A Second Vacation Home a Good Thing?

[kumquat]

Run it by a good X-border accountant or tax lawyer.

 

[Kroeran]

One thing that can't be repeated often enough is renting before you buy in the neighbourhood you are interested in.

Small things can make a big difference to your lifestyle.

Proximity to the noisy couple on a certain corner of the block.

How far are your bedroom windows from the pool filter noise...one end of a block is very different from the other end of a block.

What direction does your balcony face relative the sun...if you are mainly down there January-March, when it is coolish half the time, you want to sit in the direct sun, not on a north facing balcony in the shade.

Of course no-one does it, and we were no different. We lucked out on proximity to pool and distance from noisier neighbours, but our balcony faces the wrong way. If I was doing it over, I would be on the other side of the block with a south facing balcony.

In Florida, there is no requirement to use a lawyer, and the builder may incent you to use their title company, or whatever they call them there. I called a few lawyers but I could not figure out what value added I was getting from paying $600 to a lawyer to buy a new construction condo. One fellow assumed I would be setting up a corporation to hold the condo, which I felt was overkill and uninformed, given my circumstances.

So I did it without the lawyer. One issue to pay close attention to is who is responsible for the first property tax bill when it arrives in the fall, and to ensure you are not stuck paying for the full tax year when perhaps you only took possession mid-year.

You also want to pay close attention to evacuation and FEMA special flood risk zones, which can impact your insurance costs and how often you would be forced to evacuate in the event of a tropical storm or worse. We had a scare when our area risk profile was downgraded by FEMA a few months after we bought - it was later reversed based on the fact that the elevation had been raised 8 feet by the developer.

Another mistake is to pay the developer asking price. I thought I had done well as they were selling these things for half the 2006 asking prices, however some neighbours who are more experienced worked the developer over really hard and got all sorts of extras thrown in and a reduced price.

 

[Danmar]

Sounds good I hope you enjoy it.

 

[Kroeran]

One of the unforeseen benefits of getting the Florida condo pre-retirement is that it takes the sting out of longing for Florida...and may make it easier to stay in the system a bit longer, get those pension credits up.

As well, most of the neighbours who are second homers are retired or older, so the reality of retirement and what is up ahead for us is becoming much more reality based. You learn A LOT about being 60 or 70, when you are 50, having dinner and partying with persons in that age range.

Lending the condo to family has had more impact than I expected. We may be saving a marriage and saving a few from going bonkers. Being a 2 day drive makes Florida accessible for family busy putting kids through school or whatever who can't afford flying vacations.

I am trying to figure out why someone would bi-locate Alberta/Ontario. None of my business of course. Toronto HQ job, condo in the mountains or family ranch still in the family? Part of the Calgary cabal running things in Ottawa?

 

[Danmar]

We wanted an active alternative. Considered Florida or Arizona but there were significant tax advantages to Alberta. Love skiing and mountain biking- and this place is amazing for that. Also wanted something entirely different and frankly was a little apprehensive of the number of old people in Florida. We don't look old and don't act old and don't want to start anytime soon. This town (Canmore) is very young and athletic oriented. Estate taxes as previously discussed was a faily minor consideration.

 

[Kroeran]

Interesting choice. Mountains, low taxes, chinooks. I love mountains and did love skiing, but my wife does not lean that way. 50 years of battling Ottawa winters has us fed up with snow of any description.

Canmore Station pops up on a search of the town. Looks like an interesting development.

 

[kcowan]

They did: Estate tax in the United States - Wikipedia, the free encyclopedia
The issue is quite complex and any interested Canucks can find some information here. As I read it, a Canadian with a $4Million NW and a $500K house in the US would pay 45% of $500K, unless (s)he is clever enough to die in 2010.Since my NW is above the 2011 limit by quite a bit, I won't own any US assets after 2010, much as I would like to.

In 2011, the rate reverts to 55%, unless the government decides to extend the tax break. There are ways around this with Canadian Corporations and trusts though.

 

[Danmar]

Interesting choice. Mountains, low taxes, chinooks. I love mountains and did love skiing, but my wife does not lean that way. 50 years of battling Ottawa winters has us fed up with snow of any description.

Canmore Station pops up on a search of the town. Looks like an interesting development.

Know how you feel about the snow. We are in Arizona now-beautiful. But in the long run climate wasn't enough for us. Sitting around for extended periods just for the weather seems lame. Always time to do that when we are "old". Several great developments in Canmore but most very expensive. Quality single detached homes start at around $1.5 million. Ouch.

 

[earlybird56]

I`m considering having a vacation house that could ultimately lead to my retirement somewhere near a beach in a Caribbean island. I traveled to a little beach town called Sosua in the island of Dominican Republic and found out that most villa owners put the houses in the rental pool while they don`t use it , managed and cared by a rental agency. Maintenance was half of what the rent makes each month, so I guess there`s earnings made if proper research is done, instead of losing money.
I`m still researching but I`ve found nice spots while vacationing the DR. My house in Florida lost its value, I`m planning to retire someplace where my dollars are stronger. In the DR the exchange rate is 36.25 pesos per each dollar, which is more than enough. I`d like to know if there`s a Realtor in the States that could do the kind of work needed to get a home purchased in the Caribbean.

