The dream scenario for many retirees is to have a second place to call home.
It may be a house or condominium in a warmer climate that allows you to escape the cold winters, a retreat at a lake or resort location where you can spend extended periods of time, or even an apartment in the big city that puts you in the center of the action.
Regardless of the type and location, if you desire a second residence one of the most important questions to ask yourself is whether to own or rent it.
Weighing your financial
and emotional decision
Determining if you should buy or rent rests in part on financial considerations.
Buying a second home can be a large financial commitment that offers you the chance to own a property that has the potential to increase in value.
On the other hand, renting doesn’t require as much of a commitment but could also have some drawbacks.
Buying or renting a second property is not only a financial decision, however. It is an emotional one that encourages you to think about why having another space is important to you.
To help weigh the financial and intangible factors of the decision, ask yourself the following two sets of questions as a starting point.
Five questions that can help steer your financial decision:
Do you have sufficient assets available to purchase the home outright without putting your retirement security or cash flow strategy at risk? If you need to take out a mortgage to afford your second home, will it strain your monthly budget in retirement?
Are you in a financial position to pay for remodeling the house to meet your lifestyle and for upkeep on the property?
Will you use the property enough to get your money’s worth?
Is the property marketable as a rental unit, and how easy will it be to sell in the future?
If you choose not to own, are you prepared to handle potential increases in rent?
Five questions that can help you weigh the intangible factors:
1. Is hosting gatherings with family and friends part of your retirement vision? If so, do you wish to eventually give the property to your children as part of an inheritance?
2. Are you content to revisit the same location regularly?
3. Do you prefer to be among your own furnishings or are you comfortable using what’s available in a rental property?
4. Are you physically capable of caring for a second property and willing to do so?
5. How far are you willing to travel between your two properties?
If the answer to one or more of these questions gives you pause, now is the time to talk to a financial professional.
He or she can provide an objective perspective based on your savings, income, retirement plans and other goals.
Together, you can create a financial plan that can help you feel confident with the choice you make.
Christine King, CFP, CRPC, CDFA is a financial adviser and associate vice president with Ameriprise Financial Services Inc. in Brookfield. She specializes in fee-based financial planning and asset management strategies and has been in practice for 21 years. She also lives and maintains a comprehensive financial planning practice in Kenosha.