Ask the grumpies: Do summer homes make financial sense?

Sandy L. asks

Summer homes. Do they ever make financial sense?

In the grand scheme of things, probably not.  They’re really not something that I understand at all.  Most people would be better off just renting a place for the small amount of time they use the summer home, especially if that home is not the only place they vacation in each summer.  But people don’t do summer homes for the financial reasons.

HOWEVER, there are some scenarios that can make financial sense.  If you can claim the summer home in another state as your main residence, you might be able to get a break on state income tax.  If you rent out the summer home the 9 months of the year you’re not using it, you may be able to make some $ if it’s in a desirable area (particularly if it’s someplace in CA where property taxes are frozen and you bought years ago).  If you turn it into a B&B/Air B&B place it might make $.  And if you’re lucky enough to buy someplace that magically goes up in value after you’ve bought it, you might be able to sell for enough profit that it’s all worth while (particularly, again, if it is in California).

If you use it also as a weekend home, you might save money over staying in a similar place that you don’t own each weekend.  If it keeps you from jaunting off to Europe on a regular basis, it might also save money.  If your second choice would be extremely high priced rental lodging for you and all your servants, then sure, it might make financial sense.

Those of you contemplating summer homes, keep in mind that federal tax treatment of the mortgage deduction for these may be changing in the near future (getting rid of the mortgage deduction is a good thing economically in the long run), making second homes more expensive to own.

Any experience with summer homes, Grumpy Nation?

18 Responses to “Ask the grumpies: Do summer homes make financial sense?”

  1. nicoleandmaggie Says:

    This morning I called about the Dream act. That’s also what most of the list-serves I’m signed up for are pushing this week. According to indivisible, in the next two weeks, 1,708 Dreamers will lose their DACA protection.

  2. Linda Says:

    OK, this comment may be off topic, but maybe you can use it for another Ask the Grumpies. I understand that the mortgage deduction isn’t very fair, so I although it will be bad news to me financially, I’m not angry about it. However, getting rid of the deduction for property taxes and state income taxes does seem unfair. I’ve always understood that you don’t pay a tax on another tax. Is that just naive of me? I understand that in states with no income tax like Texas people may itemize deductions for sales tax, especially on big ticket items like automobiles. I don’t recall hearing if the deduction of sales tax is allowed in either of the crappy tax bills that are being reviewed, but if it is then eliminating property taxes seems even more vindictive and malicious.

    • nicoleandmaggie Says:

      These bills are very much meant to punish California (and to a lesser extent, MA and NY).

    • becca Says:

      The fact that you can *only* deduct sales tax OR income tax should tell you that you can already be taxed on a tax. It’s not like people in California don’t pay sales tax. And yes, the Senate bill would remove the deduction for the sales tax.

      At least one version of the bill capped the property tax deduction at 10k. While it’s still aimed at punishing California and MA/NY, it is aimed at punishing the *landed gentry* of CA/MA/NY.

      It’s a mess of a bill. But if you *wanted* to write a progressive bill that collapsed brackets to 4, repealed the individual AMT, lowered the statutory corporate tax rate (while reducing corporate deductions), doubled the standard deduction, added a deduction for adult dependents, capped the property tax deduction and eliminated it on second homes, collapsed the various tuition breaks into one credit, increased the child tax credit, and taxed the largest university endowments, you could certainly do so. Just putting that out there, assuming the Democrats ever regain power.

  3. chacha1 Says:

    I kind of doubt that summer homes have ever made financial “sense” for anyone. A second home is a luxury on the order of a private jet (or, in the golden age, a private rail car). Personally, if I had that kind of money to throw around I’d rather have a share in one of those private jet companies, because commercial air travel sucks (while rented vacation lodgings can be very fine indeed).

    • becca Says:

      It is that kind of a luxury and it isn’t. Much depends on location. Just like lots of people commute by plane in Alaska, 68% of Lake County Michigan and 71% of Valley County, Idaho are 2nd homes.

      But having a share in the private jet companies is going to be favored by the new tax code, so you’re all good.

  4. undine Says:

    They make financial sense only in that if you can afford one, you are obviously not hurting for money. Also, being a landlord of any kind requires a specific kind of entrepreneurial temperament (and often the ability to fix things). If you have that, the renting-out-the-place scenario could probably make money for you. There’s a tough-mindedness to it that you have to have, and I don’t have it.

  5. Katherine Says:

    I really want a summer home in my European home country. My aunt and uncle have one in a beautiful vacation spot in the Baltic, and it is really, really lovely. But I also know that they spend a ton of time and money making and keeping it habitable to 21st century standards. For us, living on the other side of the atlantic and with me working as a SLAC faculty member, it is never going to be financially or logistically feasible, even though I would really love to move there in May and back in August every year. I know rationally that it would be much cheaper and less stressful to just rent a place for 2-4 weeks most summers, but emotionally I really, really want to own a piece of my other country and have a home base there.

    • Zenmoo Says:

      We think about this all the time too (buying a “summer home” in our other country- New Zealand) We do have a rental property, but it’s not a holiday home at all. Our problem would be where… so many beautiful places. So, until we win the lottery- we’ll just keep renting a bach.

