If you are seeking new financial opportunities or are looking for a vacation retreat away from home, purchasing a second home may be a suitable investment. Just as buying your first home was a significant decision, so should the purchase of a second home. Here are a few reasons why you may want to purchase a second home:
- Your job takes you far from home. Having a place to stay during the week instead of a long commute can save time and frustration.
- You want a vacation home. Taking some time off in a favorite vacation spot certainly has its benefits.
- You want to create an investment. Those with an entrepreneurial spirit can purchase homes to renovate, flip, or rent out.
- You have kids in college. Room and board in a college town can be very pricey, and if you have children looking to attend the same college, putting them up in a second house can be an excellent investment.
Before you purchase a second home, it’s wise to ensure you’re financially secure and look at all options. Here are a few considerations to have in mind before you buy:
- Affordability. You'll have a second mortgage payment unless you’re paying cash for your second home. Take a good look at your monthly budget and ensure you can afford another substantial monthly fee. And don’t forget all the other expenses, including utilities, taxes, and insurance. And because this home will either be used as a vacation home or investment property, chances are, to qualify for financing you will need to be able to make at least a 10% down payment.
- Tax implications. If you are using this home as an investment property, then the rent you will receive is taxable income, and you will need to keep good records and track expenses.*
- Location. If you’re using your second home as a vacation home, ensure you can access it regularly. It’s not practical if you only stay there a few weeks a year.
- Maintenance. That new lawn won’t mow itself, gutters tend to fill up, and depending on how old it is, the HVAC unit will need to be replaced at some point.
If your path is clear and you’re financially confident you can purchase a second home, here are a few tips to get started:
- Find a good realtor. If you’re looking out of town, you’ll especially want to ensure that the realtor you use knows the area well, has a good track record and reputation, and has experience in second home purchases.
- Be prepared. Your lender will want to ensure you have the cash reserves available to purchase a second home. Find out what the lender’s requirements are and start gathering all necessary paperwork. Getting preapproved by your lender shows them you’re serious and ready to go when you find the right home.
- Research neighborhoods and tax rates. If you have a little flexibility on where your second home can be located, you may want to investigate the tax rates and overall housing market conditions. You may not want to move into an area that has high property tax rates or where homes are losing property value.
There are many advantages to owning a second home, whether it’s to create additional income with an investment property or to have a vacation retreat when you need to get away. Just make sure you do the necessary due diligence to ensure you don’t put yourself in a financial bind. If you would like to learn more about how to purchase a second home, talk to the experts at NASB. Just give us a call at 855-465-0753.
*This blog is not intended to and does not constitute legal advice or financial / investment / tax advice. North American Savings Bank does not make any guarantee or other promise as to the results obtained. The consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.