Did you know that two-thirds of high-net-worth Americans who work with a financial advisor own a second home? The one-third who don't already may be considering it... but, there are some crucial questions to ask before anyone should start scrolling through Zillow. What are the pros and cons of owning a second property? What are the nuances of renting or keeping it solely for personal use, and what would make it a worthwhile investment? How about owning with your family members? Modearn™ Advisors Stacey McKinnon and Thao Truong are here to explore the complexities, risks, and benefits of calling more than one place, "home."
Here are some key takeaways from their discussion:Â
- Rental property should ideally generate 4-6% in annual rental income compared to its value to be considered a positive investment.
- If the property is regularly rented, many expenses can possibly be written off.
- Hiring a property manager can help reduce stress and effort but comes at a cost.
- The cost of both your primary and secondary homes combined should cost less than 40% of your post-tax income.
- Don't forget to factor in unexpected maintenance and repair fees while building your emergency fund.
- If you rent your home out, should you go the short-term route (Airbnb/Vrbo) or long-term? Short-term rentals can be profitable but may come with high fees, strict regulations, and community pushback, making them riskier investments. Long-term rental issues include tenant disputes, eviction laws, and hidden expenses.
- Forming an LLC can offer liability protection.
- Instead of direct property ownership, investing in a private real estate fund may offer diversification and passive income without management hassles.
- Finally, while real estate can be a strong investment and build family wealth, thorough research, honest financial evaluation, and professional guidance are crucial for success.
