Buying a second home?

[tvguy]

Sorry to go OT, but @tvguy, please tell me the houses have running water, indoor plumbing and a heat/ac source. None of that was included in the original $520 retail price, nor was a foundation of any kind.

I would think they would now. Not sure about when they were built. He rents exclusively to Section 8 (now known as the Housing Choice Voucher Program) so they meet all their standards and are inspected regularly. He loves the program. HUD screens all the tenants, HUD handles all the evictions, and HUD pays for any damage a tenant does. He just cashes the checks, and sets aside enough money to handle necessary repairs.

I don't know about the foundation. I do know the house 3 doors down from my parents was built in 1945 and did not have a foundation. The new owners remodeled and put a foundation under most of the house. I have no idea why the building code is this way, but not having a foundation is apparently still legal here, and they had to keep a certain percentage of the old house or the county would consider it new construction not a remodel, and new construction would add about $50,000 in fees to the cost of the project.

 

[tcufrog]

What you want is a fee based certified financial planner. They are usually paid by the hour for their advice and don't earn commissions. I have one and he's been invaluable. Mine even got us a much lower rate on our mortgages. With his money management and advice we were able to pay down our mortgage much faster than we've expect and our 529 has grown faster than we expected too. Our financial advisor doesn't just look at the financial side but also the human side such as tolerance for risk and our non monetary goals. Our's is a VP at a major investment bank. We have a much smaller portfolio than most of his clients but he took us on as a favor to our tax attorney who is married to a college friend of our's.

 

[kymom99]

My brother has a guy at the bank he uses. This guy is just awesome. I wish I had met him sooner. When my mom died there were some mutual funds to be disbursed to the 4 of us. My brother had this guy set up accounts for each of us and the money put into those. Then we each went to meet with him to see what we wanted to do with ours. It wasn't a large amount of money but took a bit of time on his part. He was very kind and helpful.

 

[kinntj]

What you want is a fee based certified financial planner. They are usually paid by the hour for their advice and don't earn commissions. I have one and he's been invaluable. Mine even got us a much lower rate on our mortgages. With his money management and advice we were able to pay down our mortgage much faster than we've expect and our 529 has grown faster than we expected too. Our financial advisor doesn't just look at the financial side but also the human side such as tolerance for risk and our non monetary goals. Our's is a VP at a major investment bank. We have a much smaller portfolio than most of his clients but he took us on as a favor to our tax attorney who is married to a college friend of our's.

^^^^^This! Get a fee based certified financial planner! That is who we have and he charges per transaction that we authorize. He sends a quarterly report in the mail and gives updates through email on changes in the market. Our portfolio before was heavy in one area but we diversified making a pyramid fairly equal in weight that will keep our goals on track. We got his name through upper management through my husbands work. One of them is close with my husband in the company so we were willing to trust his judgement. Our financial planner is a stand alone and doesn't work for a bank or Edward Jones type place. Best decision we've made but we were careful before we hired one.

 

[kandb]

Real estate is an investment, sometimes (when it puts money into your pocket every month). When you are talking about a vacation home that is mortgaged, it's a liability.

Take that $250K and invest it with the help of a good financial advisor. 30 years from now, it will be worth more than the house.

You are probably right but I am so hesitant to invest in the stock market.

 

[kandb]

I say don't do it. We've thought about it many times and always decided against it. How much would you really use it? In the meantime, there are taxes, maintenance, the property being empty much of the year...I'm pretty sure that all of LBI is in some amount of flood zone. Taxes and insurance will add to your monthly payment.

Why not just rent a house for the times you need it? I've been a landlord and it's not easy.

In any case, look up the address you are interested in here: http://www.region2coastal.com/view-flood-maps-data/what-is-my-bfe-address-lookup-tool/ If your property is in a flood zone, you have to factor in the cost of flood insurance. Worrying about storms, tenants, break-ins and leaks is more than I want to do in exchange for a few weeks of beach access each year.

Also start reading www.bogleheads.org to learn about how to invest your money. You might want to post your question there, with some background info. They give good advice.

Thank you, great advice.

