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| Should You Buy That Second Home? |
A summer place in the North Carolina mountains, a winter place
in sunny Sarasota, Florida. Wouldn't you like a fabulous retreat
in the mountains or near the beach? More and more people are
buying second homes for vacation and future retirements.
I sell real estate in the resort town of Sarasota, Florida. Many
of my clients are second home buyers. Many of them purchased
condos on the beach, on a golf course or just a nice single
family home in town. So I deal with second home buyers often.
Obviously, I make money from these people so I am in favor of
people buying a 2nd home but it is not for everyone.
Desireable second homes are expensive. Make sure it fits into
your budget. In Sarasota, there are no desireable properties
that pay for themselves if you obtain a mortgage to purchase the
property. The rental rates do not cover all of the expensive.
You must know |
going in that it will be an expense. Decide if the
expense is manageable.
A property that does not pay for itself is pretty typical in
Florida. Do the research on where ever you plan to buy to find
out what a property will rent for in relation to the cost of the
property. I doubt you will find too many places that cover all
of the expenses.
Make sure you will have time to use a second home. With the time
constraints of life, you might not use it as much as you hope. I
have a friend who works all of the time and has very little free
time. He wanted to buy a mountain house in North Carolina. I
asked him when did he plan to use it. It dawned on him that he
would maybe use it once a year. So he purchase a weekend
waterfront retreat within 45 minutes of his home. This way he
can use the house when he has free weekends. He has been up
there every weekend for the last |
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3 months.
Compare the cost of renting versus the cost of buying. Let's say
you are retired and plan to use a winter getaway for 3 months.
Here in Sarasota you can rent a nice place for $3,000 - $5,000 a
month. That is $9,000 to $15,000 for a 3 month vacation. Now
compare this with the cost of owning. When you own property you
have to pay for property taxes, home owners insurance if you
have a mortgage, principle and interest payments on the mortgage
if you obtain one, maintenance and repairs. All of these costs
will vary according to the price of the property you purchase
but they will be more than just renting.
Second home owners make money when real estate prices go up,
renters lose out. Recently, real estate prices have gone through
the roof in many parts of the country. Sarasota real estate
prices have had many years of price increases over 30%. Can |
you
imagine if you purchased a second home during this recent real
estate price boom? Many of my clients have made hundreds of
thousands of dollars in appreciation. That pays for many years
of negative cash flows. As a renter you will miss out on any
property appreciation.
Even if prices are rising by a modest 5-10% a year that is still
a pretty good return on something you can actually enjoy. You
can't really enjoy the use of a stock or bond but you can with a
second home.
In a nutshell ask yourself 3 simple questions:
Can I really afford it? Will I use a 2nd home often enough? If I
decide to only rent am I ok with missing out on real estate
appreciation?
About the author:
Marc Rasmussen is a Realtor in Sarasota, Florida and frequently
sells second homes.
Sarasota Real
Estate
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