Pros and Cons of Buying a Second Home for a Vacation Home or Rental Property

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.

 3. Convenience

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.

12 Things to Know When Choosing to Buy vs. Build a New Home

Whether you’re a first-time home buyer or a luxury home seeker, a vacation home buyer or an investor, one of the most crucial decisions you’ll make is whether to search the market for an existing home or build a new one. 

Both situations have their benefits and drawbacks. But you may be surprised to learn just how advantageous it can be to buy an existing home with McGraw Realtors instead of investing in a new build.

Here are 12 factors to consider when deciding to purchase an existing home versus having one custom-built.

1. Easier to Negotiate Your Ideal Price

When you’re looking to buy an existing home, offering a lower price than listed is expected—allowing you to maximize your budget, even for a luxury home.

There normally isn’t much opportunity to bargain with builders. When it comes to getting a perfect price, purchasing an existing home is your best bet.

2. Much Less Stress

Building a house comes with many decisions. What land do you purchase? What style of home? Should you choose wood flooring, carpet or tile? What about the fixtures, cabinets, and countertops? This can feel overwhelming.

Fortunately, many of the elements you desire most can be found in existing homes. And if some changes need to be made, they may be negotiable with the seller. 

3. Wealth Building

Luxury homes in an already established area tend to rise in value, allowing homeowners to build wealth over time. 

Compare that to new builds, which tend to be erected in areas without any history and no guarantee of growth. Such homes can lose 10% or more of their value at move-in, instantly trapping a homeowner in negative equity. 

4. Calm vs. Chaos

If you’re able to afford a custom build on acres you have to yourself, consider yourself fortunate. Most new builds happen in newly formed neighborhoods, which means you’ll be living in an area where other houses are still being built. 

This means enduring noisy workers, traffic diversions, muddy streets, and other annoyances. Things will eventually calm down, but until then, you’re likely to be living in a construction zone.

This isn’t the case when you purchase an existing home in an established neighborhood, which will likely be much calmer right from the start.

5. No Hidden or Unexpected Costs

When you’re looking for your first home, finding a house with everything you want may take a while, but when you do, you can bid on it. Your walkthrough, along with inspections, typically reveals what you need to know—eliminating unwelcome surprises.

However, the upgrades that can be made as you’re building a house can initially seem small, but they add up to serious expenses. That, plus unexpected setbacks in the construction process, can make the overall cost higher than you initially expected.

6. Shorter Wait Time

If you’re looking to live on waterfront property, it can take months to construct a new house. It is possible that you’ll have to make living arrangements if you sell your house quicker than expected. 

A home that has already been built and is part of a lakeside community can be much quicker to move into, so you can start enjoying the relaxing atmosphere of lake life right away.

7. Convenience vs. Customization

If you’re looking for reasons to invest in a vacation home, one huge reason is convenience. A home that is already built in a community with considerable existing amenities is extremely appealing. 

Building a home means waiting until the house is finished before you can enjoy the community it’s in. If the area is still being developed, amenities may be limited compared to what you find in an established neighborhood. 

8. Low Maintenance

Home buyers often don’t have the luxury of making repairs immediately after moving in, which can make a new build appealing at first. 

Keep in mind—while new homes certainly have new features and fixtures, an existing home can have those things as well. You simply need to make smart buying decisions to find your perfect home.

9. Lower Energy Costs

A home that helps you save on energy usage and costs is always a plus. A newly built house often comes with the latest energy-efficient systems and materials, which leads to lower energy bills. 

But a luxury home that has already been built can also have the state-of-the-art eco-friendly systems also. 

10. Still Provides Newness

Being the first owner of a custom-built house with all the latest gadgets, finishes and fixtures is like nothing else in the world. But being the first owner of a home often comes with a higher price tag.

For first-time home buyers, retirees, landlords and investors, it’s often worthwhile to look for an existing house that has freshly upgraded features—providing newness without the added cost of a new build.

11. Better for the Environment

Buying an older home can have an advantage over building a new house in terms of eco-friendliness—because no new materials are needed. 

Investing in an existing house means you’re helping to protect natural resources, while eliminating the need to dispose of materials used during construction.

12. Recouping Your Investment

With a new home build, you can limit the high-end features you install. This reduces initial costs, but can make it harder to sell the home later on.

Often, you can find an existing home that has everything you desire for a price you can live with. In the long run, this may boost your long-term return on investment.

Find Your Ideal Home and Love Your New Lifestyle   

Whether you’re a first-time buyer, an investor, a retiree, or a family seeking a vacation spot on one of our area’s many lakes—there is a perfect home out there waiting for you. 

