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.