A Pessimist’s Guide to 9 Possibilities You Should Consider Before Buying a Second Home

Thinking about taking the second home plunge? If you still feel optimistic after reading this, GO FOR IT.

  1. Time costs. Your time is one of your most precious assets! Whether you buy a second place two hours away by car or flight, you may have not considered additional time costs like commuter traffic and flight delays. If you are planning on kids, once they are past two, they take up a flight seat that is costly. Do you and your kids want to spend your leisure time in a small place to get to your second home?

  2. Travel costs. Just because you can afford a condo in Hawaii doesn’t mean you have the money to travel there every other weekend. Flights, rental cars, restocking some basics - they all take money. By planning out the total cost of owning a second home, you can enjoy it all the more.

  3. Location. If you live in the Midwest and dream of a place in Florida, how well do you know Florida problems? Just because there’s no snow doesn’t mean there’s no problems. As amazing as a waterfront condo can be, you also need to know what it’s like to be in a flood zone and what that means in terms of cost. Flood insurance is an added cost and risk you may not have yet anticipated. On the other hand, if you’re in a hot climate and dream of a snowy getaway, you have to consider local ordinances around keeping your property shoveled. Also, water pipes can burst when the weather is below freezing, so winterizing your property and being able to trust someone to check on it is important.

  4. Renting it out. If you decide that you are going to rent out your place, it’s going to cost you time and money, even if you do it yourself. Even if you are posting on Airbnb, it’s like a pet you have to feed and groom. You also have reviews that don’t necessarily die associated with your name. Then you also need to find someone to flip over the rental, cleaning the place and getting it ready for the next person. You can delegate authority but not responsibility, which means you still need to supervise that person. Are you ready?

  5. Second home mortgage. The mortgage on a second home does not work like it does with your primary residence. Because it’s not the home you live in full time, the banks consider the property to be riskier because you can forego the mortgage payment on your second home and still have a place to live in your first home. Many of the homes that were foreclosed in the Great Recession were second homes, and banks took note. The lesson is to see your mortgage broker before seeing houses so you know what to expect.

  6. Writing off interest. If you use the home as a true, second home, you get to write off the interest. But the limit is interest you pay on up to a $1.1 million mortgage for all your houses, including your primary home. However, if you are planning to rent out the home, different rules apply. That doesn’t mean they are so much worse, but you have to report all the income and expenses associated with the rental. It’s not the end of the world, but it’s tedious and slightly complicated. If you rent out your second house for less than 14 days a year, not so complicated.

  7. Writing off fixer upper expenses. If you are thinking of putting a bunch of money fixing up a second home and then you’ll recoup the money immediately on your taxes because you rent out the place, it’s a little tricky. The losses are considered passive if you are not in the business of flipping houses, so the loss you can claim is limited each year, although you can keep applying a portion of the loss to future tax years until it’s all applied.

  8. Back up plan. Do a quick historical review of what people did during the Great Recession with their second homes. There weren’t a lot of people to sell to or to rent to. What is your plan in the event you lose your job and there isn’t a big market for people to rent or buy your second home? Do you have enough money saved up to cover that scenario? If not, you may still be able to afford the home now, but knowing your risk tolerance and the degree of uncertainly you can live with will make for better sleep once you buy a second place.

  9. Hotel equivalency. What is the yearly hotel equivalent of buying a second place? If all the money you are going to spend is the equivalent of flying out and staying for a week four times a year at a 5-star resort, then maybe you should fly out four times a year and stay at a 5-star hotel instead. But maybe not. It’s something to think about!