Thoughts or Ideas on Second Home... Financial or Tax Thoughts
 

Good morning, I am seeking information from those who are more seasoned and experienced than myself in this area. Allow me to paint the scenario, and if interested I would value input, and thoughts or considerations I may have not looked into or even thought of.

Situation: Age 55, with a wife of 42. Looking to purchase in the Villages and do not want to spend more than $300k for a home down there. This would be a second home, and used as such, not sure of renting it out yet as the distance of caring for and who to watch over it may/may not be an issue. That being said, it will eventually be our retirement home, and visits until that time, or we are allowed to work from our current jobs and office down there. That is neither here nor there for the conversation. (Unless something is valuable I should know.)

I owe less than $105k on current home.
I have roughly $150K sitting fairly liquid to use on a purchase of the home down there to minimize the mortgage loan.

Questions and thoughts I am seeking are:

Should I pay off the current home, and not have the mortgage, and take out the full mortgage on the future retirement home and put at least 20% down to avoid PMI on that home?

Do I not pay off the current home, and then put $100k+ on the down payment on the future retirement home? Keeping roughly $40k+ in a money market for any boo-boos that may occur for a rainy day fund?

I am trying to ascertain the info to help make a better education decision for the finances, and since I am not in that industry, I don't know what I don't know. Therefore the questions may not be right?

Feel free to ask questions and I will check back and respond. What decisions did you all make, or what are the thoughts on what is best?

I appreciate the information?

What is the interest rate on the current home?

Is the idea to claim Florida as your primary residence to avoid state income tax?

I think they most important question is how much time will you be spending in The Villages? If it is not a lot, why not wait until you retire to buy another house? The Villages house will be a huge ongoing expense.

It would be eventually to homestead, but not until I sell me current location down the road. That chunk will be part of my retirement and not taxable. ;)

My background: corporate finance and financial planning.

We were in a similar situation:
purchased TV home with mortgage
refinanced primary home to pay off TV mortgage, just lucky we missed the absolute low refi rate by a week in Jan 2021
both houses are about the same value at purchase and currently
tax note: the refinance NOT INVESTED back into the same house, made the mortgage interest not tax deductible, however, didn't effect tax return.

The option of paying off primary was possible as only $10K remained on mortgage but we couldn't pay cash
for the TV house due to paying down the primary mortgage early.

However, remember the future is uncertain, so if you were to default on a mortgage,
which house would you want to keep?

Buying a house and not using it or renting it, is a costly purchase, especially if you rent the money,
and pay home ownership fees,
If not your homestead location, your tax base on the TV home goes up in tax value at 2X the homestead tax rate.
so estimate increase in tax base increase of 7 % per year over a 3% increase for a homesteaded home.

However, at your ages, I would suggest waiting for a bit and saving up a bit more and watching
The economic uncertainty is so high right now, more so than in a very, very long time.
Being able to work from home for the winter months makes the home ownership very doable for the cost.
Without it, and if your income is at any risk in any way, and having been employed for 20 years is not a guarantee,
its adding huge additional expenses for what reason right now?

please feel free to pm me if you want.

Have you done any detailed, line time expense, financial forecasting to determine
when you will run out of money if you made this purchase?

pm me if you have any financial forecast questions

It is right around 4% for current home.


@retiredguy123

As for spending time down there, at current 4-6 weeks, but Not sure I want to pay for a place 10 years now at those future costs with income becoming smaller as I will be retiring. Could also rent out if we chose.

If you are only going to spend 4 to 6 weeks in The Villages, buying a house now would make no financial sense. No one knows what houses will cost 10 years from now. And renting out the house may not make any money at all. Buying a house in The Villages today is definitely not a surefire 10-year investment.

Agree with the advise above.

Adding, The Villages is evolving and growing rapidly so your choices wil be different in the future.

Be aware 300K homes tend to be interior lots that historically do not appreciate as much as more in demand locations.

Combining your savings with the proceeds of you current home can put you in a more desirable location.

We rent out our house full time, for the last 5 years.
We have barely broken even on a cash flow basis, sheltered from income taxes with the non cash expenses
and that is without a mortgage. So there is one part of your due diligence, but that includes 20% property mgmt fee. If you do it yourself, which i don't recommend from far away, then you can make some money
BUT renting it out full time will not cover the expenses because the rental market is drying up with both the economy, and the expansive number of houses being built. more people are buying here and renting. rentals come mostly from people excaping winter or while looking for a house to buy. a very few come to live for 12 months, if you are very, very lucky

If you do the financial analysis correctly, you can easily rent for the amount of time you would be here,
for less money than buying a home. . . . many, many articles on that in financial publications.

and with renting, you actually get two pieces of information you don't have now:
1) what the actual life style is about, especially for a wife 20+ years away from retiring, hanging out with her aunts and uncles, or great aunts and great uncles in some cases
2) what kind of house you will feel comfortable with, location, and limitations.

