Your Second Home

Last updated on October 22nd, 2018 at 03:51 pm

Last Updated on October 22, 2018 by

Many people would like to acquire a second home but the idea of owning property located many miles away from their principal residents is daunting.  Questions must be answered such as:

• What about security
• Maintenance of the yard
• How are repairs/projects handled
• Will the home be rented or used for vacations
• If a rental, how is this managed?

The above are just a few questions that must be answered before you can feel comfortable making an investment in a second home.  Perhaps this article will help you make perhaps the second most important financial decision of your life to date.

As an owner of several second homes for about two decades, I can speak from experience.  Hopefully my experience can help you avoid some costly errors and when you finally acquire your second home, you can enjoy it.

The idea of a second home is appealing

The idea of a second home is appealing to many because it allows you to essentially leave your regular life back at your permanent home.  Your second home should be set up to provide comfort and pleasure. Your second home is not located close to work or in some area that is not your first choice but out of necessity you have to live there.

We decided to buy a second home in another state.  It was a four-five hour drive from home. This one was close enough that if something went wrong we could drive there.  And something did go wrong. Three days after having new furniture delivered the home was invaded and most of the furniture was stolen.  I was called by a neighbor and dropped everything to drive over and meet the police.

Not a good start to what we believe would be a fun time away from our first home.  Insurance replaced the furniture and we learned a lesson about home security. At that time, the innovations in home security were just starting to develop.  More on this later.

Our next second home was in Spain.  In this case we could not just drop everything and drive or even fly.  With the experience we gained from our first adventure into becoming property barons, we hired a property manager.  In fact the real estate agent who helped us find our home was a property manager.

We decided to rent our second home

With this property we decided to rent it when we were not there. The property manager was excellent, everytime we visited the “apartment” was clean just as we had left it.  In Spain they call a condo in a multi-tenant building an “apartment” even though you own it.

This was a great experience, we earned money and at the same time were able to enjoy it when we wanted.  There were no issues that the agent could not take care of. We communicated via email most of the time and by phone other times.  The utility bills and mortgage payments were automatically taken from our bank account.

Since buying the property in Spain, we acquired other second homes.  Our plan was to decide where we ultimately wanted to retire then buy a second home there.  We finally reached the point where we decided the best location for our eventual retirement and jumped in.

How did we find our second home that would be our retirement home.  Simple, we watched a tv show that featured buying homes on the beach that did not cost millions of dollars.  They were right.  Although we a few minutes drive to the beach or a ten minute boat trip was not relevant.  We jumped in our motor home and drove from California to the Gulf Coast.

We loved the trees and the natural beauty of the area.  Then we looked at the price and were feeling good until we talked with the real estate agent who was selling the new home.  For the first time we were able to negotiate the price.  They dropped $50,000 off the price and we said where do we sign.

We bought a beautiful new house in Ocean Springs, MS.  Coming from California everyone asked us why we would come to Ocean Springs.  The answer was and is, how could we afford as a retired couple to own a 3,500 square foot home on a bayou (river) with a boat house for less than $350,000 in California?.  The fact that the home is located on 2+ acres of property in the middle of a bird sanctuary was an added benefit.  

The ower cost of living and many other reasons were almost incidental.  It’s just the idea that “California” is so mythic to people in fly over states.  We are working at shattering that myth just by being here.

So we bought the home and this time used all of our accumulated knowledge and set it up right.  The first thing we did was acquire a security system that was monitored. We bought remote door locks and exterior lighting is set up on an electronic system.  

While the weather cooperates regarding water for our landscaping, sometimes it gets dry so we installed a sprinkler system operated by a wifi weather control system.

The next thing we did was to meet our neighbors.  They were (and are) terrific. Due to the size of our lawn, I purchased a lawn tractor and one of my neighbors with the same amount of lawn was pushing a mower around.  We struck a deal, he used my riding lawnmower and did both of our properties.

So the landscaping issue was solved.  An alternative would have been to hire a neighbor’s teenage kid or a professional service.  

