Vacation season is getting into full swing, which means millions of Americans spending time in lovely, stress-free spots at the beach or mountains will have the same thought: “Gee, wouldn’t it be great if we owned a place like this?”
Let’s count the benefits. It would be there whenever you want. You could decorate, renovate or expand just as you pleased. You’d create a family tradition. In retirement, you might live there full time. You’d have an asset to pass through the generations.
There’s no question about it, millions of people love their second homes. And this could be a good time to buy, with interest rates at rock bottom and prices still in the basement because of the recession.
But to be on the safe side, consider a second home to be a luxury, not necessarily a great investment. Even a primary residence may not be a very good investment when interest, maintenance, taxes and insurance are considered, and a second home offers additional financial burdens.
If the summer place is far away, you’ll probably have to pay pros to do a lot of the chores and improvements you might do yourself in your main home. And if the second home will be rented out to offset costs, it will probably have to be in tip-top condition all the time. Part of your rental income may have to be spent on an agent to get renters and oversee the place.
To get the most income, you’ll have to rent the property out during the prime season, when you most want to use the property yourself. And if you rent, you’ll have to limit your own use or you’ll lose some of the tax deductions available on a rental operated as a bona fide business.
Can’t you make money by eventually selling? Maybe, if you own the property long enough. But many property owners mistakenly figure profits by subtracting the original purchase price from the eventual sales price. When all those other costs — mortgage interest, maintenance and so forth — are added, an apparent profit may turn into a loss.