Rich millennials are buying vacation homes before starter homes. There are 3 things you should consider before buying one, says a financial expert.

  • Some rich millennials are buying vacation homes instead of primary homes because it's too expensive to buy in the cities where they live.
  • There are three main reasons why people consider buying a vacation home, according to financial expert Jean Chatzky: They frequent a certain area, they're planning to retire, or they want rental income.
  • But second homes are different than primary homes and come with a lot of caveats — here's what you should know before you buy.
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Some rich, urban-dwelling millennials are swapping out starter homes for vacation homes: They're renting in cities and buying country houses because they can't afford to buy in their city's expensive real estate market, according to Farran Powell of The Street.

That's certainly not the only reason why people are buying vacation homes, and millennials aren't the only ones to favor them. But buying a second home isn't a decision to be taken lightly.

"It's important to understand that second homes are different," Jean Chatzky, financial editor of NBC's "Today" Show, wrote in "Women with Money," her latest of 11 books. "And not just because you can no longer deduct mortgage interest."

RELATED: Here's how much you actually take home from a $50K salary: 

What You Actually Take Home From a $50,000 Salary in Every State
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What You Actually Take Home From a $50,000 Salary in Every State


  • Take-home pay: $38,938

Alabama’s state income tax rate is moderate, meaning you’ll keep about the national average on your income of $50,000. The $38,938 you’ll take home is just slightly below the national average take-home rate is $39,129. Alabama scores more points in a different tax category: It has the lowest property taxes in the country.


  • Take-home pay: $40,765

If you’re looking to keep as much as possible of your $50,000 salary, consider living in Alaska. With no state income tax, Alaskans earning $50,000 can expect to bring home $40,765, which is among the highest take-home rates in the nation. It’s also a tax-friendly state for retirees.


  • Take-home pay: $39,613

A graduated state income tax system helps keep overall tax rates low in the Grand Canyon State. You’ll only reach the top state income tax rate of 4.54 percent if you’re a single filer earning least $155,159, or a joint filer with an income of $310,317 or more. Standard deductions and personal exemptions also help to lower the total tax bill.


  • Take-home pay: $38,631

Arkansas residents overall earn less than the average American, but they pay a steep income tax rate on what they do earn. Graduated rates reach 6.9 percent on incomes as low as $35,099 for both single or joint filers


  • Take-home pay: $38,697

California has a lot of appeal, but if you’re looking to avoid taxes, this isn’t the state to do it. California hits its biggest earners with the highest state income tax rate in the nation, at 13.3 percent. You’ll need an income of over a million dollars to trigger that top rate, but even a modest income of $50,000 triggers an 8 percent tax rate for single filers. The news is better for joint filers: a $50,000 salary only nets a 4 percent tax rate.


  • Take-home pay: $38,942

Colorado residents earning $50,000 can expect to take home almost the exact average for the country as a whole. A flat tax rate of 4.63 percent applies to all workers in the Centennial State, regardless of the amount of income they earn.


  • Take-home pay: $38,778

Connecticut’s highest tax rate of 6.99 percent applies to single incomes of $500,000 or more as well as joint incomes of at least $1 million. Residents earning $50,000 still face a 5.50 percent or 5 percent rate, for single and joint filers respectively, which helps bring the take-home pay in Connecticut slightly below the national average. The good news for workers in the state is that Connecticut has the highest average family income in the country


  • Take-home pay: $38,864

Delaware’s graduated state income tax rate jumps up quickly, peaking out at 6.6 percent for both single and joint filers earning at least $60,000. Those earning $50,000 don’t get much of a break, with a rate of 5.5 percent regardless of filing status. This is enough of a tax bite to drag Delaware down to a below-average ranking when it comes to ranking take-home pay.


  • Take-home pay: $40,963

Although it has some co-champions, the Sunshine State is the king of the hill when it comes to take-home pay. Residents earning $50,000 keeping a whopping $40,963, tied for tops in the nation. Florida — along with the other eight states on the list with the top take-home pay figure — owes its crown to the fact that the state has no income tax.


