June 16, 2025 • 33 mins
Things to consider before buying a second home – Chris Boyd and Jeff Perry are joined by Britta Ferguson CFP®, CEPA® who is a Senior Vice President, Financial Advisor with Wealth Enhancement to explore the pros and cons of owning a second home (vacation home). The discussion begins with “try before you buy” advice and the distinction between an investment
property that you may use part-time compared to a true second home that is unoccupied when you are not using it. The “math” of owning a second home is reviewed in addition to the “what- ifs” of owning property that you do not live in full time. Issues of estate planning and fractional ownership are also explored. Not all cons, the group shares some pros of having a second home.
For more information or to reach TEAM AMR, click the following link:
https://www.wealthenhancement.com/s/advisor-teams/amr
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to the program.
I'm Chris Boyd, a certified financial planner, practitioner.
I'm here with Jeff Perry, my co-host.
We are both of the AMR team at
(00:42):
Wealth Enhancement Group, and we're joined today by
a special guest, Britta Ferguson, CFP, and she
is from Carnado, California, also a senior vice
president and financial advisor with Wealth Enhancement Group.
Thanks for being with us.
Yeah, thanks for having me today.
I look forward to it.
It's good to have you here.
(01:03):
We've seen some of your articles on LinkedIn
and various things and said, oh, that's a
good one.
We should talk about it.
So that's what prompted us to reach out
to you, a couple of good LinkedIn posts.
And we thought, oh, let's talk about that
with our audience.
We've got a topic that I think is
a great financial planning topic, the notion of
(01:26):
trying to consider buying a second home, like
a vacation home.
And I'm sure there's a lot to give
weight to in thinking about this on the
one hand, should I rent?
Should I buy?
When you go through the process, how do
I decide if I can afford it?
Maybe even where should I begin?
(01:47):
So there's a whole range of things.
Where should we begin, do you think, in
this process?
That's a great question.
And I think it's only fitting somebody that
lives in San Diego and Coronado, California will
be the person to answer these questions.
Well, as a financial planner, there's a lot
of different things to be thinking about because
(02:08):
when you are buying a second home, it's
really what is the goal for this second
home?
Is it going to be more for your
personal use?
Is it more for an investment?
And so something that we always like to
start with is just understanding kind of what
is the end game?
And what is the vision with it?
(02:30):
Are you taking more of kind of like
an emotional approach with it?
Are you being a bit more rational with
the thinking?
And so that's kind of the starting point
is what is the vision?
What is the end game?
And then we work our way backwards regarding
a few things.
So is there a minimum amount of use
(02:50):
that would make it before you'd say, hey,
that's really probably not worth entertaining as a
second home?
You know, where you'd say, well, maybe you
want to rent instead?
Or how do you approach that question of
how much and that sort of thing?
Well, I think it's we always encourage our
clients first to go rent in the area
(03:12):
that they're even considering.
So before making a really large purchase or
a big decision, you should make sure that
is this the area you want to be
spending your time?
You know, when it comes to accessibility to
get there, when it comes to the day
to day of being there, like how do
you envision spending your time at this new
(03:33):
home?
Because sometimes we found that the second home
actually turns into the primary home.
And so if you're, you know, for instance,
you've got the New Yorkers that like to
go down to Florida, the snowbirds.
And so it's really understanding from like a
financial standpoint, or is this going to be
(03:54):
vacant?
And you're just going to be owning it
just for you and the family and whoever
else?
Or are you wanting to actually make some
money off of this during the interim when
you're not able to spend the time there?
Because that's going to have different implications when
it comes to write offs, taxes, things like
that.
Do you want to elaborate on that?
(04:15):
And is that something you encourage people to,
you know, like start sooner than they might
need it so that they have the investment
property features?
Or is it something that, you know, maybe
that creates its own complexities for tax considerations
and liabilities and all the rest?
(04:38):
Great question.
So, you know, it depends on affordability first.
So when you're looking at getting a second
home, is it with the intention of looking
to, number one, it's financially feasible for me
to do, but only under the, if I'm
able to do it because I then get
(04:59):
an income stream for it, it's affordable.
Because remember, a second home mortgage, you're not
going to get the same type of tax
benefits.
It's going to have a much larger down
payment than what a traditional home will have.
Insurance can be very costly.
And if you think about, for instance, in
Florida, hurricane insurance isn't something you necessarily have
(05:21):
to worry about in New York.
So what type of insurance and costs to
furnish the home are you going to be
taking on?
So one, is it affordable?
Two, it's only affordable if I'm able to
then rent it out or no, actually I've
done a great job saving.
And I really just like spending my time
(05:42):
in the same place on a regular basis.
Because another thing to think about is what
if you like to travel a lot of
places, what if you don't want to rent
this home out?
So what then is the affordability factor?
And is that going to then be limiting
some of your other financial goals that are
(06:02):
important to you to be achieving?
And then remember when you're not there, property
taxes still have to be paid.
There's ongoing maintenance.
Typically there's HOA fees because most times people
buy a second home, then some form of
a gated area, they're not there all the
time.
They want that additional security.
(06:24):
A side note on the contemplation of, can
I make this an Airbnb or rent it
out?
Oftentimes the neighborhood you want to live in
or the condos that you want to purchase
have restrictions.
I've seen, I saw one gentleman who bought
a condo on the beach to do what
(06:44):
you're talking about, he's going to rent and
own and live in it for the good
months, try to rent it out.
And he just wasn't under the rules.
So there's some homework.
He wasn't able to under the rules.
There's some homework you need to do and
not make assumptions because you may not be
allowed to rent out what you're thinking when
you initially purchase it.
(07:05):
Exactly.
So that would be more kind of like
in the legal and regulatory issues that you're
having.
And so when you think about it, understanding
Airbnb short-term rental laws, those are going
to be very, very important.
Also too, if you want to make any
additions or make major changes to the property
(07:27):
that require having to go through the city,
those are also things to be considering.
So, and what are the quiet hours?
So if you were, for instance, in Big
Bear, California, you have to have your lights
off by 10 p.m. Well, how many
renters or Airbnb-ers are really following that
(07:49):
guideline?
