“I can’t stand the cold anymore.” Is your client finding winters up north more difficult than they used to be? Are they considering wintering in Florida like their snowbird friends? As their advisor, what practical advice can you provide?
Is “feeling the cold weather” something that only exists in their minds? Probably not. According to medical research losing weight and thinning skin make it difficult for older people to maintain a normal body temperature. They get cold. Since your “Golden years” should not be your “Frozen years” many people up north decamp to warmer climes every year. Florida alone has a million part-time residents, also known as snowbirds.
Should your client take the plunge and buy a second home in a warmer state? Should they make a permanent move? How can you advise your client? Here are a number of options.
The cruise alternative
We have British friends who do not like cold weather. Every year they book a world cruise on Cunard, usually lasting 98 to 123 nights. These voyages start at about $14,000-plus per passenger, but the New York City to New York City 123-night voyage on the Queen Mary 2 starts at about $16,000. That’s about $132 a day per person.
The hotel option
Florida is a big state. Ditto North and South Carolina, Georgia and others. There are plenty of hotels at all price ranges, including longer stay options that are actually apartment-sized housing. Your client can book a hotel for a month or two, using it as their base to explore the area and determine if the lifestyle suits them.
The house swap
Your client might have retired college friends down south who are planning to take that world cruise. Maybe they are tired of sunshine, humidity and one season. Your client can offer to trade houses. They come up north and your clients head down south for several weeks.
The motor home option
Some people bring their home with them. They own or rent a recreational vehicle (RV) and head south for the winter. These range from a towed trailer to a bus-sized house on wheels. Florida (and other states) has plenty of RV parks catering to this audience. Here is an article looking at the costs, assuming your client already owns the motor home.
Buying a second home
Now let us suppose your client is thinking of buying a second home in Florida. They plan on occupying it for the winter, then returning to the north in the spring. Here’s what they need to consider:
The pros
- Better climate. Your client can achieve their objective of avoiding the cold winter weather.
- The secondary home is an asset. Owning a property is often considered a good investment. And as the U.S. population ages, there should be more snowbirds, driving up demand for such properties.
- Rental potential. Your client won’t be using the property for the entire year. Thus, they might consider treating it as a rental property and renting out to short-term tenants for the seasons they’re not there. Be aware though that the IRS draws the line at 14 days for a homeowner to use their home for personal use before it starts to limit the deductions they can take on rental expenses.
- No hotel charges. Hotel bills can add up, especially if your client is spending two or three months away at a time. Money paid in rent is money lost. Renters have nothing to show for it afterwards.
- They visit when they please. Since they own the place, they can show up anytime – as long as they’re not renting it out. If a major sporting event takes place in the area during the summer, they have a place to stay.
- They can lend it to friends and family. It is time for spring break. Your client’s children and grandchildren want to get away. Theme parks are within driving distance. They can lend them use of the property simply by handing over the keys. Their offspring do not need to pay for a hotel and they can save money by preparing their own meals.
- Potential permanent residence. Your client might decide to establish residency in their chosen southern state where they can lower their income tax bill.
The cons
- Maintaining two households. A secondary residence comes complete with property taxes, lawn care needs, monthly electric bills and other fixed expenses, similar to their primary residence up north.
- Steep cost. Property isn’t cheap. The typical condo price in South Florida rose 24% to $477,823 in 2022. This means your client needs lots of cash or needs to take out a mortgage. Mortgages have carrying costs. How do they compare to staying at a hotel?
- Pricey insurance. Florida is a popular state for snowbirds, but it also has hurricane problems. Getting property insurance in Florida is not as straightforward as getting it in the northeastern U.S.
- Securing the empty property. Your client will not be in residence full time. The nightmare scenario is their house is occupied by squatters or robbed. They will need to hire a property management company to keep an eye on it and keep the grass mowed.
- Car considerations. Since much of snowbird land is in suburbia, they’ll likely have to drive or ship their car south or rent a vehicle for the months they’re away. And if they travel frequently between their two homes, they might want to buy and insure a new vehicle to leave at their snowbird location. No matter which option they choose, it’s another expense.
- Taxation issues. If your client owns property in another state, the state government might take an interest in them upon their death when estate taxes need to be addressed. There may be ancillary probate.
- Maintenance at a distance. Pipes break. Roofs leak. Although they have a property management company that keeps an eye on things, they aren’t on site 24/7. Once a problem is discovered and the damage is done, they need to bring in building contractors and repair people. They are doing this from a distance, which makes shopping for prices difficult. In fairness, the property management company has people on call.
Becoming a snowbird sounds good in theory, but staying in a hotel might be preferable to buying a secondary residence. Your client needs to consider the pros and the cons.
Bryce Sanders is president of Perceptive Business Solutions, Inc. He provides HNW client acquisition training for the financial services industry. His book, “Captivating the Wealthy Investor,” is available on Amazon.
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