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Second Thoughts for Second Homes |
Renting has the added advantage of vacation diversification. |
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When money was easy to get from overzealous lenders, owning a second home became a reality for many Americans. Because second homes are just that – seconds. The prices of these homes seem to have suffered the most in the current economic slump. Reports in recent weeks, however, show that home sales have picked up in typical snowbird areas like Florida, but it’s not clear whether that is because of a genuine pickup in demand or vultures buying at cents on the dollar. If you plan to own a second home, this may be the best time to start shopping. But before you sign on the dotted line, make sure you do your homework. The down payment, closing, operating and maintenance costs all need to be carefully examined. Take an especially close look at the insurance costs. In Florida, for example, the costs to insure a home that is in a designated flood zone will shock you. You will also be very surprised that your house five miles from Clearwater Beach may be considered a high risk area with huge premiums. I’d even add a fudge figure for unforeseen needs such as condo assessments, furniture, repairs or tax increases. Also take a hard look at just how much you will use the home. If you plan on staying in Florida all winter, it may be a good financial move to own at these attractive low prices. But if you plan on spending a month or two along with an occasional weekend, the price of ownership may well exceed the cost to rent for those brief stays. Renters for the past two seasons enjoyed a plentiful inventory of fine homes to choose from at significantly discounted rates. Renting has the added advantage of vacation diversification. You may prefer to go to a different place each year. If you plan to buy for future use, and will consider the home either an investment for speculation or a possible future retirement destination, plan to put down at least 25 percent in order to qualify for a loan. In fact, I’d put down as much money as you need to so that you can carry the property if some adverse conditions plague your finances. I would not rely on rental income. In good times, you will probably have no problem finding a seasonal or year-round tenant. But in times like we had this season in Florida, many fine homes and condos spent the high season vacant. John P. Napolitano |
Financial planning is one of the fastest growing careers in America today. Have you ever wondered what you need to become a CFP® and how you can make it a successful career path? Written by veteran certified financial planning expert, John P. Napolitano, this book contains information on: education and training; the certification process, including differences state-by-state; tips for setting up in private practice; self-marketing techniques, including networking and client base expansion; and the all important client management and trust building.
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