And who would ever think that I have
to have my lights off, outdoor lights off
by 10 p.m.? So these are all
the things that having conversations too with people
that live locally to really get a better
understanding of what is the impact on that?
What are the requirements?
And in San Diego, for instance, they only
(08:10):
have so many Airbnb permits available.
So would you even be eligible to get
the permit?
And if you bought somebody's home that did
have a permit, is that then transferable to
you?
So there's a lot of things to be
considering in that regard.
What about the other possibility of thinking, how
does this affect whether I'll be able to
(08:32):
go anywhere else?
If you're still in that mode of trying
to do second home as a vacation destination,
it seems like you have to be pretty
committed to that's your destination that you really
want to keep going back to.
I couldn't agree more.
And I feel kind of similar in that
(08:53):
regard, because I'm a big fan of the
mountains.
I love Utah.
My fiance and I, we love to go
snowboarding.
But we always toy, should we get a
place?
Should we not?
But then we realize we actually like to
stay in different parts of the city.
We like to go to different mountains.
And so if that's not something that you
(09:14):
truly envision, I want to consistently go and
spend my time at the same place.
Really make sure like, are you romanticizing this
concept of a vacation home?
Or maybe just rent, go to the hotels,
try out the different spots, and then decide
if you really like that.
(09:35):
Because if you're in your earlier, I'm just,
you know, I just retired, I'm in my
go-go years, you're probably in the mode
to want to explore a lot.
And if you have this big asset over
here, that's going to be pretty costly to
you, doesn't make sense to then take on
this additional responsibility from a financial and also
(09:57):
a day-to-day perspective.
And then maybe have to dampen your additional
opportunity to travel because this requires a lot
more outflow than maybe what you were anticipating.
You kind of hit on some of the
specifically financial considerations when thinking about a different
(10:21):
kind of mortgage, and there's some different expenses.
Do I have to fill the home with
furnishings and so forth?
But what are some of the other variables
like this?
You mentioned insurance, taxation, property taxes.
Are there a lot of other variables that
you think are we need to be thinking
(10:42):
of in terms of maybe it's an HOA
fee or something like that?
What would be some of these other considerations
that people need to be mindful of?
Sure.
HOA fees are absolutely one because, you know,
there's oftentimes not too much restriction when it
comes to how quickly they can increase those
(11:04):
on you.
Also too, what if it's in a 55
and up community, for instance?
Are they going to allow your children or
your family when you're not there to comfortably
be able to use it?
What is the proximity to your home?
How easy is it for you to get
there?
And have you then budgeted in the cost
(11:27):
to travel to and from the place?
Oftentimes people in Hawaii, when they land, they
all go to Costco and they fill up
and that's kind of the thing you do.
But what if you're out in the middle
of Montana and it's the middle of winter
and now you're kind of stuck out there?
So there's even just beyond the cost of
(11:48):
furnishing the home, the cost of proximity, you
know, you have to think about it from
what is the end game as well.
So what if you buy this home and
now I change my mind and I don't
want to have a second home anymore?
Well, what is then the cost to get
out?
What type of a market would you be
(12:09):
having to then sell this property in?
So there are so many things to consider,
but the good news is that's where having
a financial plan in place to run these
different scenarios, to add these different expenses that
can really help you understand, is it worth
my money?
(12:30):
And can I justify it with what I'm
trying to accomplish?
You know, even cash buyers who aren't worried
about the mortgage for a second home, for
example, they're pretty good at calculating their taxes,
their HOA, their expenses, and they always seem
to forget those things that happen, that we
all know that happen.
(12:51):
Those what ifs, like, oh, I'm buying a
house.
How old is it?
Oh, it's 20 years old.
Original roof, original AC.
Right.
Yeah.
And so they don't- You got two
houses to deal with those big home improvement
costs, right?
Yeah.
It's going to happen if you plan to
own this second property for a period of
(13:11):
time.
Always.
And don't think you're getting out of it
if you buy a condo or a villa
or a co-op, even though you're not
handling the replacement of the roof, you're going
to receive an assessment for the cost.
Yeah, for an HOA cost.
Yeah.
And then there's the trouble of what happens
to my house when it's sitting there vacant?
Meaning, if I have this repair, if I
(13:33):
have this, if my AC goes out, who
am I going to turn to, to help
me?
And am I going to get a reasonable
cost of repair?
So there's a lot to think about, not
just the predictable things, but the what if
this happens, how am I going to handle
it situations?
Yeah.
Including, even if you are thinking you're going
(13:53):
to, and you're able to rent it, Airbnb,
or with one of the local realtors, what
happens when you get that bad tenant?
Because if you rent long enough, you're going
to have that frat house party there.
Yeah.
And the house isn't going to be ready
that next Saturday for the next person coming
in without someone intervening and fixing it, so
(14:15):
to speak.
Also, you hope you have a good management
company helping you.
So if you do decide to take the
route of the Airbnb, and you did have
that awful renter, which hopefully eight out of
10 times, you're not getting that renter.
People tend to have better luck than not,
but it also depends on the location and
(14:37):
the type of people that you're renting to,
and also the price you're renting for.
So if you tend to go and you
say, I want to buy this vacation home,
I want to rent it, and I'm going
to only be able to rent it for
a lower rent, then you have more opportunity
to be able to open the door to
a wider range of people.
(14:58):
Whereas if you're putting a lot more money
into it, and it's expensive, and the cost
to rent something is a lot more expensive,
then there's going to be a smaller amount
of people that you're renting to.
But that could also mean that your repairs
are going to be a lot more because
your house is more expensive.
(15:18):
And then management companies, they're going to be
anywhere from about 10 to 30% on
average for a rental home.
So think about when you live in your
own home, you start to understand the quirks
of the home and, okay, maybe I need
to be mindful of this drain or that
shower.
In a vacation home, you're not spending enough
(15:40):
time to know that that's a consistent quirk.
That's a consistent thing I should be mindful
of.
And so, I think about a property is,
of course, it's an appreciating asset, but it
comes with an expense.
So whether that's a cash purchase, whether that's
the unforeseen, I need a new roof, I
(16:01):
need a new water heater.
