The Art of Purchasing a Second Home
The Art of Purchasing a Second Home: An informative article highlighting the most financially responsible & effective way to purchase a second home. An especially good read if you are in the market or have been contemplating purchasing an additional residence
via The Wall Street Journal
How to Get the Most Out of a Second Home
Buying the right kind of home, tech tools to help you manage it, rules for rentals, and other tips
Owning two homes can be a headache—a headache worth having, to be sure, but a headache nonetheless.
Fortunately, there are ways to make a second home more enjoyable and less burdensome. The key is to plan for the unexpected and take advantage of the many ways your second home can reward you emotionally and financially. A touch of new technology also helps.
I should know. My wife and I have had two homes for at least 15 years, long enough to experience most of the ups and downs that come with two turfs. Over time, we’ve figured out how to maximize the good parts—and you can too, with this guide to getting less pain and more gain from your lucky real-estate circumstances.
Probably the most important thing you can do to make your second-home experience profitable emotionally as well as financially is to buy the right place. Easier said than done, of course; after all, it isn’t as if you would ever be looking for the wrong place.
But with a second home, there’s a lot more to think about than with a primary residence. By all means, choose one that suits your tastes and needs. But if you want to get your money out of it someday—or even make a profit—you should bear in mind the nature of the second-home market, says Gary DiMauro, whose eponymous real-estate agency has four offices in New York’s mid-Hudson Valley, a popular vacation area.
Buyers of such homes, he says, have different resale considerations than those seeking a primary residence. For instance, the quality of the local schools isn’t terribly important for resale, but privacy counts a lot because second-home buyers are seeking a getaway. Nor is a megamansion the best idea. Mr. DiMauro advises sticking with the 2,500- to 3,500-square-foot range, with three or more bedrooms and baths, on five to 10 acres.
More property is perceived as a burden by buyers who want “just enough land to feel private but not secluded.” And, of course, location always matters, but for a second home, that might mean access to a golf course or beach rather than a short commute to work.
Finally, if you have your eye on a charmingly eccentric old house that needs a lot of work, you’d better be ready to whip the place into shape if you want to sell. “Most second-home buyers,” says Mr. DiMauro, “are not interested in a fixer-upper.”
The Rules for Renting
You can get your second home to help pay for itself if you are willing to rent it out at least some of the time. Kenneth Rubin, a St. Louis-based partner in the accounting firm of RubinBrown, notes that you can rent a home for up to 14 days annually without owing taxes on that income.
Longer-term rentals also can pay. Mr. Rubin says they too can produce income that is tax-free, or mostly so, thanks to a host of deductions associated with the property—in particular, depreciation. But renting out a second home on a longer-term basis might require removing your furniture and possessions in order to make room for a tenant’s stuff. And your home insurer may refuse to cover you for longer rentals, meaning you’ll have to buy landlord insurance. When my wife and I rented out our house for an extended period, we found premiums on such coverage roughly double those on our normal home-insurance policy.
Some tips for attracting renters: Water can help. Mr. DiMauro notes that a swimming pool will do little for your resale prospects—a well-known fact that keeps a lot of people from installing a pool at their primary home. But pools can bring more rent for a second home during the summer. Always have a lease, he says, and for short-term rentals, rent should be paid in advance. If you want to turn your second home into a bit of a business, there are always home-sharing platforms such as Airbnb and VRBO. Mr. Rubin says the same 14-day exclusion applies to that income. But beyond that, things get complicated, so it’s best to consult with a tax professional.
A Less Taxing Home
Another way to make a second home pay is to make it your first home. That is, if your vacation home is in a lower-tax jurisdiction than your main home and you work at home or are retired, you can save money by making it your primary residence. Not surprisingly, tax authorities in high-tax areas are on the lookout for finagling in this realm, so if you are going to do this, you’ve got to do it right.
Mr. Rubin says changes in federal tax law that sharply limit the deductibility of state and local taxes have spurred many taxpayers to consider relocating, in particular to Florida, Texas and Nevada, which have no state income taxes. He urges second-home owners who want to go down this road to do all of the following at their new place: make it their main mailing address; register to vote; register their car; establish their driver’s license; start frequenting local physicians and dentists; and (if so inclined) join a local house of worship. In the event that tax authorities from the state of your old residence try to challenge your new address, “all these facts look better,” he says.
Most important for income-tax purposes is spending enough time at the new place. In many states, says Mr. Rubin, that means 183 days or more, and often the burden of proof is on the taxpayer. Fortunately, there are apps devoted to tracking how long you stay where.
