of owning your own vacation home are pretty obvious:

  • It’s all yours — You can use it whenever you want and decorate and furnish it to your taste
  • You can travel light — No more heavy suitcases and checked baggage fees. Just leave the stuff you need in your second home
  • Lending is an option — Few gifts will buy you more gratitude from family and close friends than a free week somewhere great
  • You can retire there — It’s somewhere you love so why not?
  • You can rent it out — If times get tough, you may be able to cover some or all your ownership costs with vacation rental income
  • It’s an asset — Yes, property prices sometimes go down. But, in the long term, you likely stand to see handsome capital appreciation
  • You’ll be part of a community — The more often you visit, the faster you’ll become a familiar face. You could make abiding friendships and lay down roots
  • You may get tax advantages if you rent out for as little as two weeks per year — Consult a tax professional or read this article on the IRS website
  • There may be opportunities for you to do home exchanges — You lend your vacation home to another owner who in return lets you stay in hers somewhere different

Sold on buying a second home? Wait to decide until you’ve read the cons.

Cons

The biggest mistake many buyers of vacation homes make is kidding themselves over costs. They compare mortgage payments (in that NAR survey, only 28 percent paid cash) with hotel rates and restaurant prices and persuade themselves they’re going to get cheap vacations.

Related: How to maintain your vacation home if it’s far away

But, as those same buyers know only too well when it comes to their main residence, mortgage payments are only one cost of owning a home. There are property taxes, insurance premiums, utilities, preventative and other maintenance, homeowners’ association fees where applicable … the list goes on.

Even those who rent out their vacation homes for significant periods each year sometimes find it hard to cover all their costs. See your vacation home for what it is. A luxury purchase, like buying a vintage car or staying in the very best hotels. Such things aren’t cheap, but if they’re important to you and you can afford them, why not?

More considerations

Affordability isn’t the only potential issue with a vacation home:

  • Staleness — You’re going back to the same place time after time, year after year. For some, even paradise can get old (of course, you can trade or rent and vacation elsewhere if your location is desirable)
  • Distance — The reality of the hassle of getting there may prevent you from spending as much time there as you planned (many experts recommend buying within two hours of your main home)

Related: How to refinance your second home

  • Feuds — It’s one thing to fall out with another vacationer in a hotel or on a cruise ship. You’ll likely never see him again. But it’s very different if that person is your second home’s neighbor
  • Admin — You’re doubling the time you spend on homeownership administration
  • Maintenance logistics — Who’s going to clear the gutters, let in the HVAC engineer, do the yard work, clean the home, pressure wash the sidings and terrace … If you don’t want to devote your vacation to chores, you can get a property manager to organize all such tasks. But it will cost you

The joys of owning a vacation place can easily outweigh all these cons. But you should at least consider them when you’re buying a second home.

Verify your new rate (Oct 23rd, 2018)