  • Take-home pay: $38,453

Georgia’s top state income tax rate of 6 percent kicks in after just $7,000 in earnings for single filers, or $10,000 for joint filers. This rapidly graduated tax schedule means that Georgians keep far less of their pay than the average American. Georgia ranks 43rd on the list in terms of take-home pay.


  • Take-home pay: $37,431

Hawaii may be a paradise to some, but come tax time, some residents might question if the cost is worth the price. Hawaii’s top income tax rate is 11 percent, one of the highest in the country, although it only applies to high earners. Those earning $50,000 still lose 8.25 percent to the state if they’re single filers, or 7.6 percent if filing jointly.


  • Take-home pay: $38,876

Idaho residents earning $50,000 fall right about in the middle of the pack when it comes to how much of their salary they can keep. Although Idaho offers a decent standard deduction to lower the tax blow, the state has one of the highest state tax rates in the country, at 7.4 percent; even worse, this top rate kicks in with an income of just $11,043 for a single filer, or $22,086 for a joint filer.


  • Take-home pay: $38,595

Take-home pay for mid-level earners in Illinois is a bit below average. Although the state income tax is a flat rate that starts at the first dollar, the rate of 4.95 percent isn’t particularly onerous overall.


  • Take-home pay: $38,522

Indiana is another state with a flat tax rate and an average take-home pay figure. With a rate of 3.23 percent starting with the first dollar, Indiana residents earning $50,000 can expect to take home just slightly below the national average pay of $39,129.


  • Take-home pay: $38,523

Iowa residents take home an almost identical after-tax paycheck as their Midwestern kin in Indiana. Although Iowa’s state income tax rates start out low, at just 0.36 percent, they rapidly jump up to 7.92 percent for both single and joint filers earning $50,000, one of the higher rates in the country. Iowans that can increase their income going forward will look forward to a steep 8.98 percent rate on income of $71,910 or more.


  • Take-home pay: $38,869

Kansas lies in America’s heartland, and the taxes on incomes of $50,000 are just about in the middle of the road. The graduated tax schedule quickly rises to a top rate of 5.7 percent for single filers earning $30,000 or more, or joint filers earning at least $60,000.


  • Take-home pay: $38,121

It might not have the reputation of being a high-tax state, but Kentucky is actually #46 out of 50 when it comes to take-home pay for a resident earning $50,000. In addition to being America’s home of thoroughbred racing, the Bluegrass State has a steeply graduated income tax schedule that hits a rate of 5.8 percent on just $8,000 of income, regardless of filing status.


  • Take-home pay: $39,332

Louisiana’s state income tax schedule is simple and to-the-point: 2 percent on all income, 4 percent on single incomes of at least $12,500 ($25,000 for joint filers), and 6 percent on single incomes of at least $50,000 ($100,000 for joint filers). Without any state tax deductions to reduce income, Louisiana residents earning $50,000 end up with an about-average take-home stake.


  • Take-home pay: $38,676

Although it offers a relatively high state income tax deduction, Maine’s high tax rates are enough to drag the state’s take-home pay ranking to below-average. Maine residents pay a high 5.80 percent on the first dollar of income, and those earning $50,000 face a rate of 6.75 percent. For single filers, the top rate of 7.15 percent lies just around the corner, at $50,750 in income.


  • Take-home pay: $37,401

Maryland’s graduated tax schedule is interesting. The rate moves rapidly from 2 percent on the first dollar to 4.75 percent on incomes of just $3,000 for both joint and single filers; however, the next jump up, to 5 percent, doesn’t kick in until incomes of $100,000 for single filers and $150,000 for joint filers. However, residents earning $50,000 still take home the 2nd-lowest net pay in the country, well below the national average of $39,128.60, thanks in part to low state deductions and exemptions.


