Outside the Box: Should you buy a vacation home as a place to retire?

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While Frank and Lasly Bradley were still working, they vacationed in the mountains of Montana. They preferred the cool summer temperatures to the 100-degree heat in Sacramento, Calif.

After retiring in 2012, they bought a vacation home in Montana, about four hours’ drive from Glacier National Park, for $143,000 on 1.5 acres. For the last five years they considered selling their four-bedroom, three-bath Sacramento house.

Finally, last October, Lasly, 72, a retired nurse, said, “It’s time to sell the house.”

Even with careful retirement planning, they decided the cost of living in Sacramento was too high. A dozen eggs cost $5 in California’s capital compared with $1.89 for 18 eggs near their Montana home. Electricity and gas hit $700 a month in the Sacramento summer.

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So, in January, they sold their California home. “I don’t have to think about going home and taking care of it,” said Frank, 73, a retired finance manager for the medical center at the University of California, Davis. Now, they have more expendable income and more free time.

Like other retirees and those planning to retire, the Bradleys bought a vacation home with an eye toward retiring to a location they already knew and liked.

In fact, second home sales were up 44% year over year in 2020, according to the National Association of Realtors. About 45% of vacation home buyers are in their 50s and 60s, and buy for personal use, said Shaun Greer, vice president, sales and marketing for Vacasa, a vacation management company.

When planning ahead for retirement, how can purchasing a vacation home help with the transition? You can buy the second home, as the Bradleys did, eventually sell your primary home, and make the vacation home your primary residence in retirement.

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Some people purchase vacation homes “as rentals with future plans to retire there over time,” said Jodie Hardesty, business development and marketing director for Eastern Shore Vacation Rentals, Easton, Md. “It’s a way of securing their spot.”

Before buying a vacation home, it’s wise to think carefully about whether you can really afford it. Consider your income now and what it will be when you retire. Even if you qualify for a mortgage on a second home, there are “hidden costs of homeownership,” said Amanda Pendleton, home trends expert with real estate website Zillow. “It’s not just the mortgage payment, if you are applying for a mortgage.”

If your first home is paid off, your retirement fund is better than adequate, your rainy-day and emergency funds are in place, and any college costs are paid or planned for, buying a vacation home might be right for you. 

If “all your finances are set and you still have some extra money in your pocket,” a second home could be right for you, Pendleton said. However, “you don’t want to stretch or compromise your position in retirement.”

Hidden costs include property taxes, homeowner’s insurance, utilities, and maintenance and repairs on the property. If it’s a common interest community, additional costs can be homeowner’s association fees, condominium fees, and the possibility of assessments. If a reserve fund is not funded at 90% of what the reserve study requires, owners can be hit with an assessment, said attorney Robert Wiegand of Wiegand Attorneys & Counselors LLC, of Denver. “Would you be able to afford it?”

Before buying a second home, here is what experts advise:

Find your best location. Ask yourself, “What am I going to do with my time in retirement?” Zillow’s Pendleton said. “How am I going to spend my days?” For the Bradleys, it is fly fishing, camping, hiking, crafts, golf, a vegetable garden, the mountains, cultivating friends, and enjoying visits from family members. “You have to be a little hardy to be out here,” Frank said. Find “whatever appeals to you and how you can afford it.”

Know your priorities. Even if you’ve found a vacation home you love, consider whether it’s easily accessible for your needs. Do you want your family and friends to be able to visit easily? If you intend to travel by air in the future, how far is the nearest airport? Does the community meet your religious, cultural, intellectual, or fitness needs?

Evaluate the medical care. Consider your current and future health. “You need to know that you have good medical facilities,” said Sylvia Ehrlich, president of Intrepid Relocation International. “A range and strength of medical support.”

Look for a home with longevity. Does the home meet your needs now and will it in the future? Will you be able to climb stairs or is there a first-floor bedroom and bath? Are basics such as grocery and pharmacy close enough to your home? Will you ever need transportation if you can no longer drive? “Even if you can pay, you can’t always get help” to drive you, said attorney Wiegand.

Consider potential rental income. Will you want to use your vacation home as a rental property or only for personal use? Is it permissible to rent? A home with at least two seasons or that is attractive throughout the year can be preferable in either case. Some experts warn not to count on rental income while others point to renting out a second home as a way to offset your expenses until you move there. The cost of using a management company to handle the rental is typically a percentage of the rental income ranging from as low as 20% to 35%, said Vacasa’s Greer. Others say it can be as high as 50% of the rent.

Visit in every season. Make sure you can enjoy or at least tolerate the seasonal variations in temperature, the humidity and the altitude. Maybe rent first to ensure you’ve found your dream location. Speak to people in the area. “Rent for a few months or a year to get a sense of the community and if you feel comfortable there,” Ehrlich said.

Retirement is different from a vacation so anticipate what a locale will be like in the dead of winter or heat of summer. Does the place turn into a ghost town off season?

For the Bradleys, living in a rural area works because they have a lot of interests as well as two standard poodles.

They also make friends easily. “There’s never a bad time of year here,” Frank said. Yet, the closest town, Darby, is 10 miles away. You have to have “the ability to be self-entertained,” he added.

One caveat: “You really need to be in tune with your partner,” Frank said. “You have to like each other.” They’ve been married for 27 years.

Harriet Edleson is author of the forthcoming book, “12 Ways to Retire on Less: Planning an Affordable Future” (Rowman & Littlefield, May 2021). A former staff writer/editor/producer for AARP, she writes for The Washington Post Real Estate section.

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