The Second Home Bind
A good percentage of second homeowners fall into the retirement age demographic, and quite a few of them have at one time or another kicked around the idea of selling their primary residence and moving into that beachfront condo or mountain chalet full-time. But there are six reasons why you might consider renting your vacation home instead.
1. Income from renting is better than foreclosure. According to government data, close to 40%, and perhaps as many as 50%, of the foreclosures in 2007 were of nonowner-occupied homes, which generally means vacation homes. S&P Chief Economist David Wyss expects this trend to continue into 2008 and 2009, pointing out that it’s psychologically easier for people to skip payments on a secondary home.
2. Circumstances have changed since you made your retirement plans. Maybe grandchildren have arrived on the scene and you can’t bear the thought of moving hundreds of miles away from them. Regardless of specifics, your life bears no resemblance to what you thought it would be when you made your retirement plans.
3. You’ve suddenly realized there’s no place like home. You’ve decided you like being near your friends, you don’t want to leave your church. Or perhaps you’d like to stay in your hometown most of the year (you kind of like the change of seasons) and spend the bitterest winter months in your beachfront condo. Renting your second home out during the time you are not staying there makes it financially feasible to keep both homes. Traditionally, many retirees would sell the home they lived in for 40 years, downsize to a smaller house or apartment, and split their time between that home and their vacation place in.
4. You’ve decided to “retire” from retirement. It is not unusual for people to test-drive retirement and find that it’s just not for them. Work can provide many rich rewards—structure, social interaction, mental stimulation, and a sense of purpose—that people keenly miss when they retire. And when they discover that quitting the rat race isn’t quite what they thought it would be, more and more people are opting to return to the workplace. And (let’s be honest), sometimes people simply can’t afford to retire.
5. Your fixed income hasn’t kept up with your lifestyle. Even when you’re happy to give up the daily grind of your job, losing the paycheck that comes with it can be pretty painful. Factor in inflation, rising taxes, and unexpected new expenses, and you may find that what seemed like a manageable cost of living five years ago doesn’t seem that way anymore. Your second home, even if it’s paid for, may start looking like a liability due to property taxes, homeowner’s association dues, and maintenance costs.
6. You’re currently renting your vacation home through a property management company, but you’d like to make more money. Ditching the middleman may be the way to go. Property managers simply charge a hefty fee for their services. In fact, you have to rent 10 more weeks with a management company to end up with the same amount of money you’d make renting by owner.
People who try renting by owner often end up liking it so much that they pour their earnings into another vacation home. a recent survey by the National Association of Realtors found that some 55% of vacation homebuyers said they were likely to purchase another property within two years.