  • Take-home pay: $38,739

Massachusetts has a reputation for high taxes, but workers earning $50,000 in the state take home only slightly less than the national average, at $38,739 vs. $39,128.60. A flat state income tax rate of 5.1 percent applies to all incomes from dollar one.


  • Take-home pay: $39,010

Middle-income Michigan residents take home about the same as the average American thanks to a flat 4.25 percent state income tax rate. This rate applies to the first dollar of earned income and doesn’t increase the more that you make.


  • Take-home pay: $38,336

Minnesota has one of the highest tax rates in the nation, at 9.85 percent. Fortunately, this rate only applies to high earners — single filers making at least $160,020 and joint filers earning at least $266,700. However, even mid-income Minnesotans end up taking home less than the average American, thanks to a high starting rate of 5.35 percent that applies to the first dollar.


  • Take-home pay: $39,238

Missouri’s top income tax rate of 5.9 percent kicks in after just $9,072 of income for both single and joint filers. However, that rate is not nearly as bad as in some other states, so even though more of their income is subject to it than in some states, Missouri residents earning $50,000 still take home more than the average.


  • Take-home pay: $39,058

Mississippi take-home pay rates are just slightly below average on a national basis. Although the top state income tax rate is just 5 percent, it kicks in on incomes of just $10,000 for both single and joint filers. A personal exemption of $6,000 for singles and $12,000 for joint filers helps lower the overall tax rate.



  • Take-home pay: $38,499

Montana income tax rates rise rapidly, peaking at a high 6.9 percent on just $17,900 of income, whether you’re a single or a joint filer. Those earning $50,000 suffer from this high state income tax rate, resulting in a below-average take-home pay figure


  • Take-home pay: $38,677

Nebraska’s tax rates hit 6.84 percent for single filers earning $30,420 and joint filers earning double that amount, or $60,840. For Nebraska residents earning $50,000, those taxes are enough to drag their net take-home pay into the bottom half of the country.


  • Take-home pay: $40,963

Nevada is a sparkly American gem when it comes to state income taxes. With a state income tax rate of zero, Nevadans earning $50,000 take home the highest net pay in the country, tied with eight other states and more than $1,800 above the national average.

New Hampshire

  • Take-home pay: $40,963

New Hampshire is one of the few states in the nation with no state income tax. Although the state slaps a 5 percent tax rate on interest and dividend income, all wage and salary income is tax-free. This puts New Hampshire into a nine-way tie for the highest take-home pay on an income of $50,000, at $40,963.

New Jersey

  • Take-home pay: $39,381

New Jersey has one of the highest tax rates in the nation, topping out at 8.97 percent. Even so, New Jersey residents keep more of their income after taxes than the national average. This is possible because the bottom-end tax brackets in the state are low; a joint filer earning $50,000, for example, is only in the 3.5 percent bracket. Property owners in the Garden State pick up much of the state’s tax bill, as New Jersey has the highest property taxes in the nation.

New York

  • Take-home pay: $38,548

New York is notorious for having high taxes, and residents earning $50,000 can indeed expect to take home less than the national average in pay. However, things aren’t as bad as they could be — New Yorkers earning $50,000 aren’t even in the bottom 10 when it comes to take-home pay, partially because the state’s top rate of 8.82 rate only applies to single incomes of at least $1,077,550 and joint incomes of $2,155,350 or more.

New Mexico

  • Take-home pay: $39,169

New Mexico has a fairly low state income tax rate, with a top rate of 4.9 percent. However, New Mexico residents end up taking home about the national average in pay because the top rate kicks in early applying to single incomes of $16,000 and joint incomes of $24,000.

North Carolina

  • Take-home pay: $38,793

State taxes are straightforward in North Carolina, but the net result for state residents is still a below-average take-home pay rate. The state has a flat tax system, with a rate of 5.499 percent that applies to all incomes. While not a high rate overall, it takes a toll since it starts with the first dollar of income.

