Should I invest in a Second Home?

Second Home

With interest rates projected to rise and inventory increasingly tight, the window for purchasing a second home at an affordable price may be starting to close. Should I invest in a Second Home?  Of I course I would say yes.  I like investments I can drive by, can improve, and rent out.

Such sentiment has helped to fuel the recent boom in vacation property sales among affluent investors, many of whom are feeling flush on the heels of a six-year stock market rally. Demand is particularly high among baby boomers who are prepositioning for retirement.

Vacation home sales rose 57 percent last year over 2013, to 1.3 million properties, well above their most recent peak level in 2006, according to NAR. In fact, vacation home sales accounted for 21 percent of all real estate transactions last year, their highest market share since the survey was first conducted in 2003. NAR found in a survey that 85 percent of vacation buyers think now is a good time to purchase real estate.

Does it make sense to double down on real estate, especially in light of the interest-rate outlook and inventory dynamic?

1. Only buy a second home from a position of financial strength—gamblers need not apply.

2. Additional costs can add up and eat into the benefits of buying a second home.

3. The value investment play may have already peaked, so scrutinize deal pricing closely.

See full story on The time to invest in a second home is now

Buying a second home and planning to use it for retirement is a risky proposal. What you will want to live in five or ten years down the road may be totally different that what you THINK you are going to want. Family, health and financial situations change – often and sometimes rapidly.

Better you should buy for appreciation and income, and buy a property that will be easy to market when the time does come to retire.

I call this getting on the escalator.

Last evening, I met a charming couple from Scotland. They were interested in investing in a condominium in Florida. Rod, the husband, told me that he would like to buy a condominium or a home here in Southwest Florida that he could rent out and eventually move into in twenty years. This is a common request that I have from investors. They would like to buy an income property that will pay for itself, not need any management, need little maintenance, and be in wonderful shape when they are ready to retire to.

This is just not practical. For one reason, it is very difficult to predict what type of home or condominium would best suit you twenty years from now. It would be difficult to pick the location, or even the lifestyle. Secondly, this market is seasonal and to expect the rental income to carry the mortgage and expenses will require quite a large down payment. I call this the “BUY NOW, LIVE IN LATER” approach.

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