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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!
What a wonderful story! How yet another family managed to follow a plan that has eluded many of us.
Steve, thanks for the thought-provoking article. It’s very timely for me and my wife, as we have been considering moving closer to our two children, or buying a second home nearer to them. Our main goal is to spend more time with our grandchildren – they are now heavily involved in sports and school activities. We did a lot of research and looked at a dozen or more homes. In the end we decided we are not quite ready to make such a big move. We will continue to evaluate the situation and will likely use hotels or AirBnBs or stay with one of our children on weekends.
I have been thinking longer term about when we may need help for LTC situations. Thankfully we are in good health, and I hope we won’t need help for many years. But I worry a bit that being 1.5 to 2.5 hours away would put a burden on our children and their spouses. My wife and I have lots of experience taking care of elderly parents and know the challenges. I’d like to be as prepared as possible. I think we have time and it’s something we can discuss and think about.
We had a second home at the beach for a decade before moving there permanently. It was an easy 80 minute drive, fairly easy to take care of, and easily rentable. We could easily run down for a day or overnight to take care of issues, or just for a night away. If you are going to consider a 2nd home, this article provides lots of good food for thought.
Rick
Very much appreciate your willingness and ability to see beyond my negativity.
The second home conversation is one we have had for years and still haven’t either done it or ruled it out. Sometimes the conversation is about a condo in West Maui—we have timeshare there, go almost every year, and love it. Sometimes it’s about living near our daughter when we get older (no grandkids in the mix yet). Something on a golf course in Arizona for spring training baseball and mild winters. You get the idea.
My husband played golf in Maui once with a very wealthy guy who told him, “Don’t buy a vacation home. Just rent what you want for a few weeks/months. It will save you money and hassle in the long run.” We keep coming back to that very sound advice in our discussions. With Vrbo, Redweek for timeshare rentals, etc., you can get a nice place to stay almost anywhere. You can go a different place every year if you want to, and if a health crisis or family emergency arises or money is tight, you don’t have to go that year at all. But once you’ve bought that second/vacation home, well, you’re committed to it.
We probably won’t do it for the above reasons. But we still talk about it!
Nice overview of the buy vs. rent dilemma. The discussion here has ranged from never-buy to it’s great-for-family. Maybe it all comes down to what’s best for you, your family, your finances and your temperament.
Steve, great article. For almost 9 years, we had a weekend cabin on some beautiful acreage with a flowing creek, about an hour and a half drive away. We loved it and had some wonderful times there.
But eventually what wore us down was something you mentioned: trying to do repairs and upkeep from afar. I’m not very handy, so a lot of things needed expert assistance, and our place was 30 minutes from the closest town of any size. Trying to find the right people in a town we didn’t know and coordinating repair visits was time consuming and often frustrating. And our cabin, while picturesque and charming, always had something falling apart.
In the end, it was a little like the old joke: What are the two happiest days in a boat owner’s life? The day he buys it and the day he sells it.
My wife and I retired early. At that time, the kids were figuring where the jobs were and whether they could buy a home. Grandkids were close but a few years off. At that time, we thought “quick visits” were best and hotels were perfect in combination with maybe spending a night at their residences.
I am a former financial person and the “traditional” traits are ingrained. I did numerous cost analysis on second homes to arrive at a hard NO while my wife easily surmised the same from observing others. However, we do have second properties, but they are former residences that were turned to rentals, paid off and now float a substantial part of our retirement activities. I managed these in the early years, but relegated all to property management as I approached retirement and late career challenges.
My conclusion was that we could easily resist the second home (residence) cost and “save” for hotel in combination with short stays in our kids homes for most visits; but, also would “save” enough to pay or subsidize family get togethers in the future. We are now in that mode! It is sometimes like herding cats, but they do get creative when the offer is made for a week at a resort etc.. . We’ve done Hawaii, Mexico and cruise venues with a ton of memories, completely relaxing for all (once the ladies zero on timeframe coordination) and dad/grandpa and grandma could not finance a better option, I think, to enjoy our time with next generations.
The income from the rentals will float most any long term care preference selected by the surviving spouse. We have done some homework here with some alternatives reviewed for their potential selection. These are documented in our Trust papers, but we are leaving the final selection to a later date.
We were never going to be the “babysitting” grandparents due to our penchant for travel. Our kids understand this and love that we get out and “do-it”. We are finding that not being bound by a second residence also frees us to consider renting properties in all kinds of locations for a more “local” experience as we transition from “go-go” to “slow-go” in our retirement lives!
I believe that even if we had not lucked-out with “collecting” good rental properties for a buffer over many years, we would still opt for the no second residence; albeit, the family vacation venues would have a different threshold or maybe splitting cost with our kids…
It can be challenging. We have a service that checks our house each week. When things go wrong they have a list of preferred services, but the reality is over the years we have established relationships with plumbing, landscaper, irrigation and HVAC, even pest control companies. On occasion FaceTiming has helped sort things out.
