Second home: Buy or rent?

[goldengirlz]

DH and I have started to accept that we probably won’t be traveling the way we used for quite a while (at least six months, but maybe a year or longer). In the meantime, I’ve been fantasizing about a place to get away for some peace and quiet (both of which are in short supply these days in our densely packed neighborhood. I have bad misophonia that both triggers, and is made worse by, anxiety and suffice it to say, my mental health is in the toilet.)

We’ve started to talk about a second home but can’t decide if we should buy or rent. WDYT?

The case for renting:
-We’d cap our costs (we’d never have to worry about any of the surprise expenses associated with home ownership)
-We’d have more flexibility on the rental terms (whether weekly or month to month) and if we want to change up the destination
-We’d cash-flow the cost using our current travel budget and wouldn’t need to touch our investments

The case for buying:
-We’d use it — potentially a lot. If schools are closed again, I’d probably go up for weeks at a time. But even during a “normal” year, we do a ton of local road trips, often to the same spots.
-It would be 100% ours (and during a pandemic, that gives me a bit more peace of mind)
-In theory, it’s an investment? And here’s where I need help. I currently have a significant amount of money in RSUs that I’ve been thinking about cashing out and reallocating into other investments, something I need to do anyway (it’s way too much money to have in one stock). I estimate that we could probably fund 60-75% of the purchase price in cash, leaving a buffer for any unexpected costs.

The one other consideration in all this is that I still have an outside hope that we may be able to upgrade our primary house one day. However, DH and I think the market would need to fall at least another 20% for that to happen — AND my RSUs would have to retain their value. It seems like a pipe dream in our VHCOL market.

Happy to provide more details, if needed. Anyone want to weigh in?

[sadlebred]

Buy and don't regret it. It sounds like you will get a lot of use of out of the house.

[konapoppy]

Do you know where you want to be? Is there an HOA? If so, will you have special assessments? Will you be able to rent it out? Is there high speed internet available? Would you use a property manager of some sort? Will you want to spend more time there as your child gets older, or would weekends be filled with sports, birthdays etc (assuming we go back to some level of social interaction in the next few years)? Have you spent significant time in this location? These are the questions I would consider before buying.

There are so many carrying costs with a second home. My parents have had one for 20 years, and live there 50% of the year. It makes it worth it for them. But the HOA fees, special assessments, and regular upkeep are significant (coastal location). You have plenty of income so I doubt that would be an issue, it is also the hassle of getting work done and how much you would really utilize it to justify the cost.

[goldengirlz]

Jul 4, 2020 15:20:49 GMT -5 konapoppy said:

Do you know where you want to be? Is there an HOA? If so, will you have special assessments? Will you be able to rent it out? Is there high speed internet available? Would you use a property manager of some sort? Will you want to spend more time there as your child gets older, or would weekends be filled with sports, birthdays etc (assuming we go back to some level of social interaction in the next few years)? Have you spent significant time in this location? These are the questions I would consider before buying.

There are so many carrying costs with a second home. My parents have had one for 20 years, and live there 50% of the year. It makes it worth it for them. But the HOA fees, special assessments, and regular upkeep are significant (coastal location). You have plenty of income so I doubt that would be an issue, it is also the hassle of getting work done and how much you would really utilize it to justify the cost.

These are all good questions to consider. We know, roughly, where we want to be and we want something more rural, so probably not an HOA, but we’d have to see. I don’t want to rent it out, though there’s a solid market for AirBNBs if we change our minds. At least one of the places we’d consider is high on our list for potential retirement locations. We go there a lot and we love the lifestyle. We’d try to stay within two hours from home so H could come up on the weekends.

But I agree that it’s less of a question of “can we afford this” and more of “is this where we want to tie up these funds for the foreseeable future?” I’m obsessed with the idea of a second home but I’m nervous about that part.

[konapoppy]

If there is a solid market for AirBnBs, I would do a long term rental before buying in the area, for sure.

[lemoncupcake]

I wouldn’t buy a property just because of the current situation. If in 2-3 years it is safe to travel again, would you want to still be spending your time and money at a 2nd home or would you rather be traveling to new places?

[sdlaura]

My parents bought a condo near me when they retired and they use it probably 3-4 months out of the year. From a financial perspective, it would be way cheaper for them to just rent (though they have the asset if they ever wanted to sell or rent it out). From a psychological perspective, they’re just so much more comfortable and happy there because it’s their own place and they made it exactly how they wanted it.

[sandandsea]

I would rent. But my philosophy is that I travel to see the world and have new experiences. My grandparents vacation to the same cabin every year and liked the predictability of knowing what their plan was and the second home type feeling of knowing people and places where they were going. I like the adventure of exploring new places. Also upkeep on one home is enough, I don’t want to worry about roofs, leaks, WiFi, etc on two. When I’m on vacation I want to relax, not take care of repairs.

