By Bennett Whitlock, CRPC® Private Wealth Advisor
Many people dream of having a second place to call home. While this may make sense, purchasing a second home is a major decision that can impact your financial situation for years. Here are some questions to consider.
1. What is your primary purpose for the home? If you envision the home as a second family space, is it a good lifestyle fit? Are you still working and won’t use it often? Then, expense and upkeep may be hard to justify. If you’re retired or planning to retire, the purchase may be more worthwhile. If you’re renting the home out, will potential income make it a good investment? Or is this a property needing improvement, one you hope to sell for profit?
2. What is your financial ability to carry a second mortgage? If you need a second mortgage, will it create cashflow risks, especially if you have a mortgage on your primary residence or are close to or in retirement? Taking on debt carries risk regardless of your financial position. If you can afford to pay cash, is this the most effective use of your funds compared to other investing alternatives?
3. Is the home located where you want to be? Be certain the location is appealing. If you’re looking for a warm weather getaway, will the home meet your needs? If you’re considering renting out the property, will it attract renters at a price that makes it a worthwhile investment?
4. Are you prepared for the extra expenses? Beyond the purchase and mortgage, prepare to duplicate expenses of your first home, such as utilities, maintenance, etc. If the second home isn’t local, consider the cost of hiring professionals to help manage it. You also might need a tax advisor to assess tax implications.
5. How does the purchase fit within your overall financial plan? Perhaps the most critical question is what your purchase means for your comprehensive financial plan. Does purchasing a second home fit your overall strategy, helping you achieve your primary goals – or at least not detract from achieving them? Talk with your financial advisor before you make a decision.
Bennett Whitlock, CRPC ®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services, Inc. Learn more at WhitlockWealth.com or call 703-492-7732.