Am I going to be able to get
the reliable guy or girl at the time
to be able to fix this properly?
So typically, your investments aren't going to call
you in the middle of the night and
say, hey, I need you to pay X
amount of dollars for me.
And so that's kind of where the trade
-off can lie is, is your money best
(16:24):
spent elsewhere where you still get to go
enjoy and travel, you still get to do
all of these things, or it's really important
for me and my family to have, in
consistency, the exact same place for us to
go to a year over year.
And that's how we want to spend our
time.
So personal choice at that point.
(16:44):
It's a great point because you do end
up with these kind of considerations about the
math of the whole story, right?
I think we'll talk about maybe the non
-math considerations.
There's virtues as well.
But when you're thinking about this purely as
(17:05):
an investment, and in this case, let's say
a rental scenario, I can probably get a
rough estimate of how does real estate appreciate
over time?
I can put a rate of return to
that for an estimate.
I can probably think in terms of, well,
(17:27):
I'm going to maybe generate this many weeks
of income or whatever, months or whatever, however
you're going to plan for this, whether it's
a short-term or a long-term rental.
And then you can quantify, okay, I've got
these costs, these fixed costs that are going
to be associated with it.
So maybe there's a yield, a net yield.
Hopefully, it's on the plus side.
(17:47):
How many times have we all seen these
scenarios?
It really isn't, right?
There's not a positive net yield.
But when you consider, okay, I put this
much capital to use, and is that the
best rate of return I'm going to get
for- Yeah, lost opportunities, right?
(18:08):
Sometimes not.
Now, I suspect we all have seen people
who've done quite well in making real estate
a means of creating wealth, right?
Yes.
They've had a rental property.
Maybe they've leveraged it for a new property
at some point in time.
(18:28):
We saw that go horribly badly, perhaps, in
the financial crisis for a lot of people.
But there's also been these stories where, okay,
I have this for a number of years.
The mortgage gets smaller.
I turn around and use that equity to
help me fund another property, right?
And there's a validity to that.
You can do that and make money.
But it's very difficult to do if you're
(18:49):
not the person who's managing the property, right?
Because the costs go up.
Yep.
Tremendously, yep.
Will you add on that kind of thinking,
Britta?
Yeah, absolutely.
And you have to think about additionally, even
above and beyond just a rate of return,
is a liquidity standpoint.
So what if you didn't do proper planning
(19:11):
and now maybe you put more of a
down payment down than you can actually afford
because you wanted the smaller mortgage and now
you have a big liquidity issue and you
need this additional money.
It's a lot harder to get money out
of a home than it would be to
sell something in the market, for instance.
And then think about it from an additional
(19:33):
next step too.
So when you think about it from a
legacy standpoint, so you're passing this money onto
your heirs.
Does this type of a home, does it
get put into a special type of trust
where it may or may not get a
step up in basis upon your passing?
If you haven't decided what will be the
(19:56):
next step for the home for your heirs
and children perhaps, then now they have to
decide and there's two of them and they're
torn between one wants to keep it and
one wants to sell it.
But once again, we have a liquidity issue
and we can't afford to buy the other
one out.
So there's a lot of things that need
to be considered above and beyond just the
(20:16):
immediate gratification of I have a second home,
this is great.
It's okay, what is the ultimate spider web?
What is the game plan for if something
were to go wrong?
What happens if one of my children doesn't
want to own the home once I pass
away and things like that.
(20:37):
So just make sure that certainly not saying
don't buy the second home.
Cause it's a very common thing, but truly
define like what are your goals around this
home and what are the what ifs that
need to be factored in before making that
big decision?
Jeff and I are both- I know,
go ahead.
Jump on this, go ahead, Jeff.
(20:58):
Well, certainly we see too many spider webs
and opportunities for family strife and estate plans
when a home, typically a vacation home is
given to a group of people because the
parent or grandparent or whoever passes has this
wonderful vision of the family gathering there and
sharing it equally and just making so many
(21:19):
memories there and it continuing on and on
forever.
But even worse than that, which that scenario
is good, but even worse than what usually
happens is when a buyer, whether it be
Chris and I say, hey, let's get this.
We can't afford a vacation house in Aruba
individually, but let's buy half.
(21:40):
Or siblings doing it or whatever combination of
people and everything's great for that first month,
of course.
And we all see what happens when people
wanna sell or there's a big repair.
Just please don't do fractional ownership.
Don't do fractional ownership because that's one of
(22:00):
the hardest things.
No matter how much legal documentation you have
on paper, there's still always gonna be that
emotional side of it.
You have to have the conversation around what
happens when.
There's only so much contingency planning that you
can account for when it comes to adding
additional people to the decision.
(22:24):
So, once again, not deterring you to buy
the vacation home.
It's just- And it sounds like we
are.
I wanna jump in too, cause I wanna
join on this too.
We see this so often with parents who
have this vision and the vision is that
our family will have some great times together.
(22:47):
And when we're gone, we'll continue to have
those great times in the house.
And they might even think, oh, we'll set
aside some funds to help pay the expenses.
But the reality of it becomes, it can
become a source of dispute and disagreement.
Oh, my kid's one lives down the street
(23:11):
or like a half hour's drive away, they
can get there all the time.
But then there's that one on the other
side of the country, never gets to use
it, but has to pay equally.
And there's the one who's really well off,
they're doing fine.
And then there's the one who's like really
scraping by and needs the money for paying
for their kid's tuition.
Or they move into the house.
(23:32):
Or they move into the house for the
dinner, yeah.
So, you run into these snares where the
mind's eye of the parent leaving this asset
is how wonderful we'll continue these great family
times.
Our family's different, we get along so well.
(23:52):
But it can be a source of dispute.
And God forbid it doesn't end with that
generation, goes on to the cousins later on,
forget it.
You know what I mean?
So, deal with this in your estate plan.
Give thought, have some family conversations about what
(24:14):
would happen, who, does anybody want it?
You know, that kind of thing.
And the practical reality is it can't be
everybody.
No.
That's a reality.
Yeah, I worked for a trust company for
six years prior to coming to Wealth Enhancement
Group.
