This article was written by Tamara Holmes and features advice from Realized Head of Wealth Management Rob Johnson. It originally appeared on AARP.org. You can find the full article here.
According to real estate brokerage firm Redfin, the second home market experienced 128% year-over-year growth between March 2020 and March 2021. In addition to offering you a relaxing vacation spot, a second home can also double as a rental property to provide a valuable income stream during retirement.
As it turns out, 86% of current investment property owners are confident in their asset’s ability to provide a steady retirement income. However, a retirement strategy tied to real estate doesn't come without risks.
The Pros
Before sinking cash into a second home, ask yourself, “How will an investment property help accomplish my retirement goals?” According to Rob Johnson, Head of Wealth Management at Realized, there are many benefits to consider:
- Diversification of assets to counter possible stock market volatility
- Development of valuable assets to pass to beneficiaries
- Options to access emergency cash by tapping into home equity through an equity loan or line of credit
The Cons
If you're thinking of renting your second home as a source of retirement income, this revenue stream may not be as steady as you envision. The property could be vacant at times, meaning you may have to delve into personal savings to meet mortgage costs. Here are some additional things to consider:
- Property maintenance, repairs, and tax expenses
- Marketing expenses to attract renters
- Homeowners association fees
- Conducting background checks of potential full-time renters
- Responsibilities of being a landlord
While you can hire a management company to perform some of these duties, you must factor in that expense as well.
The decision to buy a second home should align with your entire retirement strategy. “We encourage individuals in their 50’s and 60’s to think about an investment property as a good component to their portfolio,” says Johnson. For more information, read the full article here.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
