There can be several reasons for wanting to buy a second home; some may want a place to escape on vacation, some are looking for a rental income, and others want to buy a shack to renovate when they retire. If for any reason you are considering buying a second home, you should evaluate all the positives and negatives before committing to another mortgage.
Steps
Method 1 of 3: Part One: Decide if the Purchase is Right for You
Step 1. Look at the sales market
Are houses currently cheap or too expensive? Look for a graph that relates average household incomes to house prices, and check if this index is favorable in the city you are researching compared to other cities.
Ask one or more real estate agents what the relative housing prices are. Even if you won't get a single and definitive answer (it's difficult to determine if the real estate market is cheap or expensive, since the information isn't always transparent), you can get some guidelines to watch out for on the specific market, or maybe find homes. which are the real deal. This information is of great help
Step 2. Suppose you are unable to rent the second home
Is it still a safe investment even without the rent to cover the expenses? If it's not, you should seriously question the purchase. Many families buy a second home that is too expensive, relying on the possibility of renting it when they are not using it. When the rent becomes unfeasible, impossible, or yields much less than expected, the owners suffer the failure of the investment.
Step 3. Make a list of possible expenses
Consider all the possible expenses involved in owning a home. Can you include these expenses in your budget while still leaving a margin for the unexpected? Well, you can capitalize on your second home, but if this investment leaves you completely broke every month, you'd better wait until you've finished paying your previous mortgage, for example. Here is a list of possible expenses to consider:
- Taxes on the property. They vary from state to state and region to region. If the property taxes in the city you are analyzing are extremely high, investigate the rates (property taxes) of neighboring cities. You could save a lot of money by simply buying a home in a city that borders your favorite location and doesn't have a high real estate tax burden.
- Basic utilities. They will be lower if the house is uninhabited for most of the year, but they should not be neglected.
- Maintenance and renovation costs. A home is a living thing - it grows, ages, needs care. Calculate among the costs those of restoration and ordinary maintenance, such as those of gardening. If you have tenants, or if you are away for part of the year, the yard and garden should be taken care of. In summer, the weeds and the overgrown garden indicate an uninhabited property. In the cold and winter months, unsurfaced sidewalks and unmowed driveways are an invitation for vandalism and theft.
- Higher insurance costs. The cost of insurance may be higher due to the property being uninhabited for part of the year, or because there are tenants.
- Property management services. In your calculations, a property management company could represent a high cost, especially if you buy a second home located very far from your usual residence. If you rent the property, you will need to equip yourself to have a person to provide emergency repairs for your tenants. If, on the other hand, it is a home away from home for your holidays, during your absence you will have to make sure that there is someone who checks for you that the pipes do not freeze, that there are no infiltrations from the roof and that the house has no others. damage.
Step 4. Don't rely on the same tax credits you got for your first home
Consult with the Revenue Agency to find out what the tax implications of a second home are. For many people, the tax burden of owning a second home exceeds tax credits, especially if the home is used for longer periods than it is rented.
For example, if you rent your home in the US for less than 14 days, you don't need to report the rent. If you use the home for less than 14 days within a year, the position becomes a business and you can deduct up to $ 25,000 a year
Step 5. Before you start looking for a second home, consult an accountant or tax advisor
They will give you accurate and up-to-date information on deductible items, loans, interest rates, etc. For example, regardless of your credit history, you should probably expect a more expensive mortgage with a higher interest rate - a second home usually costs more.
Method 2 of 3: Part Two: Taking the Correct First Step
Step 1. Initially consider renting the area where you are planning to purchase
Many people make the mistake of buying a house in a place they don't know at all, and only belatedly realize they don't like it. Even if you plan on using your second home as an investment by renting it, it should still be somewhere you could live, even if for a few weeks a year. To make sure you feel comfortable with it, at least for a short time rent in the area.
Step 2. Connect with the locals and settle in
Find out what they like about the area, what they think it is excellent at, how long they have lived there, etc. The locals can give you a detailed idea of what life is like there. Use this information to decide whether buying a property in that area over the long term is a solid investment.
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Become a local yourself (while renting for a short time), so that you can study some factors that can increase the value of your potential home:
- Presence of good schools nearby.
- Presence of reliable and widespread means of transport.
