Depending on what real estate guru(s) you’re taking investment advice from, you’ve probably heard pros and cons to the question “is buying a second home a good investment?” When you get down to the facts of the case, the truth is: it depends.
Is Buying a Second Home a Good Investment?
There are so many factors that play a role in whether buying a second home for an investment is a good idea. What do you plan to use it for (vacation home investment? Rental property?) How will you fund it? Is it in a desirable location? What are the property taxes, maintenance and repairs going to cost compared to the cash flow and growth potential you’ll expect to see? What is the market doing in that neighborhood, and what will it do in the future?
To help untie the knots of complexity surrounding real estate investments, you’ll need to ask yourself some questions to answer “is buying a second home a good investment?”
What’s Your “Why?”
Why do you want a second home? Is it going to be a regular place of escape, or will you use it a few times every year? Can you collect rental income when you’re not using it to offset the cost of maintenance, repairs, property taxes and insurance? Are you planning to buy and flip it for a quick buck? After all, selling within one year of your purchase could mean paying capital gains tax. Being honest with your “why” will help decipher whether buying a second home is the best way to invest your hard-earned time and money.
Can You Afford It?
This seems like an obvious question, but between the Subprime Mortgage Crisis of 2008 and the socio-economic implications caused by COVID-19, it’s a question worth asking.
If you were to lose your job, could you afford two mortgage payments (if you still have a mortgage on your first home)? If not, could you pay cash for an investment property with a cash-out refinance on your first home?
If you answered no, you might have your answer to the question, “is buying a second home a good investment?” If the answer is yes, then an investment property may be a good investment option for you. It’s important to note that mortgage lending requirements are more strict when buying a vacation home, so working with an easy mortgage company like Wyndham Capital Mortgage can help put you on the right track to buying a second home at below-market interest rates.
Location & Future Growth
If you’ve ever played Monopoly, you know how important location is to an investment property’s success. Real-life property investments aren’t much different. Get to know the areas that show the most promise now and in the foreseeable future, and you could strike gold later down the road.
Speak with trustworthy, knowledgeable real estate agents about average purchase prices in your desired areas. Ask about the demand to live/visit, what developments are in the works and their effect on property values.
Maintenance & Repairs
Investment properties are long term investments that come with long term costs. Between regular maintenance and unexpected repairs, investment properties have the potential to drain your resources quickly. Ask yourself, will you be able to perform maintenance and repairs yourself, or will you need to hire a property manager or management company? How much will that cost eat into your budget?
Will There Be Rental Income?
Planning to rent your second home, either long or short term, can help offset the general costs of owning a property. Consider the possibility of low rental incomes stemming from socio-economic hardships (travel bans, job losses) or off-season downtick in visitors. Brush up on rental laws and the tax situations that come along with renting out your second home, so you don’t run into any surprises. If rental income is the only way you can afford the property, that may be a strong indicator that right now isn’t the best time to make such an expensive investment.
If you’re ready to buy a second home or curious about investment properties, Wyndham Capital is here to help. From frequently asked mortgage questions to the latest trends in 10-year treasury and mortgage rates, Wyndham Capital Mortgage has the information and expertise you need to navigate your way to a better financial future. Contact one of our mortgage loan officers today to get started.
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