Finance Tips and Hidden Costs For Snowbirds
As we sit here in Central New York, battling single digit temperatures and waiting for the negative temperatures to hit tonight, our thoughts turn to our many clients who travel south for the winter. The number of snowbirds migrating to warmer temperatures continues to grow. Whether you purchase a second home, or decide to rent one for the season, a little planning makes the lifestyle more enjoyable and affordable.
Two of the most popular destinations for snowbirds continue to be Florida and Arizona. Yet, over the years snowbirds have expanded their winter relocations to several of the southwest states.1
Planning your finances and investments allow you to live the lifestyle you chose. Achieving your lifestyle involves implementing the right strategies for your financial situation. Working with a financial advisor helps to make the right move at the right time.
Take a look at your current plan, did you include the possibilities of economic shifts that could affect your snowbird future? More critical are the recovery solutions or alternatives included in the plan? If not, you need to revise the plan. If you haven’t even started planning, it’s time.
Planning a Snowbird Budget
No matter where you choose to spend the winter, the cost of living may have a few hidden surprises. If you have a particular lifestyle talking with a financial advisor will help to reach your goal. You can’t predict everything, but you can plan for the expected and have a good time in the sun. Start with doing some research on the area and the financial needs for a winter residency.
Your financial advisor can develop budget projections to maintain both your primary residence and your winter retreat. Long-term financial strategies should include any anticipated economic changes each year.
To Purchase or Rent Is the Question
Here’s where meeting with your financial, legal and tax advisor is essential. They can provide you with information to purchase a second winter home or commit to a short-term rental. Remember the reason your planned this move was to get away and enjoy a different lifestyle. Consider the following pros and cons for each:
- Purchasing a snowbird home may come with tax thresholds, estate issues, and passive income if you rent the house after your winter departure.
- Renting may be cheaper and more comfortable compared to the cost of maintaining a home.
Before you purchase your winter residence, spend some time at the chosen location and see if it meets your requirements. In some areas, snowbirds add a surge to the local economy, making it’s possible to get a part-time job as part of the community. The earned income helps pay for living expenses. There may be financial precautions for these earnings. The income may be subject to the state’s tax regulation as a part-time resident.
Secondary Home Expenses
For some, this second home will be the final move when it’s time to downsize. If you’ve planned this decision and your retirement funds are sufficient enough to cover the day-to-day cost until that time – you have no worries.
As a homeowner, you already know the potential cost of owning residential property. Secondary homes come with a few more expenses and decisions. This investment can generate rental income, tenant expenses, and tax deductions. All helping to offset some of the taxes.
As an absent landlord, you will need to engage a property management service, unless you’re ready to dedicate your own time to remotely managing the rental property. Either way, rental properties instigate hidden costs of maintaining the home. Are you financially and emotionally ready to handle these added expenses?
- Property taxes
- Property and tenant insurances
- Management fees
- Maintenance services
The purpose of planning for retirement is to maintain the lifestyle you want. There are rewards and risks to buying a snowbird home. We are happy to talk with you to weigh the benefits of owing or renting a winter home. One thing is certain - It’s never too late to make changes for a better life.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.