So, I saw this firsthand day in and
day out when it comes to, you know,
when the glue of the group is no
(24:34):
longer there and they have the exact same
thoughts, my kids will never fight.
Well, what if everybody wants it for 4th
of July?
And there's only, you know, three bedrooms and
there's four families.
And then also to think about now this,
typically you'll have to have a trust set
up to then help pay for the expenses.
(24:55):
Trust is gonna get taxed at a much
higher rate than what it would be if
they outright owned that money.
So, there's a lot of things to really
consider.
And you mentioned some of the capital gains,
implications, all these other variables.
You know, I wanna go back to though,
you know, all these complicating considerations, but that
doesn't mean there isn't virtue in having a
(25:17):
second home that you can enjoy for yourself,
you can enjoy for your family as like
facilitating opportunities for family times.
You know, I don't wanna have it be
that there's never a reason you'd wanna have
a second home either.
We're just saying, don't think that this is
something that should last for generations in the
(25:41):
way you think about the planning around this.
I can testify that owning a second home
was a wonderful experience.
Lisa and I bought one in the early
2010s after the depression of Beachfront Condo in
Florida.
We would come down, still working full time
in Massachusetts, obviously.
We came down whenever we could.
(26:02):
We had family use it.
It was wonderful.
It introduced us to an area that we
got to know and like.
And we ultimately decided to sell the condo
and, you know, build a house eventually here.
And- Relocate.
It was a easy, to your earlier point,
Britta, we knew the area.
We knew what we would do.
(26:23):
So we were introduced to the area on
vacation, after vacation, after vacation.
And we sold it at a nice profit
and all is well.
It can happen.
Yes, absolutely.
It absolutely is.
And, you know, that's why it's a common
thing.
And that's why we're talking about it today.
But oftentimes, you know, depending on your financial
(26:45):
situation, of course, you know, most of the
time people end up needing to use this
to rent.
And once you start bringing in other people,
whether that's we're going in on the property
together, I require renters to pay for it.
That's when things can get a little bit
trickier.
And if you don't have those family conversations
(27:05):
about what is going to be then the
best use of this when we're no longer,
then that's where things will really start to
get a bit hairy.
So, but yeah, no, you going down and
learning that you love this spot.
I have some clients right now that that's
what they're in process of doing.
And it's really fun to help them plan
(27:25):
for because it does make sense for them
based on what their goals are.
And I think a lot of times these
kinds of goals can really motivate people in
their development of their financial wellbeing, right?
There's the element of it's a motivator for
investment and savings.
It's something that they get excited about.
(27:46):
But do your financial plan.
I think we'd all agree.
It's important to go in with your eyes
wide open of what the costs will be.
Do some thoughtful deliberation around this before you
just go off on a tear, that kind
of thing.
And ultimately, real estate can be a source
(28:08):
of wealth, which is good.
But to your point, Britta, it is not
liquid.
And it is important that you have other
resources to meet your needs should you run
into the issues that inevitably come up for
need for cashflow and so forth.
Yeah, I always too, I'll say, think about
(28:31):
a really nice hotel or an Airbnb that
you would like to rent out and just
research that online and calculate what the cost
of that is.
So let's say it's 2000 for the time
you're going to be there.
And then compare that to the 12 month
or every single month when you have the
mortgage, is that actually going to outweigh that?
(28:54):
And do I really need to keep my
skis locked up in a closet for that
additional 11 month cost?
So just all of those kinds of things
always give you that flexibility.
That's a great point because we often hear,
oh, you're better to own than rent.
But not always.
It doesn't mean that your money is just
(29:15):
sitting in cash.
You can still get a conservative growth rate
on your money and it's still going to
be there for you.
And if you say, I need that additional
2000 every so often to go buy and
to stay in these places, then let's plan
for that.
Let's create that income, which is going to
be way less expensive.
(29:35):
And once again, your investments don't have an
HOA either.
Yeah, that's a great point.
Or a new roof.
We're going to wrap up, but before we
do, normally I start off with a little
get to know you.
And we were so excited to get into
the topic, we jumped right in.
But tell us a little bit about your
(29:55):
practice before we're done.
Sure.
Okay, so we're based in Coronado and we're
about, actually, we're about 800 million under management.
So it's, and I will say, being in
Southern California, rental properties are a very common
thing for clients.
They are becoming less common just because of
(30:18):
some of the restrictions.
We're actually bringing on a brand new advisor
that's going to start in about a month
or so.
So there's three of us out there right
now.
And my current business partner, we've actually known
each other for quite a few years before
working together.
So we have a lot more of kind
of that family feel in the office.
(30:39):
And if you ever decide to come to
Coronado and you want to work with us,
we have our annual summer yacht at the
Coronado Yacht Club, client appreciation event.
So that's always a good time.
Just a great way for everyone to just
get out.
Just a great thank you and get to
see one another.
Who's your ideal client?
(31:00):
Oh man, somebody that's nice.
Somebody that wants to work together.
Yeah.
But so no, I would say our ideal
client is really somebody that's looking to step
into retirement.
I am retired.
Somebody that tends to have some estate planning
(31:21):
needs and also to a lot of help
with like tax mitigation.
So being in California, once again, we focus
a lot on that legacy planning.
And then once again, if you're, you know,
just the nobody that's high maintenance.
No, I'm just kidding.
But you know, I think it's a lot.
(31:42):
We really like clients that are open-minded
to being creative, that like the idea share.
And those tend to be the type of
clients that we really work the best with.
Okay, terrific.
Hey, thanks for being with us today.
Great job.
Appreciate the help.
If you need help with your financial planning
(32:03):
or portfolio management, reach out to Wealth Enhancement.
Thanks for being with us today.
Take care.
(32:35):
AMR-info at wealthenhancement.com.
You're listening to Something More with Chris Boyd
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
(32:55):
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Welcome to Something More with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president and financial advisor at
Wealth Enhancement Group, one of the nation's largest
registered investment advisors.
We call it Something More because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to the program.
I'm Chris Boyd, a certified financial planner, practitioner.
I'm here with Jeff Perry, my co-host.
