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If you have ever considered buying a second home, it is not a venture for the faint of heart. Lots of considerations should be made before you take the leap, whether your second home is for investment purposes or your personal getaway. Either way, you want to do your homework and make sure you are spending your money wisely before taking the plunge.
Don’t buy on impulse.
There are some fantastic opportunities for investment properties if you are ready to put in the work. There is also a strong appeal when it comes to purchasing in a vacation destination rather than spending money on temporary accommodations. But to buy impulsively before crunching all the numbers and truly looking into the local market is a recipe for disaster. Make sure that you know all the ins and outs of what a second home will mean long term.
Know your long-term goals.
Is your second home somewhere you would like to retire? If so, think about accessibility to everyday conveniences that you will want in your golden years as well as checking out the health care providers in the area. Is it your weekend getaway? Then you probably should stick with a home that can be reached within a day’s drive of your current location. Anything too far and you won’t realistically be able to get full use of it. Or are you planning on renting out the space to tenants for a steady income flow? In this case, you will need to find a property that you feel comfortable managing yourself or in a location with a management team that you can rely on. Otherwise, you might find yourself making long late-night drives to fix a leaky toilet as landlord.
Familiarize yourself with the market.
For those that are looking to buy a vacation property, it’s crucial to know what the area is like as a non-tourist. Visit during the off-season -- is this still a place that you want to be? For investors, market knowledge is key to knowing how your property can be accurately priced and marketed to a potential renter.
While you might have a relationship with an agent in your area, their expertise is geographically limited. It’s best to work with a real estate professional based out of the area you want to buy so you can utilize their market knowledge.
Be realistic about the type of home you need.
Consider how frequently you will visit the property and how much maintenance will be needed. Condos versus single-family homes have very different maintenance requirements but also give a different level of privacy. Prioritize what is most important for you – space and privacy with extra work or low maintenance and lots of amenities but with shared walls.
Budget for all expenses.
The additional mortgage payment, insurance, utility bills, and home repairs can add up quickly so make sure you know what you are getting into before committing. Many vacation destinations are in high-risk areas for flood, fire, or hurricanes so additional insurance and maintenance could be a factor.
Consider renting your home.
Vacation rentals are a lucrative business and the income can help supplement your monthly expenses but be sure you have a good contract in place before giving anyone the keys to your home. Becoming a landlord has its own ups and downs so many people consider hiring an outside management company to deal with regulating the rental agreements and housekeeping between tenants.
Know the tax benefits of rentable income.
Depending on how many days out of the year you are collecting rent on your property, you might not have to pay taxes on that income. However, you can deduct any expenses from that rental so make sure to brush up on the specific tax requirements before filing.