If you are looking at buying a second home, whether its for an investment property, a getaway, or a place to eventually retire, there are some things you should consider.
Whether or not the second home makes sense financially
You will want your second house purchase to be a smart financial move. Yet many second-home owners complain that the house ended up costing more than they’d ever imagined. You’ll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won’t be there every day; such as hiring a property manager. Then you’ll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income.
Think about where and what type of house you want to purchase
You do not want to choose a house that sits in a bad location. This is because an investor can’t resell or rent it, a vacationer won’t enjoy it, and a future retiree may have to pick up and move again. Do some market research, and figure out your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.
The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep.
Second-home owners need to worry about both property taxes; and, income tax if renting out the place. Though taxes are inevitably a burden, a little advance planning during the house-hunting process can save you thousands of dollars a year. For example, sometimes buying a home just over a town’s border can significantly trim your annual property tax bill. And if you’re renting out a vacation property, the amount of days you yourself spend there can make a difference in how much you’ll owe in income tax.
Most people pay for their home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. Most buyers will also need to get a home loan to help with the rest of the financing. Be sure to shop around for the most favorable rates.
Think hard before you become a landlord
Some second-home owners plan to rent out their properties long-term with the idea of eventually turning a profit (rental properties usually take some years to make money). Others just want to rent out their property periodically as a means to offset expenses. Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved.