NsXMas... you asked 1), anyone w/experience of 2nd home, and 2), pros and cons...
I have 2, one in So Cal near the beach/harbor and the other in Bullhead City near Laughlin, Colo River and Lake Mohave. Here's the trick... #1 is a duplex, so income from renting out one of the units is offset by deducting on Schedule D one half (or other appropriate allocation) of depreciation as a rental (27.5 year straight line for 1 to 4 family residential property), insurance, real estate taxes, interest (if applicable) and maintenance costs, while at the same time providing a nice home and allowing deduction on Schedule A of the other half of R E taxes and, if applicable, mortgage interest. #2 is a fourplex, with the same relative tax treatment.
A unique and often overlooked federal tax code provision allows the "passive" paper losses produced by depreciation to be fully deductible, up to $25,000 each year, against earned income, as long as AGI is at or under $100,000 (this loophole phases out after $100,000 AGI until $150,000, at which point it disappears, in which case the losses just sit until the depreciable investment is liquidated). The current tax bennies combined with the current income stream has produced a ROI that is hard to beat. Especially when the appreciation in real estate that has occurred is factored in. There are also tax bennies (see later) at sale that can be very advantageous. On the practical side, having the two residences in these units in seperate places, each with their own unique ambiance, for my use at my whim, is really great.
The downside, of course, is realizing that some income stream is foregone, but what the heck $ ain't everything. And if it ever gets to a point where more $ flow is desired, well, renting out one or the other is always an option.
It sounds like maybe you have in mind two single family residences, so you wouldn't have many of the tax/income advantages attributable to rental property, but you can still deduct R E taxes on both places, and if mortgaged the interest on both (as long as the mortgage on the second home isn't more than $1,000,000). So, some tax bennies offsetting cost of ownership, and the opportunity to realize a tax exempt capital profit from appreciation in value at sale are still available. I'm assuming that, since you already own a home, you are aware of maintenance and other costs of ownership, so you can put them on the spreadsheet when you crunch the numbers.
And here's the bonus. If you arrange your cards right so that your primary residence for 2 out of the 5 years preceding sale is the property you've decided to sell (doesn't have to be a continuous 2 years... just a total elapsed time of 2 yrs during the preceding 5), the capital gain will be exempt from taxation, up to $250,000 if single, and up to $500,000 if married filing jointly.
The above is my humble opinion, not intended to be taken or perceived as legal advice, and is with reference to federal tax provisions only... I have no idea what state you're in, so attention should be given to state tax law as well. Remember too, that the tax law can always be amended at the whim of Congress, so keep in mind during your deliberations whether capitalists or socialists are likely to be in power. (Vote wisely).
Hope this gives you some food for thought while deciding to go see your attorney and accountant.