Are you sure your needs won’t change and your second home will meet those needs long term - more kids, grandkids, location, amenities? To buy is a longer term commitment - expect 5 years to break even. Not a one month fling.

Generally vacation properties are more volatile in value too so when the market is bad, it’s really bad and when it’s high it’s really high. Right now I bet prices are high because a lot of people want to escape during COVID.

TLDR it a personal preference but I’d rent.

[goldengirlz]

Jul 4, 2020 21:37:28 GMT -5 lemoncupcake said:

I wouldn’t buy a property just because of the current situation. If in 2-3 years it is safe to travel again, would you want to still be spending your time and money at a 2nd home or would you rather be traveling to new places?

Both 😀

For context, we’re looking at places like Sonoma County where we do go fairly often to hike and replenish our wine supply. There are also events at certain wineries that we like to attend. It would be fair to say we go up every long weekend and sometimes just because. We do enjoy traveling internationally, but that’s maybe two weeks/year; I get more vacation time than my H so I often end up taking DD on girls’ trips and it would be nice to have some place to go locally where he can visit us. (While we DO mix it up in terms of where we go in the state, we usually end up doing the same mix of hiking, beach, good food/wine. Hotels are expensive here and it wouldn’t be crazy to have to spend $300-400/night.)

I know that the vacation home market can be volatile but around here it’s fueled by the same tech stocks as I’m holding onto. I don’t know if that makes a difference.

But yeah. It’s definitely a consideration. I need to run the numbers.

[lemoncupcake]

Jul 5, 2020 10:53:35 GMT -5 goldengirlz said:

Jul 4, 2020 21:37:28 GMT -5 lemoncupcake said:

I wouldn’t buy a property just because of the current situation. If in 2-3 years it is safe to travel again, would you want to still be spending your time and money at a 2nd home or would you rather be traveling to new places?

Both 😀

For context, we’re looking at places like Sonoma County where we do go fairly often to hike and replenish our wine supply. There are also events at certain wineries that we like to attend. It would be fair to say we go up every long weekend and sometimes just because. We do enjoy traveling internationally, but that’s maybe two weeks/year; I get more vacation time than my H so I often end up taking DD on girls’ trips and it would be nice to have some place to go locally where he can visit us. (While we DO mix it up in terms of where we go in the state, we usually end up doing the same mix of hiking, beach, good food/wine. Hotels are expensive here and it wouldn’t be crazy to have to spend $300-400/night.)

I know that the vacation home market can be volatile but around here it’s fueled by the same tech stocks as I’m holding onto. I don’t know if that makes a difference.

But yeah. It’s definitely a consideration. I need to run the numbers.

Then I guess it comes down to resources (time and money).  

how will you feel if you need to spend vacation time and the cost of an international trip on something really boring for the vacation home, like a new A/C or repairing water damage from a leak? Not only is it a financial risk, but you’ll have to find a way to manage the property from afar (either traveling to coordinate repairs or paying someone to manage it for you). 

[konapoppy]

If that is the area, I would sadly also consider the fire risks and insurance costs 😢

[sandandsea]

Jul 5, 2020 11:18:41 GMT -5 konapoppy said:

If that is the area, I would sadly also consider the fire risks and insurance costs 😢

This and homes are still quite pricey there as are property taxes..... more so than other potential resort towns. And you have to consider traffic patterns as it could be a 1 or 3 hour drive from the city. I know people with second homes there that love it and spend every holiday there so it clearly works for some. But those people have a home in the city, on the coast, in tahoe and in wine country (or a mix of the above) so money clearly isn’t an issue for them.

[litebright]

We just spent a week at a lake house rental and it was so wonderful that I started looking at real estate in the area, lol. Maybe someday! So I am feeling this conversation.

The other things I would consider would be 1) impact of climate change on the safety/desirability of the specific home and/or the area (in Sonoma, I'm guessing that would probably be mostly wildfires? The calculations for something waterfront would be different) and 2) upkeep of any major recreational "toys" that enhance your time at the property. It sounds like in your case, #2 doesn't apply, but I think for a lot of vacation homes, stuff like boats or jetskis are part of the attraction of being there, but they can be incredibly expensive and a PITA to maintain, winterize, etc.

What a fun decision to be able to make! Good luck with it!

[SusanBAnthony]

I would try to find a house to rent for a year, maybe even with an option to buy if you like it a lot, and see if it feels worth it in a year.

We are more seriously considering (which for us is still not actually serious) a cabin with the covid stuff. It totally depends for us on if travel is curtailed long term due to Covid- if there is no treatment, no vaccine, and no immunity, will we limit our travel to be more local forever? If so, it makes more sense. If things are back to normal in two years, then nope I don't want the work and hassle of a cabin.

