Second home/investment question

[Apple Of Sodom]

My wife and I are considering purchasing a second home. We certainly don't have a lot of time to vacation (money rich but time poor currently) but do manage to vacation for 3-4 weeks per year. Anyhow, we were thinking about purchasing a second home as an investment. We are thinking Hawaii. Maybe $200K range.

Thoughts? Has anyone purchased a second home solely as an investment? We don't really want to make it a rental property...more like something for us, family and friends to use. We get to write off taxes and interest + up to two vacations there per year. The investment side comes in with the property value increasing. I've read that Hawaii is pretty consistent with appreciation. According to the Prudential website the average appreciation (taken from the last 40 years of data 1972-2012) the average appreciation rates are about 5.5%. I was also thinking that when we go to sell the property we could move there for a few years and make it primary residence (thus not have to pay cap gains.)

 

[purbeast0]

$200k home in hawaii?

that sounds pretty low for a home in hawaii.

 

[Apple Of Sodom]

$200k home in hawaii?

that sounds pretty low for a home in hawaii.

There are plenty of condos and single family homes in that range. Is it on the beach? No, but a 10 minute walk away is just fine.

 

[DaveSimmons]

FYI, the mortgage interest tax deduction is under scrutiny -- one idea the Romney camp floated was limiting total itemized deductions to $17K/year, and there have been others suggesting the mortgage deduction should be limited. I could see the compromise being that only a primary residence gets this deduction.

Also, to me this kind of investment seems like it will require a lot more time and effort than a stock index ETF from Vanguard or Schwab. Buy, hold for decades. Almost zero effort and it just adds a couple of entries in your tax software.

 

[Apple Of Sodom]

FYI, the mortgage interest tax deduction is under scrutiny -- one idea the Romney camp floated was limiting total itemized deductions to $17K/year, and there have been others suggesting the mortgage deduction should be limited. I could see the compromise being that only a primary residence gets this deduction.

Also, to me this kind of investment seems like it will require a lot more time and effort than a stock index ETF from Vanguard or Schwab. Buy, hold for decades. Almost zero effort and it just adds a couple of entries in your tax software.

While that is true, and my portfolio certainly does better than 5%, I have a lot allocated to the stock market. I was looking for something fun + an alternative to traditional investing. Plus the thought of making it primary residence then selling and avoiding capital gains is appealing.

 

[DaveSimmons]

While that is true, and my portfolio certainly does better than 5%, I have a lot allocated to the stock market. I was looking for something fun + an alternative to traditional investing. Plus the thought of making it primary residence then selling and avoiding capital gains is appealing.

As long as you keep the time commitment in mind:

money rich but time poor currently

Is doing this going to be fun enough to justify the time sink? I stick with my brokerage account and index funds for investing partly because I'd rather use my free time to read a book, watch a movie, etc.

You'd be signing up for years of dealing with property management companies (including the effort to find them and change them as needed), dealing with taxes, possibly even legal hassles if you get the wrong tenant at some point (fights eviction, sues for slipping on a banana peel )

If you just want to invest into real estate, there are funds for that, though targeted funds like that are more risky than diverse stock index funds.

But if the project itself sounds like it will be fun and worth the time, then go for it.

 

[Apple Of Sodom]

But if the project itself sounds like it will be fun and worth the time, then go for it.

Great comments... more for me to think of. I do have a diverse portfolio that includes REITs. I do suppose owning a second home would take time (vs. just vacationing.) Maybe I should wait until I have a bit more time...

 

[Dirigible]

$200k condo, assuming paid for without mortgage. 5.5% appreciation: ~$11k in year one. Subtract property tax, hoa dues, maintenance. You stated no rental income.

It's likely to be a very poor investment. With a mortgage, even worse. And you'd be losing cash every month even if on paper you're making money. I prefer my investments to generate cash.


Do it for fun if you want, not to make money.

 

[JTsyo]

seems you would be better of with a time share than buying something if you're not going to rent it out.

 

[BurnItDwn]

Ehh, My grandparents lived in the Chicago area their whole lives until the 1980s when they purchased a "summer house" in Sturgeon Bay Wisconsin. They moved up there full time when my grandfather retired from the railroad.

That said, it was only a 4 hour drive from home to go there, so, it was the place to be on many weekends. And my aunts/uncles all went there a lot as well as my mom and dad.

It didn't wind up being an investment so much, as they sold their original house rather than selling that one.

That house was purchased rather inexpensively, and the property value has gone up quite a bit as it's got about 100 feet of water frontage to green bay.