Buying a second home is a huge decision that can impact your finances and your life.
If you’re thinking about purchasing a second property, there are several things to be aware of before you take the plunge.
Read on to learn how to buy a second home so that you’re ready for this monumental change.
Partner with a Professional
You probably sought the help of a real estate agent when you bought your first home, and your second property should be no different. You’ll want to find a local realtor who understands your market and knows how to find a great deal.
When you think about how to buy a second home, you don’t want to get a home that’s going to overwhelm you. Ask your real estate agent to find a property that’s newer so you don’t have to stress about maintenance.
A good realtor can give you tips to sell your home if you want to move to a new city. They can also advise you about which markets will give you the best return if you’re purchasing to flip or rent the home.
Think about what your goals are when buying a second home and convey those to your agent. This information will help them discern which properties to look at and which ones to avoid.
How to Buy a Second Home for Profit
Whether it’s a vacation home or a rental, there are lots of ways you can use your second home to bring in revenue. If you’re buying a house on the beach, consider renting it out when you’re not there.
If you’re purchasing a home to rent year-round, think about the area where the home is located. Hot markets will demand higher rent, which can lead to higher profits for you.
For those new to renting a property, make sure you ask a professional property management company for help. They can manage things like upkeep and collecting late rent so you don’t have to stress.
The key to buying a second home for revenue purposes is to buy something at a low price. As long as the home is safe and well-maintained, you should see a decent income stream every month. Vacation homes offer you a “free” place to stay whenever you want to get away which is another perk.
Check Your Budget
If your current home is already paid for, buying a second home is a much easier process. However, if you’re still paying on your first mortgage, a second one might be overwhelming.
Most buyers need to qualify for a second-home mortgage unless they can purchase the property in cash. If you need another mortgage, the new one will include any current mortgage debt you already have on your current home.
Be prepared to make a downpayment of around 10 to 20 percent on your second home and be ready to meet the credit requirements. Second mortgages also tend to have higher rates than primary ones, so make sure you consider that as well.
Talk to a mortgage broker or your current lender to find out if you qualify and to learn what rates are available to you. You can also look into using some of the equity in your current home to help you pay for the second one. Keep in mind that you won’t be able to use that equity for other things if you move it all to the second home.
Sit down and draft a budget to determine if you can handle the burden of holding a second mortgage. If you’re not sure, talk to a financial advisor or lender who can walk you through the process.
Look Into the Tax Implications of a Second Home
If your new second home is not just being used to rent out, you might be able to deduct the mortgage interest in your tax return. The new tax law caps mortgage deductions at $750,000 of your total mortgage debt. Be aware of these new limits when you go to file.
You can also deduct property taxes that you pay on your second home, but those limits are now set at $10,000 per return. If your annual property taxes are higher, you cannot deduct more than the current limits.
The IRS states that different tax rules apply to second homes that are used as an investment property. You could also be affected by state laws depending on where you live.
If you’re not sure where you stand when it comes to the tax benefits of owning a second home, consult a CPA or professional tax service. They can help you determine if the second home will bring you any extra money in terms of a refund.
Don’t buy a second property just based on the tax benefits alone. Your second property should give you additional income or provide you with a vacation place your family loves.
A Tale of Two Houses
If you want to know how to buy a second home, these tips should help guide you as you search for the perfect property. Remember that taking on a second mortgage should be something your budget can handle.
Talk to a local realtor who can help you find the perfect home if you want to make a profit. If you prefer a vacation home, you can still rent it out when you’re not there to earn some extra cash.
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