[goldengirlz]

Thanks, everyone. FWIW, DH is team rent. But we just spent $3500 for 10 days away, which is probably quite a bit more than what a mortgage payment would cost considering how much we’d put down. And that got me thinking. (Well, that and how much I would love for this to be a permanent thing. I feel so restored, ha.) That said, the house we rented is probably much nicer than what we could afford anyway.

I’m not feeling too confident this stock market rally is going to last so I also have asset reallocation on my mind.

ETA: Wildfire risk is a big concern. Tahoe (and the foothills) would be the other area(s) we’d consider. We could get something pretty nice but it would be farther.

[imojoebunny]

I think this depends on the market you are looking in. 8 years ago, we bought a foreclosure in a mountain town, on a river. It has been a surprisingly decent investment and since it is close (1.5 hours), we can use it often, even now that the kids have busy school and sports lives in non-covid times. Our POA dues are $600 a year, and our taxes are $1800, so the carry cost isn't insane. There is little landscaping to be done, since mountains, and the utilities run about $200 a month. Other cost run about $3K a year. We do not have a mortgage and we do not rent it out, though we could. I have other friends who have properties further away, that they rent out, and they are less happy with their decisions, years in, since they cannot use it as often, and when they go, they have to fix all the things that break with life and renters, and they are mostly beach properties, which just require a shit ton more upkeep, either in POA fees or maintenance. My brother is buying a house in a beach community, and it is both way more expensive to purchase and has a lot more community fees. It is a lifestyle choice. I find our 2,400 square foot, reasonably priced cabin to be a nice place for us to go, take friends in normal times, and we really enjoy being there (just got back from a weekend). Renting would not work well for us, since we couldn't take the dogs, would have to plan well in advance, and often go for only one night, with DH and the kids schedules, which is tough when most places require 3 night minimums. Be cognizant of how much maintenance you are willing to do, and also, how much hosting you can stand. Maintenance doesn't bother me, once I found good people, but I do not like to cook for people, and hosting often can get expensive. I have a some friends who come up regularly, that I really enjoy having, but some people, even good friends, I prefer not to have up there. We, also, regularly let people use it when we are not there, and I have a list of "leaving items" that they are to follow, like not leaving any food and turning off the water.

[wildrice]

I would not buy a house based on the pandemic. This is a couple of years of a long life. It makes me nervous to see people discussing vacation homes and moving to bigger houses in the suburbs in reaction to this. What happens when life is back to normal in 2 years and you want to travel to farther away places again?

I don't know if by renting you mean a series of short term rentals, or signing a year long lease on 1 place? I'd be more tempted to do that. I think renting the same place for a couple of years would give you a lot of benefit but then you'd have a lot more flexibility for the long term.

[goldengirlz]

Jul 5, 2020 17:01:20 GMT -5 wildrice said:

I would not buy a house based on the pandemic. This is a couple of years of a long life. It makes me nervous to see people discussing vacation homes and moving to bigger houses in the suburbs in reaction to this. What happens when life is back to normal in 2 years and you want to travel to farther away places again?

I don't know if by renting you mean a series of short term rentals, or signing a year long lease on 1 place? I'd be more tempted to do that. I think renting the same place for a couple of years would give you a lot of benefit but then you'd have a lot more flexibility for the long term.

Good point. I mean, I’ve ALWAYS fantasized about a second home because while I love living in a major metro area, I also have a need to get away to decompress. So that part (the mental need to escape what often feels like sensory overload) won’t change. But to make buying worthwhile, it would need to be someplace that would hold its value too.

We could go either way on rental terms. If school doesn’t reopen in August, maybe I’ll try a one-month rental and see how it goes.

[konapoppy]

imojoebunny brings up a great point - everyone and their mother will ask to use your place. If your friends are also in tech it may not be an issue, but good to know in general even if it doesn’t influence your decision. You definitely learn which friends you want to have come up and which friends you don’t!

This is even an issue with my uncle, who has a house in Tahoe. One of my cousins only speaks to him when asking to use his place. It is... annoying to say the least!

[wanderingback]

I can’t tell from your post, but I wouldn’t make this decision based on the pandemic and I certainly wouldn’t buy based on the pandemic.

I guess if you’ve been planning for awhile to get a vacation home you can still consider it, but I wouldn’t base my decisions solely on the pandemic and not being able to travel much.

My situation is different since our 2 properties aren’t really considered a vacation home and that was never the intent, but it kinda has turned in to that due to the pandemic and me not going back and forth as much. But I have no desire to own 2 properties right now. I’m glad we’re not tied down in 2 cities by owning in 2 cities. Obviously one can always sell if need to, but that isn’t something I want to deal with at the moment.

I’d find a rental house for the next year so you can see how much you use it and figure out the area you might want to be in, then consider buying in 1-2 years.