Our kids are out of the house. Should we sell?

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Q. My kids are out of the house and it’s bigger than we need. But we don’t really want to sell because we like the idea of having a place that’s big enough for everyone for the holidays. I’m thinking of buying a condo at the shore or maybe just renting one and keeping the larger house. How can I decide if renting a second place or buying it is the best choice? I would be able to afford either so it’s not just a money question.
— Empty nester

A. Congrats on seeing your kids out of the house and to independence.

The decision to rent or buy a second home will depend on several financial and emotional factors.

In general, if you don’t plan to use the beach house frequently then renting may be a better option from a financial and flexibility perspective, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.

On the other hand, if you plan to use it often, then you may enjoy the pleasure of being a property owner, he said.

“If you decide to buy and are open to renting it out when not in use, that could tilt the scale in favor of buying,” he said. “Keep in mind, though, the role of a landlord requires time and effort unless you are willing to hire a management company to manage it for you for a fee. The real estate market can fluctuate, so it is important to consider the current market conditions when making your decision.”

Panambur said you should compare the cost of renting with the overall cost of buying and maintaining the beach house net of any potential rental income.

The cost of buying includes closing costs, mortgage payments net of any tax benefit, property taxes, maintenance, repairs, and insurance, he said, noting that the insurance premium depends on the value of the property and the perils covered.

If you put down a significant down payment, then the opportunity cost of that amount would also have to be included in the cost of buying, he said.

“A benefit of buying is that if you buy in the right place at the right time, the value of your property could appreciate,” Panambur said. “There are a few tax rules that could benefit a purchase such as potential to deduct mortgage interest, ability to deduct expenses and depreciation against rental income.”

Purchasing real estate, whether it is a primary home, or a second home requires a significant financial investment, he said. You should not purchase real estate that you cannot comfortably afford in the hopes that an immediate and significant appreciation of the property would make it a worthwhile investment, he said.

“There are costs to holding real estate as discussed previously and any appreciation in the value of the property or rental cash flows will have to overcome this hurdle to be profitable,” he said. “The odds of success improve with time.”

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This story was originally published on Sept. 4, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.