You finally feel ready to make that dream purchase. Before you put an offer in for a getaway on a neighbor island or a city lights apartment, consider the realities of owning a second property.
Can you afford it?
Owning a second home entails additional expenses such as:
- Furniture or other household items
- Air fare or wear and tear on your vehicle
- Annual repairs or improvements
- Recreational equipment such as a boat
- Utilities: heat, air-con, water, internet and cable
- A security system for when you’re away
If you plan to rent your vacation home, you may need to hire a property manager.
Is the location right?
Homes in areas where temperatures dip below freezing need to be winterized and monitored to avoid frozen pipes. Where there’s snowfall, there’s shoveling and plowing to manage. Distance is also a key consideration, and the relative ease of getting there. Have you chosen a location and property that will grow in value or will it be hard to sell when the time comes?
Would renting be a better option?
Short-term property rental can provide the comforts of a home without the obligations of ownership. Rather than be tied to one place, you can explore new locations when you take a vacation. Alternately, if you do purchase a vacation home, you may want to list your property as a rental when it’s not in use. If your vacation home is in a high demand area, you might be able to generate an income stream—but don’t forget the costs of managing the property from afar.
How will your taxes be affected?
Different tax rules apply to owning a second home, which can be somewhat complex. Rental income and expenses, property taxes and mortgage interest are a few items that could impact your tax return. You’ll want to consult with a tax advisor to sort out the details and discuss how your taxes will be affected.
There are a lot of factors to think about before purchasing a vacation home. Consider working with a financial professional to determine how buying a second home will affect your long-term financial plan.
Michael W. K. Yee, CFP
1585 Kapiolani Blvd., Suite 1100, Honolulu
808-952-1222 ext. 1240 | firstname.lastname@example.org