At a certain point, retirees get tired of the cold. Rather than spending their winters in Michigan, Minnesota or other northern states, they pack up and head to Arizona, Florida or similarly warm locations for a few months.
Peter Eckerline, a managing director with Merrill Lynch and founder of The Eckerline Wealth Management Group in Minneapolis, says he sees clients head off to even far-flung places like Costa Rica for the winter. “We had a client who just bought a place in St. Thomas, but it wasn’t any more expensive than other places,” he says.
The key to making the snowbird experience work is to do your research upfront, experts say. They recommend you take the following five steps before deciding to take refuge in the South every winter.
Be Sure: Rent Before You Buy
“Too many snowbirds become absentee landlords,” says Shanna Tingom, co-founder of Heritage Financial Services in Gilbert, Arizona. That’s because they buy a house too quickly, decide it’s not for them and end up renting it out.
Instead of rushing into a home purchase, Tingom says retirees should rent for one or two years before purchasing a home. That will provide enough time to know whether the location is a good fit for someone’s finances and personality.
“In Arizona, you can rent really nice, fully furnished condos and even houses,” Tingom says. “You’re going to pay a premium for that, but it’s better than buying a house and realizing it’s a mistake.”
Be Prepared: Decide Who Will Maintain Your Second Property
Northern homes may simply need to be winterized and locked up before snowbirds leave for the South, but second homes in tropical climates like Florida need hands-on maintenance year-round. Vegetation will continue to grow, and landscaping will quickly become overrun if it doesn’t receive regular attention.
Cecilia Beach Brown, a certified financial planner with Lincoln Financial Securities in Annapolis, Maryland, says the easiest way to maintain a second property is to buy a condo or a home in a development with a homeowners association that will take care of exterior maintenance.
However, she cautions retirees to ask how fees are calculated and how quickly they have risen in previous years. “I had a client with a condo in Miami whose condo fees went from $400 to $1,200 a month [from when she moved in until she left],” Brown says. As people moved out of the development, costs were split among a smaller and smaller number of owners, dramatically increasing their annual costs.
Be Informed: Know Your Residency Options
One draw of Florida is that it doesn’t have a state income tax, but Eckerline says retirees need to establish residency if they want to take advantage of the state’s favorable tax environment.
Every state has different requirements, so snowbirds need to ensure they meet the criteria of a resident and then apply for a driver’s license and register to vote at their new address. Just don’t be surprised if your previous state notices you’ve changed residency and decides to dig a little deeper.
“A lot of states have tax departments that check residency requirements,” Eckerline says. “They’ll look at your phone records. They’ll look at your travel. They’ll look at your church contributions.”
Be Organized: Embrace the Cloud
Maintaining two properties means twice as much paperwork to track. It also means making sure important documents are handy wherever you are.
“I’ve run into situations with snowbirds where they didn’t have their medical power of attorneys here in Arizona,” Tingom says. That’s problematic if someone has an emergency and can’t easily get their hands on essential paperwork.
The easiest way to ensure important documents are easily accessible is to store them in a cloud-based application where they can be accessed by a computer or mobile device anywhere. However, some older Americans are more comfortable with paper records rather than digital ones. In that case, Tingom recommends putting copies of all important documents in an accordion file that can be carried back and forth from each home.
Be Realistic: Keep Tabs on Your Cash Flow
Being a snowbird costs more than simply the purchase price of a second home. There are also maintenance fees, utility costs and travel expenses between locations.
“The first thing we always do is run the numbers to see if they can afford it,” Brown says. “That’s always, always the first step.”
However, the number crunching shouldn’t stop there. Older Americans should evaluate their financial situation annually to decide whether maintaining two properties continues to be a viable lifestyle for them. Eckerline notes he has many clients who work part-time to cover the extra costs associated with the snowbird lifestyle.
“Every decision is a trade-off,” Eckerline says. Being a snowbird may mean less money for travel or other activities, but for those who hate the cold, the choice is as clear as the sky on a summer day.
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