Buy a second home now for retirement later and you'll get both a hedge against inflation and a relatively low-cost retirement home with a built-in equity cushion—provided you can manage to find and keep renters until you are ready to retire.

Renting out a second home you'll use later for retirement is a good financial investment strategy because, while appreciation likely will help feather your nest in the long run, it's tough short term to carry two mortgages.

"Buying a vacation home today is like buying California property in the 1970s. Vacation home properties are low priced relative to where they are expected to be once the baby boom generation begins to retire in force. This tangible asset should appreciate over time while providing lifelong fun for you and your family," said David Hehman, CEO of the San Francisco Bay Area's EscapeHomes.com website, a second home market portal for renters, buyers, sellers and real estate agents in 275 cities nationwide and 20 countries.

This approach to buying your retirement home, however, can be a tricky proposition.

"If you are buying something in Maui, it's going to be hard to make a cash flow," said Stefan Walker, a real estate agent with Alain Pinel's Los Gatos­South office.

Not only will you have to find, keep and manage tenants until retirement time, you'll also have to gamble you'll actually be able to use the property when you retire.

"It's important to consider factors that would affect you at retirement age that may not seem to be a high priority to you now. Those things might be access to medical care (both good quality care and care covered by your plan), weather conditions year-round and senior amenities such as availability of transportation. Some 'vacation areas' may not be good 'retirement areas,'" said Janet Houde, a San Jose independent real estate broker and president of the Santa Clara County Association of Realtors.

First, the rent your property must draw will have to cover not only the principle and interest but also the bulk of property taxes, insurance, property management and maintenance costs, homeowner association dues and any other costs, actual and estimated, associated with property ownership.

"Anyone contemplating buying a second home for this reason should strongly consider renting it on a weekly basis," said Alfred Glossbrenner, who co-authored How to Make Your Vacation Property Work for You (Fire Crystal Communications, $99.95) and publishes the FullyBookedRentals.com website.

"Your property can earn much more money if you rent by the week instead of by the month or by the year," he added.

Glossbrenner also says you can drastically cut costs if you "do it yourself" on property management. Internet websites, including Vacation Rentals By Owner (http://www.VRBO.com) and Vacation Rentals Owners Association (http://www.vroa.org) make the task easier.

"In some cases, property management fees can amount to nearly 50 percent, which puts a serious dent in your cash-flow projections," Glossbrenner said.

Even with the web assist, acting as your own property manager may not be practical if you are too far from the property, says Walker.

"A few of my clients have bought into some sort of resort where the developer puts into place a management facility that actually takes care of the place. If you are going to pursue the weekly rental approach, it's going to be difficult to manage it if it's more than a couple of hours away," Walker said.

Tax benefits can help offset costs.

In addition to mortgage-interest deductions on homes worth up to $1 million, tax-deductible passive losses on rental properties are as much as $25,000. The passive-loss amount does begin to phase out once your modified adjusted gross income reaches $100,000, says Marie Sternberger, an enrolled agent from Sunnyvale.

Sternberger also says don't overlook nonfinancial, personal considerations related to buying a retirement home now to live in later. Your health, the climate, or some unforeseen event or change could prevent you from moving into your second home at retirement time.

"You would have to sell and pay taxes on the gain, but you could take any passive losses you had not been able to take advantage of. You could do a tax-free exchange of like property somewhere else. You would have some options, but I would be leery of buying a retirement home way in advance of retiring. That's just my opinion," Sternberger said.

Real estate writer Broderick Perkins, executive editor of San Jose-based DeadlineNews.Com, writes regularly for
Saratoga News.