Why Have a Second Home?
If it’s affordable for you and your family, and in line with your long-term goals, owning a second home can be great for investment and lifestyle reasons. However, the decision is not one to take lightly. Do some serious soul searching now to ensure your foray into second home ownership is for solid reasons that are right for your budget and picture of the future.
One of the most common and admirable reasons to buy a vacation home is that a second home allows your family to create a new home base. In this era of job relocation and frequent transitions, a central place for holiday gatherings or less formal get-togethers can really reinvigorate family bonds. Based on United States Census Bureau data, the average American will move 9 times between the ages of 18 and 45. While you may be staying put in the same place, your children and siblings likely are not.
That three-bedroom on the beach will play host to grandchildren learning to make sand castles, while a mountain retreat in Colorado provides the perfect way-station for a daughter living in Portland, Oregon and a son living in Indianapolis.
Other considerations: Remember that life events related to jobs, illness or changing schedules can throw a wrench in the family vacation wheel. Should you have some unexpected changes in your family’s future, will you still have the time and resources to visit your second home? In a worst-case scenario, and without the proper safety nets, you may face tough choices down the road about selling the beloved property or using it as a rental for extra income.
A Place to Retire
If you’ve long planned to retire somewhere warmer, within a favorable tax bracket, or closer to other family, buying a second home means that you can ease into this big transition. Use the chance to test the available social community and get involved in your favorite activities or charity work. Either way, you’ll win in terms of preparation—perhaps you’ll end up choosing to retire elsewhere, or you’ll love your new community so much that a later move from your primary home will feel natural rather than disruptive.
A second home can also be a fantastic investment opportunity, particularly if you choose a region with a robust housing market. In general, vacation homes are in desirable areas known for unique amenities or stunning natural beauty. This means that the real estate in these regions is less susceptible to economic downturns and market whims.
How might you profit from owning a second home? Well, for one thing, you can reap the rewards of the appreciation of your home’s value over time. Should you choose to put it on the market in the future, you may be able to profit rather than lose on the initial investment. You can also rent out the home when your family isn’t occupying it, thus bringing in a steady source of extra income from afar. Ask your CPA if you could also benefit from the tax write-offs that come from the ownership of a second property.
Kiplinger outlines many of the tax benefits for second homeowners that you may qualify for depending on your circumstances, which include but are not limited to being able to write off the interest and property taxes on your return if you do not rent out the property. If you do rent, but for less than 14 days per year, you do not have to pay tax on the rental income you accrue. While you might be trying to steal away to your second home every spare weekend you can, homeowners that only inhabit the residence for 14 days or less for personal use in a year may write off up to $25,000 in home-related losses. This means that fixing up the property or weatherproofing does not have to come with a large financial loss on repairs.