Buying a second home is often a lifelong dream for many. Whether it’s a vacation home, a commuter home or an investment property, there are plenty of reasons why expanding your assets could be a great fit for your lifestyle. But before you pull the trigger on purchasing your next dream abode, make sure you know all the costs, both literally and figuratively, that come with it. To help you out, here we break down some important real-life considerations when buying a second home.
How much time will you spend at your second home?
If you do not plan on using your second home as a residential property but rather an investment property, remember that you will become a landlord and with that comes many responsibilities. You might be required to do minor repairs, and you might not find a tenant right away. Be prepared to have three to six months of total costs (mortgage, taxes, and homeowners insurance) to prevent any financial hardship while looking for a tenant for your income property. Location, location, location. Location is one of the biggest considerations when considering a new home. You need to ask yourself “Why do I really want a house here?” and “What would I do with it if I had it?” If you decide to rent out your second home, you’ve got to be sure to research community resale values, economic trends, tax rates, schools, etc. so that it’s a property that others will want to rent out.
Are you buying the right property for you?
When looking to buy a second home, there could be a long list of reasons. You can buy an apartment or a house in an area where you are planning on retiring or a cottage that you can rent for short or long-term should you wish to enjoy the land as well. You need to keep in mind that the type of property/location you invest in, it will also have an effect on your insurance costs. As an example, if you invest in a home in California, you will need earthquake insurance in addition to home insurance. Always look for an insurance company that is in close proximity to your next investment, they will have a better understanding of the area and can give you a more accurate insurance quote.
What about the upkeep and maintenance?
With a second property on hand, it means that you will have to re-adjust your monthly budget to include utilities, landscaping, property tax, maintenance fee (if you’re in an apartment building), occasional home repairs, etc.
How will you pay for this second property?
Getting a second mortgage is the first thing that comes to mind when looking to get second property unless you are financially stable. Financial institutions will always use the same criteria when approving mortgages. Before looking into a second mortgage, you have to ensure that you have a stable income, a good credit score and relatively no outstanding debt that can be used against you. We suggest that you reach out to your financial adviser so that they can put you on the right path and see what’s realistic for you and your goals. Tax rates for properties will increase with time, so allow for your budget to grow accordingly as well.