Real Estate Matters: Does buying a second home make sense?
Sure it does, mortgage broker says, but do it now when prices, loans are at their best
I get this question a lot from friends and clients who own homes: Does it make sense to buy a second home? My short answer is, sure, I think it makes a lot of sense.
Now I can hear a good friend of mine giving me the "I can take a vacation anywhere I want and stay anywhere I want for less than the cost of paying for and maintaining another house and don't get me started about the hassle" speech (he recently bought a second home).
Which is largely true. But that thought string fails to address a couple of larger considerations about the value of a second home outside of its immediate weekend use and some very good reasons to make that purchase now.
First and most fundamentally, the financial climate is in your favor, and it won't be forever. Interest rates are low, rents are high and real estate in many vacation resort areas is relatively reasonable, at least when you compare it to local real estate prices.
The second factor: The baby boomers are coming, and they're coming in droves. These 76 million Americans born between 1945 and 1964 control over 80% of personal financial assets and more than half of all consumer spending, and they're heading into retirement en masse.
I have nothing against baby boomers, being on the tail end of this boom myself (and I mean VERY tail end, of course), but if you're considering investing in a second home, the time is now or possibly never. The longer you wait, the more likely it is you'll be duking it out with an ever-growing number of newly retired baby boomers. It's a game of whoever gets there first as market pressures become increasingly intense in the more competitive real-estate markets.
Which are those? There is a big trend for retired folks to want to buy a small place in town. If you envision yourself downsizing your current home and living in a pied-a-terre in the city, be it San Francisco, Manhattan, even here, now would be a good time to consider nailing down that place. If you don't plan to use it for a few years and need the income, consider making it a rental property, or, if you can afford to, use it as an urban escape.
A final and very important factor to consider is that your second home might become your primary residence, or at a minimum, your extended family's home base, so you might want to envision it that way. The more likely it is to become your home, the more important it is that you feel great about the house, its layout, location and community.
Let me give you an example that's very close to home, because it's mine. My wife and I love the idea of downsizing to a small place in San Francisco when we retire so we can experience a more urban lifestyle (see baby boomers above). We also want our kids and their kids down the line to feel like they have a home, a place they feel connected to, and where multiple generations can congregate. Enter the second home in Tahoe.
The fact is that families tend to get spread out over time and the high cost of living in our area probably increases the odds of our children living elsewhere. We need to lure them back somehow, even just for vacations and holidays.
Unless you're in the group of folks who plan to stay in your family home after your retirement (or one of the lucky few who can help your kids buy one), you might want to consider establishing a home base somewhere else, be it in the mountains, at the lake or near the beach, that's attractive to the entire family. The sooner you make it a part of your traditions, the more it will feel like home sweet home down the line, even if it's home sweet second home right now.
I've seen a lot of my friends and clients go through the emotional experience of selling the family home, the place where steps were taken and bikes ridden for the first time, where beloved dogs have come and gone, where hundreds of family meals were shared and sibling squabbles resolved. Believe me, it can be heart wrenching.
Having that other home base where your family has created memories and shared life experiences makes it a whole lot easier to say goodbye when it comes time, knowing you all have a sense of place in this second home as well. And you won't get a lot of complaints from the kids that they have to ski the bumps or ride the waves on Christmas day either.
--Michael Dreyfus founded boutique brokerage Dreyfus Properties, with offices in Palo Alto.