A home equity line of credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use for large expenses.
The couple walks the property for the second time. The pool. The view. They can already see Thanksgivings here. The grandkids they don't yet have running around. Thirty years of family memories forming in real time in their imaginations. The listing agent says the right things. The spouse says the right things. Everyone is aligned on the story.
And then, back home on Monday, a different question. What does a second home do to our retirement plan?
Annual carrying costs on a second home in California typically run 4% to 6% of home value before any mortgage interest. That's a big number, and most buyers don't run it honestly before the offer.
Property taxes in California for a newly purchased home are roughly 1% of purchase price plus local assessments. Prop 13 locks that base rate, but the base rate for a new purchase is current market value, which is dramatically higher than the rate long-time owners pay. On a $2 million second home, property tax alone is roughly $22,000 per year, climbing slowly with the 2% Prop 13 annual cap.
Insurance on a second home is a significant line item, and in California it's become increasingly complicated. Wildfire exposure has caused major insurers to pull back from large parts of the state. The California FAIR Plan, the insurer of last resort, now covers more homes than ever before. For many second-home locations in desert, mountain, or coastal-canyon areas, insurance runs $8,000 to $20,000 per year, and in some cases is simply unavailable through conventional carriers.
Maintenance on a property that isn't lived in full-time runs higher than a primary residence, not lower. Things break without anyone noticing. Landscaping, pool service, pest control, and the long tail of things that happen when no one is home combine for $15,000 to $30,000 per year on a $2 million property.
Utilities, HOA fees where applicable, security monitoring, and periodic capital maintenance (roof, HVAC, painting, pool resurfacing) add another $10,000 to $20,000 per year on average.
Running total, before any mortgage interest: $55,000 to $90,000 per year on a $2 million second home, every year, whether the home is used two weeks or twenty. That's $1.65 million to $2.7 million over the life of a 30-year hold, before a single dollar of mortgage interest is paid.
The capital used to buy a second home has to come from somewhere. Usually it comes from selling investments, taking out a mortgage on the second home itself (at current jumbo rates of 6.0% to 6.5%), or drawing from savings that would otherwise be invested.
Suppose the household has $2 million in liquid investments and uses it to buy the second home outright. That capital, invested in a diversified portfolio at a historical 7% to 9% long-term return, would generate approximately $140,000 to $180,000 per year in portfolio growth. Not spendable income necessarily, but real wealth compounding.
The actual trade becomes clearer. The household is exchanging $140,000 to $180,000 per year of invisible portfolio growth for 4 to 8 weeks of vacation use, plus the carrying costs of the second home, plus the illiquidity of having $2 million locked in a specific property. Over 30 years, the opportunity cost runs into the millions.
## When a second home still makes sense
Several scenarios genuinely support the purchase.
The household has more than enough liquid capital to afford the second home without reducing other goals. If a $2 million second home represents less than 10% of household net worth and doesn't require selling productive assets to fund, the opportunity cost argument weakens considerably. The purchase becomes a lifestyle choice made from a position of strength, not a decision with meaningful tradeoffs.
Genuine high use — 10 weeks per year or more — starts to change the math. The effective cost per week of use drops, and the value of consistent family tradition can exceed the portfolio opportunity cost for some households.
The property serves as a short-term rental with real return math. This works best in markets with strong demand and permissive short-term rental regulations, both of which have become less common in California as cities restrict platforms like Airbnb. It's worth running the numbers on actual expected rental nights, not marketing materials.
Multigenerational use that replaces other costs. If the second home meaningfully replaces the cost of family vacations, hosting extended family during holidays, or similar spending that was happening anyway, the net cost declines.
Prop 19 planning. California's Prop 19, effective 2021, significantly changed how primary residences can be transferred between generations with preserved tax basis. A thoughtful second-home strategy for older homeowners may involve repositioning a long-held primary residence as the second home and purchasing the new primary in a child's name, which can preserve the Prop 13 basis on appreciated property. This is highly situation-specific and requires coordination with tax and estate counsel.
The common pattern we see fail: a household with significant but not unlimited liquid capital, buying a second home they'll use 4 to 6 weeks per year, often via a combination of savings drawdown and a jumbo mortgage on the second property. The annual all-in cost, including opportunity cost on the invested alternative, runs to $200,000 or more per year. The household rationalizes this as an investment ("real estate always goes up") without running the actual appreciation math net of carrying costs. Ten years later, the home has appreciated, but the accumulated carrying costs exceed the appreciation, and the household's retirement plan is materially thinner than it would have been with the same capital in a diversified portfolio.
This isn't hypothetical. It's a pattern that shows up repeatedly in households that didn't treat the second home as a capital allocation decision.
A second home is not a real estate decision. It's a portfolio allocation decision that happens to involve real estate.
The right question is: what is this household's next $2 million of capital going to do over the next 30 years? The answer might well be a second home — for a meaningful percentage of households, it's the right choice — but that answer should come from a deliberate comparison, not from the emotional pull of the listing.
At SteelPeak, we model second home decisions the same way we model any major capital allocation, with the full picture visible: opportunity cost, carrying costs, liquidity implications, tax and estate considerations, and the household's other priorities. The decision often still ends in a purchase. It ends in a different purchase, or a different timing, often enough that the conversation pays for itself.
## Considering a second home?
Our Concentrated Stock guide covers several adjacent planning topics that matter for second home decisions, including how to think about liquidity sources, tax-efficient sale strategies for funding a purchase, and the Prop 19 considerations for California families. Get it at: steelpeakwealth.com/resources/concentrated-stock
If you want help running the actual numbers on a specific property — not just the mortgage, but the full picture — we're happy to walk through it → Schedule Your Complimentary Consultation
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