So, you’re thinking about buying a second home. Whether it is for the sake of having an investment property, a vacation home, or simply a place to spend your retirement, it will take careful consideration and planning to take this step. Here is a quick guide through some of the legwork.
Study the Market
Scout the market with the help of a real estate agent who is familiar with the area you are interested in. By being from the area, local realtors will be aware of factors such as: traffic, available amenities, weather and comparable sales.
If you decide to forgo the assistance of an agent you may find that you end up regretting a purchase when you learn that ‘10 minutes from a major town’ really means ‘10 minutes at 250 mph to the nearest grocery store’. If at all possible, move into the area and spend enough time to get a feel of just how suited it really is to your own particular tastes.
Factor In Your Expenses
Since you are purchasing the property as a second home, you will not be there all of the time. You must decide how you will you go about maintaining the property from a distance. Factor in the cost of hiring a management company to check for water leaks and frozen pipes. You may need a company to service your original home as well. This will change, depending on how much time you intend to spend in each property.
Insuring the property is a forgone conclusion, but there may be considerations that did not apply to your first home. It is important to bear in mind that it can be more expensive to insure a second home than a first home.
This may be due to the location, in that the second home may be tucked in a remote area, leaving the insurance company to be concerned about its maintenance and security. Your lender will most likely require hazard insurance, so as to secure the investment from theft, fire, windstorms, etc.
When it comes to financing a second home, lenders consider many of the same factors as they do for a mortgage on a primary residence. What is different is that you will have to qualify for this new mortgage plus any continued debt on the original one.
The tax implications of owning a second home will vary depending on how you use the property. Research what applies to your situation whether you intend to rent out your second home, live there for short periods each year; or have it occupied by a friend or family member.
Can I Afford It?
Above all, decide whether the purchase of a second home is a good financial decision. Take the time to asses expenses associated with owning a second home so that you are not blindsided by unforeseen financial demands.
Ownership of this new property should fit into your budget and leave you with room for unplanned expenses. If you determine that you can comfortably make the numbers work for you then go ahead and start rolling the ball toward owning a second home.