What to know before you buy a second home
Maybe you’re looking for a new investment opportunity, and owning a rental property sounds like a good option. Or maybe you’re ready to buy a permanent space in your favorite vacation destination. Either way, buying a second home is a significant financial undertaking. That means it’s important to put in some careful thought before committing. These key points will help you prepare — and avoid buyer’s remorse.
For any second property
- Set your budget. Include not only the cost of the property itself, but also the cost of ongoing maintenance and repairs. For a rental home, you may want to factor in hiring a property manager who can handle regular cleaning needs, assist with security and ensure the place stays rented. Otherwise, factor in the time and money to take on those responsibilities yourself.
- Consider taxes. There are different tax rules for rental properties and vacation homes than for a primary residence. Meet with your tax advisor to understand the implications for your tax picture.
For an investment property
- Assess improvement needs. Beyond basic repairs, you may need to invest in upgrades so that your rental can compete with others in the area. For instance, if other rentals have an outdoor fire pit and patio furniture, or extra sleeping accommodations in the form of a sofa bed, you might need to add those amenities to keep renters coming in.
- Estimate income. Be conservative when calculating how much money you might earn from your rental. You may not want to count on having it fully rented all year. Plus, consider if you could cope with the mortgage if the property gets damaged or you have a bad rental season due to poor weather.
For a personal vacation home
- Evaluate location carefully. Of course, you want to choose an area where you enjoy vacationing. But if you hope to have friends or family join you, consider how accessible it will be for them, as well. Also keep the idea of potential resale value in mind.
- Try before you buy. How do the locals really live? Will you enjoy the area if you’re staying for a month rather than just a weekend? Renting before you buy can help you answer these and other questions.
- Realistically estimate usage. Consider how often you are truly likely to use your vacation home and how long your stays will probably last. Is it really worth the investment to buy your own rather than booking hotel rooms or other temporary accommodations?
For maximum confidence
Buying a property beyond your primary residence is a rewarding opportunity that comes with additional considerations. Make sure you do your homework before making a final commitment. The more confident and informed you are upfront, the more likely you’ll enjoy your property decision for years to come.
If you decide to move forward with a purchase, or just want to further investigate the possibilities, we’d be happy to discuss financing options with you. Contact our Mortgage Concierge Team at (816) 234–2600 or allthingsmortgage@commercebank.com.
