Owning a second home is a dream for many and can be a reality for some. It's wonderful to imagine a place to vacation, retire to place you love or perhaps a place to generate income. There are many reasons to want to buy a second home but also considerations to make beforehand. If you already enjoy time away from home in another place you'd love to one day spend more time or possibly retire, owning a second home may be a wise decision.
To help you look at the issues of second home ownership, here are a few highlights to consider:
Prepare for Retirement- Besides creating wonderful vacation opportunities, the second home in a place you love allows you to create community ties before retirement. It will help you decide if this truly is the place you want to spend your golden years. It's a trial run to create friendships get involved in local events and get to know the place first hand. You may decide it's not what you thought and look elsewhere.
Home Away From Home- You're already going on vacation, why not invest in a place of your own? Does your family enjoy taking family trips together to the same area? Purchasing is probably a smart choice. By establishing a place to create family memories and traditions, you are creating lifetime memories for generations to come. Finding an enjoyable area where the family looks forward to coming to, helps to create a family retreat.
Financial Benefits- It's common knowledge that real estate is a sound investment over time. When you purchase property for the long term, the trend is that value increases especially if you buy in a resort area that is likely to retain its popularity. Even if you don't have a huge jump in value over a shorter period of time, a second home has many tax benefits. You also have the option to rent it out when you're not using it to increase the benefit even more. There will be some tax write-off whether it's for personal use or used as an investment property. If you rent out the property for fewer than 15 days during the taxable year, it qualifies as personal property. Rental income is not reportable for income tax purposes.
Things to Consider:
Financing- Some second home buyers pay cash, but there's a good chance you'll need to finance the purchase. In that case, you'll need a larger down payment, often 35 percent, more than a loan form a primary residence. You'll need a higher credit score and more income to qualify. With stricter loan requirements, you'll probably not be able to use anticipated rental income as qualifying income for the loan.
The Unexpected- As with all things in life, things change and circumstances may affect your financial situation. With changing variables in work and family such as job loss and divorce, you may need to change your living situation. It helps to have the reserves to be prepared for the unexpected but oftentimes, we don't have the means to do so. Being flexible and reaching out to friends, family and trusted professionals can help in times of uncertainty.
Maintenance- Second homes require upkeep. You'll need to keep in mind yard maintenance, repairs, and things like periodic painting. If it's located in an area of extreme weather conditions of heat or cold, you'll have to consider the weathering conditions such as frozen pipes or broken air conditioners and peeling paint. Also, prepare for property taxes increasing and condo or homeowners association fees.
Before taking the plunge into becoming a second home owner, really consider your financial situation. Oftentimes, purchasing cash is the best route if possible. Speak with your tax accountant regarding the implications. Some people may really benefit, yet others it is a burden not worth pursuing.