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“ARNIE, YOU JUST HAVE to watch this video,” offers the wife. “Jessie is so adorable.”
“Honey, I’ve been thinking,” hubby responds. “I know mortgage rates are high right now, but we really should get a place near the kids.”
If you can remember I Love Lucy, you’re old enough to have had this sort of conversation. The mortgage is paid off, the Roth has done well and you’ve got the cash for a down payment. The two state pensions will cover the mortgage on the second home. Dividends, the two Social Security checks and the health insurance benefit from your old employer should ensure a comfortable retirement.
Why not a place close to the kids and your granddaughter? Kind of a getaway for the two of you. Even get in a little dig at those insufferable Danielsons at the club. And what luck. Real estate prices are down because of the higher interest rates. Home prices will bounce back once we get through this uncertain economy. What’s not to like?
Judging by the experience of some forlorn friends, a lot—in fact, a whole lot—could go wrong. Hate to spoil a heartfelt fantasy, but I might be able to save you money and travail.
Let’s start where it really stings. The kids have their own life now. Are you sure they want you so close by? You’ll need to feel it out because they won’t say so straight up. But look at it from their perspective. Are grandma and grandpa going to be a blessing or a burden? True, they’d be built-in babysitters on Saturday nights. But the old man has all those prescriptions he keeps needing to fill. She doesn’t always remember her insulin shots.
Next, let’s go to the expenses involved, because you’re probably minimizing them. There are all the closing costs when buying a house. Soon comes the budget dagger many people conveniently overlook, that $40,000 kitchen remodel to make the house more homey. And don’t ignore travel costs to and from the new place.
But it’s the staggering expense of maintaining a second home that should demand your rapt attention. Remember, you won’t have any rental income to offset the mortgage payment, insurance, taxes, utilities and the host of incidental expenses bound up with homeownership. The property tax alone could be prohibitive. In high-tax states like New York and California, the bill comes to about 1% of assessed value.
If you decide to rent the house out for part of the time, you risk not having its use when you suddenly decide you really want it. Your second home would then become a glorified time-share arrangement. On top of that, IRS restricts what rental expenses can be deducted.
I can already hear the protestations: “Appreciation will bail us out.” Maybe in the long run, but not necessarily. You’ve got to overcome all those prodigious monthly outlays, any remodeling, presale enhancements, staging and the standard selling commission.
Though they don’t fall as sharply as stocks sometimes do, home prices can drop in the short run. In fact, if family conflict or an emergency forces a quick sale, you could take a loss. Think about the folks you know who giddily purchased a house around the 2022 market peak and are now seeing red.
Coordinating the unavoidable repairs and maintenance long distance, like the dishwasher that died at the end of your last visit, will involve time and frustration. Will the kids you didn’t want to burden have to run out and meet the technician?
Resign yourself to a property manager and you’ve added another layer of expense. At this point, you might be thinking of the condo solution, but in many metropolitan areas the monthly homeowner’s fee can approach $1,000.
I know this harangue has been a bummer for some, but in real life even the most well-intentioned dreams should be sensible. After all, you don’t want to make a life-changing decision to buy a second home without being aware of the financial and logistical fallout.
But before you pass me off as an old Scrooge, I do have a plan B. Book a suite in the luxury hotel near the kids’ home and stay for a few days or even weeks. You’ll be pampered by maid service and a concierge, maybe with a breakfast credit thrown in. Your experience will be hassle-free and you’ll save beaucoup bucks. More important, you’ll save time and energy, which you can then use to enrich your senior years and the life of the family you love.
Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.
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Nice article- thank you! My wife and I did move from the Midwest to the Hudson Valley NY to be closer to our two sons who live in Manhattan. Three points – 1. They both now own coops so we believe (and they’ve said) are committed to stay. 2. We didn’t buy a second home, we sold and moved. 3. We wanted to move/downsize regardless. We considered more moderate climates but decided living near our children is our top consideration (they genuinely seemed like they liked the idea).
Now I must say I wish property taxes were 1% of value. Try in excess of 2%. Oofdah!
My husband and I have a second home in the Adirondacks in upstate NY; we live in WI. We’ve had it for about 25 years, and when our kids were small, we spent much of the summer at my parents’ house which was next door. (My mother left that house to my brother and he promptly sold it!! I don’t think she asked whether he wanted it. ) Anyway, the house works well for us. It is totally paid for and all of the kids come every summer — my son just asked which week was likely to be the week for the family vacation this year. The house is on a lake so lots of water sports and everyone likes hiking. During the pandemic, my husband and I slept in our car in a truck stop so we could drive to the house. We rented a nearby house for the kids, and we rigged pop-up awnings on the deck so they could have lunch and dinner at the house. They used the boat and the front lawn for various sports, and did a lot of hiking. The house made it possible for us to get together safely. Well worth any cost!!
The second house works well for us, even though we live far away. My husband and I spend June through mid-October there, and we have developed strong friendships with people in the area. The could be used in the winter, but we haven’t done that in years. We do keep our driveway plowed and the heat on low. We do, however, drain the pipes when we leave in the fall.
Richard Quinn has mentioned the attachment his family has for his vacation house. My kids seem to have similar feelings. But I would argue that such attachment is related to the fact that they have been “going to the Lake” since they were young. Many of their childhood friends have since inherited the second homes of their parents, and they now use the houses for their families. This generational transfer seems to be going pretty smoothly, although in some cases, one sibling has bought out the interest of the others.
None of our family members lives close to the vacation house, so I’m not sure how it will be handled when my husband and I can no longer drive the 1000 mile distance. For the present, we are ignoring the issue– an approach that probably shocks most Humble Dollar readers. But neither my husband nor I wants to “control from the grave.” Worst case scenario, it’s a nice house in a great lakefront location that can easily be sold — though I suspect it won’t be!