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Having multiple homes is now the norm for wealthy Americans.new Ameriprise Financial According to a survey of financial advisors who work with high net worth clients, about two out of three own a second home, and one-third of those will own a second home in the future. I answer that I am not interested in it yet.
Let’s take a look at why second homes are a popular investment for the wealthy, and why the average American would consider investing in a second home.
Why Wealthy Americans Own Second Homes
A survey by Ameriprise Financial found that most wealthy second home owners purchased their homes as vacation homes, not as a source of rental income.
Marcy Kekler, senior vice president of financial advice strategy at Ameriprise, said, “The vast majority (81%) of our high net worth customers use second homes primarily as a vacation destination or a place to escape the stresses of everyday life. It’s clear from the data,” he said. Finance. “Other common reasons were good weather (49%), rental income (41%) and having a venue to gather with family and friends (25%).”
Economic benefits of owning a second home
Many wealthy Americans didn’t buy second homes for economic reasons, but there are financial incentives for this investment.
“Historically, real estate has often been a strong investment because it’s often worth more when you’re likely to sell it than when you buy it,” Keckler said. “There are exceptions, such as the Great Recession, but if you can fix your current interest rate and pay off your mortgage over time, it can add a lot of value.”
One of the common economic reasons wealthy people buy second homes is that they plan to eventually live there full-time in their retirement. According to a survey, 33% of his current wealthy clients plan to make this their permanent home in the future.
“There may be advantages to buying a second home before you’re finished working so you can pay off your mortgage before you officially retire,” Kekler said. “This strategy will make it easier to weather future economic downturns by eliminating or reducing large monthly expenses.”
Why the Average American Considers Buying a Second Home
You don’t have to be a member of the 1% to benefit from owning a second property. However, whether investing in a second home is a smart investment for you depends on your personal circumstances.
“Financial advisors can help investors of all wealth levels assess whether owning a second property is a good choice,” Kekler said. “You can prioritize your second home based on your current and retirement lifestyle and financial goals.”
If you want to buy a second home, there are many options. Survey reveals financial advisors leverage second homes as investment properties (46%) and use securities-based financing solutions to finance purchases without selling investments at inopportune times (40%) were found to be the most recommended.
“Experienced financial advisors can also help investors consider the volatility of cash flows needed to visit a property and sustain it over time,” added Keckler.
Why buying a second home may not be the best option for you
Buying a second home is not always economically rational.
“There are two general reasons why a second home may not be a good investment for people at this point,” says Kekler. “(1) the economic environment is not ideal for buying a home, and (2) it is expensive to maintain a second property.” [may be more than you can afford]”
Considering the current economic environment
Among wealthy people who are considering buying a second home in the future, 42% said they are putting it off.
“The main reason is the current economic environment,” Kekler said. “Half (51%) of advisers who say their clients want a second home are waiting for mortgage rates to drop, and 47% report their clients are spending more time looking for a good property. are doing.”
Expenses that require preparation
Owning a second home requires maintenance costs, and it’s important not to underestimate these costs.
“Most second homes are located in a different city than the investor’s home base, requiring more maintenance and repair services to be hired,” Kekler said.
If you’re interested in buying a second home, she recommends adding the following costs to your budget.
- Home monitoring service: “If your property is vacant for part of the year, you may need to hire a home monitoring service,” says Keckler. “Home watch services can regularly check your facility and assess potential damage after severe weather events such as hurricanes, tornadoes, and wildfires. Additional liability insurance may also be required to cover.”
- Risk insurance: “If you live in a seasonal area, consider whether you need additional insurance or maintenance to handle extreme weather,” Keckler says. “For example, if you live in a tropical place like Florida, you might need flood insurance or install hurricane shutters every year.”
- Furniture, utilities and essentials costs: “Plan for ongoing expenses such as utilities, home insurance, laundry detergent, brooms, tableware and other necessities, as well as temporary expenses such as furniture.”
- Cost of living: “Many investors envision a specific way of life as part of their dream of owning a vacation home,” Kekler said. “Before you jump into buying real estate, factor the cost of living into your budget. For example, if you have a second home on the water, you might want to own a kayak, paddleboard, boat, or wharf.”
- Travel expenses: “Please consider airfare, gasoline, hotel accommodation, and other transportation costs incurred to visit the accommodation.”
- Rental cost: “If you plan to rent out your home, set aside funds to cover cleaning costs between visits and additional maintenance to replace broken or worn items frequently used by guests.” Kekler says. “Add liability insurance to cover damages that may be caused by guests. Please check if the item in applies.”
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