North Dakota

  • Take-home pay: $40,470

North Dakota boasts a slowly graduated, low-rate tax system that only tops out at 2.9 percent for those making at least $424,950. Single filers earning a more modest $50,000 are only in the 2.04 percent bracket, while joint filers remain in the bottom 1.1 percent bracket. The result is the highest take-home pay of all states that levy a state income tax.


  • Take-home pay: $39,597

Take-home pay is in the top-third in Ohio for middle-income earners. A $50,000 earner can expect to take home about $469 more than the average American peer at that income level. Earning $50,000 in Ohio means residing in the 3.465 percent state income tax bracket, regardless of filing status.


  • Take-home pay: $39,019

Oklahoma’s top state income tax rate of 5 percent applies to incomes of just $7,200 for singles and $12,200 for joint filers. Standard deductions and personal exemptions help lower the overall effective tax rate, but Oklahomans still take home a bit less than the average on a $50,000 income.


  • Take-home pay: $37,345

Perhaps surprisingly, Oregon residents earning $50,000 have the lowest take-home pay amount in the nation, nearly $1,800 below the national average. Oregon residents have to deal with a state tax system that hits 9 percent on just $8,700 in earnings for a single filer, and $17,400 for a joint filer. Top earners in the state pay even more, with the top rate of 9.9 percent hitting single filers with just $125,000 in income.


  • Take-home pay: $38,648

Residents of the Keystone State nearly $500 less in income than the national average for taxpayers earning $50,000. The state’s flat tax rate is just 3.07 percent, which is low but applies to all income starting with the first dollar.

Rhode Island

  • Take-home pay: $38,575

Rhode Island may be the smallest state in the nation, but it stands tall when it comes to taxing its residents. The state’s tax rate on $50,000 earners is 3.75 percent for both single and joint filers, which is enough to knock the state into the lower third when it comes to take-home pay.

South Carolina

  • Take-home pay: $38,173

South Carolina’s high top tax rate of 7 percent kicks in on incomes of just $14,860 for both single and joint filers. The end result is a net take-home pay for $50,000 earners that falls nearly $1,000 below the national average.

South Dakota

  • Take-home pay: $40,963

South Dakota doesn’t have a state income tax, so its residents take home as much as the other eight states with no such tax. This translates to take-home pay of $40,963 on income of $50,000. This is true regardless of the source, as South Dakota doesn’t have a separate tax schedule for dividends and income.


  • Take-home pay: $40,963

Tennessee ties for the lead when it comes to take-home pay, but it comes with an asterisk. Although a $50,000 earner can expect to bring home $40,963, the same as the other top states on the list, this isn’t true for those earning interest and dividend income, which carry a separate, flat tax rate of 3 percent.


  • Take-home pay: $40,963

The Lone Star State is tops in the nation when it comes to take-home pay, with a $50,000 earner keeping $40,963. As one of the nine states with no income tax, Texas has to share this title with eight other states, but its residents don’t likely mind as they bring home more than $1,800 than the average national taxpayer at that income level.


  • Take-home pay: $38,488

Utah has a simplified state income tax structure, with 5 percent of every dollar earned handed over to the state’s coffers. This flat rate applies to all income, without regard for income level or filing status. This hurts middle-income earners in Utah, as they end up taking home about $640 below the national average.


  • Take-home pay: $39,240

Vermont has one of the highest state tax rates in the country, topping out at 8.95 percent. The good news for mid-level earners is that the state’s tax system is graduated, meaning joint filers will only pay a 3.55 percent rate on income all the way up to $63,300 in earnings. On an income of $50,000, a Vermont resident can be expected to take home $39,240, which is slightly above the national average.


  • Take-home pay: $38,571

Virginia’s state income tax rate starts out at just 2 percent, but by $17,000 in income — regardless

of filing status — the rate reaches 5.75 percent, which is the top bracket in the state. The net result for $50,000 earners is a below-average take-home pay rate.


  • Take-home pay: $40,963

As one of the nine states in the country without an income tax, Washington is a winner in the take-home pay department. At $40,963, Washington residents earning $50,000 have the highest take-home pay in the country, the same as the remaining eight no-tax states.