  6. EB Says:

    If the summer home is a) not in an expensive area; and b) is in an area where you have family; and c) maybe you can even share the summer home with other family that want to return “home” in the summer; and d) you are very very handy; and e) there are no huge upcoming expenses like replacing the septic tank/field, replacing plumbing, replacing heating system, then and only then would it make sense to own real estate in more than one location. But things change, and being away all summer may no longer be feasible, and that is why even though we could buy a house for cheap, right next door to my in-laws whom we love, and in a beautiful but not expensive location, we will continue to rent that house on a per-week basis, not buy it.

    The other consideration is that after you get too old, or die, will that house be saleable? will your kids want it? how would they divide it up, if there are several of them? there is an entire type of legal practice that specializes in the thorny issues that arise from multiple owners of vacation properties . . .

  7. Omdg Says:

    I grew up in an expensive city, so rather than buy in the city, my parents rented there and bought a “second” home that we spent weekends and vacations at, where they now live now that they are retired. Not sure it was a great investment, but hey it’s somewhere to live now.

    • Contingent Cassandra Says:

      I’m considering something similar to this scenario, except that the first “second home” purchase is likely to be a rental duplex or triplex in a small, less expensive city 1-2 hours away from the urbanizing area where I own (more or less; it’s a complicated coop scenario that has some but not all the usual benefits of ownership) a studio apartment. Something single-family and more rural might follow. The whole endeavor, still under consideration, would have two purposes (somewhat in tension, but not mutually exclusive): (1) try to build up enough equity by buying rental property in a less-expensive area to allow me to buy the sort of home I would prefer to live in in my current area (in retirement or sooner, if could manage it) and/or (2) try on living elsewhere (with the thought that I might move/retire there). The idea of a more rural property probably doesn’t fit into this plan as well as rental properties in the small city, but the rural area I’m considering is actually close to a small-to-medium-size university, so there are some academic-year-rental possibilities there, too.

      Living in a too-expensive-to-buy-what-I’d-like area definitely leads to some odd real estate strategizing (but what I’m thinking about is really investment property, not a second home, though one unit might be that for tax purposes, if a second home still has any tax implications when the dust settles on the current tax bill. And I’m not at all certain that deduction should remain.)

  8. NZ Muse Says:

    Love friends that have one!

    Wouldn’t ever have one even if I could afford it, I like going to new and different places rather than return to the same one.

    That said, I have started to develop a soft spot for a certain coastal area nearby … but still no.

  9. Name Under Development Says:

    Second homes don’t make financial sense and yet- that isn’t always the only consideration. My husband’s grandparents bought some lakefront land out in the country near their hometown because grandpa liked to fish and his sister & BIL owned land there too. It only cost a couple hundred dollars. Eventually,they built something only slightly bigger/ nicer than a shack on the land. Fast forward to today- My MIL passed away this summer and DH &I inherited the property- which now includes more land and 2 distinctly un-fancy cottages (or “camps”, in local parlance). They are not winterized and we rent them out when family isn’t using them. Our now adult children went there every summer of their childhoods- & we all have tons of memories tied up in this place. It makes no financial sense to keep them and yet no emotional sense to NOT keep them. It all started with 2 New England mill-workers, went to a thrifty couple comprised of a professor at a SLAC and a music teacher and now has transferred to their downwardly mobile son & his wife.

    I know our choice is not financially wise. Nevertheless, it seems like the only one.

    Name Under Development (NUD)

  10. Ali Says:

    This is a slightly different spin on it, but my parents have a second home…approximately 5 miles away from their permanent home. While I’m not sure a second home ever makes financial “sense,” I sort of get it in their scenario. They don’t get much (any) vacation time as they are self-employed, but have the $ to have all the expenses associated with a second home. It feels like a getaway spot despite only being a few minutes down the road, so they enjoy weekends and the summer there. (It is on a lake and is a much more ‘rustic’ home than their permanent house.) Some things don’t make financial sense, but we all do them anyway, whether it be buying a coffee at Starbucks vs making it at home or having a second home…it’s just a matter of do you have the $ to do so (or at least that’s how I see it).

  11. Revanche @ A Gai Shan Life Says:

    We now have friends who own a summer lakehouse and it seems to work for them. It sounds like fun but only if it’s secondhand. It’s definitely not for me since they live such a different lifestyle to ours (much larger incomes in a LCOLA, close to family, etc). I do wish a little bit that we could have afforded to keep our old place to rent out but that would have been a lot of work and risk, more than I was willing to take on.

  12. First Gen American Says:

    The only scenario that I think makes sense is if you’re looking to settle somewhere in retirement that is in a place other than where you work and you’re nearing retirement age. I can see wanting your ducks in as you near retirement if you know where you want to end up. We were also considering to buy a second home in a beach area where MIL lived so she could live there and downsize without having the responsibility of home ownership as upkeep was getting too hard for her…but she ended up coming to us and renting here instead. That second idea went down the toilet when we bought our big fixer upper. Couldn’t afford to do both of those things. In the end, one bigger house with an in-law suite made more sense.

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