Do you dream of owning a waterfront home in Florida? An A-frame on the slopes in Telluride? A pied-à-terre in Manhattan? Or maybe just a cozy bungalow beside a placid lake down a quiet road? A second home can be an escape from the workaday world—or from extreme seasonal weather—but the reality of owning multiple homes can be very different from the dream. Some buyers end up dearly wishing they had rented a second property instead…or stuck with just the one home.

Some people do end up loving their second homes and are glad they bought them. That might turn out to be you—but you should go in with eyes wide-open. So here are nine things anyone considering a second home needs to know before taking the plunge…

Money Matters

  • The new federal tax law slashes second-home tax advantages. Before 2018, taxpayers could deduct the interest on up to $1 million in mortgage debt…but that’s been chopped to $750,000 for new mortgages. (The $1 million limit remains in effect for mortgages issued before December 16, 2017.) There’s also a new $10,000 cap on deductions for state and local tax payments such as property taxes. These tax limits apply to the total amount that singles or couples filing jointly pay in mortgage interest and state/local taxes—which means that people who own multiple properties are especially likely to exceed the limits, capping their tax deductions.

What’s more, the standard deduction—the deduction taxpayers can claim without itemizing—has been nearly doubled to $24,000 for married couples filing jointly ($26,600 when each spouse is age 65 or over). As a result, a much smaller percentage of taxpayers will itemize their taxes than in years past. The tax advantages of home ownership disappear if you don’t itemize.

  • A second home is an investment, but it might not be your best investment option. Home buyers often reassure themselves that real estate is an investment. But most second-home buyers already have a big chunk of their assets tied up in their first homes—adding a second home often means their assets are not well-diversified, leaving them at substantial risk if there’s a downturn in the housing market.

Besides, real estate tends not to be the great investment people imagine because they fail to fully consider the costs of home ownership beyond the mortgage—maintenance, insurance and taxes can really add up over the years. Factor in these costs, and the stock market offers substantially better long-term returns than the housing market.

Renting out your second property when you are not using it can improve this investment’s return, but perhaps not by as much as you hope. If your second property is seasonal, renters might be willing to pay significant rents only during the portion of the year when you want to use the home yourself. If you hire a property management company, it’s likely to claim around 10% to 12% of your monthly rental income (and if you don’t, you’ll have to deal with the hassles of being a landlord). And some tenants do not take great care of rental properties, inflating property owners’ maintenance bills.

  • You’ll need two of everything. People who own two homes—even if one or both are owned outright without a mortgage—still have two property tax bills, two homeowner’s insurance premiums and two sets of utility bills. They also must own two homes’ worth of furniture…housewares… linens…tools and more. (If you rented a second home instead, you could find one that’s already furnished—potentially a considerable savings.)
  • Second-home upkeep costs are likely to be higher than you expect. People who own two homes often have to hire pros for chores, such as lawn care, that they previously did themselves—you can’t be in two places at once, after all. And because one or the other of your homes often will be sitting vacant (or be occupied by a tenant who might not pay close attention to home-maintenance issues), a small problem such as a slow water leak might escalate into a major repair bill before you next visit the property and spot it.
  • It could be tricky to sell or rent out your second home. If your budget gets tight, you can always sell your second home or rent it out—right? Unfortunately, if you hit a tough financial stretch, there’s a good chance this will occur during a recession, when many other second-home owners find themselves in the same boat and attempt to sell or rent out their second homes, too. The vacation property market typically becomes flooded at times such as these, driving down prices dramatically.

Lifestyle Considerations

  • Owning a second home could make your life less interesting. People generally buy second homes to bring variety to their lives. But once they own two homes, they often feel that they have to spend all their time in one home or the other in order to get their money’s worth out of both. As a result, they become far less likely to travel elsewhere and explore new places.

If your goal is adding variety to life, you’d probably be better off renting vacation properties, either as year-round rentals or just for a few weeks or months as needed. That way you wouldn’t feel tied down to a second home and would have the freedom rent a property in a different part of the world whenever the urge struck you.

  • Your housing needs could change as you age. The remote retreat that’s perfect for you now might be inappropriate if you or your spouse later needs to be closer to medical facilities. The third-floor walk-up pied-à- terre that’s romantic now could become inaccessible as your mobility decreases. If you rent a second property, you can just rent something more appropriate as your needs change…but if you buy, you’d have to sell, paying thousands in real estate commissions and other costs.
  • Your heirs might not want to inherit your second home. You might consider a second home you buy to be a legacy you will leave your family. But many heirs would rather inherit liquid investments such as stocks and bonds than a vacation home. If they inherit real estate, they must pay the property’s expenses to keep it in the family (unless you can afford to set up a trust to cover these costs). Often, heirs conclude it isn’t worth it—particularly if they don’t live near the property. When there are multiple heirs, inheriting a vacation property can trigger arguments about its shared use and costs.
  • A second home can be a source of anxiety. You might picture a second home as an idyllic retreat that will help you feel calm. But home ownership can be stressful, and owing two homes can double that stress. Examples: If you intend to rent out the property part of the time, think about how you will feel having a stranger living in the home. If you intend to buy in a coastal region, picture yourself watching the Weather Channel and wondering whether the latest hurricane will hit your home hard.

If these sorts of things keep you up at night, owning a second home probably isn’t for you. If you remain undeterred after considering all these downsides, happy house hunting!

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