Home buying process was long and not fun? But remember how happy you were after all! Now, it’s time for your second home. When you are already half way on paying off your mortgage, it makes sense to start thinking about investing in rental property. Or maybe it will just be a vacation home? No matter why you buy a second home, you should consider several things to avoid the same mistakes and stress as you did when buying your first home.
(For more information on buying a home, read: Articles For First-time Home Buyers)
Types of property
A basic but still a very important question to ask yourself before buying your second property is – WHY? Why are buying it? What will it serve for? Depending on this, you should consider the right type of property for you. So, are you going to buy a vacation home or a condo? Or maybe you want to invest in a rental unit in you existing home? Or will it be an apartment in your children’s school/college area? Is it a vacation home near a lake, beach or ski slope? Keep in mind that you can use it two weeks a year without compromising the tax advantages. See also our post about buying/owning a timeshare here. If you consider buying a home which you’ll use when retiring, make sure to assess the home’s accessibility and see if there are health care services in that area.
Loan type and structure
Well, getting a mortgage for the second time might not be as easy as you could remember from the first time. Besides, since the market changes constantly, you should do a little research and see if there are better terms for you than your first lender offered. Maybe there is something new you’d like to check. Only after these steps make your decision whether you want to refinance or find a new lender. Remember, that lenders a legal obligation is to tell you that your rights may be forfeited if you use a particular structure for your second mortgage. So, if you are not sure about these issues, make sure to talk to the consumer credit action group to get independent advice. Choosing the right type of mortgage i.e. Types Of Mortgages depends on your goals and financial situation. Check out some of available options and consult with a good mortgage specialist.
Being a Landlord
If you consider your second home to be a rental, you should think and act like a landlord. If it is possible try to rent a home in the area you’re going to buy a home. Get familiar with the neighborhood; see advantages and disadvantages of the area. Some people are not keen to be a landlord at all. Communicate with your landlord and try to understand if you have the time and energy that is required for managing a property and tenants. Do some minor repairs yourself to see if you’re fine with them as well. Do not underestimate additional expenses – insurance and maintenance. Insurance can be pricy for homes in some desirable areas. A good rule for maintenance is to set aside 2% of the home’s value per year to upkeep the property and repair it when needed.
Renting your second home out for extra income is a really good idea. This will help you get cash to supplement your monthly mortgage payment. Just make sure you are ok with being a landlord. As we mentioned above, it will bring more responsibilities. Besides, there might be some laws you are not familiar with. So, learn landlord/tenant laws and familiarize yourself with the Fair Housing Act.
If you are going to rent your second property, you might consider some tax advantages. Bear in mind, that insurance, taxes and other expenses are deductable. If you rent out your home for more than 15 days a year, you can deduct expenses like maintenance and cleaning. In addition, if you sell your rental property and roll the proceeds into other rental properties, you may not pay capital gain taxes. Read more about tax deductions for rental property owners in Investopedia’s article.
Do your homework
Researching your second home should be at least as detailed as if it was when buying your first home where you were going to live. Don’t think your second home is not as important as the first one. Especially, if you’re going to rent it out, you should know all market specifics, local laws, neighborhood, location, schools and more. Remember, that a tenant paying top dollar has higher demanding. So, if you don’t want to response to any problem, large or small, with your home, you’ll have to get a little under market.
Work with a local real estate agent
Buying a second home on your own might take you a long time and much energy. Finding the best vacation home or a rental property outside your area can really be tricky. Here you need a local professional real estate agent who knows the area and local market. He or she will help you get best fit for you.
By: Hermine Aslanyan
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