You've always wanted to own a vacation home, and now you finally feel ready to make that purchase. Before you put an offer in for a cabin on the lake or condo in the mountains, consider the realities of owning a second property. Here are a few questions to think about before you finalize your plans.
Can you afford it?
Owning a second home entails additional expenses such as:
• Furniture or other household items
• Travel costs like airfare or wear and tear on your vehicle
• Annual repairs or improvements to the property
• Recreational desires such as a boat, winter skis or kayaks
• Utilities including heat, air conditioning, water, internet and cable if you choose to have it
• A security system for when you're away
If your primary residence is more than a few hours away from your vacation home, or if you plan to rent out your vacation home, you also may need to hire someone to manage the property.
Is the location right?
Naturally, you have an idea of where you'd like your vacation home to be located. But, have you given much thought to what that means in terms of year-round use? Homes in areas where temperatures dip below freezing need to be winterized and monitored to avoid frozen pipes. Where there's snowfall, there's shoveling and plowing to manage. Distance is also a key consideration, along with the relative ease of getting there. Have you chosen a location and property that will grow in value or will it be hard to sell when the time comes? These are all important questions to answer as you consider purchasing another home.
Would renting be a better option?
You don't have to buy a vacation home to get away on a regular basis. A short-term rental property can provide the comforts of a home without the obligations of ownership. Rather than be tied to one place, you can try new locations and accommodations when you take a vacation. You can search online for everything from barebones apartments to sprawling homes, with rental options by the day, week or month. Alternately, if you do move forward with the purchase of a vacation home, you may want to explore listing your property as a rental when it's not in use. If your vacation home is in a high demand area, you might be able to generate an income stream — but don't forget to factor in the costs of managing the property from afar.
How will your taxes be affected?
Different tax rules apply to owning a second home, which can be somewhat complex depending on a variety of factors. Whether or not you rent the home, property taxes and mortgage interest are a few items that could affect your tax return. You'll want to consult with a tax advisor to sort out the details and discuss how your taxes will be affected if you purchase another home.
There are a lot of factors to think about before purchasing a vacation home. Consider working with a financial professional to determine how buying a second home will affect your longer-term financial plan.
Rocco is a Private Wealth Advisor with Ameriprise Financial Services, Inc. in Southampton, NY. He specializes in fee-based financial planning and asset management strategies and has been in practice for over 20 years. Advisors is licensed/registered to do business with U.S. residents only in the states of NY, NJ, TX, MA, PA, NC, NH, UT, NV, CA, NM, WA, VT, MS, MD, RI, FL, MO, SC, GA, MN, CT, AZ. Ameriprise Financial Services Inc., and its representatives do not provide tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. www.roccocarriero.com