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 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?

Marc Rasmussen sells real estate in Sarasota, Florida. For more information
on Marc visit Sarasota
Real Estate