We are both of the AMR team at
(00:42):
Wealth Enhancement Group, and we're joined today by
a special guest, Britta Ferguson, CFP, and she
is from Carnado, California, also a senior vice
president and financial advisor with Wealth Enhancement Group.
Thanks for being with us.
Yeah, thanks for having me today.
I look forward to it.
It's good to have you here.
(01:03):
We've seen some of your articles on LinkedIn
and various things and said, oh, that's a
good one.
We should talk about it.
So that's what prompted us to reach out
to you, a couple of good LinkedIn posts.
And we thought, oh, let's talk about that
with our audience.
We've got a topic that I think is
a great financial planning topic, the notion of
(01:26):
trying to consider buying a second home, like
a vacation home.
And I'm sure there's a lot to give
weight to in thinking about this on the
one hand, should I rent?
Should I buy?
When you go through the process, how do
I decide if I can afford it?
Maybe even where should I begin?
(01:47):
So there's a whole range of things.
Where should we begin, do you think, in
this process?
That's a great question.
And I think it's only fitting somebody that
lives in San Diego and Coronado, California will
be the person to answer these questions.
Well, as a financial planner, there's a lot
of different things to be thinking about because
(02:08):
when you are buying a second home, it's
really what is the goal for this second
home?
Is it going to be more for your
personal use?
Is it more for an investment?
And so something that we always like to
start with is just understanding kind of what
is the end game?
And what is the vision with it?
(02:30):
Are you taking more of kind of like
an emotional approach with it?
Are you being a bit more rational with
the thinking?
And so that's kind of the starting point
is what is the vision?
What is the end game?
And then we work our way backwards regarding
a few things.
So is there a minimum amount of use
(02:50):
that would make it before you'd say, hey,
that's really probably not worth entertaining as a
second home?
You know, where you'd say, well, maybe you
want to rent instead?
Or how do you approach that question of
how much and that sort of thing?
Well, I think it's we always encourage our
clients first to go rent in the area
(03:12):
that they're even considering.
So before making a really large purchase or
a big decision, you should make sure that
is this the area you want to be
spending your time?
You know, when it comes to accessibility to
get there, when it comes to the day
to day of being there, like how do
you envision spending your time at this new
(03:33):
home?
Because sometimes we found that the second home
actually turns into the primary home.
And so if you're, you know, for instance,
you've got the New Yorkers that like to
go down to Florida, the snowbirds.
And so it's really understanding from like a
financial standpoint, or is this going to be
(03:54):
vacant?
And you're just going to be owning it
just for you and the family and whoever
else?
Or are you wanting to actually make some
money off of this during the interim when
you're not able to spend the time there?
Because that's going to have different implications when
it comes to write offs, taxes, things like
that.
Do you want to elaborate on that?
(04:15):
And is that something you encourage people to,
you know, like start sooner than they might
need it so that they have the investment
property features?
Or is it something that, you know, maybe
that creates its own complexities for tax considerations
and liabilities and all the rest?
(04:38):
Great question.
So, you know, it depends on affordability first.
So when you're looking at getting a second
home, is it with the intention of looking
to, number one, it's financially feasible for me
to do, but only under the, if I'm
able to do it because I then get
(04:59):
an income stream for it, it's affordable.
Because remember, a second home mortgage, you're not
going to get the same type of tax
benefits.
It's going to have a much larger down
payment than what a traditional home will have.
Insurance can be very costly.
And if you think about, for instance, in
Florida, hurricane insurance isn't something you necessarily have
(05:21):
to worry about in New York.
So what type of insurance and costs to
furnish the home are you going to be
taking on?
So one, is it affordable?
Two, it's only affordable if I'm able to
then rent it out or no, actually I've
done a great job saving.
And I really just like spending my time
(05:42):
in the same place on a regular basis.
Because another thing to think about is what
if you like to travel a lot of
places, what if you don't want to rent
this home out?
So what then is the affordability factor?
And is that going to then be limiting
some of your other financial goals that are
(06:02):
important to you to be achieving?
And then remember when you're not there, property
taxes still have to be paid.
There's ongoing maintenance.
Typically there's HOA fees because most times people
buy a second home, then some form of
a gated area, they're not there all the
time.
They want that additional security.
(06:24):
A side note on the contemplation of, can
I make this an Airbnb or rent it
out?
Oftentimes the neighborhood you want to live in
or the condos that you want to purchase
have restrictions.
I've seen, I saw one gentleman who bought
a condo on the beach to do what
(06:44):
you're talking about, he's going to rent and
own and live in it for the good
months, try to rent it out.
And he just wasn't under the rules.
So there's some homework.
He wasn't able to under the rules.
There's some homework you need to do and
not make assumptions because you may not be
allowed to rent out what you're thinking when
you initially purchase it.
(07:05):
Exactly.
So that would be more kind of like
in the legal and regulatory issues that you're
having.
And so when you think about it, understanding
Airbnb short-term rental laws, those are going
to be very, very important.
Also too, if you want to make any
additions or make major changes to the property
(07:27):
that require having to go through the city,
those are also things to be considering.
So, and what are the quiet hours?
So if you were, for instance, in Big
Bear, California, you have to have your lights
off by 10 p.m. Well, how many
renters or Airbnb-ers are really following that
(07:49):
guideline?
And who would ever think that I have
to have my lights off, outdoor lights off
by 10 p.m.? So these are all
the things that having conversations too with people
that live locally to really get a better
understanding of what is the impact on that?
What are the requirements?
And in San Diego, for instance, they only
(08:10):
have so many Airbnb permits available.
So would you even be eligible to get
the permit?
And if you bought somebody's home that did
have a permit, is that then transferable to
you?
So there's a lot of things to be
considering in that regard.
What about the other possibility of thinking, how
does this affect whether I'll be able to
(08:32):
go anywhere else?
If you're still in that mode of trying
to do second home as a vacation destination,
it seems like you have to be pretty
committed to that's your destination that you really
want to keep going back to.
I couldn't agree more.
And I feel kind of similar in that
(08:53):
regard, because I'm a big fan of the
mountains.
I love Utah.
My fiance and I, we love to go
snowboarding.