 

[Flyhigh45]

I would love to have a vacation home. Like another poster mentioned, it would be best to try out the vacation area by renting first. That way you can make sure that you would really enjoy the area before you buy. If I had the money, I would buy a second home now while the prices are down. But I have a kid in college so no go for me.

 

[tryan]

Maintenance was half of what the rent makes each month, so I guess there`s earnings made if proper research is done, instead of losing money.

I would caution you that if HALF of rents are going to a rental agency for fees and maintenance, you'll be losing plenty of money. The remaining rents will not cover: insurance, taxes, vacancy, water/sewage, major repairs, and (god forbid) a mortgage.

FWIW, I own, manage and rent out a lake front vacation rental. Grossed 33k in rents and paid 37k to operate the place last year. The 4k negative cashflow works for us given that we have access to the place ~7 months/year (all the rents are made July, August, Dec, Jan, Feb). I would love to say the upkeep will be less this year (stained it last year) ... but I already spent 2k maintaining the geothermal heat pump (so it doesn't look good).

 

[SEC Lawyer]

I didn't say that all second homes are money pits. I said that second homes that sit idle are money pits. And of course, some people are happy to own a money pit. But you can't own a money pit and be LBYM at the same time.

This is simply not true. I own a second home, it sits idle most of the time (was used less than 50 nights last year), and I still spent only about 10% of my gross income. Even with a third home I would live beneath my means, and I currently have in storage all the furnishings for a third home, which probably will be acquired later this year.

I could retire tomorrow morning if I wanted to.

 

[Meadbh]

This is simply not true. I own a second home, it sits idle most of the time (was used less than 50 nights last year), and I still spent only about 10% of my gross income. Even with a third home I would live beneath my means, and I currently have in storage all the furnishings for a third home, which probably will be acquired later this year.

I could retire tomorrow morning if I wanted to.

Good for you. Obviously as an SEC lawyer your income is indeed gross!

 

[SEC Lawyer]

Won't be apologizing for my success in life. My point was that it's absurd to claim that the expense of ANY item precludes "living below one's means" without consideration of what those means might be. There is a middle-class orientation on this board, clearly. But the reality is that high earners who spend little relative to their means are every bit as thrifty as middle-class folks in their RVs. I know people -- and I'm not one of them -- who spend millions a year on themselves and yet continue to accumulate riches because they earn ten times what they spend.

 

[Meadbh]

Won't be apologizing for my success in life. My point was that it's absurd to claim that the expense of ANY item precludes "living below one's means" without consideration of what those means might be. There is a middle-class orientation on this board, clearly. But the reality is that high earners who spend little relative to their means are every bit as thrifty as middle-class folks in their RVs. I know people -- and I'm not one of them -- who spend millions a year on themselves and yet continue to accumulate riches because they earn ten times what they spend.

Sure there's a middle class orientation......you've heard of the normal distribution?

Normal distribution - Wikipedia, the free encyclopedia

The people who are obviously up there over the 95% percentile for income include Danmar, Katsmeow, Global1 and yourself. I salute you all! But I admit to having a greater admiration for people on the 5th percentile of income who manage to FIRE through ingenuity and LBYM.

 

[Martha]

Won't be apologizing for my success in life. My point was that it's absurd to claim that the expense of ANY item precludes "living below one's means" without consideration of what those means might be. There is a middle-class orientation on this board, clearly. But the reality is that high earners who spend little relative to their means are every bit as thrifty as middle-class folks in their RVs. I know people -- and I'm not one of them -- who spend millions a year on themselves and yet continue to accumulate riches because they earn ten times what they spend.

I suppose technically that would be thrifty. But it isn't impressive. My personal feeling is if someone can spend millions a year on themselves and still accumulate riches they have a moral duty to be philanthropic.

 

[CuppaJoe]

I suppose technically that would be thrifty. But it isn't impressive. My personal feeling is if someone can spend millions a year on themselves and still accumulate riches they have a moral duty to be philanthropic.

You are so right, Martha. I was thinking along the now PC idea of a duty to be green.

 

[ziggy29]

This is simply not true. I own a second home, it sits idle most of the time (was used less than 50 nights last year), and I still spent only about 10% of my gross income. Even with a third home I would live beneath my means, and I currently have in storage all the furnishings for a third home, which probably will be acquired later this year.

Frankly, if this were the case for me -- especially if I didn't rent it out for income when I wasn't using it -- it seems like it would be much more cost-effective to use vacation rentals. Plus you'd have the advantage of being able to vacation anywhere you wanted instead of being tied to a single location.