Isn’t it fascinating how some folks have a great experience with a second home and some don’t. It’s a lot like owning small income property, either a boon or a nightmare. My brother, who lives in Florida, wanted me to go in with him on a vacation home in the Napa Valley, California’s supposed answer to the French countryside and wineries. It is about 3000 miles away for him and 75 for me. Who do you think would have the responsibilities of maintenance?
That’s funny!
My parents bought a small cabin (~800 sq. ft.) in the mountains of western NC in 1987. Dad retired about 2 years later and they were able to use the cabin for about 11 years until he passed from cancer. It is also a “seasonal” cabin. Some of the young grandkids would take turns visiting for a few weeks at a time when they were up there. Some of the best times in my life with my dad were spent at the cabin, especially the ones when it was just the two of us. My wife and I bought it from mom in 2004 and I admit, it was an emotional purchase. I told my wife we had to make this work and she loved the place as well, so we made it work. We were also fortunate mom gave us a pretty good deal on the cabin. None of my other siblings wanted the cabin. We manage to spend about three weeks a year at the cabin right now, but hopefully when I retire in a couple of years, we can spend more time there. The taxes, insurance, utilities and R&M have probably averaged about $3,000 a year since we bought it, so it’s not a big burden right now. It probably was not a “rational” purchase, but the memories are priceless.
Another uplifting experience. Seems hard to know which second homes work out and which don’t—perhaps the kind of family, finances and tax implications, distance and maybe some repair savvy. How much of what’s supposed to be rational is emotionally or values driven anyway. You must have known you had the right kind of family to make it work, so on that basis your decision seems pretty rational to me.
Great article with valid points folks may want to overlook when considering a second home. Years ago my wife & I bought a small lake cabin. It’s 500 miles from our primary home but in an area we were familiar with. The key for us was it actually was affordable for our budget and it’s seasonal cabin. So between October and April it’s locked up and not heated. Many great memories (and increasing value & property taxes) but it will be inherited (someday) by our son; having just one child makes a lot of things easier.
Glad that someone chimed in with the other, more heartening, side of the story. Like with R Quinn’s experience, with the right attitude and right family, it can be immensely rewarding.
We already “have” a second get away home, our sons. Every visit involves labor, servicing the A/C, attic fan, faucet washers, the list is endless. Retreating to a hotel where the pillows are fluffy, the towels are new, has become a real treat. No “vacation” home is worth the trouble for a getaway as one must be prepared with a trunk full of tools, and be willing to haul food if eating out breaks the budget. Madison avenue does a great job of promoting the second home idea.
Never ever did that and never will. I don’t know how to do any of that in any case.
Wow! I wasn’t sure many people would agree with my grouchiness and a little surprised so many of you have been so honest about the trials of your experience.
Thanks Steve!
Items I would add to your list of matters to consider when thinking about buying a second home near a child –
Our kids are scattered hundreds of miles apart around the country and we have been able and happy to fund multi bedroom hotel suites for all when events like a graduation, wedding or funeral occurs and for us typically at least two out of three kids and their families are traveling to the event location by plane.
Regarding #2 good point. We have tried to deal with that by outlining in detail in our trust exactly how it will work if one or more of our children don’t want the house and we have set money aside to maintain the house so they can afford to keep it.
I am not surprised you have thought about and planned for the use of your vacation home after your death. My comment came from my experience with vacation homes as the result of tax work I did for clients both pre and post their death (as a CPA before I retired). A few additional thoughts –
Advance funding of the vacation home operational expenses with cash held by the trust certainly helps mitigate potential conflicts but I have seen disagreements between the kids that choose to use the property and those who do not even when the parents had planned as well as you have.
Some people with vacation homes arrange their affairs so the property passes upon the second to die so that the basis of the property gets stepped up to FMV at that death and that choice becomes relevant for taxes. A qualified appraisal at death may be needed for tax purposes if the property is later sold or rented to third party non family members.
Some people with vacation homes arrange their affairs so the property is gifted to a irrevocable trust during life. Doing so eliminates the efforts needed to transfer after death but may also results in no step up in basis after death which is not what most people want to occur.
If an estate tax return (federal 706) is required (or desired) or a state estate tax return is required and you have retained any incidence of ownership at death then a DOD appraisal will likely need to be obtained and if the property is in a state other than your own state then there may be needed a probate or other filing with the state where the property is located.
Does the trust the property end s up in have a single trustee or are all the kids co-trustees? Is the one or all of your kids on board and willing to accept the work and responsibly of being your trustee was often a question that was not addressed in my experience. Is the personal representative of your estate and the trustee the same person(s) and if not do you think they will work well together?
Having the property titled properly will likely control how it may pass before the provisions of your will. Some wills have a pour over provision to your trust but that may mean that the asset would have to be probated if you have not changed the title to a revocable living trust since you bought the house in 1987.
Also, on my original point # 3 regarding time shares I have had clients that chose to pay to get out of time share agreements and I also had clients where the personal representative had to formally disclaim ownership in the probate court to keep the un-sellable timeshare ownership and ongoing maintenance fee obligation from passing to their beneficiaries. I am glad that is not an issue for you.
