By Lucy Lazarony, Next Avenue
Michael Murray has been trading Massachusetts’ snow for Florida’s sun for 15 winters. At first, he and his wife, Caroline, headed south on vacations; two years ago, they bought a home in Florida. They relish the snowbird lifestyle, living in the warmth while winters rage up north.
“We enjoy being snowbirds mainly because we want to be able to spend time outdoors and have access to healthy and quality food (fresh fruits and vegetables) year-round,” says Murray, president of Peabody Wealth Advisors in Danvers, Massachusetts. “We also wanted to have a place for friends and family that we could share and enjoy with them. Finally, we are tired of New England winters.”
If, like Murray, you would like to escape to a warm place for the winter, here are some important financial tips to keep in mind. Snowbirds flocking to winter roosts in Florida, California and Arizona should read on.
Ten Tips to Avoid Trouble
1. Vacation first, buy later. While on vacation in your favorite snowbird spot, check out the neighborhood to see if you would like to buy a home and live there for part of the year.
“Just because you fall in love with an area you are vacationing at, don’t make an impulsive decision to buy a home,” Murray says. “I would recommend renting an Airbnb/VRBO (versus a hotel) for at least two weeks so that you can be embedded in a neighborhood and find out what it’s like to live there. We did that and found out we didn’t want to live too close to the downtown because it was very loud on the weekends.”
2. Consider the price of seasonal rentals. Renting a place may not be cheap during the snowbird season but the flexibility it gives you may be worth it. Consider the case in Florida.
“Renting is a popular option for snowbirds who want to experience Florida before making a large financial commitment,” says Angela Yungk, managing broker of Arterra Luxe Florida in West Palm Beach, Florida. “However, I would keep in mind that seasonal rentals can be expensive, so make sure to plan ahead. I’d recommend checking for restrictions in communities such as age limits or blackout dates.”
Popular Airbnbs may come with hefty price tags during the snowbird season. “I would suggest that you calculate the cost of an Airbnb for your entire stay compared to renting or buying,” Yungk says.
3. Join the town’s local Facebook page. Check out a town’s social media to get a sense of how it might be to live there.
“You get to see the good and the bad of any potential issues or any drama in the town,” Murray says. “It also becomes a great resource later if you need to hire local service providers.”
4. Think about why you want to buy a second home. Before you buy a home as a snowbird, examine the reasons why you want one.
“I had a client who wanted to purchase a second home in Florida,” says Dave Flegal, a Certified Financial Planner and founder at Flegal Financial Planning in Cleveland. “After asking them a few questions, we uncovered their true desire wasn’t to purchase a home in a particular location, but to have a place where they could spend quality time with all their kids and grandkids. The clients ultimately decided renting was their best option so they could switch up the location whenever they wanted.”
5. Don’t put all your cash into buying a second home. Avoid becoming cash poor when you acquire a home in your favorite snowbird location.
“Purchasing a second home is generally much more expensive that people realize, so it’s important to ensure you maintain adequate liquidity in your financial plan and don’t use up a large portion of your savings/after-tax assets for a down payment,” says Zach Gutches, a Certified Financial Planner and founder of True Riches Financial Planning in Aurora, Colorado. “Otherwise, it can lead to accelerated withdrawals from your tax-deferred retirement accounts.”
Depending on your age, that could trigger a penalty on top of ordinary income tax.
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6. Hire a local insurance agent. You’ll want to reach out to a local insurance agent to make sure you have the right insurance for your new home. This is especially true in Florida.
“Due to hurricane and flood risk, Florida is a much different market than most places and an experienced local agent can help you understand the risks and how to properly insure your property and personal belongings,” Murray advises.
7. Decide if you want to rent out your second home. When you return to your primary home your snowbird home will be empty. Should you rent it out? Consider this option carefully.
“Let’s say you love a location and know you want to purchase there but only want to live there for a few months and rent the remainder of the year,” Flegal says. “It’s important to understand the potential risks and complexities associated with this.
“If you go down this route, you’ll likely need to find a property-management company to find renters and manage the property while you’re not there. There are also tax nuances to consider so always consult with a tax professional.”
8. Buy an extra car. If you are a long-term snowbird, you may wish to purchase a car for the winter months.
“Once retirees own a second home in (their) snowbird destination, many will purchase an extra car to leave there for use during the winter months,” says Regina McCann Hess, a Certified Financial Planner at Forge Wealth Management in Malvern, Pennsylvania. “While this may or may not be a huge expense, you still need to account for it in your planning. Plus, you will need to have insurance for this car and pay to maintain it.”
9. Check your health care insurance coverage. If you are going to be out of your home state for several weeks or months, you’ll want to review your health insurance. Will you be covered in the new state you are visiting?
“Before deciding to split your time in two different states, it is imperative that you check with your health insurance company to determine if you will be covered in the secondary location,” McCann Hess says. “You may also need to consider that even if you are covered, it may be considered out of network and your portion of the cost could be much higher.”
10. Choose your primary residency. If you have two homes in two different states, you’ll need to declare one as your primary residence.
“Whatever state you live in, that’s where you’ll be taxed, so be intentional about where you choose to make your primary residence,” says Mark Parthemer, Florida regional director and chief wealth strategist at Glenmede in West Palm Beach, Florida. “For some people, that might require that you become a resident of a new state. While doing so is usually not difficult, becoming a former resident of a prior state can be. It entails spending the requisite days in the new state (typically, 183), and truly changing residency.
If you change residency to a new state, there are several things you’ll need to change.
“Actions you may want to take include changing your driver’s license, voter registration, primary care physician (and vet for your cherished pet, of course!), and estate-planning documents among other things,” Parthemer says. “Another key step to protect against an audit by your prior state? Sell your prior home; if selling is too great a challenge, consider downsizing.”
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