But we always toy, should we get a
place?
Should we not?
But then we realize we actually like to
stay in different parts of the city.
We like to go to different mountains.
And so if that's not something that you
(09:14):
truly envision, I want to consistently go and
spend my time at the same place.
Really make sure like, are you romanticizing this
concept of a vacation home?
Or maybe just rent, go to the hotels,
try out the different spots, and then decide
if you really like that.
(09:35):
Because if you're in your earlier, I'm just,
you know, I just retired, I'm in my
go-go years, you're probably in the mode
to want to explore a lot.
And if you have this big asset over
here, that's going to be pretty costly to
you, doesn't make sense to then take on
this additional responsibility from a financial and also
(09:57):
a day-to-day perspective.
And then maybe have to dampen your additional
opportunity to travel because this requires a lot
more outflow than maybe what you were anticipating.
You kind of hit on some of the
specifically financial considerations when thinking about a different
(10:21):
kind of mortgage, and there's some different expenses.
Do I have to fill the home with
furnishings and so forth?
But what are some of the other variables
like this?
You mentioned insurance, taxation, property taxes.
Are there a lot of other variables that
you think are we need to be thinking
(10:42):
of in terms of maybe it's an HOA
fee or something like that?
What would be some of these other considerations
that people need to be mindful of?
Sure.
HOA fees are absolutely one because, you know,
there's oftentimes not too much restriction when it
comes to how quickly they can increase those
(11:04):
on you.
Also too, what if it's in a 55
and up community, for instance?
Are they going to allow your children or
your family when you're not there to comfortably
be able to use it?
What is the proximity to your home?
How easy is it for you to get
there?
And have you then budgeted in the cost
(11:27):
to travel to and from the place?
Oftentimes people in Hawaii, when they land, they
all go to Costco and they fill up
and that's kind of the thing you do.
But what if you're out in the middle
of Montana and it's the middle of winter
and now you're kind of stuck out there?
So there's even just beyond the cost of
(11:48):
furnishing the home, the cost of proximity, you
know, you have to think about it from
what is the end game as well.
So what if you buy this home and
now I change my mind and I don't
want to have a second home anymore?
Well, what is then the cost to get
out?
What type of a market would you be
(12:09):
having to then sell this property in?
So there are so many things to consider,
but the good news is that's where having
a financial plan in place to run these
different scenarios, to add these different expenses that
can really help you understand, is it worth
my money?
(12:30):
And can I justify it with what I'm
trying to accomplish?
You know, even cash buyers who aren't worried
about the mortgage for a second home, for
example, they're pretty good at calculating their taxes,
their HOA, their expenses, and they always seem
to forget those things that happen, that we
all know that happen.
(12:51):
Those what ifs, like, oh, I'm buying a
house.
How old is it?
Oh, it's 20 years old.
Original roof, original AC.
Right.
Yeah.
And so they don't- You got two
houses to deal with those big home improvement
costs, right?
Yeah.
It's going to happen if you plan to
own this second property for a period of
(13:11):
time.
Always.
And don't think you're getting out of it
if you buy a condo or a villa
or a co-op, even though you're not
handling the replacement of the roof, you're going
to receive an assessment for the cost.
Yeah, for an HOA cost.
Yeah.
And then there's the trouble of what happens
to my house when it's sitting there vacant?
Meaning, if I have this repair, if I
(13:33):
have this, if my AC goes out, who
am I going to turn to, to help
me?
And am I going to get a reasonable
cost of repair?
So there's a lot to think about, not
just the predictable things, but the what if
this happens, how am I going to handle
it situations?
Yeah.
Including, even if you are thinking you're going
(13:53):
to, and you're able to rent it, Airbnb,
or with one of the local realtors, what
happens when you get that bad tenant?
Because if you rent long enough, you're going
to have that frat house party there.
Yeah.
And the house isn't going to be ready
that next Saturday for the next person coming
in without someone intervening and fixing it, so
(14:15):
to speak.
Also, you hope you have a good management
company helping you.
So if you do decide to take the
route of the Airbnb, and you did have
that awful renter, which hopefully eight out of
10 times, you're not getting that renter.
People tend to have better luck than not,
but it also depends on the location and
(14:37):
the type of people that you're renting to,
and also the price you're renting for.
So if you tend to go and you
say, I want to buy this vacation home,
I want to rent it, and I'm going
to only be able to rent it for
a lower rent, then you have more opportunity
to be able to open the door to
a wider range of people.
(14:58):
Whereas if you're putting a lot more money
into it, and it's expensive, and the cost
to rent something is a lot more expensive,
then there's going to be a smaller amount
of people that you're renting to.
But that could also mean that your repairs
are going to be a lot more because
your house is more expensive.
(15:18):
And then management companies, they're going to be
anywhere from about 10 to 30% on
average for a rental home.
So think about when you live in your
own home, you start to understand the quirks
of the home and, okay, maybe I need
to be mindful of this drain or that
shower.
In a vacation home, you're not spending enough
(15:40):
time to know that that's a consistent quirk.
That's a consistent thing I should be mindful
of.
And so, I think about a property is,
of course, it's an appreciating asset, but it
comes with an expense.
So whether that's a cash purchase, whether that's
the unforeseen, I need a new roof, I
(16:01):
need a new water heater.
Am I going to be able to get
the reliable guy or girl at the time
to be able to fix this properly?
So typically, your investments aren't going to call
you in the middle of the night and
say, hey, I need you to pay X
amount of dollars for me.
And so that's kind of where the trade
-off can lie is, is your money best
(16:24):
spent elsewhere where you still get to go
enjoy and travel, you still get to do
all of these things, or it's really important
for me and my family to have, in
consistency, the exact same place for us to
go to a year over year.
And that's how we want to spend our
time.
So personal choice at that point.
(16:44):
It's a great point because you do end
up with these kind of considerations about the
math of the whole story, right?
I think we'll talk about maybe the non
-math considerations.
There's virtues as well.
But when you're thinking about this purely as
(17:05):
an investment, and in this case, let's say
a rental scenario, I can probably get a
rough estimate of how does real estate appreciate
over time?
I can put a rate of return to
that for an estimate.