 

[donheff]

Frankly, if this were the case for me -- especially if I didn't rent it out for income when I wasn't using it -- it seems like it would be much more cost-effective to use vacation rentals. Plus you'd have the advantage of being able to vacation anywhere you wanted instead of being tied to a single location.

I think this way sometimes but for now I am sticking with my second home. It is less than 90 minutes away (I can go down for the day or for weekends and guests don't find coming a hassle) and it feels like being in a resort (comfort, beautiful views). We built it 17 years ago and expect that we may sell it in about 10 unless the kids/grandkids make heavy use of it.

 

[MichaelB]

SEC Lawyer, you are entitled to and owe no apologies for your second and third homes.
And yes, this board leans toward less expensive lifestyles. Nonetheless, a second home that sits idle much of the year is a luxury.

My point was that it's absurd to claim that the expense of ANY item precludes "living below one's means" without consideration of what those means might be. There is a middle-class orientation on this board, clearly

But the reality is that high earners who spend little relative to their means are every bit as thrifty as middle-class folks in their RVs. I know people -- and I'm not one of them -- who spend millions a year on themselves and yet continue to accumulate riches because they earn ten times what they spend.

Sorry, but not so. This would mean that Bill Gates’ 66000 SQ house is “thrifty” because he has billions and lives beneath his means. It is instead a public display of opulence and conspicuous consumption.

Like you, he too is entitled to the house(s) of his choice and need make no excuses. But don’t call it thrift – especially when bragging.

 

[Alan]

Frankly, if this were the case for me -- especially if I didn't rent it out for income when I wasn't using it -- it seems like it would be much more cost-effective to use vacation rentals. Plus you'd have the advantage of being able to vacation anywhere you wanted instead of being tied to a single location.

I think this way sometimes but for now I am sticking with my second home. It is less than 90 minutes away (I can go down for the day or for weekends and guests don't find coming a hassle) and it feels like being in a resort (comfort, beautiful views). We built it 17 years ago and expect that we may sell it in about 10 unless the kids/grandkids make heavy use of it.

I can absolutely see and appreciate both approaches. We are in the demographic that use vacation rentals as we happen to like to travel, and much prefer to live in a house rather than a hotel. We very much appreciate those folks who either rent out vacation homes full time or in the off-season when they are not using them. We have rented vacation homes direct from the owners many times now and have never had a bad experience.

... and if you can afford to have a 2nd vacation home without ever renting it out, then I see no problem in that either. DW has an aunt and uncle that bought a vacation house in Devon and used to travel down and stay quite regularly from where they lived and worked in Cheshire. They got to know the area and neighbors very well and moved there permanently when they ER'ed.

 

[ziggy29]

SEC Lawyer, you are entitled to and owe no apologies for your second and third homes.
And yes, this board leans toward less expensive lifestyles. Nonetheless, a second home that sits idle much of the year is a luxury.

True.

I'd add that think it's silly for people to criticize someone's spending when they can very easily afford it *and* it enhances their quality of life. We're not all wired to value the same things or to all find the same things "wasteful" and "frivolous."

To one person, eating out a few times a week may not add much enjoyment to life and to them, it therefore seems wasteful and spendthrift even if they could afford it. For some people it adds a lot to enjoyment of life. Beyond a certain level of thrift, refusing to spend on things you enjoy even though you can very easily afford it goes beyond frugal and begins to approach miserly.

One can live well below their means and still have discretionary spending that others would consider "wasteful." Still, I tend to follow the Dave Ramsey philosophy on this one -- there's nothing wrong with spending in and of itself; there's something wrong with spending you can't afford. And if someone can very easily afford a second home (even if vacant 85% of the time) and it improves their quality of life, more power to them. But yeah, it's not something I would call "thrifty" or "frugal."

Living below your means shouldn't have to mean "living as far as possible below your means," not unless that's what someone happens to value.

 

[Bestwifeever]

Every time I see this thread title--"A Second Vacation Home a Good Thing?"--I think why in the world would someone need a second vacation home--isn't one vacation home enough ? Now I realize SEC Lawyer does need two vacation homes. Have at it, I say. I have a friend who has four vacation homes, so go for five!

 

[REWahoo]

Now I realize SEC Lawyer does need two vacation homes. Have at it, I say. I have a friend who has four vacation homes, so go for five!

I agree. The real estate market needs the boost and hiring the services to maintain all those places will provide employment for many middle class types.

 

[Danmar]

OK I don't think the SEC guy said any of this was thrifty or frugal-just that it was within his means. Let's give him that. Living at or below your means is absolutely required. But there does appear to be a tendency on this board to brag about how little money can be spent. I don't see the point of that unless it is required. Somebody said spending a lot is only "wrong" if you can't afford it. Aside from appearances in the case of conspicuous consumption I guess. I would go on to say that spending small amounts is only "right" if it is necessary in the short term or part of a longer term strategy to save funds for future spending. This may be controversial and I can think of several exceptions already.