Hidden Costs of Owning a Second Home

Ryan Tishken / iStock.com

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

Owning a second home might seem like a luxurious investment or a potential source of rental income, but it comes with numerous hidden costs that can impact your finances. Beyond the initial purchase price, there are several expenses that potential homeowners often overlook. Understanding these costs is crucial for anyone considering purchasing a second property.

Maintenance and Repairs

The upkeep of a second home can be significantly higher than expected, especially if it’s located in a different climate or environment than your primary residence. Regular maintenance tasks, such as landscaping, cleaning, and repairs, add up. If the property is older, there may be more frequent and costly repairs needed to maintain its condition.

Property Management

If you’re not living nearby, you might need to hire a property manager to handle maintenance, tenant issues (if you’re renting it out), and emergencies. Property management fees typically range from 8% to 12% of the monthly rental income, which can quickly eat into your profits or budget.

Insurance Costs

Second homes often require additional insurance policies, especially if they are located in areas prone to natural disasters like floods, hurricanes, or wildfires. Moreover, insurance premiums may be higher for a second home than for a primary residence, particularly if the home is left vacant for periods of time.

Utility Bills

Even when you’re not occupying the home, you’ll still need to pay for utilities like water, electricity, gas, and internet, especially to maintain the property in good condition and avoid issues like frozen pipes or excessive humidity.

Property Taxes

Second properties are subject to property taxes, which can vary widely depending on the location. Some vacation destinations have higher property taxes due to the demand and value of the property in prime locations.

HOA Fees

If your second home is in a managed community, such as a condominium or a development with amenities like a swimming pool, fitness center, or security gates, you’ll likely pay homeowners’ association (HOA) fees. These fees can be substantial and increase without much notice.

Capital Gains Tax

If you sell your second home for a profit, you might be subject to capital gains tax. Unlike your primary residence, which often qualifies for a capital gains exclusion, profits from the sale of a second home can be taxed.

Travel Costs

Owning a second home means you’ll likely be traveling back and forth between properties. These travel expenses–whether it’s for flights, car rentals, or gas–can add up, especially if the home is far from your primary residence.

Furnishing and Equipping

A second home needs to be furnished and equipped, which means additional costs for furniture, kitchen appliances, bedding, and other household items. These expenses can be significant, especially if aiming for a higher standard of accommodation.

The Hidden Costs of Owning a Second Home:

1. Assess the Purpose of the Home: Decide if the second home will be for personal use, a rental, or a combination of both. This decision will impact tax implications, insurance needs, and how you might furnish and maintain the property.
2. Calculate the Total Cost: Beyond the purchase price, consider additional costs such as taxes, insurance, maintenance, and utilities. Create a comprehensive budget to cover all potential expenses, including unexpected repairs.
3. Get to Know Local Laws: Understand local regulations, especially if you’re buying in another state or country. This includes zoning laws, rental regulations, and tax rules. Local laws can significantly affect your ability to rent out the property or make renovations.
4. Consider Hiring a Property Manager: If you plan to rent out the home or cannot regularly visit, a property manager can handle day-to-day tasks, deal with tenants, and respond to emergencies. This service comes at a cost but can be invaluable in maintaining your property’s value and ensuring compliance with local regulations.
5. Insurance Coverage: Ensure you have adequate insurance for a second home, which may be more expensive than for your primary residence, particularly if it’s located in an area prone to natural disasters. Consider additional liability coverage, especially if you are renting the property out.
6. Plan for Security: If your second home will sit vacant for periods, invest in security measures such as a monitored alarm system, security cameras, or local property check-in services to prevent theft or damage.
7. Tax Considerations: Consult with a tax advisor to understand how owning a second home will affect your tax situation. There are potential deductions for mortgage interest and property taxes, but rules differ if you rent out the property.
8. Create a Rental Strategy: If you plan to generate income through renting, develop a strategy that includes competitive pricing, marketing, and guest services. Websites like Airbnb or Vrbo can offer platforms to list your property, or you might consider longer-term leases depending on the location and market demand.
9. Establish an Emergency Fund: Set aside a fund specifically for emergency repairs or maintenance issues that might arise. Having this buffer can help avoid financial stress caused by unexpected expenses.
10. Regular Maintenance: Schedule regular maintenance checks to keep the property in good condition. This includes everything from checking the roof and gutters to servicing the heating and cooling systems. Preventative maintenance can help avoid more costly repairs later on.

Owning a second home is a substantial financial commitment that goes beyond the purchase price. Prospective buyers should carefully consider these hidden costs and evaluate whether they are prepared for the ongoing financial responsibilities associated with maintaining an additional property.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

More From GOBankingRates

• 5 Japanese Cars To Stay Away From Buying
• Ramit Sethi: How To Become Rich on a Low Salary
• 5 Clever Ways to Speed Up Your Retirement Savings
• 3 Things You Must Do When Your Savings Reach $50,000

Share This Article: