Making Money On Second Home A Fantasy?

Jeff Brown, a business columnist for the Philadelphia Inquirer, believes a second home is an indulgence if it’s being acquired primarily or exclusively for one’s own use.

The following quotes are from a recent article of his:

“Say you bought a place for $300,000, borrowing $240,000 at 6%. Suppose the property appreciated 6% a year — about double the inflation rate. After five years, the property would be worth just over $400,000, for a $100,000 ‘profit’ on the $60,000 initially invested as the down payment. But interest would have cost about $70,000, reducing the profit to $30,000.

“A $30,000 gain on a $60,000 investment over five years is an annual return of about 8%, which is nothing special. But you might also have paid $5,000 a year in real estate taxes, and another $1,000 a year in homeowner’s insurance. That’s $30,000 over five years—erasing your profit.

“If you pay a standard 6% realtor’s commission to sell the property, you’d be $24,000 in the hole. And we haven’t considered maintenance and utilities, cost of furnishings and traveling to the property.