Owning an additional house comes with both tremendous benefits and responsibilities. With a second home, you have an opportunity to vacation, enjoy life in another part of the country, and earn passive rental income. These benefits are balanced by tax implications, landlord issues, and more.
If you’re determined to be the owner of an additional house, you’ll be joining millions of others in the country. However, before you take the plunge, be sure you’re ready for all the responsibilities. Here are some important pros and cons to consider before buying a second home from the pros here at McGraw Realtors.
6 Advantages of Having a Second Home
1. A Home Away from Home
If you’re looking forward to weekend getaways to the lake, week-long vacations to the country, or an excuse to buy waterfront property in places like Hot Springs, AR for spa time, a second house can become your home away from home. It will become your place to recuperate, relax, and re-energize in a familiar space that always stays special. For children, it’s the magical place you take them to make family memories. Celebrating holidays and other special days become that much more special at your home away from home, a place that your family and friends can share exclusively.
2. Long-Term Profits
Any investment you make can fluctuate in value, but real estate typically rises over time. Even a vacation home that you never rent out could help you build wealth over a period of years. Unlike other assets, a vacation home is more likely to appreciate because there will always be a limited supply of homes in that particular area. Even though there is no guarantee that the property will be worth more when you’re ready to sell, it is very likely it will, especially if it’s a luxury home.
The ability to choose, at a moment’s notice, between two homes to live in can be extremely convenient. If you redecorate or remodel one home, you can simply live in the other home until the work is done. The same thing goes if a storm damages one home or causes a power outage. If you or your spouse must change jobs, choosing from two locations instead of one is extremely convenient. A second home can also be a handy place to store things you would only use on vacation to begin with.
4. Tax Deductions
If you rent out your second home for two weeks or less per year, its mortgage interest and property taxes can be deducted from your gross income. Some financial experts don’t advise buying a second home if you’re still paying on your first or are unable to pay cash for a vacation home. But every tax situation is unique, and it’s worth talking to your accountant for more specific guidance.
5. Rental Income
Many owners of a second home choose not to rent out their property, but if you decide to do so, you can deduct all operating expenses of the home including repairs, supplies, utilities, cleaning fees, lawn maintenance, management fees, and more. Renting a second home out for more than two weeks a year can bring in hundreds, even thousands of dollars a year, even if you have a mortgage on it.
6. Short-Term Profits Through Flipping
Flipping a house can be a fantastic way to generate money, if you’ve done your homework and you’re ready to put in the sweat equity. If you have the patience and skill to flip a second home, you may end up finding yourself enjoying the house for a little while, then enjoying the profits when you sell it.
5 Cons of Buying a Second Home
1. Serious Financial Concerns
There are a number of important questions anyone looking to buy a second house should ask themselves. Is your current home paid off? Is your credit card debt at a minimum? Are you saving at least 15 percent of your current income for retirement? Do you have an emergency cash fund saved? Have you started a college fund for your kids? If any of these questions raise a red flag, you might not be ready.
2. Upfront Costs
Vacation spots, where people often look to snatch up a second home, typically come with a higher price tag. If you’re looking to immediately rent it out for weeks at a time, the initial cost of furnishing the home is an added expense often overlooked. Consider how to negotiate the best price to balance these issues.
3. Renter Headaches
Rental income is no guarantee. Even with money coming in monthly, trouble can develop. Cleaning services and general maintenance are expenses that can add up. Sadly, tenants potentially can do a lot more damage to someone else’s property than they ever would if it was theirs, and a deposit can fall woefully short of your repair expenses.
4. Maintenance Issues
When you go from owning one home to two, you double your maintenance issues. If a window breaks or a garbage disposal stops working in your second home, you are the one who has to schedule the repair. If any repair concerns pop up at all, it’s not the renters who ultimately have to get it fixed. It’s you.
5. Travel Time
Most of the time, a vacation home will be hours away from your first house. The excitement of enjoying your beautiful second home the first few visits will outweigh the time it takes to get there. Since you’ve spent all the time and money to have a second home, you’re likely to visit many times. After a while, the newness can wear off and the time it takes to get to your second home can become tiresome.
Get Expert Guidance on Finding the Perfect Second Home
Locating the right second home for your needs is simple when you work with the right team. Our McGraw REALTORS have the extensive network and savvy brokering skills to make your real estate investments a delightful experience from start to finish. Let us help you find the right home for you.