Just recently golfed with several people from Indiana, who are here renting for 4 months, and have done so for the last several years. All are retired. . they are thinking of owning, and have been exploring the idea with actual experiences. .

that approach is in your best financial interest. .
good luck in your decision.

former finance guy,
now just a financial advice poster to people who don't need it as they are already living the retirement dream

A little tight
 

That budget seems somewhat tight. For sure you would have an amenity bill of 200 per month, utilities (water can be more costly in the summer because of required irrigation), as well as other charges like fire etc. Taxes will be based on what you pay for a home. You are also required to maintain your lawn and lawn services run about 100 a month? Insurance can be high and it seems to just go up. That would coincide with your homes condition, type and price but is certainly required if you financed.

If you buy north off 466 a bond won’t exist (unless you buy in the new rebuilt area in Spanish Springs). Bonds vary but can mean at about 150 a month.

That brings a brass tacks expense to at least:
Amenity Fee 200 per month or 1200 a year
School and Property Taxes at about 4000 a year
Utilities at a minimum 100 per month or 1200 a year
Maintenance of lawn ( cutting and pest fertilization) at about 100 a month 1200 a year
Maintenance Fees (ie. Fire etc) 75 a month or 900 a year

This minimalist budget is already at 8700 a year. I didn’t include a mortgage payment because right now we don’t have the finer details to even estimate. The 8700 number is just the automatic drain turned on you may not ever recoup.

You would make more money putting your extra cash in a high yield savings.

We bought a new, PV as an unfurnished long term rental 2 years later bought a cottage sold the PV, continued to long term, which we sold purchasing the next 3/2 with cart garage. When it was time to retire we bought a home that fit our final needs.

Since there wasn’t any furniture to move from house to house not a problem. Time span from first house in 10 years. Managing long term is pretty easy, and renters usually wanted a multi year lease. Would we do this in todays market, maybe, but the first house is going to cost more than $300,000, if you want to sell it for something that suits you lifestyle better, years down the road

Agree
 

Agree. In today’s market you should consider view lots if you are in it for an investment. A lot on a pond or wildlife refuge would appreciate or appreciate much more than an internal lot. I would not consider a corner lot (irrigation costs and lawn maintenance). I would also steer clear of some golf course lots due to golf ball problems, others are much less susceptible to ball damage. Expect an extra premium for the view lot of about 150k in today’s market. Also consider much higher taxes based on your actual purchase price. Further, you are in that type of home at least 10k a year in sunk cost expenditures.

Most will tell you not to rent because you’re throwing money down the drain. I don’t think so after all the lawn care, termite stuff, home watch services, etc, etc it’s not a bad option at all. If your rent far enough out you can get a nice place for reasonable cost.

When we moved here wife wanted to be snowbirds or snowflakes. Decided wanted less complications so decided we would be owners of only one house. So glad we did that route

OP one thing you haven’t said, how many SF would you feel comfortable to live in? At $300,000 think 1140sf. High season rental start at $4,000 and up Jan-Apr. …

summer is much less, but do you really want to be in FL in 90 degree plus days.

If your plan is less than a month per year, for 10 years. Put away $1400 a month ( the funds needed to run a base home in your price range) in an account that you can make money on.

In 5 years TV could be 10 miles south of Eastport by then. Homes south of 44 will be 6 plus years old. Young enough not to have to gut and start replacing major things, old enough that lots of improvements made, that the owners will never recoup. Then make decisions, of course consulting with your financial guy would help you make smarter decisions.

Putting aside the financial aspects, over the years I owned a number of rentals, some were wonderful renters and some were not.
If you take this route, it can become a job just make sure you are prepared for that.

AND insurance premiums are HUGE here.

Do nothing! Perpetually renting out your Village house overtime will honk off our neighbors. They will be so annoyed by the turnover of partiers with their specific proclivities that you will be a persona non grata.

If you have an investment advisor, run your questions past that person. I did and my situation currently made sense to just own one house. A good investment advisor can provide a better financial picture for you and your wife long term.

