I spent a fair bit of the summer thinking about second homes. At times it seemed as if every second person I knew had a second home – with plenty bought since lockdown started, as a getaway from urban London. They are (see map below) for the most part 2-3 hours drive form London; the Cotswolds just beyond Oxford and the Poole/Bournemouth coast in the southwest are particularly popular among my London circle.
I have had longstanding views on 2nd homes, so I found James Max’s summer FT article to be very thought-provoking on the topic.
2nd homes as hassle and/or social problem
James Max starts with my position – that 2nd homes are fundamentally a hassle. Complexity. Things that can go wrong. Costs. An asset that is more of a liability. Like James, I don’t see myself letting a home out, via AirBNB, VRBO or the rest – so I wouldn’t see any income to offset the additional council taxes, utility bills, and occasional maintenance to deal with. Builders to find, gardeners and cleaners required.
James goes on to highlight how 2nd homes also come with ‘social’ issues and challenges – given the shortage of housing in this country, is buying a 2nd home really socially responsible? This isn’t a big factor for me. My starting point is that the market is the market, and if policymakers want to bend the laws of economics to their will they have plenty of ways of doing so – e.g. sky high petrol taxes, a 15% stamp duty on 2nd homes, restrictions on foreigners buying assets – and in the meantime the market will find the remaining solutions. I am not going to complain at ‘2nd home taxes’, restrictions on AirBNB, sensible wealth/property taxes, high petrol taxes, luxury car taxes, expensive parking permits and so on, and in return I’m not going to complain at people buying 2nd cars, 2nd properties, and so on.
2nd homes vs liquid assets and lovely holidays
I have long maintained that it makes more sense to plonk £1m in a holiday investment pot and spend £40k a year on holidays, rather than buy a £1m second home and sign up to £10k+ a year of ongoing costs. Via the holiday/hotel route, you could spend £10k a month for a quarter of the year and have your pot last roughly indefinitely.
However, I must admit that I don’t know anybody who has really gone for my ‘financial 2nd home pot’ approach. And the locations that most appeal to me for a 2nd home, there really aren’t suitably enjoyable hotels / etc to take my £10k a month for the summer.
2nd homes as tempations
And so, even I have been tempted by the lure of a 2nd home. What, you might ask, isn’t your aim FIRE – or at least Financial Independence – and isnt a 2nd home antithetical to that outlook?
Most FIRE people are shooting for a pot of money to provide independence; in round numbers let’s call this £1m, or perhaps in London £2m. Fat FIRE types like me need more, but for 90% of folks in the UK, or nearly anywhere in the developed world, £1m-£2m is enough of a pot to provide a decent measure of independence.
As it happens, £1m is also enough to buy a very nice cottage/2nd home somewhere scenic in the UK’s expensive South, in an area of outstanding natural beauty, near a seaside, etc. Even my wealthiest mates haven’t put more than £2m to work into a second home, but £2m in the Cotswolds or on the coast buys you a very serious property – an Old Vicarage, a premium waterside location, that sort of thing. So the 2nd home budget in my mind is £1m-£2m.
So, for plenty of people a 2nd home and a pot to secure financial independence require essentially the same amount of money. Surely you can’t sensibly have both?
Given my extravagant cost of living / stiff requirements /call-it-what-you-will, my FIRE number is much higher than most – over £10m. At this level, a £1m 2nd home hardly touches the sides. It might even be thought of as sensible asset diversification.
In fact my 2nd home temptations start a bit higher than £1m, at more like £1.6m. £1.6m feels like a number that would let me buy a very nice option in a bunch of locations I like.
Example, I could own a seaside apartment in Dorset.
Or a quintessential Cotswolds house.
Or a seaside spot in Kent
Or a house with a view near Southwold
2nd home, 2nd country?
Or, with only a slightly larger budget of £2m, I could go abroad. Perhaps a ski in/ski out chalet in Verbier…
… or a magnificant villa in Ibiza.
Or perhaps in Tuscany for €1.9m
Or a new build villa in Greece. Greece’s ‘golden visa’ scheme caught my eye recently; investing €250k+ in the country gives you a 5 year EU schengen visa, without any obligation to spend a certain amount of time in the country, and with sensible renew / upgrade options after 5 years.
2nd home as a source of happiness
Having been well aware of the potential downsides to 2nd homes, I was struck by James Max’s enthusiasm for his 2nd home on the coast in Essex – and by his conclusion.
Certainly from my perspective, in spite of the extra chores or expense, it is the place where I am happiest. Choose yours wisely, it can be where you feel happiest too.
James Max, FT 8 August 2021
Which has left me thinking not whether, but when and where.
Mrs FvL and I are starting to debate the practicalities. The options look different, in a Zoom work-from-home world, but nonetheless London would remain the ‘main home’ – for myriad reasons.
But somewhere with a decent view, good broadband, and at least as good weather as London has a lot of appeal. Throw in decent transport links, some measure of ‘lock up and leave’ and some reasonable restaurants/cafes/etc near by and we are becoming quite excited.
We are wondering how we would divide our time? What would happen to our social circle? How would we manage our pet cat ? Who would manage furnishings/etc?
It may yet be a thing, this 2nd home idea. The heart and stomach and excited, even if the head is still very sceptical.
Are we crazy? Any considerations we’ve missed? I’d welcome comments.
FIRE v London 
I’m the opposite… can’t see the point of the faff or for that matter having to keep going to the same place. Also, whilst you might be fine with the “moral” aspect of 2nd home ownership, your new neighbours might not be… a relative recently sold theirs on account of hostility from the locals.
Am definitely in the “invest the capital and stay in nice hotels” camp
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In pure FIRE terms I’d save up a holiday pot, however our family has had a holiday home on a Greek island for 20 years – as James Max says, of all places in the world it the the place I feel most content, calm and happiest.
