You will want your second house purchase to be a smart financial move. Yet many second-home owners complain that the house ended up costing more than they’d ever imagined. You’ll want to tally up your likely expenses, factoring in any extra costs based on the fact that you won’t be there every day; such as hiring a property manager. Then you’ll need to build up your cash reserve, and, if you plan on renting out the property, determine how much you can expect from rental income.
The most important thing you can do is decide where you would want to potentially purchase the property. You do not want to choose a house that sits in a bad location. This is because an investor can’t resell or rent it, a vacationer won’t enjoy it, and a future retiree may have to pick up and move again. Do some market research, and figure out your own personal preferences. Look into factors like the strength of the local economy, trends in house resale values, convenience and amenities, property tax rates, the quality of local schools and medical care, and more.
The type of home you buy is similarly important. The costs and demands of owning a single-family home are different from those of owning a condominium, townhouse, or co-op. Which type serves you best will depend on factors such as cost, location, and upkeep.
Realize that you are going to have to pay taxes, which are going to be expensive. Second-home owners need to worry about both property taxes; and, income tax if renting out the place. Though taxes are inevitably a burden, a little advance planning during the house-hunting process can save you thousands of dollars a year.
In terms of financing, most people pay for their home with a combination of a down payment and a loan for the remaining amount. The higher your down payment, the lower the loan, and the more house you can therefore afford. Most buyers will also need to get a home loan to help with the rest of the financing. Be sure to shop around for the most favorable rates.
If you’re planning to rent out the property in the hopes of making a profit, realize that it may not always work out to your advantage. Finding good tenants or trustworthy vacation renters, understanding and preparing leases or short-term agreements, and dealing with ongoing management and repairs are just a few of the practical and legal issues involved.
Protecting your property starts before you buy and continues long afterwards. For example, you’ll want to get a proper home inspection prior to purchasing, so as to deal with some repair issues up front and get a sense of what other repairs may be expected.
Your lender will also require that you carry hazard insurance, to protect your property against damage from such causes as theft, fire, flooding, or windstorms. The cost of insurance for second homes is usually higher than for first homes, since you won’t be there as much. You will probably want to add liability insurance, covering you and members of your household for accidental injuries to your visitors.