Another factor to consider in deciding which home to make your main residence is which of them you are planning to sell first. That’s because up to $500,000 in profit (on joint returns) from the sale of your principal residence is exempt from federal income taxes. Just bear in mind, says Mr. Rubin, that you have to own and live in the home for enough years to meet IRS requirements—roughly speaking, two years out of the five preceding the sale. (Again, it’s always worth consulting a tax pro on such matters.)
Most home buyers will have their children in mind from the day they start looking for a second home. Is the home part of a village in which children can get around on foot or by bike? Are there other children around? If your daughter loves tennis, are there public courts or a tennis club to join?
For better or worse, though, children grow into teenagers with parties, sports and other reasons to stay home in your main house—and little interest in the prospect of another sleepy weekend in the boondocks.
John Oddy, a New Yorker who works in the nonprofit sector, says it can be a challenge to persuade his sons, 14 and 11, to visit the family’s old farmhouse in western Connecticut—and even his wife sometimes takes some convincing. “I’m the one who has to be the most creative about this,” he says.
Get Children on Board
For the children, at least, he has found that one-on-one father-son weekends can be especially effective. With the older boy, these might include dinner and a Shakespeare production; with the younger, Mr. Oddy recently built a bat-house, which occasioned the boy’s introduction to a table saw. Another winning approach: having the boys’ friends and their parents as house guests. Mr. Oddy says he’s grateful at least that his family isn’t kept in town every weekend by children’s sports, joking that “Little League would be the enemy of a happy country life.”
Margaret Murray, a schoolteacher and mother of five in New York City, says she and her husband have managed to avoid such issues with their house on Martha’s Vineyard because they mainly use it for one long stay in summer rather than trying to drag the children away for many weekends. In season, she says, there’s a thriving “teen scene” on the island, and letting the children bring a friend or two from the city is also a good idea. Day camps, with their built-in companionship and fun, are another good way to keep the children occupied, Ms. Murray says, noting that they are more affordable on the Vineyard than in the city.
Technology has made it much easier for owners to manage their second homes remotely.
En route to their Maryland-shore vacation home, Joel Fein and Vicky Levin, physicians living in suburban Philadelphia, use the house’s internet-connected thermostat to get the temperature where they want it. Between visits, that same device enables them to be sure the temperature hasn’t fallen dangerously low. An internet-connected security system provides reassurance that the house is safe from intruders—and when a contractor needs access, the owners can remotely turn off the alarm and unlock the doors, battening everything down again when the workday is over.
To put your second home at your beck and call using technology, a better thermostat is a good place to start. Ones from Nest, ecobee and others let you control the temperature from anywhere in the world using a smartphone app. If you have a weekend place, you can set the device to achieve a desired temperature on Friday night and return to energy saving on Sunday night.
Similarly, a new generation of internet-connected home security-systems makes monitoring and securing your home simpler and cheaper than ever. These easily installed alarms, with their wireless components, are aimed squarely at do-it-yourselfers and usually can be controlled via a smartphone app. Consider smart locks, too. Some permit locking and unlocking with an app, so you can grant a neighbor access when you are across the country. Internet-connected outlets and switches let you control the lights from afar, and they’re easily programmable. I’ve set the switch controlling our porch lights to go on at sunset and off at sunrise every day—even though that time changes all through the year.
If your second home is in a cold climate, consider installing a modern standby generator. They kick in automatically in a power outage and some models can report their status by email or, yes, a smartphone app. Such a generator can fend off frozen pipes and keep things running smoothly even during warmer season outages, whether you’re present or not.
Other Ways to Gain
Big savings are available if one of your homes is in a low-cost area and you move your health care to that location—in particular, routine care and elective procedures not requiring a high-tech medical center.
The difference can be huge. Imagine that your dentist says you need a crown and your dental insurance covers only part, or none, of the cost. In one Midtown Manhattan ZIP Code, that crown would cost you $2,200, according to Fairhealthconsumer.org, a nonprofit that tracks health-care costs. But 100 miles north, in the country town of Red Hook, N.Y., that same crown would be just $1,350. Assuming medical insurance, an in-network colonoscopy in Midtown Manhattan would run $5,111 vs. $2,710 in Red Hook.
Smaller steps can also help your second home put a few dollars in your pocket. A single streaming account can be used anywhere, meaning you can dispense with cable service at both your homes. You can do something analogous if you join a gym with locations convenient to both residences. Holders of the Planet Fitness Black Card, for example, can use multiple outlets in the chain. That can save you from having to pay for two memberships.
A final tip for reducing pain—and gaining peace of mind: You’ll find that schlepping between homes is far less onerous if you keep enough clothing at each. Doing so promotes spontaneity, eliminates the ordeal of packing and makes it easier to go back and forth on a plane or train. I’ve found it to be a major stress-reducer