Dos and don'ts for buying a second home
May 28, 2020 (Investorideas.com Newswire) Buying a second home is a big step, but as it turns out it can easily be the best or the worst decision in your life. There are many factors which contribute to the success of such a choice and we will mention some of those a little bit later. We will also focus on dos and don'ts of buying a second home.
DO find the right reasons for buying a second home
There are three main reasons one would decide to buy a second home:
- For his/her own pleasure - people buy such a property as a second home to get the place where they can relax and enjoy. That is why these houses are usually located in calmer areas than the first homes (which are closer to one's office and other points of interest). Depending on the hobby or a type of activity a buyer hopes to do in his/her second home, it can be close to a lake, a forest or, for instance, on top of the hill. People also decide to buy a second home so that they can make family reunions or parties in there. Some people even buy second homes so that they can call the guys from Verified Movers and arrange their relocation to that place as soon as they retire.
- For renting - A second home can be a great source of income if the proper choice of property is made in the first place. The buyer should assess the home's renting potential before making the purchase. When buying a second home for renting, quite often the location is crucial. The criteria for choosing the property are similar to those you would have when purchasing your first home - the location should be attractive to people working nearby or at least the area should be good for commuting.
- As an investment - buying a second home can be one of the best ideas for investing your money. Again, you should have the location in mind. Try to find out more about how the area is going to develop in the future. Is somebody planning to build an office complex or a mall nearby? What is the infrastructure going to look like in the years to come? Is the city planning on opening a new subway or train station in the vicinity of your second home? Answers to all those questions can lead you to make the right decision about this investment.
DON'T buy a second home you can hardly afford
Rash decisions can cost you a lot in the real estate market. Spending all that you have and putting a mortgage on the home you are living at the moment only so that you can buy a second home is not a prudent thing to do.
You know you'll be paying some extra property taxes and homeowner’s insurance, right? Consult the tax professionals and the insurance company before you sign that purchase agreement.
Do you know that many millionaires do not own a second home? That is due to the fact that this investment is rather risky and many people are not ready to face it.
Make sure that you have the right reasons for the purchase. If you want a nice place where you can relax once or twice a year, you might be wrong to even consider buying a second home. A mountain or a beach property requires more maintenance than you think and before you know it, you can end up in debt up to your eyeballs.
DO buy a second home to serve as your vacation spot if you are positive that you would be using it often enough
Just like we have already mentioned, getting a vacation home only to use it for a few weeks every year simply makes no sense. And, are you even sure that you won't get bored by going to the same place every time?
DON'T buy a second home to rent if you are not cut out to be a landlord
Having a property to rent is not enough to make income by itself. You need to make your rental property attractive to tenants. But, having to deal with tenants is not for everybody. Do you have time for that?
Here are some facts you should know about renting:
- You never know who you are dealing with. Maybe your tenants have the best recommendations, but unless you know them already, you can't be sure about their intentions. Unfortunately, the security deposit might not be enough to cover the damage the irresponsible tenants can make.
- You need to be around. You never know what might happen when your new tenants move in. Keeping an eye on your property is the right thing to do, but are you ready to do it? If you are renting your second home to vacationers, you are responsible for keeping the place clean which is a great responsibility. It is practically impossible to do all that it takes if you do not live nearby.
- You need to have the emergency fund for when things get broken. That's right - you are the one your tenants will be calling when the washer breaks or when a pipe bursts.
DO know the tax implications of buying a second home as an investment
Buying a second home might be your first step to wealth, but it can also be tricky. If you are lucky enough to earn a lot by reselling it, you have to be ready to pay capital gains tax - the one you should pay when you sell your home for more than you paid for it. In order to avoid paying this tax that can be rather high, you will have to live in your second home for at least two years before reselling it.
Get well informed and make sure you are buying a second home for the right reasons. We are sure that, after reading our article, you are at least one step closer to making the right decision.
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