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By Salvatore Presti
So, you’ve spent decades building up a nest egg to help provide you with a financially stable and comfortable retirement. The unpredictability and risks involved in many kinds of financial investment so you prefer not to base your entire portfolio on the markets. You want something more tangible, with the possibility of steady growth, and that you can leave to your family when you pass away.
If this describes your approach, then investing in a second home makes perfect financial sense. Property values tend to increase over the long term, so your capital is growing, despite any shocks the financial markets might experience. Not only that, you’ll have the option of generating rental income as an additional rental stream. And, if you choose, you can use your second property as a vacation home for yourself and your family, thereby avoiding the costs typically associated with leisure travel, hotels, etc.
Before you proceed, it’s important to be clear about your principal aim in buying a second home. Financial growth as part of your portfolio? Opportunity to enjoy a change of scenery? A place where the family can vacation together?
Types of property
First of all, consult an investment /tax advisor to help you understand the financial implications of second home ownership: not only in terms of your initial purchase, but also whether there are tax advantages due to the ongoing costs, and the eventual sale.
If you decide that second homeownership is definitely for you, the next step is to consider the type of property that best suits your needs, and why.
Let’s consider the options, and the pros and cons of each.
Condominiums
Condos have several advantages. They’re more secure than an individual property, maintenance is easier to arrange, and there’s no upkeep of external areas involved. You’ll be able to show up, move in and enjoy your home, and then lock up and leave without much effort. That’s great if you want a vacation home for yourself and your family.
However, there are also some disadvantages if you want to generate an income. Many management associations have the right to approve or reject potential tenants, so letting may not be so easy and your property may sit empty at times. There are likely to be many restrictions in the lease – in terms of noise, use of public areas, etc. These clauses may make it more difficult to use the property for lucrative short-term or Airbnb -style, without violating the terms of your lease.
Individual properties
With an individual property, you’ll have more freedom to rent it out (subject to city regulations), whether on a long- or short-term basis. Whichever type of tenancy you go for, unless you’re living close by and want to be heavily involved with the day-to-day issues as they arise, you’ll likely need to pay for a property management company. They’ll liaise with your visitors for you, and handle the headaches associated with maintenance and repairs (at a cost of course). This will increase your expenses considerably.
However, another advantage of individual properties is that you can block out the periods when you or your family want to use it as a get-away.
Homes in Gated Communities
A middle ground is perhaps to purchase a home within a gated community. Community living is increasing in popularity, with developments specifically targeted towards the needs of certain demographics or lifestyles – the over 50’s, perhaps, or golfers.
Here, you’ll have the sense of privacy and security you’ll want (especially if the property is going to be unoccupied for extended periods), with the advantage of maintenance on-site and a range of facilities to help you enjoy your visits to the max. While many communities have gyms, tennis courts, and dining options as standard, there are, for example, high-end homes for sale in Arizona and elsewhere, which offer all the facilities, such as a spa and golf course, that you’d expect in a luxury mountain retreat. You could choose the one that matches your lifestyle requirements most closely.
Of course, this type of property, like a condo, will also come with a range of restrictions imposed by the management company. The benefit of these is that they ensure that the standards of the development are maintained. For example, if there’s an age-restriction linked to the purchase, that wouldn’t only affect who you could rent to, but also you could eventually sell to. So it would be essential to make a really smart choice and ensure that there’s a high demand for whatever type of gated community property you go for.
Location, location, location
As we’re considering how to maximize the benefits of second home ownership, we need to think about location as well as the type of property.
If you’re looking to buy mainly as a financial investment, there are several factors to consider. First, will a property near your main home be easier and less expensive to manage? What are property prices doing? If you notice that they’re starting to rise steeply due to local employment or educational opportunities, it may be a great opportunity to invest. Alternatively, if the property market has already hit a high, or seems ‘flat’, perhaps greater returns are to be had further afield.
On the other hand, if part of your reason for wanting a second home is to enhance your lifestyle and help you enjoy life to the maximum, looking for an option further afield is more likely to provide the pleasure you’re looking for. Whether it’s a base from which to enjoy your favorite pastimes or where the family can gather for the holidays, a great location should be your priority. By the ocean or in the mountains, in a vibrant downtown or a tranquil rural retreat, your second home can be used to create wonderful experiences and memories.
You’ve worked hard to create a financial situation that allows you to consider how to make the most of your life. Let a second home help you live your dream!
Salvatore Presti is an American writer living in Italy who enjoys the fine art of living well. His interests include anything wine, food or nature related especially when enjoyed with friends and family.
