- In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing. Theodore Roosevelt
Buy a Vacation Home
Advantages of owning a second home for vacation.
While all assets fluctuate in value in the short term, vacation properties are more likely to retain their value and appreciate simply because they are located in popular areas with a geographically limited supply. There is a finite shoreline or mountain on which houses can be built, and only 18 holes on a golf course.
But real estate, like stocks, bonds and other investments, has always fluctuated in value and will likely continue to do so in the future. Therefore, be aware that there is no guarantee that a second home will sell for a higher price in the future.
Many people who own second homes prefer to keep them unoccupied when not being used for personal enjoyment. If you allow and charge rent for occupancy for no more than two weeks per year, the interest on the mortgage and the property taxes are fully deductible from your gross income. In other words, for tax purposes, you can treat this mortgage the same way you would the mortgage on your primary residence.
If you decide to rent your home, but personally use the property as well, you’ll need to determine whether you’re eligible to deduct operating expenses. To determine this, add up the days you rented the property. If you occupied the property fewer than 10% of the days you rented it or for less than two weeks – whichever is greater – you can deduct all of the operating expenses of the home including interest, utilities, cleaning fees, lawn maintenance, and management fees. If you need help determining what you’re eligible to deduct, contact a tax professional or review IRS Publication 527 on vacation rentals.
Rental fees vary according to seasons and the popularity of the resort location. For most resorts, peak season weekly rental fees are usually equal to or greater than the property’s monthly mortgage payment, allowing you to break even with an annual occupancy around 30% from a cash flow viewpoint.
Returning to the same place time and after time can be comforting as you become familiar and comfortable with the location. It allows you the freedom to be yourself and the opportunity to expand long-term friendships with residents – you can become part of the social fabric.
The ability to conveniently store items that are used exclusively at the second home simplifies travel and packing. My family’s ski paraphernalia, along with extra winter clothes, was stored at our house in Breckenridge, Colorado, allowing us to easily make unscheduled trips for a weekend of skiing without the hassle of packing or worrying if our skis would arrive on the same airline flight.
Retirement Head Start
Though we may love the places where we work and live, every place has its drawbacks. If you live in Texas, for example, the summers of 100-plus-degree temperatures are brutal. People in Chicago, Philadelphia, and other northern cities often hate the annual struggle with snow.
A common goal of retirement is to have a place of retreat for the times of the year we dislike the most at our main residence. Locating and buying a second home prior to retirement enables you to experience the benefits of a refuge before actual retirement, a time to correct and amend your plans if the reality is different than the dream.
Location for Gatherings
Places stir memories of people, relationships, and good times. As a member of a large extended family, I’ve always enjoyed the annual Independence Day gathering at my cousin’s lake house. The get-togethers started when I was a young boy when my father and his two brothers purchased a lot on a large lake in western Oklahoma, and have continued through the birth of my children and grandchildren. The annual visit has become a tradition that has kept our ever-growing family close as we spread across the region and country.
The intangible benefit of owning and passing property from generation to generation – especially a home that has been and will continue to be the site of many happy gatherings – is incalculable.
Access to Other Vacation Homes
Many second homes are located in areas that people like to visit – resorts, golf courses, mountains, seashores – and their attraction is universal. As a result, owners in one location often arrange to trade time in their house for time in a home located in another region. This is referred to as a home exchange.
As a partner in a house located in Pebble Beach, California, I once swapped a week at my house for two weeks in a home (with cook and housekeeper) on a Caribbean island. The owner of the St. Maarten home wanted to take his buddies for a long golf trip to the famous courses of Pebble Beach, while I wanted to take my family for an extended beach vacation. The swap worked out well for both parties.