- Possibility of shopping.
- Presence in the vicinity of hospitals, police and firefighters.
- Low crime rate.
Buy a Second Home Step 8 Step 3. Check the average house prices for sale in the area
Average selling prices should give you an idea of how much an average home can cost. You could ask real estate agents for them. Crucial to doing this analysis is to compare the selling prices, not the quotations. Consider this type of analysis only as a rough guide - just because the 4 bedroom, 3 bathroom house next door sells for 575,000 euros doesn't mean it's right for you.
Buy a Second Home Step 9 Step 4. If you are planning to rent, start getting used to the responsibilities of a landlord
If you want to rent out your second home to increase your capital, you need to know what awaits you. Don't expose yourself to legal risks by indulging in laziness and stubborn ignorance - they will backfire. Here are just a few things you should start looking into as a potential landlord:
- Learn how to evict a tenant or how to end a tenancy.
- Study the laws in your state governing bail bonds, and for what purposes they can be invoked (cleaning, unpaid royalties, excessive damage) or not (improvements, wear and tear, refurbishment).
- Learn how to formulate the rental offer and how to choose the tenant. Anti-discrimination laws force you to follow certain rules.
- Know what your duties are in case of routine repairs and maintenance.
- Protected from liability against damage suffered by the tenant. You are responsible for any type of serious accident that involves the lessee and that is attributable to the lessor's responsibility, who is obliged to avoid the damage and to intervene in a timely manner.
- Learn all the rights of the renter, especially those related to privacy. In most states, you must give the tenant at least 24 hours' notice if you intend to do any maintenance or if you want to show the house to other people, except in an emergency.
Buy a Second Home Step 10 Step 5. Hire a real estate agent
A good real estate agent, with at least five years of experience in the place you are looking for a home on, will be your guide for this buying experience. Agents will help you narrow down your search until you've cleared all but the options that best suit your needs. Finally, when you have completed your purchase, a good real estate agent will continue to keep in touch with you even after the sale. This aspect is becoming increasingly important for owners whose residence is far from their second home.
Method 3 of 3: Part Three: Closing the Deal
Buy a Second Home Step 11 Step 1. Get financial coverage before choosing a home
Get a pre-resolution and with the mortgage in your pocket assess what kind of house you can afford. As this will likely be your second mortgage, you should expect to pay a slightly higher interest rate, and you will likely be priced at a smaller amount due to your existing exposure. When you have determined your overall budget, set aside the money for the down payment.
- In order to determine the value of your second mortgage, banks usually try to rely on an installment-to-income ratio (RRR) which should be less than 36%. This means that your total installments, including your first mortgage, should be around a third of your monthly income. For example, a landlord who receives a monthly income of 7000 euros and pays installments totaling 2500 euros each month has a RRR of 35%.
- Get ready to put 20% of the purchase price on the plate right away. This money will have to come from your personal savings or the value of any mortgage on your current home. You may also want to consider obtaining a loan or advance against your life policy or pension fund.
Buy a Second Home Step 12 Step 2. Make an offer
Make an offer for the second home you like. You may need to make several bids, which will eventually be outbid, before you win one.
Buy a Second Home Step 13 Step 3. Get started on securing your new home
It is an investment, so you will have to work hard to protect it. Here are a couple of things you can do to safeguard your latest investment:
- Make a preventive inspection. Before the purchase you will need to know any persistent problems and any damages that the seller may have concealed before the sale.
- Take out insurance.
- Include risks such as earthquake, flood, fire, etc. in your insurance.
Advice
- It wouldn't hurt to get to know local law enforcement and residents in the area where you plan to buy your second home, especially if you don't live there often. If the neighbors know you or at least have met you a few times, they will be more likely to contact you if they notice something abnormal.
- Contact real estate agents operating in the area of your interest. Ask them about rental homes in that area. It is also a good idea to gather information on the local economy, as it can have a major impact on property values.
- If you are considering renting out your second home, read up on becoming a landlord. Before renting your second home, check the national and regional legislation. The rental must comply with all safety laws, including the fire alarm system and fire exits. Aspects like these may seem trivial, but unless you are practical enough, you will have to pay an expert to do the repairs and installations in case your second home does not meet the minimum safety and planning requirements.
