If you already own a home and you’re thinking about a another one, here are 4 points to ponder before buying that second home.
Second homes can serve as vacation properties for you and your family. They may also work as investment property that you can rent out until you’re ready to use them.
But whichever idea you have in mind, you want to carefully consider why you’re buying, what you’re buying, and where you’re buying.
1.Where are you buying?
Chances are good you’re well aware of the property values in your own neighborhood. But when you’re far from home, you want to thoroughly investigate what is going on around the area that interests you.
Talking to a real estate agent who knows that area is a good idea. But make sure you also talk to your agent about areas that border your chosen city. Ask about city plans, proposed zoning changes, and planned new construction in the area
Property values have a way of changing over time, so It’s a good idea to find out the direction that local planning boards are headed in. Your future enjoyment of the property, as well as your resale value, may depend upon that information.
2.Why are your buying?
What are your purposes in purchasing. Are you looking at the property as a part-time vacation home and / or retirement home for your future? Will you want to rent it for income generation until you’re ready to use it? Is one of your children going to college in that area?
3. What are your buying?
If “retirement home” is the answer, you may want to purchase in a subdivision of condos or single family homes. The reason for that is because subdivisions usually have home owner associations (HOAs). The HOA tends to help values remain higher because there are rules that each home owner must abide by. (For example: no stacking old tires on the front lawn. Debris in yards must be cleaned up. Homes must be painted in uniform colors.)
However, if you are someone who hates rules and regulations, there are ample opportunities to purchase properties in more rural settings.
Check local restrictions
If you want to rent for income, check to make sure there are no rental restrictions in the bylaws of the neighborhood. Also, check with the local tax authorities to see if you need to register as a landlord and if there are taxes you will owe on a rental in the area.
There’s always room for income
If you have children who will occupy the house during college, you might consider having them to rent out the extra bedrooms in order to create income.
Always check the numbers
Talk with your accountant of tax advisor. Make sure that the house can at least cover its own expenses. If it generates a profit, even better. But you need to decide beforehand what your financial purpose is. Keep in mind the costs of liability insurance, which you will want to carry, along with the costs of general upkeep, hazard insurance, real estate taxes, and mortgage payments.
4. How are your buying?
Should you finance or pay cash. If you’re able to pay cash, you won’t have mortgage expenses. However, if you’re in a position to pay cash you may still want to finance the purchase.
Three reasons to finance:
1. Interest rates are still very low and you may be able to get a 30 year mortgage on the property.
2. If you rent, your cash on cash return based on your original dollars invested will be higher. (Cash on cash return refers to percentage earned, not amount earned).
3. There are tax advantages to using a mortgage. In most cases, you can write off the interest on your mortgage and the property taxes you pay on a second home.
A final thought
In short, before you purchase a property, consider the where, why, what, and how of the purchase. Last, but never least, double check your numbers before you sign on the dotted line.
If you’re considering a second home or investment property of any kind in Florida or North Carolina, please call us at 561-213-6139.
New Harbor Realty