To say the real estate market is “hot” right now would be an understatement. There are good reasons for this; among them are the shortage of housing inventory and the current low-interest rates that many home buyers want to get locked into.
Some people are exploring purchasing a second home; buying a second home warrants a separate set of questions and considerations from when you purchased your first one. There is more at stake, and you need to be sure you know what you’re getting into.
Fortunately, if you can check off all the boxes listed below, buying a second property can be a great asset. Keep reading to find out how you can be confident you’re making the right move.
Different Than Your First Home
Your first home is the home you live in and has a different set of requirements than your second home. When you’re looking for a place to live, you are probably looking for a home that you have an emotional connection to, that’s in a specific neighborhood or school district, and you’re buying a home because it’s a smart financial move for building equity rather than throwing the money away on rent.
Buying a second home property is more complex. First, you need to determine what your goals are. For example, will this home be a vacation home that you will spend time at, or is it an investment property that you will rent out or flip?
If you’re looking for a second home, a vacation home, it may make sense to buy a home that doesn’t need much work or ongoing maintenance if the idea is to go there and have fun unless fun for you is working on your second home.
You’ll also need to buy within your budget, especially if you don’t plan to rent it out or Airbnb it. If Airbnb is something you want to be able to do with your vacation home, make sure that nightly rental is a use that is allowed. But, again, do your research; some areas don’t let it per zoning or the HOA if it’s a condo.
If you want to renovate and “flip” a home as an investment, this is a short-term hold, so you will be looking for distinct properties with the right things wrong with them that you can buy for less than they are worth. Unfortunately, this is nearly impossible in today’s competitive market if a property is listed on the MLS.
To flip homes, you need money, knowledge, skills, connections with contractors, working knowledge of the cost of home improvements, and the ability to identify neighborhoods where there is a wide enough range between homes that need work and homes that are finished nicely.
Keep in mind that the money you’ll need to do a flip includes the down payment, cash for improvements, and the if you have a loan, you’ll need to make payments until it’s sold.
You’ll need the down payment for the loan if you’re not a cash buyer; flipping homes is risky for so many reasons. In addition, these homes can be different from homes you plan to hold for the long haul, and you need to know a lot about how much time and money the improvements will take.
You should consider your experience, skills, and ability to hire and manage contractors and projects. For example, if you have to hire a General Contractor to flip, the cost will be higher, making it hard to make a profit. On the other hand, if you’re heavily involved with the remodel, consider the amount of time and money you’ll spend managing the project and what you could have done with that time and money.
Investing in a rental property is a great way to earn supplemental income, but it involves a lot of time and work. Therefore, you will want to be sure you understand everything involved in this endeavor.
Financial Wherewithal
When you bought your first home, you had many options for how much money you needed as a down payment, anywhere from 3% on up. Once you lived in your home for a while, you had equity based on the increasing value of your home and decreasing mortgage balance.
If you have equity in your current home, you could potentially do a cash-out refinance or HELOC to source the funds for the second property. Before buying a second home, you may not have to come up with 20 percent cash for the deposit. Instead, depending on the lender, you may be able to leverage the equity in your existing home as a down payment.
Consider getting financial advice from an accountant about whether buying a second home is the right move. You need to make sure that you know how it will impact your taxes and have the proper financial structure.
Besides covering the down payment and the second mortgage, be sure that you have the funds to maintain both your properties. Besides taxes, this includes insurance, upkeep, utilities, and emergencies.
How It Will Impact Your Life
Finally, think about what you will be giving up by buying your second home. For example, will you cut back on retirement investment or travel with your family? If, for instance, you are way ahead on retirement planning and feel that you will still have the money to do the things you want to do in your personal life, you can feel more confident.
Also, account for the extra time a second property requires. Be realistic about how much lawn care, cleaning, and general maintenance demands. If you plan to rent the property, know that marketing and responding to tenants can be time-consuming. In short, be sure that the sacrifices you will make for the second home are worth the financial and other benefits the investment will bring.
Buying Your Second Home
Now that you have an idea of what you should consider when buying your second home, you can look for properties that fit your goals and ambitions. If you follow the advice above, you will minimize the risks that your investment is the right move.
SLC Homes is a boutique real estate brokerage firm with decades of experience and unique knowledge of the local real estate market. Reach out to us today to see how we can help you find your second home.
