When thinking about second homes, it’s natural to think this means buying a house, condominium or mobile/manufactured home. However, many long-term renters consider their getaway as a second home.
At what point does a rental become a second home? In one respect, it’s in the mind of the renter. Consistently returning to the same property year after year could easily cause one to view it as more than a vacation spot or some other sort of temporary arrangement.
What goes into this thinking? Here are a couple of dimensions.
For a lot of people, a longer-term rental of 3 to 12 months could be viewed as a second home.
Returning to the same long-term rental annually would make it easier to confer second home status on the property in the renter’s mind.
Consider this scenario. A couple from Iowa rents the same Nevada house every year from November through April. They bring enough clothes and personal belongings in the car to see them through the six months. They also rent a storage unit in Nevada to hold items like bicycles they prefer not to carry to and from their primary home.
Also, if they stay in Nevada for over half the year, even by one day, they will no longer pay Iowa state income tax.
Given this hypothetical situation, it’s understandable how this couple considers their Nevada rental as a second home.
First, let’s look at the arguments in favor of buying.
An owned asset (your house) can fluctuate. Since U.S. real estate values have gone up across most markets over the past 50 years, buyers could reasonably expect their second home value to increase over time.
Owning a home means you can rent out the property for income.
Mortgage interest can be deducted from federal taxes for both a primary and second home.
The owner of a home can use the property whenever desired. Also, there’s the freedom to store things and decorate the dwelling inside and out. However, if a Homeowner Association is involved, various rules may exist that the owner must follow.
So, what are the disadvantages of buying?
Owning an asset involves risk, so there is no guarantee that a second home will increase in value.
If renting out a property for income, there can be headaches involved regarding work and expense.
There are lots of expenses in owning a second home beyond the purchase price. Interior and exterior structure maintenance, appliance repair/replacement and other needs can get expensive.
Next, let’s consider the positive aspects of renting.
Renters depend on the landlord to cover property maintenance, structural insurance and other costs. Renters also evade the costs of purchasing or selling. Most importantly, renters pay only for the time spent staying in the property, while owners pay even when they’re not living there.
When renters no longer want to stay in a property after the lease expires, they can simply leave. This allows them the freedom to rent different properties in different locations each year, which could be an excellent way to scout future retirement locations.
What’s negative about renting?
Although the risk of owning a second home is the value could go down, renters cannot benefit from the flip side of booking gains in a rising market.
There are no chances to earn rental income.
Renters have no ownership tax advantages.
Renters are at the mercy of the landlord.
Renters not only pay rent but also pay for such things as a security deposit, pet deposit/fees, renter’s insurance, and utilities.
The decision to buy or rent involves a combination of personal and economic aspects.
Do I want to:
To compare buying and renting, you’ll need some data. For a purchase, these are the primary costs:
For renting, gather this data:
You can input these numbers into a rent versus buy calculator like realtor.com to help you compare the two alternatives. Remember that changing some assumptions can yield varying results, so don’t hesitate to try different scenarios to find the best fit for your situation.
Further read, SECOND HOME: WHAT TYPE IS RIGHT FOR YOU?
What factors do you consider when you rent a property? Do you consider the same factors when buying? Does renting or buying a second home makes more sense to you?
The response I have received from friends and family is not to “Rent or Purchase”, but how can I purchase when the cost of purchasing a home is in the stratosphere. Many can’t save for a down payment because the rent takes up 60% of their income and is higher than a mortgage.
City projects have been created to assist with home purchases. If the prices are north of 600K (which many are) the person must earn over 100K. Many people do not have that type of income and are forced to rent.
Owning a second home in Britain is now very expensive. Local governments have been given the option of levying 200 per cent local taxes on owners. Not all are doing it but mine is so I am considering selling the house I own in Scotland as from April it will be far too expensive to maintain.
I’m in the process right now abt owning or renting. I’m leaning toward purchasing so I can go when I wish. I would never rent it out. There are no tax incentives. I think I would prefer to own.