West Virginia

  • Take-home pay: $38,883

West Virginia might not have a reputation as a high-tax state, but residents earning $50,000 take home about $245 below the national average. The state’s graduated tax rates jump up rapidly, with both single and joint filers earning $50,000 finding themselves in the 6 percent bracket. This rate is just one small step below the state’s 6.5 percent top rate, which kicks in on incomes of $60,000 or more.


  • Take-home pay: $40,963

Wyoming is a great state to live in if you want to take more of your income home, as it”s one of the nine states with state income tax. Residents earning $50,000 can expect to keep $40,963, tied for tops in the nation. Wyoming also ranks as one of the best states in the nation for retirees.


  • Take-home pay: $38,242

State income taxes in Wisconsin are brutal, with a $50,000 earner taking home the 6th-least in the nation after taxes. Both single and joint filers pay 6.27 percent on an income of $50,000, not as bad as the state’s top tax rate of 7.65 percent, but still enough to drag down the state’s net take-home pay figure.


There are three reasons why one might be considering a vacation home, according to Chatzky. Here's what you should consider before making the leap. 

Read moreMillennials are making 3 key decisions that are wiping out the starter home — and it's changing what homeownership in America looks like

1. You want your own space in a place you visit often — but how often do you really visit?

Chatzky and her husband bought a second home in Long Beach Island, New Jersey, which they use every weekend from May through early September.

But even if you'll only use a vacation home part-time like Chatzky does, a house is still a house. Bills — including mortgage, HOA dues, utilities, cable, etc. — are still year-round responsibilities, Chatzky said. If you live far from your second home, you'll also need to pay someone to check in on the house, she added.

Some vacation homeowners also feel guilty if they want to vacation elsewhere — it can be hard to justify paying for a trip when you already have a place to visit, Chatzky said.

She advises giving the idea of a second home a trial run. She and her husband rented in Long Beach Island for four consecutive Augusts to determine if buying a home there was worthwhile.

2. You're thinking about retiring in your vacation home — but will it fit your retirement lifestyle?

Dipping into the real estate market before actually retiring may be a wise move.

"Buying a retirement place before you retire has financial benefits," Chatzky wrote. It's easier to qualify for a mortgage while employed, and you'll get a head start on paying it off; you'll have time to settle into your place and make any necessary renovations; and you'll be able to determine the cost of living in the area, she said.

"Road testing a second house you plan to use for these purposes is even more important than road testing a house you plan to vacation in," she wrote, adding that the road test should be longer than a few weeks or days. "If it still feels like a vacation, you haven't stayed long enough."

During this road test, you should consider medical care access, services, culture and entertainment, transportation, and size of the home before purchasing, Chatzky said.

Read moreThe 10 best places in the US to buy a winter home right now, ranked

3. You want to make extra money — but have you considered tax laws?

The advantages of having an extra cash flow through rental income is often what appeals to millennials buying a second home instead of a primary residence. They're using these homes to build wealth and rent them out when they're not living in them, Powell reported.

"With the rise of sites like Airbnb, HomeAway, and VRBO, making some extra cash by renting out your vacation place has never been easier," Chatzky wrote. "But that doesn't mean it's easy."

For one, there are tax laws. If you rent your house for 14 days or less, you don't have to report the rental income on your tax return; if you rent it for longer than two weeks, the IRS deems it "a business for tax purposes," — but how the IRS treats it as a business varies, depending on how, you, the owner, uses it, Chatzky said.

There are also other things to look into, like peak rental times, HOA rules, sales tax laws, and possible business permits, she added.

"Keeping the place rented means scouring the market to stay on top of competitive pricing, making sure it's clean and in order before the next renters move in, being responsive to email queries, and dealing with problems as they arise," Chatzky wrote. "In effect, you either devote a big chunk of your time to managing this property or hire someone to do it for you."

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