Many Americans want a home away from home, but it’s not for everyone.
A second home is a residence you intend to occupy for part of the year in addition to a primary residence you already own. Second homes can be used for vacation, but can also be property visited on a regular basis, like a condo in a city where you conduct business.
It’s important to note the difference between a second home and an investment property. To be considered an investment property, a home must be purchased with the intention of earning a return either through rent, future resale or both.
Thankfully, second homes qualify for a much better mortgage rate than investment properties. But buying can still be risky when not carefully thought out. Here’s a list of five important factors to keep in mind in your search for a second home.
Proximity to Primary Home
According to the National Association of Realtors, 34% of second homes purchased in 2012 were within 100 miles of the buyer’s primary location, while 46% were located more than 500 miles away. Both income and free time should be considered when purchasing property so far away from your primary residence. Do you have the necessary funds to travel back and forth to your second home? Will a home so far away be worth the time you enjoy there? Answering these questions will help you determine just how far away your second home should be.
Location of the Second Home
Is the property located downtown in a major city? A suburban neighborhood? On a lake? In the country? What’s the outlook on the property’s future value? Is it safe to leave the property unattended for months at a time? What about the costs of heating and cooling in different seasons? There are endless setting-related questions to consider, keeping in mind that a second home, unlike a rental home, is still your responsibility even after you leave.
Time Frame for Owning the Second Home
How long do you plan on owning your second home? In 2012, second home buyers planned to own their property for a median of 10 years. Parents with young children may have different objectives than empty nesters and retirees, but choosing the right second home ultimately has to do with how long you plan on having it, too.
Request several recent tax bills, advises a source. In some areas, houses are often re-appraised and taxed at higher rates. An initial price bargain could quickly be negated if property taxes rise year after year. Research the area and its tax code to see how your money is spent. In some cities, schools are substantially funded through property taxes – meaning you can count on yours increasing often.
Mortgage for the Second Home
Is it for you? Nearly half of all second home buyers in 2012 paid cash for their new property. Though interest rates are rising, they’re still near historic lows, making a second home mortgage a reasonable option.
Financially speaking, if you’re serious about buying a second home, be sure you can use it frequently. Otherwise, it could just become a terrible financial burden. Besides paying all of the costs associated with home ownership, you’re passing on potential investment returns, and banking 100% on the maturity of your second home’s property value. It almost always makes more financial sense to invest in stocks, bonds, and other markets – but the enjoyment of spending years at the right second home could be priceless.