Owning a second home can mean finally having your year-round vacation getaway or even earning passive income as a landlord, but there are several things to consider before making this big decision. To ensure you make the right choice for your financial situation, here are a few things to think about.
Start by listing the financial pros and cons of owning a second home—seeing these written out can help you come to a decision. Then, start thinking about what owning a second home would look like financially. Determine what you can afford and come up with an annual budget for maintaining the house. Beyond the initial down payment, closing costs, and the outlay for prepping the house before occupancy, an annual budget can help you to identify the expected yearly expenses, including taxes, utilities, maintenance, and insurance. It can also prepare you for unexpected costs, such as damage from storms and other issues.
Renting it out
Renting out your second home when you’re not using it can be a great way to earn extra income, but there are a few things to consider first. Become familiar with federal tax codes regarding part-time rentals . Consider the location and its earnings potential—it’s important to have realistic expectations about how much income the home can generate.
You’ll likely want a plan for managing the property if you’re planning to rent it out for a good portion of the year. This includes listing the property on short-term rental sites and facilitating general upkeep and repairs. If the house is not near your primary residence or home maintenance is not your forte, you might consider working with a property manager.
Travel to other places
If your second home will primarily be a vacation getaway, ask yourself if you’ll be satisfied if it’s the only place you’ll be vacationing. While owning a home on the Maine coast might seem like a great idea, after a couple of years of long drives and freezing winters, you might long for an occasional change of scenery. Determine if the expense of a second home will impede your ability to travel to other destinations and whether that’s an important consideration for your family.
Repairs and renovations
All houses eventually need repairs and renovations; second homes are no different. Consider how you might finance those repairs—will you dig into your savings? Take out a personal loan, borrow against the home’s equity? You might consider borrowing against the cash value of your permanent life insurance policy. The benefit of a policy like whole life insurance is that it offers flexibility, including lifelong coverage, potential dividends, and a cash value that builds over time. You can borrow against this cash value for any reason, including financing repairs for your second home.
The bottom line
Owning a second home comes with its own set of responsibilities. If you’re considering this exciting step, ask yourself the hard financial questions, assess the pros and cons, and do rigorous research. Once you’ve done all the necessary legwork, you’ll be better prepared to make your dream come true.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.