I can probably think in terms of, well,
(17:27):
I'm going to maybe generate this many weeks
of income or whatever, months or whatever, however
you're going to plan for this, whether it's
a short-term or a long-term rental.
And then you can quantify, okay, I've got
these costs, these fixed costs that are going
to be associated with it.
So maybe there's a yield, a net yield.
Hopefully, it's on the plus side.
(17:47):
How many times have we all seen these
scenarios?
It really isn't, right?
There's not a positive net yield.
But when you consider, okay, I put this
much capital to use, and is that the
best rate of return I'm going to get
for- Yeah, lost opportunities, right?
(18:08):
Sometimes not.
Now, I suspect we all have seen people
who've done quite well in making real estate
a means of creating wealth, right?
Yes.
They've had a rental property.
Maybe they've leveraged it for a new property
at some point in time.
(18:28):
We saw that go horribly badly, perhaps, in
the financial crisis for a lot of people.
But there's also been these stories where, okay,
I have this for a number of years.
The mortgage gets smaller.
I turn around and use that equity to
help me fund another property, right?
And there's a validity to that.
You can do that and make money.
But it's very difficult to do if you're
(18:49):
not the person who's managing the property, right?
Because the costs go up.
Yep.
Tremendously, yep.
Will you add on that kind of thinking,
Britta?
Yeah, absolutely.
And you have to think about additionally, even
above and beyond just a rate of return,
is a liquidity standpoint.
So what if you didn't do proper planning
(19:11):
and now maybe you put more of a
down payment down than you can actually afford
because you wanted the smaller mortgage and now
you have a big liquidity issue and you
need this additional money.
It's a lot harder to get money out
of a home than it would be to
sell something in the market, for instance.
And then think about it from an additional
(19:33):
next step too.
So when you think about it from a
legacy standpoint, so you're passing this money onto
your heirs.
Does this type of a home, does it
get put into a special type of trust
where it may or may not get a
step up in basis upon your passing?
If you haven't decided what will be the
(19:56):
next step for the home for your heirs
and children perhaps, then now they have to
decide and there's two of them and they're
torn between one wants to keep it and
one wants to sell it.
But once again, we have a liquidity issue
and we can't afford to buy the other
one out.
So there's a lot of things that need
to be considered above and beyond just the
(20:16):
immediate gratification of I have a second home,
this is great.
It's okay, what is the ultimate spider web?
What is the game plan for if something
were to go wrong?
What happens if one of my children doesn't
want to own the home once I pass
away and things like that.
(20:37):
So just make sure that certainly not saying
don't buy the second home.
Cause it's a very common thing, but truly
define like what are your goals around this
home and what are the what ifs that
need to be factored in before making that
big decision?
Jeff and I are both- I know,
go ahead.
Jump on this, go ahead, Jeff.
(20:58):
Well, certainly we see too many spider webs
and opportunities for family strife and estate plans
when a home, typically a vacation home is
given to a group of people because the
parent or grandparent or whoever passes has this
wonderful vision of the family gathering there and
sharing it equally and just making so many
(21:19):
memories there and it continuing on and on
forever.
But even worse than that, which that scenario
is good, but even worse than what usually
happens is when a buyer, whether it be
Chris and I say, hey, let's get this.
We can't afford a vacation house in Aruba
individually, but let's buy half.
(21:40):
Or siblings doing it or whatever combination of
people and everything's great for that first month,
of course.
And we all see what happens when people
wanna sell or there's a big repair.
Just please don't do fractional ownership.
Don't do fractional ownership because that's one of
(22:00):
the hardest things.
No matter how much legal documentation you have
on paper, there's still always gonna be that
emotional side of it.
You have to have the conversation around what
happens when.
There's only so much contingency planning that you
can account for when it comes to adding
additional people to the decision.
(22:24):
So, once again, not deterring you to buy
the vacation home.
It's just- And it sounds like we
are.
I wanna jump in too, cause I wanna
join on this too.
We see this so often with parents who
have this vision and the vision is that
our family will have some great times together.
(22:47):
And when we're gone, we'll continue to have
those great times in the house.
And they might even think, oh, we'll set
aside some funds to help pay the expenses.
But the reality of it becomes, it can
become a source of dispute and disagreement.
Oh, my kid's one lives down the street
(23:11):
or like a half hour's drive away, they
can get there all the time.
But then there's that one on the other
side of the country, never gets to use
it, but has to pay equally.
And there's the one who's really well off,
they're doing fine.
And then there's the one who's like really
scraping by and needs the money for paying
for their kid's tuition.
Or they move into the house.
(23:32):
Or they move into the house for the
dinner, yeah.
So, you run into these snares where the
mind's eye of the parent leaving this asset
is how wonderful we'll continue these great family
times.
Our family's different, we get along so well.
(23:52):
But it can be a source of dispute.
And God forbid it doesn't end with that
generation, goes on to the cousins later on,
forget it.
You know what I mean?
So, deal with this in your estate plan.
Give thought, have some family conversations about what
(24:14):
would happen, who, does anybody want it?
You know, that kind of thing.
And the practical reality is it can't be
everybody.
No.
That's a reality.
Yeah, I worked for a trust company for
six years prior to coming to Wealth Enhancement
Group.
So, I saw this firsthand day in and
day out when it comes to, you know,
when the glue of the group is no
(24:34):
longer there and they have the exact same
thoughts, my kids will never fight.
Well, what if everybody wants it for 4th
of July?
And there's only, you know, three bedrooms and
there's four families.
And then also to think about now this,
typically you'll have to have a trust set
up to then help pay for the expenses.
(24:55):
Trust is gonna get taxed at a much
higher rate than what it would be if
they outright owned that money.
So, there's a lot of things to really
consider.
And you mentioned some of the capital gains,
implications, all these other variables.
You know, I wanna go back to though,
you know, all these complicating considerations, but that
doesn't mean there isn't virtue in having a
(25:17):
second home that you can enjoy for yourself,
you can enjoy for your family as like
facilitating opportunities for family times.
You know, I don't wanna have it be
that there's never a reason you'd wanna have
a second home either.
