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As many people near the finish lines of their careers, they’re tempted to purchase second homes.
Many real estate agents and financial professionals have long professed that buying a second home is a great idea because you can use it as a vacation getaway – it’s available when you are — and even rent it out to earn some extra cash. Then, it’s there for you when you retire. And right now — bonus — mortgage rates remain low in historical terms.
Although these factors may seem compelling, there are some practical reasons this investment is not necessarily a slam dunk. Give these five points some serious thought before you make the move:
You may be locking in a permanent vacation spot
You may love Arizona, Florida or even Cape Cod, and you may be eager to retire there. Do you love it enough to forgo vacations in other parts of the U.S. or the world between now and retirement? Most people find it’s a stretch to maintain two homes and take fancy vacations. If you buy, you’ll likely want to ensure that is your vacation spot of choice for the foreseeable future.
Even if you can afford the second mortgage and maintenance, you will want to ensure that your second home is both maintained and secure. Do you hire someone to watch the property, mow the lawn and otherwise check to make sure a pipe hasn’t burst or another fix needs to be made? Do you just hope for the best — no vandals, no fire, no floods — between visits? And if you rent the home to others, how will you be sure it’s properly maintained for the occupants? And how will you ensure the occupants don’t abuse the property?
Analyze all possible scenarios and check costs of property management and services before you buy. And be sure to look into the tax requirements for any rental income.
Poor resale value
Sure, you will invest in the home with the idea that you’ll retire there. But what if you or a family member has a major change in health or just decide the property is not right for you after all? Think of the second home as you would any other investment. What is the likely resale value?
One concern about buying a home five to 10 years before retirement — as some buyers do — is that it’s difficult to gauge your fondness for an area through a series of quick visits.
Consider renting a home for a month or so before you commit to buying your own property. In your trial run, you may discover something you can’t tolerate over the long term — like humidity, sand, cold, biting insects, too many or too few people, too far from the grandkids, too far from medical care, a lack of cultural events … and so on.
Health and well-being concerns
The lifestyles of people in their 50s are very different from those in their 90s. Before you buy a second home for retirement, consider how long you believe it will suit you. What will you do if you can no longer drive? How will you maintain a large yard? Will you be able to safely go up and down stairs 20 years from now? Is there a chance to build a lasting social network there, or is the population transient? Consider all of these points before you invest.
Buying a second home before retirement may be a wise investment for financially stable and affluent pre-retirees. But it could also turn into a financial or personal debacle. Look before you leap.
What experience or observations do you have about investing in a second home? Share with us in comments below or on our Facebook page.