Is a Vacation Home a Good Idea When You Retire?
Guest Article by Jim McKinley
If you enjoy the lifestyle that comes along with vacation, purchasing a home or condominium at your favorite destination may be a sound investment as you ready yourself for retirement. Here are a few no-nonsense things to consider before buying.
Owning a second home is a lot like owning your first home. You’re still responsible for the mortgage and maintenance. It’s a financial commitment, however, that could pay for itself, or at least bring in enough revenue to make it more affordable. In addition to earning an income, your second home may also provide tax advantages in the form of a deduction of mortgage interest and property taxes.
Although renting out your vacation home is work, many locations have an array of rental management programs that can help you get the most out of your home or condo when it isn’t occupied. Consider whether you’ll need to make any repairs or upgrades before listing your home to rent. Make sure you and your contractor have a clear plan in place before beginning work.
If you plan to perform your own maintenance, those costs probably won’t be very different from what you are used to at home. But if you aren’t handy or won’t be readily available, you may want to look into securing a company that can take care of things when you’re away. Many homeowner associations have staff on hand, but their services may not be automatically included in your HOA fees, which are another cost to consider. HOA fees can range from $25 to several hundred dollars each month.
Time and Trouble
Depending on where you live, buying a vacation home in Florida, for instance, can be a lengthy process, especially if you wish to visit properties before making a commitment. In most retirement meccas, real estate is a hot commodity, and it moves at lightning speed. You will need to plan to spend at least a week in your target destination looking at properties.
When you’re looking for a new vacation home, MarketWatch suggests considering its proximity to amenities. Keep in mind that you may not always be able to drive yourself to the property. Make sure you have access to food, social opportunities, and medical care. Many retirement areas, including those in beach and mountain towns, plan for an influx of seniors during certain times of the year, so public transportation may be available. Ask your realtor to help you find a location that can enhance your quality of life.
Incidentals and Insurance
Before you buy, you’ll also need to consider the cost of incidental expenses such as home renovations needed. Kiplinger recently ran a story on a 56-year-old businessman who purchased his retirement home years before retirement. Senior Editor Jeffrey R. Kosnett approves of this strategy and advocates buying before retirement, if possible. This will give you the chance to manage those unexpected expenses while you still have an income. You also have the added benefit of getting to enjoy your piece of paradise.
You will also need to think about insurance and upkeep expenses. AllState explains that insurance on a second home may be more expensive than a similar primary residence. Location is often a factor, and if the home is unoccupied, it runs a greater risk of being broken into, which can raise your already-high rates.
Value Versus Cost
If you’ve already made the decision to buy your second home, you’ll need to know your price range and make a choice based on that as well as the value the home adds to your life. If, for instance, you buy a lovely estate property that doesn’t encourage socialization and physical activity, you may not get your money’s worth out of your investment.
If owning a second home is in your budget, you don’t mind putting in a little extra work, and can find a location that meets your needs and caters to your wants, then a vacation home can be a great addition to your retirement plans.
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