Realty if you only want to spend 300k you won’t get a house that you will want to live in full time one day. You will fix up whatever you buy even new homes are fixer uppers.
TV is expensive to buy and live and it’s loaded with investment rental property.
Do your research, the property taxes, the bond, the annual maintenance fee and all the other fees.

Patience is key and sounds like you and the wife have time! Start researching and create a budget spreadsheet. There are multiple Youtube video host that do an excellent job of reviewing real life expenses in The Villages. It's amazing what information can be obtained listening to the videos and reading TOTV :) We are all lucky enough to have many options and some are not apparent until later in the research. We recently moved to TV and in the end decided to rent for a year while getting a better idea of actual expenses. We hear many people move multiple times due to drinking the Kool Aid and not taking Vitamin P (patience). Good luck in your new adventure and enjoy!

Talk to Realty Executives in The Villages. They have a rental branch in the villages. They can walk you through the process, costs, tax advantages, and restrictions. I rented out my house until I could retire. If you claim it as a rental unit, you can claim the interest, improvements, taxes, depreciation, water, sewer,,,,,,. You are limited on how many days you can use the property per year. You would need to decide on long term rental or short term. (seasonal) Jan-March are the most sought after. April/May are a bonus. You will need someone to care for the weeds, grass cutting, landscaping, sprinkler system, bug spraying. Most places are furnished and include a golf car. Best rents are near Sumter Landing and Brownwood. Talk to your accountant what you can and cannot claim.

Second Home is Expensive
 

I agree. Maintaining a snowbird home is very expensive for us about $12-15,000 a year. Taxes, insurance, pest and lawn control, lawn cutting, house watch, roof, house wash, electric, repairs maintenance AC, Water, amenities etc. There are plenty of rentals around and it will give you an idea about what area you want to live in. That was our plan but ignored it and bought. Fortunately our house increased in value but not enough to offset the annual expenses. I suggest you put these figures together and then decide

I would wait until closer to retirement. Having a second home is way more costly than most people imagine, especially when having two mortgages, which seems to be one of your options. Only one house would receive a homestead exemption, while the other house taxes would increase possibly dramatically. Then there is the utilities, and appliances breakdowns, roofs that keep aging etc.

If you want to think about this as your actual retirement home, you might wan to wait until you have the resources to buy your dream home. If you are ok with this being purely an investment that you stay in 4-6 weeks a year, that would hopefully appreciate in value, adn that you might sell-up in the future, then that would be a easier way of looking at it.

I'm assuming that the 4-6 weeks that you want to stay here would be in the Jan-March window, which is the most lucrative window for landlords here.

So you are looking at fully furnishing the house, and doing short term rentals through a local property manager, and all the associated expense, but taking away about $4-$6k in gross profit right off the top.

Summer months rent for less than $2k/mo if at all. But if you have a pool you can still get some AirBnB traction in the summer. The least expensive pool home right now is $340k.

From a pure short-to-medium term investment and headache perspective you would be better off putting that money in a HYSA or CD or something, as others have said. But if you think that hard assets will appreciate a lot in the coming years and you don't already have real estate investment in your portfolio then it is still worth considering.

I greatly appreciate all the responses, even on becoming persona non grata! ;)

As always there is more information that can become I guess pertinent. I did have 2 homes prior, roughly 4 years ago I sold that rental property and have been just in our current home. That means I do get the pitfalls of rental property. I would probably just open it up to season rentals when not down there, just to not sit and have a company watch over it. I get that is typically 20% I would look into that more before purchasing of course.

Although none of us are Nostradamus-like, well I am not anyway. I would have expectations that property values 10 years from now would be up, and I would have the equity in there as well with a down payment. Upon my passing, this would be another nest egg for my wife... who likes to plan that already! ;). That being said, I could check out tomorrow!

One response talked about an annual maintenance fee. What is that in The Villages, or perhaps I am misreading that? I understand the Activities fee, etc?

How much do you all spend on pest spraying?
Lawn mowing, if I get a place with a lawn! (I don't want a lawn when I retire to do or take care of. Just my preference.)
What are your insurance rates? (I have watched so many YouTubers that have Villagers breaking down their costs, and it seemed somewhat reasonable to me.

I do think the home prices in TV are too much hence looking for a deal so I can be patient. I am coming down for 5 days in May to do the lifestyle visit and will be hitting up the areas, and seeing locations that we have a definite interest in.

