How Smart Retirees Turn a Second Home Into a Financial Asset
Buying a second home during retirement, especially if your savings are solid, can improve your lifestyle or be a strategic financial choice, but it requires meticulous planning.
Buying a second home in retirement can be a great way to gain appreciation and generate income. But it's not without its risks and downsides.
Brett Johnson, owner & licensed real estate agent at New Era Home Buyers, has clients who purchased second homes in highly sought-after areas of the country. Within a few years, in addition to gaining equity, the homes were paying for themselves through rentals. He also has clients who cover their mortgage, HOA, and management fees with rental income and still make a little extra on the side.
“The key is to treat it like a business, price it right, and know the local regulations,” Johnson said.
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Throughout 2025, mortgage rates for second homes have consistently been higher than those for primary residences, creating cash-flow challenges for many buyers. Lenders have also imposed stricter lending requirements, including larger down payments (often exceeding the standard 20%) and requiring more in-depth financial information.
Additionally, many popular vacation destinations where buying a second home is highly desirable have introduced short-term rental restrictions, reducing available options, according to Agents Gather.
In line with an August Redfin report, mortgage rates have continued to trend downward, reaching multi-month lows of around 6.22% to 6.32% for 30-year fixed-rate loans, well below the 7%-plus highs seen earlier in the year. This relief has persisted into November, with no significant uptick in spite of lingering inflation pressures. Forecasts from sources like Fannie Mae and the Mortgage Bankers Association suggest rates will likely hover in the mid-6% range through year-end.
If you have ample financial resources and you’re ready to swing for the fences, check out these steps (and the pros and cons) to buying a second home in retirement.
Steps to buying a second home in retirement
Before deciding to buy a second home, ask yourself how a second home fits into your retirement plans and if you have sufficient savings to support the purchase without jeopardizing your long-term goals.
- Avoid risking retirement funds: Withdrawing from your 401(k) or IRA before age 59-1/2 incurs a 10% penalty, plus taxes. And even after 59-1/2, large withdrawals may push you into a higher tax bracket.
- Vacation home, primary residence, or investment: Decide if the home is for personal use, rental income, or eventual primary residence. For example, in 2024, 45% of vacation home buyers were in their 50s and 60s, purchasing the property for personal use.
- Lifestyle fit: When considering a second home purchase, choose a location that fits your lifestyle. Consider accessibility, such as a single-story home for aging in place, and the home’s proximity to healthcare or amenities.
- Explore financing options: If you have substantial savings, paying in cash avoids mortgage interest. Second-home mortgage rates are about 0.5% higher than those for primary residences, typically ranging from 6% to 7% in 2025. Paying in cash will help preserve cash flow for other expenses.
- Research the market: Second home demand has cooled since 2020 due to high interest rates, with 23% of listings seeing price cuts in January 2025. Research local markets for price trends and rental potential if you plan to generate income.
- Consider all costs: Beyond the purchase price, set a budget for ongoing expenses — maintenance, utilities, taxes, and insurance (especially in high-risk areas like hurricane-prone Florida). Underestimating inflation or taxes can strain finances.
Pros and cons of a second home purchase
The decision to purchase a second home comes with several key considerations, including financial commitments and market risks.
Pros of buying a second home in retirement
Peace of mind: A second home can provide personal joy, potential rental income or serve as your future primary residence. Jacob Naig, a real estate investor, licensed agent, and contractor, says that peace of mind is a preferred reason for buying a second home. “Some of my customers say, ‘I wanted one more house that could feel like a home for us, not the kids, not work, just for us.”
Financial leverage: “With equity built up in a primary residence, many retirees utilize that financial runway to buy a smaller second property outright — frequently in cash, sparing mortgage headaches, Naig adds. “Some use their second home as a soft landing for relocating completely at a later date.
Personal retreat: A second home can provide retirees with a dedicated space for vacations or seasonal escapes, eliminating the need to book accommodations.
Long-term investment: A second home can appreciate over time and serve as a valuable asset for your financial portfolio. For example, over the past decade, U.S. home values have appreciated at an average rate of 6% to 7% per year, according to a report by the National Association of Realtors (NAR). This indicates strong growth potential for homes, including second homes.
Tax advantages: Renting out the property for more than 14 days each year may allow tax deductions for expenses such as utilities, maintenance, and home improvements. Additionally, establishing a permanent residence in a place with lower state taxes can reduce your overall tax burden in retirement.
Cons of buying a second home in retirement
Ongoing costs: Andrew Reichek, Real Estate Broker and CEO at Bode Builders, says that although there are obvious benefits to buying a second home, there are clear negatives too, such as ongoing costs after buying. “One of my clients bought a lake house in retirement and realized that keeping up with the maintenance was too much work, particularly living off-site. They ended up contracting a local property management agency, which relieved the pressure but contributed to their total expenses.”
Liquidity risks: Reichek also points out that most retirees maintain a fixed or retirement income, and tying up capital in another property can affect financial mobility, particularly in fluctuating markets or when unexpected medical costs arise.
Opportunity costs: Owning a second home can divert funds from other investment opportunities. For instance, if $500,000 (the cost of your second home) is invested in an S&P 500 index fund at a 7% annual return, it could grow to $983,576 in 10 years, or $1,938,838 in 20 years, according to the FHFA House Price Index.
On the other hand, a $500,000 home appreciating at 5% annually would reach $814,447 in 10 years or $1,326,650 in 20 years, making stock market investments more lucrative for retirement security, according to Vanguard.
Tread carefully before buying a second home in retirement
Naig offers this final word of advice: “Buying a second home can be both a sound investment for retirees or an unexpected headache, depending on how the decision was made and for whom it was made.”
Before deciding to buy a second home in retirement, assess your financial stability, lifestyle goals, and risk tolerance to ensure the decision enhances, rather than jeopardizes, your retirement security.
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