There are so many reasons why someone might decide to purchase a second home: perhaps you’re looking to achieve rental income or you’re searching for a vacation getaway. Maybe you’d like to purchase a fixer-upper for your retirement years, or just to sell. If any of these scenarios are something you’re contemplating then you need to carefully consider all the pros and cons prior to committing to that second mortgage.
Is This Investment Right For You?
Why not talk to the experts prior to making any final decision on purchasing a second home. George Russo and Associates is your experienced and professional real estate law firm, specializing in real estate law. Our legal professionals will ensure that all potential issues are addressed prior to the signing of any documents. So, if you’re in New York City, Brooklyn or Queens and you’re considering purchasing a second home, why not contact us at George Russo and Associates. We offer obligation-free advice, so you’ve got everything to gain from our expertise, and nothing to lose.
Start By Checking the Market
Start researching the home market and see what information you can learn. Are residential homes expensive, or cheap? Are we on a downward slide or upward curve when it comes to home prices? Locate a graph to compare house prices to household income and see if the location you’re considering has a high ratio when compared with other cities.
There will be some cities like San Francisco and New York that will be historically immune to these ratios.
Speak with Agents
Speak with real estate agents regarding the relative price of homes. Perhaps you won’t get a definitive answer but you may get some good leads on specific markets to look for, or even homes that would be a good buy. This is all very valuable information.
Assume You Can’t Rent Your Second Home
Is purchasing a second home still a good investment for you without being able to rent-pad the list of expenses? If the answer is no, perhaps you should be having second thoughts about purchasing that second home. Many people purchase a second home that’s just too expensive, assuming they’ll be able to rent it when they’re not using it themselves. The homeowner is left with a failing investment when renting becomes impossible, unfeasible, or generates less money than anticipated.
Make an Expenses List
Make a list of all the possible expenses of owning a home. Are you able to meet all these expenses, with room to spare? It’s true that you’ll be creating equity in your second home, but if this new homes leaves you cash-strapped every month, you would probably be better off waiting until your first mortgage has been paid off. Here are some expenses you should consider the following.
Property taxes differ from state to state. In Los Angeles the average annual property tax is 1.2% or $1,200 for a $100K home. Check out the real estate taxes in neighbouring towns: you might be able to save a lot of money in taxes just by purchasing a home with less tax burden in a town quite close to your preferred location.
Basic utilities will be lower if the house remains unoccupied for certain periods of the year, but don’t overlook these expenses.
A house is like many other things: it gets old and needs maintenance. Include in your list of expenses factors such as renovations and upkeep services, like landscaping. Regardless of whether you have tenants or you’re absent from the home for part of the year, you must maintain the yard and garden of your second home. If the grass and weeds are not taken care of during the summer months it advertises that your property is unoccupied. An un-plowed driveway and un-shovelled walkways in cold climates are invitations to theft and vandalism.
Your insurance payments may be higher because you have tenants in the home, or because the property is vacant for a portion of the year.
Property Management Costs
The company who handles your property management should be factored into your calculations, particularly if you’ve purchased a second home that’s quite a distance from your primary residence. If your property is tenanted you’ll need to arrange for tradespeople to provide any required emergency repairs, and if you have a vacation home you need to ensure you have someone available to check for leaks in the roof, freezing pipes, and any other damages that might occur during your absence.