To keep the house free of spider webs and bugs, we engaged a service to routinely spray the property, it worked well.  No bugs when we arrived.

Our neighbors knew when we were at the house and then when we would probably return.  They had our phone number and email address. Periodically we communicated about the weather etc.  Our neighbors on both sides were our first line of defense against potential crime and weather.

Over time we ordered work to be done at the house by contractors that I had met with while we were there.  I trusted them so when they needed entry, I remotely turned off the alarm and unlocked the door. Using facetime I could see their work.

Our cameras offer a look at the property anytime we were away.  I could see the bayou and boat house as well.

We arranged for the utilities to be automatically paid so there were no issues there.  

It was fun to visit our second homes.  It seems that you work harder at your second home than you do at your first.  There is always something to do. When I arrived, I would weed the garden, take over cutting the lawn and found time to put in some plants.  There was always something we needed in the house so trips to Lowes and other stores were a common event.

We set up the home with the basic stuff in the kitchen.  You know paper plates, plastic cups etc. It was more fun to eat out at the numerous small restaurants that served great food that was largely unavailable where we lived.

Some people buy a second home and they rent it when they are not there.  Because this was going to be our retirement home, we decided against it this time.  It worked well in Spain and it works well for many people. If you buy a home in a residential neighborhood of single family homes, it may be problematic to rent it.  Your homeowners association may prohibit renting a property for less than six months.

The City may prohibit renting a home for less than x months as well.  Renting a second home works well with high rise condos located on the beach for example.  There are several high rise buildings in Biloxi and Gulfport located at the beach that you can rent for a few days or a week.  There are agents that specialize in this type of rental property.

An excellent reason to acquire a second home if you intend to retire in the area where the second home is to be purchased is that you are entering the real estate market.  This means that the interest rate you select will generally be fixed in a rising market. Also, the price you pay will allow for equity growth as prices rise during the years before your retirement.

Even if you decide not to retire in the same home, you can sell your property and use the equity to buy another in the same area.  Or, if this is a successful rental, retain it for income and borrow against it to leverage the purchase of your primary home.

Remember that every month if you are making a mortgage payment, a part of that payment is reducing the amount owed on the mortgage.  If you buy the home 10 years before retirement, you will have significant equity built plus the appreciation of the property. Read our article about buying early.

You may recall the questions listed in the first part of this article.  They have all been answered for you but to reiterate in a more direct way, this is a summary:

• Security – setup your home with home automation.  Including cameras, sensors for water, glass breakage and entry.  Automate the doors, sprinkler system and lighting. You can operate all of these items remotely.
• Neighbors – Meet your neighbors ask if they will look after your house.  Ask if they know of a landscaper
• Repair projects – Ask your neighbor to assist or check out the contractors in advance then let them in remotely.  Have them call you when they are at the front door and when they finish.
• Rental – Check the local rules.  If you can rent and decide to, find a local agency that will not only rent your property but will be responsible for maintenance as well.

There is a financial side to rentals.  If you establish a business renting the property, you can take “passive” deductions.  The amount of the deduction is based upon your gross income and the amount may be small compared to the cost e.g. $3,500 per year.  

Your rental would not be called your second home as there is a maximum amount of days you are permitted by the IRS to use a rental and still maintain the deductibility of the property.  Check with your financial advisor or the IRS. This still may be a good move. Not everything in life revolves around paying taxes. The fact that you may owe taxes means that you earned a profit.  

As I mentioned to a friend who bought a second home in Ocean Springs, you can always sell it if your plans change.  Remember, real estate is an appreciating asset unlike a car which is worth less over time.

A last point.  It has always been more enjoyable to look for a second home than it was to look for the primary home.  When you are looking for your primary home there are usually time constraints. You sold your home and need another.  You relocated and have little time to look because you are working.

Looking for a second home is a leisurely activity or should be.  After all, the second home is not a need but a want. A primary home is a need not a want.