There are many reasons for wanting to buy a second home. Whether it’s for recreation or investment purposes, there are five steps you should keep in mind when making this kind of purchase.
In order to ensure you are making a smart investment, read further for our guide on buying a second home.
Step one: Is it the right time to buy?
There are three things to be considered when planning on buying a second property. First you need to take the market conditions into account. Is the market hot? Most importantly, what is the market like in the area you are shopping in?
You should also take a good look at your personal finances to be sure this is an investment that you will still be able to support in the long run.
Lastly, if you plan on renting out the home while it is not in use, make sure you study the appreciation rates in that area.
Step two: Know what to look for
Once you have the area in mind that you plan on purchasing your second home in, it is time to scout it out. An easy way to do this is to take a trip to that area for a few days. While staying there make sure to talk to the locals and see if they have anything negative to say about the area, and how it’s been developing throughout the years.
It is also a good idea to visit off season as well to get an idea of what it’s like year-round. Make sure there are plenty of restaurants, entertainment, and stores nearby to keep you interested.
The easiest way for you to make sure you are choosing the right home is to work very closely with an experienced agent who knows the area well. They will be able to determine which communities have the best property value. If you plan on renting out the property, you will need to research the HOA and city rules for doing so.
Step three: Explore your financing options
It is in your best interest to put down at least 20 percent when purchasing a second home. And always go with a lender in the area you plan on purchasing in. They will have knowledge of the market in that area, and that expertise will help you in the future.
If the home you are planning to purchase is for investment purposes, carefully pay attention to any differences in the guidelines. Sometimes borrowers pay higher interest for investment properties.
Step four: Plan your taxes
The first set of numbers you should be crunching are property taxes, utilities, HOA fees, and any other associated expenses.
Also keep in mind that rental properties may be subject to tax breaks. The owners can use the property only for two weeks a year to get certain tax benefits on rentals.
It is not a bad idea to have a consult with a tax professional in order to see what options you have for deferring capital gains and other tax itemizations.
Step five: Research alternative ownership
These options include but are not limited to:
- Fractional ownership
- Vacation clubs
- Time shares
- Condo hotels
The re-sale value on fractional ownership homes tend to be higher than time shares. This is because time shares are not typically deeded ownership.
Whether you are purchasing for business or for pleasure, make sure that you carefully research your options and contact the right experts. A second home purchase is just as serious as your first.