Only 4.6% of U.S. Homes Are Second Homes — But Millions Are Making It Work

Owning a second home is relatively rare in the U.S., but if you have financial flexibility and carefully analyze your options, it can be more attainable than you might assume.

In 2023, the 5.7 million properties considered second homes accounted for just 4% of the country’s overall housing stock, the National Association of Home Builders (NAHB) estimates. This is down from a count of 7.15 million in 2020, potentially reflecting the rise in home prices and uptrend—until very recently—in mortgage rates since then.

In the NAHB’s definition, rental properties generally do not count as second homes. But the IRS says a rental property still qualifies as your residence—as a second home—if you use it for yourself more than 14 days per year or you use it personally more than 10% of the total days that you rent it to others at a fair rental price. No matter how you define your second home, it’s still not common to own multiple properties.

For example, only about 6% of 2022 U.S individual income tax returns report income or losses from rental real estate properties.

Still, there are ways to make second homes work, whether you’re buying one for your own enjoyment or you’re trying to pull in some rental income.

Run the Numbers for a Second Mortgage

If you want to buy a second home, start by running the numbers. And don’t assume that you need to pay in cash for the new property.

“Many people don’t have hundreds of thousands or millions of dollars set aside to buy a second home in all cash, but they can afford the payments on another mortgage,” said certified financial planner Jen Yacoube, wealth advisor at Focus Partners Wealth.

For example, you might look at rules of thumb like the 28/36 rule that recommends limiting your total housing costs to 28% of your gross income and limiting your total debt service from all sources to 36%. If you can fit a second mortgage within those parameters, you should be able to finance that home.

Even if you can afford to buy the second home in cash, you still might be better off getting a mortgage.

“Up until a few years ago, … if you could get a mortgage for [an annual percentage rate of] less than 3%, and you could keep your money invested in the markets earning anything above that, then that was a win,” Yacoube said.

Now, higher mortgage rates make the math trickier, but “if you can get more [on your securities investments] in the market long-term than your rate, then you want to use a mortgage. If your mortgage rate would be higher than what you can get in the market, then you want to pay cash,” she said.

For example, in South Florida, Paul Lykins, broker associate at True Floridian Realty, has seen lenders require down payments ranging between about 25% to 30% in the past, though in recent years he’s seen more cash buyers.

“A lot of people who have bought second homes down here are fortunate enough that they can afford to just pay cash for them. There’s some buildings that I’ve looked at where 80% of the transactions were cash,” he said.

In some cases, even if you run the numbers and it seems you’d come out ahead financially with a mortgage, it can be worth the peace of mind to buy a property outright.

“A lot of people buying a second home tend to be a little bit older,” Lykins said. “They’re at that point in their life financially where they can do it, and they probably don’t want to deal with a 15- or 30-year mortgage again.”

Renting Your Second Home

For those who can’t afford the luxury of buying a second home in cash, it’s still possible to make the numbers work even if a mortgage would stress your monthly budget.

However, you might need to turn the home into at least a part-time rental property. But check the rules—including local ordinances and HOA restrictions—to make sure you can do short-term rentals in your area.

“I’ve heard too many stories of someone that bought their home, hoping to rent it out and not being allowed to by the county, and now they are having a hard time selling the home,” Yacoube said.

Short-term rentals can open up your options but also increase risk. Yacoube suggests preparing for a slow first year, and be aware that even when have renters, you may not cover all your expenses. “Determine what amount you absolutely need covered,” she said. To get a baseline, research competitors on sites like Airbnb and VRBO, she advised.

“Check out what their nightly rates are and take a look at their calendar to see how booked they are for the year,” she said. From there, you can get a sense of your earnings potential.

Read the Fine Print

Carefully look at government and HOA rules before buying a second home, even if you can afford to survive financially without renters.

For example, little things like restricting who can get a parking pass can affect the enjoyment of a second home, Lykins pointed out. Many second homeowners in his area want to have families visit over the winter or spring break, but if a building or community restricts secondary activities, that can make it harder to use the second home as you might wish.

Moreover, prospective buyers should carefully consider details like whether an HOA has an assessment coming up.

“If you buy a property and only use it four months out of the year, but then you get whacked with a big assessment, is it worth it to you?” said Lykins.

The Bottom Line

Owning a second isn’t easy, but it’s possible to make the numbers work. Consider the full costs, such as a mortgage versus paying cash, along with variables like taxes, HOA fees, and insurance on the second property. You may be able to fit these expenses into your budget by turning the second home into a rental property, but be conservative with your numbers before making the leap. Also, make sure you carefully review local rules to ensure that you’re buying a second home that fits with your intended usage.