Many factors go into buying a home for the first time, and for many homeowners the house they started out with may not meet their needs. Perhaps your family has grown and you need more room to accommodate the new addition, or your kids have grown up and moved out and you want to find a new place to vacation. You might even want to get an investment property or a sunny place to retire. No matter what your reasons for looking into buying a second home, you’ll want to go into the entire process prepared. Here’s a list of what to consider when purchasing a second house:
Does it make sense financially for me to buy a second home?
You might be a savvy investor, or you might not. No matter what, your second house has to be a sound purchase. Add up the purchasing price and all ongoing expenses associated with the new property. It might cost a lot more than you anticipated or it might be a great investment. Along with the regular expenses you think of will be some unexpected costs such as hiring a company to manage your property since you won’t be there every day and hazard insurance. After you’ve factored in all the expenses, you’ll want to build up some cash reserve.
Calculate how much income from renting the property out you’ll get if you plan on doing so. Well-kept, tastefully decorated homes in convenient locations garner more money than their less desirable counterparts. If you determine how much you can charge for rent or short-term stays, you can assess whether or not the new property is a sound investment.
Decide on a Location and What Type of Home to Buy
The location of a second home is the most critical factor to consider. Where the home is plays a huge role in determining the overall price of the property and for good reason: a real estate investor can’t resell or rent a home if nobody wants to live in it. If you want to capitalize on short-term or vacation rentals, the home has to be where the action is. Do thorough market research and also rely on your own preferences. Look at things like the local economy’s strength, housing resale value trends, rates of property taxes, the school districts and their quality, and the convenience and amenities associated with the area.
The kind of house you buy is also extremely important. Single-family homes have a much different set of demands and costs than condos or townhouses. Learn about those and assess what best suits you and your lifestyle. The cost, location and upkeep will be key players in determining a good fit. For example, condominiums and townhouses require less maintenance than a single-family home because they have homeowners associations that maintain and govern them. However, monthly maintenance fees always go with those properties.
Taxes and Their Implications
If you buy a second home, you’ll have to think about the property taxes on both properties. If you’re renting the place out, you’ll need to consider income tax. The IRS will get its money, and while it may be burdensome, a little planning in advance will go a long way to save you thousands of dollars every year. For instance, a home just over a town’s border can cut your annual property tax bill in a big way. And it’s a vacation property you’re renting out you can make a difference in the amount you owe in income taxes by staying there yourself.
Long-Term Financing and Cash Up Front
After you’ve decided that a second home is a solid investment, scouted your perfect location and found the property you want to buy, you will need to pay for it. Most people pay with a down payment in combination with a loan for the rest of the total cost. The higher your down payment, the lower the total loan amount will be. You can afford much more house if you have more cash to put toward it.
Your down payment should be 20 percent of the total purchase price at a minimum. You may need to get creative when coming up with those funds, and since you’ve made it this far, and you’ve determined that a second home makes financial sense, we’re confident you’ll find a way. You may need to refinance your car or cut costs in other areas of your life.
Shop around for the best home loan to help with the rest of the financing. Learn about the most sensible payment schedules and mortgage options and factor in your own short- and long-term goals. With all of the options floating around out there, you’ll find something that’s tailor made to you.
As you can see, there’s a lot to consider when buying a second home. If you’ve determined that a second home purchase is a sound investment and that you will be financially secure with your new property, we encourage you to go for it.
May 14, 2018