Best, Bill
Thank you for adding a fitting last touch for what should have been in the article!
I recently moved to an apartment ahead of a move to a CCRC. No longer being responsible for my 33 year old house is a tremendous relief. I can’t imagine choosing to maintain two.
A discussion with the kids is probably indicated in any case, assuming you have any. If you are planning to “age in place” how will they help you or your surviving spouse when (not if) necessary if they are not living near by. WILL they help out?
Glad you brought up the apartment solution. It’s a good compromise between staying put and blithely taking a big plunge.
Another very relevant point. If one of (let’s say) your parents becomes ill and requires home care, who will be there for the primary caregiver? There are many books written about the trauma of the patient’s disability but a very few on the chronic stress of the caregiver, who may well need the help of a concerned nearby family member.
I am very concerned about the surviving spouse, who in the majority of cases will be a woman. Was she really on board with aging in place, given she was likely to be the caregiver? Now she is on her own, who will be her caregiver? As a childless single I already faced this question, and it is why I am moving to a CCRC. I have noticed a lot of couples planning the same move, but also read posts from those wanting to age in place and wonder whether they really have plans in place for the inevitable difficulties. It is one thing to say that you will pay for in-home care, and another to find reliable and affordable care at short notice when needed.
Buying a home for many is a $500k tax free capital gain
Hi Kenneth
i think you’re referring to a primary residence. A second home is generally defined as a property you live in for part of the year and isn’t primarily a rental property. For example, if you have a condo at the beach you live in for two months every summer and also rent it out for a month during the summer season, it is likely to be considered a second home. As such, it would not meet the IRS definition of a second home.
My error! Last line should read: ….”would not meet the IRS definition of a primary residence.”
Not unless there IS that large a capital gain. And it’s $250,000 for singles. Besides, we’re talking second house here.
Yes. And many second homes are bought late in life. How much capital gain can you realistically expect?
Over the last few years, several friends have announced their intention to move closer to their grown children. They always look stunned when I ask how their kids feel about it.
Old enough to remember Lucy, I also remember the popular stereotype of every guy’s nightmare…the mother in-law.
Ha ha. The lucky ones who have a felicitous relationship with their extended family can bypass that kind of problem, but what about the rest of us?
All you say is true. I have lived all that with two exceptions. We live within an hour of our children and grandchildren and our vacation house is 300 miles away. Also, we bought the house at an even more inopportune time than retirement – a year before our four children started college.
We paid $159,000 in 1987 – mortgaged at at 9-3/4%. I just received the tax bill. The house is assessed at $675,000, but market price is close to $1,000,000. Sounds pretty good until, as you say, all the costs over 36 years are considered.
Plus I didn’t mention we expanded the original house by 40% and in the last three years we remodeled the kitchen, and two bathrooms, replaced all the windows and yesterday I sent a check to pay for the new deck.
In short, it’s not a good investment. I have no idea what we have spent over the last 36 years, but a good investment was never the objective.
I agree, dreams should be sensible, but don’t let being sensible kill all your dreams either. If I had been sensible even logical in 1987, we would have missed many years of incredible memories with family.
Even though some the grandkids are teenagers they still look forward to going to Cape Cod. One fifteen year old has a dream of playing baseball for the Chatham As in the Cape Cod baseball league when he is in college. He already asked if he can stay in the house.
If this old man gets to see that my ROI will be incalculable.
A great point and one I wish I had made in the article. Like Jonathan just wrote about, money is only money and does not necessarily bring happiness—and in your case the gratification that comes from family enrichment.
No worries Steve, to me at least the point was implied even if not stated outright. I didn’t take your article as an admonishment against spending money that makes you happy, but a gentle reminder that you need to make sure you know what you’re committing to before pulling the trigger–or more simply, “look before you leap.” While playing the real estate lottery has undeniably worked out swimmingly well for some, it’s an area that is fraught with potential land mines and booby traps, as your well-thought article points out. I used to make a similar analogy with boats–I estimated I got 90 per cent of the enjoyment from my old boat purchase that I would have gotten from buying a new one, at a fraction of the cost. Win-win, right? Thanks for the thoughtful analysis.
And thanks for your balanced discussion of the why and wherefore of making a large purchase. As I wrote to Thomas (above), hard to know whether your idea will work out as well as yours did. I think you suspected beforehand that going in the used direction made more sense. I have heard that old boats enjoy a status not conferred on high-mileage cars anyway, so maybe it was a win-win-win.
Just wanted to tell you how much I appreciate that you diligently reply to comments on your articles. It adds to the value of HD and I think it’s an obligation for every writer to respond as much as possible. 👍
Thank you. I feel along with the joy of contributing comes the responsibility of replying. I now remember you told of your heartwarming experience with your family at Cape Cod. Incidentally, when we vacationed at Cape Cod too many years ago, watching the baseball team was one of the highlights.