We're just saying, don't think that this is
something that should last for generations in the
(25:41):
way you think about the planning around this.
I can testify that owning a second home
was a wonderful experience.
Lisa and I bought one in the early
2010s after the depression of Beachfront Condo in
Florida.
We would come down, still working full time
in Massachusetts, obviously.
We came down whenever we could.
(26:02):
We had family use it.
It was wonderful.
It introduced us to an area that we
got to know and like.
And we ultimately decided to sell the condo
and, you know, build a house eventually here.
And- Relocate.
It was a easy, to your earlier point,
Britta, we knew the area.
We knew what we would do.
(26:23):
So we were introduced to the area on
vacation, after vacation, after vacation.
And we sold it at a nice profit
and all is well.
It can happen.
Yes, absolutely.
It absolutely is.
And, you know, that's why it's a common
thing.
And that's why we're talking about it today.
But oftentimes, you know, depending on your financial
(26:45):
situation, of course, you know, most of the
time people end up needing to use this
to rent.
And once you start bringing in other people,
whether that's we're going in on the property
together, I require renters to pay for it.
That's when things can get a little bit
trickier.
And if you don't have those family conversations
(27:05):
about what is going to be then the
best use of this when we're no longer,
then that's where things will really start to
get a bit hairy.
So, but yeah, no, you going down and
learning that you love this spot.
I have some clients right now that that's
what they're in process of doing.
And it's really fun to help them plan
(27:25):
for because it does make sense for them
based on what their goals are.
And I think a lot of times these
kinds of goals can really motivate people in
their development of their financial wellbeing, right?
There's the element of it's a motivator for
investment and savings.
It's something that they get excited about.
(27:46):
But do your financial plan.
I think we'd all agree.
It's important to go in with your eyes
wide open of what the costs will be.
Do some thoughtful deliberation around this before you
just go off on a tear, that kind
of thing.
And ultimately, real estate can be a source
(28:08):
of wealth, which is good.
But to your point, Britta, it is not
liquid.
And it is important that you have other
resources to meet your needs should you run
into the issues that inevitably come up for
need for cashflow and so forth.
Yeah, I always too, I'll say, think about
(28:31):
a really nice hotel or an Airbnb that
you would like to rent out and just
research that online and calculate what the cost
of that is.
So let's say it's 2000 for the time
you're going to be there.
And then compare that to the 12 month
or every single month when you have the
mortgage, is that actually going to outweigh that?
(28:54):
And do I really need to keep my
skis locked up in a closet for that
additional 11 month cost?
So just all of those kinds of things
always give you that flexibility.
That's a great point because we often hear,
oh, you're better to own than rent.
But not always.
It doesn't mean that your money is just
(29:15):
sitting in cash.
You can still get a conservative growth rate
on your money and it's still going to
be there for you.
And if you say, I need that additional
2000 every so often to go buy and
to stay in these places, then let's plan
for that.
Let's create that income, which is going to
be way less expensive.
(29:35):
And once again, your investments don't have an
HOA either.
Yeah, that's a great point.
Or a new roof.
We're going to wrap up, but before we
do, normally I start off with a little
get to know you.
And we were so excited to get into
the topic, we jumped right in.
But tell us a little bit about your
(29:55):
practice before we're done.
Sure.
Okay, so we're based in Coronado and we're
about, actually, we're about 800 million under management.
So it's, and I will say, being in
Southern California, rental properties are a very common
thing for clients.
They are becoming less common just because of
(30:18):
some of the restrictions.
We're actually bringing on a brand new advisor
that's going to start in about a month
or so.
So there's three of us out there right
now.
And my current business partner, we've actually known
each other for quite a few years before
working together.
So we have a lot more of kind
of that family feel in the office.
(30:39):
And if you ever decide to come to
Coronado and you want to work with us,
we have our annual summer yacht at the
Coronado Yacht Club, client appreciation event.
So that's always a good time.
Just a great way for everyone to just
get out.
Just a great thank you and get to
see one another.
Who's your ideal client?
(31:00):
Oh man, somebody that's nice.
Somebody that wants to work together.
Yeah.
But so no, I would say our ideal
client is really somebody that's looking to step
into retirement.
I am retired.
Somebody that tends to have some estate planning
(31:21):
needs and also to a lot of help
with like tax mitigation.
So being in California, once again, we focus
a lot on that legacy planning.
And then once again, if you're, you know,
just the nobody that's high maintenance.
No, I'm just kidding.
But you know, I think it's a lot.
(31:42):
We really like clients that are open-minded
to being creative, that like the idea share.
And those tend to be the type of
clients that we really work the best with.
Okay, terrific.
Hey, thanks for being with us today.
Great job.
Appreciate the help.
If you need help with your financial planning
(32:03):
or portfolio management, reach out to Wealth Enhancement.
Thanks for being with us today.
Take care.
(32:35):
AMR-info at wealthenhancement.com.
You're listening to Something More with Chris Boyd
Financial Talk Show.
Wealth Enhancement Advisory Services and Jay Christopher Boyd
provide investment advice on an individual basis to
clients only.
Proper advice depends on a complete analysis of
all facts and circumstances.
The information given on this program is general
financial comments and cannot be relied upon as
pertaining to your specific situation.
(32:55):
Wealth Enhancement Group cannot guarantee that using the
information from this show will generate profits or
ensure freedom from loss.
Listeners should consult their own financial advisors or
conduct their own due diligence before making any
financial decisions.
Popular Podcasts
United States of Kennedy
United States of Kennedy is a podcast about our cultural fascination with the Kennedy dynasty. Every week, hosts Lyra Smith and George Civeris go into one aspect of the Kennedy story.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Bookmarked by Reese's Book Club
Welcome to Bookmarked by Reese’s Book Club — the podcast where great stories, bold women, and irresistible conversations collide! Hosted by award-winning journalist Danielle Robay, each week new episodes balance thoughtful literary insight with the fervor of buzzy book trends, pop culture and more. Bookmarked brings together celebrities, tastemakers, influencers and authors from Reese's Book Club and beyond to share stories that transcend the page. Pull up a chair. You’re not just listening — you’re part of the conversation.