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For something a little more unique than Poole, Cornwall, etc, there’s plenty of technology for off grid living that opens up unique opportunities but the missing piece was always good internet, oftentimes even for properties on the grid. Starlink’s satellite based service is now in beta in the UK. You could subscribe at your London address to test it while you search and relocate it later. To my mind it’s the first time there’s been a viable option to wfh literally anywhere in the UK and the last obvious source of ‘value’ in some existing properties. Have fun with your search!
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Sounds amazing, this will be more popular with the 3 days in the city 4 days out change that seems to be coming.
I’d try to go something with immigration options – but they are a bit of a faff too, you arent buying what you want just whats available.
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I’ve been through this thought experiment many times (while living in London, for a ski chalet while living in Switzerland). Every time, from a purely financial perspective – it doesn’t make sense. I always ended up at “cash is king” – so invest and then spend the proceeds on hotels / holidays. It got me to “fire” earlier, and given the path my life has taken I don’t regret the decision.
Ultimately I think it’s really more of a personal / emotional decision than a financial one. Strictly financially speaking, it doesn’t make sense. I have ended up moving with my work a lot, and also traveled a lot since stepping back from 9-5 (but these days I’m living in Bali and actually building a place here – $1m goes a lot further here than in Switzerland or London!), and whilst it would have been lovely to have a ski chalet in Switzerland to use on the weekends, I was glad when I left that I hadn’t bought it! I know other people who have children, who whilst knowing it wasn’t the greatest investment, love their ski chalets and use it as a base to reconnect with their children (who are spread all over the globe) each summer and winter, and wouldn’t trade it for anything. Other people I know who live in Geneve and have children, also have chalets within an hour of Geneve, and their families actually spend more time up there during the school holidays etc and they just commute there during those weeks. So for them it really works.
Financially, it’s probably not a fantastic idea, but that doesn’t mean it’s a bad idea (just like the place I’m building now – financially it doesn’t make sense, but am I going to love living there – absolutely!).
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We were in a vaguely similar position a couple of years back and bought a substantial second home as a “holiday home” which was completed just a few days before the March 2020 lockdown, so ended up basically living permanently in the new home, and have enjoyed it so much that we’re now going to sell the original home next year as after a couple of years of shuttling back and forth that novelty has worn thin somewhat… and now once the original home has gone we’re moving towards the “have a fund for travelling” concept from that sale… so for us, has worked well, very well for a couple of years, but will be glad I think to be just back to the one home again next year at some stage…
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Depends. We have friends who have a delightful village house with a vast garden. They retired, took maximum tax-free lump sum from his DB pension, and bought a “second home” namely a smaller, inferior house in a smaller village 50 miles away. Because the bird-watching is much better there. Takes all sorts.
My own proposition for the about-to-retire is that if they want to see plenty of their grandchildren they should buy a large house convenient for an airport and with a big pool in the garden. Variants are permitted.
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The family have a nice lakeside house in the Cotswolds in a gated ecology / nature reserve, plenty of space if you wish to enjoy on your own or leisure facilities / restaurant for coffee or drinks to catch up with friends. You can have housekeeping clean up and maintain the house if you wish. We love it but others it may not tick the right boxes it all depends on you and what stage in life’s journey you are at.
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I’m much closer to the “Lean FIRE” end of the spectrum to you and we bought a small holiday flat on the Essex coast a few years back for about £130,000. It’s nowhere fashionable, there isn’t a wide variety of fancy places to eat, etc, but it’s still nice to be by the sea and away from London. We go every other weekend, for a long weekend, plus 7-10 days at a time at two or three other times of the year.
As much as I love going there, and feel relaxed when we’re there, part of me isn’t convinced. I feel a bit guilty about leaving a home empty when so many people can’t afford a place to live. 3-4 days out of every fortnight feels like we’re going frequently enough to be fairly local, and make some friends, but we’re still not “living” there. And it means 50% of the weekends we can’t go to things in London. I feel like I’m living in London less. Sometimes it feels like “Off we go again, on the same journey to the same old place”.
And, given that we feel we need to be there a fair bit to make it worthwhile, it means we have less time available to holiday in other places.
That all sounds a bit negative! I love being there, but even with that there are drawbacks, aside from tying up cash in a single asset. Or “home”, as someone could call it.
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Have you thought about a motorhome instead? (Perhaps a yacht for Fat Fire)
Currently 6 weeks into a costal trip around Spain/Portugal.
B
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I really enjoy hearing everyone’s comments here. We are on coast FIRE in London at the moment, we have two small kids, so in terms of admin, we already have too much to cope with, let alone managing a second house.
But in whatever small precious time I have to myself, I sometimes dream of owning a house in the French Alps (can’t afford Swiss Alps), and staying there every winter… Wondering if worth the admin and hassle, let alone cost!
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[…] Second homes: folly or fantasy? – Fire V London […]
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[…] Second homes: folly or fantasy? – Fire V London […]
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I’m in the group of people who think that in most cases second homes simply don’t make sense, not only from a financial point of view, but also because there is a risk the place might become a burden, and especially once the novelty wears off.
From this starting point, it seems to me the better question should not be whether to own a second home or not, but whether there is a place that one can permanently derive happiness from if visited frequently and over a long time. Some commenters seem to have found that place. Great – if you do, definitely consider buying a second home there. But it seems a lot more likely to succeed if you look for the place first, and only then start thinking about buying the home – rather than buying a second home just anywhere because that’s what your social circle do.
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[…] Second Homes – Folly Or Fantasy – Fire v London […]
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[…] sick with covid, I ended up quite actively involved with my portfolio in October. Following on from last month’s blog, a 2nd home ‘investment opportunity’ has arisen. It’s far from a done deal, but […]
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