At McGraw REALTORS, our broad network and savvy negotiation skills makes the process of locating your new home a streamlined, stress-free experience. Reach out to us and let us know how we can help you get into the home of your dreams. 

8 Signs It’s Time to Sell Your Rental Property

Owning a rental property is a popular way to create passive income. And of course, that means it’s only worth holding onto that property when your investment is paying off. You don’t want to hold onto it too long.

So, how do you discern when it’s the right time to sell your rental property? 

There are many factors to weigh before you make your decision. We’re here to help—which is why we’ve put together this list of signs to look for when you’re thinking about moving on from your real estate rental investment.

What to Consider before Selling Your Rental Property

These 8 signals can be indications that you’re ready to let go of a particular piece of real estate.

1. You No Longer Desire to Be a Landlord

Owning a rental property means you bear all the responsibilities of a landlord—from handling emergency calls and making fast repairs to locating reliable tenants and updating the property every time someone moves out.

This can create a lot of work and stress—sometimes too much. So, if you’re no longer enjoying the process, it may be time to sell.

2. Property Value Has Increased

Like any other form of investment, there can be times when it’s best to cash out and enjoy the profits. When it comes to real estate, a seller’s market is often the ideal time to find a buyer for your rental property.

If the amount of profit you can make from selling outweighs the benefits of collecting monthly rents, or if the neighborhood the property is located in is dramatically increasing in property values (such as Hot Springs, AR), selling may be a good decision.

3. Rents Are Dropping

Local real estate trends are a major reason to consider selling, especially if you’re noticing that rents are decreasing around your property. There are a number of reasons rents may drop—such as an increase of rentals on the market.

If the area where your property is located is seeing a decrease in rents, this will eventually affect your bottom line. Do the math. If the income you’ll make monthly doesn’t meet your needs, it may be worth selling your rental.

4. Too Much Maintenance Is Needed

Any type of real estate requires maintenance. But often, rentals require a higher level of care because they can experience much more traffic and harder use than the home you live in. Tenants may not always treat the property well.

And as the rental ages, there will be even more need for repairs or replacement of high-ticket items such as siding, windows, and roofing. At some point, it may be worth letting high-maintenance properties go in order to buy a different property that requires much less upkeep.

5. You’ve Had a Major Life Event

Managing and leasing real estate can be a time-consuming and costly process. And it’s okay to acknowledge that there are times in life when you may not have the flexibility to handle overseeing your rental. Perhaps that Oklahoma lake house once was a breeze to manage, but life has changed and now it’s a hassle.

It’s worthwhile to reevaluate your capacity to hold onto rental property whenever you experience a significant change in your life: marriage, divorce, birth of a child, job change, a death in the family, and so on.

6. You Prefer to Find Different Ways to Invest

Collecting rent from tenants is one way to bring in additional income, but it’s not the only way. Bonds, stock dividends, CDs, mutual funds and real estate investment trusts (REITs) can all be great ways to earn money, and they are all less work than being a landlord.

It’s also important to diversify your investments to help ride out the ups and downs of economic changes. If your rental is the only investment you have, it may make sense to sell and find several places to invest the profits. Savvy investors understand that there are times to switch investment vehicles, and perhaps this is one such time for you. 

7. Property Taxes Are Too High

Rising property taxes will limit the profit you’re making on a rental property. They’re also an important sign that it may be time to cash out of your particular piece of real estate—as a higher property tax usually comes in conjunction with the increasing popularity of a specific suburban neighborhood.

On top of this issue, you may also see rising utilities fees and other expenses that, along with maintenance, add up to costs that are not balanced by sufficient profit from the rent you’re collecting. When that’s the case, it’s definitely time to consider selling.

8. You’re Dissatisfied with Managing Property from Out of Town

It is not easy to be a landlord; it’s even harder when you’re trying to do so from a distance. You’re likely dealing with a number of challenges, such as finding a trustworthy property manager and responding quickly when a rental goes downhill somehow.

If you are experiencing these challenges, it may be worth selling the long-distance property and reinvesting near your current home instead.

Steps to Take When You’re Ready to Sell

  • Give Notice – Give your tenants adequate notice so they can find a new home and have time to complete their move.
  • Schedule Showings – Coordinate showing of the property by communicating your expectations clearly with tenants, property managers, and your realtor.
  • Plan for Capital Gains – Discuss the tax implications of selling the property, such as capital gains, with your accountant.
  • Find a Great Realtor – Look for a real estate agent who knows the ins and outs of the property’s local market and can guide you through finding the right buyer. 

We Make It Easy to Sell Your Rental Property   

Selling rental properties can be a breeze when you work with the right team. At McGraw REALTORS, we’re dedicated to helping property owners like you get the best price for your real estate. Reach out to us to discover how we can help you sell your home.

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