second home

Second Home Envy?

One of out every three homes sold in the USA in 2016 was a vacation home or investment property showing demand for second homes is again increasing following a turbulent few years. The reasons for buying a second home may be recreational or investment, often with a view to retirement planning.

There is a trove of advice available on the Internet when it comes to being smart with your investment. We have narrowed it down to 5 simple steps we feel are important:

Step 1 – Is this the right time?

You are going to need to take into account the current market conditions (overall for the country and also locally to your area), as well as your personal finances. It is important a second home will never leave you over stretched financially. Always take into consideration a worse case scenario whereby your investment property remains empty for a long period of time. Never rely on trying to sell (or flip) a property in the 6-18 month period.

Step 2 – Know exactly what you want from the second home.

This will involve doing your homework. Are you familiar with the area you are considering? If not rent in the area for a short period of time and assess it. If you are considering a holiday home, proximity and travel will be a big consideration. Spending time in the area will also give you the chance to talk to locals and taking their perspective into account. Get familiar with the local rules of renting in the area is important.

Step 3 – Finance and Negotiate

Generally the deposit required for a second home will be around 20% as opposed to 5-10% for a primary home. Often second home sellers will be more flexible in negotiating than primary home sellers. They may be upgrading their second home or they want just want out do to dis-improved circumstances. It can be a good idea to use a lender local to the area you are considering purchasing as their will have an excellent knowledge of local issues; this can avoid problems down the road.

Step 4 – Tax

Become your own second home tax expert. Tax implications for second homes can vary significantly based on your financial situation and whether or not you plan to rent out the property.  Among the things to be taken into consideration are:

– Property taxes, utilities, and fees

– Will the interest on the mortgage be tax deductible?

– Will my personal property habitability be reduced if I make use of tax deductions?

– What are the capital gains implications associated with the future sale of the              property?

Step 5 – Are there other options?

Research other types of property ownership such as REIT’s, fractional ownership, vacation clubs or time shares. Resale values on fractional ownership properties are usually higher than time-shares because very few timeshares are actually deeded ownership

  • Whether you’re looking for a home to spend your retirement days or an investment
  • property to diversify your portfolio, make sure you do your homework and work with
  • the right experts.

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