And I will reach out as my schedule eases this week to query those who have left the invite to reach out.... as I don't think I have a hint of the picture and probably due to not providing enough information but putting down let us say $100k on a home purchase to lower the mortgage amount at a higher interest rate, or if paying off my $100k (much lower interest rate as to time mortgage was taken out.) Just curious if there is something I am missing in terms of a benefit either way other than just having one mortgage payment on a non-homesteaded home.

Just thoughts!

A few mentioned rental properties need to be on a golf view etc. to get the rental and not smart to get inner units, I do not want to pay a premium for those views personally, as for me they are overrated for living there. I have a family place on a lake in MN (Avid fishing guy myself) but unless I am on the lake, I don't spend any time looking at the lake. Since I do bass, I love a calm lake so I look at it at 6 AM and go, looks fab I am going out. That is my extent of looking at it lol!

I believe the value for a place (I could be absolutely wrong as it is my importance.) is having a place near a pool and rec center seems more valuable then golf view. Just one guys take! I am sure my life would love a Golf Course View, until the golfers are in the yard, balls are in the yard, and the Mini Schnauzer wants to get to them! ;)

Please keep on with the thoughts, I find them all valuable. :beer3:

Your described financial situation is way too precarious to be considering the purchase of a second home. Maybe you have substantial assets that you don't mention in your post. Or maybe your primary home that you owe $100K on is worth millions. Don't know and don't want to pry. But if most of what you have in liquid investable assets is the $150K you describe, you should not buy a second home....one person's opinion.

Most houses will have a bond, which is money used to construct the infrastructure (roads, utilities, etc.). You pay off the bond with annual principal and interest payments. The maintenance fee is additional and it appears on your tax bill. It is the cost to maintain the infrastructure.

All houses in The Villages will be near a pool and a rec center. If you are too close to a rec center, you may have an issue with pickleball noise. Also, traffic noise is always something to consider when selecting a lot. Don't buy a house too close to the Florida Turnpike. Pool pumps are also a problem if they are located next to your bedroom.

The view lot will come into play when you sell the house. Houses without a view are a dime a dozen, but a house with a view (golf course or water) are much easier to sell and will command way more money. You should also consider the garage space. If you buy an expensive house, you definitely need a two-car garage and a separate golf cart garage. Without these, you will have a lot of trouble selling the house.

We owned a home here for 6 years before getting down here full time and this ^^^ is a thing. Plus managing it from a distance is a pain in the neck. Like when the neighbor (fortunately) calls and says one of your sprinkler heads is broken and you have a fountain in your back yard. You do end up with a home to move into that's closer to businesses vs. being new in the middle of nowhere....but nowhere becomes somewhere in a few years and you get to move in with all of your new neighbors at the same time and it's like going off to college but more fun. So I say....just wait and make the move all at once. YMMV!

Joe

I need to start using that phrase! Vitamin P is fabulous!

Joe, thanks for that insight. Question, knowing the pains that you mentioned, are you saying you would not have done the same thing again?

You would have waited the 6 years?
What would you have done in the meantime?

Looking back, what would have to wait the 6 years gotten you in terms of improvements, cost of homes, locations or is it simply just less headaches? (Which I am not discounting, as it is a pain in the but having another place, but you knew that going into it.). The Sprinkler head is a problem, hope the neighbor helped and was neighborly!

We had homes in TV from 2010 to 2018 before one came down seasonal (4month) we hired a great home watch (retired LEO) if there was a problem it was taken care immediately. You will find some just have difficulty dealing with problems on the home they live in.

. Many like us have zero issues managing long distance. Finding great tenants, having a great home watch is the key. We only rented long term so no empty house, no furniture, no WiFi, TV, electric or gas bills. If we came to visit we either rented for a few weeks, or stayed in one of other TV homes

We always take the largest mortgage amount, with the smallest down (no points). Then after 60 days paid 50% principal payment. That 6-7% interest money drops in half. Leaving enough interest for the rental write off. Our financial guy alway guided us on how much principal to pay, still keeping liquid money for an issue, yet dropping those high interest amounts to our benefit

Some just can’t have debt, and would rather be cash poor, and no mortgage. Our investments always have made more money than any interest payment

That is interesting to me, I need to learn more about this, as I have not heard of this but kinda the information I am seeking outside of the norm. Items I don't know, I didn't even know about lol!

So example, correct me if I'm am wrong. Just using the 300K number.

