Should You Rent or Buy a Second Home As You Transition to Retirement?

There are two times of year when the buy vs. rent a second home question comes up.  The first is during the winter when many of our Relaxing Retirement members are down South or out West in warm temperatures while the rest of us are battling another New England winter.

And, the second is in the middle of the summer when members rent homes for stretches at a time on the Cape or in New Hampshire or Maine.

I know this dilemma all too well.  We rented in Chatham for fifteen summers before purchasing our first home down there in 2011.

When you’re in the middle of all the fun, it’s very hard not to allow your mind to wander.   You pass homes with “For Sale” signs and begin to wonder “what if?”

You scour the internet for all homes in the area you are renting in, look at some pictures, watch some videos, and visit some open houses!

Sound familiar?

I have had this conversation dozens of times over the years and I’ve seen different conclusions reached many times.

I’m in the middle of helping a Relaxing Retirement member evaluate whether to continue renting a home down on the Cape vs. buying their own home so I thought it would be a good time to revisit this topic and provide you with the same checklist I shared with them to help them evaluate and arrive at a rational conclusion based on their individual desires.

This is one of those big decisions that is extremely hard to de-emotionalize yourself from, so it’s very important to take a rational step back to look at the big picture first.

The big question always centers around buying vs. renting.  And, because there are so many factors involved, there is no correct “rule of thumb” answer.

My first recommendation is to spend some significant time with these questions to begin:

Questions To Ask Yourself Before You Buy a Second Home

  1. The first big question you want to ask yourself is how many days in a year can you really see yourself being at the second home? If the answer is two weeks, you know which option you should choose.  Rent!
  2. Do you have family members or friends who would take advantage of it and utilize it when you were not there? (Another justification for owning)
  3. How long can you see yourself owning it? How many more years can you see yourself traveling to this location on a regular basis?  5 years…10 years…20 years?
  4. Who will maintain the property while you’re not there? Is it part of a condominium complex where a service is available for the fee you pay?
  5. Lastly, are you going to rent it out while you’re not there? If so, do you want to be a long-distance landlord?  The big downside of this is that the time of the year you want to be there, i.e. winter months, is exactly when someone would want to rent it from you.  There’s not much of a market for renters in Florida or Arizona in July!

Ditto for renters on the Cape in January and February!

Many times, if you take a step back and rationally answer these simple questions, you can determine the best option for yourself.

Advantages of Buying and Owning a Second Home in Retirement

Let’s begin by weighing the advantages and disadvantage of purchasing and owning a vacation home:

  • You expect to be in the second home for an absolute minimum of four months per year, and you want it to be your home
  • You can develop real friendships with neighbors and residents so it feels like home to you. **This is an often overlooked and very important benefit which is hard to know unless you’ve owned a second home.  Many members share with us that they have a completely new and different circle of friends at their second home.  I concur.
  • Freedom and Control: You can come and go as you please with no limitations, and leave belongings behind such as clothing and a car
  • Family and friends can use it for their vacations while you’re not there, or you can host family and friends
  • Locking in the price of a home, especially at depressed prices if available
  • Income Taxes: if you’re going to live there for more than six months, you may establish residency there and potentially reduce your state income taxes, i.e. in Florida, there are no state income taxes.
  • Real estate appreciation: Although I don’t recommend treating it as an investment, owning an appreciating asset is always a plus (of course making the assumption that your property will increase in value over time)
  • Pride of ownership

Disadvantages of Owning a Second Home in Retirement

  • Costs: you’re responsible for any condo fee, real estate taxes, insurance, utilities, maintenance, and upkeep
  • Lack of control over rising real estate taxes: This has become a challenge with second home buyers in Florida for whom this in not their primary residence. Unfortunately, you have no control over your town’s evaluation of your property. They have the power to increase your property taxes.
  • Lack of control over rising condo fees (assuming for a moment that you live in a condo). The association controls this.  You want to speak with other condo association members about their experience with the association.
  • Having to care and maintain the property from a long distance. While this may not sound like much, imagine what it is like for those who own homes in Florida during hurricane season.
  • Being caught in a buyer’s market when you want or need to sell

Take a moment to write down your thoughts on each of these, and the questions above.

Advantages of Renting a Second Home in Retirement

Let’s now weigh the advantages and disadvantage of renting a vacation home.  When we’re done, we’ll pull it all together so you can make an educated decision that you can be comfortable with.

  • No large sum of out-of-pocket cost to purchase
  • No costs other than rent
  • You’re not locked into one destination each year. This is a big one that you have to carefully weigh.  While some love the consistency and friendships developed in one location, others get bored and need variety.
  • You have no other responsibilities other than paying the rent and preventing damage to the property while you’re there
  • As needs, desires, priorities, and life circumstances change, you have the flexibility to change plans without having to sell

Disadvantages of Renting a Second Home in Retirement

  • No control over future rent increases (could get priced out of the location you desire)
  • No equity buildup if prices of real estate increase
  • Must live by the owner’s rules (i.e. no pets, etc.)
  • Unless you drive to the destination, you may have to rent a car which is very expensive

As you can see, there are strong advantages and disadvantages to each.  Much of it comes down to your answers to the initial questions I posed in the beginning.

For instance, if you plan to be in your vacation spot four months per year, you’ve been to this location before and you know you like it, you have family who will also utilize it, and you have friends who live in the same community, ownership is clearly the way to go given the choice.

However, we find that renting works for many of our Relaxing Retirement members, too.

Several of them rent for two weeks to as many as four months and get great benefit and value from doing it.  It suits their unique situation.

The all-important initial step is to de-emotionalize yourself from the situation so that you can calmly and accurately make a decision that is based fact, not emotion and opinion. (i.e. try not to make a decision “if” you want to own property when you’re sitting in the middle of a real estate sales presentation at the newest condominium complex in a town you’ve been to once in your life!)

Your emotions are too high at that point. You want to treat this just like all of your other financial decisions, as part of a carefully thought-out plan, not an isolated decision in a vacuum.

Visualize the next 20 years of your life.  Can you vividly see yourself living a good portion of your life in this location?   That’s the real test.

If you’re seriously thinking about buying, my recommendation is to rent initially for an extended period of time (minimum of four weeks), so that you can get the feeling for what it is like to actually “live” in this location as opposed to “vacation” in this location.

Then you can make a rational decision that you can be happy with for many years to come.

Download the Free Retirement Guide PDF