Pros and Cons of Owning a Second Home in Retirement

Nathan Law

DigitalVision / Getty Images With some companies continuing to allow working from home, you may be envisioning yourself tapping away at your laptop from a second home. If so, you’re not alone. In fact, according to real estate brokerage firm Redfin, the second home market experienced 128 percent year-over-year growth […]






DigitalVision / Getty Images

With some companies continuing to allow working from home, you may be envisioning yourself tapping away at your laptop from a second home.

If so, you’re not alone. In fact, according to real estate brokerage firm Redfin, the second home market experienced 128 percent year-over-year growth between March 2020 and March 2021.

But the benefits of having a second home can go well beyond giving yourself a change of scenery. It can also be a sound retirement strategy. A survey by investment property wealth manager Realized found that 86 percent of those who currently own one or more investment properties were confident in real estate’s ability to provide them with a steady income once they retire.

However, a retirement strategy tied to real estate doesn’t come without risks. Here’s how to determine if the risk is worth the potential reward.

Assessing the pros and cons

Before you sink your cash into a second home, you need to ask yourself, how does a second home or an investment property fit into what you’re trying to accomplish with your retirement, says Shelly-Ann Eweka, senior director of Financial Planning Strategy at investment firm TIAA.

Some investors look to investing in real estate as a way to diversify their assets to counter some of the volatility in the stock market, says Rob Johnson, head of Wealth Management at Realized. “Managing real estate has become much more of a common component of someone’s longer-term retirement plan,” says Johnson.

A second property can also provide options for accessing cash in an emergency, such as for medical expenses. If you tap the equity through a home equity loan or a line of credit through your bank, you’re doing it not in your primary residence, but in the investment property, Johnson points out.

For those who are thinking about leaving a legacy, an investment property is “something that you could pass down to your kids,” says Michael Steven, author of Build a Successful Retirement Plan Using Real Estate.

But then there are the potential downsides. If you’re thinking about renting the second home out as a source of income once you retire, make sure you understand that you can’t count on it like you would an annuity or pension, says Eweka, “There will be times that the property is vacant.” If there’s a mortgage, you’ll have to pay it yourself during those times. While that might not be a problem while you’re working, think about 10 or 15 years from now when you retire. “When you stop working, can you afford to pay all the maintenance, the mortgage and the property taxes without having income coming in?” Eweka says.

Then there are the costs. Not only is there the expense of acquiring the home, but you may have to pay for maintenance and repairs, marketing expenses to attract renters and home owners association fees.

Managing the property can also create a whole new world of challenges. You may not have signed up for finding tenants, running background checks and performing all of the duties that being a landlord requires. You can hire a management company to take care of that, but you have to factor in the expense, which can cost as much as 10 percent of the rental fees, says Steven.

You also can’t time a down real estate market. If you need to sell, “it’s not guaranteed that the value is going to be higher than what you paid for it,” Eweka says.


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