Retirement planning with a second home

Family_HomeIn the words of American businessman and author Robert Toru Kiyosaki, “Real estate investing, even on a small scale, remains a tried and true means of building an individual’s cash flow and wealth.”

And he isn’t alone in that thought. According to a recent survey by the Princeton Survey Research Associates International, real estate is the favorite long-term investment option of the respondents (27%), putting it ahead of cash investments (23%), the stock market (17%), and precious metals (14%).

Now if you’re considering real estate as an investment option, take it a step further. The National Institute on Retirement Security has reported that nearly 45% of the working-age households in the U.S. don’t have any type of retirement accounts. One way you can help better prepare yourself for retirement is with a sound real estate investment.

However, what do you do with the property until it’s time to make the move to retired status? Using a second home as a rental property until you are ready can provide an income stream when you and your family don’t need to use it. While this is a great way to jump start your retirement plans, you need to be aware of all the financial aspects of it, including the tax implications.

As of 2010, if you own a second home for personal use, you are allowed to rent it to another party for up to two weeks (14 nights) without reporting any of the income. On the flip side, a second home is considered an investment property if you spend less than two weeks in it and then attempt to rent it the rest of the time.

Savvy tax planning can make a difference in your return on the property so always consult with a tax professional or a specialist such as a national qualified intermediary for tax-deferred exchanges if you are considering buying a second home.

If you are interested in exploring investing in a second home as a way to plan for your retirement, I can help you get started. Contact me today to discuss what options are best for you.