 

[ZephyrHawk]

I my state, its very common to own a second vacation home up north. Some people do rent theirs out for part of the year, to try and defray some of the costs. But, I don't think anyone would suggest doing it as an investment opportunity. Remember, it doesn't just take care of itself. Lawns need to be mowed, and gardens weeded. Pools need to be serviced. Furnaces, air conditioning, and sprinkler checked regularly. In the winter, pipes can freeze, in the summer basements flood. Siding and roofs and decks and drives all need major overhauls every decade or so. And if you do have renters you're going to get damage. You can get a management company to do all that for you, but they take a serious cut.

The people I know who own a cabin up north say they love it, but they always seem to be putting all their vacation days into visiting it - not for pleasure mind you, but for upkeep. And if it's not visiting in spring to make sure its summerized (or in fall to get it winterized) it's using it because they feel they need to get the value out of the money they spent on it.

 

[kandb]

My BIL's family has a 3 family house in Wildwood Crest, NJ. They rent out 2 of units during the whole summer. They have done this for years and have never had anyone destroy anything in the house. I know there are exceptions but I don't think this will be a major issue. If something breaks or maintenance of the house happens, yes, this would be major issues. The house would be approx. 2 hours from our home and my husband is handy. We also have no mortgage on our home now and therefore have no write off for any mortgage tax every year, however, someone told me recently that you can not deduct taxes for a "second" home. Obviously, I need to do much research before we decide. Also, eventually, we would just have the home for our family and my children love the beach. Also, our yearly 10 day vacations are costing us around $7K a year, which is a lot of money and all that money would cover the whole year taxes on the house.

 

[DLgal]

You are probably right but I am so hesitant to invest in the stock market.

Stocks aren't the only way to invest money.

 

[DisneyHardin]

I think if it is something your family would enjoy and you have the money to do it - go for it. If I had the money, I would buy a beach house in a heartbeat.

 

[QueenIsabella]

Funny I should read this today. DH and I are coming into an inheritance, and we've been discussing plans for it--vague, at this point, as we don't have exact figures, and there are obligations that will be inherited, along with money.

That said, we've already decided not to go the second home route. The costs, upkeep, and other issues simply aren't worth it to us at this point. We have places we like to visit--different ones, so we can rent a house or condo, wherever we choose. we also live on the coast--not directly on it, mind you, but a few miles away. One thing we did discuss is renting a beach house for our grown children to stay in when they visit us--they would be nearby, we'd see each other all day, but still have beach access and plenty of bedrooms.

If you do choose to go forward with this, I would talk to other people in the area who rent out their second homes. See how much they really pay for upkeep and taxes, how much they actually net from renting out, how often they have to pay maintenance bills and upkeep and remodeling. I think it would be best to assume renting would be a wash, and consider any net gain to be a nice bonus. It may still be appealing to you to have the second home, I just don't know that you can count on it actually producing any income for you.

 

[kathy884]

Just a few thoughts. But talk to someone who knows more about this than me. I'm just a lay person who looked into a vacation condo and decided no.

I don't think of a vacation home as an investment opportunity. The big difference between a vacation home that you use 14 or more days out of the year vs. a rental income property is that you can't depreciate a vacation home. That is a huge disadvantage from an investment stand point, I would think. Being able to depreciate a property and updates to a property is huge. Also, many people with a vacation home have a property manager handle things for them, and property management companies I think get about 1/3 or the rental income, a really big chunk.

I know when I looked into maybe a condo in a ski area also popular in the summer in Colorado and crunched the numbers, it certainly didn't look like a good investment. Now, if you want a vacation home, can afford a vacation home, and are renting just to defray some costs that's a another story. But I would not consider a vacation home to be an investment. Sure there may be some appreciation and some rental income. But in the vast majority of cases it's going to be negative cash flow, not positive cash flow.

 

[Disneybuckeye]

We dropped about $300k on a lake house and all the toys that go with it. We do not rent it out. It is an hour from our home and we spend about 30 weekends a year there. We love it and we could sell it and make money. It also does not stop us from going on 2-3 or more other vacations a year. We also get to spend lots of fun time with our adult kids.