With property values and loan rates low, now might be your best opportunity to buy a second home, for whatever reason you have in mind. However, owning a second home brings with it issues that you should consider before purchase.
Be realistic about your finances
First and foremost, don’t rush into the decision to buy. Even though rates are low, property values are down and people are unloading second homes, you want to avoid purchasing a second home that you can’t afford. Renting it out when you’re not using it sounds like a win-win: although you may be able to cover some costs, it’s unlikely that your property will “pay for itself.”
How you’ll use the property (now and in the future)
Are you looking for a weekend getaway? Or for something that will serve as your retirement home? Finding a property that serves both functions may be more difficult than you’d imagine. Sure, a ski condo is great, but living there and skiing there are two entirely different things. Accessibility to medical care, cost of living, taxes and maintenance are all things to consider if you’re looking for a retirement home.
Tax implications depend upon the use of the property
There are tax implications to consider, based upon how much you use your home and how much you lease it. Know the regulations regarding what you can deduct and what you can’t. Talk to your REALTOR® and be informed. Make sure you can make the payments without the rental income. If you’re not handy, or live far away, you’ll need to hire maintenance and cleaning services.
Financing differs from primary residence
A second home usually falls into a different category than your primary residence, which means that your lender will require a larger down payment, perhaps as much as 30 to 50 percent. You’re also likely to have to pay a higher interest rate and need a higher credit score and substantial income to qualify. Talk to your lender about financing options before you get your heart set on a second home.
Owning a second home may be a dream for you, whether you’re looking for a vacation home, want to retire to the lake or mountains, or want to generate income as a landlord. Think carefully and talk to your REALTOR®, financial planner and lending institution before you make the move.