You put enough down, assuming to not pay PMI. So 20% down you paid $60k

$300,000
-$60,000
----------------
$240K (Give or take closing etc rolled in)

Then 60 days later, you dropped $120k into an early payment (should hit principal), then maintain the same monthly payments, but your saving interest dollars and overall dollars based on less interest being accrued on principal. Do I have that correct? (Monthly spending is higher due to monthly mortgage, but savings come from long-term interest accrual being decreased.)

Is my rudimentary response correct? I also cannot take the interest off of the mortgage as it is a second home for tax purposes. I read the fed taxes and it states you can, but didn't dive in totally on the tax rules as there was a maybe in there.

I would only offer it up just to have someone in there on days not there, not necessarily for income. However, it never hurts to have someone pay towards your mortgage in your absence.

Wait for Lower Inventory Trends
 

Right now all inventory rates are climbing, the repercussions are lower home prices and continued price cutting. There isn’t a slow down yet on the increasing inventory but it certainly is easy to find out when we plateau. Just keep checking the MLS total numbers, or Zillow or one of many other sites. Why buy high, jut monitor the situation if you are looking to invest.

Right now just Zillow and VLS have more than 1400 preowned homes for sale. If the number keeps climbing, your purchase price will potentially always be lower. Save the money you have and put in Fidelity or whatever. Get your 12% a year and buy your dream home when it’s time to retire.

There is Zero Urgency for purchases and investing.

Be aware that the summers are HOT and with Climate Change they are getting hotter. As you age HEAT is harder to deal with. So, The Villages is great for about 8 months out of the year, but it is NOT so good for full time residents. If you plan on living in only ONE home then, I would suggest further north like South or North Carolina. Good Luck.

Second home deductible expenses:
Tax Breaks for Second-Home Owners

So sounds like a bit of financial education is needed, to which I would recommend a CFP or at least a CPA for how the tax benefits work. book an hour with a CPA and ask him to explain how it works. $200 well spent. Also know what your break even days rented is. The reason for that is that there are vastly different rates depending upon the high season and the low season. So if you set rates, be sure that you calculate your days rented to break even, and for a year long, you know your break even point, versus the market rates. Again, that line item financial planning and market analysis goes along way to making a sound financial investment,

You can keep the house as a second home, rent it, pay taxes on the income, etc. however, you better be sure that you insure your house properly for renters.

There is the alternative putting the house into an LLC, which segregates the liability risks from personal to property only, at different levels of corporate ownership. If in a corporate structure, all expenses are deductible, and cash income is mostly shielded from taxes by deprecation deductibility, including all amenity fees, lawn care, CDD maintenance, etc.

If you furnish the house with a golf cart, know that florida does not limit liability to the driver, but includes the owner of the golf cart as well.

Note that a home watch will be key, as air conditioners break, stupid plastic push pull valves break, water connections leak, heavy wind driven rain will find all the cracks and enter the house, garage door codes get duplicated, and be sure to understand the guest pass process and the renter pass process.

Just approach your trip for education, and start with the assumption that your prior rental ownership experience doesn't apply.

good luck

First Hand Experience
 

I believe you have thoughts that you will earn money on a rental here in the Villages. I would hope so, but doubt it.

From our own personal experience we purchased a home a couple years ago in Dabney. I can tell you for certain we have lost money on the build. If we sold today, we might almost get 550 k or about what we paid for the home in early. 2023. The thing is we have since paid property taxes annually as well as all the other bills mentioned and have done some improvements. If we sold today we would lose all that and a real estate commission. Buying for profit is a fool’s errand.

Do you have enough money to retire? Sounds like you might be short on cash.
I would try renting for a season and postpone buying until you have lived in the Villages for a few months.

I would not have mortgages at this stage of life

I have certainly been paying attention to those! Inventory absolutely keeps going up.

I am curious as to what is truly driving the inventory increases and number of houses going in the market. One report says homeowners are handcuffed and holding their homes as don't want to let go of their low mortgage rates for a higher one.

If that is the case, what are the circumstances driving people to put up their homes? I could go on with what they believe is happening, I just know in most locales it is certainly increasing exponentially, and a lot of divergent thoughts.

Inventory goes up because fewer people are buying and more people are holding.

Then another report shows more people putting up their places for sale and not holding.

Prices went up because of the market and low inventories, and although the prices are starting to lower, TV is maintaining some of the pricing... especially if you turn back the clock on these homes. Some of the homes I am looking at that were bought I am sure as an investment home, with what doesn't appear to be major upgrades show an increased ask of $75-$100k in the last 4 years. Those prices may/will not be met IMHO as that may get a deep hair cut.