Let’s set the scene… you are on vacation this summer in San Diego (or Telluride, Grand Haven, Nantucket, Hilton Head, Coeur d’Alene, Maui… you get the idea) and you are blissfully enjoying your escape from our 100+ degree weather. On day two, over coffee, you decide that this vacation spot is THE place to live. You just can’t go back to the inferno. By 10 am, you have a local real estate magazine in hand and by the afternoon you are surfing the web to find open houses.
Sound familiar? If you find yourself in this position over the coming months, here are a few things to consider before you ink a contract on a second home!
1. How Often Will You Visit?
This may be a bit of a bubble burster, but how often will you realistically get to visit your second home? Will the times that your kids have school breaks mesh with the optimal times to visit? Factoring vacation days and other trips to visit family and explore the world, how much time will be left for your second home?
2. How Accessible is the Property?
Is the second home a three hour drive or less? Or does it take two plane rides and a four-hour rental car trek to get there? This will help you answer question 1.
3. Are You Planning on Renting the Property?
Renting a second home can be a great financial tool. VRBOs are the new dot.coms and everyone is suddenly making money in this segment of the market. However, if you are looking at beach condo to personally use in the summer, your usage may conflict with the potential rental pool would want to rent the property. Would you be willing to give up time at your second home during the prime season? Does the property have multiple seasons and would you want to be there at those times? If you are banking on rental income, will you be able to carry costs when you have off-season vacancies?
4. What Are The Actual Carrying Costs?
If you have been bitten by the vacation house bug, by the time you hit your third open house, you probably have already run numbers through an online mortgage calculator and worked the costs of the second mortgage into your budget. Just be aware that getting a second mortgage is more challenging and typically comes with a higher down payment and interest rate than a loan for a primary residence. Take careful consideration of whether the property needs mechanical upgrades and renovations – expenses that will not be rolled into the mortgage. Also, evaluate other expenses such as HOA fees, property taxes (which may not be deductible under the new tax code), insurance (is there additional flood, wind, fire insurance?), utilities, yard maintenance, cleaning costs and property management fees.
5. Are You Ready to Furnish Another Home?
After a few days of house hunting, you probably made a list of everything you could use from your current home to furnish your new #dreamhome. However, will it make sense to ship everything from Arizona? Will what you have at home even fit into your second home? Will you have the time for a shopping spree? For these reasons, it might be worth trying to negotiate the furnishings into the purchase of the home you are buying!
6. How Many Times Have You Visited?
This is a fair question. Our vacation selves find it exciting and liberating to be spontaneous. But, if you are about to make a major investment, take a step back and plan for another visit. For example, Seattle is paradise in July, but will you still love it in October, December and March when your kids have vacation and you have time to visit? Maybe signing a year rental is a better way to test the waters.
7. Have An Advocate
Make sure you are working with an experienced real estate agent who will help you navigate the negotiations and inspections of your potential home. Since you may not know the area, it is important to have someone with local expertise who can guide you through everything from building restrictions to community issues. Are all the beach houses a great deal because of beach erosion? Are there CC&Rs that will prevent you from renting your property? What are the labor costs in that market for doing an HGTV worthy redo on your great find? Be sure to get the scoop from an expert.
8. Figure It Out and Go For It!
Life is short and getting away is priceless. Perhaps this second property will bring you closer to family or maybe just having that place for a regular escape will inspire you in new ways. Plus, if you are thinking that your second home will be a place to retire in the coming years, it may also be easier to buy this property now before values increase and while you still show income. Lastly, a second home can also be a great source of rental income and a solid long-term investment while having the added benefit of bringing fun to your life!
Want to talk through your ideas for a second property? We are always here to help you with your real estate needs both here in the Valley and beyond. Reach out anytime!