So you have set foot on the property ladder and own your own home. Congratulations. for some, this is enough. Buying a home to live is the goal and now that goal has been achieved. However, for some people, the dream doesn't end there. Owning a second property and/or building your portfolio could be something that you are looking at for many different reasons.
Recent reports put second homeownership up by 30% since 2017, this purchase seems to be more popular for the 30 to 49-year-old age bracket as people are looking for a home to relax in when taking vacation time or simply to just get away from the rat race. If you are thinking of joining those who are already enjoying the benefits of second home ownership there are a few things you need to know before taking the plunge.
Whilst this may be the next stepping stone for potential landlords and letting agencies, for the purpose of this post we will be focussing on personal second homes to be used as a holiday home.
It goes without saying that you need to make sure you are not only top of your current mortgage but also any existing lines of credit need to be cleared or maintained with payments on time to be able to prove you can take on the financial responsibility of owning a second property.
Being on a good footing with your existing mortgage provider will help strengthen your application. But don't forget, any mortgage could be levied against any outstanding debt from current mortgages. Additionally, a second mortgage usually requires and higher deposit; around 10 - 20% so you will need to be able to make this payment to secure your new mortgage. This may be possible by lending against your current mortgage. Rates will also be higher for a second mortgage.
You will need to prove and provide documentation to back this up, that you can afford the new repayments as well as meeting current credit standards and meet debt to income requirements. Something to bear in mind is id you choose to release equity from your existing property, you may not be able to access this in an emergency.
One more thing to consider when it comes to buying a second property is any additional fees and costs. Do you need to pay for any maintenance or upkeep on your home via monthly or yearly contributions? Are there any local taxes for the area if you are buying out of your own state or in a different country altogether?
Make sure to check out tax information on any property you invest in too. as with your first property, you will be entitled to tax deductions. This is capped at $750,000 of total mortgage debt. This doesn't apply for those looking to rent out their holiday to create an additional income stream during the parts of the year it isn't be used personally.
Research Your Property and Your Location.
Do you know where you would like to own your second home? Maybe it is a family favourite destination or somewhere you have always wanted to go. Research is key. Especially when it comes to extra expenses and upkeep. for example, if you are buying a condo or a home in a gated community, what are the associated costs and, are there any rules about using your new home as a holiday rental should this be something you are considering too.
Check out records for local statistics such as crime, tourist information and any properties currently for sale and how frequently this happens. Make sure you know the area well so you have no nasty surprises upon purchase. After all, no one wants to find out they have bought a property in an area that isn't what they imagined it to be!
Get the Right Agent
For those wanting to buy in a prime vacation area to meet the demands of communities and associated amenities available to buyers, companies such as Paradise Island Real Estate can guide you in the right direction to make sure you get the holiday you are dreaming of.
But regardless of where you choose to buy your second home, the simple fact is you need someone in your corner who knows what they are talking about. Finding the right agent for you to help you hunt down your perfect property in a second location is essential. This will enable you to hit the ground running from the off.
A good agent will know the market trends in the area you are looking to buy your holiday home in. They can advise you on how long properties have been on the market for as well as how often they have been up for resale and if you are making a savvy investment for your future.
Ask the right questions when interviewing. How long has the agent been in the area and how well ingrained are they in the local community. The more they know, the better off you will be in the long run to help you decide on the property of your dreams.
Whilst the idea of buying a home to relocate to for your vacation or weekend getaways, make sure you consider the practicalities of taking on a second property. Having got all your ducks in a row where your finances and agent are concerned, make sure you can feasibly add this house to your family dynamics.
Whether you are looking for somewhere to visit for your retirement years, to spend time alone as a couple with friends or to have as a base to enjoy summers and special times with a young family. If you can't figure out the logistics of the day to day upkeep and maintenance, taking on a second property may not be for you.
As with your main home, there will be bills, taxes and security to think whilst you are away. Will you be looking to hire help to keep on top of the cleaning and act as an extra level of security?
Consider things such as how often you will be planning on staying for and how many trips yo be making per year to the property. If you have a young family, are you able to make the trip as a couple or lone parent to get away with the kids?
If your new home needs renovation or interior work done, is this something you have considered and have made plans to have carried out whilst you are away from the property. Different states and countries may work differently than you are used to, so it may be worth your while looking at hiring a project manager or caretaker to ensure all the work is carried out on schedule and of a good standard.
In conclusion; whilst the notion of owning a second home to escape the daily grind may be enticing, it pays to do your homework and calculations prior to testing the waters. The last thing you want is for your dream to turn into a nightmare and become a financial disaster that can impact your and your credit rating for years to come.
So get your finances in order, scout out your ideal location and home work out any logistics around work, family and life commitments and before you know you could be relaxing in your second home before you know it.